================================================================================

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

                                    FORM 10-Q

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

       FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

[_]    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 1-14896




                       NETWORK-1 SECURITY SOLUTIONS, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

          DELAWARE                                               11-3027591
--------------------------------------------------------------------------------
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)


              445 PARK AVENUE, SUITE 1018, NEW YORK, NEW YORK 10022
--------------------------------------------------------------------------------
                    (Address of principal executive offices)


                                  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 [_]

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(ss.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 [_]   No [_]

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 [_]
                                 (Do not check if a smaller reporting company)
Non-accelerated filer   [_]       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 [_]    No [X]

The number of shares of Common Stock, $.01 par value per share, outstanding as
of August 12, 2009 was 24,135,557.

================================================================================
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                            CONDENSED BALANCE SHEETS
                                   (UNAUDITED)


                       NETWORK-1 SECURITY SOLUTIONS, INC.


                                      INDEX



                                                                        Page No.

PART I.    FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS
           Condensed Balance Sheets as of June 30, 2009 (unaudited) and
           December 31,2008................................................... 3

           Condensed Statements of Operations for the three and six months
           ended June 30,2009 and 2008 (unaudited)............................ 4

           Condensed Statements of Cash Flows for the six months ended
           June 30,2009 and 2008 (unaudited).................................. 5

           Notes to Interim Unaudited Condensed Financial Statements.......... 6

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATION...............................................14

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........19

Item 4.    CONTROLS AND PROCEDURES............................................20




PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings..................................................20

Item 1A.   Risk Factors.......................................................22

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds........22

Item 3.    Defaults Upon Senior Securities....................................22

Item 4.    Submission of Matters to a Vote of Security Holders................22

Item 5.    Other Information..................................................23

Item 6.    Exhibits...........................................................23


SIGNATURES ...................................................................24



<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       NETWORK-1 SECURITY SOLUTIONS, INC.
                            CONDENSED BALANCE SHEETS
                                    UNAUDITED


<TABLE><CAPTION>
                                                                     June 30,       DECEMBER 31,
                                                                      2009              2008
                                                                  ------------      ------------
                                                                  (UNAUDITED)
<S>                                                               <C>               <C>
ASSETS:

Current assets:
   Cash and cash equivalents                                      $  3,869,000      $  4,484,000
   Royalty and Interest Receivable                                      71,000            78,000
   Other current assets                                                 34,000            71,000
                                                                  ------------      ------------

        Total current assets                                         3,974,000         4,633,000

Security Deposits                                                        6,000             6,000
Patents                                                                 95,000           100,000
                                                                  ------------      ------------

                                                                  $  4,075,000      $  4,739,000
                                                                  ============      ============

LIABILITIES:

Current liabilities:
   Accounts payable                                               $     79,000      $     86,000
   Accrued expenses and other current liabilities                      111,000           251,000
                                                                  ------------      ------------

        Total current liabilities                                      190,000           337,000
                                                                  ------------      ------------


Commitments and contingencies

STOCKHOLDERS' EQUITY
--------------------

Common stock - $0.01 par value; authorized 50,000,000 shares;
   24,135,557 shares issued and outstanding at June 30, 2009
   and December 31, 2008                                               241,000           241,000

Additional paid-in capital                                          55,802,000        55,056,000
Accumulated deficit                                                (52,158,000)      (50,895,000)
                                                                  ------------      ------------

                                                                     3,885,000         4,402,000
                                                                  ------------      ------------

                                                                  $  4,075,000      $  4,739,000
                                                                  ============      ============
</TABLE>

See notes to condensed financial statements

                                        3
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                    UNAUDITED


<TABLE><CAPTION>
                                                     THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                           JUNE 30,                            JUNE 30,
                                               ------------------------------      ------------------------------
                                                   2009              2008              2009              2008
                                               ------------      ------------      ------------      ------------
<S>                                            <C>               <C>               <C>               <C>
Royalty Revenue                                $    487,000      $     65,000      $    514,000      $    134,000
Cost of Revenue                                      64,000             4,000            65,000             7,000
                                               ------------      ------------      ------------      ------------
        Gross Profit                                423,000            61,000           449,000           127,000
                                               ------------      ------------      ------------      ------------

Operating expenses:
        General and administrative                  529,000           418,000           966,000           770,000
        Non Cash Compensation                       191,000            73,000           746,000           146,000
                                               ------------      ------------      ------------      ------------
Total Operating Expense                        $    720,000      $    491,000         1,709,000           916,000
                                               ------------      ------------      ------------      ------------

LOSS BEFORE INTEREST INCOME                        (297,000)         (430,000)       (1,263,000)         (789,000)
Interest income - net                                    --            28,000             1,000            68,000
                                               ------------      ------------      ------------      ------------

Net Loss                                       $   (297,000)     $   (402,000)     $ (1,262,000)     $   (721,000)
                                               ============      ============      ============      ============


LOSS PER COMMON SHARE: BASIC AND DILUTED       $      (0.01)     $      (0.02)     $      (0.05)     $      (0.03)
                                               ============      ============      ============      ============


WEIGHTED AVERAGE SHARES: BASIC AND DILUTED       24,135,557        24,135,557        24,135,557        24,135,557
                                               ============      ============      ============      ============
</TABLE>


See notes to condensed financial statements

                                        4
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                        CONDENSED STATEMENTS OF CASH FLOW
                                    UNAUDITED


<TABLE><CAPTION>
                                                                     SIX MONTHS ENDED JUNE 30,
                                                                  ------------------------------
                                                                      2009              2008
                                                                  ------------      ------------
<S>                                                               <C>               <C>
Cash flows from operating activities:
 Net loss                                                         $ (1,262,000)     $   (721,000)
 Adjustments to reconcile net loss to net cash used in
 operating activities:
    Depreciation and amortization                                        4,000             3,000

    Non Cash Compensation                                              746,000           146,000
    Changes in:
       Prepaid expenses and other current assets                        44,000            26,000
       Accounts payable, accrued expenses and other
         current liabilities                                          (147,000)         (242,000)
                                                                  ------------      ------------

          Net cash used in operating activities                       (615,000)         (788,000)
                                                                  ------------      ------------

Cash Flows from Investing Activities                                        --                --
                                                                  ------------      ------------

Cash Flows from Financing Activities                                        --                --
                                                                  ------------      ------------

