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

                                    FORM 10-Q


                                   (Mark One)
           [X] Quarterly Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
               For the Quarterly Period Ended September 30, 2002.
                                       or

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

                        Commission File Number 000-30928

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


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



           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 November 14, 2002,  9,602,216 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 September 30, 2002

                                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.
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>

<TABLE>

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                                        PATH 1 NETWORK TECHNOLOGIES INC.
                                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                     (in US$, thousands except share data)
                                                                             September 30,      December 31,
                                                                                 2002               2001
                                                                           --------------------------------------
<S>                                                                                   <C>                <C>
ASSETS                                                                        (unaudited)
Current assets:
 Cash and cash equivalents                                                       $    359         $    1,181
 Restricted cash                                                                       61                  -
 Marketable securities, available for sale                                              -                552
 Accounts receivable, net                                                             729                322
 Inventory                                                                            126                 78
 Other current assets                                                                  29                207
                                                                           --------------------------------------
      Total current assets                                                          1,304              2,340

Property and equipment, net                                                           228                365
Assets of discontinued operations                                                       -                702
Debt issuance costs, net                                                              509                  -
Other assets                                                                          158                 11
                                                                           --------------------------------------
Total assets                                                                    $   2,199        $     3,418
                                                                           ======================================

LIABILITIES AND STOCKHOLDERS' (DEFICIT)/EQUITY
Current liabilities:
 Accounts payable and accrued liabilities                                           $    790          $     898
 Accrued compensation and benefits                                                       232                469
 Liabilities of discontinued operations                                                    -                702
 Current portion of notes payable                                                      1,341                  -
 Deferred revenue                                                                         67                  -
                                                                           --------------------------------------
      Total current liabilities                                                        2,430              2,069

Commitments and contingencies

Stockholders' equity:
 Preferred stock, $0.001 par value; no shares issued or outstanding                        -                  -
 Common stock, $0.001 par value; 20,000,000 shares authorized,                             9                  8
           9,178,216 and 8,299,126 shares issued outstanding at
           September 30, 2002, and December 31, 2001 respectively
 Common stock issuable                                                                    14                  -
 Notes receivable from stockholders                                                        -                (86)
 Additional paid-in capital                                                           29,592             26,801
 Deferred compensation                                                                   (87)              (276)
 Accumulated other comprehensive loss                                                      -               (616)
                                                                           --------------------------------------
 Accumulated deficit                                                                 (29,759)           (24,482)
                                                                           --------------------------------------
      Total stockholders' equity/(deficit)                                              (231)             1,349
                                                                           --------------------------------------
Total liabilities and stockholders' equity                                         $   2,199         $    3,418
                                                                           ======================================

See accompanying notes to these condensed consolidated financial statements.

</TABLE>

<PAGE>


<TABLE>

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

                                                                    Three Months Ended              Nine Months Ended
                                                                       September 30,                  September 30,
                                                                    2002           2001            2002           2001
<S>                                                                   <C>            <C>             <C>            <C>
Revenues:

 Product sales                                                  $    537       $    249         $ 1,222         $  498
 Contract services                                                   105            501             116            801
 License revenue                                                     190                            190
                                                          -------------------------------------------------------------
Total revenues                                                      $832           $750          $1,528         $1,299
                                                          -------------------------------------------------------------
Cost of revenues:
 Cost of product sales                                               500             75             867            150
 Cost of contract services                                            31            411              33            672
                                                          -------------------------------------------------------------
Gross profit                                                         301            264             628            477


Operating expenses:
 Engineering research and development                                536            435           1,531          1,682
 Sales and marketing                                                 161             91             486            273
 General and administrative                                          532          1,083           1,877          2,531
 Stock-based compensation (benefit)*                                  43         (1,883)            216         (3,341)
                                                          -------------------------------------------------------------
        Total operating (expenses)/benefit                        (1,272)           274          (4,110)        (1,145)


Interest income                                                        -             29               -            180
Interest expense                                                    (326)             -            (883)             -
Restructuring charge                                                               (221)                          (221)
Loss on sale of securities                                             -           (208)           (590)          (256)
                                                          -------------------------------------------------------------
(Loss)/income from continuing operations                          (1,297)           138          (4,955)          (965)
                                                          =============================================================

Discontinued operations                                                0           (373)           (317)        (1,963)
                                                          -------------------------------------------------------------
Net Loss                                                       $  (1,297)     $    (235)       $ (5,272)      $ (2,928)
                                                          =============================================================

(Loss)/income from continuing operations per common
share - basic                                                  $   (0.15)     $    0.02        $  (0.58)      $  (0.12)
                                                          =============================================================

(Loss)/income from continuing operations per common
share - diluted                                                $   (0.15)     $    0.01        $  (0.58)      $  (0.12)
                                                          =============================================================

Loss from discontinued operations per common share -
basic                                                          $       -      $   (0.05)       $  (0.04)      $  (0.24)
                                                          =============================================================
Loss from discontinued operations per common share -
diluted                                                        $       -      $   (0.04)       $  (0.04)      $  (0.24)
                                                          =============================================================

Loss per common share - basic                                  $   (0.15)     $   (0.03)       $  (0.61)      $  (0.36)
                                                          =============================================================
Loss per common share - diluted                                $   (0.15)     $   (0.02)       $  (0.61)      $  (0.36)
                                                          =============================================================

Weighted average common shares outstanding - basic                 8,589          8,202           8,589          8,204
                                                          =============================================================
Weighted average common shares outstanding - diluted               8,589          9,923           8,589          8,204
                                                          =============================================================

 (*)  The following table shows how the Company's stock-based compensation would
      be allocated to the respective department expense line items:
         Research and development                              $      39      $    (853)         $  158       $ (1,551)
         Sales and marketing                                           1           (317)             46           (572)
         General and administrative                                    3           (713)             12         (1,218)
                                                          -------------------------------------------------------------
                                                               $      43      $  (1,883)         $  216       $ (3,341)
                                                          =============================================================
See accompanying notes to these condensed consolidated financial statements.
</TABLE>

