As filed with the Securities and Exchange Commission on September 27, 2005
REGISTRATION NO. 333-126013
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
AMENDMENT NO. 1
ON
FORM S-2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
NETWORK-1 SECURITY SOLUTIONS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 11-3027591
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
445 PARK AVENUE, SUITE 1028
NEW YORK, NEW YORK 10022
(212) 829-5700
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(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
____________________
COREY M. HOROWITZ
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
445 PARK AVENUE, SUITE 1028
NEW YORK, NEW YORK 10022
(212) 829-5700
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
____________________
COPIES TO:
SAM SCHWARTZ, ESQ.
EISEMAN LEVINE LEHRHAUPT & KAKOYIANNIS, P.C.
845 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 752-1000
____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1993, check the following box: [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete or legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_] _________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box: [_]
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CALCULATION OF REGISTRATION FEE
============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PER SHARE OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (2) PRICE (3) PRICE (3) FEE
-------------------------------------- -------------- ------------------ ------------------ ------------
Common Stock, par value $.01 per share 16,886,267(1) $.73 $12,326,975 $ 1,450.89
-------------------------------------- -------------- ------------------ ------------------ ------------
Previously Paid $ 1,446.59
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Total Due $ 4.30
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(1) Includes the registration for resale of the following: (i) 2,685,000 shares
of common stock and 2,063,750 shares of common stock issuable upon exercise of
warrants issued in a private offering in December 2004 and January 2005, (ii)
8,471,679 shares of common stock, (iii) 1,352,152 shares of common stock
issuable upon exercise of warrants issued as part of a private offering in
December 1999 and (iv) 2,313,686 shares of common stock issuable upon exercise
of certain other outstanding warrants and options.
(2) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, this Registration Statement includes an indeterminate number of
additional shares of common stock as from time to time become issuable upon the
exercise of certain warrants by reason of stock splits, stock dividends and
other similar transactions.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and based
on the average of the bid and asked prices of the common stock on the OTC
Bulletin Board on June 15, 2005 in accordance with Rule 457(c) under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
NETWORK-1 SECURITY SOLUTIONS, INC.
16,886,267 SHARES OF COMMON STOCK
o The selling stockholders listed on pages 17 to 21 of this Prospectus
are offering and selling up to 16,886,267 shares of our common stock.
o We will not receive any proceeds from the sale of these shares of
common stock. We will receive proceeds if warrants and options to
purchase common stock are exercised by payment of cash and those
proceeds will be used for our general corporate purposes.
o Our common stock is traded on the OTC Bulletin Board under the symbol
"NSSI.OB".
o On September 23, 2005, the closing price of our common stock, as
reported on the Over-the-Counter Bulletin Board, was $1.23 per share.
o This prospectus relates to the resale from time to time of:
o 2,685,000 shares of common stock and 2,063,750 shares of common
stock issuable upon exercise of warrants issued in our private
offering in December 2004 and January 2005;
o 8,471,679 shares of common stock owned by certain of our
stockholders;
o 1,352,152 shares of common stock issuable upon the exercise of
outstanding warrants issued as part of our private offering in
December 1999; and
o 2,313,686 shares of common stock issuable upon exercise of
certain other warrants and options.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
_______________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________________
THE DATE OF THIS PROSPECTUS IS SEPTEMBER _____, 2005
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.......................................................... 3
RISK FACTORS................................................................ 8
WHERE YOU CAN FIND MORE INFORMATION......................................... 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 14
NOTE REGARDING FORWARD-LOOKING STATEMENTS................................... 16
USE OF PROCEEDS............................................................. 16
SELLING STOCKHOLDERS........................................................ 17
PLAN OF DISTRIBUTION........................................................ 29
DIVIDEND POLICY............................................................. 31
LEGAL MATTERS............................................................... 31
EXPERTS..................................................................... 32
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.................................................. 32
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PROSPECTUS SUMMARY
This summary represents a summary of all material terms of the offering
and only highlights the more detailed information that appears elsewhere, or is
incorporated by reference, in this prospectus. This prospectus may not contain
all the information important to you as an investor. Accordingly, you should
carefully read this entire prospectus together with all other information
incorporated by reference in this prospectus before deciding whether to invest
in our common stock, especially the risks of investing in our common stock
discussed under the caption "Risk Factors".
Unless the context otherwise requires, all references to "we," "us,"
"our," or the "Company" in this prospectus refer to Network-1 Security
Solutions, Inc., a Delaware corporation.
THE COMPANY
Our principal business is the acquisition, development, licensing and
protection of our intellectual property. We presently own six patents covering
various telecommunications and data networking technologies. Our strategy is to
pursue licensing and strategic business alliances with companies in industries
that manufacture and sell products that make use of the technologies underlying
our patents as well as with other users of the technologies who benefit directly
from the technologies including corporate, educational and governmental
entities.
On November 18, 2003, we acquired a portfolio of telecommunications and
data networking patents (the "Patent Portfolio") from Merlot Communications,
Inc., a broadband communications solutions provider. The Patent Portfolio
consists of six patents issued by the U.S. Patent Office that relate to various
telecommunications and data networking technologies and includes, among other
things, patents covering (i) the control of power delivery over Ethernet
networks for the purpose of remotely powering network devices and (ii) systems
and methods for the transmission of audio, video and data over local area
networks ("LANs") in order to achieve higher quality of service.
Our future success is largely dependent upon our proprietary
technologies, our ability to protect our intellectual property rights and to
enter into license agreements for our technology. The complexity of patent and
common law, combined with our limited resources, create risk that our efforts to
protect our proprietary technologies may not be successful. We cannot be assured
that our patents will be upheld, or that third parties will not invalidate our
patents. In August 2005, we commenced litigation against D-Link Corporation and
D-Link Systems, Incorporated for infringement of our patent (U.S. Patent No.
6,218,930) covering the control of power delivered over Ethernet cables (the
"Remote Power Patent") (See "Risk Factors - We face uncertainty as to the
outcome of litigation with D-Link"). In addition, in March 2004, PowerDsine Inc.
commenced litigation against us seeking, among other things, a declaratory
judgment that our Remote Power Patent is invalid (See "Risk Factors - We face
uncertainty as to the outcome of litigation with PowerDsine").
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In February 2004, we initiated licensing efforts relating to our Remote
Power Patent. The Remote Power Patent application was filed on March 11, 1999
and the patent was granted by the U.S. Office of Patent and Trademark on April
17, 2001. The Remote Power Patent expires on March 7, 2020. The Remote Power
Patent relates to, among other things, several key technologies underlying the
IEEE 803.3af Power Over Ethernet standard that was approved on June 13, 2003 by
the Institute of Electrical and Electronic Engineers. This standard governs the
delivery of power over Ethernet cables in order to remotely power network
connected devices, including wireless switches, wireless access points, RFID
card readers, VOIP telephones, enterprise LAN switches and network cameras.
On November 30, 2004, we entered into a Master Services Agreement (the
"Agreement") with ThinkFire Services USA, Ltd. ("ThinkFire") pursuant to which
we granted ThinkFire the exclusive (except for our direct efforts) worldwide
rights to negotiate license agreements for our Remote Power Patent with respect
to certain potential licensees agreed to between the parties. We or ThinkFire
may terminate the Agreement upon 60 days notice for any reason, or upon 30 days
notice in the event of a material breach. We have agreed to pay ThinkFire a fee
not to exceed 20% of the royalty payments received from license agreements
consummated by ThinkFire on our behalf.
As of May 31, 2005, we transmitted letters to approximately 85
companies offering licenses to the Remote Power Patent. To date we have not
entered into any license agreements with third parties with respect to our
Remote Power Patent or any of our other patents.
MARKET OVERVIEW
We have determined that our initial licensing efforts will be focused
on our Remote Power Patent. Our Remote Power Patent relates to several
technologies that describe a methodology for controlling the delivery of power
to certain devices over an Ethernet network.
The Institute of Electrical and Electronic Engineers ("IEEE") is a
non-profit, technical professional association of more than 360,000 individual
members in approximately 175 countries. The Standards Association of the IEEE is
responsible for the creation of global industry standards for a broad range of
technology industries. In 1999, at the urging of several industry vendors, the
IEEE formed a task force to facilitate the adoption of a standardized
methodology for the delivery of remote power over Ethernet networks which would
insure interoperability among vendors of switches and terminal devices. On June
13, 2003 the IEEE Standards Association approved the 802.3af Power Over Ethernet
standard (the "Standard"), which covers technologies deployed in delivering
power over Ethernet cables. The Standard provides for the Power Sourcing
Equipment ("PSE") to be deployed in switches or as stand-alone midspan hubs to
provide power to remote devices such as wireless access points, IP phones and
network based cameras. The technology is commonly referred to as Power Over
Ethernet ("PoE"). We believe our Remote Power Patent covers several of the key
technologies covered by the Standard.
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Ethernet is the leading local area networking technology in use today.
PoE technology allows for the delivery of power over Ethernet cables rather than
by separate power cords. As a result, a variety of network devices, including IP
telephones, wireless LAN Access Points, web-based network security cameras, data
collection terminals and other network devices, will be able to receive power
over existing data cables without the need to modify the existing infrastructure
to facilitate the provision of power for such devices through traditional AC
outlets. Advantages such as lower installation costs, remote management
capabilities, lower maintenance costs, centralized power backup, and flexibility
of device location as well as the advent of worldwide power compatibility create
the possibility of PoE becoming widely adopted in networks throughout the world.
