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 September 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 October 5, 2001 was 8,252,038. 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 September 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.....................................12
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
     MARKET RISK ............................................................31
PART II - OTHER INFORMATION..................................................31
   ITEM 1. LEGAL PROCEEDINGS.................................................31
   ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.........................31
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................31
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............31
   ITEM 5. OTHER INFORMATION.................................................31
   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................32



<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)
                                                            September 30,  December 31,
                                                               2001             2000
                                                       ------------------------------------
                                                            (unaudited)
ASSETS
<S>                                                            <C>              <C>

Current assets:
 Cash and cash equivalents                                   $2,270          $7,171
 Restricted cash                                                200             -
 Marketable securities, available for sale                      681           4,313
 Other current assets                                           215             177
                                                       ------------------------------------
      Total current assets                                     3,366          11,661

Property and equipment, net                                     570             459
Acquired technology, net                                        824               -
Other assets                                                     50              184
                                                       ------------------------------------
Total assets                                                 $4,810          $12,304
                                                       ====================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities                  $1,441            $2,175
 Accrued compensation and benefits                             685               191
 Deferred revenue                                             550                324
                                                        ------------------------------------
      Total current liabilities                              2,676             2,690

Commitments and contingencies

Stockholders' equity:
 Common stock, $0.001 par value; issuable in series:
      Class A - 20,000,000 shares authorized; 8,252,038          8               8
           and 8,183,901 shares issued and outstanding at
           September 30, 2001, and December 31, 2000
           respectively

      Class B - 10,000,000 shares authorized; no shares           -               -
      issued or utstanding at September 30, 2001, and
      December 31, 2000
 Notes receivable from stockholders                           (57)             (114)
 Additional paid-in capital                                   26,543           32,295
 Deferred compensation                                         (379)           (3,005)
 Accumulated other comprehensive (loss) gain                 (1,255)             228
 Accumulated deficit                                        (22,726)          (19,798)
                                                         ------------------------------------
      Total stockholders' equity                             2,134              9,614
                                                         ------------------------------------
Total liabilities and stockholders' equity                   $4,810           $12,304
                                                         ====================================
</TABLE>

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


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

<TABLE>

                                                             Three Months Ended                       Nine Months Ended
                                                                September 30,                           September 30,
<S>                                                      <C>                   <C>                  <C>               <C>

                                                         2001                  2000                 2001              2000
                                                  ---------------------------------------------------------------------------------
Revenues:                                               $ 750                     -              $ 1,299                 -
                                                  ---------------------------------------------------------------------------------

Operating expenses:
 Engineering research and development                $    970              $   1,034              $ 3,416           $ 2,419
 Sales and marketing                                      124                    183                  490               750
 General and administrative                             1,374                    797                3,363             1,636
 Stock-based compensation                              (1,883)                (1,653)              (3,340)            4,708
 Restructuring charge
                                                          221                    -                    221                 -
                                                  ---------------------------------------------------------------------------------
        Total operating expenses                         (806)                  (361)              (4,150)           (9,513)

Interest income, net                                       29                    175                   180              270

Loss on sale of securities                               (208)                    -                  (257)              (49)
                                                  ---------------------------------------------------------------------------------
Net income (loss)                                       $ 235)                 $(186)             $(2,928)          $ (9,292)
                                                  =================================================================================

Income (loss) per common share - basic and diluted   $ (0.03)                 $(0.02)              $(0.36)          $ (1.30)
                                                  =================================================================================

Weighted average common shares outstanding -
   basic and diluted                                   8,227                   7,932                8,212              7,140
                                                  =================================================================================
</TABLE>


 (*)  The following table shows how the Company's stock-based compensation would
      be allocated to the respective department expense line items:
<TABLE>
<S>                                                      <C>                   <C>                   <C>               <C>

         Research and development                     $ (854)              $ (1,589)             $ (1,550)          $ 1,762
         Sales and marketing                            (316)                  (940)                 (572)              642
         General and administrative                     (713)                   876                (1,218)             2,304
                                                  ---------------------------------------------------------------------------------

