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 March 31, 2003.
                                       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 Identification No.)
  incorporation or organization)



           6215 FERRIS SQUARE, SUITE 140, SAN DIEGO, CALIFORNIA 92121
                                 (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 ___

As of May 16,  2003,  9,737,346  shares of the  registrant's  common  stock were
outstanding.


<PAGE>


                        PATH 1 NETWORK TECHNOLOGIES INC.
                          Quarterly Report on Form 10-Q
                  For the Quarterly Period Ended March 31, 2003

                                TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION.................................................3
   ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)....................................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
  ITEM 4.  CONTROLS AND PROCEDURES............................................31
PART II - OTHER INFORMATION...................................................31
   ITEM 1. LEGAL PROCEEDINGS..................................................31
   ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................32
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................32
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................32
   ITEM 5. OTHER INFORMATION..................................................32
   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................33
   SIGNATURES ................................................................34



<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>

                        PATH 1 NETWORK TECHNOLOGIES INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (in $ thousands except share data)

                                                                                 March 31,             December 31,
                                                                              2003 (unaudited)        2002 (audited)
                                                                            ---------------------  ---------------------
<S>                                                                         <C>                    <C>
ASSETS
Current assets
   Cash and cash equivalents                                                         $       424            $       396
   Accounts receivable, net                                                                  338                    438
   Inventory                                                                                 285                    393
   Other current assets                                                                      196                     15
                                                                            ---------------------  ---------------------
       Total current assets                                                                1,243                  1,242

   Property and equipment, net                                                               183                    220
   Debt issuance costs, net                                                                  209                    107
   Other assets                                                                               64                     64
                                                                            ---------------------  ---------------------
Total Assets                                                                        $      1,699           $      1,633
                                                                            =====================  =====================

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
   Accounts payable and accrued liabilities                                                1,159            $       930
   Accrued compensation and benefits                                                         141                    157
   Current portion of notes payable                                                        1,316                    863
   Deferred revenue                                                                           15                     61
                                                                            ---------------------  ---------------------
       Total current liabilities                                                           2,631                  2,011

   Notes payable                                                                             541                    161
                                                                            ---------------------  ---------------------
Total liabilities                                                                          3,172                  2,172
                                                                            ---------------------  ---------------------

Stockholders' deficit
   Preferred stock, 10 million shares authorized, $0.001 par value;
   no shares issued or outstanding                                                             -                      -
   Common stock, $0.001 par value;
     40,000,000 shares authorized; 9,637,346 and 9,501,346 shares
       issued and outstanding at March 31, 2003,
       and December 31, 2002 respectively                                                     10                     10
   Common stock to be issued                                                                  12                     12
   Additional paid-in capital                                                             30,393                 30,126
   Deferred compensation                                                                    (25)                   (50)
   Accumulated deficit                                                                  (31,863)               (30,637)
                                                                            ---------------------  ---------------------
Total stockholders' deficit                                                              (1,473)                  (539)
                                                                            ---------------------  ---------------------
Total Liabilities and Stockholders' Deficit                                        $      1,699           $      1,633
                                                                            =====================  =====================
</TABLE>

See accompanying notes to these condensed consolidated financial statements.


<PAGE>

<TABLE>

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

                                                                               Three Months Ended March 31,
                                                                                 2003                 2002
                                                                         -------------------- --------------------
<S>                                                                      <C>                  <C>

Revenues
   Product sales                                                                  $      598            $       -
   Contract services                                                                      63                  154
   License revenue                                                                         -                    -
                                                                         -------------------- --------------------
Total revenues                                                                           661                  154
                                                                         -------------------- --------------------
Cost of revenues
   Cost of product sales                                                                 338                    -
   Cost of contract services                                                              18                  123
                                                                         -------------------- --------------------
   Total cost of revenues                                                                356                  123
                                                                         -------------------- --------------------
Gross profit                                                                             305                   31
                                                                         -------------------- --------------------
Operating expenses, before depreciation and amortization
   Engineering research and development                                                  362                  517
   Sales and marketing                                                                   291                  193
   General and administrative                                                            640                  702
   Stock-based compensation                                                               25                  100
                                                                         -------------------- --------------------
   Total operating expense, before depreciation and amortization                       1,318                1,512
                                                                         -------------------- --------------------
Depreciation and amortization expense
   Depreciation expense                                                                   42                   35
   Amortization expense                                                                   26                   73
                                                                         -------------------- --------------------
   Total depreciation and amortization                                                    68                  108
                                                                         -------------------- --------------------
Total operating expense                                                                1,386                1,620
                                                                         -------------------- --------------------
Operating loss                                                                        (1,081)              (1,589)
Other income (expense)
   Interest expense, net                                                               (144)                    -
   Loss on sale of securities                                                              -                (590)
   Other income (expense)                                                                (1)                    -
                                                                         -------------------- --------------------
   Total other expense                                                                 (145)                (590)
                                                                         -------------------- --------------------
Loss from continuing operations                                                      (1,226)              (2,179)
Discontinued operations                                                                    -                (251)
                                                                         -------------------- --------------------
Net loss                                                                        $    (1,226)         $    (2,430)
                                                                         ==================== ====================
Net loss per common share from continuing operations                                  (0.13)               (0.26)
                                                                         ==================== ====================
Loss per common share - basic and diluted                                       $     (0.13)         $     (0.29)
                                                                         ==================== ====================
Weighted average common shares outstanding - basic and diluted                         9,555                8,406
                                                                         ==================== ====================
</TABLE>

See accompanying notes to these condensed consolidated financial statements.




<PAGE>
<TABLE>


                        PATH 1 NETWORK TECHNOLOGIES INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in $ thousands)
                                   (unaudited)
                                                                        Three Months Ended March 31,
                                                                          2003                2002
                                                                  -----------------------------------------
<S>                                                               <C>                     <C>
Cash flows from operating activities:
   Net loss                                                               $    (1,226)        $    (2,179)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation and amortization                                                68                 108
      Amortization of deferred compensation                                        43                 100
      Accretion of debt discount & debt conversion expense                        172                   -
      Loss on investment                                                            -                 596
   Changes in assets and liabilities
      Accounts receivable                                                         100                  61
      Inventory                                                                   108                   -
      Other current assets                                                       (181)                126
      Other assets                                                               (128)                  -
      Accounts payable and accrued liabilities                                    228                 (14)
      Accrued compensation and benefits                                           (16)                (53)
      Deferred revenue                                                            (45)                 75
                                                                  -----------------------------------------
         Cash used in operations                                                 (877)             (1,180)
                                                                  -----------------------------------------
Cash flows from investing activities:
   Sale of marketable securities                                                    -                 578
   Purchase of property and equipment                                              (5)                (90)
                                                                  -----------------------------------------

         Cash provided by (used in) investing activities                           (5)                488
                                                                  -----------------------------------------
Cash flows from financing activities:
   Issuance of common stock                                                        108                 50
   Issuance of convertible notes                                                   802                  -
   Cash from extinguishment of shareholder notes                                     -                 86
                                                                  -----------------------------------------

         Cash provided by financing activities                                     910                136
                                                                  -----------------------------------------
Cash flows from continuing operations                                               28               (556)

Cash flows from discontinued operations                                              -               (177)
                                                                  -----------------------------------------
Increase (decrease) in cash and cash equivalents                                    28               (733)

Cash and cash equivalents, beginning of period                                     396               1,181
                                                                  -----------------------------------------
Cash and cash equivalents, end of period                                    $      424          $      448
                                                                  =========================================

Supplemental cash flow disclosures:
   Unrealized gain (loss) in marketable securities                           $       -          $       (7)
                                                                  =========================================
   Capitalized debt issuance costs in connection with beneficial
      conversion charges and warrants                                        $      76           $       -
                                                                  =========================================
</TABLE>

See accompanying notes to these condensed consolidated financial statements.


<PAGE>


NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis Of Presentation

The  accompanying  condensed  consolidated  balance sheet at March 31, 2003, the
condensed  consolidated  statements of operations  for the  three-month  periods
ended March 31, 2003 and 2002, and the condensed consolidated statements of cash
flows  for the  three-month  period  ended  March 31,  2003 and 2002,  have been
prepared by Path 1 Network  Technologies  Inc. (the "Company") and have not been
audited. The condensed  consolidated balance sheet at December 31, 2002 has been
audited.  These quarterly consolidated  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 quarterly  consolidated financial statements should be read
in  conjunction  with the  financial  statements  and notes thereto for the year
ended  December  31, 2002  included in the  Company's  Form 10-K filed March 31,
2003. The interim consolidated 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, 2003.

In the period from January 30, 1998  (inception)  through  March 31,  2003,  the
Company incurred losses totaling $31.9 million.  The  accompanying  consolidated
financial  statements have been prepared assuming that the Company will continue
as a going concern.  This basis of accounting  contemplates  the recovery of the
Company's assets and the satisfaction of its liabilities in the normal course of
conducting  business.  Management  does not believe that the Company's  existing
capital resources will enable the Company to fund operations for the next twelve
months. Our existing capital resources are insufficient to enable us to continue
operations  as  currently  conducted.  The  cash  crisis  is very  serious.  Our
independent  auditors' opinion expresses  substantial doubt about our ability to
continue  as a  going  concern.  We need  additional  funding  to  meet  current
commitments and continue development of our business. We currently have the cash
resources to continue our business at its current  levels only for our immediate
needs.  If we do not receive  additional  funding,  our ability to continue as a
going concern cannot be assured. See "Liquidity and Capital Resources."

Management's  plans are to manage costs in all areas of its operating plan until
sufficient  capital is raised to support growth and more substantial  orders and
revenues materialize. The Company has implemented various cost savings plans and
continues to manage costs.  However,  even with the focus on managing costs, the
Company needs to raise additional funding to continue as a going concern. In the
event the Company  does not receive  additional  funding,  the  Company's  plans
include,  but are not  necessarily  limited  to: 1) further  reducing  costs and
focusing on selling  existing  products and  services;  2) selling the Company's
assets  through  a  merger  or  acquisition;  or  3)  seeking  protection  under
bankruptcy statutes.  Without additional financing, the Company will be required
to further delay,  reduce the scope of, or eliminate one or more of its research
and development  projects and  significantly  reduce its expenditures on product
deployment, and may not be able to continue as a going concern.

