UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION




Washington,
      D.C. 20549




FORM
      10-QSB




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




For
      the
      quarterly period ended June 30, 2006




Commission
      file number: 000-28153




**QPC
      Lasers, Inc.**




(Exact
      name of registrant as specified in its charter)




Nevada




(State
      of
      incorporation)




20-1568015




(I.R.S.
      Employer Identification No.)




15632
      Roxford Street Sylmar, CA. 91342






(Address
      of principal executive offices) (Zip Code)




(818)
      986-0000




(Registrant'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 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes  x No o.




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




There
      were 37,311,506 shares of the registrant's common stock outstanding as of June
      30, 2006.







INDEX
      TO
      FORM 10QSB




PART
      I
      FINANCIAL INFORMATION




PAGEItem
                1.
            Financial
                StatementsConsolidated
                Balance Sheets at June 30, 2006 (unaudited) and December 31,
                2005
            2Consolidated
                Statements of Operations for the three and six month periods ended
                June
                30, 2006 and June 30, 2005 (unaudited)
            3Consolidated
                Statements of Stockholders' Equity (unaudited)
            4Consolidated
                Statements of Cash Flows for the six month periods ended June 30,
                2006 and
                June 30, 2005 (unaudited)
            5Notes
                to Unaudited Consolidated Financial Statements
            6Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of Operations
            22Item
                3.
            Controls
                and Procedures
            37PART
                II OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            37Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            37Item
                3.
            Defaults
                Upon Senior Securities
            40Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            40Item
                5.
            Other
                Information
            40Item
                6.
            Exhibits
            40SIGNATURES


1




**Part
      I - Financial Information**




Item
      1.
      Financial Statements




**QPC
      LASERS, INC.**




**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




June
                30, 2006
              (Unaudited)
            
            December
                31, 2005**ASSETS****CURRENT
                ASSETS**Cash
            
            $
            5,802,838
            
            $
            69,440Accounts
                receivable, Commercial customers, net of allowance for doubtful accounts
                and returns and discounts of $10,575 (Unaudited) as of June 30, 2006
                and
                $6,704 as of December 31, 2005
            
            
            290,503
            
            
            331,332Accounts
                receivable, Government contracts, net of allowance for doubtful accounts
                and returns and discounts of $-0- (Unaudited) as of June 30, 2006
                and
                $8,312 as of December 31, 2005
            
            
            173,274
            
            
            15,669Costs
                and profit in excess of billings
            
            
            115,086
            
            
            10,774Inventory
            
            
            379,646
            
            
            419,099Prepaid
                expenses and other current assets
            
            
            154,673
            
            
            198,449Total
                Current Assets
            
            
            6,916,020
            
            
            1,044,763Capitalized
                loan fees, net of accumulated amortization of $276,408 (Unaudited)
                as of
                June 30, 2006 and $ 203,586 as of December 31, 2005
            
            
            67,227
            
            
            140,049Property
                and equipment, net of accumulated depreciation of $4,656,778 (unaudited)
                as of June 30, 2006 and $ 4,056,090 as of December 31, 2005
            
            
            3,869,052
            
            
            4,391,019Other
                assets
            
            
            88,779
            
            
            129,414**TOTAL
                ASSETS**
            
            **$**
            10,941,078
            
            $
            5,705,245**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and other current liabilities
            
            $
            961,235
            
            $
            940,766Embedded
                derivative liability
            
            
            183,209
            
            
            -Note
                payable-related party
            
            
            -0-
            
            
            343,200Current
                portion of long term debt
            
            
            1,237,886
            
            
            1,396,218Total
                Current Liabilities
            
            
            2,382,330
            
            
            2,680,184Long
                term debt, less current portion
            
            
            1,104,800
            
            
            1,288,506Total
                Liabilities
            
            
            3,487,130
            
            
            3,968,690**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                EQUITY**Preferred
                stock, .001 par value, 20,000,000 shares authorized, none outstanding
            
            
            —
            
            
            —Common
                stock, $.001 par value, 180,000,000 shares authorized,
                37,311,506 issued and outstanding at June 30, 2006 and 21,581,753
                at
                December 31, 2005
            
            
            37,311
            
            
            21,582Additional
                paid in capital
            
            
            47,613,729
            
            
            34,528,759Unearned
                compensation
            
            
            (1,125,000
            )
            
            —Accumulated
                deficit
            
            
            (39,072,092
            )
            
            (32,813,786
            )Total
                stockholders’ equity
            
            
            7,453,948
            
            
            1,736,555**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            10,941,079
            
            $
            5,705,245




See
      accompanying Notes to Condensed Consolidated Financial Statements


2




**QPC
      LASERS, INC.**




**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**For
      the Three and Six Months Ended June 30, 2006 and 2005**


**(Unaudited)**





**Three
                months ended (Unaudited)**
            
            **Six
                months ended (Unaudited)****June
                30, 2006**
            
            **June
                30, 2005**
            
            **June
                30, 2006**
            
            **June
                30, 2005****REVENUE**
            
            $
            577,346
            
            $
            263,118
            
            $
            842,910
            
            $
            523,181**COST
                OF SALES**
            
            
            495,022
            
            
            243,258
            
            
            774,748
            
            
            428,234**GROSS
                PROFIT**
            
            
            82,324
            
            
            19,860
            
            
            68,162
            
            
            94,947**OPERATING
                EXPENSES**Research
                and Development
            
            
            1,134,986
            
            
            1,293,161
            
            
            2,258,778
            
            
            2,483,267General &
                Administrative
            
            
            1,510,035
            
            
            578,977
            
            
            2,888,464
            
            
            1,117,620Total
                operating expenses
            
            
            2,645,021
            
            
            1,872,138
            
            
            5,147,242
            
            
            3,600,887**LOSS FROM
                OPERATIONS**
            
            
            (2,562,697
            )
            
            (1,852,278
            )
            
            (5,079,080
            )
            
            (3,505,940
            )Interest
                Income
            
            
            6,463
            
            
            4,635
            
            
            6,473
            
            
            12,094Interest
                Expense
            
            
            (281,411
            )
            
            (85,293
            )
            
            (911,608
            )
            
            (170,901
            )Merger
                expense
            
            
            (336,322
            )
            
            —
            
            
            (336,322
            )
            
            —Other
                income
            
            
            46,063
            
            
            20,276
            
            
            62,233
            
            
            37,717**NET
                LOSS**
            
            $
            (3,127,904
            )
            $
            (1,912,660
            )
            $
            (6,258,306
            )
            $
            (3,627,030
            )**LOSS
                PER SHARE**—
                Basic and Diluted
            
            $
            (.10
            )
            $
            (.12
            )
            $
            (.20
            )
            $
            (.22
            )**WEIGHTED
                AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED**
            
            
            31,459,137
            
            
            16,507,615
            
            
            31,156,221
            
            
            16,507,615




See
      accompanying Notes to Condensed Consolidated Financial Statements


3




**QPC
      LASERS, INC.**




**CONDENSED
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**


For
      the
      six months ended June 30, 2006 (Unaudited)





Common
                  Stock
              
              Additional
                Paid-in
              
              Unearned
                  Compensation
              
              Accumulated
                Deficit
              
              TotalBALANCE-January
                  1, 2006
              
              
              21,581,753
              
              $
              21,582
              
              $
              34,528,759
              
              $
              —
              
              $
              (32,813,786
              )
              $
              1,736,555Effect
                  of Share Exchange Agreement, May 12, 2006
              
              
              4,030,849
              
              
              4,031
              
              
              (4,031
              )
              
              
              
              
              
              
              
              —Issuance
                  of stock and warrants for cash, net
              
              
              10,481,404
              
              
              10,481
              
              
              10,939,060
              
              
              
              
              
              
              
              
              10,949,541Value
                  of imbedded derivative liability
              
              
              
              
              
              
              
              
              (211,835
              )
              
              
              
              
              
              
              
              (211,835
              )Issuance
                  of stock upon option exercise
              
              
              17,500
              
              
              17
              
              
              10,983
              
              
              
              
              
              
              
              
              11,000Issuance
                  of stock for services
              
              
              1,200,000
              
              
              1,200
              
              
              1,498,800
              
              
              (1,500,000
              )
              
              
              
              
              —Issuance
                  of warrants
              
              
              
              
              
              
              
              
              777,598
              
              
              
              
              
              
              
              
              777,598Issuance
                  of options
              
              
              
              
              
              
              
              
              74,395
              
              
              
              
              
              
              
              
              74,395Amortization
                  of unearned compensation
              
              
              
              
              
              
              
              
              
              
              
              375,000
              
              
              
              
              
              375,000Six
                  month net loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,258,306
              )
              
              (6,258,306
              )Balance,
                  June 30, 2006
              
              
              37,311,506
              
              $
              37,311
              
              $
              47,613,729
              
              $
              (1,125,000
              )
              $
              (39,072,092
              )
              $
              7,453,948




See
      accompanying Notes to Condensed Consolidated Financial Statements


4




**QPC
      LASERS, INC.**




**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**For
      the six months ended June 30, 2006 and 2005**


**(Unaudited)**


**Six
                  Months Ended (Unaudited)****June
                  30, 2006**
              
              **June
                  30, 2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  Loss
              
              $
              (6,258,306
              )
              $
              (3,627,030
              )Adjustments
                  to reconcile net loss to net cash used in operating activities:Depreciation
                  and amortization
              
              
              600,688
              
              
              609,268Amortization
                  of loan discount
              
              
              374,653Amortization
                  of deferred compensation
              
              
              375,000Derivative
                  income included in other Income
              
              
              (28,626
              )Compensation
                  expense of warrant issuance
              
              
              777,598Compensation
                  expense of option issuance
              
              
              74,395Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (116,776
              )
              
              (117,168
              )Inventory
              
              
              39,453
              
              
              (22,723
              )Unbilled
                  revenue
              
              
              (104,312
              )
              
              (135,091
              )Other
                  assets
              
              
              113,457Prepaid
                  Expenses
              
              
              43,776
              
              
              (19,529
              )Accounts
                  payable and other current liabilities
              
              
              20,469
              
              
              (211,442
              )Net
                  cash used in operating activities
              
              
              (4,088,531
              )
              
              (3,523,715
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of property and equipment
              
              
              (78,721
              )
              
              (143,462
              )Net
                  cash used in investing activities
              
              
              (78,721
              )
              
              (143,462
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Principal
                  payments on debt
              
              
              (1,059,891
              )
              
              (313,395
              )Proceeds
                  received from unit sales allocated to common stock
              
              
              10,737,706
              
              
              1,056,158Proceeds
                  from unit sales allocated to embedded derivates
              
              
              211,835
              
              
              -Exercise
                  of options
              
              
              11,000
              
              
              -Net
                  cash provided by financing activities
              
              
              9,900,650
              
              
              742,763**NET
                  INCREASE (DECREASE) IN CASH**
              
              
              5,733,398
              
              
              (2,924,414
              )**CASH —
                  Beginning of period**
              
              
              69,440
              
              
              4,161,618**CASH —
                  End of period**
              
              $
              5,802,838
              
              $
              1,237,204**Supplemental
                  Disclosures of Cash Flow Information**Cash
                  paid during the period for:Interest
              
              $
              196,012
              
              $
              170,901Taxes
              
              $
              —
              
              $
              —




SUPPLEMENTAL
      DISCLOSURE OF NON-CASH ACTIVITIES:




During
      the six months ended June 30, 2006, 1,200,000 common shares were issued in
      exchange for consulting services valued at $1,500,000.




See
      accompanying Notes to Condensed Consolidated Financial Statements


5




**QPC
      LASERS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006 (UNAUDITED)**




NOTE
      1




A) ORGANIZATION
      AND NATURE OF OPERATIONS




Effective
        May 1, 2006, Planning Force Inc., changed its name to QPC Lasers, Inc. On
        May
        12, 2006 QPC Lasers, Inc. (QLI) executed a Share Exchange Agreement by and
        among
        Julie Moran, its majority shareholder, and Quintessence Photonics Corporation
        (QPC) and substantially all of its shareholders. Under the agreement QLI
        issued
        one share of its Common Stock to the QPC shareholders in exchange for each
        share
        of QPC common stock (QPC Shares). Upon closing, QPC shareholders represented
        at
        least 87% of QLI’s common shareholders. Therefore, a change in control occurred
        and QPC also became a wholly owned subsidiary of QLI. Accordingly, the
        transaction is accounted for as a reverse merger (recapitalization) in the
        accompanying financial statements with QPC deemed to be the accounting acquirer.
        QLI is considered to be a holding company as it does not have business
        operations separate from QPC. As such the financial statements herein reflect
        the historical activity of QPC, with the activity of QLI being reflected
        from
        May 12, 2006 forward, see Note 12.