PoE provides numerous benefits including quantifiable returns on
investment. The cost of hiring electricians to pull power cables to remote
locations used for access points or security cameras can rival or exceed the
cost of the devices. Another key benefit is the need for Voice over IP power
reliability in the face of power failures. Using PoE enables data center UPS
systems to ensure on-going power - a function that would be difficult and
expensive to implement if each phone required AC outlets.
These and other advantages such as remote management capabilities,
lower maintenance costs, and flexibility of device location have led to
forecasts that PoE will be widely adopted in networks throughout the world.
International Data Corporation ("IDC"), a market research firm, forecasts that
annual PoE sales will reach 134 million PSE switch ports (not including midspan
ports) by 2008, which equates to a 5 year compound annual growth rate of 63%. A
recent Gartner report estimates that PoE port shipments more than tripled in
2004 and that price premiums for such ports ranged from $45 to $65 per port and
that 18% of all wiring closet switch ports shipped in 2004 were PoE-enabled.
The Voice Over IP Telephony (VOIP) market is currently one of the
fastest growing segments in the telecommunications industry. VOIP traffic has
steadily increased over the last several years and is being deployed by service
providers and carriers worldwide. IDC estimates that worldwide IP telephone unit
sales are set to grow from 1.5 million units in 2003 to nearly 5 million units
in 2007 and overall voice-over IP equipment, which in 2003 represented a market
of $3.3 billion, is expected to grow at a compound annual growth rate of 45.0%
to $15.1 billion by 2007.
The ability to supply power to end-devices through Ethernet cables can
be applied to other end-devices, such as advanced security cameras, RFID card
readers, laptop computers, personal digital assistants and portable digital
music players. As the desire to connect more end-devices to the Ethernet network
grows, we believe that PoE technology will become more widely used as a method
to power these end-devices.
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We also own five (5) additional patents covering various methodologies
that provide for allocating bandwidth and establishing Quality of Service for
delay sensitive data, such as voice, on packet data networks. Quality of Service
issues become important when data networks carry packets that contain audio and
video which may require priority over data packets traveling over the same
network. Covered within these patents are also technologies that establish bi-
directional communications control channels between network-connected devices in
order to support advanced applications on traditional data networks. We believe
that potential licensees of the technologies contained in these patents would be
vendors deploying applications that require the low latency transport of delay
sensitive data such as video over data networks.
We were incorporated under the laws of the State of Delaware in July
1990. Our executive offices are located at 445 Park Avenue, Suite 1028, New
York, New York 10022 and our telephone number at that address is (212) 829-5700.
Our web site can be found at http://www.network-1.com.
RECENT DEVELOPMENTS
D-LINK LITIGATION
On August 10, 2005, we commenced patent litigation against D-Link
Corporation and D-Link Systems, Incorporated in the United States District Court
for the Eastern District of Texas, Tyler division (Civil Action No. 6:05W291),
for infringement of our Remote Power Patent. Our complaint seeks, among other
things, a judgment that our Remote Power Patent is enforceable and has been
infringed by the defendants. We also seek a permanent injunction restraining
defendants from continued infringement, or active inducement of infringement by
others, of our Remote Power Patent.
BLANK ROME AGREEMENT
In August 2005, we entered into an agreement with Blank Rome, LLP
("Blank Rome"), a national law firm, pursuant to which Blank Rome has been
engaged to represent us in connection with all litigation involving our Remote
Power Patent. Blank Rome has agreed to represent us with respect to each
litigation pertaining to the Remote Power Patent on a full contingency basis
(except for any proceeding before the International Trade Commission). As
compensation for its services on a full contingency basis, Blank Rome will
receive from us percentages of Net Consideration (as defined in the Agreement)
ranging from 12.5% to 35% of the amount received by us by way of settlement or
judgment in connection with each litigation matter. We have also agreed to
compensate Blank Rome in an amount equal to 10% of the Net Consideration
received by us from certain designated parties mutually agreed upon by us and
Blank Rome in the event such designated parties enter into license agreements or
similar agreements with us. (For the full text of our agreement with Blank Rome,
see Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 11, 2005).
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SHARES BEING OFFERED
This prospectus relates to the offering by the selling shareholders of an
aggregate of 16,886,267 shares of our common stock, consisting of (i) 2,685,000
shares of our common stock and 2,063,750 shares of our common stock issuable
upon exercise of warrants issued in our private offering in December 2004 and
January 2005, (ii) 8,471,679 shares of common stock owned by certain of our
stockholders, (iii) 1,352,152 shares of our common stock issuable upon exercise
of warrants issued to such selling stockholders as part of our private offering
in December 1999 and (iv) 2,313,686 shares of our common stock issuable upon
exercise of certain other outstanding warrants and options.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. THE
RISK FACTORS LISTED BELOW ARE THOSE THAT WE CONSIDER TO BE MATERIAL TO AN
INVESTMENT IN OUR COMMON STOCK AND THOSE WHICH, IF REALIZED, COULD HAVE MATERIAL
ADVERSE EFFECTS ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS AS
SPECIFICALLY DISCUSSED BELOW. IN SUCH AN EVENT, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. BEFORE
YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE OF VARIOUS RISKS, INCLUDING
THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK FACTORS,
TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, BEFORE YOU DECIDE WHETHER TO PURCHASE OUR COMMON STOCK. THIS
SECTION INCLUDES OR REFERS TO CERTAIN FORWARD-LOOKING STATEMENTS. YOU SHOULD
REFER TO THE EXPLANATION OF THE QUALIFICATIONS AND LIMITATIONS ON SUCH
FORWARD-LOOKING STATEMENTS DISCUSSED ON PAGE 16.
WE HAVE A HISTORY OF LOSSES AND NO REVENUE FROM CURRENT OPERATIONS.
We have incurred substantial operating losses since our inception,
which has resulted in an accumulated deficit of $(43,949,000) as of June 30,
2005. For the years ended December 31, 2004 and 2003, we incurred net losses of
$(1,953,000) and $(614,000), respectively. For the six months ended June 30,
2005, we incurred a net loss of $(960,000). We have financed our operations
primarily by sales of equity securities. Since December 2002, when we
discontinued our security software products and following the commencement of
our new technology licensing business in November 2003, we have not had material
revenue from operations and for the year ended December 31, 2004 and for the six
months ended June 30, 2005 we had no revenue from operations. Our ability to
achieve revenue and generate positive cash flow from operations is dependent
upon consummating licensing agreements with respect to our patented technology.
We may not be successful in achieving licensing agreements with third parties
and our failure to do so would have a material adverse effect on our business,
financial condition and results of operations. We may not be able to achieve
revenue or generate positive cash flow from operations from our new licensing
business.
WE COULD BE REQUIRED TO STOP OPERATIONS IF WE ARE UNABLE TO DEVELOP OUR
TECHNOLOGY LICENSING BUSINESS OR RAISE CAPITAL WHEN NEEDED.
We anticipate, based on our currently proposed plans and assumptions
relating to our operations (including the timetable of costs and expenses
associated with our continued operations), that our current cash position will
more likely than not be sufficient to satisfy our operations and capital
requirements until September 2006. However, we may expend our funds prior
thereto. In the event our plans change, or our assumptions change or prove to be
inaccurate (due to unanticipated expenses, difficulties, delays or otherwise),
we could have insufficient funds to support our operations prior to September
2006. Our inability to obtain additional financing when needed, absent
generating sufficient cash from licensing arrangements, would have a material
adverse effect on the Company, requiring us to curtail or possibly cease our
operations. In addition, any additional equity financing may involve substantial
dilution to the interests of our then existing stockholders.
8
OUR NEW LICENSING BUSINESS MAY NOT BE SUCCESSFUL.
In November 2003, we entered the technology licensing business
following our acquisition of six patents relating to various telecommunications
and data networking technologies including, among others, patents covering the
delivery of remote power over Ethernet and the transmission of audio, video and
data over computer and telephony networks. Accordingly, we have a very limited
history in the technology licensing business upon which an evaluation of our
prospects and future performance can be made. Our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in the
development, operation and expansion of a new business based on patented
technologies in a highly specialized and competitive market. We may not be able
to achieve revenue or profitable operations from our new licensing business.
OUR FUTURE SOURCE OF LICENSING REVENUE IS UNCERTAIN.
In February 2004, we initiated our first licensing efforts relating to
the technologies in our remote power patent (U.S. Patent No. 6,218,930) (the
"Remote Power Patent"). To date, we have not entered into any licensing
agreements with third parties with respect to our Remote Power Patent or our
other patented technologies. Our inability to consummate licensing agreements
and achieve revenue from our patented technologies would have a material adverse
effect on our operations and our ability to continue our business. In addition,
in the event we consummate license arrangements with third parties, such
arrangements are not likely to produce a stable or predictable stream of revenue
in the foreseeable future. Furthermore, the success of our licensing efforts
depends upon the strength of our intellectual property rights.
WE ARE CURRENTLY RELYING UPON THE EFFORTS OF THINKFIRE TO CONSUMMATE LICENSING
AGREEMENTS FOR OUR REMOTE POWER PATENT WITH CERTAIN SELECT POTENTIAL LICENSEES.
