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, 2000.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to____________.
Commission File Number (000-30928)
PATH 1 NETWORK TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3989885
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3636 NOBEL DRIVE, SUITE 275, SAN DIEGO, CALIFORNIA 92122
(858) 450-4220
(Address, including zip code, and telephone number, including area
code, of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
The number of shares outstanding of the issuer's Class A Common
Stock, US$.001 par value, as of October 27, 2000 was 7,957,651. No
shares of the issuer's Class B Common Stock are outstanding.
PATH 1 NETWORK TECHNOLOGIES INC.
For the Quarterly Period Ended September 30, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
CONDENSED BALANCE SHEETS 3
CONDENSED STATEMENTS OF OPERATIONS 4
CONDENSED STATEMENTS OF CASH FLOWS 5
NOTES TO THE CONDENSED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 20
PART II - OTHER INFORMATION 20
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATH 1 NETWORK TECHNOLOGIES INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
2000 1999
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 10,557 $ 454
Marketable securities, available
for sale 3,513 -
Deposits and prepaid expenses 95 86
Total current assets 14,165 540
Property and equipment, net 270 59
Investment in Jyra Research, Inc. 64 113
Total Assets $ 14,499 $ 712
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 594 $ 282
Total current liabilities 594 282
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value;
issuable in series: 8 6
Class A - 20,000,000 shares authorized;
7,937,651 and 6,087,651 shares issued
and outstanding at September 30, 2000
and December 31, 1999, respectively
Class B - 10,000,000 shares authorized;
no shares issued or outstanding at
September 30, 2000 and December 31,
1999, respectively - -
Additional paid-in capital 34,819 10,264
Deferred compensation (5,368) (3,162)
Accumulated other comprehensive gain 416 -
Deficit accumulated during the
development stage (15,970) (6,678)
Total stockholders' equity 13,905 430
Total liabilities and stockholders' equity $ 14,499 $ 712
See accompanying notes to the condensed financial statements
PATH 1 NETWORK TECHNOLOGIES INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
January 31, 1998 (inception)
Three Months Ended Nine Months Ended Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
Operating expenses:
Research and development $ 1,034 $ 254 $ 2,419 $ 605 $ 3,303
Sales and marketing 183 95 750 216 881
General and administrative 797 199 1,636 555 4,189
Stock-based compensation (*) (1,653) 236 4,708 826 7,811
Total operating expenses (361) (784) (9,513) (2,202) (16,184)
Interest income, net 175 7 270 12 297
Loss on investment in Jyra
Research, Inc. - - (49) - (83)
Net Loss $ (186) $ (777)$ (9,292) $(2,190)$(15,970)
Loss per common share - basic
and diluted $ (0.02) $ (0.14) $ (1.30) $ (0.40)
Weighted average common shares
outstanding 7,932 5,684 7,140 5,452
(*) The following table shows
how the Company's stock-
based compensation would be
allocated to the respective
department expense line items:
Research and development $(1,589) $ 80 $ 1,762 $ 302 $ 2,887
Sales and marketing (940) - 642 - 1,162
General and administrative 876 156 2,304 524 3,762
$(1,653) $ 236 $ 4,708 $ 826 $ 7,811
See accompanying notes to the condensed financial statements
PATH 1 NETWORK TECHNOLOGIES INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
January 31, 1998
(inception)
Nine Months Ended Through
September 30, September 30,
2000 1999 2000
Cash flows from operating activities:
Net loss $ (9,292) $ (2,254) $ (15,970)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 92 12 122
Amortization of deferred compensation 2,109 716 4,828
Common stock issued to employees by
principal stockholders - - 330
Common stock options issued for services 2,597 110 2,982
Loss on investment in Jyra Research, Inc. 49 14 83
Changes in assets and liabilities:
Other current assets (9) (5) (95)
Accounts payable and accrued liabilities 312 7 595
Cash used in operating activities (4,142) (1,400) (7,125)
Cash flows from investing activities:
Purchases of property and equipment (303) (6) (393)
Cash used in investing activities (303) (6) (393)
Cash flows from financing activities:
Issuance of common stock for cash, net 14,548 2,293 18,075
Cash provided by financing activities 14,548 2,293 18,075
Increase in cash and cash equivalents 10,103 887 10,557
Cash and cash equivalents, beginning of period 454 119 -
Cash and cash equivalents, end of period $ 10,557 $ 1,006 $ 10,557
Supplemental disclosure of noncash
investing activities:
Issuance of Series A convertible preferred
stock in exchange for investment in
JYRA Research, Inc. $ - $ - $ 147
Issuance of common stock for marketable
securities $ 3,096 $ - $ 3,096
Unrealized gain in marketable securities $ 416 $ - $ 416
See accompanying notes to the condensed financial statements
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed balance sheet as of September 30, 2000,
the condensed statements of operations for the three and nine month
periods ended September 30, 2000 and 1999 and for the period from
January 31, 1998 (inception) to September 30, 2000, and the
condensed statements of cash flows for the nine month periods ended
September 30, 2000 and 1999 and for the period from January 31,
1998 (inception) to September 30, 2000 have been prepared by Path 1
Network Technologies Inc. (the "Company"), and have not been
audited. These quarterly financial statements, in the opinion of
management, include all adjustments, consisting only of normal and
recurring adjustments, necessary to state fairly the financial
information set forth therein, in accordance with generally accepted
accounting principles. These financial statements should be read in
conjunction with the financial statements and notes thereto for the
year ended December 31, 1999 included in the Company's Form 10/A filed
June 19, 2000. The interim financial information contained in this
filing is not necessarily indicative of the results to be expected for
any other interim period or for the full year ending December 31, 2000.
