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, 2004.
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 incorporation or organization) |
(I.R.S. Employer 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x
As of October 31, 2004, 6,787,317 shares of the registrant’s common stock were outstanding.
PATH 1 NETWORK TECHNOLOGIES INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2004
| 3 | ||||
| ITEM 1. | 3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
11 | ||
| ITEM 3. | 22 | |||
| ITEM 4. | 23 | |||
| 23 | ||||
| ITEM 1. | 23 | |||
| ITEM 2. | 23 | |||
| ITEM 3. | 23 | |||
| ITEM 4. | 23 | |||
| ITEM 5. | 23 | |||
| ITEM 6. | 24 | |||
| 25 | ||||
2
| PART | I – FINANCIAL INFORMATION |
| ITEM | 1. FINANCIAL STATEMENTS |
Path 1 Network Technologies Inc.
Condensed Consolidated Balance Sheets
(in thousands, except shares data)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | (audited) | |||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 2,448 | $ | 7,807 | ||||
| Accounts receivable, net |
836 | 510 | ||||||
| Inventory |
380 | 393 | ||||||
| Other current assets |
214 | 74 | ||||||
| Total current assets |
3,878 | 8,784 | ||||||
| Property and equipment, net |
407 | 382 | ||||||
| Debt issuance costs, net |
7 | 62 | ||||||
| Other assets |
49 | 49 | ||||||
| Total assets |
$ | 4,341 | $ | 9,277 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Accounts payable and accrued liabilities |
$ | 597 | $ | 699 | ||||
| Accrued compensation and benefits |
224 | 119 | ||||||
| Deferred revenue |
214 | — | ||||||
| Current portion of leases payable |
24 | 15 | ||||||
| Current portion of notes payable |
171 | 289 | ||||||
| Total current liabilities |
1,230 | 1,122 | ||||||
| Long-term lease payable |
12 | 14 | ||||||
| Notes payable |
— | 113 | ||||||
| Total liabilities |
1,242 | 1,249 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding |
— | — | ||||||
| Common stock, $0.001 par value; 40,000,000 shares authorized; 6,787,317 and 6,578,324 shares issued and outstanding at September 30, 2004, and December 31, 2003 respectively; 2,777 shares held in treasury at September 30, 2004 and December 31, 2003 |
7 | 7 | ||||||
| Additional paid in capital |
48,614 | 47,699 | ||||||
| Deferred compensation |
(1,357 | ) | (1,300 | ) | ||||
| Accumulated deficit |
(44,165 | ) | (38,378 | ) | ||||
| Total stockholders’ equity |
3,099 | 8,028 | ||||||
| Total liabilities and stockholders’ equity |
$ | 4,341 | $ | 9,277 | ||||
See accompanying notes to these condensed consolidated financial statements.
3
Path 1 Network Technologies Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (restated) | (restated) | |||||||||||||||
| Revenues |
||||||||||||||||
| Product revenue |
$ | 734 | $ | 587 | $ | 2,593 | $ | 1,595 | ||||||||
| License revenue |
— | — | 21 | 53 | ||||||||||||
| Contract services revenue |
20 | 200 | 20 | 507 | ||||||||||||
| Other revenue |
2 | — | 20 | 7 | ||||||||||||
| Total revenues |
756 | 787 | 2,654 | 2,162 | ||||||||||||
| Cost of revenues |
||||||||||||||||
| Cost of product revenue |
233 | 379 | 1,828 | 871 | ||||||||||||
| Cost of contract services revenue |
7 | 120 | 7 | 200 | ||||||||||||
| Total cost of revenues |
240 | 499 | 1,835 | 1,071 | ||||||||||||
| Gross profit |
516 | 288 | 819 | 1,091 | ||||||||||||
| Operating expenses |
||||||||||||||||
| Engineering, research and development |
466 | 444 | 1,472 | 1,225 | ||||||||||||
| Sales and marketing |
398 | 480 | 2,242 | 1,091 | ||||||||||||
| General and administrative |
636 | 1,574 | 2,545 | 2,763 | ||||||||||||
| Stock-based compensation |
— | — | 272 | 50 | ||||||||||||
| Total operating expense |
1,500 | 2,498 | 6,531 | 5,129 | ||||||||||||
| Operating loss |
(984 | ) | (2,210 | ) | (5,712 | ) | (4,038 | ) | ||||||||
| Other expenses |
||||||||||||||||
| Interest expense, net |
(22 | ) | (434 | ) | (72 | ) | (919 | ) | ||||||||
| Other expense |
— | (262 | ) | (3 | ) | (262 | ) | |||||||||
| Total other expenses |
(22 | ) | (696 | ) | (75 | ) | (1,181 | ) | ||||||||
| Net loss |
$ | (1,006 | ) | $ | (2,906 | ) | $ | (5,787 | ) | $ | (5,219 | ) | ||||
| Loss per common share - basic and diluted |
$ | (0.15 | ) | $ | (0.64 | ) | $ | (0.86 | ) | $ | (2.01 | ) | ||||
| Weighted average common shares outstanding - basic and diluted |
6,764 | 4,528 | 6,711 | 2,593 | ||||||||||||
See accompanying notes to these condensed consolidated financial statements.
4
Path 1 Network Technologies Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| (restated) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (5,787 | ) | $ | (5,219 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
233 | 419 | ||||||
| Amortization of deferred compensation |
272 | 72 | ||||||
| Interest expense paid in stock |
— | 53 | ||||||
| Accretion of debt discount & debt conversion expense |
100 | 1,397 | ||||||
| Loss on extinguishment of debt |
— | 85 | ||||||
| Changes in assets and liabilities |
||||||||
| Accounts receivable |
(326 | ) | (406 | ) | ||||
| Inventory |
13 | 17 | ||||||
| Other current assets |
(140 | ) | (78 | ) | ||||
| Other assets |
— | (250 | ) | |||||
| Accounts payable and accrued liabilities |
(87 | ) | 6 | |||||
| Accrued compensation and benefits |
105 | 35 | ||||||
| Deferred revenue |
214 | (60 | ) | |||||
| Cash used in operations |
(5,403 | ) | (3,929 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(180 | ) | (121 | ) | ||||
| Cash used in investing activities |
(180 | ) | (121 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock |
240 | 13,055 | ||||||
| Repurchase of treasury shares |
— | (93 | ) | |||||
| Net borrowings under line of credit |
— | 473 | ||||||
| Issuance of notes |
— | 1,620 | ||||||
| Repayments of notes |
(16 | ) | (1,212 | ) | ||||
| Cash provided by financing activities |
224 | 13,843 | ||||||