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

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______ |
|---|------------------------------------------------------------------------------------------------------------------------------------------|

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

| Large accelerated filer  ̈ | Accelerated filer  ̈ | Non-accelerated filer  ̈(Do not check if a smaller reporting company) | Smaller reporting company x |
|--------------------------------|--------------------------|---------------------------------------------------------------------------|-----------------------------|

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|                |                                                                                              | Page No. |
|---------------------|---------------------------------------------------------------------------------------------------|----------|
| PART I.             | FINANCIAL INFORMATION                                                                             |     |
|                |                                                                                              |     |
| Item 1.             | Financial Statements                                                                              |     |
|                |                                                                                              |     |
|                | Condensed Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010                   | 3        |
|                |                                                                                              |     |
|                | Condensed Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited) | 4        |
|                |                                                                                              |     |
|                | Condensed Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited) | 5        |
|                |                                                                                              |     |
|                | Notes to Interim Unaudited Condensed Financial Statements                                    | 6        |
|                |                                                                                              |     |
| Item 2.        | Management’s Discussion and Analysis of Financial Condition and Results Of Operations       | 14       |
|                |                                                                                              |     |
| Item 3.        | Quantitative and Qualitative Disclosures About Market Risk                                   | 18       |
|                |                                                                                              |     |
| Item 4.             | Controls and Procedures                                                                      | 18       |
|                |                                                                                              |     |
|                |                                                                                              |     |
| PART II.            | OTHER INFORMATION                                                                                 |     |
|                |                                                                                              |     |
| Item 1.             | Legal Proceedings                                                                            | 19       |
|                |                                                                                              |     |
| Item 1A.       | Risk Factors                                                                                 | 19       |
|                |                                                                                              |     |
| Item 2.   | Unregistered Sales of Equity Securities and Use of Proceeds                                  | 19       |
|                |                                                                                              |     |
| Item 3.             | Defaults Upon Senior Securities                                                              | 19       |
|                |                                                                                              |     |
| Item 5.        | Other Information                                                                            | 19       |
|                |                                                                                              |     |
| Item 6.        | Exhibits                                                                                     | 20       |
|                |                                                                                              |     |
|                |                                                                                              |
| SIGNATURES          | 21                                                                                                |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-----------------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |  MARCH 31, |            |   | DECEMBER 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2011            |            |   | 2010         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | (UNAUDITED)     |            |   |         |   |
| Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |            |            |   |         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |
| Current assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |            |            |   |         |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $               | 19,587,000      |   |         | $      | 21,348,000 |   |
| Royalty Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |            | 4,728,000       |   |         |   | 1,339,000 |   |
| Other current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |  70,000    |   |         |   |  89,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Total current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            | 24,385,000      |   |         |   | 22,776,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Security Deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |            | 6,000           |   |         |   | 6,000 |   |
| Patents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |            |  81,000    |   |         |   |  89,000 |   |
|                                                                                         |   |            |            |   |         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $               | 24,472,000      |   |         | $      | 22,865,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |            |            |   |         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $               | 89,000          |   |         | $      | 78,000 |   |
| Accrued expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |            | 1,884,000       |   |         |   | 2,092,000 |   |
| Income Taxes Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |  27,000    |   |         |   |  — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |            |  2,000,000 |   |         |   |  2,170,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Commitments and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |            |            |   |         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Stockholders' Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Common stock - $0.01 par value ; authorized 50,000,000 shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |            |            |   |         |   |   |   |
| 25,953,129 and 25,931,879 shares issued and outstanding at                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |            |            |   |         |   |   |   |
| March 31, 2011 and December 31, 2010, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |            | 260,000         |   |         |   | 259,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |            | 57,376,000      |   |         |   | 57,266,000 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |            | (35,164,000     | )      |         |   | (36,830,000 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            |            |   |         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |            | 21,472,000      |   |         |   | 20,695,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $               | 24,472,000      |   |         | $      | 22,865,000 |   |

