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

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

                                   FORM 10-QSB

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

         FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

     [ ] 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 SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)



             DELAWARE                                   11-3027591
--------------------------------------------------------------------------------
  (STATE OR OTHER JURISDICTION OF            (IRS EMPLOYER IDENTIFICATION NO.)
   INCORPORATION OR ORGANIZATION)


              445 Park Avenue, Suite 1028, New York, New York 10022
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                  212-829-5770
                           (Issuer's Telephone Number)



     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [_]


     The number of shares of Common Stock, $.01 par value per share, outstanding
as of November 4, 2005 was 17,697,572.

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X].

     Transitional Small Business Disclosure Format (check one): Yes [_] No [X]


================================================================================
<PAGE>

NETWORK-1 SECURITY SOLUTIONS, INC.

                                      INDEX



                                                                        Page No.

PART I.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
         Condensed Balance Sheets as of September 30, 2005 (unaudited)
         and December 31, 2004...............................................  3

         Condensed Statements of Operations for the three and nine months
         ended September 30, 2005 and 2004 (unaudited)........................ 4

         Condensed Statements of Cash Flows for the nine months
         ended September 30, 2005 and 2004 (unaudited)........................ 5

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

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........... 14

Item 3.  CONTROLS AND PROCEDURES............................................. 22




PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings................................................... 22

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds......... 23

Item 3.  Defaults Upon Senior Securities..................................... 23

Item 4.  Submission of Matters to a Vote of Security Holders................. 23

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

Item 6.  Exhibits and Reports on Form 8-K.................................... 23


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

                                       2
<PAGE>

                       NETWORK-1 SECURITY SOLUTIONS, INC.

                            CONDENSED BALANCE SHEETS

<TABLE><CAPTION>
                                                                          SEPTEMBER 30,     DECEMBER 31,
                                                                              2005              2004
                                                                          ============      ============
                                                                           (UNAUDITED)
<S>                                                                       <C>               <C>
ASSETS
------
Current assets:
   Cash and cash equivalents                                              $  1,257,000      $  2,177,000
   Prepaid expenses and other current assets                                    30,000           100,000
                                                                          ------------      ------------

        Total current assets                                                 1,287,000         2,177,000

Patents                                                                         87,000            92,000
Security Deposit                                                                 6,000              --
                                                                          ------------      ------------
                                                                          $  1,380,000      $  2,369,000
                                                                          ============      ============
LIABILITIES
-----------
Current liabilities:
   Accounts payable                                                       $     83,000      $    437,000
   Accrued expenses and other current liabilities                              516,000           505,000
                                                                          ------------      ------------

        Total current liabilities                                              599,000           942,000
                                                                          ------------      ------------

Liability to be settled with equity instrument                                    --             294,000
                                                                          ------------      ------------
Commitments and contingencies

STOCKHOLDERS' EQUITY
--------------------
Common stock - $0.01 par value ; authorized 50,000,000 shares;
   17,697,572 shares issued and outstanding at September 30, 2005 and
   17,097,572 at December 31, 2004                                             177,000           171,000

Additional paid-in capital                                                  44,873,000        43,951,000
Accumulated deficit                                                        (44,269,000)      (42,989,000)
                                                                          ------------      ------------

                                                                               781,000         1,133,000
                                                                          ------------      ------------
                                                                          $  1,380,000      $  2,369,000
                                                                          ============      ============
</TABLE>

See notes to unaudited condensed financial statements.

                                       3
<PAGE>

                       NETWORK-1 SECURITY SOLUTIONS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE><CAPTION>
                                                          THREE MONTHS ENDED              NINE MONTHS ENDED
                                                             SEPTEMBER 30,                   SEPTEMBER 30,
                                                     ----------------------------    ----------------------------
                                                         2005            2004            2005            2004
                                                     ------------    ------------    ------------    ------------
                                                                                                     (as restated -
                                                                                                       see Note 3)
<S>                                                  <C>             <C>             <C>             <C>
Operating expenses:
          General and administrative                 $    329,000    $    280,000    $    809,000    $    862,000
           Patent Costs                                                                   500,000



LOSS BEFORE INTEREST INCOME                              (329,000)       (280,000)     (1,309,000)       (862,000)
Interest income - net                                       9,000            --            29,000           1,000
                                                     ------------    ------------    ------------    ------------

Net Loss                                                 (320,000)       (280,000)     (1,280,000)       (861,000)
                                                     ============    ============    ============    ============


Deemed dividend on additional warrant
antidilutution adjustment                                                                  (6,000)
Deemed dividend on Preferred Stock conversion                                                            (273,000)

Net loss attributable to common stockholders         $   (320,000)   $   (280,000)   $ (1,286,000)   $ (1,134,000)
                                                     ------------    ------------    ------------    ------------








LOSS PER COMMON SHARE: BASIC AND DILUTED             $      (0.02)   $      (0.02)   $      (0.07)   $      (0.08)
                                                     ============    ============    ============    ============



WEIGHTED AVERAGE SHARES: BASIC AND DILUTED             17,697,572      15,012,572      17,671,198      14,108,917
                                                     ============    ============    ============    ============
</TABLE>


              See notes to unaudited condensed financial statements

                                       4
<PAGE>

                       NETWORK-1 SECURITY SOLUTIONS , INC.
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE><CAPTION>

                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                   ============================
                                                                       2005            2004
                                                                   ============    ============
<S>                                                                <C>             <C>
Cash flows from operating activities:
 Net loss                                                          $ (1,280,000)   $   (861,000)
 Adjustments to reconcile net loss to net cash used in
 operating activities:
    Depreciation and amortization                                         5,000           5,000
    Valuation adjustment for outstanding stock options                  (32,000)        114,000
    Issuance of options and warrants for services rendered               68,000            --