NOTE 2 - MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 3 - NET LOSS PER SHARE
Basic and diluted net loss per share has been computed in accordance
with Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," using the weighted-average number of shares of
common stock outstanding during the period including any dilutive
common stock equivalents. Common stock equivalents for the three
and nine months ending September 30, 2000 and 1999 were excluded
from the calculation of diluted earnings per share because of the
anti-dilutive effect.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common shares, if any, issued in each of the periods
presented for nominal consideration would be included in the per share
calculations as if they were outstanding for all periods presented. No
such shares have been issued.
NOTE 4 - PRIVATE PLACEMENT OFFERING
In May 1999, the company authorized a private placement offering of
up to 1,250,000 shares of Class A Common Stock to accredited
investors at a price of US$8.00 per share. Between January 1, 2000
and May 31, 2000, the Company sold 600,000 shares of Class A
Common Stock to accredited investors pursuant to this offering,
resulting in net cash proceeds totaling approximately US$4.6 million.
In connection with the offering, the Company granted options to
purchase 30,000 shares of Class A Common Stock at an exercise price
of US$8.00 per share through February 2007 as payment for finder's
fees, and incurred other offering expenses of US$190,000.
NOTE 5 - TRANSACTIONS WITH LEITCH TECHNOLOGY CORPORATION
In April 2000, the Company sold 1,250,000 shares of its Class A
Common Stock in a private placement to Leitch Technology
Corporation ("Leitch") for US$8.00 per share, resulting in gross
proceeds of US$10.0 million. The Company also received 200,000
shares of Leitch common stock with a fair value at the date of the
transaction of US$3.1 million. Leitch's common stock is publicly
traded on the Toronto Stock Exchange under the symbol "LTV" and
on the NASDAQ National Market under the symbol "LVID". In
conjunction with the private placement, the Company entered into a
technology license agreement with Leitch and provided Leitch a non-
exclusive worldwide royalty bearing license (except as to
TrueCircuit(TM) technology in products designed for the professional
video market, which is subject to an exclusive royalty bearing license
in favor of Leitch) to utilize the Company's intellectual property to
develop and sell products which incorporate its proprietary
TrueCircuit(TM) technology. The technology license is subject to a five
year initial royalty- free period. The shares of Class A Common Stock
sold to Leitch are subject to Rule 144's restrictions on resale as they
were unregistered securities purchased in a private transaction.
In July 2000, the Company sold an additional 36,250 shares of its
Class A Common Stock to Leitch for US$8.00 per share, resulting in
gross proceeds of US$290,000. The shares were issued pursuant to the
exercise of certain anti-dilution rights maintained by Leitch.
NOTE 6 - STOCK OPTIONS
The Company accounts for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board
Opinion ("APB") 25, Accounting for stock issued to Employees,
Statement of Financial Accounting Standards ("SFAS") Interpretation
No. 28, Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans, and SFAS Interpretation No 38,
Determining the Measurement Date for Stock Option, Purchase, and
Award Plans involving Junior Stock. The Company also complies
with the disclosure provisions of SFAS No. 123, Accounting for Stock-
Based Compensation.
The Company accounts for equity instruments issued to non-
employees using the fair value method in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Issue No. 96-
18, Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in conjunction with Selling, Goods or
Services.
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 of which the counter-party's performance is complete.
During the nine month period ended September 30, 2000, the
Company granted 2,535,585 stock options to employees and consultants
with vesting periods ranging from immediate to four years. The options
are for the purchase of 46,250 shares of Class A Common Stock at an
exercise price of US$8.00 per share and 2,489,335 shares of Class B
Common Stock at an exercise price of US$4.35 per share. During the
nine month period ended September 30, 2000, the Company recorded
stock-based compensation expense of US$4.7 million related to options
outstanding to employees and consultants.
NOTE 7 - LEGAL PROCEEDINGS
On September 20, 1999, the Company filed a complaint against certain
stockholders and their affiliates for breach of oral contract,
professional negligence, breach of fiduciary duty, constructive trust,
breach of the covenant of good faith and fair dealing and unfair
business practice, primarily in connection with the allocation of
founders stock of the Company. On November 29, 1999, Dr. Franklin
Felber, a former officer and director of the Company, who was a defendant in
the September 20, 1999 complaint, filed a cross-complaint against the Company,
certain of our directors and Jyra Research, Inc. alleging fraud, breach
of fiduciary duty, breach of the covenant of good faith and fair dealing,
and misrepresentation in connection with the exercise by Jyra's
assignees of Jyra's arrangement to purchase from him for US$4.00 per
share, 30,000 shares of our Class A Common Stock in February 1999
and 225,640 shares of the Company's Class A Common Stock in July 1999.
In April 2000, this complaint and all counterclaims arising out of it
were settled as to all parties other than Dr. Felber. Other than with
respect to Dr. Felber, the parties released the original complaint and all
counterclaims against each other and certain directors of Path 1.
The Company has not yet determined the financial impact of the
remaining litigation. There can be no assurance that it may not have a
material adverse impact on the Company's financial position and results of
operations. The case is in mediation as of the date of this filing and the
parties have reached a tentative agreement for settlement. We expect the
settlement to be finalized in the fourth quarter.