<TABLE>

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

                                                                                  Nine Months Ended
                                                                                    September 30,
                                                                                 2002            2001
                                                                     ---------------------------------
<S>                                                                                <C>              <C>
Cash flows from operating activities:
 Net loss from continuing operations                                        $  (4,955)      $    (965)
 Adjustments to reconcile net loss to net cash
      used in continuing operations
    Depreciation and amortization                                                 215             538
   Interest expense associated with debt issuance costs                           849               -
   Notes issued for salary reduction                                               33               -
    Amortization of deferred compensation                                         212          (3,340)
    Loss on investment                                                            596               -
    Restructuring charge                                                                          221
    Warrants issued for recruiting services 138 Changes in assets and
 liabilities:
    Restricted cash                                                               (61)           (200)
    Other current assets                                                          130             (38)
    Other assets                                                                 (273)            (15)
    Accounts payable and accrued liabilities                                      437            (863)
    Accounts receivable                                                          (407)              -
    Accrued compensation and benefits                                            (253)            401
    Deferred revenue                                                               67             226
                                                                    ---------------------------------
           Cash  used in operating activities                                  (3,410)         (3,897)
Cash flows from investing activities:
 Sale of marketable securities                                                    578           2,208
 Purchase of Metar ADC assets                                                       -          (1,000)
 Purchases of property and equipment                                             (139)           (375)
                                                                     ---------------------------------
           Cash provided by  investing activities                                 439             833
Cash flows from financing activities:
 Issuance of common stock                                                         995              69
 Issue convertible notes                                                        1,308               -
 Cash from extinguishment of shareholder notes                                     86              57
                                                                     ---------------------------------
           Cash provided by financing activities                                2,389             126
Cash flows from discontinued operations                                          (240)         (1,963)
Decrease in cash and cash equivalents                                            (822)         (4,901)
Cash and cash equivalents, beginning of period                                  1,181           7,171
                                                                     ---------------------------------
Cash and cash equivalents, end of period                                      $   359       $   2,270
                                                                     =================================
Supplemental cash flow disclosures:
 Unrealized loss in marketable securities                                     $     -       $  (1,483)
                                                                     =================================

 Capitalized debt issuance costs in connection with beneficial
  conversion charge and warrants                                             $  1,250               -
                                                                     =================================

 Issuance of common stock in connection with Felber settlement                $   545               -
                                                                     =================================

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


<PAGE>


NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis Of Presentation

The accompanying condensed consolidated balance sheet at September 30, 2002, the
condensed  consolidated  statements of operations  for the three and  nine-month
periods  ended  September  30,  2002  and 2001  and the  condensed  consolidated
statement of cash flows for the nine-month  period ended  September 30, 2002 and
2001, have been prepared by Path 1 Network Technologies Inc. (the "Company") and
have not been audited. The condensed  consolidated balance sheet at December 31,
2001 has been audited. These consolidated quarterly financial statements, in the
opinion of management,  include all  adjustments,  consisting only of normal and
recurring  adjustments,  necessary to state fairly the financial information set
forth therein,  in accordance with accounting  principles  generally accepted in
the United States.  These  consolidated  financial  statements should be read in
conjunction  with the financial  statements and notes thereto for the year ended
December 31, 2001 included in the  Company's  Form 10-K filed April 15, 2002 and
the  Company's  Form 10-Q  filed  August  14,  2002.  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, 2002.

In the period from January 30, 1998 (inception)  through September 30, 2002, the
Company incurred losses totaling $29.8 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.  Management's  plans are to reduce  costs in all areas of its  operating
plan until  sufficient  capital is raised to support growth and more substantial
orders  materialize.  The Company has implemented various cost savings plans and
continues  to monitor  cost  savings  initiatives.  However,  even with its cost
reduction plan, 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  included,  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 $686,000.

In April 2002, the FASB issued SFAS No. 145 ("SFAS 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
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 ("APB 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. The
Company  does not  anticipate  adoption of this  statement  will have a material
effect on the Company's financial position or results of operations.

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.  The Company does not  anticipate  the
adoption  of  this  statement  will  have a  material  effect  on the  Company's
financial position or results of operations.




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.

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 amount of customers.  For the
period ended September 30, 2002,  approximately  74% and 23%,  respectively,  of
product  sales  were  to the  Company's  two  largest  customers  in  the  video
infrastructure market.

Note 6 - Discontinued Operations

In March 2002, a large semiconductor  company with whom the Company entered into
a non-exclusive  licensing  agreement and an engineering  services  agreement in
December 2001 informed the Company that it was terminating their agreements. The
Company is in a payment dispute with this customer.  As a result of this action,
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 SRL, the
Company's  former  Romanian  subsidiary,  in exchange for the elimination of the
remaining obligations by the Company to Metar SRL and its affiliates,  including
the  payable of  $686,000,  the return of all stock  options  granted to Michael
Florea and the Romanian employees,  and a confirmation that performance criteria
specified in Michael  Florea'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 SRL also received
35,000 shares of our common stock.  Michael Florea 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 and nine-months
ended September 30, 2002 and 2001 have been included in discontinued operations.
We recorded a loss of $317,000 from discontinued  operations for the nine months
ended  September 30, 2002. Our loss from  discontinued  operations for our third
quarter ended September 30, 2001 was $373,000,  and a loss of $1,963,000 for the
nine months ended September 30, 2001.


Note 7- Stock Options

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

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

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

During the three-month  period ended September 30, 2002, the Company  recorded a
stock-based  compensation  expense of $43,000  related  to the  amortization  of
options  outstanding  to employees  and  consultants.  For the same  three-month
period in 2001,  the Company  recognized a reduction of $1.9 million  related to
the amortization of stock based compensation.

Note 8 - Notes Payable

4% Convertible Notes

In April and May 2002,  the Company  received  approximately  $1,031,000  from a
private placement of convertible  notes to European  investors who were existing
Company stockholders. The notes carry a 4% annual coupon, paid quarterly in cash
or stock,  at the  Company's  discretion,  and are  convertible  for a  one-year
conversion term at a price of $1.20 per share. As the conversion price was below
the  trading  market  price of the stock on the day the notes were  issued,  the
Company  recorded debt discount of $226,430,  and commenced  amortizing the debt
discount  over  the  period  of the  convertible  notes'  convertibility  period
earliest  conversion date. Through September 30, 2002,  approximately 76% of the
note holders  converted their notes into our stock. We recorded interest expense
of $27,144  during  the three  months  ended  September  30,  2002  relating  to
amortization of debt issuance costs. The unconverted notes representing $258,000
are classified as current portion of notes payable in the  accompanying  balance
sheet as of September 30, 2002.

In connection with the issuance of the convertible  notes in April and May 2002,
the Company issued warrants to purchase  664,871 shares of common stock at $1.60
per share.  The warrants  are fully vested and expire in June 2007.  The Company
recorded  deferred  interest  expense on the  warrants of $359,133  based upon a
Black-Scholes  valuation,  and is amortizing the deferred interest over the life
of the notes.  In the third  quarter  ended  September  30,  2002,  we  recorded
interest expense of $43,051 related to amortization of deferred interest.

May 2002 12% Convertible Note

In May 2002, the Company issued a 12% convertible  note in the principal  amount
of $1,250,000 to the Laurus Master Fund.  The note is  convertible at a price of
$1.40 per share and is payable on a monthly  basis over 18 months.  The price at
which this note converts 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.  Principal  and  interest  payments for the first three
months of the loan period were  deferred,  with  principal  and  interest  being
amortized over the remaining 15 months.  As the  conversion  price was below the
trading  market  price of the stock on the day the note was issued,  the Company
recorded a debt  discount of $543,515 and is  amortizing  the debt discount over
the period of the convertible note earliest  conversion date using the effective
interest  method.  Through  September  30,  2002  $42,500  of the  note had been
converted  by  the  holder.  Included  in  the  Company's  interest  expense  is
amortization  of deferred  interest of $181,172 and debt discount of $40,  387..
The balance of this notes payable as of September 30, 2002 is $1,083,000, and is
classified as a short term liability.