On November 30, 2004, we entered into a Master Services Agreement (the
"Agreement") with ThinkFire Services USA, Ltd. ("ThinkFire") pursuant to which
we granted ThinkFire the exclusive (except for us and related companies)
worldwide rights to negotiate license agreements for the Remote Power Patent
with respect to certain potential licensees agreed to between the parties.
Either we or ThinkFire can terminate the Agreement upon 60 days notice for any
reason or upon 30 days notice in the event of a material breach. We have agreed
to pay ThinkFire a fee not to exceed 20% of the royalty payments received from
license agreements consummated by ThinkFire on our behalf. ThinkFire may not be
successful in consummating license agreements on our behalf and even if such
agreements are consummated they may not result in significant royalty payments
to us.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO PROTECT OUR PROPRIETARY
TECHNOLOGIES.
Our success is substantially dependent upon our proprietary
technologies and our ability to protect our intellectual property rights. We
currently hold 6 patents issued by the U.S. Patent Office that relate to various
telecommunications and data networking technologies and include among other
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things, patents covering the transmission of audio, voice and data over computer
and telephony networks and the delivery of remote PoE networks. We rely upon our
patents and trade secret laws, non-disclosure agreements with our employees,
consultants and third parties to protect our intellectual property rights. The
complexity of patent and common law, combined with our limited resources, create
risk that our efforts to protect our proprietary technologies may not be
successful. We cannot assure you that our patents will be upheld or that third
parties will not invalidate our patent rights. In the event our intellectual
property rights are not upheld, such an event would have a material adverse
effect on us.
WE ARE CURRENTLY RELYING UPON OUR CONTINGENCY FEE AGREEMENT WITH BLANK ROME.
In August 2005, we entered into an agreement with Blank Rome, LLP
("Blank Rome"), a national law firm, pursuant to which Blank Rome has been
engaged to represent us in connection with all litigation involving our Remote
Power Patent. Blank Rome has agreed to represent us with respect to each
litigation pertaining to the Remote Power Patent on a full contingency basis
(except for any proceeding before the International Trade Commission). As
compensation for its services on a full contingency basis, Blank Rome will
receive from us percentages of Net Consideration (as defined in the Agreement)
ranging from 12.5% to 35% received by us by way of settlement or judgment in
connection with each litigation matter. We have also agreed to compensate Blank
Rome in an amount equal to 10% of the Net Consideration received by us from
certain designated parties mutually agreed upon by us and Blank Rome in the
event such designated parties enter into license agreements or similar
agreements with us. The Agreement may be terminated by either Blank Rome or us
upon 30 days notice. If we elect to terminate the Agreement, we will compensate
Blank Rome in an amount equal to 5% of the Net Consideration received by us from
the Designated Parties with whom Blank Rome has not commenced litigation on our
behalf, provided that such parties had substantive licensing or settlement
discussions related to our Remote Power Patent during the term of the Agreement
and entered into a license agreement or similar agreement with us providing for
Net Consideration within the 12 month period following termination. In addition,
in the event of termination, Blank Rome will receive its pro-rata share of Net
Consideration based upon its hourly time charges with respect to parties against
whom Blank Rome commenced litigation (or defended) on our behalf. In the event
our agreement with Blank Rome is terminated, depending upon our financial
resources at the time, we may need to enter into a contingent fee agreement with
a new law firm in order to enforce and/or defend our Remote Power Patent and our
inability to secure such an arrangement on satisfactory terms and on a timely
basis may have a material adverse effect on us.
ANY LITIGATION TO PROTECT OUR INTELLECTUAL PROPERTY OR ANY THIRD PARTY CLAIMS TO
INVALIDATE OUR PATENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our success depends on our ability to protect our intellectual property
rights. In August 2005, we commenced patent litigation against D-Link
Corporation and D-Link Systems, Incorporated for infringement of our Remote
Power Patent (See "Risk Factors - Uncertainty of outcome of D-Link Litigation").
In the future, it may be necessary for us to commence patent litigation against
additional third parties whom we believe require a license to our patents. In
addition, we may be subject to
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additional third party claims seeking to invalidate our patents, as is the case
with the action commenced by PowerDsine relating to our Remote Power Patent (see
"Risk Factors - Uncertainty of outcome of PowerDsine litigation"). These types
of claims, with or without merit, may subject us to costly litigation and
diversion of management's focus. If we are unsuccessful in enforcing and
validating our patents and/or if third parties making claims against us seeking
to invalidate our patent are successful, they may be able to obtain injunctive
or other equitable relief, which effectively could block our ability to license
or otherwise capitalize on our proprietary technologies. Successful litigation
against us resulting in a determination that our patents are invalid would have
a material adverse effect on us.
WE FACE UNCERTAINTY AS TO THE OUTCOME OF LITIGATION WITH D-LINK.
On August 10, 2005, we commenced litigation against D-Link Corporation
and D-Link Systems, Incorporated in the United States District Court for the
Eastern District of Texas, Tyler division (Civil Action No. 6:05W291), for
infringement of our Remote Power Patent. Our complaint seeks, among other
things, a judgment that our Remote Power Patent is duly enforceable and has been
infringed by the defendants. We also seek a permanent injunction restraining
defendants from continued infringement, or active inducement of infringement by
others, of our Remote Power Patent. In the event that the Court determines that
our Remote Power Patent was not valid or enforceable, and/or that the defendants
did not infringe, any such determination would have a material adverse effect on
us.
WE FACE UNCERTAINTY AS TO THE OUTCOME OF LITIGATION WITH POWERDSINE.
In March 2004, PowerDsine Inc. ("PowerDsine") commenced an action
against us in the United District Court, Southern District of New York (Civil
Action No. 04 CV 2502) seeking a declaratory judgment that our Remote Power
Patent is invalid and is not infringed by PowerDsine and/or its customers.
PowerDsine further seeks an order permanently enjoining us (i) from making any
claims to any person or entity that PowerDsine's products infringe the Remote
Power Patent or contribute to infringement of the patent, (ii) from interfering
with or threatening to interfere with the importation, sale, license or use of
PowerDsine's PoE components or products, and (iii) from instituting or
prosecuting any lawsuit or proceeding placing at issue the right of PowerDsine,
its customers, licensees, successors, or assigns to import, use or sell
PowerDsine's PoE components or products. We believe our Remote Power Patent is
valid and that we have meritorious defenses to the action. We are engaged in
settlement discussions with PowerDsine in an effort to resolve the litigation.
In the event that we are unable to settle the litigation, we intend to
vigorously defend the lawsuit and take whatever actions are necessary to protect
our intellectual property. In the event, however, that the Court granted the
declaratory judgment and our Remote Power Patent was determined to be invalid,
such a determination would have a material adverse effect on us.
11
MATERIAL LICENSING REVENUES FROM OUR REMOTE POWER PATENT MAY BE DEPENDENT UPON
THE APPLICABILITY OF THE IEEE STANDARD.
The Institute of Electrical and Electronic Engineers ("IEEE") is a
non-profit, technical professional association of more than 360,000 individual
members in approximately 175 countries. The Standards Association of the IEEE is
responsible for the creation of global industry standards for a broad range of
technology industries. In 1999, the IEEE formed a task force to facilitate the
adoption of a standardized methodology for the delivery of remote power over
Ethernet networks which would insure interoperability among vendors of switches
and terminal devices. In June 2003, the IEEE Standards Association approved the
802.3af Power Over Ethernet standard (the "Standard"), which covers technologies
deployed in delivering power over Ethernet cables including whether deployed in
switches or as standalone midspan hubs, both of which provide power to remote
devices including wireless access points, IP phones and network based cameras.
The technology is commonly referred to as Power Over Ethernet ("PoE"). We
believe our Remote Power Patent covers several of the key technologies covered
by the Standard. However, there is a risk that as a result of litigation a court
may determine otherwise and such a determination would have a material adverse
effect on our ability to enter into license agreements and achieve revenue and
profits from our Remote Power Patent.
WE FACE INTENSE COMPETITION AND WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE.
The telecommunications and data networking market is characterized by
intense competition and rapidly changing business conditions, customer
requirements and technologies. Our current and potential competitors have longer
operating histories, greater name recognition and possess substantially greater
financial, technical, marketing and other competitive resources than us.
Although we believe that we have rights to enforceable patents relating to
telecommunications and data networking, there can be no assurance that third
parties will not invalidate any or all of our patents. In addition, the
telecommunications and data networking industries may develop technologies that
may be more effective than our proprietary technologies or that render our
technologies less marketable or obsolete.
OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND OUR TECHNOLOGIES FACE
POTENTIAL TECHNOLOGY OBSOLESCENCE.
The telecommunications and data networking technology market including,
transmission of audio, video and data over computer and telephony networks and
the delivery of remote power over Ethernet markets, are characterized by rapid
technological changes, changing customer requirements, frequent new product
introductions and enhancements, and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards may render our technologies obsolete or less marketable. To
the extent we are able to achieve revenue in the future, such revenue will be
derived from licensing our technologies based on existing and evolving industry
standards.
12
DEPENDENCE UPON CEO AND CHAIRMAN.
Our success is largely dependent upon the personal efforts of Corey M.
