Mail Room 4561
October 13, 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.
Amendment No. 1 to Registration Statement on Form S-2
Filed September 27, 2005
File No. 333-126013
Form 10-K/A for the year ended December 31, 2004
Form 10-Q/A for the period ended June 30, 2005
File No. 1-15288
Dear Mr. Horowitz:
We have reviewed your responses and have the following
comments.
Form S-3
Selling Shareholders, page 17
1. Please see prior comment no. 1 in our letter dated June 29,
2005.
We note that your revised disclosure indicates in many instances
the
persons "believed by [you] to have" sole and/or shared dispositive
control over the offered shares. Please tell us why you are
relying
on your "belief" as the basis for providing the required
disclosure.
Alternatively, remove this qualifying language from the
disclosure.
2. See prior comment no. 3. We note your revised disclosure on
page
17 indicating that the selling shareholders you identify as
affiliates of broker dealers did not purchase their share in the
ordinary course of business. Please tell us and disclose how
these
holders obtained their shares if not in the ordinary course of
business. To the extent that their purchases were not made in the
ordinary course, these holders should be named as underwriters in
the
prospectus. Please advise.
``Incorporation of Certain Documents by Reference, page 14
3. We note your statement that "information that we file later
with
the SEC will automatically update and supersede the information in
this prospectus." Form S-2 does not allow for forward
incorporation
by reference of later-filed documents. Please delete this
statement
from your prospectus.
Note Regarding Forward-Looking Statements, page 16
4. Section 27A(b) of the Securities Act and Section 21E(b) of the
Exchange Act states that the safe harbor for forward-looking
statements provided in these sections are not available for
issuers
of penny stock. Please revise to delete any reference to these
sections or state that these safe harbors are not available to
you.
Form 10-K/A for the year ended December 31, 2004
Form 10-Q/A for the period ended June 30, 2005
Controls and Procedures
5. See prior comment no. 4. We note your disclosure that your
Chief
Executive Officer and Chief Financial Officer, have concluded that
your disclosure controls and procedures were effective as of
December
31, 2004 to alert them of information required to be included in
periodic filings. Revise to clarify, if true, that your officers
concluded that your disclosure controls and procedures are also
effective to ensure that information required to be disclosed in
the
reports that you file or submit under the Exchange Act is
accumulated
and communicated to your management, including your chief
executive
officer and chief financial officer, to allow timely decisions
regarding required disclosure. See Exchange Act Rule 13a-15(e).
6. Please be advised that amendments to the Company`s periodic
Exchange Act reports must be accompanied by Section 302
certifications as required by the Sarbanes-Oxley Act of 2002.
Please
revise accordingly.
Note A(1). The Company, page F-6
`7. See prior comment no. 6. Revise the filing to present the
gain
on sale of assets associated with the suite of security software
products as discontinued operations in the Company`s financial
statements in accordance with SFAS 144. Confirm to us that there
were no residual revenues or expenses incurred by the Company
relating to the discontinued suite of security software products
during fiscal year 2003 and 2004 that should also be reclassified
to
discontinued operations. If residual revenues and expenses were
incurred, revise the filing to remove their effect from continuing
operations to discontinued operations in accordance with generally
accepted accounting principles.
Note D. Stockholder`s Equity, page F-10
`````
8. See prior comment no. 7. We note your response to our previous
comment no. 7 where you indicate that there was no deemed
inducement
offer that provided for a limited timeframe in which to convert
common stock at a higher conversion rate. Tell us how you reached
this conclusion given the Exchange Agreement dated April 13, 2004
between the Company and its preferred shareholders to convert
their
shares at a higher conversion rate at that date. Also, given the
fact that the Company negotiated a higher conversion rate in order
to
eliminate certain preferential rights would also appear to imply
that
you had an induced conversion rate. Therefore, we do not
understand
how concluded that SFAS 84 and EITF D-42 do not apply. Please
explain. Also, as the terms of the renegotiation of the Series D
and
E Preferred Stock resulted in an increased conversion rate of
1.25
shares of common stock (up from the original 1 for 1 conversion
rate), it would appear that you have to recognize a deemed
dividend
from the embedded beneficial conversion feature in accordance with
EITF 00-27, which should be included in the net loss attributable
to
common stockholders and the per-share amounts accordingly. Please
explain or revise accordingly. Your response also indicates that
the
Company believes the accounting applied was appropriate. Tell us
specific accounting guidance that you applied in this transaction.
`
Please direct any questions relating to the financial
statements to Megan Akst at 202-551-3407 or to Kathy Collins,
Branch
Chief, at 202-551-3499. Please direct all other questions to
Maryse
Mills-Apenteng at 202-551-3457 or, in her absence, to Anne Nguyen,
Special Counsel, at 202-551-3611. If you still require further
assistance, please contact the undersigned 202-551-3730.
Sincerely,
Barbara C. Jacobs
Assistant Director
cc: Sam Schwartz, Esq.
Eiseman Levine Lehrhaupt & Kakoyiannis, P.C.
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Corey M. Horowitz
Network-1 Security Solutions, Inc.
October 13, 2005
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