10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended   March 31, 2007
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                                     to

Commission file number  0-11668

PHOTONIC PRODUCTS GROUP, INC.

(Exact name of registrant as specified in its charter)

New Jersey	22-2003247
(State or other jurisdiction of incorporation	(I.R.S. Employer
or organization)	Identification Number)
181 Legrand Avenue, Northvale, NJ  07647
(Address of principal executive offices)
(Zip Code)
(201) 767-1910
(Registrant’s telephone number, including area code)
(Former name, former address and formal fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x     No   o

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

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

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

Common shares of stock outstanding as of May 14, 2007:

8,965,987 shares

PHOTONIC PRODUCTS GROUP, INC. AND SUBSIDIARIES

INDEX

			Page
Part I.  FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Consolidated Balance Sheets as of March 31, 2007 (unaudited)
		and December 31, 2006 (audited)	3
		Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006 (unaudited)	4
		Consolidated Statements of Cash Flows for the Three
		Months Ended March 31, 2007 and 2006 (unaudited)	5
		Notes to Consolidated Financial Statements (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition
		and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 4.	Controls and Procedures	15
Part II.  OTHER INFORMATION			15
	Item 1.	Legal Proceedings	15
	Item 1A.	Risk Factors	15
	Item 3.	Unregistered Sales of Equity Securities and Use of Proceeds	16
	Item 4.	Submission of Matters to a Vote of Security Holders	16
	Item 5.	Other Information	16
	Item 6.	Exhibits	16
Signatures			17

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PHOTONIC PRODUCTS GROUP, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2007			2006
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	3,247,841		$	3,078,052
Accounts receivable (net of allowance for doubtful accounts of $15,000 in 2007 and 2006)	2,195,254			2,396,486
Inventories	2,571,726			2,336,033
Other current assets	147,512			176,587
Total Current Assets	8,162,333			7,987,158
Plant and equipment,
Plant and equipment at cost	13,489,453			13,459,212
Less: Accumulated depreciation and amortization	(9,428,527		)	(9,164,031		)
Total plant and equipment	4,060,926			4,295,181
Precious Metals	130,732			130,732
Goodwill	1,869,646			1,869,646
Intangible Assets	889,068			908,708
Other Assets	127,389			124,835
Total Assets	$	15,240,094		$	15,316,260
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of notes payable — Other	$	100,079		$	100,079
Accounts payable and accrued liabilities	2,113,967			2,495,398
Customer advances	769,891			987,963
Current obligations under capital leases	152,769			196,350
Convertible note payable due within one year	1,000,000			—
Total current liabilities	4,136,706			3,779,790
Secured and Convertible Notes Payable	4,200,000			5,200,000
Other Long Term Notes	1,028,239			1,052,680
Capital Lease Obligations	27,788			47,087
Total liabilities	9,392,733			10,079,557
Shareholders’ equity:
10% convertible preferred stock, Series A no par value; 500 shares issued and outstanding respectively	500,000			500,000
10% convertible preferred stock, Series B no par value; 2,082 shares issued and outstanding respectively	2,082,000			2,082,000
Common stock: $.01 par value; 60,000,000 authorized 8,006,207 shares issued at March 31, 2007 and 7,882,074 issued December 31, 2006	80,061			78,820
Capital in excess of par value	12,101,372			11,926,815
Accumulated deficit	(8,901,122		)	(9,335,982		)
	5,862,311			5,251,653
Less — Common stock in treasury, at cost (4,600 shares respectively)	(14,950		)	(14,950		)
Total Shareholders’ Equity	5,847,361			5,236,703
Total Liabilities & Shareholders’ Equity	$	15,240,094		$	15,316,260

See Notes to Consolidated Financial Statements (Unaudited)

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PHOTONIC PRODUCTS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2007		2006
Total Revenue	$	3,540,874	$	3,662,776
Cost and Expenses:
Cost of goods sold	2,159,374		2,475,159
Selling, general & administrative expenses	856,728		873,136
Total Cost and Expenses	3,016,102		3,348,295
Income from operations	524,772		314,481
Other expense:
Interest expense, net	74,912		112,828
Net income before income taxes	449,860		201,653
Provision for income taxes	15,000		—
Net income applicable to common shareholders	$	434,860	$	201,653
Net income per common share—basic	$	0.06	$	0.03
Net income per common share—diluted	$	0.04	$	0.02
Weighted average shares outstanding—basic	7,902,763		7,311,537
Weighted average shares outstanding—diluted	13,491,585		12,539,640