Horowitz, our Chairman and Chief Executive Officer and Chairman of the Board of
Directors. On November 26, 2004, we entered into a two (2) year employment
agreement with Mr. Horowitz pursuant to which he continues to serve as our
Chairman and Chief Executive Officer. We do not maintain key man life insurance
on the life of Mr. Horowitz. The loss of the services of Mr. Horowitz would have
a material adverse effect on our business and prospects.
RISKS RELATED TO LOW PRICED STOCKS.
Our common stock currently trades on the OTC Bulletin Board under the
symbol NSSI.OB. Since the trading price of our common stock is below $5.00 per
share, our common stock is considered a penny stock. SEC regulations generally
define a penny stock to be an equity security that is not listed on Nasdaq or a
national securities exchange and that has a market value of less than $5.00 per
share, subject to certain exceptions. SEC regulations require broker-dealers to
deliver to a purchaser of our common stock a disclosure schedule explaining the
penny stock market and the risks associated with it. Various sales practice
requirements are also imposed on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors (generally
institutions). Broker-dealers must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and monthly account statements disclosing recent price information for the penny
stock held in the customer's account.
THE SIGNIFICANT NUMBER OF OPTIONS AND WARRANTS OUTSTANDING MAY ADVERSELY EFFECT
THE MARKET PRICE FOR OUR COMMON STOCK.
As of June 30, 2005, there are outstanding (i) options and warrants to
purchase an aggregate of 11,142,244 shares of our common stock at exercise
prices ranging from $.12 to $10.13, and (ii) 82,630 additional shares of our
common stock which may be issued in the future under our stock option plan. To
the extent that outstanding options and warrants are exercised, stockholder
percentage ownership will be diluted and any sales in the public market of the
common stock underlying such options may adversely affect prevailing market
prices for our common stock.
WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK, WHICH
MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.
Our Board of Directors has the authority, without further action by the
stockholders, to issue 10,000,000 shares of preferred stock on such terms and
with such rights, preferences and designations as our Board of Directors may
determine. Such terms may include restricting dividends on our common stock,
dilution of the voting power of our common stock or impairing the liquidation
rights of the holders of our common stock. Issuance of such preferred stock,
depending on the rights, preferences and designations thereof, may have the
effect of delaying, deterring or preventing a change in control. In addition,
certain "anti-takeover" provisions in Delaware law may restrict the ability of
our stockholders to authorize a merger, business combination or change of
control.
13
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The SEC has prescribed rates for copying. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Our SEC filings are also available to you on the SEC's Internet site at
http://www.sec.gov.
This prospectus is part of a Registration Statement on Form S-2 filed
by us with the SEC under the Securities Act and therefore omits certain
information in the Registration Statement. We have also filed exhibits with the
Registration Statement that are not included in this prospectus, and you should
refer to the applicable exhibit for a complete description of any statement
referring to any document. You can inspect a copy of the Registration Statement
and its exhibits, without charge, at the SEC's Public Reference Room, and can
copy such material upon paying the SEC's prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede the information in this
prospectus. You must look at each of the filings with the Securities and
Exchange Commission that have been incorporated by reference to determine if any
of the statements in another document incorporated by reference has been
modified or superseded. Accordingly, we incorporate by reference the documents
listed below:
1. our Annual Report on Form 10-KSB for the year ended December 31,
2004 (filed April 14, 2005);
2. our Current Report on Form 8-K (filed January 20, 2005);
3. our Current Report on Form 8-K/A (filed January 24, 2005);
4. our Quarterly Report on Form 10-QSB for the three months ended
March 31, 2005 (filed May 16, 2005);
5. our Quarterly Report on Form 10-QSB/A for the three months ended
March 31, 2005 (filed June 14, 2005);
6. our Quarterly Report on Form 10-QSB for the three months ended
June 30, 2005 (filed August 3, 2005);
14
7. our Current Report on Form 8-K (filed August 9, 2005);
8. our Current Report on Form 8-K (filed August 11, 2005);
9. our Current Report on Form 8-K (filed August 11, 2005);
10. our Annual Report on Form 10-KSB/A (filed August 17, 2005);
11. our Quarterly Report on Form 10-QSB/A for the three months ended
June 30, 2005 (filed August 17, 2005);
12. our Current Report on Form 8-K (filed September 22, 2005); and
13. the description of our common stock incorporated by reference in
our Registration Statement on Form 8-A (filed October 9, 1998),
as amended on November 3, 1998.
A copy of our Form 10-KSB for the year ended December 31, 2004
(including our 10-KSB/A) and our Form 10-QSB for the quarterly period ended June
30, 2005 (including our 10-QSB/A) are being delivered with this prospectus.
We will provide at no cost to each person, including any beneficial
owner, to whom this prospectus is delivered, upon written or oral request, a
copy of any of these filings including any and all information that has been
incorporated by reference in this Prospectus. You should direct such requests to
us at 445 Park Avenue, Suite 1028, New York, New York 10022, attention: Corey M.
Horowitz, Chairman and Chief Executive Officer, telephone number (212) 829-5700.
You should rely only on the information and representations provided in
this prospectus or on the information incorporated by reference in this
prospectus. Neither we nor the selling stockholders have authorized anyone to
provide you with different information. Neither we nor the selling stockholders
are making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this document.
15
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Forward-looking statements are statements that include information based
upon beliefs of our management, as well as assumptions made by and information
available to our management. Statements containing terms such as "believes,"
"expects," "anticipates," "intends" or similar words are intended to identify
forward-looking statements.
Our management, based upon assumptions they consider reasonable, has
compiled these forward-looking statements. Such statements reflect our current
views with respect to future events. These statements involve known and unknown
risks and uncertainties that may cause our actual results in future periods to
differ materially from what is currently anticipated. We make cautionary
statements in certain sections of this prospectus, including under "Risk
Factors." You should read these cautionary statements as being applicable to all
related forward-looking statements wherever they appear in this prospectus, the
materials referred to in this prospectus or the materials incorporated by
reference into this prospectus.
You are cautioned that no forward-looking statement is a guarantee of
future performance and you should not place undue reliance on any
forward-looking statement. Such statements speak only as of the date of this
prospectus and we are not undertaking any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this prospectus or to reflect the occurrence of unanticipated
events.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our
common stock by the selling stockholders. All proceeds from the sale of such
shares will be for the accounts of the selling stockholders. We will receive
approximately $8,119,119 in proceeds, equal to the aggregate exercise price of
all warrants and options to purchase an aggregate of 5,729,588 shares of our
common stock, if the holders of all of the warrants and options referenced in
this prospectus exercise such securities into shares of our common stock for
cash. Warrants to purchase 550,000 shares of our common stock at an aggregate
exercise price of $580,000 may be exercised on a cashless basis (by payment of
the exercise price in shares rather than a cash payment). Any cash proceeds that
we may receive upon exercise of the warrants and options will be used for
working capital purposes.
16
SELLING STOCKHOLDERS
The following table sets forth information, as of September 1, 2005,
with respect to the common stock beneficially owned by each selling stockholder.
The selling stockholders are not obligated to sell any of the shares offered by
this prospectus. The number of shares sold by each selling stockholder may
depend on a number of factors, such as the market price of our common stock.
We are registering 16,886,267 shares of our common stock for resale by
the selling stockholders. We agreed to file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") with the Securities
and Exchange Commission, of which this prospectus is a part, with respect to the
resale of:
o 2,685,000 shares of our common stock and 2,063,750 shares of our
common stock issuable upon exercise of warrants issued in our
private offering completed in December 2004 and January 2005;
o 8,471,679 additional shares of our common stock issued to certain
of our stockholders;
o 1,352,152 shares of our common stock issuable upon the exercise of
warrants issued as part of our private offering completed in
December 1999; and
o 2,313,686 shares of our common stock issuable upon exercise of
certain other outstanding warrants and options, all as disclosed
in the table below.
The number of shares of our common stock shown in the following table
as being offered by the selling stockholders do not include such presently
indeterminate number of additional shares of our common stock that may be
issuable as a result of stock splits, stock dividends and similar transactions.
Pursuant to Rule 416 under the Securities Act, however, such shares are included
in the Registration Statement of which this prospectus is a part.
The selling stockholders may sell any or all of their shares listed
below from time to time. Accordingly, we cannot estimate how many shares the
selling stockholders will own upon consummation of any such sales. Also, the
selling stockholders may have sold, transferred or otherwise disposed of all or
a portion of their shares since the date on which the information was provided
in transactions exempt from the registration requirements of the Securities Act.
Of the selling stockholders listed in the table below, Singer
Opportunity Fund, L.P., Singer Fund, L.P., Hilary Bergman, Steven Goldfarb,
William Walters, Jack Erlanger, Patrick McBrien, Scott Zelnick and Steven
Heineman are believed by us to be affiliates of broker-dealers, who did not
purchase the shares in the ordinary course of business and at the time of the
purchase of the securities to be resold, such selling stockholders did not have
any agreements or understandings, directly or indirectly, with any person to
distribute the securities.
17
None of the selling stockholders has had a material relationship with
us within the past three years other than as a result of the ownership of our
securities except: (i) Corey M. Horowitz is our Chairman and Chief Executive
Officer and (ii) CHM Capital Management Corp., the sole shareholder, director
and officer of which is Mr. Horowitz, performed consulting services for us prior
to Mr. Horowitz becoming our Chairman and Chief Executive Officer in December
2003.
