As filed with the Securities and Exchange Commission on February 4, 2000January 24, 2002
REGISTRATION NO. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
-------- ----------
(State or other jurisdiction (I.R.S. employer
jurisdiction
of incorporation) identification number)
1601 TRAPELO ROAD, RESERVOIR PLACE
WALTHAM, MASSACHUSETTS 02451
(781) 522-3400
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(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
AVI A. FOGELMURRAY P. FISH
PRESIDENT AND CHIEF EXECUTIVEFINANCIAL OFFICER
NETWORK-1 SECURITY SOLUTIONS, INC.
1601 TRAPELO ROAD, RESERVOIR PLACE
WALTHAM, MASSACHUSETTS 02451
(781) 522-3400
--------------
(Address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
SAM SCHWARTZ, ESQ.
SOLOVAY EDLINOLSHAN GRUNDMAN FROME ROSENZWEIG & EISEMAN, P.C.
845 THIRDWOLOSKY LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 752-1000753-7200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: |_|
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: |X|
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 registration statement for the same
offering: |_| __________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: |_|
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CALCULATION OF REGISTRATION FEE (2)
===================================== =================== ================= ======================= =========================================================================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TITLE OF SHARES TO BE REGISTERED REGISTEREDREGISTERED(1) PER SHARE (1)(2) PRICE (1)(2) FEE
- ------------------------------------- ------------------------------------------------------------ --------------------- ----------------- --------------------------------------------- ----------------
- ------------------------------------- ------------------- ----------------- ----------------------- ----------------
Common Stock, par value $.01
per share........................... 3,278,296share.............................. 14,534,148 shares $12.96875 $42,515,401.25 $11,224.07
===================================== ===================$1.66 $24,126,686 $5,766.28
========================================= ===================== ================= ======================= ================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 promulgated under the
Securities Act, based on the average of the bid and asked prices for the shares reported on the Nasdaq Stock
Market's SmallCap Market on February 1, 2000.
(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 may from time to time become issuable
upon the exercise of certain options====================== ================
(1) 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 may from time to time become issuable
upon the exercise of certain warrants by reason of stock splits, stock
dividends and other similar transactions.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 promulgated under the Securities Act, based on the average of
the bid and asked prices for the shares reported on the Nasdaq Stock
Market's SmallCap Market on January 22, 2002.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not seeking an offer to buy these securities in
any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS--SUBJECT TO COMPLETION, DATED
FEBRUARY 4, 2000JANUARY 24, 2002
PROSPECTUS
NETWORK-1 SECURITY SOLUTIONS, INC.
3,278,29614,534,148 SHARES OF COMMON STOCK
o The shares of common stock offered by this prospectus are being sold
by the selling stockholders.
o We will not receive any proceeds from the sale of these shares. We
will receive proceeds from the exercise of warrants and options and those
proceeds will be used for our general corporate purposes.
o Our common stock is traded on the Nasdaq Stock Market's SmallCap
Market under the symbol "NSSI.""NSSI".
o On February 2, 2000,January 22, 2002, the closingaverage of the bid priceand ask prices for our
common stock was $14.375.$1.66.
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 54 OF THIS PROSPECTUS.
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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.
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___________, 20002002
TABLE OF CONTENTS
PAGE
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Summary......................................................................1
Risk Factors.................................................................5
Where YouSUMMARY......................................................................1
RISK FACTORS.................................................................4
We Have A History Of Losses And If We Do Not Achieve Profitability,
We May Not Be Able To Continue Our Business In The Future............4
We Could Be Required To Cut Back Or Stop Operations If We Are Unable
To Raise Or Obtain Needed Funding....................................4
We Have Not Achieved Substantial Revenue From Software Sales...........5
Our Revenues Depend On Sales Of Our CYBERWALLPLUS Products And We
Are Uncertain Whether There Will Be Broad Market Acceptance Of
These Products.......................................................5
We Need to Hire a Chief Executive Officer And We Need To Attract And
Retain Highly Qualified Technical, Sales, Marketing, Development
And Management Personnel.............................................5
World Instability - Terrorism..........................................6
Our Inability To Enter Into Strategic Relationships With Indirect
Channel Partners Could Have A Material Adverse Effect On Us..........6
The Sale Of Our Professional Services Business Has Had An Adverse
Effect On Cash Flow And Revenues.....................................6
We May Not Be Able To Successfully Compete In The Network Security
Market...............................................................6
We May Not Be Able To Adequately Protect Our Proprietary Technology,
Which Could Result In Lower Revenues And/Or Profits..................7
We Can Find More Information.........................................10
Incorporation of Certain Documents by Reference.............................10
Note Regarding Forward Looking Statements...................................11
Use of Proceeds.............................................................12
Selling Stockholders........................................................12
Plan of Distribution........................................................21
Legal Matters...............................................................23
Experts.....................................................................23
Disclosure of Commission Position on Indemnification forBe Exposed To Numerous Potential Liability Claims For Damages
And, If Our Insurance Doesn't Adequately Cover Losses, This Could
Have A Material Adverse Effect On Us.................................7
Possible Delisting Of Our Securities Act Liabilities...............................................23From Nasdaq; Risks Relating To
Low-Priced Stocks....................................................8
Our Operating Results May Fluctuate Quarterly And If They Were Below
The Expectations Of Investors And Analysts, The Price Of Our Stock
Would Likely Be Adversely Effected...................................8
The Significant Number Of Options, Warrants And Convertible Securities
May Adversely Affect The Market Price Of Our Common Stock............9
We Have A Significant Amount Of Authorized But Unissued Preferred
Stock, Which May Affect The Likelihood Of A Change Of Control In
Our Company..........................................................9
WHERE YOU CAN FIND MORE INFORMATION..........................................9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................10
NOTE REGARDING FORWARD-LOOKING STATEMENTS...................................10
USE OF PROCEEDS.............................................................11
SELLING STOCKHOLDERS........................................................12
PLAN OF DISTRIBUTION........................................................21
LEGAL MATTERS...............................................................23
EXPERTS.....................................................................23
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES................................................23
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SUMMARY
THE COMPANY
Network-1 Security Solutions, Inc. develops, markets, licensesWe develop, market, license and supportssupport a family of network security
software products designed to provide comprehensive security to computer
networks, including Internet basedInternet-based systems,
and internal networks and computing
resources. Our CYBERWALLPLUS(TM) family of security software products can reside anywherecombines
the benefits of firewall and intrusion detection technology with central
management features to provide an enterprise-class layer of security protection
directly on the enterprise networkservers, desktops, wireless and mobile computers.
CYBERWALLPLUS's distributed intrusion prevention technology provides
multiple layersa layer of defense immediately between host machines and the network,
complementing network-based security solutions. This bi-directional layer of
defense contains mechanisms to protect datathe network from both external attackthe host machine, as
well as access abuse by such "trusted insiders" as employees, subcontractorsprotecting the host machine from the network, regardless of whether the
source of attack is inside or consultants. Our CYBERWALLPLUS(TM) suiteoutside the organization. CYBERWALLPLUS continues
to protect mobile computers even when they connect to networks outside the
organization's control.
CYBERWALLPLUS represents the latest generation of our security
products was first introduced in
March 1999 and evolved from our prior FIREWALL/PLUS suitewhich integrates a powerful range of security software
products. We also offer our customers a full range of consulting servicestechniques to actively
detect and block intrusions. This technology provides the fine-grained access
control, bi-directional protection and stateful packet inspection typically
found in networkhigh-end perimeter firewalls, combined with powerful intrusion
detection and prevention capabilities. CYBERWALLPLUS's policy management enables
detailed security policies to be formulated, distributed, and network design and support in order to build, maintain and
enhance customer relationships and increase the demand for our software
products.
The CYBERWALLPLUS(TM) family ofmonitored,
maximizing IT security solutions is designed to
protect against Internet and Intranet based security threats and to address
security needs that arise from within internal networks that often utilize other
network transport protocols besides TCP/IP (the Internet network transport
protocol). We have positioned our CYBERWALLPLUS(TM) products as an enabling
technology designed to capitalize on the significant network security
opportunity within the explosive E-Business marketplace. Our CYBERWALLPLUS(TM)
family of network security products operates on the Microsoft Windows NT
operating system platform. CYBERWALLPLUS'(TM) filter engine software technology,
with its unique ability to handle and filter all commonly used network transport
protocols, provides organizations with a highly secure and flexible security
solution. Additionally, unlike most firewall solutions which focus on an
enterprise's connection to the Internet, the CYBERWALLPLUS(TM) solution can be
deployed throughout the enterprise. It can be deployed at the perimeter to
control access to and from the Internet, between internal networks as well as on
application servers and desktop PCs.resources.
Every day, more and more companies are turning to E-Business and
extranetsthe Internet as a
way to obtain a competitive edge and broaden their markets. The E-BusinessInternet
revolution is helping companies reduce costs, increase responsiveness and
provide empowerment through immediate knowledge. However, by tying together
previous separatedisparate company network's, "islands of isolation,"networks, and by inviting customers, partners and suppliers onto
their networks, companies have found that what were once closed and secure
enterprise networks are now becoming open networks.networks accessible to authorized and,
in many instances, unauthorized users.
Within these new open networks, the traditional perimeters and network
boundaries have disappeared. We do not believe traditional perimeter security
devices such as firewalls can effectively secure all of a network's resources
which have embraced E-Business. Our CYBERWALLPLUS(TM)resources.
The CYBERWALLPLUS family of products is designed to solveaddress this problem by
securing the host computer which has the dual result of protecting its data where it resides - between the
internalas
well as protecting other network segments and inside the server itself - finally allowing
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corporationsresources from attacks originating from that
computer. We believe this will allow organizations to leverage the promise of
electronic business, while ensuring the safety of their strategic data assets.
We are currently pursuing an aggressive growth strategy focusing our
efforts on marketing our CyberwallPLUS(TM) family of network security products.- --------------------------------------------------------------------------------
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Key elements of our strategy are to:
o Provide comprehensiveSecure an organization's most important servers. This includes
database servers for confidential or sensitive data and application
servers critical to business operations by replacing or complimenting
perimeter firewalls with our server based firewalls and intrusion
prevention software;
o Secure an organization's most vulnerable client computers. This
includes workstations as well as mobile laptop computers which are
particularly vulnerable to threats when outside the corporate network
and represent an ever increasing percentage of the user community;
o Emphasize internal network security solutions by developing,
marketingas an important element of an
effective multi-layer defense strategy; and supporting a family of network security products designed
to address a broad range of security issues confronting computer
networks and computing, including protecting data throughout an
enterprise, such as between the internal network segments and inside
servers.
o Emphasize the distinguishing characteristics of the CYBERWALLPLUS(TM)
technology, which can reside anywhere on the enterprise network, and
inspect, detect and protect access to sensitive corporate data for a
multitude of network protocols. Unlike traditional firewalls, which
protect organizations from external attacks, cyberwalls protect
networks from abuses by those with "inside access" as well.
o Implement a marketingsales plan which includesthat utilizes a multi-channel distribution
strategy, which emphasizesincluding selling direct to end user customers and
establishing and maintaining indirect third-party distributorresale relationships
with OEMs, systems integrators VARs,
OEMs and resellersVARs in the United States and
internationally.
o Increase sales of CYBERWALLPLUS(TM) by leveraging relationships with
consulting clients.
