SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~March 3031, ~~2007~~2009

~~o TRANSITION~~¨ 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 10-~~8191~~8460

PORTA SYSTEMS CORP.

(Exact name of registrant as specified in its charter)

Delaware	11-2203988
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

6851 Jericho Turnpike, Suite 170, Syosset, New York 11791

(Address of principal executive offices, including ZIP Code)

11791

(Zip Code)

516-364-9300

(Company’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days

Yes x No o¨

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 a check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of Exchange Act. Check one:

Large accelerated filer o ¨ Accelerated filer o ¨ Non-accelerated filer ¨ Smaller reporting company x

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ~~__No~~¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Common stock (par value $0.01) 109,~~075~~954,~~560~~569 shares as of ~~August~~May 38, ~~2007~~2009.

PART I.- FINANCIAL INFORMATION

Item 1- Financial Statements

PORTA SYSTEMS CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except shares and par value)

	Unaudited
	Unaudited March 31, 2009				December 31, 2008
	June 30,			December 31,
Assets
Assets	2007			2006
Current assets:
Current assets
Cash and cash equivalents	$	542			$	292
Cash and cash equivalents	$	669		$	2,102
Accounts receivable - trade, less allowance for doubtful accounts of $25 in 2009 and $30 in 2008		3,698				4,554
Accounts receivable - trade, less allowance for doubtful accounts of $23 in 2007 and $13 in 2006		6,068			5,417
Inventories		6,271				6,110
Inventories		5,550			4,591
Prepaid expenses and other current assets		369				202
Prepaid expenses and other current assets		610			697
Total current assets		10,880				11,158
Assets of discontinued operations		—			383
Property, plant and equipment, net		1,555				1,564
Total current assets		12,897			13,190
Goodwill		2,961				2,961
Property, plant and equipment, net		1,557			1,571
Other assets		78				78
Goodwill, net		2,961			2,961
Total assets	$	15,474			$	15,761
Other assets		54			51
Liabilities and Stockholders’ Deficit
Long term assets of discontinued operations		—			11
Current liabilities:
Total assets	$	17,469		$	17,784
Senior debt including interest	$	1,500			$	1,500
Liabilities and Stockholders’ Deficit
Subordinated notes including interest		191				191
Current liabilities:
Subordinated debentures, principal		385				385
Senior debt, principal amount	$	23,373		$	23,513
Accounts payable		5,400				5,529
Subordinated notes, principal amount		6,144			6,144
Accrued expenses and other		2,488				2,390
6% convertible subordinated debentures, principal amount		385			385
Other accrued interest payable		349				336
Accounts payable		5,453			6,106
Total current liabilities		10,313				10,331
Accrued expenses and other		2,760			2,136
Long term liabilities:
Accrued interest payable		6,917			6,127
Senior Debt including interest		17,820				18,056
Liabilities of discontinued operations		—			425
Subordinated notes including interest		2,720				2,767
Total current liabilities		45,032			44,836
Deferred compensation and other long term liabilities		640				651
Deferred compensation, net of current portion		739			771
Total long term liabilities		21,180				21,474
Total long-term liabilities		739			771
Total liabilities		31,493				31,805
Total liabilities		45,771			45,607
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, no par value; authorized 1,000,000 shares, none issued		—-			—	-
Common stock, par value $.01; authorized 20,000,000 shares, issued 10,106,501 shares in 2007 and 10,106,480 in 2006		101			101
Common stock, par value $.01; authorized 20,000,000 shares, issued 9,957,354 shares in 2009 and 2008		100				100
Additional paid-in capital		76,~~125~~244			~~76,125~~	76,244
Accumulated deficit		(9885,~~339~~131	)		~~(97,713~~	)(85,307	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(45,~~251~~294	)		~~(4,398~~	)(5,143	)
		(26,364	)		(25,885	)
		(14,081	)			(14,106	)
Treasury stock, at cost, 30,940 shares		(1,938	)		( 1,938	)
Treasury stock, at cost, 2,785 shares		(1,938	)			(1,938	)
Total stockholders’ deficit		(2816,~~302~~019	)		~~(27,823~~	)(16,044	)
Total liabilities and stockholders’ deficit	$	1715,~~469~~474		$	~~17,784~~$	15,761

See accompanying notes to ~~unaudited~~ consolidated financial statements

Page 1 of 15 19

PORTA SYSTEMS CORP. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share amounts)

	Six Months Ended
	Three Months Ended
	June 30,			June 30,
	March 31,				March 31,
	2007			2006
	2009				2008
Sales	$	157,~~271~~653		$	~~16,021~~$	6,545
Cost of sales		105,~~576~~718			~~10,556~~	4,708
Gross profit		41,~~695~~935			~~5,465~~	1,837
Selling, general and administrative expenses		21,~~993~~305			~~2,704~~	1,342
Research and development expenses		~~778~~336			~~756~~	424
Total expenses		3,771			3,460
Total operating expenses		1,641				1,766
Operating income		~~924~~294			~~2,005~~	71
Interest expense, net		(~~990~~33	)		~~(587~~	)(591	)
Other income (expense), net		—			2
Other income , net		9				8
Income (loss) from continuing operations before income taxes		(66	)		1,420
Income (loss) before income taxes		270				(512	)
Income tax expense		(3994	)		~~(70~~	)(25	)
Income (loss) from continuing operations before discontinued operations		(105	)		1,350
Net income (loss)	$	176			$	(537	)
Discontinued operations:
Other comprehensive loss:
Loss from discontinued operations (net of taxes of zero)		(87	)		(159	)
Foreign currency translation adjustments		(151	)			(84	)
Write off of net assets of discontinued operations		(434	)		—
Comprehensive income (loss)	$	25			$	(621	)
Total loss from discontinued operations		(521	)		(159	)
Basic income (loss) per share of common stock	$	0.02			$	( 0.59	)
Net income (loss)	$	(626	)	$	1,191
Weighted average shares outstanding		9,955				905
Other comprehensive (loss):
Diluted income (loss) per share of common stock	$	0.02			$	( 0.59	)
Foreign currency translation adjustments		(61	)		(126	)
Weighted average shares outstanding		9,963				905
Comprehensive income (loss)	$	(687	)	$	1,065
Basic income (loss) per share of common stock:
Continuing operations	$	(0.01	)	$	0.13
Discontinued operations		(0.05	)		(0.01	)
	$	(0.06	)	$	0.12
Weighted average shares outstanding		10,076			10,076
Diluted income (loss) per share of common stock:
Continuing operations	$	(0.01	)	$	0.13
Discontinued operations		(0.05	)		(0.01	)
	$	( 0.06	)	$	0.12
Weighted average shares outstanding		10,076			10,105

See accompanying notes to unaudited consolidated financial statements.

Page 2 of 15 19

PORTA SYSTEMS CORP. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share amounts)

	Three Months Ended
	June 30,			June 30,
	2007			2006
Sales	$	7,069		$	8,084
Cost of sales		4,994			5,332
Gross profit		2,075			2,752
Selling, general and administrative expenses		1,412			1,406
Research and development expenses		405			347
Total expenses		1,817			1,753
Operating income		258			999
Interest expense, net		(550	)		(289	)
Other income, net		—			—
Income (loss) from continuing operations before income taxes		(292	)		710
Income tax expense		(12	)		(47	)
Income (loss) from continuing operations before discontinued operations		(304	)		663
Discontinued operations:
Loss from discontinued operations (net of taxes of zero)		(53	)		(76	)
Write off of net assets of discontinued operations		(434	)		—
Total loss from discontinued operations		(487	)		(76	)
Net income (loss)	$	(791	)	$	587
Other comprehensive income (loss):
Foreign currency translation adjustments		(134	)		167
Comprehensive (loss) income	$	(925	)	$	754
Basic income (loss) per share of common stock:
Continuing operations	$	(0.03	)	$	0.07
Discontinued operations		(0.05	)		(0.01	)
	$	(0.08	)	$	0.06
Weighted average shares outstanding		10,076			10,076
Diluted income (loss) per share of common stock
Continuing operations	$	(0.03	)	$	0.07
Discontinued operations		(0.05	)		(0.01	)
	$	( 0.08	)	$	0.06
Weighted average shares outstanding		10,076			10,098

See accompanying notes to unaudited consolidated financial statements.

Page 3 of 15

PORTA SYSTEMS CORP. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(In thousands)

	Six Months Ended
	Three Months Ended
	June 30,			June 30,
	March 31, 2009				March 31, 2008
	2007			2006
Cash flows from operating activities:
Cash flows from operating activities of continuing operations:
Net income (loss)	$	176			$	(537	)
Net income (loss)	$	(626	)	$	1,191
Adjustments to reconcile net income (loss) to net cash provided by (used in) operation activities:
Loss from discontinued operations		521			159
Depreciation and amortization		75				79
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:
Inventory reserves		(27	)			(177	)
Depreciation and amortization		249			175
Allowance for bad debt		(5	)			(25	)
Changes in operating assets and liabilities:
Accounts receivable		~~(651~~806	)		~~(1,459~~	)(333	)
Inventories		(~~959~~135	)		~~679~~	(514	)
Prepaid expenses and other current assets		87(163	)		~~(312~~	)(265	)
Other assets		(37	)		—	(2	)
Accounts payable, accrued expenses and other liabilities		~~696~~15			~~2,161~~	1,657
Net cash (used in) provided by continuing operations		(686	)		2,594
Net cash (used in) provided by operating activities		735				(117	)
Net cash used in operations of discontinued operations		—			(1,480	)
Cash flows from investing activities:
Net cash (used in) provided by operating activities		(686	)		1,114
Capital expenditures, net		(71	)			(22	)
Cash flows from investing activities:
Net cash used in investing activities		(71	)			(22	)
Capital expenditures		(236	)		(292	)
Cash flows from financing activities:
Net cash used in investing activities		(236	)		(292	)
Repayments of debt		(286	)			-
Cash flows from financing activities:
Net cash used in financing activities		(286	)			-
Repayments of senior debt		(140	)		(675	)
Effect of exchange rate changes on cash		(128	)			(40	)
Net cash used in financing activities		(140	)		(675	)
Increase (decrease) in cash and cash equivalents		250				(179	)
Effect of exchange rate changes on cash		(371	)		138
Cash and equivalents - beginning of period		292				494
Increase (decrease) in cash and cash equivalents		(1,433	)		285
Cash and cash equivalents – end of period	$	542			$	315
Cash and cash equivalents - beginning of the year		2,102			1,254
Supplemental cash flow disclosure:
Cash and cash equivalents - end of the period	$	669		$	1,539
Cash paid for interest	$	55			$	-
Supplemental cash flow disclosure:
Cash paid for income taxes	$	61			$	2
Cash paid for interest expense	$	181		$	678
Cash paid for income taxes	$	—		$	52

See accompanying notes to unaudited consolidated financial statements.

