**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549 FORM 10-Q**





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


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended March 31, 2005





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from _____to______


Commission
file number 1-8191





**PORTA
SYSTEMS CORP.**


(Exact
name of registrant as specified in its charter)





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





6851
Jericho Turnpike, Suite 170, Syosset, New York


(Address
of principal executive offices)





11791


(Zip
Code)





516-364-9300


(Company's
telephone number, including area code)





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





Yes x Noo


Indicate
by a check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes oNo x





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





Common
stock (par value $0.01) 9,972,284 shares as of April 28 **,** 2005











**PART
I.- FINANCIAL INFORMATION Item 1- Financial Statements**
 
 PORTA
SYSTEMS CORP. AND SUBSIDIARIES
 Consolidated
Balance Sheets
 (In
thousands, except shares and par value)
 March
      31,
    
    December
      31,Assets
    
    2005
    
    2004Current
      assets:
    
    (Unaudited)Cash
      and cash equivalents
    
    $
    1,560
    
    $
    2,040Accounts
      receivable - trade, less allowance for doubtfulaccounts of $1,045
      in both 2005 and 2004
    
    
    3,571
    
    
    3,076Inventories
    
    
    4,914
    
    
    4,576Prepaid
      expenses and other current assets
    
    
    740
    
    
    382Total
      current assets
    
    
    10,785
    
    
    10,074Property,
      plant and equipment, net
    
    
    1,398
    
    
    1,334Goodwill
    
    
    2,961
    
    
    2,961Other
      assets
    
    
    69
    
    
    69Total
      assets
    
    $
    15,213
    
    $
    14,438Liabilities
      and Stockholders' DeficitCurrent
      liabilities:Senior
      debt, including accrued interest
    
    $
    25,615
    
    $
    25,674Subordinated
      notes
    
    
    6,144
    
    
    6,1446%
      Convertible subordinated debentures
    
    
    385
    
    
    385Accounts
      payable
    
    
    4,503
    
    
    4,728Accrued
      expenses and other
    
    
    2,452
    
    
    2,760Other
      accrued interest payable
    
    
    4,770
    
    
    4,533Total
      current liabilities
    
    
    43,869
    
    
    44,224Deferred
      compensation
    
    
    864
    
    
    875Total
      long-term liabilities
    
    
    864
    
    
    875Total
      liabilities
    
    
    44,733
    
    
    45,099Commitments
      and contingenciesStockholders'
      deficit:Preferred
      stock, no par value; authorized 1,000,000 shares, none
    issuedCommon
      stock, par value $.01; authorized 20,000,000 shares,issued
      10,003,224 shares in both 2005 and 2004
    
    
    100
    
    
    100Additional
      paid-in capital
    
    
    76,059
    
    
    76,059Accumulated
      deficit
    
    
    (99,502
    )
    
    (100,705
    )Accumulated
      other comprehensive loss:Foreign
      currency translation adjustment
    
    
    (4,239
    )
    
    (4,177
    )(27,582
    )
    
    (28,723
    )Treasury
      stock, at cost, 30,940 shares
    
    
    (1,938
    )
    
    (1,938
    )Total
      stockholders' deficit
    
    
    (29,520
    )
    
    (30,661
    )Total
      liabilities and stockholders' deficit
    
    $
    15,213
    
    $
    14,438
 
 See
accompanying notes to consolidated financial statements
 
 Page 2 of
12
  
 
 PORTA SYSTEMS CORP. AND SUBSIDIARIES
 Unaudited
Consolidated Statements of Operations and Comprehensive Income
 (In
thousands, except per share amounts)
 
 Three
      Months EndedMarch
      31,
    
    March
      31,2005
    
    2004Sales
    
    $
    7,615
    
    $
    8,100Cost
      of sales
    
    
    4,472
    
    
    4,970Gross
      profit
    
    
    3,143
    
    
    3,130Selling,
      general and administrative expenses
    
    
    1,177
    
    
    1,466Research
      and development expenses
    
    
    421
    
    
    513Total
      expenses
    
    
    1,598
    
    
    1,979Operating
      income
    
    
    1,545
    
    
    1,151Interest
      expense, net of interest income
    
    
    (325
    )
    