B) BASIS
      OF PRESENTATION




The
      accompanying interim condensed consolidated financial statements are unaudited,
      but in the opinion of management of QPC
      Lasers, Inc. (the
      Company), contains all adjustments, which include normal recurring adjustments
      necessary to present fairly the financial position at June 30, 2006, the results
      of operations, and cash flows for the three months and six months ended June
      30,
      2006 and 2005. The balance sheet as of December 31, 2005 is derived from the
      Company’s audited financial statements.




Certain
      information and footnote disclosures normally included in financial statements
      that have been prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to the rules and regulations
      of the Securities and Exchange Commission, although management of the Company
      believes that the disclosures contained in these financial statements are
      adequate to make the information presented herein not misleading. For further
      information, refer to the financial statements and the notes thereto included
      in
      the Company’s Form 8-K as filed with the Securities and Exchange Commission on
      May 12, 2006.




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


6




The
      results of operations for the six months ended June 30, 2006 are not necessarily
      indicative of the results of operations to be expected for the full fiscal
      year
      ending December 31, 2006.




C)
      Loss
      per Common Share




Basic
      loss per share is calculated by dividing net loss available to common
      stockholders by the weighted average number of common shares outstanding during
      the year. Diluted loss per share is calculated assuming the issuance of common
      shares, if dilutive, resulting from the exercise of stock options and warrants.
      As the Company had a loss in the six month and three month periods ended June
      30, 2006 and 2005, basic and diluted loss per share are the same.




NOTE
      2
      -  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




Cash
      and Cash Equivalents




Cash
      and
      cash equivalents include unrestricted deposits and short-term investments with
      an original maturity of three months or less.




Inventory




Inventory
      is valued at lower of cost or market using the first-in, first-out
      method.




Property
      and Equipment




Property
      and equipment are stated at cost, less accumulated depreciation. Depreciation
      is
      provided for using the straight-line method over the estimated useful lives
      of
      the assets, which range from 3 to 6 years. Leasehold improvements are amortized
      over the lesser of the remaining lease term, including renewal periods, or
      the
      useful life of the asset, see Note 10.




Impairment
      of Long-Lived Assets




On
      January 1, 2002, the Company adopted the provisions of SFAS No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses
      financial accounting and reporting for the disposal of long-lived assets and
      supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and
      for Long-Lived Assets to be Disposed of.” The adoption of this statement did not
      have a material effect on the Company’s results of operations or financial
      condition.


7




NOTE
      2
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED




Deferred
      Stock Offering Costs




The
      Company capitalizes costs incurred related to its offering of common stock
      until
      such time as the stock is issued, or the stock offering is abandoned by the
      Company. These costs include specific incremental costs directly related to
      its
      stock offering. At December 31, 2005, deferred offering costs were approximately
      $41,000 and are included in Other Assets. The offering associated with these
      costs concluded in the second quarter of 2006. Accordingly, these costs were
      charged to Additional Paid in Capital as of June 30, 2006.




Income
      Taxes




Current
      income tax expense is the amount of income taxes expected to be payable for
      the
      current year. A deferred income tax asset or liability is established for the
      expected future consequences of temporary differences in the financial reporting
      and tax bases of assets and liabilities. The Company considers future taxable
      income and ongoing, prudent and feasible tax planning strategies, in assessing
      the value of its deferred tax assets. If the Company determines that it is
      more
      likely than not that these assets will not be realized, the Company will reduce
      the value of these assets to their expected realizable value, thereby decreasing
      net income. Evaluating the value of these assets is necessarily based on the
      Company’s judgment. If the Company subsequently determined that the deferred tax
      assets, which had been written down, would be realized in the future, the value
      of the deferred tax assets would be increased, thereby increasing net income
      in
      the period when that determination was made.




Revenue
      Recognition




The
        majority of the Company’s revenues result from fixed-price contracts with U.S.
        government agencies. Revenues from fixed-price contracts are recognized under
        the percentage-of-completion method of accounting, generally based on costs
        incurred as a percentage of total estimated costs of individual contracts
        (“cost-to-cost method”). Revisions in contract revenue and cost estimates are
        reflected in the accounting period as they are identified. Provisions for
        the
        entire amount of estimated losses on uncompleted contracts are made in the
        period such losses are identified. No contracts were determined to be in
        an
        overall loss position at December 31, 2005 or June 30, 2006. At December
        31,
        2005, there was no deferred revenue and approximately $10,774 of unbilled
        receivable related to these government contracts. At June 30, 2006 there
        was
        $12,024 (Unaudited) of deferred revenues and $115,086 (Unaudited) of unbilled
        receivables related to these government contracts.
  The
        Company recognizes revenues on product sales, other than fixed-price contracts
        after shipment of the product to the customer. Accounts
        receivable are reviewed for collectibility quarterly. When management determines
        a potential collection problem, a reserve will be established, based on
        management’s estimate of the potential bad debt. When management abandons all
        collection efforts it will write off the account and adjust the reserve
        accordingly.


8




NOTE
      2
      -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED




Accounts
      receivable are reviewed for collectibility. When management determines a
      potential collection problem, a reserve will be established, based on
      management’s estimate of the potential bad debt. When management abandons all
      collection efforts it will directly write off the account and adjust the reserve
      accordingly.




Research
      and Development Costs




Research
      and development costs are charged to expense when incurred.




Management
      Estimates




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




Stock-Based
      Compensation




The
      Company periodically issues stock options and warrants to employees and
      non-employees in non-capital raising transactions for services and for financing
      costs. Statement of Financial Accounting Standards No. 123, "Accounting for
      Stock-Based Compensation" ("SFAS No. 123"), established a fair value method
      of
      accounting for stock-based compensation plans and for transactions in which
      an
      entity acquires goods or services from non-employees in exchange for equity
      instruments. SFAS No. 123 was amended by Statement of Financial Accounting
      Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
      Disclosure", which required companies to disclose in interim financial
      statements the pro forma effect on net income (loss) and net income (loss)
      per
      common share of the estimated fair market value of stock options or warrants
      issued to employees. Through December 31, 2005, the Company accounted for
      stock-based compensation utilizing the intrinsic value method prescribed in
      Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
      Employees" ("APB No. 25"), with pro forma disclosures of net income (loss)
      as if
      the fair value method had been applied. Accordingly, compensation cost for
      stock
      options was measured as the excess, if any, of the fair market price of the
      Company's stock at the date of grant over the amount an employee must pay to
      acquire the stock.




As
      the
      exercise price of stock options and warrants issued to employees was not less
      than the fair market value of the Company's common stock on the date of grant,
      and in accordance with accounting for such options utilizing the intrinsic
      value
      method, there was no related compensation expense recorded in the Company's
      2005
      consolidated financial statements. The fair value of stock options and warrants
      issued to officers, directors and employees at not less than fair market value
      of the Company's common stock on the date of grant was estimated using the
      Black-Scholes option-pricing model, and the effect on the Company's results
      of
      operations was shown in a pro forma disclosure as if such stock options and
      warrants had been accounted for pursuant to SFAS No. 123.


9




NOTE
      2
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED




In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      No.
      123 (revised 2004), "Share Based Payment" ("SFAS No. 123R"), a revision to
      SFAS
      No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R superseded
      APB
      No. 25 and amended SFAS No. 95, "Statement of Cash Flows". Effective January
      1,
      2006, SFAS No. 123R requires that the Company measure the cost of employee
      services received in exchange for equity awards based on the grant date fair
      value of the awards, with the cost to be recognized as compensation expense
      in
      the Company's financial statements over the vesting period of the
      awards.




Accordingly,
      the Company recognizes compensation cost for equity-based compensation for
      all
      new or modified grants issued after December 31, 2005. In addition, commencing
      January 1, 2006, the Company recognized the unvested portion of the grant date
      fair value of awards issued prior to adoption of SFAS No. 123R based on the
      fair
      values previously calculated for disclosure purposes over the remaining vesting
      period of the outstanding stock options and warrants.




The
      Company adopted SFAS No. 123R effective January 1, 2006, and is using the
      modified prospective method in which compensation cost is recognized beginning
      with the effective date (a) based on the requirements of SFAS No. 123R for
      all
      share-based payments granted after the effective date and (b) based on the
      requirements of SFAS No. 123R for all awards granted to employees prior to
      the
      effective date of SFAS No. 123R that remain unvested on the effective
      date.




For
      the
      six months ended June 30, 2006, the value of options vested during the period
      was $74,395 and has been reflected as compensation cost. As of June 30, 2006,
      the Company has unvested options of $774,117 which will be reflected as
      compensation costs as the options vest.




During
      the three months and six months ended June 30, 2005, the Company issued 292,000
      and 352,000, respectively, of stock options. The pro forma disclosure related
      to
      the issuance of these options is as follows:





3
                months ended June 30, 2005
              (unaudited)
            
            
            6
                months ended June30,
                2005
              (unaudited)Net
                loss as reported
            
            $
            (1,912,660
            )
            
            (3,627,030
            )Stock
                based compensation
            
            
            (67,200
            )
            
            (392,240
            )Pro
                forma loss
            
            $
            (1,979,860
            )
            $
            (4,019,270
            )Pro
                forma net loss per share, basic and diluted
            
            $
            (0.12
            )
            $
            (0.24
            )




The
        assumptions used in calculating the fair value of the options granted during
        2006, using the Black-Scholes option pricing model were: risk free interest
        rate, 4.47%, expected life, 10 years, expected volatility 70%, no expected
        dividends.


10




NOTE
      2
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED




The
      assumptions used in calculating the fair value of the options granted during
      2005, using the Black-Scholes option pricing model were: risk free interest
      rate, 4.47%, expected life, 10 years, expected volatility 70%, no expected
      dividends.




Fair
      Value of Financial Instruments


The
          recorded values of cash and cash equivalents, accounts receivable, accounts
          payable and other current liabilities approximate their fair values based
          on
          their short-term nature. The carrying amount of the notes payable at December
          31, 2005 and June 30, 2006 approximates fair value because the related
          effective
          interest rates on the instruments approximate rates currently available
          to the
          Company.




Concentration
      of Credit Risk




Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist primarily of cash and cash equivalents placed with high credit
      quality institutions and account receivable due from government agencies. The
      Company places its cash and cash equivalents with high credit quality financial
      institutions. From time to time such cash balances may be in excess of the
      FDIC
      insurance limit of $100,000.




Recent
      Accounting Pronouncements




In
      June 2005, the FASB issued SFAS 154, “Accounting Changes and Error
      Corrections,” a replacement of existing accounting pronouncements. SFAS 154
      modifies accounting and reporting requirements when a company voluntarily
      chooses to change an accounting principle or correct an accounting error. SFAS
      154 requires retroactive restatement of prior period financial statements unless
      it is impractical. Previous accounting guidelines allowed recognition by
      cumulative effect in the period of the accounting change. SFAS 154 is effective
      for accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005.




In
      February 2006, the FASB issued SFAS 155 Accounting for Certain Hybrid Financial
      Instruments, an amendment of SFAS 133 and 140. These SFAS’s deal with derivative
      and hedging activities, accounting for transfers and servicing of financial
      instruments and extinguishment of liabilities. SFAS 155 is effective for all
      financial instruments acquired or issued in an entity’s first fiscal year
      beginning after September 15, 2006. The Company does not engage in the
      activities described in these SFAS’s and does not have any intention of engaging
      in those activities when SFAS 155 becomes effective. The Company has evaluated
      the impact of the adoption of SFAS 155, and does not believe the impact will
      be
      significant to the Company's overall results of operations or financial
      position.


11




NOTE
      3 INVENTORY




Inventory
      consists of the following:




December31,
                2005
            
            June
                30, 2006(Unaudited)Raw
                materials
            
            $
            441,800
            
            $
            394,830Work
                in process
            
            
            —
            
            
            7,517Reserve
                for slow moving and obsolescence
            
            
            (22,701
            )
            
            (22,701
            )$
            419,099
            
            $
            379,646




NOTE
      4  CAPITALIZED
      LOAN FEES


Capitalized
          loan fees consist of legal fees and other direct costs incurred in obtaining
          the
          loans as described in Notes 6 and 7, and are amortized over the life of
          the
          loans using the effective interest method.




NOTE
      5 PROPERTY
      AND EQUIPMENT




Property
      and equipment consist of the following:




December
                31,2005
            
            June
                30, 2006(Unaudited)
            
            Useful
                LivesComputer
                software
            
            $
            61,807
            
            $
            65,049
            
            
            3
                yearsFurniture
                and fixtures
            
            
            103,180
            
            
            113,369
            
            
            6
                yearsComputer
                equipment
            
            
            118,036
            
            
            124,568
            
            
            3
                yearsOffice
                equipment
            
            
            69,362
            
            
            69,362
            
            
            6
                yearsLab
                and manufacturing equipment
            
            
            4,305,775
            
            
            4,362,912
            
            
            6
                yearsLeasehold
                improvements
            
            
            3,788,949
            
            
            3,790,570
            
            
            14
                years8,447,109
            
            
            8,525,830Less
                accumulated depreciationand
                amortization
            
            
            (4,056,090
            )
            
            (4,656,778
            )Property
                and equipment, net
            
            $
            4,391,019
            
            $
            3,869,052




For
      the
      six months ended June 30, 2006 and June 30, 2005 depreciation and
      amortization expense was $600,688 (Unaudited) and $609,268
      (Unaudited).