NET INCREASES (DECREASE) IN CASH AND CASH EQUIVALENTS                 (615,000)         (788,000)
Cash and cash equivalents, beginning of period                       4,484,000         5,928,000
                                                                  ------------      ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                          $  3,869,000      $  5,140,000
                                                                  ============      ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the periods for:
        Interest                                                  $      2,000      $      2,000
        Taxes                                                     $         --      $         --
</TABLE>



See notes to condensed financial statements

                                        5
<PAGE>
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] BASIS OF PRESENTATION:

The accompanying condensed financial statements as of June 30, 2009 and for the
three and six month periods ended June 30, 2009 and June 30, 2008 are unaudited,
but in the opinion of the management of Network-1 Security Solutions, Inc. (the
"Company"), contain all adjustments consisting only of normal recurring items
which the Company considers necessary for the fair presentation of the Company's
financial position as of June 30, 2009, and the results of its operations and
its cash flows for the three and six month periods ended June 30, 2009 and June
30, 2008. The condensed financial statements included herein have been prepared
in accordance with the accounting principles generally accepted in the United
States of America for interim financial information and the instructions to Form
10-Q. Accordingly, certain information and footnote disclosures normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2008 included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. The
results of operations for the six months ended June 30, 2009 are not necessarily
indicative of the results of operations to be expected for the full year.


[2] BUSINESS:

(a) The principal business of the Company is the acquisition, development,
licensing and protection of its intellectual property. The Company presently
owns six patents (the "Patent Portfolio") covering various telecommunications
and data networking technologies including, among others, patents covering the
delivery of power over Ethernet cable for the purpose of remotely powering
network devices, and the transmission of audio, video and data over computer and
telephony networks. The Company's strategy is to pursue licensing and strategic
business alliances with companies in the industries that manufacture and sell
products that make use of the technologies underlying its patents as well as
with other users of the technology who benefit directly from the technology
including corporate, educational and governmental entities. To date, the
Company's efforts with respect to its Patent Portfolio have focused on licensing
its Remote Power Patent. At least for the next twelve months, the Company does
not currently anticipate licensing efforts for its other patents besides its
patent (U.S. Patent No. 6,218,930) covering the control of power delivery of
Ethernet cables (the "Remote Power Patent"). As of June 30, 2009, the Company
had entered into 6 license agreements with respect to its Remote Power Patent
which, among others, included license agreements with D-Link (See Note D[2]),
Microsemi Corporation (See Note D[3]) and Netgear, Inc. (See Note D[1]. The
Company may seek to acquire additional patents in the future.

                                        6
<PAGE>
[2] BUSINESS: (CONTINUED)

(b) As reflected in the accompanying financial statements, the Company has
incurred substantial losses and has experienced net cash outflows from
operations for the year ended December 31, 2008 and the three and six month
period ended June 30, 2009. For the year ended December 31, 2008 and the three
and six month period ended June 30, 2009, the Company had revenue $349,000,
$487,000 and $514,000, respectively. The Company will continue to have operating
losses for the foreseeable future until it is successful in licensing its
patented technologies. The Company has been dependent upon equity financing to
fund its operations. The Company had cash and cash equivalents of $3,869,000 as
of June 30, 2009. The Company believes its current cash position will more
likely than not be sufficient to satisfy the Company's operations and capital
requirements until at least December 31, 2010, although there can be no
assurance that such funds will not be expended prior thereto.


[3] STOCK-BASED COMPENSATION:

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
SHARE BASED PAYMENT, or SFAS 123(R), which is a revision of Statement No. 123
("SFAS 123") ACCOUNTING FOR STOCK BASED COMPENSATION. SFAS 123(R) supersedes
Accounting Principles Board ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB 25"), and amends Financial Accounting Standards Board ("FASB")
Statement No. 95, STATEMENT OF CASH FLOWS. SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.

On January 2, 2008, the Company granted the following options: (i) 5 year
options to purchase an aggregate of 150,000 shares of common stock, at an
exercise price of $1.45 per share, to its 3 outside directors, 75,000 shares of
which vested on grant and 75,000 shares vest over one year in equal monthly
installments, and (ii) a 5 year option to purchase 100,000 shares of common
stock, at an exercise price of $1.45 per share, granted to a consultant, which
vests over a 5 year period in equal monthly installments. During the six month
period ended June 30, 2008 the Company recorded non-cash compensation expense of
$24,000 for these options based on the Black-Scholes option-pricing model.

On February 15, 2008, the Company also granted to another consultant a 5 year
option to pursue 50,000 shares of common stock, at an exercise price of $1.42
per share, and also granted to a new advisory board member an option to purchase
17,500 shares of common stock, at an exercise price of $1.32 per share, which
option vests on a quarterly basis. The Company recorded non-cash compensation
expense of $18,000 for these options based on the Black-Scholes option-pricing
model.

                                        7
<PAGE>
[3] STOCK-BASED COMPENSATION: (CONTINUED)

On February 28, 2008 the Company granted an additional 5 year option to its
Chairman and CEO to purchase 375,000 shares of common stock, at an exercise
price of $1.32 per share, pursuant to his employment agreement. These options
vested in equal quarterly amounts of 93,750 shares beginning March 31, 2008
through December 31, 2008. The Company recognized non-cash compensation expense
of $96,000 for these options during the six months ended June, 2008. In
addition, during the six month period ended June 30, 2009 the Company recorded
non-cash compensation expense of $8,000 for the vested portion of options
granted to a consultant prior to January 1, 2008.

On March 11, 2009, the Board of Directors of the Company approved adjustments to
the exercise prices and terms of certain of its outstanding options and warrants
as described below and as a result, the Company recorded non-cash compensation
expense of $541,000 for the three month period ended March 31, 2009:

    (i)   the exercise prices of certain outstanding compensatory options and
          warrants issued to officers, directors, consultants and others to
          purchase an aggregate of 5,029,945 shares of common stock were
          adjusted to an exercise price of $0.68 per share (closing price of the
          Company's common stock on March 11, 2009) including options and
          warrants to purchase an aggregate of 4,031,195 shares held by the
          Company's Chairman and Chief Executive Officer, and an affiliated
          entity, options to purchase an aggregate of 150,000 shares held by the
          Company's Chief Financial Officer, and options and warrants to
          purchase an aggregate of 300,000 shares held by two directors of the
          Company;