NOTE 8 - SUBSEQUENT EVENTS
On October 13, 2000, the Company entered into an agreement to
purchase the assets of Metar ADC, a Bucharest, Romania-based
integrated circuit design company, for US$2 million in cash. The
first US$1 million is payable upon receipt and acceptance of designated
technology transfers from Metar ADC, which the Company anticipates
will occur before the end of December 2000. The second US$1 million
is payable over a three-year period: US$150,000 in year one,
US$250,000 in year two and US$600,000 in year three. The acquisition
will be accounted for as a purchase in accordance with the provisions
of APB No. 16.
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," "except," "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 Registration
Statement on Form 10/A and other reports and filings made with the
Securities and Exchange Commission.
OVERVIEW
Over the next several years we expect a significant increase in the
number of audio, video and telephony transmissions over the Internet,
and accordingly that there will be a market for products, which can
enable wired data transmission networks to handle each of these
transmission formats. We plan to position ourselves at the forefront of
this movement through the introduction of products based on our
proprietary TrueCircuit(TM) technology. Our TrueCircuit(TM) technology
is capable of enabling the efficient transmission of all communications
over a single network and bringing high-level quality of service (QoS)
and real-time audio, video and telephony capabilities to the Internet
and to standard Internet Protocol (IP) networks. Our intended real-
time data delivery product line for business and, ultimately, the home
would have the potential to change the way video content is produced
and delivered. For example, TrueCircuit(TM) technology would enable
the producer of video to transmit the video digitally over an Ethernet
network to users, who would receive it with negligible latency or jitter.
This allows for the replacement of the current method of using analog
video and facilitates a 100% digital approach to video production,
distribution, editing and broadcast. Businesses and ultimately, homes
could then receive digital video over the Internet. In addition, we
expect TrueCircuit(TM) technology would ensure that a phone call placed
over the Internet will be delivered as reliably as calls made over
today's telephone network by guaranteeing the same end-to-end
quality of service presently provided by existing telephone networks.
Among other benefits, our intended products would also enable
improved interaction of computers, telephone equipment, video
equipment and network appliances.
As it operates today, IP (which is simply a common set of procedures,
conventions and rules to link together computers and information
across the world) fragments information into packets of data and
automatically routes these packets to their correct destination via
intermediate switching nodes called IP routers. This process, known
as "packet-switching", does not ensure that packets will arrive in the
same order in which they were sent, or that they will arrive at their
destinations in a timely manner.
Packet-switching works best for transmission of data, which is tolerant
of packet re-ordering and large variations in transmission time (known
as "jitter"). Jitter causes the recipient of an audio or video
transmission to experience a jerky or otherwise imperfect signal.
Lengthy download times are often experienced as packets respectively
arrive. In contrast, the transmission of real-time signals, including
audio and video, requires timely, predictable and consistent delivery.
Traditional telephone networks use "circuit-switching" to meet the
needs of real-time audio signals. Circuit-switching ensures that a
communications signal always has a consistent, fixed point-to-point
path, or "channel", from source to destination. Because circuit-
switching maintains a constant route, it minimizes end-to-end delays
and jitter. However, traditional circuit-switching is not practical for
many of today's Internet uses due to its relatively rigid and inflexible
structure.
Our technology addresses the inherent deficiencies in the delivery of
audio and video data 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.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception on January 31, 1998 we have financed our
operations primarily through the sale of common equity securities to
investors and strategic partners. The funds are currently invested in
U.S. Treasury and government agency obligations and investment-
grade corporate obligations. We also hold stock in two corporate
partners, which they issued directly to us.
At September 30, 2000, we had net working capital of US$13.6
million compared to US$258,000 at December 31, 1999. Cash, cash
equivalents and marketable securities totaled US$14.1 million at
September 30, 2000 compared to US$454,000 at December 31, 1999.
For the next several years, we expect to incur substantial additional
expenditures associated with research and development in addition to
increased costs associated with staffing for management, sales and
marketing and administration functions. We anticipate that our
existing resources will enable us to fund operations for a minimum of
one year.
Cash used for operating activities during the nine months ended
September 30, 2000 and 1999 was US$4.1 million and US$1.4 million,
respectively. This increase was primarily the result of an increase
in personnel expenses including research and development activities,
promotional and marketing expenses, recruiting fees and other operating
costs.
Cash used for investing activities during the nine months ended
September 30, 2000 and 1999 was US$303,000 and US$6,000, respectively.
This increase was primarily the result of the purchase of computers and
other equipment.
Cash provided by financing activities during the nine months ended
September 30, 2000 and 1999 was US$14.5 million and US$2.3 million,
respectively. This increase was primarily due to the proceeds
from a private placement with Leitch and other private placement
issuances.
At September 30, 2000, we have no material commitments other than
our operating leases. Our future capital requirements will depend
upon many factors, including the timing of research and product
development efforts, the expansion of our general and administrative
functions and sales and marketing efforts, and the need to finance the
manufacturing of commercial products that we may develop and launch.
We expect to continue to expend significant amounts on research and
development staffing, infrastructure and computer equipment to support
on-going research and development activities.
