UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


                                   (Mark One)
     [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                  For the quarterly period ended June 30, 2001.
                                       or

     [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                   For the transition period from ____________
                                to____________.

                        Commission File Number 000-30928

                        PATH 1 NETWORK TECHNOLOGIES INC.
             (Exact name of registrant as specified in its charter)


              DELAWARE                              13-3989885
    (State or other jurisdiction of              (I.R.S. Employer
     incorporation or organization)             Identification No.)



            3636 NOBEL DRIVE, SUITE 275, SAN DIEGO, CALIFORNIA 92122
                                 (858) 450-4220
   (Address, including zip code, and telephone number, including area code, of
                          principal executive offices)

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 ___

The number of shares  outstanding of the issuer's Class A Common Stock,  US$.001
par value, as of July 31, 2001 was 8,221,101.  No shares of the issuer's Class B
Common Stock are outstanding.


<PAGE>


                        PATH 1 NETWORK TECHNOLOGIES INC.
                          Quarterly Report on Form 10-Q
                  For the Quarterly Period Ended June 30, 2001


                                TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION.................................................3
   ITEM 1. FINANCIAL STATEMENTS........................... ....................3
      CONDENSED CONSOLIDATED BALANCE SHEETS....................................3
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS..........................4
      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS..........................5
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....................6
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
     CONDITION AND RESULTS OF OPERATIONS......................................11
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
     MARKET RISK .............................................................29
PART II - OTHER INFORMATION...................................................29
   ITEM 1. LEGAL PROCEEDINGS..................................................29
   ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................29
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................29
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................29
   ITEM 5. OTHER INFORMATION..................................................30
   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................30



<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>

                                PATH 1 NETWORK TECHNOLOGIES INC.
                              CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in US$, thousands except share data)
                                                                   June 30,     December 31,
                                                                     2001             2000
                                                               -----------------------------------
<S>                                                            <C>              <C>
ASSETS                                                           (unaudited)
Current assets:
 Cash and cash equivalents                                          $   3,143        $    7,171
 Restricted cash                                                          200                 -
 Marketable securities, available for sale                              2,274             4,313
 Other current assets                                                     205               177
                                                               -----------------------------------
      Total current assets                                              5,822            11,661

Property and equipment, net                                               667               459
Acquired technology, net                                                  916                 -
Other Assets                                                               50               184
                                                               -----------------------------------
Total Assets                                                        $   7,455        $   12,304
                                                               ===================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable and accrued liabilities                           $   1,280        $    2,175
 Accrued compensation and benefits                                        454               191
 Deferred revenue                                                       1,200               324
                                                               -----------------------------------
      Total current liabilities                                         2,934             2,690

Commitments and contingencies

Stockholders' equity:
 Common stock, $0.001 par value; issuable in series:
      Class A - 20,000,000 shares authorized; 8,221,101                     8                 8
           and 8,183,901 shares issued and outstanding at
           June 30, 2001, and December 31, 2000 respectively
      Class B - 10,000,000 shares authorized; no shares issued              -                 -
           or outstanding at June 30, 2001, and December 31,
           2000
 Notes receivable from stockholders                                         -              (114)
 Additional paid-in capital                                            29,406            32,295
 Deferred compensation                                                 (1,551)           (3,005)
 Accumulated other comprehensive (loss) gain                             (851)              228
 Accumulated deficit                                                  (22,491)          (19,798)
                                                               -----------------------------------
      Total stockholders' equity                                        4,521             9,614
                                                               -----------------------------------
Total liabilities and stockholders' equity                          $   7,455        $   12,304
                                                               ===================================

See accompanying notes to these condensed, consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>
                        PATH 1 NETWORK TECHNOLOGIES INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in US$, thousands, except per share amounts)
                                   (unaudited)

                                                              Three Months Ended            Six Months Ended
                                                                   June 30,                     June 30,
                                                              2001           2000           2001          2000
                                                         ----------------------------------------------------------
<S>                                                      <C>           <C>             <C>           <C>
Revenues:                                                    $   549              -         $  549            -
                                                         ----------------------------------------------------------

Operating expenses:
 Engineering research and development                       $  1,269         $  449        $ 2,446      $ 1,385
 Sales and marketing                                             152            404            366          567
 General and administrative                                    1,091            579          1,989          839
 Stock-based compensation                                     (2,771)         4,785         (1,457)       6,361
                                                         ----------------------------------------------------------
        Total operating expenses                                 259         (6,217)        (3,344)      (9,152)

Interest income, net                                              54             77            151           95
Loss on sale of securities                                         -              -            (49)         (49)
                                                         ----------------------------------------------------------
Net income (loss)                                            $   862        $(6,140)       $(2,693)    $ (9,106)
                                                         ==========================================================

Income (loss) per common share - basic                       $  0.11        $ (0.82)       $ (0.33)     $ (1.33)
                                                         ==========================================================

Income (loss) per common share - diluted                     $  0.09        $ (0.82)       $ (0.33)     $ (1.33)
                                                         ==========================================================

Weighted average common shares outstanding - basic             8,202          7,513          8,204        6,834
                                                         ==========================================================

Weighted average common shares outstanding - diluted           9,923          7,513          8,204        6,834
                                                         ==========================================================


 (*) The following table shows how the Company's stock-based compensation would
     be allocated to the respective department expense line items:
        Research and development                            $ (1,256)      $  2,809         $ (696)     $ 3,351
        Sales and marketing                                     (467)         1,068           (256)       1,582
        General and administrative                            (1,048)           908           (505)       1,428
                                                         ----------------------------------------------------------

                                                            $ (2,771)      $  4,785        $(1,457)     $ 6,361
                                                         ==========================================================

See accompanying notes to these condensed, consolidated financial statements.
</TABLE>



<PAGE>
<TABLE>

                                  PATH 1 NETWORK TECHNOLOGIES INC.
                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (in US$, thousands)
                                             (unaudited)

                                                                          Six Months Ended
                                                                              June 30,
                                                                      2001               2000
                                                               ---------------------------------------
<S>                                                            <C>                    <C>
Cash flows from operating activities:
 Net loss                                                            $  (2,693)       $   (9,106)
 Adjustments to reconcile net loss to net cash
      used in operating activities:
    Depreciation and amortization                                          349                62
    Amortization of deferred compensation                               (1,457)            1,608
    Common stock options issued for services                                 -             3,232
    Loss on investment                                                       -                49
 Changes in assets and liabilities:
    Other current assets                                                   (28)               32
    Restricted cash                                                       (200)
    Other assets                                                           (43)                -
    Accounts payable and accrued liabilities                              (878)              208
    Accrued Compensation and Benefits                                     (197)                -
    Deferred revenue                                                       876                 -
                                                               ---------------------------------------
           Cash provided by (used in) operating activities              (4,271)           (3,915)
Cash flows from investing activities:
 Sale of marketable securities                                           1,665                 -
 Purchase of Metar ADC Assets                                           (1,000)                -
 Purchases of property and equipment                                      (374)             (154)
                                                               ---------------------------------------
           Cash provided by (used in) investing activities                 291              (154)
Cash flows from financing activities:
 Issuance of common stock for options exercised, net                        38                 -
 Cash from extinguishment of shareholder notes                             114
 Issuance of common stock for cash, net                                      -              15,778
                                                               ---------------------------------------
           Cash provided by financing activities                           152              15,778

Increase (decrease) in cash and cash equivalents                        (3,828)             11,709

Cash and cash equivalents, beginning of period                           7,171                 454
                                                               ---------------------------------------
Cash and cash equivalents, end of period                             $   3,343           $  12,163
                                                               =======================================
Supplemental cash flow disclosures:
 Issuance of common stock for marketable securities                  $       -           $   3,096
                                                               =======================================
 Unrealized gain/(loss) in marketable securities                     $  (1,068)          $       -
                                                               =======================================


See accompanying notes to these condensed, consolidated financial statements.
</TABLE>


<PAGE>


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis Of Presentation

The  accompanying  condensed  consolidated  balance sheet at June 30, 2001,  the
condensed,  consolidated  statements of operations  and cash flows for the three
and six month periods ended June 30, 2001,  have been prepared by Path 1 Network
Technologies  Inc.  (the  "Company")  and have not been  audited.  The condensed
consolidated  balance  sheet  at  December  31,  2000 has  been  audited.  These
quarterly  financial  statements,  in the  opinion of  management,  include  all
adjustments,  consisting only of normal and recurring adjustments,  necessary to
state fairly the financial  information  set forth therein,  in accordance  with
generally accepted accounting  principles.  These financial statements should be
read in conjunction with the financial statements and notes thereto for the year
ended  December  31,  2000 and  quarter-ended  March 31,  2001  included  in the
Company's  Form 10-K  filed  March 29,  2001 and Form 10-Q  filed May 14,  2001,
respectively.  The interim financial information contained in this filing is not
necessarily  indicative  of the  results to be  expected  for any other  interim
period or for the full year ending December 31, 2001.