Since our inception, we have incurred significant losses. Our future
success is largely dependent upon our CYBERWALLPLUS(TM) family of software
products achieving broad market acceptance. We may not be able to successfully
implement our marketing strategy, achieve significant revenues and market
acceptance of our CYBERWALLPLUS(TM) family of software products, or achieve
profitable operations. See "Risk Factors."
Network-1 waswere incorporated under the laws of the State of Delaware in July
1990. Our executive offices are located at 1601 Trapelo Road, Reservoir Place,
Waltham, Massachusetts 02451 and our telephone number at that address is (781)
522-3400. Our web site can be found at http://www.network-1.com.
RECENT DEVELOPMENTS
OCTOBER 2001 PRIVATE FINANCING
On December 22, 1999,October 2, 2001, we signedcompleted a Securities Purchase Agreement for
the private saleoffering of $3,000,000$6,765,000 of
preferred stock warrants and noteswarrants to a group of 39 investors. In - --------------------------------------------------------------------------------
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this transactionsuch financing we
issued 491,8033,191,037 shares of our Series DE Preferred Stock at $3.05$2.12 per share and
warrants to purchase 491,8036,882,074 shares of our common stock at an exercise price
of $3.00 per share, subject to certain adjustments. We also
issued convertible promissory notes in the principal amount of $1.5 million at
an interest rate of 8% per year. Subject to stockholder approval, the promissory
notes are convertible into an additional 491,803 shares of our Series D
Preferred Stock (up to 570,492 shares if you include potential interest under
such notes) and warrants to purchase an additional 491,803 shares of our common
stock (up to 570,492 shares if you include potential interest under such notes)
at an exercise price of $3.00$1.27 per share, subject to certain adjustments. Each share of our Series DE
Preferred Stock is convertible into one sharetwo shares of our common stock, subject to
certain adjustments. The lead investors in such financing were Wheatley
Partners, II, L.P., one of our principal stockholders, and related parties, and
FalconStor Software, Inc. (Nasdaq: FALC), a storage networking infrastructure
software company. FalconStor Software, Inc., as the largest investor in the
private offering, received an additional five-year warrant to purchase 500,000
shares of our common stock at an exercise price of $1.27 per share.
The resale by the selling stockholders of the shares of our common
stock underlying the Series DE Preferred Stock and the accompanying warrants has
been registered under the Securities Act of 1933, as amended, and such shares of
common stock may be freely sold.
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2
The following is a summary of material terms of the promissory notesSeries E
Preferred Stock and the warrants issued in the financing:
CONVERTIBLE PROMISSORY NOTES
The principal amountSERIES E PREFERRED STOCK
Holders of the notes, along with the accrued interest, is
due on December 22, 2001. The notes have an interest rate of 8% per annum.
An "event of default" under the notes will occur if, among other
things, we (1) fail to pay interest or principal when due, or (2) breach any of
our representations or warranties under the Securities Purchase Agreement. Upon
an event of default, the entire indebtedness and accrued interest may become
immediately due and payable. We may prepay any amount outstanding under the
notes at any time beginning May 22, 2001.
Subject to stockholders' approval, as described below, all or any part
of the principal amount of the notes may be converted into shares of our Series DE Preferred Stock and five-year warrants to purchasemay convert each
such share into two shares of our common stock at any time, subject to
adjustment in the event of our merger or consolidation, reclassification of our
securities or a stock split, subdivision or combination of our securities. The
Series E Preferred Stock is entitled to vote on all matters which stockholders
are entitled to vote together with the holders of our common stock. If a holderEach share
of a note electsSeries E Preferred Stock is entitled to convert it, the holder will receivenumber of votes equal to the
number of shares of our common stock into which such shares may be converted.
Holders of our Series DE Preferred Stock shall receive dividends and
warrants determinedother distributions, when, as and if declared by dividing
the principal amountour Board of that portionDirectors out of
the note being converted (plus accruedfunds legally available therefor. Holders of our Series E Preferred Stock shall
be entitled to equivalent dividends and distributions as those paid on shares of
our common stock. The holders of our Series E Preferred Stock will be entitled
to a liquidation preference of $2.12 plus any declared but unpaid interest) by $3.05. The conversion price and the numberdividends
before any payments are made to holders of shares
received upon conversion may be adjustedour common stock in the event of our
liquidation, dissolution or winding up.
We agreed that so long as the holders of the outstanding shares of
Series E Preferred Stock own at least 10% of our outstanding voting stock, we
will not take certain actions without the consent of Wheatley Partners, II,
L.P., the designee of the holders of Series E Preferred Stock and one of our
principal stockholders. Such actions requiring the consent of Wheatley Partners,
II, L.P. includes, among others, (i) issuing securities other than securities to
be issued under our stock option plan, (ii) incurring debt in excess of
$250,000, (iii) entering into a stock split,
dividend, recapitalization, reorganization, merger, consolidationacquisition or sale of substantially all
of our assets and (iv) taking any action to amend our Certificate of
Incorporation or By-laws that could in any way adversely affect the issuance by usrights of
the holders of the Series E Preferred Stock.
WARRANTS
At any time until October 2, 2003 (except for the additional five (5)
year warrant to purchase 500,000 shares of our common stock at a price less than
the then adjusted conversion price.
We are requiredissued to seek stockholder approval for the conversion of the
notes at our next annual meeting of stockholders, or upon the written request of
holders of more than 50% of the principal amount of outstanding indebtedness
issued pursuant to the Securities Purchase Agreement, whichever comes first. If
the stockholders do not approve the conversion, then the notes will not be
convertible and the interest rate on the notes will increase to 12% per annum.
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WARRANTS
At any time until December 22, 2004,FalconStor
Software, Inc.), the holder of a warrant is entitled to purchase the number of
shares of our common stock listed in such warrant, at a price of $3.00$1.27 per
share, which may be adjusted based on the level
of certain revenues we achieve during the three-month period ending March 31,
2000.share. The exercise price and the number of shares received upon exercise may
also be adjusted in the event of a stock split, dividend, recapitalization,
reorganization, merger, consolidation or sale of our assets, or the issuance by
us of shares of our common stock at a price less than the then adjusted exercise
price.
FALCONSTOR TECHNOLOGY LICENSE AGREEMENT
Simultaneously with the closing of the October 2001 Financing, we
entered into a ten (10) year Technology License Agreement, pursuant to which
FalconStor Software, Inc. shall have the right to distribute our product
offerings in its indirect and OEM channels. As part of the Technology License
Agreement, FalconStor paid us a non-refundable advance of $500,000 against
future royalty payments.
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RISK FACTORS
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT DECISION.
WE HAVE A HISTORY OF LOSSES AND IF WE DO NOT ACHIEVE PROFITABILITY,
WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS IN THE FUTURE.
We have incurred substantial operating losses since our inception,
which has resulted in an accumulated deficit of approximately $18,347,000$30,538,000 as of September 30,
1999.2001. For the years ended December 31, 2000 and 1999, and the nine (9) months
ended September 30, 1999 and the fiscal
years ended December 31, 1998 and 1997,2001, we incurred net losses of $5,100,000,
$5,777,000$4,789,000, $6,946,000 and
$2,390,000,$4,056,000, respectively. Since September 30, 2001, we have continued to incur
substantial operating losses. We have financed our operations primarily through
the sales of equity and debt securities.securities as well as the sale of our professional
services business in February 2000. Our expense levels are high and our revenues
are difficult to predict. We anticipate incurring additional losses until we
increase our client base and revenues. We may never achieve or sustain
significant revenues or profitability. If we are unable to achieve increased
revenues, we will continue to have losses and may not be able to continue our
operations.
WE COULD BE REQUIRED TO CUT BACK OR STOP OPERATIONS IF WE ARE UNABLE
TO RAISE OR OBTAIN NEEDED FUNDING.
Our ability to continue operations will dependWe anticipate, based on our positive cash
flow, if any, from future operations orcurrently proposed plans and assumptions
(including the timetable of, costs and expenses associated with, and success of,
our ability to raise additional funds
through equity or debt financing. In December 1999, we consummated a private
financing of $3.0 million of equity and debt in order to obtain the working
capital necessary to continue to finance our operations and execute our business
plan. See "Recent Developments." Although we anticipatemarketing efforts), that future revenues and our current cash balanceposition and projected revenues
from operations, will more likely than not be sufficient to fundsatisfy our
operations and capital requirements until approximately May 2000, we cannot give you anyfor up to twelve (12) months. There can be
no assurance, however, that wesuch funds will not needbe expended prior thereto due to
unanticipated changes in economic conditions or other unforeseen circumstances.
In the event our plans change, or our assumptions change or prove to be
inaccurate (due to unanticipated expenses, difficulties, delays or otherwise),
or the projected revenues otherwise prove to be insufficient to fund our working
capital requirements, we could be required to seek additional funds before such time.financing sooner
than currently anticipated. We have no current arrangements forwith respect to any
additional financing. Consequently, there can be no assurance that any
additional financing and we may notwill be ableavailable to us when needed, on commercially
reasonable terms or at all. Any inability to obtain additional financing when
needed would have a material adverse effect on commercially reasonable terms, if at all. We could be
requiredour operations, requiring us to
cut back or stop operations if we are unable to raise or obtain
funds when needed.curtail and possibly cease operations.
4
WE HAVE HAD A LIMITED OPERATING HISTORY AS ANOT ACHIEVED SUBSTANTIAL REVENUE FROM SOFTWARE PRODUCT COMPANY
AND LACK ANY SUBSTANTIAL REVENUE.SALES.
We have a limited operating history as a software product company and
have madehad only limited sales of our products. Our total revenues
for software licenses for the yearyears ended December 31, 19982000 and for1999 and the
nine months ended September 30, 19992001 were $569,000$978,000, $260,000 and $186,000,$720,000,
respectively. The majority of our
revenues to date have been derived from consulting services.
