UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION
  Washington,
        D.C. 20549
  FORM
        10-QSB
  QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For
        the
        quarterly period ended March 31, 2007
  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. x Yes 
        o No.
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act) o Yes
x No
  There
        were 38,559,283 shares of the registrant's common stock outstanding as of
        March
        31, 2007.
  Transitional
        Small Business Disclosure Format (Check one): oYes
xNo
   
  INDEX
        TO FORM 10QSB
 
 PAGEPART
                    I FINANCIAL INFORMATION
                2Item
                    1.
                Condensed
                    Financial Statements
                2Condensed
                    Consolidated Balance Sheets at March 31, 2007 (unaudited) and
                    December 31,
                    2006
                2Condensed
                    Consolidated Statements of Operations for the three month periods
                    ended
                    March 31, 2007 and March 31, 2006 (unaudited)
                3Condensed
                    Consolidated Statements of Stockholders' Deficiency
                    (unaudited)
                4Condensed
                    Consolidated Statements of Cash Flows for the three month periods
                    ended
                    March 31, 2007 and March 31, 2006 (unaudited)
                5Notes
                    to Unaudited Condensed Consolidated Financial Statements
                6Item
                    2.
                Management's
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                17Item
                    3.
                Controls
                    and Procedures
                28PART
                    II OTHER INFORMATIONItem
                    1.
                Legal
                    Proceedings
                29Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                29Item
                    3.
                Defaults
                    Upon Senior Securities
                29Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                29Item
                    5.
                Other
                    Information
                29Item
                    6.
                Exhibits
                29SIGNATURES
                33
 
  **Part
        I - Financial Information**
  Item
        1.
        Financial Statements
  **QPC
        LASERS, INC.**
  **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **March
                    31, 2007**
                  **(Unaudited)**
                
                **December
                    31, 2006****ASSETS****CURRENT
                    ASSETS**Cash
                
                $
                313,194
                
                $
                1,429,077Restricted
                    Cash
                
                
                2,443,900
                
                
                -Accounts
                    receivable, Commercial customers, net of allowance for doubtful
                    accounts
                    and returns and discounts of $3,735 as of March 31, 2007 and
                    $19,810 as of
                    December 31, 2006
                
                
                746,561
                
                
                667,908Accounts
                    receivable, Government contracts
                
                
                60,366
                
                
                383,935Unbilled
                    revenue
                
                
                321,067
                
                
                42,692Inventory
                
                
                560,686
                
                
                550,655Prepaid
                    expenses and other current assets
                
                
                210,809
                
                
                272,418Total
                    current assets
                
                
                4,656,583
                
                
                3,346,685Property
                    and equipment, net of accumulated depreciation of $5,524,087
                    as of March
                    31, 2007 and $5,276,320 as of December 31, 2006
                
                
                3,762,816
                
                
                3,961,796Capitalized
                    loan fees, net of accumulated amortization of $110,756 at March
                    31, 2007
                    and $96,161 at December 31, 2006
                
                
                23,444
                
                
                38,039Other
                    assets
                
                
                235,770
                
                
                88,780**TOTAL
                    ASSETS**
                
                $
                8,678,613
                
                $
                7,435,300**LIABILITIES
                    AND STOCKHOLDER’S DEFICIENCY****CURRENT
                    LIABILITIES**Accounts
                    payable and accrued liabilities
                
                $
                1,829,183
                
                $
                1,234,004Current
                    portion of long-term debt
                
                
                1,548,248
                
                
                1,034,437Total
                    current liabilities
                
                
                3,377,431
                
                
                2,268,441Subscriptions
                    to pending offering
                
                
                2,443,900
                
                
                -Long-term
                    debt, less current portion
                
                
                6,386,456
                
                
                6,398,189Total
                    liabilities
                
                
                12,207,787
                
                
                8,666,630**STOCKHOLDERS’
                    DEFICIENCY**Preferred
                    stock, $0.001 par value, 20,000,000 shares authorized, none issued
                
                
                -
                
                
                -Common
                    stock, $0.001 par value, 180,000,000 shares authorized,
                    38,559,283 shares issued and outstanding
                
                
                38,559
                
                
                38,559Additional
                    paid-in capital
                
                
                50,351,865
                
                
                50,236,504Accumulated
                    deficit
                
                
                (53,919,598
                )
                
                (51,506,393
                )Total
                    stockholders’ deficiency
                
                
                (3,529,174
                )
                
                (1,231,330
                )**TOTAL
                    LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**
                
                $
                8,678,613
                
                $
                7,435,300
  See
        accompanying Notes to Condensed Consolidated Financial Statements
  2
  **QPC
        LASERS, INC.**
  **CONDENSED
        CONSOLIDTED STATEMENTS OF OPERATIONS**
 **For
        the three months ended March 31, 2007 and 2006**
 **(Unaudited)**
 **Three
                    months ended March 31,****2007**
                
                **2006****REVENUE**
                
                $
                1,106,579
                
                $
                265,564**COST
                    OF SALES**
                
                
                855,781
                
                
                279,726**GROSS
                    PROFIT (DEFICIENCY)**
                
                
                250,798
                
                
                (14,162
                )**OPERATING
                    EXPENSES**Research
                    and development
                
                
                1,012,800
                
                
                1,123,792General and
                    administrative
                
                
                1,216,524
                
                
                1,078,844Total
                    operating expenses
                
                
                2,229,324
                
                
                2,202,636**LOSS FROM
                    OPERATIONS**
                
                
                (1,978,526
                )
                
                (2,216,798
                )Interest
                    income
                
                
                1,754
                
                
                -Interest
                    expense
                
                
                (468,399
                )
                
                (1,059,967
                )Other
                    income
                
                
                31,966
                
                
                16,171**NET
                    LOSS**
                
                $
                (2,413,205
                )
                $
                (3,260,594
                )**LOSS
                    PER SHARE**—
                    Basic and Diluted
                
                $
                (0.06
                )
                $
                (0.14
                )**WEIGHTED
                    AVERAGE COMMON SHARES OUTSTANDING -**
                  basic
                    and diluted
                
                
                38,559,283
                
                
                22,972,960
  See
        accompanying Notes to Condensed Consolidated Financial Statements
  3
  **QPC
        LASERS, INC.**
  **CONDENSED
        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
DEFICIENCY**
 For
        the
        three months ended March 31, 2007 (Unaudited)
 
 Common
                    StockShares
                
                Amount
                
                Additional
                      Paid-in Capital
                
                Accumulated
                      Deficit
                
                TotalBalance,
                    January 1, 2007
                
                
                38,559,283
                
                $
                38,559
                
                $
                50,236,504
                
                $
                (51,506,393
                )
                $
                (1,231,330
                )Fair
                    value of vested stock options
                
                
                -
                
                
                -
                
                
                115,361
                
                
                -
                
                
                115,361Net
                    loss for the three months ended March 31, 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,413,205
                )
                
                (2,413,205
                )Balance,
                    March 31, 2007
                
                
                38,559,283
                
                $
                38,559
                
                $
                50,351,865
                
                $
                (53,919,598
                )
                $
                (3,529,174
                )
   See
        accompanying Notes to Condensed Consolidated Financial Statements
  4
  **QPC
        LASERS, INC.**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **For
        the three months ended March 31, 2007 and 2006**
 **(Unaudited)**
 **Three
                    Months Ended March 31,****2007**
                
                **2006****CASH
                    FLOWS FROM OPERATING ACTIVITIES****Net
                    loss**
                
                $
                (2,413,205
                )
                $
                (3,260,594
                )**Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:****Depreciation
                    and amortization**
                
                
                247,767
                
                
                301,190**Compensation
                    cost of vested options**
                
                
                115,361
                
                
                37,698**Amortization
                    of loan discount**
                
                
                240,221
                
                
                397,021**Amortization
                    of Capitalized Loan Fees**
                
                
                14,595
                
                
                40,779**Fair
                    value of warrants issued for services and loan
                    fees**
                