NUMBER OF
SHARES NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY OUTSTANDING
OWNED PRIOR TO NUMBER OF SHARES OWNED AFTER COMMON STOCK
NAME OFFERING(1) BEING OFFERED OFFERING(1)(2) AFTER OFFERING(1)
----- ----------- ------------- -------------- -----------------
Barry Rubenstein 3,792,915 (3) 3,745,415 47,500 *
Irwin Lieber 2,098,002 (4) 2,050,502 47,500 *
Barry Fingerhut 2,008,598 (5) 2,008,598 0 0%
Seth Lieber 1,632,300 (6) 1,632,300 0 0%
Jonathan Lieber 1,630,748 (7) 1,630,748 0 0%
Wheatley Partners II, L.P. 1,280,207 (8) 1,280,207 0 0%
Wheatley Partners, L.P. 194,280 (9) 194,280 0 0%
Wheatley Foreign Partners, L.P. 16,868 (9) 16,868 0 0%
Woodland Venture Fund 829,226 (10) 829,226 0 0%
Seneca Ventures 619,983 (10) 619,983 0 0%
Woodland Partners 309,316 (10) 309,316 0 0%
Brookwood Partners, L.P. 294,810 (10) 294,810 0 0%
Marilyn Rubenstein 1,049 1,049 0 0%
Corey M. Horowitz 8,591,945 (11) 4,854,084 3,737,861 17.4%
CMH Capital Management Corp. 4,167,800 (12) 4,167,800 0 0%
Donna Slavitt 78,720 78,720 0 0%
Logan Zev Horowitz 1999 Trust 15,000 (13) 15,000 0 0%
Dylan Max Horowitz 1999 Trust 15,000 (13) 15,000 0 0%
Corey M. Horowitz Custodian for
Zachary Jordon Horowitz 15,000 (13) 15,000 0 0%
18
NUMBER OF
SHARES NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY OUTSTANDING
OWNED PRIOR TO NUMBER OF SHARES OWNED AFTER COMMON STOCK
NAME OFFERING(1) BEING OFFERED OFFERING(1)(2) AFTER OFFERING(1)
----- ----------- ------------- -------------- -----------------
Horowitz Partners 2,291 (14) 2,291 0 0%
FalconStor Software, Inc. 650,000 (15) 650,000 0 0%
Emigrant Capital Corporation 1,312,500 (16) 1,312,500 0 0%
Singer Opportunity Fund, L.P. 784,125 (17) 625,625 158,500 *
Singer Fund, L.P. 282,355 (18) 249,375 32,980 *
David M. Seldin 474,000 (19) 455,000 19,000 *
Robert Graifman 279,777 (20) 175,000 104,777 *
Gilbert S. Stein 175,000 (21) 175,000 0 0%
John R. Hart 175,000 (22) 175,000 0 0%
Granite Bridge Fund, L.P. 131,250 (23) 131,250 0 0%
CGA Resources, LLC 87,500 (24) 87,500 0 0%
Barry S. Friedberg 87,500 (25) 87,500 0 0%
Dasa Sada, LLC 87,500 (26) 87,500 0 0%
Steven Ackerman 87,500 (27) 87,500 0 0%
Francis May 43,750 (28) 43,750 0 0%
Matthew Balk 17,500 (29) 17,500 0 0%
Kenneth L. Walters 17,500 (30) 17,500 0 0%
Jeb Investment Ltd. 175,450 (31) 166,250 9,200 *
Jeb Partners, L.P. 175,050 (32) 166,250 8,800 *
Manchester Explorer Limited Partnership 115,200 (33) 105,000 10,200 *
Steven Heineman 175,000 (34) 175,000 0 0%
Brian Eng 112,500 (35) 87,500 25,000 *
19
NUMBER OF
SHARES NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY OUTSTANDING
OWNED PRIOR TO NUMBER OF SHARES OWNED AFTER COMMON STOCK
NAME OFFERING(1) BEING OFFERED OFFERING(1)(2) AFTER OFFERING(1)
----- ----------- ------------- -------------- -----------------
Brad Reifler 13,125 (36) 13,125 0 0%
Steven Goldfarb 8,750 (37) 8,750 0 0%
Hilary Bergman 13,125 (38) 13,125 0 0%
Samuel Solomon 17,500 (39) 17,500 0 0%
Jeffrey Finkle 105,000 (40) 105,000 0 0%
Edward Sussi 35,000 (41) 35,000 0 0%
Alan Friedman 35,000 (42) 35,000 0 0%
Alan Weiner 43,750 (43) 43,750 0 0%
Laurent Ohana 50,000 (44) 100,000 0 0%
Philip Bloom 486,526 (45) 586,526 0 0%
New Dimensions Trading, LTD 114,554 (46) 114,554 0 0%
Eli Oxenhorn 95,073 (47) 95,073 0 0%
Aaron Wolfson 76,472 (48) 76,472 0 0%
Avi Fogel 44,857 (49) 44,857 0 0%
Jack Erlanger 44,855 (50) 44,855 0 0%
Abraham Wolfson 38,186 (51) 38,186 0 0%
William Walters 38,186 (52) 38,186 0 0%
Gerald Josephson 36,355 (53) 36,355 0 0%
MW Partnership 34,066 (54) 34,066 0 0%
Gyenes and Co. 31,139 (55) 22,707 8,432 *
Jeffrey Rubinstein 29,518 (56) 29,518 0 0%
Sandler Co-Investment Partners, L.P. 35,792 (57) 24,665 11,127 *
Maurice Shamah 22,707 (58) 22,707 0 0%
20
NUMBER OF
SHARES NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY OUTSTANDING
OWNED PRIOR TO NUMBER OF SHARES OWNED AFTER COMMON STOCK
NAME OFFERING(1) BEING OFFERED OFFERING(1)(2) AFTER OFFERING(1)
----- ----------- ------------- -------------- -----------------
Larry Altman 22,707 (59) 22,707 0 0%
G.E.R. Family Partnership 16,862 (60) 16,862 0 0%
Patrick McBrien 12,267 (61) 12,267 0 0%
Scott Zelnick 12,267 (62) 12,267 0 0%
Levitan Family Charitable Trust 12,154 (63) 12,153 0 0%
Abbey Oxenhorn 11,351 (64) 11,351 0 0%
Seth Oxenhorn 11,351 (65) 11,351 0 0%
MLPF&S as custodian FBO
Emanuel R. Pearlman, IRA 8,677 (66) 4,098 4,579 *
Brad Zelnick 4,812 (67) 4,812 0 0%
Sage Alliances Inc. 135,462 (68) 135,462 0 0%
Jim McNeil 37,248 (69) 37,248 0 0%
Sam Schwartz 38,412 (70) 2,328 36,084 *
Roy Martin 2,328 (71) 2,328 0 0%
Malcolm Taub 2,328 (72) 2,328 0 0%
Miriam Gibofsky 100,000 (73) 100,000 0 0%
------------------
* Less than 1%
(1) Except as otherwise indicated, the address for each beneficial owner is
c/o Network-1 Security Solutions, Inc., 445 Park Avenue, Suite 1028,
New York, New York 10022.
(2) Unless otherwise indicated, the Company believes that all persons named
in the above table have sole voting and investment power with respect
to all shares of common stock beneficially owned by them. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the date hereof upon the exercise of
options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants
and convertible securities
21
held by such person (but not those held by any other person) and which
are exercisable or convertible within 60 days have been exercised and
converted. Assumes a base of 17,697,572 shares of common stock
outstanding.
(3) Includes (i) 1,280,207 shares of common stock held by Wheatley Partners
II, L.P., (ii) 194,280 shares of common stock held by Wheatley
Partners, L.P., (iii) 16,868 shares of common stock held by Wheatley
Foreign Partners, L.P., (iv) 150,012 shares of common stock held by Mr.
Rubenstein, (v) 47,500 shares of common stock subject to currently
exercisable stock options held by Mr. Rubenstein, (vi) 49,664 shares of
common stock subject to currently exercisable warrants held by Mr.
Rubenstein, (vii) 829,226, 619,983, 309,316, 294,810 and 1,049 shares
of common stock held by Woodland Venture Fund, Seneca Ventures,
Woodland Partners, Brookwood Partners, L.P. and Marilyn Rubenstein,
respectively. Does not include options to purchase 11,875 shares of
common stock held by Mr. Rubenstein which are not currently
exercisable. The aforementioned beneficial ownership by Mr. Rubenstein
is based upon Amendment No. 6 to Schedule 13D jointly filed by Mr.
Rubenstein and related parties with the Securities and Exchange
Commission on January 3, 2005 and Form 4s filed by Mr. Rubenstein with
the Securities and Exchange Commission on December 21, 2004 and
February 17, 2005. Barry Rubenstein is a general partner of Wheatley
Partners II, L.P. and a member of the general partner of each of
Wheatley Partners, L.P. and Wheatley Foreign Partners, L.P. Barry
Rubenstein and Woodland Services Corp. are the general partners of
Woodland Venture Fund and Seneca Ventures. Barry Rubenstein is the
President and sole director of Woodland Services Corp. Marilyn
Rubenstein is the wife of Barry Rubenstein. Mr. Rubenstein disclaims
beneficial ownership of the shares of common stock held by Wheatley
Partners II, L.P., Wheatley Partners, L.P. and Wheatley Foreign
Partners, L.P., except to the extent of his equity interest therein.