Reclassifications

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

Recently Issued Accounting Standards

In June 2001, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, Business  Combinations and No.
142,  Goodwill and Other Intangible  Assets.  Under the new rules,  goodwill and
indefinite  lived  intangible  assets are no longer  amortized  but are reviewed
annually for impairment. Separable intangible assets that are not deemed to have
an indefinite  life will continue to be amortized  over their useful lives.  The
amortization  provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired  after June 30,  2001.  As the Company did not have any goodwill on its
balance  sheet,  the adoption of SFAS No. 142 did not have a material  impact on
the Company's financial statements.

In October  2001,  the FASB  issued SFAS No. 144 (FAS 144),  Accounting  for the
Impairment or Disposal of Long-Lived  Assets. FAS 144 establishes a single model
to  account  for  impairment  of  assets to be held or  disposed,  incorporating
guidelines for accounting and disclosure of discontinued operations.  FAS 144 is
effective for fiscal years beginning after December 15, 2001 and, generally, its
provisions  are  to  be  applied  prospectively.   Management  re-evaluated  its
investment in acquired technology,  namely Sistolic,  and recorded an impairment
charge during the year ended December 31, 2001 of $689,000.

In April 2002, the FASB issued SFAS No. 145 ("SFAS No. 145")  Rescission of SFAS
No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections.  SFAS No.
145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
SFAS No. 44,  Accounting for Intangible  Assets of Motor Carriers,  and SFAS No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.  SFAS No.
145 requires,  among other  things,  (i) that the  modification  of a lease that
results in a change of the classification of the lease from capital to operating
under  the  provisions  of SFAS  No.  13 be  accounted  for as a  sale-leaseback
transaction,  and  (ii)  the  reporting  of  gains  or  losses  from  the  early
extinguishment  of debt as extraordinary  items only if they met the criteria of
Accounting Principles Board Opinion No. 30, Reporting the Results of Operations.
The amendment of SFAS No. 13 is effective for transactions occurring on or after
May 15, 2002.  Although  the  rescission  of SFAS No. 4 is effective  January 1,
2003,  the FASB has encouraged  early  application of the provisions of SFAS No.
145.  Management has assessed the impact of this  interpretation and believes it
has  no  material  effect  on  the  Company's  financial  position,  results  of
operations, or cash flows.

In July 2002, the FASB issued Statement of Financial Accounting Standard No. 146
("SFAS  No.  146"),  Accounting  for  Costs  Associated  with  Exit or  Disposal
Activities (effective January 1, 2003). SFAS No. 146 replaces current accounting
literature  and  requires  the  recognition  of costs  associated  with  exit or
disposal  activities  when  they  are  incurred  rather  than  at the  date of a
commitment to an exit or disposal  plan.  Management  has assessed the impact of
this  interpretation  and  believes it has no material  effect on the  Company's
financial position, results of operations, or cash flows.

In  November  2002,  the FASB  issued FASB  Interpretation  No. 45,  Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others.  This  interpretation   addresses  the
disclosures  to be made by a  guarantor  in its  interim  and  annual  financial
statements about its obligations  under  guarantees.  This  interpretation  also
clarifies  the  requirements  related to the  recognition  of a  liability  by a
guarantor at the inception of a guarantee for the obligations that the guarantor
has undertaken in issuing that guarantee.  Management has assessed the impact of
this  interpretation  and  believes it has no material  effect on the  Company's
financial position, results of operations, or cash flows.

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation--Transition  and Disclosure.  This statement  amends FASB Statement
No. 123 to provide  alternative  methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition,  the statement amends the disclosure  requirements of Statement No.
123 to  require  prominent  disclosures  in both  annual and  interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported  results.  The Company has adopted
this statement for the period ended March 31, 2003.

The  following  table  summarizes  the  impact  on the  Company's  net  loss had
compensation  cost been  determined  based upon the fair value at the grant date
for  awards  under  the  stock  option  plans  consistent  with the  methodology
prescribed under SFAS No. 123 (in thousands, except per share data):

<TABLE>

                                                                    Three Months Ended March 31,
                                                                      2003                 2002
                                                             -------------------------------------------
<S>                                                           <C>                    <C>
Net loss, as reported                                            $      (1,226)         $      (2,430)
Less: Stock-based employee compensation                                     76                     42
                                                             -------------------------------------------
Pro forma net loss                                               $      (1,301)         $      (2,472)
                                                             ===========================================

Basic and diluted loss per share:
   As reported                                                   $       (0.13)         $       (0.29)
                                                             ===========================================
   Pro forma                                                     $       (0.14)         $       (0.29)
                                                             ===========================================
</TABLE>

In January 2003, the FASB issued FASB  Interpretation  No. 46,  Consolidation of
Variable Interest  Entities.  This  interpretation  clarifies the application of
Accounting Research Bulletin No. 51,  "Consolidated  Financial  Statements",  to
certain entities in which equity investors do not have the  characteristics of a
controlling  financial interest or do not have sufficient equity at risk for the
entity to finance  its  activities  without  additional  subordinated  financial
support  from other  parties.  It further  clarifies  whether an entity shall be
subject to consolidation according to the provisions of this interpretation,  if
by design, certain conditions exist.  Management is assessing the impact of this
interpretation.

Note 2 - 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 3 - Inventory

The Company records inventory, which consists primarily of raw materials used in
the production of video gateways and related  products,  at the lower of cost or
market.  Cost is determined  principally on the average cost method.  Provisions
for potentially obsolete or slow-moving  inventory are made based on analysis of
inventory levels and future sales forecasts.

Note 4 - Revenue Recognition

Product Revenue

Revenue from product sales is recognized when title and risk of loss transfer to
the  customer,  generally at the time the product is delivered to the  customer.
Revenue is deferred  when customer  acceptance is uncertain or when  undelivered
products or services are essential to the  functionality of delivered  products.
The estimated cost of warranties is accrued at the time revenue is recognized.

Contract Service Revenue

Revenue from  support or  maintenance  contracts,  including  extended  warranty
programs, is recognized ratably over the contractual period. Amounts invoiced to
customers in excess of revenue  recognized on support or  maintenance  contracts
are recorded as deferred revenue until the revenue recognition criteria are met.
Revenue  on  engineering  design  contracts,  including  technology  development
agreements, is recognized on a  percentage-of-completion  method, based on costs
incurred  to date  compared  to total  estimated  costs,  subject to  acceptance
criteria.  Billings on  uncompleted  contracts  in excess of incurred  costs and
accrued profits are classified as deferred revenue.

License Revenue

Revenues from license fees are recognized  when  persuasive  evidence of a sales
arrangement exists, delivery and acceptance have occurred, the price is fixed or
determinable, and collectability is reasonably assured.

Allowances for Doubtful Accounts, Returns and Discounts

We establish  allowances for doubtful  accounts,  returns and discounts based on
credit profiles of our customers, current economic trends, contractual terms and
conditions and historical payment,  return and discount  experience,  as well as
for known or expected  events.  If there were to be a  deterioration  of a major
customer's  creditworthiness  or if actual  defaults,  returns or discounts were
higher than our  historical  experience  our  operating  results  and  financial
position could be adversely affected.

Warranty Reserves

We provide a limited  warranty for our  products.  A provision for the estimated
warranty cost is recorded at the time revenue is recognized. Liabilities for the
estimated  future costs of repair or replacement  are established and charged to
cost of sales at the time the  related  revenue  is  recognized.  The  amount of
liability  to be  recorded is based on  management's  best  estimates  of future
warranty costs after considering  historical and projected product failure rates
and product repair costs.

Note 5 - Reportable Operating Segments

The Company 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 SFAS No. 131, management  determined that, subsequent to the
discontinuance  of the Silicon Systems business unit ("Sistolic") in April 2002,
it has one operating segment.

The Company  currently  sells product to a limited number of customers.  For the
period ended March 31, 2003,  approximately  38% and 13%,  respectively,  of the
Company's product sales were to the Company's two largest customers.

Note 6 - Discontinued Operations

In March 2002, the Company decided to dispose of its Sistolic  business unit. On
April 3, 2002, the Company  disposed of the assets of this business unit back to
Metar ADC SRL, in exchange for the  elimination of the remaining  obligations by
the  Company  to Metar ADC SRL and its  affiliates,  including  the  payable  of
$686,000,  the  return of all stock  options  granted  to an  Executive  and the
Romanian  employees,  and a confirmation that performance  criteria specified in
such Executive's  employment  agreement  related to a potential $4 million bonus
were never met by him.  The Company  also  received a limited use license to the
business unit's intellectual property. Metar ADC SRL also received 35,000 shares
of our common stock. The Executive  resigned on March 27, 2002, as an officer of
the Company in anticipation of this transaction.

The results of  operations  and the loss on disposal  for the three months ended
March 31, 2002,  have been included in  discontinued  operations.  We recorded a
loss of $251,000 from  discontinued  operations for the three months ended March
31, 2002.

Note 7- Stock Options

The  Company  accounts  for  stock-based  compensation  arrangements  using  the
intrinsic   value  method  in  accordance  with  the  provisions  of  Accounting
Principles  Board Opinion ("APB") 25,  Accounting for Stock Issued to Employees,
Statement of  Financial  Accounting  Standards  (SFAS),  Interpretation  No. 28,
Accounting  for Stock  Appreciation  Rights and Other  Variable  Stock Option or
Award Plans, and SFAS  Interpretation  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.  In  December  2002,  the FASB issued  SFAS No.  148,  Accounting  for
Stock-Based  Compensation--Transition and Disclosure. This statement amends FASB
Statement No. 123 to provide  alternative  methods of transition for a voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation.  In addition, the statement amends the disclosure  requirements of
Statement No. 123 to require  prominent  disclosures  in both annual and interim
financial  statements  about the method of accounting for  stock-based  employee
compensation and the effect of the method used on reported results.  The Company
has made the required disclosure under SFAS No. 148.

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  three-month  period  ended  March 31,  2003,  the  Company  recorded
stock-based  compensation  expense of $25,000  related  to the  amortization  of
options   outstanding  to  employees.   Stock-based   compensation   related  to
consultants  has been included in operating  expense.  For the same  three-month
period in 2002,  the  Company  recognized  expense  of  $100,000  related to the
amortization of stock based compensation for employees and consultants.