                
                -
                
                
                721,000**Changes
                    in operating assets and liabilities:****Accounts
                    receivable**
                
                
                244,916
                
                
                48,216**Inventory**
                
                
                (10,031
                )
                
                (12,089
                )**Unbilled
                    revenue**
                
                
                (278,375
                )
                
                2,485**Other
                    assets**
                
                
                (146,990
                )
                
                (78,281
                )**Prepaid
                    expenses**
                
                
                61,607
                
                
                (40,052
                )**Accounts
                    payable and other current liabilities**
                
                
                595,179
                
                
                (45,863
                )**Net
                    cash used in operating activities**
                
                
                (1,328,955
                )
                
                (1,888,490
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES:****Purchase
                    of property and equipment**
                
                
                (48,785
                )
                
                (44,336
                )**Net
                    cash used in investing activities**
                
                
                (48,785
                )
                
                (44,336
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:****Debt
                    Financing**
                
                
                -
                
                
                (15,000
                )**Proceeds
                    from borrowing**
                
                
                500,000
                
                
                -**Principal
                    payments on debt**
                
                
                (238,143
                )
                
                (140,922
                )**Proceeds
                    from sale of common stock**
                
                
                -
                
                
                3,473,101**Net
                    cash provided by financing activities**
                
                
                261,857
                
                
                3,317,179**NET
                    INCREASE (DECREASE) IN CASH**
                
                
                (1,115,883
                )
                
                1,384,353**CASH —
                    Beginning of period**
                
                
                1,429,077
                
                
                69,440**CASH —
                    End of period**
                
                $
                313,194
                
                $
                1,453,793**Supplemental
                    Disclosures of Cash Flow Information****Cash
                    paid during the period for:****Interest**
                
                $
                199,364
                
                $
                97,698**Income
                    taxes**
                
                
                -
                
                
                -
  SUPPLEMENTAL
        DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
  As
        of
        March 31, 2007, the Company had received $2,443,900 of subscriptions in
        connection with a pending private placement of the Company's securities,
        which
        amount was less than the minimum amount required in order to close the private
        placement.  Accordingly, at March 31, 2007 the Company had a contingent
        obligation to return the subscriptions had the minimum amount not been raised
        and the funds were treated as restricted cash.  On April 16, 2007, the
        minimum commitments required to close were received and the deposited funds
        were
        accepted by the Company.
  See
        accompanying Notes to Condensed Consolidated Financial Statements
  5
  **QPC
        LASERS, INC.**
 
