UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March~~September 3130, 2011

¨	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: 001-14753

NETWORK 1 FINANCIAL GROUP, INC.

(Exact Name of Registrant as specified in its charter)

Delaware		11-3423157
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2 Bridge Avenue, 4thFloor

Red Bank, NJ 07701

(Address of principal executive offices)

(732) 758-9001

(Registrant’s telephone number)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ¨ NO ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ

As of ~~May~~November 1210, 2011, the Registrant had 5548,~~560~~635,057 shares of its Common Stock, $.001 par value, outstanding.

NETWORK 1 FINANCIAL GROUP, INC.

FORM 10-Q

~~March~~SEPTEMBER 3130, 2011

TABLE OF CONTENTS

			~~Page~~	Page
PART I – FINANCIAL INFORMATION				1
ITEM 1.	~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		1
ITEM 2.	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2
ITEM 3.	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		54
ITEM 4.	CONTROLS AND PROCEDURES			5
ITEM 4T.		CONTROLS AND PROCEDURES		4
PART II – OTHER INFORMATION				65
ITEM 1.	~~LEGAL PROCEEDINGS~~	LEGAL PROCEEDINGS		65
ITEM 2.	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		65
ITEM 3.	~~DEFAULTS UPON SENIOR SECURITIES~~	DEFAULTS UPON SENIOR SECURITIES		65
ITEM 5.	OTHER INFORMATION			6
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		5
ITEM 6.	EXHIBITS			6
ITEM 5.		OTHER INFORMATION		5
SIGNATURES				7
ITEM 6.		EXHIBITS		5
SIGNATURES				6

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Index to Consolidated Financial Statements

Condensed Consolidated Statement of Financial Condition			F–1

Condensed Consolidated Statements of Operations			F–2

Condensed Consolidated Statement of Equity			F–3

Condensed Consolidated Statement of Cash Flows			F–4

Notes to Condensed Consolidated Financial Statements			F–5

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

~~March~~September 3130, 2011 (unaudited) and June 30, ~~2010~~2011

	MARCH			JUNE
	SEPTEMBER 30,			JUNE 30,
	2011			~~2010~~2011
	(unaudited)
ASSETS
Cash	$	~~191~~6,~~594~~947		$	258,~~635~~856
Commission Receivable from Clearing Firm		808,~~178~~391		$	-78,021
Notes Receivable from affiliates		59,002			90,212
Notes Receivable - Related Party		55,631			59,002
Deposit with clearing organization		~~360~~322,~~311~~050			~~685~~345,~~612~~137
Due from Affiliates		529,~~227~~180			4245,~~764~~482
Advances to Registered Representatives: net of reserve
for uncollectible accounts of $90,000		90,731			76,286
for uncollectible accounts of $ $90,000 respectively.		76,058			70,231
Securities held for resale, at market		~~141~~85,~~363~~493			~~152~~83,~~025~~415
Property and Equipment, net.		216,~~180~~185			317,~~878~~935
Other Assets		27,000			2827,~~433~~000
TOTAL ASSETS:	$	1606,~~004,586~~935		$	1785,~~081,845~~079
LIABILITIES AND EQUITY
LIABILITIES
Line of Credit	$	30,000		$	5530,000
Notes Payable		611,~~994~~183			124,~~966~~088
Due to Affiliates		1,061			2,413
Commissions Payable		29,520			78,943
Commissions Payable		77,529			51,128
Capital Leases payable		16,542			18,588
Capital Leases payable		2,416			7,626
Accounts Payable, accrued expenses and other liabilities		140,075			173,923
Warrant Liability		2,108			23,831
TOTAL LIABILITIES		227,320			305,542
Accounts Payable, accrued expenses and other liabilities		219,032			223,484
Bank Overdraft		-			21,413
TOTAL LIABILITIES		339,140			397,861
Commitments and Contingencies
EQUITY
Common Stock, $.001 par value;					-
100,000,000 shares authorized; 55,560,057 and 40,360,057 issued and
100,000,000 shares authorized; 56,560,057 and 55,560,057 issued and 48,635,057 and 47,635,057 outstanding, respectively		56,560			55,560
47,635,057 and 32,435,075 outstanding at March 31, 2011 and June 30, 2010, respectively		55,560			40,360
Additional Paid In Capital		2,059,888			2,022,888
Additional Paid In Capital		2,022,888			1,430,088
Treasury Stock at cost; 7,925,000 shares		(5,129	)		(5,129	)
Accumulated deficit		(1,~~622~~946,~~873~~704	)		(~~996~~1,~~335~~808,782	)
Total stockholders equity		~~450~~164,~~446~~615			~~468~~264,~~984~~537
Non-controlling interest		215,000			215,000
TOTAL EQUITY		~~665~~379,~~446~~615			~~683~~479,~~984~~537
TOTAL LIABILITIES AND EQUITY	$	1606,~~004,586~~935		$	1785,~~081,845~~079

(the accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

F - 1

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE ~~AND NINE~~ MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, 2011 ~~AND~~and 2010

(unaudited)

	For The Three Months Ended						For The Nine Months Ended
	SEPTEMBER			SEPTEMBER
	March 31,						March 31,
	2011			2010
	2011			2010			2011			2010
Revenues:
Revenues:
Commissions	$	349,167		$	169,788
Commissions	$	266,290		$	203,762		$	663,028		$	605,978
Net dealer inventory gains		9,122			146,288
Net dealer inventory gains (losses)		(170,625	)		93,250			154,075			118,628
Investment banking		3,000			99,063
Investment banking		99,262			198,691			227,425			666,027
Interest and Dividends		6,145			6,890
Interest and Dividends		5,875			8,298			18,973			36,786
Transfer fees and clearing services		-			6,633
Transfer fees and clearing services		4,827			7,345			11,460			20,372
Investment advisory		74,949			107,777
Investment advisory		93,377			215,538			478,493			501,706
Other		335			11,000
Other		26,450			25,550			62,950			39,394
Total Revenue		442,718			547,439
Total Revenue		325,456			752,434			1,616,404			1,988,890
Operating Expenses:
Operating Expenses:
Commissions		169,045			87,386
Commissions		534,247			357,739			699,717			1,114,026
Compensation and Related Expenses		176,323			253,486
Compensation and Related Expenses		220,751			184,542			758,212			576,213
Clearing Fees		48,331			47,229
Clearing Fees		41,788			60,273			141,936			174,269
Communications and data processing		28,716			33,285
Communications and data processing		44,031			33,224			117,184			90,317
Interest		587			3,398
Interest		609			3,648			4,683			13,894
Occupancy and related expenses		22,044			41,753
Occupancy and related expenses		54,616			27,600			150,684			105,342
Office Expenses		37,693			49,022
Office Expenses		24,371			23,700			133,001			150,712
Professional Fees		95,343			115,381
Professional Fees		57,774			89,832			255,370			300,477
Depreciation		2,558			2,160
Depreciation		-			2,160			3,879			6,760
Total Operating Expenses		580,640			633,100
Total Operating Expenses		978,187			782,718			2,264,666			2,532,010
Loss from Operations		(137,922	)		(85,663	)
Loss from Operations		(652,731	)		(30,284	)		(648,262	)		(543,120	)
Other Income
Other Income (expenses)
Gain on change in derivative liability		-			10,084
Gain (Loss) on change in derivative liability		8,541			(13,738	)		21,723			(22,951	)
Total Other Income		-			10,084
Total Other Income (expenses)		8,541			(13,738	)		21,723			(22,951	)
Net loss	$	(137,922	)	$	(75,579	)
											-
Loss per common share (basic and diluted)	$	(0.003	)	$	(0.003	)
Net loss		(644,190	)		(44,022	)		(626,539	)		(566,071	)
Weighted average common shares outstanding		48,580,709			23,393,529
Loss/Income attributable to non-controlling interest		-			-						-
Net loss attributable to common shareholders	$	(644,190	)	$	(44,022	)	$	(626,539	)	$	(566,071	)
Loss per common share (basic and diluted)	$	(0.018	)	$	(0.001	)		(0.017	)	$	(0.017	)
Weighted average common shares outstanding		41,228,408			32,435,075			35,846,706			32,435,075