Note 8 - Notes Payable

In 2002, the Company received approximately  $1,031,000 from a private placement
of  convertible  notes  with  European  investors  (the "Euro  notes")  who were
existing  Company  stockholders.  The  notes  carry  a 4%  annual  coupon,  paid
quarterly  in cash or  stock,  at our  discretion,  and  are  convertible  for a
one-year  conversion  term at a price of $1.20  per  share.  In  addition,  upon
conversion,  the note  holder  will be issued  warrants  equal to the  number of
shares to be issued.

Because the Euro notes'  conversion  price was below the trading market price of
stock on the day the Euro  notes  were  issued,  this  resulted  in an  embedded
beneficial  conversion  element.  As a result,  we  recorded a debt  discount of
$301,000 and this sum is being  accreted  over the life of the debt or sooner in
the event of conversion.  Through  December 31, 2002,  approximately  76% of the
note  holders  converted  their  notes into the  Company's  common  stock.  Upon
conversion,  the Company expensed  warrants to purchase 674,654 shares of common
stock at $1.60 per share for $293,000.  The warrants are fully vested and expire
in June 2007.  In 2002,  we  recorded  non-cash  interest  expense  of  $573,000
relating to  amortization of debt discount and issuance of common stock warrants
related to the Euro notes.

During 2002, the Company issued two convertible  notes to The Laurus Master Fund
("Laurus").  In May 2002, we issued Laurus a 12%,  15-month  convertible note in
the principal amount of $1,250,000.  The note is convertible at a price of $1.40
per share. The Company secured a three-month  deferral of principal and interest
under the note. In connection with the issuance of the 12%  convertible  note in
May 2002,  we issued to Laurus  warrants  to purchase  125,000  shares of common
stock at $1.68 per share. The warrants are fully vested and expire on May 2009.

On November 7, 2002,  we issued Laurus a 12%  convertible  note in the principal
amount of $300,000.  The note is convertible at a price of $.85 per share and is
payable on a monthly basis over 18 months.  In  connection  with the issuance of
the 12%  convertible  note in  November  2002,  the Company  issued  warrants to
purchase 75,000 shares of common stock at $.85 per share.

Because the Laurus notes' conversion prices were below the trading market prices
of the  Company's  stock on the dates of issue,  this  resulted  in an  embedded
beneficial  conversion element. We recorded a debt discount of $779,000 and this
is  being  accreted  over  the  life  of the  debt or  sooner  in the  event  of
conversion.  In 2002, we recorded non-cash interest expense of $421,000 relating
to the accretion of debt discount and  conversions  related to the Laurus notes.
The price at which these Laurus notes  convert into our stock  generally  varies
monthly in proportion to the price of our stock at the time of  conversion,  and
is based generally on a trailing market price.

As part of the November 7, 2002 convertible note  transaction,  the Company also
repriced the conversion  price of the May 2002  convertible note and the 125,000
warrants (which had been purchased by the same investor) to $.85 per share.  The
term of the May 2002 note was extended to May 7, 2004. The repricing resulted in
a non-cash  charge of $130,000 in the fourth  quarter  ended  December  31, 2002
related to debt conversion  expense.  The Company will incur additional non-cash
debt conversion expense in the future upon the conversion of both notes.

On February 14, 2003,  the Company  entered into a $1 million  revolving line of
credit with Laurus.  This revolving line of credit ("the LOC") is secured by the
Company's accounts receivables and other assets, and the Company has the ability
to draw down  advances  under the LOC subject to limits.  Under the terms of the
LOC,  Laurus can convert  advances  made to the Company  into common  stock at a
fixed  conversion  price of $1.13 per share.  In  connection  with the LOC,  the
Company issued warrants to purchase 75,000 shares of the Company's  Common Stock
at $1.13 per share.  The Company  borrowed a $300,000 advance under the LOC. The
Company  recorded a non-cash debt discount of $23,000 in its quarter ended March
31, 2003.

On March 28, 2003,  the Company  signed a securities  purchase  agreement  under
which the  Company  can raise up to $1.5  million  through  the  issuance  of 7%
convertible notes with a fixed conversion price of $.65 per share. In connection
with notes  issued  under this  Agreement,  the Company will issue up to 576,923
warrants to purchase the Company's common stock at $1.00 per share.  Pursuant to
this Agreement,  on March 28, 2003, the Company issued to Palisades  Master Fund
L.P. ("Palisades") a note in the amount of $500,000,  together with a warrant to
purchase  up to  192,308  shares of the  Company's  common  stock.  Because  the
conversion  price of this note was below  the  market  price of our stock on the
date the note was issued,  this  resulted in an embedded  beneficial  conversion
element. We recorded a non-cash debt discount of $53,000 related to this note in
our quarter ended March 31, 2003. See Note 9, Subsequent Event.
<TABLE>

The  Company's  notes  payable at March 31, 2003 are as follows (in thousands of
dollars):

<S>                                                                                         <C>
Short-term notes payable consist of the following at March 31, 2003:

European investors (less unamortized debt discount of $5,000)1                                 $            361
Laurus Master Funds Ltd (less unamortized debt discount of $235,000)2                                       678
Laurus Master Funds Ltd (less unamortized debt discount of $23,000)3                                        277
                                                                                              -------------------
                                                                                               $          1,316
                                                                                              ===================

1 Notes payable to European investors bear interest at 4.0% and are convertible
  into the Company's stock at a rate of $1.20 per share.

2 These notes bear interest at 12.0% and are convertible into the Company's
  common stock at a variable rate not to exceed $0.85 per share.

3 This Note is a $1 million A/R secured, revolving line of credit expiring in
  February, 2006 that bears interest at Prime + 1.75%, and drawn-down amounts
  are convertible into the Company's common stock at a rate of $1.13 per share.

Long-term notes payable consist of the following at March 31, 2003:

4% Euro notes due May, 2003 (less unamortized debt discount of $5,000) (convertible into
192,259 shares of common stock)                                                                $            361

12% Laurus Master Funds notes due May, 2004 (less unamortized debt discount of
$268,000) (convertible into a minimum of 933,625 share of common stock) 772

Laurus Master Funds $1 million line of credit (less unamortized debt discount of
$23,000) (convertible into 265,487 shares of common stock) 277

7% Pallisades notes due March, 2005 (less unamortized debt discount of
$53,000)(convertible into 769,231 shares of common stock)                                                   447


Less:  Current maturities included in current liabilities                                                (1,316)
                                                                                              -------------------
                                                                                               $            541
                                                                                              ===================


At March 31, 2003, the maturities of long-term debt are as follows:

2003                                                                                           $          1,064
2004                                                                                                        642
2005                                                                                                        500
                                                                                              -------------------
                                                                                               $          2,206
                                                                                              ===================
</TABLE>

Note 9 - Subsequent Event

Pursuant to the March 28, 2003  securities  purchase  agreement  under which the
Company  can raise up to $1.5  million  through the  issuance of 7%  convertible
notes with a fixed  conversion  price of $.65 per share,  on April 4, 2003,  the
Company issued in favor of Crescent  International  Ltd. a note in the amount of
$500,000,  together  with a warrant  to  purchase  up to  192,308  shares of the
Company's common stock.  Because the conversion price of this note was below the
market price of our stock on the date the note was issued,  this  resulted in an
embedded  beneficial  conversion  element. We will record non-cash debt discount
related to this note in our quarter ending June 30, 2003.

On May 15, 2003,  the Company  closed the remaining  $500,000  round on its $1.5
million,  7%  convertible  notes  financing  pursuant  to  the  March  28,  2003
securities  purchase  agreement.  In this remaining  round, the Company issued a
total of $500,000, 7% convertible notes in favor of Palisades Master Fund, L.P.,
Crescent  International,  Ltd, Alpha Capital AG and Barucha, Ltd., together with
warrants  to purchase up to a total of 192,308  shares of the  Company's  common
stock.  Because the conversion prices of these notes were below the market price
of our stock on the date the notes were  issued,  this  resulted  in an embedded
beneficial  conversion element. We will record non-cash debt discount related to
these notes in our quarter ending June 30, 2003.


<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
our  annual  report on Form 10-K and other  reports  and  filings  made with the
Securities and Exchange Commission.

OVERVIEW

We are an industry  leader in developing and supplying  products that enable the
transportation  and distribution of real-time,  high-quality video over Internet
Protocol (IP)  networks,  such as the networks  that comprise the Internet.  Our
products are currently used in two different  segments of the video market.  Our
products are used by a variety of providers to transmit high-quality,  real-time
video to one or more locations  throughout the United States or the world (which
we refer to as  "long-haul  transmission").  Since our products  transmit  video
content  using  IP  communication  networks,  our  customers  can  use  existing
infrastructure,   thus  lowering  their  costs  and   permitting   them  greater
flexibility  in the  delivery of video  content.  Our  products are also used by
cable companies to supply video-on-demand services. Our customers include cable,
broadcast and satellite  companies,  movie studios,  carriers and government and
educational  institutions.   Collectively,   we  refer  to  these  customers  as
communication service providers, or simply as providers.

Long Haul Customers

Our long haul  customers  use our products to transmit  high-quality,  real-time
video to one or a number of locations over existing IP networks. This ability to
send video over IP networks  significantly reduces the current need of long haul
providers to rent dedicated high bandwidth  connections to service the specified
locations.  Our products not only provide a cost advantage to our customers, but
also  enable  them  increased  flexibility  in  where  and  when  the  video  is
transmitted.

Customers using our products for long-haul  transmission include DreamWorks LLC,
a  major  film  production  studio,  for  domestic  and  international  creative
collaborations using high-definition video cameras.  C-Span uses our products to
televise  real-time,  interactive  classrooms between  Washington,  D.C. and the
University  of Denver.  PanAmSat  uses our Cx1000 on the Level (3)  backbone  to
interconnect  earth  stations for video  routing  with the least delay.  RTVI, a
Russian  television  network,  runs  live  broadcast-quality   Russian  language
programming  between  Moscow  and New York using our long haul  product,  and is
expanding  its  network  internationally.  Currently,  Level (3) offers full and
part-time video services using our Cx1000 product to deliver  broadcast video in
key US and European cities.  Wiltel/Vyvx has moved video operations centers into
networking  facilities  to merge IP video,  voice and data services that use our
Cx1000 product for video.