During  the three  months  ended  June 30,  2001 the  Company  emerged  from the
development stage as defined in Statement of Financial Standards ("SFAS") No. 7.

Reclassifications

Certain reclassifications have been made to prior period financial statements to
conform to current year presentation.

Recently Issued Accounting Standards

In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued FASB
Statements Nos. 141 and 142 (FAS 141 and FAS 142),  "Business  Combinations" and
"Goodwill and Other  Intangible  Assets." FAS 141 replaces APB 16 and eliminates
pooling-of-interests  accounting  prospectively.  It also  provides  guidance on
purchase  accounting  related  to  the  recognition  of  intangible  assets  and
accounting  for negative  goodwill.  FAS 142 changes the accounting for goodwill
from an  amortization  method  to an  impairment-only  approach.  Under FAS 142,
goodwill  will be tested  annually and whenever  events or  circumstances  occur
indicating  that goodwill  might be impaired.  FAS 141 and FAS 142 are effective
for all business  combinations  completed  after June 30, 2001. Upon adoption of
FAS 142, amortization of goodwill recorded for business combinations consummated
prior to July 2, 2001 will cease,  and intangible  assets acquired prior to July
1,  2001 that do not meet the  criteria  for  recognition  under FAS 141 will be
reclassified  to  goodwill.  Companies  are required to adopt FAS 142 for fiscal
years  beginning  after December 15, 2001, but early adoption is permitted under
certain circumstances. The adoption of these standards is not expected to have a
material impact on the Company's results of operations and financial position.


Note 2 - Principles Of Consolidation

The  accompanying   condensed  consolidated  financial  statements  include  our
accounts and those of our wholly owned  subsidiary.  The Company has  eliminated
all significant intercompany accounts and transactions.


Note 3 - Management Estimates And Assumptions

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and  assumptions  that affect the reported  amounts of assets and liabilities at
the date of the financial statements and reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.


Note 4 - Revenue Recognition

Revenue from  platform and prototype  (hardware  and software)  product sales is
recorded upon shipment, or when delivery requirements and risk of loss passes to
the  customer,  if later.  Revenue from  services is recorded when earned and no
significant acceptance criteria exists. Revenue on engineering design contracts,
including   technology   development   agreements,   is  recognized   using  the
percentage-of-completion  method,  based on costs incurred to date compared with
total estimated costs, subject to acceptance  criteria.  Billings on uncompleted
contracts  in excess of incurred  cost and accrued  profits  are  classified  as
deferred  revenue.  License fees are recognized when delivery  requirements have
been met and  collection is probable.  Royalty  revenue is recorded as earned in
accordance  with the specific terms of each license  agreement  when  reasonable
estimates of such amounts can be made.


Note 5 - Net Income (Loss) Per Share

Basic and diluted net income or (loss) per share has been computed in accordance
with Statement of Financial  Accounting  Standards (SFAS) No. 128, "Earnings Per
Share," using the weighted-average  number of shares of common stock outstanding
during the period including any dilutive common stock equivalents.  A portion of
the common  stock  equivalents  for the six months  ending June 30, 2001 and the
three months ended June 30, 2001 were excluded from the  calculation  of diluted
earnings per share because of the anti-dilutive effect.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common  shares,  if any,  issued in each of the  periods  presented  for nominal
consideration  would be included in the per share  calculations  as if they were
outstanding for all periods presented. No such shares have been issued.


Note 6 - Reportable Operating Segments

Path 1 Network Technologies Inc. is a network communications  technology company
focused on the  development  of platforms and services to enable the delivery of
high quality video and other real-time data streams over Internet  Protocol (IP)
Ethernet networks. For the purpose of applying Statement of Financial Accounting
Standards  (SFAS)  No.  131  management  determined  that it has  two  operating
segments  based  on the  two  distinct  areas  of  technical  expertise  and the
deployment of the Company's patented core TrueCircuit(R) technology.

The  Video  Systems  business  unit is  engaged  in the  development  of  system
solutions that enable broadcast quality video over IP. Utilizing  TrueCircuit(R)
technology and other developed  network traffic  techniques,  the group has been
able to transport broadcast quality video over an IP network while significantly
reducing  the  amount of  latency  and  jitter  associated  with the high  speed
transmission  of data.  Currently,  the Video  Systems  business unit employs 18
engineers plus support and administrative  personnel and operates primarily from
our San Diego, California USA facility.

The Silicon Systems business unit  ("Sistolic") and formerly known as Metar ADC,
is engaged  in the  development  of 10 Gigabit  MAC and  Ethernet  switches  and
related technology.  By employing network traffic management  techniques and the
patented  TrueCircuit(R)  technology,  the  business  unit is in the  process of
developing a one chip (ASIC)  solution that fosters the high-speed  transmission
of data  over  existing  networks.  Currently,  Silicon  Systems  consists  of 4
engineers in the Company's San Diego,  California  USA facility and 22 engineers
plus support and administrative personnel in the Company's Romanian facility.

Following is a table that reconciles the Company's revenues,  operating expenses
and net identifiable fixed assets between the two reportable  segments as of and
for the period ended June 30, 2001. The  development  of two separate  operating
segments did not occur until the Company completed the acquisition of the assets
of Metar ADC in February 2001. Accordingly, there is no segment disclosure as of
and for the three months ended June 30, 2000.

Revenue, Operating Expenses and                    June 30, 2001
Net loss                                   (in thousands, US dollars)
--------------------------------           --------------------------
                                     Revenue        Expenses         Net loss
Video Systems                           $549          $1,340            ($791)
Silicon Systems                            -             910             (910)
Corporate                                  -             992             (992)
                                     -------------------------------------------
                                        $549          $3,242          ($2,693)
                                     ===========================================

Net Identifiable Fixed Assets:                 June 30, 2001
------------------------------                 -------------
                                         (in thousands, US dollars)
Video Systems                                        $449
Silicon Systems                                       173
Corporate                                              45
                                           ----------------------
                                                     $667
                                           ======================


Note 7 - Assets to be Held For Sale

In  June  2001,  the  Company   determined  that  it  would  explore   strategic
alternatives  for its Silicon  Systems  business unit.  These  alternatives  may
include strategic investment by a third party, formation of a joint venture with
a third  party,  and the sale of all the  assets or a majority  interest  of the
business.  There is no timetable for the strategic  alternatives  the Company is
exploring. The Company did not record a loss based on the strategic alternatives
it is exploring as management  believes that the fair value of the assets are in
excess of their book value.


Note 8- Stock Options

The Company  accounts for  stock-based  compensation  arrangements in accordance
with  the  provisions  of  Accounting   Principles  Board  Opinion  ("APB")  25,
Accounting  for Stock Issued to  Employees,  Statement  of Financial  Accounting
Standards  ("SFAS") No. 28, Accounting for Stock  Appreciation  Rights and Other
Variable  Stock  Option  or  Award  Plans,  and  SFAS No.  38,  Determining  the
Measurement  Date for Stock Option,  Purchase,  and Award Plans involving Junior
Stock. The Company also complies with the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation.

The Company accounts for equity  instruments  issued to non-employees  using the
fair value method in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Issue No. 96-18,  Accounting for Equity  Instruments that are Issued
to Other than Employees for Acquiring,  or in Conjunction with Selling, Goods or
Services.

Equity   instruments   issued  to  non-employees   that  are  fully  vested  and
non-forfeitable  are measured at fair value at the issuance date and expensed in
the period over which the benefit is expected to be received. Equity instruments
issued to  non-employees  which are either  unvested or  forfeitable,  for which
counter-party  performance  is required for the equity  instrument to be earned,
are measured  initially at the fair value and subsequently  adjusted for changes
in fair  value  until  the  earlier  of: 1) the date at which a  commitment  for
performance by the  counter-party to earn the equity instrument is reached or 2)
the date on which the counter-party's performance is complete.