12




NOTE
      6 NOTE
      PAYABLE RELATED PARTIES


The
          Company was indebted to the Chairman of the Board of Directors and the
          Chief
          Operating Officer of Company under a $500,000 loan agreement entered into
          in
          November 2005. The note was due January 2006, was extended to April 25,
          2006,
          and was paid in April 2006. Until the note was repaid, monthly interest
          only
          payments were required. The interest rate was 10%. The note was secured
          by all
          the assets of the Company. $500,000 was outstanding at December 31, 2005.
          The
          Company paid a $25,000 loan origination fee to the related parties in accordance
          with the agreement. As part of the agreement, the Company granted to the
          lenders
          warrants to purchase 320,000 shares of common stock which were valued at
          $0.98
          per warrant. Accordingly, the Company recorded a loan discount of $313,600
          which
          the Company amortized to interest expense over the original life of the
          loan.
          $156,800 was amortized during the year ending December 31, 2005. The remaining
          balance was fully amortized as of June 30, 2006. The Company issued 900,000
          warrants to lenders as consideration for extending the note. The value
          of these
          extension warrants, approximately $716,000 (Unaudited), was charged to
          interest
          expense during the six months ended June 30, 2006.




NOTE
      7 NOTES
      PAYABLE




As
      of
      December 31, 2005, notes payable consist of the following:


Loan
                  Balance
              
              Loan
                  Discount
              
              Current
                  Portion
              
              Non
                  current portion(a)
                  Senior Secured Notes
              
              $
              2,125,797
              
              $
              (506,940
              )
              $
              1,396,218
              
              $
              222,639(b)
                  Subordinated SecuredConvertible
                  Notes
              
              
              1,280,000
              
              
              (214,133
              )
              
              -
              
              
              1.065,867$
              3,405,797
              
              $
              (721,073
              )
              $
              1,396,218
              
              $
              1,288,506




As
      of
      June 30, 2006 notes payable consist of the following
      (Unaudited):


Loan
                    Balance
                
                Loan
                    discount
                
                Current
                    Portion
                
                Non
                    current Portion(a)
                    Senior Secured Notes
                
                $
                1,565,906
                
                $
                (328,020
                )
                $
                1,237,886
                
                $
                -(b)
                    Subordinated SecuredConvertible
                    Notes
                
                
                1,280,000
                
                
                (175,200
                )
                
                -
                
                
                1,104,800$
                2,845,906
                
                $
                (503,220
                )
                $
                1,237,886
                
                $
                1,104,800


13




Senior
      Secured Notes Payable


During
          2004, the Company issued $3,250,000 of notes payable to Investors. The
          term of
          the notes was 24 months, bearing interest at 10% per annum, with no principal
          and interest payments required for the initial 3 months. During the remaining
          21
          months, principal and interest payments sufficient to pay the loan in full
          at
          the end of 24 months were required. The notes were secured by all of the
          assets
          of the Company, including its intellectual property. 1 warrant was issued
          for
          every $1.33 of principal, with each warrant being convertible into 1 share
          of
          common stock at $3.75 per share. The warrants were fully vested and had
          a 6 year
          term. The Company determined there was no accounting value to be assigned
          to the
          warrants, based a calculation using an option pricing model. Of the total
          notes
          issued, $2,500,000 was loan by a limited partnership of which an officer
          of the
          Company is an owner. On October 31, 2004, $300,000 of the principal and
          $13,184
          accrued interest was converted into 83,380 shares of Series C preferred
          stock.


During
          2005, five of the seven note holders agreed to modify the terms of their
          notes.
          The modifications included deferring principal payments from April 2005
          to March
          2006, with principal payments commencing until the notes are fully paid
          in May
          2007. As of June 30 2006, the monthly principal and interest payments are
          $149,571. In addition, 840,000 warrants were issued to the five note holders
          who
          elected to defer principal payments on their loans. The deferral warrants
          were
          valued at $0.71 a warrant or $596,400, using an option pricing model and
          are
          reflected as a loan discount amount, which is netted against the loan principal
          balance. The loan discount fee is being amortized over the life of the
          loan. As
          of December 31, 2005, the accumulated amortization of the loan discount
          fee was
          $89,460. As of June 30, 2006, the accumulated amortization of the loan
          discount
          fee was $328,020 (Unaudited).




Subordinated
      Secured Convertible Notes Payable




During
      2005, the Company issued $1,280,000 of subordinated, secured notes to 9 note
      holders. The terms of the notes include interest only payments for 24 months,
      thereafter the loans will be paid in full over the next twelve months. The
      loans
      are secured by all the assets of the Company, but take a secondary position
      to
      the Senior Secured Notes, above. The interest rate on the loans is 10%. The
      loans, at the option of the note holder, may be extended an additional three
      years, with the same terms as the original three year period. The conversion
      feature allows the note holder to convert outstanding principal and interest
      into common stock at a conversion price of $3.75. The conversion price is
      subject to downward adjustment upon the occurrence of certain stock offerings.
      The conversion price was reduced to $1.25, as a result of the offerings
      described in Note 8.




In
      addition, the Company issued 320,000 warrants in connection with this debt
      offering. The warrants were valued at $0.73 a warrant or $233,600, using an
      option pricing model and are reflected as a loan discount amount, which is
      netted against the loan principal balance. The loan discount fee is being
      amortized over the life of the loan. As of December 31, 2005, the accumulated
      amortization was $19,467. As of June 30, 2006, the accumulated amortization
      of
      the loan discount was $58,400 (Unaudited).




NOTE
      7
      NOTES PAYABLE CONTINUED


The
          aggregate maturities of long-term debt for each of the next three years
          are as
          follows as of December 31, 2005:


14




AmountDecember
                31, 2006
            
            $
            1,396,2182007
            
            
            1,049,5792008
            
            
            960,000$
            3,405,797




NOTE
      8 STOCKHOLDERS’
      EQUITY




Common
      Stock




At
      June
      30, 2006, the Company had one class of common stock, 180,000,000 authorized,
      with a par value of $0.001 per common share.




Preferred
      Stock




The
      Company is authorized to issue a maximum of 20,000,000 shares of $0.001 par
      value preferred stock. No preferences have been set. The discretion of setting
      the preferences rests solely with the Company’s board of directors.




Common
      Stock Issued




During
      the six months ended June 30, 2006, the Company sold 572,526 units of equity
      instruments, at $5.00 per unit, consisting of 2,290,104 common shares and
      572,526 warrants to purchase common stock for $1.50. Gross proceeds were
      $2,862,630. The purchase and sale agreement required the Company to register
      such shares and shares issuable upon exercise of the warrants and provided
      that
      if such shares were not timely registered with the SEC, shares equal to 1%
      of
      the shares purchased would be issued as a penalty every 30 days that the filing
      was not made. The Company determined that the penalty on the registration rights
      would cause the Company to recognize a warrant liability until such registration
      statement has been filed The Company determined that the fair value of warrants
      was $211,835 using an option pricing model and that such value should be
      established as a liability at the date of the warrant issuance with such value
      to being revalued each reporting period. See Note 13.




During
      the six months ended June 30, 2006, the Company sold 8,191,300 shares of common
      stock at $1.25 per share for proceeds of $10,239,125. The underwriter also
      received 2,347,140 warrants as compensation for the offering. The shares and
      warrants issued to the underwriter contain registration rights; however no
      penalties accrue in the event shares underlying the warrants are not registered.
      The Company calculated the value of the warrants issued to the underwriter
      as
      $1,736,884 based on an option pricing model. The value of such warrants is
      a
      cost of capital.


15





The
      cash
      costs associated with these issuances was $2,152,214 resulting in net proceeds
      to the Company of $10,949,541.




NOTE
      9 STOCK
      OPTIONS AND WARRANTS




In
      July
      2001, QPC’s Board of Directors approved the 2001 Stock Option Plan (the “2001
      plan”) under which certain employees, directors, officers and independent
      contractors may be granted options to purchase up to an aggregate of 1,215,295
      shares of the Company’s common shares. In May 2004, the 2001 plan was amended to
      increase the number of options which may be granted to 2,555,295. The options
      vest over a four-year period. The weighted-average estimated fair value of
      options granted in 2005 was $1.02. Upon the share exchange described in Note
      1,
      these options were converted to options under the 2006 Plan.





In
      May
      2006, QLI adopted the 2006 stock option plan (the 2006 Plan) under which certain
      employees, directors, officers and independent contractors may be granted
      options to purchase up to an aggregate of 5,400,000 shares of the Company’s
      common shares. The options may vest over a period not to exceed 10 years. The
      weighted-average estimated fair value of options granted in 2006 was $0.99
      (Unaudited).




A
      summary
      of the Company’s stock option activity follows:




Number
                of Options
            
            Range
                ofExercise
                Price
            
            Weighted
                Average ExerciseOptions
                outstanding at December 31, 2005
            
            
            1,965,250
            
            
            0.29
                to 1.25
            
            
            0.40Granted
            
            
            860,
                416
            
            
            1.25
            
            
            1.25Exercised
            
            
            (17,500
            )
            
            0.38
                and 1.25
            
            
            .49Cancelled
            
            
            (2,500
            )
            
            0.38
            
            
            0.38Options
                outstanding at June 30, 2006 (Unaudited)
            
            
            2,805,666Options
                exercisable at June 30, 2006 (Unaudited)
            
            
            1,972,837




The
      assumptions used in calculating the fair value of the options granted during
      2005, using the Black-Scholes option pricing model were: risk free interest
      rate, 4.47%, expected life 10 years, expected volatility 70%, no expected
      dividends. The assumptions used for calculating the options granted during
      2006
      were risk free interest rate ranging from 4.38% to 5.05%, expected life 10
      years, expected volatility 70%, no expected dividends.




16




The
      following table summarizes information regarding options outstanding at June
      30,
      2006 (Unaudited):




Options
                Outstanding
            
            Options
                ExercisableNumber
                Outstanding
            
            Range
                ofExercise
                Prices
            
            Weighted-Remaining
                Contractual Life in Years
            
            Weighted-AverageExercise
                Price
            
            Number
                of Shares
            
            Weighted-AverageExercise
                Price2,805,666
            
            $
            0.29-$1.25
            
            
            5.22
            
            $
            0.66
            
            
            1,972,837
            
            $
            0.42




For
      the
      six months ended June 30, 2006, the Company recorded compensation expense of
      $74,395 (Unaudited). The Company has unvested options which will require
      recognizing $774,117 (Unaudited) of compensation expense in the years, if any,
      in which the unvested options vest.




The
      Company has 4,514,431 warrants outstanding at December 31, 2005and 8,460,763
      outstanding at June 30, 2006 (Unaudited) with exercise prices ranging from
      $1.25
      to $3.75.




A
      summary
      of the Company’s warrant activity follows:




Number
                of WarrantsWarrants
                at January 1, 2004
            
            
            -Granted
            
            
            4,305,186ExercisedCancelledWarrants
                outstanding at December 31, 2004
            
            
            4,305,186Granted
            
            
            2,207,033Exchanged
                for stock to be issued
            
            
            (1,997,788
            )CancelledWarrants
                outstanding at December 31, 2005
            
            
            4,514,431Granted
            
            
            3,946,332Exercised
            
            
            -Cancelled
            
            
            -Warrants
                outstanding at June 30, 2006
            
            
            8,460,763




During
      2006, 2,347,140 warrants were issued to the underwriter as compensation for
      the
      stock sales described in Note 8. The value of these warrants was $1,736,884,
      determined using an option pricing model. The value was charged to additional
      paid in capital.


17




NOTE
      10
      -  INCOME
      TAXES




At
      June
      30, 2006, the Company had available Federal and state net operating loss
      carryforwards to reduce future taxable income. The amounts available were
      approximately $206,000,000 for Federal and for state purposes. The Federal
      carryforward expires in 2025 and the state carryforward expires in 2010. Given
      the Company’s history of net operating losses, management has determined that it
      is more likely than not that the Company will not be able to realize the tax
      benefit of the carryforwards.




Accordingly,
      the Company has not recognized a deferred tax asset for this benefit. Upon
      the
      attainment of taxable income by the Company, management will assess the
      likelihood of realizing the tax benefit associated with the use of the
      carryforwards will recognize a deferred tax asset at that time.




