**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, 2007





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
            (I.R.S.
                Employerincorporation
                or organization)
            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 No
o





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




Large
                accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer x





Indicate
      by a check mark whether the registrant is a shell company (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) 10,075,560 shares as of April 27 **,** 2007





**PART
      I.- FINANCIAL INFORMATION**


**Item
      1-** **Financial
      Statements**





PORTA
      SYSTEMS CORP. AND SUBSIDIARIES


Consolidated
      Balance Sheets


(In
      thousands, except shares and par value)





UnauditedMarch
                31
            
            December
                31,2007
            
            2006AssetsCurrent
                assets:Cash
                and cash equivalents
            
            $
            564
            
            $
            2,102Accounts
                receivable - trade, less allowance for doubtful accounts of $13 in
                2007
                and $13 in 2006
            
            
            7,155
            
            
            5,417Inventories
            
            
            6,251
            
            
            4,591Prepaid
                expenses and other current assets
            
            
            718
            
            
            697Assets
                of discontinued operations
            
            
            383
            
            
            383Total
                current assets
            
            
            15,071
            
            
            13,190Property,
                plant and equipment, net
            
            
            1,644
            
            
            1,571Goodwill,
                net
            
            
            2,961
            
            
            2,961Other
                assets
            
            
            61
            
            
            51Long
                term assets of discontinued operations
            
            
            5
            
            
            11Total
                assets
            
            $
            19,742
            
            $
            17,784Liabilities
                and Stockholders’ DeficitCurrent
                liabilities:Senior
                debt
            
            $
            23,554
            
            $
            23,513Subordinated
                notes
            
            
            6,144
            
            
            6,1446%
                convertible subordinated debentures
            
            
            385
            
            
            385Accounts
                payable
            
            
            7,620
            
            
            6,106Accrued
                expenses and other
            
            
            2,304
            
            
            2,136Other
                accrued interest payable
            
            
            6,365
            
            
            6,127Liabilities
                of discontinued operations
            
            
            254
            
            
            425Total
                current liabilities
            
            
            46,626
            
            
            44,836Deferred
                compensation, net of current portion
            
            
            755
            
            
            771Total
                long-term liabilities
            
            
            755
            
            
            771Total
                liabilities
            
            
            47,381
            
            
            45,607Stockholders’
                deficit:Preferred
                stock, no par value; authorized 1,000,000 shares, none
                issued
            
            
            —
            
            
            —Common
                stock, par value $.01; authorized 20,000,000 shares, issued 10,106,501
                shares in 2007 and 10,106,480 in 2006
            
            
            101
            
            
            101Additional
                paid-in capital
            
            
            76,124
            
            
            76,125Accumulated
                deficit
            
            
            (97,548
            )
            
            (97,713
            )Accumulated
                other comprehensive loss:Foreign
                currency translation adjustment
            
            
            (4,378
            )
            
            (4,398
            )(25,701
            )
            
            (25,885
            )Treasury
                stock, at cost, 30,940 shares
            
            
            (1,938
            )
            
            (
                1,938
            )Total
                stockholders’ deficit
            
            
            (27,639
            )
            
            (27,823
            )Total
                liabilities and stockholders’ deficit
            
            $
            19,742
            
            $
            17,784




See
      accompanying notes to unaudited consolidated financial
      statements.


Page
          1 of
          13





PORTA
      SYSTEMS CORP. AND SUBSIDIARIES


Unaudited
      Consolidated Statements of Operations and Comprehensive Income


(In
      thousands, except per share amounts)





Three
                Months EndedMarch
                31**,**
            
            March
                31,2007
            
            2006Sales
            
            $
            8,202
            
            $
            7,938Cost
                of sales
            
            
            5,582
            
            
            5,225Gross
                profit
            
            
            2,620
            
            
            2,713Selling,
                general and administrative expenses
            
            
            1,581
            
            
            1,306Research
                and development expenses
            
            
            373
            
            
            401Total
                operating expenses
            
            
            1,954
            
            
            1,707Operating
                income from continuing operations
            
            
            666
            
            
            1,006Interest
                expense, net
            
            
            (440
            )
            
            (296
            )Other
                expense, net
            
            
            (1
            )
            
            —Income
                from continuing operations before income taxes
            
            
            225
            
            
            710Income
                tax expense
            
            
            (26
            )
            
            (23
            )Income
                from continuing operations before discontinued operations
            