    (323
    )Income
      before income taxes
    
    
    1,220
    
    
    828Income
      tax expense
    
    
    (17
    )
    
    --Net
      income
    
    $
    1,203
    
    $
    828Other
      comprehensive income:Foreign
      currency translation adjustments
    
    
    (62
    )
    
    (114
    )Comprehensive
      income
    
    $
    1,141
    
    $
    714Per
      share data:Basic
      per share amounts:Net
      income per share of common stock
    
    $
    0.12
    
    $
    0.08Weighted
      average shares outstanding
    
    
    9,972
    
    
    9,972Diluted
      per share amounts:Net
      income per share of common stock
    
    $
    0.12
    
    $
    0.08Weighted
      average shares outstanding
    
    
    10,005
    
    
    9,972
 
 See
accompanying notes to unaudited consolidated financial statements.
 
 Page 3 of
13
  
  PORTA
SYSTEMS CORP. AND SUBSIDIARIES
 Unaudited
Consolidated Statements of Cash Flows
 (In
thousands)
  Three
      Months EndedMarch
      31,
    
    March
      31,2005
    
    2004Cash
      flows from operating activities:Net
      income
    
    $
    1,203
    
    $
    828Adjustments
      to reconcile net income to net cashused
      in operating activities:Depreciation
      and amortization
    
    
    101
    
    
    95Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    (495
    )
    
    (2,163
    )Inventories
    
    
    (338
    )
    
    471Prepaid
      expenses and other current assets
    
    
    (359
    )
    
    42Other
      assets
    
    
    (1
    )
    
    10Accounts
      payable, accrued expenses and other liabilities
    
    
    (305
    )
    
    467Net
      cash used in operating activities
    
    
    (194
    )
    
    (250
    )Cash
      flows from investing activities:Capital
      expenditures, net
    
    
    (169
    )
    
    (18
    )Net
      cash used in investing activities
    
    
    (169
    )
    
    (18
    )Cash
      flows from financing activities:Increase
      in senior debt
    
    
    91
    
    
    85Repayments
      of senior debt
    
    
    (150
    )
    
    --Net
      cash provided by (used in) financing activities
    
    
    (59
    )
    
    85Effect
      of exchange rate changes on cash
    
    
    (58
    )
    
    (119
    )Decrease
      in cash and cash equivalents
    
    
    (480
    )
    
    (302
    )Cash
      and cash equivalents - beginning of the year
    
    
    2,040
    
    
    469Cash
      and cash equivalents - end of the period
    
    $
    1,560
    
    $
    167Supplemental
      cash flow disclosure:Cash
      paid for interest expense
    
    $
    151
    
    $
    1Cash
      paid for income taxes
    
    $
    30
    
    $
    16
 
 See
accompanying notes to unaudited consolidated financial statements.
 
 Page 4 of
13
  
   PORTA
SYSTEMS CORP. AND SUBSIDIARIES
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
1:**  **Management's
Responsibility For Interim Financial Statements Including All Adjustments
Necessary For Fair Presentation**
 
 Management
acknowledges its responsibility for the preparation of the accompanying interim
consolidated financial statements which reflect all adjustments, consisting of
normal recurring adjustments, considered necessary in its opinion for a fair
statement of its consolidated financial position and the results of its
operations for the interim period presented. These consolidated financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to consolidated financial statements included in
the Company's Form 10-K annual report for the year ended December 31, 2004.
These financial statements have been prepared assuming that the Company will
continue as a going concern and, accordingly, do not include any adjustments
that might result from the outcome of the uncertainties described within. The
audit opinion included in the December 31, 2004 Form 10-K annual report
contained an explanatory paragraph regarding the Company's ability to continue
as a going concern. The factors which resulted in the explanatory paragraph are
continuing. Results for the first three months of 2005 are not necessarily
indicative of results for the year.
 