    (ii)  the exercise price of outstanding warrants to purchase an aggregate of
          473,750 shares of common stock (including warrants to purchase 187,500
          shares owned by a principal stockholder of the Company), issued as
          part of the Company's private placement completed in December
          2004/January 2005, which exercise price was scheduled to increase to
          $2.00 per share on March 31, 2009 (from $1.75 per share) adjusted to
          an exercise price of $1.75 for the remaining exercise period of such
          warrants (May 21, 2010), subject to the adjustment set forth in item
          (iv) below;

    (iii) the exercise price of warrants to purchase an aggregate of 1,666,667
          shares of common stock, (including warrants to purchase an aggregate
          of 1,150,001 shares owned by three principal stockholders of the
          Company), at an exercise price of $2.00 per share, which warrants were
          issued as part of the Company's private placement completed in April
          2007, were adjusted to an exercise price of $1.75 per share for the
          remaining exercise period of such warrants (April 16, 2012), subject
          to the adjustments set forth in item (iv) below; and


                                        8
<PAGE>
[3] STOCK-BASED COMPENSATION: (CONTINUED)

    (iv)  in the event that any holders of the above referenced outstanding
          warrants, issued as part of the Company's December 2004/January 2005
          or the April 2007 private placements, exercise such warrants at
          anytime up to and including December 31, 2009, the exercise price of
          all such warrants shall adjust to $1.25 per share.

On June 8, 2009, as part of the terms of the Company's new employment agreement
with its Chairman and Chief Executive Officer, the Board of Directors of the
Company issued to the Company's Chairman and Chief Executive Officer ten-year
options to purchase 750,000 shares of the Company's common stock at an exercise
price of $0.83 per share. The options vest in equal quarterly amounts of 62,500
shares beginning June 30, 2009 through March 31, 2012, subject to accelerated
vesting upon a change of control (See Note C). During the six months ended June
30, 2009 the Company recognized non-cash compensation expense of $37,000 for
these options based on the Black-Scholes option-pricing model.

In addition, on June 8, 2009, as part of the terms of the Company's new
employment agreement with its Chairman and Chief Executive Officer, the Board of
Directors extended the expiration dates for 5 years of options to purchase an
aggregate of 417,500 shares (which were to expire in 2009) issued to the
Company's Chairman and Chief Executive. The Company recorded non-cash
compensation of $132,000 relating to the aforementioned extension of such option
expiration dates.

The fair value of each Company option grant on the date of grant is estimated
using the Black Scholes option-pricing model utilizing the following weighted
average assumptions:

                                             SIX MONTHS ENDED JUNE 30,
                                       ----------------------------------
                                            2009                 2008
                                       ------------          ------------
Risk-free interest rates               2.54 - 2.95           2.73% - 3.28%
Expected option life in years          5 - 10 yrs.           5 yrs.
Expected stock price volatility        62.04%                37.32 - 39.35%
Expected dividend yield                -0-                   -0-


[4] REVENUE RECOGNITION:

The Company recognizes revenue received from the licensing of its intellectual
property portfolio in accordance with Staff Accounting Bulletin No. 104,
"Revenue Recognition" ("SAB No. 104") and related authoritative pronouncements.
Revenue is recognized when (i) persuasive evidence of an arrangement exists,
(ii) all obligations have been performed pursuant to the terms of the license
agreement, (iii) amounts are fixed or determinable and (iv) collectibility of
amounts is reasonably assured.


                                        9
<PAGE>
[5] LOSS PER SHARE:

Basic net loss per share is calculated by dividing the net loss by the weighted
average number of outstanding common shares during the period. Diluted per share
data includes the dilutive effects of options, warrants and convertible
securities. Potential shares of 12,898,082 and 12,070,856 at June 30, 2009 and
2008, respectively, are anti-dilutive, and are not included in the calculation
of diluted loss per share. Such potential common shares reflect outstanding
options and warrants.

[6] CASH EQUIVALENTS:

The Company places cash investments in high quality financial institutions
insured by the Federal Deposit Insurance Corporation ("FDIC"). At June 30, 2009,
the Company maintained cash balance of $ -0- in excess of FDIC limits.


NOTE B - COMMITMENTS AND CONTINGENCIES

[1] Services Agreement:

On November 30, 2004, the Company entered into a master services agreement (the
"Agreement") with ThinkFire Services USA, Ltd. ("ThinkFire") pursuant to which
ThinkFire has been granted the exclusive worldwide rights (except for direct
efforts by the Company and related companies) to negotiate license agreements
for the Remote Power Patent with respect to certain designated licensees agreed
to between the parties. Either the Company or ThinkFire can terminate the
Agreement upon 60 days' notice for any reason or upon 30 days' notice in the
event of a material breach. The Company has agreed to pay ThinkFire a fee
ranging from 5% to 20% of the royalty payments received from license agreements
consummated by ThinkFire on its behalf after the Company recovers its expenses
related to the litigation.

[2] AMENDED PATENT PURCHASE AGREEMENT:

On January 18, 2005, the Company and Merlot Communications, Inc. ("Merlot")
amended the Patent Purchase Agreement originally entered into in November 2003
(the "Amendment") pursuant to which the Company paid an additional purchase
price of $500,000 to Merlot in consideration for the restructuring of future
contingent payments to Merlot from the licensing or sale of the Patents. The
Amendment provides for future contingent payments by the Company to Merlot of
$1.0 million upon achievement of $25 million of Net Royalties (as defined), an
additional $1.0 million upon achievement of $50 million of Net Royalties and an
additional $500,000 upon achievement of $62.5 million of Net Royalties from
licensing or sale of the patents acquired from Merlot. Certain then principal
stockholders of the Company and related parties were also principal stockholders
and directors of Merlot at the time of the original agreement in November 2003
and the Amendment.



                                       10
<PAGE>
[3] LEGAL FEES:

Dovel & Luner, LLP provides legal services to the Company with respect to the
litigation commenced in February 2008 against several major data networking
equipment manufacturers (See Note D[1]). The terms of the Company's agreement
with Dovel & Luner, LLP provide for legal fees of a maximum aggregate cash
payment of $1.5 million plus a contingency fee of up to 24% depending upon when
an outcome is achieved. During the six months ended June 30, 2009, the Company
paid Dovel & Luner, LLP cash legal fees of $240,000 and contingency fees of
approximately $39,000.

With respect to the Company's litigation against D-Link, which was settled in
May 2007 (See Note D[2]), the Company utilized the services of Blank Rome, LLP
on a full contingency basis. In accordance with the Company's contingency fee
agreement with Blank Rome LLP, the Company will pay legal fees to Blank Rome LLP
equal to 25% of the royalty revenue received by the Company from its license
agreement with D-Link after the Company recovers its expenses related to the
litigation.