Page 4 of3 15of 19

PORTA SYSTEMS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Management’s Responsibility ~~For~~for Interim Financial Statements Including ~~All Adjustments~~ AllAdjustments Necessary ~~For~~for Fair Presentation

Management acknowledges its responsibility for the preparation of the accompanying interim consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair ~~statement~~presentation of its consolidated financial position and the results of its operations for the interim period presented. These consolidated ~~financial~~ financial statements should be read in conjunction with the summary of ~~significant~~ significant accounting policies and notes to consolidated financial statements ~~included~~ included in the Company’s Form 10-K annual report for the year ended December 31, ~~2006~~2008. These financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any ~~adjustments~~ adjustments that might result from the outcome of the uncertainties described ~~within.~~in the financial statements. The audit opinion included in the December 31, ~~2006~~2008 Form 10-K annual report contained an explanatory paragraph regarding the Company’s ability to continue as a going concern. The factors which resulted in the explanatory paragraph are continuing. Results for the first ~~second~~ quarter ~~or the first six months~~ of ~~2007~~ 2009 are not necessarily indicative of results for the year. Certain reclassifications have been made to the prior consolidated financial statements to conform to the current year presentation.

On July 31, 2008, the Company amended its certificate of incorporation to effect a one-for-11.11 reverse split pursuant to which each share of common stock was converted into 0.0900090009 shares of common stock. Neither the par value nor the number of authorized shares was changed as a result of the reverse split. The financial statements give retroactive effect to the reverse split.

Note 2: Inventories

Inventories, ~~from continuing operations,~~ are stated at the lower of cost (on the average or first-in, first-out method) or market. The composition of inventories at the end of the respective periods is as follows (net of reserve of $21,~~010~~849,000 for ~~2007~~March 31, 2009 and $21,~~345~~876,000 for ~~2006~~December 31, 2008):

	June 30, 2007		December 31, 2006
	March 31, 2009			December 31, 2008
	(In thousands)
Parts and components	$	4,227,000		$	3,735,000
Parts and components	$	3,512	$	3,637
Work-in-process		947,000			1,176,000
Work-in-process		1,307		543
Finished goods		1,097,000			1,199,000
Finished goods		731		411
	$	6,271,000		$	6,110,000
	$	5,550	$	4,591

Note 3: Senior and Subordinated Debt

OnThe ~~June 30,~~following ~~2007,~~table ~~the~~sets ~~Company’s~~forth ~~liability~~information as to ~~its senior debt holder was $23,373,000 plus accrued interest of $312,000. During~~ the ~~fourth quarter of 2004, SHF IX LLC, an affiliate of Stonehill Financial, LLC, purchased the~~ Company’s senior and subordinated debt as of ~~approximately~~ ~~$25~~March 31,~~000,000~~ ~~from~~2009 ~~Wells~~and ~~Fargo~~December ~~Foothill~~31, ~~Inc~~2008. The senior ~~Company~~debt ~~has~~and ~~made payments~~the ~~through~~subordinated ~~June~~notes ~~30,~~were ~~2007~~issued ~~totaling~~as ~~$2,876,000~~part asof ~~required~~a bytroubled ~~amendments~~debt ~~and extensions~~restructuring ofduring the ~~loan~~third ~~agreement,~~quarter of ~~which $659~~2008,~~000~~ ~~was applied to interest~~ and $2,~~217~~ accordingly,~~000~~ ~~was~~the ~~applied~~amounts shown tofor ~~principal.~~that Ondebt ~~February~~includes 7,interest ~~2007~~accrued ~~Cheyne~~through ~~Special Situations~~the ~~Fund~~stated ~~L.P~~maturity ~~(“Cheyne”)~~dates of ~~purchased~~ the ~~Company’s~~respective ~~senior~~notes. ~~debt~~The ~~of approximately~~convertible ~~$23,400,000~~debentures ~~from~~were ~~SHF~~not ~~IX,~~changed ~~LLC~~as ~~and~~a ~~subsequently extended the~~result ~~maturity~~ of the ~~senior~~troubled debt torestructuring. On ~~October~~January 1, ~~2007. At June 30~~2009, ~~2007,~~ the ~~Company~~ ~~had made one interest~~ payment ofschedules ~~approximately~~for ~~$180,600 to Cheyne. The Company can not give any assurance that~~ the ~~holder of its~~ senior ~~debt~~notes ~~will~~were ~~extend~~revised ~~the~~and ~~loan beyond October 1, 2007~~extended. This ~~Any~~revision ~~adverse~~is ~~event,~~treated ~~including~~as ~~declines~~a introubled ~~business,~~debt ~~could~~restructuring. As ~~have an effect on~~ the ~~decision~~modification of ~~the~~terms ~~senior~~did ~~debt~~not ~~holder~~reduce ~~to extend or~~the ~~demand~~future ~~payment~~cash onpayments ~~the~~below ~~notes. If~~ the ~~senior~~carrying ~~debt~~amount ~~holder does not extend the maturity~~ of the ~~Company’s senior debt beyond October 1~~liability, ~~2007~~only ~~or if~~ the ~~senior~~ ~~debt~~additional ~~holder~~interest ~~demands~~resulting ~~payment~~from ~~of all or a significant portion of~~ the ~~senior~~revised ~~debt when~~payment ~~due,~~schedule ~~the~~is ~~Company~~treated ~~will~~as ~~not be able to continue in business, and it is likely~~a ~~that~~current itperiod ~~will seek protection under the Bankruptcy Code~~cost.

~~As of June~~Page ~~30,~~4 ~~2007, the Company’s short-term debt also included $6,144,000 principal amount~~ of ~~subordinated debt that became due on July 3, 2001 and $385,000~~ ~~principal amount of 6% debentures which~~19

Page 5 of 15

	March 31, 2009		December 31, 2008
12.5% senior note in installments through September 30, 2016, including interest of $6,165,000 at March 31, 2009 and December 31, 2008 (1)(2)	$	17,766,000	$	17,766,000
Floating rate working capital senior note, including interest of $9,000 at March 31, 2009 and $54,000 at December 31, 2008 (1)(3)		1,554,000		1,790,000
10% Subordinated notes due in installments through January 31, 2016, including interest of $1,169,000 at March 31, 2009 and $1,256,000 at December 31, 2008 (4)		2,911,000		2,958,000
Subordinated debentures (5)		385,000		385,000

~~became due~~(1) ~~on July 2, 2002.~~ The ~~interest~~senior ~~rate~~debt onis ~~the~~secured 6%by ~~debentures increased to 8.26% as~~ a ~~result~~security ~~of our failure to make~~ interest ~~payments~~in onsubstantially ~~the~~all ~~debentures~~of ~~since July 1, 2000 and our failure to pay principal on July 2, 2002. Accrued interest on~~ the ~~subordinated~~Company’s ~~notes~~ and ~~the~~its 6%subsidiaries’ ~~debentures was approximately $6,604,000, which represents interest through June 30, 2007~~assets. ~~We are precluded by our senior debt holder from paying any principal or interest on the subordinated debt.~~

(2)

This note initially provided for a maturity of March 31, 2015 with scheduled amortization payments over the term of the note. As a result of a January 1, 2009 modification, the maturity date and the payment schedule was revised. At March 31, 2009, the note provides for twelve quarterly installments each in the amount of $375,000, with the first payment of principal and interest being due on June 30, 2010, followed by 13 quarterly installments of principal and interest each in the amount of $500,000, with a final payment of all remaining principal and accrued interest on September 30, 2016. Payments are applied first to accrued interest and any remainder to principal.

(3)

These notes bear interest at the six-month LIBOR rate plus 10% per annum, which was 11.7% per annum at March 31, 2009 and December 31, 2008. On January 1, 2009, the terms of this note were modified to provide for monthly payments of $125,000, with a final payment of the remaining principal and interest on April 30, 2010. Payments are applied first to accrued interest and any remainder to principal. During the first quarter of 2009, the Company made payments of $250,000, of which $60,000 was interest and $190,000 was principal. (See Note 8-Subsequent Event)

(4)	These notes will be repaid based upon a 25-year amortization schedule and mature January 31, 2016.

(5)

At March 31, 2009 and December 31, 2008, accrued interest, was $335,000 and $326,000, respectively, and is included in other accrued interest payable. The trustee of the debentures gave notice to the Company that the non-payment caused an event of default. The convertibility feature associated with the debentures expired upon their stated maturity date, which was July 1, 2002. The holder of the senior debt precluded the Company from making payments on the debentures, except that, pursuant to the debt restructuring, the Company offered the holders of the debentures the right to exchange their debentures for their proportionate shares of (a) subordinated notes in the principal amount of $100,000 and (b) 100,546 shares of common stock, and the Company may make the payments provided in the new notes. As of March 31, 2009, no holders of the debentures had accepted the Company’s offer.

The holder of the senior debt has no obligation to make any further loans or modification of the loans to the Company. Any adverse events, including declines in business, could cause a default on the debt and could affect the decision of the senior debt holder to extend or demand payment. If the senior debt holder demands payment of all or a significant portion of the senior debt when due, the Company will not be able to continue in business, and it is likely that it would seek protection under the Bankruptcy Code.

Note 4: Accounting for Stock Based Compensation

For the ~~six~~three months ended ~~June~~March 3031, ~~2007~~2009 and 2008, the Company ~~issued~~did ~~20,000~~not ~~stock options under its 1999 Plan that provides for the automatic~~ grant toany ~~non-management directors.~~stock ~~This~~options ~~Plan~~and, ~~provides~~therefore ~~for~~did ~~the~~not ~~automatic~~recognize ~~grant to~~ non-~~management~~cash ~~directors~~compensation ofexpense ~~non-qualified~~attributable ~~options~~ to ~~purchase~~stock ~~5,000~~options ~~shares~~granted onduring ~~May 1st of each year commencing May 1, 1999, based upon~~ the ~~average closing price of the last ten trading days of April of each year~~quarter. ~~Options under this Plan have a term of 10 years.~~ The Company uses the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period when granting stock options. All options previously granted are fully ~~vested. Based~~ ~~on the Black-Scholes valuation model there is no non-cash compensation expense attributable to stock options granted during the quarters. Stock compensation expense for all~~ vested ~~options to date is diminutive~~.