    Changes in:
       Prepaid expenses and other current assets                         70,000          74,000
       Security Deposits                                                 (6,000)           --
       Accounts payable, accrued expenses and other
         current liabilities                                           (343,000)         17,000
                                                                   ------------    ------------

          Net cash used in operating activities                      (1,520,000)       (651,000)
                                                                   ------------    ------------
Cash Flows from Investing Activities                                       --              --
                                                                   ------------    ------------
Cash Flows from Financing Activities
    Issuance of Common Stock                                            600,000            --

                                                                   ------------    ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                              (920,000)       (651,000)
Cash and cash equivalents, beginning of period                        2,177,000         984,000
                                                                   ------------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                           $  1,257,000    $    333,000
                                                                   ============    ============




NON-CASH TRANSACTIONS:
Non-employee compensation paid with equity stock options           $    262,000    $     51,000
                                                                   ============    ============

Par value of Common stock issued on conversion of Series D and E
Preferred stock                                                            --      $     67,000
                                                                   ============    ============
</TABLE>

See notes to unaudited condensed financial statements

                                       5
<PAGE>

                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] BASIS OF PRESENTATION:

The accompanying condensed financial statements as of September 30, 2005 and for
the three and nine month periods ended September 30, 2005 and September 30,
2004, 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 September 30, 2005, the
results of its operations and its cash flows for the three and nine month
periods ended September 30, 2005 and 2004. 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-QSB. 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, 2004 included in the Company's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission. The results of operations for the
nine months ended September 30, 2005 and 2004 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.

On November 18, 2003, the Company acquired the Patent Portfolio from Merlot
Communications, Inc., a broadband communications solutions provider. In February
2004, the Company initiated licensing efforts relating to one of its patents
(U.S. Patent No. 6,218,930) covering the remote delivery of power over Ethernet
cables (the "Remote Power Patent"). As of September 30, 2005, the Company
transmitted letters to approximately 85 companies offering licenses to the
Remote Power Patent. To date the Company has not entered into any license
agreements with third parties with respect to its Remote Power Patent.

                                       6
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

[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 2004 and the nine month period ended September 30, 2005. For the
year ended December 31, 2004 and the nine month period ended September 30, 2005,
the Company had no revenue from operations. The Company will continue to have
operating losses for the foreseeable future until it is successful in licensing
its patented technologies. The Company is dependent upon debt and equity
financing until it generates cash flows from operations. In December 2004 and
January 2005, the Company completed a private placement of its equity
securities. As a result of such private placement, the Company has cash and cash
equivalents of $2,177,000 as of December 31, 2004 and $1,257,000 as of September
30, 2005. The Company believes its current cash position will more likely than
not be sufficient to satisfy the Company's operations and capital requirements
until September 2006, although there can be no assurance that such funds will
not be expended prior thereto. If necessary, the Company will take further
action which it believes is required to sustain its operations for the next
twelve months.

[3] - RESTATEMENT:

The Company has restated its condensed statements of operations for the nine
months ended September 30, 2004 presented in this Quarterly Report on Form
10-QSB for the nine months ended September 30, 2005, following comments received
from the staff of the Division of Corporation Finance of the Securities and
Exchange Commission and the resulting discussions with the staff pertaining to
the Company's Annual Report on 10-KSB for the year ended December 31, 2004
("2004 10-KSB").

The Company's 2004 10-KSB included disclosure in Note D [1] pertaining to its
April 2004 exchange transaction pursuant to which all holders the Company's
outstanding Series E convertible preferred stock ("Series E") and Series D
convertible preferred stock ("Series D") (collectively, the Series E and Series
D, the "Preferred Stock") exchanged their preferred shares for shares of common
stock of the Company (the "2004 Exchange Transaction"). The Staff commented on
the Company's accounting of the 2004 Exchange Transaction which included
discussions concerning whether or not the Preferred Stock contained a
"beneficial conversion feature" which should be accounted for under Emerging
Issues Task Force Issue No. (EITF) 00-27 as a deemed dividend and included in
the net loss attributable to common stockholders and the per share amounts.

In the 2004 Exchange Transaction, the Company entered into an exchange agreement
with the holders of all of the Company's outstanding shares of Series E (Series
E") and Series D ("Series D") convertible preferred stock to exchange 2,483,508
shares of Series E for 6,208,770 shares of common stock and 231,054 shares of
Series D for 489,348 shares of common stock. The holders of the Series E and
Series D received 1.25 times the number of shares of common stock that each
preferred stockholder would have otherwise received upon conversion. The holders
of preferred stock participating in the exchange included, among others, CMH
Capital Management Corp. (1,084,935 Series E shares), the sole owner and officer
of which is Corey M. Horowitz, Chairman and Chief Executive Officer of the
Company, the wife of Corey M.
Horowitz, (35,377 Series E

                                       7
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

[3] - RESTATEMENT: (CONTINUED)

shares) and other principal stockholders of the Company (990,552 of Series E
shares and 209,125 of Series D shares). Upon closing of the 2004 Exchange
Transaction, there were no shares of preferred stock outstanding. In its
original accounting for the 2004 Exchange Transaction, the Company did not
reflect a deemed dividend.

The Company has concluded that it should have recognized a deemed dividend as a
result of the beneficial conversion feature in accordance with ETIF 00-27. The
change in the accounting treatment for the 2004 Exchange Transaction and the
restatement of the Company's condensed statement of operations for nine months
ended September 30, 2004 resulted in the following changes:

     o    the inclusion of a "Deemed Dividend on Preferred Stock Conversion" in
          the amount of $273,000 for the nine months ended September 30, 2004;

     o    increase the net loss attributable to common stockholders by $273,000,
          to $1,134,000 from $861,000 for the nine months ended September 30,
          2004; and

     o    increase the loss per common share to $(.08) per share from $(.06) per
          share basic, and diluted, for the nine months ended September 30,
          2004.