Significant
      components of the Company’s deferred income tax assets as of June 30, 2006 are
      as follows:




Deferred
                income tax asset:Net
                operating loss carryforward
            
            $
            6,800,000Valuation
                allowance
            
            
            (6,800,000
            )Net
                deferred income tax asset
            
            $
            -




For
      the
      six months ended June 30, 2006, management is evaluating the value of its
      carryforwards given the change of control which has occurred. Management does
      not believe the carrying value of the deferred tax asset will change materially
      from that presented above.




Reconciliation
      of the effective income tax rate to the U.S. statutory rate is as follows:


Six
                  monthsendedJune
                  302006
              
              2005Tax
                  expense at the U.S. statutory income tax
              
              
              (34.00
              )%
              
              (34.00
              )%Increase
                  in the valuation allowance
              
              
              34.00
              %
              
              34.00
              %Effective
                  tax rate
              
              
              —
              %
              
              —
              %




18




NOTE
      11
      COMMITMENTS AND CONTINGENCIES




Operating
      Lease




On
      June
      1, 2001, the Company signed an operating lease for office, research and
      development, and manufacturing space. The lease term is 60 months beginning
      June
      1, 2001. The lease provides for two 5-year renewal terms. On August 22, 2005,
      the original lease was amended to extend the lease term to May 2016 and includes
      on 5 year renewal term. The Company also leases a vehicle under an operating
      lease. The Company has made a substantial investment in leasehold improvements
      based upon its ability to renew its lease for the periods shown above. The
      table
      below includes an estimate for estimated renewals.




The
      future minimum lease commitments are as follows:




Year
                EndedDecember
                31
            
            Amount2006
            
            
            279,5442007
            
            
            304,9572008
            
            
            304,9572009
            
            
            304,9572010
            
            
            304,957Thereafter
            
            
            1,651,851Total
                minimum lease payments
            
            $
            3,151,223




Rent
      expense for the year ended December 31, 2005 was approximately $321,018. For
      the
      six months ended June 30, 2006, rent expense was $150,096
      (Unaudited).




During
      2005 and 2004, the Company subleased a portion of its leased office, research
      and development, and manufacturing space under three separate subleases. The
      three sublease terms were 24 months beginning January 8, 2003, a month-to-month
      beginning April 1, 2004, and a month-to-month that began in January 2002. The
      sublease which commenced January 8, 2003 has converted to a month-to-month
      lease
      beginning January 2006. Rental income for the years ended December 31, 2005
      and
      2004 was $88,452 and $72,831, respectively. Rental income for the six months
      ended June 30, 2006 was $35,340 (Unaudited). Rental income is included in other
      income.




Employee
      Benefit Plan




The
      Company established a defined contribution plan allowing eligible employee
      income deferrals as permitted by Section 401 (k) of the Internal Revenue Code
      effective January 1, 2002. This plan covers substantially all full-time
      employees after minimum service requirements are met. The Company contributes
      a
      percentage of participants’ cash contribution subject to certain limits.


Potential
        Forbearance Fee
  Pursuant
        to the terms of an Exchange Agreement with Finisar, we granted Finisar a
        royalty
        free, fully paid, nonexclusive license to all of our existing and future
        intellectual property (the "IP License"). Finisar has no right to grant
        sub-licenses (except to end users) or assign its rights prior to September
        2006.
        The Company may pay Finisar a forbearance fee of up to $1,500,000 (to be
        credited against the Termination Fee described hereinafter), to extend the
        restriction on sub-licensing or assignment by Finisar until September 2008.
        The
        Company may extinguish this license by paying Finisar a Termination Fee of
        $5,000,000 at any time prior to September 2006, $5,500,000 from September
        2006
        through September 2007 or $6,000,000 from September 2007 until September
        2008.
        In addition, the Company granted Finisar most favored nation pricing assurances
        with respect to all Company products. No assurance can be given that we will
        have adequate funds to repurchase the IP License prior to expiration of our
        repurchase rights. The existence of the IP License may impair our ability
        to
        realize the full value of our intellectual property assets. For example,
        we will
        not be able to enter into an exclusive license arrangement with any party
        as
        long as the IP License is outstanding. Finisar may potentially sell similar
        products at lower prices, thereby reducing our profit margin. Potential
        licensees may be expected to offer us less value for any nonexclusive rights
        as
        compared to the value we might realize if we were to grant exclusive rights.
        Moreover, the existence of the IP License may make it more difficult to enter
        into strategic business relationships with third parties.


19




NOTE
      12
      RECAPITALIZATION






As
          described in Note 1, the Company effected a recapitalization in which QPC
          became
          the accounting acquirer and QLI became the legal acquirer. As part of the
          share
          exchange agreement, the preferred stock holders of QPC converted their
          preferred
          stock into common stock of QLI at a ratio of one share of common stock
          for each
          share of preferred stock converted. In addition, certain of the stockholders
          of
          QPC Preferred stock series C elected to receive a common stock dividend
          in
          exchange for their vote in favor of the share exchange described in Note
          1.


The
          effect of the recapitalization on the previously recomputed preferred and
          common
          stock of QPC is as follows:




Preferred
            
            CommonA
            
            B
            
            CJanuary
                1, 2006
            
            
            3,172,203
            
            
            2,525,468
            
            
            1,597,975
            
            
            5,492,156Common
                stock dividend issued to preferred shareholders
            
            
            
            
            
            
            
            
            
            
            
            8,793,951Conversion
                of preferred stock to common stock
            
            
            (3,172,203
            )
            
            (2,525,468
            )
            
            (1,597,975
            )
            
            7,295,646Balance
                  January 1, 2006, as restated
            
            
            -
            
            
            -
            
            
            -
            
            
            21,581,753




NOTE
      13 EMBEDDED
      DERIVATIVE LIABILITY




During
      the six months ended June 30, 2006, the Company sold 572,526 units. Each unit
      consisted of 4 shares of common stock, for a total of 2,290,104 shares of common
      stock and one warrant for a total of 572,526 warrants. See Note 8. Theses
      warrants expire 18 months from May 12, 2006.





The
      warrants are classified as a liability under SFAS 133 and EITF 00-19 rather
      than
      equity because the stock subscription agreements have certain terms and
      conditions whereby the Company is required to issue additional shares to these
      stockholders equal to 1% of the shares sold in the offering for each 30 day
      period the Company is late in filing its registration statement with the United
      States Securities and Exchange Commission. The outstanding warrants are fair
      valued each reporting period and the derivative liability adjusted accordingly.
      At the dates of warrant issuance the estimated fair value was $211,835. At
      June
      30, 2006 the total fair value of the derivative liability was estimated to
      be
      $183,208. The net decrease of $28,626 in the derivative liability was recorded
      as income on derivative instruments in the consolidated statement of operations,
      included in other income.


20





Note
      14 -
      SUBSEQUENT EVENT




Subsequent
      to June 30, 2006, the Company sold 1,245,300 shares of common stock at $1.25
      per
      share for gross proceeds of $1,556,625 and net proceeds of $1,354,263.
      Brookstreet Securities received 249,060 warrants to purchase common stock of
      the
      Company at a price of $1.25 in connection with the underwriting subsequent
      to
      June 30, 2006.


21




**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




**FORWARD
      LOOKING STATEMENTS**




This
      report contains statements that involve expectations, plans or intentions (such
      as those relating to future business or financial results, new features or
      services, or management strategies). These statements are forward-looking and
      are subject to risks and uncertainties, so actual results may vary materially.
      You can identify these forward-looking statements by words such as may,” 
“should,”  “expect,”  “anticipate,”  “believe,”  
“estimate,”  “intend,”  “plan” and other similar expressions. You
      should consider our forward-looking statements in light of the risks discussed
      under the heading “Risk Factors That May Affect Results of Operations and
      Financial Condition” below, as well as our financial statements, related notes,
      and the other financial information appearing elsewhere in this report and
      our
      other filings with the Securities and Exchange Commission. *Our
      actual results could differ materially from those anticipated in these
      forward-looking statements as a result of certain factors, including but not
      limited to those set forth under “Risk factors” and elsewhere in this Form
      10QSB.* We
      assume
      no obligation to update any forward-looking statements.




** **Overview**




**Background**




Quintessence
        Photonics Corporation (“QPC”), a wholly owned subsidiary of QPC Lasers, Inc. has
        high power laser diode technology platforms that combine high beam quality
        and
        power with high efficiencies and low cost of manufacture that management
        believes are unmatched by competing laser technology. These platforms include
        a
“Surface Emitting Array” technology that permits fabrication of complete high
        power arrays on a single chip, novel processes for fabricating diodes that
        are
        intended to operate at 300% of the power of conventional chips without burning
        out, and laser diode designs that are intended to have ten times (10x)
        the brightness of conventional diode lasers. These technologies are
        protected by patents and by trade secrets, as appropriate.


We
      were
      incorporated in November 2000 by Jeffrey Ungar, Ph.D. and George Lintz, MBA
      (our
“Founders”). The Founders began as entrepreneurs in residence with DynaFund
      Ventures in Torrance, California and wrote the original business plan during
      their tenure at DynaFund Ventures from November 2000 to January 2001. The
      business plan drew on Dr. Ungar’s 17 years of experience in designing and
      manufacturing semiconductor lasers and Mr. Lintz’s 15 years of experience in
      finance and business; the primary objective was to build a state of the art
      wafer fabrication facility and hire a team of experts in the field of
      semiconductor laser design.




After
      operating as a private company for almost six years, on May 12, 2006 and June
      13, 2006, the shareholders of QPC entered into Share Exchange Agreements with
      QPC Lasers, Inc. (“QPCI”) in which all of the shareholders of QPC exchanged
      their shares, warrants and options for shares warrants and options of QPCI.
      QPCI
      was a public reporting company; and as a result of the exchange, QPC Lasers
      was
      the surviving entity and is now a public reporting company. Our predecessor
      public company was incorporated in August 31, 2004 as Planning Force, Inc.
      The
      term “Company” refers to QPC Lasers or QPC as the context requires.




With
      the
      proceeds of the initial financings, the Founders recruited three scientists
      who
      had previously worked for Dr. Ungar to form the core of our chip design team.
      We
      entered into a lease on an industrial building in Sylmar, California, and
      proceeded to customize the facility, outfitting it with a unique set of
      semiconductor growth and processing equipment.




The
      founders and initial investors believed that the potential laser diode
      technology that could be developed would be robust and our success would not
      be
      dependent on a single market. Our originally targeted market was fiber optic
      telecommunications. As it became clear within the first two years of operations
      that the telecommunication market was experiencing a slump, we investigated
      numerous markets that could benefit from our laser diode technology. The
      Founders and the Board of Directors selected high power laser manufacturing
      for
      applications in the materials processing industry because of its mature market
      size of over one billion dollars per year. Our market research determined that
      we would have compelling competitive advantages in the materials processing
      market, printing and medical markets, and that the burgeoning defense/homeland
      security laser market had significant areas of technology overlap with the
      industrial materials processing market.


22




In
      the
      first calendar quarter of 2003, we decided on a course to: (a) pursue the
      materials processing and defense/homeland securities market as long term target
      markets (with development of our Generation III products); (b) initiate a market
      presence by offering Generation I products which are in “form, fit and function”
the same as other available products, but with higher reliability; (c) develop
      Generation II products which are form and fit the same as other available
      products, but with *much
      higher functionality* ; and
      (d) use U.S. Government development funds to subsidize the development of our
      commercial products. We released our Generation I products in the second quarter
      of 2004, and released some of our Generation II products in the fourth quarter
      of 2005 through the second quarter of 2006. We expect to release some Generation
      III prototypes during Calendar Year 2007. Generation I and II products have
      been
      sold to customers in the medical, printing, and defense industries.




We
      have
      used government development funds to subsidize product development. We were
      awarded four Phase I “Small Business Innovation Research” contracts; three of
      them have progressed to Phase II contracts. In general, these contracts are
      cancelable and in some cases include multiple phases associated with meeting
      technical milestones. In the second quarter of 2006, we signed a sub-contract
      as
      part of a team working on a project for the Defense Advance Research Project
      Agency (“DARPA”). Our portion of the DARPA contract is $3.1 million which is to
      be performed in two phases over three years. This contract will fund development
      of semiconductor lasers to be used for Directed Energy Weapons; and the
      technology overlaps our development of lasers for the industrial materials
      processing markets. DARPA funds very advanced technology research and
      development that could be used in the future as part of defense systems for
      our
      country. Management believes that QPC’s contract award is very significant both
      because of its size and the validation of QPC as a resource for very advanced
      technology.




In
      the
      second quarter of 2006, QPC was also awarded a subcontract as part of a team
      working on a project for the United States Missile Defense Agency to develop
      lasers that emit mid-infrared wavelengths. Management believes that upon
      successful development of these diode lasers, the United States will be able
      to
      use them in defense of military and commercial aircraft, as part of a system
      for
      infrared countermeasures against heat seeking missiles. We also believe that
      they will bring us closer to creating a compact and affordable system for
      detection of biochemical agents in public places. The contract is a Phase III
      follow-on contract from an earlier contract that QPC completed which
      demonstrated the early phases of feasibility of our technology. Our portion
      of
      This Phase III contract is $800,000 and is to be performed over twelve months.