 **Note
2: Inventories**
 
 Inventories
are stated at the lower of cost (on the average or first-in, first-out methods)
or market . The
composition of inventories at the end of the respective periods is as follows:
 
 March
      31, 2005
    
    December
      31, 2004(in
      thousands)Parts
      and components
    
    $
    3,076
    
    $
    2,650Work-in-process
    
    
    696
    
    
    654Finished
      goods
    
    
    1,142
    
    
    1,272$
    4,914
    
    $
    4,576
 
 **Note
3: Senior and Subordinated Debt**
 
 On March
31, 2005, the Company's liability to the holder of its senior debt, including
accrued interest of $755,000, was $25,615,000. During the fourth quarter of
2004, SHF IX LLC, an affiliate Minnesota-based Stonehill Financial, LLC,
purchased the Company's senior debt of approximately $25,000,000 from Wells
Fargo Foothill, Inc. Under recent amendments, the loan becomes due and payable
on July 1, 2005. If the agreement is not extended beyond July 1, 2005, and if
the holder of the senior debt demands payment of all or a significant portion of
the loan when due, the Company will not be able to continue in business and it
is likely that the Company will seek protection under the Bankruptcy
Code. ****
 
 As of
March 31, 2005, the Company's short-term debt also included $6,144,000 of
subordinated debt that became due on July 3, 2001 and $385,000 of 6% debentures
which became due on July 2, 2002. Accrued interest on the subordinated notes was
approximately $4,360,000, which represents interest from July 2000 through March
31, 2005, and accrued interest on the 6% debentures was $110,000. We are
precluded by the holder of our senior debt from paying any principal or interest
on the subordinated debt.
 
 Page 5 of
12
  
 
 **Note
4: Accounting for Stock Based Compensation**
 
 The
Company applies the intrinsic value method as outlined in APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for stock options. Under the intrinsic value method, no compensation
expense is recognized if the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of the
grant. Accordingly, no compensation cost has been recognized. SFAS No. 123,
"Accounting for Stock-Based Compensation," requires the Company to provide pro
forma information regarding net income and net income per common share as if
compensation cost for the Company's stock option programs had been determined in
accordance with the fair value method prescribed therein. Since there was no
stock-based compensation in the quarters ended March 31, 2005 and 2004, pro
forma income is the same as the reported net income.
 
 In
December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment." This
statement replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB No. 25, "Accounting for Stock Issued to Employees." SFAS 123(R)
requires all stock-based compensation to be recognized as an expense in the
financial statements and that such cost be measured according to the fair value
of stock options. SFAS 123(R) will be effective for fiscal years beginning after
June 15, 2005, which for the Company is the first quarter of 2006. While the
Company currently provides the pro forma disclosures required by SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," on a
quarterly basis (see above), it is currently evaluating the impact this
statement will have on its consolidated financial statements.
 
 **Note
5: Segment Data**
 
 The
Company has three reportable segments: Line Connection and Protection Equipment
("Line") whose products interconnect copper telephone lines to switching
equipment and provide fuse elements that protect telephone equipment and
personnel from electrical surges; Signal Processing ("Signal") whose products
are used in data communication devices that employ high frequency transformer
technology, and Operating Support Systems ("OSS") whose products automate the
testing, provisioning, maintenance and administration of communication networks
and the management of support personnel and equipment.
 
 Because
of continuing losses in the OSS division, combined with difficulties in
marketing OSS products in view of our financial condition, we limit our OSS
activities to the performance of maintenance and warranty services. For the
three months ended March 31, 2005, OSS sales were $208,000, which was
approximately 2.7% of the Company's revenue and the OSS operations generated a
loss of approximately $273,000. For the three months ended March 31, 2004, OSS
sales were $811,000, which was approximately 10.0% of the Company's revenue and
the OSS operations generated a loss of approximately $298,000. The Company
anticipates that the OSS revenue will represent an increasingly smaller portion
of our revenue.
 
 The
factors used to determine the above segments focused primarily on the types of
products and services provided, and the type of customer served. Each of these
segments is managed separately from the others, and management evaluates segment
performance based on operating income.
 
 There has
been no significant change from December 31, 2004 in the basis of measurement of
segment revenues and profit or loss, and no significant change in the Company's
assets.
 