            
            199
            
            
            687Discontinued
                operations:Loss
                from discontinued operations (net of zero taxes)
            
            
            (34
            )
            
            (82
            )Net
                income
            
            $
            165
            
            $
            605Other
                comprehensive loss:Foreign
                currency translation adjustments
            
            
            (73
            )
            
            (293
            )Comprehensive
                income
            
            $
            92
            
            $
            312Basic
                income (loss) per common share:Continuing
                operations
            
            $
            0.02
            
            $
            0.06Discontinued
                operations
            
            
            —
            
            
            —$
            0.02
            
            
            0.06Weighted
                average shares outstanding
            
            
            10,076
            
            
            10,076Diluted
                income (loss) per common share:Continuing
                operations
            
            $
            0.02
            
            $
            0.06Discontinued
                operations
            
            
            —
            
            
            —$
            0.02
            
            $
            0.06Weighted
                average shares outstanding
            
            
            10,111
            
            
            10,106





See
      accompanying notes to unaudited consolidated financial statements.


Page
          2 of
          13





PORTA
      SYSTEMS CORP. AND SUBSIDIARIES


Unaudited
      Consolidated Statements of Cash Flows


(In
      thousands)





Three
                Months EndedMarch
                31,
            
            March
                31,2007
            
            2006Cash
                flows from operating activities:Net
                income
            
            $
            165
            
            $
            605Loss
                from discontinued operations
            
            
            34
            
            
            82Adjustments
                to reconcile net income to net cashprovided
                by (used in) operating activities:Depreciation
                and amortization
            
            
            71
            
            
            112Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,738
            )
            
            (1,017
            )Inventories
            
            
            (1,661
            )
            
            395Prepaid
                expenses and other current assets
            
            
            (23
            )
            
            (67
            )Other
                assets
            
            
            (9
            )
            
            (9
            )Accounts
                payable, accrued expenses and other liabilities
            
            
            1,769
            
            
            802Net
                cash provided by (used in) operating activities
            
            
            (1,392
            )
            
            903Cash
                flows from investing activities:Capital
                expenditures
            
            
            (144
            )
            
            (126
            )Net
                cash used in investing activities
            
            
            (144
            )
            
            (126
            )Cash
                flows from financing activities:Increase
                in senior debt
            
            
            191
            
            
            —Repayments
                of senior debt
            
            
            (150
            )
            
            (272
            )Net
                cash provided by (used in) financing activities
            
            
            41
            
            
            (272
            )Effect
                of exchange rate changes on cash
            
            
            (43
            )
            
            (726
            )Decrease
                in cash and cash equivalents
            
            
            (1,538
            )
            
            (221
            )Cash
                and cash equivalents - beginning of the year
            
            
            2,102
            
            
            1,254Cash
                and cash equivalents - end of the period
            
            $
            564
            
            $
            1,033Supplemental
                cash flow disclosure:Cash
                paid for interest expense
            
            $
            24
            
            $
            66Cash
                paid for income taxes
            
            $
            0
            
            $
            23




See
      accompanying notes to unaudited consolidated financial
      statements.


Page
          3 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, 2006.
      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, 2006 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 2007 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
      (net of reserves of $2,411,000 for 2007 and $2,345,000 for 2006):





March
                31, 2007
            
            December
                31, 2006(in
                thousands)Parts
                and components
            
            $
            3,911
            
            $
            3,637Work-in-process
            
            
            1,081
            
            
            543Finished
                goods
            
            
            1,259
            
            
            411$
            6,251
            
            $
            4,591




**Note
      3: Senior and Subordinated Debt**





On
      March
      31, 2007, the Company’s liability to the holder of its senior debt was
      $23,554,000 . During
      the fourth quarter of 2004, SHF IX, LLC an affiliate of Stonehill Financial,
      LLC, purchased the Company’s senior debt of approximately $25,000,000 from Wells
      Fargo Foothill, Inc. The Company has made payments totaling $2,695,000 as
      required by amendments and extensions of the loan agreement, of which $478,000
      was applied to interest and $2,217,000 was applied to principal. On
      February 7, 2007 Cheyne Special Situations Fund L.P (“Cheyne”) purchased the
      Company’s senior debt of approximately $23,400,000 from SHF IX, LLC and
      subsequently extended the maturity of the senior debt to October 1, 2007. The
      Company can not give any assurance that the holder of its senior debt will
      extend the loan beyond October 1, 2007. Any
      adverse event, including declines in business, could have an effect on the
      decision of the holder of the senior debt to extend or demand payment on the
      notes. If
      the
      holder of the senior debt does not extend the maturity of our senior debt beyond
      October 1, 2007 or if the holder of the senior debt demands payment of all
      or a
      significant portion of the senior debt when due, we will not be able to continue
      in business, and it is likely that we will seek protection under the Bankruptcy
      Code.