In  connection  with the  issuance of the 12%  convertible  note in May 2002 the
Company issued warrants to purchase  125,000 shares of common stock at $1.68 per
share. The warrants are fully vested and expire in May 2009.


<PAGE>


Note 9 - Subsequent Event

November 2002 12% Convertible Note

On November 7, 2002, the Company issued 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. The price at which this note converts
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
the conversion price was below the trading market price of $.90 per share on the
day the note was issued,  the Company will record a debt  discount in its fourth
quarter  ended  December 31, 2002,  and will amortize the debt discount over the
period of the  convertible  note from the  earliest  conversion  date  using the
effective  interest  method.  Under the terms of this note,  the  Company is not
required to file a registration statement until the outstanding principal amount
of the note dated May 2002 (referred to above) has been reduced to $200,000.

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. The Company will record deferred interest expense associated with the
warrants in its fourth  quarter ended  December 31, 2002 under the Black Scholes
valuation  method,  and will amortize the deferred interest over the life of the
note.  The  75,000  warrants  issued in  connection  with the  November  7, 2002
convertible note are fully vested and expire in November 2009.

As part of the November 7, 2002 convertible note  transaction,  the Company also
repriced  the  conversion  price of the May 2002  convertible  note and  175,000
warrants  (See Note 8) - which had been  purchased by the same  investor to $.85
per share.  The term of the May 2002 note, in turn, was extended to May 7, 2004.
These terms will change the previously  reported debt discount amount,  deferred
interest expense amount and amortization periods.

<PAGE>


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

Forward Looking Statements

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

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

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


OVERVIEW

We design and sell  products,  using  proprietary  technology  that  enables the
real-time  transmission  of audio,  video and voice data over a single  Internet
Protocol  (IP)  network  with  end-to-end  high  quality of service  (QoS).  Our
products   make  it  possible  for   packet-switched   IP  networks  to  provide
high-quality,  real-time  transmissions by coordinating the transport of packets
across  these  networks  in a  way  that  eliminates  or  minimizes  delays  and
unreliable delivery. We believe our products can make available the best of both
worlds  - the  reliability  and  speed  of  circuit-switched  networks,  such as
traditional  telephone  networks,  coupled with the data carrying capability and
low cost of IP networks.

At the  core of our  suite  of  products  is our  patented,  patent-pending  and
copyrighted  technology  that is a  software  and  hardware-based  solution  for
managing  network  traffic.  Our technology is based on our  methodology for the
transmission of data on a real-time basis over IP networks, coupled with several
trade secrets and  intellectual  property in a variety of areas dealing with the
transport and distribution of data, voice and video over packet-based  networks.
Our  technology  addresses  the  inherent  deficiencies  of packet  switching as
applied to transmission of real-time signals by superimposing a circuit-switched
infrastructure on standard IP networking,  while maintaining full  compatibility
with  existing IP networks.  We believe that our  technology - combined with our
other proprietary know-how - is capable of supporting the efficient transmission
of all communications  over a single network,  thus bringing  high-level QoS and
real-time  audio,  video  and  telephony  capabilities  to the  Internet  and to
standard IP networks.

Our customers and prospective  customers include  telecommunications  companies,
cable  television  operators,  satellite  operators,   entertainment  companies,
wireless service providers,  new competitive  service  providers,  broadcasters,
government  agencies,  universities,  systems  integrators  and video server and
equipment  providers.  We offer  long  haul  video,  voice  and  data  products,
video-on-demand  transmission  products,  and design and engineering services to
support these products.

We  are  focusing  intensely  on  Internet  Protocol  (IP)-based  offerings  for
broadcasters and the cable industry, Digital Subscriber Line (DSL) offerings for
the  communications  industry and integrated  solutions for systems  integrators
worldwide. Until recently, the resources of our Video Systems business unit were
devoted primarily to research and development.  However, we now have products in
production and  deployment.  In the video  transport  market,  for example,  our
Cx1000 IP Video  Gateway,  which is a video gateway  device  designed to provide
high quality video  transmission  capabilities to diversified  media  companies,
television  broadcasters,  movie  and  broadcasting  studios,  is  currently  in
production and in the early stages of deployment by a small number of customers.
Our  second  product  in  the  video  transport  market,  the  Cx1400  IP  Video
Multiplexer,  which is a video-on-demand gateway device designed to provide high
quality video transmission  capability to cable television  operators,  is being
deployed by BarcoNet,  N.V., a  wholly-owned  subsidiary of  Scientific-Atlanta,
Inc.  BarcoNet  is  marketing  a version of the Cx1400 IP Video  Multiplexer  in
Europe under the name "iMux".


Liquidity And Capital Resources

From January 30, 1998 (our  inception)  through  September 30, 2002, we incurred
losses totaling $29.8 million.  The accompanying  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.  We had negative  working  capital of $1,126,000 for our quarter
ended  September  30,  2002,  and a  decrease  of  $822,000  in  cash  and  cash
equivalents for the nine months ended September 30, 2002.

Our  plans  are to  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.

Since our inception,  we have financed our operations primarily through the sale
of common equity and debt  securities to investors  and strategic  partners.  In
April  and  May  2002,  we  received  approximately  $1,031,000  from a  private
placement of convertible notes with European investors 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. As the conversion price was below the trading market
price of stock on the day the notes were issued,  we recorded a debt discount of
$226,430 and amortized the debt discount over the notes' convertibility from the
period of the  convertible  notes earliest  conversion  date using the effective
interest  method.  In connection with the issuance of the  convertible  notes in
April and May 2002 we issued warrants to purchase 664,781 shares of common stock
at $1.60 per share. The warrants are fully vested and expire in June 2007.

Through  September  30, 2002,  approximately  76% of the note holders  converted
their notes into our stock. We recorded  interest  expense of $27,144 during the
three months ended  September 30, 2002 relating to amortization of debt issuance
costs.  In the third  quarter ended  September  30, 2002,  we recorded  interest
expense of $43,051 related to amortization of deferred interest.

In May  2002,  we issued to Laurus  Master  Fund a 12%  convertible  note in the
principal amount of $1,250,000.  The note is convertible at a price of $1.40 per
share and is payable on a monthly basis over 18 months.  The price at which this
note converts 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.  The Company  secured a  three-month  deferral of  principal  and
interest under the note,  with the balance payable over the remaining 15 months.
The  Company  recorded  a debt  discount  of  $543,515  on the date the note was
issued,  and  commenced  amortizing  the debt  discount  over the  period of the
convertible note from the earliest  conversion date using the effective interest
method.