The effect of the restatement on the amounts previously reported in the
Company's condensed statements of operations included in the Company's Form
10-QSB for the nine months ended September 30, 2004 are as follows:

                                                       Nine Months Ended
                                                       September 30, 2004
                                                 As Previously
                                                   Reported         As Restated
                                                   --------         -----------
STATEMENTS OF OPERATIONS:
Deemed Dividend on Preferred Stock Conversion            --        $    273,000
Net Loss attributable to common stockholders     $    861,000      $  1,134,000
Loss per common share: basic and diluted         $      (0.06)     $      (0.08)




                                       8
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

[4] STOCK-BASED COMPENSATION:

The Company accounts for stock-based employee compensation under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure", which was
released in December 2002 as an amendment of SFAS No. 123. The following table
illustrates the effect on net loss and net loss per share attributable to common
stockholders as if the fair value-based method of SFAS No. 123 had been applied
to all awards.

<TABLE><CAPTION>
                                                             NINE  MONTHS ENDED SEPTEMBER 30,
                                                              ==============================
                                                                  2005              2004
                                                              ============      ============
                                                                                 (Restated)
<S>                                                           <C>               <C>
Reported net loss attributable to common stockholders         $ (1,286,000)     $ (1,134,000)
Stock-based employee compensation expense included in the
    reported net loss, net of related tax effects                     --                --
Stock-based employee compensation determined under the
    fair value-based method, net of related tax effects           (433,000)           (3,000)
                                                              ------------      ------------

Pro forma net loss                                            $ (1,719,000)     $ (1,137,000)
                                                              ============      ============

Loss per common share (basic and diluted):
    As reported                                               $      (0.07)     $      (0.08)
                                                              ============      ============

    Pro forma                                                 $      (0.10)     $      (0.08)
                                                              ============      ============
</TABLE>

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

                                                   NINE MONTHS ENDED
                                                      SEPTEMBER 30,
                                                 ----------------------
                                                   2005          2004
                                                 --------      --------
Risk-free interest rates                             3.95%         3.93%
Expected option life in years                    3.00-7.00         3.00
Expected stock price volatility                    220.65%       229.49%
Expected dividend yield                              0.00%         0.00%

                                       9
<PAGE>

                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

[5] REVENUE RECOGNITION:

The Company intends on recognizing 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. Under this guidance, 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.

[6] 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. Potential shares
of 11,267,244 for the three and nine month periods ending September 30, 2005 are
antidilutive and are not included in the calculation of diluted loss per share.
Potential shares of 6,053,104 for the three and nine month periods ending
September 30, 2004 are antidilutive and are not included in the calculation of
diluted loss per share. Such potential common shares reflect options and
warrants.

[7] CASH EQUIVALENTS:

The Company places cash investments in high quality financial institutions
insured by the Federal Deposit Insurance Corporation ("FDIC"). At September 30,
2005, the Company maintained cash balance of approximately $1,243,000 in one
financial institution.

NOTE B - AMENDED PATENT PURCHASE AGREEMENT

In November 2003, the Company acquired a portfolio of telecommunications and
data networking patents (six patents) from Merlot Communications, Inc.
("Merlot"). The purchase price for the Patent Portfolio was $100,000, paid in
cash. The cash price paid has been capitalized and is being amortized over the
remaining useful life of each patent. In addition, the Company has granted
Merlot a nonexclusive, royalty free, perpetual license for the term of each
patent to use the patents for the development, manufacture or sale of its own
branded products to end users. The Company had agreed to pay Merlot 20% of the
net income, as defined, after the first $4,000,000 of net income realized by the
Company on a per patent basis from the sale or licensing of the patents. On
January 18, 2005, the Company and Merlot amended the Patent Purchase Agreement
(the "Amendment") pursuant to which the Company paid 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 principal
stockholders of the Company and related parties are also principal stockholders
of Merlot and were also directors of Merlot at the time of the original
agreement in November 2003 and the Amendment. The Company has treated this
expenditure as an expense called Patent Costs for the nine months ended
September 30, 2005.

                                       10
<PAGE>

                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE C - PRIVATE PLACEMENT

[1] On December 21, 2004, the Company completed the first closing of a private
placement of 2,085,000 shares of common stock and three-year warrants to
purchase 1,563,750 shares of common stock (warrants to purchase 1,042,500 shares
of common stock at an exercise price of $1.25 and warrants to purchase 521,250
shares of common stock at an exercise price of $1.75) for an aggregate purchase
price of $2,035,000, net of $50,000 issuance costs. On January 13, 2005, the
Company completed a second closing with respect to the private placement of
securities, which consisted of an additional 600,000 shares of common stock and
warrants to purchase an additional 450,000 shares of common stock for an
aggregate purchase price of $600,000. In connection with the private placement,
the Company paid to a finder $50,000 and issued to such finder warrants to
purchase 50,000 shares of common stock at an exercise price of $1.00 expiring in
December 2009. As part of the private placement, the Company filed a
registration statement on June 21, 2005, to register the common stock and the
shares issuable upon exercise of the warrants.

[2] In connection with the private placement and anti-dilutive provisions for
the warrants previously issued to Falconstor Software, Inc., the Company issued
warrants to purchase an aggregate of 135,000 additional shares of common stock
at an exercise price of $1.00 per share expiring in October 2006. The associated
expense, which is treated as an imputed dividend, is based on the fair value of
these warrants using the Black-Scholes model utilizing the risk-free interest
rate of 3.01%, life of 2 years, volatility of 270% and dividend yield of 0%.
Such expense was $6,000 and is included in the accompanying statement of
operations for the nine month period ended September 30, 2005.