As
      of
      March 31, 2007, 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. The interest rate on the 6% debentures
      increased to 8.26% as a result of our failure to make interest payments on
      the
      debentures since July 1, 2000 and our failure to pay principal on July 2, 2002.
      Accrued interest on the subordinated notes was approximately $6,207,000, which
      represents interest from July 2000 through March 31, 2007. We are precluded
      by
      the holder of our senior debt from paying any principal or interest on the
      subordinated debt.


Page
          4 of
          13





**Note
      4: Accounting for Stock Based Compensation**





For
      the
      three months ended March 31, 2007 and 2006, the Company did not issue any stock
      options and, therefore, did not recognize non-cash compensation expense
      attributable to stock options granted during the quarters. The Company uses
      the
      Black-Scholes valuation model and straight-line amortization of compensation
      expense over the requisite service period when granting stock options. All
      options previously granted are fully vested.





**Note
      5: Segment Data**





The
      Company has two 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, and Signal Processing (“Signal”) whose
      products are used in data communication devices that employ high frequency
      transformer technology.





Due
      to
      continuing losses in the Operating Support Systems (“OSS”) division, combined
      with difficulties in marketing OSS products in view of our financial condition,
      in December 2003, the Company decided to limit its operations in this segment
      to
      the performance of contractual maintenance and warranty services. Our
      obligations to perform these services will expire in June 2007 (see Note 7)
      and
      the Company anticipates that these services will cease by June 2007. The Company
      continues to pursue the sale of the OSS business technology and the remaining
      inventory. The Company hopes to complete the sale in 2007, but the Company
      gives
      no assurances that it will be successful. Accordingly, effective June 30, 2006
      the assets and liabilities, and results of operations, of the OSS division
      have
      been segregated and reported separately as discontinued operations, on the
      Consolidated Financial Statements present in this Form 10-Q. OSS was engaged
      in
      the business whose products automate the testing, provisioning, maintenance
      and
      administration of communication networks and the management of support personnel
      and equipment. Currently we limit OSS activities to the performance of
      contractual maintenance and warranty services.





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, 2006, in the basis of measurement
      of segment revenues and profit or loss, and no significant change in the
      Company’s assets for the Line and Signal reporting segments.




Page
          5 of
          13





Three
                Months EndedMarch
                31, 2007
            
            March
                31, 2006**Sales:**Line
            
            $
            6,801,000
            
            $
            6,488,000Signal
            
            
            1,388,000
            
            
            1,412,000$
            8,189,000
            
            $
            7,900,000**Segment
                profit (loss):**Line
            
            $
            1,062,000
            
            $
            1,204,000Signal
            
            
            418,000
            
            
            384,000$
            1,480,000
            
            $
            1,588,000




The
      following table reconciles segment totals to consolidated
      totals:





Three
                Months EndedMarch
                31, 2007
            
            March
                31, 2006**Sales:**Total
                revenue for reportable segments
            
            $
            8,189,000
            
            $
            7,900,000Other
                revenue
            
            
            13,000
            
            
            38,000Consolidated
                total revenue
            
            $
            8,202,000
            
            $
            7,938,000**Operating
                Income:**Total
                segment income forreportable
                segments
            
            $
            1,480,000
            
            $
            1,588,000Corporate
                and unallocated
            
            
            (814,000
            )
            
            (582,000
            )Consolidated
                total operating income
            
            $
            666,000
            
            $
            1,006,000




**Note
      6: New accounting pronouncements:**





In
      June
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for
      Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. The
      objective of this interpretation prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. FIN 48 is
      effective for the fiscal years beginning after December 15, 2006. The adoption
      of this statement did not have a material effect on our financial position
      or
      results of operations.





In
      September 2006, FASB issued SFAS No. 157, “Fair Value Measurements,”
which provides enhanced guidance for using fair value to measure assets and
      liabilities. SFAS No. 157 establishes a common definition of fair value,
      provides a framework for measuring fair value under U.S. GAAP and expands
      disclosures requirements about fair value measurements. SFAS No. 157 is
      effective for financial statements issued in fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. The
      adoption of this statement did not have a material effect on our financial
      position or results of operations.