In April 2000, we sold 1,250,000 shares of our Class A Common
Stock in a private placement to Leitch for US$8.00 per share, resulting
in gross proceeds of US$10.0 million. We also received 200,000
shares of Leitch common stock with a fair market value at the date of
the transaction of US$3.1 million. In conjunction with the private
placement, we entered into a technology license agreement with Leitch
and provided Leitch a non-exclusive worldwide royalty bearing license
(except as to TrueCircuit(TM) technology in products designed for the
professional video market, which is subject to an exclusive royalty
bearing license in favor of Leitch) to utilize our intellectual property
to develop and sell products incorporating our TrueCircuit(TM) technology.
The technology license is subject to a five-year initial royalty-free
period.
In July of 2000, the Company sold an additional 36,250 shares of its
Class A Common Stock to Leitch for US$8.00 per share, resulting in
gross proceeds of US$290,000. The shares were issued pursuant to the
exercise of certain anti-dilution rights maintained by Leitch.
On October 13, 2000, we entered into an agreement to purchase the
assets of Metar ADC, a Bucharest, Romania-based integrated circuit
design company, for US$2 million in cash. The first US$1 million is
payable upon receipt and acceptance of designated technology
transfers from Metar ADC, which we anticipate will occur before the
end of December 2000. The second US$1 million is payable over a
three-year period. The acquisition will be financed with funds from
our working capital. We anticipate that the addition of Metar
ADC technology could significantly enhance the value of our Company
by opening new markets for silicon-based TrueCircuit(TM)-enabled products.
We also anticipate that revenue streams could be generated from licensing
opportunities, royalty payments and Path 1's own product line.
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
financing. There can be no assurance that funds from these sources
will be available on favorable terms, or at all. If we raise additional
funds through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced, stockholders may
experience additional dilution or such equity securities may provide
for rights, preferences or privileges senior to those of the holders of
our common stock.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED SEPTEMBER 30, 1999
Our revenues were immaterial in both the third quarter of 2000 and the
third quarter of 1999. We expect our first revenues in the fourth
quarter of 2000.
Our research and development expenses increased from US$254,000
for the quarter ended September 30, 1999 to US$1.0 million for the
quarter ended September 30, 2000. The increase of US$780,000 is
primarily due to an increase in expenses for consulting, engineering
staff and prototype materials.
Our sales and marketing expenses increased from US$95,000 for the
quarter ended September 30, 1999 to US$183,000 for the quarter
ended September 30, 2000. The increase of US$88,000 is primarily
due to higher head count, and an increase in travel and promotional
expenses. The third quarter spending in sales and marketing was
comparatively lower than previous quarters in 2000 primarily due to
the timing of expenditures related to major tradeshows and exhibits
(e.g., NAB - National Association of Broadcasters in April 2000, N+I
- NetWorld+Interop in May 2000). And until we obtain additional
dedicated sales and marketing people, we may continue to utilize
research and development personnel as well as general and
administrative personnel in our sales and marketing efforts.
Our general and administrative expenses increased from US$199,000
for the quarter ended September 30, 1999 to US$797,000 for the
quarter ended September 30, 2000. The increase of US$598,000 is
primarily due to an increase in legal fees related to our litigation with
Dr. Franklin Felber (see Part II. Item 1. Legal Proceedings), higher
head count and consulting expenses.
Stock-based compensation expense is a non-cash item that is
recognized in association with stock options having exercise prices
below estimated fair value. Stock-based compensation expense is
calculated as the difference between exercise price and estimated fair
market on the date of grant, and if the options are subject to variable
accounting treatment, then each quarter additional compensation
expense, positive or negative, is recognized based on the fair market
value of our common stock in accordance with the provisions of
variable stock option accounting. During the three months ended
September 30, 2000, the fair market value of our common stock
decreased resulting in an overall "negative" stock-based compensation
charge of US$1.7 million. Stock-based compensation expense may
continue to fluctuate from quarter to quarter, in material amounts, as
the fair market value of our common stock increases and decreases.
Our interest income increased from US$7,000 for the quarter ended
September 30, 1999 to US$175,000 for the quarter ended September
30, 2000. This increase of US$168,000 was due to significantly higher
average cash balances during the quarter ended September 30, 2000,
which included proceeds from a private placement with Leitch completed
in April of 2000. Cash from this private placement enabled us to
increase our spending in various expense categories after the deal
closed.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED SEPTEMBER 30, 1999
Our revenues were immaterial in both the first nine months of 2000
and the first nine months of 1999. We expect our first revenues in the
fourth quarter of 2000.
Our research and development expenses increased from US$605,000
for the nine months ended September 30, 1999 to US$2.4 million for
the nine months ended September 30, 2000. The increase of US$1.8
million is primarily due to higher expenses for consulting, engineering
staff and prototype materials.
Our sales and marketing expenses increased from US$216,000 for the
nine months ended September 30, 1999 to US$750,000 for the nine
months ended September 30, 2000. The increase of US$534,000 is
primarily due to an increase in promotional and marketing expenses,
travel, and higher head count.
Our general and administrative expenses increased from US$555,000
for the nine months ended September 30, 1999 to US$1.6 million for
the nine months ended September 30, 2000. The increase of US$1.1
million is primarily due to an increase in legal fees related to our
litigation with Dr. Franklin Felber (see Part II. Item 1. Legal
Proceedings), higher consulting expenses and higher head count.