See Notes to Consolidated Financial Statements (Unaudited)

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PHOTONIC PRODUCTS GROUP, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net income	$	434,860		$	201,653
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	284,136			261,653
401K common stock contribution	166,693			150,501
Stock based compensation	9,105			30,204
Changes in assets and liabilities:
Accounts receivable	201,232			99,144
Inventories	(235,693		)	(61,052		)
Other current assets	29,075			(131,168		)
Other assets	(2,554		)	(10,950		)
Accounts payable and accrued liabilities	(381,431		)	(120,995		)
Customer advances	(218,072		)	282
Total adjustments	(147,509		)	217,619
Net cash provided by operating activities	287,351			419,272
Capital expenditures	(30,241		)	(800,071		)
Net cash used in investing activities	(30,241		)	(800,071		)
Cash flows from financing activities:
Proceeds from promissory note	—			700,000
Principal payments of notes payable	(24,441		)	(59,713		)
Principal payments of capital lease obligations	(62,880		)	(61,396		)
Net cash (used in) provided by financing activities	(87,321		)	578,891
Net increase in cash and cash equivalents	169,789			198,092
Cash and cash equivalents at beginning of period	3,078,052			1,156,563
Cash and cash equivalents at end of period	$	3,247,841		$	1,354,655

See Notes to Consolidated Financial Statements (Unaudited)

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PHOTONIC PRODUCTS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 —SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Photonic Products Group, Inc. (the “Company”) reflect all adjustments, which are of a normal recurring nature, and disclosures which, in the opinion of management, are necessary for a fair statement of results for the interim periods.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements as of December 31, 2006 and 2005 and for the years then ended and notes thereto included in the Company’s report on Form 10-K and Amendment No. 1 on Form 10-K/A, filed with the Securities and Exchange Commission.

Inventories

Inventories are stated at the lower of cost (first-in-first-out basis) or market basis (net realizable value).  Work in process inventory for the period is stated at actual cost, not in excess of estimated realizable value.  Costs include labor, material and overhead.

Inventories are comprised of the following:

	March 31,		December 31,
	2007		2006
Raw materials	$	720,000	$	635,000
Work in process, including manufactured parts and components	1,398,000		1,213,000
Finished goods	454,000		488,000
	$	2,572,000	$	2,336,000

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.  Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

Net Income Per Share

The basic net income per share is computed using the weighted average number of common shares outstanding for the applicable period.  The diluted income per share is computed using the weighted average number of common shares plus potential common equivalent shares outstanding, including the additional dilution related to the conversion of stock options, warrants, convertible preferred shares, and potential common shares issuable upon conversion of outstanding convertible notes, except if the effect on the per share amounts is anti-dilutive.

6

The following is the reconciliation of the basic and diluted earnings per share computations required by Statement of Financial Standards (“SFAS”) No. 128 (“Earnings per Share’)

	Three Months Ended					Three Months Ended
	March 31, 2007					March 31, 2006
	Income		Shares	Per Share		Income		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Earnings Per Share:
Net Income Applicable to Common Shareholders	$	434,860	7,902,763	$	0.06	$	201,653	7,311,537	$	0.03
Effect of dilutive securities
Convertible Debt	52,500		3,500,000			52,500		3,500,000
Convertible Preferred Stock			500,000					500,000
Warrants			921,457					474,306
Options			667,365					753,797
Diluted Earnings Per Share:
Net Income Applicable to Common Shareholders	$	487,360	13,491,585	$	0.04	$	254,153	12,539,640	$	0.02

Stock Based Compensation

The Company’s 2000 Equity Compensation Program, which is shareholder approved, permits the grant of share options to its employees for up to 400,000 shares of common stock as stock compensation per calendar year.  All stock options under the Plan are granted at the fair market value of the common stock at the grant date.  Employee stock options vest ratably over a three year period and expire 10 years from the grant date.

Effective January 1, 2006, the Company’s Plan is accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards(“FAS”) No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations.  FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements.  In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 107, which provides the Staff’s views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.

Prior to January 1, 2006, the Company accounted for similar transactions in accordance with APB No. 25 which employed the intrinsic value method of measuring compensation cost.  Accordingly, compensation expense was not

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recognized for fixed stock options if the exercise price of the option equaled or exceeded the fair value of the underlying stock at the grant date.