 Page 6 of
12
  
  
 Three
      Months EndedMarch
      31, 2005
    
    March
      31, 2004**Sales:**Line
    
    $
    5,707,000
    
    $
    5,972,000Signal
    
    
    1,656,000
    
    
    1,303,000OSS
    
    
    208,000
    
    
    811,000$
    7,571,000
    
    $
    8,086,000**Segment
      profit (loss):**Line
    
    $
    1,573,000
    
    $
    1,636,000Signal
    
    
    698,000
    
    
    455,000OSS
    
    
    (273,000
    )
    
    (298,000
    )$
    1,998,000
    
    $
    1,793,000
 
 The
following table reconciles segment totals to consolidated totals:
 
 Three
      Months EndedMarch
      31, 2005
    
    March
      31, 2004**Sales:**Total
      revenue for reportable segments
    
    $
    7,571,000
    
    $
    8,086,000Other
      revenue
    
    
    44,000
    
    
    14,000Consolidated
      total revenue
    
    $
    7,615,000
    
    $
    8,100,000**Operating
      Income:**Total
      segment income for reportable segments
    
    $
    1,998,000
    
    $
    1,793,000Corporate
      and unallocated
    
    
    (453,000
    )
    
    (642,000
    )Consolidated
      total operating income
    
    $
    1,545,000
    
    $
    1,151,000
 
 **Item
2. Management's Discussion and Analysis of Financial Condition and Results
of** **Operations**
 
 The
Company's consolidated statements of operations for the periods indicated below,
shown as a percentage of sales, are as follows:
 Three
      Months EndedMarch
      31,2005
    
    2004Sales
    
    
    100
    %
    
    100
    %Cost
      of Sales
    
    
    59
    %
    
    61
    %Gross
      Profit
    
    
    41
    %
    
    39
    %Selling,
      general and administrative expenses
    
    
    15
    %
    
    18
    %Research
      and development expenses
    
    
    6
    %
    
    6
    %Operating
      income
    
    
    20
    %
    
    14
    %Interest
      expense - net
    
    
    (4
    %)
    
    (4
    %)Net
      income
    
    
    16
    %
    
    10
    %
 Page 7 of
13
  
  The
Company's sales by product line for the periods ended March 31, 2005 and 2004
are as follows:
 Three
      Months Ended March 31,$
      (000)2005
    
    2004Line
      connection/protection equipment
    
    $
    5,707
    
    
    75
    %
    $
    5,972
    
    
    74
    %Signal
      Processing
    
    
    1,656
    
    
    22
    %
    
    1,303
    
    
    16
    %OSS
      equipment
    
    
    208
    
    
    3
    %
    
    811
    
    
    10
    %Other
    
    
    44
    
    
    1
    %
    
    14
    
    
    0
    %$
    7,615
    
    
    100
    %
    $
    8,100
    
    
    100
    %
  **Overview**
 We
operate in the telecommunications industry, and our customer base consists
largely of government-owned and privately-owned telecommunications companies.
Our line connection and protection equipment ("Line") interconnects copper
telephone lines to switching equipment and provides fuse elements that protect
telephone equipment and personnel from electrical surges. Our signal processing
("Signal") equipment is used in data communication devices that employ high
frequency transformer technology. Our Operating Support Systems ("OSS"), which
are becoming an increasingly less important part of our business, automate the
testing, provisioning, maintenance and administration of communication networks
and the management of support personnel and equipment.
 
 Because
of continuing losses in the OSS division, combined with difficulties in
marketing OSS products in view of our financial condition, we limit our OSS
activities to the performance of maintenance and warranty services. In addition,
we are trying to sell our remaining OSS inventory although we did not generate
any sales of OSS inventory in the first quarter of 2005 and sales of OSS
inventory were minimal during 2004. We expect our OSS business to continue to
decline in future years, and we do not anticipate that we will enter into new
maintenance contracts when our warranty obligations terminate or renew existing
maintenance contracts when they expire.
 
 Our Line
equipment is designed to connect copper-wired telecommunications networks and to
protect telecommunications equipment from voltage surges. We market this
equipment to telephone operating companies in the United States and foreign
countries. Our Line division operated at a profit for the three months ended
March 31, 2005 and March 31, 2004. We market Signal equipment principally for
use in defense and aerospace applications. The Signal division generated
operating profit for the three months ended March 31, 2005 and the comparable
period of 2004. We recognize revenue from Line and Signal products when the
product is shipped.
 