The
      United States Army Research Laboratory awarded us a Phase II development
      contract in the first quarter of 2006 and we began performing under this
      contract in the second quarter of 2006. The contract is a follow-on contract
      from an earlier contract with the same customer in which QPC demonstrated its
      ability to develop diode lasers that emit wavelengths that are safer to the
      human eye than conventional high power diode wavelengths. Management believes
      that upon successful completion of the diode laser project, these lasers will
      be
      used in both military and commercial systems to limit accidental damage to
      human
      eyes of system operators, friendly forces, and bystanders. The Army contract
      amount is $673,028 and is to be performed by March 2008.




In
      addition to U.S. Government funds, we have received development funds from
      U.S.
      prime defense contractors as well as a major foreign military contractor. The
      funds that we have received and expect to receive are for development that
      overlaps with our commercial development.




23




In
      the
      medical laser market, QPC has received production orders and new product
      development orders from a large medical laser manufacturer. Other medical
      equipment manufacturers have also ordered from us. In the industrial market,
      QPC
      has received a substantial order for development and production of optical
      sensing lasers.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the U.S. The
      preparation of these financial statements requires us to make estimates and
      judgments that affect the reported amounts of assets, liabilities, revenues
      and
      expenses for each period. The following represents a summary of our critical
      accounting policies, defined as those policies that we believe are the most
      important to the portrayal of our financial condition and results of operations
      and that require management's most difficult, subjective or complex judgments,
      often as a result of the need to make estimates about the effects of matters
      that are inherently uncertain.




Impairment
      of Long-Lived Assets




On
      January 1, 2002, the Company adopted the provisions of SFAS No. 144, *“Accounting
      for the Impairment or Disposal of Long-Lived Assets.”* SFAS No.
      144 addresses financial accounting and reporting for the disposal of long-lived
      assets and supersedes SFAS No. 121, *“Accounting
      for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
      of.* ”
The
      adoption of this statement did not have a material effect on the Company’s
      results of operations or financial condition.




Revenue
      Recognition




The
      majority of the Company’s revenues result from fixed-price contracts with U.S.
      government agencies. Revenues from fixed-price contracts are recognized under
      the percentage-of-completion method of accounting, generally based on costs
      incurred as a percentage of total estimated costs of individual contracts
      (“cost-to-cost method”). Revisions in contract revenue and cost estimates are
      reflected in the accounting period as they are identified. Provisions for the
      entire amount of estimated losses on uncompleted contracts are made in the
      period such losses are identified. No contracts were determined to be in an
      overall loss position at December 31, 2005 or June 30, 2006. At December 31,
      2005, there was no deferred revenue and approximately $10,774 of unbilled
      receivable related to these government contracts. At June 30, 2006 there was
      $12,024 (Unaudited) of deferred revenue and $115,086 (Unaudited) of as yet
      unbilled receivables related to these government  contracts. The
      Company recognizes revenues on product sales, other than fixed-price contracts
      after shipment of the product to the customer. Accounts receivable are reviewed
      for collectibility quarterly. When management determines a potential collection
      problem, a reserve will be established, based on management’s estimate of the
      potential bad debt. When management abandons all collection efforts it will
      write off the account and adjust the reserve accordingly.




Management
      Estimates




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




24




**Sales
      & Product Releases**




QPC
      signed its first government development contract in the second quarter of 2002
      and we shipped our first commercial product in the second quarter of 2004.
      We
      hired our first salesman in the fourth quarter of 2003, added a Director of
      Worldwide Sales in the third quarter of 2004 and a Senior Vice President of
      Marketing & Sales in the second quarter of 2005. Our Marketing and Sales
      Department is headed by Dr. Paul Rudy; he was recruited from a Director of
      Marketing position at Coherent Inc., the world’s largest publicly traded laser
      company. Dr. Rudy’s Ph.D. in physics and his eight years of sales and marketing
      experience uniquely qualified him to become head of sales and marketing. QPC’s
      Sales Department currently has three full time personnel and a network of
      worldwide representatives and distributors.




We
      currently have five personnel in our Sales and Marketing department, in addition
      to eight representative organizations in Europe and Asia. We currently have
      more
      than 25 customers. We are still in the qualification stage of the sales cycle
      with most of these customers. However, several customers have made repeat orders
      and one customer ordered and received production quantity and made repeat
      orders. We expect many of the customers in the qualification phase to turn
      into
      production quantity customers in the future. We have received “Non-recurring
      Engineering” funds, or “NRE” from several customers to develop custom products
      for them using our proprietary technology.




Total
      sales grew from $89,161 in 2002; to $229,079 in 2003; to $1,062,133 in 2004
      to
      $1,073,091 in 2005. Total sales for the first half of 2006 were $842,910.




During
      the second quarter of 2006, QPC was awarded new contracts totaling approximately
      $4.6 million, from which $2.3 million of revenue is expected in the next 12
      months This compares with the actual revenue of $325,000 for the 12 months
      following the contracts awarded in the same quarter of the prior year (second
      quarter 2005). Based on QPC’s total backlog, revenue for calendar year 2006 is
      expected to be in the range of $2 million to $3 million. This would represent
      a
      substantial increase over our 2005 revenues of $1.07 million. However, in
      accordance with standard business practices, contracts are cancelable and in
      some cases include multiple phases associated with meeting technical milestones.




In
      the
      second quarter of 2006, we also received orders from new and existing customers
      in the medical, industrial defense and homeland security markets. The contracts
      covered standard laser products, customized laser products, advanced hardware
      developments and technology studies. Government contract awards are seasonal
      with the second quarter being the busiest. Therefore, the government contracts
      we received in the second quarter of 2006 are likely to be the majority of
      the
      government contract awards that QPC will receive for the calendar year. QPC
      expects commercial contract awards in the second half of 2006 to be greater
      than
      government contract awards in the second half of 2006.




**QUARTER
      ENDED JUNE 30, 2006 COMPARED TO THE QUARTER ENDED JUNE 30,
      2005**




REVENUE.
      During the quarter ended June 30, 2005, QPC had revenue of $577,346 as compared
      to revenue of $263,118 during the quarter ended June 30, 2005, an increase
      of
      approximately 119%. This increase is attributable to an increase in both
      commercial sales and government contracts. We have expanded our sales and
      marketing resources and we have increased our product offerings. Additionally,
      we were awarded three government contracts during the period, on which we began
      to perform and bill.




COST
      OF
      REVENUE. Cost of revenue, which consists of direct labor, overhead and material
      costs, was $495,022 for the quarter ended June 30, 2006 as compared to $243,258
      for the quarter ended June 30, 2005.This increase is attributable to increased
      revenue from both commercial sales and government contracts.




25




GROSS
      PROFIT. Gross profit was $82,324 for the quarter ended June 30, 2006 as compared
      to $19,860 for the quarter ended June 30, 2005, representing gross margins
      of
      approximately 14% and 8%, respectively. Costs include non-recurring
      engineering expenses and hence the aforementioned margins are not representative
      of product shipment margins. The increase in our gross profits is attributable
      to increased efficiencies in our operations.




RESEARCH
      AND DEVELOPMENT COSTS. Research and development costs which consist of salaries,
      professional and technical support fees, material and overhead, totaled
      $1,134,986 for the quarter ended June 30, 2006, as compared to $1,293,161 for
      the quarter ended June 30, 205 a decrease of approximately 12%. The decrease
      in
      research and development costs is attributable to the shift from development
      to
      manufacturing for some of our mature products.




GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
      $1,510,035 for the quarter ended June 30, 2006, as compared to $578,977 for
      the
      quarter ended June 30, 2005, an increase of approximately 161%. Approximately
      $406,000 of this expense was a non-cash expense attributable to equity
      compensation given to investor relations consultants and the amortization of
      unearned compensation. Additionally, increased investor relations, legal and
      accounting costs are attributable to becoming a publicly traded company with
      increased compliance obligations and investor relations needs. We expect these
      categories of expenses to increase in future quarters, based on anticipated
      growth of the Company; however, we do not believe that the percentage increase
      will be as great in future quarters.




NET
      LOSS.
      QPC had a net loss of $3,127,904 for the quarter ended June 30, 2006 as compared
      to a net loss of $1,912,660 for the quarter ended June 30, 2005..$336,332 of
      the
      expenses in the quarter ended June 30, 2006 were one-time expenses attributed
      to
      the cost of the reverse merger transaction in which we became a public company.
      In addition, a non-cash expense of approximately $198,500 was included as
      expense associated with warrant issuance related to the related party note
      which
      was extended in January 2006 and repaid in April 2006 and amortization of loan
      discount. Also, a non-cash expense of approximately $36,000 of option expense
      was recorded this quarter.




**SIX
      MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
      2006**




REVENUE.
      During the six months ended June 30, 2006, the Company had revenue of $842,910
      as compared to revenue of $523,181during the six months ended June 30, 2005,
      an
      increase of approximately 61%. This increase is attributable to an increase
      in
      both commercial sales and government contract work which are a result of our
      expanded sales and marketing resources and our increase in released products.
      Additionally, we were awarded three government contracts for which we began
      to
      perform and bill.




COST
      OF
      REVENUE. Cost of revenue, which consists of direct labor, overhead and material
      costs, was $774,748 for the six months ended June 30, 2006 as compared to
      $428,234 for the six months ended June 30,2005. This increase is attributable
      to
      increased revenue from both commercial sales and government contracts




GROSS
        PROFIT. Gross profit was $68,162 for the six months ended June 30, 2006 as
        compared to $94,947 for the six months ended June 30, 2005, representing
        gross
        margins of approximately 8% and 18%, respectively. Costs include
        non-recurring engineering expenses and hence the aforementioned margins are
        not
        representative of product shipment margins The decrease in our gross profits
        is
        attributable to our increase in commercial sales relative to our government
        contracts. Since we have released new products, there are still inefficiencies
        in the manufacturing operations. These inefficiencies largely affect our
        commercial products rather than the government contracts. As our manufacturing
        operations mature, we expect to have increased efficiencies and better margins.


26




RESEARCH
      AND DEVELOPMENT COSTS. Research and development costs which consist of salaries,
      professional and technical support fees, material and overhead, totaled
      $2,258,778 for the six months ended June 30, 2006, as compared to $2,483,267
      for
      the six months ended June 30, 2005, a decrease of approximately 9%.




GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
      $2,888,464 the six months ended June 30, 2006, as compared to $1,117,620 for
      the
      six months ended June 30, 2005, an increase of approximately 158%. Approximately
      $406,000 of this expense was a non-cash expense attributable to equity
      compensation given to investor relations consultants and the amortization of
      unearned compensation. Additionally, increased investor relations, legal and
      accounting costs are attributable to becoming a publicly traded company with
      more compliance and investor relations issues. We expect these categories of
      expenses to increase in future periods, based on anticipated growth of the
      Company; however, we do not believe that the percentage increase will be as
      great in future periods.




NET
      LOSS.
      QPC had a net loss of $6,258,306 for the six months ended June 30, 2006 as
      compared to a net loss of $3,627,30 for the six months ended June 30, 2005.
      $336,332 of the expenses in the six months ended June 30, 2006 were one-time
      expenses attributed to the cost of the reverse merger transaction. In addition,
      approximately $718,000 was included as expense associated with warrant issuance
      related to the related party note which was extended in January 2006 and
      repaid in April 2006 and amortization of loan discount. Also, approximately
      $
      74,000 of option expense was recorded this six month period




**Liquidity
      and Capital Resources**




QPC
      lost
      $6,258,306 during the six months ended June 30, 2006 and has a cumulative
      deficit of $39,072,092 as of June 30, 2006. Our negative cash flow is currently
      in excess of $700,000 per month. We project the Company to have positive cash
      flow from operations no sooner than the last quarter of 2007. Our cash balance
      at June 30, 2006 is $5,802,838.




Current
      resources and sales projections require us to raise an estimated $3 to $5
      million of additional capital for use in the next 12 to 18 months for operating
      capital. Depending on market conditions, and cash needs, we expect to raise
      this
      additional capital in the twelve months by means of a private placement or
      other
      financing vehicle.




We
      may
      require additional funds if we chose to pay a termination fee or forbearance
      fee
      to Finisar Corporation pursuant to our licensing agreement with them.
      I n
      2003,
      we granted Finisar a royalty free, fully paid, nonexclusive license to all
      of
      our existing and future intellectual property (the "IP License"). Finisar has
      no
      right to grant sub-licenses (except to end users) or assign its rights prior
      to
      September 2006. The Company may pay Finisar a forbearance fee of up to
      $1,500,000 (to be credited against the termination fee) to extend the
      restriction on sub-licensing or assignment by Finisar for two years or until
      September 2008. The Company may extinguish this license by paying Finisar a
      termination fee of $5,000,000 at any time prior to September 2006, $5,500,000
      from September 2006 through September 2007 or $6,000,000 from September 2007
      until September 2008. The
      minimum amount of the forbearance fee according to the contract is
      $750,000.