NOTE D - LIABILITY TO BE SETTLED WITH EQUITY INSTRUMENTS

On April 18, 2002, in consideration of additional consulting and financial
advisory services, the Company issued to CMH Capital Management Corp., an entity
solely owned by Corey M. Horowitz, Chairman and Chief Executive Officer of the
Company, an option to purchase 750,000 shares of the common stock at an exercise
price of $1.20 per share, which was the market price of the Company's common
stock on the date of issuance. The options vest over a three-year period in
equal amounts of 250,000 per year beginning April 18, 2003. In addition, the
options shall vest in full in the event of a "change of control" or in the event
that the closing price of the Company's common stock reaches a minimum of $3.50
per share for 20 consecutive trading days. These options are treated as
contingent options and were originally priced in the quarter ended June 30, 2002
at $416,000. Subsequently, they are revalued at each balance sheet date. On
April 18, 2003, 250,000 of these options vested, having a fair value of $5,000.
Accordingly, $5,000 was reallocated to additional paid-in capital with a
corresponding reduction to the liability. On April 18, 2004, 250,000 of these
options vested having a fair value of $51,000. Accordingly, $51,000 was
reallocated to additional paid-in-capital with a corresponding reduction to the
liability. On April 18, 2005 the remaining 250,000 options vested and were
revalued from $294,000 at December 31, 2004 to $262,000 which was then
reallocated to additional paid in capital. Any increase or decrease in the
valuation has been reflected as an addition or reduction of general and
administrative expenses at each balance sheet date.

                                       11
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE E - EQUITY TRANSACTIONS

In August 2005, the Company renewed its arrangement with David C Kahn, CPA to
continue as its Chief Financial Officer on a consulting basis through December
31, 2006 and issued options to Mr. Kahn to purchase an aggregate of 75,000
shares of common stock, at an exercise price of $.80 per share, which vested
30,000 shares on the date of grant and the balance of 45,000 shares shall vest
in equal amounts of 7,500 shares on a quarterly basis beginning September 30,
2005 through December 31, 2006.

In September 2005, Laurent Ohana was elected to the Board of Directors and was
granted an option to purchase 50,000 shares, at an exercise price of $.80 per
share, which vest at the rate of 12,500 shares per quarter beginning December
16, 2005.

NOTE F - COMMITMENTS AND CONTINGENCIES

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 potential 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 not to
exceed 20% of the royalty payments received from license agreements consummated
by ThinkFire on its behalf.

NOTE G - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS

On November 26, 2004, the Company entered into an employment agreement with
Corey M. Horowitz pursuant to which he agreed to continue to serve as Chairman
and Chief Executive Officer of the Company for a two-year term at an annual base
salary of $250,000 for the first year and $275,000 for the second year. Mr.
Horowitz was also issued options to purchase an aggregate of 1,500,000 shares of
the Company's common stock consisting of (i) a ten (10) year fully vested option
to purchase 1,100,000 shares at an exercise price of $0.25 per share, and (ii) a
five-year option to purchase 400,000 shares at an exercise price of $0.68 per
share which vested 50% on the date of grant and 50% one year thereafter, subject
to acceleration upon a change of control. In addition, Mr. Horowitz will receive
a bonus of 5% of the Company's royalties or other payments received from
licensing its patents. This bonus will continue to be paid to Mr. Horowitz for a
period of five (5) years following the term of the employment agreement with
respect to licenses entered into by the Company during the term of the
employment agreement, provided that he has not been terminated by the Company
"for cause" or by Mr. Horowitz himself without "good reason".


                                       12
<PAGE>
                       NETWORK-1 SECURITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE G - EMPLOYMENT ARRANGEMENTS AND OTHER AGREEMENTS (CONTINUED)

Mr. Horowitz shall receive severance equal to 12 months base salary in the event
his employment is terminated "without cause" or by Mr. Horowitz for "good
reason".

Mr. Horowitz was also granted certain anti-dilution rights which provide that if
at any time during the period ending December 31, 2005, in the event that the
Company completes an offering of its common stock or any securities convertible
or exercisable into common stock, he will receive, at the same price as the
securities issued in the financing, such number of additional stock options so
that he maintains the derivative ownership percentage (20.11%) of the Company
based upon options and warrants owned by him and CMH (exclusive of his ownership
of shares of common stock) as he owned as of the date of his employment
agreement (November 26, 2004). As a result of the closings of the private
placement on December 31, 2004 and January 13, 2005 and in accordance with the
anti-dilution protection afforded to Mr. Horowitz in his employment agreement,
Mr. Horowitz earned seven year options to purchase an aggregate of 1,195,361
shares at an exercise price of $1.18 per share. The Company did not recognize
any compensation expense as the exercise price for these options exceeded the
market price.

