Path 1 Network Technologies Reports Second Quarter 2005 Financial Results

Business Wire, August 10, 2005

SAN DIEGO -- Path 1 Network Technologies Inc. (Amex: PNO), a leading provider of video gateway products that enable the transmission of broadcast-quality video over IP networks, today announced its financial results for the second quarter ended June 30, 2005.

For the second quarter of 2005, the Company reported revenue of $1,142,000 compared to revenue of $1,509,000 for the same quarter a year ago and revenue of $864,000 for the first quarter of 2005. The second quarter revenue in 2005 was driven heavily by long haul products compared to the same period in 2004, which was weighted by low margin cable products.

Gross profit for the second quarter of 2005 totaled $635,000, or 56% of total revenues, compared to gross profit of $287,000, or 19% of total revenues, in the same quarter a year ago, and compared to gross profit of $598,000, or 69% of total revenues, in the first quarter of 2005. Gross profit in the second quarter ended June 30, 2005 reflected continued strong sales of the Company's long haul products, including initial sales of the Company's new Vx8000 gateway. The sequential decline in gross profit percentage in the second quarter of 2005 compared to the first quarter of 2005 was attributed to product mix that included sales in the second quarter of the Company's multiplexer video gateways for cable VOD customers.

Net loss for the second quarter of 2005 was $2,628,000, or $0.38 per share, compared to a net loss of $1,945,000 or $0.29 per share, for the same quarter a year ago, and a net loss of $1,588,000, or $0.24 per share for the first quarter of 2005. Net loss for the second quarter 2005 included a non-cash stock-based compensation charge of $892,000. On a non-GAAP basis, excluding the effect of this charge, the Company's net loss for the second quarter of 2005 was $1,736,000, or $0.25 per share, compared to a net loss of $1,673,000, or $0.25 per share for the second quarter of 2004.

The Company also announced that Frontiers Co. Ltd., the Company's reseller in Japan, is not in compliance with a previously announced $2 million non-cancelable purchase order for 2005. The Company does not believe that Frontiers will be able to comply with this order, and the Company has terminated the exclusive distribution rights previously granted to Frontiers in Japan. The Company is in the process of building new reseller partners in Japan, and is working in Japan with existing global partners to pursue new customer opportunities. The Company reported $227,000 of revenue in the second quarter of 2005 that was related to previously reported deferred revenue from Frontiers.

John Zavoli, President and CEO of Path 1, commented, "This quarter marked the first commercial shipments of our new flagship IP Video Gateway product, the Vx8000. This new product is playing a key role in helping carriers and content providers around the world to roll out new HD video services and programming - like news and sports - over IP networks and has opened the door to a broad set of new customers, including a second major network broadcaster, as well as a major US-based digital satellite service provider. We believe that the Vx8000 will drive continued growth for Path 1 as more and more broadcasters recognize the scalability and flexibility of our standards-based products."

Mr. Zavoli added, "Our gross margins on the video contribution and long haul market products remain strong, and continue to demonstrate the strength of our market position and the opportunity for continued growth as we build our customer base. Because we operate in an emerging market, our revenues are subject to quarterly fluctuation making it difficult to predict order timing. However, we believe in the long-term potential of the Video over IP market and Path 1's position within this industry."

Mr. Zavoli concluded, "We are seeing further evidence that the Video over IP market is taking hold. During the second quarter, we entered into several new tests and trials with potential customers, including an interoperability test with a major European carrier that evaluated our new Vx8000 and our Pro-MPEG Forward Error Correction. We did exceptionally well, and are very pleased with our performance in this evaluation. We also engaged in comprehensive lab tests with another large router equipment vendor where our products were proven to interoperate for purposes of partnering in transporting live video for satellite operators and other high profile video transport customers. We are also seeing increased integration of our products into our customers' network management systems due to their strong recognition of our products' network monitoring capabilities and the valuable network intelligence that is offered to video network operators."

Path 1's second quarter 2005 conference call will, as previously announced, be held on Wednesday, August 10, 2005 at 9:00 a.m. EDT (6:00 a.m. PDT). The conference call can be accessed by dialing 1-973-409-9262 (domestic and international). A listen-only broadcast of the call may be accessed on the Company's website at: www.path1.com. A replay of the call will be available from Wednesday, August 10, 2005 at 11:00 a.m., EDT, through Wednesday, August 17, 2005 at 11:59 p.m. EDT. To access the replay, domestic and international users please call (973) 341-3080, and enter the following code: 6329703.