During the six-month  period ended June 30, 2001,  the Company  granted  931,000
stock options to employees and  consultants  with vesting  periods  ranging from
immediate to four (4) years.  The options are for the purchase of 931,000 shares
of Class B common stock at an exercise price of US$4.35 per share. There were no
options to purchase  Class A common stock granted  during the  six-month  period
ended June 30, 2001.

In the  three-month  period  ended  June 30,  2001  the  Company's  stock  price
declined. The required  re-measurement of the value of options issued caused the
Company to reduce the previous expense related to the issuance of stock options.
During  the  six-month  period  ended  June 30,  2001,  the  Company  recorded a
reduction  to  stock-based  compensation  expense of US$1.5  million  related to
options outstanding to employees and consultants.


Note 9 - Subsequent Events

On July 18, 2001 the Company  successfully  completed the acceptance test of the
video gateway  technology  developed under its joint development  agreement with
BarcoNet NV.

In July 2001, the Company also entered into an agreement with Alliant  Partners.
The terms of the  agreement  call for  Alliant  to  provide  financial  advisory
services in  connection  with the possible  disposition  of the Silicon  Systems
business   unit   ("Sistolic").   Such   advisory   services  will  include  the
identification and evaluation of potential  acquirers that are acceptable to the
Company,  contacting prospective acquirers and evaluating the proposed structure
and  consideration  of proposed  transactions,  if any.  Alliant shall receive a
success  fee of five  percent  (5%) of the total  aggregate  consideration  plus
out-of-pocket expenses.

<PAGE>
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


Forward Looking Statements

This document may contain forward-looking statements. These statements relate to
future  events or our  future  financial  performance.  In some  cases,  you can
identify  forward-looking  statements  by  terminology  such as  "may,"  "will,"
"should,"  "expect," "plan,"  "anticipate,"  "believe,"  "estimate,"  "predict,"
"potential"  or  "continue,"  the  negative  of such  terms or other  comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.

Although  we believe  that the  expectations  reflected  in the  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes  responsibility for the accuracy and completeness of the forward-looking
statements.  Except to the extent  required by federal law, we disclaim any duty
to update any of the forward-looking statements after the date of this report to
conform such statements to actual results or to changes in our expectations.

You are also urged to carefully review and consider the various disclosures made
by us which attempt to advise interested parties of the factors which affect our
business, including without limitation the disclosures made in this Item 2 or in
the Company's annual report on Form 10-K and other reports and filings made with
the Securities and Exchange Commission.


Overview

Path 1 Network Technologies Inc. ("the Company",  "Path 1" or "we") is a network
communications  technology company enabling  simultaneous  delivery of broadcast
quality and  interactive  video  transmissions  and other real-time data streams
over Internet Protocol (IP) Ethernet networks.


Our Opportunity:  Enabling Multimedia Service In Broadband & Telecommunications

With the  reduction  in price for  higher  bandwidth  links,  there is a growing
interest in using  terrestrial  wide-area  networks (WANs) to replace  satellite
links for broadcast video and other telecommunication  services and for creating
virtual   private   networks   (VPNs)  to  implement  the  entire   spectrum  of
communications  needs of enterprises.  The  communications  industry is spending
billions  of  dollars  on new  fiber-optic  network  deployments  and  broadband
communication  applications,  which has the  potential to  transform  the entire
landscape of the industry.

Long-haul,  Tier 1  communications  carriers,  such as Williams,  MCI  Worldcom,
Enron, British Telecom, Qwest, Level 3 and others are entering the long-distance
broadband  communications  services market. Even established  telecommunications
companies  such as  BellSouth  and  SBC are  transforming  their  networks  with
broadband digital fiber links to carry a wide range of communications services.

Within cities,  cable service providers are transforming and expanding their own
networks with fiber-optic links and new interactive  digital broadband  services
that have the ability to handle both data and telephone  services as well as new
interactive  video and  video-on-demand  services  to the optic  infrastructure.
Metropolitan-area  network (MAN) providers,  such as XO and Yipes, are deploying
fiber within cities to solve the bandwidth  bottlenecks for the  first/last-mile
for corporate users.

The two primary  terrestrial  solutions  challenging to replace  satellite links
are:  Internet  Protocol (IP) and Asynchronous  Transfer Mode (ATM). In general,
WAN and MAN networks use a communications  technology called Synchronous Optical
NETwork  (SONET) in North America and a similar  technology  called  Synchronous
Digital  Hierarchy  (SDH) outside North America.  To turn these  SONET/SDH links
into a  network,  the  majority  of  communications  carriers  use  ATM.  ATM is
optimized to handle  point-to-point  telephone calls and is based upon a virtual
"circuit-switched"  technology.  However,  ATM does not handle computer  network
traffic as  efficiently  as IP, as ATM  requires  more  bandwidth  overhead  and
frequent  circuit  set-up/tear-down,  which is time consuming.  For this reason,
computer  communications via the Internet and local area networks (LANs) utilize
the IP protocol,  which is designed to transport data  efficiently over a widely
deployed  network.  While IP can and often does  operate over ATM to supply data
and Internet connectivity, this mode of operation requires the deployment of two
layers  of  network   infrastructure,   which  results  in  redundant  hardware,
maintenance, and control overhead. This makes a pure IP solution less costly and
more flexible than a hybrid IP over ATM network solution. A hybrid solution also
defeats the goal of network  convergence  and  interoperability  by  segregating
real-time traffic from computer data.

IP  networks  have  not  been  suitable  for  video  and  other  real-time  data
transmissions  because of inherent  problems  in  guaranteeing  high  quality of
service  (QoS) as IP networks  have  traditionally  transported  data on a "best
efforts" basis.  The contention  caused by IP's collision based  characteristics
results in unacceptable latency and jitter for an end user, who is accustomed to
circuit-switched  QoS  in  video  and  audio  transmissions.  We at  Path  1 are
developing a unique toolkit of technologies  based on our underlying patents and
domain  expertise  to  solve  these  quality  issues  and to  enable  real  time
transmission over IP networks with guaranteed end-to-end quality of service. Our
solution  is  designed  to provide  the best of both worlds - the quality of ATM
with the cost-effectiveness,  data handling capability and widespread deployment
of an IP network to  simultaneously  transmit  video,  voice and other real-time
data streams.

We believe that many telecommunications companies are now developing interest in
or could become  interested  in  converting  to a pure IP over SONET  (IP/SONET)
network due to:

>>   the flexibility advantage of IP networks over ATM and satellite;
>>   the expectation that a direct IP over SONET can reduce overall network
     costs to between 1/3rd to 1/10th of the cost of an ATM or satellite
     network; and,
>>   the ease of deployment of IP due to IP's decentralized control.

We are  establishing  a  unique  niche  in the  video-over-IP  field  through  a
combination of patents,  proprietary technology,  trade secrets,  experience and
know-how.  We filed three  patent  applications  in 1998.  The first  patent was
issued in late  2000 and two  patents  were  issued  in first  half of 2001.  We
believe these patents  position us as a technology  leader in the convergence of
voice,  data and video over IP  networks.  In addition to our  patents,  we have
registered our TrueCircuit(R) technology trademark.


The Video Market

The  video  market  presents   significant   opportunities  for  growth.   Video
transmission is projected to grow at substantial  rates.  Ryan,  Hankin and Kent
(RHK), a  telecommunications  market  research firm,  estimates  growth in video
transmission  from less than 5 terabytes  per month in 2001 to over 40 terabytes
per month in 2005. RHK further  projects that video will  constitute over 65% of
network  bandwidth  usage in 2003 compared to 10% today.  Both studies  indicate
video will grow faster than data or voice. We believe the following  application
trends and communications network trends are shaping the video market.

Application trends include:

>>   video transmission usage is growing at a much faster rate than data or
     voice;
>>   new video applications consume large amounts of bandwidth;
>>   voice over IP (VoIP) is a precursor to Video over IP; and,
>>   interactive video will be a requirement in the future.

Network trends include:

>>   fiber transmission capacity is large and growing;
>>   video service will increase the bandwidth demand on broadband service
     providers;
>>   IP will (if solutions such as ours are acceptable) be the foundation of
     future real time networks; and, >> solutions to enable high bandwidth last
     mile delivery are well underway.