In  connection  with the  issuance  of the 12%  convertible  note in May 2002 we
issued  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, the Company issued 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. The price at which this note converts
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
the conversion price was below the trading market price of the stock of $.90 per
share on the day the note was issued, the Company will record a debt discount in
its fourth  quarter ended December 31, 2002, and will amortize the debt discount
over the period of the convertible note from the earliest  conversion date using
the effective interest method.

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. The Company will record deferred interest expense associated with the
warrants in its fourth  quarter ended  December 31, 2002 under the Black Scholes
valuation  method,  and will amortize the deferred interest over the life of the
note.

As part of the November 7, 2002 convertible note  transaction,  the Company also
repriced  the  conversion  price of the May 2002  convertible  note and  175,000
warrants (See Note 8) - 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.  These
terms  will  change the  previously  reported  debt  discount  amount,  deferred
interest expense amount and amortization periods.

The 75,000 warrants  issued in connection with the November 7, 2002  convertible
note are fully vested and expire in November 2009.

Cash,  cash  equivalents,  restricted  cash and  marketable  securities  totaled
$420,000 at September 30, 2002 compared to $1,181,000 at December 31, 2001.  For
the foreseeable future, we expect to incur substantial  additional  expenditures
associated  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.

At  September  30,  2002,  we had  negative  net working  capital of  $1,126,000
compared  to net  working  capital of $271,000  at  December  31,  2001.  We are
continuing to seek other sources of additional  capital to fund operations until
we are able to fund operations through internal cash flow.

Operating  activities used $3,410,000 in cash during the nine month period ended
September 30, 2002 and $3,897,000 for the same period in 2001,  primarily due to
the fact that,  although our net loss from  continuing  operations  for the nine
month period ended  September 30, 2002 was higher,  our net loss from operations
in  2001  benefited  from  a  $1.9  million  non-cash  stock-based  compensation
adjustment.  Our nine-month results for the period ended September 30, 2002 also
reflect  sizable debt  issuance  costs as well as a favorable  change in account
payables.

At September 30, 2002, we have no material  commitments other than our operating
leases. Our future capital requirements will depend upon many factors, including
the timing of research and product  development  efforts,  the  expansion of our
general and administrative functions, increased sales and marketing efforts, and
the need to finance the manufacturing of commercial products that we may develop
and launch. We expect to continue to expend significant  amounts on research and
development staffing,  infrastructure and computer equipment to support on-going
research  and  development  activities,  as  well  as our  sales  and  marketing
organization.

As noted  above,  we will need  additional  financing  in 2002 and 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 financings.  There can be no assurance that
funds from these sources will be available on favorable  terms, if at all. If we
raise additional funds through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced or significantly  diluted, or such
equity  securities may provide for rights,  preferences or privileges  senior to
those of the holders of our common stock.

Results Of Operations

Three Months Ended September 30, 2002 vs. Three Months Ended September 30, 2001

In our third quarter ended September 30, 2002, net revenue was $832,000 compared
to $750,000 during the three-month  period ended September 30, 2001,  reflecting
an 11% increase.  Our third quarter 2002 revenue came  principally from sales of
our  products for the video over IP  transport  market,  as well as from license
fees for previously developed technology. In 2001, our third quarter revenue was
primarily  generated through an engineering service contract with BarcoNet N.V.,
and sales of an engineering prototype to Leitch Technology Corporation.

We recorded  deferred  revenue of $60,000  related to a development  contract we
have with a strategic  partner  related to a new product line. We will recognize
revenue under this contract based on the percentage of completion method.

Third  quarter  cost of goods sold  increased to $531,000  from  $486,000 in the
quarter  ended  September  30, 2001.  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 14% to $301,000 from $264,000 in the quarters ending
September 30, 2002 and 2001, respectively.  Our increase in gross profit results
primarily  from  the  shift  in the mix of our  business  to  selling  products,
managing our production and development costs, and license fees.

Engineering  research  and  development  expenses  for the third  quarter  ended
September 30, 2002, excluding the effect of stock-based compensation,  increased
to $536,000 from $435,000 in the third  quarter  ended  September 30, 2001.  The
increase results in part from the sale of our Sistolic  business unit in 2001 in
which our R&D costs for the quarter ended September 2001 that were  attributable
to Sistolic have been  reclassified  from R&D to  discontinued  operations.  The
increase is also due to costs to acquire development expertise and tools for our
new products. In comparing the engineering research and development expenses for
the  quarters  ended  September  30,  2002 and 2001,  engineering  research  and
development   expenses  for  the  quarter  ended  September  30,  2001  excludes
approximately  $255,000 in expense that has been  reclassified  to  discontinued
operations related to our sale of Sistolic (see Note 6).

Selling,  general  and  administrative  expenses  for the  third  quarter  ended
September 30, 2002, excluding the effect of stock-based compensation,  decreased
41% to $693,000 from  $1,174,000 for the third quarter ended September 30, 2001.
The decrease is  primarily  due to reduced  operating  expenses in areas such as
such as rent,  payroll costs and outside  consulting  costs  resulting  from our
continued efforts to reduce and control costs. In comparing the selling, general
and administrative  expenses for the quarters ended September 30, 2002 and 2001,
selling, general and administrative expenses for the quarter ended September 30,
2001 excludes  approximately  $118,000 in expense that has been  reclassified to
discontinued operations related to our sale of Sistolic (see Note 6).

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.  If the
options are subject to variable accounting  treatment,  additional  compensation
expense,  positive or negative,  is  recognized  each quarter  based on the fair
market value of our common stock in accordance  with the  provisions of variable
stock  option  accounting.  In October  2001,  we offered our holders of Class B
common stock options an opportunity to exchange their options for Class A common
stock  options.  Since all of the  option  holders  of options on Class B common
stock elected to exchange their options for options on Class A common stock, the
Company ceased recording this  compensation  expense related to employee options
after a final one-time adjustment in October of 2001. We will continue to 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 third
quarter  ended  September 30, 2002,  we recorded a $43,000  non-cash  charge for
stock-based   compensation,   versus  a  $1.9  million  non-cash   reduction  of
compensation expense in the same quarter ended September 30, 2001.

Interest  expense for the third  quarter  ended  September 30, 2002 was $326,000
compared to interest income of $29,000 for the third quarter ended September 30,
2001. The increase in interest  expense is due primarily to interest paid on our
European notes and  convertible  notes, as well as amortization of debt issuance
costs.

Nine Months Ended September 30, 2002 vs. Nine Months Ended September 30, 2001

Revenue  increased 18% to $1,528,000 from  $1,299,000 for the nine-month  period
ended September 30, 2002 and 2001,  respectively.  Our 2002 revenue results from
the initial shipments of our commercial products for the video over IP transport
market,  contract  services  and license  fees.  For the nine month period ended
September 30, 2001,  our revenues were  primarily a result of contract  services
performed for BarcoNet N.V.(now owned by  Scientific-Atlanta) in the development
of our  video  multiplexer  for the  video on demand  market  (now  known as the
Cx1400),  and the  sale of  engineering  prototype  units to  Leitch  Technology
Corporation.