                                                      $ (1,883)             $ (1,653)            $ (3,340)          $ 4,708
                                                  =================================================================================

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

<PAGE>

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

<TABLE>
                                                                          Nine Months Ended
                                                                            September 30,
                                                                        2001              2000
                                                                 -------------------------------------
<S>                                                                      <C>               <C>
Cash flows from operating activities:
 Net loss                                                           $  (2,928)       $   (9,292)
 Adjustments to reconcile net loss to net cash
      used in operating activities:
    Depreciation and amortization                                         538                92
    Amortization of deferred compensation                              (3,340)            2,109
    Common stock options issued for ser                                   -               2,597
    Warrants issued for recruiting services                               138               -
    Restructuring charge                                                  221               -
    Loss on investment                                                    -                  49
 Changes in assets and liabilities:
    Other current assets                                                 (38)                (9)
    Restricted cash                                                     (200)               -
    Other assets                                                         (15)               -
    Accounts payable and accrued liabilities                            (863)               312
    Accrued compensation and benefits                                    401                -
    Deferred revenue                                                     226                -
                                                                ------------------------------------
           Cash provided by (used in) operating activities            (5,860)            (4,142)

Cash flows from investing activities:
 Sale of marketable securities                                         2,208                    -
 Purchase of Metar ADC assets                                         (1,000)                   -
 Purchases of property and equipment                                   (375)              (303)
                                                                -------------------------------------
           Cash provided by (used in) investing activities              833               (303)

Cash flows from financing activities:
  Issuance of common stock for options exercised, net                   69                    -
  Cash from extinguishment of stockholder notes                         57                    -
  Issuance of common stock for cash, net                                 -               14,548
                                                                 -------------------------------------
           Cash provided by financing activities                       126               14,548

Increase (decrease) in cash and cash equivalents                     (4,901)             10,103

Cash and cash equivalents, beginning of period                        7,171                454
                                                                 -------------------------------------
Cash and cash equivalents, end of period                             $2,270             $10,557
                                                                 =====================================
Supplemental cash flow disclosures:
  ssuance of common stock for marketable securities                 $  -               $ 3,096
                                                                 =====================================
 Unrealized gain/(loss) in marketable securities                   $ (1,483)             $ 416
                                                                 =====================================
</TABLE>

See accompanying notes to these condensed, consolidated financial statements.

<PAGE>



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis Of Presentation

The accompanying condensed consolidated balance sheet at September 30, 2001, and
the condensed, consolidated statements of operations and cash flows for the
three and nine-month periods ended September 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
accounting principles generally accepted in the United States. These financial
statements should be read in conjunction with the financial statements and notes
thereto for the year ended December 31, 2000 and quarters ended March 31, 2001
and June 30, 2001 included in the Company's Form 10-K filed March 29, 2001 and
Form 10-Q's filed May 14, 2001 and August 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.

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 exist. 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 - Restructuring Charges

During the three month period ended September 30, 2001 the Company recorded
restructuring charges totaling US$221,000, primarily due to severance costs
related to a workforce reduction and subsidy costs related to subletting certain
excess office space. The Company implemented the restructuring plan as a result
of the completion of a certain third party funded development project and as a
prudent cash flow measure in order to improve its overhead cost structure.

The workforce reduction resulted in the involuntary termination of six employees
of which four were from the Company's engineering research and development staff
and two were from the Company's management and administrative staff. The total
charge recognized by the Company for the involuntary termination was
approximately US$93,000 of which approximately US$24,000 had been paid prior to
the end of the quarter.

In conjunction with the workforce reduction the Company reduced its operating
overhead by consolidating its office space. The Company has sublet most of the
vacated office space on a month-to-month basis at rates lower than its cost and
is currently seeking to sublet the remaining vacated office space. The Company
is uncertain if it will be able to sublet the space for the remaining term of
the lease or sublet the remaining unoccupied space, accordingly it has accrued
the cost to exit the leases. The total amount accrued as of September 30, 2001
is approximately US$128,000.