5
OUR REVENUES DEPEND ON SALES OF OUR CYBERWALLPLUS(TM)CYBERWALLPLUS PRODUCTS AND WE ARE
UNCERTAIN WHETHER THERE WILL BE BROAD MARKET ACCEPTANCE OF THESE PRODUCTS.
Our revenue growth for the foreseeable future is largely dependent upon
increased sales of our CYBERWALLPLUS(TM)CYBERWALLPLUS family of software products. Since the
introduction of our predecessor line of security producTS (Firewall/Plus) in
June 1995 through September 30, 1999, license revenue from software products has
been $2,848,000 including a non-refundable pre-paid royalty of $500,000 in 1997.
Since the introduction of our CYBERWALLPLUS(TM)CYBERWALLPLUS suite of products in January 1999 through
September 30, 1999,2001, license revenue from oUR CYBERWALLPLUS(TM)our CYBERWALLPLUS products was only
$127,000.$1,887,000. Our future financial performance will depend upon the successfULsuccessful
introduction and customer acceptance of our CYBERWALLPLUS(TM)CYBERWALLPLUS products as well as
the development of new aNDand enhanced versions of this product. Revenue from
products such as CYBERWALLPLUS(TM)CYBERWALLPLUS depend on a number of factorS,factors, including the
influence of market competition, technological changes in the network security
market, our ability to design, develop and introduce enhancements on a timely
basis and our ability to successfully establish and maintain distribution
channels. If we fail to achieve broad market acceptance of our CYBERWALLPLUS(TM)CYBERWALLPLUS
products, ITit would have a material adverse effect on our business, operating
results and financial condition.
WE NEED TO HIRE A CHIEF EXECUTIVE OFFICER AND WE NEED TO ATTRACT AND
RETAIN HIGHLY QUALIFIED TECHNICAL, SALES, MARKETING, DEVELOPMENT AND MANAGEMENT
PERSONNEL.
In June 2001, Avi Fogel resigned as our Chief Executive Officer,
President and a Director. Murray Fish, our Chief Financial Officer, is serving
as acting President. We are conducting a search for a new Chief Executive
Officer. The market for hiring qualified Chief Executive Officer's in the
network security field is highly competitive. If we are unable to hire and
retain a qualified Chief Executive Officer, our business, operating results and
financial condition could be materially adversely affected.
Our success will also depend on our ability to attract, train and
retain highly qualified technical, sales, marketing, development and management
personnel. There is considerable and often intense competition for the services
of such personnel. We may not be able either to retain our existing personnel or
acquire additional qualified personnel as and when needed. If we are unable to
hire and retain such personnel, our business, operating results and financial
condition could be materially adversely affected.
5
WORLD INSTABILITY - TERRORISM.
The recent terrorist attacks in the United States and the declaration
of war by the United States against terrorism has created significant
instability and uncertainty in the world which may continue to have a material
adverse effect on world financial markets, including financial markets in the
United States. In addition, such adverse political events may have an adverse
impact on economic conditions in the United States. Unfavorable economic
conditions in the United States may have an adverse effect on our financial
operations including, but not limited to, our ability to expand the market for
our products, obtain necessary financing, enter into strategic relationships and
effectively compete in the network security market.
OUR INABILITY TO ENTER INTO STRATEGIC RELATIONSHIPS WITH INDIRECT
CHANNEL PARTNERS COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
As part of our sales and marketing efforts, we are seeking to develop
strategic relationships with indirect channel partners, such as original
equipment manufacturers and resellers. We have limited financial, personnel and
other resources to undertake extensive marketing activities ourselves.
Therefore, our prospects will depend on our ability to develop and maintain
strategic marketing relationships with indirect channel partners and their
ability to market and distribute our products. If we are unable to enter into
and maintain such arrangements or if such arrangements do not result in the
successful commercialization of our products, then this could have a material
adverse effect on our business, operating results and financial condition.
THE SALE OF OUR PROFESSIONAL SERVICES BUSINESS HAS HAD AN ADVERSE
EFFECT ON CASH FLOW AND REVENUES.
In February 2000, we sold our professional services business to
Exodus Communications Inc. for $3.815 million in cash. As part of the
transaction with Exodus, we agreed not to offer any professional or consulting
services for two (2) years following the closing (February 2002). The
professional services business accounted for 77% and 62% of our total revenues
during the fiscal years ended December 31, 1999 and 1998, respectively.
Accordingly, cash flow from operations has been and may continue to be
materially adversely effected from the sale of our professional services
business until, if ever, we generate sufficient revenue from the licensing of
our software products.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE IN THE NETWORK SECURITY
MARKET.
The network security market in general is characterized by intense competition
and rapidly changing business conditions, customer requirements and
technologies. The principal competitive factors affecting the market for network
security products include security effectiveness, scope of product offerings,
name recognition, product features, distribution channels, price, ease of use
and customer service and support. Most of our current and potential competitors
have longer operating histories, greater name recognition, larger installed
customer bases and possess substantially greater financial, technical and
marketing and other competitive resources than us. As a result, our competitors
may be able to adapt more quickly to new or emerging technologies
6
and changes in customer requirements or to devote greater resources to
6
the
promotion and sale of their products than we may. In addition, certain of our
competitors may determine for strategic reasons to consolidate, to substantially
lower the price of their network security products or to bundle their products
with other products, such as hardware or other enterprise software products. Our
current and potential competitors may develop products that may be more
effective than our current or future products or that render our products
obsolete or less marketable. Increased competition for network security products
may result in price reductions and reduced gross margins and may adversely
effect our ability to gain market share, any of which would adversely affect the
Company's business, operating results and financial condition.
OUR OPERATING RESULTS MAY FLUCTUATE QUARTERLY AND IF THEY WERE BELOW
THE EXPECTATIONS OF INVESTORS AND ANALYSTS, THE PRICE OF OUR STOCK WOULD LIKELY
BE ADVERSELY AFFECTED.
We anticipate significant quarterly fluctuations in our operations in
the future, since our results are dependent on the volume and timing of orders,
which are difficult to predict. Customers' purchasing patterns and budgeting
cycles, as well as the introduction of new products, may also cause our
operating results to fluctuate. Therefore, comparing quarterly operating results
may not be meaningful and should not be relied on. Also, our operating results
may be below analysts' and investors' expectations in some future quarters,
which would likely have a material adverse effect on our common stock's price.
WE ARE DEPENDENT ON A FEW KEY PERSONNEL AND WE NEED TO ATTRACT AND
RETAIN HIGHLY QUALIFIED TECHNICAL, SALES, MARKETING, DEVELOPMENT AND MANAGEMENT
PERSONNEL.
Our success is largely dependent on the continued service of key
technical and senior management personnel. The loss of the services of one or
more of our key employees, in particular Avi A. Fogel, our President and Chief
Executive Officer, or Robert P. Olsen, our Vice President of Marketing, could
have a material adverse effect on our business, operating results and financial
condition. We have employment agreements with Messrs. Fogel and Olsen that
expire in May 2002 and May 2001, respectively.
Our success will also depend on our ability to attract, train and
retain highly qualified technical, sales, marketing, development and managerial
personnel. There is considerable and often intense competition for the services
of such personnel. We may not be able either to retain our existing personnel or
acquire additional qualified personnel as and when needed. If we are unable to
hire and retain such personnel, our business, operating results and financial
condition could be materially adversely affected.
7
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY,
WHICH COULD RESULT IN LOWER REVENUES AND/OR PROFITS.
We do not hold any patents and rely on copyright and trade secret
laws, non-disclosure agreements and contractual provisions to protect our
proprietary technology. These methods afford only limited protection. Despite
the precautions we take, unauthorized parties may attempt to copy or otherwise
obtain and use our proprietary technologies, ideas, know-how and other
proprietary information without authorization or may independently develop
technologies similar or superior to our technologies. Policing unauthorized use
of our products may be difficult and costly. Also, the laws of some foreign
countries do not protect our proprietary rights as much as the laws of the
United States. We are unable to predict whether our means of protecting our
proprietary rights will be adequate.
We believe that our technologies have been developed independent of
others. Nevertheless, third parties may assert infringement claims against us
and our technologies may be determined to infringe on the intellectual property
rights of others. We could become liable for damages, be required to modify our
technologies or obtain a license if our technologies are determined to infringe
upon the intellectual property rights of others. We may not be able to modify
our technologies or obtain a license in a timely manner, if required, or have
the financial or other resources necessary to defend an infringement action. We
would be materially adversely affectedeffected if we fail to do any of the foregoing.
WE CAN BE EXPOSED TO NUMEROUS POTENTIAL LIABILITY CLAIMS FOR DAMAGES
AND, IF OUR INSURANCE DOESN'T ADEQUATELY COVER LOSSES, THIS COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
Since our products are used to prevent unauthorized access to and
attacks on critical enterprise information, we may be exposed to potential
liability claims for damage caused as a result of an actual or alleged failure
of an installed product. We cannot assure you that the provisions in our
standard license agreements designed to limit our exposure will be enforceable. In addition, our
consulting engagements often involve development, implementation and maintenance
of networking systems that are critical to the operations of a client's
business. Our failure to meet a client's expectations in the performance of our
services could harm our reputation or result in a claim for damages.
Our personnel often gain access to confidential and proprietary client
information. Any unauthorized use or disclosure of such information could result
in a claim for substantial damages. We can give no assurances that our insurance
policies will be sufficient to cover potential claims or that adequate levels of
coverage will be available in the future at a reasonable cost.
87
POSSIBLE DELISTING OF OUR SECURITIES FROM NASDAQ SYSTEM;NASDAQ; RISKS RELATING TO
LOW-PRICED STOCKS.
Our common stock is listed on theThe Nasdaq Stock Market's SmallCap
Market under the symbol "NSSI." In order for our common stock to continue to be
listed on Nasdaq, however, we must comply with certain maintenance standards. In
the event of a delisting, an investor could find it more difficult to dispose of
or to obtain accurate quotations as to the market value of our common stock.
In addition, if our common stock were to become delisted from trading
on Nasdaq and the trading price of theour common stock were to fallthen be below $5.00
per share, our common stock could be 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. The SEC regulations would
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. If
our common stock is no longer traded on Nasdaq and becomes subject to the
regulations applicable to penny stocks, investors may find it more difficult to
obtain timely and accurate quotes and execute trades in our common stock.
OUR OPERATING RESULTS MAY FLUCTUATE QUARTERLY AND IF THEY WERE BELOW
THE EXPECTATIONS OF INVESTORS AND ANALYSTS, THE PRICE OF OUR STOCK WOULD LIKELY
BE ADVERSELY EFFECTED.