The address of Barry Rubenstein is 68 Wheatley Road, Brookville, New
York 11545. The address of Wheatley Partners II, L.P. and Wheatley
Partners, L.P. is 60 Cuttermill Road, Great Neck, New York 11021. The
address of Wheatley Foreign Partners, L.P. is c/o Fiduciary Trust, One
Capital Place, Snedden Road, P.O. Box 162, Grand Cayman, British West
Indies. The address for Woodland Venture Fund, Seneca Ventures,
Brookwood Partners, L.P. and Woodland Partners is c/o Barry Rubenstein,
68 Wheatley Road, Brookville, New York 11545.
(4) Includes (i) 1,280,207 shares of common stock held by Wheatley Partners
II, L.P., (ii) 194,280 shares of common stock held by Wheatley
Partners, L.P., (iii) 16,868 shares of common stock held by Wheatley
Foreign Partners, L.P., (iv) 509,483 shares of common stock owned by
Mr. Lieber, (v) 47,500 shares of common stock subject to currently
exercisable stock options owned by Mr. Lieber, and (vi) 49,664 shares
of common stock subject to currently exercisable warrants owned by Mr.
Lieber. Does not include options to purchase 11,875 shares of common
stock owned by Mr. Lieber which are not currently exercisable. The
aforementioned beneficial ownership by Mr. Lieber is based upon
Amendment No. 6 to Schedule 13D jointly filed by Mr. Lieber and related
parties with Securities and Exchange Commission on January 3, 2005 and
Form 4s filed
22
with the Securities and Exchange Commission on December 21, 2004 and
February 17, 2005. Mr. Lieber disclaims beneficial ownership of the
shares of common stock held by Wheatley Partners II, L.P., Wheatley
Partners, L.P. and Wheatley Foreign Partners, L.P., except to the
extent of his equity interest therein. The address of Irwin Lieber is
c/o Wheatley Partners, II, L.P., 80 Cuttermill Road, Great Neck, New
York 11021.
(5) Includes (i) 1,280,207 shares of common stock held by Wheatley
Partners, II, L.P., (ii) 194,280 shares of common stock held by
Wheatley Partners, L.P., (iii) 16,868 shares of common stock held by
Wheatley Foreign Partners, L.P., and (iv) 517,243 shares of common
stock owned by Mr. Fingerhut. Mr. Fingerhut disclaims beneficial
ownership of the shares of common stock held by Wheatley Partners II,
L.P., Wheatley Partners, L.P. and Wheatley Foreign Partners, L.P.,
except to the extent of his equity interest therein. The address of
Barry Fingerhut is c/o Wheatley Partners, II, L.P., 80 Cuttermill Road,
Great Neck, New York 11021.
(6) Includes (i) 1,280,207 shares of common stock held by Wheatley
Partners, II, L.P., (ii) 194,280 shares of common stock held by
Wheatley Partners, L.P., (iii) 16,868 shares of common stock held by
Wheatley Foreign Partners, L.P., and (iv)140,945 shares of common stock
owned by Mr. Lieber. Mr. Lieber disclaims beneficial ownership of the
shares of common stock held by Wheatley Partners II, L.P., Wheatley
Partners, L.P. and Wheatley Foreign Partners, L.P., except to the
extent of his equity interest therein. The address of Seth Lieber is
c/o Wheatley Partners, II, L.P., 80 Cuttermill Road, Great Neck, New
York 11021.
(7) Includes (i) 1,280,207 shares of common stock held by Wheatley
Partners, II, L.P., (ii) 194,280 shares of common stock held by
Wheatley Partners, L.P., (iii) 16,868 shares of common stock held by
Wheatley Foreign Partners, L.P., and (iv)139,393 shares of common stock
owned by Mr. Lieber. Mr. Lieber disclaims beneficial ownership of the
shares of common stock held by Wheatley Partners II, L.P., Wheatley
Partners, L.P. and Wheatley Foreign Partners, L.P., except to the
extent of his equity interest therein. The address of Jonathan Lieber
is c/o Wheatley Partners, II, L.P., 80 Cuttermill Road, Great Neck, New
York 11021.
(8) Barry Rubenstein, Irwin Lieber, Barry Fingerhut, Seth Lieber and
Jonathan Lieber, by virtue of each being a general partner of Wheatley
Partners II, L.P., may be deemed to have shared power to vote and
dispose of the shares of common stock owned by Wheatley Partners II,
L.P. Wheatley Partners II, L.P.'s business address is 80 Cuttermill
Road, Great Neck, New York 11021.
(9) Barry Rubenstein, Irwin Lieber, Barry Fingerhut, Seth Lieber and
Jonathan Lieber by virtue of being a member and officer of Wheatley
Partners, LLC, the general partner of Wheatley Partners, L.P. and
Wheatley Foreign Partners, L.P., may be deemed to have
23
shared power to vote and to dispose of the shares of common stock owned
by Wheatley Partners, L.P. and Wheatley Foreign Partners, L.P.
(10) Barry Rubenstein, by virtue of being a General Partner of Woodland
Venture Fund, Seneca Ventures, Woodland Partners and Brookwood Partners
L.P., and Marilyn Rubenstein, by virtue of being an officer of Woodland
Services Corp. (a general partner of Woodland Venture Fund and Seneca
Ventures) and a general partner of Woodland Partners and Brookwood
Partners L.P., may be deemed to have shared power to vote and dispose
of the shares of common stock owned by Woodland Venture Fund, Seneca
Ventures, Woodland Partners and Brookwood Partners L.P.
(11) Includes (i) 475,053 shares of common stock held by Mr. Horowitz, (ii)
3,737,861 shares of common stock subject to currently exercisable stock
options held by Mr. Horowitz, (iii) 2,867,800 shares of common stock
held by CMH Capital Management Corp. ("CMH"), (iv) 550,000 shares of
common stock subject to currently exercisable warrants held by CMH, (v)
750,000 shares of common stock subject to currently exercisable options
held by CMH, (vi) 85,220 shares of common stock subject to currently
exercisable warrants held by Mr. Horowitz, (vii) 78,720 shares of
common stock owned by Donna Slavitt, the wife of Mr. Horowitz (viii)
45,000 shares of common stock held by two trusts and a custodian
account for the benefit of Mr. Horowitz's three children and (ix) 2,291
shares of common stock held by Horowitz Partners, a general partnership
of which Mr. Horowitz is a partner. Does not include options to
purchase 610,625 shares of common stock which are not currently
exercisable. The address of CMH Capital Management Corp. is 445 Park
Avenue, New York, New York 10022.
(12) Includes (i) 2,867,800 shares of common stock, (ii) 550,000 shares of
common stock subject to currently exercisable warrants and (iii)
750,000 shares of common stock subject to currently exercisable
options. Corey M. Horowitz, by virtue of being the sole officer and
shareholder of CMH Capital Management Corp., has sole power to vote and
dispose of the shares of common stock owned by CMH.
(13) Gary Horowitz, by virtue of being the trustee of the Logan Zev Horowitz
1999 Trust and the Dylan Max Horowitz 1999 Trust, has sole power to
vote and dispose of the shares of common stock owned by each of the
trusts. Corey M. Horowitz, by virtue of being custodian for Zachary
Jordan Horowitz, has the sole power to vote and dispose of such shares.
(14) Corey M. Horowitz, Gary Horowitz, Cindy Horowitz and Syd Horowitz, by
virtue of being a general partner of Horowitz Partners, may each be
deemed to have shared power to vote and dispose of the shares owned by
Horowitz Partners.
(15) Includes 650,000 shares of common stock subject to currently
exercisable warrants. Reijane Huai, Lawrence S. Dolin, Steven Fischer,
Steven L. Block, Patrick Carney and Alan W. Kaufman, by virtue of being
members of the Board of Directors of FalconStor
24
Software, Inc., may be deemed to have shared power to vote and dispose
of the securities. The address of FalconStor Software, Inc. is 2
Huntington Quadrangle, Suite 2501, Mellvile, New York 11747.
(16) Includes (i) 750,000 shares of common stock and (ii) 562,500 shares of
common stock subject to currently exercisable warrants. Howard
Millstein, by virtue of being an officer of New York Private Bank and
Trust Corporation and trustee of the Paul Milstein Revocable 1998
Trust, both indirect owners of Emigrant Capital Corporation, may be
deemed to have sole power to vote and dispose of the securities owned
by Emigrant Capital Corporation. The address of Emigrant Capital
Corporation is 6 East 43rd Street, New York, New York 10017.
(17) Includes (i) 516,000 shares of Common Stock and (ii) 268,125 shares of
Common Stock subject to currently exercisable warrants owned by Singer
Opportunity Fund, L.P. Eric Singer, by virtue of being managing member
of Singer Opportunity Fund, L.P. and Singer Fund Management, LLC, has
sole power to vote and dispose of the shares owned by Singer
Opportunity Fund, L.P. The address of Singer Opportunity Fund, L.P. is
650 Fifth Avenue, New York, New York 10019.
(18) Includes (i) 175,480 shares of Common Stock and (ii) 106,875 shares of
Common Stock subject to currently exercisable warrants owned by Singer
Fund, L.P. Eric Singer, by virtue of being managing member of Singer
Fund, L.P. and Singer Fund Management, LLC, has sole power to vote and
dispose of the securities owned by Singer Fund, L.P. The address of
Singer Fund, L.P. is 650 Fifth Avenue, New York, New York 10019.
