SB-2/A

As filed with the Securities and Exchange Commission on January 26, 2007

Registration Statement No. 333-137413

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

PRE-EFFECTIVE

AMENDMENT NO. 3 TO

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

QPC LASERS, INC.

(Name of Small Business Issuer in Its Charter)

Nevada	3826	20-1568015
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

15632 Roxford Street

Sylmar, California 91342

(818) 986-0000

(Address and telephone number of principal executive offices and principal place of business)

George Lintz

Chief Financial Officer

QPC Lasers, Inc.

15632 Roxford Street

Sylmar, California 91342

(818) 986-0000

(Name, address and telephone number of Agent for Service)

Copy to:

Ryan S. Hong, Esq.

RICHARDSON & PATEL LLP

10900 Wilshire Boulevard, Suite 500

Los Angeles, California 90024

(310) 208-1182

Approximate date of proposed sale to the public: From time to time after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.þ

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered			Proposed maximum aggregate offering price		Amount of registration fee
Common Stock		12,172,397	(1)	$	24,953,413.85	$	2,670.02
Common Stock to be issued upon exercise of warrants		8,456,464	(2)	$	17,335,751.20	$	1,854.93
Common Stock to be issued upon conversion of subordinated note		1,422,222	(2)	$	2,915,555.10	$	311.97
Total		22,051,083		$	45,204,720.15	$	4,836.92

(1)	Calculated in accordance with Rule 457(c) under the Securities Act on the basis of the average of the bid and ask prices of the common stock on September 14, 2006 of $2.05 per share, as quoted on the Over-the Counter Bulletin Board.
(2)	Calculated in accordance with Rule 457(g) under the Securities Act on the basis of the average of the bid and ask prices of the common stock on September 14, 2006 of $2.05 per share, as quoted on the Over-the Counter Bulletin Board, if applicable.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) may determine.

Subject to Completion, dated January 26, 2007

Prospectus

QPC LASERS, INC.

Up to 22,051,083 shares of Common Stock

This prospectus covers the resale by selling stockholders of up to 22,051,083 shares of our Common Stock, $0.001 par value, by our shareholders, including shares issuable upon exercise of certain warrants and shares issuable upon conversion of certain subordinated secured notes.

These securities will be offered for sale by the selling security holders identified in this prospectus in accordance with the terms described in the section of this prospectus entitled "Plan of Distribution." We will not receive any of the proceeds from the sale of the common stock by the selling security holders. Our common stock and the warrants are more fully described in the section of this prospectus entitled "Description of Securities."

Our securities are not listed on any national securities exchange or the Nasdaq Stock Market. Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol "QPCI". On January 19, 2007, the closing sale price of our common stock on the OTC Bulletin Board was $1.10 per share.

AN INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE OUR SECURITIES ONLY IF YOU CAN AFFORD LOSING YOUR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 9.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Please read this prospectus carefully. It describes our company, finances, products and services. Federal and state securities laws require that we include in this prospectus all the important information that you will need to make an investment decision.

You should rely only on the information contained or incorporated by reference in this prospectus to make your investment decision. We have not authorized anyone to provide you with different information. The selling security holders are not offering these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front page of this prospectus.

The date of this prospectus is January 26, 2007.

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The following table of contents has been designed to help you find important information contained in this prospectus. We encourage the investor to read the entire prospectus.

Table of Contents

Prospectus Summary	4
Risk Factors	9
Use of Proceeds	18
Selling Security Holders	19
Plan of Distribution	50
Legal Proceedings	51
Directors, Executive Officers, Promoters and Control Persons	51
Security Ownership of Certain Beneficial Owners and Management	54
Description of Securities	55
Interest of Named Experts and Counsel	56
Description of Business	57
Management’s Discussion and Analysis of Financial Condition and Results of Operations	69
Description of Property	82
Certain Relationships and Related Transactions	82
Market For Common Equity and Related Stockholder Matters	83
Executive Compensation	85
Summary Compensation Table	85
Financial Information	F-1
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	87
Reports to Security Holders	87
Where You Can Find More Information	87

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" section.Some of the statements contained in this prospectus, including statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Business," are forward-looking statements and may involve a number of risks and uncertainties. Actual results and future events may differ significantly based upon a number of factors. You should not put undue reliance on these forward-looking statements, which speak only as of the date of this prospectus.

In this prospectus, we refer to QPC Lasers, Inc. and its subsidiaries as "we," "our," or the "Company."

History

We were originally incorporated in the State of Nevada on August 31, 2004 under the name “Planning Force, Inc.” as a development stage company that planned to specialize in event planning for corporations.  We offered two types of services: retreat training services and product launch event planning. That business generated minimal revenue for us since inception.

Effective May 12, 2006, we engaged in a share exchange transaction with the shareholders of Quintessence Photonics Corporation, Inc., a Delaware corporation. Quintessence designs and manufactures next-generation high brightness lasers for a variety of commercial, military and homeland security purposes.

Pursuant to the share exchange transaction, Quintessence became our wholly-owned subsidiary while shareholders of Quintessence received the right to receive one share of our Common Stock for every share of common stock of Quintessence. In connection with the share exchange, our sole business became the business of Quintessence.

In May 2006 we changed our name from Planning Force, Inc. to QPC Lasers, Inc. Our common stock currently trades on the Over-the-Counter Bulletin Board under the trading symbol QPCI.

Our Company

We design and manufacture next-generation high brightness lasers for a variety of commercial, military and homeland security purposes. We believe our technology platform may enable us to replace or improve legacy laser technologies embedded in the manufacturing infrastructure of the industrialized world, and could foster the widespread deployment of directed energy weapons and infrared countermeasures for use in defense and homeland security. Our headquarters are located at 15632 Roxford Street, Sylmar, California 91342. Our phone number is (818) 986-0000. Our website address is www.qpclasers.com . Information contained on our website is not part of this prospectus.

Completion of Share Exchange

On May 12, 2006, QPC Lasers, Inc., a Nevada corporation (“QLI”), entered into a Share Exchange Agreement (the “Exchange Agreement”) with Quintessence Photonics Corporation, a Delaware corporation, and the shareholders of all of the equity stock of Quintessence (the “Quintessence Shareholders”), and closed the transaction on the same date (the “Share Exchange”). Prior to the Share Exchange transaction, we had 24 shareholders of record. None of the shares held by these 24 shareholders are being registered under this Registration Statement. Pursuant to the Exchange Agreement, the Quintessence Shareholders transferred substantially all of the shares of equity stock of Quintessence thereby making Quintessence, a subsidiary of QLI, and QLI issued an aggregate of 26,986,119 shares of its common stock to the Quintessence Shareholders. Of the 26,986,119 shares of common stock, 5,884,381 are being registered under this registration statement. Furthermore, all options, warrants and convertible notes (“Derivative Securities”) and preferred stock that could have been exercised or converted into Quintessence common stock were exchanged for Derivative Securities that may be exercised or converted into QPC Lasers, Inc. (QLI) Shares. After closing, the Quintessence shareholders held approximately 87% of the outstanding shares of QLI common stock. We had 521 shareholders of record after the closing.

All shares of QLI common stock issuable upon exercise or conversion of QLI warrants or convertible debt issued in exchange for Quintessence warrants or convertible debt are being registered for resale through this registration statement.

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Shares Subject to Registration

Brookstreet Private Placement

On March 14, 2006, prior to the Share Exchange, Quintessence completed a private placement offering (the “Tranche I Private Placement”) to 80 accredited investors, raising an aggregate of $2,862,630 with the issuance and sale of 2,290,104 shares of its common stock and warrants to purchase 572,526 shares of common stock at an exercise price of $1.50 per share. The warrants may not be exercised in a cashless manner. The warrants expire on November 12, 2007.

Immediately after the Tranche I Private Placement, Quintessence offered shares of its common stock as part of a second private placement offering (the Tranche II Private Placement”) to 299 accredited investors. As of September 30, 2006, we raised $11,795,721 in gross proceeds with the issuance of 9,436,577 shares of QPC Lasers common stock at $1.25 per share in Tranche II Private Placement.

Brookstreet Securities Corporation (“BSC”) acted as the managing dealer in connection with both Private Placements. BSC received an aggregate of $905,589, which consists of a commission of 8% of the gross sales price of the shares sold, a non-accountable marketing allowance of 2%, and a non-accountable expense allowance of 3%. The Company also paid BSC’s expenses equaling an aggregate of $89,828, which consists of legal fees and other expenses. Furthermore, the Company issued to BSC warrants to purchase an aggregate of 2,345,341 shares of common stock. The warrants are immediately exercisable, expire in July 2011 and have an exercise price of $1.25 per share, with a cashless exercise provision. Brookstreet has subsequently transferred most of the 2,345,341 warrants to its independent contractors and other parties that performed services for Brookstreet.

All of the shares of common stock, including shares underlying warrants, issued or issuable in connection with the Tranche I Private Placement and Tranche II Private Placement, are being registered for resale in this Registration Statement. In connection with their purchase of the shares, these investors made representations that they were accredited investors within the meaning of Regulation D under the Securities Act. These issuances were exempt from registration requirements in reliance on Section 4(2) of the Securities Act of 1933, or Regulation D promulgated thereunder. 

Bridge Financings

During August and September 2005, we sold 221,000 shares of our common stock at $1.00 per share to certain accredited investors. These shares are being registered for resale in this registration statement. In connection with their purchase of the shares, these investors made representations that they were accredited investors within the meaning of Regulation D under the Securities Act. These issuances were exempt from registration requirements in reliance on Section 4(2) of the Securities Act of 1933, or Regulation D promulgated thereunder.

In November 2005, we raised $500,000 pursuant to a 10% secured note financing with Jeffrey Ungar, our Chief Executive Officer, and George Lintz, our Chief Financial Officer. Pursuant to these bridge notes, we issued these lenders warrants to purchase 320,000 shares of common stock at $1.25 per share (“Bridge Warrants”). In connection with extensions of the maturity date of these bridge notes from January 2006 to April 2006, we granted 900,000 additional Bridge Warrants to these lenders, which are also exerciseable at $1.25 per share. The warrants expire on dates between November 2010 and March 2011 and may be exercised in a cashless manner. The bridge notes were paid in full as of April 25, 2006. We are registering all 221,000 shares of common stock and 1,220,000 warrant shares in this registration statement.

Convertible Subordinated Secured Notes and Warrants

On or about August 1, 2005 we entered into a convertible subordinated secured note with nine investors for $1,280,000. As of September 30, 2006, the outstanding principal balance was $1,280,000. The notes bear interest at 10% per annum. Interest only payments are required from September 1, 2005 and ending on August 1, 2007. Principal and interest payments on the notes are due each month from September 1, 2007 to August 1, 2008, at which time the note will be paid in full pursuant to its terms.

We issued 320,000 warrants to purchase common stock to these lenders. The initial exercise price of the warrants and the conversion price of the loan was $3.75 per share, and is to be adjusted downward if there are any subsequent financings of at least $1,000,000 in which stock is sold for less than $3.75 per share. The exercise price for the warrants and the conversion price for the loan were reset to $1.25 per share in December 2005 in conjunction with the first $1 million of the Brookstreet Private Placement (see above). The exercise price or conversion price is subject to further adjustment in the event of a subsequent financing; provided, however, that the “floor” or minimum price that is applicable to the exercise price of the warrants and the conversion price of the loan is $0.90 per share. We are therefore registering 1,422,222 shares of our common stock issuable in connection with the conversion of the loans.

In addition to these warrants issued at the time of the loan, we offered the lenders an additional 341,325 warrants on the same terms if they extended their loans for an additional three years any time during the term of the loan. One lender gave us notice of extension of his $100,000 loan and has been issued 26,666 additional warrants. Together with the original 320,000 warrants, all 346,666 warrants have an exercise price of $1.25 per share. The warrants expire on August 1, 2010 unless the noteholder extends the maturity date or we prepay the note in which case the warrants will expire on August 1, 2015. The warrants may be exercised in a cashless manner. We are registering all 346,666 shares underlying the warrants in this registration statement.

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In connection with their purchase of the notes and warrants, these 9 investors made representations that they were accredited investors within the meaning of Regulation D under the Securities Act. These issuances were exempt from registration requirements in reliance on Section 4(2) of the Securities Act of 1933, or Regulation D promulgated thereunder.

Warrants Related to Senior Secured Notes

In the second quarter of 2004, we issued senior secured two-year notes to 11 investors and raised $3.25 million. These notes were originally convertible into shares of our common stock at $3.75 per share but have since been decreased to $1.25 per share in connection with the Share Exchange. In connection with the notes, we also issued 2,437,500 warrants to purchase common stock to the lenders as part of this transaction. The exercise price of these warrants was initially $3.75 per share. In the second quarter of 2005, approximately $2.1 million of the $2.4 million outstanding balance was extended for an additional year. We adjusted the exercise price of 2,325,000 warrants in January 2006 and issued an additional 840,000 warrants to purchase common stock in 2005 as part of this transaction. The new exercise price for all warrants was subject to downward adjustment if future financings were completed at a price lower than $3.75 per share. The exercise price was ultimately fixed at $1.25 per share at the time of the Share Exchange in May 2006. All 3,277,500 warrants expire on May 24, 2010 and the shares underlying the warrants are being registered pursuant to this registration statement. The warrants may be exercised in a cashless manner. None of the shares issuable upon the conversion of the senior secured notes are being registered pursuant to this registration statement.

The largest participant in the note transaction, investing $2.5 million, was Envision Partners, of which QPC’s Chief Financial Officer, Mr. Lintz, is a 50% partner. As of September 30, 2006, the outstanding principal balance of the senior secured note was $1,152,917.

In connection with their purchase of the notes and warrants, these 11 investors made representations that they were accredited investors within the meaning of Regulation D under the Securities Act. These issuances were exempt from registration requirements in reliance on Regulation D promulgated thereunder.

Series C Financing Related Warrants

From the fourth quarter of 2004 through the first quarter of 2005, we raised $5.9 million in our Series C Preferred Stock financing to approximately 60 investors at $3.75 per share and investors received warrants to purchase common stock at $3.75 per share. In November 2005, Series C investors were offered the choice to convert their warrants into common stock at a ratio of three shares for every four warrants or to reduce the exercise price of their warrant from $3.75 per share to $1.25 per share. Most of these investors elected to convert their warrants into shares. Five investors holding the remaining 222,749 warrants elected to keep their warrants and reduce the exercise price to $1.25 per share. These warrants expire on April 9, 2009, and they may be exercised in a cashless manner.

The 222,749 shares underlying these warrants held by these 5 investors are being registered in this registration statement. None of the shares issued in connection with the conversion of the warrants will be registered in this registration statement.

The shares of Series C Preferred Stock were ultimately converted into common shares at the Share Exchange in May 2006. None of these common shares will be registered in this registration statement.

In connection with their purchase of the preferred stock and warrants, all investors made representations that they were accredited investors within the meaning of Regulation D under the Securities Act. These issuances were exempt from registration requirements in reliance on Section 4(2) of the Securities Act of 1933, or Regulation D promulgated thereunder.

Consultant Warrants

We have issued warrants to purchase 474,182 shares to five consultants in exchange for services rendered between April and August 2005. The warrants have an exercise price of $1.25 per share and may be exercised in a cashless manner. The warrants expire on April 9, 2009 and August 1, 2010. The 474,182 shares underlying the warrants are being registered in this registration statement. These issuances were exempt from registration requirements in reliance on Rule 701 promulgated under the Securities Act.

The Offering

Common Stock Offered:	Up to 22,051,083 shares by selling stockholders
Offering Price	Market price

Use of Proceeds:	We will not receive any proceeds of the shares offered by the selling stockholders. See "Use of Proceeds."
Risk Factors:	The securities offered hereby involve a high degree of risk and immediate substantial dilution. See "Risk Factors"
Terms of the Offering	The selling stockholders will determine when and how they will sell the common stock offered in this prospectus.
Termination of the Offering	The offering will conclude when all of the 22,051,083 shares of common stock have been sold, registration is no longer required to sell the shares or we decide to terminate the registration of the shares after 18 months from the closing of the Share Exchange.

We have 38,559,283 shares of our common stock currently issued and outstanding. We are registering up to 22,051,083 shares of our common stock for sale by the selling security holders identified in the section of this prospectus entitled "Selling Security Holders." Some of the shares included in the table identifying the selling security holders are shares of our common stock that have not yet been, but that may be, issued to designated selling security holders should they exercise their warrants or convert their debentures. These shares have been identified in the footnotes to the “Selling Security Holders” table. Information regarding our common stock and the warrants is included in the section of this prospectus entitled "Description of Securities."

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Summary Financial Data

The following tables summarize the consolidated statements of operations and balance sheet data for our business and should be read together with the section of this prospectus captioned “Management’s Discussion and Analysis” and our consolidated financial statements and related notes included elsewhere in this prospectus.

	Nine Months Ended September 30,						Years ended December 31,
	2006			2005			2005			2004
	(Unaudited) As Restated			(Unaudited)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
REVENUE	$	1,773,094		$	676,803		$	1,073,191		$	1,050,816
COST OF SALES		1,465,137			714,729			1,009,477			786,605
GROSS PROFIT (DEFICIENCY)		307,957			(37,926	)		63,714			264,211
OPERATING EXPENSES
Research and development		3,340,772			3,632,791			4,753,356			3,451,538
General and administrative		4,670,865			1,727,862			2,441,405			2,056,516
Total operating expenses		8,011,637			5,360,653			7,194,761			5,508,054
LOSS FROM OPERATIONS		(7,703,680	)		(5,398,579	)		(7,131,047	)		(5,243,843	)
Interest income		27,916			14,280			15,036			14,440
Interest expense		(1,947,056	)		(275,655	)		(750,299	)		(182,847	)
License termination		(6,000,000	)
Merger expense		(326,199	)		—			—			—
Gain (Loss) on embedded derivative		(68,703	)		—			—			—
Other income (expense)		58,777			62,001			88,452			72,831
NET LOSS	$	(15,958,945	)	$	(5,597,953	)	$	(7,777,858	)	$	(5,339,419	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(15,958,945	)	$	(5,597,953	)	$	(18,600,886	)	$	(5,339,419	)
LOSS PER COMMON SHARE — Basic and Diluted	$	(0.55	)	$	(0.45	)	$	(1.49	)	$	(0.48	)
Weighted average common shares outstanding - Basic and Diluted		28,889,088			12,359,185			12,466,339			11,078,848

	As of December 31, 2005		As of September 30, 2006
			(As Restated) (Unaudited)
CONSOLIDATED BALANCE SHEET DATA
Cash	$	69,440	$	4,294,927
Total assets	$	5,705,245	$	9,813,784
Total stockholders’ equity	$	1,736,555	$	1,389,682
Total liabilities and stockholders’ equity	$	5,705,245	$	9,813,784

At September 30, 2006, we had cash on hand of $4,294,927. Through September 30, 2006, we had cumulative losses of $48,772,731. We have never earned a profit and we anticipate that we will continue to incur losses for at least the next 12 to 18 months. We continue to operate on a negative cash flow basis. Our independent accountants have issued a going concern qualification in their report on our financial statements as of and for the period ending December 31, 2005. We believe that we will need to raise between $5 million and $ 15 million in financing in order to have sufficient financial resources to fund our operations until December 2007 because we are running a cash flow deficit. We may need additional funds to continue our operations, and such additional funds may not be available when required.

See Note 2 to the consolidated financial statements for a description of the items that have been restated for the nine months ended September 30, 2006.

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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 until at least December 2007. Our ability to arrange financing from third parties will depend upon our perceived performance and market conditions. Our inability to raise additional working capital at all or to raise it in a timely manner would negatively impact our ability to fund our operations, to generate revenues, and to otherwise execute our business plan, leading to the reduction or suspension of our operations and ultimately forcing us to go out of business.

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RISK FACTORS

An investment in the common stock offered hereby involves a high degree of risk. In addition to the other information in this prospectus, the following risk factors should be considered carefully in evaluating the Company and its business. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Prospective investors should not place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. In evaluating such statements, prospective investors should review carefully various risks and uncertainties identified in this prospectus, including the matters set below and in our other SEC filings. These risks and uncertainties could cause our actual results to differ materially from those indicated in the forward-looking statements. Unless required by law or regulation, we undertake no obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.

BUSINESS RISKS

Because we are not profitable and expect to incur additional losses, we will require additional financing to sustain our operations and without it we may not be able to continue operations.   

At September 30, 2006, we had cash on hand of $4,294,927. Through September 30, 2006, we had cumulative losses of $48,772,731. We have never earned a profit and we anticipate that we will continue to incur losses until at least December 2007. We continue to operate on a negative cash flow basis. Our independent accountants have issued a going concern qualification in their report on our financial statements as of and for the period ended December 31, 2005. We believe that we will need to raise between $5,000,000 to $15,000,000 in financing in order to have sufficient financial resources to fund our operations for the next 12 months because we are running a cash flow deficit. We may need additional funds to continue our operations, and such additional funds may not be available when required.

To date, we have financed our operations through the sale of stock and certain borrowings. We expect to continue to depend upon outside financing to sustain our operations at least until December 2007. Our ability to arrange financing from third parties will depend upon our perceived performance and market conditions. Our inability to raise additional working capital at all or to raise it in a timely manner would negatively impact our ability to fund our operations, to generate revenues, and to otherwise execute our business plan, leading to the reduction or suspension of our operations and ultimately forcing us to go out of business.

We have no committed sources of additional capital.

For the foreseeable future, we intend to fund our operations and capital expenditures from limited cash flow from operations, our cash on hand and the net proceeds from equity financings. If our capital resources are insufficient, we will have to raise additional funds. We may need additional funds to continue our operations, pursue business opportunities (such as expansion, acquisitions of complementary businesses or the development of new products or services), to react to unforeseen difficulties or to respond to competitive pressures. We cannot assure you that any financing arrangements will be available in amounts or on terms acceptable to us, if at all. If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund our expansion, successfully promote our current products, develop new products or enhance our products and services, take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our business and the value of our common stock. If we choose to raise additional funds through the issuance of equity securities, this may cause significant dilution of our common stock, and holders of the additional equity securities may have rights senior to those of the holders of our common stock. If we obtain additional financing by issuing debt securities, the terms of these securities could restrict or prevent us from paying dividends and could limit our flexibility in making business decisions.

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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.

We do not have sufficient revenues to service our debt secured by our assets, including our intellectual property.

As of September 30, 2006, we had $8,432,917 of debt secured by our fixed assets and intellectual property. One series of the debt accrues interest at a rate of 10% per annum and requires monthly payments until June 25, 2007. Another series of 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. Another series of debt accrues interest at 9.7% per annum and requires monthly payments until August 2009 and a final balloon payment in September 2009 of approximately $5,000,000. Our current revenues are insufficient to service these monthly debt payments and therefore we rely on our cash reserves for these payments.

Included in our debt obligations is a secured promissory note to Finisar in the principal amount of $6.0 million. Pursuant to the terms of an Exchange Agreement with Finisar in September 2003, we granted Finisar a royalty free, fully paid, nonexclusive license to all of our existing and future intellectual property (the "IP License"). Finisar has no right to grant sub-licenses (except to end users) or assign its rights prior to September 2006. In November 2006, we finalized an agreement to terminate the IP License (“License Termination Agreement”). QPC is obligated to pay Finisar $6,000,000 as a termination fee pursuant to the terms of a secured promissory note (the “Note”). The Note is collateralized by a pledge of our assets pursuant to a Security Agreement by us and Finisar dated September 18, 2006. A portion of the outstanding principal in the amount of $1,000,000 together with interest thereon at the rate of 9.7% per annum shall be fully amortized and payable in equal monthly installments commencing on November 18, 2006, with the last installment to be due and payable on September 18, 2009.

If our revenues fail to increase sufficiently, our debt service requirements may affect our working capital, and therefore, adversely affect our ability to operate our business. If we are unable to meet our debt service obligations, our secured lenders may seize our assets, including our intellectual property, through foreclosure proceedings.

We have only limited proven commercial products.

We are currently engaged in the design and development of laser diode products for certain industrial, medical and defense applications. Our most advanced technologies, including without limitation, our “Generation III” products, are in the design or prototype stage. These technologies may not be commercially viable for at least one year. We expect to ship prototypes of our Generation III products in the calendar year 2007, if they ever become viable at all. While we believe that Generation III products are superior to current, conventional laser technology, it is theoretically possible that other laser technologies will have become more advanced if and when our Generation III products ultimately become commercialized. We have received only a limited number of purchase orders for our products and we only have a limited number of contractual arrangements to sell our products. The process of qualifying laser diodes for purchase by commercial or defense customers is lengthy and unpredictable. No assurance can be given that any of our products will achieve commercial success. Some Generation III products such as the Direct Diode High Energy Laser require sophisticated control electronics or beam combination techniques to make the system viable for the application. We are reliant on our vendors and technology partners in these areas to provide suitable solutions.

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’ decrease in business activity 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.

For example, we believe that our Generation III lasers may be incorporated in advanced infrared laser countermeasure technology designed to protect commercial and military aircraft against shoulder-held missiles fired by terrorists. Our lasers would constitute components of this countermeasure technology. We would be dependent on our customer’s ability to develop reliable, cost-effective, and stable missile defense systems. The success of such a missile defense product would be subject to, among other things, the following factors:

· Reliability, durability, cost-effectiveness, and feasibility of the countermeasure technology;

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· Market acceptance of such technology by the airline industry and the military;

· Public and governmental concern regarding the threat of shoulder-held missiles to commercial aircraft;

· Advent of competing technologies to the infrared laser countermeasure technology.

In summary, the growth of our revenue is dependent on successful adoption of products utilizing our lasers. The demand for our lasers and technologies would be materially affected by any reduction in demand for our customers’ products.

Unusually long sales cycles may cause us to incur significant expenses without offsetting revenue.

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

The markets for our products are subject to continuing change that may impair our ability to successfully sell our products.

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

Our products may become obsolete if we are unable to stay abreast of technological developments.

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

We are dependent for our success on a few key executive officers. Our inability to retain those officers would impede our business plan and growth strategies, which would have a negative impact on our business and the value of your investment.

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

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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 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. We have never performed the system and process evaluation and testing required in an effort to comply with the management assessment which will initially apply to us as of January 1, 2007, and auditor certification requirements of Section 404, which will initially apply to us as of January 1, 2008. 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.

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.

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. Whether or not any infringement claim is successful, such any court action to enforce or defend our intellectual property rights will divert our management’s time and resources as well as our working capital.

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We currently rely on Research and Development 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. For the years ended December 31, 2005 and 2004, the percentage of our revenue generated from government contracts was as follows:

	Year Ended December 31
	2005	2004
U.S. Army	7%	0%
U.S. Navy	32%	38%
U.S. Missile Defense Agency	6%	56%
Subtotal Government contracts	45%	94%
Non-government contracts	55%	6%
Total	100%	100%

We may incur debt or issue preferred stock in the future.

In order to purchase equipment or fund operations, we may issue additional debt instruments or preferred stock, which will have a senior claim on our assets in the event of a sale of assets. Debt service may cause strain on cash flow and impair business operations.

We face intense competition, including competition from companies with significantly greater resources than ours, and if we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

The laser industry is highly competitive with numerous competitors from well-established manufacturers to innovative start-ups. A number of our competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to compete more effectively on the basis of price and production and more quickly develop new products and technologies. In addition, new companies may enter the markets in which we compete, further increasing competition in the laser industry. Also, our customers and potential customers may be developing their own laser components. For instance, larger companies such as Northrop Grumman and BAE Systems are currently developing laser-based systems to protect airliners from portable rocket launchers. However, these companies have divisions that currently produce conventional laser components that may be used in such systems. While we believe that our laser components offer superior features and characteristics than conventional lasers, there can be no assurance that these potential customers would choose our components over components developed by their other divisions.

We believe that our ability to compete successfully depends on a number of factors, including our research and development department, strength of our intellectual property rights, and manufacturing facility are the most important competitive factors and we plan to employ these elements as we develop our products and technologies, but there are many other factors beyond our control. We may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand our development and marketing of new products, which would adversely impact the trading price of our common shares.

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, including damage caused by an earthquake, we cannot assure you that our existing insurance coverage will be adequate against all other possible losses.

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We use standard laboratory and manufacturing materials that could be considered hazardous and we could be liable for any damage or liability resulting from accidental environmental contamination or injury.

Our operations involve the use of standard laboratory and manufacturing materials that could be considered hazardous.  If a facility fire were to occur at our facility and spread to a reactor used to grow semiconductor wafers, it could release highly toxic emissions.  We believe that our safety procedures for handling and disposing of such materials comply with all federal, state, and local regulations and standards; however, the risk of accidental environmental contamination or injury from such materials cannot be entirely eliminated.  In the event of such an accident involving such materials, we could be liable for damages and such liability could exceed the amount of our liability insurance coverage and the resources of our business.

The relative lack of public company experience of our management team may put us at a competitive disadvantage.

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

New rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or retain listing of our common stock.