We anticipate significant quarterly fluctuations in our operations in
the future, since our results are dependent on the volume and timing of orders,
which are difficult to predict. Customers' purchasing patterns and budgeting
cycles, as well as the introduction of new products, may also cause our
operating results to fluctuate. Therefore, comparing quarterly operating results
may not be meaningful and should not be relied on. Also, our operating results
may be below analysts' and investors' expectations in some future quarters,
which would likely have a material adverse effect on the price of our common
stock.
8
THE SIGNIFICANT NUMBER OF OPTIONS, WARRANTS AND CONVERTIBLE
SECURITIES OUTSTANDING MAY ADVERSELY AFFECT THE MARKET PRICE FOROF OUR COMMON STOCK.
As of the date of this prospectus, there are outstanding (1)(i) options
and warrants to purchase an aggregate of 2,743,74711,452,212 shares of our common stock
at exercise prices ranging from $1.50$.70 to $9.66, (2) 491,803$10.125 and (ii) 3,422,091 shares of
Series D
Convertible Preferred Stockconvertible preferred stock which are convertible at any time into an equal
number of6,773,551
shares of our common stock and (3) debt in the principal amount of
$1,500,000 which, subject to stockholder approval, can be converted into 491,803
shares of our Series D Preferred Stock (up to 570,492 shares if you include
potential interest under the promissory notes) and warrants to purchase 491,803
shares of our common stock (up to 570,492 shares if you include potential
interest under the promissory notes) at an exercise price of $3.00 per share,
subject to adjustment.stock. To the extent that outstanding options and warrants or
convertible debt
are exercised or converted, your percentage ownership will be diluted and any
sales in the public market of the common stock underlying such options, warrants
or convertible debt may adversely affect prevailing market prices for our common
stock.
9
WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED
STOCK, WHICH MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.
As of the date of this prospectus, our Board of Directors has the
authority, without further action by the stockholders, to issue 5,000,00010,000,000
shares of preferred stock (of which only 491,803231,054 shares of Series D Preferred
Stock are outstanding asand 3,191,037 shares of the date hereof)Series E Preferred Stock are
outstanding) on such terms and with such rights, preferences and designations as
the Board 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 outour stockholders to authorize a merger, business combination or
change of control.
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-3 (the
"Registration Statement") 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.
9
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. Accordingly, we incorporate by reference the documents listed below
and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act:Act of 1934:
1. our Annual Report on Form 10-KSB10-KSB/A for the year ended December
31, 19982000 (filed April 14, 1999)30, 2001);
10
2. our Quarterly Report on Form 10-QSB for the quarter ended March
31, 19992001 (filed May 13, 1999)21, 2001);
3. our Quarterly Report on Form 10-QSB for the quarter ended June
30, 19992001 (filed August 13, 1999)20, 2001);
4. ourOur Quarterly Report on Form 10-QSB for the quarter ended
September 30, 19992001 (filed November 15, 1999);19, 2001)
5. our Current Report on Form 8-K (filed January 5, 2000)October 12, 2001); and
6. 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.
We will provide at no cost to each person to whom this prospectus is
delivered, upon written or oral request, a copy of any of these filings,
excluding the exhibits to such filings that we have not specifically
incorporated by reference in such filings. You should direct such requests to us
at 1601 Trapelo Road, Reservoir Place, Waltham, Massachusetts 02451, Attention:
Murray Fish, President and Chief Financial Officer, telephone number (781)
522-3400.
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.
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
10
"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
11
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 $7,154,150$11,371,792 million in proceeds, (up to approximately $7,390,000 if interest
on the notes is converted) equal to the exercise price of
the warrants, and
options, if the holders of the warrants and optionsreferenced in this prospectus
exercise such securities into shares of our common stock. Any proceeds that we
may receive upon exercise of the warrants and options will be used for working capital
purposes.
11
SELLING STOCKHOLDERS
The following table sets forth information, as of February 3, 2000,January 1, 2002,
with respect to the commonvoting stock (common stock and convertible preferred 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 3,278,29614,534,148 shares of our common stock for resale
by the selling stockholders in accordance with registration rights previously
granted to them. We agreed to file a registration statement under the Securities
Act with the SEC, of which this prospectus is a part, with respect to the resale
of:
o an aggregate of 336,007 shares that we may issue to certain individuals and
entities that had provided services to us upon their exercise of warrants
we issued between April 4, 1994 and July 1, 1998;
o 170,000 shares that we may issue to Whale Securities Co., L.P. upon the
exercise of warrants we issued for underwriting services they provided in
our initial public offering consummated on November 17, 1998;
o 294,879 shares that we may issue to Avi Fogel, our President and Chief
Executive Officer, upon the exercise of options we granted to him on May
18, 1998;
o 206,933 shares that we issued to Pisces Investors, L.P. in connection with
a private placement in April 4, 1994;
o 145,887 shares that we issued to Security Partners, L.P. in connection with
the conversion of
12
outstanding indebtedness on March 21, 1996;
o an aggregate of 491,8036,382,074 shares that we may issue upon conversion of
the Series DE Preferred Stock issued in December 1999;October 2001;
o an aggregate of 491,8036,882,074 shares that we may issue upon the exercise
of warrants issued in connection with the Series DE Preferred Stock
offering;offering completed in October 2001;
o an aggregate of 491,803 shares that we may issue upon conversion of the
Series D Preferred Stock underlying the promissory notes issued in the
Series D Preferred Stock offering;
o up to an aggregate of 78,689 additional shares that we may issue upon the
conversion of the Series D Preferred Stock underlying the potential
interest under such promissory notes;
o an aggregate of 491,803550,000 shares that we may issue upon the exercise of
warrants underlying the promissory notes issued to CMH Capital Management Corp. in the Series D Preferred
Stock offering;June 2001 and
October 2001;
o up to an aggregate of 78,689 additional460,000 shares that we may issue upon the
exercise of
the warrants underlying the potential interest under such
promissory notes.issued in April 2001 and July 2001, or to be issued, to Sage
Alliance, Inc. (and its employees and consultants);
o an aggregate of 200,000 shares that we may issue upon exercise of
warrants issued to BusinessDevelopment.com, LLC in November 2000; and
o an aggregate of 60,000 shares that we may issue upon exercise of
warrants issued to Lipman Capital Group, Inc. in October 2000, January
2001 and February 2001.
The number of shares 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.
Except as indicated in this prospectus, 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.
1312
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES PERCENTAGE OFOUTSTANDING COMMON
BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED OUTSTANDING
OWNEDSTOCK AFTER
NAME PRIOR TO SHARESOFFERING(1) BEING OFFERED AFTER COMMON STOCK
NAME OFFERING(1) OFFERED OFFERING(1)(2) AFTER OFFERING(1)
- ----- -------- ------- -------------- ------------- -------------------- ------------- -------------------- -----------
Barry Rubenstein 1,667,845 (3) 377,528 1,290,317 25.98%5,523,257(3) 188,676 2,221,385 15.8%
FalconStor Software, Inc. 4,339,740(4) 4,839,740 0 0
Irwin Lieber 2,882,382(5) 660,376 1,467,294 10.7%
Barry Fingerhut 2,792,978(6) 660,376 1,377,890 10.1%
Jonathan Lieber 2,179,198(7) 47,168 1,235,810 9.1%
Seth Lieber 2,001,195(8) 47,168 1,199,315 8.8%
Wheatley Partners II, L.P. 1,572,015(9) 377,356 1,194,659 8.8%
Corey Horowitz 1,339,749(10) 550,000 648,241 4.6%
Woodland Venture Fund 1,305,072(11) 849,056 456,016 3.3%
Seneca Ventures Woodland Partners
Brookwood Partners, L.P.
Irwin Lieber 1,364,425 (4) 115,236 1,249,189 25.15%
Barry Fingerhut 1,291,271 (5) 65,572 1,225,699 24.84%
Jonathan Lieber 1,214,155 (6) 16,392 1,197,763 24.27%
Applegreen Partners
Corey M. Horowitz 1,143,689 (7) 641,692 501,997 10.11%
CMH Capital Management Corp.
Pisces Investors, L.P.
Security Partners, L.P.
