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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 1-14896
NETWORK-1 SECURITY SOLUTIONS, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3027591
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1601 TRAPELO ROAD, RESERVOIR PLACE, WALTHAM, MASSACHUSETTS 02451
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
781-522-3400
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(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of May 1, 2002 there were 7,677,680 shares of Common Stock, $.01 par value
per share, 231,054 shares of Series D Convertible Preferred Stock, $.01 par
value per share, and 2,801,897 shares of Series E Convertible Preferred Stock,
$.01 par value per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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NETWORK-1 SECURITY SOLUTIONS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets as of March 31, 2002 (unaudited)
and December 31, 2001............................................... 3
Condensed Statements of Operations for the three months
ended March 31, 2002 and 2001 (unaudited)........................... 4
Condensed Statements of Cash Flows for the three months
ended March 31, 2002 and 2001 (unaudited)........................... 5
Notes to Condensed Financial Statements............................. 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 11
Item 2. Changes in Securities and Use of Proceeds........................... 11
Item 3. Defaults Upon Senior Securities..................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................. 11
Item 5. Other Information................................................... 11
Item 6. Exhibits and Reports on Form 8-K.................................... 11
SIGNATURES................................................................... 12
-2-
NETWORK-1 SECURITY SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 5,701,000 $ 7,121,000
Accounts receivable - net 94,000 62,000
Prepaid expenses and other current assets 109,000 113,000
------------ ------------
Total current assets 5,904,000 7,296,000
Equipment and fixtures 354,000 319,000
Capitalized software costs - net 581,000 561,000
Security deposits 16,000 8,000
------------ ------------
$ 6,855,000 $ 8,184,000
============ ============
LIABILITIES
-----------
Current liabilities:
Accounts payable 307,000 405,000
Accrued expenses and other current liabilities 838,000 675,000
Deferred revenue 242,000 245,000
------------ ------------
Total current liabilities 1,387,000 1,325,000
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
--------------------
Preferred stock - $.01 par value; authorized 10,000,000 shares;
Series D - 231,054 and 231,054 shares issued and outstanding, respectively 2,000 2,000
Series E - 2,801,897 and 3,191,037 shares issued and outstanding, respectively 28,000 32,000
Common stock - $.01 par value; authorized 50,000,000 shares;
7,677,680 and 6,781,374 shares issued and outstanding, respectively 77,000 68,000
Additional paid-in capital 41,402,000 41,274,000
Accumulated deficit (36,041,000) (34,517,000)
------------ ------------
5,468,000 6,859,000
------------ ------------
$ 6,855,000 $ 8,184,000
============ ============
See notes to condensed financial statements
-3-
NETWORK-1 SECURITY SOLUTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
-------------------------------
2002 2001
------------ ------------
(Unaudited) (Unaudited)
Revenues:
Licenses $ 68,000 $ 396,000
Services 50,000 61,000
------------ ------------
Total revenues 118,000 457,000
Cost of revenues:
Amortization of software development costs 70,000 62,000
Cost of licenses 3,000 14,000
Cost of services 42,000 62,000
------------ ------------
115,000 138,000
------------ ------------
Gross profit 3,000 319,000
------------ ------------
Operating expenses:
Product development 439,000 612,000
Selling and marketing 619,000 896,000
General and administrative 495,000 494,000
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1,553,000 2,002,000
------------ ------------
Loss from continuing operations before interest (1,550,000) (1,683,000)
Interest income - net 26,000 41,000
------------ ------------
Loss from continuing operations (1,524,000) (1,642,000)
Income from discontinued operations 0 630,000
------------ ------------
Net loss $ (1,524,000) $ (1,012,000)
============ ============
Per common share information - basic and diluted
Loss from continuing operations $ (0.21) $ (0.26)
Income from discontinued operations -- 0.10
------------ ------------
Net loss $ (0.21) $ (0.16)
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Weighted average number of common shares outstanding 7,109,367 6,455,316
============ ============
See notes to condensed financial statements
-4-
NETWORK-1 SECURITY SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2002 2001
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Loss from continuing operations $ (1,524,000) $ (1,642,000)
Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:
Provision for doubtful accounts 0 10,000
Amortization of compensatory stock options and warrants 0 180,000
Depreciation and amortization 107,000 96,000
Changes in:
Accounts receivable (32,000) (196,000)
Prepaid expenses and other current assets 4,000 50,000