  **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)**
   NOTE
        1
  The
        accompanying consolidated financial statements of QPC Lasers, Inc. (the Company)
        have been prepared, without audit, in accordance with U.S. generally accepted
        accounting principles for interim financial reporting.  Accordingly, the
        consolidated financial statements do not include all of the information and
        notes required by U.S. generally accepted accounting principles for complete
        financial statements.  In the opinion of management, such interim financial
        statements contain all adjustments (consisting of normal recurring items)
        considered necessary for a fair presentation of our financial position, results
        of operations and cash flows for the interim periods presented.  The
        results of operations and cash flows for any interim period are not necessarily
        indicative of results that may be reported for the full fiscal
        year.
  The
        accompanying condensed consolidated financial statements should be read in
        conjunction with the audited consolidated financial statements, and the notes
        thereto, included in our Annual Report on Form 10-KSB for the year ended
        December 31, 2006, as filed with the Securities and Exchange
        Commission.
  ORGANIZATION
        AND NATURE OF OPERATIONS
  The
        Company was originally incorporated in the State of Nevada on August 31,
        2004
        under the name “Planning Force, Inc.” (PFI) as a development stage company that
        planed to specialize in event planning for corporations. The Company offered
        two
        types of services: retreat training services and product launch event planning.
        This business generated minimal revenue for the Company since
        inception.
  Effective
        May 1, 2006, Planning Force Inc., changed its name to QPC Lasers, Inc. On
        May
        12, 2006 QPC Lasers, Inc. (QPC) executed a Share Exchange Agreement by and
        among
        Julie Moran, its majority shareholder, and Quintessence Photonics Corporation
        (Quintessence) and substantially all of its shareholders. Under the agreement
        QPC issued one share of its common stock to the Quintessence shareholders
        in
        exchange for each share of QPC common stock (QPC Shares). Upon closing, former
        Quintessence shareholders held at least 87% of QPC’s common stock.
        Therefore, a change in control occurred and Quintessence also became a wholly
        owned subsidiary of QPC. Accordingly, the transaction is accounted for as
        a
        reverse merger (recapitalization) in the accompanying condensed consolidated
        financial statements with Quintessence deemed to be the accounting acquirer
        and
        QPC is deemed to be the legal acquirer. As such the condensed consolidated
        financial statements herein reflect the historical activity of Quintessence
        since its inception, and the historical stockholders’ equity of Quintessence has
        been retroactively restated for the equivalent number of shares received
        in the
        exchange after giving effect to any differences in the par value offset to
        paid
        in capital.
  GOING
        CONCERN
  The
        accompanying condensed consolidated financial statements have been prepared
        in
        conformity with accounting principles generally accepted in the United States
        of
        America, which contemplate continuation of the Company as a going concern.
        However, the Company had a net loss of $18,692,607 and utilized cash of
        $8,219,053 in operating activities during the year ended December 31, 2006,
        and
        had working capital of $1,078,244 at December 31, 2006. During the three
        months
        ended March 31 2007, the Company had a net loss of $2,413,205 and utilized
        cash
        of $1,328,955 in operating activities. At March 31 2007 the Company had a
        stockholders’ deficiency of $3,529,174. These factors raise substantial doubt
        about the Company's ability to continue as a going concern. The condensed
        consolidated financial
        statements do not include any adjustments relating to the recoverability
        and
        classification of recorded asset amounts, or amounts and classification of
        liabilities that might result from this uncertainty.
  6
  Effective
        April 16, 2007, we entered into securities purchase agreements with certain
        investors, pursuant to which the Company issued the Investors secured
        convertible debentures in the aggregate principal amount of $8,198,368 at
        an
        original issue discount of 10% for an aggregate consideration of $7,378,531.
        See
        Note 9.
  NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  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.
  Management
        regularly reviews property, equipment and other long-lived assets for possible
        impairment. This review occurs quarterly, or more frequently, if events or
        changes in circumstances indicate the carrying amount of the asset may not
        be
        recoverable. If there is indication of impairment , then management prepares
        an
        estimate of future cash flows (undiscounted and without interest charges)
        expected to result from the use of the asset and its eventual disposition.
        If
        these cash flows are less than the carrying amount of the asset, an impairment
        loss is recognized to write down the asset to its estimated fair value.
        Management believes that the accounting estimate related to impairment of
        its
        property and equipment, is a “critical accounting estimate” because: (1) it
        is highly susceptible to change from period to period because it requires
        management to estimate fair value, which is based on assumptions about cash
        flows and discount rates; and (2) the impact that recognizing an impairment
        would have on the assets reported on our balance sheet, as well as net income,
        could be material. Management’s assumptions about cash flows and discount rates
        require significant judgment because actual revenues and expenses have
        fluctuated in the past and are expected to continue to do so.
  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
  A
        portion
        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, 2006 or March 31, 2007. In addition, the Company has certain
        cost
        plus fixed fee contracts with U.S. Government agencies that are being recorded
        as revenue is earned based on time and costs incurred. At December 31, 2006,
        there was no deferred revenue and approximately $42,692 of unbilled receivables
        related to these government contracts. At March 31, 2007 there was no deferred
        revenue and $321,067 of unbilled receivables related to these government
        contracts.
  7
  NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  The
        Company recognizes revenues on product sales, other than fixed-price contracts,
        based on the terms of the customer agreement. The customer agreement takes
        the
        form of either a contract or a customer purchase order and each provide
        information with respect to the product or service being sold and the sales
        price. If the customer agreement does not have specific delivery or customer
        acceptance terms, revenue is recognized at the time of shipment of the product
        to the customer.
  Management
        periodically reviews all product returns and evaluates the need for establishing
        either a reserve for product returns or a product warranty liability. As
        of
        March 31, 2007, management has concluded that neither a reserve for product
        returns nor a warranty liability is required.
  Accounts
        receivable are reviewed for collectibility. When management determines a
        potential collection problem, a reserve is 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.
  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. 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.
        The Company accounts for stock option and warrant grants issued and vesting
        to
        non-employees in accordance with EITF No. 96-18: "Accounting for Equity
        Instruments that are Issued to Other Than Employees for Acquiring, or in
        Conjunction with Selling, Goods or Services” and EITF 00-18 “Accounting
        Recognition for Certain Transactions involving Equity Instruments Granted
        to
        Other Than Employees” whereas the value of the stock compensation is based upon
        the measurement date as determined at either a) the date at which a performance
        commitment is reached, or b) at the date at which the necessary performance
        to
        earn the equity instruments is complete
  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.
  For
        the
        three months ended March 31, 2007 and 2006, the value of options vesting
        during
        the period was $115,361 and $37,698 respectively, and has been reflected
        as
        compensation cost. As of March 31, 2007, the Company has unvested options
        of
        $2,255,107 which will be reflected as compensation cost in future periods
        as the
        options vest.
  8
  NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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 period. Weighted average number of shares outstanding have been
        retroactively restated for the equivalent number of shares received by the
        accounting acquirer as a result of the Exchange transaction as if these shares
        had been outstanding as of the beginning of the earliest period
        presented. The
        4,166,378 shares issued to the legal acquirer are in included in the weighted
        average share calculation from May 12, 2006, the date of the exchange agreement.
  Diluted
        loss per share is calculated assuming the issuance of common shares, if
        dilutive, resulting from the exercise of stock options and warrants. At March
        31, 2007 and 2006, potentially dilutive securities consisted of outstanding
        common stock purchase warrants and stock options to acquire an aggregate
        of
        11,997,547 and 8,117,206 shares, respectively. Since
        we
        reported a net loss for the quarters ended March 31, 2007 and 2006, these
        potentially dilutive common shares were excluded from the diluted loss per
        share
        calculation because they were anti-dilutive.
  Adoption
        of New Accounting Policy
  Effective
        January 1, 2007, the Company adopted Financial Accounting Standards Board
        Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes* (“FIN
        48 ”). *—an
        interpretation of FASB Statement No. 109, Accounting for Income
        Taxes* .
        The
        Interpretation addresses the determination of whether tax benefits claimed
        or
        expected to be claimed on a tax return should be recorded in the financial
        statements. Under FIN 48 ,
        we may
        recognize the tax benefit from an uncertain tax position only if it is more
        likely than not that the tax position will be sustained on examination by
        the
        taxing authorities, based on the technical merits of the position. The tax
        benefits recognized in the financial statements from such a position should
        be
        measured based on the largest benefit that has a greater than fifty percent
        likelihood of being realized upon ultimate settlement. FIN
        48 also
        provides guidance on derecognition, classification, interest and penalties
        on
        income taxes, accounting in interim periods and requires increased disclosures.
        At the date of adoption, and as of March 31, 2007, the Company does not have
        a
        liability for unrecognized tax benefits.
  The
        Company files income tax returns in the U.S. federal jurisdiction and various
        states. The Company is subject to U.S. federal or state income tax examinations
        by tax authorities for years after 2002. During the periods open to examination,
        the Company has net operating loss and tax credit carry forwards for U.S.
        federal and state tax purposes that have attributes from closed periods.
        Since
        these NOLs and tax credit carry forwards may be utilized
        in future periods, they remain subject to examination.
  The
        Company’s policy is to record interest and penalties on uncertain tax provisions
        as income tax expense. As of March 31, 2007, The Company has no accrued
        interest or penalties related to uncertain tax positions.
  Recent
        Accounting Pronouncements
  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.
  In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
        ("SFAS No. 157"), which establishes a formal framework for measuring fair
        value
        under GAAP. SFAS No. 157 defines and codifies the many definitions of fair
        value
        included among various other authoritative literature, clarifies and, in
        some
        instances, expands on the guidance for implementing fair value measurements,
        and
        increases the level of disclosure required for fair value measurements.
  9
  NOTE
        2 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Although
        SFAS No. 157 applies to and amends the provisions of existing FASB and AICPA
        pronouncements, it does not, of itself, require any new fair value measurements,
        nor does it establish valuation standards. SFAS No. 157 applies to all other
        accounting pronouncements requiring or permitting fair value measurements,
        except for: SFAS No. 123(R), share-based payment and related pronouncements,
        the
        practicability exceptions to fair value determinations allowed by various
        other
        authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
        that deal with software revenue recognition. SFAS No. 157 is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years.
  In
        February 2007, the Financial
        Accounting Standards Board (FASB) issued
        FASB Statement No. 159, “The Fair Value Option for Financial Assets and
        Financial Liabilities  — Including an amendment of FASB Statement
        No. 115” (FAS 159). ** FAS 159,
        which becomes effective for the company on January 1, 2008, permits
        companies to choose to measure many financial instruments and certain other
        items at fair value and report unrealized gains and losses in earnings. Such
        accounting is optional and is generally to be applied instrument by instrument.
        The company does not anticipate that election, if any, of this fair-value
        option
        will have a material effect on its ( *consolidated)* financial
        condition, results of operations, cash flows or disclosures.
  NOTE
        3 -
        INVENTORY
  Inventory
        consists of the following:
  March
                  31, 2007
                (Unaudited)
              
              December
                  31,
                2006Raw
                  materials
              
              $
              574,729
              
              $
              552,521Work
                  in process
              
              
              --
              
              
              12,177Reserve
                  for slow moving and obsolescence
              
              
              (14,043
              )
              
              (14,043
              )$
              560,686
              
              $
              550,655
  10
  NOTE
        4 -
        PROPERTY AND EQUIPMENT
  Property
        and equipment consist of the following:
  March
                  31, 2007 (Unaudited)
              
              December
                  31,
                2006
              
              Useful
                LivesComputer
                  software
              
              $
              66,932
              
              $
              66,932
              
              
              3
                  yearsFurniture
                  and fixtures
              
              
              121,558
              
              
              121,558
              
              
              6
                  yearsComputer
                  equipment
              
              
              147,078
              
              
              146,000
              
              
              3
                  yearsOffice
                  equipment
              
              
              69,362
              
              
              69,362
              
              
              6
                  yearsLab
                  and manufacturing equipment
              
              
              5,012,318
              
              
              4,964,608
              
              
              6
                  yearsLeasehold
                  improvements
              
              
              3,869,655
              
              
              3,869,656
              
              
              14
                  years9,286,903
              
              
              9,238,116Less
                  accumulated depreciation and amortization
              
              
              (5,524,087
              )
              
              (5,276,320
              )Property
                  and equipment, net
              
              $
              3,762,816
              
              $
              3,961,796
  Depreciation
        and amortization expense related to property and equipment amounted to $247,767
        and $301,190 respectively for the three months ended March 31, 2007 and 2006.
  11
  NOTE
        5 -
        NOTES PAYABLE
  As
        of
        December 31, 2006, notes payable consist of the following:
  Loan
                Balance
              