Stock-based compensation expense is a non-cash item that is
recognized in association with stock options having exercise prices
below estimated fair value. Stock-based compensation expense is
calculated as the difference between exercise price and estimated fair
market on the date of grant, and if the options are subject to variable
accounting treatment, then each quarter additional compensation
expense, either positive or negative, is recognized based on the fair
market value of our common stock in accordance with the provisions
of variable stock option accounting. During the nine months ended
September 30, 2000, we recognized US$4.7 million in stock-based
compensation charges. Stock-based compensation expense may
continue to fluctuate, in material amounts, as the fair market value of
our common stock increases and decreases.
Our interest income increased from US$12,000 for the nine months
ended September 30, 1999 to US$270,000 for the nine months ended
September 30, 2000. The increase of US$258,000 was due to
significantly higher average cash balances during the nine months
ended September 30, 2000, which included proceeds from a private
placement with Leitch completed in April of 2000. Cash from this
private placement enabled us to increase our spending in various
expense categories after the deal closed.
Our other expense increased from zero for the nine months ended
September 30, 1999 to US$49,000 for the nine months ended
September 30, 2000. The US$49,000 loss was for a decline in fair
market value of our investment in Jyra Research, Inc., determined to
be other than temporary.
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/A FILED ON JUNE 19, 2000, 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 YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
IT IS DIFFICULT TO EVALUATE OUR BUSINESS BECAUSE WE HAVE NOT YET LAUNCHED
ANY PRODUCTS COMMERCIALLY.
We have a relatively brief operating history. We were incorporated in
January 1998 and commenced operations in May 1998. As of September 30,
2000, we did not yet have any products in commercial production.
Accordingly, we are subject to all of the risks associated with new
business ventures including, without limitation, those associated with
raising capital, acquiring or developing products which function as
intended, arranging for suitable manufacturing facilities, entering into
strategic relationships with other companies, identifying and retaining
necessary personnel, establishing and penetrating markets for our proposed
products and achieving profitable operations.
WE WILL PROBABLY NEED MORE WORKING CAPITAL TO EXPAND OUR BUSINESS AND OUR
PROSPECTS FOR OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN.
While we anticipate our first revenues in the fourth quarter of 2000,
we are a new business with no material sales or revenues to date. We
anticipate that we will require additional financing to fund expansion,
to develop new or enhance existing services or products, to respond to
competitive pressures or to acquire complementary products, businesses
or technologies, and to finance the commercialization of any products we
develop. If we raise additional funds through the issuance of equity or
equity-linked securities, the percentage ownership of our stockholders
would be reduced. In addition, these securities may have rights,
preferences or privileges senior to the rights of the securities held by
our current stockholders. We cannot guarantee that additional financing
will be available in the future on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms,
our ability to continue our operations, fund our expansion, take advantage
of potential opportunities, develop or enhance products, or otherwise
respond to competitive pressures would be significantly limited.
WE ARE RELYING ON LEITCH TECHNOLOGY CORPORATION FOR MARKETING INTO OUR FIRST
TARGET MARKET.
Pursuant to the Technology License Agreement between us and Leitch
dated April 10, 2000, we have granted Leitch an exclusive license,
even as to us, for sale of TrueCircuit(TM)-based products into the
professional broadcast video market. We are precluded from selling
our intended products directly into the professional broadcast video
market until the exclusive license expires. The exclusive license will
last for one year and, thereafter, will automatically renew for
consecutive additional one-year periods provided we receive the
minimum aggregate monies and other consideration for that year as set
forth in the Technology License Agreement. Therefore, it is possible
that Leitch's exclusive license will continue well past its initial one-
year term, thus lengthening the period of time during which we will be
prohibited from selling and marketing directly into this first target
market. Although it is possible that we may sell the PG1 and its related
family of products (the TrueCircuit(TM)-based products that we have
developed and are developing for distribution into the professional
broadcast video market) to Leitch for re-sale into this target market,
discussions regarding such a distribution agreement are still in the
early stages.
Our ability to profit from the professional broadcast video market,
whether it be through sale of the PG1 to Leitch or future direct sales
into this target market, will depend heavily upon the motivation and
success of Leitch in developing, manufacturing, launching and
marketing TrueCircuit(TM)-based products in this field. The more
successful their efforts, the more royalties we shall ultimately receive
(such royalties shall not commence until termination of the five-year
royalty-free period in favor of Leitch), and the more receptive that
market would be to our own products. If Leitch's TrueCircuit(TM)-based
products experience difficulties (e.g. operational malfunctions or poor
sales experience) upon their introduction to the professional broadcast
video market, we may encounter difficulties in marketing
TrueCircuit(TM)-based products in that market or in other fields.
OUR PROPOSED PRODUCTS ARE ONLY AT A DEVELOPMENTAL STAGE
As of September 30, 2000, our proposed products are either at the
conceptual stage, i.e., ideas for products, or have been reduced to beta
units or prototypes that must be tested and modified. Our product
development and commercialization process will incorporate the
necessary steps to assure conformance to industry standards and
protocols. This conformance shall include Underwriter Laboratories
certification for the PG1 (all of our other products were designed so as
not to require this certification). Our current marketing plans and
product designs do not require any other certifications. We must
continue our efforts to design these proposed products and arrange for
prototypes of each product to be manufactured, tested and de-bugged
before we can implement our marketing plan. There is no assurance
that each of these milestones can be achieved or that, if they are
achieved, we will be able to effectively market our products and
achieve profitable operations.