Our Technology

We  are  demonstrating  to  potential   customers  our  capability  to  transmit
transcontinental  and  transatlantic  real-time,  broadcast  quality  video over
existing IP networks.  Our  proprietary  technology and experience  transmitting
video  over IP  networks  is  establishing  us as a  technology  leader  in this
emerging  market.  We are  establishing  relationships  with  telecommunications
carriers and content providers interested in real-time video transport.


Our Market Segments

We are focusing on "one-way" broadcast and Video-on-Demand  (VOD) solutions.  In
the future, we intend to develop  interactive video  application  solutions.  We
believe our market is segmented as follows:

I.   Video Transport - including  broadcast and movie studio LANs, and broadcast
     transmission of program material;

II.  Enterprise - including enhanced  video-conferencing,  distance learning and
     telemedicine; and,

III. Other Multimedia Applications for Businesses and Consumers - including, but
     not limited to interactive television,  entertainment, virtual shopping and
     travel, etc.


I. The Video Transport  Market.  The Video Transport  Market consists of network
owners, operators and service providers involved in both creation and end-to-end
transmission   of  video  content.   The  market  is  comprised  of  the  studio
infrastructure,  the  broadcast  transmission  infrastructure  and the  video on
demand infrastructure segments:

     A. Studio  Infrastructure.  The studio infrastructure  segment of the Video
     Transport Market includes live and stored video content.  Customers need to
     move high quality digital video throughout their production plant. IP is an
     efficient  and cost  effective  means to move  video  streams.  Prospective
     customers include diversified media, television broadcasting, and movie and
     video production companies such as:

     >>  Diversified Media: TimeWarner, Bertelsmann, Fox, LibertyMedia and
         Viacom.
     >>  TV Broadcasting: ABC, CBS, NBC and TBS.
     >>  Movie and Video: DreamWorks, Fox, Sony, Universal, Disney and Warner
         Bros.

     Our channel partner in this market segment is Leitch Technology Corporation
     (Leitch).  We announced the successful completion of technology transfer to
     Leitch on August 9, 2001.  This  transfer was completed as part of Leitch's
     strategic  investment in us in which Leitch  invested US$10 million in cash
     and  200,000  shares of Leitch  common  stock in  return  for an  exclusive
     license to the studio infrastructure segment of the Video Transport Market.
     In order to maintain the exclusivity of its license,  Leitch must pay a fee
     or procure  products  and/or services from us of US$2 million in the twelve
     month period ending March 31, 2002, US$5 million in the twelve month period
     ending March 31,  2003,  US$10  million in the twelve  month period  ending
     March 31, 2004 and US$15  million in the twelve month  period  ending March
     31, 2005. In addition, Leitch will pay royalties, but only after an initial
     five-year royalty free period.

     B.  Broadcast  Transmission  Infrastructure.   The  broadcast  transmission
     infrastructure  segment of the Video Transport Market includes  diversified
     media,  TV  broadcasting,  and  movie  and  broadcasting  studios  that use
     telecommunications  networks  to  bring  content  into  the  studio  and to
     transmit  content  out to  distribution  entities  and end  consumers.  The
     broadcast industry calls this Contribution and Distribution.  Traditionally
     this was done by shipping film,  tapes or CDs,  transmission  by satellite,
     and/or transmission over leased circuits.

     Now, we are developing  solutions  that can replace these  existing  legacy
     methods with  transmission over IP networks.  We are conducting  successful
     trials with Tier 1 Carriers such as Enron  Broadband  Services with respect
     to the broadcast transmission of the Major League Baseball All-Star Game by
     FOX Sportsnet  and others.  While market  statistics  are not available for
     this segment our internal estimates are that the investment required in our
     type of  equipment  could be as high as US$250  million  over the next five
     years if transmission over IP becomes the new standard.

     We believe  that we provide  the key  technology  and will  provide the key
     equipment  that will enable the  management  of video traffic in the IP WAN
     environment.

     C.  Video on Demand  Infrastructure.  The  video on  demand  infrastructure
     segment  of the Video  Transport  Market  consists  of CATV  companies  and
     networks  that  want to  deliver  movies  and  video  programming  to their
     customers in a user controlled  environment commonly called video on demand
     (VOD).   This  objective  can  be  effectively   implemented   using  video
     transmission  over  IP  networks.  We are  uniquely  positioned  to  earn a
     leadership  position in the VOD market. We have expertise in managing video
     streams and experience in MPEG stream management and IP stream  management,
     a rare combination.  At a recent cable trade show, we were the only company
     to demonstrate  MPEG over IP transmission  capability in any way other than
     by ATM. We believe ATM is too expensive for practical VOD deployment.

     Today, "pay-per-view" movies are available only at pre-determined times and
     are limited to the number of available channels on the cable system. VOD is
     not limited in these ways,  and  therefore  can  potentially  provide  CATV
     companies with new revenue.  VOD can be deployed at a cost of a few hundred
     dollars  per  video  channel.  With a fee of US$3 to US$5  per  movie,  and
     considering  each  channel can be routed to many homes,  VOD service can be
     very profitable.

     We believe that our  technology  will allow a cable  company to enhance its
     VOD service and generate  additional  revenue and manage more video streams
     in  less  space.  VOD is a  nascent  market,  but it is  projected  to grow
     substantially.  The VOD equipment  market is estimated at US$1.475  billion
     over the next five years  according  to Cahners and Robinson  Humphrey.  We
     estimate our market opportunity at US$200 million.

     In February 2001, we signed a joint development agreement with BarcoNet NV,
     a Belgian company  specializing in Cable Television  products and services.
     We were chosen to develop a "Video on Demand"  gateway device that provides
     high quality video transmission capability to transmit (3-4 megabit) movies
     to cable set top boxes by breaking  down large  numbers of IP data  streams
     into the  individual  movie  streams  requested  by the  viewer.  The movie
     arrives  at the home when it is  requested  with no  waiting  time for file
     downloads.  In April 2001,  we began  showing  cable  operators  the unique
     capabilities  of the  prototype  gateway  device.  On  July  18,  2001,  we
     successfully  completed the acceptance test of the video gateway technology
     developed under our joint development  agreement with BarcoNet.  BarcoNet's
     initial product deployments are scheduled for later this year. BarcoNet can
     manufacture their gateway devices under license from us, in accordance with
     the agreement signed in February 2001. Under this agreement, we have rights
     to manufacture and sell the gateway as well as receive  royalties of US$500
     per gateway unit on any worldwide gateway unit sales by BarcoNet.


II. The  Enterprise  Market.  The enterprise  market  segment  consists of large
companies, educational institutions and government agencies. These entities have
geographically  distributed  locations and need to interconnect  these locations
with broadband communications  networks.  Typical video applications within this
segment include distance education and training,  remote medical diagnostics and
multi media meetings and conferences.

We are working to build  channel  partnerships  to advance our  position in this
market. We believe large consulting and systems  integration  companies would be
our best channel  partners to address this market.  The enterprise  video market
has a number of  near-term  requirements,  which we believe  can be met with our
technology, solutions and expertise.

>>   Broadcast  quality  video is essential to the growth of video  meetings and
     remote learning applications.

>>   Enterprises prefer video solutions that exploit their investments in legacy
     IP networks.

>>   Video meetings and remote learning applications require high levels of user
     interactivity and content integration.

>>   Enterprise networks are captive and are thus more easily "video enabled".

>>   Enterprises  historically  invest in  solutions  ahead of  consumer  market
     adoption.

In particular,  we believe that the remote  learning market is entering a period
of rapid  growth.  Enterprises  are seeking more  efficient  ways to train their
personnel  while avoiding travel  expenses.  Educational  institutions  also are
seeking ways to improve the effectiveness of the learning experience and to cost
effectively reach out to greater numbers of learners.

Financial services firm, WR Hambrecht, estimates that by 2003 over 60% of larger
corporations will install learning  management  software (LMS). Oracle estimates
it will train 2.5 million  engineers  in 2001 through its  e-learning  services.
This is a significant  increase over the 500,000  engineers trained in classroom
settings during 2000.  Market research firm IDC estimates  corporate  e-learning
will  create a delivery  solutions  market of several  billion  dollars in 2003.
Delivery  solutions  include  network  equipment  and  network  services.  IDC's
estimates do not include the academic sector and did not estimate a size for the
sub markets in which our technology might compete.