While FAS No. 123 encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period, companies were permitted to continue to apply the intrinsic value-based method of accounting prescribed by APB No. 25 and disclose certain pro-forma amounts as if the fair value approach of SFAS No. 123 had been applied.  In December 2002, FAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123, was issued, which, in addition to providing alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation, required more prominent pro-forma disclosures in both the annual and interim financial statements.  The Company complied with these disclosure requirements for all applicable periods prior to January 1, 2006.

In adopting FAS 123(R), the Company applied the modified prospective approach to transition.  Under the modified prospective approach, the provisions of FAS 123 (R) are to be applied to new awards and to awards modified, repurchased, or cancelled after the required effective date.  Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date.  The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123.

As a result of the adoption of FAS 123 (R), the Company’s results for the three month period ended March 31, 2007 include share-based compensation expense totaling $9,105.  Such amounts have been included in the Consolidated Statements of Operations within cost of goods sold ($2,442), and selling, general and administrative expenses ($6,663), as appropriate.  For three months ended March 31, 2006, share-based compensation expense was $30,204 including $4,398 within cost of goods sold and $25,806 within selling, general and administrative expense, as appropriate.  No income tax benefit has been recognized in the income statement for share-based compensation arrangements due to history of operating losses.

Stock option compensation expense in 2007 and 2006 is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period.

The weighted average estimated fair value of stock options granted in the three months ended March 31, 2007 and 2006 was $1.47 and $1.43, respectively.  The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model.  During 2007, the Company took into consideration guidance under SFAS 123R and SEC Staff Accounting Bulletin No. 107 (SAB 107) when reviewing and updating assumptions.  The expected volatility is based upon historical volatility of our stock and other contributing factors.  The expected term is based upon the contractual term of the options.  The Company’s uses the available rate on zero-coupon government obligations with a remaining term equal to the expected life of the options as the basis for its risk-free interest rate.

8

The assumptions made in calculating the fair values of options are as follows:

	Three Months Ended
	March 31, 2007		March 31, 2006
Expected term (in years)	10		10
Expected volatility	144.9	%	119.4	%
Expected dividend yield	0	%	0	%
Risk-free interest rate	4.7	%	5.2	%

The Company granted 29,039 options under the Plan during the three months ended March 31, 2007 at an exercise price of $1.50 per share.  In the three months ended March 31, 2006, 67,200 options were granted at an exercise price of $1.50 per share.  Stock grants are issued at a price that is equal to the closing market price on the date of each grant.

The following table represents our stock options granted, exercised, and forfeited during the first three months of 2007.

		Weighted		Weighted
		Average		Average	Aggregate
	Number	Exercise		Remaining	Intrinsic
	of Options	Price		Contractual	Value
Stock Options		per Option		Term
Outstanding at January 1, 2007	1,879,700	$	1.25	4.6 years	$	0.42
Granted	29,039	$	1.50
Exercised	-0-
Forfeited/expired	-0-
Outstanding at March 31, 2007	1,908,739	$	1.23	5.09 years	$	0.52
Exercisable at March 31, 2007	1,839,618	$	1.22	4.87 years	$	0.53

The following table represents non-vested stock options granted, vested, and forfeited during the three months ended March 31, 2007.

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Non-vested Options	Options		Weighted-Average Grant-Date Fair Value
Non-vested January 1, 2007	146,424		$	0.85
Granted	29,039		$	1.50
Vested	(106,343	)	$	0.50
Forfeited	-0-
Non-vested March 31, 2007	69,120		$	1.54

As of March 31, 2007, there was $89,896 of unrecognized compensation costs, net of estimated forfeitures, related to non-vested stock options, which is expected to be recognized over a weighted average period of approximately 2.8 years.  The total fair value of shares vested during the three months ended March 31, 2007 and 2006, was $65,000 and $152,000, respectively.

NOTE 2 — CONVERSION OF CONVERTIBLE PREFERRED SHARES

On April 16, 2007, the Company called for the redemption of its Series A 10% Convertible Preferred Stock (the “Series A”).  On April 30, 2007, the Company received notice that Clarex Limited, the holder of all the shares of the Series A, elected to convert the 500 Preferred shares into 500,000 shares of the Company’s common stock, in accordance with the Series A Agreement.