In
      addition to raising capital through private placements, we are exploring the
      possibility of engaging a corporate investor whose business areas can
      potentially leverage QPC’s technology and products. A strategic investor may be
      granted a favorable business arrangement, such as an exclusive license in a
      certain area of business as an inducement to make an investment in QPC. We
      believe that there are potential strategic investors who could leverage QPC’s
      technology to increase their own sales and contracts to much larger volumes
      than
      QPC could attain directly in the near to intermediate term.




We
      cannot
      assure you that the additional financing we need (public or private) will be
      available on acceptable terms or at all. If we issue additional equity
      securities to raise funds, the ownership percentage of our existing stockholders
      would be reduced. New investors may demand rights, preferences or privileges
      senior to those of existing holders of common stock. If we cannot raise any
      needed funds, we might be forced to make further substantial reductions in
      our
      operating expenses, which could adversely affect our ability to implement our
      current business plan and ultimately our viability as a company.




27




Our
      financial statements have been prepared assuming that the Company will continue
      as a going concern. The factors described above raise substantial doubt about
      our ability to continue as a going concern. Our financial statements do not
      include any adjustments that might result from this uncertainty. Our independent
      registered public accounting firm has included in their audit report for fiscal
      2005 an explanatory paragraph expressing doubt about our ability to continue
      as
      a going concern.




Financing
      History




We
      secured our first round of equity financing in August 2001, led by Finisar
      Corporation (NASDAQ: FNSR), a telecommunications component manufacturer,
      headquartered in Sunnyvale, California. Finisar invested $5 million and DynaFund
      Ventures invested $2 million in our preferred stock. Other investors, including
      small funds and individuals, invested $2.03 million in the first round of
      financing.




In
      addition to Finisar’s equity investment, they made a five-year term loan to us
      for $7 million, closing in two tranches between August 2001 and January 2002.
      The total investment of Finisar was $12 million including the preferred equity
      and debt. The total equity and debt capital invested in our company, as of
      January 2002, was $16 million.




In
      the
      third quarter of 2003, we raised a second round of equity financing. Finisar
      converted the $5 million remaining principal balance on their term loan into
      our
      Series B Preferred Stock and we raised an additional $2.8 million in new cash.
      Three of the five members of the Board of Directors at that time, founders
      Dr.
      Ungar and Mr. Lintz and independent director, Dr. Israel Ury, each purchased
      preferred stock in the Series B round of financing.




In
      the
      second quarter of 2004, we entered into a senior secured two-year note
      transaction with various investors and raised $3.25 million. In the second
      quarter of 2005, approximately $2.1 million of the $2.4 million outstanding
      balance was extended for an additional year. The largest participant in the
      note
      transaction, investing $2.5 million, was Envision Partners of which QPC’s Chief
      Financial Officer, Mr. Lintz, is a 50% partner. As of June 30, 2006 the
      outstanding principal balance of the senior secured note was $2,342,686. 
2,433,609 of warrants were issued in connection with this financing. In
      addition, 804,000 warrants were issued in connection with the
      extension.




From
      the
      fourth quarter of 2004 through the first quarter of 2005, we raised $5.9 million
      in a third round of equity financing. Investors who participated in this round
      were approximately sixty high net worth individuals.




In
      third
      quarter 2005, we raised $215,500 through a sale of our common stock to eight
      high net worth individuals.




In
      the
      third quarter of 2005 we entered into a subordinated secured note with various
      investors for $1,280,000. As of June 30, 2006 the outstanding principal balance
      was $1,280,000. 320,000 warrants were issued in connection with this
      financing.




In
      November 2005, we raised $500,000 pursuant to a 10% secured note financing
      with
      Jeffrey Ungar, our Chief Executive Officer, and George Lintz, our Chief
      Financial Officer. Pursuant to these bridge notes, we issued these lenders
      warrants to purchase 320,000 shares of common stock at $1.25 per share (“Bridge
      Warrants”). In connection with extensions of the maturity date of these bridge
      notes from January 2006 to April 2006, we granted 900,000 additional Bridge
      Warrants to these lenders. The bridge notes were paid in full as of April 25,
      2006.




28




In
      January 2006, through a private placement offering, referred to as the
      Brookstreet Tranche I offering, we raised $2,862,630 from the sale of 572,526
      units of our securities, each unit consisting of four shares of common stock
      and
      one warrant to purchase one share of common stock at $1.50 per share (for a
      total of 2,290,104 shares of common stock and 572,526 warrants).




In
      a
      series of private placement closings between March 31, 2006 and June 30, 2006,
      referred to as the Brookstreet Tranche II offering, we raised $10,239,125 from
      the sale of 8,191,300 shares of common stock at a price of $1.25 per share. Subsequent
      to June 30, 2006, the Company sold an additional 1,245,300 shares of common
      stock at $1.25 per share as part of this Offering for gross proceeds of
      $1,556,625 and proceeds net of underwriting fees of $1,354,263. In addition,
      the
      Company issued 2,347,140 warrants to Brookstreet Securities as of June 30,
      2006
      in connection with the underwriting. Subsequent to June 30, 2006 the Company
      issued 249,060 warrants to Brookstreet Securities in connection with the
      underwriting.




Capital
      Expenditures




From
      January 1, 2006 to June 30, 2006 we spent approximately $77,000 on manufacturing
      equipment, computer equipment and software, furniture and cubicles. We expect
      our capital expenditures to increase significantly in the second half of 2006
      based on growth of our operations,and increased orders and personnel. We are
      considering expanding our manufacturing area by up to 10,000 square feet. Our
      facility has warehouse space that is contiguous to our present manufacturing
      area that we are considering using for the manufacturing area expansion. We
      expect that expansion, should we choose to proceed to cost in the range of
      $1
      million to $2 million.




Recent
      Accounting Pronouncements




In
      June 2005, the FASB issued SFAS 154, “Accounting Changes and Error
      Corrections,” a replacement of existing accounting pronouncements. SFAS 154
      modifies accounting and reporting requirements when a company voluntarily
      chooses to change an accounting principle or correct an accounting error. SFAS
      154 requires retroactive restatement of prior period financial statements unless
      it is impractical. Previous accounting guidelines allowed recognition by
      cumulative effect in the period of the accounting change. SFAS 154 is effective
      for accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005.




In
      February 2006, the FASB issued SFAS 155 Accounting for Certain Hybrid Financial
      Instruments, an amendment of SFAS 133 and 140. These SFAS’s deal with derivative
      and hedging activities and accounting for transfers and servicing of financial
      instruments and extinguishment of liabilities. FAS 155 is effective for all
      financial instruments acquired or issued in an entity’s first fiscal year
      beginning after September 15, 2006. The Company does not engage in the
      activities described in these SFAS’s and does not have any intention of engaging
      in those activities when SFAS 155 becomes effective. The Company has evaluated
      the impact of the adoption of SFAS 155, and does not believe the impact will
      be
      significant to the Company's overall results of operations or financial
      position.




**RISK
      FACTORS—**




***FACTORS
      THT MAY AFFECT FUTURE PERFORMANCE***




You
      should carefully consider the following risk factors, the other information
      included herein and the information included in our other reports and
      filings.  Our business, financial condition, and the trading price of our
      common stock could be adversely affected by these and other risks.




29




RISKS
      OF THE BUSINESS




**Because
      we are not profitable and expect to incur additional losses, we may require
      additional financing to sustain our operations and without it we may not be
      able
      to continue operations.** At June
      30, 2006, we had cash on hand of $5,802,838. Through June 30, 2006, our
      cumulative losses of approximately $39,072,092 million. We have never earned
      a
      profit and we anticipate that we will continue to incur losses for at least
      the
      next 12 to 18 months. We continue to operate on a negative cash flow basis.
      Our
      independent accountants have issued a going concern qualification in their
      report on our financial statements as of and for the period ending December
      31,
      2005. We believe that we will need to raise at least an additional $3,000,000
      in
      financing in order to have sufficient financial resources to fund our operations
      for the next 12 months because we are running a cash flow deficit. We may need
      additional funds to continue our operations, and such additional funds may
      not
      be available when required.




To
      date,
      we have financed our operations through the sale of stock and certain
      borrowings. We expect to continue to depend upon outside financing to sustain
      our operations for at least the next 12 months. Our ability to arrange financing
      from third parties will depend upon our perceived performance and market
      conditions. Our inability to raise additional working capital at all or to
      raise
      it in a timely manner would negatively impact our ability to fund our
      operations, to generate revenues, and to otherwise execute our business plan,
      leading to the reduction or suspension of our operations and ultimately forcing
      us to go out of business.




**We
      have no committed sources of additional capital.** For the
      foreseeable future, we intend to fund our operations and capital expenditures
      from limited cash flow from operations, our cash on hand and the net proceeds
      from equity financings. If our capital resources are insufficient, we will
      have
      to raise additional funds. We may need additional funds to continue our
      operations, pursue business opportunities (such as expansion, acquisitions
      of
      complementary businesses or the development of new products or services), to
      react to unforeseen difficulties or to respond to competitive pressures. We
      cannot assure you that any financing arrangements will be available in amounts
      or on terms acceptable to us, if at all. If additional financing is not
      available when required or is not available on acceptable terms, we may be
      unable to fund our expansion, successfully promote our current products, license
      new products or enhance our products and services, take advantage of business
      opportunities, or respond to competitive pressures, any of which could have
      a
      material adverse effect on our business and the value of our common stock.
      If we
      choose to raise additional funds through the issuance of equity securities,
      this
      may cause significant dilution of our common stock, and holders of the
      additional equity securities may have rights senior to those of the holders
      of
      our common stock. If we obtain additional financing by issuing debt securities,
      the terms of these securities could restrict or prevent us from paying dividends
      and could limit our flexibility in making business decisions.




**We
      are an early stage company with a limited operating history no significant
      revenues** *.* We
      were
      formed in November 2000. Since that time, we have engaged in the formulation
      of
      a business strategy and the design and development of technologically advanced
      products. We have recorded limited revenues from various government-funded
      research programs, and we have generated only limited revenues from the sale
      of
      products. Our ability to implement a successful business plan remains unproven
      and no assurance can be given that we will ever generate sufficient revenues
      to
      sustain our business.




**We
      do not have sufficient revenues to service our debt.** As
      of
      June 30, 2006, we had $2,845,906 of
      debt
      secured by our fixed assets and intellectual property. The debt accrues interest
      at a rate of 10% per annum and requires monthly payments until June 25, 2007.
      Additional debt accrues interest at a rate of 10% per annum and requires monthly
      payments until September 30, 2008, and may be extended at the option of the
      lenders under certain conditions.




**We
      have only limited proven commercial products** .
      We are
      currently engaged in the design and development of laser diode products for
      certain industrial and defense applications. Our most advanced technologies,
      including without limitation, our “Generation III” products, are in the design
      or prototype stage. These technologies may not be commercially viable for at
      least one year, more specifically, we expect to ship prototypes of our
      Generation III products in the calendar year 2007, if they ever become viable
      at
      all. We have received only a limited number of purchase orders for our products
      and we only have a limited number of contractual arrangements to sell our
      products. The process of qualifying laser diodes for purchase by commercial
      or
      defense customers is lengthy and unpredictable. No assurance can be given that
      any of our products will achieve commercial success.




30




**We
      are dependent on our customers and vulnerable to their sales and production
      cycles** .
      For the
      most part, we do not sell end-user products. We sell laser components that
      are
      incorporated by our customers into their products. Therefore, we are vulnerable
      to our customers’ prosperity and sales growth. Failure of our customers to sell
      their products will ultimately hurt their demand for our products, and thus,
      have a material adverse effect on our revenues.




**Unusually
      long sales cycles may cause us to incur significant expenses without offsetting
      revenue** .
      Customers often view the purchase of our products as a significant and strategic
      decision. Accordingly, customers typically expend significant effort in
      evaluating and testing our products before making a decision to purchase them,
      resulting in a long sales cycle, While our customers are evaluating our products
      and before they place an order, we may incur substantial expenses for sales
      and
      marketing and research and development to customize our products to the
      customer's needs. Even after evaluation, a potential customer may not purchase
      our products. As a result, these long sales cycles may cause us to incur
      significant expenses without ever receiving revenue to offset those
      expenses.