(the accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

F - 2

NETWORK 1 FINANCIAL GROUP, INC. ~~AND~~and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

For the ~~nine~~three months ended ~~March~~September 3130, 2011

(Unaudited)

					Additional		Treasury			Accumulated			Non-Controlling
	Common Stock				paid-in-capital		Stock			~~Deficit~~Defecit			interest		Total
	Shares		Amount
Balance - June 30, 2010		40,360,057	$	40,360	$	1,430,088	$	(5,129	)	$	(996,335	)	$	215,000	$	683,984
Balance - June 30, 2011		55,560,057	$	55,560	$	2,022,888	$	(5,129	)	$	(1,808,782	)	$	215,000	$	479,537
Sale of common stock		9,000,000		9,000		351,000										360,000
Shares issued for services		1,000,000	$	1,000	$	37,000									$	38,000
Stock issued for services		6,200,000		6,200		241,800										248,000
Net loss										$	(137,922	)			$	(137,922	)
Net loss											(626,539	)				(626,539	)
Balance - September 30, 2011		56,560,057	$	56,560	$	2,059,888	$	(5,129	)	$	(1,946,704	)	$	215,000	$	379,615
Balance - March 31, 2011		55,560,057	$	55,560	$	2,022,888	$	(5,129	)	$	(1,622,874	)	$	215,000	$	665,445

(the accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

F - 3

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the ~~Nine~~three months ended ~~March~~September 3130, 2011 and 2010

(unaudited)

	September			September
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss attributable to common shareholders	$	(~~626~~137,~~539~~922	)	$	(~~566~~75,~~071~~579	)
Adjustments to reconcile net loss to net cash used in operating activities:					-
Depreciation		32,~~879~~558			62,~~758~~160
(Gain) Loss on change in derivative liability		(21,723	)		22,951
Gain on change in derivative liability		-			(10,084	)
Stock based compensation		~~248~~2,000			-
Changes in operating assets and liabilities
Due from clearing organization		~~(80~~23,~~178~~087	)		1332,~~251~~468
Securities held for resale, at market		10(2,~~662~~078	)		~~(19~~11,~~125~~550	)
Advances to/from registered representatives		(1455,~~445~~250	)		386,~~252~~405
Other assets		~~1,433~~-			~~(400~~16,913	)
Securities sold, but not yet purchased, at market		-			(111,~~215~~933	)
Due to clearing organization		325,301			(17,477	)
Accounts Payable, accrued expenses & other Liabilities		2,153			(31,950	)
Accounts Payable, accrued expenses & other Liabilities		537			(45,252	)
Commission Receivable from Clearing Organization		69,630			(76,113	)
TOTAL ADJUSTMENTS		~~473~~42,~~466~~100			~~(14~~263,~~257~~282	)
NET CASH (USED IN) OPERATING ACTIVITIES		(153,073	)		(580,328	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(95,822	)		187,703
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment		(2,181	)		-
Purchase of property and equipment		(808	)		-
NET CASH (USED IN) INVESTING ACTIVITIES		(2,181	)		-
NET CASH USED IN INVESTING ACTIVITIES		(808	)		-
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliated companies		20,395			3,986
Advances to affiliated companies		36,302			1,970
Proceeds from certificate of deposit		-			550,942
Advances from affiliated companies		3,370			(270	)
Proceeds from sale of common stock		360,000			-
Repayment of Notes Payable		7,095			(295	)
Repayment of Notes Payable		(5,972	)		(19,179	)
Repayment of capital lease		(2,046	)		(533	)
Repayment of line of credit		(25,000	)		(38,000	)
					-
Repayment of capital lease		(5,210	)		(4,864	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		44,721			872
NET CASH PROVIDED BY FINANCING ACTIVITIES		344,213			492,885
NET (DECREASE) INCREASE IN CASH		(51,909	)		188,575
NET INCREASE (DECREASE) IN CASH		188,959			(87,443	)
CASH - Beginning of Period		58,856			2,635
CASH - Beginning of Year		2,635			91,882
CASH - End of Period	$	6,947		$	191,210
CASH - End of Year	$	191,594		$	4,439
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during year
Cash paid during Quarter
Interest	$	~~4,682~~571		$	133,~~805~~398
Income Taxes	$	~~2,726~~-		$	~~726~~2,162

(the accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

F - 4

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, 2011 AND 2010

(unaudited)

NOTE 1 – Basis of Presentation (Reverse Merger and Corporate Structure)

Network 1 Financial Securities, Inc. (“NETW”) was organized as a Texas corporation on March 15, 1983 and is registered as a broker-dealer with the Securities and Exchange Commission (the “SEC”), the State of Texas and various other states. NETW is an introducing broker-dealer that clears all transactions with and for customers on a fully disclosed basis with a clearing broker.

On June 9, 2009, NETW completed a merger transaction (the “Reverse Merger”) with International Smart Sourcing, Inc. (“ISSI”), an inactive publicly registered shell corporation with no significant assets or operations. ISSI was incorporated in February 1998 in Delaware. As a result of the Reverse Merger, NETW became a wholly owned subsidiary of ISSI and the current assets of NETW were merged with ISSI. NETW’s shareholders acquired control of ISSI.

Upon completion of the Reverse Merger transaction, ISSI changed its name to Network 1 Financial Group, Inc. (the “Company”).

All references to Common Stock, share and per share amounts have been retroactively restated to reflect the exchange ratio of 17.16 shares of ISSI’s Common Stock for ~~one (~~1) share of the acquirer's Common Stock outstanding immediately prior to the Reverse Merger, as if the exchange had taken place as of the beginning of the earliest period presented.

The accompanying unaudited condensed consolidated financial statements present on a consolidated basis the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements for the ~~nine~~three month periods ended ~~March~~September 3130, 2011 and 2010 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual 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. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and explanatory notes for the year ended June 30, ~~2010~~2011 as disclosed in the Company's 10-K for that year, as filed with the SEC, as it may be amended.

The results of the ~~nine~~three months ended ~~March~~September 3130, 2011 are not necessarily indicative of the results to be expected for the pending full year ending June 30, ~~2011~~2012.