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

Our internal controls over financial reporting may not be effective, and our independent auditors may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business.

We are subject to various regulatory requirements, including the Sarbanes-Oxley Act of 2002. We, like all other public companies, must incur additional expenses and, to a lesser extent, diversion of our management’s time in our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal controls over financial reporting. We have not evaluated our internal controls over financial reporting in order to allow management to report on, and our independent auditors to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, which we collectively refer to as Section 404. We have never performed the system and process evaluation and testing required in an effort to comply with the management assessment and auditor certification requirements of Section 404, which will initially apply to us as of December 31, 2007. Our lack of familiarity with Section 404 may unduly divert management’s time and resources in executing the business plan. In the future, if 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.

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If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.

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

Economic, political, military or other events in the United States could interfere with our success or operations and harm our business.

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

MARKET RISKS.

Our common stock may be thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

Prior to the Share Exchange in May 2006, QPC’s shares were not publicly traded. Through the Share Exchange, QPC became public without the typical initial public offering procedures which usually include a large selling group of broker-dealers which may provide market support after going public. Thus, we will be required to undertake efforts to develop market recognition for us and support for our shares of common stock in the public market. Our common stock is thinly traded currently. Our average volume of trading per day over the past 60 days has been approximately 8,000 shares. We are registering 12,172,397 shares of our issued and outstanding common stock and 9,878,686 shares of our common stock subject to exercise of warrants and conversion of debt. The price and volume for our common stock that will develop in the future cannot be assured. Upon effectiveness of this registration statement, there will be approximately 12.0 million additional shares that may be sold into the public market immediately and approximately 10.0 million shares that sold upon conversion of certain debentures and exercise of certain warrants. If the demand to buy our common stock is insufficient to absorb these shares, our trading stock price may decrease. The number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days, weeks, months, or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained. While we are trading on the OTC Bulletin Board, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds and 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.

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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 transaction costs to sell those shares.

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

The market price for our common stock may be particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating history and lack of profits, which could lead to wide fluctuations in our share price.

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

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

·    quarterly variations in our revenues and operating expenses;

·    announcements of new products or services by us;

·    fluctuations in interest rates;

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

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

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

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

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 further 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.

Our 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, our articles of incorporation and bylaws may provide for mandatory indemnification of directors and officers to the fullest extent permitted by governing state law.

We do not expect to pay dividends for the foreseeable future, and we may never pay dividends.

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

Our operating results may fluctuate significantly, and these fluctuations may cause our common stock price to fall.

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

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

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

·    our ability to attract and retain key personnel; and

·    our ability to manage our anticipated growth and expansion.

Our executive officers, directors and insider stockholders own or control at least 45% of our outstanding common stock, which may limit 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 a shareholder receiving a premium over the market price for their shares.

We estimate that approximately 45% of our outstanding shares of common stock is owned and controlled by a group of insiders, including our directors and executive officers. Such concentrated control of the Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, certain provisions of Nevada law could have the effect of making it more difficult or more expensive for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. Accordingly, the existing principal stockholders together with our directors and executive officers will have the power to control the election of our directors and the approval of actions for which the approval of our stockholders is required. As a stockholder, you may have no effective voice in our management.

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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.

The market price of our common stock may be adversely affected if too many shares are sold at once.

Sales of substantial amounts of our common stock in the public market could adversely affect the market price of the common stock. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

Our stock is quoted on the OTC Bulletin Board and could be subject to extreme volatility.

Our common stock is currently quoted under the symbol "QPCI" on the OTC Bulletin Board, which is often characterized by low trading volume. A large volume of stock being sold into the market at any one time could cause the stock to rapidly decline in price. In addition, we must comply with ongoing eligibility rules to ensure our common stock is not removed from the OTC Bulletin Board, which would materially adverse affect the liquidity and volatility of our common stock.

We will raise additional capital through a securities offering that could dilute your ownership interest.

We require substantial working capital to fund our business. When we raise additional funds through the issuance of equity, equity-related or convertible debt securities, these securities may have rights, preferences or privileges senior to those of the holders of our common stock. The issuance of additional common stock or securities convertible into common stock by our management will also have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock.

In addition, under our Articles of Incorporation, the Board is authorized to issue, without obtaining shareholder approval, shares of preferred stock having the rights, privileges and designates as determined by the Board. Therefore, the Board could issue shares of preferred stock that would have preferential liquidation, distribution, voting, dividend or other rights.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares by the selling security holders, nor will we receive any proceeds from any convertible noteholders that choose to convert their notes into shares. Should the selling security holders holding warrants choose, in their sole discretion, to exercise any of their warrants, we would receive the proceeds from the exercise price. Assuming the common stock warrants to purchase an aggregate of 8,456,464 shares of our common stock are exercised in full in cash, we will receive proceeds of $10,994,336.

We intend to use the proceeds from the exercise of warrants by the selling security holders for working capital and general corporate purposes.

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Selling Security Holders

The following table provides certain information with respect to the selling security holders' beneficial ownership of our securities as of the date of this prospectus. The selling security holders can offer all, some or none of their shares of our common stock, thus we have no way of determining the number they will hold after this offering. We have 38,559,283 shares of our common stock issued and outstanding. Of the 22,051,083 shares being registered in this offering, 8,456,464 shares are issuable upon exercise of outstanding warrants and 1,422,222 shares are issuable upon conversion of outstanding debts. The material terms of these warrants and notes are described in the “Prospectus Summary - Shares Subject to Registration.”

Therefore, we have prepared the table below on the assumption that the selling shareholders will sell all shares covered by this prospectus. Unless otherwise stated, none of the selling security holders are our affiliates, and nor have any of them had a material relationship with us during the past three years. Unless otherwise stated, none of the selling security holders are or were affiliated with registered broker-dealers. See "Plan of Distribution."

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares(2)		Percentage
Wendell Y.M. Lew Revocable Living Trust, U/A 12-07-99, Wendell Lew, TTEE		2,982,558	(3)		2,662,777		319,781		1.1	%
Luis Garcia & Iris M. Garcia		125,000	(4)		125,000		0		0
Stuart K. Campbell Trust U/A/D 02-03-98, as amended restated U/A/D 01-13-06		100,000	(5)		100,000		0		0
NFS LLC, FBO: Mordechai Yekutiel		428,362	(6)		80,250		348,112		*
Arthur M. Michelson		135,000	(7)		135,000		0		0
Frank Castaldi		75,000	(8)		75,000		0		0
Richard M. Christman & Patricia L. Christman		75,000	(9)		75,000		0		0
Achyut Sahasrabodhe		90,000	(10)		90,000		0		0
Dennis J. Kuester		50,000	(11)		50,000		0		0
Ernest R. Basile		50,000	(12)		50,000		0		0
George Mosher		50,000	(13)		50,000		0		0
James Enterline & Esther Enterline		70,000	(14)		70,000		0		0
Joseph Wai-Man Wu		320,000	(15)		320,000		0		0
Peter H. Moede		50,000	(16)		50,000		0		0
Steven K. Nakata & Marie L. Nakata		50,000	(17)		50,000		0		0
Ronald J. Pang Revocabl e Living Trust, U/A 06-12-1991, Ronald J. Pang, M.D.		37,500	(18)		37,500		0		0
1999 Berman Family Trust - Mark & Sharon Berman		25,000	(19)		25,000		0		0
Alfred Feldman		165,000	(20)		165,000		0		0
Alfred Sladowsky & Frayda Sladowsky		25,000	(21)		25,000		0		0

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Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Allan A. Schultz		25,000	(22)		25,000		0		0
Allen L. Zecha		25,000	(23)		25,000		0		0
Amit Patel		45,000	(24)		45,000		0		0
Anita Marie Montgomery		25,000	(25)		25,000		0		0
Arnold Bryman		25,000	(26)		25,000		0		0
Bryan C.K. Tan		45,000	(27)		45,000		0		0
CYM 401(k) Plan U/A 02-01-93, FBO: William Yuen, TTEE		25,000	(28)		25,000		0		0
Daniel L. Schuster		25,000	(29)		25,000		0		0
David Ofman & Brian S. Siegel		45,000	(30)		45,000		0		0
Denis Y. Wong Revocable Living Trust, dtd 04-29-83, Denis Y. Wong, TTEE		50,000	(31)		50,000		0		0
Devorah Kleinberg & Sidney Kleinberg		25,000	(32)		25,000		0		0
Edward Dougherty		25,000	(33)		25,000		0		0
Eric Malicky & Kathryn J. Kostic		25,000	(34)		25,000		0		0
Franco Pietroforte		25,000	(35)		25,000		0		0
Hersh J. Goldberg & Esther B. Goldberg		25,000	(36)		25,000		0		0
Hershel K. Feldman		45,000	(37)		45,000		0		0
Howard J. Antosofsky		45,000	(38)		45,000		0		0
James M. Connell		25,000	(39)		25,000		0		0
Jerome A. Shinkay		25,000	(40)		25,000		0		0
Jerry A. Smith		25,000	(41)		25,000		0		0
Jonathan Sopher		53,014	(42)		45,000		8,014		*
Kenneth D. Crooks		25,000	(43)		25,000		0		0
Madison J. Batt		25,000	(44)		25,000		0		0
Menachem Genack & Sarah Genack		105,000	(45)		105,000		0		0
Michael D. Laskow & Debra A. Laskow		25,000	(46)		25,000		0		0
Moshe Barash & Riva Barash		25,000	(47)		25,000		0		0
NFS LLC, FMTC, FBO: Bruce Mitchell Rosen		25,000	(48)		25,000		0		0
NFS LLC, FMTC, FBO: Thomas L. Potter		25,000	(49)		25,000		0		0

-20-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
NFS LLC, FMTC, FBO: Wendell Y.K. Leong		25,000	(50)		25,000		0		0
Patricia M. Tipton		25,000	(51)		25,000		0		0
Robert K. Gleeson		25,000	(52)		25,000		0		0
Spiros Nasiopoulos		25,000	(53)		25,000		0		0
Sterling Trust Company, Custodian, FBO: Aaron L. Heimowitz, A/C 86225		98,536	(54)		98,536		0		0
Sterling Trust Company, Custodian, FBO: Adolph Rabinovitz		25,000	(55)		25,000		0		0
Ivan H. Norman		170,152	(56)		170,152		0		0
Striks Properties, LP		25,000	(57)		25,000		0		0
Tadami Miyamoto & Theodore T. Miyamoto		25,000	(58)		25,000		0		0
Tamar Lehmann		25,000	(59)		25,000		0		0
Terry Brittian		25,000	(60)		25,000		0		0
Thomas J. Boldt & Renee S. Boldt		25,000	(61)		25,000		0		0
Thomas T.F. Huang		25,000	(62)		25,000		0		0
Elizabeth J. Cozzolino		20,000	(63)		20,000		0		0
The Feldman Company		105,000	(64)		105,000		0		0
NFS LLC, FMTC, FBO: Andrew Peruzzi		20,000	(65)		20,000		0		0
Karen A. Novak & Phillip M. Novak		15,000	(66)		15,000		0		0
NFS LLC - FMTC, FBO: Steve Kleemann		15,000	(67)		15,000		0		0
James F. Crowley		5,000	(68)		5,000		0		0
Wiliam A. Foderaro		25,000	(69)		25,000		0		0
Kenneth M. Webdale		9,000	(70)		9,000		0		0
John E. Schwindler		5,000	(71)		5,000		0		0
Ronald W. Joller		5,000	(72)		5,000		0		0
Archie Spring		12,500	(73)		12,500		0		0
Chester Cromwell		12,500	(74)		12,500		0		0
Chris Walker		12,500	(75)		12,500		0		0
Edward H. Clowes		12,500	(76)		12,500		0		0
George Stickler & Pamela Stickler		12,500	(77)		12,500		0		0

-21-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Rodney Casada		12,500	(78)		12,500		0		0
Timothy A. Marshall		12,500	(79)		12,500		0		0
Weldon E. Viertel		32,500			32,500		0		0
Robert C. Shelton Jr.		10,000			10,000		0		0
Alan L. Freed		10,000			10,000		0		0
Roman Mashaiv		40,000			40,000		0		0
Steve Klein		24,000			24,000		0		0
Nachum Stein & Feige Stein		20,000			20,000		0		0
Scott Sorkin		10,000			10,000		0		0
NFS, LLC - FMTC FBO: Eric Sjolund		19,600	(80)		19,600		0		0
Harrison Kletzel		40,000			40,000		0		0
Robert C. Weinstein & Michael Gartenberg		20,000			20,000		0		0
Hasenfeld-Stein, Inc, Pension Trust & Nachum Stein		20,000	(81)		20,000		0		0
NFS, LLC - FMTC FBO: William Madden		10,000	(82)		10,000		0		0
Abraham Slomivics & Rachel Slomovics		50,000			50,000		0		0
Keow Kia Woon		20,000			20,000		0		0
NFS, LLC - FMTC FBO: Robert M. Dunaway		10,000	(83)		10,000		0		0
Nobuyuki Kondo		20,000			20,000		0		0
Mark Hoffmann		12,000			12,000		0		0
Dennis Morelli & Marcia Morelli		10,000			10,000		0		0
Clarence W. Fowler		20,000			20,000		0		0
McEnulty Revocable Living Trust u/a 11/17/03, Frank E. McEnulty & Cheryl A. McEnulty		6,000	(84)		6,000		0		0
Gordon M. Smith		10,000			10,000		0		0
Fever Family Partnership, Daniel J. Fever & Naomi Fever		20,000	(85)		20,000		0		0
Feryal Altinis		5,000			5,000		0		0
Yvette B. Morrill		20,000			20,000		0		0
The Benjamin & Dorothy Carmichael Rev. Trust dtd 3/23/05, Benjamin Carmichael & Dorothy Carmichael, TTEE		20,000	(86)		20,000		0		0

-22-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Jugee Profit Sharing Plan & Trust FBO: Jamie Farr		40,000	(87)		40,000		0		0
NFS, LLC - FMTC FBO: Jennie A. Pang		20,000	(88)		20,000		0		0
NFS, LLC - FMTC FBO: August Vinhage		20,000	(89)		20,000		0		0
Mary Chin Dang Revocable Trust & Mary Chin Dang, TTEE		20,000	(90)		20,000		0		0
Envest P. Andrews		6,000			6,000		0		0
William Tyler Peterson		20,000			20,000		0		0
Raymond M. Yeung		15,000			15,000		0		0
Tapscott Family Rev. Intervivos Trust dtd 11/21/94, Wilbur Tapscott & Jacqueline Tapscott, TTEE		20,000	(91)		20,000		0		0
Michael David Hong, Attorney LLC, Profit Sharing 401K Plan 4/1/88, FBO: Michael D. Hong, TTEE		20,000	(92)		20,000		0		0
Biss Family Trust, Leonard Biss  & Gloria Biss, TTEE		40,000	(93)		40,000		0		0
Mitchell Muntner		20,000			20,000		0		0
Joseph Fumosa		10,000			10,000		0		0
NFS, LLC FMTC FBO: Thomas H. Wollenweber		20,000	(94)		20,000		0		0
Rutgers Casualty Insurance Company & Nachum Stein - Chairman		20,000	(95)		20,000		0		0
Ronald W. Joller & Patricia Joller		4,000			4,000		0		0
Joseph Taub		32,000			32,000		0		0
Alice Nichols		10,000			10,000		0		0
Eli P.J. Goykodosh		10,000			10,000		0		0
Douglas Watson & Tammi Watson		15,000			15,000		0		0
Helene Sayegh		10,000			10,000		0		0
Garth A. Lloyd Trust dated 8-19-96 & Garth A. Lloyd		20,000	(96)		20,000		0		0
NFS, LLC FMTC Morris Lasson, PhD PSP & FBO Morris Lasson		40,000	(97)		40,000		0		0

-23-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Frank A. Comte		20,000			20,000		0		0
Neeyar Distributors & Ira Schlesinger, President		20,000	(98)		20,000		0		0
Dudley Muth IRA		4,000	(99)		4,000		0		0
Eric Norman		10,000			10,000		0		0
Harry Schrader & Joyce E. Schrader		20,000			20,000		0		0
Barbara Treitel		20,000			20,000		0		0
Volckhausen Investment Associates		20,000	(100)		20,000		0		0
NFS/FMTC Roth IRA FBO Joseph J. Mastrantonio		31,400	(101)		31,400		0		0
Gary Isamu Kondo Revocable Living Trust & Gary I. Kondo, TTEE		20,000	(102)		20,000		0		0
James R. Brazzle & Melanie Brazzle		10,000			10,000		0		0
Marilyn K. Burley		20,000			20,000		0		0
Jacob Mandel		25,000			25,000		0		0
Melvin P. Meyer & Michele Meyer		20,000			20,000		0		0
Robert D. Kerbs		10,000			10,000		0		0
DWM Estate Trust & Dennis Morelli, President		10,000	(103)		10,000		0		0
Walter Carl Joller, Jr. & Susan Lynn Joller		4,000			4,000		0		0
Shirley Ann Goggin & Sherry Goggin		10,000			10,000		0		0
Anthony J. Jacobson		40,000			40,000		0		0
Mark Christopher Jessen		10,000			10,000		0		0
NFS, LLC FBO: Marvin Schulhof		19,200	(104)		19,200		0		0
Thomas P. Fitzgerald & Angela Fitzgerald		20,000			20,000		0		0
Robert V. Bottaro & Phyllis M. Bottaro		8,000			8,000		0		0
Marvin D. Preuss		10,000			10,000		0		0
Jason Katz & Max Markus Katz		20,000			20,000		0		0
Anthony N. Henggeler and Mildred L. Henggeler Trust & Ralph R. Henggler, TTEE		40,000	(105)		40,000		0		0

-24-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Vienna Sui Cheung Hou		40,000			40,000		0		0
Roger A. Watson		10,000			10,000		0		0
Jack B. Gethmann		10,000			10,000		0		0
Ronald L. Lightfoot & Kitty O. Lightfoot		20,000			20,000		0		0
Douglas A. Knowles & Lauren M. Knowles		10,000			10,000		0		0
John T. Singer & Theresa A. Singer		24,000			24,000		0		0
Karen R. Kroning & Robert L. Kroning		8,000			8,000		0		0
Thomas Amalfitano		8,000			8,000		0		0
Valeva B. Dismukes		40,000			40,000		0		0
KDK Investments, Inc. & Damian Gallagher, President		28,000	(106)		28,000		0		0
Mary Ellen Brennan		10,000			10,000		0		0
Franklin P. Fromhagen		20,000			20,000		0		0
Mary Katherine Law Revocable Trust & Mary Katherine Law, TTEE		10,000	(107)		10,000		0		0
NFS, LLC - FMTC FBO: Donald J. Van Der Hart		20,000	(108)		20,000		0		0
NFS, LLC - FMTC FBO: Robert K. Harlan		20,000	(109)		20,000		0		0
Agron Moulai & Beth Ann Bottaro		8,000			8,000		0		0
Donovan H. Ehrhardt & Nancy C. Ehrhardt		40,000			40,000		0		0
Pamela J. Adelamini & Firooz Adelamini		8,000			8,000		0		0
NFS, LLC - FMTC FBO: George Christensen		25,600	(110)		25,600		0		0
Timothy J. Reardon & Martica Reardon		12,000			12,000		0		0
Jerry D. Barach & Norma N. Barach		10,000			10,000		0		0
Ira Klau		10,000			10,000		0		0
Takaaki Ogawa		20,000			20,000		0		0
Jonathan Herzog NFS, LLC - FMTC FBO		40,000	(111)		40,000		0		0

-25-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Norman R. Verros		10,000			10,000		0		0
NFS, LLC - FMTC FBO: Bruce W. Rourks		20,000	(112)		20,000		0		0
Carl Dan Killian, Jr.		10,000			10,000		0		0
Lucky Roman & Marina Roman		20,000			20,000		0		0
Joel D. Seuder, IRA Rollover		20,000	(113)		20,000		0		0
Virginia Palmer		10,000			10,000		0		0
Gary Asson		10,000			10,000		0		0
Mark Niu		20,000			20,000		0		0
NFS, LLC - FMTC FBO: Karen Nioma Whiteley		20,000	(114)		20,000		0		0
BJM Partners, LLC & Bennett Wo, Manager		20,000	(115)		20,000		0		0
The Robert O. Nigra 1998 Trust & Robert Nigra, TTEE		10,000	(116)		10,000		0		0
Joseph R. Nemeth Living Trust u/a/d 12/6/72 & Joseph R. Nemeth, TTEE		160,000	(117)		160,000		0		0
Joshua Fox		20,000			20,000		0		0
Earl S. Blackaby & Sandra L. Blackaby		20,000			20,000		0		0
William V. Cardinale		10,000			10,000		0		0
Mark Levy		10,000			10,000		0		0
Douglas E. Scarlett & Mary Ann Scarlett		10,000			10,000		0		0
David R. Sixta		20,000			20,000		0		0
Duane Dean Tindall, Michael E. Tindall, Tracy A. Tindall & Paul J. Tindall		30,000			30,000		0		0
Julian Adams		10,000			10,000		0		0
Marilyn Pierson 1987 Rev. Living Trust & Marilyn A. Pierson, TTEE		20,000	(118)		20,000		0		0
The Carol E. Sawyer Living Trust & Carol E. Sawyer, TTEE		10,000	(119)		10,000		0		0
Michael Savage		20,000			20,000		0		0
Peter P. Suarez		20,000			20,000		0		0
Douglas C. Shanholtz		20,000			20,000		0		0
Ruth Kamuri Koga & Suzanne Mino Koga		20,000			20,000		0		0

-26-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Daniel R. Murphy		20,000			20,000		0		0
Patricia Avve Saffin Rollover IRA		20,000	(120)		20,000		0		0
Rory Lerman Green		20,000			20,000		0		0
Hersh J. Goldberg		10,000			10,000		0		0
Curtis P. Moran		20,000			20,000		0		0
Kelly D. Moran		20,000			20,000		0		0
The E.C. Rector Liquid Estate Family Limited Partnership & Edgar C. Rector, Gen. Partner		20,000	(121)		20,000		0		0
Russell Rheingrover		20,000			20,000		0		0
John D. Macadam & Franci L. Macadam		10,000			10,000		0		0
Mitchell Sawasy & Susan Sawasy		20,000			20,000		0		0
NFS, LLC FBO: Susan Fitzgerald - Roth IRA		20,000	(122)		20,000		0		0
Caitlin Kelley		20,000			20,000		0		0
Mark Goodman		20,000			20,000		0		0
Uriel Benami & Henrietta Benami		10,000			10,000		0		0
Sidney Hirth		10,000			10,000		0		0
Michael K. Blackaby		20,000			20,000		0		0
Anthony B. Brand		10,000			10,000		0		0
Linda F. Derechailo		14,000			14,000		0		0
Burchard N. Iler		80,000			80,000		0		0
Daniel E. Brennan		10,000			10,000		0		0
LJG Asset Management, Inc. & Gualberto Diaz, President		80,000	(123)		80,000		0		0
Michael Plunkett		20,000			20,000		0		0
The Elizabeth R. Burson Eev Trust & Elizabeth Burson, TTEE		20,000	(124)		20,000		0		0
NFS, LLC - FMTC FBO: Constance Goonin		10,000	(125)		10,000		0		0
Daniel Keut Huenergardt		10,000			10,000		0		0
Charles Wayne Stover & Katherine Lorene Stover		10,000			10,000		0		0
Jacqueline B. Fenchel		10,000			10,000		0		0

-27-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
East Valley Anesthesia Inc., PS MPP & T, Brian K. Hyman, TTEE		40,000	(126)		40,000		0		0
Lauren Knowles & Doug Knowles		4,000			4,000		0		0
Scott D. Whiting & Jeri O. Whiting		10,000			10,000		0		0
Debra Heimowitz & Philip Heimowitz		10,000			10,000		0		0
Robert A. Latham, Sr.		40,000			40,000		0		0
Philip Wachsman		20,000			20,000		0		0
Tim Blackwell		20,000			20,000		0		0
Nurka Moulai & Kemal Moulai		4,000			4,000		0		0
Steven W. Walsh		12,500			12,500		0		0
Joshua Levy		10,000			10,000		0		0
Leland C. March		10,000			10,000		0		0
George M. Koga, Revocable Living Trust  & George M Koga, TTEE		40,000	(127)		40,000		0		0
Richard Imbert		400,000			400,000		0		0
Boon Seng Tan		20,000			20,000		0		0
John D. Cooke		20,000			20,000		0		0
Kwang Joo Lim		100,000			100,000		0		0
Dan Garfi		10,000			10,000		0		0
Carl F. Zellers		20,000			20,000		0		0
Roberta K. Wong, Rev. Trust Dated 4/29/1983, Roberta K. Wong & Denis Y. Wong TTEE		40,000	(128)		40,000		0		0
Darlene R. Gratton		10,000			10,000		0		0
Nicole Englander		20,000			20,000		0		0
Wayne D. Stienstra		10,000			10,000		0		0
Rosewood Holdings, LLC & Mark Ferraro, President		40,000	(129)		40,000		0		0
Susan Fitzgerald		10,000			10,000		0		0
William L. Holder, Jr. & Melinda J. Holder		30,000			30,000		0		0
Michael Evan Jacques & Kim Diane Jacques		20,000			20,000		0		0

-28-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Harvey C. Gannon, Jr. Revocable Trust &  Harvey C. Gannon, Jr., TTEE		20,000	(130)		20,000		0		0
NFS, LLC - FMTL FBO: Ellouise I. Meinders		10,000	(131)		10,000		0		0
Robert S. Rogers & Susan E. Holton-Rogers		10,000			10,000		0		0
NFS, LLC - FMTC FBO Elapully V. Ganapathy		10,000	(132)		10,000		0		0
NFS, LLC - FMTC FBO: Robert R. Dukes		12,000	(133)		12,000		0		0
NFS - LLC FBO: Benzion 0.pka, IRA		20,000	(134)		20,000		0		0
Jennifer Donahue Interior Design, Inc. Profit Sharing Plan, Jennifer and Michael Donahue, Trustees		20,000	(135)		20,000		0		0
James L. Dorman & Beverly O. Dorman		100,000			100,000		0		0
NFS, LLC - FMTC FBO: J. David Maddox		10,000	(136)		10,000		0		0
Scott Creek		10,000			10,000		0		0
Madison Batt		20,000			20,000		0		0
Asher Gottesman		20,000			20,000		0		0
Richard S. Bibler		60,000			60,000		0		0
David McCollister		5,000			5,000		0		0
Sanju Goswami		20,000			20,000		0		0
Brad C. Earnest		10,000			10,000		0		0
Corey Smith		10,000			10,000		0		0
Cynthia E. Chew		20,000			20,000		0		0
Jacqueline Brandwynne		100,000			100,000		0		0
NFS LLC, FMTC FBO: Denis Wong		80,000	(137)		80,000		0		0
John L. Bernhardt		20,000			20,000		0		0
Brian K. Hyman		60,000			60,000		0		0
Piper Jaffray Custodian FBO: James F. Riederer		20,000	(138)		20,000		0		0
Thomas Bentley III		10,000			10,000		0		0
Allen F. Radtke, Jr.		20,000			20,000		0		0
Mark R. Zellmer		10,000			10,000		0		0

-29-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
William M. Shows & Paul G. Shows		20,000			20,000		0		0
Paul R. Votto		20,000			20,000		0		0
Ronald A. Bero		40,000			40,000		0		0
Cecil B. Sanders		10,000			10,000		0		0
Mila Horak		10,000			10,000		0		0
William J. Gallagher		10,000			10,000		0		0
Duane L. Bruxvoort & Dorothy J. Bruxvoort		10,000			10,000		0		0
Terry Lee Tyler		20,000			20,000		0		0
Richard A. Searfoss & Julie M. Searfoss		24,000			24,000		0		0
Douglas Metcalf		20,000			20,000		0		0
Craig Epstein		5,600			5,600		0		0
Donald L. Eldart		5,000			5,000		0		0
Mark F. Gable & Angels N. Gable		4,000			4,000		0		0
Robert Gwinn III		40,000			40,000		0		0
First Trust Corp. FBO: Kitty D. Lightfoot		20,000	(139)		20,000		0		0
Joseph A. Siemer & Claire T. Siemer		20,000			20,000		0		0
Robert A. Lee		20,000			20,000		0		0
The Eldart Family Trust of 1994 & Donald L. Eldart, TTEE		5,000	(140)		5,000		0		0
Robert Raymond Dukes & Selene Winslow Dukes		8,000			8,000		0		0
M. Power, Inc. & Michael Kaufman, President		20,000	(141)		20,000		0		0
Louis P. Kreisberg		40,000			40,000		0		0
First Trust Corporation & Michael Bain TTEE		40,000	(142)		40,000		0		0
Don Deere		10,000			10,000		0		0
Deborah A. Dentry Bassett		20,000			20,000		0		0
David Foni & Adriana Foni		40,000			40,000		0		0
Kevin McKiever		10,000			10,000		0		0
Mark D. Weisberger		61,030			20,000		41,030		*
George W. Sibley & Mary E. Sibley		30,000			30,000		0		0