NOTE C - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS

On June 8, 2009, the Company entered into a new Employment Agreement with Corey
M. Horowitz pursuant to which he continues to serve as Chairman and Chief
Executive Officer for a three year term at an annual base salary of $375,000
(retroactive to April 1, 2009) for the first year, increasing by 5% on each of
April 1, 2010 and April 1, 2011. He also receives a cash bonus of no less than
$150,000 on an annual calendar year basis (beginning with the year ended
December 31, 2009) no later than January 15 of the following year, for the three
year term of the agreement. In connection with the Agreement, Mr. Horowitz was
issued a ten (10) year option to purchase 750,000 shares of the Company's common
stock at an exercise price of 0.83 per share, which vests in equal quarterly
amounts of 62,500 shares beginning June 30, 2009 through March 31, 2012, subject
to acceleration upon a change of control. Mr. Horowitz shall forfeit the balance
of unvested shares if his employment has been terminated "For Cause" (as
defined) by the Company or without Good Reason (as defined) by Mr. Horowitz. In
addition to the aforementioned option grant, the Company extended for an
additional five (5) years the expiration dates of all options (an aggregate of
417,500 shares) expiring in the calendar year 2009 owned by Mr. Horowitz.

Under the terms of the Agreement, Mr. Horowitz is also to receive additional
bonus compensation in an amount equal to 5% of the Company's royalties or other
payments (exclusive of proceeds from the sale of the Company's patents which is
covered below) with respect to the Company's Remote Power Patent and 12.5% of
the Company's royalties and other payments with respect to the Company's other
patents besides the Remote Power Patent (the "Additional Patents") (all before
deduction of payments to third parties including, but not limited to, legal fees
and expenses and third party license fees) actually received from licensing its
patented technologies (including patents owned as of the date of the Agreement
and acquired or licensed on an exclusive basis during the period in which Mr.
Horowitz continues to serve as an executive officer of the Company) (the
"Royalty Bonus Compensation"). In addition, during the term of his employment,
Mr. Horowitz shall also be entitled to additional bonus compensation equal to
(i) 5% of the gross proceeds from the sale of the Company's Remote Power Patent
and 12.5% of the gross proceeds from the sale of

                                       11
<PAGE>
NOTE C - EMPLOYMENT
ARRANGEMENTS AND OTHER AGREEMENTS: (CONTINUED)

the Additional Patents, and (ii) 5% of the gross proceeds from the merger of the
Company with or into another entity. The Royalty Bonus Compensation shall
continue to be paid to Mr. Horowitz for the life of each of the Company's
patents with respect to licenses entered into with third parties during Mr.
Horowitz's term of employment or at anytime thereafter, whether Mr. Horowitz is
employed by the Company or not; provided, that, Mr. Horowitz's employment has
not been terminated by the Company "For Cause" (as defined) or terminated by Mr.
Horowitz without "Good Reason" (as defined). In the event that Mr. Horowitz's
employment is terminated by the Company "Other Than For Cause" (as defined) or
by Mr. Horowitz for "Good Reason" (as defined), Mr. Horowitz shall also be
entitled to (i) a lump sum severance payment of 12 months base salary, (ii) the
minimum annual bonus of $150,000 and (iii) accelerated vesting of all unvested
options and warrants. In connection with the Agreement, Mr. Horowitz has agreed
not to compete with the Company as follows: (i) during the term of the agreement
and for a period of 12 months thereafter if his employment is terminated "Other
Than For Cause" (as defined) provided he is paid his 12 month base salary
severance amount and (ii) for a period of two years from the termination date,
if terminated "For Cause" by the Company or "Without Good Reason" by Mr.
Horowitz.


NOTE D - LITIGATION

[1] In February 2008, the Company commenced litigation against several major
data networking equipment manufacturers in the United States District Court for
the Eastern District of Texas, Tyler Division, for infringement of the Company's
Remote Power Patent. The complaint named as defendants Cisco Systems, Inc.,
Cisco Linksys, LLC, Enterasys Networks, Inc., 3COM Corporation, Inc., Extreme
Networks, Inc., Foundry Networks, Inc., Netgear, Inc. and Adtran, Inc. The
Company seeks injunctive relief and monetary damages for infringement based upon
reasonable royalties as well as treble damages for the defendants continued
willful infringement of the Remote Power Patent. The Defendants, in their
answers to the complaint, asserted that they do not infringe any valid claim of
the Remote Power Patent, and further asserted that, based on several different
theories, the patent claims are invalid or unenforceable. In addition to these
defenses, the defendants also asserted counterclaims for, among other things,
non-infringement, invalidity, and unenforceability of the Remote Power Patent. A
Markman hearing, a hearing on claim construction of our Remote Power Patent, is
currently scheduled for December, 2009 and a trial date has been set for July,
2010. In the event that the court determines that the Remote Power Patent is not
valid or enforceable, and/or that the defendants do not infringe, any such
determination would have a material adverse effect on the Company.

In May 2009 the Company settled the above referenced litigation with respect to
Netgear, Inc. ("Netgear"). As part of the settlement and under the Company's
Special Licensing Program, Netgear entered into a license agreement with the
Company for the Remote Power Patent, effective April 1, 2009. Under the terms of
the license, Netgear will license the Remote Power Patent for its full term
which expires in March 2020, and pay quarterly royalties (beginning as of April
1, 2009) based on its sales of Power over Ethernet products, including those PoE
products which comply with the Institute of Electrical and Electronic Engineers
802.3af and 802.3at Standards. Licensed products include Netgear's Power over
Ethernet enabled switches and wireless access points. The royalty rates included
in the license are 1.7% of the sales price of Power Sourcing Equipment, which
includes Ethernet switches, and 2% of the sales price of Powered Devices, which
includes wireless

                                       12
<PAGE>
NOTE D - LITIGATION: (CONTINUED)

access points. The royalty rates are subject to adjustment, under certain
circumstances, if Network-1 grants a license to other licensees with lower
royalty rates and Netgear is able to and agrees to assume all material terms and
conditions of such other license. In addition, Netgear paid the Company $350,000
upon the signing of the license agreement.

[2] In August 2005, the Company commenced patent litigation against D-Link
Corporation and D-Link Systems, Incorporated (collectively "D-Link") in the
United States District Court for the Eastern District of Texas, Tyler division
(Civil Action No. 6:05W291), for infringement of the Company's Remote Power
Patent (the "D-Link Litigation"). The complaint sought, among other things, a
judgment that the Company's Remote Power Patent is enforceable and has been
infringed by the defendants. The Company also sought a permanent injunction
restraining the defendants from continued infringement, or active inducement of
infringement by others, of the Remote Power Patent.