Page 5 of 19

Note 5: Segment Data

The Company develops, designs, ~~has~~manufactures ~~two reportable segments: Line Connection~~ and ~~Protection~~markets ~~Equipment (“Line”)~~a ~~whose~~range ~~products~~of ~~interconnect~~standard ~~copper~~and ~~telephone lines to switching~~proprietary ~~equipment~~telecommunications ~~and provide fuse elements that protect telephone~~ equipment ~~and personnel~~for ~~from~~sale ~~electrical~~domestically ~~surges,~~ and ~~Signal~~internationally. ~~Processing~~Our ~~(“Signal”) whose~~core products, ~~are~~focused ~~used~~on inensuring ~~data~~communications ~~communication~~for ~~devices~~service ~~that~~providers ~~employ~~worldwide, fall ~~high~~principally ~~frequency transformer~~into ~~technology.~~two categories:

~~Due to continuing~~Voice ~~losses in the Operating Support Systems (“OSS”) division,~~and ~~combined with~~Data ~~difficulties~~Connection inand ~~marketing~~Protection ~~OSS products in view of the Company’s financial~~Equipment. These ~~condition~~products, ~~the Company~~which ~~decided~~we inrefer ~~December~~to ~~2003~~as ~~that~~our itconnection ~~would~~/protection ~~discontinue this operating segment. As a result~~equipment, ~~the~~are ~~Company~~used ~~limited~~to ~~the~~connect ~~OSS~~copper ~~activities~~wire tolines, ~~the~~automated ~~performance~~digital ofsubscriber ~~contractual~~lines ~~maintenance and warranty services through June 2007~~ (~~see Note 7~~“ADSL”)~~. Accordingly~~, ~~as of June 30, 2007~~wireless ~~the net assets of $434~~networks,~~000~~ offiber ~~this~~connection/protection ~~operation~~lines ~~were~~(“FTTX”), ~~written off~~ and ~~the~~security ~~results~~networks, ~~of operations of the OSS division have been segregated~~ and ~~reported separately~~ ~~as discontinued~~to ~~operations~~protect onequipment ~~the~~from ~~consolidated~~voltage ~~financial statements in this Form 10-Q~~surges. ~~OSS~~ ~~was engaged~~We inmarket ~~the~~our ~~business~~connection ~~of marketing, manufacturing~~ and protection ~~selling~~ products ~~that automate~~to ~~the~~telephone ~~testing,~~operating ~~provisioning~~companies, ~~maintenance~~customer ~~and~~premise ~~administration of~~providers ~~communication~~and ~~networks~~installers and ~~the~~security ~~management~~providers ofand ~~support~~installers ~~personnel~~throughout ~~and equipment.~~the world.

~~The~~Signal ~~factors~~Processing ~~used~~Equipment. toSignal processing ~~determine~~products ~~the~~are ~~above~~sold ~~segments~~principally ~~focused~~for ~~primarily~~use onin ~~the~~defense ~~types~~and aerospace ~~of products~~applications and ~~services~~support ~~provided,~~copper ~~and~~wire-based ~~the~~communications ~~type~~systems. ofOur ~~customer~~signal processing ~~served.~~products ~~Each~~provide ofnetwork ~~these~~infrastructure in data-transmission ~~segments~~applications. Customers isfor ~~managed~~signal ~~separately~~processing ~~from~~equipment ~~the~~are ~~others~~major aircraft, naval ship and ~~management~~ground-based ~~evaluates~~vehicle ~~segment performance~~manufacturers, ~~based~~as onwell ~~operating~~as ~~income~~their systems integrators.

~~There~~The ~~has been~~factors noused ~~significant~~to ~~change,~~determine ~~from~~the ~~December~~segments ~~31,~~focused ~~2006,~~primarily inon the ~~basis~~types of ~~measurement~~ ofproducts ~~segment revenues~~ and ~~profit~~services ~~or loss~~provided, and nothe ~~significant~~type ~~change~~of incustomer ~~the~~served. Each ~~Company’s~~of ~~assets~~these ~~for~~segments is managed separately from the ~~Line~~others, and ~~Signal~~management evaluates ~~reporting~~segment ~~segments~~performance based on operating income.

~~Page~~There has 6been no significant change, from December 31, 2008, in the basis of 15measurement of segment revenues and profit or loss, and no significant change in the Company’s assets for the connection /protection and Signal reporting segments.

	Six Months Ended					Three Months Ended
	Three Months Ended
	June 30, 2007		June 30, 2006			June 30, 2007		June 30, 2006
	March 31,			March 31,
Sales:
	2009			2008
Line	$	12,615,000	$	13,468,000		$	5,815,000	$	6,981,000
Sales:
Signal		2,637,000		2,407,000			1,249,000		994,000
Connection /protection	$	6,220,000		$	5,392,000
Total of Continuing Operations	$	15,252,000	$	15,875,000		$	7,064,000	$	7,975,000
Signal		1,433,000			1,153,000
Segment profit:
Total	$	7,653,000		$	6,545,000
Line	$	1,746,000	$	2,615,000		$	684,000	$	1,410,000
Segment profit from operations:
Signal		698,000		606,000			279,000		222,000
Connection/protection	$	471,000		$	447,000
Total of Continuing Operations	$	2,444,000	$	3,221,000		$	963,000	$	1,632,000
Signal		471,000			241,000
Total	$	942,000		$	688,000

Page 6 of 19

The following table reconciles segment totals to consolidated totals:

	Six Months Ended						Three Months Ended
Operating income:
	June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
Total segment income for reportable segments	$	942,000			$	688,000
Sales:
Corporate and unallocated		(648,000	)			(617,000	)
Total revenue for reportable segments	$	15,252,000		$	15,875,000		$	7,064,000		$	7,975,000
Consolidated total operating income	$	294,000			$	71,000
Other revenue		19,000			146,000			5,000			109,000
Consolidated total revenue	$	15,271,000		$	16,021,000		$	7,069,000		$	8,084,000
Operating income (loss):
Total segment income for reportable segments	$	2,444,000		$	3,221,000		$	963,000		$	1,632,000
Corporate and unallocated		(1,520,000	)		(1,216,000	)		(705,000	)		(633,000	)
Consolidated total operating income	$	924,000		$	2,005,000		$	258,000		$	999,000

Note 6: ~~New~~ ~~accounting~~New ~~pronouncements~~Accounting Standards

InThe terms ~~June 2006,~~“SFAS” ~~the~~and ~~FASB issued Interpretation No. 48 (~~“~~FIN 48~~FASB”), ~~Accounting~~used ~~for Uncertainty~~ in ~~Income~~these ~~Taxes,~~notes anrefer ~~Interpretation~~to ofStatements ~~FASB Statement No. 109. The objective~~ of ~~this interpretation prescribes a recognition threshold and~~Financial ~~measurement~~Accounting ~~attribute~~Standards ~~for~~issued ~~the~~by ~~financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for~~ the ~~fiscal~~United ~~years~~States ~~beginning~~Financial ~~after~~Accounting ~~December 15, 2006. The adoption~~Standards ~~of this statement did not have a material effect on our financial position or results of operations~~Board.

InSFAS No. 157 — In September 2006, ~~FASB~~the ~~issued~~Financial ~~SFAS~~Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements,” which ~~provides~~defines ~~enhanced~~fair ~~guidance~~value, establishes a framework for ~~using~~measuring fair value, toand ~~measure~~expands ~~assets~~disclosures ~~and~~about ~~liabilities.~~fair ~~SFAS~~value Nomeasurements. ~~157~~ ~~establishes~~In aFebruary ~~common~~2008, ~~definition~~the FASB issued Staff Position FAS 157-2, Effective Date of ~~fair~~FASB ~~value~~Statement No. 157, which delayed the ~~provides~~effective adate ~~framework~~of SFAS No. 157 for ~~measuring~~all ~~fair~~non-financial ~~value~~assets ~~under~~and non-financial ~~U.S.~~liabilities, ~~GAAP~~except ~~and~~those ~~expands disclosures~~that ~~requirements~~are ~~about~~measured at fair value ~~measurements~~on a recurring basis. ~~SFAS~~Effective January 1, 2009, we adopted SFAS No. 157 ~~is effective~~with ~~for~~respect to non-financial ~~statements~~assets ~~issued~~and inliabilities measured ~~fiscal~~on ~~years~~a ~~beginning~~non-recurring ~~after November 15,~~basis. ~~2007,~~The ~~and~~application ~~interim~~of ~~periods~~the ~~within~~fair ~~those~~value ~~fiscal~~framework established ~~years~~by SFAS No. 157 ~~The adoption of~~to ~~this~~these ~~statement~~fair value measurements did not have a material ~~effect~~impact on our consolidated financial position or , results of operations or cash flow.

InSFAS No. 141(R) — ~~February~~In December 2007, the FASB issued SFAS No. 141 ~~159~~(revised 2007), Business ~~"The~~Combinations, ~~Fair~~which ~~Value~~establishes ~~Option~~principles for how the acquirer ~~Financial~~recognizes ~~Assets~~and measures in the financial statements the identifiable assets acquired, the liabilities assumed, and ~~Financial~~any ~~Liabilities"~~non-controlling orinterest ~~SFAS~~in ~~159~~the acquiree. ~~SFAS~~This ~~159~~statement also provides ~~companies~~ ~~with~~guidance anfor ~~option~~recognizing toand ~~report~~measuring the ~~selected~~goodwill ~~financial~~acquired ~~assets~~in the business combination and ~~liabilities~~determines what ~~at fair~~information ~~value.~~to ~~SFAS~~disclose ~~159~~to isenable ~~effective~~users ~~for~~of ~~fiscal~~the ~~years~~financial ~~beginning~~statements ~~after~~to ~~November~~evaluate ~~15, 2007.~~the Wenature ~~are~~and ~~currently~~financial ~~evaluating~~effects of the ~~impact~~business ofcombination. ~~implementation~~Effective January 1, of2009, ~~SFAS~~we adopted SFAS No. 141(R) which did not have a ~~159~~ material impact on our consolidated financial statements.

~~Page~~SFAS No. 160 — 7In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of 15ARB No. 51, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The standard also establishes that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We adopted SFAS No. 160 on January 1, 2009. The adoption of SFAS No. 160 did not have a material impact on our consolidated financial statements.

~~Note~~In June ~~7: Discontinued~~2008, the EITF reached a consensus in Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). This Issue addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of SFAS 133. EITF 07-5 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of EITF 07-5 as of January 1, 2009 did not have a material impact on our consolidated financial position, results of operations and cash flows.

~~In December,~~On ~~2003, the Company decided to wind down its OSS business. This decision~~April ~~was made because of continuing losses combined with difficulties in marketing OSS products in view of the Company’s financial condition. As of June 30~~9, ~~2007~~2009, the ~~Company~~FASB ~~discontinued~~simultaneously ~~operating~~issued ~~this business. Accordingly, as of June 30, 2007,~~ the ~~OSS~~following ~~net~~three ~~assets of $434,000 were written off and the operations of the segment were reported in the Consolidated Financial Statements as a discontinued operation through June 30, 2007.~~FSPs:

~~Results~~ · FSP FAS 157-4, Determining Fair Value When the Volume and Level of ~~operations~~Activity for ~~OSS~~the ~~have~~Asset ~~been~~or ~~segregated~~Liability ~~from~~Have ~~continuing~~Significantly ~~operations~~Decreased and ~~are reflected~~Identifying asTransactions ~~discontinued~~That ~~operations~~Are ~~approximately~~Not asOrderly, ~~follows:~~provides additional guidance to companies for determining fair values of financial instruments for which there is no active market or quoted prices may represent distressed transactions. The guidance includes a reaffirmation of the need to use judgment in certain circumstances.