Accounts payable, accrued expenses and other current liabilities 65,000 (50,000)
Interest Payable 0 13,000
Deferred revenue (3,000) 43,000
------------ ------------
Net cash used in continuing operations (1,383,000) (1,496,000)
Cash provided by (used in) discontinued operations 0 0
------------ ------------
Net cash used in operating activities (1,383,000) (1,496,000)
------------ ------------
Cash flows from investing activities:
Acquisitions of equipment and fixtures (72,000) (18,000)
Capitalized software costs (90,000) (125,000)
Security deposit (8,000) (8,000)
Net proceeds from sale of professional services group 0 860,000
------------ ------------
Net cash provided by (used in) investing activities (170,000) 709,000
------------ ------------
Cash flows provided by financing activities:
Proceeds from exercise of options and warrants 133,000 0
------------ ------------
Net decrease in cash and cash equivalents (1,420,000) (787,000)
Cash and cash equivalents - beginning of period 7,121,000 4,425,000
------------ ------------
Cash and cash equivalents - end of period $ 5,701,000 $ 3,638,000
============ ============
Supplemental disclosures of noncash investing and financing activity:
Conversion of notes payable and accrued interest into
1,787 shares of common stock $ -- $ 5,000
============ ============
Compensation charge for non qualified stock options related
to empoyees of discontinued operations $ -- $ 230,000
============ ============
See notes to condensed financial statements
-5-
NETWORK-1 SECURITY SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
--------------------------------
a. The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission with respect to Form 10-QSB. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures made herein are adequate to make the information contained
herein not misleading. These interim financial statements and the notes
thereto should be read in conjunction with the financial statements
included in the Company's Form 10-KSB for the year ended December 31, 2001.
In the Company's opinion, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information
shown have been included.
b. The results of operations for the three months ended March 31, 2002
presented herein are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 2002.
c. Basic loss per share is calculated by dividing the net loss by the
weighted average number of outstanding common shares during the period.
Diluted per share data includes the dilutive effects of options, warrants
and convertible securities. As all potential common shares are
anti-dilutive due to the loss from continuing operations, they are not
included in the calculation of diluted loss per share.
d. On March 4, 2002, the Company entered into a two year employment
agreement commencing on March 11, 2002, with its new Chief Executive
Officer and President, providing for an annual salary of $200,000. In
connection with the agreement, 1,200,000 options to purchase the Company's
common stock at $1.65 per share were granted, the exercise price being
equal to the closing price of the Company's common stock on the grant date.
The options vest 25% on the first anniversary of the grant date and 6.25%
quarterly thereafter. The executive is also eligible to receive bonuses up
to $150,000 per year upon the attainment of specified performance targets.
The options granted include 242,400 options issued under the Company's 1996
Plan and 957,600 options issued outside the plan.
2. SUBSEQUENT EVENTS
-----------------
a. On April 18, 2002, in consideration of additional consulting and
financial advisory services, the Company issued to CMH Capital Management
Corp. ("CMH") an option to purchase 750,000 shares of the Common Stock at
an exercise price of $1.20 per share which was the market price of the
Company's Common Stock on the date of issuance. Corey M. Horowitz, Chairman
of the Board of Directors of the Company, is the sole owner and officer of
CMH. The shares underlying the option shall vest over a three year period
in equal amounts of 250,000 shares per year beginning April 18, 2003. In
addition, the shares underlying the option shall vest in full in the event
of a "change of control" or in the event that the closing price of the
Company's common stock reaches a minimum of $3.50 per share for twenty (20)
consecutive trading days.
-6-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). ACTUAL RESULTS, EVENTS AND CIRCUMSTANCES
(INCLUDING FUTURE PERFORMANCE, RESULTS AND TRENDS) COULD DIFFER MATERIALLY FROM
THOSE SET FORTH IN SUCH STATEMENTS DUE TO VARIOUS RISKS AND UNCERTAINTIES,
INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2001 IN THE SECTION ENTITLED "RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS" AS WELL AS THOSE RISKS DISCUSSED
ELSEWHERE IN THIS REPORT.
Overview
The Company develops, markets, licenses and supports a suite of security
software products designed to prevent unauthorized access to critical
information residing on networked servers, desktops and laptops. In January
1999, the Company introduced its CYBERWALLPLUS family of network security
products. The Company has made only limited sales of its CYBERWALLPLUS product,
upon which an evaluation of its prospects and future performance can be made.