There is interest among local school  districts,  community  college systems and
state college and university systems for educational video networks. These video
networks could  typically  involve  transmission of live video from a television
studio  source,  and  of  video  material  stored  in a  television  studio,  to
television set top box receivers  located in individual  schools and classrooms,
over an IP network.

Currently,  educational  institution  VOD and video  conferencing  projects  are
restricted to public cable TV implementations,  and VHS videotape  distribution.
Video  content is  important  to modern  education,  and IP  networks  offer new
capabilities and flexibility in video content access and distribution.

We are currently  working with a very large  consulting and systems  integration
company to assess  video-over-IP  network solutions for corporate e-learning and
educational  institution  applications.  Our example application involves a very
large local school  district that wants to implement VOD and video  distribution
throughout its district.  There are  approximately  200 schools in the district,
and 10,000 classrooms.  The project, if fully implemented,  would require one of
our  video  gateways  at each  school,  and a number of spare  systems.  In full
deployment,  this large school district's total project equipment  purchase from
us could exceed US$3  million.  While it is difficult to estimate the total size
of this  market,  it is worth  noting that the United  States  education  budget
related to new information technology has grown to US$6.5 billion.


III. Other Multimedia  Applications for Businesses and Consumers. We believe our
technology has future applications in other emerging markets that have real time
requirements such as iTV, security,  control, etc. The introduction and adoption
of interactive  television (iTV) could create new  opportunities for us. The iTV
market is projected to eventually  exceed both the  broadcast/VOD and enterprise
video  markets.  Although the timing of this market in uncertain,  few argue the
potential of the market.


Summary

In this quarter,  we generated our first  revenues in the studio  infrastructure
and VOD market segments.  In addition,  we experienced  technological success in
demonstrating our technology as evidenced by recent trials with Enron.

The size of each of our  potential  markets  is large  and the  requirement  for
technology  such as ours is  evident  as  companies  look to  capitalize  on the
telecommunications  infrastructure  put in place over the last few years.  While
there is uncertainty  over the timing and level of investment in our technology,
we are encouraged at our position as a leader in current  technology  trials and
are  optimistic  given the level of  activity  being  expended  on trials of our
technology.

Liquidity And Capital Resources

Since our  inception  on January  31,  1998,  we have  financed  our  operations
primarily  through  the  sale of  common  equity  securities  to  investors  and
strategic  partners.  The funds are  currently  invested  in U.S.  Treasury  and
government agency obligations and  investment-grade  corporate  obligations.  We
also hold common stock in Leitch Technology Corporation and Jyra Research, Inc.,
which they issued directly to us.

At June 30,  2001,  we had net  working  capital of US$2.9  million  compared to
US$9.0 million at December 31, 2000,  including  deferred revenue from BarcoNet,
which is anticipated to be realized in the third and fourth  quarters this year.
The  US$2.9  million of working  capital  is net of US$1.2  million in  deferred
revenue from BarcoNet,  which we expect to realize during 2001 and an accrual of
US$0.9 million for a contingent liability related to the Felber settlement which
is not payable until January 2002.

Cash, cash equivalents and marketable  securities totaled US$5.6 million at June
30,  2001  compared  to US$11.5  million  at  December  31,  2000.  We  incurred
approximately  US$2.2 million in cash expenses during the quarter.  For the next
several years, we expect to incur substantial additional expenditures associated
with research and  development in addition to increased  costs  associated  with
staffing for  management,  sales and  marketing  and  administration  functions.
Additional capital is required to implement our business strategies and fund our
plan for future growth and business development. We anticipate that our existing
resources will enable us to fund operations at least until December 31, 2001 and
we have a plan to extend our resources and lengthen the time to raise additional
capital, if certain events occur.

Operating  activities  used US$4.3  million in cash during the six-month  period
ended June 30, 2001 and US$3.9  million for the same period in 2000.  This small
increase was primarily the result of an increase in personnel expenses.

Cash provided by investing activities during the six-month period ended June 30,
2001  was  approximately  US$291,000  million  compared  to a  use  of  cash  of
approximately  US$154,000  for the  six-month  period ended June 30, 2000.  Cash
provided  by  investing  activities  was  primarily  the  result  of the sale of
marketable  securities,  which  more than  offset  expenditures  related  to the
acquisition  of  Metar  ADC and the  purchase  of  computers  for  research  and
development use.

Financing  activities  provided  US$152,000 in cash during the six-month  period
ended June 30, 2001 and US$15.8 million for the corresponding period in 2000. We
did not raise any additional  outside capital in the six-month period ended June
30,  2001 and thus this  decrease  was a result of no new  issuances  of Class A
common stock other than the exercise of stock options by employees.

At June 30,  2001,  we have no  material  commitments  other than our  operating
leases. Our future capital requirements will depend upon many factors, including
the timing of research and product  development  efforts,  the  expansion of our
general and  administrative  functions and sales and  marketing  efforts and the
need to finance the manufacturing of commercial products that we may develop and
launch.  We expect to continue  to expend  significant  amounts on research  and
development staffing,  infrastructure and computer equipment to support on-going
research and development activities.

As noted  above,  we will need  additional  financing  in early  2002 if certain
events occur. We may pursue a number of alternatives to raise additional  funds,
including   borrowings;   lease   arrangements;   spinout  of  business   units;
collaborative  research and development  arrangements with technology companies;
the licensing of product  rights to third  parties;  or,  additional  public and
private  equity  financings.  There can be no  assurance  that  funds from these
sources will be available on favorable  terms, if at all. If we raise additional
funds through the issuance of equity securities, the percentage ownership of our
stockholders will be reduced, stockholders may experience additional dilution or
such equity securities may provide for rights,  preferences or privileges senior
to those of the holders of our common stock.


Results Of Operations

Three-Months Ended June 30, 2001 vs. Three-Months Ended June 30, 2000

The second  quarter of 2001  marked the first time we  recognized  revenues.  We
recognized  US$549,000 of revenues in the second quarter of 2001.  US$300,000 of
revenue came from the BarcoNet  contract and  US$249,000  came from the delivery
(in the first quarter of 2001) and acceptance (in the second quarter of 2001) of
PG1 video gateway products to Leitch.  We expect initial  recurring  revenues to
come  from  the  broadcast  transmission  infrastructure  segment  of the  video
transport market, where we have established product and technology capabilities,
demonstrated  broadcast quality  transmission and are in trials with established
projects. The systems that we are using in these trials are not ready for volume
production and support.  Significant  commercialization  and  regulatory/product
approval efforts still need to be completed.  We estimate revenues will start in
2002 and grow significantly over time.

Engineering  research  and  development   expenses,   excluding  the  effect  of
stock-based compensation, increased from approximately US$449,000 for the second
quarter  ended June 30,  2000 to  approximately  US$1.3  million  for the second
quarter  ended  June  30,  2001.  The  increase  in  research  and   development
expenditures is a result of an expanded demonstration and trial schedule coupled
with the efforts to complete the BarcoNet engineering  contract. In addition, we
have  retained  as  employees,  engineers  who had  previously  been  engaged as
consultants to the Company.

Sales and marketing expenses,  excluding the effect of stock-based compensation,
decreased  from  US$404,000  for the  second  quarter  ended  June  30,  2000 to
US$152,000  for the  second  quarter  ended  June  30,  2001.  The  decrease  of
approximately  US$252,000 is primarily  due to the  reduction of travel  related
expenses and the timing of promotional activities.  In the period ended June 30,
2000, we focused on obtaining  engineering  contracts and  developing  strategic
relationships.  During  the same  period  for 2001,  our  focus was to  complete
existing  contracts and continue with  established  strategic  partners  thereby
reducing  the need for  additional  travel  and  promotional  activities.  As we
transition  into an  operating  company,  a  significant  increase  in sales and
marketing expense is expected.

General  and  administrative  expenses,  excluding  the  effect  of  stock-based
compensation,  increased  from  US$579,000 for the second quarter ended June 30,
2000 to US$1.1  million for the second quarter ended June 30, 2001. The increase
of  approximately  US$500,000 was primarily due to the addition of  professional
support   functions   such  as  finance,   accounting,   human   resources   and
administrative  personnel  to support the growing  product  development  effort.
Furthermore, to accommodate the additional engineering and administrative staff,
rental  expense  increased  with the expanded  facility  requirements.  And, the
company  began to  incur  amortization  expense  due to the  acquisition  of the
intellectual property of Metar ADC.