Avi A. Fogel 360,710 (8) 327,667 33,043 *
Whale Securities Co., L.P. 170,000 (9) 170,000 0 0
Gerald Josephson 131,148 (10) 131,148946,347(12) 660,376 285,971 2.1%
Philip Bloom 613,204(13) 613,204 0 0
Eli Oxenhorn 115,236 (11) 115,236566,769(14) 471,696 95,073 *
Woodland Partners 529,547(15) 377,356 152,191 1.1%
Brookwood Partners, L.P. 471,696(16) 471,696 0 0
New Dimensions Trading Limited 98,360 (12) 98,360Wheatley Partners, L.P. 347,168(17) 347,168 0 0
Phil Bloom 98,360 (12) 98,360David Thalheim 206,991(18) 141,508 65,483 *
Anthony Trobiano 195,676(19) 188,676 7,000 *
Casilli Revocable Trust 188,676(20) 188,676 0 0
DalewoodApplegreen Partners 179,555(21) 141,508 38,047 *
Jack Erlanger 176,635(22) 94,336 82,299 *
Donna Slavitt 143,036(23) 141,508 1,528 *
Sage Alliances, Inc. 135,462(24) 460,000 0 0
David Nussbaum 133,984(25) 47,168 86,816 *
Gerald Josephson 133,691(26) 94,336 39,355 *
13
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES OUTSTANDING COMMON
BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED STOCK AFTER
NAME PRIOR TO OFFERING(1) BEING OFFERED AFTER OFFERING(1)(2) OFFERING(1)
- ---- -------------------- ------------- -------------------- -----------
Jeffrey Rubinstein 133,854(27) 94,336 39,518 *
Larry Altman 125,875(28) 47,168 78,707 *
Richard Rosenstock 112,651(29) 47,168 65,483 *
Lipman Capital Group, Inc. 94,800(30) 60,000 34,800 *
Tami Trobiano 96,336(31) 94,336 2,000 *
Owen Associates, L.P. 65,572 (13) 65,57294,936(32) 94,336 600 *
Charles Ferrara 94,336(33) 94,336 0 0
Alan Silverman 65,572 (13) 65,572 0 0
Aaron Wolfson 65,572 (13) 65,572 0 0
GER Family Partners, Ltd. 65,572 (13) 65,572Edward Fiegeles 94,336(33) 94,336 0 0
Gordon Freeman 65,572 (13) 65,57294,336(33) 94,336 0 0
MW Partnership 49,180 (14) 49,180Ardith Mederrick 94,336(33) 94,336 0 0
James Scibelli 94,336(33) 94,336 0 0
Robert Graifman 79,311(34) 47,168 32,143 *
Patrick McBrien 63,990(35) 47,168 16,822 *
Scott Zelnick 63,990(35) 47,168 16,822 *
Abbey Oxenhorn 62,734(36) 47,168 15,566 *
Seth Oxenhorn 62,734(36) 47,168 15,566 *
Sam Schwartz 57,296(37) 47,168 10,128 *
Steven Wolosky 56,600(38) 56,600 0 0
Seymour Cohen 47,168(39) 47,168 0 0
Andrew Fingerhut 47,168(39) 47,168 0 0
Robert Gladstone 47,168(39) 47,168 0 0
Jennifer Olsen 47,168(39) 47,168 0 0
Harvey Pollak 47,168(39) 47,168 0 0
Maureen Wilson 47,168(39) 47,168 0 0
14
PERCENTAGE OF
NUMBER OF SHARES NUMBER OF SHARES OUTSTANDING COMMON
BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED STOCK AFTER
NAME PRIOR TO OFFERING(1) BEING OFFERED AFTER OFFERING(1)(2) OFFERING(1)
- ---- -------------------- ------------- -------------------- -----------
Jeffrey Rubenstein 42,624 (15) 42,624Amy Katz 37,732(40) 37,732 0 0
Jim McNeil 37,248 (16) 37,248John Slavitt 37,732(40) 37,732 0 0
David Thalheim 32,788 (17) 32,788Wheatley Foreign Partners, L.P. 30,188(41) 30,188 0 0
Abraham Wolfson 32,788 (17) 32,788Cheryl Blair 18,864(42) 18,864 0 0
Gyenes & Co. 32,788 (17) 32,788Gestion Cajed Inc. 18,864(42) 18,864 0 0
Jack Erlanger 32,788 (17) 32,788 0 0
Larry Altman 32,788 (17) 32,788 0 0
Maurice Shamah 32,788 (17) 32,788 0 0
Richard Rosenstock 32,788 (17) 32,788 0 0
Sandler Co-Investment Partners, LP 32,788 (17) 32,788 0 0
Stephen S. Wien 32,788 (17) 32,788 0 0
William Walters 32,788 (17) 32,788 0 0
Rebecca Rubenstein 26,236 (18) 26,236 0 0
Brian Rubenstein 22,960 (19) 22,960 0 0
MLPF&S as Custodian FBO
Emanuel R. Pearlman, IRA 21,392 (20) 16,392 5,000 *
Abby Oxenhorn 16,392 (21) 16,392 0 0
Levitin Family Charitable Trust 16,392 (21) 16,392 0 0
Patrick McBrien 16,392 (21) 16,392 0 0
Seth Oxenhorn 16,392 (21) 16,392 0 0
Scott Zelnick 16,392 (21) 16,392 0 0
Alan Kaufman 9,312 (22) 9,312 0 0
Brad Zelnick 6,556 (23) 6,556 0 0
Venture Strategies, Inc. 6,207 (24) 6,207 0 0
Sam Schwartz 5,728 (25) 2,328 3,400 *
Irving Bizar 2,328 (26) 2,328Business Development.com, LLC 12,000(43) 200,000 0 0
15
Malcolm Taub 2,328 (26) 2,328 0 0
Roy Martin 2,328 (26) 2,328 0 0
- ------------------
* Less than 1%
(1) Percentage of beneficial ownership is calculated assuming 4,935,211 shares
of common stock were outstanding. Ownership after this offering assumesUnless otherwise indicated, we believe that all persons named in the
selling stockholder sold all of the shares it is offering in this
prospectus. Beneficial ownership is determined in accordance with the rules
of the SECabove table have sole voting and the footnotes to this table, and generally includes voting
or investment power with respect to securities. Therefore, more than oneall
shares of voting stock beneficially owned by them. A person may beis deemed
to beneficially ownbe the same shares. Sharesbeneficial owner of common
stocksecurities that are subject tocan 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 thatheld by such person (but not those held by
any other person except for outstanding shares of preferred stock) and
which are exercisable or convertible within 60 days are deemed outstanding for
computing the percentagehave been exercised
and converted. Assumes a base of the person holding such option or warrant but
are not deemed outstanding for computing the percentage of any other
person. For purposes of calculating shares deemed outstanding pursuant to
the previous sentence, (a) we have deemed as outstanding 491,80313,554,925 shares of Series D Preferred Stock and warrants to purchase 491,803voting stock
including (i) 6,781,374 shares of ouroutstanding common stock, which are(ii)
6,382,074 shares of common stock issuable upon conversion of outstanding promissory
notes issued by us in the aggregate principal amount of $1,500,000 and (b)
we have not deemed as outstanding any3,191,037
shares of outstanding Series DE Preferred Stock or
warrants to purchaseand (iii) 391,477 shares
of our common stock which would be issuable upon conversion of the interest on such notes. The conversion231,054 shares of
such
promissory notes is subject to approval by our stockholders at a duly held
stockholders' meeting expected to be held within 60 days of the effective
date of this Registration Statement.outstanding Series D Preferred Stock.
(2) Beneficial ownership of shares held by the selling stockholder after
this offering will depend on the number of securities sold by the
selling stockholder in this offering.
(3) Includes (i) 31,2501,194,659 shares of common stock, 188,678 shares of common
stock issuable upon conversion of Series E Preferred Stock and 188,678
shares of common stock subject to currently exercisable warrants held
by Wheatley Partners II, L.P., (ii) 173,584 shares of common stock
issuable upon conversion of Series E Preferred Stock and 173,584 shares
of common stock subject to currently exercisable warrants held by
Wheatley Partners, L.P., (iii) 15,094 shares of common stock issuable
upon conversion of Series E Preferred Stock and 15,094 shares of common
stock subject to currently exercisable warrants held by Wheatley
Foreign Partners, L.P., (iv) 31,040 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, (ii) 49,664 shares of common stock
subject to currently exercisable warrants held by Mr. Rubenstein (which
shares are being registered hereby), (iii) 1,194,659, 41,128(vi) 151,628 and
23,280133,780 shares of common stock held by
Wheatley Partners II, L.P.,15
Woodland Venture Fund and Seneca Ventures, respectively, (iv) 32,787, 16,393, 16,393(vii) 424,528,
330,188, 235,848, 188,678 and 16,39394,338 shares of common stock issuable
upon conversion of Series E Preferred Stock held by Woodland Venture
Fund, Seneca Ventures, Brookwood Partners, L.P., Woodland Partners and
Barry Rubenstein, respectively, (viii) 611,366, 423,605, 282,095,
235,848, 145,335 and 1,333 shares of common stock subject to currently
exercisable warrants held by Woodland Venture Fund, Seneca Ventures,
Woodland Partners, and
Brookwood Partners, L.P., Barry Rubenstein and
Marilyn Rubenstein, respectively, (which shares are being registered
hereby), (v) 32,787, 16,393, 16,393 and 16,393(ix) 117,550, 58,774, 58,774, 839
and 839 shares of common stock issuable upon conversion of Series D
Preferred Stock held by Woodland Venture Fund, Seneca Ventures,
Woodland Partners, Barry Rubenstein and Brookwood Partners,
L.P., respectively (which shares are being registered hereby), (vi) 32,787,
16,393, 16,393 and 16,393Marilyn Rubenstein,
respectively. Does not include options to purchase 11,875 shares of
common stock subject towhich are not currently exercisable warrants underlying certain promissory notes held by Woodland
Venture Fund, Seneca Ventures, Woodlandexercisable. Barry Rubenstein is a
general partner of Wheatley Partners II, L.P. and Brookwood Partners,
16
L.P., respectively (which shares are being registered hereby) and (vii)
32,787, 16,393, 16,393 and 16,393 sharesa member of common stock issuable upon
conversionthe
general partner of Series D Preferred Stock underlying certain promissory notes
held by Woodland Venture Fund, Seneca Ventures, Woodland Partners and
Brookwoodeach of Wheatley Partners, L.P., respectively (which shares are being registered
hereby). 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 general partner of Brookwood Partners, L.P. Barry
Rubenstein is the President and sole director of Woodland Services
Corp. BarryMarilyn Rubenstein is the general partnerwife of Woodland Partners and Brookwood Partners, L.P.
Barry Rubenstein is a general partner of Wheatley Partners II, L.P. Does
not include 6,250 shares of common stock subject to stock options held by
Mr. Rubenstein which are not currently exercisable.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 for Wheatley Partners II, L.P., Woodland
Venture Fund, Seneca Ventures, Woodland Partners and Brookwood Partners,
L.P. is c/o Barry Rubenstein, 68 Wheatley Road, Brookville, New York 11545.
(4) Includes (i) 31,2502,169,870 shares of common stock issuable upon conversion
of Series E Preferred Stock and (ii) 2,169,870 shares of common stock
subject to currently exercisable warrants. Does not include 500,000
shares of common stock options held by Mr. Lieber, (ii) 66,057subject to warrants which are not currently
exercisable (but which are being registered for sale).
(5) Includes (i) 1,194,659 shares of common stock, 188,678 shares of common
stock issuable upon conversion of Series E Preferred Stock and 188,678
shares of common stock subject to currently exercisable warrants held
by Wheatley Partners II, L.P., (ii) 173,584 shares of common stock
issuable upon conversion of Series E Preferred Stock and 173,584 shares
of common stock subject to currently exercisable warrants held by
Wheatley Partners, L.P., (iii) 15,094 shares of common stock issuable
upon conversion of Series E Preferred Stock and 15,094 shares of common
stock subject to currently exercisable warrants held by Wheatley
Foreign Partners, L.P., (iv) 23,280 shares of common stock owned by Mr.
Lieber, (which(v) 47,500 shares are being registered hereby), (iii) 16,393of common stock subject to currently
exercisable stock options owned by Mr. Lieber, (vi) 330,188 shares of
common stock issuable upon conversion of Series E Preferred Stock owned
by Mr. Lieber, (vii) 58,774 shares of common stock issuable upon
conversion of Series D Preferred Stock heldowned by Mr. Lieber, (which
shares are being registered hereby), (iv) 16,393and (viii)
473,269 shares of common stock subject to currently exercisable
warrants underlying certain promissory
notes heldowned by Mr. Lieber (which shares are being registered hereby), (v)
16,393Lieber. Does not include options to purchase
11,875 shares of common stock issuable upon conversion of Series D
Preferred Stock underlying certain promissory notes held by Mr. Lieber
(which shares are being registered hereby), and (vi) 1,194,659 shares of
common stock held by Wheatley Partners II, L.P., of which Mr. Lieber is a
general partner. Does not include 6,250 shares of common stock subject to
stock options heldowned by Mr. Lieber which are not
currently exercisable. 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.