	Six Months Ended June 30,
	2007			2006
Revenues	$	100,000		$	196,000
Loss from discontinued operations		(87,000	)		(159,000	)
Write off of net assets of discontinued operations		(434,000	)		—
Total loss from discontinued operations	$	(521,000	)	$	(159,000	)

Page 7 of 19

	Three Months Ended June 30,
	2007			2006
Revenues	$	28,000		$	91,000
Loss from discontinued operations		(53,000	)		(76,000	)
Write off of net assets of discontinued operations		(434,000	)		—
Total loss from discontinued operations	$	(487,000	)	$	(76,000	)

·	FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, requires companies to provide additional fair value information for certain financial instruments in interim financial statements, similar to what is currently required to be disclosed on an annual basis.

~~Page 8~~· FSP FAS 115-2, FAS 124-2, and EITF 99-20-2, Recognition and Presentation of 15Other-Than-Temporary Impairments, amends the existing guidance regarding impairments for investments in debt securities. Specifically, it changes how companies determine if an impairment is considered to be other-than-temporary and the related accounting. This standard also provides for increased disclosures.

These FSPs apply to both interim and annual periods and will be effective for us beginning April 1, 2009. We have evaluated these standards and believe they will have no impact on our financial condition and results of operations.

Note 7: Significant Customers

Sales to British Telecommunications and its systems integrators and Teléfonos de Mexico S.A. de C.V. (Telmex) accounted for approximately 66% of sales in the first quarter of 2009, and 49% of sales for the same period in 2008. The following table sets forth information as to sales to each customer or customer group that accounted for 10% or more of the Company’s sales for the three months ended March 31, 2009 and 2008 (dollars in thousands).

	Three Months Ended March 31,
	2009					2008
Customer	Dollars		%			Dollars		%
British Telecommunications	$	2,957		39	%	$	2,338		36	%
British Telecommunications and its Systems Integrators*		3,351		44	%		2,926		45	%
Teléfonos de México S.A. de C.V. (Telmex)		1,684		22	%		258		4	%
Ericsson		-		-	%		794		12	%

* Sales to British Telecommunications are included in the sales and percentages figures on the line “British Telecommunications and its systems integrators”.

Note 8: Subsequent Event

Effective May 1, 2009, the working capital senior note was replaced with a new working capital note in the amount of $1,461,316 (including accrued interest). The new note provides for monthly payments of $125,000 commencing May 31, 2009, with a final payment of the remaining principal and interest on May 31, 2010. Payments are applied first to accrued interest and any remainder to principal. The new working capital note is collateralized by all of the assets of the Company which also secure the existing senior debt.

On May 11, 2009, the Company’s board of directors approved the 2009 Long-Term Incentive Plan, which covers 1,000,000 shares of common stock. The plan provides for the grant of incentive and non-qualified options, stock grants, stock appreciation rights and other equity-based incentives to employees, including officers, and consultants. The plan provides for the automatic grant of options to independent directors as follows: On the date that the plan was adopted, each independent director received the grant of an option to purchase 5,000 shares of common stock at an exercise price of $0.022 per share, which was the average of the last reported price for the common stock for the ten trading days immediately preceding the date of grant. On May 1 of each year, commencing May 1, 2010, each independent director will receive an option to purchase 5,000 shares at an exercise price equal to the average of the last reported price for the common stock for the ten trading days immediately preceding the date of grant. Each newly elected independent director will receive an option to purchase 10,000 shares at an exercise price equal to the average of the last ten trading days immediately preceding the date of becoming a director. Independent directors are not eligible for options or other rights under the plan except for the options granted pursuant to the automatic grant provision. The plan was approved subject to stockholder approval. The Company’s principal stockholder, which holds 70% of the outstanding stock, has advised the Company that it will approve the plan.

Page 8 of 19

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~The Company’s~~Forward ~~consolidated statements of operations for the periods indicated below,~~Looking ~~shown as a percentage of sales, are as follows:~~Statements

	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Sales		100	%		100	%		100	%		100	%
Cost of sales		69	%		66	%		70	%		66	%
Gross profit		31	%		34	%		30	%		34	%
Selling, general and administrative expenses		20	%		17	%		20	%		17	%
Research and development expenses		5	%		5	%		6	%		5	%
Operating income		6	%		12	%		4	%		12	%
Interest expense - net		(7	%)		(4	%)		(8	%)		(4	%)
Income (loss) from continuing operations		(1	%)		8	%		(4	%)		8	%
Loss from discontinued operations		(3	%)		(1	%)		(7	%)		(1	%)
Net (loss) income		(4	%)		7	%		(11	%)		7	%

Statements contained in this Form 10-Q include forward-looking statements that are subject to risks and uncertainties. In particular, statements in this Form 10-Q that state our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are “forward-looking statements.” Forward-looking statements are subject to risks, uncertainties and other factors, including, but not limited to, those identified under “Risk Factors,” in our Form 10-K for the year ended December 31, 2008 and those described in “Management's Discussion and Analysis of Financial Conditions and Results of Operations” in our Form 10-K and this Form 10-Q, and those described in any other filings by us with the Securities and Exchange Commission, as well as general economic conditions and economic conditions affecting the telecommunications industry, any one or more of which could cause actual results to differ materially from those stated in such statements. Such statements could be affected by risks and uncertainties related to our financial conditions, our relationship with the holder of our senior and subordinated debt, including the willingness or unwillingness of the holder of the senior debt to extend the maturity date of the senior debt and the amount and timing of any payments which the holder of the senior debt may require, our ability to sell any or all of our divisions or effect a restructure of our business and our debt and equity structure on terms acceptable to the holder of the senior debt, our relationship with British Telecommunications including its continued requirements for our products, factors which affect the telecommunications industry, market and customer acceptance, our access to current technology, competition, domestic and foreign government regulations and requirements and pricing, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.

The Company’s sales, from continuing operations, by product line for the periods ended June 30, 2007 and 2006 are as follows:

	Six Months Ended June 30,
	$(000)
	2007				2006
Line connection/protection equipment	$	12,615	82	%	$	13,468	84	%
Signal Processing		2,637	17	%		2,407	15	%
Other		19	1	%		146	1	%
	$	15,271	100	%	$	16,021	100	%

	Three Months Ended June 30,
	$(000)
	2007				2006
Line connection/protection equipment	$	5,815	82	%	$	6,981	87	%
Signal Processing		1,249	18	%		994	12	%
Other		5	—	%		109	1	%
	$	7,069	100	%	$	8,084	100	%

Page 9 of 15

Overview

WeOur ~~operate~~connection inand ~~the~~protection ~~telecommunications~~equipment ~~industry~~includes a variety of connector blocks, protector ~~and~~modules, ~~our~~building ~~customer~~entrance ~~base~~terminals, ~~consists~~category 5E and 6 cable ~~largely~~connectors ofand ~~government-owned~~protectors, frames used in telephone central switching offices, voice and ~~privately-owned~~data ~~telecommunications~~installations, ~~companies~~multiple dwelling units and customer premises applications. The connector products are used by telephone ~~Our~~companies ~~line~~and ~~connection~~installers of voice and ~~protection~~data transmission equipment ~~(“Line”)~~to ~~interconnects~~interconnect copper ~~telephone~~and fiber subscriber lines. The protector modules are used to ~~switching~~protect from electrical surges the equipment and ~~provides~~personnel ~~fuse~~of telephone ~~elements~~companies, ~~that~~voice ~~protect~~and ~~telephone~~data transmission providers and customer premises equipment providers. The need for protection products has increased as a result of the worldwide move to digital technology, wireless and ~~personnel~~broadband, ~~from~~which is extremely sensitive to damage by electrical ~~surges~~overloads. Moreover, ~~Our~~private ~~signal~~owners ~~processing~~of ~~(“Signal”)~~telecommunications equipment isnow ~~used~~have inthe ~~data~~responsibility ~~communication devices~~to ~~that~~protect ~~employ~~their ~~high~~equipment, ~~frequency~~personnel ~~transformer~~and ~~technology.~~buildings from damage caused by electrical surges.

~~Our Line equipment~~Page is9 designed to connect copper-wired telecommunications networks and to protect telecommunications equipment from voltage surges. We market this equipment primarily to telephone operating companies outside the United States and through distribution to designers, engineers and installers in the United States. Our Line division generated net income from operations for the three and six months ended June 30, 2007 and the comparable periods of ~~2006. We market~~ Signal equipment principally for use in defense and aerospace applications. The Signal division generated net income from operations for the three and six months ended June 30, 2007 and 2006. We recognize revenue from Line and Signal products when the product is shipped.19

OnWe also ~~June 30,~~have ~~2007,~~developed ~~our~~a ~~liability~~range ~~to our senior debt holder was $23,373,000 plus accrued interest~~ of ~~$312,000.~~security ~~On February~~products 7,for ~~2007~~use ~~Cheyne~~in ~~Special~~Closed ~~Situations~~Circuit ~~Fund~~TV ~~L.P~~ (~~“Cheyne”~~CCTV) ~~purchased our~~ ~~senior~~installations. Our ~~debt~~CCTV ofvideo ~~approximately~~balun ~~$23,400,000~~products ~~from~~allow ~~SHF~~full ~~IX,~~motion ~~LLC and subsequently~~color ~~extended~~or ~~the~~monochrome ~~maturity~~video oftransmission ~~our~~via ~~senior~~cost-effective ~~debt~~UTP toCAT ~~October~~3 1,or ~~2007.~~better ~~We cannot give~~cable ~~any assurance~~eliminating ~~that~~expensive ~~our~~and ~~senior~~bulky ~~debt~~coax ~~holder will extend the maturity date beyond October 1, 2007~~cable. ~~Any~~The ~~adverse~~Company’s ~~event,~~CCTV ~~including~~surge ~~declines in business, could have~~protectors anprovide ~~effect~~protection onagainst ~~the~~voltage ~~decision~~spikes ofand ~~our~~current ~~senior~~surges ~~debt~~that ~~holder~~can ~~to extend or demand payment~~disable onand ~~the~~permanently ~~notes.~~damage Ifexpensive ~~our~~video ~~senior~~equipment, ~~debt~~including ~~holder~~cameras ~~does not extend the maturity of our~~and ~~senior debt beyond October 1~~recorders, ~~2007~~resulting orin ifloss ~~our senior debt holder demands payment~~ of ~~all~~important orinformation ~~a significant portion of the senior debt when due, we will not be able to continue in business,~~ and ~~it is likely that we will seek protection under~~reduced ~~the Bankruptcy Code~~security.