(19) Includes (i) 279,000 shares of common stock and (ii) 195,000 shares of
common stock subject to currently exercisable warrants.
(20) Includes (i) 154,777 shares of common stock and (ii) 75,000 shares of
common stock subject to currently exercisable warrants and (iii) 50,000
shares subject to currently exercisable stock options.
(21) Includes (i) 100,000 shares of common stock and (ii) 75,000 shares of
common stock subject to currently exercisable warrants.
(22) Includes (i) 100,000 shares of common stock and (ii) 75,000 shares of
common stock subject to currently exercisable warrants.
(23) Includes (i) 75,000 shares of common stock and (ii) 56,250 shares of
common stock subject to currently exercisable warrants. Clarke Adams,
by virtue of being managing partner of Granite Bridge Fund, L.P., is
believed by us to have sole power to vote and dispose of the securities
owned by Granite Bridge Fund, L.P.
(24) Includes (i) 50,000 shares of common stock and (ii) 37,500 shares of
common stock subject to currently exercisable warrants. Cass Gunther
Adelman, by virtue of being the
25
sole member of CGA Resources, LLC, is believed by us to have sole power
to vote and dispose of the securities.
(25) Includes (i) 50,000 shares of common stock and (ii) 37,500 shares of
common stock subject to currently exercisable warrants.
(26) Includes (i) 50,000 shares of common stock and (ii) 37,500 shares of
common stock subject to currently exercisable warrants. Allysa
Ackerman, by virtue of being the sole member of Dasa Sada, LLC, is
believed by us to have sole power to vote and dispose of the
securities.
(27) Includes (i) 50,000 shares of common stock and (ii) 37,500 shares of
common stock subject to currently exercisable warrants.
(28) Includes (i) 25,000 shares of common stock and (ii) 18,750 shares of
common stock subject to currently exercisable warrants.
(29) Includes (i) 10,000 shares of common stock and (ii) 7,500 shares of
common stock subject to currently exercisable warrants.
(30) Includes (i) 10,000 shares of common stock and (ii) 7,500 shares of
common stock subject to currently exercisable warrants.
(31) Includes (i) 104,200 shares of common stock and (ii) 71,250 shares of
common stock subject to currently exercisable warrants. James Bresser,
by virtue of being a partner of the investment advisor of Jeb
Investment Ltd., is believed by us to have sole power to vote and
dispose of the securities.
(32) Includes (i) 103,800 shares of common stock and (ii) 71,250 shares of
common stock subject to currently exercisable warrants. James Bresser,
by virtue of being an officer of the general partner of Jeb Partners,
L.P., is believed by us to have sole power to vote and dispose of the
securities.
(33) Includes (i) 70,200 shares of common stock and (ii) 45,000 shares of
common stock subject to currently exercisable warrants. James Bresser,
by virtue of being an officer of Manchester Explorer Limited
Partnership, is believed by us to have sole power to vote and dispose
of the securities.
(34) Includes (i) 100,000 shares of common stock and (ii) 75,000 shares of
common stock subject to currently exercisable warrants.
(35) Includes (i) 75,000 shares of common stock and (ii) 37,500 shares of
common stock subject to currently exercisable warrants.
26
(36) Includes (i) 7,500 shares of common stock and (ii) 5,625 shares of
common stock subject to currently exercisable warrants.
(37) Includes (i) 5,000 shares of common stock and (ii) 3,750 shares of
common stock subject to currently exercisable warrants.
(38) Includes (i) 7,500 shares of common stock and (ii) 5,625 shares of
common stock subject to currently exercisable warrants.
(39) Includes (i) 10,000 shares of common stock and (ii) 7,500 shares of
common stock subject to currently exercisable warrants.
(40) Includes (i) 60,000 shares of common stock and (ii) 45,000 shares of
common stock subject to currently exercisable warrants.
(41) Includes (i) 20,000 shares of common stock and (ii) 15,000 shares of
common stock subject to currently exercisable warrants.
(42) Includes (i) 20,000 shares of common stock and (ii) 15,000 shares of
common stock subject to currently exercisable warrants.
(43) Includes (i) 25,000 shares of common stock and (ii) 18,750 shares of
common stock subject to currently exercisable warrants.
(44) Includes 50,000 shares of common stock subject to currently exercisable
warrants and does not include 50,000 shares of common stock subject to
options which are not currently exercisable but which shares are being
registered for resale herein.
(45) Includes 486,526 shares of common stock subject to currently
exercisable warrants.
(46) Includes 114,554 shares of common stock subject to currently
exercisable warrants. Chana Edelstein and Isaac Hebroni, by virtue of
being directors of New Dimensions Trading LTD, have shared power to
vote and dispose of the securities.
(47) Includes 95,073 shares of common stock subject to currently exercisable
warrants.
(48) Includes 76,472 shares of common stock subject to currently exercisable
warrants.
(49) Includes 44,857 shares of common stock subject to currently exercisable
warrants.
(50) Includes 44,857 shares of common stock subject to currently exercisable
warrants.
(51) Includes 38,186 shares of common stock subject to currently exercisable
warrants.
(52) Includes 38,186 shares of common stock subject to currently exercisable
warrants.
27
(53) Includes 36,355 shares of common stock subject to currently exercisable
warrants.
(54) Includes 34,066 shares of common stock subject to currently exercisable
warrants. Morris Wolfson, by virtue of being managing partner of MW
Partnership, is believed by us to have sole power to vote and dispose
of the securities.
(55) Includes (i) 8,432 shares of common stock and (ii) 22,707 shares of
common stock subject to currently exercisable warrants. Andrew Geynes,
by virtue of being general partner of Geynes & Co., is believed by us
to have sole power to vote and dispose of the securities.
(56) Includes 29,518 shares of common stock subject to currently exercisable
warrants.
(57) Includes 35,792 shares of common stock subject to currently exercisable
warrants. Michael Marocco, by virtue of being Managing Director of
Sandler Capital Management, the general partner of Sandler
Co-Investment Partners, L.P., is believed by is to have sole power to
vote and dispose of the securities.
(58) Includes 22,707 shares of common stock subject to currently exercisable
warrants.
(59) Includes 22,707 shares of common stock subject to currently exercisable
warrants.
(60) Includes 16,862 shares of common stock subject to currently exercisable
warrants. Gerald Reich, by virtue of being General Partner of GER
Family Partnership, is believed by us to have sole power to vote and
dispose of the securities.
(61) Includes 12,267 shares of common stock subject to currently exercisable
warrants.
(62) Includes 12,267 shares of common stock subject to currently exercisable
warrants.
(63) Includes 12,154 shares of common stock subject to currently exercisable
warrants. Eli Levitin, by virtue of being trustee of the Levitin Family
Charitable Trust, is believed by us to have sole power to vote and
dispose of the securities.
(64) Includes 11,351 shares of common stock subject to currently exercisable
warrants.
(65) Includes 11,351 shares of common stock subject to currently exercisable
warrants.
(66) Includes (i) 4,579 shares of common stock and (ii) 4,098 shares of
common stock subject to currently exercisable warrants.
(67) Includes 4,812 shares of common stock subject to currently exercisable
warrants.
28
(68) Includes 135,462 shares of common stock subject to currently
exercisable warrants. John Redding, by virtue of being the principal of
Sage Alliances, Inc., is believed by us to have sole power to vote and
dispose of the securities.
(69) Includes 37,248 shares of common stock subject to currently exercisable
warrants.
(70) Includes (i) 23,584 shares of common stock and (ii) 14,828 shares
subject to currently exercisable options and warrants.
(71) Includes 2,328 shares of common stock subject to currently exercisable
warrants.
(72) Includes 2,328 shares of common stock subject to currently exercisable
warrants.
(73) Includes 100,000 shares of common stock subject to currently
exercisable warrants.
PLAN OF DISTRIBUTION
This offering is self-underwritten; neither we nor the selling
stockholders have employed an underwriter for the sale of common stock by the
selling stockholders. We will bear all expenses in connection with the
preparation of this prospectus. The selling stockholders will bear all expenses
associated with the sale of their common stock.
The selling stockholders may offer their shares of common stock
directly or through pledgees, donees, transferees or other successors in
interest in one or more of the following transactions:
o ordinary brokerage transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
29
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may offer their shares of common stock at any
of the following prices:
o fixed prices that may be changed;
o market prices prevailing at the time of sale;
o prices related to such prevailing market prices; and
o at negotiated prices.
The selling stockholders may effect transactions by selling shares to
or through broker-dealers, and all such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the selling
stockholders and/or the purchasers of shares of common stock for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Any broker-dealer acquiring common stock from the selling stockholders
may sell the shares either directly, in its normal market-making activities,
through or to other brokers on a principal or agency basis or to its customers.
Any such sales may be at prices then prevailing on the OTC Bulletin Board or at
prices related to such prevailing market prices or at negotiated prices to its
customers or a combination of such methods. The selling stockholders and any
broker-dealers that act in connection with the sale of the common stock
hereunder might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act; any commission received by them and any profit on
the resale of shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. Any such commissions, as well as other
expenses incurred by the selling stockholders and applicable transfer taxes, are
payable by the selling stockholders.