Stock-based  compensation  expense is a non-cash expense item that is recognized
as a result of stock options having  exercise prices below estimated fair value.
Stock-based  compensation  expense  is  calculated  as  the  difference  between
exercise  price and  estimated  fair market  value on the date of grant.  If the
options are subject to variable accounting  treatment,  additional  compensation
expense,  positive or negative,  is  recognized  each quarter  based on the fair
market value of our common stock in accordance  with the  provisions of variable
stock option accounting. During the second quarter ended June 30, 2001, the fair
market  value  of  our  common  stock  decreased   resulting  in  a  stock-based
compensation  benefit of US$2.8 million.  Stock-based  compensation  expense may
continue to fluctuate from quarter to quarter,  in material amounts, as the fair
market value of our common stock increases and decreases.

Our interest income  decreased from US$77,000 for the  three-month  period ended
June 30, 2000 to US$54,000 for the three-month  period ended June 30, 2001. This
decrease of US$23,000 was due to a reduction in cash balances in our  investment
accounts.

We posted net income of approximately  US$862,000, or US$0.11 per share, for the
quarter ended June 30, 2001 compared to a net loss of US$6.1 million, or US$0.82
per share,  for the  comparable  period  last year.  We have not yet  achieved a
sustainable  level of revenue  and cash flow.  Net  income for the  quarter  was
achieved  primarily  through the reversal of previously  recorded non-cash stock
compensation  expenses.  For the  three-month  period  ended June 30,  2001,  we
benefited  from a US$2.8  million  reversal in  previously  recognized  expenses
related to stock-based compensation.


Six-Months Ended June 30, 2001 vs. Six-Months Ended June 30, 2000

The second  quarter of 2001  marked the first time we  recognized  revenues.  We
recognized US$549,000 of revenues in the first six months of 2001. US$300,000 of
revenue came from the BarcoNet  contract and  US$249,000  came from the delivery
(in the first quarter of 2001) and acceptance (in the second quarter of 2001) of
PG1 video gateway products to Leitch.  We expect initial  recurring  revenues to
come  from  the  broadcast  transmission  infrastructure  segment  of the  video
transport market, where we have established product and technology capabilities,
demonstrated  broadcast quality  transmission and are in trials with established
projects. The systems that we are using in these trials are not ready for volume
production and support.  Significant  commercialization  and  regulatory/product
approval efforts still need to be completed.  We estimate revenues will start in
2002 and grow significantly over time.

Research  and  development   expenses,   excluding  the  effect  of  stock-based
compensation,  increased  from  approximately  US$1.4  million for the six-month
period ended June 30, 2000 to  approximately  US$2.4  million for the  six-month
period ended June 30, 2001.  The increase can be  attributed  to the purchase of
test equipment and prototype materials as we prepared for testing and trial runs
with our current and  prospective  strategic  partners.  In  addition,  we hired
several  key  engineers   with  specific  skill  sets  to  complement  the  core
engineering group.

Sales and marketing expenses,  excluding the effect of stock-based compensation,
decreased  from  US$567,000  for the  six-month  period  ended June 30,  2000 to
US$366,000  for the  six-month  period  ended June 30,  2001.  The  decrease  of
approximately  US$201,000 is primarily  due to the  reduction of travel  related
expense.  In the  period  ended June 30,  2000,  we were  focused  on  obtaining
engineering  contracts and developing strategic  relationships.  During the same
period for 2001,  our focus was to  complete  contracts  and  continue  with our
strategic  partners  thereby  reducing  the need for  additional  travel.  As we
transition  into an  operating  company,  an increase  in sales and  promotional
activities is expected.

General  and  administrative  expenses,  excluding  the  effect  of  stock-based
compensation,  increased from US$839,000 for the six-month period ended June 30,
2000 to US$2.0  million  for the  six-month  period  ended  June 30,  2001.  The
increase of  approximately  US$1.2  million is  primarily  due to an increase in
costs related to the addition of professional  support  functions,  the expanded
facility  requirements  and  amortization  expense due to the acquisition of the
intellectual  property of Metar ADC.  In  addition,  the  Company  has  incurred
expenses  related to the  enhancement  of its Board of Directors  and  severance
payments for a former President and Chief Executive Officer.

Stock-based  compensation  expense  is a  non-cash  item that is  recognized  in
association  with stock options  having  exercise  prices below  estimated  fair
value.  Stock-based compensation expense is calculated as the difference between
exercise price and estimated fair market value on the date of grant,  and if the
options  are  subject  to  variable  accounting  treatment,  then  each  quarter
additional  compensation  expense,  positive or negative, is recognized based on
the fair market value of our common stock in accordance  with the  provisions of
variable stock option  accounting.  For the six-month period ended June 30, 2001
the fair market  value of our common  stock  decreased,  resulting in a non-cash
stock-based  compensation  benefit of US$1.5 million.  Stock-based  compensation
expense may continue to fluctuate from quarter to quarter,  in material amounts,
as the fair market value of our common stock increases and decreases.

Our interest income increased from US$95,000 for the six-month period ended June
30, 2000 to  US$151,000  for the  six-month  period  ended June 30,  2001.  This
increase of US$56,000  was due to  significantly  higher  average cash  balances
during the period ended June 30, 2001,  which  included  proceeds from a private
placement  with  Leitch  completed  in April of 2000.  Cash  from  this  private
placement enabled us to increase our spending in various expense categories.

For the  six-month  period ended June 30, 2001, we reported a net loss of US$2.7
million,  or US$0.33 per share, a decrease from the US$9.1  million,  or US$1.33
per  share  net loss  reported  for the same  period  last  year.  Stock  option
compensation  expense for the  six-month  period  ended June 30, 2001 was US$1.5
million.  Our net loss in the first six months of 2001 was fairly evenly divided
among our Video Systems  business unit, our Silicon  Systems  business unit, and
our undifferentiated activities.

<PAGE>
Risk Factors That May Affect Future Results

YOU  SHOULD  CAREFULLY  CONSIDER  THE  FOLLOWING  RISK  FACTORS  AND  THE  OTHER
INFORMATION INCLUDED HEREIN AS WELL AS THE INFORMATION INCLUDED IN OUR FORM 10-K
FILED ON MARCH 29, 2001,  OUR FORM 10-Q FILED ON MAY 14, 2001 AND OTHER  REPORTS
AND FILINGS MADE WITH THE SECURITIES AND EXCHANGE  COMMISSION.  OUR BUSINESS AND
RESULTS OF OPERATIONS  COULD BE SERIOUSLY  HARMED BY ANY OF THE FOLLOWING RISKS.
THE TRADING  PRICE OF OUR COMMON  STOCK COULD  DECLINE DUE TO ANY OF THESE RISKS
AND STOCKHOLDERS MAY LOSE PART OR ALL OF THEIR INVESTMENT.

There Is Only A  Limited  Public  Market  For Our  Common  Stock And There Is No
Assurance That An Active Trading Market For Our Common Stock Will Ever Exist.

As of June 30,  2001,  there were  8,221,101  shares of our Class A Common Stock
outstanding.  To date,  there  has been  only a limited  public  market  for our
securities  and there can be no  assurance  that a broad  public  market for our
securities will arise.  Our Class A Common Stock is presently quoted for trading
on the OTC Bulletin Board, a quotation  service that displays  real-time  quotes
and other information about over-the-counter (OTC) equity securities, and on the
Third Segment of the Frankfurt Stock  Exchange.  We may be unable to attract and
maintain  good-quality market makers. In the event a liquid market for our Class
A Common Stock does develop,  there can be no assurance  that the market will be
strong enough to absorb all of the Class A Common Stock  currently  owned by our
stockholders.  Now that our Class A Common Stock has been  registered  under the
Securities Exchange Act of 1934, shares classified as "restricted securities" or
"control securities" are now eligible for resale on the public market under Rule
144.  This has the  potential  to create a  supply/demand  imbalance  that could
adversely affect our stock price. In addition, subsequent issuances of equity or
equity-linked  securities may further saturate the market for our Class A Common
Stock.  The resale of substantial  amounts of our Class A Common Stock will have
an adverse affect on the market price of our stock.