NOTE 3 — IMPACT OF UNAUTHORIZED PERSONAL TRANSACTIONS BY FORMER CFO

As previously reported, over a period of approximately six years, from the second quarter of 2000 through the second quarter of 2006, the Company’s former Chief Financial Officer, William Miraglia, had engaged in unauthorized and personal transactions totaling $860,000.

These transactions were entered by the former CFO into the Company’s accounts as Selling, General and Administrative expenses.  Although the transactions were unauthorized and personal in nature, based upon a review of the accounting treatment of individual transactions, the Company concluded that all material charges have been reflected as part of the reported expenses, reported net income, earnings per share and cash flows in the appropriate periods.  A total of $47,000 was recorded in Selling, General and Administrative expenses in the first quarter of 2006.  A claim to recover a portion of these losses under the Company’s employee dishonesty insurance policy was settled in the third quarter of 2006 in the amount of $300,000, the policy limit, and has been reflected in the Company’s financial results for 2006.

As a result of the foregoing discoveries, Mr. Miraglia was terminated for cause from his employment with the Company on June 14, 2006.  Upon termination of his employment, Mr. Miraglia signed an agreement to make restitution to the Company.  To date, he has repaid $5,000.  In light of a number of factors, the Company does not believe that any significant recoveries from Mr. Miraglia are likely in the near term, but the Company is keeping all of its options open.  The Company has been cooperating with the U.S. Attorney’s office in its ongoing investigation into this matter.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

Disclosure: Forward Looking Statements

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws.  The Company wishes to insure that any forward-looking statements are accompanied by meaningful cautionary statements in order to comply with the terms of the safe harbor provided by the Private Securities Litigation Reform Act of 1995.  The events described in the forward-looking statements contained in this Quarterly Report may not occur.  Generally these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits of acquisitions to be made by us, projections involving anticipated revenues, earnings, or other aspects of our operating results.  The words “may”, “will”, “expect”, “believe”, “anticipate”, “project”, “plan”, “target”, “intend”, “estimate”, and “continue”, and their opposites and similar expressions are intended to identify forward-looking statements.  We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond our control, that may influence the accuracy of the statements and the projections upon which the statements are based.  Actual results may vary from these forward-looking statements for many reasons, including the following factors:

·adverse changes in economic or industry conditions in general or in the markets served by the Company and its customers

·actions by competitors

·inability to add new customers and/or maintain customer relationships

·inability to retain key employees.

The foregoing is not intended to be an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by the Company.  Investors are encouraged to review the risk factors set forth in the Company’s most recent Form 10-K as filed with the Securities and Exchange Commission on March 30, 2007.  Any one or more of these uncertainties, risks, and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate.  Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements.  Except as required by law, we undertake no obligation to publicly update or revise any forward looking statements, whether from new information, future events, or otherwise.

Readers are further cautioned that the Company’s financial results can vary from quarter to quarter, and the financial results for any period may not necessarily be indicative of future results.

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto presented elsewhere herein.  The discussion of results should not be construed to imply any conclusion that such results will necessarily continue in the future.

Critical Accounting Policies

Our significant accounting polices are described in Note 1 of the Consolidated Financial Statements.  In preparing our financial statements, we made estimates and judgments that affect the results of our operations and the value of assets and liabilities we report.  Our actual results may differ from these estimates under different assumptions or conditions.

For additional information regarding our critical accounting policies and estimates, see the section entitled “Managements Discussion and Analysis of Financial Condition and Results of Operations” in our annual report filed with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2006.

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Results of Operations

PPGI’s business units’ products continue to fall into two product categories: optical components (including standard and custom optical components and assemblies, crystals, and crystal components), and laser accessories (including wavelength conversion instruments, that employ nonlinear or electro-optical crystals to perform the function of wavelength conversion, or optical switching, and optical Q-switches.  Currently, its optical components product lines and services are brought to market via three PPGI business units: INRAD, Laser Optics, and MRC Optics.  Laser accessories are brought to market by INRAD.