(5)16
(6) Includes (i) 16,3931,194,659 shares of common stock, 188,678 shares of common
stock issuable upon conversion of Series E Preferred Stock and 188,678
shares of common stock subject to currently exercisable warrants held
by Wheatley Partners II, L.P., (ii) 173,584 shares of common stock
issuable upon conversion of Series E Preferred Stock and 173,584 shares
of common stock subject to currently exercisable warrants held by
Wheatley Partners, L.P., (iii) 15,094 shares of common stock issuable
upon conversion of Series E Preferred Stock and 15,094 shares of common
stock subject to currently exercisable warrants held by Wheatley
Foreign Partners, L.P., (iv) 31,040 shares of common stock owned by Mr.
Fingerhut, (which(v) 330,188 shares are being registered hereby),
(ii) 16,393of common stock issuable upon conversion
of Series E Preferred Stock owned by Mr. Fingerhut, (vi) 58,774 shares
of common stock issuable upon conversion of Series D Preferred Stock
heldowned by Mr. Fingerhut, (which shares are being registered
hereby), (iii) 16,393and (vii) 423,605 shares of common stock
subject to currently exercisable warrants underlying certain promissory notes heldowned by Mr. Fingerhut (which shares are being registered hereby), (iv) 16,393 shares of
common stock issuable upon conversion of Series D Preferred Stock
underlying certain promissory notes held by Mr. Fingerhut (which shares are
being registered hereby) and (v) 1,194,659 shares of common stock held by
Wheatley Partners II, L.P., of which Mr. Fingerhut is a general partner.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.
(6)(7) Includes (i) 4,0981,194,659 shares of common stock, 188,678 shares of common
stock issuable upon conversion of Series E Preferred Stock and 188,678
shares of common stock subject to currently exercisable warrants held
by 17
Wheatley Partners II, L.P., (ii) 173,584 shares of common stock
issuable upon conversion of Series E Preferred Stock and 173,584 shares
of common stock subject to currently exercisable warrants held by
Wheatley Partners, L.P., (iii) 15,094 shares of common stock issuable
upon conversion of Series E Preferred Stock and 15,094 shares of common
stock subject to currently exercisable warrants held by Wheatley
Foreign Partners, L.P., (iv) 70,754 shares of common stock issuable
upon conversion of Series E Preferred Stock and 70,754 shares of Common
Stock subject to currently exercisable warrants held by Applegreen
Partners, (v) 3,104 shares of common stock owned by Mr. Lieber, (which(vi)
23,584 shares are being registered hereby), (ii) 4,098of common stock issuable upon conversion of Series E
Preferred Stock and 23,584 shares of common stock subject to currently
exercisable warrants owned by Mr. Lieber, and (vii) 14,693 shares of
common stock issuable upon conversion of Series D Preferred Stock held by
Mr. Lieber (which shares are being registered hereby), (iii) 4,098and
23,354 shares of common stock subject to currently exercisable warrants
underlying
certain promissory notes heldowned by Mr. Lieber (which shares are being
registered hereby), (iv) 4,098 shares of common stock issuable upon
conversion of Series D Preferred Stock underlying certain promissory notes
held by Mr. Lieber (which shares are being registered hereby) and (v)
1,194,659 shares of common stock held by Wheatley Partners II, L.P., of
which Mr.Applegreen Partners. Jonathan Lieber is a general partner.partner of
Applegreen Partners. Mr. Lieber disclaims beneficial ownership of the
shares of common stock held by Wheatley Partners II, L.P., Wheatley
Partners, L.P., Wheatley Foreign Partners, L.P. and Applegreen
Partners, except to the extent of his equity interest therein.
(7)(8) Includes (i) 382,7521,194,659 shares of common stock, 188,678 shares of common
stock issuable upon conversion of Series E Preferred Stock and 188,678
shares of common stock subject to currently exercisable warrants held
by Wheatley Partners II, L.P., (ii) 173,584 shares of common stock
issuable upon conversion of Series E Preferred Stock and 173,584 shares
of common stock subject to currently exercisable warrants held by
Wheatley Partners, L.P., (iii) 15,094 shares of common stock issuable
upon conversion of Series E Preferred Stock and 15,094 shares of common
stock subject to currently exercisable warrants held by Wheatley
Foreign Partners, L.P., (iv) 4,656 shares of common stock owned by Seth
Lieber, and (v) 23,584 shares of common stock issuable upon conversion
of Series E Preferred
17
Stock and 23,584 shares of common stock subject to currently
exercisable warrants owned by Seth 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.
(9) Includes (i) 1,194,659 shares of common stock, (ii) 188,678 shares of
common stock issuable upon conversion of Series E Preferred Stock and
(iii) 188,678 shares of common stock subject to currently exercisable
warrants. Does not include (i) 316,448, 23,280, 31,040, 4,656 and 3,104
shares of common stock beneficially owned by Barry Rubenstein, Irwin
Lieber, Barry Fingerhut, Seth Lieber and Jonathan Lieber, respectively,
each of whom is a general partner of Wheatley Partners II, L.P., and
(ii) an aggregate of 7,140,407 shares of common stock subject to
currently exercisable warrants, options, Series D Preferred Stock and
Series E Preferred Stock beneficially owned by Barry Rubenstein
(3,634,794 shares), Irwin Lieber (1,287,087 shares), Barry Fingerhut
(1,189,923 shares), Jonathan Lieber (604,079 shares) and Seth Lieber
(424,524 shares).
(10) Includes (i) 486,303 shares of common stock held by Mr. Horowitz, (ii)
31,25042,500 shares of common stock subject to currently exercisable stock
options held by Mr. Horowitz, (iii) 206,933 shares of common stock held by
Pisces Investors, L.P., a limited partnership whose general partner is CMH
Capital Management Corp., a corporation whose sole stockholder and officer
is Mr. Horowitz (which shares are being registered hereby), (iv) 145,887
shares of common stock owned by Security Partners, L.P., a limited
partnership whose general partner is CMH and one of whose limited partners
is Mr. Horowitz (which shares are being registered hereby), (v) 87,995155,463 shares of common stock held
by CMH (vi) 124,936Capital Management Corp., (iv) 424,936 shares of common stock
subject to currently exercisable warrants held by CMH, (which shares are
being registered hereby), (vii) 40,984(v) 85,220
shares of common stock subject to currently exercisable warrants held
by Mr. Horowitz, (which(vi) 70,754 shares of common stock issuable upon
conversion of Series E Preferred Stock, 70,754 shares of common stock
subject to currently exercisable warrants and 1,528 shares of common
stock, all owned by Donna Slavitt, the wife of Mr. Horowitz and (vii)
2,291 shares of common stock held by Horowitz Partners, a general
partnership of which Mr. Horowitz is a partner. Does not include
warrants and options to purchase 260,625 shares of common stock which
are not currently exercisable (but which 250,000 shares are being
registered hereby), (viii) 40,984for sale).
(11) Includes (i) 151,628 shares of common stock, (ii) 424,528 shares of
common stock issuable upon conversion of Series E Preferred Stock,
(iii) 117,550 shares of common stock issuable upon conversion of Series
D Preferred Stock held by Mr. Horowitz (which shares
are being registered hereby), (ix) 40,984and (iv) 611,366 shares of common stock subject to
currently exercisable warrants underlying certain promissory notes held by
Mr. Horowitz (whichwarrants.
(12) Includes (i) 133,780 shares are being registered hereby) and (x) 40,984of common stock, (ii) 330,188 shares of
common stock issuable upon conversion of Series E Preferred Stock,
(iii) 58,774 shares of common stock issuable upon conversion of Series
D Preferred Stock underlying certain promissory notes held by Mr. Horowitz (which shares are
being registered hereby). Does not include 6,250 shares of common stock
subject to stock options which are not currently exercisable. Mr. Horowitz
disclaims beneficial ownership of the shares held by Pisces Investors, L.P.
and Security Partners, L.P., except to the extent of his equity interest
therein. The address of CMH Capital Management Corp. is 885 Third Avenue,
New York, New York 10022 and the address of Pisces Investors, L.P. and
Security Partners, L.P. is c/o CMH Capital Management Corp., 885 Third
Avenue, New York, New York 10022.
(8) Includes (i) 165,132(iv) 423,605 shares of common stock subject to
currently exercisable stock options (which shares are being registered hereby), (ii)
129,747 shares of common stock subject to stock options which are not
currently exercisable (which shares are being registered hereby), (iii)
8,197warrants.
(13) Includes (i) 306,602 shares of common stock subject to currently
exercisable warrants (whichand (ii) 306,602 shares are being registered hereby), (iv) 8,197of common stock issuable
upon conversion of Series E Preferred Stock.
(14) Includes (i) 330,921 shares of common stock subject to currently
exercisable warrants and (ii) 235,848 shares of common stock issuable
upon conversion of Series E Preferred Stock.
18
(15) Includes (i) 188,678 shares of common stock issuable upon conversion of
Series E Preferred Stock, (ii) 58,774 shares of common stock issuable
upon conversion of Series D Preferred Stock (whichand (iii) 282,095 shares are being registered hereby), (v) 8,197of
common stock subject to currently exercisable warrants.
(16) Includes (ii) 235,848 shares of common stock subject to currently
exercisable warrants underlying certain promissory notes (which
shares are being registered hereby) and (vi) 8,197(ii) 235,848 shares of common stock issuable
18
upon conversion of Series DE Preferred Stock underlying certain promissory
notes (which shares are being registered hereby). The address of Mr. Fogel
is c/o Network-1 Security Solutions, Inc., 1601 Trapelo Road, Reservoir
Place, Waltham, Massachusetts 02451.
(9)Stock.
(17) Includes 170,000(i) 173,584 shares of common stock subject to currently
exercisable warrants (whichand (ii) 173,584 shares are being registered hereby).
(10)of common stock issuable
upon conversion of Series E Preferred Stock.
(18) Includes (i) 32,78727,297 shares of common stock, (ii) 108,940 shares of
common stock subject to currently exercisable warrants (whichand (iii) 70,754
shares are being registered hereby),of common stock issuable upon conversion of Series E Preferred
Stock.
(19) Includes (i) 7,000 shares of common stock, (ii) 32,78794,338 shares of common
stock subject to currently exercisable warrants and (iii) 94,338 shares
of common stock issuable upon conversion of Series E Preferred Stock.