In August 2007, the Company finalized the settlement of the D-Link Litigation
(see below). Under the terms of the settlement, D-Link entered into a license
agreement for the Company's Remote Power Patent the terms of which include
monthly royalty payments of 3.25% (subject to adjustment as noted below) of the
net sales of D-Link Power over Ethernet products, including those products which
comply with the IEEE 802.3af and 802.3at Standards, for the full term of the
Remote Power Patent, which expires in March 2020. In addition, D-Link paid the
Company $100,000 upon signing of the Settlement Agreement. The royalty rate is
subject to adjustment to a rate consistent with other similarly situated
licensees of the Remote Power Patent based on units of shipments of licensed
products. In June 2009, based upon several licenses issued to third parties
under the Company's Special Licensing Program, the Company agreed in principle
with D-Link to adjust the royalty rate to 1.7% of the sales price for Power
Servicing Equipment (which includes Ethernet switches) and 2.0% of the sales
price for Powered Devices (which includes wireless access points).

[3] On November 16, 2005 the Company entered into a Settlement Agreement with
PowerDsine, Inc and PowerDsine Ltd. which dismissed, with prejudice, a civil
action brought by PowerDsine in the United States District Court for the
Southern District of New York that sought a declaratory judgment that U.S.
Patent No. 6,218,930 (the "Remote Power Patent") owned by the Company was
invalid and not infringed by PowerDsine and/or its customers. Under the terms of
the Settlement Agreement, the Company agreed that it will not initiate
litigation against PowerDsine for its sale of Power over Ethernet (PoE)
integrated circuits. In addition, the Company agreed that it will not seek
damages for infringement from customers that incorporate PowerDsine integrated
circuit products in PoE capable Ethernet switches manufactured on or before
April 30, 2006. PowerDsine agreed that it will not initiate, assist or cooperate
in any legal action relating to the Remote Power Patent.

In June 2008, the Company entered into a new agreement with Microsemi
Corp-Analog Mixed Signal Group Ltd ("Microsemi Analog"), previously PowerDsine
Ltd, a subsidiary of Microsemi Corporation ("Microsemi"), a leading manufacturer
of high performance analog mixed-signal integrated circuits and high reliability
semiconductors, which, among other things, amended the prior Settlement
Agreement entered into between the parties in November 2005. As part of the
Company's Special Licensing Program and its agreement with Microsemi Analog
entered into in June 2008, Microsemi, entered into a license agreement, dated
August 13, 2008, with the Company with respect to the Remote Power Patent. The
license agreement provides that Microsemi is obligated to pay the Company
quarterly royalty payments of 2% of the sales price for certain of Microsemi's
Midspan PoE products for the full term of the Remote Power Patent (March 2020).

                                       13
<PAGE>
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE
STATEMENTS THAT INCLUDE INFORMATION BASED UPON BELIEF OF OUR MANAGEMENT, AS WELL
AS ASSUMPTIONS MADE BY AND INFORMATION AVAILABLE TO MANAGEMENT. STATEMENTS
CONTAINING TERMS SUCH AS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS" OR
SIMILAR WORDS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. ACTUAL
RESULTS, EVENTS AND CIRCUMSTANCES (INCLUDING FUTURE PERFORMANCE, RESULTS AND
TRENDS) COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH STATEMENTS DUE TO
VARIOUS RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED
BEGINNING ON PAGES 8-14 OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR 2008 AND
AS DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q.

OVERVIEW

         Our principal business is the acquisition, development, licensing and
protection of our intellectual property. We presently own six patents covering
various telecommunications and data networking technologies (the "Patent
Portfolio") including, among others, patents covering the delivery of power over
Ethernet for the purpose of remotely powering network devices, and the
transmission of audio, video and data over computer and telephony networks. Our
strategy is to pursue licensing and strategic business alliances with companies
in the industries that manufacture and sell products that make use of the
technologies underlying our patents as well as with other users of the
technology who benefit directly from the technology including corporate,
educational and governmental entities.

         To date, our efforts with respect to our Patent Portfolio have focused
on licensing our patent (U.S. Patent No. 6,218,930) covering the control of
power delivery over Ethernet cables (the "Remote Power Patent"). As of June 30,
2009, we had entered into 6 license agreements with respect to our Remote Power
Patent which, among others, included license agreements with D-Link, Microsemi
Corporation and Netgear, Inc. (See Note [D] to our financial statements included
as part of this quarterly report). During the next 12 months we do not presently
anticipate licensing efforts for our other patents besides our Remote Power
Patent. We may seek to acquire additional patents in the future.

         To date we have incurred significant losses and at June 30, 2009 had an
accumulated deficit of $(52,158,000). For the year ended December 31, 2008 and
for the three and six months ended June 30, 2009, we incurred net losses of
$(1,618,000), $(297,000) and $(1,262,000), respectively. We anticipate that we
will continue to incur losses until we enter into additional license agreements
with respect to our patented technologies or achieve material additional revenue
from our existing license agreements. We achieved revenue of $349,000 for the
year ended December 31, 2008 and $514,000 for the six months ended June 30, 2009

                                       14
<PAGE>
with respect to royalties pertaining to our Remote Power Patent. Our inability
to consummate additional material license agreements or achieve material
additional revenue from our existing license agreements would have a material
adverse effect on our operations.

         Our success and ability to generate revenue is largely dependent on our
ability to consummate licensing arrangements with third parties. In November
2004, we entered into an agreement with ThinkFire Services USA, Ltd.
("ThinkFire") pursuant to which ThinkFire has been granted the exclusive
worldwide rights to negotiate license agreements for our Remote Power Patent
with certain agreed-upon potential licensees. We agreed to pay ThinkFire a fee
ranging from 5% to 20% of the royalty payments received from license agreements
consummated by ThinkFire on our behalf after we recover our expenses.