              Loan
                Discount
              
              Current
                Portion
              
              Non-current
                PortionSenior
                  Secured Notes
              
              $
              729,518
              
              $
              (367,923
              )
              $
              361,595
              
              $
              --Subordinated
                  Secured Convertible Notes
              
              
              1,280,000
              
              
              (136,267
              )
              
              363,800
              
              
              779,933Finisar
                  Secured Note
              
              
              5,927,298
              
              
              --
              
              
              309,042
              
              
              5,618,256$
              7,936,816
              
              $
              (504,190
              )
              $
              1,034,437
              
              $
              6,398,189
  As
        of
        March 31, 2007 notes payable consist of the following (Unaudited):
  Loan
                Balance
              
              Loan
                discount
              
              Current
                portion
              
              Noncurrent
                PortionSenior
                  Secured Notes  (a)
              
              $
              578,274
              
              $
              (147,169
              )
              $
              431,105
              
              $
              --Subordinated
                  Secured Convertible Notes  (b)
              
              
              1,280,000
              
              
              (116,800
              )
              
              683,800
              
              
              479,400Finisar
                  Secured Note (c)
              
              
              5,852,818
              
              
              --
              
              
              316,607
              
              
              5,536,211Secured
                  Equipment Financing (d)
              
              
              487,581
              
              
              --
              
              
              116,736
              
              
              370,845$
              8,198,673
              
              $
              (263,969
              )
              $
              1,548,248
              
              $
              6,386,456
  (a)
              Senior
                  Secured Notes Payable
  During
        2004, the Company issued $3,250,000 of notes payable to Investors. The term
        of
        the notes are 24 months, bearing interest at 10% per annum, with no principal
        and interest payments required for the initial 3 months. The remaining 21
        months
        required principal and interest payments sufficient to pay the loan in full
        at
        the end of 24 months. The notes are secured by all of the assets of the Company,
        including its intellectual property. The notes have 1 warrant for every $1.33
        of
        principal, with each warrant being exerciseable into 1 share of common stock
        at
        $3.75 per share. The warrants are immediately vested and have a 6 year term.
        The
        Company determined there was no accounting value to be assigned to the warrants
        at the date of issuance, based a calculation using an option pricing model.
        In
        January 2006, we adjusted the exercise price of 2,325,000 of these warrants
        to
        $1.25. The company recorded the difference in the value of the warrants
        immediately prior to the modification and the value of the warrants following
        modification of $744,000 as additional loan discount to be amortized over
        the
        remaining life of the loan. Interest expense includes $131,294 related to
        the
        amortization of this discount during the three months ended March 31, 2007.
        Of
        the total notes above, $2,500,000 was subscribed to by a limited partnership
        of
        which an officer of the Company is an owner, of which $523,237 was outstanding
        as of March 31, 2007.
  12
  NOTE
        5 -
        NOTES PAYABLE  (CONTINUED)
  During
        2005, five of the seven note holders agreed to modify the terms of their
        notes.
        The modifications include deferring principal payments from April 2005 to
        March
        2006, thereafter principal payments are due until the notes are fully paid
        in
        May 2007. As of March 31, 2007, the required monthly principal and interest
        payments are $149,571. In addition, warrants to purchase 840,000 shares of
        common stock were issued to the five note holders who elected to defer principal
        payments on their loans. The warrants were valued at $0.71 a warrant or
        $596,400, using an option pricing model and were reflected as a loan discount
        amount, which is netted against the loan principal balance. The assumptions
        used
        in the model were: risk free interest rate, 4.41%, expected life, 4.66 years,
        expected volatility, 70%, no expected dividends. The loan discount fee is
        being
        amortized over the remaining life of the loan. Interest expense includes
        $89,460
        related to the amortization of this discount during the quarters ended March
        31,
        2007 and March 31, 2006. The effective interest rate on these loans, giving
        effect for the modified terms and the loan discount is 24.4%.
  (b)
              Subordinated
                  Secured Convertible Notes Payable
  During
        2005, the Company issued $1,280,000 of subordinated, secured notes to nine
        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. The interest rate on the loans is 10% per annum.
        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. If the note
        holders elect to extend the loan, they will receive additional warrants to
        purchase 26,666 shares of the Company’s common stock for every $100,000 loaned
        to the Company. The conversion feature which is in effect during the time
        the
        loan is outstanding, allowed 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 revision upon the occurrence of certain stock
        offerings. The downward revision is subject to a floor of $0.90 and allows
        the
        note holder to convert at the price of the most recent stock offering. The
        conversion price was reduced to $1.25 in December 2005.
  The
        Company issued warrants to purchase 320,000 shares of the Company’s common stock
        in connection with this debt offering during 2005. 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 has been netted against the loan principal
        balance. The assumptions used in the model were: risk free interest rate,
        4.41%,
        expected life, 5 years, expected volatility, 70%, no expected dividends.
        The
        loan discount fee is being amortized over the life of the loan. Interest
        expense
        includes $19,467 relating to the amortization of this discount during the
        quarters ending March 31, 2007 and March 31, 2006. The effective interest
        rate
        on these loans, giving effect for the modified terms and the loan discount
        is
        22%.
  The
        Company has analyzed the terms of the conversion feature and warrants issued
        to
        the note holders and has determined that such features do not give rise to
        an
        embedded derivative as defined by SFAS 133 and EITF 00-19 as the instruments
        are
        not derivative liabilities based on the analysis, principally because they
        are
        convertible into unregistered common shares , the Company has sufficient
        authorized shares available for conversion , there is a fixed maximum shares
        that required to be issued **** and
        there
        are no provisions that could require a net cash settlement.
  (c)
              Finisar
                  Senior Secured Note
  During
        the year ended December 31, 2006, an agreement between Finisar and QPC to
        terminate the License Agreement dated September 18, 2003 became effective.
        In
        consideration of the termination of the license, the Company issued Finisar
        a $6
        million promissory note. Payment terms of the note require $1,000,000 of
        the
        principal together with interest thereon payable at the rate of 9.7% per
        annum,
        in thirty-six monthly installments, commencing on October 18, 2006. The
        remaining $5,000,000 of the principal shall be paid in full on September
        18,
        2009 and accrues interest at the rate of 9.7% per annum payable in arrears,
        on
        the 18th day of each calendar month commencing on October 18, 2006. The note
        is
        secured by substantially all of our assets and is subject to an inter-creditor
        agreement with the senior secured note holders (see paragraph (a)
        above).
  13
  NOTE
        5 -
        NOTES PAYABLE  (CONTINUED)
  (d)
              Secured
                  Equipment Financing
  On
        February 8, 2007, the Company completed a secured equipment lease financing
        transaction with a financing company. The Company sold and leased back certain
        manufacturing equipment that had been purchased by the Company between July
        and
        December 2006. The gross amount of the loan was $500,000. Repayments under
        the
        loan require a monthly payment of $21,990 for the first 30 months, $4,850
        for
        the net 30 months, and then an option to extend for an additional 60 months
        for
        $2,800 per month. Additionaly, at the end of the end of the first 60 payments,
        the Company has the option of acquiring the equipment at the greater of 20%
        of
        the original cost ($100,000) or fair market value at the time.
  The
        Company has determined that the substance of this lease was a financing
        transaction and reflected the amount payable to the lender as a secured debt
        in
        the accompanying financial statements. The Company calculated the interest
        rate
        implicit in the lease based on the stream of payments over the first 60 months
        of the lease, at which time management estimates they would exercise the
        purchase option for $100,000. As such, the interest rate implicit in the
        lease
        was calculated to be 33.5%. The Company is allocating its payments to principal
        and interest based upon this payment stream and implicit interest rate. The
        Company further determined that as the gross proceeds of the loan approximated
        the net book value of the assets on the date of the agreement, and no gain
        was
        recognized.
  In
        accordance with the lease, the Company paid a security deposit of $125,000
        that
        has been classified as other assets in the accompanying balance sheet that
        is
        secured by certain manufacturing equipment purchased by the company between
        July
        and December 2006.
  NOTE
        6 -
        SUBSCRIPTIONS TO 2007 DEBENTURES
  As
        of
        March 31, 2007,  the Company had received $2,443,900 of subscriptions in
        connection with a pending private placement of the Company's securities,
        which
        amount was less than the minimum amount required in order to close the private
        placement.  Accordingly, at March 31, 2007 the Company had a contingent
        obligation to return the subscriptions had the minimum amount not been raised
        and the funds were treated as restricted cash.  On April 16, 2007, the
        minimum commitments required to close were received and the deposited funds
        were
        accepted by the Company.
  NOTE
        7 -
        STOCK OPTIONS AND WARRANTS
  A
        summary
        of option activity as of March 31, 2007 and changes during the three months
        then
        ended is presented below:
  Options
              