NOTE H - LITIGATION

In March 2004, PowerDsine Inc. ("PowerDsine") commenced an action against the
Company in the United States District Court, Southern District of New York,
seeking a declaratory judgment that the Company's patent (U.S. Patent No.
6,218,930) covering the remote delivery of power over Ethernet is not infringed
by PowerDsine and/or its customers. PowerDsine further seeks an order
permanently enjoining the Company (i) from making any claims to any person or
entity that PowerDsine's products infringe the Remote Power Patent or contribute
to infringement of the patent, (ii) from interfering with or threatening to
interfere with the importation, sale, license or use of PowerDsine's power over
Ethernet components or products, and (iii) from instituting or prosecuting any
lawsuit or proceeding placing at issue the right of PowerDsine, its customers,
licensees, successors, or assigns to import, use or sell PowerDsine's power over
Ethernet components or products. The Company believes its Remote Power Patent is
valid and has meritorious defenses to the action. On December 1, 2004, the
Company moved to dismiss the declaratory judgment action asserting, among other
things, that there is no actual case or controversy because PowerDsine did not
have reasonable apprehension of suit at the time the case was filed, and
therefore the court lacks jurisdiction over the matter. On January 21, 2005, the
Company's motion to dismiss was denied. The Company is engaged in settlement
discussion with PowerDsine in an effort to resolve the litigation. In the event
the Company is unable to settle the litigation, the Company intends to
vigorously defend the action and take whatever actions are necessary to protect
its intellectual property. In the event, however, that the Court grants the
declaratory judgment and the Company's patent is determined to be invalid, such
a determination would have a material adverse effect on the Company.

On August 10, 2005, the Company commenced 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

                                       13
<PAGE>

of the Remote Power Patent. The complaint seeks, among other things, a judgment
that the Remote Power Patent is duly enforceable and has been infringed by the
defendants. The Company also seeks a permanent injunction restraining defendants
from continued infringement, or active inducement of infringement by others, of
the Remote Power Patent. In the event that the Court determines that the
Company's Remote Power Patent was not valid or enforceable, and/or that the
defendants did not infringe, any such determination would have a material
adverse effect on the Company.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT
ARE STATEMENTS THAT INCLUDE INFORMATION BASED UPON BELIEFS OF OUR MANAGEMENT, AS
WELL AS ASSUMPTIONS MADE BY AND INFORMATION AVAILABLE TO OUR MANAGEMENT, 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 16-22 OF THIS QUARTERLY REPORT ON 10-QSB FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2005.

PLAN OF OPERATION

            The principal business of the Company is the acquisition,
development, licensing and protection of its intellectual property. The Company
presently owns 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. 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.

            On November 18, 2003, the Company acquired the Patent Portfolio from
Merlot Communications, Inc., a broadband communications solutions provider. In
February 2004, following its review of applicable markets, the Company initiated
licensing efforts relating to one of its patents (U.S. Patent No. 6,218,930)
covering the remote delivery of power over Ethernet cable (the "Remote Power
Patent"). The Company has focused, and will continue to focus, its efforts on
licensing its Remote Power Patent. As of the date of this report, the Company
has not entered into any license arrangement with respect to the Remote Power
Patent, although it is pursing such arrangements with third parties. During the
next 12 months, management does not anticipate licensing efforts for its other
patents besides the Remote Power Patent.

            To date the Company has incurred significant losses and at September
30, 2005 had an accumulated deficit of $(44,269,000). For the year ended
December 31, 2004, the

                                       14
<PAGE>

Company incurred a net loss of $(1,953,000) and incurred a net loss of
$(1,280,000) for the nine months ended September 30, 2005. Management
anticipates that the Company will continue to incur losses until it enters into
material license agreements with respect to its patented technologies. The
Company has not achieved any revenue from its technology licensing business. To
date the Company has not entered any licensing agreements with third parties
with respect to its Remote Power Patent or the Company's other patented
technologies. The Company's inability to consummate license agreements and
achieve revenue from its patented technologies would have a material adverse
effect on its operations and its ability to continue business.

            The Company does not currently have any revenue from operations. The
success of the Company and its ability to generate revenue is largely dependent
on its ability to consummate licensing arrangements with third parties. In
November 2004, the Company 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 the Remote Power
Patent with certain agreed-upon potential licensees. The Company has agreed to
pay ThinkFire a fee not to exceed 20% of the royalty payments received from
license agreements consummated by ThinkFire on its behalf.

            The Company's success depends on its ability to protect its
intellectual property rights. In the future, it may be necessary for the Company
to commence patent litigation against third parties whom it believes require a
license to its patents. In addition, the Company may be subject to third-party
claims seeking to invalidate its patents, as is the case with the action
commenced by PowerDsine against the Company relating to the Remote Power Patent
as discussed below. These types of claims, with or without merit, may subject
the Company to costly litigation and diversion of management's focus. In August
2005, the Company engaged Blank Rome LLP as litigation counsel with respect to
the Remote Power Patent on a contingency basis pursuant to which Blank Rome is
entitled to share in the proceeds of any successful enforcement of the Remote
Power Patent (See Risk Factors - "We are currently relying upon our contingency
fee agreement with Blank Rome"). If third parties making claims against the
Company seeking to invalidate its patent are successful, they may be able to
obtain injunctive or other equitable relief, which effectively could block its
ability to license or otherwise capitalize on its proprietary technologies.
Successful litigation against the Company resulting in a determination that its
patents are invalid would have a material adverse effect on the Company.

            The Company faces uncertainty as to the outcome of its litigation
with PowerDsine. Although the Company is currently involved in discussions with
PowerDsine in an effort to resolve the litigation, the Company may not be able
to achieve a satisfactory settlement. In the event that the Company is unable to
settle the litigation, the Company intends to vigorously defend the lawsuit and
take whatever actions are necessary to protect its intellectual property.