WE MAY BE UNABLE TO OBTAIN FULL PATENT PROTECTION FOR OUR CORE TECHNOLOGY
AND PRODUCTS, AND THERE IS A RISK OF INFRINGEMENT
We intend to patent our core technology and our products. On October
31, 2000, we were issued a U.S. patent for our TrueCircuit(TM) multi-
layer network switch. However, there can be no assurance that other
patents will be issued to us, or, if patents are issued, that they will be
broad enough to prevent significant competition or that third parties
will not infringe upon or design around such patents to develop a
competing product. Furthermore, others may design and manufacture
superior products.
In addition to seeking patent protection for our products, we intend to
rely upon a combination of trade secret, copyright and trademark laws,
and contractual provisions to protect our proprietary rights in our
products. There can be no assurance that these protections will be
adequate or that competitors will not independently develop
technologies that are substantially equivalent or superior to our
products.
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 operation. Any such suit, whether or not it has merit, would
be costly to us in terms of employee time and defense costs and could
materially adversely affect us. If an infringement or misappropriation
claim is successfully asserted against us, we may need to obtain a
license from the claimant to use the intellectual property rights. There
can be no assurance that such a license will be available on reasonable
terms or at all.
WE FACE COMPETITION IN OUR INDUSTRY FROM MUCH LARGER COMPANIES WITH
SIGNIFICANTLY GREATER RESOURCES THAN OUR OWN, AND SUCH COMPETITION IS
LIKELY TO INCREASE IN THE FUTURE.
Although our strategy is to seek to enter markets where our intellectual
property gives us a strong competitive advantage, we still presently
face indirect and direct competition in these markets. We anticipate
that the competitive pressures we currently face will increase
significantly in the future. A number of major network equipment
providers such as Cisco Systems, 3Com and Lucent have announced
network convergence strategies. Other competitors are developing
alternative network approaches, which, if successful, could materially
and adversely affect us. Many of our current and potential competitors
have longer operating histories, significantly greater financial,
technical and marketing resources, greater name recognition and
substantially larger customer bases then we have. In addition, many of
our competitors may be able to respond more quickly than we can to
new or emerging technologies, as well as devote greater resources than
we can to the development, promotion and sale of their products.
Increased competition could force us to reduce prices, could lower our
projected margins and could hinder our ability to gain or hold market
share. In addition, if we expand internationally, we may face
additional competition. There can be no assurance that we will be able
to compete successfully against current and future competitors.
WE MAY NOT BE ABLE TO PROFIT FROM GROWTH IN OUR BUSINESS IF WE ARE UNABLE
TO EFFECTIVELY MANAGE THE GROWTH
We anticipate (but by no means do we guarantee) that we will grow
rapidly in the near future and that this growth will place significant
strain on our managerial, financial and personnel resources. The pace
of our anticipated expansion, together with the complexity of the
technology involved in our proposed products, demands an unusual
amount of focus on the operational needs of our future customers for
quality and reliability, as well as timely delivery and post-installation
field support. In addition, relationships with new customers generally
require significant engineering support. Therefore, adoption of our
products by customers would increase the strain on our resources,
especially our engineers. To reach our goals, we will need to hire
rapidly, while, at the same time, invest in our infrastructure. We expect
that we will also have to expand our facilities. In addition, we will
need to:
- successfully train, motivate and manage new employees;
- expand our sales and support organization;
- integrate new management and employees into our overall
operations; and
- establish improved financial and accounting systems.
We may not succeed in anticipating all of the changing demands that
growth would impose on our systems, procedures and structure. If we
fail to effectively manage our expansion, our business may suffer.
COMPETITION FOR EMPLOYEES IN OUR INDUSTRY IS INTENSE, AND WE MAY NOT BE ABLE
TO HIRE KEY EMPLOYEES.
Our future success will depend, in part, on our ability to attract and
retain highly skilled employees, particularly management (including
senior management), technical and sales personnel. We believe our
current roster of senior management is incomplete and that if we are to
succeed we must identify and hire several additional professional
senior managers, including a Vice President of Marketing and Sales
and a Vice President of Engineering. Competition for employees in
our industry and in our geographic region is intense due to the scarcity
of available people with the necessary professional technical skills. We
may be unable to identify and attract highly qualified employees in the
future. In addition, we may not be able to successfully assimilate these
employees or hire qualified key management personnel to replace
them.
WE ARE DEPENDENT ON OUR KEY EMPLOYEES FOR OUR FUTURE SUCCESS, AND NONE OF
THESE KEY EMPLOYEES IS OBLIGATED TO STAY WITH US.
Our success depends on the efforts and abilities of our senior
management, specifically Michael T. Elliott, Ronald D. Fellman,
Douglas A. Palmer, Richard B. Slansky and other senior managers yet
to be identified and hired, and certain other key personnel including
Alan Remen, and Yendo Hu. We currently do not
have key man life insurance on any of these employees. 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 ARE IN LITIGATION WITH A FORMER COMPANY INSIDER. THIS LITIGATION MAY BE
PROTRACTED AND MAY DIVERT COMPANY RESOURCES AWAY FROM THE CONDUCT OF OUR
BUSINESS.
