0001477932-13-003842.txt : 20130816 0001477932-13-003842.hdr.sgml : 20130816 20130816134314 ACCESSION NUMBER: 0001477932-13-003842 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20130630 FILED AS OF DATE: 20130816 DATE AS OF CHANGE: 20130816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK 1 SECURITY SOLUTIONS INC CENTRAL INDEX KEY: 0001065078 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 113027591 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-15288 FILM NUMBER: 131044625 BUSINESS ADDRESS: STREET 1: 445 PARK AVENUE STREET 2: SUITE 1018 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128295770 MAIL ADDRESS: STREET 1: 445 PARK AVENUE STREET 2: SUITE 1018 CITY: NEW YORK STATE: NY ZIP: 10022 10-Q/A 1 form10qa_17553.htm FORM 10-Q/A form10qa_17553.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 
FORM 10-Q/A
(Amendment No. 1)
 

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______

Commission File Number 1-15288
 

NETWORK-1 SECURITY SOLUTIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
 
Delaware   11-3027591
(State or other jurisdiction of incorporation or organization)  
(IRS Employer Identification No.)
 
 
445 Park Avenue, Suite 1020
New York, New York
 
10022
(Address of principal executive offices)
 
(zip code)
 

                 212-829-5770               
(Registrant’s Telephone Number)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§223.405) of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “Large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

The number of shares of Common Stock, $.01 par value per share, outstanding as of August 12, 2013 was 26,047,683.
 


 
 
 
 
EXPLANATORY NOTE
 
 
The purpose of this Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed with the Securities and Exchange Commission on August 14, 2013 (the “Form 10-Q”), is solely to furnish Exhibit 101 to the Form 10-Q, which contains the XBRL (eXtensible Business Reporting Language) Interactive Data File for the financial statements and notes included in Part I of the Form 10-Q, in accordance with Rules 201 and 405 of Regulation S-T. 
 
No other changes have been made to the Form 10-Q.  This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2

 
ITEM 6. Exhibits

   (a) Exhibits

 
31.1
Controls and Procedure Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 
31.2
Controls and Procedure Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 
99.1
Temporary Hardship Exemption provided by Rule 201.*
 
 
101
The following materials formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Income and Comprehensive Income for the six months ended June 30, 2013 and 2012, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012, and (iv) Notes to Consolidated Financial Statements.**
 
 
 
____________________________
 
Previously furnished or filed.
 
**
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed as part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 
 
 
 
3

 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
NETWORK-1 SECURITY SOLUTIONS, INC.
 
     
       
Date:  August 15, 2013
By:
/s/ Corey M. Horowitz  
    Corey M. Horowitz  
    Chairman and Chief Executive Officer  
       
       
       
       
Date:  August 15, 2013
By:
/s/ David C. Kahn  
    David C. Kahn  
   
Chief Financial Officer
 
       
       
       
       

 

 
 
 
 
 
 
 
 

 
4

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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition (Details Narrative)
6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Nature Of Business And Summary Of Significant Accounting Policies - Revenue Recognition Details Narrative    
Percentage of revenue from one licensee (Cisco Systems) out of total revenue (in percent) 84.00% 81.00%
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Condensed Statements of Income and Comprehensive Income (Unaudited) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Income Statement [Abstract]        
ROYALTY REVENUE $ 1,907,000 $ 1,966,000 $ 5,971,000 $ 6,391,000
COST OF REVENUE 547,000 562,000 1,772,000 1,948,000
GROSS PROFIT 1,360,000 1,404,000 4,199,000 4,443,000
OPERATING EXPENSES:        
General and administrative 767,000 446,000 1,445,000 1,036,000
Non-cash compensation 144,000 74,000 256,000 165,000
TOTAL OPERATING EXPENSES 911,000 520,000 1,701,000 1,201,000
OPERATING INCOME 449,000 884,000 2,498,000 3,242,000
OTHER INCOME (EXPENSES):        
Interest income, net 12,000 10,000 18,000 19,000
INCOME BEFORE INCOME TAXES 461,000 894,000 2,516,000 3,261,000
INCOME TAXES (BENEFIT)        
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Total Income Taxes (Benefits) (321,000) 157,000 342,000 601,000
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Net Income per share        
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Diluted $ 0.03 $ 0.02 $ 0.08 $ 0.09
Weighted average number of common shares outstanding:        
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Diluted 27,087,061 28,819,929 27,396,414 28,729,256
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STOCK REPURCHASE
6 Months Ended
Jun. 30, 2013
Stock Repurchase  
STOCK REPURCHASE

On August 22, 2011, the Company announced that its Board of Directors approved a share repurchase program to repurchase up to $2,000,000 of shares of its common stock over the next 12 months ("Share Repurchase Program").  The common stock may be repurchased from time to time in open market transactions or privately negotiated transactions in the Company’s discretion.  The timing and amount of the shares repurchased is determined by management based on its evaluation of market conditions and other factors.  The Share Repurchase Program may be increased, suspended or discontinued at any time.  On January 31, 2012, the Board of Directors increased the Share Repurchase Program to purchase up to an additional $2,000,000 (or an aggregate of $4,000,000) of the Company's common stock for the next 12 months.  On January 24, 2013, the Board of Directors increased the Share Repurchase Program to purchase up to an additional $1,000,000 (or an aggregate of $5,000,000) of the Company’s common stock over the next 12 months.  During the three month period ended June 30, 2013, the Company did not repurchase any of its shares of common stock as part of its Share Repurchase Program.