-30-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Lilia Zawoznik		20,000			20,000		0		0
Robert Wolfgram & Milica Wolfgram		10,000			10,000		0		0
John J. Wills		10,000			10,000		0		0
Ronald J. Meier		10,000			10,000		0		0
Joe Underwood		20,000			20,000		0		0
NFS, LLC LP Dept. FBO Richard Funderburgh		40,000	(143)		40,000		0		0
Peador Faramarzi		164,375			80,000		84,375		*
YKA Partners, Ltd., Kenneth C. Aldrich & Yvonne Aldrich, General Partner		40,000	(144)		40,000		0		0
Morgan Stanley CIF, FBO Paul W. Schnetzky		25,000	(145)		25,000		0		0
Gregory Lee Brandon		20,000			20,000		0		0
Nathan Korman		40,000			40,000		0		0
Thomas J. Kuesel		20,000			20,000		0		0
Jeffrey Jorgenson		40,000			40,000		0		0
Gary R. Kuphall		20,000			20,000		0		0
Frederick & Company, Inc.		100,000	(146)		100,000		0		0
Paul M. Kolosso		20,000			20,000		0		0
Trigon, Inc. & John P. Crotty, President		40,000	(147)		40,000		0		0
NFS UC A.I. Dept. FBO: Stanley Wagner		10,000	(148)		10,000		0		0
Charles Yanke		40,000			40,000		0		0
David King Aymond		40,000			40,000		0		0
The Darling Family Trust, Phillip Hartwell Darling & Susan Lynn Darling		20,000	(149)		20,000		0		0
Rolk T. Homgren		20,000			20,000		0		0
Horizon Capital Fund LP		40,000	(150)		40,000		0		0
Daniel V. Schoenerker		20,000			20,000		0		0
John C. Koss		20,000			20,000		0		0
NFS LLC - FMTC FBO: Irma L. Tucker		10,000	(151)		10,000		0		0
Clyde McNeal		40,000			40,000		0		0
John Ryan		20,000			20,000		0		0

-31-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Paul Weisbart & Lillian R. Weisbart		160,000			160,000		0		0
Weist Family Trust & Robert D. Weist, TTEE		100,000	(152)		100,000		0		0
Vahe and Norma Imasdounian 2004 F amily Trust, Vahe Imasdounian & Norma Imasdounian		20,000	(153)		20,000		0		0
Don L. Truex D.D.S. Profit Sharing Trust & Don L. Truex, TTEE		20,000	(154)		20,000		0		0
NFS LLC LP Dept. FBO: Edward Levy Sep IRA		91,686	(155)		32,800		58,886		*
William Fletemeyer		20,000			20,000		0		0
Vaso Stojic		10,000			10,000		0		0
NFS LLC - FMTC FBO: Frank A. Dobrovich		20,000	(156)		20,000		0		0
NFS LLC FMTC FBO: Steven Crnkovich		20,000	(157)		20,000		0		0
Sterling Trust Company Custodian FBO: Grant G. Heller		20,000	(158)		20,000		0		0
Darla Rennebohm		12,500			12,500		0		0
NFS, LLC - FMTC FBO: Cardinale Associates - FBO: William V. Cardinale		18,000	(159)		18,000		0		0
NFS, LLC - FMTC FBO: Brian D. Thiessen		20,000	(160)		20,000		0		0
Brookstreet Securities Corporation		696,073	(161)		696,073		0		0
Susan Marie Hayes		348,836	(162)		348,836		0		0
Neil D. Dabney		348,836	(163)		348,836		0		0
James P. Somers		42,648	(164)		42,648		0		0
BMA Securities		1,600	(165)		1,600		0		0
Frederick & Company		59,600	(166)		59,600		0		0
The Shemano Group		31,680	(167)		31,680		0		0
Timothy Adkins		20,800	(168)		20,800		0		0
Ernest Arnold		3,200	(169)		3,200		0		0
Burt Bartlett		58,900	(170)		58,900		0		0
Stephen Beniak		11,200	(171)		11,200		0		0

-32-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Thomas J. Brough		21,600	(172)		21,600		0		0
Kevin Browne		17,600	(173)		17,600		0		0
Bruce Campbell		1,600	(174)		1,600		0		0
Michael Dultz		23,320	(175)		23,320		0		0
Charles Ferrill		1,600	(176)		1,600		0		0
Bernard F. Gratton		800	(177)		800		0		0
William V. Ireland II		12,000	(178)		12,000		0		0
Richard Kerbs		24,160	(179)		24,160		0		0
Nobuyuki Kondo		6,400	(180)		6,400		0		0
Jacob Neiman		48,000	(181)		48,000		0		0
Belia Palas		1,600	(182)		1,600		0		0
William Peterson		13,600	(183)		13,600		0		0
Daryll Pryor		19,200	(184)		19,200		0		0
Juan Rosario		800	(185)		800		0		0
Phillip Rosenbaum		2,400	(186)		2,400		0		0
Richard Saitta		65,600	(187)		65,600		0		0
Jonathan Sheinkop		800	(188)		800		0		0
David Singer		5,120	(189)		5,120		0		0
Steven Smith		11,200	(190)		11,200		0		0
Terry Tyler		1,600	(191)		1,600		0		0
Eric Van Wyngarden		2,400	(192)		2,400		0		0
Ronald Van Wyngarden		12,800	(193)		12,800		0		0
Warren Woon		243,360	(194)		243,360		0		0
Robert & Debra Bain		313,975	(195)		271,788		42,187		*
Moshe Bellows		40,833	(196)		40,833		0		*
Blumenfeld Family Trust		47,250	(197)		20,250		27,000		*
Jeffrey Feld		787,824	(198)		700,000		87,824		*
California Neurosurgical Pension		136,111	(199)		136,111		0		*
Harvey & Sandra Cohen Living Trust		200,851	(200)		39,375		161,476		*
Josi Eshkenazi		404,565	(201)		187,500		217,065		*
David & Batia Hofstadter		247,286	(202)		114,894		132,392		*
Rena Kramer		47,250	(203)		20,250		27,000		*
Chana Kurtzman		37,500	(204)		37,500		0		0

-33-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Lesin Family Trust		283,672	(205)		201,736		81,936		*
Lintz Family Trust		2,578,184	(206)		1,432,000		1,146,184		3.1	%
Lipman Family Trust		75,000	(207)		75,000		0		0
Maller Estate Planning Trust		627,778	(208)		544,444		83,334		1.4	%
Jeffrey & Avila Maller, Husband & Wife Community Property		103,334	(209)		20,000		83,334		*
Dan L. Mcgurk		161,982	(210)		52,500		109,482		*
Neuman Family Trust 3 rd Complete Restatement as amendement & Fully Restated 12/13/05, Tibor Neumann & Ericka Neumann, TTEE		714,936	(211)		378,611		336,325		1.2	%
Drew Rayman		1,532,553	(212)		1,225,000		307,553		*
Elisha Rothman		136,111	(213)		136,111		0		0
Michael Shiffman TTEE Michael Shiffman MD Pension Trust		168,171	(214)		136,111		32,060		*
Jonathan Sternberg & Miriam Steinberg		340,278	(215)		340,278		0		0
Jeffrey Ungar		4,420,060	(216)		488,000		3,932,060		10.5	%
Mark Zigner		61,665	(217)		15,000		46,665		0
Christine Hanneman		100,000	(218)		100,000		0		0
Sylvain Silberstein		36,000			36,000		0		0
Roberta & Yachov Shuchatowitz		121,182			25,000		96,182		*
Cindy Karen Trust		50,000			50,000		0		0
GW Investments		52,187	(219)		10,000		42,187		*
Braun Family Trust & Maumcio Braun, TTEE		126,665	(220)		90,000		36,665		*
Bergher Family Trust		66,062	(221)		25,000		41,062		*
Dan Bergher Trustee for Lauren Emily Bergher Trust		32,506	(222)		12,500		20,006		*
Dan Bergher Trustee for Jennifer Pauline Bergher Trust		32,506	(223)		12,500		20,006		*
George & Theresa Afram		66,665	(224)		39,999		26,666		0
John Udeani		33,750	(225)		20,250		13,500		0
Nabil A. Emmad		217,000	(226)		122,000		95,000		0
Merrill A. McPeak		67,916	(227)		20,000		47,916		*
Ury Family Investments LP, Israel Ury & Betty Ury		123,310	(228)		20,000		103,310		0

-34-

Name	Number of Shares Beneficially Owned Before Offering (1)			Number of Shares Being Offered		Number of Shares Beneficially Owned After Offering
						Number of Shares (2)		Percentage
Richardson & Patel, LLP		22,220	(229)		11,110		11,110		*
RP Capital, LLC		22,219	(230)		11,110		11,110		*
Corporate Capital Partners		399,946	(231)		199,973		199,973		*

*	Less than one percent.
1.	The number and percentage of share beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which each selling stockholder has sole or shared voting power or investment power and also any shares which the selling stockholder has the right to acquire within 60 days.
2.	Assumes that all shares will be resold by the Selling Security Holders after this offering.
3.	Includes up to 100,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007 and up to 49,166 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. Also includes up to 111,111 shares of common stock issuable upon conversion of certain subordinated secured notes that will be registered in this offering. The natural person with voting and investment powers for this stockholder is Wendell Y.M. Lew.
4.	Includes up to 25,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
5.	Includes up to 20,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Stuart K. Campbell.
6.	Includes up to 16,050 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. Mr. Yekutiel was a former director of our wholly-owned subsidiary, Quintessence Photonics Corporation. The natural person with voting and investment powers for this stockholder is Mordechai Yekutiel.
7.	Includes up to 15,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
8.	Includes up to 15,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
9.	Includes up to 15,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
10.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
11.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
12.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
13.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
14.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
15.	Includes up to 20,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.

-35-

16.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
17.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
18.	Includes up to 7,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Ronald J. Pang.
19.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Mark Berman.
20.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
21.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
22.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
23.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
24.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
25.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
26.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
27.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
28.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is William Yuen.
29.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
30.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
31.	Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Denis Y. Wong.
32.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
33.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
34.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
35.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
36.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
37.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
38.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. Includes 20,000 shares of common stock in the name of “NFS, LLC - FMTC FBO: Howard Antosofsky.”

-36-

39.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
40.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
41.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
42.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
43.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
44.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
45.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
46.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
47.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
48.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Bruce Mitchell Rosen.
49.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Thomas L. Potter.
50.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Wendell Y.K. Leong.
51.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007
52.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
53.	Includes up to 5,0000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
54.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. Includes up to 73,536 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The natural person with voting and investment powers for this stockholder is Aaron L. Heimowitz.
55.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Adolph Rabinovitz.
56.	Includes (1) 19,904 shares of common stock and (2) up to 4,976 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007; such stock and warrant certificates were issued in the name of “Sterling Trust Company, Custodian, FBO: Ivan H. Norman, A/C 86380.” Also includes 80,000 shares issued in the name of “NFS, LLC, FMTC FBO: Ivan Norman”. Includes up to 65,272 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet.
57.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment power for the stockholder is David M. Striks, as President of LSD Properties Ltd., the general partner of the stockholder. Mr. Striks is also a person with voting and investment control for LSP Properties Pension Fund, a holder of 58,507 shares of our common stock that is not being registered in this offering. The natural person with voting and investment powers for this stockholder is David M. Striks.
58.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
59.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.

-37-

60.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
61.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
62.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
63.	Includes up to 4,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
64.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment power of shares for The Feldman Company, Inc. is Alfred Feldman.
65.	Includes up to 4,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Andrew Peruzzi.
66.	Includes up to 3,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
67.	Includes up to 3,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. The natural person with voting and investment powers for this stockholder is Steve Kleemann.
68.	Includes up to 1,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
69.	Includes up to 1,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007. Also includes 20,000 shares held in the name of “Charles Schwab FBO:William A. Foderaro Roth IRA.”
70.	Includes up to 1,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
71.	Includes up to 1,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
72.	Includes up to 1,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
73.	Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
74.	Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
75.	Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
76.	Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
77.	Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
78.	Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
79.	Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.50 per share of common stock and expiring on November 12, 2007.
80.	Includes up to 9,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The natural person with voting and investment powers for this stockholder is Eric Sjolund.
81.	The natural person with voting and investment powers for this stockholder is Nachum Stein.
82.	The natural person with voting and investment powers for this stockholder is Wiliam Madden.

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83.	The natural person with voting and investment powers for this stockholder is Robert M. Dunaway.
84.	The natural person with voting and investment powers for this stockholder is Frank E. McEnulty & Cheryl A. McEnulty.
85.	The natural person with voting and investment powers for this stockholder is Daniel J. Fever & Naomi Fever.
86.	The natural person with voting and investment powers for this stockholder is Benkamin Carmichael & Dorothy Carmichael.
87.	The natural person with voting and investment powers for this stockholder is Jamie Farr.
88.	The natural person with voting and investment powers for this stockholder is Jennie A. Pang.
89.	The natural person with voting and investment powers for this stockholder is August Vinhage.
90.	The natural person with voting and investment powers for this stockholder is Mary Chin Dang.
91.	The natural person with voting and investment powers for this stockholder is Wilbur Tapscott & Jacqueline Tapscott.
92.	The natural person with voting and investment powers for this stockholder is Michael D. Hong.
93.	The natural person with voting and investment powers for this stockholder is Leonard Biss & Gloria Biss.
94.	The natural person with voting and investment powers for this stockholder is Thomas H. Wollenweber.
95.	The natural person with voting and investment powers for this stockholder is Nachum Stein.
96.	The natural person with voting and investment powers for this stockholder is Garth A. Lloyd.
97.	The natural person with voting and investment powers for this stockholder is Morris Lasson.
98.	The natural person with voting and investment powers for this stockholder is Ira Schlesinger.
99.	The natural person with voting and investment powers for this stockholder is Dudley Muth.
100.	The natural person with voting and investment powers for this stockholder is Theodore W. Volckhausen.
101.	Includes 5,000 shares issued in the name of “NFS, LLC - FMTC Joseph J. Mastrantonio.” The natural person with voting and investment powers for this stockholder is Joseph J. Mastrantonio.
102.	The natural person with voting and investment powers for this stockholder is Gary I. Kondo.
103.	The natural person with voting and investment powers for this stockholder is Dennis Morelli.
104.	The natural person with voting and investment powers for this stockholder is Marvin Schulhof.

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105.	The natural person with voting and investment powers for this stockholder is Ralph R. Henggler.
106.	The natural person with voting and investment powers for this stockholder is Damian Gallagher.
107.	The natural person with voting and investment powers for this stockholder is Mary Katherine Law.
108.	The natural person with voting and investment powers for this stockholder is Donald J. Van Der Hart.
109.	The natural person with voting and investment powers for this stockholder is Robert K. Harlan.
110.	The natural person with voting and investment powers for this stockholder is George Christensen.
111.	The natural person with voting and investment powers for this stockholder is Norman R. Verros.
112.	The natural person with voting and investment powers for this stockholder is Bruce W. Rourks.
113.	The natural person with voting and investment powers for this stockholder is Joel D. Seuder.
114.	The natural person with voting and investment powers for this stockholder is Karen Nioma Whiteley.
115.	The natural person with voting and investment powers for this stockholder is Bennett Wo.
116.	The natural person with voting and investment powers for this stockholder is Robert O. Nigra.
117.	The natural person with voting and investment powers for this stockholder is Joseph R. Nemeth.
118.	The natural person with voting and investment powers for this stockholder is Marilyn Pierson.
119.	The natural person with voting and investment powers for this stockholder is Carol E. Sawyer.
120.	The natural person with voting and investment powers for this stockholder is Patricia Avve Saffin.
121.	The natural person with voting and investment powers for this stockholder is Edgar C. Rector.
122.	The natural person with voting and investment powers for this stockholder is Susan Fitzgerald.
123.	The natural person with voting and investment powers for this stockholder is Gualberto Diaz.
124.	The natural person with voting and investment powers for this stockholder is Elizabeth Burson.
125.	The natural person with voting and investment powers for this stockholder is Constance Goonin.

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126.	The natural person with voting and investment powers for this stockholder is Brian K. Hyman.
127.	The natural person with voting and investment powers for this stockholder is George M. Koga.
128.	The natural person with voting and investment powers for this stockholder is Roberta K. Wong & Denis Y. Wong.
129.	The natural person with voting and investment powers for this stockholder is Mark Ferraro.
130.	The natural person with voting and investment powers for this stockholder is Harvey C. Gannon, Jr.
131.	The natural person with voting and investment powers for this stockholder is Ellouise I. Meinders.
132.	The natural person with voting and investment powers for this stockholder is Elapully V. Ganapathy.
133.	The natural person with voting and investment powers for this stockholder is Robert R. Dukes.
134.	The natural person with voting and investment powers for this stockholder is Benzion.
135.	Michael Donahue, the Trustee of the Jennifer Donahue Interior Design, Inc. Profit Sharing Plan, is an attorney at Richardson & Patel LLP, our legal counsel. The natural person with voting and investment powers for this stockholder is Michael Donahue.
136.	The natural person with voting and investment powers for this stockholder is J. David Maddox.
137.	Includes up to 40,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The natural person with voting and investment powers for this stockholder is Denis Wong.
138.	The natural person with voting and investment powers for this stockholder is James F. Riederer.
139.	The natural person with voting and investment powers for this stockholder is Kitty D. Lightfoot.
140.	The natural person with voting and investment powers for this stockholder is Donald L. Eldart.
141.	The natural person with voting and investment powers for this stockholder is Michael Kaufman.
142.	The natural person with voting and investment powers for this stockholder is Michael Bain.
143.	The natural person with voting and investment powers for this stockholder is Richard Funderburgh.

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144.	The natural person with voting and investment powers for this stockholder is Yvonne Aldrich.
145.	The natural person with voting and investment powers for this stockholder is Paul W. Schnetzky.
146.	The natural person with voting and investment powers for this stockholder is Lon P. Frederick.
147.	The natural person with voting and investment powers for this stockholder is John P. Crotty.
148.	The natural person with voting and investment powers for this stockholder is Stanley Wagner.
149.	The natural person with voting and investment powers for this stockholder is Susan Lynn Darling.
150.	The natural person with voting and investment powers for this stockholder is Deborah Salerno.
151.	The natural person with voting and investment powers for this stockholder is Irma L. Tucker.
152.	The natural person with voting and investment powers for this stockholder is Robert D. Weist.
153	The natural person with voting and investment powers for this stockholder is Vahe Imasdounian & Norma Imasdounian.
154.	The natural person with voting and investment powers for this stockholder is Don L. Truex.
155.	The natural person with voting and investment powers for this stockholder is Edward Levy.
156.	The natural person with voting and investment powers for this stockholder is Frank A. Dobrovich.
157.	The natural person with voting and investment powers for this stockholder is Steven Crnkovich.
158.	The natural person with voting and investment powers for this stockholder is Grant G. Heller.
159.	Includes up to 8,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The natural person with voting and investment powers for this stockholder is William V. Cardinale. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
160.	The natural person with voting and investment powers for this stockholder is Brian D. Thiessen.
161.	Includes up to 696,073 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The natural person with voting and investment powers for this entity is Steve Washburn. Brookstreet is a broker-dealer. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.

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162.	Includes up to 348,836 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. Susan Hayes is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
163.	Includes up to 348,836 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. Neil Dabney is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
164.	Includes up to 42,648 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. James P. Somers is an independent contractor of Brookstreet.
165.	Includes up to 1,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. BMA Securities is a broker-dealer. The natural person with voting and investment powers for this stockholder is Len Rothstein. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
166.	Includes up to 59,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. Frederick & Co. is a broker-dealer. The natural person with voting and investment powers for this stockholder is Lon Frederick. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
167.	Includes up to 31,680 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The Shemano Group is a broker-dealer. The natural person with voting and investment powers for this stockholder is Dudley Muth. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
168.	Includes up to 20,800 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
169.	Includes up to 3,200 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
170.	Includes up to 58,900 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
171.	Includes up to 11,200 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
172.	Includes up to 21,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.

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173.	Includes up to 17,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
174.	Includes up to 1,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
175.	Includes up to 23,320 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
176.	Includes up to 1,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
177.	Includes up to 800 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
178.	Includes up to 12,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
179.	Includes up to 12,160 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
180.	Includes up to 6,400 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
181.	Includes up to 48,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
182.	Includes up to 1,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.

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183.	Includes up to 13,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
184.	Includes up to 19,200 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
185.	Includes up to 800 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
186.	Includes up to 2,400 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
187.	Includes up to 65,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
188.	Includes up to 800 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet.
189.	Includes up to 5,120 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
190.	Includes up to 11,200 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
191.	Includes up to 1,600 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
192.	Includes up to 2,400 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.

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193.	Includes up to 12,800 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
194.	Includes up to 243,360 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on July 19, 2011. The warrant holder is an independent contractor of Brookstreet. The warrant holder acquired the warrants in the ordinary course of business and at the time of the acquisition of the warrants, the holder had no agreements or understandings, directly or indirectly, with any person to distribute the warrants or the underlying warrant shares.
195.	Includes up to 271,788 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on April 9, 2009.
196.	Includes up to 7,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. Also includes up to 33,333 shares of common stock issuable upon conversion of certain promissory notes that will be registered in this offering.
197.	Includes up to 20,250 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on April 9, 2009. The natural person with voting and investment powers for this stockholder is
198.	Includes up to 700,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010. The stockholder’s shares registered under this offering are subject to a lock-up agreement with the Registrant.
199.	Includes up to 25,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on November 12, 2007. Also includes up to 111,111 shares of common stock issuable upon conversion of certain promissory notes that will be registered in this offering. The natural person with voting and investment powers is Morris Loffman. Mr. Loffman also has voting and investment powers with respect to the Morris & Sonia Loffman Family Trust, which holds 44,882 shares of our common stock.
200.	Includes up to 39,375 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010. Also includes options to purchase 3,333 shares of common stock at $0.38 that expire on February 8, 2014 and options to purchase 5,000 shares of common stock with an exercise price of $1.25 per share that expire on February 8, 2016 held by Mr. Harvey Cohen. Also includes 4,613 shares of common stock to be issued upon conversion of certain senior secured notes that will not be included in this offering. Neither the shares underlying the options nor promissory note will be included in the offering. The natural person with voting and investment powers for this stockholder is Harvey Cohen.
201.	Includes up to 187,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010.
202.	Includes up to 37,500 and 77,394 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010 and April 9, 2009, respectively.
203.	Includes up to 20,250 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on April 9, 2009.
204.	Includes up to 37,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2008.
205.	Includes up to 65,625 and 25,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010 and August 1, 2010, respectively. Also includes up to 7,689 shares of common stock issuable upon conversion of certain senior secured notes that will not be registered in this offering and 111,111 shares of common stock issuable upon conversion of certain subordinated secured notes that will be registered in this offering. The natural person with voting and investment powers for this stockholder is Benjamin Lesin
206.	Includes up to 700,000, 192,000, 180,000, 180,000, and 180,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010, November 25, 2010, January 31, 2011, March 31, 2011, and April 30, 2011, respectively. Mr. Lintz is our Chief Financial Officer and a member of our Board of Directors. Shares issuable under these warrants are subject to a lock-up agreement entered into by Mr. Lintz and the Company. The natural person with voting and investment powers for this stockholder is George Lintz.

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207.	Includes up to 75,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2008. The natural person with voting and investment powers for this stockholder is Brian Lipman.
208.	Includes up to 100,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. Also includes up to 444,444 shares of common stock issuable upon conversion of certain subordinated secured notes that will be registered in this offering. The natural person with voting and investment powers for this stockholder is Jeffrey Maller & Avila Maller.
209.	Includes up to 20,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. The natural person with voting and investment powers for this stockholder is Jeffrey Maller & Avila Maller.
210.	Includes up to 52,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010. Also includes up to 6,151 shares of common stock issuable upon conversion of certain senior secured notes that will not be registered in this offering.
211.	Includes up to 157,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010 and 25,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. Also includes up to 18,453 shares of common stock issuable upon conversion of certain senior secured notes that will not be registered in this offering and 111,111 shares of common stock issuable upon conversion of certain subordinated notes that will be registered in this offering. The natural person with voting and investment powers for this stockholder is Tibor Neumann & Ericka Neumann.
212.	Includes up to 1,225,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on May 24, 2010. Also includes 307,553 shares issuable upon conversion of senior secured notes that will not be registered in this offering. The stockholder’s shares registered under this offering are subject to a lock-up agreement with the Registrant.
213.	Includes up to 25,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. Also includes up to 111,111 shares of common stock issuable upon conversion of certain subordinated secured notes that will not registered in this offering.
214.	Includes up to 25,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. Also includes up to 111,111 shares of common stock issuable upon conversion of certain promissory notes that will be registered in this offering. The natural person with voting and investment powers for this stockholder is Michael Shiffman.
215.	Includes up to 62,500 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010. Also includes up to 277,778 shares of common stock issuable upon conversion of certain subordinated secured notes that will be registered in this offering.
216.	Dr. Ungar is our Chief Executive Officer and a member of our Board of Directors. This number includes shares underlying warrants to purchase 128,000, 120,000, 120,000 and 120,000 shares that expire on November 25, 2010; January 31 2011, March 31, 2011 and April 30 2011, respectively, all at an exercise price of $1.25 per share. Dr. Ungar has executed a lockup agreement that restricts the sales of shares of our common stock.
217.	Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on August 1, 2010.
218.	Includes up to 100,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on March 3, 2009.
219.	The natural person with voting and investment powers for this stockholder is Peter Weintraub

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220.	The natural person with voting and investment powers for this stockholder is Mauricio Braun.
221.	The natural person with voting and investment powers for this stockholder is Dan Bergher.
222.	The natural person with voting and investment powers for this stockholder is Dan Bergher.
223.	The natural person with voting and investment powers for this stockholder is Dan Bergher.
224.	Includes up to 39,999 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on April 9, 2009.
225.	Includes up to 20,250 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on April 9, 2009.
226.	Includes up to 122,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $1.25 per share of common stock and expiring on April 9, 2009.
227.	Gen. McPeak is a member of our Board of Directors.
228.	Mr. Ury is a member of our Board of Directors. The natural person with voting and investment powers for this stockholder is Israel Ury.
229.	Richardson & Patel LLP is our legal counsel. The natural person with voting and investment powers for this stockholder is Nimish Patel.
230.	The natural person with voting and investment power for RP Capital LLC is Erick Richardson. Erick Richardson is a partner of Richardson & Patel LLP, our legal counsel.
231.	The natural person with voting and investment power for Corporate Capital Partners is Michael Donahue. Michael Donahue is an attorney of Richardson & Patel LLP, our legal counsel.

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SHARES ELIGIBLE FOR FUTURE SALE

Rule 144

We had 38,559,283 outstanding shares of common stock as of the date of this prospectus. All of the shares registered pursuant to this prospectus will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”) except for certain shares held by our Chief Executive Officer, Jeffrey Ungar, and our Chief Financial Officer, George Lintz, which are further limited by certain share transferability agreements. If shares are purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act, their sales of shares would be governed by the limitations and restrictions that are described below. In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a company’s common stock for at least one year is entitled to sell within any three month period a number of shares that does not exceed 1% of the number of shares of our common stock then outstanding, which equals approximately 385,593 shares in our company as of the date of this prospectus.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the Company.

Rule 144(k)

Under Rule 144(k), a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

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Plan of Distribution

The selling stockholders have advised us that the sale or distribution of our common stock owned by the selling stockholders may be effected directly to purchasers by the selling stockholders, and as principal or through one or more underwriters, brokers, dealers or agents from time-to-time in one or more transactions (which may involve crosses or block transactions) (i) on the OTC Bulletin Board or any other market on which the price of our shares of common stock are quoted, or (ii) in transactions otherwise than on the OTC Bulletin Board or in any other market on which the price of our shares of common stock are quoted. Any of such transactions may be effected at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at varying prices determined at the time of sale or at negotiated or fixed prices, in each case as determined by the selling stockholders or by agreement between the selling stockholders and underwriters, brokers, dealers or agents, or purchasers. If the selling stockholders effect such transactions by selling their shares of common stock to or through underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of common stock for whom they may act as agent (which discounts, concessions or commissions as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions involved). The selling stockholders and any brokers, dealers or agents that participate in the distribution of the common stock may be deemed to be underwriters, and any profit on the sale of common stock by them and any discounts, concessions or commissions received by any such underwriters, brokers, dealers or agents may be deemed to be underwriting discounts and commissions under the Securities Act.

Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. The selling stockholders are advised to ensure that any underwriters, brokers, dealers or agents effecting transactions on behalf of the selling stockholders are registered to sell securities in all 50 states. In addition, in certain states the shares of common stock in this offering may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

We will pay all of the expenses incident to the registration, offering, and sale of the shares of common stock to the public hereunder other than commissions, fees, and discounts of underwriters, brokers, dealers and agents. We have agreed to indemnify the Brookstreet Investors against certain liabilities, including liabilities under the Securities Act of 1933, as amended. We estimate that the expenses of the offering to be borne by us will be approximately $138,837. These offering expenses consist of an SEC registration fee of $4,837, printing and engraving fees and expenses of $10,000, audit fees of $50,000, legal fees and expenses of $50,000, and miscellaneous expenses of $10,000 and blue sky expenses of $14,000. We will not receive any proceeds from the sale of any of the shares of common stock by the selling stockholders.