 Our
senior debt matures on July 1, 2005. Although the holder of our senior debt has
extended the maturity date from time to time as we approached an expiration
date, the holder may not extend the loan beyond July 1, 2005 and if the holder
does grant an extension, it may be the final extension which the holder grants
to us. Any extension may be contingent upon our making or agreeing to make
significant payments on account of the senior debt, which may affect our ability
to conduct our business and, if such payments impair our ability to conduct
business, it is likely that we will seek protection under the Bankruptcy Code.
If the holder of our senior debt does not extend the maturity date of our
obligations and demands payment of all or a significant portion of our
obligations due to the holder, we will not be able to continue in business and
it is likely that we will seek protection under the Bankruptcy Code. We cannot
assure you that the holder of our senior debt will not demand payment of all or
a significant portion of our obligations or that we will not seek protection
under the Bankruptcy Code in anticipation of a decision by the holder to demand
payment.
 
 Page 8 of
13
  
  **Results
of Operations**
 
 Our sales
for the quarter ended March 31, 2005 were $7,615,000, representing a decrease of
$485,000 (6%) compared to the quarter ended March 31, 2004 of $8,100,000. The
decreased sales level resulted primarily from decreased sales of OSS products,
and to a significantly lesser extent from a small decrease in sales of our Line
products. The reductions were offset by an increase in Signal processing
revenue.
 
 Line
equipment sales slightly decreased by $265,000 (4%) from $5,972,000 for the
March 2004 quarter to $5,707,000 for the March 2005 quarter, principally as a
result of a decline in sales to British Telecommunications from the first
quarter of 2004.
 
 Signal
processing revenue for the quarter ended March 31, 2005 compared to 2004
increased by $353,000 (27%) from $1,303,000 to $1,656,000. This increase
resulted from our ability to ship orders from backlog on a more timely basis
than in the comparable period of 2004.
 
 OSS sales
decreased by $603,000 (74%) from $811,000 for the quarter ended March 31, 2004
to $208,000 for the quarter ended March 31, 2005. The decreased sales resulted
from the reduction in the scope of our OSS operations.
 
 Gross
margin for the March 2005 quarter was 41% compared to 39% for the March 2004
quarter. This increase is from our Line and Signal processing segments, somewhat
offset by a decrease in the OSS margin.
 
 Selling,
general and administrative expenses decreased by $289,000 (20%) from $1,466,000
in the March 2004 quarter to $1,177,000 in the March 2005 quarter. This decrease
relates primarily to reduced OSS sales expenses as our marketing activities for
OSS were sharply reduced during 2004 and into the first quarter of
2005.
 
 Research
and development expenses decreased by $92,000 (18%) from $513,000 in the March
2004 quarter to $421,000 in the March 2005 quarter. During the March 2004
quarter, a significant portion of our research and development related to OSS,
and the elimination of this activity resulted in an overall decrease despite an
increase in research and development for our Line business.
 
 As a
result of the foregoing, we had an operating income of $1,545,000 for the March
2005 quarter, as compared to an operating income of $1,151,000 for the March
2004 quarter.
 
 We
continue to accrue interest on obligations to the holder of $2,225,000 of our
senior debt, which represents interest on senior debt that we incurred
subsequent to March 2002. In addition, there is outstanding an old term loan, in
the principal amount of approximately $23,000,000, that accrues no interest
commencing March 1, 2002, until such time as the holder of the debt, in its sole
discretion, notifies us that interest, at a rate of 12%, or a default rate of
14%, shall be payable. The holder of the senior debt has not required us to pay
interest on this amount.
 
 Income
tax expense for the quarter ended March 31, 2005 relates to state and foreign
taxes. No federal income tax expense has been provided due to the availability
of net operating loss carry forwards.
 
 Page 9 of
12
  
  
 
 As the
result of the foregoing, we generated net income of $1,203,000, **** $.12 per
share (basic and diluted), for the March 2005 quarter versus net income of
$828,000, $0.08 per share (basic and diluted), for the March 2004 quarter.
 
 **Liquidity
and Capital Resources**
 
 At March
31, 2005, we had cash and cash equivalents of $1,560,000 compared with
$2,040,000 at December 31, 2004. Our working capital deficit at March 31, 2005
was $33,084,000, compared to a working capital deficit of $34,150,000 at
December 31, 2004, a reduction of $1,066,000 in our working capital deficit.
This improvement is the result of our improved operating results for the quarter
ended March 31, 2005. We used $194,000 of cash in our operations during the
March 2005 quarter. During the first quarter, we commenced making payments to
the holder of our senior debt, with payment of $150,000, all of which was
applied to interest.
 
