Network-1 Reports Second Quarter 2002 Results

WALTHAM, Mass., Aug 16, 2002 /PRNewswire-FirstCall via COMTEX/ — Network-1 Security Solutions, Inc. (Nasdaq: NSSI; Boston Stock Exchange: NWT), a distributed firewall technology leader, today reported financial results for the second quarter ended June 30, 2002.

Network-1 today reported that revenues for the second quarter ended June 30, 2002 were $243,000, compared with $308,000 for the quarter ended June 30, 2001, a decrease of 21%. Of the $243,000 in revenues for the quarter ended June 30, 2002, $191,000 was from product licenses and $52,000 was from product-related services, as compared to $251,000 from product licenses and $57,000 from product-related services for the comparable period in the prior year.

For the six months ended June 30, 2002, revenues were $361,000 compared with $765,000 for the same period in 2001. The Company’s revenues for the first six months ended June 30, 2002 were negatively impacted by the lack of enterprise licenses as well as adverse economic conditions and reduced technology spending.

Network-1 reported a loss from continuing operations for the second quarter ended June 30, 2002 of $(2,034,000), or $(0.26) per basic and diluted share, compared with a loss of $(1,740,000), or $(0.27) per basic and diluted share, for the quarter ended June 30, 2001. The Company reported a net loss for the second quarter ended June 30, 2002 of $(2,034,000), or $(0.26) per basic and diluted share, compared with a net loss of $(1,721,000), or $(0.27) per basic and diluted share, for the quarter ended June 30, 2001. The Company ended the second quarter of 2002 with cash and cash equivalents totaling $4.1 million.

Network-1 reported a net loss from continuing operations for the first six months of 2002 of $(3,558,000), or $(0.48) per basic and diluted share, compared with a net loss of $(3,382,000), or $(0.52) per basic and diluted share, for the first six months of 2001. The Company reported a net loss for the six months ended June 30, 2002 of $(3,558,000), or $(0.48) per basic and diluted share, compared to a net loss of $(2,733,000), or $(0.42) per basic and diluted share, for the six months ended June 30, 2001, which includes income from discontinued operations of $649,000, or $0.10 per basic and diluted share.

Network-1 also announced it has significantly reduced its overhead in order to preserve cash by decreasing its headcount by 21 employees and the closing of its Asia Pacific operations center and its Taiwan sales office. The reduction in personnel materially reduces Network-1’s sales and product development efforts. Management believes that Network-1 has sufficient cash to satisfy its operations and capital requirements through December 31, 2002. Network-1 is currently actively engaged in substantive discussions with a third party with respect to a strategic transaction that would include financing. The inability of the Company to consummate a strategic transaction or secure additional financing would have a material adverse affect on the Company.

“Reduced IT spending throughout the enterprise software market continues to affect the Company,” said Richard Kosinski, president and CEO of Network-1. “The strength of Network-1’s product portfolio, recently enhanced by the introduction of CyberwallPLUS 7.3, provides the Company with an opportunity to post strong revenues when market conditions rebound.”

Network-1 achieved several strategic objectives during the second quarter. Highlights include:

— Doubling license revenue in the three months ended June 30, 2002 over the three months ended March 31, 2002;
— Appointing Bradford Winkler as vice president of sales, and Lauren Whitehouse as vice president of marketing;
— Receiving a “Recommended” Award for CyberwallPLUS from SC Magazine, a publication for information security professionals;
— Releasing a customized, private-label version of CyberwallPLUS, called IPStor Sentry, with FalconStor Software, Inc.; and
— Securing follow-on deals with existing customers and adding several new customers, including Georgia State University, University of Kentucky and University of Arizona.

About Network-1 Security Solutions, Inc.
Network-1 (Nasdaq: NSSI), a pioneer in firewall technology, provides an enterprise-class layer of protection directly on all potential attack points, including Windows-based servers, remote and mobile PCs, desktops within the network perimeter, and wireless devices, to actively detect and block intrusions. Network-1 has deployed its industrial-strength, award-winning CyberwallPLUS solution at over 500 commercial, government and higher education enterprises, including Capital One, Fuji Bank, Lockheed Martin, 3M, US Department of Energy, Supreme Court of Pennsylvania, National Institute of Health, University of Washington Medical Centers, and Georgia State University, to protect corporate networks from intrusions. Founded in 1990, Network-1 is headquartered in Waltham, Massachusetts and has operations in Asia and Europe. For more information visit our Web site at www.network-1.com or call 800-NETWRK1 or 781-522-3400.

Certain of the above statements contained in this press release contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Actual results, events and circumstances (including future performance, results and trends) could differ materially from those set forth in such statements due to various factors, risks and uncertainties, including but not limited to, risks associated with the Company’s future growth and operating results, the uncertainty associated with obtaining sufficient financing, the uncertainty of market acceptance of the Company’s products, technological change, competitive factors and general economic conditions. Except as otherwise required to be disclosed in periodic reports required to be filed by companies registered under the Exchange Act by the rules of the Securities and Exchange Commission, the Company has no duty and undertakes no obligation to update such statements.

CyberwallPLUS is a trademark of Network-1 Security Solutions, Inc. All other product, trademark, company or service names mentioned are the property of their respective owners.

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