Dr. Franklin Felber, a former director and officer of ours, has sued us
and three of our directors for alleged wrongdoing in connection with
an option to purchase 255,640 shares of our Class A Common Stock
which he granted to Jyra Research, Inc. in January 1999. Felber's
action, filed November 29, 1999, seeks unspecified compensatory and
punitive damages. Also, we are suing him for breach of oral contract,
breach of fiduciary duty, breach of the covenant of good faith and fair
dealing, and unfair business practices in connection with representations
made to us to induce us to issue stock to him. We are seeking damages.
The litigation has caused and may continue to cause a substantial
expense for attorney's fees and a diversion of management attention,
regardless of the outcome of the litigation. In addition, disputes such
as this one can be harmful to companies, especially a company such as
ours that is in the development stage.
OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS CURRENTLY MAINTAIN
SUBSTANTIAL VOTING CONTROL OVER US, WHICH WILL ALLOW THEM TO CONTROL MOST
MATTERS SUBMITTED TO STOCKHOLDERS FOR APPROVAL.
At October 27, 2000, our executive officers, directors and 5% stockholders
own, in the aggregate, approximately 58% of our outstanding Class A Common
Stock. As a result, these stockholders (or subgroups of them) retain
substantial control over matters requiring approval by our stockholders,
such as the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control.
UNANTICIPATED DELAYS OR PROBLEMS IN INTRODUCING OUR PROPOSED PRODUCTS OR
IMPROVEMENTS TO OUR PROPOSED PRODUCTS MAY CAUSE CUSTOMER DISSATISFACTION OR
DEPRIVE US OF THE "FIRST-TO-MARKET" ADVANTAGE.
Management has limited experience in manufacturing and shipping
products. In addition, delays in the development of prototype products
are not uncommon in high-tech industries such as ours. If we
experience problems related to the introduction or modification of our
proposed products or the reliability and quality of such products,
which problems delay the introduction of our proposed products or
product improvements by more than a few months, we could experience
reduced product sales and adverse publicity. 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.
Our proposed products are complex and are likely to contain a number
of undetected errors and defects, especially when these proposed
products are first released. These errors or defects, if significant,
could harm the performance of these proposed products, result in ongoing
redevelopment and maintenance costs and/or cause dissatisfaction on
the part of customers. These costs, delays or dissatisfaction could harm
our business.
MANAGEMENT MAY APPLY THE PROCEEDS RECEIVED FROM ANY ONGOING OR FUTURE SALE
OF OUR SECURITIES TO USES THAT DECREASE OUR PROFITS OR MARKET VALUE.
We have used, and will continue to use, the net proceeds from sale of
our securities for general corporate purposes, including working
capital, and for research and development, but also for matters such as
acquisitions and legal fees for litigation. We determine, based on our
existing needs, how the proceeds will be allocated among the
anticipated uses. Accordingly, our management has significant
flexibility in applying the net proceeds from any sale of our securities
and operating income (if any). The money may be used for corporate
purposes that have the unintended effect of decreasing stockholder
value.
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.
As of October 27, 2000, there were 7,957,651 shares of our Class A
Common Stock outstanding. To date, there has been only a limited
public market for Path 1 securities and there can be no assurance that a
broad public market for our securities will arise. We may be unable to
attract and maintain good-quality market makers. In the event a liquid
market for our Class A Common Stock does develop, there can be no
assurance that the market will be strong enough to absorb all of the
Class A Common Stock currently owned by our stockholders. Now
that our Class A Common Stock has been registered under the
Securities Exchange Act of 1934, substantial quantities of shares
classified as "restricted securities" or "control securities" are now
eligible for resale on the public market under Rule 144. This has the
potential to create a supply/demand imbalance that could hurt our
stock price. In addition, subsequent issuances of equity or equity-
linked securities may further saturate the market for our Class A
Common Stock. The resale of substantial amounts of our Class A
Common Stock will have a depressive effect on the market.
THE MARKET PRICE OF OUR CLASS A COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY,
IN WHICH CASE STOCKHOLDERS MAY LOSE ALL OR PART OF THEIR INVESTMENT.
Our Class A Common Stock is presently quoted for trading on the
OTC Bulletin Board, a quotation service that displays real-time quotes
and other information about over-the-counter (OTC) equity securities,
and on the Third Segment of the Frankfurt Stock Exchange. The market
price for our Class A Common Stock is susceptible to a number of
internal and external factors including:
- quarterly variations in operating results;
- stock price changes in the previous quarter resulting in
large increases or decreases in reported stock-based
compensation expenses, causing our overall net income/loss
to be highly volatile and unpredictable;
- announcements of technological innovations;
- the introduction of new products or changes in product
pricing policies by us or our competitors;
- proprietary rights disputes or litigation; and
- changes in earnings estimates by analysts or other factors.
In addition, stock prices for many technology companies fluctuate
widely for reasons that may be unrelated to operating results. These
fluctuations, as well as general economic, market and political
conditions such as interest rate increases, recessions or military
conflicts, may materially and adversely affect the market price of our
Class A Common Stock.
WE OFFER STOCK OPTIONS TO OUR EMPLOYEES, WHICH COULD RESULT IN SUBSTANTIAL
DILUTION TO ALL STOCKHOLDERS.