F - 5

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, 2011 AND 2010

(~~Unaudited~~unaudited)

NOTE 2 - Summary of Significant Accounting Policies

Use of Estimates

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

Revenue Recognition

Customer security transactions and the related commission income and expense are recorded as of the trade date. Investment banking revenues include gains, losses, and fees, net of syndicate expenses, arising from securities offerings in which the Company acts as an underwriter or agent. Investment banking revenues also include fees earned from providing financial advisory services. Investment banking management fees are recorded on the offering date, sales concessions on the settlement date, and underwriting fees at the time the underwriting is completed and the income is reasonably determinable. Customers who are financing their transaction on margin are charged interest. The Company’s margin requirements are in accordance with the terms and conditions mandated by its clearing firm. The interest is billed on the average daily balance of the margin account.

Net dealer inventory gains result from securities transactions entered into for the account and risk of the Company. Net dealer inventory gains are recorded on a trade date basis. Investment advisory fees are account management fees for high net worth clients based on the amount of the assets under management. These fees are billed quarterly and recognized at such time that the service is performed and collection is probable.

The Company generally acts as an agent in executing customer orders to buy or sell listed and over-the-counter securities in which it does not make a market, and charges commissions based on the services the Company provides to its customers. In executing customer orders to buy or sell a security in which the Company makes a market, the Company may sell to, or purchase from, customers at a price that is substantially equal to the current inter-dealer market price plus or minus a mark-up or mark-down. The Company may also act as agent and execute a customer's purchase or sale order with another broker-dealer market-maker at the best inter-dealer market price available and charge a commission. Mark-ups, mark-downs and commissions are generally priced competitively based on the services it provides to its customers. In each instance the commission charges, mark-ups or mark-downs, are in compliance with guidelines established by the FINRA.

Marketable securities are carried at fair value, with changes in value included in the statement of income in the period of change. Fair value is generally determined by quoted market prices. Non-marketable securities are valued at fair value as determined by management.

F - 6

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, ~~2011~~2011AND 2010

(~~Unaudited~~unaudited)

Fair Value of Financial Instruments

FASB requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statement of financial position for current assets and current liabilities qualifying as financial instruments approximate fair value because of their short maturities.

In April 2009, the FASB issued provisions that require that companies also disclose the fair value of financial instruments during interim reporting periods similar to those that are currently provided annually. These pronouncements are effective for interim reporting periods ending after June 15, 2009.

On July 1, 2008, the Company adopted the provisions of Accounting Standard Codification (“ASC”) Topic 820, which defines fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The Company’s adoption of ASC 820 did not have a material impact on its condensed consolidated financial statements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation methods that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company has categorized its financial assets and liabilities measured at fair value into a three level hierarchy in accordance with ASC 820.

F - 7

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2011

(Unaudited)

Reclassifications

Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.

~~NOTE 3~~ F- ~~Recent Accounting Pronouncements~~7

In February 2010, the FASB issued FASB ASU 2010-09, Subsequent Events, Amendments to Certain Recognition and Disclosure Requirements, which clarifies certain existing evaluation and disclosure requirements in ASC 855 related to subsequent events. FASB ASU 2010-09 requires SEC filers to evaluate subsequent events through the date in which the financial statements are issued and is effective immediately. The new guidance does not have an effect on the Company’s consolidated results of operations and financial condition.

In January 2010, the FASB issued FASB ASU 2010-06, “Improving Disclosures about Fair Value Measurements”, which clarifies certain existing disclosure requirements in ASC 820 as well as requires disclosures related to significant transfers between each level and additional information about Level 3 activity. FASB ASU 2010-06 begins phasing in the first fiscal period after December 15, 2009. The Company is currently assessing the impact on its consolidated results of operations and financial condition.

In June 2009, the FASB issued new accounting guidance which will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under this guidance, determining whether a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. This guidance is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial statements.

NOTE 4 - Securities Owned and Securities Sold, But Not Yet Purchased, At Market

The following table shows the market values of the Company's investment securities owned and securities sold, but not yet purchased as of March 31, 2011 and June 30, 2010, respectively:

	March 31, 2011				June 30, 2010
Securities:	Owned		Sold Short		Owned		Sold Short
	$	141,363	$	-	$	152,025	$

Securities sold, but not yet purchased commit the Company to deliver specified securities at predetermined prices. The transactions may result in market risk since, to satisfy the obligation, the Company must acquire the securities at market prices, which may exceed the values reflected in the consolidated statements of financial condition.

F - 8

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, 2011 AND 2010

(~~Unaudited~~unaudited)

NOTE 53 - ~~Due~~Recent ~~from~~Accounting ~~Clearing Organization~~Pronouncements

~~The~~Management ~~following~~does ~~represents~~not ~~amounts~~believe onthere ~~deposit~~are ~~with~~any ~~the~~issued, ~~Company’s~~but ~~former~~not ~~clearing~~yet ~~broker~~effective, ~~Southwest~~accounting ~~Securities,~~standards ~~Inc.~~if ~~(“Southwest”)and~~currently ~~Legent~~adopted ~~Clearing~~which ~~LLC~~would ~~(“Legent”)~~have ~~for~~a ~~the~~material 9effect ~~months~~on ~~ending March 31, 2011 in~~ the ~~Company’s~~accompanying ~~clearing~~consolidated ~~broker~~financial ~~inventory account:~~statements.

	March 31, 2011		June 30, 2010
Cash	$	284,219	$	442,033
Marketable securities		76,092		243,579
Total due from clearing organization	$	360,311	$	685,612

NOTE 4 – Securities held for resale, At Market

The ~~marketable~~following ~~securities~~table ~~are~~shows ~~primarily~~the ~~comprised~~market ofvalues ~~corporate stocks. Marketable securities are on deposit with Southwest Securities as~~ of ~~June~~ ~~30, 2010 which ceased clearing for~~ the ~~firm~~Company's oninvestment ~~August 13, 2010. Marketable~~ securities ~~held~~owned byas ~~Legent which started to clear the firm on August 16, 2010 are reflected at fair value. The Company is required to maintain a deposit balance~~ of ~~$100,000~~September ~~with Legent. Currently Southwest retains $14~~30,~~495~~ in2011 ~~deposit~~ and ~~Legent~~June ~~currently~~30, ~~retains approximately $350~~2011,~~000~~ ~~in deposits for the firm .~~respectively:

For the nine months ending March 31, 2011 and 2010, the Company used the services of Southwest to clear its brokerage business until August 13, 2010 and Legent commenced on August 16, 2010. The Company incurred charges of approximately $141,936 with Legent for the nine months ended March 31, 2011 and $174,269 with Southwest for the nine months ended March 31, 2010.