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COMMITMENTS AND CONTINGENCIES - Services Agreement (Details Narrative) (Services Agreement with ThinkFire, USD $)
6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Services Agreement with ThinkFire
   
Purchase Commitment, Excluding Long-term Commitment [Line Items]    
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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes (Details Narrative) (USD $)
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Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2011
Dec. 31, 2012
Nature Of Business And Summary Of Significant Accounting Policies - Income Taxes Details Narrative              
Net operating loss carryforwards $ 23,954,000     $ 23,954,000      
Net operating loss carryforwards, Future tax benefits 8,144,000     8,144,000      
Non-cash income tax expense (benefit) from operating loss carry forwards (299,000) 148,000 (7,000,000) 316,000 568,000 (7,000,000)  
Non-cash income tax benefit from operating loss carry forwards (in dollars per share)     $ 0.29     $ 0.29  
Deferred tax assets 5,878,000     5,878,000     6,194,000
Income before taxes 461,000 894,000   2,516,000 3,261,000    
Income tax expense (benefit) (321,000) 157,000   342,000 601,000    
Reduction in deferred tax assets       $ 316,000 $ 568,000    
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Compensation Related Costs [Abstract]                  
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Ten year option to purchase common stock issued to Chairman and CEO             500,000   750,000
Ten year option, exercise price             $ 1.19   $ 0.83
Equal quarterly vesting, shares         62,500 41,667      
Gross royalties incentives to Chairman and CEO             5.00%    
Incentive Compensation for Chairman and CEO 299,000 320,000              
Target bonus or minimum bonus Chairman and CEO 150,000 150,000              
Monthly compensation for CFO $ 11,550 $ 11,000 $ 9,000 $ 11,550          
Five year option issued to CFO               75,000  
Exercise price of five year option               $ 1.40  
Equal quarterly amounts, CFO               18,750  
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This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. false1falseNATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule Earnings Per Share (Details)UnKnownNoRoundingUnKnownUnKnowntruefalsefalseSheethttp://network-1.com/role/NatureOfBusinessSummaryOfSignificantAccountingPolicies-ComputationOfSharesOutstandingDetails46 XML 20 R9.xml IDEA: LITIGATION 2.4.0.80009 - Disclosure - LITIGATIONtruefalsefalse1false falsefalseFrom2013-01-01to2013-06-30http://www.sec.gov/CIK0001065078duration2013-01-01T00:00:002013-06-30T00:00:001true 1nssi_DisclosureLitigationAbstractnssi_falsenadurationfalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00falsefalsefalsexbrli:stringItemTypestringfalse02false 2us-gaap_LegalMattersAndContingenciesTextBlockus-gaap_truenadurationfalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>[1] </b>In September&#160;2011, the Company initiated patent litigation against sixteen (16) data networking equipment manufacturers in the United States District Court for the Eastern District of Texas, Tyler Division, for infringement of its Remote Power Patent.&#160;&#160;Named as defendants in the lawsuit, excluding related parties, were Alcatel-Lucent USA, Inc., Allied Telesis, Inc., Avaya Inc., AXIS Communications Inc., Dell, Inc., GarrettCom, Inc., Hewlett-Packard Company, Huawei Technologies USA, Juniper Networks, Inc., Motorola Solutions, Inc., NEC Corporation, Polycom Inc., Samsung Electronics Co., Ltd., ShoreTel, Inc., Sony Electronics, Inc., and Transition Networks, Inc.&#160;&#160;The Company seeks monetary damages based upon reasonable royalties.&#160;&#160;During the year ended December 31, 2012, the Company reached settlement agreements with defendants Motorola Solutions, Inc. (&#34;Motorola&#34;), Transition Networks, Inc. (&#34;Transition Networks&#34;) and GarretCom, Inc. (&#147;GarretCom&#148;).