Note 6 - 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 nine months ending September 30, 2001 and
the three months ended September 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 7 - Comprehensive Income (Loss)

Comprehensive income is as follows (in thousands, US dollars):
<TABLE>
                                                   Three Months Ended     Nine Months Ended
                                                     September 30,          September 30,
                                                    2001        2000      2001        2000
                                                 ---------------------  --------------------
<S>                                                <C>          <C>       <C>         <C>
Net Income                                        (235)         (186)    (2,928)    (9,292)
Unrealized gain(loss)on Marketable Securities     (415)           -      (1,483)      416
                                                 ---------------------  --------------------
                                                  (650)        (186)     (4,411)    (8.876)
                                                 ---------------------  --------------------
</TABLE>

Note 8 - Reportable Operating Segments

Path 1 Network Technologies Inc. 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. 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 15
engineers plus support and administrative personnel and operates primarily from
our San Diego, California USA facility.

The Silicon Systems business unit ("Sistolic"), formerly known as Metar ADC, is
engaged in the development and deployment of 1 Gigabit Media Access Controller
(MAC), 10 Gigabit MAC, 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 chip (ASIC)
solutions that foster the high-speed transmission of data over existing
networks. Currently, Silicon Systems consists of 2 engineers in the Company's
San Diego, California USA facility and 25 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 nine months ended September 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 September 30, 2000.

<TABLE>
                                          Nine Months Ended
Revenues, Operating Expenses and          September 30, 2001
Net loss                                  ------------------
                                     (In thousands, US dollars)
                               Revenue       Expenses      Net Loss
<S>                              <C>           <C>           <C>
                               -------       --------      --------
Video Solutions                 1,299         2,247           (948)
Sistolic                          -           1,390         (1,390)
Corporate                         -             590           (590)
                               ------------------------------------
                                1,299         4,227         (2,928)
                               ------------------------------------
</TABLE>
<TABLE>

Net Identifiable Fixed Assets:            September 30, 2001
                                        ---------------------
                                      (In thousands, US dollars)
<S>                                             <C>
Video Solutions                                 384
Sistolic                                        144
Corporate                                        42
                                          ----------------
                                                570
                                          ----------------
</TABLE>

<PAGE>

Note 9 - Assets 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 or 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 10- 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 nine-month period ended September 30, 2001, the Company granted
1,606,000 stock options to employees and consultants with vesting periods
ranging from immediate to four (4) years. The options are for the purchase of
956,000 shares of Class B common stock at an exercise price of US$4.35 per
share. For the nine month period ended September 30, 2001 the Company granted
650,000 options to purchase Class A common stock at an exercise price of
US$3.91, the fair market value at the date of the grant. In the three-month
period ended September 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
three-month period ended September 30, 2001, the Company recorded a reduction to
stock-based compensation expense of US$1.9 million related to options
outstanding to employees and consultants.

Note 11 - Subsequent Events

In October 2001, the Board of Directors approved a resolution to offer the
holders of options to purchase Class B common stock a one-time opportunity to
exchange the option for an equivalent option to purchase Class A common stock
under the same terms and conditions. The proposal is subject to shareholder
approval. All holders of Class B common stock accepted the offer. Therefore, if
the shareholders approve, the Class B junior stock will be eliminated. The
existing substantive terms and conditions of the options on Class B common stock
will remain in effect but will be exchanged for equivalent options under the
Company's 2000 Stock Option/Stock Issuance Plan.

In November 2001, the Company entered into a private equity financing agreement
for US$3.5 million. The terms of the financing agreement, with a single entity,
call for the purchase of 700,000 shares of Class A common stock for US$5.00 per
share. For each share purchased, the Company will also issue the investor one
warrant to purchase one share of Class A common stock for US$5.00 per share
exercisable over two years. Payment to the Company under the terms of the
financing are due in five equal monthly installments of US$500,000 (with the
first installment payable on November 26, 2001) and a final payment on April 15,
2002 of US$1 million. All payments have been secured by a promissory note and
the Class A common stock and warrants will, upon issuance, serve as collateral
for the promissory note but can be released, at the discretion of the Company,
after each respective payment is received. The investor can demand registration
of the Class A common stock after April 24, 2002. The investor can demand
registration of the warrants commencing six months after exercise.