September 30, 2011			June 30, 2011

$	85,493	$	83,415

F - 98

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, 2011 AND 2010

(~~Unaudited~~unaudited)

NOTE 5 - Due from Clearing Organization

The following represents amounts on deposit in the Company’s clearing broker inventory account with Southwest Securities, Inc. (“Southwest”)and Legent Clearing LLC (“Legent”) for the fiscal year ended June 30, 2011, and for the three months ended September 30, 2011:

	September 30, 2011							June 30, 2011
	Southwest		Legent		Total			Southwest		Legent		Total
Cash	$	14,495	$	254,960	$	275,380	$	14,495	$	260,885	$	275,380
Marketable securities, net of fair value adjustments		0		52,595		52,595		-		69,757		69,757
	$	14,495	$	307,555	$	322,050	$	14,495	$	330,642	$	345,137

The marketable securities are primarily comprised of corporate stocks. Marketable securities on deposit with Legent are reflected at fair value. As of September 30, 2011, the Company is required to maintain a clearing deficit of $100,000 with Legent.

For the three months ended September 30, 2011, the Company used the services of Legent to clear its brokerage business. Southwest ceased clearing the Company’s brokerage business on August 13, 2010 and Legent commenced clearing on August 16, 2010. The Company incurred charges of approximately $49,320 for the three months ended September 30, 2011 and approximately $23,387 with Southwest and $23,841 with Legent for the three months ending September 30, 2010

NOTE 6 - Related Party Transactions

As of ~~March~~September 3130, 2011 and June 30, ~~2010~~2011, due tofrom (~~from~~to) affiliated companies consisted of the following:

	March 31,		June 30,
	September 30,		June 30,
	2011		~~2010~~2011
Network 1 Financial Advisors Inc. (a) (b)	$	70,945	$	91362
Network 1 Financial Advisors Inc.(b)	$	55,781	$	67,362
Network 1 Financial Assurance, Inc. (b)	$	(661)	$	400
Network 1 Financial Assurance, Inc. (a) (b)	$	146	$	200
National Financial Services Group (b)	$	39,884	$	39,884
National Financial Services Group (c)	$	8,884	$	37,189

(a) Represents ~~amounts~~expenses ~~due~~paid inon ~~the~~behalf ~~form~~ of ~~a promissory note from~~ an affiliated company whose ~~officers~~directors ~~and shareholders~~ are officers and shareholders of the Company.

(b) Represents amounts due in the form of a promissory note from an affiliated company whose officers and shareholders are officers and shareholders’ of the Company.

~~NOTE 7~~ F- ~~Line of Credit – Bank~~9

The Company’s bank line of credit is payable on demand. The maximum amount the Company could borrow is $100,000. Indebtedness under the line of credit provides for interest at the bank’s prime rate, plus 1.0% (approximately 4.25% at March 31, 2011). As of March 31, 2011 and June 30, 2010, the amount outstanding under this credit facility was $30,000 and $55,000 respectively.

NOTE 8 - Net Capital Requirements

Network 1 Financial Securities, Inc. (“NETW”) is a registered broker-dealer and is subject to the SEC’s Uniform Net Capital Rule 15c3-1. This requires that NETW maintain minimum net capital of $100,000 and also requires that the ratio of aggregate indebtedness, as defined, to net capital, shall not exceed 15 to 1.

As of March 31, 2011 and June 30, 2010, NETW’s net capital exceeded the requirement by approximately $67,010 and $94,237 respectively.

Advances, dividend payments and other equity withdrawals are restricted by the regulations of the SEC, and other regulatory agencies are subject to certain notification and other provisions of the net capital rules of the SEC. NETW qualifies under the exemptive provisions of Rule 15c3-3 as NETW does not carry security accounts for customers or perform custodial functions related to customer securities.

F - 10

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, 2011 AND 2010

(~~Unaudited~~unaudited)

NOTE 7 - Capital Lease Obligation

The Company has equipment under a capital leases expiring in August 2012 and September 2015. The assets and liabilities under the capital lease are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are included in property and equipment and is amortized over the estimated life of the assets. The interest rate under the lease is 6.60% and 6.89% and is imputed based on the lessor’s implicit rate of return. The Capital lease is payable in monthly installments of $532 and $210, including interest through August 2012 and September 2015.

Amortization of assets held under the capital lease is included in depreciation expense.

At September 30, 2011, annual minimum future lease payments under the capital lease are as follows:

June 30,	Amount

2012	$	7,391
2013		2,517
2014		2,517
2015		2,517
2016		1,600

Total minimum lease payments	$	16,542

NOTE 8 - Line of Credit – Bank

The Company’s bank line of credit is payable on demand. The maximum amount the Company could borrow is $100,000. Indebtedness under the line of credit provides for interest at the bank’s prime rate, plus 1.0% (approximately 4.25% at September 30, 2011). As of September 30, 2011 and June 30, 2011, the amount outstanding under this credit facility was $30,000.

Indebtedness under the credit agreement is collateralized by substantially all of the assets of the Company and an officers’ personal guarantee.

NOTE 9 – Notes Payable

Notes payable include settlement agreements entered into with the FINRA in September 2011, September 2010 and May 2010, for monetary sanctions imposed against the Company. As of ~~March~~September 3130, 2011 and June 30, ~~2010~~2011, notes payable consists of the following:

	March 31, 2011		June 30, 2010
	September 30, 2011		June 30, 2011
Note payable to FINRA in monthly installments of $500 per month including interest at a rate of 6.25% through January 2012	$	41,~~698~~808	$	-3,264
Note payable to FINRA in monthly installments of $2,500 per month including interest at a rate of 11.25% through August 2010.		-		5,966
Note payable to FINRA in monthly installments of $ 500 per month including interest at a rate of 6.25% through May 2013		9,375		-0-
Note payable to FINRA in monthly installments of $500. per month including interest at a rate of 6.25% through August 2011		2,296		7,000
Note payable to FINRA in monthly installments of $500 per month including interest at a rate of 6.25% through August 2011		-0-		824
Total notes payable	$	611,~~994~~183	$	124,~~966~~088

NOTE 10 –- Net Capital ~~Stock.~~Requirements

NETW is a registered broker-dealer and is subject to the SEC’s Uniform Net Capital Rule 15c3-1. This requires that NETW maintain minimum net capital of $100,000 and also requires that the ratio of aggregate indebtedness, as defined, to net capital, shall not exceed 15 to 1.

As of September 30, 2011 and June 30, 2011, NETW’s net capital exceeded the requirement by approximately $37,316 and $65,212 , respectively.

NOTE 11 – Capital Stock.

We are authorized to issue 100,000,000 shares of common stock with a par value of $.001 per share.

On ~~January~~July 46, 2011 we issued an aggregate of 6900,~~200,~~000 shares of common stock ~~to an officer as payment~~ for ~~his~~previously ~~appointment~~accrued ~~as the president of our company. The~~ services ~~were~~ valued at $~~248~~36,000 based on the value of the stock at the time of issuance.

FOn -July 116, 2011 the Company issued 100,000 shares of $0.001 par value Company common stock to a Company director. The services were valued at $2,000 based on the value of the stock at the time of issuance.

NOTE 1112 - Warrants ~~and Derivative Liability~~

The following is additional information with respect to the Company’s warrants as of ~~March~~September 3130, 2011:

~~WARRANTS OUTSTANDING AND EXERCISABLE(1)~~F-10

		Number of		Weighted
		Outstanding		Average	Weighted
		Shares		Remaining	Average
Exercise		Underlying		Contractual	Exercise
Price		Warrants		Life	Price (2)
$	0.20		7,357,730	0.56 years	$	0.16
			7,357,730	0.56 years	$	0.16

(1)	Effective April 8, 2010, the Board of Directors of the Company amended the Warrant Agreement to extend the expiration date of the Warrants by eighteen months, from April 23, 2010 until October 23, 2011.
(2)	Effective March 4, 2011 the exercise price of these warrants was adjusted from $0.20 to $0.16 due to the exercise price adjustment provisions in the warrant agreements. This adjustment was due to the issuance of common stock for services and sale of the common stock for a stock price lower than the exercise price attributable to the warrants.