&#160;&#160;In February 2013, the Company reached settlement agreements with Allied Telesis, Inc. 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margin: 0; text-indent: 0.5in; text-align: justify">&#160;</p> <p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>[5] </b>There have been four <i>Inter Partes</i> Review petitions filed in the USPTO pertaining to our Remote Power Patent.&#160;&#160;On December 5, 2012, Avaya Inc. filed a petition to institute an <i>Inter Partes</i> Review of the Remote Power Patent.&#160;&#160;On December 19, 2012, Sony Corporation of America (&#147;Sony&#148;), Axis Communications AB, and Axis Communications, Inc. filed a separate petition to also institute an <i>Inter Partes</i> Review of the Remote Power Patent.&#160;&#160;On May 24, 2013, the Patent Trial and Appeal Board (&#147;Patent Board&#148;) determined to institute an <i>Inter Partes </i>Review of the &#145;930 Patent on two of the five grounds requested in the proceeding initiated by Avaya, Inc. (IPR2013-0071).&#160;&#160;Also on May 24, 2013, the Patent Board determined not to institute an <i>Inter Partes </i>Review of the &#145;930 Patent in the <i>Inter Partes </i>Review proceeding initiated by Sony Corporation and Axis Communications, Inc. (IPR&#160;2013-0092). On July 2, 2013, the Board denied Sony and Axis&#146;s Request for Rehearing. On June 24, 2013, Dell, Inc. filed a Petition for <i>Inter Partes </i>Review of the &#145;930 Patent (IPR 2013-00385). On July 12, 2013, the Company filed a Preliminary Response to Dell&#146;s Petition. On July&#160;29, 2013, the Patent Board instituted this <i>Inter Partes</i> Review proceeding (based on the same gr ounds as the Avaya proceeding) and joined it with the Avaya proceeding (IPR 2013-0071).&#160;&#160;On June 24, 2013, Sony, Axis and Hewlett-Packard filed a Petition for <i>Inter Partes </i>Review of the &#145;930 Patent (IPR 2013-000386).&#160;&#160;Petitioners in each <i>Inter Partes</i> review seek to cancel certain claims of the Remote Power Patent as unpatentable.&#160;&#160;In the event that the USPTO reaches a final determination in any of the <i>Inter Partes</i> Review proceedings or the ex parte reexamination that certain of our claims related to the Remote Power Patent are unpatentable, such a determination (unless overturned) would have a material adverse effect on the Company&#146;s business, financial condition and results of operations as our entire revenue stream is dependent upon the continued validity of the Company&#146;s Remote Power Patent.</p> <p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">&#160;</p> <p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">&#160;</p>falsefalsefalsenonnum:textBlockItemTypenaThe entire disclosure for legal proceedings, legal contingencies, litigation, regulatory and environmental matters and other contingencies.No definition available.false0falseLITIGATIONUnKnownUnKnownUnKnownUnKnowntruefalsefalseSheethttp://network-1.com/role/Litigation12 ZIP 21 0001477932-13-003842-xbrl.zip IDEA: XBRL DOCUMENT begin 644 0001477932-13-003842-xbrl.zip M4$L#!!0````(`&YM$$,ONF<%!@A0EBY)H M*Q\<`ICI[NF[>P;0ZW_>##TVYF$D`O_-EE4UMQCWG<`5?O_-UJ=NY;![=':V MQ?[Y]G__A\%_K_^O4F&G@GON/CL.G,J9WPL.V+D]Y/OL7]SGH1T'X0'[V?82 MO!/\\N[R/5Q*^/NL46VYK%)9`=C/W'>#\-/E60IL$,>C_5IM,IE4_6!L3X+P M2U1U@M7`=8,D='@*RVPWS+II-?ZL5V]Z0.^Q'<-=O%,S]VI6^\K:W6_L[K=: M*T*/[3B),N@W>Z;9,N$_.?WUS77HB7W\EP&[_6C_)A)OMG(+FC2J0=BOU4W3 MJOWRX7W7&?"A71%^%-N^P[?T+$_X7\KF69U.IT9/]="YD8AGA(>\M)+E=@Z=ZH(B"9MW:7;8^.4)/2.)PX>!.#9ZF`Z-*W[9'Z>">'5W3 M0/6@A&IX$@8>CTKGT).227[@^\FPG"8W#FOQ=,1K,*@"HW@HG'3>[9.*$X`& MO%U.'3TIHR[*J;//8S3-B@6V.<3!#32V+6U%J'G[$>GW)>\Q4MK]`8D2P53T MA.I-Y&ZIQXCWS58DAB,/-+"F04FK<@(_YC>"K"V,$:G]#9;CH:4/9N;!CXS-PG7G:%W"U/T_0(!^J9BZ6(^ M'T87/8ECKV+5-XRWTI?%;[,%I"C4DX=FT@8J8)%)>4U:"Y/J(`5T*!O+)+6` MM3+)VG0F68_`I/JFFUM]G>:F`F0]%R`WDV&%`%F_3X"LKS-`*CX#54W-9VOS M^:R6EX=CX?##?LB!D7[\6<2#XV#, MO4/??9]`U7H:A.]%+/IV#&7JJ?"X>^9W^2CFPVL>(M`/].O)A)?)@_=Q`;D' MZI$+Q-R,/.&(6-+*7`$C95FOJI'];(VR8CV\$='66\R[]Q^43Z]KI23EEU,K M7\_#:&GG/EK:6;>6EI0E7Z^E/R;>%."9+PJZ(HN>5#>?7RGW%;KYSK/]+Y?! 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