<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 world
award-winning leader in broadcast quality video over IP technology - an
environment historically too unstable to support video. From the delivery and
distribution of broadcast materials and Video on Demand, to videoconferencing
and security monitoring, Path 1's video infrastructure platforms allow high
quality transmissions of point-to-point and multiplexed data over legacy IP
systems. Patented products and unique know-how provide stable and error free
transport of real time applications, including broadcast and entertainment
content exchanges. Carrier, broadcast, networking and entertainment companies,
as well as enterprise and government, can benefit from Path 1's break-through in
product offerings.

The global movement toward Internet Protocol (IP) is driving interest in
technologies and products that may replace satellite and other more expensive
forms of video transport. Historically, 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). At Path 1, we are developing unique
offerings based on our underlying patents and domain expertise to solve the
quality issues and to enable real time transmission over IP networks with
guaranteed end-to-end QoS.


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 network due to:

>> the flexibility advantage of IP networks over ATM and satellite; >> the
expectation that a direct pure IP network 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 plan to establish 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 successfully 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 are 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,
    security 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:

|X|  Diversified  Media:  AOL TimeWarner,  Bertelsmann,  Fox,  LibertyMedia  and
     Viacom.

|X|  TV Broadcasting: ABC, CBS, NBC, FOX and TBS.

|X|  Movie and Video: DreamWorks, Fox, Sony, Universal, Disney and Warner Bros.

     Our channel partner in the studio infrastructure 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
     under terms specified in our Technology License Agreement with Leitch. 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 2001 Major League Baseball All-Star
     Game by FOX Sportsnet and others. Our internal estimates are that the
     investment required for 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 direct MPEG-2 transport. Direct MPEG-2 transport does not provide the
     routing capabilities of IP. MPEG-2 requires the broadcasting of all VOD
     program streams to all nodes. Therefore, MPEG-2 does not scale well as the
     demand for VOD increases. Furthermore, IP provides the cable infrastructure
     to directly support internal services over the same network.

     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.

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

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

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

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

|X| 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. 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 by Oracle 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 did 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 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 example
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 example school district's total project equipment
purchase from us could exceed US$3 million.


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 is uncertain, few argue the
potential of the market.

Summary

In this quarter, we continued to generate revenues in the VOD market segment. 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 appears to be
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

We anticipate that our existing resources will enable us to fund operations at
least until early 2002. In November 2001, the Company entered into a private
equity financing agreement for US$3.5 million. The terms of the financing
agreement call for the purchase of 700,000 shares of Class A common stock for
US$5.00 per share. For each share purchased, the Company will also issue the
investor one warrant to purchase one share of Class A common stock for US$5.00
per share exercisable over two years. The investor issued to the Company a
promissory note payable in five equal monthly installments of US$500,000 (with
the first installment payable on November 26, 2001) and a final payment on April
15, 2002 of US$1 million. When all the installment payments are made, we
anticipate that our resources will enable us to fund operations until mid-2002.
We are continuing to seek other sources of additional capital to fund operations
until we are able to fund operations through internal cash flow.

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 September 30, 2001, we had net working capital of US$690,000 compared to
US$9.0 million at December 31, 2000. The US$690,000 of working capital includes
of US$550,000 in deferred revenue from BarcoNet, which we expect to realize
during 2001, and an accrual of US$900,000 for a contingent liability, which will
not be finalized until January 2002. In addition, during the period ended
September 30, 2001 the Company recorded approximately US$221,000 in
restructuring charges as accrued liabilities that will be paid out during the
fourth quarter of 2001 and the first quarter of 2002.

Cash, cash equivalents and marketable securities totaled US$3.2 million at
September 30, 2001 compared to US$11.5 million at December 31, 2000. We incurred
approximately US$2.3 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.

