Mail Stop 4561
June 29, 2005
Corey M. Horowitz
Chairman and CEO
Network-1 Security Solutions, Inc.
445 Park Avenue, Suite 1028
New York, NY 10022
Re: Network-1 Security Solutions, Inc.
Registration Statement on Form S-3
Filed June 21, 2005
File No. 333-126013
Form 10-KSBor the year ended December 31, 2004
File No. 1-15288
Dear Mr. Horowitz:
This is to advise you that a preliminary review of the above
registration statement indicates that it fails in several material
respects to comply with the requirements of the Securities Act of
1933, the rules and regulations under that Act, and the
requirements
of the form. In this respect, it does not appear that you are
eligible to file a registration statement on Form S-3. More
specifically, we note that securities of Network-1 are traded on
the
OTCBB, which is not an automated quotation system of a national
securities association for the purposes of instruction I.B.3. of
the
general instructions to the Form S-3. Please see telephone
interpretation H.54 relating to Form S-3. We will not perform a
detailed examination of the registration statement and will
determine
the scope of our review of your filings when you should submit a
filing on an available form. To assist you in your preparation of
the amended filing, we provide several comments below concerning
your
selling shareholder disclosure.
We conducted a preliminary review of the financial statements
in
the Form 10-KSB referenced above, and based on that limited
review,
we also have the following comments on that Form 10-KSB. Any
amended
filing should be responsive to the following comments.
Selling Stockholders
1. Please identify the natural person or persons who have voting
or
investment control over each of the selling shareholders listed in
the table that is a legal entity. See interpretation 4S of the
Regulation S-K portion of the March 1999 supplement to the
publicly
available Corporation Finance telephone interpretations manual, as
well as interpretation I.60 of the July 1997 version of the
telephone
interpretations manual. This information can be disclosed in
footnotes to the selling shareholder table.
2. We note your disclosure in footnote 4, for example, that Mr.
Lieber "disclaims beneficial ownership of the shares of Common
Stock
held by Wheatley Partners II, L.P. [and others] except to the
extent
of his equity interest therein." If someone other than Mr. Lieber
exercises or shares voting and/or dispositive control over the
offered shares, identify that person. Please clarify similar
footnote disclosures where applicable.
3. To the extent any of the selling shareholders are affiliates of
broker-dealers, please identify them as such and disclose whether
the
sellers purchased the shares in the ordinary course of business
and
at the time of the purchase of the securities to be resold, the
sellers had any agreements or understandings, directly or
indirectly,
with any person to distribute the securities.
Form 10-K for the year ended December 31, 2004
Item 8A. Controls and Procedures
4. Your disclosure regarding your disclosure controls and
procedures
on page 19 indicates that your CEO and CFO concluded that your
disclosure controls and procedures were adequately designed to
ensure
that information required to be disclosed by the Company in the
reports it files or submits under the Securities and Exchange Act
of
1934 is recorded, processed, summarized and reported within the
time
period specified in the applicable rules and forms. It does not
appear that your certifying officers have reached a conclusion
that
your disclosure controls and procedures are effective. Please
revise
to address your officers` conclusions regarding the effectiveness
of
your disclosure controls and procedures. See Item 307 of
Regulation
S-K and Release 33-8238.
5. Your disclosure on page 19 states that there were "no
significant
changes in the Company`s internal controls over financial
reporting"
during the last fiscal quarter. Please note that Item 308(c)
requires disclosure of any change in the registrant`s internal
control over financial reporting that occurred during the
registrant`s last fiscal quarter that has materially affected, or
is
reasonably likely to materially affect, the registrant`s internal
control over financial reporting. Please revise accordingly.
Note A(1). The Company
6. We note that in December 2002, the Company decided to
discontinue
its suite of security software products. Tell us how you
considered
paragraphs 30 and 42-43 of SFAS 144 in determining that
classification of the operations of this product line as
discontinued
operations was not necessary.
Note D. Stockholder`s Equity, page F-10
(1). Preferred Stock, page F-10
7. Supplementally tell us how you considered SFAS 84 and EITF D-42
in
accounting for the increased conversion rate provided for in the
April 2004 agreement whereby 2,483,508 shares of Series E and
231,054
shares of Series D convertible preferred stock were converted
into
6,208,770 and 489,348 shares of common stock, respectively.
(2). Private Placement, page F-10
8. Clarify whether the Company is required to deliver registered
shares upon exercise of the warrants associated with the December
21,
2004 private placement. If so, tell us how the Company considered
paragraph 14 of EITF 00-19 in determining whether or not these
warrants should be classified as a liability.
You are advised that we will not recommend acceleration of
the
effective date of the above-cited registration statement and that,
should the registration statement become effective in its present
form, we would be required to consider what recommendation, if
any,
we should make to the Commission.
Any questions should be directed to Maryse Mills-Apenteng at
(202) 551-3457 or, in her absence, the undersigned at (202) 551-
3462.
If you still require further assistance, please call Barbara C.
Jacobs, Assistant Director, at (202) 551-3730.
Sincerely,
Mark P. Shuman
Branch Chief - Legal
cc: Via facsimile: 212-355-4608
Sam Schwartz, Esq.
Eiseman Levine Lehrhaupt & Kakoyiannis, P.C.
845 Third Avenue
New York, NY 10022
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Corey M. Horowitz
Network-1 Security Solutions, Inc.
June 29, 2005
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