~~Results~~Our connection and protection products are used by international telephone service providers as well as many of ~~Continuing~~the ~~Operations~~regional telecommunication service providers as well as independent telecommunication service providers in the United States, and by owners of private telecommunications equipment providing communications and data transmission facilities and equipment. These products are also purchased by equipment manufacturers for integration with their systems. In addition, our telecommunications connection products have been sold to telephone operating companies in various foreign countries. This equipment is compatible with existing telephone systems both within and outside the United States and can generally be used without modification, although we do custom-design modifications to accommodate the specific needs of our customers.

~~The~~Our ~~below~~Signal Processing products include data bus components, cable assemblies and ~~narratives~~wideband ~~discuss~~transformers. Our data bus components provide network infrastructure that connects remote terminals used in military data transmission applications, where an extremely high level of reliability and performance is required. Our wideband video isolation transformers are used by the ~~activities~~television and broadcast, medical imaging, in-flight entertainment and industrial process control industries to reduce ground noise interference and improve picture quality. Our wideband products are also used by test and measurement engineers in the characterization of ~~our~~data ~~continuing~~transmission ~~operations~~networks.

~~Line~~Our ~~equipment~~Connection/protection ~~sales~~segment ~~for~~generated ~~the~~income ~~six~~from ~~months~~operations, ~~ended~~prior ~~June~~to allocations ~~30,~~of ~~2007~~corporate expenses, ~~compared~~of to$471,000 for the ~~six~~ three months ended ~~June 30~~March 31, ~~2006,~~2009 ~~decreased~~(the by“March ~~$853,000~~2009 ~~(7%~~Quarter”) ~~from~~and $13447,~~468,~~000 ~~to $12,615,000. Sales~~ for the three months ended March ~~June 30~~31, ~~2007~~2008 ~~decreased~~(the ~~by $1,166,000~~“March ~~(17%~~2008 Quarter”). We had a net loss from ~~$6,981,000~~operations after inallocations ~~2006~~of tocorporate ~~$5,815,000~~expenses inon ~~2007.~~our ~~The~~Connection/protection ~~decrease~~segment of ~~in sales~~$56,000 for the ~~six~~March ~~and~~2009 ~~the~~Quarter ~~three~~compared ~~months~~to isa ~~the~~net ~~result~~loss of a$62,000 ~~decline~~for ~~in orders~~the March 2008 Quarter. Although our sales from this segment increased ~~British~~$828,000 from ~~Telecommunications~~the ~~that~~March ~~was~~2008 ~~partially~~Quarter ~~offset~~to bythe ~~higher~~March ~~sales~~2009 ofQuarter, our ~~connection~~gross ~~and~~margin ~~protection~~decreased, ~~product~~primarily due to athe ~~North~~strength ~~America~~of ~~customer.~~the ~~A significant~~US ~~percentage~~dollar ofverses the ~~our~~British ~~revenues~~pound ~~are~~on ~~derived~~our ~~from~~sales to British Telecommunications and its ~~installers~~system integrators. Our ~~Any~~Signal ~~significant~~segment ~~reduction~~generated innet ~~the~~income ~~level~~from operations, prior to allocation of ~~business~~ ~~from~~corporate ~~British~~expenses, ~~Telecommunications~~of ~~and~~$471,000 ~~its~~in ~~installers~~the ~~could~~first ~~have~~quarter ~~material~~of ~~adverse~~2009 ~~effect~~compared ~~upon~~to ~~both~~$241,000 ~~our~~in ~~revenue~~the ~~and~~comparable ~~net~~period ~~income.~~in ~~Thus~~2008, ~~far~~on ~~this~~both ~~year we~~increased ~~have experienced~~sales aand ~~significant~~margins ~~drop~~due ~~off~~to ofproduct ~~orders~~mix. We ~~from~~recognize ~~British~~revenue ~~Telecommunications’~~from ~~installers,~~Connection/protection ~~although~~and ~~direct~~Signal ~~sales~~products towhen ~~British~~the ~~Telecommunications~~product ~~remain~~is ~~significant~~shipped.

~~Signal~~In ~~sales~~February ~~for~~2009, ~~the~~we ~~six~~entered ~~months~~into ~~ended~~a ~~June~~supplier ~~30,~~finance ~~2007~~agreement ~~were~~with ~~$2,637,000,~~Lloyds ~~compared to~~TSB ~~$2,407,000~~Commercial inFinance ~~the~~Limited ~~same~~to ~~period~~factor ofBritish ~~2006,~~Telecommunications anaccounts receivables ~~increase~~on ofa ~~$230,000~~non-recourse ~~(10%)~~basis. We ~~Sales for the~~pay ~~three~~fees ~~months~~to ~~ended~~Lloyds ~~June~~TSB Commercial ~~30,~~Financing ~~2007~~at ~~compared~~a rate equal to ~~2006~~LIBOR plus 0.7%, ~~increased~~based byon ~~$255,000 (26%)~~the ~~from~~number ~~$994,000~~of days to ~~$1,249,000.~~maturity ~~The~~of ~~growth~~each ininvoice ~~Signal~~that ~~revenue~~is ~~for~~factored. These ~~the~~fees, ~~first~~which ~~half~~are oftreated ~~2007~~as ~~resulted~~a ~~primarily~~general ~~from~~and ~~increased~~administrative ~~sales~~expense, towere ~~the~~immaterial ~~military~~in ~~sector~~the ~~as reflected~~March in2009 ~~our first quarter sales~~Quarter.

~~Gross margin~~Dependence ~~for~~on ~~the six months ended June 30, 2007 was 31% compared to 34% for the~~British ~~six months ended June 30, 2006. Gross margin for the quarter ended June 30, 2007 was 30% compared to 34% for the~~Telecommunications

~~Page~~During the past three years, sales to British Telecommunications, consisting of both direct sales and sales to systems integrators for British Telecommunications represented a substantial percentage of our total sales. References to British Telecommunications include British Telecommunications and its systems integrators, unless the context indicates otherwise. These sales were of copper connection and protection products. Our sales to British Telecommunications have declined significantly, from $20,313,000 in 2006 to $12,504,000 in 2007 to $10,296,000 in 2008. We were not able to offset completely this decline in sales. Sales to customers in Great Britain are made in the local currency. As a result, while our costs are incurred in dollars, the dollar value of our collections from these customers, 15primarily British Telecommunications, has decreased. The exchange rate change along with reduced sales volume and change in product mix sold to British Telecommunications, had an impact on overall gross margin, which declined from 33% for 2006 to 29% for 2007 to 21% for 2008 and was 14% for the three months ended March 31, 2009.

~~quarter ended~~Page ~~June 30, 2006. The~~10 ~~decrease~~of for the quarter and six months is primarily related to a change in product mix sold to British Telecommunications from the higher gross profit DSL products to the lower margin local loop unbundling products and a negotiated price decrease on products sold to British Telecommunications. Our Signal segment gross margin slightly increased during the quarter and six months due to sales mix. 19

~~Selling,~~The ~~general~~following ~~and~~table ~~administrative~~sets ~~expenses~~forth ~~increased~~information byas ~~$289,000 (11%) from $2,704,000~~ to ~~$2,993,000~~sales ~~for the six months ended June 30, 2007 compared~~ to ~~2006.~~each ~~For the quarter~~customer ~~ended~~or ~~June 30, 2007 selling, general and administrative expenses~~customer ~~increased~~group bythat ~~$6,000~~accounted ~~from~~for ~~$1,406,000~~10% inor ~~2006~~more toof ~~$1,412,000 in 2007. The selling expense increase for~~ the ~~six~~Company’s ~~months~~sales ~~ended June 30, 2007 relates primarily to increased expenses~~ in ~~our Line segment for advertising and commissions as our marketing activities for this segment were increased during this period. The selling expense increase in~~ the ~~second~~three ~~quarter in our Signal~~months ~~segment~~ended ~~for~~March ~~salaries~~31, ~~benefits~~2009 and ~~commissions~~2008 ~~was~~(dollars ~~partially offset by decreased spending~~ in ~~our Line segment for commissions and advertising~~thousands). ~~General and administrative costs increased, for the six months and the quarter, primarily due to increased expenses related to our debt restructuring efforts.~~

For the six months ended June 30, 2007 compared to 2006, research and development expenses increased by $22,000 (3%) to $778,000 from $756,000. For the quarter ended June 30, 2007 compared to 2006, research and development expenses increased by $58,000 (17%) to $405,000 from $347,000. The increase for the six months and the quarter resulted primarily from increased spending in the second quarter by our line connection/protection division to enhance our existing line products and develop new products. Our research and development expenses declined during the first quarter of 2007 from the comparable period of 2006.

	Three Months Ended March 31,
	2009					2008
Customer	Dollars		%			Dollars		%
British Telecommunications	$	2,957		39	%	$	2,338		36	%
British Telecommunications and its Systems Integrators*		3,351		44	%		2,926		45	%
Teléfonos de México S.A. de C.V. (Telmex)		1,684		22	%		258		4	%
Ericsson		-		-	%		794		12	%

~~As a result~~* ~~of the foregoing, for the six months ended June 30, 2007, we had an~~Sales ~~operating~~to ~~income~~British ~~from~~Telecommunications ~~continuing~~are ~~operations~~included ~~of $924,000 compared with $2,005,000~~ in the ~~same~~sales ~~period~~and ofpercentages ~~2006. We had an operating income from continuing~~figures ~~operations~~on ~~of $258,000 for~~ the ~~quarter~~line ~~ended~~“British ~~June~~Telecommunications ~~30,~~and ~~2007~~its ~~as compared with~~systems ~~$999,000 in the same period of 2006~~integrators.”

~~Interest expense,~~To ~~net, for~~ the extent ~~six~~that ~~months~~British ~~ended~~Telecommunications ~~June~~reduces ~~30,~~its ~~2007~~purchases ~~was $990,000, an increase of $403,000~~ from ~~$587~~,~~000~~ ~~for~~or ~~the six months ended June 30, 2006. For the three~~purchases ~~months~~products ~~ended~~at ~~June~~a ~~30,~~price ~~2007~~which ~~the~~results ~~interest~~in ~~expense~~a ~~was~~reduced ~~$550,000~~gross ~~compared to $289~~margin,~~000~~ ~~for the comparable period last year. These increases of $403,000 and $261,000 for the six months and three months, respectively, are primarily related to interest on~~ our ~~senior~~ability ~~debt under the terms of our extension~~to ~~agreement~~operate ~~with~~profitably ~~the~~will ~~debt~~be ~~holder~~impaired. We domay not ~~accrue~~be ~~interest~~able onto ~~the entire amount~~replace ofthis ~~the~~business ~~senior~~from ~~debt~~other ofcustomers ~~approximately~~and ~~$23,400,000~~we ~~under~~cannot ~~the~~give ~~terms~~any ofassurance ~~our~~that ~~agreement~~British ~~with~~Telecommunications ~~the~~will ~~holder~~increase ofor ~~our~~continue ~~senior~~its ~~debt.~~purchases ~~Interest has accrued~~ from ~~February~~us 7,in ~~2007 on $10,000,000 of~~ the ~~senior debt at 12.5% as a result of the terms of the~~future ~~February~~or 7,that ~~2007~~we ~~extension~~will ofbe ~~the~~able ~~maturity~~to ofimprove our ~~senior~~margins ~~debt~~on these sales.