Page
          6 of
          13





**Note
      7: Discontinued operations**




**Operating
      Support Systems (“OSS”)**





In
      December 2003, the Company decided to limit its OSS business because of
      continuing losses combined
      with difficulties in marketing OSS products in view of the Company’s financial
      condition. The OSS operating segment is reported in the consolidated financial
      statements as a discontinued operation for all periods presented. Currently,
      its operating activities are limited to the performance of
      contractual maintenance and warranty services which will expire by June 30,
      2007. The Company anticipates that all OSS operations will cease by June 30,
      2007. The Company continues to pursue the sale of the OSS business technology
      and the remaining inventory. The Company hopes to complete the sale in 2007,
      but
      the Company gives no assurances that it will be successful. We do not expect
      that the OSS operations will be material in 2007.





The
      following amounts related to OSS have been segregated from the Company’s
      continuing operations and are reported as assets and liabilities of discontinued
      operations in the consolidated balance sheet:





March
                31, 2007
            
            December
                31, 2006Assets
                of discontinued operations:Prepaid
                expenses
            
            $
            13,000
            
            $
            13,000Accounts
                receivable
            
            
            17,000
            
            
            18,000Inventories
            
            
            353,000
            
            
            352,000Property,
                plant and equipment
            
            
            5,000
            
            
            11,000Total
                assets of discontinued operations
            
            $
            388,000
            
            $
            394,000Liabilities
                of discontinued operations:Accounts
                payable and accrued expenses
            
            $
            254,000
            
            $
            425,000Total
                liabilities of discontinued operations
            
            $
            254,000
            
            $
            425,000




R esults
      of
      operations for OSS have been segregated from continuing operations and are
      reflected as discontinued operations approximately as follows:





**Three
                Months Ended March 31,****2007**
            
            **2006**Revenues
            
            $
            72,000
            
            $
            105,000Loss
                from discontinued operations
            
            $
            (34,000
            )
            $
            (82,000
            )




Page
          7 of
          13




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





Our
      consolidated statements of operations for the periods indicated below, shown
      as
      a percentage of sales, are as follows:





Three
                Months EndedMarch
                31,2007
            
            2006Sales
            
            
            100
            %
            
            100
            %Cost
                of Sales
            
            
            68
            %
            
            66
            %Gross
                Profit
            
            
            32
            %
            
            34
            %Selling,
                general and administrative expenses
            
            
            19
            %
            
            16
            %Research
                and development expenses
            
            
            5
            %
            
            5
            %Operating
                income
            
            
            8
            %
            
            13
            %Interest
                expense - net
            
            
            (5
            %)
            
            (4
            %)Income
                from continuing operations
            
            
            3
            %
            
            9
            %Loss
                from discontinued operations
            
            
            —
            
            
            1
            %Net
                income
            
            
            2
            %
            
            8
            %





**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
      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, 2007 and March 31, 2006. 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, 2007 and the comparable
      period of 2006. We recognize revenue from Line and Signal products when the
      product is shipped.





We
      currently limit our OSS activities to the performance of contractual maintenance
      and warranty services which are anticipated to expire in June, 2007 (see Note
      7). Effective as of June 30, 2006, the results of our consolidated operations
      present the OSS division as a discontinued operation.





Our
      sales
      by product line for the periods ended March 31, 2007 and 2006 are as follows
      (dollars in thousands):





Three
                Months Ended March 31,2007
            
            2006Line
                connection/protection equipment
            
            $
            6,801
            
            
            83
            %
            $
            6,488
            
            
            82
            %Signal
                Processing
            
            
            1,388
            
            
            17
            %
            
            1,412
            
            
            18
            %Other
            
            
            13
            
            
            0
            %
            
            38
            
            
            0
            %$
            8,202
            
            
            100
            %
            $
            7,938
            
            
            100
            %





On
      March
      31, 2007, our liability to the holder of our senior debt was $23,554,000. On
      February 7, 2007 Cheyne Special Situations Fund L.P (“Cheyne”) purchased our
      senior debt of approximately $23,400,000 from SHF IX, LLC and subsequently
      extended the maturity of our senior debt to October 1, 2007. We cannot give
      any
      assurance that the holder of our senior debt will extend the maturity date
      beyond October 1, 2007. Any adverse event, including declines in business,
      could
      have an effect on the decision of the holder of the senior debt to extend or
      demand payment on the notes. If the holder of the senior debt does not extend
      the maturity of our senior debt beyond October 1, 2007 or if the holder of
      the
      senior debt demands payment of all or a significant portion of the senior debt
      when due, we will not be able to continue in business, and it is likely that
      we
      will seek protection under the Bankruptcy Code.