The selling stockholders should be aware that the anti-manipulation provisions of Regulation M under the Exchange Act will apply to purchases and sales of shares of common stock by the selling stockholders, and that there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Registration M, the selling stockholders or their agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock while such selling stockholders are distributing shares covered by this Prospectus. The selling stockholders are advised that if a particular offer of common stock is to be made on terms constituting a material change from the information set forth above with respect to the Plan of Distribution, then, to the extent required, a post-effective amendment to the accompanying Registration Statement must be filed with the Commission.

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Legal Proceedings

We are not a party to any pending legal proceedings that, if decided adversely to us, would have a material adverse effect upon our business, results of operations or financial condition and are not aware of any threatened or contemplated proceeding by any governmental authority against our company. To our knowledge, we are not a party to any pending civil or criminal action or investigation.

Directors, Executive Officers, Promoters and Control Persons

The following table sets forth the names, ages, and positions of our directors and officers. All of them have been our officer or director since May 2006

Name	Age	Position
Jeffrey Ungar	48	Chief Executive Officer, Chairman of the Board, Co-Founder and Director
George Lintz	46	Chief Financial Officer, Chief Operating Officer, Co-Founder and Director
Israel Ury	50	Director
Robert Adams	74	Director
Merrill A. McPeak	70	Director
Paul Rudy	35	Senior Vice President of Marketing and Sales

The directors named above will serve until the next annual meeting of our stockholders or until their successors are duly elected and have qualified. Directors will be elected for one-year terms at the annual stockholders meeting. Officers will hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists. There is no arrangement or understanding between any of our directors or officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings between non-management stockholders that may directly or indirectly participate in or influence the management of our affairs.

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Biographical Information

Jeffrey Ungar, Ph.D., President, Chief Executive Officer, Co-Founder and Director

Dr. Ungar started QPC in 2000 after a 17 year career at Ortel Corporation, a pioneer in the development of analog fiber optic technology for CATV. He joined Ortel in 1983 as one of the first five employees, and stayed at Ortel until after its sale to Lucent Technologies in 2000 for approximately $2.95 billion. At Ortel, he occupied senior positions including Director of Advanced R&D for Optoelectronic Devices and Director of Material and Structure Technologies. He holds a Ph.D. in Nuclear Physics from Caltech.

George M. Lintz, M.B.A., Chief Financial Officer, Chief Operating Officer, Co-Founder and Director

Mr. Lintz started QPC along with Dr. Ungar in 2000 after a fifteen year career in investment banking. Mr. Lintz founded Lintz Glover White & Company in 1987, an SEC registered, NASD member broker/dealer, and ran the Broker-Dealer until it was acquired in December 1999. During his tenure at Lintz Glover White, Mr. Lintz financed a number of early stage companies from the technology and finance industries. He founded and served as Chairman of G&H Financial, a commercial finance lender from 1989 to 1994, in which capacity he provided asset-based financing for manufacturing companies. In 1994, Mr. Lintz was appointed by the California State Senate to serve as an advisor to their Local Government Investment Committee. As an advisor, he assisted in drafting the legislation that governs investment practices of state and local government entities in California. Mr. Lintz has been associated with various financial services firms on a part-time basis until July 2005. Mr. Lintz received his M.B.A. in Finance from New York University in 1984.

Israel Ury, Director

Dr. Ury has served as QPC’s Director since November 2001. From July 2001 to September 2002, he also served as a director for Memlink, Inc. From February 2000 to July 2001 he served as a Senior Technology Consultant for Lucent Technologies and Agere Systems. Dr. Ury founded and served as an executive officer of diode laser manufacturer, Ortel Corporation from 1980 to 2000. Dr. Ury received his B.S. and M.S. from the University of California at Los Angeles, and his Ph. D from California Institute of Technology.

Robert Adams, Director

Mr. Adams was appointed a director in May 2006. Mr. Adams began his career as an engineer at Bendix Aviation designing control systems for aircraft jet engines. He then designed ordnance systems as a non-commissioned army officer. After military service, he worked as a design engineer at Inland Steel Co. where he became involved in the use of computers to control steel making processes. He continued this interest as a control system designer at TRW/Bunker Ramo where he received several patents for multivariable control systems in the production of steel products.

In 1969, Mr. Adams joined Xerox Corporation. At the time Mr. Adams was Vice President of Marketing at SDS responsible for planning and marketing of new technologies. In 1975 he advanced within Xerox and managed a new business using computers to convert high-speed copiers into laser printers. This business alone has grown to over $6 billion in annual revenue. Mr. Adams was promoted from the President of Printing Systems to Group Vice President of the Xerox Systems Group (XSG) where he led the introduction of a number of new office products, some from Xerox PARC. At this time he sponsored a project to develop the first high-speed digital copier which under his guidance resulted in the development of high-quality, and high-speed digital scanners. Engineering of these products required the design of 13 application specific IC’s (ASIC’s) and other advance electronic design concepts. Mr. Adams was promoted to Executive Vice President in 1986 and moved to Xerox headquarters in Connecticut. In 1989 Mr. Adams began a venture capital activity on behalf of Xerox (Xerox Technology Ventures). XTV was completed in 1999. For the past five years, Mr. Adams has managed Adams Capital Management, a private investment company. Mr. Adams serves on the Board of Directors of Tekelec Corp. (NASDAQ-NMS: TKLC), a manufacturer of network switching products, and The Los Angeles Opera Company, a private corporation. Mr. Adams received a B.S. in Mechanical Engineering from Purdue University and an M.B.A. from the University of Chicago. He was awarded the Distinguished Engineering Alumnus in 1983 as well as the Outstanding Mechanical Engineer from Purdue. He was elected a Life Member of the President’s Council of the University of Chicago Graduate School of Business.

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Merrill (“Tony”) McPeak, Director

Gen. Merrill A. McPeak has served as the Vice-Chairman of our Board of Directors since January 2006. Gen. McPeak is President of McPeak and Associates, a management-consulting firm he founded in 1995. Gen. McPeak was Chief of Staff of the Air Force during the early 1990s. He entered the U.S. Air Force in November 1957 and was a fighter pilot during his early years. He flew 269 combat missions in Vietnam. In 1967-68, he performed in nearly 200 official air shows as Solo Pilot for the USAF Aerial Demonstration Team, the “Thunderbirds.” He commanded NATO’s 20 ^th Fighter Wing in 1980-81, Twelfth Air Force in 1987-88, Pacific Air Forces from 1988 to 1990, and was Chief of Staff of the Air Force from November 1990 to October 1994, when he retired from active military service. General McPeak is Chairman of the Board of Ethicspoint, Inc. and a director of several other private companies. He is a director of the following public companies: Del Global Technologies (OTC: DGTC), a manufacturer and marketer of medical imaging systems; Gigabeam Corporation (OTC BB: GGBM), a supplier of high performance, high availability fiber-speed wireless communications; Health Sciences Group, Inc., (OTC BB: HESG), a provider of preventive healthcare alternatives; MathStar (NASDAQ-NMS: MATH), a designer and marketer of specialized semiconductor integrated circuits; and Tektronix, Inc. (NYSE: TEK), a manufacturer and marketer of test and measurement solutions.

Paul Rudy, Ph.D., Senior Vice President of Marketing and Sales

Dr. Rudy has served with QPC since March 2005. He comes to QPC from an extensive career with Coherent, Inc. He served as Director of Marketing at Coherent Inc.’s Semiconductor Business Unit, leading the tactical and strategic marketing activities of the high power diode laser business, overseeing product management and developing strategies for the business unit’s technology, products, and markets from June 2004 until March 2005. From October 2000 through June 2004, Dr. Rudy acted as Coherent’s Market Development Manager, responsible for developing and executing sales and tactical marketing strategies in the defense and graphics arts markets in North America. Prior to this, he acted as the Product Marketing Manager for Coherent Semiconductor Business Unit, focusing on unmounted bars and stacks. From 1997 to 1999, he was the Scientific Sales Engineer in the Mid-Atlantic region for Coherent Semiconductor Group and Coherent Laser Group. There, he developed several markets for Coherent Inc including the scientific market, enhanced imaging MRI, and defense applications. Prior to his position with Coherent Inc in the Mid-Atlantic, Dr. Rudy worked in the Advanced Technical Sales Group at Coherent, Inc. headquarters. He received his masters and doctoral degrees in physics studying laser manipulation of atoms at the University of Rochester and his B.S. and B.A. from Duke University in physics and philosophy.

There are no family relationships among the foregoing directors and executive offices. None of the directors or executive officers has, during the past five years:

(a) Had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

(b) Been convicted in a criminal proceeding or subject to a pending criminal proceeding;

(c)	Been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities;
d)	Been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding beneficial ownership of our common stock as of November 27, 2006 by (i) each person who is known by the Company to own beneficially more than five percent (5%) of the outstanding shares of our voting securities, (ii) each director and executive officer of the Company, and (iii) all directors and executive officers of the Company as a group. Unless otherwise indicated below, to the knowledge of the Company, all persons listed below have sole voting and investing power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable community property laws, and, unless otherwise stated, their address is 15632 Roxford Street, Sylmar, California 91342. As of November 27, 2006, there were 38,559,283 shares of common stock issued and outstanding.

Name and Address of Beneficial Owner(1)	Total Outstanding Common Stock Beneficially Owned		Percent of Shares of Common Stock Beneficially Owned
Jeffrey Ungar, Chief Executive Officer, and Director (2)		4,420,060		11.7	%
George Lintz, Chief Financial Officer and Director (3)		2,578,184		6.6	%
Israel Ury, Director (4)		129,560		*
Merrill McPeak, Director (5)		92,916		*
Robert Adams, Director (6)		86,225		*
Paul Rudy, Vice President, Marketing and Sales (7)		132,639		*
Finisar Corporation 1389 Moffett Park Drive, Sunnyvale, California 94089		6,750,726		18.1	%
Wendell Lew 1517 Makiki Street, #1203, Honolulu, Hawaii 96822(8)		2,982,558		7.9	%
All directors and officers as a group (6 persons) (9)		7,424,306		18.5	%

* Less than one percent.

(1) Included in this calculation are shares deemed beneficially owned by virtue of the individual’s right to acquire them within 60 days of the date of this report that would be required to be reported pursuant to Rule 13d-3 of the Securities Exchange Act of 1934.

(2) Includes warrants to purchase 488,000 shares at $1.25 per share and options to purchase 100,000 shares that are exerciseable within 60 days of January 19, 2007.

(3) Includes warrants to purchase 1,432,000 shares at $1.25 per share and options to purchase 100,000 shares that are exerciseable within 60 days of January 19, 2007.

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(4) Includes options to purchase 40,000 and 12,500 shares at $0.38 and $1.25 per share, respectively, that are exerciseable within 60 days of January 19, 2007.

(5) Includes options to purchase 72,916 shares at $1.25 per share, that are exerciseable within 60 days of January 19, 2007.

(6) Includes options to purchase 12,500 shares at $1.25 per share, that are exerciseable within 60 days of January 19, 2007.

(7) Includes options to purchase 132,639 shares that are exerciseable within 60 days of January 19, 2007.

(8) Includes promissory notes that are convertible into 111,111 shares. Also includes warrants to purchase 149,166 shares that are exerciseable within 60 days of January 19, 2007. All QPC securities are held by Wendell Y.M. Lew Revocable Living Trust, U/A 12-07-99, Wendell Lew, TTEE.

(9) Includes warrants to purchase 1,920,000 shares and options to purchase 331,667 shares, all of which are exerciseable within 60 days January 19, 2007.

Description of Securities

GENERAL

Our Company’s Articles of Incorporation provide for authority to issue 180,000,000 shares of common stock with a par value of $0.001 per Share. At September 30, 2006, the capitalization of our Company consisted of 38,559,283 shares of common stock.

COMMON STOCK

The holders of the common stock are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available therefore. The Company has not paid cash dividends in the past and does not expect to pay any within the foreseeable future since any earnings are expected to be reinvested in the Company. In the event of liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, each outstanding share of the common stock is entitled to share equally in the Company's assets. Each outstanding share of the Common Stock is entitled to equal voting rights, consisting of one vote per share.

WARRANTS EXERCISEABLE INTO COMMON STOCK

In connection with the Brookstreet Offering, we granted warrants to purchase 572,526 shares of our common stock at $1.50 per share to the Tranche I Investors. The warrants expire in November 2007. We also issued warrants to purchase 2,345,341 shares of our common stock at $1.25 per share to BSC. These warrants are immediately exercisable, expire in July 2011 and have a cashless exercise feature. All Tranche I Investor and Brookstreet warrants are being included in this registration statement.

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In connection with prior financings and services rendered, we have issued the following warrants, including:

· Warrants to purchase 2,437,500 shares at $3.75 per share to certain debt holders, all but 112,500 of these warrants have been reset to $1.25 exercise price;

· Warrants to purchase 840,000 shares at $1.25 per share to certain debt holders;

· Warrants to purchase 346,666 shares at $1.25 per share to certain debt holders;

· Warrants to purchase 222,749 shares at $1.25 per share to certain investors;

· Warrants to purchase 1,220,000 shares at $1.25 per share to former interim debt holders;

· Warrants to purchase 474,182 shares at $1.25 per share to certain consultants;

During the nine months ended September 30, 2006, 2,500 warrants were exercised. All of the remaining 8,456,464 warrants are being registered for resale in this registration statement.

Interest of Named Experts and Counsel

The consolidated financial statements of QPC Lasers, Inc. (formerly Planning Force Inc.) as of December 31, 2005 and for the years ended December 31, 2005 and 2004, included in the prospectus and elsewhere in the registration statement have been included in reliance on the report of Weinberg & Company, P.A., independent registered public accountants, given such firms authority as experts in accounting and auditing.

The validity of the issuance of the common shares to be sold by the selling shareholders under this prospectus and the underlying common share purchase warrants was passed upon for our company by Richardson & Patel LLP. Richardson & Patel LLP owns 22,220 shares of our common stock. RP Capital, LLC, an affiliate of Richardson & Patel LLP, holds 22,219 shares of our common stock. Half of these shares, or 22,220 shares, will be registered in this registration statement. Corporate Capital Partners, a corporation controlled by Michael Donahue, an attorney at Richardson & Patel LLP, holds 399,946 shares of our common stock. Half of Corporate Capital Partners shares, or 199,973 shares, will be registered in this registration statement.

Disclosure of Commission Position of Indemnification for Securities Act Liabilities

Our Articles of Incorporation limit the liability of our directors to the fullest extent permitted under Section 78.037 of the Nevada General Corporation Law. As permitted by Section 78.037 of the Nevada General Corporation Law, our Bylaws and Articles of Incorporation also include provisions that eliminates the personal liability of each of its officers and directors for any obligations arising out of any acts or conduct of such officer or director performed for or on behalf of us. To the fullest extent allowed by Section 78.751 of the Nevada General Corporation Law, we will defend, indemnify and hold harmless its directors or officers from and against any and all claims, judgments and liabilities to which each director or officer becomes subject to in connection with the performance of his or her duties and will reimburse each such director or officer for all legal and other expenses reasonably incurred in connection with any such claim of liability. However, we will not indemnify any officer or director against, or reimburse for, any expense incurred in connection with any claim or liability arising out of the officer’s or director’s own gross negligence or willful misconduct.

The provisions of our Bylaws and Articles of Incorporation regarding indemnification are not exclusive of any other right of us to indemnify or reimburse our officers or directors in any proper case, even if not specifically provided for in our charter or Bylaws.

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DESCRIPTION OF BUSINESS

Overview

We design and manufacture state-of-the-art, high brightness lasers for a variety of commercial and military purposes. We believe our technology platform may enable us to replace or improve legacy laser technologies embedded in the manufacturing infrastructure of the industrialized world, and could enable the widespread deployment of directed energy weapons and infrared countermeasures for use in defense and homeland security.

With the collaboration of our 14 senior staff level laser scientists, including ten Ph.D.s, we have developed multiple technology platforms, each with large-scale commercial potential and which taken together constitute a broad portfolio of intellectual property. Our technologies address different important issues of laser performance. Specifically, based on our review regarding the latest industry developments, our technologies provide for high brightness diode lasers for “pumping” (using diode lasers to energize or “pump” large solid-state lasers) a high diode beam quality for focus on a tight spot and, precise and manufacturable monolithic wavelength control. We have advanced technology that we intend to utilize to develop mid-infrared diode lasers that may be used for homeland security and defense applications.

We have also demonstrated what is, to our knowledge, the only high power monolithic surface emitting arrays, wherein we aggregate many high power (> 1 Watt) surface-emitting lasers onto a single semiconductor chip. This development significantly reduces the size of a high power laser and may permit the fabrication of large-scale, high power spectrally narrowed laser arrays at much lower cost and much longer lifetimes than conventional technology permits.

We have demonstrated the physical principles for, and are in the process of developing what we believe to be the world’s only technology for on-chip wavelength “conversion” (shortening or lengthening wavelengths beyond conventional ranges for diode lasers) and control. Lasers generating these wavelengths can be used for detecting pollution, hazardous materials and chemical explosives; it also is conducive to establishing effective countermeasures for heat-seeking missiles.

We also have what management believes is leading eye-safe laser pumping technology that may be used in the creation of a “directed energy weapons” arsenal for the U. S. military, and as well as for the creation of eye-safe laser products for surgery, hair, tattoo and acne removal, and other commercial applications.

We were founded in 2000 by Dr. Jeffrey Ungar, a Caltech scientist and former head of Advanced Optoelectronic Device R & D at Ortel, and George Lintz, MBA an entrepreneur with fifteen years of investment banking and finance industry experience. Under their administration, we have built a staff of more than 40 employees, including prominent scientists and engineers. By 2002, we had created a state-of-the-art production facility that covers 18,000 square feet and allows us to conduct nearly all of our operations on site, including R&D, semiconductor wafer fabrication, processing and packaging. In its present configuration, our plant has the wafer capacity to produce three million devices per year and it is scalable to an estimated 20 million devices.

In 2002, we also produced the “first light” from our laser devices and procured our initial government contracts. In 2003, we phased in these government contracts and focused on product development for industrial, medical and defense purposes. In 2004, we initiated our first commercial shipments of our “Generation I” devices and in 2005, we introduced and began to market “Generation II” products, hired worldwide sales representatives and attracted several OEM orders. These contracts have all since terminated.

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Since our inception, we have received over $6 million of development contracts from the United States Navy, United States Army, United States Missile Defense Agency, prime defense contractors in the United States and Israel. As of January 23, 2007, an agreement with the U.S. Army, two prime defense subcontract agreements with Fibertek and Telaris and the agreement with the Israeli prime defense contractor remain active. We are providing goods and performing services under these contracts currently. Please see “Management’s Discussion and Analysis of Results of Financial Condition” for additional information on our material customers agreements. Furthermore, we have raised approximately $37 million in equity financing from investors. Total sales for the years ending December 31, 2005 and 2004 were $1,073,191 and $1,050,816, respectively. Our net loss for the years ending December 31, 2005 and 2004 were $7,777,858 and $5,339,419, respectively. Our net loss for the nine months ended September 30, 2006 was $15,958,945 and our accumulated deficit at September 30, 2006 was $48,772,731.

Industry Overview

By 1954, physicist Charles Townes had spent $30,000 in government funds developing the maser, the precursor to the laser. Today, lasers constitute a multi-billion dollar industry. From laser surgery to CD players and grocery-store checkout scanners, daily living is enhanced by a basic discovery that was originally thought by some to have no practical uses. The diversity of laser types and applications continues to grow through research conducted at university, industrial and federal labs.

“LASER” is an acronym of light amplification by stimulated emission of radiation. A laser converts electricity into light and delivers a large amount of energy to a small, designated area. In general, there are three main types of commercial lasers: gas, solid-state and semiconductor (or “diode”). The major difference between a laser and any other sort of light source, such as a light bulb, is that a laser is focused and directed. In the case of a light bulb, there is a hot cylinder at the core and it distributes light in many different directions and in a range of colors, or wavelengths. Thus, light bulbs are very useful in illuminating large areas but they are essentially useless in directing energy to a small area. On the other hand, lasers are well suited to concentrating energy in a small area because the beam quality (a measure of how directed the beam energy is) is significantly higher. Furthermore, lasers produce light at essentially the exact desired color (wavelength) or a very closely banded range of colors.

With recent advances in technology, the diode laser is becoming dominant in the several markets that rely on low power lasers. In fact, in the telecommunications and optical fiber industries, diode lasers have become the standard and have virtually replaced all other types. However, with respect to most industrial applications, such as plastics welding, metal welding, soldering, surface hardening and coarse marking, gas and solid-state lasers remain dominant because incumbent technology high-powered diode lasers have been unable to be focused down into a tight spot. Or in technical parlance, they lack the required “brightness.” Our diode lasers have not become dominant in this markets yet. However, because of their higher “brightness” qualities combined with low power efficiencies, we believe that our product could become increasingly popular in these industries.

Gas Lasers

The principal attribute of gas-powered lasers, such as carbon-dioxide lasers, is that they produce a beam of good quality, or brightness. Unfortunately, they are expensive to purchase, occupy large amounts of floor space, have low efficiency rates—consuming approximately 100 times as much energy as they emit—and require vast cooling systems to handle the excess heat that is wasted in the process. They also have a major disadvantage because their output beams are incompatible with transport through optical fibers.

Solid-State Lasers

These lasers utilize a suitably doped solid (crystalline or glass) as the active medium. This medium must be illuminated or “pumped” by an intense optical source, such as a flashlamp or another laser in order to produce laser light. The ruby and Nd:YAG lasers are solid-state lasers.

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Solid-state lasers, as is the case with gas lasers, offer good beam quality, but high power solid-state units are expensive and at kilowatt powers very large (in some cases the size of a car). Flashlamp pumped solid-state lasers have very poor efficiency, which means that only a very small fraction of the power used in the process is actually transmitted to the laser while the balance is wasted, as heat. As a result, solid-state lasers require significant cooling infrastructure. This can be somewhat improved by using diode pumping instead of flashlamps, but this increases cost.

Semiconductor (or Diode) Lasers

This category of laser is a semiconductor chip which converts electricity directly into light in a semiconductor chip without any other medium (such as gas or a crystal). Semiconductor lasers are compact, highly efficient, rugged and may be inexpensively manufactured in large quantities using techniques similar to those used for mass-producing consumer electronics. Typically, diodes successfully convert over 50% of the electric power source into the laser beam. The major disadvantage of standard diode lasers is that they generate low optical quality beams; technically speaking, they lack “brightness”.

The QPC Diode Laser

Our high power laser diode technology platforms combine high beam quality and power with efficiencies and low cost of manufacture that we believe are unmatched by competing laser technologies. These platforms (see “Technology Platform” section) include a “Surface Emitting Array” technology that permits fabrication of complete high power surface-emitting arrays on a single chip, novel processes for fabricating diodes that are intended to operate at 300% of the power of conventional chips without burning out, and laser diode designs that have ten times (10x) the brightness of conventional diode lasers. These technologies are protected by patents and by trade secrets, as appropriate.

Using these technologies, we are developing Generation III direct-diode laser subsystems that may yield factor-of-ten improvements in size, weight, efficiency and cost over conventional gas and solid-state lasers. The following table illustrates the commercially significant advantages that we believe our Generation III (prototypes expected to be released during 2007) laser will have over the current gas and solid state laser technology, which is embedded in the global manufacturing infrastructure.

Comparison of Gas/Solid State Lasers with Generation III QPC Laser*

	Gas/Solid State Laser	QPC Direct-Diode
Power Output:	Two kilowatts	Two kilowatts
Size:	2.0 cubic meters	0.1 cubic meters
Weight:	2000 kilograms	less than 250 kilograms
Power Consumption:	30 to 60 kilowatts	3 to 5 kilowatts
Price:	$500,000 to $1,000,000	$50,000 to $100,000

* Based on preliminary prototype designs of the Generation III QPC Direct Diode Laser

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Product Offerings and Applications

Through our research & development efforts, we believe we have improved upon the disadvantages of incumbent technology: high cost of acquisition and operation, large size and enormous weight, inefficiency in the use of electric power, and low brightness. We intend to launch our product offerings in three distinct phases. Our Generation I offerings, already released in 2004, are currently available to the pumping, industrial, defense and medical markets. They are designed to establish market presence and garner immediate revenues by being superior in terms of cost, reliability, efficiency and power brightness. Generation I products include single emitters, mounted and unmounted bars covering wavelengths from 800 nanometers (nm) to 1,500nm and power levels ranging from 2.5 W (single stripe) to 50 W (25 element array). These products are currently in qualification at 25 customers including defense contractors, industrial laser system manufacturers, and medical laser manufacturers. Repeat and/or production quantity orders have been received from several customers.

We released four of our Generation II products for sale in January 2006. These products deploy our unique chip technology and offer enhanced brightness over the first generation products. Generation II products are under purchase orders from multiple customers including defense contractors, medical device companies, research institutions and industrial companies. We believe that our Generation II products include two significant advantages over other available diodes: (1) our non-absorbing mirror technology generates significantly higher power without causing catastrophic optical damage (“COD”); and (2) our internal gratings enable our customers to specify exact, desired wavelength within +/- 0.5 nanometers. Internal gratings eliminate the requirement for customers to cool or heat their diodes to achieve a specified wavelength. We believe our Generation II products compete successfully with other and we have obtained commercial and government contracts to support the further development of these products.

With respect to longer-term Generation III products designed to combine surface emitting and extreme brightness technologies, development contracts have been received from various areas of the United States Department of Defense. We plan to release Generation III prototypes in 2007. With these products it is our intention to penetrate the multi-billion dollar solid-state and gas laser markets—particularly industrial welding—by replacing them with powerful and inexpensive Generation III diode solutions. In addition, we believe that this class of products may establish new markets in homeland security and defense, such as directed energy weapons, that are low cost, small, light, rugged and efficient.

Product Applications

The following are examples of applications of our laser products. All of these markets may be addressed by our Generation I and/or II products, except “Direct-Diode Materials Processing,” and certain Homeland Security applications which we believe will be addressed by our Generation III products.

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Laser Pumping

Presently, the most widespread application for high-power semiconductor lasers is “pumping” (or energizing) other lasers. In diode pumped laser architectures, the semiconductor laser light “pumps” or energizes the gain medium that is configured inside its own laser cavity. The pump light is absorbed by the crystal or fiber, and a solid state or fiber laser is created. Diode pumping has significant advantages over traditional approaches that utilize lamps as pumps. In fact, nearly every important parameter of a laser system is improved with diode pumped architectures: system size, weight, performance, beam quality, waste heat (efficiency), complexity and operating cost. During our 2004 and 2005 fiscal years, 1% and 4% of our revenue, respectively, were derived from laser pumping-related applications.

Defense and Homeland Security

Because of their compact size, lightweight and ruggedness, semiconductor lasers are ideal for military and aerospace applications. Used directly or as pumps for other lasers, semiconductor lasers are introduced in a wide variety of applications including the transmission of optical energy to a target and receiving a portion of it back in order to remotely measure various physical properties of the target. Our technology is enabling diode lasers to be used directly in applications where traditional diodes lasers have provided insufficient performance, such as direct target designation.

Defense applications for lasers exist at both low and high powers. On the low power end (less than 500 milliwatts), direct diode lasers are used for free-space communications for line of sight transmission. Laser communication is preferable to radio frequency (RF) communication because RF signals identify the location of the transmitter and can be easily intercepted While laser communications cannot be detected unless the eavesdropper is in the exact line of the laser beam. A drawback of free-space laser communications is that fog and battlefield smoke can interfere with the signal; mid-infrared wavelengths such as those for which we are developing lasers are many orders-of-magnitude more penetrating than conventional wavelengths.

At slightly higher power, direct diode lasers are used to initiate ordinance. At even higher powers and long wavelengths, diode lasers can be used directly (or through pumped solid-state lasers) to disrupt the homing systems of heat-seeking missiles. At the highest power levels of 50 to 100 kilowatts, and eventually megawatts, high energy lasers for tactical weapons are being developed for air, sea and land-based platforms.

During our 2004 and 2005 fiscal years, 94% and 66% of our revenue, respectively, was derived from defense and Homeland Security -related applications.

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Direct-Diode Materials Processing

Laser materials processing is one of the world’s largest laser markets, with applications ranging from metal cutting and welding at the high power levels, to marking and plastics welding at low powers. Diode lasers are ideal for materials processing because of their high efficiency and compact size compared to conventional gas and solid-state laser solutions. Using our high brightness diode lasers, we believe that a large number of applications including marking, cutting of non-metals and metals, and metal welding will be enabled because of much lower equipment and operating cost. During our last two fiscal years, less than one percent of our revenue, respectively, was derived from direct-diode materials processing.

