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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 10, 2005
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Network-1 Security Solutions, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-14896 11-3027591
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
445 Park Avenue, Suite 1028, New York, New York 10022
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(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 829-5700
N/A
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On November 14, 2005, the Company issued a press release announcing its
results of operations for its third quarter ended September 30, 2005. A copy of
the press release is furnished herewith as Exhibit 99.1.
The information contained in this Item 2.02, including Exhibit 99.1
attached hereto, is being furnished and shall not be deemed to be "filed" for
the purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liabilities of that Section. Furthermore, the
information contained in this Item 2.02 or Exhibit 99.1 shall not be deemed to
be incorporated by reference into any registration statement or other document
filed pursuant to the Securities Act of 1933, as amended, except as shall be
expressly set forth by specific reference in such filing.
ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED
AUDIT REPORT OR COMPLETED INTERIM REVIEW
On November 10, 2005, management concluded that the Company's financial
statements for the year ended December 31, 2004, for the three and six months
periods ended June 30, 2004, and the nine months ended September 30, 2004 should
be restated due to not recording a deemed dividend with respect to an exchange
transaction in April 2004. Additionally, on that date management also concluded
that the financial statements for the year ended December 31, 2003 should be
restated due to not presenting the gain on sale of the Company's software assets
and revenue and expenses associated with the software business as discontinued
operations.
In April 2004, the Company entered into an exchange agreement with the
holders of all of the Company's outstanding shares of Series E convertible
preferred stock ("Series E") and Series D convertible preferred stock ("Series
D") to exchange 2,483,508 shares of Series E for 6,208,770 shares of common
stock and 231,054 shares of Series D for 489,348 shares of common stock (the
"Exchange Transaction"). The holders of the Series E and Series D received 1.25
times the number of shares of common stock that each preferred stockholder would
have otherwise received upon conversion.
The staff of the Division of Corporate Finance of the Securities and
Exchange Commission in reviewing the Company's 10-KSB for the year ended
December 31, 2004 commented on the Company's accounting of the 2004 Exchange
Transaction which included discussions concerning whether or not the Preferred
Stock (Series E and Series D) contained a "beneficial conversion feature" which
should be accounted for under Emerging Issues Task Force Issue No. (EITF) 00-27
as a deemed dividend and included in the net loss attributable to common
stockholders and the per share amounts.
The Company has concluded that it should have recognized a deemed
dividend as a result of the beneficial conversion feature in accordance with
ETIF 00-27. The change in the accounting treatment for the Exchange Transaction
results in an increase to the net loss attributable to common stockholders of
$273,000. The loss per share is increased by $(0.01) per share and $(0.03) per
share for the three and six months ended June 30, 2004, $(0.02) per share
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for the nine months ended September 30, 2004 and $(0.02) per share for the year
ended December 31, 2004.
In addition, following discussions with the staff of the Securities and
Exchange Commission pertaining to comments relating to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2004, the Company's
management also concluded that the gain on sale of assets associated with the
Company's software products in May 2003 and expenses and revenues related to the
software business should be reclassified to discontinued operations in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144. This
reclassification has no effect on the net loss, net loss attributable to common
stockholders or net loss per common share-basic and diluted.
The Company's management and audit committee has discussed the
restatement matters disclosed herein with the Company's independent registered
public accounting firm.
As a result of management's determination, the previously issued
financial statements for the years ended December 31, 2004 and 2003, the three
and six months ended June 30, 2004 and the nine months ended September 30, 2004
should no longer be relied upon.
ITEM 9.01 FINANCIAL STATEMENTS ARE EXHIBITS
Exhibit
Number Description
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99.1 Press Release, dated November 14, 2005
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETWORK-1 SECURITY SOLUTIONS, INC.
Dated: November 15, 2005 By: /s/ Corey M. Horowitz
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Name: Corey M. Horowitz
Title: Chairman & Chief Executive Officer
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