Page
          8 of
          13





**Results
      of Continuing Operations**





Our
      sales
      for the quarter ended March 31, 2007 were $8,202,000, representing an increase
      of $264,000 (3%) compared to the quarter ended March 31, 2006 of $7,938,000.
      The
      increased sales level resulted
      from increased sales of Line products, with our increase in Line products being
      partially offset by decreased sales by Signal.





Line
      equipment sales increased by $313,000 (5%) from $6,488,000 for the March 2006
      quarter to $6,801,000 for the March 2007 quarter, primarily as a result of
      an
      increase in sales in our CPE division from sales generated in North America,
      slightly offset by a decrease in revenue from British Telecommunications. A
      significant percentage of our revenues are derived from British
      Telecommunications and its installers. Any significant reduction in the level
      of
      business from British Telecommunications and its installers could have material
      adverse effect upon both our revenue and net income. Thus, for this year we
      have
      experienced a significant drop off of orders from BT installers, although direct
      sales to British Telecommunications remain vigorous.





Signal
      processing revenue for the quarter ended March 31, 2007 compared to 2006
      decreased by $24,000 (2%) from $1,412,000 to $1,388,000.





Gross
      margin for the March 2007 quarter was 32% compared to 34% for the March 2006
      quarter. The decrease is primarily related to a change in product mix sold
      to
      British Telecommunications from the higher gross profit DSL products to the
      lower margin local loop unbundling products and a negotiated price decrease
      on
      products sold to British Telecommunications.





Selling,
      general and administrative expenses increased by $275,000 (21%) from $1,306,000
      in the March 2006 quarter to $1,581,000 in the March 2007 quarter. This increase
      relates primarily to increased expenses in our Line segment for advertising
      and
      commissions as our marketing activities for this segment were increased during
      the first quarter of 2007. General and administrative costs increased primarily
      due to increased expenses related to our debt restructuring effort.





Research
      and development expenses decreased by $28,000 (7%) from $401,000 in the March
      2006 quarter to $373,000 in the March 2007 quarter. This decrease resulted
      from
      lower expenses for product design in our Line division which was partially
      offset by modest increases in spending for our Signal division.





As
      a
      result of the foregoing, we had an operating income from continuing operations,
      before income taxes, of $225,000 for the March 2007 quarter, compared with
      $710,000 for the March 2006 quarter.





Interest
      expense, net, for the March 2007 quarter was $440,000, an increase of $144,000
      from $296,000 in the March 2006 quarter, primarily because of $132,000 of
      interest accrued on our senior debt under the terms of our extension agreement
      relating to the senior debt. We do not accrue interest on the entire amount
      of
      the senior debt of approximately $23,550,000 under the terms of our agreement
      with the holder of our senior debt. Interest has accrued from February 7, 2007
      on $10,000,000 of the senior debt at 12.5%.




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Income
      tax expense for the quarter ended March 31, 2007 as well as March 31, 2006
      relates to state and foreign taxes. No federal income tax expense has been
      provided due to the availability of net operating loss carry
      forwards.





As
      the
      result of the foregoing, we generated net income of $165,000, **** $.02
      per
      share (basic and diluted), for the March 2007 quarter versus net income of
      $605,000, $0.06 per share (basic and diluted), for the March 2006
      quarter.





**Liquidity
      and Capital Resources**





At
      March
      31, 2007, we had cash and cash equivalents of $564,000 compared with $2,102,000
      at December 31, 2006. The reduction in our cash position reflects an increase
      of
      $1,738,000 in accounts receivable, an increase of $1,660,000 in inventory,
      primarily offset by an increase of $1,514,000 in accounts payable.





Our
      working capital deficit at March 31, 2007 was $31,555,000, compared to a working
      capital deficit of $31,646,000 at December 31, 2006, a reduction of $91,000
      in
      our working capital deficit.





During
      the first quarter, we paid $150,000 to the holder of our senior debt, of which
      approximately $10,000 was applied to interest and the remaining $140,000 was
      applied to principal.