              Shares
              
              Weighted-Average
                Exercise
                  Price
              
              Weighted-Average
                Remaining
                  Contractual
                Term
                  (Years)
              
              Aggregate
                Intrinsic
                ValueOutstanding
                  at January 1, 2007
              
              
              3,541,083
              
              $
              0.83Granted
              
              
              150,000
              
              $
              1.25Exercised
              
              
              --Forfeited
                  or expired
              
              
              --Outstanding
                  at March 31, 2007
              
              
              3,691,083
              
              $
              0.85
              
              
              8.06
              
              $
              2,051,627Exercisable
                  at March 31, 2007
              
              
              2,054,833
              
              $
              0.46
              
              
              6.98
              
              $
              1,879,202
  There
        were no stock purchase warrants granted, exercised, cancelled or expired
        in the
        three month period ended March 31, 2007. There were 8,456,464 stock purchase
        warrants outstanding as of March 31, 2007.
  14
  NOTE
        8 -
        INCOME TAXES
  At
        December 31, 2006, the Company had available Federal and state net
        operating loss carryforwards to reduce future taxable income. The amounts
        available were approximately $33,000,000 for Federal and for state purposes.
        The
        Federal carryforward expires in 2026 and the state carryforward expires in
        2016.
        Given the Company’s history of net operating losses, management has determined
        that it is more likely than not 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.
  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.
  15
  NOTE
        9 -
        SUBSEQUENT EVENT ****
  Effective
        April 16, 2007, the Company entered into securities purchase agreements with
        certain investors, pursuant to which the Company issued the Investors secured
        convertible debentures in the aggregate principal amount of $8,198,368 at
        an
        original issue discount of 10%. The Secured Debentures have a term of 2 years
        and pay interest at the rate of 10% per annum, and are convertible into shares
        of the Company’s common stock at an initial conversion price of $1.05 per share,
        subject to customary adjustments as set forth therein and any applicable
        Milestone Adjustments as described below. In addition, the Company issued
        to the
        Investors five year warrants to purchase up to 11,711,955 shares of the Common
        Stock at an exercise price of $1.05 per share, subject to adjustment therein,
        including full-ratchet and other standard anti-dilution protection and any
        applicable Milestone Adjustments as described below.
  The
        aggregate purchase price for the Secured Debentures and the Warrants was
        $7,378,531. The conversion price of the Secured Debentures and the exercise
        price of the Warrants may be adjusted downwards (“Milestone Adjustments”) if the
        Company fails to meet certain revenue projections for any one or more of
        the
        following periods (i) the nine (9) month period ending September 30, 2007,
        or
        (ii) the twelve (12) month period ending December 31, 2007 and (iii) the
        six (6)
        month period ending June 30, 2008. The effective date of the Securities Purchase
        Agreements is April 16, 2007.
  The
        Purchase Price consisted of (i) $ 5,013,900 in cash, (ii) outstanding notes
        in
        the aggregate principal amount of $1,604,631 which were exchanged for Senior
        Debentures, (iii) promissory notes for the aggregate principal sum of $300,000
        payable to the Company, that are due in 30 days and (iv) promissory notes
        for
        the aggregate principal sum of $460,000 payable to the Company, that are
        due in
        45 days. The Company paid the following fees (including fees for advisors,
        placement agents and finders) in connection with the financing: (i) $404,068
        in
        cash, (ii) Warrants to purchase up to 158,286 of Common Stock, and (iii)
        100,000
        shares of Common Stock.
  The
        Company is in the process of evaluating the recent financing transaction
        to
        determine the appropriate accounting treatment, and presently believes elements
        of the financial instrument may be required to be accounted for as derivative
        liabilities under FAS 133 an EITF 00-19.
  16
  **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**
  THE
        FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH THE CONSOLIDATED
        FINANCIAL STATEMENTS OF QPC LASERS, INC. AND THE NOTES TO CONSOLIDATED FINANCIAL
        STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT ON FORM 10-QSB. THIS DISCUSSION
        SUMMARIZES THE SIGNIFICANT FACTORS AFFECTING OUR OPERATING RESULTS, FINANCIAL
        CONDITIONS AND LIQUIDITY AND CASH-FLOW FOR THE THREE MONTHS ENDED MARCH 31,
        2006
        AND 2007. THIS DISCUSSION CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE
        RISKS
        AND UNCERTAINTIES AND ARE BASED ON JUDGMENTS CONCERNING VARIOUS FACTORS THAT
        ARE
        BEYOND OUR CONTROL. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
        ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
        INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS REPORT ON FORM 10-QSB,
        PARTICULARLY UNDER THE CAPTION "FORWARD LOOKING STATEMENTS."
  **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 “Factors That May Affect Future Performance” 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 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 “Factors That May Affect
        Future Performance” and elsewhere in this Report on Form 10-QSB . Except
        as required by law or regulation, we assume no obligation to update any
        forward-looking statements.
  **Overview**
  **Background**
  QPC
        Lasers, Inc. designs and manufactures laser diodes through its wholly-owned
        subsidiary, Quintessence Photonics Corporation (“Quintessence”). Quintessence
        was 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 stockholders of Quintessence entered into Exchange Agreements
        with
        QPC in which all of the stockholders of Quintessence exchanged their shares,
        warrants and options for shares warrants and options of QPC. QPC was a public
        reporting company; and as a result of the Share Exchange, QPC was the surviving
        entity and is now a public reporting company. Our predecessor public company
        was
        incorporated in the State of Nevada on August 31, 2004 as Planning Force,
        Inc.
  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 other markets that could benefit
        from
        our laser diode technology and decided to focus on industrial and medical
        applications, as well as the burgeoning defense/homeland security laser market.
  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.
  17
  Quintessence
        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 and Sales in the second quarter of 2005.
  Total
        sales grew from $89,161 in 2002; to $229,079 in 2003; to $1,050,816 in 2004
        to
        $1,073,091 in 2005. Total sales for the year ended December 31, 2006 were
        $3,073,332.
  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
        with Telaris, Inc. 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 with our development of lasers
        for
        the industrial materials processing markets.
  In
        the
        second quarter of 2006, QPC was also awarded a subcontract with Fibertek,
        Inc.
        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
        these lasers may be used in systems designed to defend military and commercial
        aircraft against heat seeking missiles. We also believe that this effort
        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 through June
        2007. As of March 31, 2007, we have recognized $700,000 of revenue from this
        contract.
  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 could 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. As of March 31, 2007 we have recognized $390,479 of revenue from this
        contract.
  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.
  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 an order for development and production of optical sensing
        lasers.
  18
  **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 Statement of Financial
        Accounting Standard (“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. Management regularly
        reviews property, equipment and other long-lived assets for possible impairment.
        This review occurs quarterly, or more frequently if events or changes in
        circumstances indicate the carrying amount of the asset may not be recoverable.
        If there is indication of impairment, then management prepares an estimate
        of
        future cash flows (undiscounted and without interest charges) expected to
        result
        from the use of the asset and its eventual disposition. If these cash flows
        are
        less than the carrying amount of the asset, an impairment loss is recognized
        to
        write down the asset to its estimated fair value. Management believes that
        the
        accounting estimate related to impairment of its property and equipment,
        is a