In order to provide incentives to current employees and induce
prospective employees and consultants to work for us, we have offered
and issued options to purchase our Class A Common Stock and Class
B Common Stock. As of October 27, 2000, there were options
outstanding to purchase 922,336 shares of our Class A Common
Stock, and there were options outstanding to purchase 3,097,016
shares of our Class B Common Stock. We will continue to issue
options to purchase sizable numbers of shares of stock to new and
existing employees, directors, advisors, consultants or other
individuals as we deem appropriate and in our best interests. The grant
and subsequent exercise of such options could result in substantial
dilution to all stockholders. As of October 27, 2000, 10,000 shares of
Class A Common Stock under our 2000 Stock Option/Stock Issuance
Plan and 402,984 shares of Class B Common Stock under our 1999
Stock Option/Stock Issuance Plan remain authorized but not yet
subject to options.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates primarily from our
investments in certain held-to-maturity securities. Under our current
policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical 100 basis point
adverse move in interest rates along the entire interest rate yield curve
would not materially affect the fair value of our interest sensitive
financial instruments at September 30, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 20, 1999, we filed a complaint against certain
stockholders and their affiliates for breach of oral contract,
professional negligence, breach of fiduciary duty, constructive trust,
breach of the covenant of good faith and fair dealing and unfair
business practice, primarily in connection with the allocation of
founders stock of the Company. On November 29, 1999, Dr. Franklin
Felber, a former officer and director of ours, who was a defendant in
the September 20, 1999 complaint, filed a cross-complaint against us,
certain of our directors and Jyra Research, Inc. alleging fraud, breach
of fiduciary duty, breach of the covenant of good faith and fair dealing,
and misrepresentation in connection with the exercise by Jyra's
assignees of Jyra's arrangement to purchase from him for US$4.00 per
share, 30,000 shares of our Class A Common Stock in February 1999
and 225,640 shares of our Class A Common Stock in July 1999.
In April 2000, this complaint and all counterclaims arising out of it
were settled as to all parties other than Dr. Felber. Other than with
respect to Dr. Felber, the parties released the original complaint and all
counterclaims against each other and certain directors of Path 1.
We have not yet determined the potential financial impact of the
remaining litigation. There can be no assurance that it may not have a
material adverse impact on our financial position and results of
operations. The case is currently in mediation. Parties have reached a
tentative agreement for settlement. We expect the settlement to be finalized
in the fourth quarter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 - Terms of Employment between Richard B. Slansky
and us dated May 5, 2000.
Exhibit 27.1 - Financial Data Schedule
(b) We did not file any reports on Form 8-K during the quarter ended
September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Path 1 Network Technologies Inc.
/s/ Michael T. Elliott
-------------------------
Michael T. Elliott
President and Chief Executive Officer
/s/ Richard B. Slansky
------------------------
Richard B. Slansky
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 14, 2000
Exhibit List
10.1 - Terms of Employment between Richard B. Slansky and us
dated May 5, 2000.
27.1 - Financial Data Schedule
EXHIBIT 10.1
May 5, 2000
Richard B. Slansky
13973 Carriage Rd.
Poway, CA 92064
Dear Richard:
Path 1 Network Technologies, Inc. is dedicated to providing advanced, internet
protocol based, network technology to its worldwide markets. As a small, growing
company, we highly value the professional competence and personal commitment of
each member of our team.
We believe that your capabilities and professional aspirations match Path 1's
needs and high expectations. I am therefore pleased to make the following offer
of employment.
Position: Vice President, Finance & Chief Financial Officer
Reporting to: President & Chief Executive Officer
Classification: Exempt
Annual Salary: US$140,000
Cash Bonus: US$30,000 for achieving targets established by
the CEO, (1/2 paid upon successful completion
of a financing that does not come from existing
shareholders, i.e., Leitch or current German
investors).
Stock Options (1): Incentive options on 200,000 shares of Class B
Common Stock with an exercise price of
US$4.35 per share with a quarterly vesting over
a four (4) year period. Options to fully vest on
an accelerated basis upon an "effective" change
in control of the company.
Option Bonus (2): Incentive options on an additional 50,000 shares
of Class B Common Stock with an exercise price
of US$4.35/share. Options shall vest upon an
"effective" change in control of the company.
Options shall otherwise vest upon, but only upon
successful conclusion of a new Equity Financing
> US$10 million dollars from new investors or at
the discretion of the CEO for lesser financing(s).
Severance Agreement: Three (3) months severance in the form of salary
& benefit continuation in case of termination for
any reason other than for cause. In the case of
either of the following events, the Severance
Agreement shall escalate to six (6) months and
become effective if Mr. Slansky is terminated for
any reason other than for cause: termination of
Dr. Michael Elliott as CEO or an "effective"
change in control of the company. Subject to
this severance arrangement, you shall be an "at-
will" employee and your employment can be
terminated at any time by Path 1, or by you, or
by any reason or for no reason.
Non-Disclosure Agreement: An NDA is required to be signed.
Health Benefits: Same as other employees
Retirement Savings: Same as other Executives once 401(k) Plan is
implemented
Paid Time Off (PTO): Same as other employees
Start Date: May 15, 2000
We look forward to your acceptance of this offer and to a mutually rewarding
professional relationship.
Sincerely,
Path 1 Network Technologies Inc.
Dr. Michael Elliott
Chief Executive Officer
_____________________________________________________________________________
I understand that employment with Path 1 Network Technologies, Inc. is
not for a specified term, and is at the mutual consent of the employee and
the company. Accordingly, either the employee or the company can
terminate the employment relationship at will, with or without cause, at any
time. My signature below is acceptance of this employment offer stated.
Please return the original signed letter and maintain the copy for your
records.
Richard B. Slansky
Date
EXHIBIT 27.1