As
      of
      March 31, 2007, our debt includes; $23,554,000 of senior debt which matures
      on
      October 1, 2007, $6,529,000 of principal and $6,365,000 of accrued interest
      on
      our subordinated debt and 6% debentures that became due on July 3, 2001 and
      July
      2, 2002, respectively. We are prohibited by the holder of our senior debt from
      paying principal or interest on any of the subordinated debt. At March 31,
      2007,
      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
      are
      addressing our working capital and liquidity problems by seeking a restructure
      of our senior and subordinated debts as well as a significant amount of
      unsecured debt. Any restructure of our Company will result in very significant
      dilution to the holders of our common stock and will require the approval of
      the
      holders of our common stock and subordinated debt If we do not restructure
      our
      debt and the senior lender does not extend the maturity of our senior debt
      beyond October 1, 2007, or if the holder of our senior debt demands payment
      of
      all or a significant portion of the senior debt when due, whether on October
      1,
      2007 or upon the expiration of a subsequent extension, we will not be able
      to
      continue in business, and it is likely that we will seek protection under the
      Bankruptcy Code.




**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 our intentions, beliefs, expectations, strategies, predictions or any
      other statements relating to our future activities or other future events or
      conditions are “forward-looking statements.” Forward-looking statements are
      subject to risks, uncertainties and other factors, including, but not limited
      to, those identified under “Risk Factors,” in our Form 10-K for the year ended
      December 31, 2006 and in the Form 10-Q 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. S uch
      statements could be affected by risks and uncertainties related to our financial
      conditions, our relationship with the holder of our senior and subordinated
      debt, including the willingness or unwillingness of the holder of the senior
      debt to extend the maturity date of the senior debt and the amount and timing
      of
      any payments which the holder of the senior debt may require, our ability to
      sell any or all of our divisions or effect a restructure of our business and
      our
      debt and equity structure on terms acceptable to the holder of the senior debt,
      our relationship with British Telecommunications including its continued
      requirements for our products, factors which affect the telecommunications
      industry, market and customer acceptance, our access to current technology,
      competition, domestic and foreign government regulations and requirements and
      pricing, as well as general industry and market conditions and growth rates,
      and
      general economic conditions. Any forward-looking statements speak only as of
      the
      date on which they are made, and we do not undertake any obligation to update
      any forward-looking statement to reflect events or circumstances after the
      date
      of this Form 10-Q.


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          of 13





**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**





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





-
      Our
      United Kingdom subsidiary has identified a weakness in the segregation of
      duties, specifically as they relate to cash management. We are implementing
      measures to segregate certain functions and otherwise improve cash management
      functions including a division of the function of authorizing and issuing
      payments. In addition, as a result of a change in personnel in our main office,
      we were unable to fully implement our existing internal cash management
      functions at our main office during a portion of 2006, which has been remedied
      by implementing our preexisting internal control polices.




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




We
      believe that the measures we have taken have addressed each matter identified
      as
      a material weakness by management and our independent registered public
      accounting firm. We will continue to monitor the effectiveness of our internal
      controls and procedures on an ongoing basis and will take further actions,
      as
      appropriate.




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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 his evaluation, the Chief Executive Officer and Chief
      Financial Officer has concluded that our disclosure controls and procedures
      are effective in alerting him to material information that is required to be
      included in the reports that we file or submit under the Securities Exchange
      Act
      of 1934 and that the information required to be disclosed in the reports that
      we
      file or submit under Securities Exchange Act of 1934 is accumulated and
      communicated to our management, including our chief executive officer and chief
      financial officer, to allow timely decisions regarding required
      disclosure.





**Internal
      Control over Financial Reporting**





Except
      as
      otherwise discussed herein, 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
      1 A.** **Risk
      Factors** ****





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





During
      the March 2007 quarter, we sustained modest declines in revenue from our largest
      customer, British Telecommunications, from both the comparable quarter of 2006
      and the last quarter of 2006, and, based on a change in the product mix, our
      gross margin declined on our sales to British Telecommunications. Due to our
      reliance on significant business from British Telecommunications, our revenue
      and net income could be impaired by any material reduction of sales to British
      Telecommunications or any material reduction in the gross margin on sales to
      British Telecommunications.





Additional
      risks and uncertainties not currently known to us or that we currently deem
      to
      be immaterial also may materially adversely affect our business, financial
      condition and/or operating results.





**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 and 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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          of 13




**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 11, 2007
            By
            /s/
              Edward B. KornfeldEdward
                B. KornfeldChief
                Executive Officer
              and
                Chief Financial Officer


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