Revenues

Total sales for the three months ended March 31, 2007 were $3,541,000 as compared with total sales of $3,663,000 for the same three months in 2006, a decrease of 3.3%.  Sales of custom optical components in this quarter decreased by approximately 4.3% from the same period in the prior year, with a reduction in demand for UV filter crystals from a defense industry OEM customer.  This was offset somewhat by an approximately 1% increase in sales of laser accessories.  Sales of optical components remained strong to customers within the aerospace/defense and process control and metrology industry sectors.  Shipments to two aerospace/defense industry customers in the first quarter represented 15.3% and 18.8% of total sales in the period, respectively.  During fiscal year 2006 sales to two aerospace customers represented 13.0% and 13.6% of total revenues in the first quarter.

Product bookings for the quarter ended March 31, 2007 were $4,960,000 as compared with $2,271,000 for the same period last year, an increase of 118%.  In this year’s first quarter, order intake for optical components was especially strong for Laser Optics, while order intake at INRAD and MRC for optical components was moderate.  Major OEM customer orders do not usually follow a strict seasonal trend, and major production releases from aerospace/defense industry customers usually occur once or twice per year at irregular intervals.  In this year’s first quarter, orders from four major OEM customers accounted for 67% of new orders.  Of these, one large order for high precision crystal optical components was from a major defense industry OEM customer in the infra-red imaging systems sector, another was for precision X-ray monochrometers from a major multinational manufacturer of X-ray analytical process control and metrology equipment, another was for UV filter crystal components from a defense industry manufacturer of aircraft missile warning sensors and self-protection systems, while the fourth was for laser accessories and specialty laser frequency doubling crystals from a major manufacturer of commercial laser systems.  In last year’s first quarter, orders from three INRAD and MRC Optics OEM customers accounted in the aggregate for 56% of total new orders.  One order was from a major defense industry OEM customer, on a new program, which represented 30% of total bookings for the quarter.  Another order, representing 17% of new orders was from another defense industry OEM who issued a follow-on production release for proprietary INRAD filter crystal components used in their anti-aircraft missile warning systems, while the third was from an industrial factory automation sector customer.

Product backlog at March 31, 2007 was $8,450,000 which compares with a backlog of $6,484,000 at the same point in 2006 and a backlog of $6,969,000 on December 31, 2006.

Based upon the backlog at the end of the first quarter, and related delivery schedules, management expects revenues to trend moderately higher in the second quarter.

Cost of Goods Sold

For the three-month period ended March 31, 2007, the cost of goods sold as a percentage of product revenues was 61.0% as compared with 67.6% for the same

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period last year.  For the full year 2006, the actual cost of goods sold percentage was 67.4%.

Gross margin was 39.0% in the first quarter, compared with 32.4% in the first quarter of last year.  Gross margin in 2006 was 32.6% for the full year.  In dollar terms, first quarter cost of goods sold was $2,159,000 compared with $2,475,000 in the same period in 2006, down 12.8%.  A part of this decrease is attributable to the 3.3% decrease in revenues.  However, this reduction in cost of goods sold was primarily a result of improved operational productivity and related cost reduction, in this quarter, compared to the previous period.  Work-in-process inventory levels increased in the period as production backlogs for the second quarter rose to record levels, positively affecting the cost of goods sold and gross margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $857,000, or 24.2% of sales, in the first quarter of 2007 compared to $873,000, or 23.8% in the same period in the prior year.  This decrease in dollar costs reflects management’s ongoing focus on tight control over costs and cash outflows.

Operating Income

The company realized operating income for the quarter ending March 31, 2007 of $525,000, equal to 14.8% of sales, as compared with operating income of $315,000, or 8.6% of sales, for the same period last year.  As discussed above, the increase in income from operations, despite a 3.3% decrease in sales, was the result of improved margins resulting from increased productivity and improved operational efficiencies.

Other Income and Expenses

Interest expense-net in the first quarter of 2007 was $75,000, as compared with $113,000 in the first quarter of last year.

Interest expense-net decreased over prior periods due to the decrease in capital lease obligations for the comparative periods, and increased interest income realized on this year’s higher cash balances.

Net Income Applicable to Common Shareholders

The company had net income applicable to common shareholders of $435,000 for the period ending March 31, 2007, or $0.06 per share basic, and $0.04 per share diluted, as compared with net income applicable to common shareholders of $202,000, or $0.03 per share basic and $0.02 per share diluted in the same period, last year.