            On December 21, 2004 and January 13, 2005, the Company completed a
private offering of its equity securities resulting in gross proceeds of
$2,685,000. At September 30, 2005, the Company had $1,257,000 of cash and cash
equivalents and working capital of

                                       15
<PAGE>

$688,000. The Company anticipates, based on currently proposed plans and
assumptions, relating to its operations, that its cash and cash equivalents of
approximately $1,257,000 as of September 30, 2005 will more likely than not be
sufficient to satisfy the Company's operations and capital requirements until
September 2006. There can be no assurance, however, that such funds will not be
expended prior thereto. In the event the Company's plans change, or its
assumptions change, or prove to be inaccurate (due to unanticipated expenses,
difficulties, delays or otherwise), the Company may have insufficient funds to
support its operations prior to September 2006. The Company's inability to
consummate licensing arrangements with respect to its Remote Power Patent and
generate revenues therefrom on a timely basis or obtain additional financing
when needed would have a material adverse effect on the Company, requiring it to
curtail or cease operations. In addition, any equity financing may involve
substantial dilution to the current stockholders of the Company.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company operates in a highly competitive environment that involves a number
of risks, some of which are beyond the Company's control. The following
discussion highlights the most material of the risks.

WE HAVE A HISTORY OF LOSSES AND NO REVENUE FROM CURRENT OPERATIONS.

We have incurred substantial operating losses since our inception, which has
resulted in an accumulated deficit of $(44,269,000) as of September 30, 2005.
For the years ended December 31, 2004 and 2003, we incurred net losses of
$(1,953,000) and $(614,000), respectively. For the nine months ended September
30, 2005, we incurred a net loss of $(1,280,000). We have financed our
operations primarily by sales of equity securities. Since December 2002, when we
discontinued our security software products and following the commencement of
our new technology licensing business in November 2003, we have not had material
revenue from operations and for the year ended December 31, 2004 and the nine
months ended September 30, 2005 we had no revenue from operations. Our ability
to achieve revenue and generate positive cash flow from operations is dependent
upon consummating licensing agreements with respect to our patented technology.
We may not be successful in achieving licensing agreements with third parties
and our failure to do so would have a material adverse effect on our business,
financial condition and results of operations. We may not be able to achieve
revenue or generate positive cash flow from operations from our new licensing
business.

WE COULD BE REQUIRED TO STOP OPERATIONS IF WE ARE UNABLE TO DEVELOP OUR
TECHNOLOGY LICENSING BUSINESS OR RAISE CAPITAL WHEN NEEDED.

We anticipate, based on our currently proposed plans and assumptions relating to
our operations (including the timetable of, costs and expenses associated with
our continued operations), that our current cash position will more likely than
not be sufficient to satisfy our operations and capital requirements until
September 2006. However, we may expend our funds 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 could have

                                       16
<PAGE>

insufficient funds to support our operations prior to September 2006. Our
inability to obtain additional financing when needed, absent generating
sufficient cash from licensing arrangements, would have a material adverse
effect on the Company, requiring us to curtail or possibly cease our operations.
In addition, any additional equity financing may involve substantial dilution to
the interests of our then existing stockholders.

OUR NEW LICENSING BUSINESS MAY NOT BE SUCCESSFUL.

In November 2003, we entered the technology licensing business following our
acquisition of six patents relating to various telecommunications and data
networking technologies including, among others, patents covering the delivery
of remote power over Ethernet and the transmission of audio, video and data over
computer and telephony networks. Accordingly, we have a very limited history in
the technology licensing business upon which an evaluation of our prospects and
future performance can be made. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered in the development,
operation and expansion of a new business based on patented technologies in a
highly specialized and competitive market. We may not be able to achieve revenue
or profitable operations from our new licensing business.

OUR FUTURE SOURCE OF LICENSING REVENUE IS UNCERTAIN.

In February 2004, we initiated our first licensing efforts relating to the
technologies in our remote power patent (U.S. Patent No. 6,218,930) (the "Remote
Power Patent"). To date, we have not entered into any licensing agreements with
third parties with respect to our Remote Power Patent or our other patented
technologies. Our inability to consummate licensing agreements and achieve
revenue from our patented technologies would have a material adverse effect on
our operations and our ability to continue our business. In addition, in the
event we consummate license arrangements with third parties, such arrangements
are not likely to produce a stable or predictable stream of revenue in the
foreseeable future. Furthermore, the success of our licensing efforts depends
upon the strength of our intellectual property rights.

WE ARE CURRENTLY RELYING UPON THE EFFORTS OF THINKFIRE TO CONSUMMATE LICENSING
AGREEMENTS FOR OUR REMOTE POWER PATENT WITH CERTAIN SELECT POTENTIAL LICENSEES.

On November 30, 2004, we entered into a Master Services Agreement (the
"Agreement") with ThinkFire Services USA, Ltd. ("ThinkFire") pursuant to which
we granted ThinkFire the exclusive (except for us and related companies)
worldwide rights to negotiate license agreements for the Remote Power Patent
with respect to certain potential licensees agreed between the parties. Either
we 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. We have agreed to pay
ThinkFire a fee not to exceed 20% of the royalty payments received from license
agreements consummated by ThinkFire on our behalf. ThinkFire may not be
successful in consummating license agreements on our behalf and even if such
agreements are consummated they may not result in significant royalty payments
to us.

                                       17
<PAGE>

OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO PROTECT OUR PROPRIETARY
TECHNOLOGIES.

Our success is substantially dependent upon our proprietary technologies and our
ability to protect our intellectual property rights. We currently hold 6 patents
issued by the U.S. Patent Office that relate to various telecommunications and
data networking technologies and include among other things, patents covering
the transmission of audio, voice and data over computer and telephony networks
and the delivery of remote PoE networks. We rely upon our patents and trade
secret laws, non-disclosure agreements with our employees, consultants and third
parties to protect our intellectual property rights. The complexity of patent
and common law, combined with our limited resources, create risk that our
efforts to protect our proprietary technologies may not be successful. We cannot
assure you that our patents will be upheld or that third parties will not
invalidate our patent rights. In the event our intellectual property rights are
not upheld, such an event would have a material adverse effect on us. In
addition, there is a risk that third parties may independently develop
substantially equivalent or superior technologies.