Such prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in the introduction of new products and the
shift from research and product development to commercialization of products
based on rapidly changing technologies in a highly specialized and emerging
market. The Company will be required to significantly expand its product and
development capabilities, introduce new products, introduce enhanced features to
existing products, expand its in-house sales force, establish and maintain
distribution channels through third-party vendors, increase marketing
expenditures, and attract additional qualified personnel. In addition, the
Company must adapt to the demands of an emerging and rapidly changing computer
network security market, intense competition and rapidly changing technology and
industry standards. The Company may not be able to successfully address such
risks, and the failure to do so would have a material adverse effect on the
Company's business, results of operations and financial condition.
To date, the Company has incurred significant losses and, at March 31,
2002, had an accumulated deficit of $ 36,041,000. In addition, since March 31,
2002, the Company has continued to incur significant operating losses. The
Company expects to incur substantial operating expenses in the future to support
its product development activities, and to expand its domestic and international
sales activities and marketing capabilities. Management believes it currently
has cash to fund its operations through December 31, 2002 (or earlier if the
Company does not achieve certain revenue assumptions) (See "Liquidity and
Capital Resources" on page 10 hereof).
On October 2, 2001, the Company completed a $6.765 million private offering
of Series E Preferred Stock and Warrants pursuant to a Securities Purchase
Agreement with investors (the "Financing"). In accordance with the Securities
Purchase Agreement, an aggregate of 3,191,037 shares of Series E Preferred Stock
were sold to investors at a price of $2.12 per share together with warrants to
purchase 6,882,074 shares of Common Stock at an exercise price of $1.27 per
share. Each share of Series E Preferred Stock is convertible into two (2) shares
of Common Stock, subject to adjustment. As the largest investor ($2,300,000) in
the Financing, FalconStor Software, Inc. ("FalconStor"), a storage networking
infrastructure software company, received an additional warrant to purchase
500,000 shares of the Company's Common Stock (the "Additional Warrant"). The
shares underlying the Series E Preferred Stock and the warrants (including the
Additional Warrant) issued in the Financing were registered pursuant to a Form
S-3 Registration Statement which was declared effective by the SEC on February
12, 2002. Simultaneously with the closing of the Financing, the Company and
FalconStor entered into a ten year Distribution and License Agreement pursuant
to which FalconStor has the right to distribute the Company's product offerings
in its indirect and OEM channels. As part of the Distribution and License
Agreement, FalconStor paid the Company a non-refundable advance of $500,000
against future royalty payments of which, in accordance with accounting
principles generally accepted in the United States of America, $350,000 has been
accounted for as the purchase price of the Additional Warrant and this resulted
in total proceeds allocated to the Financing of $7,115,000.
During the period October 2001 through March 2002, the Company hired
fifteen (15) employees, including a new Chief Executive Officer and President
(see below), a Senior Vice President of Marketing and Business Development, a
Vice President of Channel Development and a Vice President and General Manager -
Asia Pacific. The aggregate annual salaries for the fifteen (15) new employees
is $904,300.
-7-
On March 11, 2002, the Company hired Richard Kosinski as Chief Executive
Officer and President pursuant to a two (2) year Employment Agreement in which
Mr. Kosinski receives an annual base salary of $200,000 per year and is eligible
to receive bonus compensation of up to $150,000 per year. In addition, Mr.
Kosinski was issued options to purchase 1,200,000 shares of the Company's Common
Stock, at an exercise price of $1.65 per share, which vest over a four (4) year
period.
The Company's software products have not yet achieved market acceptance.
The future success of the Company is largely dependent upon market acceptance of
its CYBERWALLPLUS family of software products. While the Company believes that
its family of software products offer advantages over competing products for
network security, license revenue from network security software products since
the introduction of FireWall/Plus (September 1995), a predecessor product line,
through March 31, 2002 has only been $4,777,000, including a non-refundable
pre-paid royalty of $500,000 in 1997. From January 1999 through March 31, 2002,
license revenue from CYBERWALLPLUS has only been $2,045,000. CYBERWALLPLUS may
not achieve significant market acceptance. Revenue from such commercial products
depend on a number of factors, including the influence of market competition,
technological changes in the network security market, the Company's ability to
design, develop and introduce enhancements on a timely basis, and the ability of
the Company to successfully establish and maintain distribution channels. The
failure of CYBERWALLPLUS to achieve significant market acceptance as a result of
competition, technological change or other factors, would have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company has committed significant product and development resources to
its CYBERWALLPLUS family of products. The Company's anticipated levels of
expenditures for product development are based on its plans for product
enhancements and new product development. The Company capitalizes and amortizes
software development costs in accordance with Statement of Financial Accounting
Standards No. 86. These costs consist of salaries, consulting fees and
applicable overhead.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Revenues decreased by $339,000 or 74%, from $457,000 for the three months
ended March 31, 2001 to $118,000 for the three months ended March 31, 2002,
primarily as a result of a decrease in license revenues during the three months
ended March 31, 2002. License revenues decreased by $328,000 or 83%, from
$396,000 for the three months ended March 31, 2001 to $68,000 for the three
months ended March 31, 2002. Network-1's revenues for the first quarter ended
March 31, 2002 were impacted by the lack of enterprise licenses as well as the
adverse economic conditions and reduced technology spending. Revenue for the
three months ended March 31, 2001 included a large CyberwallPLUS server license
issued to a major university of $135,000 and $103,000 in revenue from a
distributor in China. Service revenues decreased by $11,000 or 18%, from $61,000
for the three months ended March 31, 2001 to $50,000 for the three months ended
March 31, 2002 primarily due to a reduction in training fees . The Company's
revenues from customers in the United States represented 68% of its revenues
during the three months ended March 31, 2001 and 90% of its revenues during the
three months ended March 31, 2002, respectively.