(20) Includes (i) 94,338 shares of common stock subject to currently
exercisable warrants and (ii) 94,338 shares of common stock issuable
upon conversion of Series E Preferred Stock.
(21) Includes (i) 94,108 shares of common stock subject to currently
exercisable warrants, (ii) 70,754 shares of common stock issuable upon
conversion of Series E Preferred Stock and (iii) 14,693 shares of
common stock issuable upon conversion of Series D Preferred Stock (whichStock.
(22) Includes (i) 37,444 shares are being registered hereby), (iii) 32,787of common stock, (ii) 92,023 shares of
common stock subject to currently exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 32,787(iii) 47,168
shares of common stock issuable upon conversion of Series DE Preferred
Stock
underlying certain promissory notes (which shares are being registered
hereby).
(11)Stock.
(23) Includes (i) 66,0571,528 shares of common stock, (ii) 70,754 shares of common
stock subject to currently exercisable warrants (which shares are being registered hereby), (ii) 16,393and (iii) 70,754 shares
of common stock issuable upon conversion of Series DE Preferred Stock (whichStock.
(24) Includes (i) warrants to purchase 135,462 shares of common stock and
(ii) additional warrants to purchase up to 324,538 shares of common
stock that may be issued to Sage Alliance, Inc. ("Sage") in the future
(but which are being registered hereby), (iii) 16,393for resale). The aforementioned
warrants issued and which may be issued to Sage in the future may, at
the direction of Sage, be issued or transferred to employees and
consultants of Sage.
(25) Includes (i) 23,584 shares of common stock subject to currently
exercisable warrants, underlying certain promissory
notes (which shares are being registered hereby) and (iv) 16,393(ii) 23,584 shares of common stock issuable upon
conversion of Series DE Preferred Stock, underlying certain promissory notes (which(iii) 54,594 shares are being registered
hereby).
(12) Includes (i) 24,590of common
stock owned by Dalewood Associates, L.P. ("Dalewood") and (iv) 32,222
shares of common stock subject to currently exercisable warrants (whichowned
by Dalewood. Mr. Nussbaum is the general partner of Dalewood. Mr.
Nussbaum disclaims
19
beneficial ownership of the securities held by Dalewood except to the
extent of his equity interest therein.
(26) Includes (i) 3,000 shares are being registered hereby),of common stock, (ii) 24,59083,523 shares of common
stock subject to currently exercisable warrants and (iii) 47,168 shares
of common stock issuable upon conversion of Series DE Preferred Stock (whichStock.
(27) Includes (i) 10,000 shares are being registered hereby), (iii) 24,590of common stock, (ii) 76,686 shares of
common stock subject to currently exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 24,590(iii) 47,168
shares of common stock issuable upon conversion of Series DE Preferred
Stock
underlying certain promissory notes (which shares are being registered
hereby).
(13)Stock.
(28) Includes (i) 16,39350,000 shares of common stock, (ii) 46,291 shares of
common stock subject to currently exercisable warrants, (which shares are being registered hereby), (ii) 16,393(iii) 23,584
shares of common stock issuable upon conversion of Series DE Preferred
Stock (whichand (iv) 6,000 shares are being registered hereby), (iii) 16,393of common stock owned by Mr. Altman's wife.
(29) Includes (i) 27,297 shares of common stock, (ii) 61,770 shares of
common stock subject to currently exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 16,393(ii) 23,584
shares of common stock issuable upon conversion of Series DE Preferred
Stock
underlying certain promissory notes (which shares are being registered
hereby).
(14)Stock.
(30) Includes (i) 12,29534,800 shares of common stock owned by Jonathan Lipman,
the sole stockholder of Lipman Capital Group, Inc., and (ii) 60,000
shares of common stock subject to currently exercisable warrants, (whichof
which warrants to purchase up to 18,000 shares are being registered hereby),of Common Stock may be
transferred to a consultant of Lipman Capital Group, Inc..
(31) Includes 2,000 shares of common stock, (ii) 12,29547,168 shares of common
stock subject to currently exercisable warrants and (iii) 47,168 shares
of common stock issuable upon conversion of Series DE Preferred Stock (which
shares are being registered hereby), (iii) 12,295Stock.
(32) Includes (i) 47,168 shares of common stock subject to currently
exercisable warrants, underlying certain
19
promissory notes (which shares are being registered hereby) and (iv) 12,295(ii) 47,168 shares of common stock issuable upon
conversion of Series DE Preferred Stock underlying certain promissory notes (whichand (iii) 600 shares are being registered
hereby).
(15)of common
stock held by Alan Silverman, a principal of Owen Associates, L.P., in
a retirement account.
(33) Includes (i) 10,65647,168 shares of common stock subject to currently
exercisable warrants (which shares are being registered hereby),and (ii) 10,65647,168 shares of common stock issuable
upon conversion of Series DE Preferred Stock (whichStock.
(34) Includes (i) 32,143 shares are being registered hereby), (iii) 10,656of common stock, (ii) 23,584 shares of
common stock subject to currently exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 10,656(iii) 23,584
shares of common stock issuable upon conversion of Series DE Preferred
Stock
underlying certain promissory notes (whichStock.
(35) Includes (i) 4,555 shares are being registered
hereby).
(16) Includes 37,248of common stock, (ii) 35,851 shares of common
stock subject to currently exercisable warrants (whichand (iii) 23,584 shares
are being registered hereby).
(17)of common stock issuable upon conversion of Series E Preferred Stock.
20
(36) Includes (i) 8,1974,215 shares of common stock, (ii) 34,935 shares of common
stock subject to currently exercisable warrants (which shares are being registered hereby), (ii) 8,197and (iii) 23,584 shares
of common stock issuable upon conversion of Series DE Preferred Stock (which
shares are being registered hereby), (iii) 8,197Stock.
(37) Includes (i) 33,712 shares of common stock subject to currently
exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 8,197options, and (ii) 23,584 shares of common
stock issuable upon conversion of Series DE Preferred Stock
underlying certain promissory notes (whichStock. Does not
include options to purchaser 4,700 shares of common stock which are being registered
hereby).
(18)not
currently exercisable.
(38) Includes (i) 6,55928,300 shares of common stock subject to currently
exercisable warrants (which shares are being registered hereby),and (ii) 6,55928,300 shares of common stock issuable
upon conversion of Series DE Preferred Stock (which
shares are being registered hereby), (iii) 6,559Stock.
(39) Includes (i) 23,584 shares of common stock subject to currently
exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 6,559(ii) 23,584 shares of common stock issuable
upon conversion of Series DE Preferred Stock
underlying certain promissory notes (which shares are being registered
hereby).
(19)Stock.
(40) Includes (i) 5,74018,866 shares of common stock subject to currently
exercisable warrants (which shares are being registered hereby),and (ii) 5,74018,866 shares of common stock issuable
upon conversion of Series DE Preferred Stock (which
shares are being registered hereby), (iii) 5,740Stock.
(41) Includes (i) 15,094 shares of common stock subject to currently
exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 5,740(ii) 15,094 shares of common stock issuable
upon conversion of Series DE Preferred Stock
underlying certain promissory notes (which shares are being registered
hereby).
(20)Stock.
(42) Includes (i) 5,000 shares of common stock subject to currently exercisable
options, (ii) 4,0989,432 shares of common stock subject to currently
exercisable warrants (which shares are being registered hereby), (iii) 4,098and (ii) 9,432 shares of common stock issuable
upon conversion of Series DE Preferred Stock (which
shares are being registered hereby), (iv) 4,098 shares of
20
common stock subject to currently exercisable warrants underlying certain
promissory notes (which shares are being registered hereby) and (v) 4,098
shares of common stock issuable upon conversion of Series D Preferred Stock
underlying certain promissory notes (which shares are being registered
hereby). Does not include 15,000 shares of common stock subject to options
not currently exercisable.
(21)Stock.
(43) Includes (i) 4,09812,000 shares of common stock subject to currently
exercisable warrants (which shares are being registered hereby),and (ii) 4,098 shares of
common stock issuable upon conversion of Series D Preferred Stock (which
shares are being registered hereby), (iii) 4,098Does not include 188,000 shares of common
stock subject to currently exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 4,098 shares of
common stock issuable upon conversion of Series D Preferred Stock
underlying certain promissory notes (which shares are being registered
hereby).
(22) Includes 9,312 shares of common stock subject to currently exercisable
warrants (which shares are being registered hereby).
(23) Includes (i) 1,639 shares of common stock subject to currently exercisable
warrants (which shares are being registered hereby), (ii) 1,639 shares of
common stock issuable upon conversion of Series D Preferred Stock (which
shares are being registered hereby), (iii) 1,639 shares of common stock
subject to currently exercisable warrants underlying certain promissory
notes (which shares are being registered hereby) and (iv) 1,639 shares of
common stock issuable upon conversion of Series D Preferred Stock
underlying certain promissory notes (which shares are being registered
hereby).
(24) Includes 6,207 shares of common stock subject to currently exercisable
warrants (which shares are being registered hereby).
(25) Includes (i) 2,328 shares of common stock subject to currently exercisable
warrants (which shares are being registered hereby), and (ii) 3,400 shares
of common stock subject to currently exercisable stock options. Does not
include 6,600 shares of common stock subject to stock options which are not currently exercisable. This selling stockholder is a member of the law firm
of Solovay Edlin & Eiseman, P.C., our outside legal counsel.
(26) Includes 2,328 shares of common stock subject to currently exercisable warrants (which shares(but
which are being registered hereby)for resale).
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale by the selling
stockholders of:
oof an aggregate of 506,007 shares of our common stock that we may issue
upon the exercise
21
of outstanding warrants issued for certain services;
o 294,879 shares of our common stock that we may issue upon the
conversion of outstanding options;
o an aggregate of 352,820 shares of our common stock that we issued to
Pisces Investors, L.P. and Security Partners, L.P.;
o an aggregate of 983,60614,534,148 shares of our common stock that we
may issue upon the exercise of outstanding warrants and conversion of
outstanding shares of Series DE Preferred Stock issued by us in a private
placement;
o an aggregate of 983,606 shares of our common stock that we may issue
upon the exercise of warrants and the conversion of shares of Series
D Preferred Stock underlying outstanding promissory notes; and
o up to an aggregate of 157,378 additional shares of our common stock
that we may issue upon the exercise of warrants and the conversion
of shares of Series D Preferred Stock underlying the potential
interest under such promissory notes.offering completed in October 2001.
The selling stockholders may sell the shares in transactions in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale. The selling stockholders may sell the shares through public or
private transactions at prevailing market prices, at prices related to such
prevailing market prices or at privately negotiated prices. The selling
stockholders may also sell shares pursuant to Rule 144 of the Securities Act, if
applicable.