“critical accounting estimate” because: (1) it is highly susceptible to
        change from period to period because it requires management to estimate fair
        value, which is based on assumptions about cash flows and discount rates;
        and
        (2) the impact that recognizing an impairment would have on the assets
        reported on our balance sheet, as well as net income, could be material.
        Management’s assumptions about cash flows and discount rates require significant
        judgment because actual revenues and expenses have fluctuated in the past
        and
        are expected to continue to do so.
  **Revenue
        Recognition**
  A
        portion
        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, 2006 or March 31, 2007. In addition, the Company has certain
        cost
        plus fixed fee contracts with U.S. Government agencies that are being recorded
        as revenue is earned based on time and costs incurred. At December 31, 2006,
        there was no deferred revenue and approximately $42,692 of unbilled receivables
        related to these government contracts. At March 31, 2007, there was no deferred
        revenue and approximately $321,067 of unbilled receivables related to these
        government contracts.
  The
        Company recognizes revenues on product sales, other than fixed-price contracts,
        based on the terms of the customer agreement. If the customer agreement does
        not
        have specific delivery or customer acceptance terms, revenue is recognized
        at
        the time of shipment of the product to the customer. Accounts receivable
        are
        reviewed for collectibility quarterly. When management determines that there
        is
        a potential collection problem, a reserve is 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.
  19
  **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. 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.
        The Company accounts for stock option and warrant grants issued and vesting
        to
        non-employees in accordance with EITF No. 96-18: "Accounting for Equity
        Instruments that are Issued to Other Than Employees for Acquiring, or in
        Conjunction with Selling, Goods or Services” and EITF 00-18 “Accounting
        Recognition for Certain Transactions involving Equity Instruments Granted
        to
        Other Than Employees” whereas the value of the stock compensation is based upon
        the measurement date as determined at either (a) the date at which a performance
        commitment is reached, or (b) at the date at which the necessary performance
        to
        earn the equity instruments is complete
  **QUARTER
        ENDED MARCH 31, 2007 COMPARED TO THE QUARTER ENDED MARCH 31,
        2006**
  REVENUE.
        During the quarter ended March 31, 2007, QPC had revenue of $1,106,579 as
        compared to revenue of $265,564 during the quarter ended March 31, 2006,
        an
        increase of approximately 317%. This increase is attributable to an increase
        in
        both commercial sales and government contracts. We have increased our product
        offerings and expanded our sales and marketing resources. We continued to
        perform and bill on government contracts awarded to us in prior periods and
        to
        ship to customers for orders placed in 2006. Specifically, during the quarter
        ended March 31, 2007 we recognized $453,317 of revenue related to government
        contracts that were awarded to us in prior periods.
  COST
        OF
        SALES. Cost of sales, which consists of direct labor, material costs and
        overhead, was $855,781 or 77% of revenue for the quarter ended March 31,
        2007 as
        compared to $279,726 or 105% of revenue for the quarter ended March 31, 2006.
        As
        a percentage of revenue, cost of sales decreased as we recognized improved
        efficiencies as a result of allocating our fixed costs over a higher number
        of
        units, and achieved higher yields on direct materials and labor.
  GROSS
        PROFIT. Gross profit was $250,798 for the quarter ended March 31, 2007 as
        compared to $(14,162) for the quarter ended March 31, 2006, representing
        gross
        margins of approximately 23% and (5) %, respectively. As mentioned above,
        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 used by our research and
        development team and overhead, totaled $1,012,800 for the quarter ended March
        31, 2007, as compared to $1,123,792 for the quarter ended March 31, 2006
        a
        decrease of approximately 10%. The decrease in research and development costs
        is
        attributable to the shift of some of our resources from development to
        manufacturing as a result of increased orders for our products. We anticipate
        to
        continue to spend substantial amounts on research and development in the
        future.
  GENERAL
        AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
        $1,216,524 the quarter ended March 31, 2007, as compared to $1,078,844 for
        the
        quarter ended March 31, 2006, an increase of approximately 13%. Of this
        increase, $76,000 was due to increased investor relations, insurance, legal
        and
        accounting costs attributable to becoming a publicly traded company with
        increased compliance obligations and investor relations needs, and $78,000
        was
        attributable to stock option compensation expense recognized during the quarter
        ended March 31, 2007. These increases were partially offset by a decrease
        in
        other general and administrative expenses. We expect these categories of
        expenses to increase in future quarters, based on anticipated growth of the
        Company.
  NET
        LOSS.
        QPC had a net loss of $2,413,205 for the quarter ended March 31, 2007 as
        compared to a net loss of $3,260,594 for the quarter ended March 31, 2006.
        Interest expense was $468,399 for the three months ended March 31, 2007 compared
        to $1,059,967 for the three months ended March 31, 2006. During the quarter
        ended March 31, 2006, interest expense included non-cash interest of $690,000
        for the issuance of warrants to extend a note payable. The reduction in net
        loss
        is a result of increased revenue in the three months ended March 31, 2007
        and a
        decrease of approximately $592,000 in interest expense. We expect interest
        expense to increase in the future as a result of additional debt financings.
  20
  **Liquidity
        and Capital Resources**
  Overview
  We
        continue to operate with a negative cash flow from operations, and depend
        upon
        external financing to maintain our operations. QPC lost $2,413,205 during
        the
        three months ended March 31, 2007 and has a cumulative deficit of $53,919,598
        as
        of March 31, 2007. Our negative cash flow from operations during the three
        months ended March 31, 2007 was in excess of $400,000 per month, and our
        total
        negative cash flow including debt service and capital expenditures is
        approximately $700,000 per month. We project the Company to have positive
        cash
        flow from operations no sooner than the second quarter of 2008. We anticipate
        that we will be required to raise a minimum of $2 million additional capital
        in
        order to continue operations for the next twelve months.
  In
        April
        2007, we issued to certain investors secured convertible debentures in the
        aggregate principal amount of $8,198,368 at an original issue discount of
        10%.
        The Secured Debentures are convertible into shares of the Company’s common stock
        at a initial conversion price of $1.05 per share, subject to certain
        adjustments. In addition, the Company issued to the Investors five year warrants
        to purchase up to 11,711,955 shares of the Common Stock at an exercise price
        of
        $1.05 per share, subject to certain adjustments. The aggregate purchase price
        for the Secured Debentures and the Warrants was $ 7,378,531.
  The
        Purchase Price consisted of (i) $ 5,013,900 in cash, (ii) outstanding notes
        in
        the aggregate principal amount of $1,604,631 which were exchanged for Senior
        Debentures, (iii) promissory notes for the aggregate principal sum of $300,000
        payable to the Company, that are due in 30 days and (iv) promissory notes
        for
        the aggregate principal sum of $460,000 payable to the Company, that are
        due in
        45 days. The Company paid the following fees (including fees for advisors,
        placement agents and finders) in connection with the financing: (i) $404,068
        in
        cash, (ii) Warrants to purchase up to 158,286 of Common Stock, and (iii)
        100,000
        shares of Common Stock.
  We
        cannot
        assure you that any additional financing we need in the future (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.
  Our
        consolidated 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 consolidated
        financial statements do not include any adjustments that might result from
        this
        uncertainty. Our independent registered public accounting firm has included
        an
        explanatory paragraph expressing doubt about our ability to continue as a
        going
        concern in their audit report for the fiscal year ended December 31,
        2006.
  21
  Current
        Debt Obligations
  Our
        current obligations, including those undertaken as a result of the April
        2007
        financing, require us to make the following payments over the next five years
        including principal and interest:
  Payments
                  by Period2007
              