Cost of revenues consists of amortization of software development costs,
cost of licenses and cost of services. Amortization of software development
costs increased by $8,000 or 13%, from $62,000 for three months ended March 31,
2001 to $70,000 for the three months ended March 31, 2002, representing 16% and
103% of license revenues, respectively.
-8-
Cost of licenses consists of software media (disks), documentation, product
packaging, production costs and product royalties. Cost of licenses decreased by
$11,000 or 79%, from $14,000 for the three months ended March 31, 2001 to $3,000
for the three months ended March 31, 2002, each representing 4% of license
revenues. Cost of licenses as a percentage of license revenues may fluctuate
from period to period due to changes in product mix, changes in the number or
size of transactions recorded in a given period or an increase or decrease in
licenses of products which would require the Company to pay royalties to third
parties.
Cost of services consists of salaries, benefits and overhead associated
with the technical support of maintenance contracts. Cost of services decreased
by $20,000 or 32%, from $62,000 for the three months ended March 31, 2001 to
$42,000 for the three months ended March 31, 2002, representing 102% and 84% of
service revenues, respectively. The decrease in cost of services in both dollar
amount and as a percentage of service revenues resulted primarily from decreased
personnel costs in the group as a result of the capital preservation programs
implemented last year. Cost of services as a percentage of service revenues may
fluctuate from period to period due to changes in support headcount and related
benefit costs.
Gross profit was $319,000 for the three months ended March 31, 2001
compared to a gross profit of $3,000 for the three months ended March 31, 2002
of, representing 70% and 3% of revenues, respectively. The decrease in gross
profit was primarily due to the decrease in license revenue.
Product development consists of salaries, benefits, bonuses, travel and
related costs of the Company's product development personnel, including
consulting fees, the costs of computer equipment used in product and technology
development. Product development expense decreased $173,000 or 28%, from
$612,000 for three months ended March 31, 2001 to $439,000 for the three months
ended March 31, 2002, representing 134% and 372% of revenues, respectively.
Total product development costs, including capitalized costs of $125,000 for the
three months ended March 31, 2001 and $90,000 for the three months ended March
31, 2002, were $737,000 and $529,000 for the three months ended March 31, 2001
and March 31, 2002, respectively. The decrease in total product development
costs was due primarily to the elimination of the use of outside programmer's
services of $168,000 and non-cash warrant compensation of $109,000. These costs
reductions were partially offset by the establishment of a development team to
service the Asia Pacific region during the three month period ended March 31,
2002 at a cost of $108,000.
Selling and marketing expenses consist primarily of salaries, including
commissions, benefits, bonuses, travel, advertising, public relations,
consultants and trade shows. Selling and marketing expenses decreased by
$277,000 or 31%, from $896,000 for the three months ended March 31, 2001 to
$619,000 for the three months ended March 31, 2002, representing 196% and 525%
of revenues, respectively. The decrease in selling and marketing expenses was
due primarily to a decrease of $210,000 in personnel costs and travel
expenditures related to the headcount reduction in 2001 to preserve capital, and
an $85,000 reduction in advertising expenditures. These costs reductions were
partially offset by the establishment of a sales team to service the Asia
Pacific region for the three month period ended March 31, 2002 at a cost of
$39,000.
General and administrative expenses include employee costs, including
salary, benefits, travel and other related expenses associated with management,
finance and accounting operations, and legal and other professional services
provided to the Company. General and administrative expenses increased by $1,000
from $494,000 for the three months ended March 31, 2001 to $495,000 for the
three months ended March 31, 2002, representing 108% and 419% of revenues,
respectively.