Medical Treatment

At present, a variety of medical applications utilize diode lasers as either pump lasers or as direct diode treatment because of their compact size, efficiency, low cost and ability to produce large optical energies. Hair removal, dental, ophthalmic and other dermatological applications utilize diode laser light directly. The wavelength of the light is critical to the treatment efficacy and the laser source is selected to match the absorption lines of various skin, blood or organ constituents, or that of an injected dye. In many cases, the light is delivered through a fiber by way of a catheter or scope that needs to be extremely small, resulting in the need for high brightness fiber coupled with diode lasers. During our 2004 and 2005 fiscal years, 3% and 24% of our revenue, respectively, was derived from medical treatment related applications.

Scientific Research

Chemical analysis techniques such as Raman spectroscopy can be used to determine the composition of unknown samples in a variety of industrial and research applications. These techniques require narrow-band, precisely controlled sources of laser radiation, and the cost of conventional laser sources is prohibitive for many applications. We believe that our internal grating lasers provide an ideal solution for these markets. During our 2004 and 2005 fiscal years, 0% and 1% of our revenue, respectively, was derived from scientific research related applications.

Medical Imaging

Medical imaging is also an important emerging application of diode lasers. Traditional MRI technologies utilize the inherent electro-magnetic dipole associated with the water molecules to produce images within the human body. However, several organs such as the lungs and brain, are difficult to image effectively because of their relative lack of water. In order to dramatically enhance magnetic resonance imaging in these applications, diode lasers are used to produce a “pump” gases such as Xenon that are delivered into the intended area of imaging. The inert gas does not react with the organ that is being imaged, but its presence allows the MRI to produce images with significantly higher resolution and contrast than an ordinary MRI. During our 2004 and 2005 fiscal years, 1% of our revenue was derived from medical imaging applications.

Printing, Graphic Arts and Display

High power semiconductor lasers are used in the printing process for a wide variety of print media including magazines, posters and newspapers. The most common application is thermal computer-to-plate imaging in which diode lasers are used to write printing plates.

Thermal computer-to-plate imaging has significant advantages over traditional analog film and plate technology, both of which use UV lamps. The elimination of film from the workflow dramatically reduces the start-up time for printers and allows them more flexibility in getting jobs on and off the press. Additionally, the thermal computer-to-plate process allows the user to work in white light, versus a dark environment. High brightness and power as provided by our lasers permits the process of printing to be performed more rapidly, which is of crucial importance to the end-user.

During our 2004 and 2005 fiscal years, 1% and 4% of our revenue, respectively, were derived from printing, graphic arts and display applications.

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There is also an emerging and large market for laser-driven displays such as rear-projection television and digital theater. These will require high power, low cost laser sources in the visible region of the spectrum. We do not currently produce visible lasers, but coupled with frequency-doubling crystals we believe that our high brightness lasers would be attractive to television manufacturers and consumers.

Commercial Laser Markets

We estimate that the global laser market is greater than $5 billion in annual revenues. Lower margin, commodity diodes (optical storage and telecommunications) represent over 50% of the market, and we do not consider this sector economically attractive for us. The higher margin marketplace, which we consider our target market currently encompasses non-diode lasers and high power diodes.

We believe that emerging applications, including defense and display, will increase the overall size of the laser market.

Target Markets

Our higher-margin target markets include the $2 billion non-diode segment, the $250 million high power diode segment, and the emerging markets (defense and display) that we anticipate will each grow in size to more than $1 billion over the next several years. Today, the $2 billion industrial high power laser market is segmented as follows: materials processing ($1.5 billion), medical therapeutics ($450 million), research ($150 million), instrumentation ($80 million), and image recording/printing ($28 million).

Even though diode lasers are more affordable, compact and efficient, they have experienced only a 10% penetration rate of the industrial market. This historically low adoption rate is related to the poor beam quality associated with diode lasers. We believe that, with our superior diode laser product, which has better beam quality than other commercially available diode and non-diode lasers, we will be able to gain market share vis-à-vis our competitors.

Materials processing (welding, cutting, drilling, heat treatment, marking) is a large, $1.5 billion addressable market. Our lasers could be used in more than 80% of this materials processing market. Diodes have only reached a fraction of the market with $14.25 million in sales (for direct diode applications; and somewhat more through pumping, or indirect applications). In the $520 million medical related market (ophthalmology, therapeutic, dermatology, dental) for lasers, diode laser sales are approximately $70 million. We believe that our products could penetrate up to 25% of this $520 million market. One near-term opportunity for us is in the area of laser hair removal and skin treatment, particularly tattoo removal and acne treatment. Procter & Gamble, Gillette and Johnson & Johnson intend to make laser consumer products and we believe that we are positioned, because of our capabilities at eye-safe wavelengths, to be a laser supplier to these consumer giants. Another immediate market opportunity is in the treatment of varicose veins where a major medical system manufacturer already considers us to be the preferred manufacturer for its laser diodes.

Diode lasers have been successful in penetrating the $67 million printing and reprographics field (computer-to-plate for magazines, newspapers, photofinishing) with approximately 60% market share. Companies using large volumes of diode lasers on a large-scale basis are Kodak (through its recent acquisition of CREO), Heidelberg, Agfa and Dainippon Screen. Our designs bring the cost of diodes down to one tenth of the prevailing industry cost. We believe that over 80% of this market may be handled by our products. Finally, in the area of diode pumping of (solid state and fiber) lasers, which is a $115 million market, diodes have 100% market share. We believe that our products may address 80% of this market.

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In the future, we intend to address what we consider to be attractive emerging markets, those of defense and display, both of which we estimate will become billion dollar niches. Defense applications include high-energy lasers for directed energy weapons, countermeasures for heat seeking missiles, target designation, remote sensing/LIDAR (light detection and ranging), ordinance initiation, illumination and display.

The Department of Homeland Security has earmarked $120 million for the testing of laser countermeasures and has been directed by Congress to move rapidly to adopt military technology to approximately 7,000 commercial jets in the U. S. alone. According to a recent study by Congress, more than 350,000 shoulder-fired missiles exist in government arsenals throughout the world. Unfortunately, not all of these missiles are properly accounted for and they are subject to black market trafficking. In the face of this potential threat, the Department of Homeland Security has express concern over this threat.

We estimate that using current technology—diode pumped YAG systems with frequency conversion—it would cost $1.6 million to equip each aircraft with these defensive capabilities. Besides the total cost of $11 billion for such a project, YAG lasers are bulky, inefficient, expensive, and sensitive and require frequent, critical adjustments. Over time, Northrop Grumman has publicly estimated that it will be possible to bring the cost per aircraft down to the $1 million level. We believe that this cost can be reduced below $1 million using our mid-Infrared, or mid-IR, technology, which would replace the existing laser with one much smaller, more rugged, and easily manufactured. Because the cost of the laser is roughly one half of the entire system’s price tag, this project area represents a compelling target for us.

Another attractive market opportunity lies in the tactical directed energy weapons (“DEWs”) field, wherein laser weapons are expected to replace more traditional ordinance. We estimate that 2,000 to 10,000 DEWs will eventually be deployed and that the cost (of the laser portion of each system) will be approximately $1 million. This translates into an addressable market with a potential of $2 billion to $10 billion and we have received DOD funding of approximately $4.8 million to develop this capability.

Competition

Other companies design and manufacture surface emitting lasers but to our knowledge, they are lower powered. These manufacturers can produce individual laser diodes that work well but they cannot produce a chip with 10, 20 or 50 laser diodes, all of which are operating on high power (more than one watt). We believe that our competitors are largely working on improving diode technology are using traditional designs and trying to enhance laser performance with technology that is decades old. On the other hand, we have developed completely new technology platforms that produce much higher performance at lower costs.

We are beginning to compete against large companies such as Coherent and Spectra Physics and smaller entities such as nLight Photonics and Alfalight. However, we believe that while each competitor offers some commercially attractive features, there is no other company that offers the same range and completeness of features.

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Technology Platforms

We have manufactured arrays of laser diodes in which each diode has more brightness than conventional arrays. The high brightness of these arrays allows them to be used in applications such as direct diode materials processing, fiber-core laser pumping or red-green-blue displays that cannot use conventional laser diodes or arrays.

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Our surface emitting array technology is a significant achievement in low cost laser manufacturing because for the first time a complete two-dimensional high power array can be produced on a single wafer and packaged on a single cooler. By contrast, conventional laser array technologies require individual manufacture, assembly and testing of each row of an array. Our surface emitting technology, which was developed with funding from the U.S. Navy represents a decrease in the number of coolers required. This technology also represents a breakthrough in reliability, because it eliminates the need for “micro-channel” coolers that are a leading cause of laser burnout.

We have developed high power lasers with on-chip, monolithic wavelength control. These lasers are used for pumping solid-state lasers as well as other applications, and have important advantages over conventional lasers including efficient absorption by the solid-state crystal, and lower temperature sensitivity of wavelength.

We have also developed high power long-wavelength arrays for pumping eye-safe lasers. These are lasers that emit beams that we believe are less hazardous to the eye than conventional lasers, and are very important for industrial and military lasers in order to reduce the risk of collateral casualties. We have developed eye-safe laser arrays, and are pursuing, a new class of advanced high performance wavelength stabilized arrays for eye-safe lasers. The U.S. Army, Navy and Air Force are actively pursuing the development of military lasers.

Laser sources in the mid-infrared range may be of crucial importance for homeland defense against terrorism. They can be used to confuse heat-seeking missiles that might be used to attack airliners and also for early warning of biological and chemical attacks. At present, available sources of mid-infrared laser light are too expensive and delicate for commercial aviation. We have performed an early-stage demonstration of a novel technology for shifting the output of a laser diode into the mid-infrared wavelength range. This should enable us to provide compact, high performance mid-infrared laser diodes at very low manufacturing costs.

Sales and Marketing Plan

In the United States, we have a sales team that sells directly to our customers. In foreign markets, we use distributors to sell our products, and we have existing relationships in France, Italy, Germany, the United Kingdom, Israel, China and Japan. The distributor agreements generally provide that the distributor will promote, advertise, market and sell our products on an exclusive basis throughout the relevant territory. We will fill orders from Distributors in accordance with agreed-upon delivery times. Distributor will make payments within 45 days of invoice. Either party may terminate the agreement on 90 days’ written notice.

On a global basis, we employ various outside consultants to gain access to new accounts. Our in-house sales team currently consists of a Senior Vice President of Sales and Marketing, a Director of Worldwide Marketing, Director of Worldwide Sales, and a sales administrator.

Our marketing activities include advertising in several international trade journals and we have published articles in many magazines. Our scientists have presented several technical papers at military and general laser conferences. We also exhibit at more than five trade shows on an annual basis. In addition, we use an outside agency for graphic arts and marketing communications.

Our advertisements and website are currently producing an average of one new inquiry per day. We manage the inquiries by parceling them into (1) standard products; (2) custom inquiries from desirable OEM target customers for products on our roadmap; and (3) other. Our general policy is to decline to quote on inquiries that do not fall within the first two categories.

In April 2006, we entered into a consulting agreement with Capital Group Communications (“CGC”) to assist us with: (i) relations with shareholders, brokers, dealers, analysts, and other investment professionals, (ii) with public relations efforts and (iii) preparation of press releases and other similar materials. The agreement lasts for a period of 12 months. We have paid CGC a fee of 1.2 million shares of common stock.

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Patents, Trademarks and Intellectual Property

We have been granted four patents and have 11 patents pending. These patents cover a suite of different laser-related technologies and are related to process (manufacturing), performance characteristics and design. We have applied for patents in our key markets of North America, Asia and Europe, and have been granted trade secret protection, where appropriate. We also believe that due to the complex nature of our products, they would be very difficult to reverse engineer and replicate with precision.

The following is a table of our four issued patents:

Title	Patent No.		Issue Date
A Laser Diode with an Internal Mirror		6,711,199		March 23, 2004
A Laser Diode with a Low Absorption Diode Junction		7,103,080		September 5, 2006
A Laser Diode With an In-Phase Output		6,668,003		December 23, 2003
Mid-Infrared Laser Diode		6,865,209		March 8, 2005

The following is a table of our 11 pending patent applications:

Title	Serial No.		Filing Date
De-Tuned Distributed Feedback Laser Diode		10/377,040		February 28, 2003
A Laser Diode With an Amplification Section That has a Varying Index of Refraction		10/379,027		March 3, 2003
Compact, High Power Pulsed Laser Source		11/248,769		October 11, 2005
High Performance Vertically Emitting Lasers		10/264,534		October 3, 2002
High Performance Vertically Emitting Lasers		11/130,535		May 16, 2005
Mid-Infrared Laser Diode		10/783,269		February 20, 2004
Very Low Cost Surface Emitting Laser Diode Arrays		11/042,759		January 24, 2005
Laser Diode With Monolithic Intra-Cavity Difference Frequency Generator		11/039,342		January 18, 2005
Semiconductor laser array beam transformer/equalizer		11/175,699		July 6, 2005
Apparatus For Dynamic Control Of Laser Beam Profile		11/269,974		November 8, 2005
Direct Impingement Cooling of a Laser Diode Array		11/345,107		January 13, 2006

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From time to time, we may encounter disputes over rights and obligations concerning intellectual property. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business, our reputation, or our ability to compete. Also, protecting our intellectual property rights could be costly and time consuming.

Research and Development

We currently conduct research and early stage development activities in-house. We retain title rights to all improvements or enhancements to our technology developed by or worked on by the outside laboratory. Mr. Ungar, our chief executive officer, is responsible for development of new product concepts. We have purchased materials and components for our products under development from a number of technology companies. We continue research on our Generation III technologies and other new concepts. We spent approximately $4.8 million for research and development in 2005 and $3.5 million in 2004. We spent approximately $3.3 million and $3.6 million for research and development in the nine months ended September 30, 2006 and 2005 respectively.

Manufacturing

One of our core strategies is to tightly control our manufacturing process. We believe this is essential in order to maintain high quality products and enable rapid development and deployment of new products and technologies. We design and produce many of our own components and sub-assemblies in order to retain quality control. All of our manufacturing will be conducted at our Sylmar, California headquarters. We use contract manufacturing firms for certain specialized packaging functions.

Raw materials or sub-components required in the manufacturing process are generally available from several sources. However, any interruption or delay in the supply of any of these components or materials, or the inability to obtain these components and materials from alternate sources at acceptable prices and within a reasonable amount of time, would impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders.

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We rely exclusively on our own production capability to manufacture certain strategic components, optics and optical systems, semiconductor lasers, lasers and laser-based systems. Because we manufacture, package and test these components, products and systems at our own facilities, and such items may not be readily available from other sources, any interruption in our manufacturing would adversely affect our business.

Customers

For the years ended December 31, 2005 and 2004, we had three and two major customers, respectively, whose revenue volume comprised approximately 61% and 94%, respectively, of our total revenue. Total government contract revenue during the years ended December 31, 2005 and 2004 was approximately 45% and 94%, respectively. In particular, revenue from the Navy during 2005 and 2004 comprised 32% and 38% respectively, and revenue from the Missile Defense Agency comprised 6% and 55%, respectively. As of December 31, 2005 and September 30, 2006, the amounts due from government contracts were $15,669 and $235,972 respectively, and are included in accounts receivable in the accompanying financial statements at such dates.

Governmental Regulations, including Environmental Regulations

Our operations are subject to various federal, state and local environmental protection regulations governing the use, storage, handling and disposal of hazardous materials, chemicals, various radioactive materials and certain waste products. In the United States, we are subject to the federal regulation and control of the Environmental Protection Agency. We are further subject to regulation by the Los Angeles Fire Department and the South Coast Air Quality Management Department. Comparable authorities are involved in other countries and jurisdictions. We believe that compliance with federal, state and local environmental protection regulations will not have a material adverse effect on our capital expenditures, earnings and competitive and financial position.

Although we believe that our safety procedures for using, handling, storing and disposing of such materials comply with the standards required by federal and state laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident involving such materials, we could be liable for damages and such liability could exceed the amount of our liability insurance coverage and the resources of our business.

Employees

We have 40 full-time and two part-time employees. We have 17 employees in research and development/Engineering, five in sales and marketing, nine in general and administration and 12 in manufacturing. No employee is represented by a labor union, and we have never suffered an interruption of business caused by labor disputes.

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

The following discussion and analysis is qualified by, and should be read in conjunction with, our audited consolidated financial statements and interim condensed consolidated financial statements and the notes thereto included in this Registration Statement on Form SB-2.

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FORWARD LOOKING STATEMENTS

This registration statement contains statements that involve expectations, plans or intentions (such as those relating to future business or financial results, new features or services, or management strategies). These statements are forward-looking and are subject to risks and uncertainties, so actual results may vary materially. You can identify these forward-looking statements by words such as may,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors” above, as well as our financial statements, related notes, and the other financial information appearing elsewhere in this registration statement and our other filings with the Securities and Exchange Commission. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk factors” and elsewhere in this Registration Statement on Form SB-2. Except as required by law or regulation, we assume no obligation to update any forward-looking statements.

Background

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

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

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

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

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

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

We have used government development funds to subsidize product development. We were awarded four Phase I “Small Business Innovation Research” contracts; three of them have progressed to Phase II contracts. In general, these contracts are cancelable and in some cases include multiple phases associated with meeting technical milestones. In the second quarter of 2006, we signed a sub-contract 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 our development of lasers for the industrial materials processing markets. DARPA funds very advanced technology research and development that could be used in the future as part of defense systems for our country. Management believes that QPC’s contract award is very significant both because of its size and the validation of QPC as a resource for very advanced technology.

In the second quarter of 2006, QPC was also awarded a subcontract 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 that upon successful development of these diode lasers, the United States will be able to use them in defense of military and commercial aircraft, as part of a system for infrared countermeasures against heat seeking missiles. We also believe that they will bring us closer to creating a compact and affordable system for detection of biochemical agents in public places. The contract is a Phase III follow-on contract from an earlier contract that QPC completed which demonstrated the early phases of feasibility of our technology. Our portion of this Phase III contract is $800,000 and is to be performed over twelve months through June 2007. As of September 30, 2006 we have recognized $125,634 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 will be used in both military and commercial systems to limit accidental damage to human eyes of system operators, friendly forces, and bystanders. The Army contract amount is $673,028 and is to be performed by March 2008. As of September 30, 2006 we have recognized $143,857 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.

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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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Impairment of Long-Lived Assets

On January 1, 2002, the Company adopted the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” The adoption of this statement did not have a material effect on the Company’s results of operations or financial condition. 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, 2005 or September 30, 2006. 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, 2005, there was no deferred revenue and approximately $10,774 of unbilled receivables related to these government contracts. At September 30, 2006, there was no deferred revenue and $42,744 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 a potential collection problem, a reserve will be established, based on management’s estimate of the potential bad debt. When management abandons all collection efforts it will write off the account and adjust the reserve accordingly.

Management Estimates

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

Accounting for Derivative Instruments

Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires all derivatives to be recorded on the balance sheet at fair value. In September 2000, the Emerging Issues Task Force (“EITF”) issued EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock,” (“EITF 00-19”) which requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the company’s results of operations. These derivatives are separately valued and accounted for on our balance sheet, and revalued at each reporting period. The net change in the value of embedded derivative liability is recorded as income or loss on derivative instruments in the consolidated statement of operations, included in other income.

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Sales and Product Releases

QPC signed its first government development contract in the second quarter of 2002 and we shipped our first commercial product in the second quarter of 2004. We hired our first salesman in the fourth quarter of 2003, added a Director of Worldwide Sales in the third quarter of 2004 and a Senior Vice President of marketing and sales in the second quarter of 2005. Our marketing and sales Department is headed by Dr. Paul Rudy who formerly served as Director of Marketing at Coherent Inc., the world’s largest publicly traded laser company. Dr. Rudy holds a PH.D. in physics and has eight years of sales and marketing experience. QPC’s Sales Department currently has three full time personnel and a network of worldwide representatives and distributors.

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

Total sales grew from $89,161 in 2002; to $229,079 in 2003; to $1,050,816 in 2004 to $1,073,091 in 2005. Total sales for the first nine months of 2006 were $1,773,094.

Commercial sales, which were initiated in 2004, contributed $75,002 to the total revenue for the 2004 fiscal year. Calendar year 2005 was a transitional year for QPC sales for two primary reasons: (1) commercial sales contributed 55% of the total sales for the year (up from less than 10% in 2004); and (2) while absolute sales were approximately the same in 2005 as 2004, total backlog by January 2006 was approximately ten times greater than total backlog at the end of 2004. Bookings shippable within 12 months at the end of 2004 were approximately $700,000 and $1,062,000 at the end of 2005.

Based on QPC’s revenue for the first nine months of 2006 and the remaining backlog, management estimates the revenue for calendar year 2006 to be in the range of $2.5 to $3 million. This would represent a substantial increase over our 2005 revenues of $1.07 million. However, in accordance with standard business practices, contracts are cancelable and in some cases include multiple phases associated with meeting technical milestones.

In the third quarter 2006, we received orders from new and existing customers in the medical, industrial defense and homeland security markets. The contracts covered standard laser products, customized laser products and advanced hardware developments.

 RESTATEMENT OF PRIOR PERIODS

In December 2006, we concluded that it was necessary to restate our financial results for the interim periods ended June 30, 2006 and September 30, 2006 to reflect additional non-operating losses related to the classification of and accounting for: (1) the conversion feature of our subordinated convertible notes payable issued in August 2005, the warrants to purchase common stock associated with these notes, the amortization of the discount recorded with respect to the subordinated convertible note, (2) the note payable issued to Finisar Corporation for $6,000,000 for the license termination, (3) the modification of warrants held by Senior Secured Notes Payable Note Holders, and (4) options granted to a consultant for services rendered in the three months ended June 30, 2006.

Embedded Derivatives

We initially classified the value of the conversion features and warrants to purchase common stock related to the issuance of our subordinated secured convertible notes payable in the equity section of the balance sheet. In September 2006, we analyzed these instruments and determined they should be treated as derivative liabilities subject to FAS 133. In filing our Amendment No. 2 to our registration statement on Form SB-2, we restated our previous December 31, 2005 financial statements and accounted for these instruments as derivatives and recorded changes in the fair value of these instruments in the consolidated statement of operations as “gain (loss) on change in fair value of embedded derivatives.”

In December 2006, the company reanalyzed the features of these instruments, and determined that the initial accounting treatment was appropriate as the instruments are to be settled in shares and fulfill the conditions set forth in EITF 00-19 paragraphs 12 to 32 and are to be accounted for in the equity section of the balance sheet. Therefore these instruments are not derivative liabilities based on the analysis principally because they are convertible into unregistered common shares, we have 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 cash settlement. We have restated the balance sheet and statement of operations for the nine months ended September 30, 2006 to adjust for this. The December 31, 2005 financials statements reflect the original accounting treatment as previously audited and reported.

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License Termination Fee

We executed an agreement effective as of September 18, 2006 with Finisar Corporation to terminate a previously existing license agreement. As consideration for terminating the IP License agreement, we issued to Finisar a $6,000,000 secured note payable (see Note 7).

Based on our historical relationship with Finisar since 2001 and their continued substantial equity investment in our company, we originally accounted for this transaction as a deemed distribution of equity to Finisar at September 30, 2006. Upon further review of this transaction, we have determined that this transaction should have been expensed in the period in which it was incurred. Accordingly, we have restated our results for the nine months ended September 30, 2006 to recognize this expense.

Modification of Warrants

In the second quarter of 2004, we issued 2,437,500 warrants to purchase common stock to various lenders as part of a senior secured two-year note transaction. The exercise price of these warrants was initially $3.75. In the second quarter of 2005, approximately $2.1 million of the $2.4 million outstanding balance was extended for an additional year. In January 2006, we adjusted the exercise price of 2,325,000 of these warrants upon the closing of the Brookstreet Tranche I offering. We have recorded a loan discount of $744,000 in the nine months ended September 30, 2006 to record the difference in the value of the warrants immediately prior to the modification and the value of the warrants following modification. Interest expense includes $393,882 related to amortization of this discount.

The accompanying financial statements for the nine months ended September 30, 2006 have been restated to effect the changes described above. The impact of these adjustments are summarized below: 

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Changes to Statement of Operations:

	For the nine months ended			For the nine months ended
	September 30, 2006			September 30, 2005
Net Loss
As previously reported	$	(9,038,663	)	$	(5,809,509	)
Remove gain on embedded derivative		(788,000	)		(12,000	)
Additional interest expense as a result of warrant modification		(393,882	)		—
Remove additional offering expense associated with embedded derivative		—			188,000
Lower amortization of loan discount		261,600			38,033
License Termination Fee		(6,000,000	)		—
As restated	$	(15,958,945	)	$	(5,595,476	)
Loss per share
As previously reported	$	(0.31	)	$	(0.47	)
Recognition of adjustments		(0.24	)		0.02
As restated	$	(0.55	)	$	(0.45	)

Changes to Balance Sheet:

	September 30, 2006 Previously Reported			Adjustments			September 30, 2006 As Restated
Current Liabilities	$	2,751,611		$	(1,041,429	)(A)		1,710,182
Long term debt less current portion		6,160,564			553,356	(B)		6,713,920
Total Liabilities		8,912,175			(488,073	)		8,424,102
Stockholders’ Equity
Common stock		38,559			—			38,559
Additional paid in capital		43,146,254			6,977,600	(C)		50,123,854
Accumulated deficit		(42,283,204	)		(6,489,527	)(D)		(48,772,731	)
Total Stockholders’ Equity		901,609			488,073			1,389,682
Total liabilities & stockholders’ equity	$	9,813,784			—			9,813,784

(A)	Represents the sum of $800,000 decrease for fair value of embedded derivative, additional senior secured loan discount of $431,118, less $189,689 net decrease in subordinated secured convertible loan discount
(B)	Represents an $814,956 decrease in loan discount less $261,600 less amortization of loan discount.
(C)	Represents the sum of $233,600 value of the loan discount, $6,000,000 license termination fee originally charged to paid in capital, and $744,000 value of warrant modification
(D)	Represents the sum of $120,000 eliminate recognition of loss on embedded derivative 2005, $122,755 lower amortization of loan discount in 2005, $188,000 value of embedded derivative over loan amount charged to offering expense in 2005, $261,600 lower amortization of subordinated secured loan discount, less $788,000 elimination of recognition of gain on embedded derivative, less $393,882 additional amortization of senior secured loan discount, and less $6,000,000 license termination fee.

The net loss, loan discount, license termination fee, warrant modification, and loss on change in fair value of embedded derivative line items in the consolidated statements of cash flows for the nine months ended September 30, 2006 has been adjusted to reflect the restatements; however, cash flows from operating, investing and financing activities were unaffected by the restatement.

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Consultant Options

In addition to the adjustments presented above, the year-to-date totals reflect the following adjustment incurred in the six months ended June 30, 2006.

On April 3, 2006 we entered into an agreement with a consultant to provide services to us over a one year period. As compensation for the services to be provided, we issued 1.2 million shares to the consultant. In accordance with EITF 96-18 we valued the shares at grant date and determined the value of the shares issued based upon the current price of the sales of equity units, which was approximately $1.25 per share. These shares were accounted for as deferred compensation at the time of issuance to be expensed over the term of the contract. In September 2006, we re-evaluated the accounting treatment of the shares granted to the consultant and determined that in accordance with EITF 00-18, the full value of the shares should have been expensed at June 30, 2006 since the shares were immediately vested and non-forfeitable. In order to reflect this change, we restated our financial statements for the period ending June 30, 2006 to remove the deferred compensation value of these shares on our balance sheet and record the expense for the full value of these shares in our consolidated statement of operations. This non cash expense is included within our General and Administrative expenses for the nine months ended September 30, 2006.

NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2005

REVENUE. During the nine months ended September 30, 2006, the Company had revenue of $1,773,094 as compared to revenue of $676,803 during the nine months ended September 30, 2005, an increase of approximately 162%. This increase is attributable to an increase in both commercial sales and government contract work which are a result of our sales and marketing efforts and our increase in government contracts and product offerings. We were awarded three government contracts during the period for which we began to perform and bill.

COST OF REVENUE. Cost of revenue, which consists of direct labor, overhead and material costs, was $1,465,137 for the nine months ended September 30, 2006 as compared to $714,729 for the nine months ended September 30, 2005. This increase is attributable to increased revenue from both commercial sales and government contracts.

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GROSS PROFIT. Gross profit was $307,957 for the nine months ended September 30, 2006 as compared to $(37,926) for the nine months ended September 30, 2005, representing gross margins of approximately 17% and (6)%, respectively. The increase in our gross profits is attributable to our increase in commercial sales and government contracts. Since we have released new products, there are still inefficiencies in the manufacturing operations. These inefficiencies largely affect our commercial products rather than the government contracts. As our manufacturing operations mature, we expect to have increased efficiencies and as a result better margins.