In the nine months ended  September  30, 2002,  we recorded  $60,000 in deferred
revenue  related to a  development  contract  we have with a  strategic  partner
related to a new product  line.  We will  recognize  revenue under this contract
based on the percentage of completion method.

For the nine months ended  September 30, 2002,  our cost of goods sold increased
9% to $900,000 from $822,000 for the nine-month period ended September 30, 2001.
Cost of goods sold for products  consists  principally  of raw  material  costs,
warranty costs and labor  associated with building  product.  Cost of goods sold
for contract  services  consists  primarily of  engineering-related  costs.  The
increase in our cost of goods sold is  principally  due to the change in the mix
of our business to manufacturing and selling our video gateway products.

Our gross  profit  increased  32% to $628,000  from  $477,000 in the nine months
ending September 30, 2002 and 2001,  respectively.  Our increase in gross profit
results primarily from the shift in the mix of our business to selling products,
managing our production and development costs, and license fees.

Engineering  research  and  development   expenses,   excluding  the  effect  of
stock-based compensation,  decreased nearly 9% to $1,531,000 from $1,682,000 for
the  nine-month  period ended  September  30, 2002 and 2001,  respectively.  The
decrease in our  engineering  research and  development  expenses is primarily a
result of the sale of our  Sistolic  business  unit and  reduced  use of outside
consultants.  In comparing the engineering research and development expenses for
the nine months  ended  September  30, 2002 and 2001,  engineering  research and
development  expenses  for the nine months  ended  September  30,  2001  exclude
approximately  $830,000 in expense that has been  reclassified  to  discontinued
operations related to our sale of Sistolic (see Note 6).

Selling,   general  and  administrative   expenses,   excluding  the  effect  of
stock-based  compensation,   decreased  approximately  16%  to  $2,363,000  from
$2,804,000  for the  nine-month  period  ended  September  30,  2002  and  2001,
respectively.  The  decrease  is  primarily  due to  substantial  reductions  in
selling,  general and administrative  headcount,  outside  consultants and other
related  expenses  stemming  from our cost  controls.  In comparing the selling,
general and administrative expenses for the nine months ended September 30, 2002
and 2001, selling, general and administrative expenses for the nine months ended
September 30, 2001 exclude  approximately  $1.3 million in expense that has been
reclassified  to  discontinued  operations  related to our sale of Sistolic (see
Note 6).

Stock-based  compensation  expense is a non-cash expense item that is recognized
as a result of stock options having  exercise prices below estimated fair value.
Stock-based  compensation  expense  is  calculated  as  the  difference  between
exercise  price and  estimated  fair market  value on the date of grant.  If the
options are subject to variable accounting  treatment,  additional  compensation
expense,  positive or negative,  is  recognized  each quarter  based on the fair
market value of our common stock in accordance  with the  provisions of variable
stock  option  accounting.  In October  2001,  we offered our holders of Class B
common stock options an opportunity to exchange their options for Class A common
stock  options.  Since all of the  option  holders  of options on Class B common
stock elected to exchange their options for options on Class A common stock, the
Company ceased recording this  compensation  expense related to employee options
after a final one-time adjustment in October of 2001. We will continue to 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 nine months
ended September 30, 2002, we recorded a $216,000 non-cash charge for stock-based
compensation,  versus a $3.3  million  non-cash  benefit in the same  nine-month
period ended September 30, 2001.

Interest  expense for the nine months  ended  September  30, 2002 was  $883,000,
compared  to  interest  income of  $180,000  for the  first  nine  months  ended
September  30,  2001.  The  increase  in  interest  expense is due to a non-cash
interest  charge related to the debt issuance costs (see note 8),  together with
interest on our debt obligations through September 30, 2002.

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.  Therefore,  on April 3,
2002,  we disposed of the assets of this business unit back to Metar SRL and Mr.
Michael Florea in exchange for the  elimination of our remaining  obligations to
Metar SRL and its affiliates,  including the payable of $686,000,  the return of
all stock options  granted to Michael Florea and the Romanian  employees,  and a
confirmation that performance  criteria specified in Michael Florea'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 SRL
and  the  Romanian  employment  contracts  were  terminated  and  Metar  SRL was
permitted to hire any and all Romanian employees. Metar SRL also received 35,000
shares of our common  stock.  Michael  Florea  resigned  on March 27, 2002 as an
officer of the Company in anticipation of this transaction.  Sistolic's  results
of operations for the  nine-months  ended  September 30, 2002 and 2001 have been
included in discontinued operations.

We recorded a loss of $317,000 from discontinued  operations for the nine months
ended  September 30, 2002. Our loss from  discontinued  operations for our third
quarter ended September 30, 2001 was $373,000,  and a loss of $1,963,000 for the
nine months ended September 30, 2001.

<PAGE>

Risk Factors That May Affect Future Results

YOU  SHOULD  CAREFULLY  CONSIDER  THE  FOLLOWING  RISK  FACTORS  AND  THE  OTHER
INFORMATION INCLUDED HEREIN AS WELL AS THE INFORMATION INCLUDED IN OUR FORM 10-K
FILED ON APRIL 15, 2002 AND OTHER  REPORTS AND FILINGS MADE WITH THE  SECURITIES
AND  EXCHANGE  COMMISSION.  OUR  BUSINESS  AND  RESULTS OF  OPERATIONS  COULD BE
SERIOUSLY  HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE DUE TO ANY OF THESE RISKS AND  STOCKHOLDERS MAY LOSE PART OR
ALL OF THEIR INVESTMENT.

The  risks  ands  uncertainties  described  below are not the only ones we face.
Additional  risks  and  uncertainties  not  presently  known  to us or  that  we
currently  deem  immaterial  may also impair our  operations.  Our  business and
results of operations  could be seriously harmed by the occurrence of any of the
following risk factors.  The trading price of our common stock could decline due
to  occurrence  of any of  these  risks,  and you may  lose  part or all of your
investment.

We are dependent upon additional funding to meet current  commitments,  continue
development of our business and limit  uncertainty as to our ability to continue
as a going concern; the prospect of obtaining such funding is uncertain.

We need additional funding to meet current commitments and continue  development
of our  business;  if we do not  receive  additional  funding,  our  ability  to
continue as a going concern cannot be assured.

To this end, we implemented a cost reduction program to reduce our negative cash
burn from over  $600,000  per month to  approximately  $250,000 -  $350,000  per
month.  We have  taken  steps  and are  continually  reviewing  the need to take
additional  steps to  reduce  costs in all  areas of our  operating  plan  until
sufficient  capital is raised to  support  growth  and more  substantial  orders
materialize.  In the event we do not receive additional  funding,  our plans may
include,  but are not necessarily  limited to: 1) further reducing our costs and
focus on selling existing products and services; 2) selling our assets through a
merger or acquisition;  or 3) seeking protection under bankruptcy statutes. Even
with our cost reduction efforts, we need to raise additional funding to continue
as a going concern.