The discontinued operations was sold on February 9, 2000 to Exodus
Communications. The gain from discontinued operations in 2001 was attributed to
the contingent payments and related contingent expenses pertaining to the sale
received or paid in 2001.
No provision for or benefit from federal, state or foreign income taxes was
recorded for three months ended March 31, 2001 or March 31, 2002 because the
Company incurred net operating losses and fully reserved its deferred tax assets
as their future realization could not be determined.
As a result of the foregoing, the Company had net loss of $1,012,000 for
the three months ended March 31, 2001 compared with a net loss of $1,524,000 for
the three months ended March 31, 2002.
-9-
Liquidity and Capital Resources
The Company's capital requirements have been and will continue to be
significant and its cash requirements continue to exceed its cash flow from
operations. At March 31, 2001, the Company had $5,701,000 of cash and cash
equivalents and working capital of $4,517,000. In October 2001, the Company
completed a private offering of $6,765,000 of securities. The Company has
financed its operations primarily through sales of equity and debt securities,
and the sale of its professional services group. Net cash used in operating
activities from continuing operations was $1,496,000 during the three months
ended March 31, 2001 and net cash used in operating activities from continuing
operations was $1,383,000 during the three months ended March 31, 2002. Net cash
used in operating activities from continuing operations for three months ended
March 31, 2002 was primarily attributable to the net loss from continuing
operations of $1,524,000, which was partially offset by the depreciation and
amortization expense of $107,000.
The Company's operating activities during the three months ended March 31,
2002 were financed primarily with the funds raised in 2001. The Company does not
currently have a line of credit from a commercial bank or other institution.
The Company anticipates, based on currently proposed plans and assumptions
(including the timetable of, costs and expenses associated with, and success of,
its marketing efforts), that its current cash balance of approximately
$5,701,000 as of March 31, 2002, will be sufficient to satisfy the Company's
operations and capital requirements through at least December 31, 2002. There
can be no assurance, however, that such funds will not be expended prior
thereto. In the event the Company's plans change, or its assumptions change, or
prove to be inaccurate (due to unanticipated expenses, difficulties, delays or
otherwise), the Company may have insufficient funds to support its operations
prior to December 31, 2002 and will be required to seek additional financing
sooner than currently anticipated. The Company does not have any current
arrangements with respect to any additional financing. Consequently, there can
be no assurance that any additional financing will be available to the Company
when needed, on commercially reasonable terms or at all. The inability of the
Company to obtain additional financing would have a material adverse effect on
the Company, requiring it to curtail and possibly cease its operations. In
addition, any additional equity financing may involve substantial dilution to
the interests of the Company's then existing stockholders.
Fluctuations in Operating Results
The Company anticipates significant quarterly fluctuations in its operating
results in the future. The Company generally ships orders for commercial
products as they are received and, as a result, does not have any material
backlog. As a result, quarterly revenues and operating results depend on the
volume and timing of orders received during the quarter, which are difficult to
forecast. Operating results may fluctuate on a quarterly basis due to factors
such as the demand for the Company's products, purchasing patterns and budgeting
cycles of customers, the introduction of new products and product enhancements
by the Company or its competitors, market acceptance of new products introduced
by the Company or its competitors and the size, timing, cancellation or delay of
customer orders, including cancellation or delay in anticipation of new product
introduction or enhancement. Therefore, comparisons of quarterly operating
results may not be meaningful and should not be relied upon, nor will they
necessarily reflect the Company's future performance. Because of the foregoing
factors, it is likely that in some future quarters the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Common Stock would likely be materially
adversely affected.
The sales cycle for the Company's products can be lengthy and generally
commences at the time a prospective customer demonstrates an interest in
licensing a CYBERWALLPLUS solution which typically includes a 28-day free
evaluation period and ends upon execution of a purchase order by the customer.
The length of the sales cycle varies depending on the type and sophistication of
the customer and the complexity of the operating system.
-10-
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a). Exhibits
The exhibits in the following table have been filed as
part of this Quarterly Report on Form 10-QSB:
None
b). Reports of Form 8-K.
On March 25, 2002, the Company filed a Current Report on
Form 8-K related to the hiring of Richard Kosinski as
CEO and President of the Company.
-11-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NETWORK-1 SECURITY SOLUTIONS, INC.
By: /s/ Richard Kosinski
-------------------------------
Richard Kosinski
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Murray P. Fish
-------------------------------
Murray P. Fish
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 2002
-12-