RESEARCH AND DEVELOPMENT COSTS. Research and development costs which consist of salaries, professional and technical support fees, material and overhead, totaled $3,340,772 for the nine months ended September 30, 2006, as compared to $3,632,791 for the nine months ended September 30, 2005, a decrease of approximately 8%. 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.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $4,670,865 the nine months ended September 30, 2006, as compared to $1,727,862 for the nine months ended September 30, 2005, an increase of approximately 170%. Approximately $1,500,000 of this expense was a non-cash expense attributable to equity compensation given to investor relations consultants. Additionally, increased investor relations, legal and accounting costs are attributable to becoming a publicly traded company with more compliance and investor relations issues. We expect these categories of expenses to increase in future periods, based on anticipated growth of the Company, however, we do not believe that the percentage increase will be as great in future periods. We have also expanded our sales team, and increased our sales and marketing efforts, and as a result have increased expenses in the sales and marketing areas.

NET LOSS. QPC had a net loss of $15,958,945 for the nine months ended September 30, 2006 as compared to a net loss of $5,595,476 for the nine months ended September 30, 2005. The license termination fee of $6,000,000 to Finisar corporation was a non-cash expense recognized in September 2006. Approximately $330,000 of the expenses in the nine months ended September 30, 2006 were one-time expenses attributed to the cost of the reverse merger transaction. $1,500,000 of expense relates to the issuance of stock for services to investor relations consultants. In addition, approximately $690,000 was included as expense associated with warrant issuance related to the related party note which was extended in January 2006 and repaid in April 2006, and $393,882 of non-cash interest expense was recognized related to the modification of warrants. Approximately $183,000 of option expense was recorded this nine month period.

YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31, 2004

REVENUE. During the year ended December 31, 2005, QPC had revenue of $1,073,191 as compared to revenues of $1,050,816 during the year ended December 31, 2004, an increase of approximately 2%. This increase is attributable to growing our sales and marketing organization. We believe that our sales will continue to grow because we are strengthening our sales force and more new products will be launched. Additionally, we have existing contracts with scheduled shipments for 2006 which will cause our revenue to grow in 2006 without any additional sales or product releases, assuming we produce and ship according to our commitments.

COST OF REVENUE. Cost of revenue, which consist of direct labor, overhead and material costs, were $1,009,477 for the year ended December 31, 2005 as compared to $786,605 for the year ended December 31, 2004. This increase is attributable to a new mix of products that initially have a higher cost of labor and materials. We expect the gross profit to increase on our existing products as we continue to produce and ship them.

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GROSS PROFIT. Gross profit was $63,714 for the year ended December 31, 2005 as compared to $264,211 for the year ended December 31, 2004, representing gross margins of approximately 6% and 25%, respectively. The decrease in our gross profits is attributable to a new mix of products that initially has a higher cost of labor and materials. QPC’s management believes that in 2006, sales will increase while gross margin will increase as a result of increased efficiencies in our operations and higher volume production orders.

RESEARCH AND DEVELOPMENT COSTS. Research and development costs which consist of salaries, professional and technical support fees, material and overhead, totaled $4,753,356 for the year ended December 31, 2005, as compared to $3,451,538 for the year ended December 31, 2004, an increase of approximately 38%.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $2,441,405 for the year ended December 31, 2005, as compared to $2,056,516 for the year ended December 31, 2004, an increase of approximately 19%. This increase is primarily attributable to the expansion of our marketing, sales and operations; and the reallocation of personnel and resources from research and development to manufacturing. At this point, manufacturing overhead is grossly underutilized.

NET LOSS. QPC had a net loss of $7,777,858 for the year ended December 31, 2005 as compared to $5,339,419 for the year ended December 31, 2004. The increase in net loss is attributable to growing our sales and marketing department, increased research and development activities, and ramping up operations for higher volume production. QPC management believes that net loss will decrease as we introduce new products and increase sales.

Liquidity and Capital Resources

QPC lost $15,958,945 during the nine months ended September 30, 2006 and has a cumulative deficit of $48,772,731 as of September 30, 2006. Our negative cash flow is currently in excess of $800,000 per month. We project the Company to have positive cash flow from operations no sooner than December 2007. Our cash balance at September 30, 2006 is $4,294,927.

Current resources and sales projections require us to raise an estimated $5 million of additional capital for use in the next 12 months for operating capital. Depending on market conditions, and cash needs, we expect to raise $5 to $15 million of additional capital in the twelve months by means of a private placement or other financing vehicle.

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

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

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

Financing History

We secured our first round of equity financing in August 2001, led by Finisar Corporation (NASDAQ: FNSR), a telecommunications component manufacturer, headquartered in Sunnyvale, California. Finisar invested $5 million and DynaFund Ventures invested $2 million in our preferred stock. Other investors, including small funds and individuals, invested $2.03 million in the first round of financing. We issued Series A Preferred Stock at a price of $2.8466 per share to the investors.

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

In the third quarter of 2003, we raised a second round of equity financing. Finisar converted the $5 million remaining principal balance on their term loan into our Series B Preferred Stock and we raised an additional $2.8 million in new cash. The price per share of Series B Preferred Stock was $3.118998. Three of the five members of the Board of Directors at that time, founders Dr. Ungar and Mr. Lintz and independent director, Dr. Israel Ury, each purchased preferred stock in the Series B round of financing. As a condition to Finisar’s investment in Series B Preferred Stock, we granted a non-exclusive royalty free perpetual license to our existing and future intellectual property. The License Agreement allowed for termination by us by paying a fee on or before September 18, 2008. We subsequently terminated the license by issuing a promissory note in the amount of $6 million to Finisar as of September 18, 2006.

In the second quarter of 2004, we entered into a senior secured two-year note transaction with various investors and raised $3.25 million. We issues 2,437,500 warrants to purchase common stock to the lenders as part of this transaction. The exercise price of these warrants was initially $3.75. In the second quarter of 2005, approximately $2.1 million of the $2.4 million outstanding balance was extended for an additional year. We issued an additional 840,000 warrants to purchase common stock as part of this transaction, and adjusted the exercise price of 2,325,000 warrants in January 2006 upon the closing of the Brookstreet tranche I offering. The new exercise price was subject to downward adjustment if future financings were completed at a price lower than $3.75 per share. The exercise price was ultimately fixed at $1.25 per share at the time of the Reverse Merger in May 2006. The largest participant in the note transaction, investing $2.5 million, was Envision Partners of which QPC’s Chief Financial Officer, Mr. Lintz, is a 50% partner. As of September 30, 2006, the outstanding principal balance of the senior secured note was $1,152,917.

From the fourth quarter of 2004 through the first quarter of 2005, we raised $5.9 million in a third round of equity financing. Investors who participated in this round were approximately 60 accredited investors. We issued Series C Preferred Stock at a price of $3.75 per share and warrants to purchase common stock with an exercise price of $3.75 per share. In subsequent transactions from November 2005 to June 2006, all but 222,749 warrants were exchanged for common stock in a ratio of three shares for four warrants. The exercise price of remaining warrants was adjusted from $3.75 to $1.25.

In the third quarter 2005, we raised $221,000 through a sale of our common stock to eight high net worth individuals at a price of $1.00 per share.

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In the third quarter of 2005 we entered into a subordinated secured note with various investors for $1,280,000. As of September 30, 2006, the outstanding principal balance was $1,280,000. We issued 320,000 warrants to purchase common stock to these lenders. The exercise price of the warrants and the conversion price of the loan are variable. The initial price was $3.75 and is to be adjusted downward if there are any subsequent financings of at least $1,000,000 in which stock is sold for less than $3.75 per share. The exercise price for the warrants and the conversion price for the loan were reset to $1.25 per share in conjunction with the first $1 million of the Brookstreet offering (see below) in December 2005. The “floor” of minimum price that is applicable to the exercise price of the warrants and the conversion price of the loan is $0.90 per share. In addition to these warrants issued at the time of the loan, we offered the lenders an additional 341,325 warrants on the same terms if they extend their loan for an additional three years at any time during the term of the loan. To date, one lender has given us notice of extension of his $100,000 loan and has been issued 26,666 additional warrants.

In November 2005, we offered each holder of Preferred Stock (Series A, B and C) a share dividend of one common share per share of preferred stock that they owned as consideration for giving management their proxy and power of attorney to exchange all of their securities of Quintessence Photonics Corporation for shares of a publicly traded company, subject to reporting requirements of the Securities and Exchange Commission in a Reverse Merger transaction. We offered additional incentive to the Series C investors by offering to exchange the warrants that they received as part of the investment in the Series C transaction for common stock or to lower the exercise price on the warrants from $3.75 to $1.25.

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

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

In a series of private placement closings between March 31, 2006 and September 30, 2006, referred to as the Brookstreet Tranche II offering, we raised $11,795,721 from the sale of 9,436,577 shares of common stock at a price of $1.25 per share. In addition, the Company issued 2,345,341 warrants to Brookstreet Securities as of September 30, 2006 in connection with the underwriting.

Capital Expenditures

From January 1, 2006 to September 30, 2006, we spent approximately $399,000 on manufacturing equipment, computer equipment and software, furniture and cubicles. 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 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.

-80-

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.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions that has an effect on a company's financial statements accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes", as a result of positions taken or expected to be taken in a company's tax return. A tax benefit from an uncertain position may be recognized only if it is "more likely than not" that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the potential effect that the adoption of FIN 48 will have on the Company's financial statement presentation and disclosures.

-81-

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

DESCRIPTION OF PROPERTY

Our principal executive offices and manufacturing facilities are currently located at 15632 Roxford Street, Sylmar, California 91342 with a lease term of ten years and an option to extend at market rates for an additional five years of 40,320 square feet, and expiration on May 31, 2016 for the initial term and May 31, 2021 for the option. We use 18,000 square feet of our leased 40,320 square foot building and sub-let the remainder of our facility for warehousing space. We pay approximately $25,500 per month for lease payments and approximately $1,800 per month for common area maintenance and recover $5,000 from our subleases, all on a month-to-month basis.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In November 2005, pursuant to a Loan Agreement, we issued a 10% secured promissory note in the principal amount of $200,000 to Jeffrey Ungar, our Chief Executive Officer, and another 10% secured promissory note in the principal amount of $300,000 to George Lintz, our Chief Financial Officer (collectively, as amended, the “Bridge Notes” and Mr. Lintz and Mr. Ungar may be referred to as the “Bridge Noteholders”). The notes were due and payable on January 31, 2006. The lenders have a security interest in our cash, deposit accounts, fixed assets, intellectual properties, and certain insurance proceeds. This security interest is subordinated to our Senior Secured Promissory Notes originally issued on May 21, 2004 and the Senior Subordinated Secured Promissory Notes dated as of September 30, 2005. We also paid a loan origination fee of 5% or, $10,000 and $15,000, to each of Mr. Ungar and Mr. Lintz, respectively. We also granted to each of Mr. Ungar and Mr. Lintz, a warrant to purchase 128,000 and 192,000 shares of our common stock at $1.25 per share, respectively.

Effective as of January 25, 2006, we amended the Loan Agreement to mature on March 27, 2006 instead of January 31, 2006. This maturity date is subject to the Company’s option to further extend the maturity date by another 30 days (“Extension Option”). In consideration of this amendment, the Company paid the Bridge Noteholders a loan origination fee of 3% of the original principal amount of the Notes (“3% Origination Fee”) or $15,000. The Company also issued warrants to purchase shares of Common Stock at $1.25 per share. The Company issued 60,000 warrants for every $100,000 in principal loaned to the Company by the applicable Bridge Noteholder (“Bridge Warrants”). For every 30 day period beyond February 24, 2006 that the Bridge Notes remain outstanding, the Company is obligated to issue another 60,000 Bridge Warrants for every $100,000 in principal outstanding. If the Company exercises the Extension Option, it shall pay the Bridge Noteholders an additional 3% Origination Fee and additional 60,000 Bridge Warrants for every $100,000 in principal outstanding. These notes were repaid in April 2006. In aggregate, we granted Mr. Ungar and Mr. Lintz an additional 360,000 and 540,000 warrants, respectively, in consideration of the Bridge Notes extension.

During 2004, we issued $3,250,000 of notes payable to seven note holders, some of whom are our stockholders. One note holder who purchased $2,500,000 in principal is a partnership of which Mr. Lintz is an owner. The original term of the notes are 24 months, bearing interest at 10% per annum, with no principal and interest payments required for the initial three months. The notes are secured by all of the assets of the Company, including its intellectual property. One warrant for every $1.33 of principal was granted to each note holder, with each warrant being convertible into one share of common stock at $3.75 per share. The warrants are immediately vested and have a six year term. 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 will commence until the notes are fully paid in May 2007. In addition, 840,000 warrants were issued to the five note holders who elected to defer principal payments on their loans. Upon the closing of the Brookstreet tranche I offering, the exercise price of the warrants for the five individuals who extended their notes was adjusted to $1.25 per share.

-82-

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock is not listed on any national stock exchange. The common stock is traded over-the-counter on the Over-the-Counter Electronic Bulletin Board under the symbol “QPCI.” Prior to May 2006, we were known as Planning Force, Inc. and our stock traded under the symbol “PLFI”. The following table sets forth the high and low bid information for the common stock for each quarter within the last two fiscal years, as reported by the Over-the-Counter Bulletin Board.

	High Bid		Low Bid
2006
First Quarter		*		*
Second Quarter	$	3.04	$	2.10
Third Quarter	$	2.84	$	1.80
Fourth Quarter	$	1.70	$	1.25

	High Bid		Low Bid
2005
First Quarter		*		*
Second Quarter		*		*
Third Quarter		*		*
Fourth Quarter		*		*

* There have been no trades of Company common stock during such quarter.

As of January 19, 2007, there were approximately 520 stockholders of record of our common stock.

These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Dividends

We have never paid any dividends on the common stock or the Preferred Stock. We currently anticipate that any future earnings will be retained for the development of our business and do not anticipate paying any dividends on the common stock or the Preferred Stock in the foreseeable future.

Equity Compensation Plan Information

The 2006 Stock Incentive Plan became effective on May 3, 2006 in connection with this transaction. All options to purchase stock of QPC which were outstanding at the time were assumed by us and converted into options to purchase shares of our common stock. The number of shares subject to each assumed and converted option was equal to the number of shares of common stock which were subject to that option immediately prior to the conversion, and the exercise price per share remained the same as the per share exercise price in effect under the option at the time of conversion. Except for the conversion of the securities subject to the options into shares of our common stock, each option will continue to be governed by the terms of the agreement evidencing that option at the time of our conversion into a corporation.

-83-

The 2006 Stock Incentive Plan permits issuance of restricted stock or stock options. As of January 19, 2007, only stock options are outstanding. Under the 2006 Stock Incentive Plan restricted stock or options may be granted to employees, non-employee members of our Board of Directors, and consultants and other independent advisors in our employ or service. The number of shares of common stock issuable under the 2006 Stock Incentive Plan is 5,400,000 shares. As of January 19, 2007, there were 132,500 options exercised under the Plan.

Unvested options will vest on an accelerated basis in the event our Company is acquired and those options are not assumed or replaced by the acquiring entity. Each option will have a maximum term (not to exceed 10 years) set by the plan administrator (our Compensation Committee) at the time of grant, subject to earlier termination following the optionee’s cessation of employment. All options are non-statutory options under the Federal tax law, unless they are incentive stock options granted to employees.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options warrants and rights		Number of securities remaining available for future issuance under the equity compensation plan
Equity compensation plans approved by security holders		2,957,750	$	0.80		2,309,750
Equity compensation plans not approved by security holders		859,598	$	1.25		N/A

-84-

EXECUTIVE COMPENSATION

During the 2005 fiscal year, Jeffrey Ungar, our Chief Executive Officer, and George Lintz, our Chief Financial Officer, were the only executive officers receiving compensation of at least $100,000 per year.

The following table sets forth information as to the compensation paid or accrued to Mr. Ungar, our Chief Executive Officer and Mr. Lintz, our Chief Financial Officer:

Summary Compensation Table

			ANNUAL COMPENSATION							LONG TERM COMPENSATION
										AWARDS					PAYOUTS
Name and Principal Position	Year		Salary ($)		Bonus ($)		Other Annual Compensation ($)			Restricted Stock Awards ($)		Securities Underlying Options/ SARs			LTIP Payout($)		All Other Compensation ($)
Jeffrey Ungar, Chief Executive Officer		2005		212,000		36,000		6,270	(1)		0		—			0		0
		2004		212,000		12,000		6,500	(1)		0		100,000	(3)		0		0
George Lintz, Chief Financial Officer		2005		192,961		39,000		6,020	(2)		0		—			0		0
		2004		190,000		48,000		6,500	(2)		0		100,000	(4)		0		0
Paul Rudy, Senior V.P. Marketing and Sales		2005		153,577		0		83,142	(5)		0		275,000	(5)		0		0
		2004		0		0		0			0		—			0		0

(1) Includes amounts paid to Mr. Ungar for 401(k) matching contributions.

(2) Includes amounts paid to Mr. Lintz for 401(k) matching contributions.

(3) Mr. Ungar received an option to purchase 100,000 shares at $0.38 per share in 2004.

(4) Mr. Lintz received an option to purchase 100,000 shares at $0.38 per share in 2004.

(5) Includes reimbursement of relocation expenses of $74,532 and transportation reimbursements of $8,610.

(6) Mr. Rudy received an option to purchase 200,000 shares at $0.38 per share in May 2005 and an option to purchase 75,000 shares at $1.25 per share in November 2005.

-85-

Stock Options and Stock Appreciation Rights

During the year ended December 31, 2005, we granted to the following named executive officers and directors, options to purchase the following shares*:

Name	Date of Grant		Common Shares		Exercise Price
Paul Rudy		May 18, 2005		200,000	$	0.38
Paul Rudy		November 17, 2005		75,000	$	1.25
Israel Ury		May 20, 2005		20,000	$	0.38

* Options were to purchase Quintessence Photonics Corporation common stock which become exchanged for options to purchase QPC Lasers, Inc. common stock in connection with the reverse merger.

These options expire ten years from the date of grant. The options become exercisable on a quarterly basis.

No other stock options or other derivative stock-based rights were granted to any of the other named executive officers during the 2005 fiscal year.

Aggregated OptionFiscal Year-End Value

There were no unexercised options to purchase QPC Lasers, Inc. common stock held by the named executive officers at the end of the 2005 fiscal year.

Long-Term Incentive Plan Awards

We do not currently have any long term incentive plans.

Compensation of Directors

Two of our Directors are also employees and do not receive separate board compensation. Three of our remaining five directors each accrue quarterly fees of $2,500 Directors Fee, $1,000 Board Meeting Attendance Fee, $1,250 Committee Chair Fee, $500 Committee Meeting Attendance Fee and/or $250 Teleconference Fee, plus any related expenses incurred.

Employment Agreements, Termination of Employment and Change-in-Control Arrangements

We currently have no employment agreements with any of our executive officers, nor any compensatory plans or arrangements resulting from the resignation, retirement or any other termination of any of our executive officers, from a change-in-control, or from a change in any executive officer’s responsibilities following a change-in-control.

-86-

FINANCIAL INFORMATION

CONTENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCCOUNTING FIRM	F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets	F-3, F-4
Statements of Operations	F-5
Statements of Stockholders’ Equity	F-6
Statements of Cash Flows	F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-9

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors

QPC Lasers, Inc. (Formerly Planning Force, Inc.)

Sylmar, California

We have audited the consolidated balance sheet of QPC Lasers, Inc. (Formerly Planning Force, Inc.) (the “Company”) as of December 31, 2005 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2005 and 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of QPC Lasers, Inc. (Formerly Planning Force, Inc.) as of December 31, 2005 and the consolidated results of its operations and its cash flows for the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company incurred a net loss of $7,777,858 and used $6,440,414 of cash in operations for the year ended December 31, 2005 and had a working capital deficiency of $1,635,421 as of December 31, 2005, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Weinberg and Company, P.A

May 12, 2006,

Los Angeles, California

F-2

QPC LASERS, INC. (Formerly Planning Force, Inc.)

CONSOLIDATED BALANCE SHEETS

	September 30, 2006 (Unaudited)		December 31, 2005
	(As Restated)
CURRENT ASSETS
Cash	$	4,294,927	$	69,440
Accounts receivable, Commercial customers, net of allowance for doubtful accounts and returns and discounts of $52,453 as of September 30, 2006 and $6,704 as of December 31, 2005		464,081		331,332
Accounts receivable, Government contracts, net of allowance for doubtful accounts and returns and discounts of $-0- as of September 30, 2006 and $8,312 as of December 31, 2005		235,972		15,669
Costs and earnings in excess of billings		42,744		10,774
Inventory		479,634		419,099
Prepaid expenses and other current assets		271,497		198,449
Total Current Assets		5,788,855		1,044,763
Capitalized loan fees, net of accumulated amortization of $291,001 as of September 30, 2006 and $203,586 as of December 31, 2005		52,633		140,049
Property and equipment, net of accumulated depreciation of $4,962,708 as of September 30, 2006 and $4,056,090 as of December 31, 2005		3,883,516		4,391,019
Other assets		88,780		129,414
TOTAL ASSETS	$	9,813,784	$	5,705,245

(continued)

F-3

QPC LASERS, INC. (Formerly Planning Force, Inc.)

CONSOLIDATED BALANCE SHEETS(Continued)

	September 30, 2006 (Unaudited)			December 31, 2005
	(As Restated)
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities	$	735,596		$	940,766
Note payable-related party		—			343,200
Current portion of long term debt		974,586			1,396,218
Total Current Liabilities		1,710,182			2,680,184
Long term debt, less current portion		6,713,920			1,288,506
Total Liabilities		8,424,102			3,968,690
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $.001 par value, 20,000,000 shares authorized		—			—
Common stock, $.001 par value, 180,000,000 shares authorized, 38,559,283 issued and outstanding at September 30, 2006 and 12,787,802 at December 31, 2005		38,559			12,788
Common stock to be issued		—			866
Additional paid in capital		50,123,854			34,536,687
Accumulated deficit		(48,772,731	)		(32,813,786	)
Total stockholders’ equity		1,389,682			1,736,555
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,813,784		$	5,705,245

See accompanying Notes to Consolidated Financial Statements

F-4

QPC LASERS, INC. (Formerly Planning Force, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2005 and 2004 

and the Nine Months Ended September 30, 2006 and 2005

(Unaudited)

	Nine months ended (Unaudited)						Years ended
	September 30, 2006			September 30, 2005			December 31, 2005			December 31, 2004
	(As Restated)
REVENUE
Commercial customers	$	911,038		$	246,164		$	594,161		$	63,685
Government contracts		862,056			430,639			479,030			987,131
TOTAL REVENUE		1,773,094			676,803			1,073,191			1,050,816
COST OF SALES		1,465,137			714,729			1,009,477			786,605
GROSS PROFIT		307,957			(37,926	)		63,714			264,211
OPERATING EXPENSES
Research and Development		3,340,772			3,632,791			4,753,356			3,451,538
General and Administrative		4,670,865			1,727,862			2,441,405			2,056,516
Total operating expenses		8,011,637			5,360,653			7,194,761			5,508,054
LOSS FROM OPERATIONS		(7,703,680	)		(5,398,579	)		(7,131,047	)		(5,243,843	)
Interest Income		27,916			14,280			15,036			14,440
Interest Expense		(1,947,056	)		(275,655	)		(750,299	)		(182,847	)
Merger expense		(326,199	)		—			—			—
Loss on Embedded Derivative		(68,703	)		—			—			—
License Termination		(6,000,000	)		—			—			—
Other income (expense)		58,777			64,478			88,452			72,831
NET LOSS		(15,958,945	)		(5,595,476	)		(7,777,858	)		(5,339,419	)
Preferred Stock Dividend		—			—			(10,823,028	)		—
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(15,958,945	)	$	(5,595,476	)		(18,600,886	)	$	(5,339,419	)
LOSS PER COMMON SHARE — Basic and Diluted	$	(0.55	)	$	(0.45	)	$	(1.49	)	$	(0.48	)
WEIGHTED AVERAGE SHARES OUTSTANDING, basic and diluted		28,889,088			12,359,185			12,466,339			11,078,848

See accompanying Notes to Consolidated Financial Statements

F-5

QPC LASERS, INC.

(Formerly Planning Force, Inc.)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the years ended December 31, 2005 and 2004

and the nine months ended September 30, 2006 (Unaudited)

	Preferred Stock C - QPC						Common Stock				To be			Additional			Stock subscribed but not			Accumulated
	Shares			Amount			Shares		Amount		Issued			Paid-in			issued			Deficit			Total
Balance, January 1, 2004		-			-			10,863,827	$	10,864		-		$	16,697,171		$	-		$	(8,873,481	)	$	7,834,554
Issuance of common stock from exercise of stock options		-			-			15,000		15		-			5,685			-			-			5,700
Issuance of Series C preferred stock, net of issuance costs of $258,828		1,161,744			4,092,759			-		-		-			-			-			-			4,092,759
Issuance of Series C preferred stock upon conversion of long term debt		83,380			313,183			-		-		-			-			-			-			313,183
Stock subscribed, but not issued		-			-			-		-		-			-			102,000			-			102,000
Net loss		-			-			-		-		-			-			-			(5,339,419	)		(5,339,419	)
Balance, December 31, 2004		1,245,124			4,405,942			10,878,827		10,879		-			16,702,856			102,000			(14,212,900	)		7,008,777
Issuance of common stock from exercise of stock options		-			-			90,000		90		-			32,310			-			-			32,400
Issuance of common stock		-			-			221,000		221		-			220,779						-			221,000
Issuance of Series C preferred stock, net of issuance costs of $170,795		352,851			1,152,396			-		-		-			-			(102,000	)		-			1,050,396
Fair value of loan discount of warrants issued to holders of Senior Secured Notes Payable		-			-			-		-		-			596,400			-			-			596,400
Fair value of loan discount of warrants issued to holders of Subordinated Secured Convertible Notes		-			-			-		-		-			233,600			-			-			233,600
Fair value of loan discount of warrants issued to holders of related party note payable		-			-			-		-		-			313,600			-			-			313,600
Fair value of options issued to consultants		-			-			-		-		-			58,240			-			-			58,240
Conversion of series C preferred shares into common stock		(1,597,975	)		(5,558,338	)		1,597,975		1,598		-			5,556,740			-			-			-
Stock dividend		-			-			-		-		866			10,822,162						(10,823,028	)		-
Net loss		-			-			-		-		-			-			-			(7,777,858	)		(7,777,858	)
Balance, December 31, 2005		-			-			12,787,802		12,788		866			34,536,687			-			(32,813,786	)		1,736,555
Issuance of stock associated with Stock Dividend		-			-			8,658,422		8,659		(866	)		(7,793	)		-			-			-
Shares issued upon reverse merger, May 12, 2006		-			-			4,166,378		4,166		-			(4,166	)		-			-			-
Issuance of stock for cash, net of offering costs		-			-			11,726,681		11,726		-			12,312,202			-			-			12,323,928
																								-
Value of warrants issued with common stock		-			-			-		-		-			68,703			-			-			68,703
Issuance of stock upon option exercise		-			-			17,500		17		-			10,983			-			-			11,000
Issuance of stock upon warrant exercise		-			-			2,500		3		_			3,747			-			-			3,750
Issuance of stock for services		-			-			1,200,000		1,200		-			1,498,800			-			-			1,500,000
Fair value of modification of warrants															744,000									744,000
Fair value of warrants issued for services and loan fees		-			-			-		-		-			777,598			-			-			777,598
Fair value of vested options		-			-			-		-		-			183,093			-			-			183,093
Net loss for the nine months ended September 30, 2006		-			-			-		-		-			-			-			(15,958,945	)		(15,958,945	)
Balance, September 30, 2006 (as restated)		-			-			38,559,283	$	38,559		-			50,123,854		$	-		$	(48,772,731	)	$	1,389,682

See accompanying Notes to Consolidated Financial Statements

F-6

QPC LASERS, INC. (Formerly Planning Force, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2005 and 2004 and

The nine months ended September 30, 2006 and 2005 (Unaudited)

	Nine Months Ended(Unaudited)						Year Ended
	September 30, 2006			September 30, 2005			December 31, 2005			December 31, 2004
	(As Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(15,958,945	)	$	(5,595,476	)	$	(7,777,858	)	$	(5,339,419	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		906,619			996,642			1,167,578			1,181,072
Fair Value of options issued for services		—			—			58,240			—
Amortization of loan discount		877,461			—			265,727			—
Amortization of Capitalized Loan Fees		87,416			(104,319	)		142,501			—
Shares of common stock issued for services		1,500,000			—			—			—
Loss on change in fair value of embedded derivatives		68,703			—			—			—
Warrants issued for services and loan fees		777,598			—			—			—
Compensation expense of option issuance		183,093			—			—			—
License Termination		6,000,000			—			—			—
Changes in operating assets and liabilities:
Accounts receivable		(353,052	)		4,051			(214,385	)		14,510
Inventory		(60,535	)		17,626			(343,682	)		(75,417	)
Unbilled revenue		(31,970	)		(7,994	)		(10,774	)		—
Other assets		40,634			—			(28,471	)		(27,498	)
Prepaid Expenses		(73,048	)		(43,191	)		(103,709	)		(4,647	)
Accounts payable and other current liabilities		(205,170	)		132,032			522,808			242,777
Deferred revenue		—			(83,387	)		(118,389	)		118,389
Net cash used in operating activities		(6,241,196	)		(4,684,016	)		(6,440,414	)		(3,890,233	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(399,115	)		(171,992	)		(206,471	)		(423,663	)
Net cash used in investing activities		(399,115	)		(171,992	)		(206,471	)		(423,663	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in capitalized loan fees		—			—			(134,200	)		(209,435	)
Proceeds from borrowing		—			1,280,000			1,780,000			3,250,000
Principal payments on debt		(1,472,880	)		(414,072	)		(362,389	)		(522,996	)
Proceeds received from unit sales allocated to common stock		12,323,928			—			—			—
Exercise of options		11,000			—			32,400			5,700
Exercise of warrants		3,750			—
Issuance of common stock		—			—			215,500			—
Preferred stock issued, net of issuance costs		—			1,055,896			1,055,896			4,194,759
Net cash provided by financing activities		10,865,798			1,921,824			2,587,207			6,718,028
NET INCREASE (DECREASE)  IN CASH		4,225,487			(2,934,184	)		(4,059,678	)		2,404,132
CASH — Beginning of period		69,440			4,129,118			4,129,118			1,724,986
CASH — End of period	$	4,294,927		$	1,194,934		$	69,440		$	4,129,118
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	246,525		$	183,985		$	294,831		$	140,584
Taxes	$	—		$	—		$	—		$	—

F-7

QPC LASERS, INC. (Formerly Planning Force, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2005 and 2004 and

The nine months ended September 30, 2006 and 2005 (Unaudited)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

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

During the nine months ended September 30, 2006, the Company paid to a related party (shareholder) a license termination fee in exchange for a $6 million promissory note.