In June 2008, the FASB issued new accounting guidance which requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions. Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 “Derivative and Hedging” and should be classified as a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings. The Company’s warrants issued in connection with the IPO do not have fixed settlement provisions because their exercise prices, may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect warrant holders from potential dilution associated with future financings. In accordance with the guidance, the warrants have been recharacterized as a derivative liability.

The derivative liability was valued using the Black-Scholes option valuation model and the following assumptions:

	March 31, 2011			June 30, 2010
Warrants:
Risk Free interest rate		0.05	%		0.6	%
Expected volatility		88.00	%		85.77	%
Expected life (in years)		0.56			1.31
Expected dividend yield		0	%		0	%
Fair value Warrants:	$	2,108		$	23,831

F - 12

NETWORK 1 FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~MARCH~~SEPTEMBER 3130, 2011 AND 2010

(unaudited)

~~NOTE~~WARRANTS ~~12-~~OUTSTANDING ~~Fair~~AND ~~Value Measurements~~EXERCISABLE

The financial assets of the Company measured at fair value on a recurring basis are cash, due from clearing organization, marketable securities, derivatives and debt. The Company’s cash equivalents, due from clearing organization and marketable securities are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The Company’s long-term investments, derivative liabilities and debt are classified within level 3 of the fair value hierarchy because they are valued using unobservable inputs, due to the fact that observable inputs are not available, or situations which there is little, if any, market activity for the asset or liability at the measurement date.

		Number of		Weighted
		Outstanding		Average	Weighted
		Shares		Remaining	Average
Exercise		Underlying		Contractual	Exercise
Price		Warrants		Life	Price

$	0.16		7,657,733	0.07 years	$	0.16

			7,657,733	0.07 years	$	0.16

	·	Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;
	·	Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly , for substantially the full term of the asset or liability; or

Note: The warrants’ expiration date is October 23, 2011.

·NOTE ~~Level~~13- 3:Fair ~~Prices~~Value ~~or valuation techniques that require inputs that require inputs that are both significant to the fair value measurement and are unobservable.~~Measurements

The ~~following~~financial ~~table~~assets ~~sets~~of ~~forth~~ the Company’s ~~short~~measured ~~and~~at ~~long~~fair ~~term~~value ~~investments~~on asa ofrecurring ~~March~~basis 31are cash, ~~2011~~due from clearing organization, ~~which~~marketable ~~are~~securities, ~~measured~~derivatives atand ~~fair~~debt. The ~~value~~Company’s oncash aequivalents, ~~recurring~~due ~~basis~~from byclearing ~~level~~organization and marketable securities are generally classified within Level 1 of the fair value hierarchy~~. As~~ ~~required~~because they are valued using quoted market prices, bybroker ~~ASC~~or ~~820~~dealer ~~(formerly~~quotations, ~~SFAS~~or Noalternative pricing sources with reasonable levels of price transparency. The ~~157)~~Company’s long-term investments, ~~these~~derivative liabilities and debt are classified ~~based~~within onLevel 3 of the ~~lowest~~fair ~~level~~value ofhierarchy ~~input~~because they are valued using unobservable inputs, due to the fact that observable inputs are not available, or situations which there is ~~significant~~little, toif any, market activity for the ~~fair~~asset ~~value~~or ~~measurement~~liability ~~(in~~at ~~thousands):~~the measurement date.

	Level 1		Level 2	Level 3		Total
Due from clearing organization	$	360,311	-		-	$	360,311
Securities owned, at market values		89,218	51,845		300		141,363
Total assets		551,674					501,674
Derivative liabilities		-	-		2,108		2,108
Total liabilities	$					$	2,108

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

~~The~~· ~~table~~Level ~~below~~2: ~~sets~~Quoted ~~forth~~prices ain ~~summary~~markets ofthat ~~changes~~are innot ~~the~~active ~~fair~~or ~~value~~inputs ofwhich ~~the~~are ~~Company’s~~observable, ~~Level~~either 3directly ~~financial~~or ~~liabilities~~indirectly ~~(warrant~~, ~~derivative liability)~~ for substantially the ~~nine~~full ~~months~~term ~~ended~~of ~~March~~the ~~31,~~asset ~~2011.~~or liability; or

	2011
Balance at beginning of year	$	23,831
Additions to derivative instruments		-
Change in fair value of warrant liability		(21,723)
Balance at end of period	$	2,108

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.

~~NOTE~~The 13following –table ~~Subsequent~~sets ~~Event~~forth the Company’s short and long term investments as of September 30, 2011, which are measured at fair value on a recurring basis by level within the fair value hierarchy. As required by ASC 820 (formerly SFAS No. 157), these are classified based on the lowest level of input that is significant to the fair value measurement:

On March 31, 2010, the Company, Richard Hunt, William Hunt, and an unaffiliated third party were sued in the Superior Court of New Jersey, Mercer County (Docket No. L-572-10) (the “Complaint”). The Complaint sought to recover $123,307 of unpaid attorney’s fees allegedly owed to Stark and Stark. The Complaint was reinstated on April 11, 2011. The Company retained counsel to represent the Company and Messrs. Richard and Hunt in this matter. On May 6, 2011 the Company entered into a stipulation of agreement (the “Settlement”) with Stark and Stark whereby the Company has agreed to pay Stark and Stark $68,999.07 in 18 monthly payments of $3,833.29, which Stark and Stark has agreed to accept as full and final payment. The firm made a payment of $11,499.87 (retroactive payment for February, March, April 2011) upon signing the Settlement and continues to make regular payments pursuant to the Settlement.

	Level 1		Level 2		Level 3		Total
Due from clearing organization	$	52,595		-		-	$	52,595
Securities owned, at market values		85,493		-		-		85,493
Total Assets	$	138,088		-		-	$	138,088

FNOTE -14 13– Subsequent Events

~~ITEM~~On 2October 28, 2011 the firm sold 4.350,000 ~~MANAGEMENT’S~~shares ~~DISCUSSION~~of ~~AND~~its ~~ANALYSIS~~common ORstock ~~PLAN~~to OFan ~~OPERATION~~affiliated person, for gross proceeds of $87,000.