WE ARE CURRENTLY RELYING UPON OUR CONTINGENCY FEE AGREEMENT WITH BLANK ROME.

            In August 2005, we entered into an agreement with Blank Rome, LLP
("Blank Rome"), a national law firm, pursuant to which Blank Rome has been
engaged to represent us in connection with all litigation involving our Remote
Power Patent. Blank Rome has agreed to represent us with respect to each
litigation pertaining to the Remote Power Patent on a full contingency basis
(except for any proceeding before the International Trade Commission). As
compensation for its services on a full contingency basis, Blank Rome will
receive from us percentages of Net Consideration (as defined in the Agreement)
ranging from 12.5% to 35% received by us by way of settlement or judgment in
connection with each litigation matter. We have also agreed to compensate Blank
Rome in an amount equal to 10% of the Net Consideration received by us from
certain designated parties mutually agreed upon by us and Blank Rome in the
event such designated parties enter into license agreements or similar
agreements with us. The Agreement may be terminated by either Blank Rome or us
upon 30 days notice. If we elect to terminate the Agreement, we will compensate
Blank Rome in an amount equal to 5% of the Net Consideration received by us from
the Designated Parties with whom Blank Rome has not commenced litigation on our
behalf, provided that such parties had substantive licensing or settlement
discussions related to our Remote Power Patent during the term of the Agreement
and entered into a license agreement or similar agreement with us providing for
Net Consideration within the 12 month period following termination. In addition,
in the event of termination, Blank Rome will receive its pro-rata share of Net
Consideration based upon its hourly time charges with respect to parties against
whom Blank Rome commenced litigation (or defended) on our behalf. In the event
our agreement with Blank Rome is terminated, depending upon our financial
resources at the time, we may need to enter into a contingent fee agreement with
a new law firm in order to enforce and/or defend our Remote Power Patent and our
inability to secure such an arrangement on satisfactory terms and on a timely
basis may have a material adverse effect on us.

                                       18
<PAGE>

ANY LITIGATION TO PROTECT OUR INTELLECTUAL PROPERTY OR ANY THIRD PARTY CLAIMS TO
INVALIDATE OUR PATENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Our success depends on our ability to protect our intellectual property rights.
In August 2005, we commenced patent litigation against D Link Corporation and D
Link Systems, Incorporated (collectively, "D-Link") for infringement of our
Remote Power Patent. In the future, it may be necessary for us to commence
patent litigation against third parties whom we believe require a license to our
patents. In addition, we may be subject to third-party claims seeking to
invalidate our patents, as is the case with the action commenced by PowerDsine
and anticipated to be asserted by D-Link as a defense in the pending action
relating to our Remote Power Patent as discussed below. These types of claims,
with or without merit, may subject us to costly litigation and diversion of
management's focus. In August 2005, the Company engaged Blank Rome LLP as
litigation counsel with respect to the Remote Power Patent on a contingency
basis pursuant to which Blank Rome is entitled to share in the proceeds of any
successful enforcement of the Remote Power Patent (see Risk Factors - "We are
currently relying upon our contingency fee agreement with Blank Rome"). If third
parties making claims against us seeking to invalidate our patent are
successful, they may be able to obtain injunctive or other equitable relief,
which effectively could block our ability to license or otherwise capitalize on
our proprietary technologies. Successful litigation against us resulting in a
determination that our patents are invalid would have a material adverse effect
on our company.

WE FACE UNCERTAINTY AS TO THE OUTCOME OF LITIGATION WITH D-LINK.

On August 10, 2005, we commenced litigation against D-Link Corporation and
D-Link Systems, Incorporated in the United States District Court for the Eastern
District of Texas, Tyler division (Civil Action No. 6:05W291), for infringement
of our Remote Power Patent. Our complaint seeks, among other things, a judgment
that our Remote Power Patent is duly enforceable and has been infringed by the
defendants. We also seek a permanent injunction restraining defendants from
continued infringement, or active inducement of infringement by others, of our
Remote Power Patent. In the event that the Court determines that our Remote
Power Patent was not valid or enforceable, and/or that the defendants did not
infringe, any such determination would have a material adverse effect on us.

WE FACE UNCERTAINTY AS TO THE OUTCOME OF LITIGATION WITH POWERDSINE.

In March 2004, PowerDsine Inc. ("PowerDsine") commenced an action against us in
the United District Court, Southern District of New York (Civil Action No. 04 CV
2502) seeking a declaratory judgment that our Remote Power Patent is invalid and
is not infringed by PowerDsine and/or its customers. PowerDsine further seeks an
order permanently enjoining us (i) from making any claims to any person or
entity that PowerDsine's products infringe the Remote Power Patent or contribute
to infringement of the patent, (ii) from interfering with or threatening to
interfere with the importation, sale, license or use of PowerDsine's PoE
components or products, and (iii) from instituting or prosecuting any lawsuit or
proceeding placing at issue the right of PowerDsine, its customers, licensees,
successors, or assigns to import, use or sell PowerDsine's PoE components or
products. We believe our

                                       19
<PAGE>

Remote Power Patent is valid and that we have meritorious defenses to the
action. We are engaged in settlement discussions with PowerDsine in an effort to
resolve the litigation. In the event that we are unable to settle the
litigation, we intend to vigorously defend the lawsuit and take whatever actions
are necessary to protect our intellectual property. In the event, however, that
the Court granted the declaratory judgment and our Remote Power Patent was
determined to be invalid, such a determination would have a material adverse
effect on us. Regardless of the outcome, this litigation may subject us to
significant costs and diversion of management time.

MATERIAL LICENSING REVENUES FROM OUR REMOTE POWER PATENT MAY BE DEPENDENT UPON
THE APPLICABILITY OF THE IEEE STANDARD.