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|                                                                                                                                                                                                                                                                                                                              |   | Three Months EndedMarch 31, |            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------------|
|                                                                                                                                                                                                                                                                                                                              |   |  2011                  |            |   | 2010 |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |
| Royalty Revenue                                                                                                                                                                                                                                                                                                                   |   | $                           | 3,576,000       |   |   | $ | 118,000 |   |
| Cost of Revenue                                                                                                                                                                                                                                                                                                                   |   |                        |  1,028,000 |   |   |   |  6,000 |   |
| Gross Profit                                                                                                                                                                                                                                                                                                                      |   |                        | 2,548,000       |   |   |   | 112,000 |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Operating Expenses:                                                                                                                                                                                                                                                                                                               |   |                        |            |   |   |   |   |   |
|    General and administrative                                                                                                                                                                                                                                                                                      |   |                        | 746,000         |   |   | $ | 723,000 |   |
|    Non-cash compensation                                                                                                                                                                                                                                                                                           |   |                        | 96,000          |   |   |   | 47,000 |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Total Operating Expenses                                                                                                                                                                                                                                                                                                          |   |                        | 842,000         |   |   |   | 771,000 |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Operating Income (Loss)                                                                                                                                                                                                                                                                                                           |   |                        | 1,706,000       |   |   |   | (658,000 | ) |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Other Income (Expenses):                                                                                                                                                                                                                                                                                                          |   |                        |            |   |   |   |   |   |
|    Interest income, net                                                                                                                                                                                                                                                                                            |   |                        | 16,000          |   |   |   | —  |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Income (Loss) before income taxes                                                                                                                                                                                                                                                                                                 |   |                        | 1,722,000       |   |   |   | (658,000 | ) |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Income Taxes                                                                                                                                                                                                                                                                                                                      |   |                        | 56,000          |   |   |   | —  |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Net Income (Loss)                                                                                                                                                                                                                                                                                                                 |   | $                           | 1,666,000       |   |   | $ | (658,000 | ) |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Net Income (loss) per share  -  Basic                                                                                                                                                                                                                                                                              |   | $                           | 0.06            |   |   | $ | (0.03 | ) |
|                                                    -  Diluted |   | $                           | 0.05            |   |   | $ | (0.03 | ) |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
| Weighted average number of common shares outstanding:                                                                                                                                                                                                                                                                             |   |                        |            |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                              |   |                        |            |   |   |   |   |   |
|     -  Basic                                                                                                                                                                                                                                                                                             |   |                        | 25,948,879      |   |   |   | 24,135,557 |   |
|     -  Diluted                                                                                                                                                                                                                                                                                           |   |                        | 31,242,670      |   |   |   | 24,135,557 |   |

----

|                                                   |   | Three Months Ended March 31, |             |
|--------------------------------------------------------|--------|------------------------------|------------------|
|                                                   |   | 2011                         |             |   | 2010 |   |
| Cash flows from operating activities:                  |   |                         |             |   |   |   |
| Net Income (Loss)                                      |   | $                            | 1,666,000        |   |   | $ | (658,000 | ) |
| Adjustments to reconcile net income (loss) to net cash |   |                         |             |   |   |   |   |   |
| Used in operating activities:                          |   |                         |             |   |   |   |   |   |
| Depreciation and amortization                          |   |                         | 2,000            |   |   |   | 2,000 |   |
| Non cash compensation                                  |   |                         | 96,000           |   |   |   | 47,000 |   |
| Changes in:                                            |   |                         |             |   |   |   |   |   |
| Royalty Receivable and other current assets            |   |                         | (3,370,000       | ) |   |   | 17,000 |   |
| Accounts payable and accrued expenses                  |   |                         | (136,000         | ) |   |   | (161,000 | ) |
| Income Taxes Payable                                   |   |                         |  (34,000    | ) |   |   |  — |   |
| Cash flows (used in) Operating Activities              |   |                         | (1,776,000       | ) |   |   | (753,000 | ) |
|                                                   |   |                         |             |   |   |   |   |   |
| Cash flow provided by financial activities             |   |                         |             |   |   |   |   |   |
| Proceeds from exercise of options                      |   |                         | 15,000           |   |   |   |  — |   |
|                                                   |   |                         |             |   |   |   |   |   |
| Net Income (Decrease) in Cash and Cash Equivalents     |   |                         | (1,761,000       | ) |   |   | (753,000 | ) |
|                                                   |   |                         |             |   |   |   |   |   |
|                                                   |   |                         |             |   |   |   |   |   |
| Cash and cash equivalents, beginning of period         |   |                         |  21,348,000 |   |   |   | 3,022,000 |   |
|                                                   |   |                         |             |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD               |   | $                            | 19,587,000       |   |   | $ | 2,269,000 |   |
|                                                   |   |                         |             |   |   |   |   |   |
|                                                   |   |                         |             |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      |   |                         |             |   |   |   |   |   |
| Cash paid during the periods for:                      |   |                         |             |   |   |   |   |   |
| Interest                                               |   | $                            | —          |   |   | $ | — |   |
| Taxes                                                  |   | $                            | 90,000           |   |   | $ | — |   |

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|                                                                                                        | THREE MONTHS ENDED MARCH 31,                                     |   |
|-------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------|--------|
|                                                                                                        |      2011      |   |      2010      |   |
| Risk-free interest ratesExpected option life in yearsExpected stock price volatilityExpected dividend yield | 2.05%5 yrs.42.04%-0-                                             |   | –––– |   |

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|                                                                                                                                                |   | Three Months Ended March 31, |                    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-------------------------|
|                                                                                                                                                |   | 2011                              |                    |   | 2010 |   |
|                                                                                                                                                |   |                              |                    |   |   |   |
| Weighted-average common shares outstanding – basic                                                                                            |   |                              | 25,948,879              |   |   |   | 24,135,557 |   |
| Dilutive effect of options and warrants                                                                                                             |   |                              | 5,293,791               |   |   |   | — |   |
| Weighted-average common shares outstanding – diluted                                                                                          |   |                              | 31,242,670              |   |   |   | 24,135,557 |   |
| Options and Warrants excluded from the computation of diluted income (loss) per share because the effect of inclusion would have been anti-dilutive |   |                              |     5,625,874 |   |   |   |       12,569,312 |   |

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|   | 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 |   |
|   |   |                    |   |

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