~~Some of the statements contained in this Quarterly Report on Form 10~~F-Q, which are not purely historical, are forward-looking statements, including, but not limited to, statements regarding the Company’s objectives, expectations, hopes, beliefs, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by the use of the words “may,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results could differ materially from those disclosed in these statements due to various risk factors and uncertainties affecting our business. We caution you not to place undue reliance on these forward-looking statements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements and we do not intend to update any of the forward-looking statements after the date of this report to conform them to actual results. You should read the following discussion in conjunction with our financial statements and related notes included elsewhere in this report. For a more complete understanding of our industry, the drivers of our business and our current period results, you should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operation in conjunction with the audited financial statements and notes thereto set forth inour Annual Report on Form 10-K for the year ended June 30, 2010 and our other filings with the SEC.11

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

Some of the statements contained in this Quarterly Report on Form 10-Q, which are not purely historical, are forward-looking statements, including, but not limited to, statements regarding the Company's objectives, expectations, hopes, beliefs, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by the use of the words "may," "will," "should," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of those terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results could differ materially from those disclosed in these statements due to various risk factors and uncertainties affecting our business. We caution you not to place undue reliance on these forward-looking statements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements and we do not intend to update any of the forward-looking statements after the date of this report to conform them to actual results. You should read the following discussion in conjunction with our financial statements and related notes included elsewhere in this report. For a more complete understanding of our industry, the drivers of our business and our current period results, you should read the following Management's Discussion and Analysis of Financial Condition and Results of Operation in conjunction with the audited financial statements and notes thereto set forth in our Annual Report on Form 10-K for the year ended June 30, 2011 and our other filings with the SEC.

OVERVIEW

On June 9, 2009, the Company (then known as “"International Smart Sourcing, Inc.”" or “"ISSI”") closed certain transactions contemplated in a certain Stock Purchase Agreement dated as of March 26, 2009 (the “"Agreement”") which we entered into with Network 1 Financial Securities, Inc., a privately held Texas corporation (“"NETW”"), and certain former shareholders of NETW. At the closing, we acquired 1,250,528 shares, or approximately 97.55%, of common stock of NETW outstanding on such date (the “"Reverse Merger”"). In accordance with the terms of the Agreement, we issued 21,460,622 shares of our common stock to the former shareholders of NETW, in exchange for the acquisition, by the Company, of approximately 97.55% of the outstanding common shares of NETW.

As of the closing date, the former shareholders of NETW held approximately 66% of the issued and outstanding common shares of the Company. The issuance of the 21,460,622 common shares to the former shareholders of NETW was deemed to be a reverse acquisition for accounting purposes, by ISSI of NETW, as NETW will control the post-merged company. Accordingly, NETW, the accounting acquirer entity, is regarded as the predecessor entity as of June 9, 2009.

Upon the completion of the Reverse Merger, we became the ultimate parent company of NETW and we changed our name from “"International Smart Sourcing, Inc.”" to “"Network 1 Financial Group, Inc.”" (“"NETW Group,”" the “"Company,”" “"we,”" “"us,”" or “"our”").

During the quarter ended ~~March~~September 3130, 2011, we had a decrease in our investment banking fees, and a decrease in our investment advisory consulting fees ~~and trading gains~~. In the same period, we had an increase in commission income but a decrease in trading profits. The decrease in investment banking fees was attributable to ~~the~~a ~~reduced~~reduction ~~fees~~in ~~paid to us by investment banking clients versus~~ the ~~same~~number ~~period~~of incompleted ~~2010 Our~~private ~~investment~~placements ~~advisory~~and ~~fees showed~~ a decrease ~~resulting~~ ~~from~~in our ~~fewer~~ investment ~~banking fees earned. The decrease in~~ advisory consulting fees, which was due to ~~less~~a lesser number of companies seeking our services. The increase in commissions earned in NETW’'s daily transaction business was due primarily to ana increase in activity from NETW’'s retail clients. The decrease in trading profits was due to increased market volatility ~~and mark to market pricing of securities held~~. Overall, we experienced ana increase in losses in the quarter ended ~~March~~September 3130, 2011 compared to the same period in the prior year.

We had a loss from operations of approximately $~~652~~137,~~731~~922 for the quarter ended ~~March~~September 3130, 2011 ~~excluding the gain on change in derivative liability of $ 8~~,~~541,~~ which represents an increase of $~~622~~52,~~447~~259 over our net loss of $3085,~~284~~663 in the same period in the prior year. This increase ~~in loss~~ was primarily due to decreased revenues, ~~increased operating expenses,~~ which consisted of ~~higher~~lower investment banking commissions, ~~paid~~a decrease in net dealer inventory gains, ~~cost~~investment ofadvisory ~~additional~~fees ~~personnel~~offset ~~including~~by ~~the~~a ~~hiring~~reduction ofin ~~inside~~operating ~~counsel~~expenses in occupancy, office expenses, professional fees and compensation and related expenses. Management continues to seek income stabilization from consulting and investment banking fees as well as by reducing its exposure to market positions. Management believes that in order to expand its marketing and recruitment of experienced registered representatives it will need to seek additional sources of funding.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon the ~~unaudited~~ condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles as recognized in the United States of America. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For a complete description of accounting policies, see Note 2 to our financial statements included in our Form 10-K for the year ended June 30, ~~2010~~2011. There were no significant changes in critical accounting estimates.

Results of Operations

For the ~~nine~~three months ended ~~March~~September 3130, 2011 ~~compared~~and to2010, ~~the~~we ~~nine~~generated ~~months~~$442,718 and $547,439 of consolidated revenue, respectively. The decrease in revenue of $104,721 in the quarter ended ~~March~~September 3130, 2011 represents a 19% decrease in revenue over the corresponding period in 2010 and is due to a decrease in dealer inventory gains or trading profits and a decrease in investment advisory fees. The decrease in inventory gains or trading profits was due primarily to increased market volatility. The decrease in investment advisory fees is primarily due to a decrease in fees earned in our advisory business to companies and individuals.

~~Revenues. Our~~We ~~consolidated~~reported ~~income~~an ~~results~~operating ~~for~~loss of $137,922 in the ~~nine~~three months ended ~~March~~September 3130, 2011 compared to a loss of $85,663 for the ~~nine~~corresponding ~~months~~period ~~ended~~in ~~March~~the 31prior year, ~~2010~~which ~~showed~~represents aan ~~decrease~~increase of $~~372~~52,~~486~~259. ~~Total~~The ~~revenue~~increase ~~for~~in ~~the~~operating ~~nine~~loss ~~months~~was ~~ended~~due ~~March~~to ~~31,~~an ~~2011~~increase ~~was~~in ~~$1,616,404~~commissions ~~versus~~payable $1and an increase in clearing fees,~~988,890~~ ~~for~~as ~~the~~well ~~nine~~as ~~months~~a ~~ended~~reduction ~~March~~in 31compensation and related expenses, ~~2010~~occupancy and relates expenses, office expense, and professional fees..

WeOur ~~experienced~~consolidated aoperating ~~decrease~~expenses inwere ~~revenue~~$580,640 ofand $~~372~~633,~~486~~100 for the quarters ended September 30, 2011 and 2010, respectively, representing a decrease of $52,460 or 168% ~~for~~from the ~~nine~~prior ~~month~~ period, ~~ended~~and ~~March~~represents 31131% and 116% of revenue, respectively. The decrease in our expenses in 2011, ~~compared~~was primarily due to ~~the~~a ~~nine~~reduction ~~months~~of ~~ended~~compensation ~~March~~and 31related expenses, ~~2010~~occupancy and related expenses, office expenses, and professional fees offset by an increase in commission paid to register representatives...