Operating activities used US$5.9 million in cash during the nine-month period
ended September 30, 2001 and US$4.1 million for the same period in 2000. This
increase was primarily the result of an increase in operating costs and
personnel expenses.

Cash provided by investing activities during the nine-month period ended
September 30, 2001 was approximately US$1.0 million compared to a use of cash of
approximately US$303,000 for the nine-month period ended September 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$126,000 in cash during the nine-month period
ended September 30, 2001 and US$14.5 million for the corresponding period in
2000. We did not raise any additional outside capital in the nine-month period
ended September 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 September 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. 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 September 30, 2001 vs. Three-Months Ended September 30, 2000

In the third quarter of 2001, we recognized revenue of US$750,000, compared to
no revenue during the three-month period ended September 30, 2000. The revenues
are related to our engineering contract with BarcoNet. We expect initial
recurring revenues to come from the broadcast transmission infrastructure
segment of the video transport market, where we have established product (e.g.,
Cx1000) and technology capabilities, demonstrated broadcast quality transmission
and are in trials with broadcast studios and tier 1 telecommunication carriers.
The systems that we are using in these trials are expected to be ready for
volume production and support in the fourth quarter. We estimate revenues will
start in 2002 and grow significantly over time.

Engineering research and development expenses, excluding the effect of
stock-based compensation, remained relatively flat at approximately US$1.0 for
the third quarter ended September 30, 2001 compared to the third quarter ended
September 30, 2000. Although the Company believes, that under its current
operating plan and after taking into effect its September 2001 reduction in
force, it possesses the correct complement of engineering staff and consultants
to effectively continue the development and rollout of its products, the Company
will need to rapidly hire additional staff quickly if its product achieve a
significant level of market acceptance.

Sales and marketing expenses, excluding the effect of stock-based compensation,
decreased from US$183,000 for the third quarter ended September 30, 2000 to
US$124,000 for the third quarter ended September 30, 2001. The decrease of
approximately US$59,000 is primarily due to the reduction of travel related
expenses and the timing of promotional activities. In the period ended September
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$797,000 for the third quarter ended September
30, 2000 to US$1.4 million for the third quarter ended September 30, 2001. The
increase of approximately US$577,000 was primarily due to the addition of
professional support functions such as executive management, finance,
accounting, human resources and administrative personnel to support the growing
product development effort. In addition, included in the general and
administrative expense is the accrual of US$169,000 for the severance of a
former executive officer, which will be paid in full by the end of the second
quarter of 2002. Furthermore, the Company began to incur amortization expense
due to the acquisition of the intellectual property of Metar ADC in October
2000.

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 third quarter ended September 30, 2001, the
fair market value of our common stock decreased resulting in a stock-based
compensation benefit of US$1.9 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. . In October 2001, we
offered our holders of Class B common stock options an opportunity to exchange
their options for Class A common stock options. Since all of the option holders
of options on Class B common stock elected to exchange their options for options
on Class A common stock, the Company will cease recording this compensation
expense related to employee options after a final one-time adjustment. We
presume that all future grants of options on Class A common stock will be issued
at fair value. We will continue to record compensation expense related to the
outstanding options to consultants for the amount of options that vest in that
period.

Our interest income decreased from US$175,000 for the three-month period ended
September 30, 2000 to US$29,000 for the three-month period ended September 30,
2001. This decrease of US$146,000 was due to a reduction in cash balances in our
investment accounts.

During the three month period ended September 30, 2001 the Company recorded
restructuring charges totaling US$221,000, primarily due to severance costs
related to a workforce reduction and subsidy costs related to subletting certain
excess office space. The Company implemented the restructuring plan as a result
of the completion of a certain third party funded development project and as a
prudent cash flow measure in order to improve its overhead cost structure.

The workforce reduction resulted in the involuntary termination of six employees
of which four were from the Company's engineering research and development staff
and two were from the Company's management and administrative staff. The total
charge recognized by the Company for the involuntary termination was
approximately US$93,000 of which approximately US$24,000 had been paid prior to
the end of the quarter.