~~Income tax~~Reverse ~~expense~~Split ~~for the quarter~~ and ~~six months ended June 30, 2007 relates to state~~Debt ~~and foreign taxes. No federal income tax expense has been provided due to losses incurred during the six-months period.~~Restructuring

AsOn July ~~a result~~31, ~~of the foregoing~~2008, we ~~generated~~effected a ~~net loss from continuing operations of $105,000, or $0~~one-for-11.0111 ~~per~~reverse ~~share~~split ~~(basic~~pursuant ~~and~~to ~~diluted),~~which ~~for~~each ~~the six months ended~~share ~~June 30, 2007, compared with net income from continuing operations~~ of ~~$1,350,000, or $0.13~~common ~~per~~stock ~~share~~became ~~(basic~~converted ~~and~~into ~~diluted), in 2006. The net loss for the three months ended June 30, 2007, from continuing operations, was $304,000, or $~~0.030900090009 ~~per share~~shares ~~(basic and diluted), compared with net income~~ of ~~from continuing~~common ~~operations $663,000, $0~~stock.~~07 per share (basic and diluted) in 2006.~~

On July 31, 2008, we implemented a trouble debt restructuring plan (as defined under SFAS 15). As a result of the debt restructuring, our senior and subordinated debt was restructured and reduced. However, all of the interest due on the restructured senior debt and subordinated notes has been added to principal for accounting purposes. As a result, we do not accrue interest on our restructured senior debt and subordinated notes, which would have been accrued during the March 2008 Quarter.

As part of the debt restructuring, we issued to Cheyne Special Situations Fund, L.P., as the holder of the senior debt, 7,038,236 shares of common stock, which represents 70% of the outstanding common stock. As a result, pursuant to Section 482 of the Internal Revenue Code, our ability to use net operating loss carryforwards which were generated prior to the debt restructuring was significantly reduced.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with accounting principles accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be complex and consequently actual results could differ from those estimates. Among the more significant estimates included in these consolidated financial statements are allowance for doubtful accounts receivable, inventory reserves, goodwill valuation and the deferred tax asset valuation allowance. Because of our stockholders’ deficit of $16,044,000 at December 31, 2008, a net loss from continuing operations before extraordinary gain and discontinued operations of $2,352,000 for the year ended December 31, 2008, and our working capital constraints, our accounting firm included in its report on our financial statements for the year ended December 31, 2008, an explanatory paragraph about our ability to continue as a going concern. Although we generated net income of $176,000 for the March 2009 Quarter, our stockholders’ deficit at March 31, 2009 was $16,019,000, and we continue to be subject to working capital constraints.

Page 11 of 19

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these consolidated financial statements are the estimated allowance for doubtful accounts receivable, inventory reserves, accrued expenses, goodwill valuation and the deferred tax asset valuation allowance. Actual results could differ from the estimates.

Allowance for Doubtful Accounts Receivable

We record an allowance for doubtful accounts receivable based on specifically identified amounts that we believe to be uncollectible. We also record additional allowances based on certain percentages of our aged receivables, which are determined based on historical experience and our assessment of the general financial conditions affecting our customer base. If our actual collections experience changes, revisions to our allowance may be required. We have a limited number of customers with individually large amounts due at any given balance sheet date. Any unanticipated change in one of those customers’ creditworthiness, or other matters affecting the collectability of amounts due from such customers, could have a material effect on our results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Inventory Reserves

Inventories are stated at the lower of cost (on the average or first-in, first-out methods) or fair market value. Our stated inventory reflects an inventory obsolescence reserve that represents the difference between the cost of the inventory and its estimated market value. This reserve is calculated based on historical usage and forecasted sales. Actual results may differ from our estimates.

Goodwill

Goodwill represents the difference between the purchase price and the fair market value of net assets acquired in business combinations. With respect to the testing of our goodwill for impairment, we determine the estimated fair value of the reporting unit by considering the projected cash flows generated and a market approach analysis to which the goodwill relates. The market approach is based on the comparable transaction method, which considers the sale and acquisition activities in our industry. We test the goodwill for impairment on an annual basis, or more frequently if certain events or changes in circumstances indicate that the carrying value may not be recoverable. As of March 31, 2009 and December 31, 2008, all of our goodwill related to our signal processing division. We cannot give assurances that write-downs in the future will not be necessary, although management believes that no additional goodwill impairment charges are necessary at this time and that there was no impairment of goodwill for the March 2009 Quarter.

Page 12 of 19

Deferred Income Tax Valuation Allowance

Deferred taxes result from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The temporary differences result from costs required to be capitalized for tax purposes by the United States Internal Revenue Code, and certain items accrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid. An effect of our debt restructuring was the issuance of more than 50% of our common stock to new stockholders. As a result, our ability to use our remaining net operating loss carryforwards will be severely curtailed in accordance with Section 382 of the Internal Revenue Code. Due to our losses in previous years, a valuation allowance for the entire deferred tax asset was provided, which management believes is still appropriate, due to the uncertainty as to future realization and uncertainties associated with projections of future taxable income.

Other Matters

During the past several years we have, on a number of occasions, engaged in negotiations with respect to the sale of one or more of our divisions. None of our discussions resulted in an agreement. We expect to continue to engage in such negotiations in the future.

Results of Operations

The following table sets forth our consolidated statements of operations for the three months ended March 31, 2009, in dollars and as a percentage of sales.

	Three Months Ended March 31,
	2009						2008
	(dollars in thousands)
	Dollars			%			Dollars			%
Sales	$	7,653			100	%	$	6,545			100	%
Cost of sales		5,718			75	%		4,708			72	%
Gross profit		1,935			25	%		1,837			28	%
Selling, general and administrative expenses		1,305			17	%		1,342			21	%
Research and development expenses		336			5	%		424			6	%
Operating income		294			3	%		71			1	%
Interest expense, net		(33	)		-	%		(591	)		(9	)%
Other income, net		9			-	%		8			-	%
Income (loss) before income taxes		270			3	%		(512	)		(8	)%
Income tax expense		(94	)		(1	)%		(25	)		-	%
Net income (loss)		176			2	%		(537	)		(8	)%
Foreign currency translation adjustment		(151	)		(2	)%		(84	)		(1	)%
Comprehensive income (loss)	$	25			-	%	$	(621	)		(9	)%

Page 13 of 19

The following table sets forth the Company’s sales by product line for the three months ended March 31, 2009 and 2008:

	Three Months Ended March 31,
	2009					2008
	(dollars in thousands)
	Dollars		%			Dollars		%
Connection/protection:	$	6,220		81	%	$	5,392		82	%
Signal		1,433		19	%		1,153		18	%

Connection/protection equipment sales for the March 2009 Quarter were $6,220,000, an increase of $828,000 (15.4%) from $5,392,000 for the March 2008 Quarter. The increase was primarily due to increased sales of connector products to British Telecommunications and its systems integrators of approximately $425,000, and increase sales to Telmex of $1,426,000 partially offset by decreased sales to Ericsson of $794,000. A significant percentage of our revenues are derived from British Telecommunications and its installers. Any continuation of the significant reduction in the level of business from British Telecommunications and its installers could continue to have a material adverse effect upon both our revenue and net income. Sales to Telmex of $1,684,000 represented 22% of our sales during the March 2009 Quarter. During the second quarter of 2009, business in Mexico generally was affected by the swine flu. We cannot determine at the present time the effect, if any, that the swine flu will have on the business from Telmex.

Signal sales for the March 2009 Quarter were $1,433,000, an increase of $280,000 (24.3%) from $1,153,000 in the March 2008 Quarter. The increase in signal sales was primarily due to an increase in orders placed by the military sector.

Gross profit was $1,935,000 for the March 2009 Quarter, an increase of $98,000 (5%) from $1,837,000 for the March 2008 Quarter. Gross margin for the March 2009 Quarter was 25% compared to 28% for the March 2008 Quarter. Gross margin for connection/protection was 19% for the March 2009 Quarter, as compared with 24% for the March 2008 Quarter. The decrease is related to changes in product mix in the connection/protection division and the effects of the stronger dollar, against the British pound. We do not engage in hedging as a method of seeking to reduce the impact of currency fluctuations. Gross margin for signal was 52% for the March 2009 Quarter, as compared with 47 % for the March 2008 Quarter. The increase in gross margin for signal was primarily related to product mix.

Selling, general and administrative expenses decreased by $37,000 (2.8%) from $1,342,000 in the March 2008 Quarter to $1,305,000 for the March 2009 Quarter. Selling expenses decreased primarily due to a reduction in advertising. General and administrative expenses decreased slightly as part of our overall cost cutting initiatives.

Research and development decreased by $88,000 (20.8%) to $336,000 for the March 2009 Quarter from $424,000 for the March 2008 Quarter. The decrease in the quarter resulted primarily from a reduction of personnel and a decrease in prototypes which were not required in the current phase of the development of our new products.

As a result of the foregoing, we had operating income of $294,000 for the March 2009 Quarter, compared with operating income of $71,000 in the March 2008 Quarter.

Page 14 of 19

Net interest expense, for the March 2009 Quarter was $33,000 compared to $591,000 for March 2008 Quarter. The decrease of $558,000 resulted from the restructuring of our senior and subordinated debt during the third quarter of 2008. The debt restructuring was treated as a troubled debt restructuring, and all of the interest through the stated maturity dates of the notes was accrued on the date of issuance, on July 31, 2008, and added to the principal of the notes. As a result, the interest on the restructured senior and subordinated debt is not treated as a current period cost. Interest at the stated interest rates on the restructured debt would have been $440,000 for the March 2009 Quarter if the debt had not been treated as a troubled debt restructuring. The interest which we accrued during the March 2009 Quarter represents interest on the $425,000 advance made to us by our senior lender in November 2008 at a rate of LIBOR plus 10%, which was approximately 11.7% for the March 2009 Quarter, and interest on our subordinated debentures at 8.26%.

Income tax expense for the quarter ended March 31, 2009 relates to Mexico taxes. No federal or state income tax expense has been provided due to the availability of net operating loss carry forwards primarily generated after the July 31, 2008 debt restructuring.

For the March 2009 Quarter, we generated net income of $176,000, or $0.02 per share (basic and diluted), as compared with a net loss of $537,000, or $0.59 per share (basic and diluted) for the March 2008 Quarter.