Cable Company Customers

The versions of our Chameleon  vidX product line  designed for cable  television
companies  allows them to use existing digital set-top boxes already in consumer
homes to provide  video-on-demand  services, a significant competitive advantage
over satellite  providers.  The more efficient use of existing  bandwidth  (both
into the home and within the  network)  allows  cable  companies to increase the
volume of content  (whether  movies,  television  or live events)  available for
delivery whenever  requested by the cable subscriber,  or to increase the number
of subscribers  served with existing content volume.  We believe that the desire
for  video-on-demand - indeed, all  content-on-demand - will continue to rise as
consumers become increasingly aware of its availability and benefits,  and as IP
networks  enabled  by our  products  provide  access to  significant  amounts of
interactive programming previously unavailable.  Cable companies currently using
our products include companies such as Time-Warner and Cablevision.

Additionally,  our products will provide cable  companies  with  flexibility  to
deliver  high  definition  television,  which could  potentially  overwhelm  the
bandwidth capacity of current delivery technologies.  High definition television
requires  at least five times the  bandwidth  currently  required  for  standard
television  transmissions.  Using our products,  providers  can avoid  incurring
significant   capital   expenditures   to  increase  the  capacity  of  existing
infrastructure,  and can  avoid  significant  recurring  costs to  maintain  and
support the expanded  networks  resulting  from high  definition  television and
increased  numbers of channels.  Should these providers use existing  methods of
transmission,  they might eventually be forced to decrease  programming or other
services to conserve bandwidth.

Company Information

We were  incorporated  in  Delaware in January  1998.  Our  principal  executive
offices are  located at 6215 Ferris  Square,  Suite 140,  San Diego,  California
92121.  Our  telephone  number is (858)  450-4220.  Our  website  is  located at
www.path1.com.

Liquidity And Capital Resources

Since our  inception  on January  30,  1998,  we have  financed  our  operations
primarily  through  the  sale of  common  equity  securities  to  investors  and
strategic partners, as well as from the issuance of convertible notes.

From January 30, 1998 through March 31, 2003, we incurred  losses totaling $31.9
million. The accompanying  consolidated  financial statements have been prepared
assuming  that we will  continue as a going  concern.  This basis of  accounting
contemplates  the recovery of our assets and the satisfaction of our liabilities
in the normal course of conducting business. We do not believe that our existing
capital  resources will enable us to fund operations for the next twelve months.
At March 31,  2003,  we had  negative  working  capital  of  $1,388,000,  and an
increase of $28,000 in cash and cash equivalents compared to December 31, 2002.

Our plans are to contain  and reduce  costs in all areas of our  operating  plan
until  sufficient  capital is raised to support our growth and more  substantial
product orders materialize; however, even with our cost reduction plans, we need
to raise additional  funding to continue as a going concern.  In the event we do
not receive additional funding,  our plans may include,  but are not necessarily
limited to: 1) further reducing costs and focusing on selling existing  products
and services;  2) selling the Company's  assets through a merger or acquisition;
or  3)  seeking  protection  under  bankruptcy   statutes.   Without  additional
financing,  we may be  required  to  further  delay,  reduce  the  scope  of, or
eliminate one or more of our research and development projects and significantly
reduce  our  expenditures  on  product  deployment,  and we may  not be  able to
continue as a going concern.

In 2002, the Company received approximately  $1,031,000 from a private placement
of  convertible  notes  with  European  investors  (the "Euro  notes")  who were
existing  Company  stockholders.  The  notes  carry  a 4%  annual  coupon,  paid
quarterly  in cash or  stock,  at our  discretion,  and  are  convertible  for a
one-year  conversion  term at a price of $1.20  per  share.  In  addition,  upon
conversion,  the note  holder  will be issued  warrants  equal to the  number of
shares to be issued.

Because the Euro notes'  conversion  price was below the trading market price of
stock on the day the Euro  notes  were  issued,  this  resulted  in an  embedded
beneficial  conversion  element.  As a result,  we  recorded a debt  discount of
$301,000  and this will be  accreted  over the life of the debt or sooner in the
event of  conversion.  Through  March 31,  2003,  approximately  76% of the note
holders  converted their notes into the Company's common stock. Upon conversion,
the Company  expensed  warrants to purchase  674,654  shares of common  stock at
$1.60 per share for  $293,000.  The warrants are fully vested and expire in June
2007. In 2002, we recorded  non-cash  interest  expense of $573,000  relating to
amortization  of debt discount and issuance of common stock warrants  related to
the Euro notes.  Some of the Euro notes have matured but have not been paid.  We
believe we have an arrangement with the holders of these  outstanding Euro notes
to roll their notes into new notes.

During 2002, the Company issued two convertible  notes to The Laurus Master Fund
("Laurus").  In May 2002, we issued Laurus a 12%,  15-month  convertible note in
the principal  amount of $1,250,000.  The note was convertible into common stock
at a price of $1.40 per share.  The Company  secured a  three-month  deferral of
principal and interest  under the note.  In connection  with the issuance of the
12%  convertible  note in May 2002,  we issued to Laurus  warrants  to  purchase
125,000 shares of common stock at $1.68 per share. The warrants are fully vested
and expire on May 2009.

On November 7, 2002,  we issued Laurus a 12%  convertible  note in the principal
amount of $300,000.  The note is convertible at a price of $.85 per share and is
payable on a monthly basis over 18 months.  In  connection  with the issuance of
the 12% convertible note in November 2002, we issued warrants to purchase 75,000
shares of common stock at $.85 per share.

Because the Laurus notes' conversion prices were below the trading market prices
of our  Company's  stock on the dates of issue,  this  resulted  in an  embedded
beneficial  conversion element. We recorded a debt discount of $779,000 and this
sum is  being  accreted  over the life of the  debt or  sooner  in the  event of
conversion.  In 2002, we recorded non-cash interest expense of $421,000 relating
to the accretion of debt discount and  conversions  related to the Laurus notes.
The price at which these Laurus notes  convert into our stock  generally  varies
monthly in proportion to the price of our stock at the time of  conversion,  and
is based generally on a trailing market price.

As part of the November 7, 2002 convertible note  transaction,  we also repriced
the conversion  price of the May 2002  convertible note and the 125,000 warrants
(which had been purchased by the same  investor) to $.85 per share.  The term of
the May 2002  note was  extended  to May 7,  2004.  The  reprice  resulted  in a
non-cash  charge of  $130,000  in the fourth  quarter  ended  December  31, 2002
related to debt conversion  expense.  The Company will incur additional non-cash
debt conversion expense in the future upon the conversion of both notes.

On February 14, 2003, we entered into a $1 million revolving line of credit with
Laurus.  This  revolving  line of credit  ("the LOC") is secured by our accounts
receivables  and other  assets,  and we have the  ability to draw down  advances
under the LOC subject to limits.  Under the terms of the LOC, Laurus can convert
advances made to us into our common stock at a fixed  conversion  price of $1.13
per share.  In connection  with the LOC, we issued  warrants to purchase  75,000
shares of our Common Stock at $1.13 per share.

On March 28, 2003, we signed a securities  purchase agreement under which we can
raise up to $1.5  million  through the issuance of 7%  convertible  notes with a
fixed  conversion price of $.65 per share. In connection with notes issued under
this  Agreement,  we will issue up to 576,923  warrants to  purchase  our common
stock at $1.00 per share.  Pursuant to this  Agreement,  on March 28,  2003,  we
issued to  Palisades  Master  Fund L.P.  ("Palisades")  a note in the  amount of
$500,000, together with a warrant to purchase up to 192,308 shares of our common
stock.  Because the conversion  price of this note was below the market price of
our  stock  on the  date  the note was  issued,  this  resulted  in an  embedded
beneficial  conversion  element.  We recorded  non-cash debt discount of $53,000
related to this note in our quarter ended March 31, 2003.

Pursuant to the March 28, 2003  securities  purchase  agreement  under which the
Company  can raise up to $1.5  million  through the  issuance of 7%  convertible
notes with a fixed  conversion  price of $.65 per share,  on April 4, 2003,  the
Company issued in favor of Crescent  International  Ltd. a note in the amount of
$500,000,  together  with a warrant  to  purchase  up to  192,308  shares of the
Company's common stock.  Because the conversion price of this note was below the
market price of our stock on the date the note was issued,  this  resulted in an
embedded  beneficial  conversion  element. We will record non-cash debt discount
related to this note in our quarter ending June 30, 2003.

On May 15, 2003,  the Company  closed the remaining  $500,000  round on its $1.5
million,  7%  convertible  notes  financing  pursuant  to  the  March  28,  2003
securities  purchase  agreement.  In this remaining  round, the Company issued a
total of $500,000, 7% convertible notes in favor of Palisades Master Fund, L.P.,
Crescent  International,  Ltd, Alpha Capital AG and Barucha, Ltd., together with
warrants  to purchase up to a total of 192,308  shares of the  Company's  common
stock.  Because the conversion prices of these notes were below the market price
of our stock on the date the notes were  issued,  this  resulted  in an embedded
beneficial  conversion element. We will record non-cash debt discount related to
these notes in our quarter ending June 30, 2003.

For  the  foreseeable   future,  we  expect  to  incur  substantial   additional
expenditures associated with cost of sales and with research and development, in
addition  to  increased   costs   associated   with  staffing  for   management,
manufacturing,  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 are continuing to seek other sources
of additional  capital to fund  operations  until we are able to fund operations
through internal cash flow.

At March 31,  2003,  we had 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 possible  need to
acquire new technology,  the expansion of our sales and marketing  efforts,  and
our  expansion  internationally.  We expect to  continue  to expend  significant
amounts in all areas of our operations.

As noted  above,  we will need  additional  financing  in 2003.  We may pursue a
number of alternatives to raise additional funds, including:  borrowings;  lease
arrangements;   collaborative   research  and  development   arrangements   with
technology  companies;  the  licensing of product  rights to third  parties;  or
additional public and private equity  financing.  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 or significantly  diluted, or such
equity  securities may provide for rights,  preferences or privileges  senior to
those of the holders of our common stock.

