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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-KA
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 18, 2003
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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.)
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ITEM 2. ACQUISITION OF DISPOSITION OF ASSETS
(a) On November 18, 2003, Network-1 Security Solutions, Inc.
("Network-1") acquired a patent portfolio (the "Patent Portfolio") from Merlot
Communications, Inc. a broadband communications solutions provider. Network-1
intends to pursue licensing opportunities related to the technologies covered by
the Patent Portfolio as well as pursue the acquisition of additional patents as
its new core business.
The Patent Portfolio consists of six patents issued by the U.S.
Patent Office that relate to various telecommunications and networking
technologies and include, among other things, patents covering the transmission
of audio, voice and data over computer and telephony networks and the delivery
of remote power over Ethernet networks. The consideration paid by Network-1 for
the acquisition of the Patent Portfolio consisted of a cash payment of $100,000
and contingent future payments equal to 20% of the net income (as defined in the
acquisition agreement) of Network-1 from the sale or licensing of the Patent
Portfolio after Network-1 achieves $4.0 million of net income from each patent
comprising the Patent Portfolio ("Net Profit Payments"). Network-1 has an option
to terminate the Net Profit Payments, at any time between January 1, 2007
through March 31, 2007, and from January 1 through March 31 of each year
thereafter, by making payments to Merlot in an amount equal to the greater of
(i) two times the payment due for the twelve month period following the notice
of termination or (ii) $3.0 million plus 10% for each additional year starting
January 1, 2008. The $100,000 payment was funded from working capital of
Network-1. The amount of consideration paid by Network-1 for the Patent
Portfolio was the result of arms length negotiation between the parties.
Wheatley Partners II, L.P. and its affiliates and related entities (the
"Wheatley Parties"), who are principal stockholders of Network-1, also owned a
majority of the outstanding voting stock of Merlot Communications, Inc. at the
time of Network-1's acquisition of the Patent Portfolio. The Wheatley Parties
did not participate in the negotiation or the approval of the patent acquisition
transaction by Merlot or Network-1.
In December 2002, Network-1 discontinued its security software
product business, as it was unable to achieve sufficient product revenue to
support the expenses of such operations. In June 2003, Network-1 sold its
CyberwallPLUS security software and related intellectual property to an
unaffiliated third party. The Board of Directors focused its efforts on seeking
a merger candidate or other strategic transaction for the Company in order to
enhance shareholder value. After reviewing numerous opportunities, the Board
decided that the acquisition of the Patent Portfolio and the pursuit of
licensing opportunities related thereto was the most attractive alternative for
its shareholders.
This Form 8-KA is filed as a result of Network-1's withdrawal of its
request to the SEC for confidentiality of certain provisions of the Patents
Purchase, Assignment and License Agreement, dated November 18, 2003, between the
Network-1 and Merlot Communications, Inc.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired. Not Applicable.
(b) Proforma Financial Information. Not Applicable.
(c) Exhibits.
10.10 Patents Purchase, Assignment and License Agreement,
dated November 18, 2003, between Network-1 Security
Solutions, Inc. and Merlot Communications, Inc.
SIGNATURE
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: April 26, 2004 By: /s/ Corey M. Horowitz
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Name: Corey M. Horowitz
Title: Chairman and Chief Executive Officer