~~The~~Interest ~~decrease~~expense ~~in revenue for the nine month period ended March 31, 2011~~ was ~~due~~$587 ~~primarily~~and ~~to a decrease of~~ $~~438~~3,~~602~~398 ~~or 66 %, in the fees earned in investment banking activities. The decrease in investment banking fees earned was attributed to fees earned from lower amount of closed financings~~ for the ~~nine~~quarters ~~months~~ ended inSeptember ~~March 31~~30, 2011 asand ~~compared~~2010, ~~to the nine months ended March 31~~respectively, ~~2010.~~ Wea ~~experienced~~decrease ~~an increase in revenues~~ of $572,~~050~~811 or 983%~~, from our commissions earned as compared in the corresponding period ended March 31, 2010~~. The ~~increase~~decrease was ~~$35,447,~~due ~~or 72% for net dealer inventory gains compared~~ to ~~our~~a ~~net~~reduction ~~dealer inventory gains~~ in ~~the~~interest ~~nine~~rates ~~months~~and ~~ended~~a ~~March~~reduction ~~31, 2010. The increase~~ in ~~commissions~~debt ~~were attributed to increased transactions by our customers and increased net dealer inventory gains were due to increased market volatility~~financing.

~~Operating Expenses.~~ Our consolidated ~~operating~~loss expenses for the nine month period ended March 31, 2011 were $2,264,666, or 140% of revenue versus $2,532,010, or 127% of revenue. This represents a decrease of $267,344 or 11%, over the corresponding period ended March 31, 2010. The decrease was ~~due to a reduction of commissions expense of~~ $~~414~~137,~~309;~~922 ~~a reduction of office expense of $17,711; a reduction in fees paid to professionals of $45,107,~~ and ~~a reduction of clearing expenses in the amount of~~ $3285,~~333.~~663 ~~These decreases were offset by an increase of communication and data processing of $26,867, an increase of compensation and related expenses of $181,999 and an increase of $45,342~~ for ~~occupancy and related expenses for~~ the ~~nine~~three months ended ~~March~~September 3130, 2011 ~~compared~~and ~~to the corresponding period in March 31~~2010, ~~2010~~respectively.

The decrease in commission expense is due to reduced commissions paid due to fewer financial placements closed in the nine months ended March 31, 2011. The decrease in office expenses is due to tighter control of purchasing. The decrease in professional fees is due to the hiring of in-house counsel.

Profit and Loss. Our consolidated loss was $626,549 for the nine month period ended March 31, 2011 compared to a loss of $566,071, for the corresponding period in 2010. This represents an increase in loss of $60,549 for the nine months ended March 31, 2011 compared to the same period in 2010.

The losses incurred were attributed to increased compensation and related expenses, occupancy and related expenses and communication and data processing and losses incurred to market to market security held in account.

For the three months ended March 31, 2011 compared to the three months ended March 31, 2010

Revenues. Total revenue for the three months ended March 31, 2011 was $335,455 versus $752,434 for the three months ended March 31, 2010. We experienced a decrease in revenue of $426,979, or 57%, for the three months ended March 31, 2011 compared to the same period in 2010.

The decrease in revenue for the three month period ended March 31, 2011 was due primarily to an decrease in net dealer inventory gains of $263,875; decrease in investment banking fees of $99,429; and decrease of $122,161 in investment advisory fees. These were offset by increases in commissions earned on transactions of $62,528, compared to the same period in 2010. The increase was attributed to more transactions and the hiring of additional registered representatives. The decrease in investment banking fees earned was attributed to fewer fees earned from closed financial placements. The decrease in net dealer inventory gains is due to mark to market of securities held in account; the decrease in investment advisory fees is due to a decrease in fees earned from consulting.

Operating Expenses. Our consolidated operating expenses for the three month period ended March 31, 2011 were $978,186 or 300% of revenue compared to $782,718, or 104% of revenue, for the same period in 2010, representing an increase of $195,468, or 25%. The increase was due to an increase in commission expense of $176,508; an increase in compensation and related expenses of $36,209; and an increase in communication and data processing expenses of $10,807; and an increase in occupancy and related expenses of $27,016. Such increased expenses were offset by a decrease of $32,058 in professional fees; a decrease in clearing fees of $18,485; a decrease in interest expense of $3,039 and a decrease in depreciation expense of $2,160 for the three month ended March 31, 2011 compared to the same period in 2010.

The increases were due to increased activity of our retail customers due to the increase of registered representatives hired by the firm resulting in more commissions paid and reflecting in part the award of securities in the amount of $248,000 to the new CEO of the firm; and an increase in compensation and related expenses due to hiring of additional staff and in house counsel to assist in the compliance and regulatory workload.

The decreases in expenses were due to reduction of clearing fees, lower interest rates as well as lower balances owed to the bank in the three month ended March 31, 2011 compared to the same period in 2010.

Profit and Loss. Our consolidated loss was $652,731 before adjustment for the gain of $8,541 from the change in derivative liability, for the three months ended March 31, 2011 compared to a loss of $30,284 for the same period in 2010. This represents an increased loss of $622,447 for the three months ended March 31, 2011, compared to the same period in 2010. The losses incurred were attributed to an increase in commission expense, an increase in compensation and related expenses and an increase in occupancy and related expenses and an increase in communications and data processing expenses.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity is cash generated from operations and from short-term financing arrangements. We had $~~191~~6,~~594~~947 in cash and as of ~~March~~September 3130, 2011.

We generated anegative ~~deficit in~~ cash flow from operations of $~~153~~95,~~073~~822 for the ~~nine~~three months ended ~~March~~September 3130, 2011~~. Cash~~ ~~flows~~comprised ~~used~~primarily byof ~~investing~~cash ~~activities~~proceeds ~~for~~from the receivables from Legent ~~nine~~Clearing ~~months~~LLC. ~~ended~~Cash ~~March 31, 2011 were $2,181, and cash~~ flows provided by financing activities for the ~~nine~~three months ended ~~March~~September 3130, 2011 ~~was~~were $~~344~~44,~~213, comprised primarily of cash flows from sale of common stock.~~ 721

On December 4, 2009, Network 1 Financial Securities, Inc. (“NETW”), a wholly owned subsidiary of the Company received a letter via regular mail dated November 25, 2009 (the “Termination Letter”) from NETW’s clearing firm, Southwest Securities, Inc. (“Southwest”), stating that the Fully Disclosed Correspondent Agreement, dated as of September 27, 1990, as amended, between NETW and Southwest (the “Clearing Agreement”) was being terminated pursuant to Paragraph 12 of the Clearing Agreement. Such termination is effective 90 days from the date of the Termination Letter (the “Termination Date”). NETW entered into a new clearing agreement with Legent Clearing LLC. Legent Clearing LLC commenced clearing the firm’s business on August 16, 2010 and Southwest ceased clearing the firm’s business on August 13, 2010.3

WeOur ~~believe~~business ~~that~~has weexperienced ~~will~~difficulty ~~have~~in ~~available~~closing ~~resources~~investment tobanking ~~meet~~private ~~our~~placements ~~liquidity~~due ~~requirements, including debt service, for the next quarter. If our cash flow from operations is insufficient~~ to ~~fund~~volatile ~~our~~market ~~debt~~conditions ~~service~~subsequent ~~and other obligations, we may be required~~ to ~~increase~~September ~~our borrowings~~30, ~~reduce or delay capital expenditures, and seek additional capital or refinance our indebtedness~~2011. ~~There~~ ~~can be no assurance~~Accordingly, ~~however, that~~ we ~~will~~are ~~continue~~experiencing toliquidity ~~generate~~and cash ~~flows~~flow ~~at or above current levels or that we will be able to maintain our ability to borrow under revolving credit facilities~~problems.