Our  existing  capital  resources  are  insufficient  to enable  us to  continue
operations  as  currently  conducted.  The  cash  crisis  is very  serious.  Our
independent  auditors' opinion expresses  substantial doubt about our ability to
continue as a going concern.

Cash used in operations  was $877,000 at March 31, 2003,  compared to $1,180,000
for the same period in 2002.  The  decrease in cash used in  operations  for the
quarter ended March 31, 2003,  compared to the same period in the prior year was
due primarily to a lower net loss and a decrease in inventory.

Cash used in investing  activities  as of March 31, 2003,  was $5,000,  compared
cash  provided of $488,000 as of March 31, 2002.  Cash  provided for the quarter
ended  March  31,  2002 was  primarily  the  result  of our  sale of  marketable
securities in early 2002.

Cash provided by financing  activities  for the quarter ended March 31, 2003 was
$910,000,  compared to cash provided of $136,000 at March 31, 2002.  This change
was primarily due to the issuance of convertible notes.

Results Of Operations

Three Months Ended March 31, 2003 vs. Three Months Ended March 31, 2002

For quarter ended March 31, 2003, net revenue was $661,000  compared to $154,000
during the three-month period ended March 31, 2002,  reflecting a 329% increase.
Revenue in the quarter ended March 31, 2003 came  principally  from sales of our
products  for the  video  over IP  transport  market,  as well as from  contract
services.  In the  quarter  ended  March 31, 2002  revenue  was  generated  from
contract services.

Cost of goods sold  increased  to $356,000  from  $123,000 in the quarter  ended
March 31,  2003.  Cost of goods  sold for  products  consists  primarily  of raw
material  costs,  warranty costs and labor  associated  with  manufacturing  our
products.  Cost of goods  sold  for  contract  services  consists  primarily  of
engineering payroll costs.

Our gross profit  increased  over 800% to $305,000  from $31,000 in the quarters
ending  March 31, 2003 and 2002,  respectively.  Our  increase  in gross  profit
results primarily from the change in our business to selling  products,  as well
as our managing our production and development costs.

Engineering  research and  development  expenses for the quarter ended March 31,
2003  decreased  33% to $362,000  from  $517,000 in the quarter  ended March 31,
2002.  The  decrease is due  primarily  to reduced  cost of R&D  personnel,  and
reduced  expenditures on to acquire development  expertise and tools for our new
products.

Selling,  marketing,  and general and  administrative  expenses  for the quarter
ended March 31, 2003  increased  4% to $931,000  from  $895,000  for the quarter
ended March 31,  2002.  The increase is  primarily  due to  increased  sales and
marketing expenses for payroll, trade shows and travel.

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  prices and estimated fair market value on the date of grant. We record
compensation  expense related to the outstanding options to consultants and some
employees  for the  amount of  options  that vest in that  period.  In the first
quarter  ended  March 31,  2003,  we  recorded  a $25,000  non-cash  charge  for
stock-based compensation related to employees.  Stock-based compensation related
to consultants has been included in operating expense.  For the same three-month
period in 2002,  the  Company  recognized  expense  of  $100,000  related to the
amortization of stock based compensation for employees and consultants.

Interest expense for the quarter ended March 31, 2003 was $144,000.  We reported
no interest  income or expense in the quarter ended March 31, 2002. The increase
in  interest  expense  predominantly  consists of the  amortization  of deferred
interest and debt discount related to our convertible note borrowings in 2002.

We neither held nor sold  portfolio  securities  in the quarter  ended March 31,
2003.  In the  quarter  ended  March 31,  2002,  we  recorded  a loss on sale of
securities totaling $590,000,  reflecting our sale of securities that we held in
various companies, especially Leitch Technology Corporation.

Discontinued Operations

We decided to dispose of our Silicon Systems business unit ("Sistolic")  after a
large semiconductor company, with whom we entered into a non-exclusive licensing
agreement  and  an  engineering   services   agreement   related  to  Sistolic's
technology,  informed us that they were  terminating  their  agreements in March
2002. Due to this material and adverse turn of events,  we decided that we could
no longer  sustain the negative  cash flow from  Sistolic.  On April 3, 2002, we
disposed  of the  assets  of this  business  unit  back to Metar ADC SRL and its
President  ("Executive")  in  exchange  for  the  elimination  of our  remaining
obligations  to Metar  ADC SRL and its  affiliates,  including  the  payable  of
$686,000,  the  return of all stock  options  granted to the  Executive  and the
Romanian  employees,  and a confirmation that performance  criteria specified in
the Executive's  employment  agreement with us related to a potential $4 million
bonus  were never met by him.  We also  received  a limited  use  license to the
business unit's intellectual  property. In addition, the Romanian facility lease
was  transferred  to Metar ADC SRL and the Romanian  employment  contracts  were
terminated.  Metar ADC SRL was permitted to hire any and all Romanian employees.
Metar  SRL also  received  35,000  shares of our  common  stock.  The  Executive
resigned on March 27, 2002, as an officer of the Company in anticipation of this
transaction.

Sistolic's  results of operations for the quarter ended March 31, 2002 have been
included  in  discontinued  operations.  We  recorded  a loss of  $251,000  from
discontinued operations for the quarter ended March 31, 2002.

                                  RISK FACTORS

Investment  in our  common  stock  involves  a high  degree of risk.  You should
carefully  consider the risks  described  below  together  with all of the other
information  included in this prospectus  before making an investment  decision.
The risks and  uncertainties  described  below are not the only ones we face. If
any of the following risks actually occurs, our business, financial condition or
results of  operations  could  suffer.  In that case,  the trading  price of our
common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

WE ARE DEPENDENT UPON ADDITIONAL FUNDING TO MEET CURRENT  COMMITMENTS,  CONTINUE
DEVELOPMENT  OF OUR  BUSINESS  AND  MAINTAIN  OUR ABILITY TO CONTINUE AS A GOING
CONCERN.

Our  existing  capital  resources  are  insufficient  to enable  us to  continue
operations  as  currently  conducted.  The  cash  crisis  is very  serious.  Our
independent  auditors' opinion expresses  substantial doubt about our ability to
continue as a going concern.

We need additional funding to meet current commitments and continue  development
of our business.  We currently  have the cash resources to continue our business
at its  current  levels  only  for our  immediate  needs.  If we do not  receive
additional  funding,  our  ability  to  continue  as a going  concern  cannot be
assured.

OUR LIMITED SALES HISTORY MAKES IT DIFFICULT TO EVALUATE OUR PROSPECTS.

We were  founded  in  January  1998 and have  only  been  selling  our  products
commercially  since 2002, which makes an evaluation of our prospects  difficult.
Because of our limited sales history,  we have limited  insight into trends that
may emerge and  affect  our  business.  In  addition,  the  revenues  and income
potential of our business and market are unproven. An investor in our securities
must consider the challenges, expenses and difficulties we face as our sales and
marketing efforts mature.

WE RECENTLY LAUNCHED OUR INITIAL  COMMERCIAL  PRODUCTS AND SERVICES AND THEY MAY
NOT GAIN CUSTOMER ACCEPTANCE.

In 2002,  we  launched  our two  primary  commercial  products  into  the  video
transport market and announced the deployment of our Chameleon vidX product line
in our  first  quarter  of 2003.  These  products  are in the  early  stages  of
commercial  deployment or are still in  development.  We may not be able to gain
customer  acceptance  of any of our products  due to our lack of an  established
track record, our financial condition,  competition, price or a variety of other
factors.  If our products and services are not accepted by potential  customers,
or if these customers do not purchase our products and services at the levels we
anticipate, our operating results may be materially adversely affected.

WE FACE  COMPETITION FROM  ESTABLISHED AND DEVELOPING  COMPANIES,  MANY OF WHICH
HAVE SIGNIFICANTLY GREATER RESOURCES, AND WE EXPECT SUCH COMPETITION TO GROW.

The markets  for our  products,  future  products  and  services  are  intensely
competitive.   We  face  direct  and  indirect  competition  from  a  number  of
established  companies,  including  Scientific-Atlanta,  as well as  development
stage  companies,  and we anticipate that we will face increased  competition in
the future as existing  competitors seek to enhance their product  offerings and
new competitors emerge.  Many of our competitors have greater resources,  higher
name recognition,  more established reputations within the industry and stronger
manufacturing, distribution, sales and customer service capabilities than we do.

The  technologies  that our  competitors  and we offer are  expensive to design,
develop,  manufacture and distribute.  Competitive technologies may be owned and
distributed  by  established   companies  that  possess   substantially  greater
financial,  technical  and other  resources  than we do and,  as a result,  such
companies  may be able to develop  their  products more rapidly and market their
products more extensively than we can.

Competitive  technologies  that offer a similar or superior capacity to converge
and transmit audio, video and telephonic data on a real-time basis over existing
networks may currently exist or may be developed in the future. We cannot assure
you that any technology  currently  being developed by us is not being developed
by others or that our  technology  development  efforts  will result in products
that are  competitive  in terms of  price  or  performance.  If our  competitors
develop  products  or  services  that  offer  significant  price or  performance
advantages as compared to our current and proposed products and services,  or if
we are unable to improve our  technology or develop or acquire more  competitive
technology,  our business could be adversely affected. In addition,  competitors
with greater  financial and other resources than we have may be able to leverage
such resources to gain wide acceptance of products inferior to ours.

OUR  CUSTOMER  BASE  IS  CONCENTRATED  AND  THE  LOSS  OF ONE OR MORE OF OUR KEY
CUSTOMERS WOULD HARM OUR BUSINESS.

Historically,  a significant  majority of our sales have been to relatively  few
customers, including Scientific-Atlanta.  We expect that sales to relatively few
customers will continue to account for a significant percentage of our net sales
for the foreseeable future. Almost all of our sales are made on a purchase order
basis,  and  none  of our  customers  has  entered  into a  long-term  agreement
requiring it to purchase our  products.  The loss of, or any reduction in orders
from, a significant customer would harm our business.

OUR CRITICAL  RELATIONSHIP WITH  Scientific-Atlanta  AS BOTH A CUSTOMER AND AS A
COMPETITOR MAY JEOPARADIZE OUR SUCCESS.