Even  if we  can  continue  operations,  a  lack  of  sufficient  funding  would
significantly  limit our ability to take  advantage of potential  opportunities,
develop or enhance products or otherwise  respond to competitive  pressures.  We
cannot assure you that additional financing will be available on terms favorable
to us, if at all.

If we raise  additional  funds  through the issuance of equity or  equity-linked
securities,  the percentage  ownership of our  stockholders  would be reduced or
become diluted.  In addition,  these securities may have rights,  preferences or
privileges  senior  to  the  rights  of  the  securities  held  by  our  current
stockholders.

We have incurred losses since inception and may never be profitable.

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 few
quarters.  As of September 30, 2002, our accumulated  deficit was  approximately
$29.8  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.

The market price of our common stock has fluctuated in the past and is likely to
continue to do so, thereby  increasing the risk that you may lose all or part of
your investment.

The market price for our common stock is susceptible to a number of internal and
external factors 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.

We recently  launched our initial  commercial  products and services,  and these
products  and  services  and our  products  still  in  development  may not gain
customer acceptance.

We have  launched  two  commercial  products  for sale into the video  transport
market:  our Path 1 Cx1000  IP  Video  Gateway  targeted  toward  the  broadcast
transmission  infrastructure segment of the video transport market, and our Path
1 Cx1400 IP Video Multiplexer targeted toward the video-on-demand infrastructure
segment of the video transport market. These products are in the early stages of
commercial  deployment  and are subject to those risks  attendant to new product
introductions,  including  the  possible  presence  of  undetected  hardware  or
software defects in our products,  manufacturing  and distribution  limitations,
unforeseen delays in product  installation and customer  dissatisfaction.  There
can be no assurance that either of these initial products, or our products still
in  development,  will achieve  acceptance by our targeted  markets at all or in
time for us to be successful or to meet our funding requirements.

We currently rely on one large customer for the majority of our revenues.

In 2001 and for our nine months ended September 30, 2002,  approximately 77% and
74%, respectively, of our revenues were from sales to Scientific-Atlanta and its
subsidiary,  BarcoNet N.V. If Scientific-Atlanta or BarcoNet N.V. were to either
reduce their purchases or stop purchasing from us, our revenues and results from
operations would be materially adversely affected.

We expect to encounter sales resistance.

Our Cx1400 video  gateway,  which  provides most of our revenue,  is tied to the
video on demand ("VOD") market.  If our customers' roll out of VOD is delayed or
unsuccessful,  we cannot succeed.  So far, VOD has not been widely introduced or
accepted as has been anticipated.

We have only a brief history of sales orders for our products and services,  and
our sales have been to a few customers. In our third quarter ended September 30,
2002, over 90% of our revenues were from two customers.

Potential customers may decline to purchase our initial products or services due
to our  lack of an  established  "track  record,"  the  level  of our  products'
technological  sophistication,  price, our financial condition or other factors.
Further reasons why prospective  customers may decline to invest in our products
and  services,  or may decide to purchase  competitors'  products and  services,
include, but are not limited to:

o    reluctance by our customers to commit  significant  capital to new products
     and services at this time;

o    general   economic   conditions   affecting   rates  of   adoption  of  new
     technologies,  new technology  purchases and services  associated with such
     new technologies;

o    introduction  of competitive  technologies,  products and services that may
     render our products and services obsolete;

o    development or manufacturing delays that prevent the timely introduction of
     our products to the market;

o    failure  by us to  establish  strong  sales,  marketing,  distribution  and
     customer service capabilities;

In the event that our  products  and  services  are not  adopted at the rates we
currently  anticipate,  or do not  receive  a  significant  acceptance  from our
primary  targeted  dominant  customer,  our  operating  plan will be  negatively
affected and our capital  requirements  and cash flow shortfalls will be greater
than currently anticipated.

To date,  there has been only a limited  public  market for our common stock and
there is no assurance  that an active  trading  market for our common stock will
ever exist.

To date,  there has been only a limited  public  market for our  securities  and
there can be no assurance  that a broad public  market for our  securities  will
develop in the  future,  or if such a broad  market does  develop,  that it will
last.  Our common  stock is  presently  quoted for  trading on the OTC  Bulletin
Board, a quotation service that displays  real-time quotes and other information
about over-the-counter (OTC) equity securities,  and on the Third Segment of the
Frankfurt  Stock  Exchange.  Trading  activity  in our  common  stock on the OTC
Bulletin  Board is limited  and  trading  activity  in our  common  stock on the
Frankfurt  Stock Exchange is dormant.  In addition,  we may be unable to attract
and maintain  good-quality  market makers.  In the event a liquid market for our
common  stock  does  develop,  a  supply/demand  imbalance  may arise that could
adversely affect our stock price. In addition, subsequent issuances of equity or
equity-linked  securities may further  saturate the market for our common stock.
The  resale of  substantial  amounts  of our  common  stock will have an adverse
effect on the market price of our stock.

We believe  our stock has in the past been and may in the future be the  subject
of short selling  programs.  Short sales can severely and negatively  affect the
prices of stocks which have little market liquidity.

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 it is  generally  extremely
difficult  to predict  the timing and rate of market  adoption  of our  proposed
products as well as of related new video applications.  Our visibility into when
we  might  begin  to  realize   substantial   revenue  from  product   sales  is
substantially  limited.  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, which 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 reduce  prospects  for sales of our
products.  If our prospective  customers  curtail or eliminate their  purchasing
programs,  decrease their capital budgets or reduce their  purchasing  priority,
our results of operations could be adversely affected.

Leitch Technology Corporation is no longer an active,  participating partner for
us in the professional broadcast video studio market.

In April 2000, we entered into a strategic  marketing  relationship  with Leitch
Technology Corporation,  a Canadian public company and international distributor
of professional video products. Leitch now owns less than 20% of our outstanding
common stock on a fully diluted  basis.  Leitch no longer is an active  partner,
and we do not anticipate doing business with it.

We recently disposed of the assets of our Silicon Systems group.

In October 2000,  we agreed to purchase the assets of Metar ADC, an  application
specific  integrated  circuit  (ASIC)  design and  development  company based in
Bucharest,  Romania,  from Metar SRL. We organized these assets into our Silicon
Systems business unit, which we named "Sistolic".

In December 2001, Sistolic entered into a non-exclusive  licensing agreement and
an engineering services agreement with a large semiconductor company pursuant to
which Sistolic was to provide front-end design services. We anticipated that the
maximum  amount  of  revenue  we  could  realize  from  this   arrangement   was
approximately  $5.4 million.  In March 2002,  after  considerable  work had been
performed by us under the agreements,  the large semiconductor  company informed
us that they were summarily terminating these agreements.