In addition to the workforce reduction, the Company also reduced its
expenditures related to outside consultants. The Company has reduced its monthly
expenditures by approximately US$35,000 through the elimination of what it
considers to be non-core consulting activities. These reductions are not
included in the restructuring charge line item, but reflect management's focus
on conserving cash flows.

We posted a net loss of approximately US$235,000, or US$0.03 per share, for the
quarter ended September 30, 2001 compared to a net loss of US$186,000, or
US$0.02 per share, for the comparable period last year. We have not yet achieved
a sustainable level of revenue and cash flow. The net loss reflects the
Company's continued effort to begin the commercialization of its core technology
as it transitions into an operating, marketing and manufacturing company.

Nine-Months Ended September 30, 2001 vs. Nine-Months Ended September 30, 2000

The third quarter of 2001 marked the second consecutive quarter we recognized
revenues. We recognized US$1,299,000 of revenues in the first nine months of
2001. US$1,050,000 of revenue came from the BarcoNet contract and US$249,000
came from the delivery and acceptance 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 (e.g., Cx1000) and technology capabilities, demonstrated broadcast
quality transmission and are in trials with broadcast studios and tier 1
telecommunication carriers. The systems that we are using in these trials are
expected to be ready for volume production and support in the fourth quarter. 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$2.4 million for the nine-month
period ended September 30, 2000 to approximately US$3.4 million for the
nine-month period ended September 30, 2001. The increase is 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 and engaged in consulting agreements with 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$750,000 for the nine-month period ended September 30, 2000 to
US$490,000 for the nine-month period ended September 30, 2001. The decrease of
approximately US$260,000 is primarily due to the reduction of travel and general
marketing related expense. In the period ended September 30, 2000, we 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 and
general marketing related expenses. As we transition into an operating company,
a significant increase in sales, marketing and promotional activities is
expected.

General and administrative expenses, excluding the effect of stock-based
compensation, increased from US$1.6 million for the nine-month period ended
September 30, 2000 to US$3.4 million for the nine-month period ended September
30, 2001. The increase of approximately US$1.7 million is primarily due to an
increase in costs related to the addition of executive management, professional
support functions and amortization expense due to the acquisition of the
intellectual property of Metar ADC of approximately US$96,000. In addition, the
Company has incurred expenses related to the severance payments for a former
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 nine-month period ended September 30,
2001 the fair market value of our common stock decreased, resulting in a
non-cash stock-based compensation benefit of US$3.3 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. If the option holders of options on Class B common stock elect to
exchange their options for option on Class A common stock, the Company will
cease recording this compensation expense quarterly after a final one-time
adjustment and presuming that all future grants of options on Class A common
stock will be issued at fair value.

Our interest income decreased from US$270,000 for the nine-month period ended
September 30, 2000 to US$180,000 for the nine-month period ended September 30,
2001. This decrease of US$90,000 was due to a reduction in cash balances in our
investment accounts.

For the nine-month period ended September 30, 2001, we reported a net loss of
US$2.9 million, or US$0.36 per share, a decrease from the US$9.3 million, or
US$1.30 per share net loss reported for the same period last year. Our net loss
for the nine months ended September 30, 2001 was primarily in our Sistolic
business unit as the development and sales cycle for its products is generally
longer than the engineering projects our Video Solutions group has been
completing. In the future we expect that the sales for our Video products will
increase as the market matures and our products are required. In addition, we
expect our Sistolic business unit to begin to recognize revenue from the sale of
intellectual property and engineering partnerships in the fourth quarter of 2001
and early 2002.


<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's FILED ON MAY 14, 2001 AND AUGUST 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.

We  Need Additional  Working Capital.
------------------------------------

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 early 2002. In
November 2001, the Company entered into a private equity financing agreement for
US$3.5 million and if the Company receives all monthly installments of the
promissory note, we anticipate that our resources will enable us to fund
operations until mid-2002. We cannot guarantee that any or all monthly
installments under the promissory note will be made. If the proceeds from the
promissory note are not made to the Company, we would need to obtain alternative
financing immediately or severely restructure the Company. We anticipate the
need to raise additional capital in the near term. Any 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.