         In February 2008, we commenced litigation against eight major data
networking equipment manufacturers in the United States District Court for the
Eastern District of Texas, Tyler Division, for infringement of our Remote Power
Patent. The complaint named as defendants Cisco Systems, Inc., Cisco Linksys,
LLC, Enterasys Networks, Inc., 3COM Corporation, Inc., Extreme Networks, Inc.,
Foundry Networks, Inc., Netgear, Inc. and Adtran, Inc. We seek injunctive relief
and monetary damages for infringement based upon reasonable royalties as well as
treble damages for the defendant's continued willful infringement of our Remote
Power Patent. All of the defendants answered the complaint and asserted that
they do not infringe any valid claim of our Remote Power Patent, and further
asserted that, based on several different theories, the patent claims are
invalid or unenforceable. In addition to these defenses, the defendants also
asserted counterclaims for, among other things, non-infringement, invalidity,
and unenforceability of our Remote Power Patent. A Markman hearing, a hearing on
claim construction of our Remote Power Patent, is currently scheduled for
December, 2009 and a trial date has been set for July, 2010. In the event that
the Court determines that our Remote Power Patent is not valid or enforceable,
and/or that the defendants do not infringe, any such determination would have a
material adverse effect on us.

         On May 29, 2009 we announced that we had agreed to settle this
litigation with respect to Netgear, Inc. ("Netgear"). As part of the settlement
and under our Special Licensing Program, Netgear entered into a license
agreement with us for our Remote Power Patent. Under the terms of the license,
Netgear will license the Remote Power Patent for its full term (which expires in
March 2020), and pay quarterly royalties (beginning as of April 1, 2009) based
on its sales of Power over Ethernet products, including those Power over
Ethernet products which comply with the Institute of Electrical and Electronic
Engineers 802.3af and 802.3at Standards. Licensed products include Netgear's
Power over Ethernet enabled switches and wireless access points. The royalty
rates included in the license are 1.7% of the sales price of Power Sourcing
Equipment, which includes Ethernet switches, and 2% of the sales price of
Powered Devices, which includes wireless access points. The royalty rates are
subject to adjustment, under certain circumstances, if we grant a license to
other licensees with lower royalty rates and Netgear is able to and agrees to
assume all material terms and conditions of the other license. In addition,
Netgear made a payment to us of $350,000 with respect to the settlement.

         In August 2007 we finalized the settlement of our patent litigation
against D-Link in the United States District Court for the Eastern District of
Texas, Tyler Division, for infringement of our Remote Power Patent (U.S. Patent
No. 6,218,930). Under the terms of the settlement, D-Link licenses our Remote

                                       15
<PAGE>
Power Patent the terms of which include monthly royalty payments of 3.25% (as
adjusted as noted below) of the net sales of D-Link branded Power over Ethernet
products, including those products which comply with the IEEE 802.3af and
802.3at Standards, for the full life of our Remote Power Patent, which expires
in March 2020. The royalty rate is subject to adjustment to a rate consistent
with other similarly situated licensees of our Remote Power Patent based on
units of shipments of licensed products. In addition, D-Link paid us $100,000
upon signing the settlement agreement. In June 2009, based upon several licenses
issued to third parties under our Special Licensing Program, we agreed in
principle with D-Link to adjust the royalty rate to 1.7% of the sales price for
Power Servicing Equipment (which includes Ethernet switches) and 2.0% of the
sales price for Powered Devices (which includes wireless access points).

         As part of our Special Licensing Program and our agreement with
Microsemi Corp-Analog Mixed Signal Group Ltd. ("Microsemi-Analog") entered into
in June 2008, Microsemi Corporation ("Microsemi"), the parent company of
Microsemi-Analog, entered into a license agreement, dated August 13, 2008, with
us with respect to the Remote Power Patent. The license agreement provides that
Microsemi is obligated to pay us quarterly royalty payments of 2% of the sales
price for certain of Microsemi's Midspan PoE products for the full term of the
Remote Power Patent (through March 2020).

         Notwithstanding our license agreements, including those with D-Link,
Microsemi and Netgear described above, there is no assurance that we will
achieve significant royalty revenue from such licenses, that we will be able to
achieve additional material license agreements with third parties relating to
our Remote Power Patent or our other patents, or that such license arrangements
will result in material revenue to us.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30, 2008

         We had revenue of $487,000 and $65,000 for the three months ended June
30, 2009 and 2008, respectively, which were related to the receipt of royalties
from licensees of our Remote Power Patent. The increased revenue of $422,000 for
the three months ended June 30, 2009 as compared to the three month period ended
June 30, 2008 was due primarily to the $350,000 upfront payment from the
settlement of our litigation with Netgear, Inc. and additional licensees of our
Remote Power Patent.

         We had a cost of revenue of $64,000 and $4,000 for the three months
ended June 30, 2009 and 2008, respectively, which increase of $62,000 was
related to the payment of additional bonus compensation to our Chairman and
Chief Executive Officer pursuant to his employment agreement, and contingent
legal fees paid to Dovel & Luner, LLP, our patent litigation counsel.

         The gross profit increased $362,000 from $61,000 for the three months
ended June 30, 2008 to $423,000 for the three months ended June 30, 2009. Such
increased gross profit was the result of increased revenue for the three months
ended June 30, 2009 due to the $350,000 payment from settlement of our
litigation with Netgear, Inc. and additional licensees of our Remote Power
Patent.
                                       16
<PAGE>
         General and administrative expenses include overhead expenses, and
finance, accounting, legal and other professional services incurred by us.
General and administrative expenses increased by $111,000, from $418,000 the
three months ended June 30, 2008 to $529,000 for the three months ended June 30,
2009 due primarily to increased fees and expenses with respect to litigation
involving our Remote Power Patent.

         We incurred an operating loss of ($297,000) for the three months ended
June 30, 2009 compared with an operating loss of ($430,000) for the three months
ended June 30, 2008. Included in the operating loss for the three months ended
June 30, 2009 was $191,000 in charges relating to non-cash compensation
expenses, primarily related to the issuance of options to our Chairman and Chief
Executive Officer and the extension of expiration dates of options held by our
Chairman and Chief Executive Officer in accordance with his new employment
agreement, as compared to $73,000 for such non-cash compensation expenses for
the three months ended June 30, 2008.

         No provision for or benefit from federal, state or local income taxes
was recorded for the three months ended June 30, 2009 and June 30, 2008 because
we incurred net operating losses and fully reserved our deferred tax assets as
their future realization could not be determined.

         As a result of the foregoing, we incurred a net loss of $(297,000) for
the three months ended June 30, 2009 compared with a net loss of $(402,000) for
the three months ended June 30, 2008.

SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX MONTHS ENDED JUNE 30, 2008

         We had revenue of $514,000 and $134,000 for the six months ended June
30, 2009 and 2008, respectively, which were related to the receipt of royalties
from licensees of our Remote Power Patent. The revenue increase of $380,000 for
the six months ended June 30, 2009 as compared to the six month period ended
June 30, 2008 was due primarily to the $350,000 payment from the settlement of
our litigation with Netgear, Inc.

         We had a cost of royalties of $65,000 and $7,000 for the six months
ended June 30, 2009 and 2008, respectively, which increase of $58,000 was
related to additional bonus compensation payable to our Chairman and Chief
Executive Officer pursuant to his employment agreement, and contingent legal
fees paid to Dovel & Luner, our patent litigation counsel.

         The gross profit for the six months ended June 30, 2009 increased
$322,000 from $127,000 for the six months ended June 30, 2008 to $449,000 for
the six months ended June 30, 2009. Such increased gross profit was the result
of increased revenue for the six months ended June 30, 2009 due primarily to the
$350,000 upfront payment from settlement of our litigation with Netgear, Inc.

         General and administrative expenses include overhead expenses, and
finance, accounting, legal and other professional services incurred by us.
General and administrative expenses increased by $196,000 from $770,000 for the
six months ended June 30, 2008 to $966,000 for the six months ended June 30,
2009 due primarily to increased fees and expenses from our patent litigation.

                                       17
<PAGE>
         We incurred an operating loss of ($1,263,000) for the six months ended
June 30, 2009 compared with an operating loss of ($789,000) for the six months
ended June 30, 2008. Included in the operating loss for the six months ended
June 30, 2008 was $746,000 in charges relating to non-cash compensation expenses
primarily related to the adjustment of exercise prices for outstanding options
and warrants (see Note A[3] to our financial statements included in this
quarterly report) as compared to $146,000 for such non-cash compensation
expenses for the six months ended June 30, 2008. These losses were offset by
interest earned of only $1,000 for the six months ended June 30, 2009, compared
with $68,000 for the six months ended June 30, 2008.

         No provision for or benefit from federal, state or local income taxes
was recorded for six months ended June 30, 2009 and June 30, 2008 because we
incurred net operating losses and fully reserved our deferred tax assets as
their future realization could not be determined.

         As a result of the foregoing, we incurred a net loss of $(1,262,000)
for the six months ended June 30, 2009 compared with a net loss of $(721,000)
for the six months ended June 30, 2008.

LIQUIDITY AND CAPITAL RESOURCES

         We have financed our operations primarily from the sale of equity
securities and royalty revenue from licensing our Remote Power Patent. We
anticipate, based on currently proposed plans and assumptions, relating to our
operations, that our cash and cash equivalents of approximately $3,869,000 as of
June 30, 2009 will more likely than not be sufficient to satisfy our operations
and capital requirements until at least December 31, 2010. There can be no
assurance, however, that such funds will not be expended prior thereto. In the
event our plans change, or our assumptions change, or prove to be inaccurate
(due to unanticipated expenses, difficulties, delays or otherwise), we may have
insufficient funds to support our operations prior to December 31, 2010 Our
inability to consummate additional material licensing arrangements with respect
to our Remote Power Patent and generate revenues therefrom, achieve a material
increase in revenue from our existing licenses or obtain additional financing
when needed, would have a material adverse effect on our company, requiring us
to curtail or cease operations. In addition, any equity financing may involve
substantial dilution to our current stockholders.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

We do not have any long-term debt, capital lease obligations, operating lease
obligations, purchase obligations or other long-term liabilities.

                                       18
<PAGE>
CRITICAL ACCOUNTING POLICIES:

         Patents:

The Company owns a patent portfolio that relates to various telecommunications
and data networking technologies. The Company capitalizes the costs associated
with acquisition, registration and maintenance of the patents and amortizes
these assets over their remaining useful lives on a straight-line basis. Any
further payments made to maintain or develop the patents would be capitalized
and amortized over the balance of the useful life for the patents.

         Impairment of long-lived assets:

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", we record
impairment losses on long-lived assets used in operations or expected to be
disposed of when indicators of impairment exist and the cash flows expected to
be derived from those assets are less than carrying amounts of those assets.

         Use of estimates:

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.



ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.






                                       19
<PAGE>
ITEM 4.  CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed our
disclosure controls and procedures as of the end of the period covered by this
Quarterly Report on Form 10-Q. Based upon this review, these officers concluded
that, as of the end of the period covered by this Quarterly Report on Form 10-Q,
our disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports we file or submit under Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, and is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.

(b) Changes in Internal Controls

There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended June 30, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.



                           PART II. OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS

Pending Litigation Against Major Data Networking Equipment Manufacturers

In February 2008, we commenced litigation against eight major data networking
equipment manufacturers in the United States District Court for the Eastern
District of Texas, Tyler Division, for infringement of our Remote Power Patent.
The complaint named as defendants Cisco Systems, Inc., Cisco Linksys, LLC,
Enterasys Networks, Inc., 3COM Corporation, Inc., Extreme Networks, Inc.,
Foundry Networks, Inc., Netgear, Inc. and Adtran, Inc. We seek injunctive relief
and monetary damages for infringement based upon reasonable royalties as well as
treble damages for the defendants' continued willful infringement of our Remote
Power Patent. The defendants, in their answers to our complaint, asserted that
they do not infringe any valid claim of our Remote Power Patent, and further
asserted that, based on several different theories, the patent claims are
invalid or unenforceable. In addition to these defenses, the defendants also
asserted counterclaims for, among other things, non-infringement, invalidity,
and unenforceability of our Remote Power Patent. A Markman hearing, a hearing on
claim construction of our Remote Power Patent, is scheduled for December, 2009
and a trial date has been set for July, 2010. In the event that the Court
determines that our Remote Power Patent is not valid or enforceable, and/or that
the defendants do not infringe, any such determination would have a material
adverse effect on our company.

On May 29, 2009 we announced that we had agreed to settle this litigation with
respect to Netgear, Inc. ("Netgear"). As part of the settlement and under our
Special Licensing Program, Netgear entered into a license agreement with us for
our Remote Power Patent and we agreed that all claims and counterclaims
involving Netgear in the litigation would be dismissed with prejudice. Under the
terms of the license, Netgear will license the Remote Power Patent for its full
term (which expires in March 2020), and pay quarterly royalties (beginning as of
April 1, 2009) based on its sales of Power over Ethernet products, including
those Power over Ethernet products which comply with the Institute of Electrical

                                       20
<PAGE>
and Electronic Engineers 802.3af and 802.3at Standards. Licensed products
include Netgear's Power over Ethernet enabled switches and wireless access
points. The royalty rates included in the license are 1.7% of the sales price of
Power Sourcing Equipment, which includes Ethernet switches, and 2% of the sales
price of Powered Devices, which includes wireless access points. The royalty
rates are subject to adjustment, under certain circumstances, if we grant a
license to other licensees with lower royalty rates and Netgear is able to and
agrees to assume all material terms and conditions of such other license. In
addition, Netgear paid us $350,000 with respect to the settlement.