~~In the upcoming year, we plan to finance operations with working capital and external financing.~~ We ~~believe that we~~ will need additional funds in the near term to finance operations and meet revenue, profitability, growth, diversification and other strategic goals for the foreseeable future. We expect to be able to procure financing upon reasonable terms in order to finance operations. However, if we are unable to do so, or if we do not meet anticipated future revenue goals, management is committed to taking actions necessary to ensure the conservation of adequate cash to continue to finance its operations.

4Additional financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations. The firm is currently reviewing its options due to its liquidity problems.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Inflation

We believe that inflation has not had a material effect on our operations to date.

Recent Accounting Pronouncements

See Note 32 of the Unaudited Condensed Consolidated Financial Statements for a full description of new accounting pronouncements, including the respective expected dates of adoption and effects on results of operations and financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of ~~March~~September 3130, 2011 due to the identification of a material weakness. A material weakness is a control deficiency or combination of control deficiencies such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

To address the material weakness described below, we performed additional analysis and performed other procedures to ensure our financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q, fairly present, in all material aspects, our financial condition, results of operations and cash flows for the periods presented in accordance with GAAP.

The weakness, identified by management, related to the lack of necessary accounting resources to ensure consistently complete and accurate reporting of financial reporting. To mitigate the current limited resources and limited ~~number of~~ employees, we rely heavily on direct management oversight of transactions. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

We believe that for the reasons described above, after we hire additional qualified in-house personnel, we will be able to improve our disclosure controls and procedures, remedy the material ~~weaknesses~~weakness identified above and provide reasonable assurance that assets are safeguarded from loss or unauthorized use, that transactions are recorded in accordance with GAAP under management’s directions, and that financial records are reliable to prepare financial statements. However, because of inherent limitations in all control systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected.

(b) Changes in internal control over financial reporting

There were no changes in the Company’s internal control over financial reporting in the Company’s ~~third~~first fiscal quarter of the fiscal year ending June 30, 2011 covered by this Quarterly Report on Form 10-Q, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

OnWe ~~March~~are ~~31,~~not ~~2010, the Company, Richard Hunt, William Hunt, and an unaffiliated third~~ party ~~were sued in the Superior Court of New Jersey, Mercer County (Docket No. L-572-10) (the “Complaint”). The Complaint sought~~ to ~~recover~~any ~~$123,307~~material oflegal ~~unpaid attorney’s fees allegedly owed to Stark and Stark. The Complaint was reinstated on April 11~~proceedings, ~~2011. The~~nor ~~Company retained counsel~~ to ~~represent~~our ~~the Company and Messrs. Richard and Hunt in this matter. On May 6~~knowledge, ~~2011~~are ~~the~~there ~~Company~~any ~~entered~~proceedings ~~into~~threatened aagainst ~~stipulation of agreement (the “Settlement”) with Stark and Stark whereby the Company has agreed to pay Stark and Stark $68,999~~us.07 in 18 monthly payments of $3,833.29, which Stark and Stark has agreed to accept as full and final payment. The firm made a payment of $11,499.87 (retroactive payment for February, March, April 2011) upon signing the Settlement and continues to make regular payments pursuant to the Settlement.

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

WeOn ~~have~~October ~~not~~28, 2011 the firm sold ~~any~~4.350,000 ~~unregistered~~shares ~~equity~~of ~~securities~~its ~~during~~common ~~the~~stock ~~three-month~~to ~~period~~an ~~covered~~affiliated byperson, ~~this~~for ~~quarterly~~gross ~~report.~~proceeds of $87,000

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. ~~(REMOVED~~SUBMISSION ~~AND~~OF ~~RESERVED)~~MATTERS TO A VOTE OF SECURITY HOLDERS.

We have not submitted any matters to a vote of security holders during the three-month period covered by this quarterly report.

ITEM 5. OTHER INFORMATION

~~Effective~~On atOctober ~~9:00 AM on May 18~~23, 2011, ~~Michael~~the ~~Rakusin~~company ~~resigned~~did ~~his~~not ~~positions~~extent as the ~~Company’s~~outstanding ~~Chief~~warrants ~~Financial Officer, Director,~~ and ~~member~~were ofallowed ~~the Board of Directors’ Compensation Committee due~~ to ~~poor health.~~expire

On May 18, 2011, at a special meeting of the Board of Directors, William R. Hunt, Jr. was designated as the Company’s interim principal financial officer. Mr. Hunt is currently the Company’s Secretary, and the new position is in addition to his existing duties.

From June of 2009 and the consummation of the reverse merger with International Smart Sourcing, Inc., until January of 2011, Mr. Hunt served as President and Chief Operating Officer of the Company. In January 2011 Mr. Hunt was appointed COO and Secretary of Network 1 Financial Group Inc. Since March 1988, Mr. William Hunt has served as President and Chief Operating Officer of the Company’s subsidiary, Network 1 Financial Securities, Inc. (the “Subsidiary Company”). In 1993, he was also appointed Chief Financial Officer of the Subsidiary Company. From September 2000 to November 2008, he served as Vice President of Network 1 Financial Advisors, Inc, (“Network Advisors”) and in November 2008 he was appointed President of Network 1 Financial Advisors, Inc. Since May 1998, he has served as Vice President and Chief Financial Officer of Network 1 Financial Assurance, Inc. Mr. Hunt is currently a FINRA Registered Representative, and has an insurance and real estate license in New Jersey. He received his BS in Business Administration from Trenton State College, now known as The College of New Jersey.

On May 18, 2011, at a special meeting of the Board of Directors, the Board unanimously agreed to issue 100,000 shares of Company stock to Vincent LaBarbara as compensation for his service as a Director and Member of the Company’s compensation committee.

ITEM 6. EXHIBITS

No.		Description
Exhibits:
31.1		Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2		Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. ~~Section~~§ 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. ~~Section~~§ 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NETWORK 1 FINANCIAL GROUP, INC.
May 19, 2011		/s/ Damon Testaverde
November 21, 2011		/s/ Damon D Testaverde
Date		Damon D Testaverde
		Chief Executive Officer
		Chief Executive Officer, President
May 19, 2011		/s/ William R. Hunt, Jr.
November 21, 2011		/s/ William R. Hunt, Jr.
Date		William R. Hunt, Jr.
		interim principal financial officer
		Interim Chief Financial Officer
		Interim Principal Financial Officer

EXHIBIT INDEX

Exhibit No.		Description
Exhibit		Description
31.1		Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2		Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. ~~Section~~§ 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. ~~Section~~§ 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

Filing Compare · NETWORK 1 FINANCIAL GROUP, INC.