In 2002, approximately 66% of our revenues were from sales to Scientific-Atlanta
and  its   subsidiary,   BarcoNet  N.V.   Should  our  level  of  business  with
Scientific-Atlanta change, our results could be negatively impacted.

Our technology uses non-proprietary industry standard interfaces and designs for
video   transport   (known  as   IP/gigabit   Ethernet).   We  are  aware   that
Scientific-Atlanta   has   developed  a  product  line  that  operates  with  an
alternative to the open industry standard of IP/gigabit Ethernet.

We believe  transporting video directly over a proprietary  standard  eliminates
the  flexibility  offered  through open standards  such as IP/gigabit  Ethernet.
Nonetheless,   Scientific-Atlanta's  development,  marketing  and  sale  of  its
proprietary  standard-based  products may compete directly with our development,
marketing and sales efforts. Since  Scientific-Atlanta has greater financial and
other  resources  than we do,  Scientific-Atlanta  may be able  to  develop  its
products  more rapidly and market its  products  more  extensively  than we can.
Because of Scientific-Atlanta's name recognition,  industry-reputation and other
reasons, Scientific-Atlanta's products could become the standard for delivery of
real-time, broadcast-quality video, in which case the sale of our products could
materially suffer.  Scientific-Atlanta's products and may be superior to ours in
terms of price or  performance,  or  inferior  to ours but  backed  by  superior
marketing and support  capabilities.  As a result, we may not be able to compete
successfully with  Scientific-Atlanta,  and our ability to gain market share for
our products could be adversely affected.

Our relationship with Scientific Atlanta,  as both a significant  customer and a
significant  competitor,  may have adverse  consequences to our business.  While
general  risks  are  associated  with  any  competitor  and  any  customer,  the
conflicting  interests  of  Scientific-Atlanta  (as  a  result  of  being  both)
magnifies these risks with respect to  Scientific-Atlanta as both a customer and
competitor.  Scientific-Atlanta  may decide to pursue its  proprietary  standard
based products and discontinue its relationship  with us, as both a reseller and
an  outside  manufacturer.   Loss  of  sales  to   Scientific-Atlanta   and  its
distribution  network to communication  service providers could adversely affect
our business.

WE HAVE INCURRED  LOSSES SINCE  INCEPTION AND WILL LIKELY NOT BE PROFITABLE  FOR
THE NEXT SEVERAL QUARTERS.

We have incurred  operating  losses since our inception in January 1998,  and we
expect to incur  losses  and  negative  cash flow for at least the next  several
quarters.  As of March 31, 2003, our accumulated deficit was approximately $31.9
million. We expect to continue to incur significant operating, sales, marketing,
research  and  development  and general and  administrative  expenses  and, as a
result, we will need to generate significant revenues to achieve  profitability.
Even if we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or annual basis in the future.

OUR QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.

Our  quarterly  operating  results are  difficult  to predict and may  fluctuate
significantly  from period to period,  particularly  because our sales prospects
are uncertain and our sales are made on a purchase order basis. In addition,  we
have not proven our ability to execute our  business  strategy  with  respect to
establishing  and expanding sales and  distribution  channels.  Fluctuations may
result from  decreased  spending on new products  such as ours by  communication
service  providers  or their  suppliers,  the timing of new  product  offerings,
acquisitions, licenses or other significant events by us or our competitors, our
ability to  establish a  productive  sales force or partner  with  communication
service  providers  or their  suppliers,  demand and pricing of the  products we
offer, consumer acceptance of the services our products enable,  interruption in
the  manufacturing  or  distribution  of our products  and general  economic and
market  conditions,   including  war,  and  other  conditions  specific  to  the
telecommunications  industry.  As  a  result,  we  may  experience  significant,
unanticipated quarterly losses.

THE SUCCESS OF OUR BUSINESS IS DEPENDENT ON ESTABLISHING AND EXPANDING SALES AND
DISTRIBUTION CHANNELS FOR OUR PRODUCTS.

Third-Party  Collaborations.  We intend to partner with the leading suppliers to
communication service providers,  including  Scientific-Atlanta,  to promote and
distribute our products,  both as an outside equipment manufacturer to suppliers
and with  suppliers  acting as resellers of our products.  We may not be able to
identify adequate partners, and even if identified,  we may not be able to enter
into agreements with these entities on commercially reasonable terms, or at all.
To the extent that we enter into any such  agreements  with third  parties,  any
revenues we receive from sales of our products in those markets will depend upon
the efforts of such third  parties,  which in most  instances will not be within
our control.  If we are unable to  effectively  leverage a partner to market our
products more broadly than we can through our internal sales force, our business
could be adversely affected.

Internal  Sales Force.  We have limited  experience in marketing and selling our
products.   We  intend  to  expand  our  direct  sales  force  domestically  and
internationally  for the  promotion of each of our Cx1000,  Cx1410 and Chameleon
vidX product lines and other future  products to suppliers to and  communication
service  providers of all kinds.  Competition  for quality  sales and  marketing
personnel is intense.  In addition,  new employees,  particularly  new sales and
marketing employees, will require training and education concerning our products
and will also increase our operating expenses. There can be no assurance that we
will be  successful in  attracting  or retaining  qualified  sales and marketing
personnel.  As a result,  there can be no assurance  that the sales force we are
able to build will be of a sufficient size or quality to effectively  market our
products.

THE  RATE OF  MARKET  ADOPTION  OF OUR  TECHNOLOGY  IS  UNCERTAIN  AND WE  COULD
EXPERIENCE LONG AND  UNPREDICTABLE  SALES CYCLES,  ESPECIALLY IF THE SLOWDOWN IN
THE TELECOMMUNICATIONS INDUSTRY PERSISTS.

Our  products  are based on new  technology  and, as a result,  it is  extremely
difficult to predict the timing and rate of market adoption of our products,  as
well the rate of market adoption of  applications  enhanced by our products such
as video-on-demand.  Accordingly,  we have limited visibility into when we might
realize  substantial revenue from product sales. We are providing new and highly
technical  products and services to enable new applications.  Thus, the duration
of our sales efforts with prospective customers in all market segments is likely
to be  lengthy  as we seek to  educate  them on the  uses  and  benefits  of our
products.  This sales cycle could be lengthened even further by potential delays
related to product implementation as well as delays over which we have little or
no control, including:

     o    the  length  or total  dollar  amount  of our  prospective  customers'
          planned purchasing programs in regard to our products;

     o    changes  in  prospective   customers'  capital  equipment  budgets  or
          purchasing priorities;

     o    prospective customers' internal acceptance reviews; and

     o    the complexity of prospective customers' technical needs.

These   uncertainties,   combined   with   the   worldwide   slowdown   in   the
telecommunications  business  that began in 2001,  and the slowdown in corporate
spending  on  technology  generally  as well as new  technologies  such as ours,
substantially  complicate our planning and may reduce prospects for sales of our
products.  If our prospective  customers  curtail or eliminate their  purchasing
programs,  decrease  their  budgets or reduce  their  purchasing  priority,  our
results of operations could be adversely affected.

WE WILL DEPEND ON CABLE,  BROADCASTING  AND  SATELLITE  INDUSTRY  SPENDING FOR A
SUBSTANTIAL  PORTION OF OUR  REVENUE  AND ANY  DECREASE  OR DELAY IN SPENDING IN
THESE INDUSTRIES WOULD NEGATIVELY  IMPACT OUR RESOURCES,  OPERATING  RESULTS AND
FINANCIAL CONDITION.

Demand for our products  will depend on the  magnitude and timing of spending by
cable television operators,  broadcasters,  satellite operators and carriers for
adopting new products for installation with their networks.

These spending patterns are dependent on a variety of factors, including:

     o    access to financing;

     o    annual budget cycles;

     o    the status of federal,  local and  foreign  government  regulation  of
          telecommunications and television broadcasting;

     o    overall  demand for  communication  services and the acceptance of new
          video, voice and data services;

     o    evolving industry standards and network architectures;

     o    competitive pressures;

     o    discretionary customer spending patterns;

     o    general economic conditions.

Recent  developments  in capital  markets  have  reduced  access to funding  for
potential  and  existing  customers  causing  delays in the  timing and scale of
deployments of our equipment, as well as the postponement of certain projects by
our  customers.  The timing of  deployment  of our equipment can be subject to a
number of other risks,  including the  availability  of skilled  engineering and
technical personnel.

WE NEED TO DEVELOP AND INTRODUCE NEW AND ENHANCED PRODUCTS IN A TIMELY MANNER TO
REMAIN COMPETITIVE.

Broadband  communications markets are characterized by continuing  technological
advancement,  changes in customer  requirements and evolving industry standards.
To compete successfully,  we must design,  develop,  manufacture and sell new or
enhanced  products that provide  increasingly  higher levels of performance  and
reliability.  However,  we may not be able to successfully  develop or introduce
these products if our products:

     o    are not cost effective,

     o    are not brought to market in a timely manner,

     o    are  not  in   accordance   with  evolving   industry   standards  and
          architectures, or

     o    fail to achieve market acceptance.

In order to successfully  develop and market certain of our planned products for
digital applications, we may be required to enter into technology development or
licensing  agreements  with third parties.  We cannot assure you that we will be
able to enter into any necessary  technology  development or licensing agreement
on terms  acceptable  to us, or at all.  The  failure to enter  into  technology
development or licensing  agreements  when necessary  could limit our ability to
develop and market new products and, accordingly, could materially and adversely
affect our business and operating results.

DELIVERY OF REAL-TIME,  BROADCAST-QUALITY  VIDEO VIA IP NETWORKS IS A NEW MARKET
AND SUBJECT TO EVOLVING STANDARDS.

Delivery  of  real-time,  broadcast-quality  video over IP networks is novel and
evolving  and it is  possible  that  communication  service  providers  or their
suppliers will adopt  alternative  architectures and technologies for delivering
real-time,  broadcast-quality video over IP networks that are in compatible with
our current or future products. If we are unable to design, develop, manufacture
and  sell  products  that   incorporate  or  are   compatible   with  these  new
architectures or technologies, our business could suffer.