Liquidity and Capital Resources

Net cash flow from operating activities was positive at $287,000 in this year’s first quarter, but was below prior years comparable with positive net cash flow from operations of $419,000 in the same period last year.  Cash flow from operations decreased from that in the first quarter of last year despite significantly higher net income primarily due to a greater deployment of cash into increased work-in-process inventory, and a higher liquidation of customer cash advances against product shipments during the comparable periods.

During the three month periods ended March 31, 2007, and March 31, 2006, working capital requirements were funded from cash generated by operations.

Management expects that cash flow from operations will provide adequate liquidity for the Company’s operations throughout 2007.

Capital expenditures for the three months ended March 31, 2007 were $30,000, compared to $800,000 in the first quarter of 2006.  Capital expenditures for all of 2006 were $987,000.  In the first quarter of 2007 these expenditures were primarily for replacement or refurbishment of capital equipment at the

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end of its useful life, in addition to the acquisition of new computer hardware and engineering software.

In the first quarter of 2006, capital additions represented major expenditures for equipment required in the performance of certain specific contracts and to give the Company increased capability and a stronger competitive position in the manufacture of spherical and aspherical lenses.

On April 16, 2007, the Company called for the redemption of its Series A 10% Convertible Preferred Stock (the “Series A”).  On April 30, 2007, the Company received notice that Clarex Limited, the holder of all the shares of the Series A, elected to convert the 500 preferred shares into 500,000 shares of the Company’s common stock, in accordance with the Series A Agreement.

Management expects to continue to deploy excess cash from time to time into repayment of debt.

Management also expects that it may from time to time attempt to raise investment capital and to make investments in capital acquisitions, both in equipment and acquisition of complementary lines of businesses, to pursue its objective of growth in shareholder value and to maintain a competitive edge in the markets that it serves.

In February 2006, a major shareholder and debt holder provided the Company with $700,000 in financing to fund the acquisition of certain capital assets required for expanded capabilities to meet customer demand.  The terms call for repayment of the Company’s Promissory note in equal monthly installments, including interest & principal, commencing March 2006, until maturity in March 2013.  The Note bears an annual interest rate of 6.75%.

In 2002, the Company received $1,000,000 in proceeds from the issuance of a Subordinated Convertible Promissory Note.  The note, originally due in January 2006, has been extended to December 31, 2008 and bears an interest rate of 6%.  Interest accrues yearly and along with principal may be converted into Common Stock, (and/or securities convertible into common shares).  The note is convertible into 1,000,000 Units consisting of 1,000,000 shares of Common Stock and Warrants to acquire 750,000 shares of Common Stock at a price of $1.35 per share.  The Holder of the Note is a related party to a major shareholder of the Company.

In June of 2003, the Company paid off existing debt with the proceeds of a $1,700,000 Secured Promissory Note held by a major investor in the Company.  The note was for a period of 36 months at an interest rate of 6% per annum.  The Company’s Board of Directors approved the issuance of 200,000 warrants to Clarex Limited, the lender, as a fee for the issuance of the Note.  In 2004, the Company approved the issuance of 200,000 additional warrants to Clarex, as additional consideration in connection with the same transaction.  The note was subsequently extended to December 31, 2008 without issuance of warrants or any other consideration.  The warrants are exercisable at $0.425 per share and $1.08 per share, respectively, approximately a 20% discount to market, and expire in March 2008 and May 2008.  The note is secured by all assets of the Company.

A Subordinated Convertible Promissory Note for $1,500,000 originally due in January 2006, has been extended to December 31, 2008 and bears an interest rate of 6%.  Interest accrues yearly and along with principal may be converted into Common Stock, and/or securities convertible into Common Stock.  The note is convertible into 1,500,000 Units consisting of 1,500,000 shares of Common Stock and Warrants to acquire 1,125,000 shares of Common stock at a price of $1.35 per share.  The Holder of the Note is a major shareholder of the Company.  The proceeds from the Note were used in the Company’s acquisition program.

In 2004, the Company received $1,000,000 in proceeds from the issuance of a Subordinated Convertible Promissory Note.  The note bears an interest rate of 6% and was initially due on March 31, 2007, but its term has been extended to March 31, 2008.  Interest accrues yearly and along with principal may be

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converted into Common Stock, (and/or securities convertible into common shares).  The note is convertible into 1,000,000 Units consisting of 1,000,000 shares of Common Stock and Warrants to acquire 750,000 shares of Common Stock at a price of $1.35 per share.  The note holder is a major shareholder of the Company.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company believes that it has limited exposure to changes in interest rates from investments in certain money market accounts.  The Company does not utilize derivative instruments or other market risk sensitive instruments to manage exposure to interest rate changes.  The Company believes that a hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of the Company’s interest sensitive money market accounts at March 31, 2007.  Interest on notes and leases are at fixed rates for the term of the debt.