              2008
              
              2009
              
              2010
                  and BeyondSenior
                  Secured Notes Payable
              
              $
              24,038
              
              $
              --
              
              $
              --
              
              $
              --Subordinated
                  Secured Notes Payable
              
              
              108,770
              
              
              141,545
              
              
              --
              
              
              --Finisar
                  Secured Note Payable
              
              
              653,411
              
              
              871,214
              
              
              5,653,408
              
              
              --Secured
                  Equipment Financing
              
              
              197,910
              
              
              263,880
              
              
              178,180
              
              
              221,250April
                  2007 Debentures
              
              
              576,202
              
              
              819,837
              
              
              8,437,488
              
              
              --Total
              
              $
              1,560,331
              
              $
              2,096,476
              
              $
              14,269,076
              
              $
              221,050
  The
        table
        above reflects the payments due after the conversion of $554,631 of our Senior
        Secured notes payable and $1,050,000 of our Subordinated Secured notes payable
        into the 2007 Debentures on April 16, 2007 as described above.
  On
        February 8, 2007, the Company completed a financing transaction with Boston
        Financial and Equity Corporation, a financing company that is secured by
        certain
        manufacturing equipment purchased by the company between July and December
        2006.
        The gross amount of the loan was $500,000 and the Company paid a security
        deposit of $125,000 and first and last months payment of $43,980 upon closing
        for net proceeds of $331,020. Payments are to be made on the first of each
        calendar month for $21,990 through July 2009 and $4,850 through January 2012
        consisting of principal and interest to pay off $400,000 of the loan by January
        2012, with a final payment of the remaining $100,000 balance in January 2012.
        The effective interest rate of this note is 33.65%.
  **Capital
        Expenditures**
  From
        January 1, 2007 to March 31, 2007 we spent approximately $48,785 on
        manufacturing equipment. We expect our capital expenditures to increase 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
        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 is evaluating
        the impact the adoption of SFAS 155 will have to the
        Company's overall results of operations or financial position.
  In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
        ("SFAS No. 157"), which establishes a formal framework for measuring fair
        value
        under GAAP. SFAS No. 157 defines and codifies the many definitions of fair
        value
        included among various other authoritative literature, clarifies and, in
        some
        instances, expands on the guidance for implementing fair value measurements,
        and
        increases the level of disclosure required for fair value measurements.
  Although
        SFAS No. 157 applies to and amends the provisions of existing FASB and AICPA
        pronouncements, it does not, of itself, require any new fair value measurements,
        nor does it establish valuation standards. SFAS No. 157 applies to all other
        accounting pronouncements requiring or permitting fair value measurements,
        except for: SFAS No. 123(R), share-based payment and related pronouncements,
        the
        practicability exceptions to fair value determinations allowed by various
        other
        authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
        that deal with software revenue recognition. SFAS No. 157 is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years.
  22
  In
        February 2007, the Financial
        Accounting Standards Board (FASB) issued
        FASB Statement No. 159, “The Fair Value Option for Financial Assets and
        Financial Liabilities  — Including an amendment of FASB Statement
        No. 115” (FAS 159). ** FAS 159,
        which becomes effective for the company on January 1, 2008, permits
        companies to choose to measure many financial instruments and certain other
        items at fair value and report unrealized gains and losses in earnings. Such
        accounting is optional and is generally to be applied instrument by instrument.
        The company does not anticipate that election, if any, of this fair-value
        option
        will have a material effect on its ( *consolidated)* financial
        condition, results of operations, cash flows or disclosures.
  **FACTORS
        THAT 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.
  RISKS
        OF
        THE BUSINESS
  **Our
        consolidated**  **financial
        statements have been prepared assuming that the Company will continue as
        a going
        concern.** The
        factors described below raise substantial doubt about our ability to continue
        as
        a going concern. Our consolidated financial statements do not include any
        adjustments that might result from this uncertainty. Our independent registered
        public accounting firm has included an explanatory paragraph expressing doubt
        about our ability to continue as a going concern in their audit report for
        the
        fiscal year ended December 31, 2006.
  **We
        require additional financing to sustain our operations and without it we
        may not
        be able to continue operations.** We have
        never earned a profit and we anticipate that we will continue to incur losses
        for at least the next 12 to 15 months. We continue to operate on a negative
        cash
        flow basis. 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 obtain 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
        funds 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.
  If
        we
        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
        do not have sufficient revenues to service our debt.** As of
        March 31, 2007, we had $10,642,573 of debt secured by our fixed assets and
        intellectual property. $578,274 of our debt accrues interest at a rate of
        10%
        per annum and requires monthly payments until June 25, 2007. $1,280,000 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. $5,852,818 of debt accrues interest at a rate of 10%
        per
        annum and requires monthly payments until September 18, 2009 at which time
        the
        balance of $5,031,872 is due and payable, and $487,581 accrues interest at
        a
        rate of 33.65% and requires monthly payments until January 2012. If we are
        unable to service our debt, our assets, including our patents and other
        intellectual property, may be subject to foreclosure. In addition, as a result
        of the April 2007 financing, we have substantial additional debt due in 2009
        unless such debt converts to equity prior to maturity.
  23
  **We
        are an early stage company with a limited operating history and 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.
  **Our
        products are not proven.** 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. While we have shipped Generation I and Generation II
        products, most of our products do not have an established commercial track
        record. 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.
  **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 strategic
        decision. Accordingly, customers carefully evaluate and test 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. 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. 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 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 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 maintain $8.0 million and
        $2.0
        million key man insurance policies on Mr. Ungar and Mr. Lintz, respectively.
  **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. 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.
  24
  **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.
  **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
        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 not grow and our business
        could be harmed.** The
        laser diode 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. As we expand
        our
        marketing efforts, we expect to increasingly compete with companies that
        produce
        diode-pumped solid state and fiber lasers. We may face substantial resistance
        from prospective customers who are reluctant to change incumbent technologies.
        We believe that our ability to compete successfully and grow our business
        depends on a number of factors, including the strength of our technology
        platform and related intellectual property rights, the capabilities of our
        scientists and technical staff and our reputation for product innovation
        and
        reliability. We may not be able to compete successfully in the future, and
        increased competition may result in price reductions, reduced profit margins,
        lost growth opportunities and an inability to generate cash flows that are
        sufficient to maintain or expand our development and marketing of new products.
  **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 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 distract our management from attending to the growth of our
        business.
  **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,
        2007. 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.
 
 25
  **MARKET
        RISKS.**
  **Our
        common stock is 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
        have undertaken efforts to develop market recognition for our stock. As of
        March
        31, 2007, we had approximately 525 shareholders and our market capitalization
        was approximately $ 52,826,190. As a result, there is limited market activity
        in
        our stock and we are too small to attract the interest of many brokerage
        firms
        and analysts. 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.
  **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 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;
  26
 ·
              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.
  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.** QPC’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, QPC’s
        articles of incorporation and bylaws 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. In addition, the Company is contractually
        prohibited from paying dividends based on the terms of certain outstanding
        indebtedness.
  **Our
        executive officers and directors beneficially own or control at least 19.8%
        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
        19.8% of our outstanding shares of common stock is beneficially 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 of our common stock, you
        may
        have no effective voice in the management of the Company.
  27
  **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.
  (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.
  28
  **Part
        II -Other information**
  **Item
        1 Legal Proceedings**
  Not
        applicable
  **Item
        2 Unregistered Sales of Equity Securities and Use of
        Proceeds**
  Not
        applicable
  **Item
        3. Defaults Upon Senior Securities**
  Not
        applicable
  **Item
        4. Submission of Matters to a Vote of Security Holders**
  At
        the
        Company’s annual meeting of shareholders held on May 9, 2007, the following
        matters were voted upon by shareholders.
 