During the nine months ended September 30, 2006, the Company re-priced warrants with a fair value of $744,000 to holders of Senior Secured Notes Payable.

During the nine months ended September 30, 2006, the Company issued warrants with a fair value of $690,000 to holders of Related Party Notes Payable.

During 2005 the Company committed to issuing 8,658,422 of common stock to preferred stockholders accounted for as a stock dividend (see Note 8).

During 2005, the Company issued warrants with a fair value of $596,400 to holders of Senior Secured Notes Payable.

During 2005, the Company issued warrants with a fair value of $313,600 to holders of Related Party Notes Payable.

During 2005, the Company issued warrants with a fair value of $313,600 to holders of Subordinated Secured Convertible Notes Payable

During 2005, the Company issued warrants with a fair value of $366,698 in connection with Preferred Stock Offering.

During 2004, the Company exchanged $300,000 principal and $13,184 interest of the notes payable for 83,380 shares of Series C convertible voting preferred stock. The Company also issued 20,250 shares of  Series C convertible voting preferred stock for finders fees, valued at $50,625.

See accompanying Notes to Consolidated Financial Statements

F-8

QPC LASERS, INC.

(Formerly Planning Force, Inc.)

NOTES TO CONSOLIDTED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004 AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005 (UNAUDITED)

NOTE 1 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. (QLI) executed a Share Exchange Agreement by and among Julie Moran, its majority shareholder, and Quintessence Photonics Corporation (QPC) and substantially all of its shareholders. Under the agreement QLI issued one share of its common stock to the QPC shareholders in exchange for each share of QPC common stock (QPC Shares). Upon closing, QPC Shares represented at least 87% of QLI’s common stock. Therefore, a change in control occurred and QPC also became a wholly owned subsidiary of QLI. Accordingly, the transaction is accounted for as a reverse merger (recapitalization) in the accompanying financial statements with QPC deemed to be the accounting acquirer and QLI deemed to be the legal acquirer. As such the financial statements herein reflect the historical activity of QPC since its inception, and the historical stockholders’ equity of QPC 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. The activity of QLI is being reflected from May 12, 2006 forward (see Note 8).

The accompanying interim financial statements are unaudited, but in the opinion of management of QLI, contain all adjustments, which include normal recurring adjustments necessary to present fairly the financial position at September 30, 2006 and the results of operations and cash flows for the nine months ended September 30, 2006 and 2005. The results of operations for the nine months ended September 30, 2006 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2006.

GOING CONCERN

The accompanying 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 $7,777,858 and utilized cash of $6,440,414 in operating activities during the year ended December 31, 2005, and had a working capital deficiency of $1,635,421 at December 31, 2005. During the nine months ended September 30 2006, the Company had a net loss of $15,958,945 and utilized cash of $6,241,196 in operating activities. These factors raise substantial doubt about the Company's ability to continue as a going concern. The 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.

Management’s plan to alleviate substantial doubt about the Company’s ability to continue as going concern is comprised of two primary components. The first component is to increase revenue to a level where the Company will generate positive cash flow and be able to operate without additional financing. Management believes that the earliest the Company will reach a point of cash-flow breakeven on a monthly basis will be in December 2007. It should be noted that while we are developing Generation III technology currently and plan to release prototype products based on Generation III technology in the calendar year 2007, our cash flow break even forecast is not dependent on sales of Generation III products. The Company is currently shipping small quantities of products based on Generation II technology and management believes that production and sales of these products will increase sufficiently and that the gross margin on these products will enable the Company to achieve positive cash flow. Management estimates that we will have sufficient cash to sustain operations through the first quarter of 2007 without any additional financing.

At September 30, 2006 the Company had working capital of $4,078,673. However, as a result of the ongoing negative cash flow that the Company is currently experiencing, Management expects to engage in additional capital raising, most likely over the next 6 months. We intend to raise between $5 million and $15 million through an offering of securities. We are engaged in preliminary discussions with several sources of financing including investment bankers, institutional funds and strategic investors. The form of the capital financing may be equity, secured or unsecured debt, convertible debt or convertible preferred stock or other alternate forms of financing. There can be no assurance that the Company will be able to obtain this or any financing.

F-9

NOTE 2 -  RESTATEMENT OF PRIOR PERIODS

In December 2006, we concluded that it was necessary to restate our financial results for the interim periods ended June 30, 2006 and September 30, 2006 to reflect additional non-operating losses related to the classification of and accounting for: (1) the conversion feature of the Company's subordinated convertible notes payable issued in August 2005, the warrants to purchase common stock associated with these notes, the amortization of the discount recorded with respect to the subordinated convertible note, (2) the note payable issued to Finisar Corporation for $6,000,000 for the license termination, (3) the modification of warrants held by Senior Secured Notes Payable Note Holders, and (4) options granted to a consultant for services rendered in the three months ended June 30, 2006.

Embedded Derivatives

We initially classified the value of the conversion features and warrants to purchase common stock related to the issuance of our subordinated secured convertible notes payable in the equity section of the balance sheet. In September 2006, the Company analyzed these instruments and determined they should be treated as derivative liabilities subject to FAS 133. In filing of our Pre-effective Amendment No. 2 to our registration statement on Form SB-2, the Company restated its previous December 31, 2005 financial statements and accounted for these instruments as derivatives and recorded changes in the fair value of these instruments in the consolidated statement of operations as “gain (loss) on change in fair value of embedded derivatives.”

In December 2006, the company reanalyzed the features of these instruments, and determined that the initial accounting treatment was appropriate as the instruments are to be settled in shares and fulfill the conditions set forth in EITF 00-19 paragraphs 12 to 32 and are to be accounted for in the equity section of the balance sheet. Therefore these 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 cash settlement. We have restated the balance sheet and statement of operations for the nine months ended September 30, 2006 to adjust for this. The December 31, 2005 financials statements reflect the original accounting treatment as previously audited and reported.

License Termination Fee

The Company executed an agreement with Finisar Corporation to terminate a previously existing license agreement that became effective as of September 18, 2006. As consideration for terminating the IP License agreement, the Company issued to Finisar a $6,000,000 secured note payable (see Note 7).

Based on the Company’s historical relationship with Finisar since 2001 and their continued substantial equity investment in the Company, we originally accounted for this transaction as a deemed distribution of equity to Finisar at September 30, 2006. Upon further review of this transaction, the Company has determined that this transaction should have been expensed in the period in which it was incurred. Accordingly, we have restated our results for the nine months ended September 30, 2006 to recognize this expense.

Modification of Warrants

In the second quarter of 2004, we issued 2,437,500 warrants to purchase common stock to various lenders as part of a senior secured two-year note transaction. The exercise price of these warrants was initially $3.75. In the second quarter of 2005, approximately $2.1 million of the $2.4 million outstanding balance was extended for an additional year. In January 2006, we adjusted the exercise price of 2,325,000 of these warrants upon the closing of the Brookstreet tranche I offering. The company has recorded a loan discount of $744,000 in the nine months ended September 30, 2006 to record the difference in the value of the warrants immediately prior to the modification and the value of the warrants following modification. Interest expense includes $393,882 related to amortization of this discount.

F-10

The accompanying financial statements for the nine months ended September 30, 2006 have been restated to effect the changes described above. The impact of these adjustments are summarized below: 

Changes to Statement of Operations:

	For the nine months ended			For the nine months ended
Net Loss	September 30, 2006			September 30, 2005
As previously reported	$	(9,038,663	)	$	(5,809,509	)
Remove gain on embedded derivative		(788,000	)		(12,000	)
Additional interest expense as a result of warrant modification		(393,882	)		—
Remove additional offering expense associated with embedded derivative		—			188,000
Lower amortization of loan discount		261,600			38,033
License Termination Fee		(6,000,000	)		—
As restated	$	(15,958,945	)	$	(5,595,476	)

Loss per share
As previously reported	$	(0.31	)	$	(0.47	)
Recognition of adjustments		(0.24	)		0.02
As restated	$	(0.55	)	$	(0.45	)

Changes to Balance Sheet: 

	September 30, 2006 Previously Reported			Adjustments			September 30, 2006 As Restated
Current Liabilities	$	2,751,611		$	(1,041,429	)(A)		1,710,182
Long term debt less current portion		6,160,564			553,356	(B)		6,713,920
Total Liabilities		8,912,175			(488,073	)		8,424,102
Stockholders’ Equity
Common stock		38,559			—			38,559
Additional paid in capital		43,146,254			6,977,600	(C)		50,123,854
Accumulated deficit		(42,283,204	)		(6,489,527	)(D)		(48,772,731	)
Total Stockholders’ Equity		901,609			488,073			1,389,682
Total liabilities & stockholders’ equity	$	9,813,784			—			9,813,784

(A)	Represents the sum of $800,000 decrease for fair value of embedded derivative, additional senior secured loan discount of $431,118, less $189,689 net decrease in subordinated secured convertible loan discount
(B)	Represents a $814,956 decrease in loan discount less $261,600 less amortization of loan discount.
(C)	Represents the sum of $233,600 value of the loan discount, $6,000,000 license termination fee originally charged to paid in capital, and $744,000 value of warrant modification
(D)	Represents the sum of $120,000 eliminate recognition of loss on embedded derivative 2005, $122,755 lower amortization of loan discount in 2005, $188,000 value of embedded derivative over loan amount charged to offering expense in 2005, $261,600 lower amortization of subordinated secured loan discount, less $788,000 elimination of recognition of gain on embedded derivative, less $393,882 additional amortization of senior secured loan discount, and less $6,000,000 license termination fee.

The net loss, loan discount, license termination fee, warrant modification, and loss on change in fair value of embedded derivative line items in the consolidated statements of cash flows for the nine months ended September 30, 2006 has been adjusted to reflect the restatements; however, cash flows from operating, investing and financing activities were unaffected by the restatement.

Consultant Options

In addition to the adjustments presented above, the year-to-date totals reflect the following adjustment incurred in the six months ended June 30, 2006.

On April 3, 2006 the Company entered into an agreement with a consultant to provide services to the company over a one year period. As compensation for the services to be provided, the Company issued 1.2 million shares to the consultant. In accordance with EITF 96-18 the Company valued the shares at grant date and determined the value of the shares issued based upon the current price of the sales of equity units, which was approximately $1.25 per share. These shares were accounted for as deferred compensation at the time of issuance to be expensed over the term of the contract. In September 2006, the Company re-evaluated the accounting treatment of the shares granted to the consultant and determined that in accordance with EITF 00-18, the full value of the shares should have been expensed at June 30, 2006 since the shares were immediately vested and non-forfeitable. In order to reflect this change, we restated our financial statements for the period ending June 30, 2006 to remove the deferred compensation value of these shares on our balance sheet and record the expense for the full value of these shares in our consolidated statement of operations. This non cash expense is included within our General and Administrative expenses for the nine months ended September 30, 2006.

F-11

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

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

Inventory

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

Property and Equipment

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

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.

F-12

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

Deferred Stock Offering Costs

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

Income Taxes

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

Revenue Recognition

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, 2005 or September 30, 2006. 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, 2005, there was no deferred revenue and approximately $10,774 of unbilled receivables related to these government contracts. At September 30, 2006 there was no deferred revenue and $42,744 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. 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 September 30, 2006, 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 will be established, based on management’s estimate of the potential bad debt. When management abandons all collection efforts it will directly write off the account and adjust the reserve accordingly.

F-13

NOTE 3 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

Research and Development Costs

Research and development costs are charged to expense when incurred.

Management Estimates

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

Stock-Based Compensation

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounted for stock option and warrant grants issued and vesting to employees up through December 31, 2005 using the guidance SFAS No 123, "Accounting for Stock-Based Compensation". 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

As the exercise price of stock options and warrants issued to employees was not less than the fair market value of the Company's common stock on the date of grant, and in accordance with accounting for such options utilizing the intrinsic value method, there was no related compensation expense recorded in the Company's 2005 and 2004 consolidated financial statements. The fair value of stock options and warrants issued to officers, directors and employees at not less than fair market value of the Company's common stock on the date of grant was estimated using the Black-Scholes option pricing model, and the effect on the Company's results of operations was shown in a pro forma disclosure as if such stock options and warrants had been accounted for pursuant to SFAS No. 123.

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS No. 123R"), a revision to SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R superseded APB No. 25 and amended SFAS No. 95, "Statement of Cash Flows". Effective January 1, 2006, SFAS No. 123R requires that the Company measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards, with the cost to be recognized as compensation expense in the Company's financial statements over the vesting period of the awards. Accordingly, the Company recognizes compensation cost for equity-based compensation for all new or modified grants issued after December 31, 2005. In addition, commencing January 1, 2006, the Company recognized the unvested portion of the grant date fair value of awards issued prior to adoption of SFAS No. 123R based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding stock options and warrants.

F-14

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

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

For the nine months ended September 30, 2006, the value of options vesting during the period was $183,093 and has been reflected as compensation cost in the accompanying financial statements. As of September 30, 2006, the Company has outstanding unvested options of $1,685,678 which will be reflected as compensation cost in future periods as the options vest.

For the years ending December 31, 2005 and 2004, and for the nine months ended September 30, 2005, the pro forma disclosure related to the issuance and vesting of options is as follows:

	Nine months ended September 30, 2005			Year ended December 31, 2005			Year ended December 31, 2004
Net loss as reported	$	(5,809,509	)	$	(18,600,886	)	$	(5,339,419	)
Stock based compensation		(588,360	)		(786,870	)		—
Pro forma net loss	$	(6,397,869	)	$	(19,387,756	)	$	(5,339,419	)
Pro forma net loss per share, basic and diluted	$	(0.52	)	$	(1.55	)	$	(0.48	)

F-15

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED

The assumptions used in calculating the fair value of the options granted during 2005, using the Black-Scholes option pricing model were: risk free interest rate, 4.47%, expected life, 10 years, expected volatility 70%, no expected dividends. The assumptions used in calculating the fair value of the options granted during 2004, using the Black-Scholes option pricing model were: risk free interest rate, 4%, expected life, 4 years, expected volatility, 0%, and no expected dividends.

Fair Value of Financial Instruments

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

Concentration of Credit Risk

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

Capitalized Loan Fees

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

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. As the Company had a loss in the years ended December 31, 2005 and 2004 and nine month periods ended September 30, 2006 and 2005, basic and diluted loss per share are the same. At December 31, 2005 and 2004, potentially dilutive securities consisted of outstanding common stock purchase warrants and stock options to acquire an aggregate of 6,479,681 and 5,576,686 shares, respectively. At September 30, 2006 and 2005, potentially dilutive securities consisted of outstanding common stock purchase warrants and stock options to acquire an aggregate of 11,375,047 and 5,684,181 shares, respectively.

Accounting for Derivative Instruments

Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires all derivatives to be recorded on the balance sheet at fair value. In September 2000, the Emerging Issues Task Force (“EITF”) issued EITF 00- 19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock,” (“EITF 00-19”) which requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the company’s results of operations. These derivatives, including embedded derivatives in our subordinated notes, are separately valued and accounted for on our balance sheet, and revalued at each reporting period. The net change in the value of embedded derivative liability is recorded as income or loss on derivative instruments in the consolidated statement of operations, included in other income.

F-16

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.

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 June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions that has an effect on a company's financial statements accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes", as a result of positions taken or expected to be taken in a company's tax return. A tax benefit from an uncertain position may be recognized only if it is "more likely than not" that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the potential effect that the adoption of FIN 48 will have on the Company's financial statement presentation and disclosures.

NOTE 4 INVENTORY

Inventory consists of the following:

	September 30, 2006 (Unaudited)			December 31, 2005
Raw materials	$	452,523		$	441,800
Work in process		49,812			—
Reserve for slow moving and obsolescence		(22,701	)		(22,701	)
	$	479,634		$	419,099

F-17

NOTE 5   License Termination

In August 2001, Finisar Corporation acquired 1,756,480 shares of Series A Preferred stock for $5 million in our first round of equity financing. In addition to Finisar’s equity investment, they made a five-year term loan to us for $7 million, closing in two tranches between August 2001 and January 2002. The total investment of Finisar was $12 million including the preferred equity and debt. In January 2002, $45,500 of accrued interest was added to the balance of the loan. Through September 18, 2003, the Company paid $1,996,225 of principal on the loan to Finisar. On September 18, 2003, Finisar converted the $5,049,275 remaining principal balance on their term loan into 1,618,883 shares of our Series B Preferred Stock by executing an Exchange Agreement with the Company. During 2006, Finisar received 3,375,363 shares of common stock as a result of a stock dividend (see note 9). The 1,756,480 shares of Series A Preferred stock and 1,618,883 shares of Series B Preferred were ultimately exchanged for 3,375,363 shares of our common stock in the reverse merger transaction. As a result of the share dividend and the share exchange, Finisar ultimately held 6,750,726 shares of our common stock. At September 30, 2006 Finisar held 6,750,726 shares of our common stock.

Pursuant to the terms of the Exchange Agreement with Finisar, we granted Finisar a royalty free, fully paid, nonexclusive license to all of our existing and future intellectual property (the "IP License"). In addition, the Company granted Finisar favorable pricing assurances with respect to all Company products. Under terms contained in the original exchange agreement, the Company executed an agreement with Finisar Corporation to terminate the previously existing license agreement effective as of September 18, 2006. As consideration for terminating the IP License agreement, the Company issued to Finisar a $6,000,000 secured note payable (see Note 7). The value of the note was recognized as a license termination fee in September 2006 and is reflected in the accompanying consolidated statement of operations.

F-18

NOTE 5 PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	September 30, 2006 (Unaudited)			December 31, 2005			Useful Lives
Computer software	$	65,049		$	61,807			3 years
Furniture and fixtures		121,558			103,180			6 years
Computer equipment		132,319			118,036			3 years
Office equipment		69,362			69,362			6 years
Lab and manufacturing equipment		4,667,367			4,305,775			6 years
Leasehold improvements		3,790,569			3,788,949			14 years
		8,846,224			8,447,109
Less accumulated depreciation and amortization		(4,962,708	)		(4,056,090	)
Property and equipment, net	$	3,883,516		$	4,391,019

Depreciation and amortization expense related to property and equipment amounted to $1,167,578 and $1181,072 for the years ended December 31, 2005 and 2004, respectively. For the nine months ended September 30, 2006 and 2005, depreciation and amortization expense was $906,619 and 996,642 respectively.

F-19

NOTE 6 - NOTE PAYABLE RELATED PARTIES

Notes payable related parties is as follows:

	September 30, 2006 (Unaudited)		December 31, 2005
Notes payable related parties	$	—	$	500,000
Loan discount	$	—		(156,800	)
	$	—	$	343,200

The Company was indebted to the Chairman of the Board of Directors and the Chief Financial Officer of Company under a $500,000 note agreement entered into in November 2005. The note was due January 2006, was extended to April 25, 2006, and was paid in April 2006. Until the note was repaid, monthly interest only payments were required. The interest rate was 10% per annum. The note was secured by all the assets of the Company. The amount outstanding at December 31, 2005 was $500,000. The Company paid a $25,000 loan origination fee to the related parties in accordance with the note agreement. As part of the original loan agreement, the Company granted to the note holders warrants to purchase 320,000 shares of common stock. These warrants were valued at $0.98 per warrant using the Black-Scholes option pricing model. The assumptions used in the model were: risk free interest rate, 4.47%, expected life,10 years, expected volatility, 70%, no expected dividends. . Accordingly, the Company recorded a loan discount of $313,600 which the Company amortized to interest expense over the original life of the loan, of which $156,800 was amortized during the year ending December 31, 2005. The remaining balance was of $156,800 fully amortized as of September 30, 2006 and is reflected as interest expense in the accompanying statement of operations. The Company issued 900,000 warrants to the note holders in 2006 as consideration for extending the original due date of the note from January 2006 to April 2006. The value of these warrants, approximately $690,000 (Unaudited) was charged to interest expense during the nine months ended September 30, 2006. These warrants were valued using the Black-Scholes option pricing model. The assumptions used in the model were: risk free interest rate, 4.59% and 4.67%, expected life, 5 years, expected volatility, 70%, no expected dividends. Different interest rates were used because the warrants were issued on different days. 

F-20

NOTE 7 LONG TERM DEBT  

As of December 31, 2005, long term debt consists of the following:

	Loan Balance		Loan Discount			Current portion		Non current portion
(a) Senior Secured Notes	$	2,125,797	$	(506,940	)	$	1,396,218	$	222,639
(b) Subordinated Secured Convertible Notes		1,280,000		(214,133	)		—		1,065,867
	$	3,405,797	$	(721,073	)	$	1,396,218	$	1,288,506

As of September 30, 2006 long term debt consists of the following (Unaudited):

	Loan Balance		Loan discount			Current portion		Noncurrent Portion
(a) Senior Secured Notes	$	1,152,917	$	(588,678	)	$	564,239	$	—
(b) Subordinated Secured Convertible Notes		1,280,000		(155,733	)		108,689		1,015,578
(c) Finisar Secured Note		6,000,000		—			301,658		5,698,342
	$	8,432,917	$	(744,411	)	$	974,586	$	6,713,920

(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 upon the closing of the Brookstreet tranche I offering. The company has 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 $393,882 related to the amortization of this discount during the nine months ended September 31, 2006. 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 $1,875,718 and $1,029,391 was outstanding as of December 31, 2005 and September 30, 2006 respectively. On October 31, 2004, $300,000 of the principal and $13,183 accrued interest was converted into 83,380 shares of common stock.

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 will commence until the notes are fully paid in May 2007. As of September30 2006, the required monthly principal and interest payments are $149,571. In addition, 840,000 warrants were issued to the five note holders who elected to defer principal payments on their loans. The 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 and $268,380 related to the amortization of this discount during the year ended December 31, 2005 and the nine months ended September 30, 2006, respectively. The effective interest rate on these loans, giving effect for the modified terms and the loan discount is 24.4%.

F-21

NOTE 7 NOTES PAYABLE CONTINUED

(B) Subordinated Secured Convertible Notes Payable

During 2005, the Company issued $1,280,000 of subordinated, secured notes to 9 note holders. The terms of the notes include interest only payments for 24 months, thereafter the loans will be paid in full over the next twelve months. The loans are secured by all the assets of the Company but take a secondary position to the Senior Secured Notes above. The interest rate on the loans is 10%. The loans, at the option of the note holder, may be extended an additional three years, with the same terms as the original three year period. If the note holders elect to extend the loan, they will receive an additional 26,666 warrants for every $100,000 loaned to the Company. The conversion feature which is in effect during the time the loan is outstanding, allows the note holder to convert outstanding principal and interest into common stock at a conversion price of $3.75. The conversion price is subject to downward 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 as a result of the stock offerings discussed in Note 9.

The Company issued 320,000 warrants 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 and $58,392 relating to the amortization of this discount during the year ended December 31, 2005 and the nine months ended September 30, 2006 respectively. 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 cash settlement.

(C) Finisar Secured Note

During the nine months ended September 30, 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 would pay Finisar a $6 million fee by 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 A above).

The aggregate maturities of long-term debt for each of the next five years are as follows as of September 30, 2006:

Year Ending December 31,	Amount
2006	$	496,101
2007		1,480,227
2008		1,178,764
2009		5,277.825
2010		—
	$	8,432,917

F-22

NOTE-8 -RECAPITALIZATION

On May 12, 2006 QPC Lasers, Inc. (QLI) executed a Share Exchange Agreement by and among Julie Moran, its majority shareholder, and Quintessence Photonics Corporation (QPC) and substantially all of its shareholders. Under the agreement QLI issued one share of its common stock to the QPC shareholders in exchange for each share of QPC common stock (QPC Shares). The transaction has been accounted for as a reverse merger (recapitalization) in the accompanying financial statements with QPC deemed to be the accounting acquirer, and QLI deemed to be the legal acquirer. As such the historical stockholders’ equity of QPC 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 additional paid in capital. Furthermore, the Series A, Series B, and Series C Preferred shares of QPC existing prior to the Share Exchange Agreement has been retroactively restated for the equivalent number of common shares received in the exchange.

All share and per share amounts have been retroactively restated as if the Exchange Agreement occurred at the beginning of the earliest period presented herein.

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

	Common Stock QLI		QPC			Preferred Stock Series A			Series B
January 1, 2004,  Previously Stated		-		5,166,156			3,172,203			2,525,468
Conversion of QPC Stock		5,166,156		(5,166,156	)		-			-
Conversion of Preferred Stock Series A and Series B to QLI Stock According to Terms of the Share Exchange Agreement, See Note 1		5,697,671		-			(3,172,203	)		(2,525,468	)
January 1, 2004, Restated		10,863,827		-			-			-

As part of the recapitalization, the preferred Series C stockholders converted each of their Series C shares for one share of QLI stock. The Series C preferred stock was issued subsequent to January 1, 2004 and is not presented above. All of the 1,597,975 shares of Series C preferred stock outstanding as of May 12, 2006 were converted to 1,597,975 shares of QLI common stock upon the reverse merger.

At December 31, 2005, the Company had 3,172,203 shares of $0.0001 par value Series A convertible voting preferred stock (“Series A”) outstanding, 2,525,468 shares of $0.0001 par value Series B convertible voting preferred stock (“Series B”) outstanding. All 5,697,671 shares of Series A and Series B preferred stock outstanding at May 12, 2006 were converted to 5,697,671 shares of QLI common stock upon the reverse merger as presented in the above table.

Terms of the Quintessence Photonics Corporation convertible preferred stock were as follows:

Dividends - The holders of outstanding Series A, B and C were entitled to receive, when and if declared by the Board of Directors, non-cumulative dividends at a rate of $0.23, $0.25, and $0.25 per share, respectively, as adjusted for any stock dividends, stock splits, recapitalization or similar events, payable in preference and priority to any distribution on common stock.

Liquidation Preference - In the event of liquidation, dissolution or winding up of the Company, either voluntary or involuntary, distributions to the stockholders of the Company shall be according to the following terms. The holders of Series A, B and C were entitled to receive prior and in preference to any distribution of any assets or property of the Company to holders of common shares an amount equal to $2.8466 per share for Series A, $3.11898 for Series B, and $3.75 for Series C, plus any declared and unpaid dividends. After payment had been made to the holders of Series A, B and C, the remaining assets and funds of the Company were available to be distributed among the holders of common stock and Series A, B and C on the basis of number of shares of common then outstanding and issuable upon conversion of Series A, B and C.

Voting Rights - The holders of Series A, B and C were entitled to the number of votes equal to the number of common shares into which each share of Series A, B and C could be converted on the record date with the same voting rights and powers equal to the voting rights and powers of the common stockholders. The holders of Series A, B and C were entitled to elect two directors. The holders of common stock were entitled to elect three directors.