D-Link Settlement

In August 2005, we commenced patent litigation against D-Link Corporation and
D-Link Systems, Incorporated (collectively "D-Link") in the United States
District Court for the Eastern District of Texas, Tyler division, for
infringement of our Remote Power Patent. Our complaint sought, among other
things, a judgment that our Remote Power Patent is enforceable and has been
infringed by the defendants. We also sought a permanent injunction restraining
the defendants from continued infringement, or active inducement of infringement
by others, of our Remote Power Patent.

In August 2007, we finalized the settlement of our patent infringement
litigation against D-Link. Under the terms of the settlement, D-Link entered
into a license agreement for our Remote Power Patent the terms of which include
monthly royalty payments of 3.25% (subject to adjustment as noted below) of the
net sales of D-Link Power over Ethernet products, including those products which
comply with the IEEE 802.3af and 802.3at Standards, for the full term of our
Remote Power Patent, which expires in March 2020. In addition, D-Link paid us
$100,000 upon signing of the Settlement Agreement. The royalty rate is subject
to adjustment to a rate consistent with other similarly situated licensees of
our Remote Power Patent based on units of shipments of licensed products. In
June 2009, based upon several licenses issued to third parties under our Special
Licensing Program, we agreed in principle with D-Link to adjust the royalty rate
to 1.7% of the sales price for Power Servicing Equipment (which includes
Ethernet switches) and 2.0% of the sales price for Powered Devices (which
includes wireless access points).

PowerDsine Settlement

On November 16, 2005, we entered into a Settlement Agreement with PowerDsine,
Inc. (NASDAQ: PDSN) and PowerDsine Ltd. (collectively, "PowerDsine") which
dismissed, with prejudice, patent litigation brought by PowerDsine against us in
March 2004 in the United States District Court for the Southern District of New
York that sought a declaratory judgment that our Remote Power Patent (U.S.
Patent No. 6,218,930) was invalid and not infringed by PowerDsine and/or its
customers. Under the terms of the Settlement Agreement, we agreed that, under
certain circumstances, we will not initiate litigation against PowerDsine for
its sale of Power over Ethernet (PoE) integrated circuits. In addition, we
agreed that we will not seek damages for infringement from customers that
incorporate PowerDsine integrated circuit products in PoE capable Ethernet
switches manufactured on or before April 30, 2006. PowerDsine has agreed that it
will not initiate, assist or cooperate in any legal action relating to the
Remote Power Patent. No licenses to use the technologies covered by our Remote
Power Patent were granted to PowerDsine or its customers under the terms of the
settlement. The Settlement Agreement further provides that PowerDsine is
obligated to provide each of its customers with written notice of the settlement
which notice shall disclose that no license for our Remote Power Patent has been
provided to PowerDsine's customers and that in order to combine, modify or
integrate any PowerDsine product with or into any other device or software,
PowerDsine's customers may need to receive patent license(s) for our Remote
Power Patent which is the customer's responsibility.

                                       21
<PAGE>
In June 2008 we entered into a new agreement with Microsemi Corp-Analog Mixed
Signal Group Ltd ("Microsemi Analog"), previously PowerDsine Ltd, a subsidiary
of Microsemi Corporation ("Microsemi"), a leading manufacturer of high
performance analog mixed-signal integrated circuits and high reliability
semiconductors, which, among other things, amended the prior Settlement
Agreement entered into between the parties in November 2005. Under the new
agreement, on June 25, 2008 we announced the commencement of an industry-wide
Special Licensing Program for our Remote Power Patent to vendors of PoE
equipment. The Special Licensing Program was of limited duration (through
December 31, 2008) and was implemented on an industry-wide basis to offer
discounted running royalty rates and exceptions to our standard licensing terms
and conditions for the Remote Power Patent to PoE vendors who were "early
adopters" and entered into license agreements without delay to avoid litigation
and higher royalties. We entered into 3 license agreements as part of our
Special Licensing Program. The new agreement enabled Microsemi Analog to assist
in its customers' evaluation of our Remote Power Patent and the terms being made
available to vendors of PoE equipment pursuant to our Special Licensing Program,
an activity that was previously prohibited by the 2005 Settlement Agreement with
PowerDsine. As part of our Special Licensing Program and our agreement with
Microsemi Analog entered into in June 2008, Microsemi entered into a license
agreement, on August 13, 2008, with us with respect to our Remote Power Patent.
The license agreement provides that Microsemi is obligated to pay us quarterly
royalty payments of 2% of the sales price for certain of Microsemi's Midspan PoE
products for the full term of our Remote Power Patent (March 2020).


ITEM 1A. Risk Factors.

Our operations and financial results are subject to various risks and
uncertainties that could adversely affect our business, financial condition,
results of operations and trading price of our common stock.

Our Annual Report on Form 10-K for the year ended December 31, 2008 includes a
detailed discussion of our risk factors and should be carefully considered by
investors. There were no material changes to the risk factors set forth in our
Annual Report on Form 10-K for the year ended December 31, 2008 except as
otherwise disclosed in this Quarterly Report on Form 10-Q.


ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None, except as previously reported in our Current Report on Form 8-K filed with
the Securities and Exchange Commission on June 12, 2009.


ITEM 3.  Defaults Upon Senior Securities.

None.


ITEM 4.  Submission of Matters to a Vote of Security Holders.

None.

                                       22
<PAGE>
ITEM 5.  OTHER INFORMATION.

None.


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.














                                       23
<PAGE>

SIGNATURES
----------

In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                       NETWORK-1 SECURITY SOLUTIONS, INC.



                                       BY: /S/ COREY M. HOROWITZ
                                           ------------------------------------
                                           COREY M. HOROWITZ
                                           CHAIRMAN AND CHIEF EXECUTIVE OFFICER



                                       BY: /S/ DAVID C. KAHN
                                           ------------------------------------
                                           DAVID C. KAHN
                                           CHIEF FINANCIAL OFFICER


DATE:  AUGUST 13, 2009










                                       24