 1.
            The
                election of five directors for a term expiring in
                2008: 
 Name
                  of Director
              
              Votes
                  For
              
              Votes
                  WitheldJeffrey
                  Ungar
              
              20,741,502
              
              300George
                  Lintz
              
              20,741,502
              
              300Israel
                  Ury
              
              20,741,502
              
              300Merrill
                  A. McPeak
              
              20,741,502
              
              300Robert
                  Adams
              
              20,741,502
              
              300
 
 2.
            Ratification
                of Weinberg & Company P.A. as independent public accountants of the
                Corporation for the year ending December 31,
                2007 
 For:
        20,699,822
 Against:
        0
 Abstain:
        41,680
  **Item
        5. Other Information**
  Not
        applicable
  **Item
        6. Exhibits**
  Exhibit
                Number
              
              Description
                of
                Document2.1
              
              Share
                  Exchange Agreement by and among Quintessence, the Company, the
                  stockholders of Quintessence, 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)3.2
              
              Bylaws
                  of QPC Lasers, Inc. (1)
  29
  4.1
              
              Registration
                  Rights Agreement (2)4.2
              
              Form
                  of Investor Warrant (2)4.3
              
              Form
                  of Placement Agent Warrant (2)4.4
              
              Form
                  of Warrant dated September 2005 (3)4.5
              
              Form
                  of Amended and Restated Warrant dated May 2004 (3)4.6
              
              Form
                  of Warrant dated April 2005 (3)4.7
              
              Form
                  of Consultant Warrant (3)4.8
              
              Form
                  of Promissory Note, as amended (4)4.9
              
              Form
                  of Warrant issued on or about January 25, 2006 (4)4.10
              
              Secured
                  Promissory Note dated September 18, 2006, issued by Quintessence
                  to
                  Finisar (6)4.11
              
              Form
                  of Subordinated Secured Note dated as of August 1, 2005
                  (4)4.12
              
              Form
                  of Warrant issued in connection with Subordinated Secured Note
                  (4)4.13
              
              Form
                  of Senior Secured Note dated as of May 24, 2004
                  (4)
 
 4.14
              
              Form
                  of Warrant issued in connection with Senior Secured Note (“Original Senior
                  Secured Warrant”) (4)4.15
              
              Form
                  of Amended and Restated Warrant amending the Original Senior Secured
                  Warrant (4)4.16
              
              Form
                  of First Amendment to Senior Secured Note dated as of March 24,
                  2005 (4)10.1
              
              2006
                  Stock Option Plan (2)10.2
              
              Bridge
                  Loan Agreement (2)10.3
              
              Real
                  Property Lease (2)10.4
              
              License
                  Agreement dated September 16, 2003 by and between Quintessence
                  and Finisar
                  (2)10.5
              
              Form
                  of Subscription Agreement (2)10.6
              
              Lock-up
                  Agreement by the Company and George Lintz
                  (3)
  30
  10.7
              
              Lock-up
                  Agreement by the Company and Jeffrey Ungar (3)10.8
              
              Purchase
                  Agreement between Rafael Ltd. and the Company dated June 6, 2005
                  (3)10.9
              
              Subcontract
                  Agreement effective as of June 2, 2006 by and between the Company
                  and
                  Fibertek, Inc. (3)10.10
              
              Agreement
                  of Collaboration dated April 27, 2006 between the Company and Telaris,
                  Inc. (3)10.11
              
              Consulting
                  Agreement by and between Quintessence and Capital Group Communications,
                  Inc. dated as of April 3, 2006 (4)10.12
              
              Loan
                  Agreement by and among Quintessence and Jeffrey Ungar and George
                  Lintz
                  dated as of November 25, 2005 (4)10.13
              
              First
                  Amendment to Loan Agreement by and among Quintessence and Jeffrey
                  Ungar
                  and George Lintz dated as of January 25, 2006 (4)10.14
              
              Security
                  Agreement by and among Quintessence and M.U.S.A. Inc., Jeffrey
                  Ungar and
                  George Lintz dated as of August 1, 2005 (4)10.15
              
              License
                  Termination Agreement dated September 18, 2006, by and between
                  Quintessence and Finisar(6)10.16
              
              Security
                  Agreement dated September 18, 2006, by and between Quintessence
                  and
                  Finisar (6)10.17
              
              Form
                  of Series C Preferred Stock Offering (Tranche I) Subscription Agreement
                  (4)10.18
              
              Form
                  of Series C Preferred Stock Offering (Tranche II) Subscription
                  Agreement
                  (4)10.19
              
              Security
                  Agreement by and between Quintessence and DBA Money USA, as collateral
                  agent, dated as of August 1, 2005 (4)10.20
              
              Loan
                  Agreement by and among the Quintessence and senior secured lenders
                  dated
                  as of May 21, 2004 (4)10.21
              
              Security
                  Agreement by and between the Company and DBA Money USA, as collateral
                  agent, dated as of May 21, 2004 (“Security Agreement regarding Senior
                  Secured Notes”) (4)10.22
              
              First
                  Amendment to Loan Agreement by and among Quintessence and senior
                  secured
                  lenders dated as of March 24, 2005 (4)10.23
              
              First
                  Amendment to Security Agreement regarding Senior Secured Notes
                  dated as of
                  March 24, 2005 (4)10.24
              
              Phase
                  II Award/Contract dated as of March 24, 2006 by and between the U. S.
                  Army and the Company (7)(**)10.25
              
              Securities
                  Purchase Agreement dated April 16, 2007 (8)10.26
              
              Form
                  of Secured Debenture (8)10.27
              
              Form
                  of Warrant (8)10.28
              
              Form
                  of Registration Rights Agreement (8)
  31
  10.29
              
              Security
                  Agreement (8)
  
 31.01
              Chief
                  Executive Officer's Certification pursuant to Section 302 of theSarbanes-Oxley
                  Act of 2002 (9)
 31.02
              Chief
                  Financial Officer's Certification pursuant to Section 302 of theSarbanes-Oxley
                  Act of 2002 (9)
 32.01
              Chief
                  Executive Officer's Certification pursuant to Section 906 of the
                  Sarbanes-OxleyAct
                  of 2002 (9)
 32.02
              Chief
                  Financial Officer's Certification pursuant to Section 906 of the
                  Sarbanes-OxleyAct
                  of 2002 (9)
 
 (1)
              Filed
                  with the Registrant’s Current Report on Form 8-K filed on May 12,
                  2006(2)
              Filed
                  with the Registrant’s Quarterly Report on Form 10-QSB for the quarter
                  ended June 30, 2006 filed on August 15, 2006(3)
              Filed
                  with the Registrant’s Registration Statement on Form SB-2 filed on
                  September 18, 2006(4)
              Filed
                  with the Registrant's Amendment No. 2 to the Registration Statement
                  on
                  Form SB-2 filed on December 1, 2006(5)
              Filed
                  with the Registrant’s Current Report on Form 8-K filed on November 8,
                  2006
  (6)
              Filed
                  with the Registrant’s Current Report on Form 8-K filed on November 2,
                  2006(7)
              Filed
                  with the Registrant’s Registration Statement on Form SB-2/Pre-Effective
                  Amendment No. 3 filed on January 26, 2007(8)
              Filed with
                  the Registrant’s Current Report on Form 8-K filed on April 20,
                  2007(9)
              Filed
                  herewith(**)
              Confidential
                  treatment requested as to portions of the Exhibit. Omitted materials
                  filed
                  separately with the Commission.
 
  32
  **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:
                  May 15, 2007
              **QPC
                  Lasers, Inc.**/s/
                  George Lintz
                George
                  LintzChief
                  Operating Officer, Chief Financial Officer/s/
                  Jeffrey Ungar
                Chief
                  Executive Officer