We have not yet  obtained a listing on the Nasdaq  SmallCap  Market.  We believe
that we meet all the NASD  requirements  for a Nasdaq  SmallCap  Market listing,
except we do not have  three  (3)  independent  directors  to serve on the Audit
Committee  of the Board.  We are  continuing  to search for a third  independent
director to serve on the Board of Directors and on the Audit Committee.  When an
independent  director is appointed,  we will re-instate our application with the
NASD.

The  Market  Price Of Our Class A Common  Stock  May  Fluctuate,  In Which  Case
Stockholders May Lose All Or Part Of Their Investment.

The  market  price for our Class A Common  Stock is  susceptible  to a number of
internal and external factors including:

-    quarterly variations in operating results;

-    stock price changes in the previous quarter resulting in large increases or
     decreases  in  reported  stock-based  compensation  expenses,  causing  our
     overall net income/loss to be highly volatile and unpredictable;

-    announcements of technological innovations;

-    the  introduction of new products or changes in product pricing policies by
     us or our competitors;

-    proprietary rights disputes or litigation; and

-    changes in earnings estimates by analysts or other factors.

In addition,  stock prices for many technology  companies  fluctuate  widely for
reasons that may be unrelated to operating results. These fluctuations,  as well
as general  economic,  market and  political  conditions  such as interest  rate
increases, recessions or military conflicts, may materially and adversely affect
the market price of our Class A Common Stock.

The Rate of Market Adoption of Our Technology is Uncertain.

As with all new  technologies,  one of the  greatest  unknowns is the timing and
rate of market  adoption.  For each market success,  there are stories of market
failures. We are providing a new and potentially disruptive technology to enable
new applications.  It is difficult, and perhaps impossible, to predict timing of
and rate of market  acceptance  of our  proposed  products  as well as these new
video applications, which would then translate into revenue for us. In addition,
our sales cycle is long and complicated in all market segments.  The sales cycle
can range in length  from six to  eighteen  months  or more,  with a  forecasted
average of a year from technology  demonstration to revenue shipment of product.
We are in customer trials in the broadcast  transmission  infrastructure  market
segment and we completed technology  demonstrations in the VOD market segment of
the Video Transfer Market and in the education segment of the Enterprise Market.

We Have Not Yet Launched Any Commercial Products.

We are at the stage of developing platforms and prototypes,  which highlight the
viability of our technology;  however, our platforms,  services and products are
either at the conceptual stage,  i.e., ideas for products,  or have been reduced
to beta units or  prototypes  that are being  tested,  modified  and compared to
other  technologies  (e.g.,  ATM terrestrial  lines and satellite  signals).  We
believe that there is interest in and a demand for our  platforms  and services;
however,  as of June 30, 2001,  we did not yet have any  products in  commercial
production.  Accordingly, we are subject to all of the risks associated with new
business  ventures.  Our  product  development  and  commercialization   process
incorporates the necessary steps to assure conformance to industry standards and
protocols.   This  conformance  must  include  certifications  from  Underwriter
Laboratories and other organization certifications for some of our platforms and
products.  We must  continue our efforts to design these  platforms and products
and arrange for each product to be manufactured,  tested and de-bugged before we
can consider them ready for commercial  sale. There is no assurance that each of
these milestones can be achieved or that, if they are achieved,  we will be able
to effectively market our products and achieve profitable operations.

We  Need Additional  Working Capital To Expand Our Business Opportunities.

Additional capital is required to implement our business strategies and fund our
plan for future growth and business development. We anticipate that our existing
resources will enable us to fund operations at least until December 31, 2001 and
we have a plan to extend our resources and lengthen the time to raise additional
capital,  if certain  events occur.  The  additional  financing  will be used to
develop new or enhanced  services or  products,  to address the growing  need to
provide  demonstrations of our technology to potential  customers and to finance
the  commercialization  of the products we develop. If we raise additional funds
through  the  issuance of equity or  equity-linked  securities,  the  percentage
ownership of our stockholders  would be reduced.  In addition,  these securities
may  have  rights,  preferences  or  privileges  senior  to  the  rights  of the
securities held by our current stockholders. We cannot guarantee that additional
financing  will be  available  on terms  favorable to us, if at all. If adequate
funds are not available or are not available on acceptable terms, our ability to
continue our operations,  take advantage of potential opportunities,  develop or
enhance  products  or  otherwise  respond  to  competitive  pressures  would  be
significantly limited.

We Licensed Our Technology to Leitch Technology Corporation.

We granted  Leitch an exclusive  license,  even as to us, to our  TrueCircuit(R)
technology for the conversion of Professional  Material from video, audio and/or
associated data to packet data and the conversion of Professional  Material from
packet data to video,  audio and/or  associated  data pursuant to the Technology
License  Agreement  between us and Leitch dated April 10, 2000. We are precluded
from selling our products directly into certain Exclusive Market areas,  without
Leitch's consent, until the exclusive license expires; therefore, we are relying
on Leitch to sell  into this  market or allow us to work with them to  penetrate
this market. We are focusing our marketing efforts on the enterprise market, the
Video on Demand market and the broader  broadcast  video transport  market.  The
exclusive  license will last for one year and,  thereafter,  will  automatically
renew for  consecutive  additional  one-year  periods,  provided  we receive the
minimum  aggregate monies and other  consideration for that year as set forth in
the Technology License Agreement.  The total fees to be paid to us by Leitch, to
maintain their exclusive  license,  escalate over the period and for a five-year
exclusive period would be US$32 million.  The Exclusive Year periods began April
2001:

--------------------------------------- -----------------------------------
            Exclusive Year                         Annual Fees
--------------------------------------- -----------------------------------
First                                                                 US$0
--------------------------------------- -----------------------------------
Second                                                        US$2,000,000
--------------------------------------- -----------------------------------
Third                                                         US$5,000,000
--------------------------------------- -----------------------------------
Fourth                                                       US$10,000,000
--------------------------------------- -----------------------------------
Fifth                                                        US$15,000,000
--------------------------------------- -----------------------------------

Our ability to profit from the  professional  broadcast video market will depend
heavily upon the motivation and success of Leitch in developing,  manufacturing,
launching and marketing TrueCircuit(R)  technology-based products in this field.
The more  successful  their  efforts,  the more  royalties  we shall  ultimately
receive (such  royalties  shall not commence until  termination of the five-year
royalty-free  period in favor of  Leitch),  and the more  receptive  that market
would  be to our  own  products.  If  Leitch's  TrueCircuit(R)  technology-based
products  experience  difficulties  upon their  introduction to the professional
broadcast   video   market,   we  may   encounter   difficulties   in  marketing
TrueCircuit(R) technology-based products in that market or in our other markets.

We May Be Unable To Obtain Full Patent  Protection  For Our Core  Technology And
There Is A Risk Of Infringement

We have and continue to patent our core technology.  On October 31, 2000, the U.
S.  Patent  and  Trademark  Office  (USPTO)  issued  us a U.S.  patent  for  our
TrueCircuit(R)  technology  multi-layer  network switch.  On April 10, 2001, the
USPTO issued us a U.S.  patent  called  "Methods  and  apparatus  for  providing
quality  of  service   guarantees  in  computer   networks"  covering  Path  1's
TrueCircuit(R)  technology  that  allows  video,  voice and other  time-critical
traffic to share  conventional  IP (Internet  Protocol)  computer  networks with
normal data  traffic.  And on June 12,  2001,  the USPTO  issued us a third U.S.
patent that was a continuation  of the second.  The inventions  covered by these
three patents are key components in Path 1's technology tool chest, enabling the
transport of video over IP with guaranteed  end-to-end QoS (Quality of Service).
All  three  of Path  1's  patents  relate  to the use of  conventional  computer
networks  and  portions  of the  Internet  as the  backbone  for  all  types  of
communications,  providing  the  capability  to  significantly  lower cost while
supporting  new  converged  network  applications.  However,  there  can  be  no
assurance  that other  patents  will be issued to us, or, if patents are issued,
that they will be broad enough to prevent significant  competition or that third
parties  will not  infringe  upon or design  around  such  patents  to develop a
competing product.