The selling stockholders may use underwriters or broker-dealers to
sell the shares. Such underwriters and broker-dealers may receive compensation
in the form of discounts or commissions from the selling stockholders, or they
may receive commissions from the purchasers of shares for
21
whom they acted as agents, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The selling
stockholders and any underwriter or broker-dealer who participates in the
distribution of the shares may be deemed to be "underwriters" within the meaning
of the Securities Act, and any commissions received by them and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
discounts or commissions under the Securities Act.
In addition, the broker-dealers' commissions, discounts or concession
may qualify as underwriters' compensation under the Securities Act. We will
disclose in a post-effective amendment to the registration statement any
broker-dealers the selling stockholders contract with in the selling effort who
may appear to be acting as underwriters within the meaning of Section 2(11) of
the Securities Act. If any such broker-dealers are acting as underwriters, we
will revise the disclosures in the registration statement to include the amount
of the shares of our common stock being sold by the broker-dealer and, if the
broker-dealer is entitled to sell additional shares, the broker-dealer's
relationship and obligations to us and the selling stockholders and any
associated expenses which we or the selling stockholders may incur in connection
with such sale of our common stock. We will also file any agreement we or the
selling stockholders may enter into with such broker-dealer as an exhibit to the
registration statement.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the shares may not simultaneously engage in
market-making activities with respect to our common stock for a certain period
of time, except under certain limited circumstances. Also, without limiting the
foregoing, each selling stockholder and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
rules and regulations thereunder (including Regulation M), which provisions may
limit the timing of purchases and sales of shares of our common stock by such
selling stockholder.
At the time a selling stockholder makes an offer to sell shares, to
the extent required by the Securities Act, a prospectus will be delivered. If a
supplemental prospectus is required, one will be delivered setting forth the
number of shares being offered and the terms of the offering, including the
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the 22
shares, and any discounts or commissions.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and complied with.
We have agreed to pay substantially all of the expenses incident to
the registration, offering and sale of the shares to the public, excluding the
commissions or discounts of underwriters, broker-dealers or agents.
22
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
us by Solovay Edlinthe law firm of Olshan Grundman Frome Rosenzweig & Eiseman, P.C.,Wolosky LLP, 505 Park
Avenue, New York, New York. Sam Schwartz,Steven Wolosky, a member of thatsuch firm, owns 14,150
shares of our Series E Preferred Stock and warrants to purchase 28,300 shares of
our common stock as of the date of this prospectus. Sam Schwartz, also a member
of such firm, owns 11,792 shares of our Series E Preferred Stock and owns
warrants and options to purchase 12,32838,412 shares of our common stock as of the
date of this prospectus.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-KSB for the year ended December 31, 1998 incorporated by reference in this registration statement2000 have
been audited
byso incorporated in reliance on the report of Richard A. Eisner & Company,
LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upongiven on the authority of said firm as experts in
accounting and auditing
in giving said report.auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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.
23
NETWORK-1 SECURITY SOLUTIONS, INC.
3,278,29614,534,148 SHARES
OF
COMMON STOCK
------------------
PROSPECTUS
-----------------------------------
________, 20002002
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................................ $ 11,224.075,766.28
Legal fees and expenses*............................ _______
Accounting fees and expenses*....................... _______
Miscellaneous expenses*............................. _______
TOTAL............................. $ _______
==============
* 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 II-1
such law, as it may from time to time be in effect. In addition, the
Bylaws require the Company to 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
II-1
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 SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
NO. DESCRIPTION
- --- -----------
3.1 Certificate of Incorporation, as amended (includes Form of Certificate
of Designations of Series C Preferred Stock).amended. Previously filed as Exhibit
3.1 to the Company's Registration Statement on Form SB-2
(Registration No. 333-59617), declared effective by the SEC in
November 1998 (the "1998 Registration Statement"), and incorporated
herein by reference.
3.2 Certificate of Designations of Series D Preferred Stock..Stock. Previously
filed as Exhibit 3.1 to the Company's Current Reportcurrent report on Form 8-K
filed January 4, 2000 (the "Form 8-K"),5, 2001 and incorporated herein by reference.
3.3 Certificate of Designations of Series E Preferred Stock. Previously
filed as Exhibit 3.1 to the Company's current report on Form 8-K
filed October 12, 2001 (the "October 2001 Form 8-K") and incorporated
herein by reference.
3.4 By-laws, as amended. Previously filed as Exhibit 3.2 to the 1998
Registration Statement and incorporated herein by reference.
4.1 Form of Common Stock certificate. Previously filed as Exhibit 4.1 to
the 1998 Registration Statement and incorporated herein by reference.
4.2 Warrant issued as of November 17, 1998 to Whale Securities Co., L.P.
Previously filed as Exhibit 1.2 to the 1998 Registration Statement and
incorporated herein by reference.
4.3* Form of Warrant previously issued for services rendered.
5.1* Opinion of Solovay EdlinOlshan Grundman Frome Rosenzweig & Eiseman, P.C.Wolosky LLP regarding
legality of securities being registered.
10.1 Securities Purchase Agreement, dated as of December 22, 1999,October 2, 2001, between
the Company and the investors listed therein. Previously filed as
Exhibit 10.2810.21 to the October 2001 Form 8-K and incorporated herein by
reference.
10.2 Form of Convertible Promissory Note, dated December 22, 1999, made by
the Company in
II-2
favor of the holder listed thereon. Previously filed as Exhibit C to
Exhibit 10.28 to the Form 8-K and incorporated herein by reference.
10.3 Form of Warrant, dated December 22, 1999,October 2, 2001, issued by the Company to the
holder listed thereon. Previously filed as Exhibit B to Exhibit 10.2810.21
to the October 2001 Form 8-K and incorporated herein by reference.
21.1 List of the Company's subsidiaries. Previously filed as Exhibit 21.1 to
the 1998 Registration Statement and incorporated herein by reference.
23.1* Consent of Richard A. Eisner & Company, LLP, independent certified
public accountants.
II-2
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 pages hereof.
-
--------------
* To be filed by amendment
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 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) 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.
(3) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) II-3
or (4), or
497(h) under the Securities Act as part of this registration
statementRegistration Statement as of the
time the Commission declared it effective.
(b) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the registration
statement, and the offering of such securities at that time as the initial BONA
FIDE offering of those securities.
II-4II-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-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waltham, State of Massachusetts.
Dated: February 4, 2000January 24, 2002
NETWORK-1 SECURITY SOLUTIONS, INC.
By: /s/ Avi A. Fogel
------------------------------
Avi A. Fogel,Murray P. Fish
--------------------------------
Murray P. Fish, President and
Chief ExecutiveFinancial Officer
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Avi A. Fogel and Murray P. Fish or any of them, 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-3 and to file
the same with all exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, granting to such attorneys-in-factattorney-in-fact
and agents, and each of them,agent, full power and authority to do all such other acts and execute all
such other documents as they, or any of them,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 attorneys-in-factattorney-in-fact and agents, or any of
them,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/ Avi A. FogelMurray P. Fish President, Chief ExecutiveFinancial Officer February 4, 2000January 24, 2002
- ----------------------------------------------------------------------- and Director (principal executive
Avi A. Fogel officer)
/s/ Murray P. Fish Chief Financial Officer (principal February 4, 2000
- ------------------------------------ financial officer and principal Murray P. Fishfinancial and
accounting officer)
/s/ William H. Hancock Chief Technology Officer and Director February 4, 2000
- ------------------------------------
William H. Hancock
/s/ Corey M. Horowitz Chairman of the Board of Directors February 4, 2000January 24, 2002
- -----------------------------------------------------------------------
Corey M. Horowitz
/s/ Jonathan Mark Director January 24, 2002
- -----------------------------------
Jonathan Mark
II-5II-4
INDEX TO EXHIBITS
NO. DESCRIPTION
- --- -----------
3.1 Certificate of Incorporation, as amended (includes Form of Certificate
of Designations of Series C Preferred Stock).amended. Previously filed as Exhibit
3.1 to the Company's Registration Statement on Form SB-2
(Registration No. 333-59617), declared effective by the SEC in
November 1998 (the "1998 Registration Statement"), and incorporated
herein by reference.
3.2 Certificate of Designations of Series D Preferred Stock..Stock. Previously
filed as Exhibit 3.1 to the Company's Current Reportcurrent report on Form 8-K
filed January 4, 2000 (the "Form 8-K"),5, 2001 and incorporated herein by reference.
3.3 Certificate of Designations of Series E Preferred Stock. Previously
filed as Exhibit 3.1 to the Company's current report on Form 8-K
filed October 12, 2001 (the "October 2001 Form 8-K") and incorporated
herein by reference.
3.4 By-laws, as amended. Previously filed as Exhibit 3.2 to the 1998
Registration Statement and incorporated herein by reference.
4.1 Form of Common Stock certificate. Previously filed as Exhibit 4.1 to
the 1998 Registration Statement and incorporated herein by reference.
4.2 Warrant issued as of November 17, 1998 to Whale Securities Co., L.P.
Previously filed as Exhibit 1.2 to the 1998 Registration Statement and
incorporated herein by reference.
4.3* Form of Warrants previously issued for services rendered.
5.1* Opinion of Solovay EdlinOlshan Grundman Frome Rosenzweig & Eiseman, P.C.Wolosky LLP regarding
legality of securities being registered.
10.1 Securities Purchase Agreement, dated as of December 22, 1999,October 2, 2001, between
the Company and the investors listed therein. Previously filed as
Exhibit 10.2810.21 to the October 2001 Form 8-K and incorporated herein by
reference.
10.3 Form of Convertible Promissory Note, dated December 22, 1999, made by
the Company in favor of the holder listed thereon. Previously filed as
Exhibit C to Exhibit 10.28 to the Form 8-K and incorporated herein by
reference.
10.310.2 Form of Warrant, dated December 22, 1999,October 2, 2001, issued by the Company to the
holder listed thereon. Previously filed as Exhibit B to Exhibit 10.2810.21
to the October 2001 Form 8-K and incorporated herein by reference.
21.1 List of the Company's subsidiaries. Previously filed as Exhibit 21.1 to
the 1998 Registration Statement and incorporated herein by reference.
23.1* Consent of Richard A. Eisner & Company, LLP, independent certified
public accountants.
24.1 No person has signed this Registration Statement under a power of
attorney. A power of II-6
attorney relating to the signing of amendments
hereto is incorporated in the signature pages hereof.
- --------------
* To be filed by amendment
II-7II-5