F-23

Conversion - The holders of Series A, B and C had conversion rights into common shares at the option of the holder at any time after the issuance of such share. Each Series A, B and C shares would be automatically converted into common shares upon approval by vote or written consent of holders of more than 62⅔% of the total number of shares of Series A, B and C then outstanding. The number of shares of fully paid and non-assessable common into which each Series A, B and C could be converted would be determined by dividing the number of preferred shares by the Series A, B and C conversion price. The Series A, B and C conversion price was initially $2.8466, $3.11898 and $3.75, respectively, subject to adjustment for any stock dividends, stock splits, recapitalization or similar events. Each Series A, B and C shares would automatically convert into common shares upon effectiveness of an initial public offering, as defined, if the offering is less than $8.54 per share, as adjusted for any stock dividends, stock splits, recapitalization or similar events, and at a gross aggregate offering size of not less than $25,000,000.

NOTE 9 STOCKHOLDERS’ EQUITY

Preferred Stock

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

Common Stock Issued

During 2004, 1,161,744 shares of QPC series C preferred stock were issued for net proceeds of $4,092,759 and 83,380 shares of QPC series C preferred stock were issued in conversion of notes payable. In addition, 15,000 shares of QPC common stock were issued upon exercise of options, resulting in proceeds of $5,700. These shares were exchanged for common stock of QLI in accordance with the recapitalization referred to in Note 8.

During 2005, 352,851 shares of QPC series C preferred stock were issued for net proceeds of $1,058,864. 221,000 shares of QPC common stock were issued for net proceeds of $215,500 and 90,000 shares of QPC common stock were issued upon exercise of options, resulting in proceeds of $32,400. These shares were exchanged for common stock of QLI in accordance with the recapitalization referred to in Note 8.

During the nine months ended September 30, 2006, the Company sold 11,726,681 shares of common stock in a private placement offering at $1.25 per share for gross proceeds of $14,658,351. The cash costs associated with these issuances was $2,323,942 resulting in net proceeds to the Company of $12,323,298. The private placement was made in two tranches.

In Tranche I, the Company sold 572,526 units of equity instruments, at $5.00 per unit, consisting of 2,290,104 common shares and one warrant to purchase common stock for $1.50 for gross proceeds of $2,862,630. The purchase and sale agreement of these units included a requirement that the Company register such shares and warrants, and that if such shares are not registered, a penalty of 1% per month would accrue. The Company determined that penalty on the registration rights would cause the Company to recognize a warrant liability until such shares have been registered. As such, the Company determined that the fair value of warrant of $211,835 at the date of issuance as calculated using an option pricing model should be established as a liability at the date of the agreement, and is being revalued each reporting period. The assumptions used in calculating the fair value of the warrants issued, using the Black-Scholes option pricing model were: risk free interest rate 4.76%, expected life 1.5 years, expected volatility 70%, no expected dividends. The Company filed a registration statement with the Securities and Exchange Commission on September 18, 2006, thereby fulfilling its obligations under the registration requirements.At September 30, 2006 the total fair value of the derivative liability was estimated to be $280,538. The net increase of $68,703 was recorded as loss on derivative instruments in the consolidated statement of operations, included in other income, and the remaining liability was eliminated and recorded in equity as it no longer met the criteria to be classified as a liability.

In Tranche II, the Company sold 9,436,577 shares of common stock at $1.25 per share for proceeds of $11,795,721. The underwriter also received 2,345,341 warrants as compensation for the offering. The shares and warrants issued to the underwriter contain registration rights; however no penalties shall accrue in the event such shares are not registered. The Company calculated the value of the warrants issued to the underwriter as $1,984,612 based on an option pricing model. The value of such warrants was treated as a cost of capital.

During the nine months ended September 30, 2006, the Company issued 17,500 shares of common stock upon exercise of options, receiving net proceeds of $11,000. In addition, 2,500 shares of common stock were issued upon exercise of warrants for $3,750 of net proceeds. 

The Company issued 1,200,000 shares of common stock to a consultant as compensation for services to be rendered. Fair value of the shares was determined to be $1.50 a share based on the offering price per common share of the private placements which occurred, and was calculated to be $1,500,000. The value of these shares were charged to investor relations expense.

F-24

Stock Dividend

On an action by unanimous written consent of the QPC Board of Directors dated October 10, 2005, the QPC approved the procedure of obtaining commitments from its then existing preferred stockholders to ensure it had enough proxy votes to facilitate an anticipated reverse merger. As such, during 2005 the Company offered to its then existing preferred stockholders, at the stockholder’s election, the ability to receive one share of common stock for each share of preferred stock owned. In order for the stockholder to elect this offer, the stockholder committed by proxy to vote for an anticipated reverse merger with a public company. As a result of this offer and acceptance by its then existing preferred stockholders, 7,160,111 shares of common stock was required to be issued by the QPC. These shares were issued in 2006 and reflected as such in the accompanying statement of Stockholders' Equity.

QPC also offered to the then existing preferred C stockholders who took advantage of the offer mentioned in the above paragraph, in exchange for a signed proxy, the choice of adjusting the exercise price of their warrants from $3.75 to $1.25 or to exchange their warrants for QPC common stock in the ratio of three shares of common stock for every four warrants held. There were 2,220,537 warrants outstanding prior to the offer. 1,997,788 of those warrants were exchanged for stock, leaving, 222,749 of warrants originally issued to preferred C stockholders. As a result of this offer, 1,498,311 shares of common stock were required to be issued by QPC. These shares were issued in 2006 and reflected as such in the accompanying statement of Stockholders' Equity.

The Company determined that the common stock to be issued to the preferred stockholders in exchange for their proxy should be accounted for as a stock dividend, with the value of the exchange being the fair value of the common stock to be issued. The fair value of $10,823,028 was determined based on the offering price of $1.25 per common share of the private placements which occurred subsequent to year end. As a result of the recapitalization referred to in Note 8, these financial statements reflect the dividend as a common stock dividend in the year ended December 31, 2005.

NOTE 10 STOCK OPTIONS AND WARRANTS

Stock Options

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

In May 2006, QLI adopted the 2006 stock option plan (the 2006 plan) under which certain employees, directors, officers and independent contractors may be granted options to purchase up to an aggregate of 5,400,000 shares of the Company’s common shares. Option awards are generally granted with an exercise price equal to the marker price of QLI stock on the date of grant. Vesting generally occurs on an award by award basis . The options may vest over a period not to exceed 10 years.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on the volatilities of public entities which are in the same industry as QLI. For purposes of determining the expected life of the option, the full contract life of the option is used. The risk-free rate for periods within the contractual life of the options is based on the U. S. Treasury yield in effect at the time of the grant.

	Nine months ended September 30, 2006			Year ended December 31, 2005			Year ended December 31, 2004
Expected volatility		70	%		70	%		0	%
Weighted average volatility		70	%		70	%		0	%
Expected dividends		-			-			-
Expected term (in years)		10			10			4
Risk free rate		4.92%-5.05	%		3.94%-5.05	%		4	%

F-25

A Summary of option activity as of September 30, 2006 and changes during the nine months then ended is presented below:

Options	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2004		875,400		$	0.38
Granted		490,000		$	0.38
Exercised		(15,000	)	$	0.38
Forfeited or expired		(79,800	)	$	0.38
Outstanding at December 31,2004		1,271,500		$	0.38
Granted		827,500		$	0.49
Exercised		(90,000	)	$	0.38
Forfeited or expired		(43,750	)	$	0.38
Outstanding at December 31, 2005		1,965,250		$	0.40
Granted		1,020,416		$	1.34
Exercised		(17,500	)	$	0.63
Forfeited or expired		(49,583	)	$	0.38
Outstanding at September 30, 2006		2,918,583		$	0.73		8.12	$	2,605,127
Exercisable at September 30, 2006		1,991,916		$	0.41		7.57	$	2,318,127

F-26

The weighted-average grant date fair value of options granted during 2004, 2005 and 2006 was $0.01, $1.01 and $.99, respectively.

During the nine months ended September 30, 2006, the vesting of the above options resulted in the Company recording compensation expense of $183,092 (Unaudited). As of September 30, 2006 the Company has outstanding unvested options which will require recognizing $1,685,678 of compensation expense in the years, if any, in which the unvested options vest.

Warrants

The Company generally issues warrants in connection with certain debt and equity offerings. All warrants issued immediately vest. The warrants allow the holder to purchase QLI common stock at a fixed exercise price ranging from $1.25 to $3.75. 1,566,666 of the warrants outstanding do allow for a modification of the exercise price. The modification is a downward revision subject to a floor of $0.90 and allows the warrant holder to exercise at the price of the most recent stock offering. The fair value of each warrant is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on the volatilities of public entities which are in the same industry as QLI. For purposes of determining the expected life of the warrant, the full contract life of the warrant is used. The risk-free rate for periods within the contractual life of the warrants is based on the U. S. Treasury yield in effect at the time of the grant. Of the 8,456,464 warrants outstanding at September 30, 2006, all but 572,526 warrants have a cashless exercise feature. The feature allows the warrant holder, at the election of the warrant holder, to receive an amount of stock equal to stock the warrant holder is otherwise entitled to receive, multiplied by the amount the warrant is in-the-money, divided by the market price of the stock.

	Nine months ended September 30, 2006			Year ended December 31, 2005
Expected Volatility		70	%		70	%
Weighted Average Volatility		70	%		70	%
Expected term (in years)		5			6
Risk-free rate		4.38% - 5.02	%		4.41	%

F-27

A summary of warrant activity and changes during the nine months ended September 30, 2006 is presented below:

Warrants	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at January 1, 2004		-			-
Granted		4,305,186		$	3.75
Outstanding at December 31, 2004		4,305,186		$	3.75
Granted		2,207,033		$	1.25
Cancelled		(1,997,788	)	$	3.75
Outstanding at December 31, 2005		4,514,431		$	2.53
Granted		3,944,533		$	1.30
Exercised		(2,500	)	$	1.50
Outstanding at September 30, 2006		8,456,464		$	1.96		3.66
Exercisable at September 30, 2006		8,456,464		$	1.96		3.66

F-28

The warrants outstanding were issued and accounted for as follows:

Underlying transaction Leading to Issuance of warrant	Warrants Issued			Accounting Treatment		Exercise Price		Approximate Remaining Term (Years)
Issued to senior secured note holders (*)		2,437,500			Based on an option pricing model, the Company determined there was no accounting value to be assigned to the warrants	$	1.25-3.75		1.5-3.5
Issued to Series C stockholders tranche I		1,867,686			Charged to series C stock	$	3.75		4
Outstanding at December 31, 2004		4,305,186
Issued to Series C stockholders tranche II		352,851			Charged to series C stock	$	3.75		4
Warrants cancelled - Series C stockholders		(1,997,788	)
Issued to senior secured note holders who elected to modify their note terms		840,000			Loan discount fee	$	1.25		3.5
Issued to subordinated secured convertible note holders		320,000			Loan discount fee	$	1.25		4
Consultants used in a successful stock offering		374,182			Charged to additional paid in capital.	$	1.25		2.5
Issued to related parties in connection with a related party loan		320,000			Loan discount fee	$	1.25		5
Outstanding at December 31, 2005		4,514,431
Consultant used for investor relations		100,000			Charged to investor relations expense	$	1.25		2.5
Issued to subordinated note holder upon loan extension		26,666			Charged to debt financing cost	$	1.25		2.5
Issued to related parties in connection with extension of a related party loan		900,000			Interest expense	$	1.25		5
Issued to stock dealers associated with a stock offering		2,345,341			Charged to additional paid in capital	$	1.25		4.5
Issued to investors in common stock		572,526			Charged to paid in capital	$	1.50		1
Warrants exercised		(2,500	)
Total Warrants outstanding at September 30, 2006		8,456,464

F-29

NOTE 11 -   INCOME TAXES

At December 31, 2005, the Company had available Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $20,000,000 for Federal and for state purposes. The Federal carryforward expires in 2025 and the state carryforward expires in 2010. Given the Company’s history of net operating losses, management has determined that it is more likely than not the Company will not be able to realize the tax benefit of the carryforwards.

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

Significant components of the Company’s deferred income tax assets are as follows:

	September 30, 2006 (Unaudited)			December 31, 2005
Deferred income tax asset:
Net operating loss carryforward		12,300,000		$	6,800,000
Valuation allowance		(12,300,000	)		(6,800,000	)
Net deferred income tax asset	$	—		$	—

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

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

	Nine Months Ended September 30,						Year Ended December 31,
	2006			2005			2005			2004
Tax expense at the U.S. statutory income tax		(34.00	)%		(34.00	)%		(34.00	)%		(34.00	)%
Increase in the valuation allowance		34.00	%		34	%		34.00	%		34.00	%
Effective tax rate		—	%		—	%		—	%		—	%

F-30

NOTE 12 -   COMMITMENTS AND CONTINGENCIES

Operating Lease

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

The future minimum lease commitments are as follows as of December 31, 2005:

Year Ended December 31	Amount
2006	$	279,544
2007		304,957
2008		304,957
2009		304,957
2010		304,957
Thereafter		1,651,851
Total minimum lease payments	$	3,151,223

Rent expense for the years ended December 31, 2005 and 2004 was $321,018 and $322,768, respectively. For the nine months ended September 30, 2006 and 2005, rent expense was $225,144 and $198,991 (Unaudited), respectively

During 2005 and 2004, the Company subleased a portion of its leased office, research and development, and manufacturing space under three separate subleases. The three sublease terms were 24 months beginning January 8, 2003, a month-to-month beginning April 1, 2004, and a month-to-month that began in January 2002. The sublease which commenced January 8, 2003 has converted to a month-to-month lease beginning January 2006. Rental income for the years ended December 31, 2005 and 2004 was $88,452 and $72,831, respectively. Rental income for the nine months ended September 30, 2006 and 2005 was $60,510 and $64,100 (Unaudited), respectively. Rental income is included in other income.

Employee Benefit Plan

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

F-31

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Pursuant to the Share Exchange, Quintessence Photonics Corporation (“QPC”) became our wholly-owned subsidiary and the former shareholders of QPC became the holders of approximately 87% of our common stock. QPC, the acquirer for accounting purposes, retained its independent accountants, resulting in a change of our outside accountant. We dismissed Bagell Josephs, Levine & Company, L.L.C. ("Bagell") as our independent accountant effective as of October 23, 2006. The decision to change accountants was recommended by our audit committee by unanimous written consent dated October 23, 2006.

Bagell’s report on the financial statements for the past two years neither contained an adverse opinion or a disclaimer of opinion, nor was modified as to uncertainty, audit scope, or accounting principles, except that in the Pre-Effective Amendment to Form SB-2 filed on May 31, 2005, the Registration Statement on Form SB-2 filed on December 23, 2004, Amendment No. 1 to Form SB-2 filed on June 7, 2005, Amendment No. 2 to Form SB-2 filed on June 7, 2005 and Report of Independent Registered Public Accounting Firm section of the our annual report on Form 10-KSB for the fiscal year ended December 31, 2005, Bagell disclaimed their opinions on the financial statements by indicating that their opinion on the financial statements were prepared assuming we continue as a going concern. Bagell indicated that since we had just begun operations, were currently developing our business, had sustained operating losses and were looking to raise capital over the next year to assist in funding our operations, substantial doubt was raised about our ability to continue as a going concern. During the two most recent fiscal years and through the subsequent interim period ended June 30, 2006, (i) we had no disagreements with Bagell on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, and (ii) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K.

On October 23, 2006, our audit committee decided to engage Weinberg & Company, P.A. (“Weinberg”) as our new accountant. Weinberg audited our consolidated balance sheet as of December 31, 2005 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2005 and 2004. Weinberg’s opinion on the financial statements was stated in the Report of Independent Registered Public Accounting Firm section of our Registration Statement on Form SB-2 filed on September 18, 2006. Weinberg expressed that in their opinion, the consolidated financial statements present fairly, in all material respects, our consolidated financial position as of December 31, 2005 and the consolidated results of our operations and our cash flows for the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America. However, Weinberg modified their opinions on the financial statement by indicating that their opinion on the consolidated financial statements was prepared assuming we continue as a going concern. Weinberg indicated that we incurred a net loss of $7,777,858 and used $6,574,614 of cash in operations for the year ended December 31, 2005 and had a working capital deficiency of $1,635,421 as of December 31, 2005, which raises substantial doubt about our ability to continue as a going concern.

Other than this change, there were no other changes in or disagreements with our accountants on accounting and financial disclosure during the last two fiscal years.

Reports to Security Holders

We file annual and quarterly reports with the U.S. Securities and Exchange Commission (SEC). In addition, we file additional reports for matters such as material developments or changes within us, changes in beneficial ownership of officers and director, or significant shareholders. These filings are a matter of public record and any person may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. We are not required to deliver an annual report with this prospectus, nor will we do so. However, you may obtain a copy of our annual report, or any of our other public filings, by contacting the Company or from the SEC as mentioned above.

Where You Can Find More Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 and must file reports, proxy statements and other information with the Securities and Exchange Commission. The reports, information statements and other information we file with the Commission can be inspected and copied at the Commission at the Public Reference Room, 450 Fifth Street, N.W. Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The Commission also maintains a Web site (http://www.sec.gov) that contains reports, proxy, and information statements and other information regarding registrants, like us, which file electronically with the Commission.

This prospectus constitutes a part of a registration statement on Form SB-2 filed by us with the Commission under the Securities Act of 1933. As permitted by the rules and regulations of the Commission, this prospectus omits certain information that is contained in the registration statement. We refer you to the registration statement and related exhibits for further information with respect to us and the securities offered. Statements contained in the prospectus concerning the content of any documents filed as an exhibit to the registration statement (or otherwise filed with the Commission) are not necessarily complete. In each instance you may refer to the copy of the filed document. Each statement is qualified in its entirety by such reference.

No person is authorized to give you any information or make any representation other than those contained or incorporated by reference in this prospectus. Any such information or representation must not be relied upon as having been authorized. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the date of the prospectus.

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QPC LASERS, INC.

PROSPECTUS

22,051,083 Shares of Common Stock

January 26, 2007

No person is authorized to give any information or to make any representation other than those contained in this prospectus, and if made such information or representation must not be relied upon as having been given or authorized. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

The delivery of this prospectus shall not, under any circumstances, create any implication that there has been no changes in the affairs of the Company since the date of this prospectus. However, in the event of a material change, this prospectus will be amended or supplemented accordingly.

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Part II

Item 24. Indemnification of Directors and Officers.

Our Articles of Incorporation limit the liability of our directors to the fullest extent permitted under Section 78.037 of the Nevada General Corporation Law. As permitted by Section 78.037 of the Nevada General Corporation Law, our Bylaws and Articles of Incorporation also include provisions that eliminates the personal liability of each of its officers and directors for any obligations arising out of any acts or conduct of such officer or director performed for or on behalf of the Company. To the fullest extent allowed by Section 78.751 of the Nevada General Corporation Law, we will defend, indemnify and hold harmless its directors or officers from and against any and all claims, judgments and liabilities to which each director or officer becomes subject to in connection with the performance of his or her duties and will reimburse each such director or officer for all legal and other expenses reasonably incurred in connection with any such claim of liability. However, we will not indemnify any officer or director against, or reimburse for, any expense incurred in connection with any claim or liability arising out of the officer’s or director’s own gross negligence or willful misconduct.

The provisions of our Bylaws and Articles of Incorporation regarding indemnification are not exclusive of any other right of the Company to indemnify or reimburse our officers or directors in any proper case, even if not specifically provided for in our charter or Bylaws.

Item 25. Other Expenses of Issuance and Distribution.

The following is an itemized statement of all expenses, all of which we will pay, in connection with the registration of the common stock offered hereby:

	Amount
SEC Filing Fee	$	4,837
Blue Sky Fees and Expenses		14,000	*
Legal Fees		50,000	*
Accounting Fees and Expenses		50,000	*
Printing and Engraving Expenses		10,000	*
Miscellaneous		10,000	*
Total	$	138,837

*Estimates

Item 26. Recent Sales of Unregistered Securities.

In September 2004, while we were known as “Planning Force, Inc.”, we issued 10,000,000 shares of our common stock to Julie Morin, our founding shareholder and an officer and director, in exchange for cash in the amount of $10,000. This sale of stock did not involve any public offering, general advertising or solicitation. At the time of the issuance, Ms. Morin had fair access to and was in possession of all available material information about our company, as she is an officer and director of PFI. The shares bear a restrictive transfer legend in accordance with Rule 144 under the Securities Act. On the basis of these facts, we claim that the issuance of stock to our founding shareholder qualifies for the exemption from registration contained in Section 4(2) of the Securities Act of 1933.

In November 2004, we completed an offering of our common stock to a group of private investors. We issued 460,000 shares of its $0.001 par value common stock for cash at $0.05 per share to twenty three shareholders. This November 2004 transaction (a) involved no general solicitation, (b) involved less than thirty-five non-accredited purchasers, and (c) relied on a detailed disclosure document to communicate to the investors all material facts about Planning Force, Inc., including an audited balance sheet and reviewed statements of income, changes in stockholders' equity and cash flows. Thus, we believe that the offering was exempt from registration under Regulation D, Rule 505 of the Securities Act of 1933, as amended.

On May 12, 2006, we entered into a Share Exchange Agreement (the “Exchange Agreement”) with Quintessence Photonics Corporation, a Delaware corporation, and the shareholders of all of the equity stock of Quintessence (the “Quintessence Shareholders”), and closed the transaction on the same date (the “Share Exchange”). Prior to the Share Exchange transaction, we had 24 shareholders of record. Pursuant to the Exchange Agreement, the Quintessence Shareholders transferred substantially all of the shares of equity stock of Quintessence, thereby making Quintessence, a subsidiary of QLI, and QLI issued an aggregate of 26,986,119 shares of its common stock to the Quintessence Shareholders. Furthermore, all options, warrants and convertible notes (“Derivative Securities”) and preferred stock that may be exercised or converted into Quintessence common stock were exchanged for Derivative Securities that may be exercised or converted into QLI Shares. After closing, the Quintessence shareholders held at least 87% of the outstanding shares of QLI common stock. We had 521 shareholders of record after the closing. This May 2006 transaction (a) involved no general solicitation and (b) involved no non-accredited purchasers. Thus, we believe that the offering was exempt from registration under Regulation D, Rule 505 of the Securities Act of 1933, as amended.

From May 19, 2006 to July 16, 2006, the Registrant held six closings in which it offered and sold an aggregate of 6,065,800 shares of its common stock at $1.25 per share to certain accredited investors and received gross proceeds of $7,582,250 (the “Offering”) pursuant to subscription agreements. These shares were offered through a private placement in which Brookstreet Securities Corporation acted as the placement agent. The placement agent received a commission of 8.0% of the gross proceeds along with a 2.0% non-accountable marketing allowance and a 3.0% non-accountable expense allowance. The Registrant received net proceeds of $6,596,558 from the Offering. The issuance of the securities describe above were exempt from the registration requirements of the Securities Act of 1933, as amended, under Regulation D and the rules thereunder, including Rule 506 insofar as: (1) the purchasers were each an accredited investor within the meaning of Rule 501(a); (2) the transfer of the securities were restricted by us in accordance with Rule 502(d); (3) there were no other non-accredited investors involved in the transaction within the meaning of Rule 506(b); and (4) the offer and sale of the securities was not effected through any general solicitation or general advertising within the meaning of Rule 502(c).

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During the nine months ended September 30, 2006 Brookstreet also received warrants to purchase Registrant common stock in an amount equal to 20% of the shares sold, at an exercise price of $1.25 per share. Based on the sale of 11,726,681 shares in the Offering, Brookstreet received warrants to purchase 2,345,340 shares of common stock. The value of the warrants issued to Brookstreet was $1,948,744.

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

In May, 2006, we issued 1,200,000 shares of restricted common stock to an investor relations firm for services to be performed over twelve months. The value of the shares was $1,500,000. In March and May, 2006, we issued a total of 100,000 warrants to purchase common stock at a price of $1.25 per share to an investor relations firm for services; the warrants were valued at $36,000. We relied upon the exemption from registration as set forth in Section 4 (2) of the Securities Act for the issuance of these securities. The recipient took its securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for the acquisition of these securities.

During the three months ended September 30, 2006 we issued 2,500 shares of restricted common stock upon warrant exercise for total gross proceeds of $3,750 to one investor. We relied upon the exemption from registration as set forth in Section 4 (2) of the Securities Act for the issuance of these securities. The recipient took its securities for investment purposes without a view to distribution and had access to information concerning us and our business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for the acquisition of these securities.

Item 27. Exhibits.

Exhibit Number	Description of Document
2.1	Share Exchange Agreement by and among Quintessence Photonics Corporation (“Quintessence”), the Registrant, the shareholders 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)
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)

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4.10	Secured Promissory Note dated September 18, 2006, issued by Quintessence Photonics Corporation 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)
5.1	Legal Opinion of Richardson & Patel LLP (3)
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 the Subsidary and Finisar Corporation (2)
10.5	Form of Subscription Agreement (2)
10.6	Lock-up Agreement by the Registrant and George Lintz (3)
10.7	Lock-up Agreement by the Registrant and Jeffrey Ungar (3)
10.8	Purchase Agreement between Rafael Ltd. and the Registrant dated June 6, 2005 (3)
10.9	Subcontract Agreement effective as of June 2, 2006 by and between the Registrant and Fibertek, Inc. (3)
10.10	Agreement of Collaboration dated April 27, 2006 between the Registrant 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 Photonics Corporation and Finisar Corporation (6)
10.16	Security Agreement dated September 18, 2006, by and between Quintessence Photonics Corporation and Finisar Corporation (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)

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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 Registrant 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 Registrant (7)(**)
16.1	Letter on change of certifying accountant, dated November 7, 2006 from Bagell Josephs, Levine & Company, L.L.C. to the Securities and Exchange Commission (5)
23.1	Consent of Weinberg & Co, P.A.(7)
23.2	Consent of Richardson & Patel, LLP (7)

(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 herewith
(**)	Confidential treatment requested as to portions of the Exhibit. Omitted materials filed separately with the Securities and Exchange Commission.

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ITEM 28. Undertakings.

The undersigned registrant hereby undertakes:

1.   To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

i. Include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

ii. Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.

iii. Include any additional or changed material information on the plan of distribution.

2.   For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering.

3.   File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of offering.

4. For determining liability of the undersigned small business issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned small business issuer undertakes that in a primary offering of securities of the undersigned small business issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned small business issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned small business issuer relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned small business issuer or used or referred to by the undersigned small business issuer;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned small business issuer or its securities provided by or on behalf of the undersigned small business issuer; and

(iv) Any other communication that is an offer in the offering made by the undersigned small business issuer to the purchaser.

4.   Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

5.   In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

6. Each prospectus filed by the undersigned issuer pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement.

7. Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date;

6. Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Sylmar, California on January 26, 2007.

QPC LASERS, INC.
By:	/s/ George Lintz
	George Lintz , Chief Financial Officer

In accordance with the requirements of the Securities Act of 1933, this registration statement was been signed by the following persons in the capacities and on the dates stated:

Name	Title	Date
*	Chief Executive Officer and Director	January 26, 2007
Jeffrey Ungar	(Principal Executive Officer)
*	Chief Financial Officer and Director	January 26, 2007
George Lintz	(Principal Financial and Accounting Officer)
*	Director	January 26, 2007
Merrill McPeak
*	Director	January 26, 2007
Israel Ury
*	Director	January 26, 2007
Robert Adams
* /s/ George Lintz
George Lintz
Attorney -in- Fact

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EX-5

Exhibit 5

RICHARDSON & PATEL LLP

A Law Corporation

10900 Wilshire Boulevard

Suite 500

Los Angeles, California 90024

Telephone (310) 208-1182

Facsimile (310) 208-1154

January 26, 2007

QPC Lasers, Inc.

15632 Roxford Street

Sylmar, California 91342

Re:Registration of Form SB-2

Ladies and Gentlemen:

We have acted as counsel to QPC Lasers, Inc. (the "Company") in connection with the registration with the Securities and Exchange Commission on Form SB-2 of 22,051,083 shares of the Company's Common Stock, par value $0.001 (the "Shares"), 12,172,397 of which have been issued to certain selling shareholders, 8,456,464 of which may be issued to certain selling shareholders upon the exercise of certain warrants and 1,422,222 of which may be issued to certain selling shareholders upon the conversion of certain debentures. In connection with this registration, we have reviewed the proceedings of the Board of Directors of the Company relating to the registration and the issuance (or the proposed issuance) of the Shares, the Company's Articles of Incorporation and all amendments thereto, the Bylaws of the Company and all amendments thereto, and such other documents and matters as we have deemed necessary to render the following opinion.

Based upon that review, it is our opinion that the Shares now issued, as well as the Shares that may be issued upon exercise of the warrants, will be legally issued, fully paid, and nonassessable.

We do not find it necessary for the purposes of this opinion to cover, and accordingly we express no opinion as to, the application of the securities or blue sky laws of the various states as to the issuance and sale of the Shares.

We consent to the use of this opinion in the registration statement filed with the Securities and Exchange Commission in connection with the registration of the Shares and to the reference to our firm under the heading "Experts" in the registration statement.

Very truly yours,

RICHARDSON & PATEL LLP

By:          /s/ Nimish Patel                           

Nimish Patel, Esq.

EX-10.19