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 September 30, 2001, there were 8,257,038 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 recently
appointed a new director to the Board who we believe will qualify as an
"independent" director for purposes of a Nasdaq SmallCap Market listing. We
anticipate filing to move our listing from the OTC Bulletin Board to the Nasdaq
SmallCap Market in the fourth quarter. Although we believe that we will meet all
the NASD requirements for a Nasdaq SmallCap Market listing, there can be no
assurance that such a listing will be forthcoming or if forthcoming, when a
listing will become effective.

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;
- product sales progress, both positive and negative;

- 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. We are providing a new and potentially disruptive
technology to enable new applications. It is difficult, and perhaps impossible,
to predict the timing of and rate of market acceptance of our proposed products
as well as of related 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 successfully completed
technology demonstrations in the VOD market segment of the Video Transfer Market
and in the education, government and military segments 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 September 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 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 TrueCircuit(R) technology enabled products directly into
certain Exclusive Market areas, without Leitch's consent, until the exclusive
license expires; therefore, we are relying on Leitch to sell these
TrueCircuit(R) technology enabled products 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. We are also developing non-TrueCircuit(R) enabled products,
which are outside the scope of our agreement with Leitch. The exclusive license
with Leitch 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.

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
or our ability to develop, manufacture, launch and market non-TrueCircuit(R)
technology enabled products for this market segment. 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 patented 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. On January 16, 2001, May 8, 2001
and May 31, 2001, we submitted additional patent applications on topics
surrounding our core technologies. 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 May 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, competition
does exist. Due to the tremendous interest in video transport, we anticipate
that the competitive pressures will increase significantly in the future. We may
face indirect and direct competition in these markets from firms with greater
resources. 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 Are Dependent On Our Key Employees For Our Future Success.

Our  success  depends on the  efforts and  abilities  of our senior  management,
specifically Frederick A. Cary, Ronald D. Fellman, Douglas A. Palmer, Richard B.
Slansky,  Michael Florea,  Bernard J. Tyler,  Yendo Hu 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 September 30, 2001, our executive officers, directors and 5% stockholders
own, in the aggregate, approximately 57% of our outstanding Class A Common
Stock. In particular, Leitch and Dr. Ronald D. Fellman own 49.5% of our
outstanding 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 September 30, 2001, there
were options outstanding to purchase 4,660,666 shares of our Common Stock. We
will continue to issue options to purchase sizable numbers of shares of Class A
Common 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. The offer to exchange options to purchase Class B common stock
into options to purchase Class A common stock will not change the dilution to
all stockholders.






<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
substantially exposed to fluctuations in the stock market as the Leitch and Jyra
common stock we hold are in volatile markets. Leitch, who also holds a material
position to us, is based in Canada and is traded on Toronto Stock Exchange
(TSE:LTV) and on the Nasdaq National Market (Nasdaq\NM:LVID). Since we hold
marketable securities in Leitch, we may be also exposed 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
September 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

Not applicable.


ITEM 5.  OTHER INFORMATION

On September 7, 2001,  we hired  Frederick A. Cary as our President and CEO. Mr.
Cary replaced  Peter P. Savage who was acting as our interim  President and CEO.
Mr. Cary will also serve on our Board of Directors.

On  September  28,  2001,  Robert  Packer  joined our Board of  Directors  as an
outside, independent director. Mr. Packer replaced Peter P. Savage, who resigned
from the Board in order to provide a seat for Mr.  Packer.  Mr.  Savage had lost
his status as an "independent"  director (as defined by the Nasdaq Stock Market)
because he served as our interim  President  and CEO. In order to fulfill one of
the Nasdaq SmallCap Market's listing standards, we must have three "independent"
directors to serve on our Audit Committee.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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





<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.


By: /s/ Frederick A. Cary
-------------------------
Frederick A. Cary
President and Chief Executive Officer


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

Date: November 14, 2001
























                                  Exhibit Index

10.1 Employment Agreement dated September 7, 2001 between Frederick A. Cary
     and the Company.