Liquidity and Capital Resources

At March ~~June 30~~31, ~~2007~~2009, we had cash and cash equivalents of $~~669~~542,000 compared with $2292,~~102,~~000 at at December 31, ~~2006.~~2008, ~~The~~and ~~reduction~~we inhad ~~our~~working ~~cash~~capital ~~position primarily reflects increases~~ of $~~651~~567,000, inas ~~accounts~~compared ~~receivable and~~ with $~~959~~827,000 inat ~~inventory~~December 31, a2008. The following table sets forth ~~decrease~~information ofas ~~$653,000~~to inthe ~~accounts~~principal ~~payable~~changes ~~and~~in ~~payments~~the components of ~~$331,000~~our ~~with~~working ~~respect~~capital to(dollars ~~our~~in thousands).

Page 11 of 15

Category	March 31,		December 31,		December 31, 2008 to March 31, 2009
	2009		2008		Dollar Change			Percent Change
Current Assets
Cash and cash equivalents	$	542	$	292	$	250			86	%
Accounts receivable – trade, net		3,698		4,554		(856	)		(19	)%
Inventories		6,271		6,110		161			3	%
Prepaid expenses and other current assets		369		202		167			83	%
Total current assets	$	10,880	$	11,158	$	(278	)		(2	)%

Current Liabilities
Senior debt, including interest	$	1,500	$	1,500	$	-			-
Subordinated notes, including interest		191		191		-			-
Subordinated debentures, principal		385		385		-			-
Accounts payable		5,400		5,529		(129	)		(2	)%
Accrued expenses and other		2,488		2,390		98			4	%
Other accrued interest payable		349		336		13			4	%
Total current liabilities	$	10,313	$	10,331	$	(18	)		-	%

Working Capital	$	567	$	827	$	(260	)		(31	)%

~~senior~~Cash flow ~~debt,~~from ofoperations ~~which~~was $~~140~~735,000 ~~was~~for ~~principal~~the ~~and~~March 2009 Quarter, as compared with $~~191~~117,000 ~~was~~of ~~interest.~~cash ~~These~~used ~~factors~~in operations for the March 2008 Quarter. The ~~were~~Company ~~also~~has ~~reflected~~entered ininto ~~our~~a ~~working~~supplier ~~capital~~finance ~~deficit~~agreement atwith ~~June~~Lloyds ~~30,~~TSB ~~2007~~Commercial Finance ofto factor British Telecommunications receivables without ~~$32,135,000,~~recourse. The asuse ~~compared~~of ~~with~~this aagreement ~~working~~has ~~capital~~the ~~deficit~~effect of ~~$31,646,000~~accelerating the atcash flow on British Telecommunications’ receivables ~~December~~and ~~31,~~represents ~~2006,~~a ansignificant ~~increase~~portion of the $~~489~~856,000 reduction in ~~our~~accounts receivable ~~working~~from ~~capital~~the ~~deficit~~March 2008 Quarter to the March 2009 Quarter. Fees are at LIBOR plus 0.7% on the days to maturity of each invoice that is factored.

~~During the~~Page ~~first six months~~ 15 of ~~2007, we paid $331,000 to our senior debt holder of which approximately $191,000 was applied to interest and $140,000 was applied to principal.~~19

AsDuring ~~of June~~both ~~30,~~the ~~2007,~~March ~~our~~2009 ~~senior~~Quarter ~~debt~~and ~~includes~~the ~~$23,373,000~~March of2008 ~~principal and $312~~Quarter,~~000 of accrued~~ ~~interest,~~our ~~which~~only ~~matures~~investing activities onwere ~~October~~capital 1,expenditures ~~2007;~~of ~~and~~ $671,~~529,~~000 ~~of principal~~ and $622,~~604,~~000 ~~of accrued interest on our subordinated notes and 6% debentures that became due on July 3~~, ~~2001 and July 2, 2002,~~ respectively. We are prohibited by our senior debt holder from paying principal or interest on any of the subordinated debt. At June 30, 2007, we did not have sufficient resources to repay either the senior lender or the subordinated lenders and it is unlikely that we can generate such cash from our operations.

InDuring ~~December, 2003,~~ the ~~Company~~March ~~decided~~2009 toQuarter, ~~wind~~we ~~down~~paid ~~its~~senior ~~OSS~~and ~~business.~~subordinated ~~This~~debt ~~decision was made because~~ of ~~continuing losses combined~~$ ~~with~~286,000. We ~~difficulties~~had inno ~~marketing~~other ~~OSS~~cash ~~products~~flow inor ~~view~~expenditure offrom ~~our financial condition.~~financing Asactivities ofduring ~~June 30, 2007,~~ the ~~Company~~March ~~discontinued~~2009 ~~operating this business~~Quarter. ~~Accordingly,~~ During ~~as of June 30, 2007,~~ the ~~OSS~~March ~~net assets of $434~~2008 Quarter,~~000~~ ~~were~~there ~~written off~~was ~~and~~no ~~the~~cash ~~operations~~flow ofor ~~the~~expenditure ~~segment~~from ~~were reported in the Consolidated~~financing ~~Financial Statements as a discontinued operation through June 30, 2007~~activities.

~~We are addressing~~Because ~~our working capital and liquidity problems by seeking~~ a ~~restructuring~~ ~~of our senior and subordinated debts as well as~~ significant ~~amounts~~portion of ~~unsecured debt~~our ~~due~~sales toare ~~third~~foreign ~~parties.~~and ~~Any~~denominated ~~restructuring~~in ofcurrencies ~~our Company will result in~~other ~~very significant~~than ~~dilution to~~ the ~~holders~~United ofStates ~~our~~dollar, ~~common~~changes ~~stock~~in ~~and~~exchange ~~will~~rates ~~require~~have ~~the approval~~an ofeffect ~~the~~on ~~holders of~~ our ~~common stock and subordinated debt~~ cash. During Ifthe weMarch ~~do not restructure~~2009 ~~our~~Quarter ~~debt~~ and the ~~senior~~March ~~lender~~2008 ~~does not extend the maturity of our senior debt beyond October 1~~Quarter, ~~2007, or if our senior debt holder demands payment~~we ofsustained ~~all~~losses oras a ~~significant~~result ~~portion~~ of ~~the~~exchange ~~senior~~rates ~~debt when due, whether on October 1, 2007 or upon the expiration~~ of ~~a subsequent extension~~$128, ~~we will not be able to continue in business~~000, and ~~it is likely that we will seek protection under the~~$40,000, ~~Bankruptcy Code~~respectively.

~~Forward~~As a ~~Looking~~result ~~Statements~~of the debt restructuring, we had positive working capital at both March 31, 2009 and December 31, 2008. However, the debt restructuring itself did not provide us with any additional cash for our operations. Our only source of funds other than normal operations is our senior lender, Cheyne Special Situations Fund, L.P. During the fourth Quarter of 2008, we required additional funds from Cheyne, and Cheyne provided such funds. Cheyne also agreed to reschedule the payments on the senior debt as of January 1, 2009. However, despite our modest profit in the March 2009 Quarter, our significant historical losses and the uncertainty of any significant increase in business from British Telecommunications or Telmex, together with the worldwide economic downturn and the general lack of credit even for companies with strong balance sheets and positive operation results, will increase the difficulties in obtaining financings from other sources. These factors may continue to affect our ability to generate business from new customers as well as our ability to make the payments that are due to Cheyne. We cannot give any assurance that Cheyne will provide us with any additional funding if the need arises. If we are not able to generate sufficient revenue to enable us to meet our obligations or obtain financing from Cheyne, we would not be able to continue in business, and it would be likely that we would seek protection under the Bankruptcy Code.

~~Statements contained~~We ~~in this Form 10-Q include forward-looking statements that are subject~~have ~~to risks and uncertainties. In particular, statements~~ in ~~this~~the ~~Form 10-Q that state our intentions~~past, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are “forward-looking statements.” Forward-looking statements are subject to risks, uncertainties and ~~other~~may ~~factors, including, but not limited to, those identified under “Risk Factors,”~~ in ~~our Form 10-K for~~ the ~~year ended December 31~~future, ~~2006~~consider ~~and in~~ the ~~Form~~sale ~~10-Q and those described in “Management's Discussion and Analysis~~ of ~~Financial~~one ~~Conditions~~or ~~and~~more ~~Results~~ of ~~Operations” in~~ our ~~Form 10-K and this Form 10-Q~~ divisions. However, ~~and~~all ~~those~~of ~~described~~our inpast ~~any~~discussions ~~other~~terminated ~~filings~~without byany ~~us with~~agreement ~~the Securities~~ and ~~Exchange~~we ~~Commission,~~cannot asgive ~~well as general economic conditions and economic conditions affecting the telecommunications industry,~~ any ~~one~~assurance orthat ~~more~~we ofwould ~~which could cause actual results to differ materially from those stated in such statements. Such statements could~~ be ~~affected~~able ~~by risks and uncertainties related~~ to ~~our financial~~effect ~~conditions,~~any ~~our~~sale ~~relationship with the holder~~ of our ~~senior~~business ~~and subordinated debt, including the willingness~~ or ~~unwillingness~~that ofsuch ~~the~~a ~~holder~~sale ofwould ~~the~~not ~~senior debt~~be topart ~~extend the maturity date~~ of ~~the senior debt and the amount and timing~~bankruptcy ~~of any~~reorganization. Further, ~~payments~~our ~~which the holder of the~~ senior debt ~~may~~is ~~require,~~secured ~~our~~by ~~ability~~a tolien on ~~sell~~substantially ~~any or~~ all of our ~~divisions~~and ~~or effect a restructure of~~ our ~~business~~subsidiaries’ ~~and our debt~~assets, and ~~equity~~substantially ~~structure on terms acceptable to the holder of the senior debt~~all, ~~our~~ ~~relationship with British Telecommunications including its continued~~if ~~requirements~~not ~~for our products~~all, ~~factors~~of ~~which affect~~ the ~~telecommunications industry,~~proceeds ~~market~~from ~~and~~any ~~customer~~sale ~~acceptance,~~may ~~our~~be ~~access~~required to ~~current~~be ~~technology, competition,~~paid ~~domestic~~to ~~and~~our ~~foreign government regulations and requirements and~~debt ~~pricing~~holders, asprincipally ~~well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of~~ the ~~date~~ onholder ~~which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date~~ of ~~this~~our ~~Form~~senior ~~10-Q~~debt.

Page 12 of 15

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

We conduct certain operations outside the United States. A substantial portion of our revenue and expenses from our United Kingdom operations are denominated in ~~Sterling~~pounds. Any ~~Sterling~~pound-denominated receipts are promptly converted into United ~~States~~ States dollars. We do not engage in any hedging or other currency transactions. During the March 2009 Quarter, the loss from exchange rates represented approximately 1% of sales. For the same period in 2008, the currency translation adjustment was not significant in relation to our total revenue.