In addition to seeking  patent  protection  for our products,  we intend to rely
upon a combination of trade secret, copyright and trademark laws and contractual
provisions to protect our  proprietary  rights in our products.  There can be no
assurance that these  protections  will be adequate or that competitors will not
independently develop technologies that are substantially equivalent or superior
to ours.

There has been a trend toward litigation regarding patent and other intellectual
property rights in the telecommunications industry. Although there are currently
no lawsuits pending against us regarding possible infringement claims, there can
be no  assurance  such  claims  will not be  asserted in the future or that such
assertions  will  not  materially  adversely  affect  our  business,   financial
conditions  and  results of  operations.  Any such  suit,  whether or not it has
merit,  would be costly to us in terms of employee  time and  defense  costs and
could materially adversely affect us.

If an infringement or  misappropriation  claim is successfully  asserted against
us, we may need to obtain a license  from the  claimant to use the  intellectual
property rights. There can be no assurance that such a license will be available
on reasonable terms if at all.

We Face Competition From Larger Companies With Greater Resources.

Although  we  believe  that  we are  the  only  company  that  has  successfully
demonstrated  broadcast  quality  video  transport  over  an IP  network,  it is
possible that  competition does exist.  Furthermore,  our strategy is to seek to
enter  markets where our  intellectual  property  provides a strong  competitive
advantage.  We may face  indirect and direct  competition  in these markets from
firms with greater resources. Due to the tremendous interest in video transport,
we anticipate that the competitive pressures will increase  significantly in the
future.  A number of major network  equipment  providers have announced  network
convergence  strategies and other competitors are developing alternative network
approaches,  which,  if successful,  could  materially and adversely  affect us.
There can be no assurance that we will be able to compete  successfully  against
current, if any, and future competitors.

We May Not Be Able To Profit From Growth If We Are Unable To Effectively  Manage
The Growth

We anticipate  (but do not  guarantee)  that we will grow rapidly in the future.
This  growth  will  place  strain on our  managerial,  financial  and  personnel
resources.  The pace of our anticipated expansion,  together with the complexity
of the technology  involved in our proposed products,  demands an unusual amount
of focus on the  operational  needs of our  future  customers  for  quality  and
reliability,  as well as timely delivery and post-installation field support. In
addition,   relationships  with  new  customers  generally  require  significant
engineering  support.  Therefore,  adoption  of our  platforms  and  products by
customers would increase the strain on our resources,  especially our engineers.
To reach our  goals,  we will need to hire  rapidly,  while,  at the same  time,
investing in our infrastructure.  We expect that we will also have to expand our
facilities. In addition, we will need to:

      -  successfully train, motivate and manage new employees;

      -  expand our sales and support organization;

      -  integrate new management and employees into our overall operations; and

      -  establish improved financial and accounting systems.

We may not succeed in anticipating all of the changing demands that growth would
impose on our  systems,  procedures  and  structure.  If we fail to  effectively
manage our expansion, our business may suffer.

We May Not Be Able To Hire Key Employees.

Our future  success will depend,  in part,  on our ability to attract and retain
highly skilled employees,  including management,  technical and sales personnel.
Significant  competition  exists  for  employees  in  our  industry  and  in our
geographic  region.  We may be unable to identify and attract  highly  qualified
employees in the future.

We Need To Identify And Hire A Regular  Full-Time  President and Chief Executive
Officer.

Peter P. Savage replaced Michael T. Elliott as our President and Chief Executive
Officer on April 4, 2001.  Mr. Savage is working for us part-time and only on an
interim basis. On July 13, 2001, we retained Heidrick & Struggles  International
to advise the corporation on the appointment of a new chief executive officer to
replace Mr. Savage.  Until a regular  full-time CEO is in place, the uncertainty
of the succession could discourage potential partners and customers from dealing
with us.

We Are Dependent On Our Key Employees For Our Future Success.

Our  success  depends on the  efforts and  abilities  of our senior  management,
specifically Peter P. Savage, Ronald D. Fellman,  Douglas A. Palmer,  Richard B.
Slansky, William McKnight,  Michael Florea and other senior managers and certain
other key  personnel.  We currently  have key man life insurance on only Michael
Florea.  If any of these key employees leaves or is seriously injured and unable
to work and we are unable to find a  qualified  replacement,  then our  business
could be harmed.

Our  Executive  Officers,  Directors  And  5%  Stockholders  Currently  Maintain
Substantial Voting Control Over Us.

At June 30, 2001, our executive officers,  directors and 5% stockholders own, in
the aggregate,  approximately  57% of our outstanding Class A Common Stock. As a
result,  these  stockholders (or subgroups of them) retain  substantial  control
over matters  requiring  approval by our  stockholders,  such as the election of
directors and approval of significant corporate transactions.

We Offer Stock Options To Our  Employees,  Which Could Result In Dilution To All
Stockholders.

In order to provide incentives to employees and induce prospective employees and
consultants  to work for us, we have offered and issued  options to purchase our
Class A Common Stock and Class B Common Stock.  As of June 30, 2001,  there were
options  outstanding to purchase 703,936 shares of our Class A Common Stock, and
there were  options  outstanding  to  purchase  3,104,829  shares of our Class B
Common Stock.  We will continue to issue options to purchase  sizable numbers of
shares of stock to new and existing employees,  directors, advisors, consultants
or other individuals as we deem appropriate and in our best interests. The grant
and subsequent exercise of such options could result in substantial  dilution to
all  stockholders.  As of June 30, 2000,  10,000  shares of Class A Common Stock
under our 2000 Stock  Option/Stock  Issuance Plan and 384,171  shares of Class B
Common Stock under our 1999 Stock  Option/Stock  Issuance Plan remain authorized
but not yet subject to options.

<PAGE>
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are  exposed to changes  in  interest  rates  primarily  from our  marketable
securities and investments in certain available-for-sale securities. We are also
exposed to  fluctuations in the stock market as the Leitch and Jyra common stock
we hold are in volatile markets. Leitch, in which we hold a material position to
us, is based in Canada and is traded on Toronto Stock Exchange, which may expose
us to foreign currency  fluctuations.  Under our current policies, we do not use
interest  rate  derivative  instruments  to manage  exposure  to  interest  rate
changes, nor do we hedge against foreign currency  fluctuations.  A hypothetical
100 basis point  adverse move in interest  rates along the entire  interest rate
yield curve would not materially affect the fair value of our interest sensitive
financial  instruments  at June 30, 2001,  because the  instruments we hold have
relatively short-term maturity dates.


PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

Not applicable.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 1, 2001 the Annual  meeting of  stockholders  was held at the  Company's
headquarters  in  San  Diego,  California  USA.  The  following  directors  were
re-elected  to serve on the Board of  Directors  until their term expires at the
next annual meeting of stockholders in 2002:  Ronald D. Fellman  (4,124,228 for;
203,825   abstain/withheld),    James   A.   Bixby   (4,124,228   for;   203,825
abstain/withheld),  John A. MacDonald (4,124,228 for; 203,825 abstain/withheld),
Peter P. Savage  (4,124,228  for;  203,825  abstain/withheld),  John J.  Splavec
(4,124,228 for;  203,825  abstain/withheld)  and Reginald J. Tiessen  (4,124,228
for;  203,825  abstain/withheld).  In addition,  the  stockholders  approved the
following proposal:

1.  Ratification  of the  selection  of  Ernst  &  Young,  LLP as the  Company's
independent  auditors for the fiscal year ending  December 31, 2001.  There were
4,124,228 votes for and 203,825 votes against.


ITEM 5.  OTHER INFORMATION

On April 4,  2001,  Michael T.  Elliott,  Ph.D.  resigned  as  President,  Chief
Executive  Officer and a Director of the Company.  Mr. Peter P. Savage,  who was
serving on our Board,  replaced  Dr.  Elliott  as  interim  President  and Chief
Executive  Officer.  Mr.  Savage  will be serving on a  part-time  basis until a
permanent President and Chief Executive Officer is hired.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

No reports on Form 8-K were filed for the three-month period ended June 30,
2001.

Exhibits:

Michael T. Elliott Separation Agreement
Alliant Partners Agreement


<PAGE>
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.


Path 1 Network Technologies Inc.


/s/ Peter P. Savage
-------------------------
Peter P. Savage
President and Chief Executive Officer


/s/ Richard B. Slansky
------------------------
Richard B. Slansky
Chief Financial Officer
(Principal Financial and Accounting Officer)

Date: August 14, 2001