Due to this material and adverse turn of events,  we concluded  that we could no
longer sustain the negative cash flow from the Silicon Systems business unit. On
April 3,  2002,  we sold all of the assets of this  business  unit back to Metar
SRL.  Although  we  retained  a  limited  use  license  to the  business  unit's
intellectual property, we have no planned future dealings with Metar SRL.

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 or plan to
file 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
developed 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 face  competition from  established and developing  companies,  many of which
have significantly  greater resources than us, and we expect such competition to
grow.

The markets for our products, future products and services are very competitive.
We face direct and indirect  competition from a number of established  companies
and 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,   stronger  financial   strength,   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.

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 that we have developed or are currently developing 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 and  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.

We may not be able to profit from growth if we are unable to effectively  manage
the growth.

Assuming we receive adequate funding to conduct our business, we anticipate that
we could grow rapidly in the future.  This anticipated  growth,  if it occurs at
all, 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:

o        successfully train, motivate and manage new employees;

o        expand our sales and support organization;

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

o        establish improved financial and accounting systems.

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

We may not be able to hire and retain key employees.

Our future  success will depend,  in part,  on our ability to attract and retain
highly skilled employees,  including management,  technical and sales personnel.
Significant  competition  exists  for  employees  in  our  industry  and  in our
geographic  region.  We may be unable to identify and attract  highly  qualified
employees in the future. In addition,  we may not be able to successfully retain
these employees or hire qualified personnel to replace them.

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 could be harmed.

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.
Some of the materials  used to produce our products are  purchased  from foreign
suppliers.  Moreover, 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 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  in  introducing  our  intended  products  or
improvements  to our intended  products may cause  customer  dissatisfaction  or
deprive us of the "first to market" advantage.

Delays in the development of products and the launch of commercial  products are
not uncommon in high tech  industries  such as ours. If we  experience  problems
related to the  introduction  or  modification  of our intended  products or the
reliability and quality of such products,  which problems delay the introduction
of our intended  products or product  improvements by even a short time of a few
months, we could experience reduced product sales and adverse publicity which in
turn  could have a  material  adverse  impact on our  business.  We believe  the
company first to market with viable  products will gain a significant  advantage
with  customers;  delays could prevent us from being the company that gains this
advantage.

The  issuance  of common  stock to DTKA  Holdings  under our equity  line and to
purchasers  of  units  in  our  2002  private  placement  offering  would  cause
significant dilution to our stockholders,  and the resale of such shares by DTKA
and the purchasers in the private  placement may depress the price of our common
stock.

In January 2002,  we entered into a common stock  purchase  agreement  with DTKA
Holdings  Limited,  a British Virgin Islands  company,  for the potential future
issuance and sale of up to $10 million of common stock,  which is required to be
registered.  Under this arrangement,  we, at our sole discretion, may, from time
to time,  draw down on this  facility  (otherwise  known as an  "equity  line"),
requiring  DTKA  Holdings  to  purchase  shares  of our  common  stock at prices
calculated  on the basis of  discounts  ranging from 6.5% to 8.5% from the daily
volume weighted  average price of our common stock on the principal  exchange or
trading  market on which our  common  stock is  trading  on the date of the draw
down. We may not draw down on this facility  until we have filed a  registration
statement with the Securities and Exchange  Commission to register enough shares
of common stock to cover the shares to be issued pursuant to such draw down, and
until this registration  statement has been declared effective.  As of September
30,  2002 we have not begun the share  registration  process.  The  issuance  of
shares of common  stock to DTKA  Holdings  pursuant  to this  equity  line could
result in significant dilution to our stockholders. However, we do not currently
intend to draw down on any funds under this facility.

The issuance of common stock to Laurus Funds in connection  with our convertible
note to them would  cause  significant  dilution  to our  stockholders,  and the
resale of such shares by Laurus may depress the price of our common stock.

In May  2002,  we  issued a 12%  convertible  note in the  principal  amount  of
$1,250,000. The note is convertible at a price of $1.40 per share and is payable
on a monthly basis over 15 months.

On November 7, 2002, the Company issued 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. As the conversion price was below the
trading market price $.90 per share on the day the note was issued,  the Company
will record a debt discount in its fourth  quarter ended  December 31, 2002, and
will amortize the debt discount over the period of the convertible note from the
earliest conversion date using the effective interest method.

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. The Company will record deferred interest expense associated with the
warrants in its fourth  quarter ended  December 31, 2002 under the Black Scholes
valuation  method,  and will amortize the deferred interest over the life of the
note.

As part of the November 7, 2002 convertible note  transaction,  the Company also
repriced  the  conversion  price of the May 2002  convertible  note and  175,000
warrants (See Note 8) 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.  This will
change the previously  reported debt discount amount,  deferred interest expense
amount and amortization  periods.  The 75,000 warrants issued in connection with
the  November 7, 2002  convertible  note are fully vested and expire in November
2009.

The convertible  note financing that we have in place with Laurus Funds 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.  However,
California  law  currently  precludes  us from  issuing  new  stock  options  to
non-executive employees and consultants.

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
September 30, 2002, there were options  outstanding to purchase 3,926,898 shares
of common  stock  under our 2000 Plan;  333,102  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.

We plan to continue to provide our employees opportunities to participate in the
Purchase  Plan.  We also wish 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.  Therefore the
issuance  of further  stock  options  and shares  under the 2000 Plan to persons
other than officers,  directors and previous optionees  requires  qualification,
which under current  conditions we cannot obtain,  of the  securities  under the
"blue sky" securities  provisions of the California  Corporations Code. This may
limit  our  ability  to grant  options  and stock as a means of  attracting  and
retaining employees.

We are subject to local, state and federal  regulation,  as well as the rules of
any stock exchanges on which our securities might trade.

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  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.

Our  executive  officers,  directors  and  5%  stockholders  currently  maintain
substantial voting control over us and possess certain rights of first offer and
first refusal in regard to offers and sales of our securities.

As of September  30, 2002, a small number of our executive  officers,  directors
and 5% stockholders,  beneficially  own, in the aggregate,  approximately 48% 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.  Pursuant to the terms of a stockholders' agreement with
Leitch,  dated April 10,  2000,  Ronald D.  Fellman and Douglas A.  Palmer,  who
together hold  approximately 15% of our outstanding common stock, have agreed to
vote all  securities  of Path 1 held by them in favor of designees of Leitch for
two  positions on our  seven-person  Board of  Directors,  for as long as Leitch
continues  to  hold at  least  20% of our  capital  stock  (on an  as-converted,
as-exercised,  fully-diluted  basis).  As of September 30, 2002,  Leitch did not
hold at least 20% of our stock on an as-converted,  as-exercised,  fully-diluted
basis and thus is not entitled to designate director nominees.