CHANGES IN THE MIX OF OUR PRODUCT SALES,  PRODUCT DISTRIBUTION MODEL OR CUSTOMER
BASE COULD NEGATIVELY IMPACT OUR SALES AND MARGINS.

We may encounter a shift the mix of the various products that we sell - products
that have  varying  selling  prices  based in part on the type of product  sold,
applicable sales discounts,  licensed product feature sets,  whether we sell our
products as an OEM, and whether the sale is a direct sale or an indirect channel
sale through our VARs and resellers.  Any change in any of these variables could
result in a  material  adverse  impact on our gross  sales,  gross  margins  and
operating results.

WE MAY BE UNABLE TO OBTAIN FULL PATENT  PROTECTION  FOR OUR CORE  TECHNOLOGY AND
THERE IS A RISK OF INFRINGEMENT.

On January 16,  2001,  May 8, 2001 and May 31,  2001,  we  submitted  additional
patent  applications on topics  surrounding our core  technologies to supplement
our existing  patent  portfolio.  There can be no assurance  that these or other
patents will be issued to us, or, if additional patents are issued, that they or
our  three  existing  patents  will  be  broad  enough  to  prevent  significant
competition  or that third  parties will not infringe upon or design around such
patents  to develop  competing  products.  In  addition,  we have  filed  patent
applications in several foreign  countries.  There is no assurance that these or
any future patent  applications will be granted,  or if granted,  that they will
not be challenged, invalidated or circumvented.

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 have not
or 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 our business.

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 RELY ON SEVERAL KEY SUPPLIERS OF COMPONENTS,  SUB-ASSEMBLIES AND MODULES THAT
WE USE TO  MANUFACTURE  OUR PRODUCTS,  AND WE ARE SUBJECT TO  MANUFACTURING  AND
PRODUCT SUPPLY CHAIN RISKS.

We purchase  components,  sub-assemblies  and modules  from a limited  number of
vendors and suppliers  that we use to  manufacture  and test our  products.  Our
reliance on these vendors and suppliers  involves several risks  including,  but
not  limited  to, the  inability  to  purchase  or obtain  delivery  of adequate
supplies of such components,  sub-assemblies or modules, increases in the prices
of such items,  quality,  and overall  reliability of our vendors and suppliers.
Although in many cases we use standard  parts and  components  for our products,
certain components are presently  available only from a single source or limited
sources.  Some of the materials  used to produce our products are purchased from
foreign suppliers. We do not generally maintain long-term agreements with any of
our  vendors  or  suppliers.  Thus we may thus be  unable to  procure  necessary
components,  sub-assemblies  or  modules  in time to  manufacture  and  ship our
products, thereby harming our business.

We also  recently  signed an  agreement  with a leading  parts vendor to provide
turn-key outsourced  manufacturing  services. To reduce manufacturing lead times
and to ensure adequate  component  supply, we may instruct our vendor to procure
inventory  based on  criteria  and  forecasts  as  defined  by us. If we fail to
anticipate customer demand properly, an oversupply of parts, obsolete components
or finished goods could result,  thereby  adversely  affecting our gross margins
and results of operations.

We may also be subject to disruptions in our manufacturing  and  product-testing
operations that could have a material adverse affect on our operating results.

UNANTICIPATED  DELAYS OR PROBLEMS  ASSOCIATED WITH OUR PRODUCTS AND IMPROVEMENTS
MAY CAUSE  CUSTOMER  DISSATISFACTION  OR  DEPRIVE  US OF OUR  "FIRST TO  MARKET"
ADVANTAGE.

Delays in developing and releasing products and improvements are not uncommon in
the industry in which we compete. In the event of performance  problems with our
product  offerings,  delays of more than a few months in releasing  improvements
could result in decreased demand for a particular product and adverse publicity,
which could  further  reduce  demand for  particular  products  or our  products
generally.

PRODUCT  QUALITY  PROBLEMS MAY  NEGATIVELY  AFFECT OUR REVENUES AND RESULTS FROM
OPERATIONS.

We produce  highly complex  products that  incorporate  leading edge  technology
including both hardware,  software and embedded firmware. Our software and other
technology may contain  "bugs" that can prevent our products from  performing as
intended.  There can be no assurance that our pre-shipment testing programs will
be adequate to detect all defects  either in individual  products or which could
affect numerous shipments that, in turn, could create customer  dissatisfaction,
reduce sales opportunities, or affect gross margins if the cost of remedying the
problems exceed our reserves established for this purpose. Our inability to cure
a product defect may result in the failure of a product line,  serious damage to
our reputation,  and increased engineering and product re-engineering costs that
individually  or  collectively  would  have a  material  adverse  impact  on our
revenues and operating results.

WE MAY BE UNABLE TO RAISE  ADDITIONAL  CAPITAL IN THE FUTURE WHEN NEEDED,  WHICH
COULD PREVENT US FROM GROWING.

Even if one assumes that we can resolve our very serious short-term cash crisis,
we must raise additional  capital to fund our operations and planned growth.  We
cannot be certain that any such financing will be available on acceptable terms,
or at all, and our failure to raise capital when needed could seriously harm our
business. In addition,  additional equity financing may dilute our stockholders'
interest,  and debt financing,  if available,  may involve restrictive covenants
and could  result in a  substantial  portion  of our  operating  cash flow being
dedicated to the payment of principal  and interest on debt.  If adequate  funds
are not available, we may need to curtail our operations significantly.

WE MAY NOT BE ABLE TO PROFIT FROM GROWTH IF WE ARE UNABLE TO EFFECTIVELY  MANAGE
THE GROWTH.

We anticipate that we will need to grow in the future.  This anticipated  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  products  and  the  level  of  expertise  and   technological
sophistication  incorporated  into the  provision  of our  design,  engineering,
implementation  and support services,  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 and post-consultation  field and remote
support. In addition,  new customers,  especially  customers that purchase novel
and  technologically  sophisticated  products  such as ours,  generally  require
significant  engineering  support.  Therefore,  adoption  of our  platforms  and
products by customers  would increase the strain on our resources.  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, if any, our business may suffer.

WE MAY NOT BE ABLE TO HIRE AND ASSIMILATE 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.
Despite  the  recent  economic  slowdown,  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. In addition,  we
may not be able to  successfully  assimilate  these  employees or hire qualified
personnel to replace them. The loss of services of any of our key personnel, the
inability to attract or retain key personnel in the future,  or delays in hiring
required personnel,  particularly engineering and sales personnel, could make it
difficult  to  meet  key  objectives  such  as  timely  and  effective   product
introductions.

WE ARE DEPENDENT ON OUR KEY EMPLOYEES FOR OUR FUTURE SUCCESS.

Our success  depends on the efforts and abilities of our senior  management  and
certain  other  key  personnel.  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 and results of  operations  could be  materially
harmed.

WE ARE SUBJECT TO LOCAL, STATE AND FEDERAL  REGULATION.

Legislation  affecting us (or the markets in which we compete)  could  adversely
impact our ability to implement our business plan on a going-forward  basis. The
telecommunications  industry in which we operate is heavily  regulated and these
regulations  are subject to frequent  change.  Future  changes in local,  state,
federal   or   foreign   regulations   and   legislation   pertaining   to   the
telecommunications   field  may  adversely  affect  prospective   purchasers  of
telecommunications equipment, which in turn would adversely affect our business.


<PAGE>


Risks Related to Investment in Our Securities

THE MARKET PRICE OF OUR COMMON STOCK COULD BE VOLATILE AND YOUR INVESTMENT COULD
SUFFER A DECLINE IN VALUE.

The market  price for our  common  stock is likely to be  volatile  and could be
susceptible to wide price  fluctuations due to a number of internal and external
factors, many of which are beyond our control, including:

     o    quarterly  variations  in  operating  results  and  overall  financial
          condition;

     o    economic and  political  developments  affecting  technology  spending
          generally and adoption of new technologies and products such as ours;

     o    customer demand or acceptance of our products and solutions;

     o    short-selling programs;

     o    changes in IT spending patterns and the rate of consumer acceptance of
          video-on-demand;

     o    product sales progress, both positive and negative;

     o    the stock  market's  perception  of the  telecommunications  equipment
          industry as a whole;

     o    technological innovations by others;

     o    cost or availability of components, sub-assemblies and modules used in
          our products;

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

     o    proprietary rights disputes or litigation;

     o    initiation of or changes in earnings estimates by analysts;

     o    additions or departures of key personnel; and

     o    sales  of  substantial  numbers  of  shares  of our  common  stock  or
          securities convertible into or exercisable for our common stock.

These and other factors may make it difficult for our stockholders to sell their
shares into the open market if and when  eligible to do so. In  addition,  stock
prices for many technology companies,  especially  early-stage companies such as
ourselves,  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 or political
conflicts,  may materially  and adversely  affect the market price of our common
stock, thereby causing you to lose some or all of your investment.

OUR EXECUTIVE  OFFICERS,  DIRECTORS AND 5% STOCKHOLDERS WILL BE ABLE TO EXERCISE
SUBSTANTIAL CONTROL OVER ALL MATTERS REQUIRING SHAREHOLDER APPROVAL.

As of March 31, 2003, a small number of our executive officers, directors and 5%
stockholders,  beneficially  own,  in the  aggregate,  approximately  56% of our
outstanding 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.

THE  ISSUANCE  OF  COMMON  STOCK TO THE  LAURUS  MASTER  FUND  AND TO OUR  OTHER
INVESTORS  IN OUR  CONVERTIBLE  NOTES  WOULD CAUSE  SIGNIFICANT  DILUTION TO OUR
STOCKHOLDERS,  AND THE RESALE OF SUCH SHARES MAY DEPRESS THE PRICE OF OUR COMMON
STOCK.

Assuming a full $1.5 million funding of the March 28, 2003  securities  purchase
agreement,  our convertible notes issued during 2002 including,  but not limited
to, Laurus, and our existing drawdown of the Laurus line of credit, we will have
outstanding  derivative securities (in addition to stock options) convertible or
exercisable for approximately  5,256,961 shares of common stock. The issuance of
the  Company's  common  stock under the  convertible  notes and other  financing
agreements may have a material dilutive impact on our shareholders, as well as a
negative impact on our financial results.