 As of
March 31, 2005, our debt includes $25,615,000 of senior debt which matures on
July 1, 2005, $6,144,000 of subordinated debt that became due on July 3, 2001,
and $385,000 of 6% debentures which became due on July 2, 2002. We were unable
to pay the interest payment on the subordinated notes of approximately
$4,360,000 that represents interest from July 2000 through March 2005, or the
interest on the subordinated debentures of approximately $110,000. We have been
notified by the trustee of 6% debentures that the non-payment of the principal
and interest caused an event of default. At March 31, 2005, we did not have
sufficient resources to pay either the senior lender or the subordinated
lenders; it is unlikely that we can generate such cash from our operations, and
our senior lender has precluded us from making any payments on the subordinated
debt.
 
 We have
sought to address our need for liquidity by exploring alternatives, including
the possible sale of one or more of our divisions. During 2003 and 2004, we were
engaged in discussions with respect to the possible sale of our divisions;
however, those negotiations were terminated without an agreement having been
reached, and we may not be able to sell those divisions on acceptable, if any,
terms. Furthermore, if we sell a division, we anticipate that a substantial
portion, if not all, of the net proceeds will be paid to the holder of our
senior debt, and we will not receive any significant amount of working capital
from such a sale. We continue our efforts to reduce costs while we seek
additional business from new and existing customers. The significant reduction
in the operations of our OSS division will impair our ability to sell that
division, and such reduction, and the dependence of our copper business on
several significant customers, are major factors which may impair our ability to
sell the copper division or our business as a whole. Further, if we sell one of
our two divisions, we may be unable to operate the remaining division at a
profit.
 
 **Forward
Looking Statements**
 
 Statements
contained in this Form 10-Q include forward-looking statements that are subject
to risks and uncertainties. In particular, statements in this Form 10-Q that
state the Company's intentions, beliefs, expectations, strategies, predictions
or any other statements relating to our future activities or other future events
or conditions are "forward-looking statements." Forward-looking statements are
subject to risks, uncertainties and other factors, including, but not limited
to, those identified under "Risk Factors," in our Form 10-K for the year ended
December 31, 2004 and those described in "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" in our Form 10-K and this
Form 10-Q, and those described in any other filings by us with the Securities
and Exchange Commission, as well as general economic conditions and economic
conditions affecting the telecommunications industry, any one or more of which
could cause actual results to differ materially from those stated in such
statements.
 
 Page 10
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  **Item
3. Quantitative and Qualitative Disclosure About Market
Risk.**
 
 We
conduct certain operations outside the United States. A substantial portion of
our revenue and expenses from our United Kingdom operations are denominated in
Sterling. Any Sterling-denominated receipts are promptly converted into United
States dollars. We do not engage in any hedging or other currency
transactions.
 
 **Item
4. Controls and Procedures**
 
 **Disclosure
Controls and Procedures**
 
 As of the
end of the period covered by this report, our Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of our disclosure controls and
procedures. Based on their evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective.
 
 **Internal
Control Over Financial Reporting**
 
 There has
been no change in our internal control over financial reporting that occurred
during the fiscal quarter covered by this quarterly report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
 
 **PART
II - OTHER INFORMATION**
 
 **Item
3. Defaults Upon Senior Securities.**
 
 See Note
3 of Notes to Unaudited Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources" for information concerning defaults
on our subordinated debt. ****
 
 **Item
6. Exhibits**
 
 31.1
    Certificate
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley
      Act of 2002.31.2
    Certificate
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes- Oxley
      Act of 2002.32.1
    Certificate
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.
 
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 **SIGNATURES**
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  ****PORTA
      SYSTEMS CORP.****Dated: May 13, 2005
    By:
    /s/ William V.
    CarneyWilliam V. CarneyChairman
      of the Board and
      Chief Executive Officer
  ****Dated: May 13, 2005
    By:
    /s/ Edward B.
    KornfeldEdward B. KornfeldPresident,
      Chief Operating Officer and
      Chief Financial Officer
  
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