Under this  Stockholders'  Agreement,  Leitch  Technology  Corporation  also has
rights of first  refusal  to  purchase  (i) any equity  securities  offered in a
private sale by Dr. Fellman,  Dr. Michael  Elliott and Dr. Palmer,  and (ii) its
pro rata share of any capital stock, or rights, options, warrants or to purchase
capital  stock issued by us, on the same terms and at the same price  offered by
us to the third party or parties.  These rights of first  refusal and the voting
agreement give Leitch the potential to maintain or expand its substantial equity
position  in us and  exert  significant  influence  over  matters  of  corporate
governance.  The right of first refusal with respect to securities  offerings by
us could, in certain  circumstances,  serve as a deterrent to future  acquirors,
especially if Leitch does not approve of a proposed merger or  acquisition,  and
could give Leitch the  leverage to  condition  its consent to  offerings  of our
securities on our adoption of policies  favored by Leitch.  In addition,  Leitch
maintains  demand  registration  rights  pursuant  to which it can require us to
register  its  shares of our  common  stock  with the  Securities  and  Exchange
Commission for resale into the public market. Such registration and resale could
adversely affect the price of our common stock.

Our equity  compensation plans give wide latitude to the plan administrator (our
Board  of  Directors  or  committee  thereof)  to make  option  grants  or stock
issuances to our officers and directors and to grant broad  auxiliary  rights in
connection  with such option  grants or stock  issuances  (e.g.  full or partial
acceleration  of vesting  upon change of control or upon  attainment  of certain
performance  milestones).  In January 2002, our executive officers and employees
were granted stock options  under our 2000 Stock  Option/Stock  Issuance Plan in
return for their agreement to voluntarily  reduce their salaries for a period of
90-days.  Our executive  officers  have  continued to receive  reduced  salaries
through  September  30, 2002 in exchange for option  grants.  Additional  option
grants to our  officers  and  directors  would  serve to increase  their  equity
ownership of the company and would allow these  officers and  directors,  should
they choose to exercise their options, to exert increased control over us.

Our charter documents contain provisions that could discourage a takeover.

Our Certificate of Incorporation and Bylaws contain provisions that may have the
effect of making more difficult or delaying attempts by others to obtain control
of  us,  even  when  these  attempts  may  be  in  the  best  interests  of  the
stockholders.   Our  Certificate  of  Incorporation   authorizes  our  Board  of
Directors,  without further stockholder approval, to issue one or more series of
preferred stock. Any such series of preferred stock could have rights, including
voting  rights,  superior  to that of our  common  stock,  and  rights  to elect
directors as a class.  Grant of such rights could  provide the  preferred  stock
holders with significant control over matters of corporate governance.

In addition, our Bylaws state that special meetings of the stockholders may only
be  called  by 20% or more of the  outstanding  stock  entitled  to vote at such
meeting,  and also require that all  significant  transactions,  even those that
would not otherwise  require a vote of the Board of  Directors,  be reviewed and
approved  by the  Board.  These  Bylaws  provisions  may defer the  calling of a
meeting at which a change of control  might be  effected  and may serve to deter
potential acquirers.

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.

<PAGE>


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 September 30, 2002, 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.

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 the
Securities  Exchange Act of 1934 Rules  13a-14(c) and  15-d-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

On March 22, 2002,  the Company filed a lawsuit the Superior  Court of San Diego
County,  California  against Mr.  Meeuwi J.  deKraker,  a European  national for
$3,500,000  stemming from a material  breach of contract of a promissory note in
connection with a subscription agreement for the Company's stock. On October 21,
2002, the Court awarded us a default  judgment  against the defendant in the sum
of $3,500,000 plus interest and court costs.

The  United  States  presently  is not a party to any  international  convention
governing the recognition  and enforcement of judgments by a foreign court,  and
whether a judgment  from a court in the United  States  will be  recognized  and
enforced in a foreign country is generally  determined by that foreign country's
domestic  laws.  We intend to pursue  our  claim and to  enforce  this  judgment
against  the  defendant.  However,  there can be no  assurance  that the default
judgment  awarded  the  Company  will be  recognized  or  enforced by a court of
competent  jurisdiction  in Belgium (or in any other country where the defendant
might  be  found  or  in  which  a  court  would  have  jurisdiction),  or if so
recognized, whether we will succeed in collecting the judgment.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

On June 18, 2002 we completed  the  registration  of 2,285,714  shares of common
stock pursuant to a securities  purchase  agreement between us and Laurus Funds,
Ltd.

On August 7, 2002 we filed  Form  SB-2 to  register  1,767,676  shares of common
stock pursuant to a private placement completed in May 2002.

These were  private  placements,  exempt from the  Securities  Act  registration
requirement by virtue of Securities Act Section 4(2).

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.


ITEM 5.  OTHER INFORMATION

On  October  30,  2002,  the  Company  appointed  Swenson  Advisors  LLP  as its
independent auditors for 2002.

On October 18,  2002,  John R. Zavoli was  appointed  Chief  Financial  Officer,
General Counsel and Corporate Secretary.

On September 27, 2002, we announced that Dr. Moshe Nazarathy joined our Board of
Directors,  replacing Ronald Fellman (who remains our Chief Technology Officer),
and that  Robert  Clasen has become our Chief  Strategy  Officer in  addition to
remaining on our Board of Directors.

In May 2002,  Dr. Ronald  Fellman  commenced a qualified  selling plan under SEC
10B5-1.  The plan runs for sixty trading days starting July 29, 2002 and sells a
maximum of 500 shares per day.

<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

On July 18,  2002,  Form 8-K was filed to  report  the  change in the  Company's
principal offices to 6215 Ferris Square, Suite 140, San Diego, California 92121,
as well as various management changes and realignments.

On September 25, 2002,  Form 8-K was filed to report the  resignation of Ernst &
Young LLP as the Company's  independent  auditors with effect from September 13,
2002.

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

Exhibit
Number   Description

10.24    Securities Purchase Agreement dated November 7, 2002 by and between
         Path 1 and Laurus Master Fund, Ltd. *
10.25    Allonge to Convertible Note Dated May 16, 2002 dated November 7, 2002
         by and between Path 1 and Laurus Master Fund, Ltd. *
10.26    Allonge to Warrant Dated May 16, 2002 dated November 7, 2002 by and
         between Path 1 and Laurus Master Fund, Ltd. *
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: November 14, 2002


<PAGE>


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

Exhibit
Number   Description

10.24    Securities Purchase Agreement dated November 7, 2002 by and between
         Path 1 and Laurus Master Fund, Ltd. *
10.25    Allonge to Convertible Note Dated May 16, 2002 dated November 7, 2002
         by and between Path 1 and Laurus Master Fund, Ltd. *
10.26    Allonge to Warrant Dated May 16, 2002 dated November 7, 2002 by and
         between Path 1 and Laurus Master Fund, Ltd. *
99.1     Certification under Section 906 of the Sarbanes-Oxley Act of 2002. *


* Filed Herewith