The selling stockholders reserve the right to accept, and together with
any agent of the selling stockholder, to reject in whole or in part any proposed
purchase of the shares of common stock. The selling stockholders will pay any
sales commissions or other seller's compensation applicable to such
transactions.
We have not registered or qualified offers and sales of shares of the
common stock under the laws of any country other than the United States. To
comply with certain states' securities laws, if applicable, the selling
stockholders will offer and sell their shares of common stock in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the selling stockholders may not offer or sell
shares of common stock unless we have
30
registered or qualified such shares for sale in such states or we have complied
with an available exemption from registration or qualification.
The selling stockholders with respect to any purchase or sale of shares
of common stock are required to comply with Regulation M promulgated under the
Securities Exchange Act of 1934, as amended. In general, Rule 102 under
Regulation M prohibits any person connected with a distribution of securities
(the "Distribution") from directly or indirectly bidding for, or purchasing for
any account in which he or she has a beneficial interest, any of such securities
or any right to purchase such securities, for a period of one business day
before and after completion of his or her participation in the Distribution (we
refer to that time period as the "Distribution Period").
During the Distribution Period, Rule 104 under Regulation M prohibits
the selling stockholders and any other persons engaged in the Distribution from
engaging in any stabilizing bid or purchasing of our common stock except for the
purpose of preventing or retarding a decline in the open market price of our
common stock. No such person may effect any stabilizing transaction to
facilitate any offering at the market. Inasmuch as the selling shareholders will
be reoffering and reselling our common stock at the market, Rule 104 prohibits
them from effecting any stabilizing transaction in contravention of Rule 104
with respect of our common stock.
There can be no assurance that the selling stockholders will sell any
or all of the shares offered by them hereunder or otherwise.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock
and do not currently intend to do so. We intend to retain any future earnings to
support the development and growth of our business. Any further determination to
pay cash dividends will be at the discretion of our board of directors and will
be dependent upon our financial condition, results of operations, cash
requirements, plans for expansion, contractual restrictions, if any, and other
factors deemed relevant by the by the board of directors.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
us by the law firm of Eiseman Levine Lehrhaupt & Kakoyiannis, P.C., 845 Third
Avenue, New York, New York. Sam Schwartz, a member of such firm, owns 23,584
shares of our common stock and owns warrants and options to purchase 14,828
shares of our common stock as of the date of this prospectus.
31
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-KSB for the year ended December 31, 2004 have
been so incorporated in reliance on the report of Eisner LLP, independent
registered public accounting firm, given on the authority of said firm as
experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Certificate of Incorporation and Bylaws provide our directors with
protection for breaches of their fiduciary duties to us and our shareholders.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers or persons controlling us, we have been
advised that it is the SEC's opinion that such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a director,
officer or controlling person in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
32
NETWORK-1 SECURITY SOLUTIONS, INC.
16,886,267 SHARES
OF
COMMON STOCK
___________________
PROSPECTUS
___________________
SEPTEMBER __, 2005
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE
INFORMATION THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY
AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
offering described in the Registration Statement, all of which will be borne by
the Company.
SEC registration fee..................................... $ 1,450.89
Legal fees and expenses*................................. $25,000.00
Accounting fees and expenses*............................ $ 2,500.00
Miscellaneous expenses*.................................. $ 1,000.00
----------
TOTAL...................................... $29,950.89
==========
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporations Law (the "DGCL")
contains provisions entitling the Company's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorneys' fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Company. In its Certificate of Incorporation, the Company has
included a provision that limits, to the fullest extent now or hereafter
permitted by the DGCL, the personal liability of its directors to the Company or
its stockholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the DGCL as currently in effect, this provision
limits a director's liability except where such director (i) breaches his duty
of loyalty to the Company or its stockholders, (ii) fails to act in good faith
or engages in intentional misconduct or a knowing violation of law, (iii)
authorizes payment of an unlawful dividend or stock purchase or redemption as
provided in Section 174 of the DGCL, or (iv) obtains an improper personal
benefit. This provision does not prevent the Company or its stockholders from
seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against actions
taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also includes provisions to the effect
that (subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as it may from time to time be in effect. In addition, the Bylaws
require the Company to
II-1
indemnify, to the full extent permitted by law, any director, office, employee
or agent of the Company for acts which such person reasonably believes are not
in violation of the Company's corporate purposes as set forth in the Certificate
of Incorporation. At present, the DGCL provides that, in order to be entitled to
indemnification, an individual must have acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the Company's best
interests.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to any charter, provision, by-law, contract, arrangement,
statute or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
NO. DESCRIPTION
--- -----------
4.1 Form of Warrant, dated December 21, 2004, issued to certain investors
pursuant to the Securities Purchase Agreement, dated December 21, 2004,
between the Company and the investors listed therein. Previously filed
as an exhibit to Exhibit 10.1 to the Current Report on Form 8-K filed
on December 28, 2004.
4.2 Form of Warrant, dated January 13, 2005, issued to certain investors
pursuant to the Securities Purchase Agreement, dated January 13, 2005,
between the Company the investors listed therein. Previously filed as
an exhibit to Exhibit 10.2 to the Current Report on Form 8-K filed
January 20, 2005, and incorporated herein by reference.
4.3 Form of Warrant, dated December 22, 1999, issued by the Company to the
holder listed thereon. Previously filed as Exhibit B to Exhibit 10.28
to the Form 8-K filed January 4, 2000, and incorporated herein by
reference.
4.4 Form of Warrant issued by the Company for services rendered. Previously
filed as Exhibit 4.3 to the Form S-3 Registration Statement
(Registration No. 333-96189) declared effective by the SEC on March 21,
2000.
5.1 Opinion of Eiseman Levine Lehrhaupt & Kakoyiannis, P.C. regarding
legality of securities being registered.
23.1 Consent of Eisner LLP, independent registered public accounting firm.*
23.2 Consent of Eiseman Levine Lehrhaupt & Kakoyiannis, P.C. (included
within Exhibit 5.1).*
24.1 No person has signed this Registration Statement under a power of
attorney. A power of attorney relating to the signing of amendments
hereto is incorporated in the signature page hereof.
__________________
* amended filing herewith.
II-2
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) Include any additional or changed material information
on the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of securities at that time to be the initial BONA FIDE
offering.
(c) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of this offering.
(2) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934(and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant, pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York.
Dated: September 27, 2005 NETWORK-1 SECURITY SOLUTIONS, INC.
By: /s/ Corey M. Horowitz
------------------------------------
Corey M. Horowitz,
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Corey M. Horowitz his true and
lawful attorney-in-fact and agent, with full power and substitution and
re-substitution, to sign in any and all capacities any and all amendments or
post-effective amendments to this Registration Statement on Form S-2 and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting to such attorney-in-fact
and agent, full power and authority to do all such other acts and execute all
such other documents as he may deem necessary or desirable in connection with
the foregoing, as fully as the undersigned might or could do in person, hereby
ratifying and confirming all that such attorney-in-fact and agent may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Corey M. Horowitz Chairman and Chief Executive September 27, 2005
--------------------- Officer (principal executive
Corey M. Horowitz officer)
/s/ David C. Kahn Chief Financial Officer September 27, 2005
--------------------- (principal financial and
David C. Kahn accounting officer)
/s/ Robert Graifman Director September 27, 2005
---------------------
Robert Graifman
/s/ Robert Pons Director September 27, 2005
---------------------
Robert Pons
/s/ Harry Schessel Director September 27, 2005
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Harry Schessel
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INDEX TO EXHIBITS
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NO. DESCRIPTION
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4.1 Form of Warrant, dated December 21, 2004, issued to certain investors
pursuant to the Securities Purchase Agreement, dated December 21, 2004,
between the Company and the investors listed therein. Previously filed
as an exhibit to Exhibit 10.1 to the Current Report on Form 8-K filed
on December 28, 2004.
4.2 Form of Warrant, dated January 13, 2005, issued to certain investors
pursuant to the Securities Purchase Agreement, dated January 13, 2005,
between the Company the investors listed therein. Previously filed as
an exhibit to Exhibit 10.2 to the Current Report on Form 8-K filed
January 20, 2005, and incorporated herein by reference.
4.3 Form of Warrant, dated December 22, 1999, issued by the Company to the
holder listed thereon. Previously filed as Exhibit B to Exhibit 10.28
to the Form 8-K filed January 4, 2000, and incorporated herein by
reference.
4.4 Form of Warrant issued by the Company for services rendered. Previously
filed as Exhibit 4.3 to the Form S-3 Registration Statement
(Registration No. 333-96189) declared effective by the SEC on March 21,
2000.
5.1 Opinion of Eiseman Levine Lehrhaupt & Kakoyiannis, P.C. regarding
legality of securities being registered.*
23.1 Consent of Eisner LLP, independent registered public accounting firm.*
23.2 Consent of Eiseman Levine Lehrhaupt & Kakoyiannis, P.C. (included
within Exhibit 5.1).
24.1 No person has signed this Registration Statement under a power of
attorney. A power of attorney relating to the signing of amendments
hereto is incorporated in the signature page hereof.
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* amended filing herewith.
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