Item 4. Controls and Procedures

~~Management’s~~Evaluation ~~assessment~~of ~~identified~~disclosure ~~the~~controls ~~following weaknesses at December 31, 2006 in our internal control over financial reporting~~ and, subsequent to December 31, 2006, we took the following steps to address those weaknesses. Accordingly, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q, fairly present, in all material respects our financial condition, results of operations and cash flows for the periods presented.procedures

~~- Our~~Disclosure ~~United~~controls ~~Kingdom~~and ~~subsidiary~~procedures ~~had~~are ~~identified~~controls aand ~~weakness~~procedures that are designed to ensure that information required to be disclosed by us in ~~the~~reports ~~segregation~~that ofwe file or ~~duties~~submit under the Exchange Act is recorded, ~~specifically~~processed, summarized and timely reported as ~~they~~provided ~~relate~~in toSEC ~~cash~~rules ~~management~~and forms. We ~~implemented~~periodically ~~measures~~review the design toand ~~segregate~~effectiveness ~~certain~~of ~~functions~~our disclosure controls and ~~otherwise~~procedures, ~~improve~~including compliance ~~cash~~with ~~management~~various ~~functions~~laws and regulations that apply to our operations. We ~~including~~make amodifications ~~division~~to ofimprove the ~~function~~design and effectiveness of ~~authorizing~~our disclosure controls and ~~issuing~~procedures, ~~payments.~~and ~~In addition,~~may astake aother ~~result~~corrective ofaction, if our reviews identify a ~~change~~need infor ~~personnel~~such inmodifications ~~our~~or ~~main~~actions. ~~office,~~In wedesigning ~~were~~and evaluating ~~unable~~the todisclosure ~~fully~~controls ~~implement~~and ~~our~~procedures, ~~existing~~we ~~internal~~recognize ~~cash~~that ~~management~~any ~~functions~~controls atand ~~our main~~procedures, ~~office~~no ~~during~~matter ahow ~~portion~~well ofdesigned ~~2006~~and operated, ~~which~~can ~~has~~provide ~~been~~only reasonable ~~remedied~~assurance byof ~~implementing our~~achieving ~~preexisting~~the ~~internal~~desired control ~~polices~~objectives.

~~- As~~Page a16 ~~result~~ of the audit performed by our independent registered public accounting firm, BDO Seidman, LLP at December 31, 2006, we recorded journal entries which, individually and in the aggregate, were material and evidenced a weakness in our internal control reporting procedures. To address this weakness, we have initiated a review of our training and supervision policies and procedures, particularly with respect to the functions in which adjustment had been made, which includes an evaluation of the specific knowledge and skills required to perform each function, an assessment of the personnel training necessary to perform such function adequately, a plan to ensure that all personnel receive the appropriate level of training, and a review and modification of the supervisory procedures over such personnel.19

We ~~believe~~maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the ~~measures~~Exchange weAct ~~have~~is recorded, ~~taken~~processed, ~~have~~summarized ~~addressed~~and ~~each~~reported ~~matter~~within ~~identified~~the time periods specified ~~as a~~in ~~material~~the ~~weakness~~SEC’s byrules ~~management~~and forms, and that such information is accumulated and communicated to management, including our ~~independent~~chief ~~registered~~executive ~~public~~officer and our chief ~~accounting~~financial ~~firm~~officer, as appropriate to allow timely decisions regarding required disclosure. WeOur ~~will~~management, ~~continue~~with toparticipation ~~monitor~~of our chief executive and financial officers, has conducted an evaluation of the effectiveness of our ~~internal~~ disclosure controls and procedures on(as andefined ~~ongoing~~in ~~basis~~the Securities Exchange Act of 1934 Rules 13a-15(e) and ~~will~~15d-15(e)) ~~take~~as ~~further~~of ~~actions,~~the end of the period covered by ~~as appropriate~~this quarterly report on Form 10-Q.

As ofpreviously ~~the end~~disclosed ofin our annual report on Form 10-K for the ~~period~~year ~~covered~~ended December by31, ~~this~~2008, ~~report~~we determined that, ~~our~~as ~~chief~~of ~~executive~~the ~~officer~~end ~~and~~of ~~chief~~the fiscal year 2008, ~~financial~~there ~~officer~~was ~~evaluated~~a ~~the~~material ~~effectiveness~~weakness ofaffecting our ~~disclosure~~internal ~~controls~~control ~~and~~over financial ~~procedures.~~reporting ~~Based~~with onrespect ~~his~~to ~~evaluation,~~information ~~the~~technology ~~chief~~(as ~~executive~~described ~~officer~~below) and, ~~chief~~as a ~~financial~~result ~~officer~~of ~~has~~the ~~concluded~~material ~~that~~weaknesses, our disclosure controls and procedures were ~~are~~not effective. inWe ~~alerting~~are ~~him~~continuing to ~~material~~evaluate ~~information~~a ~~that~~change isin ~~required~~the toinformation besystem ~~included~~platform infor ~~the~~our ~~reports~~financial ~~that~~and weoperational ~~file~~systems orwhich ~~submit~~will ~~under~~remediate the ~~Securities Exchange~~ ~~Act of~~material ~~1934~~weaknesses. The selection and ~~that~~implementation ~~the~~of ~~information~~a ~~required~~new system is expected to be ~~disclosed~~completed inover the ~~reports~~next ~~that we file~~few oryears ~~submit~~as ~~under~~a ~~Securities~~result ~~Exchange~~of ~~Act~~our ofcurrent cash ~~1934~~constraints. isConsequently, ~~accumulated~~based ~~and communicated~~on tothe ~~our~~evaluation described above, our management, including our chief executive officer and our chief ~~financial~~ financial officer, tohave ~~allow~~concluded ~~timely~~that, ~~decisions~~as ~~regarding~~of ~~required~~ the March 31, 2009, our disclosure controls and procedures were not effective.

Internal Control over Financial Reporting

~~Except~~As ~~as otherwise~~previously ~~discussed~~reported ~~herein,~~in ~~there~~form ~~has~~10-K ~~been~~for nothe ~~change~~year inended ~~our~~December ~~internal~~31, ~~control~~2008, ~~over~~management ~~financial~~identified ~~reporting~~significant deficiencies that ~~occurred~~when ~~during~~aggregated ~~the~~may ~~fiscal~~give rise ~~quarter~~to ~~covered~~a bymaterial weakness specifically relating to a) program ~~this quarterly~~change ~~report~~management ~~that~~in ~~has~~the ~~materially~~Company’s ~~affected~~PROCOMM system, orb) islack ~~reasonably~~of ~~likely~~integrated tomodules ~~materially~~with ~~affect,~~the ~~our~~general ~~internal~~ledger ~~control~~and ~~over~~c) ~~financial~~excessive ~~reporting.~~manual adjustments to the inventory module are required.

~~Page~~Management’s 13Plan of 15 Remediation

~~PART~~Management IIplans -to ~~OTHER~~evaluate, ~~INFORMATION~~select and install a new integrated enterprise resource planning (ERP) system that will include a complete general ledger and reporting package to eliminate the need for manual updates and significantly reduce the need for journal entries in the financial reporting process. Specific remediation actions used in 2009 to address our material weakness in internal control over financial reporting with respect to information technology include the following:

~~Item 1A.~~· ~~Risk Factors~~ In-depth review of all perpetual inventory reports;

~~In addition~~· toAnalyzing ~~the~~of ~~other~~production ~~information~~reporting ~~set~~with ~~forth~~respect into ~~this~~ending ~~report~~inventory, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and ~~in this Form 10-Q are not the only risks facing our Company.~~

~~During the~~· ~~quarter~~Re-computation ~~and six months ended June 30, 2007, we sustained declines in revenue from our largest customer, British Telecommunications, from the comparable three and six month periods~~ of ~~2006,~~reports ~~and, based~~ on a ~~change~~test ~~in the product mix, our gross margin declined on our sales to British Telecommunications~~basis. Due to our reliance on significant business from British Telecommunications, our revenue and net income could be impaired by any material reduction of sales to British Telecommunications or any material reduction in the gross margin on sales to British Telecommunications.

~~Additional~~Changes ~~risks~~in ~~and~~Internal ~~uncertainties~~Control ~~not~~over ~~currently~~Financial ~~known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.~~Reporting

~~Item~~There ~~3. Defaults~~have ~~Upon~~been ~~Senior~~no ~~Securities~~changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~See Note 3~~Page ~~of Notes to Unaudited Consolidated Financial Statements and “Management’s~~17 ~~Discussion and Analysis~~ of ~~Financial Condition and Results of Operations -- Liquidity and Capital Resources” for information concerning defaults on our subordinated debt.~~19

PART II – OTHER INFORMATION

Item 5. Other Information

Supplier Finance Agreement

In February 2009, we entered into a supplier finance agreement with Lloyds TSB Commercial Finance Limited to factor British Telecommunications accounts receivables on a non-recourse basis. We pay fees to Lloyds TSB Commercial Financing at a rate equal to LIBOR plus 0.7%, based on the number of days to maturity of each invoice that is factored.

Modification of Working Capital Senior Note

Adoption of the 2009 Long-Term Incentive Plan.

On May 11, 2009, our board of directors approved the 2009 Long-Term Incentive Plan, which covers 1,000,000 shares of common stock. The plan provides for the grant of incentive and non-qualified options, stock grants, stock appreciation rights and other equity-based incentives to employees, including officers, and consultants. The plan provides for the automatic grant of options to independent directors as follows: On the date that the plan was adopted, each independent director received the grant of an option to purchase 5,000 shares of common stock at an exercise price of $0.022 per share, which was the average of the last reported price for the common stock for the ten trading days immediately preceding the date of grant. On May 1 of each year, commencing May 1, 2010, each independent director will receive an option to purchase 5,000 shares at an exercise price equal to the average of the last reported price for the common stock for the ten trading days immediately preceding the date of grant. Each newly elected independent director will receive an option to purchase 10,000 shares at an exercise price equal to the average of the last ten trading days immediately preceding the date of becoming a director. Independent directors are not eligible for options or other rights under the plan except for the options granted pursuant to the automatic grant provision. The plan was approved subject to stockholder approval. The Company’s principal stockholder, which holds 70% of the outstanding stock, has advised the Company that it will approve the plan.

Item 6. Exhibits

31.1 Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

4.1		Working capital senior note dated May 1, 2009.
10.1		2009 Long-Term Incentive Plan.
10.2		Lloyds TSB Commercial Finance Limited supplier finance agreement
31.1		Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.1~~Page ~~Certificate~~ 18 of ~~Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~19

Page 14 of 15

SIGNATURES

Pursuant to the requirements 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.

PORTA SYSTEMS CORP.

	PORTA SYSTEMS CORP.

Dated: May 14, 2009	By:	/s/Edward B. Kornfeld
		Edward B. Kornfeld
		Chief Executive Officer

	By:	/s/ Leslie K. Brand
		Leslie K. Brand
		Chief Financial Officer

~~Dated:~~Page 19 ~~August~~of ~~13, 2007~~19

Edward B. Kornfeld

Chief Executive Officer and Chief Financial Officer

Page 15 of 15

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