**The
      markets for our products are subject to continuing change that may impair our
      ability to successfully sell our products** .
      The
      markets for laser diode products are volatile and subject to continuing change.
      For example, since 2001, the market for telecommunications and data
      communications products has been severely depressed while a more robust market
      for defense and homeland security applications has developed during the past
      year and a half. We must continuously adjust our marketing strategy to address
      the changing state of the markets for laser diode products, we may not be able
      to anticipate changes in the market and, as a result, our product strategies
      may
      be unsuccessful.




**Our
      products may become obsolete if we are unable to stay abreast of technological
      developments** .
      The
      photonics industry is characterized by rapid and continuous technological
      development if we are unable to stay abreast of such developments, our products
      may become obsolete. We lack the substantial research and development resources
      of some of our competitors. This may limit our ability to remain technologically
      competitive.




**We
      are dependent for our success on a few key executive officers. Our inability
      to
      retain those officers would impede our business plan and growth strategies,
      which would have a negative impact on our business and the value of your
      investment.** Our
      success depends on the skills, experience and performance of key members of
      our
      management team. We are heavily dependent on the continued services of Jeffrey
      Ungar, our Chief Executive Officer, George Lintz, our Chief Financial Officer
      and Chief Operating Officer, , Tim Franey, our Vice President of Manufacturing
      and Paul Rudy, our Senior Vice President of Marketing and Sales. We do not
      have
      long-term employment agreements with any of the members of our senior management
      team. Each of those individuals without long-term employment agreements may
      voluntarily terminate his employment with the Company at any time upon short
      notice. Were we to lose one or more of these key executive officers, we would
      be
      forced to expend significant time and money in the pursuit of a replacement,
      which would result in both a delay in the implementation of our business plan
      and the diversion of limited working capital. We can give you no assurance
      that
      we can find satisfactory replacements for these key executive officers at all,
      or on terms that are not unduly expensive or burdensome to our company. We
      maintain $8.0 million and $2.0 million key man insurance policies on Mr. Ungar
      and Mr. Lintz, respectively. Although we intend to issue stock options or other
      equity-based compensation to attract and retain employees, such incentives
      may
      not be sufficient to attract and retain key personnel.




**We
      are also dependent for our success on our ability to attract and retain
      technical personnel, sales and marketing personnel and other skilled management.** Our
      success depends to a significant degree upon our ability to attract, retain
      and
      motivate highly skilled and qualified personnel. Failure to attract and retain
      necessary technical
      personnel, sales and marketing personnel and skilled management could adversely
      affect our business. If we fail to attract, train and retain sufficient numbers
      of these highly qualified people, our prospects, business, financial condition
      and results of operations will be materially and adversely affected.




31




**Our
      business is dependent upon proprietary intellectual property
      rights** .
      We have
      employed proprietary information to design our products. We seek to protect
      our
      intellectual property rights through a combination of patent filings, trademark
      registrations, confidentiality agreements and inventions agreements. However,
      no
      assurance can be given that such measures will be sufficient to protect our
      intellectual property rights. If we cannot protect our rights, we may lose
      our
      competitive advantage. Moreover, if it is determined that our products infringe
      on the intellectual property rights of third parties, we may be prevented from
      marketing our products.




**The
      grant to Finisar of a nonexclusive license to our intellectual property rights
      may impair our ability to realize the full value of our intellectual property
      assets.** Pursuant
      to the terms of an Exchange Agreement with Finisar, we granted Finisar a royalty
      free, fully paid, nonexclusive license to all of our existing and future
      intellectual property (the "IP License"). Finisar has no right to grant
      sub-licenses (except to end users) or assign its rights prior to September
      2006.
      The Company may pay Finisar a forbearance fee of up to $1,500,000 (to be
      credited against the Termination Fee described hereinafter), to extend the
      restriction on sub-licensing or assignment by Finisar until September 2008.
      The
      Company may extinguish this license by paying Finisar a Termination Fee of
      $5,000,000 at any time prior to September 2006, $5,500,000 from September 2006
      through September 2007 or $6,000,000 from September 2007 until September 2008.
      In addition, the Company granted Finisar most favored nation pricing assurances
      with respect to all Company products. No assurance can be given that we will
      have adequate funds to repurchase the IP License prior to expiration of our
      repurchase rights. The existence of the IP License may impair our ability to
      realize the full value of our intellectual property assets. For example, we
      will
      not be able to enter into an exclusive license arrangement with any party as
      long as the IP License is outstanding. Finisar may potentially sell similar
      products at lower prices, thereby reducing our profit margin. Potential
      licensees may be expected to offer us less value for any nonexclusive rights
      as
      compared to the value we might realize if we were to grant exclusive rights.
      Moreover, the existence of the IP License may make it more difficult to enter
      into strategic business relationships with third parties.




**We
      currently rely on R&D Contracts with the U.S.
      Government** .
      Currently, a significant part of our near term revenue is expected to be derived
      from research contracts from the U.S. Government. Changes in the priorities
      of
      the U.S. Government may affect the level of funding of programs. Changes in
      priorities of government spending may diminish interest in sponsoring research
      programs in our area of expertise.




**We
      may incur debt or issue preferred stock in the future** .
      In
      order to purchase equipment, terminate the Finisar License Agreement or fund
      operations, QPC may issue additional debt instruments or preferred stock which
      will have a senior claim on the assets of QPC in the event of a sale of assets.
      Debt service may cause strain on cash flow and impair business
      operations.




**We
      face intense competition, including competition from companies with
      significantly greater resources than ours, and if we are unable to compete
      effectively with these companies, our market share may decline and our business
      could be harmed.** The
      laser
      industry is highly competitive with numerous competitors from well-established
      manufacturers to innovative start-ups. A number of our competitors have
      significantly greater financial, technological, engineering, manufacturing,
      marketing and distribution resources than we do. Their greater capabilities
      in
      these areas may enable them to compete more effectively on the basis of price
      and production and more quickly develop new products and technologies. In
      addition, new companies may enter the markets in which we compete, further
      increasing competition in the laser industry. For instance, larger companies
      such as Northrop Grumman and BAE Systems are currently developing laser
      technology to protect airliners from portable rocket launchers. We believe
      that
      our ability to compete successfully depends on a number of factors, including
      our innovative and advanced R & D department, strength of our intellectual
      property rights, and advanced manufacturing facility are the most important
      competitive factors and we plan to employ these elements as we develop our
      products and technologies, but there are many other factors beyond our control.
      We may not be able to compete successfully in the future, and increased
      competition may result in price reductions, reduced profit margins, loss of
      market share and an inability to generate cash flows that are sufficient to
      maintain or expand our development and marketing of new products, which would
      adversely impact the trading price of our common shares.




32




**If
      our facilities were to experience catastrophic loss, our operations would be
      seriously harmed.** Our
      facilities could be subject to a catastrophic loss from fire, flood, earthquake
      or terrorist activity. All of our research and development activities,
      manufacturing, our corporate headquarters and other critical business operations
      are located near major earthquake faults in Sylmar, California, an area with
      a
      history of seismic events. Any such loss at this facility could disrupt our
      operations, delay production, and revenue and result in large expenses to repair
      or replace the facility. While we have obtained insurance to cover most
      potential losses, we cannot assure you that our existing insurance coverage
      will
      be adequate against all other possible losses.




**The
      relative lack of public company experience of our management team may put us
      at
      a competitive disadvantage.** Our
      management team lacks public company experience, which could impair our ability
      to comply with legal and regulatory requirements such as those imposed by
      Sarbanes-Oxley Act of 2002. The individuals who now constitute our senior
      management have never had responsibility for managing a publicly traded company.
      Such responsibilities include complying with Federal securities laws and making
      required disclosures on a timely basis. Our senior management may not be able
      to
      implement and affect programs and policies in an effective and timely manner
      that adequately respond to such increased legal, regulatory compliance and
      reporting requirements. Our failure to do so could lead to the imposition of
      fines and penalties and further result in the deterioration of our
      business.




**New
      rules, including those contained in and issued under the Sarbanes-Oxley Act
      of
      2002, may make it difficult for us to retain or attract qualified officers
      and
      directors, which could adversely affect the management of our business and
      our
      ability to obtain or retain listing of our common stock.** We
      may be
      unable to attract and retain qualified officers, directors and members of board
      committees required to provide for our effective management as a result of
      the
      recent and currently proposed changes in the rules and regulations which govern
      publicly-held companies, including, but not limited to, certifications from
      executive officers and requirements for financial experts on the board of
      directors. The perceived increased personal risk associated with these recent
      changes may deter qualified individuals from accepting these roles. The
      enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of
      a
      series of new rules and regulations and the strengthening of existing rules
      and
      regulations by the SEC. Further, certain of these recent and proposed changes
      heighten the requirements for board or committee membership, particularly with
      respect to an individual’s independence from the corporation and level of
      experience in finance and accounting matters. We may have difficulty attracting
      and retaining directors with the requisite qualifications. If we are unable
      to
      attract and retain qualified officers and directors, the management of our
      business could be adversely affected.




**Our
      internal controls over financial reporting may not be effective, and our
      independent auditors may not be able to certify as to their effectiveness,
      which
      could have a significant and adverse effect on our business.** We
      are
      subject to various regulatory requirements, including the Sarbanes-Oxley Act
      of
      2002. We, like all other public companies, must incur additional expenses and,
      to a lesser extent, diversion of our management’s time in our efforts to comply
      with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal
      controls over financial reporting. We have not evaluated our internal controls
      over financial reporting in order to allow management to report on, and our
      independent auditors to attest to, our internal controls over financial
      reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and
      the rules and regulations of the SEC, which we collectively refer to as
      Section 404. We have never performed the system and process evaluation and
      testing required in an effort to comply with the management assessment and
      auditor certification requirements of Section 404, which will initially
      apply to us as of December 31, 2006. Our lack of familiarity with Section
      404 may unduly divert management’s time and resources in executing the business
      plan. If, in the future, management identifies one or more material weaknesses,
      or our external auditors are unable to attest that our management’s report is
      fairly stated or to express an opinion on the effectiveness of our internal
      controls, this could result in a loss of investor confidence in our financial
      reports, have an adverse effect on our stock price and/or subject us to
      sanctions or investigation by regulatory authorities.




33




**If
      we are unable to obtain adequate insurance, our financial condition could be
      adversely affected in the event of uninsured or inadequately insured loss or
      damage. Our ability to effectively recruit and retain qualified officers and
      directors could also be adversely affected if we experience difficulty in
      obtaining adequate directors’ and officers’ liability insurance.** Although
      we currently have property insurance, liability insurance, and employment
      practices liability insurance, we may not be able to obtain all insurance
      policies that would adequately insure our business and property against damage,
      loss or claims by third parties. To the extent our business or property suffers
      any damages, losses or claims by third parties, which are not covered or
      adequately covered by insurance, our financial condition may be materially
      adversely affected. We may be unable to maintain sufficient insurance as a
      public company to cover liability claims made against our officers and
      directors. If we are unable to adequately insure our officers and directors,
      we
      may not be able to retain or recruit qualified officers and directors to manage
      the Company.




**Economic,
      political, military or other events in the United States could interfere with
      our success or operations and harm our business.** We
      market
      and sell our products and services in the United States and abroad. The
      September 11, 2001 terrorist attacks disrupted commerce throughout the
      United States and other parts of the world. The continued threat of similar
      attacks throughout the world and the military action, or possible military
      action, taken by the United States and other nations, in Iraq or other countries
      may cause significant disruption to commerce throughout the world. To the extent
      that such disruptions further slow the global economy or, more particularly,
      result in delays or cancellations of purchase orders for our products or extends
      the sales cycles with potential customers, our business and results of
      operations could be materially adversely affected. We are unable to predict
      whether the threat of new attacks or the responses thereto will result in any
      long-term commercial disruptions or if such activities or responses will have
      a
      long-term material adverse effect on our business, results of operations or
      financial condition.




MARKET
      RISKS.




**Our
      common stock may be thinly traded, so you may be unable to sell at or near
      ask
      prices or at all if you need to sell your shares to raise money or otherwise
      desire to liquidate your shares.** Prior
      to
      the Share Exchange in May 2006, QPC’s shares were not publicly traded. Through
      this Share Exchange, QPC has essentially become public without the typical
      initial public offering procedures which usually include a large selling group
      of broker-dealers who may provide market support after going public. Thus,
      we
      will be required to undertake efforts to develop market recognition for us
      and
      support for our shares of common stock in the public market. The price and
      volume for our common stock that will develop after the Share Exchange cannot
      be
      assured. The number of persons interested in purchasing our common stock at
      or
      near ask prices at any given time may be relatively small or non-existent.
      This
      situation may be attributable to a number of factors, including the fact that
      we
      are a small company which is relatively unknown to stock analysts, stock
      brokers, institutional investors and others in the investment community that
      generate or influence sales volume, and that even if we came to the attention
      of
      such persons, they tend to be risk-averse and would be reluctant to follow
      an
      unproven company such as ours or purchase or recommend the purchase of our
      shares until such time as we became more seasoned and viable. As a consequence,
      there may be periods of several days, weeks, months, or more when trading
      activity in our shares is minimal or non-existent, as compared to a seasoned
      issuer which has a large and steady volume of trading activity that will
      generally support continuous sales without an adverse effect on share price.
      We
      cannot give you any assurance that a broader or more active public trading
      market for our common stock will develop or be sustained. While we are trading
      on the OTC Bulletin Board, the trading volume we will develop may be limited
      by
      the fact that many major institutional investment funds, including mutual funds,
      as well as individual investors follow a policy of not investing in Bulletin
      Board stocks and certain major brokerage firms restrict their brokers from
      recommending Bulletin Board stocks because they are considered speculative,
      volatile and thinly traded.