WE OFFER STOCK OPTIONS TO OUR EMPLOYEES, NON-EMPLOYEE DIRECTORS, CONSULTANTS AND
ADVISORS, WHICH COULD RESULT IN ONGOING DILUTION TO ALL STOCKHOLDERS,  INCLUDING
INVESTORS IN THIS OFFERING.

We  maintain  two equity  compensation  plans:  (i) the 2000 Stock  Option/Stock
Issuance  Plan (the "2000  Plan"),  pursuant  to which we may issue  options and
common stock to employees,  officers,  directors,  consultants and advisors, and
(ii) the 2001 Employee Stock Purchase Plan (the  "Purchase  Plan"),  approved by
our stockholders in February 2002,  pursuant to which our employees are provided
the  opportunity to purchase our stock through payroll  deductions.  As of March
31, 2003, there were options  outstanding to purchase 3,618,514 shares of common
stock under our 2000 Plan;  622,004 shares of common stock remain  available for
issuance  under the 2000 Plan. A maximum of 250,000  shares of common stock have
been authorized for issuance under the Purchase Plan.

In  addition,  as of March 31, 2003,  there were 539,713  shares of common stock
subject  to  outstanding  options  granted  other  than  under  the 2000 Plan or
Purchase  Plan.  These  non-plan  options  were  granted to  various  employees,
directors, consultants and advisors.

We plan to continue to provide our employees opportunities to participate in the
Purchase  Plan.  We also plan to issue  options,  either  under the 2000 Plan or
otherwise,  to  purchase  sizable  numbers of shares of common  stock to new and
existing  employees,   officers,  directors,   advisors,  consultants  or  other
individuals  as we deem  appropriate  and in our best  interests.  These ongoing
purchases  of our  common  stock  (as well as  future  option  grants  by us and
subsequent  exercises of options)  could result in  substantial  dilution to all
stockholders and increased control by management.

The number of shares of common stock  subject to currently  outstanding  options
under  the 2000  Plan,  as well as shares of common  stock  subject  to  options
granted  other  than  under the 2000 Plan,  exceeds  30% of the total  number of
shares of our currently  outstanding common stock. The California  Department of
Corporations has issued regulations for companies seeking qualification of stock
option plans, which regulations require that the total number of shares issuable
upon exercise of all options shall not exceed 30% of such companies' outstanding
shares,  unless a percentage  higher than 30% is approved by at least two-thirds
of the outstanding  shares entitled to vote. We unsuccessfully  sought to obtain
this  two-thirds  supermajority  vote of the  outstanding  shares  pursuant to a
written consent  solicitation of our stockholders  under a Proxy Statement filed
with the Securities and Exchange Commission on December 31, 2001. Therefore, the
issuance  of further  stock  options  and shares  under the 2000 Plan to persons
other than officers,  directors and previous optionees  requires  qualification,
and is restricted  under the "blue sky" securities  provisions of the California
Corporations  Code.  As a result,  our  ability to grant  options and stock as a
means of  attracting  and retaining  employees and directors  will be materially
impaired.

WE DO NOT INTEND TO PAY CASH DIVIDENDS.

We have never paid cash  dividends  on our capital  stock and do not  anticipate
paying any cash dividends in the foreseeable future.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We would be exposed to changes in interest  rates  primarily from any marketable
securities and investments in certain available-for-sale  securities.  Under our
current policies,  we do not use interest rate derivative  instruments to manage
exposure  to  interest  rate  changes.  At March 31,  2003,  we did not have any
marketable securities or investments in available-for-sale  securities,  nor did
we have any sales denominated in a currency other than the United States dollar.
Our  $1 million  revolving  line of credit from  Laurus has a floating  interest
rate.

ITEM 4.   CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures
    ------------------------------------------------

Our chief executive  officer and chief financial  officer,  after evaluating the
effectiveness  of our  "disclosure  controls  and  procedures"  (as  defined  in
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the
"Evaluation  Date")  within 90 days  before  the filing  date of this  quarterly
report,  have concluded that as of the Evaluation Date, our disclosure  controls
and procedures  were effective and designed to ensure that material  information
relating to us and our consolidated  subsidiaries would be made known to them by
others within those entities.

(b) Changes in internal controls
    ----------------------------

There were no significant  changes in our internal  controls or in other factors
that could  significantly  affect those  controls  subsequent to the  Evaluation
Date.



PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

On February 14, 2003, we entered into a $1 million revolving line of credit with
Laurus Master Fund, Ltd. (Laurus"). This revolving line of credit ("the LOC") is
secured by our accounts receivables and other assets, and we have the ability to
draw down advances under the LOC subject to limits.  Under the terms of the LOC,
Laurus can convert  advances made to us at a fixed conversion price of $1.13 per
share.  In connection with the LOC, we issued warrants to purchase 75,000 shares
of our Common Stock at $1.13 per share. We received a $300,000 advance under the
LOC in our quarter  ended March 31,  2003.  The issuance of the  securities  was
exempt from the Securities Act  registration  requirement,  by virtue of Section
4(2) of the Securities Act.

On March 28, 2003, we signed a securities purchase agreement for the issuance of
7%  convertible  notes  with a fixed  conversion  price  of $.65 per  share.  In
connection  with notes issued under this  Agreement,  we will issue  warrants to
purchase our common stock at $1.00 per share. Pursuant to this Agreement, and in
exchange for $500,000  cash,  on March 28, 2003,  we issued to Palisades  Master
Fund L.P. a convertible  note in the amount of $500,000,  together with warrants
to  purchase  up to 192,308  shares of our common  stock.  The  issuance  of the
securities  was exempt from the  Securities  Act  registration  requirement,  by
virtue of section 4(2) of the Securities Act.

On February 5, 2003,  we issued  240,000  shares of our common  stock to Del Mar
Consulting Group, Inc.,  pursuant to an Independent  Consulting  Agreement dated
November  27, 2002.  We also  granted an option for 70,000  shares of our common
stock exercisable at $1.00 per share.

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

Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits. The following exhibits are included as part of this report. References
to "Path 1" or "us" in this Exhibit List mean Path 1 Network  Technologies Inc.,
a Delaware corporation.

Exhibit
Number   Description

10.1     Agreement dated March 28, 2003 by and between Path 1 and DTKA Holdings
         Limited terminating Common Stock Purchase Agreement dated January 17,
         2002.*

10.2     Securities Purchase Agreement dated March 28, 2003 among Path 1,
         Palisades Master Fund L.P. and Crescent International Ltd.*

10.3     7% Convertible Debenture due March 27, 2005 issued to Palisades Master
         Fund L.P. in the principal amount of $500,000.*

10.4     Registration Rights Agreement dated March 28, 2003, among Path 1,
         Palisades Master Fund L.P. and Crescent International Ltd.*

10.5     Stock Purchase Warrant dated March 28, 2003 issued to Palisades Master
         Fund L.P.*

10.6     7% Convertible Note due March 27, 2005 issued to HPC Capital Management
         in the principal amount of $10,000.*

10.7     Stock Purchase Warrant dated March 28, 2003 issued to HPC Capital
         Management*

10.8     Laurus Master Fund, Ltd. Waiver of Full Ratchet Rights in Connection
         with issuance of Securities under Purchase Agreement dated March 26,
         2003.*

10.9     Laurus Master Fund, Ltd. Waiver and Consent to Purchase Agreement dated
         March 26, 2003.*

10.10    Materials and Manufacturing Management Agreement Board Assembly dated
         February 1, 2003 by and between us and Arrow Electronics, Inc.

99.1     Certification under Section 906 of the Sarbanes-Oxley Act of 2002. *


* Filed Herewith


<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/ John R. Zavoli
-------------------------
John R. Zavoli
Chief Financial Officer, General Counsel and Corporate Secretary

Date: May 19, 2003


<PAGE>

                  Certification of Principal Executive Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


I,  Frederick  A.  Cary,  the  principal  executive  officer  of Path 1  Network
Technologies Inc., certify that:

1.   I have  reviewed  this  quarterly  report  on Form  10-Q of Path 1  Network
     Technologies Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officer and  I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and  I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  May 19, 2003

/s/ Frederick A. Cary
-----------------------------------------
    Frederick A. Cary
    Principal Executive Officer
<PAGE>


                  Certification of Principal Executive Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


I,  John  R.  Zavoli,  the  principal   financial  officer  of  Path  1  Network
Technologies Inc., certify that:

1.   I have  reviewed  this  quarterly  report  on Form  10-Q of Path 1  Network
     Technologies Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officer and  I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and  I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  May 19, 2003

/s/ John R. Zavoli
-----------------------------------------
    John R. Zavoli
    Principal Financial Officer
<PAGE>

Exhibits. The following exhibits are included as part of this report. References
to "us" or "Path 1" in this Exhibit List mean Path 1 Network  Technologies Inc.,
a Delaware corporation.

Exhibit
Number   Description

10.1     Agreement dated March 28, 2003 by and between Path 1 and DTKA Holdings
         Limited terminating Common Stock Purchase Agreement dated January 17,
         2002.*

10.2     Securities Purchase Agreement dated March 28, 2003 among Path 1,
         Palisades Master Fund L.P. and Crescent International Ltd.*

10.3     7% Convertible Debenture due March 27, 2005 issued to Palisades Master
         Fund L.P. in the principal amount of $500,000.*

10.4     Registration Rights Agreement dated March 28, 2003, among Path 1,
         Palisades Master Fund L.P. and Crescent International Ltd.*

10.5     Stock Purchase Warrant dated March 28, 2003 issued to Palisades Master
         Fund L.P.*

10.6     7% Convertible Note due March 27, 2005 issued to HPC Capital Management
         in the principal amount of $10,000.*

10.7     Stock Purchase Warrant dated March 28, 2003 issued to HPC Capital
         Management*

10.8     Laurus Master Fund, Ltd. Waiver of Full Ratchet Rights in Connection
         with issuance of Securities under Purchase Agreement dated March 26,
         2003.*

10.9     Laurus Master Fund, Ltd. Waiver and Consent to Purchase Agreement dated
         March 26, 2003.*

10.10    Materials and Manufacturing Management Agreement Board Assembly dated
         February 1, 2003 by and between us and Arrow Electronics, Inc.

99.1     Certification under Section 906 of the Sarbanes-Oxley Act of 2002. *


* Filed Herewith