The Institute of Electrical and Electronic Engineers (IEEE) is a non-profit,
technical professional association of more than 360,000 individual members in
approximately 175 countries. The Standards Association of the IEEE is
responsible for the creation of global industry standards for a broad range of
technology industries. In 1999, the IEEE formed a task force to facilitate the
adoption of a standardized methodology for the delivery of remote power over
Ethernet networks which would insure interoperability among vendors of switches
and terminal devices. In June 2003, the IEEE Standards Association approved the
802.3af Power Over Ethernet standard (the "Standard"), which covers technologies
deployed in delivering power over Ethernet cables including whether deployed in
switches or as standalone midspan hubs both of which provide power to remote
devices including wireless access points, IP phones and network based cameras.
The technology is commonly referred to as Power Over Ethernet ("PoE"). We
believe our Remote Power Patent covers several of the key technologies covered
by the Standard. However, there is a risk that as a result of litigation a court
may determine otherwise and such a determination would have a material adverse
effect on our ability to enter into license agreements and achieve revenue and
profits from our Remote Power Patent.

WE FACE INTENSE COMPETITION AND WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE.

The telecommunications and data networking market is characterized by intense
competition and rapidly changing business conditions, customer requirements and
technologies. Our current and potential competitors have longer operating
histories, greater name recognition and possess substantially greater financial,
technical, marketing and other competitive resources than us. Although we
believe that we have rights to enforceable patents relating to
telecommunications and data networking, there can be no assurance that third
parties will not invalidate any or all of our patents. In addition, the
telecommunications and data networking industries may develop technologies that
may be more effective than our proprietary technologies or that render our
technologies less marketable or obsolete.

                                       20
<PAGE>

OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND OUR TECHNOLOGIES FACE
POTENTIAL TECHNOLOGY OBSOLESCENCE.

The telecommunications and data networking technology market including,
transmission of audio, video and data over computer and telephony networks and
the delivery of remote power over Ethernet markets, are characterized by rapid
technological changes, changing customer requirements, frequent new product
introductions and enhancements, and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards may render our technologies obsolete or less marketable. To
the extent we are able to achieve revenue in the future, such revenue will be
derived from licensing our technologies based on existing and evolving industry
standards.

DEPENDENCE UPON CEO AND CHAIRMAN.

Our success will largely be dependent upon the personal efforts of Corey M.
Horowitz, Chairman and Chief Executive Officer and Chairman of the Board of
Directors. On November 26, 2004, we entered into a two (2) year employment
agreement with Mr. Horowitz pursuant to which he continues to serve as our
Chairman and Chief Executive Officer. We do not maintain key man life insurance
on the life of Mr. Horowitz. The loss of the services of Mr. Horowitz would have
a material adverse effect on our business and prospects.

RISKS RELATED TO LOW PRICED STOCKS.

Our common stock currently trades on the OTC Bulletin Board under the symbol
NSSI.OB. Since the trading price of our common stock is below $5.00 per share,
our common stock is considered a penny stock. SEC regulations generally define a
penny stock to be an equity security that is not listed on Nasdaq or a national
securities exchange and that has a market value of less than $5.00 per share,
subject to certain exceptions. SEC regulations require broker-dealers to deliver
to a purchaser of our common stock a disclosure schedule explaining the penny
stock market and the risks associated with it. Various sales practice
requirements are also imposed on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors (generally
institutions). Broker-dealers must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and monthly account statements disclosing recent price information for the penny
stock held in the customer's account.

THE SIGNIFICANT NUMBER OF OPTIONS AND WARRANTS OUTSTANDING MAY ADVERSELY EFFECT
THE MARKET PRICE FOR OUR COMMON STOCK.

As of September 30, 2005, there are outstanding (i) options and warrants to
purchase an aggregate of 11,267,244 shares of our common stock at exercise
prices ranging from $.12 to $10.13, and (ii) 7,630 additional shares of our
common stock which may be issued in the future under our stock option plan. To
the extent that outstanding options and warrants are exercised, stockholder
percentage ownership will be diluted and any sales in the public

                                       21
<PAGE>

market of the common stock underlying such options may adversely affect
prevailing market prices for our common stock.

WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK, WHICH
MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.

Our Board of Directors has the authority, without further action by the
stockholders, to issue 10,000,000 shares of preferred stock on such terms and
with such rights, preferences and designations as our Board of Directors may
determine. Such terms may include restricting dividends on our common stock,
dilution of the voting power of our common stock or impairing the liquidation
rights of the holders of our common stock. Issuance of such preferred stock,
depending on the rights, preferences and designations thereof, may have the
effect of delaying, deterring or preventing a change in control. In addition,
certain "anti-takeover" provisions in Delaware law may restrict the ability of
our stockholders to authorize a merger, business combination or change of
control.

ITEM 3. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures.

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

(b) Changes in Internal Controls.

There was no change in the Company's internal controls over financial reporting
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting during the last fiscal
quarter included in this report or from the end of the reporting period to the
date of this Quarterly Report on Form 10-QSB.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On August 10, 2005, the Company commenced litigation against D-Link Corporation
and D-Link Systems, Incorporated 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 complaint seeks, among
other things, a judgment that our Remote Power Patent is duly enforceable and
has been infringed by the defendants. The Company also seeks a permanent
injunction restraining defendants from continued

                                       22
<PAGE>

infringement, or active inducement of infringement by others, of the Remote
Power Patent. In the event that the Court determines that the Company's Remote
Power Patent was not valid or enforceable, and/or that the defendants did not
infringe, any such determination would have a material adverse effect on us.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. 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 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: NOVEMBER 14, 2005





                                       24