34




**The
      application of the “penny stock” rules to our common stock could limit the
      trading and liquidity of the Common Stock, adversely affect the market price
      of
      our common stock and increase your transaction costs to sell those shares.** As
      long
      as the trading price of our common stock is below $5 per share, the open-market
      trading of our common stock will be subject to the “penny stock” rules, unless
      we otherwise qualify for an exemption from the “penny stock” definition. The
“penny stock” rules impose additional sales practice requirements on certain
      broker-dealers who sell securities to persons other than established customers
      and accredited investors (generally those with assets in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 together with their spouse). These
      regulations, if they apply, require the delivery, prior to any transaction
      involving a penny stock, of a disclosure schedule explaining the penny stock
      market and the associated risks. Under these regulations, certain brokers who
      recommend such securities to persons other than established customers or certain
      accredited investors must make a special written suitability determination
      regarding such a purchaser and receive such purchaser’s written agreement to a
      transaction prior to sale. These regulations may have the effect of limiting
      the
      trading activity of our common stock, reducing the liquidity of an investment
      in
      our common stock and increasing the transaction costs for sales and purchases
      of
      our common stock as compared to other securities.




**The
      market price for our common stock may be particularly volatile given our status
      as a relatively unknown company with a small and thinly traded public float,
      limited operating history and lack of profits which could lead to wide
      fluctuations in our share price.** The
      market for our common stock may be characterized by significant price volatility
      when compared to seasoned issuers, and we expect that our share price could
      continue to be more volatile than a seasoned issuer for the indefinite future.
      The potential volatility in our share price is attributable to a number of
      factors. First, as noted above, our shares of common stock may be sporadically
      and thinly traded. As a consequence of this lack of liquidity, the trading
      of
      relatively small quantities of shares by our stockholders may disproportionately
      influence the price of those shares in either direction. The price for our
      shares could, for example, decline precipitously in the event that a large
      number of our shares of common stock are sold on the market without commensurate
      demand, as compared to a seasoned issuer which could better absorb those sales
      without adverse impact on its share price. Second, we are a speculative or
      “risky” investment due to our limited operating history and lack of profits to
      date, and uncertainty of future market acceptance for our potential products.
      As
      a consequence of this enhanced risk, more risk averse investors may, under
      the
      fear of losing all or most of their investment in the event of negative news
      or
      lack of progress, be more inclined to sell their shares on the market more
      quickly and at greater discounts than would be the case with the stock of a
      seasoned issuer. Many of these factors will be beyond our control and may
      decrease the market price of our common shares, regardless of our operating
      performance. We cannot make any predictions or projections as to what the
      prevailing market price for our common stock will be at any time.




In
      addition, the market price of our common stock could be subject to wide
      fluctuations in response to:




·
            quarterly
                variations in our revenues and operating expenses;


·
            announcements
                of new products or services by us;


·
            fluctuations
                in interest rates;


·
            significant
                sales of our common stock, including “short”
                sales;


·
            the
                operating and stock price performance of other companies that investors
                may deem comparable to us; and


·
            news
                reports relating to trends in our markets or general economic
                conditions.




The
      stock
      market in general, and the market prices for penny stock companies in
      particular, have experienced volatility that often has been unrelated to the
      operating performance of such companies. These broad market and industry
      fluctuations may adversely affect the price of our stock, regardless of our
      operating performance.




35




Stockholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the volatility of our share price.




**Limitations
      on director and officer liability and indemnification of our officers and
      directors by us may discourage stockholders from bringing suit against a
      director.** QLI’s
      articles of incorporation and bylaws provide, with certain exceptions as
      permitted by governing state law, that a director or officer shall not be
      personally liable to us or our stockholders for breach of fiduciary duty as
      a
      director, except for acts or omissions which involve intentional misconduct,
      fraud or knowing violation of law, or unlawful payments of dividends. These
      provisions may discourage stockholders from bringing suit against a director
      for
      breach of fiduciary duty and may reduce the likelihood of derivative litigation
      brought by stockholders on our behalf against a director. In addition, QLI’s
      articles of incorporation and bylaws may provide for mandatory indemnification
      of directors and officers to the fullest extent permitted by governing state
      law.




**We
      do not expect to pay dividends for the foreseeable future, and we may never
      pay
      dividends** .
      We
      currently intend to retain any future earnings to support the development and
      expansion of our business and do not anticipate paying cash dividends in the
      foreseeable future. Our payment of any future dividends will be at the
      discretion of our board of directors after taking into account various factors,
      including but not limited to our financial condition, operating results, cash
      needs, growth plans and the terms of any credit agreements that we may be a
      party to at the time. In addition, our ability to pay dividends on our common
      stock may be limited by state law. Accordingly, investors must rely on sales
      of
      their Common Stock after price appreciation, which may never occur, as the
      only
      way to realize their investment.




**Our
      operating results may fluctuate significantly, and these fluctuations may cause
      our common stock price to fall.** Our
      quarterly operating results may fluctuate significantly in the future due to
      a
      variety of factors that could affect our revenues or our expenses in any
      particular quarter. You should not rely on quarter-to-quarter comparisons of
      our
      results of operations as an indication of future performance. Factors that
      may
      affect our quarterly results include:




·
            market
                acceptance of our products and technologies and those of our
                competitors;


·
            speed
                of commercialization of our early stage, state-of-the-art designs
                and
                developments;


·
            our
                ability to attract and retain key personnel;
                and


·
            our
                ability to manage our anticipated growth and
                expansion.




**Our
      executive officers, directors and insider stockholders own or control at least
      45% of our outstanding common stock, which may limit your ability and the
      ability of our other stockholders, whether acting alone or together, to propose
      or direct the management or overall direction of our Company. Additionally,
      this
      concentration of ownership could discourage or prevent a potential takeover
      of
      our Company that might otherwise result in you receiving a premium over the
      market price for your Shares.** We
      estimate that approximately 45% of our outstanding shares of common stock is
      owned and controlled by a group of insiders, including our directors and
      executive officers. Such concentrated control of the Company may adversely
      affect the price of our common stock. Our principal stockholders may be able
      to
      control matters requiring approval by our stockholders, including the election
      of directors, mergers or other business combinations. Such concentrated control
      may also make it difficult for our stockholders to receive a premium for their
      shares of our common stock in the event we merge with a third party or enter
      into different transactions which require stockholder approval. These provisions
      could also limit the price that investors might be willing to pay in the future
      for shares of our common stock. In addition, certain provisions of Nevada law
      could have the effect of making it more difficult or more expensive for a third
      party to acquire, or of discouraging a third party from attempting to acquire,
      control of us. Accordingly, the existing principal stockholders together with our
      directors and executive officers will
      have the power to control the election of our directors and the approval of
      actions for which the approval of our stockholders is required. If you acquire
      Shares, you may have no effective voice in the management of the
      Company.




36




**Future
      sales of our equity securities could put downward selling pressure on our
      securities, and adversely affect the stock price. There is a risk that this
      downward pressure may make it impossible for an investor to sell his securities
      at any reasonable price, if at all.** Future
      sales of substantial amounts of our equity securities in the public market,
      or
      the perception that such sales could occur, could put downward selling pressure
      on our securities, and adversely affect the market price of our common
      stock.




Item
      3.
      CONTROLS AND PROCEDURES




(a)
      Evaluation of Disclosure Controls and Procedures.




Our
      management, with the participation of our principal executive officer and
      principal financial officer, has evaluated the effectiveness of the design
      and
      effectiveness of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
      as of the end of the period covered by this quarterly report. Based on this
      evaluation, our principal executive officer and principal financial officer
      concluded, as of the end of such period, that these disclosure controls and
      procedures are effective and designed to ensure that the information required
      to
      be disclosed in our reports filed or submitted under the Securities Exchange
      Act
      of 1934 is recorded, processed, summarized and reported within the requisite
      time periods; with the exception that we believe that there is a material
      weakness in the procedures for the accounting and recording
      of equity transactions in the financial statements. Management is
      taking actions to remediate any of the foregoing deficiencies.




(b)
      Changes in Internal Controls.




There
      was
      no change in our internal control over financial reporting (as defined in Rules
      13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)
      identified in connection with the evaluation of our internal control performed
      during our last fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.




**Part
      II -Other information**




Item
      1
      Legal Proceedings




Not
      applicable




Item
      2
      Unregistered Sales of Equity Securities and Use of Proceeds




During
      the six months ended June 30, 2006, the Company sold 10,481,404 shares of
      restricted common stock for total gross proceeds of $13,101,755.




From
      May
      19, 2006 to June 16, 2006, the Registrant held five closings in which it offered
      and sold an aggregate of 4,820,500 shares of its common stock at $1.25 per
      share
      to certain accredited investors and received gross proceeds of $ 6,025,625
      (the
“Offering”) pursuant to subscription agreements. These shares were offered
      through a private placement in which Brookstreet Securities Corporation acted
      as
      the placement agent. The placement agent received a commission of 8.0% of the
      gross proceeds along with a 2.0% non-accountable marketing allowance and a
      3.0%
      non-accountable expense allowance. The Registrant received net proceeds of
      $ $5,242,295 from
      the
      Offering.




37




During
      the six months ended June 30, 2006 Brookstreet also received warrants to
      purchase Registrant common stock in an amount equal to 20% of the shares sold,
      at an exercise price of $1.25 per share. Based on the sale of 10,481,404 shares
      in the Offering, Brookstreet received warrants to purchase 2,096,280 shares
      of
      common stock. The value of the warrants issued to Brookstreet was
      $1,736,884.




Subsequent
      to June 30, 2006, the Company sold an additional 1,245,300 shares of common
      stock at $1.25 per share as part of this Offering for gross proceeds of
      $1,556,625 and net proceeds of $1,354,263. Brookstreet Securities received
      249,060 warrants to purchase common stock of the Registrant at a price of $1.25
      in connection with the underwriting subsequent to June 30, 2006.




Each
      of
      the investors in this financing qualified as an “accredited investor” as that
      term is defined in the Securities Act of 1933 as amended.




In
      May,
      2006, we issued 1,200,000 shares of restricted common stock to an investor
      relations firm for services to be performed over twelve months. The value of
      the
      shares was $1,500,000. In March and May, 2006, we issued a total of 100,000
      warrants to purchase common stock at a price of $1.25 per share to an investor
      relations firm for services; the warrants were valued at $36,000.




Item
      3.
      Defaults Upon Senior Securities




Not
      applicable




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




Not
      applicable




Item
      5.
      Other Information




Not
      applicable




Item
      6.
      Exhibits




Exhibit
              Number
            
            Description
                of Document2.1
            
            Share
                Exchange Agreement by and among Quintessence Photonics Corporation
                (“Target”), QPC Lasers, Inc., the shareholders of Target, and Julie Morin
                dated May 12, 2006 (1)3.1
            
            Articles
                of Incorporation of QPC Lasers, Inc. as filed with the State of Nevada,
                as
                amended. (1) (2)3.2
            
            Bylaws
                of QPC Lasers, Inc. (1)4.1
            
            Registration
                Rights Agreement4.2
            
            Form
                of Investor Warrant4.3
            
            Form
                of Bridge Lender Warrant4.4
            
            Form
                of Brookstreet Warrant10.1
            
            2006
                Stock Option Plan10.2
            
            Bridge
                Loan Agreement10.3
            
            Real
                Property Lease31.01
            
            Chief
                Executive Officer's Certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002






38




31.02
            
            Chief
                Financial Officer's Certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.01
            
            Chief
                Executive Officer's Certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.02
            
            Chief
                Financial Officer's Certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002




(1)
            Incorporated
                by reference
                from the Registrant’s Form 8-K dated May 12,
                2006.




(2)
            Incorporated
                by reference from the Registrant’s Registration Statement on Form SB-2, as
                amended.




39




**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.


Dated:
                August 14, 2006
              **QPC
                  Lasers, Inc.**/s/
                  George LintzGeorge
                  Lintz
                Chief
                  Operating Officer, Chief
                Financial
                  Officer/s/
                  Jeffrey Ungar
                Chief
                  Executive Officer




40