ITEM 4.          CONTROLS AND PROCEDURES

a. Disclosure Controls and Procedures

During the first quarter of 2007, our management, including the principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) related to the recording, processing, summarization and reporting of information in the reports that we file with the SEC.  These disclosure controls and procedures have been designed to ensure that material information relating to us, including our subsidiaries, is made know to our management, including these officers and that this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s rules and forms.  Due to inherent limitations of control systems, not all misstatements may be detected.  Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

Based upon their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to reasonably ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

b. Changes in Internal Controls Over Financial reporting

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.                OTHER INFORMATION

ITEM 1.          LEGAL PROCEEDINGS

None.

ITEM 1A.       RISK FACTORS

There were no material changes in the risk factors previously disclosed in the Company’s Report on Form 10-K for the year ended December 31, 2006 which was filed with the Securities and Exchange Commission on March 30, 2007.

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ITEM 3.          UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.          OTHER INFORMATION

On May 5, 2004, the Board of Directors amended the By-laws of the Company to eliminate the age restriction for Directors.  This information was omitted from the Company’s previous filings with the Securities and Exchange Commission.

ITEM 6.          EXHIBITS

3.1	By-laws
11.	An exhibit showing the computation of per-share earnings is omitted because the computation can be clearly determined from the material contained in this Quarterly Report on Form 10-Q.
31.1	Certificate of the Registrants Chief Executive Officer, Daniel Lehrfeld, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of the Registrants Chief Financial Officer, William J. Foote, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of the Registrants Chief Executive Officer, Daniel Lehrfeld, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certificate of the Registrants Chief Financial Officer, William J. Foote, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Photonic Products Group, Inc.
	By:	/s/ Daniel Lehrfeld
		Daniel Lehrfeld
		President and Chief Executive Officer
	By:	/s/ William J. Foote
		William J. Foote
		Chief Financial Officer and Secretary
Date:      May 14, 2007

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EX-3.1

Exhibit 3.1

BY-LAWS

OF

PHOTONIC PRODUCTS GROUP, INC.

(adopted May 24, 2004)

ARTICLE I

OFFICES

1.1.          Registered Office and Agent.—The registered office of the Corporation in the State of New Jersey is at 181 Legrand Avenue, Northvale, New Jersey 07647.  The registered agent of the Corporation at that office is William Miraglia.

1.2.          Principal Place of Business.—The principal place of business of the Corporation is located at 181 Legrand Avenue, Northvale, New Jersey 07647.

1.3.          Other Places of Business.—Branch or subordinate places of business or offices may be established at any time by the board of directors (the board) at any place or places where the Corporation is qualified to do business or where qualification is not required.

ARTICLE II

MEETINGS OF SHAREHOLDERS

2.1.          Place of Meetings.—All meetings of shareholders shall be held at the principal business office of the Corporation or at whatever other place is designated by the board and stated in the notice of the meeting.

2.2.          Annual Meeting.—The annual meeting of shareholders shall be held at 10:00 a.m. on the third Tuesday of April of each year or at whatever other time may be determined by the board, but not more than thirteen months after the last annual meeting.  If the scheduled date for the meeting is a legal holiday, the meeting shall be held at the same hour on the next succeeding business day.

2.3.          Special Meetings.—Special meetings of the shareholders may be called for any purpose and at any time by the chairman of the board, the president or the board.  A special meeting of the shareholders, or of the holders of any class or series entitled to vote exclusively on a particular matter, shall be called by the Corporation upon the written application by the holder or holders of twenty percent or more of all stock entitled to vote on the matter or matters to be considered at the meeting.  The application or applications shall state the purpose or purposes for which the meeting is to be held.  The meeting shall be held within sixty days after receipt by the Corporation of the application or applications which, in the aggregate, equal twenty percent of the stock which will be entitled to vote at the meeting.

2.4.          Record Date.—The board shall fix in advance a record date for determination of shareholders entitled to notice of and to vote at any meeting of shareholders.  The record date shall not be more than sixty days nor less than ten days before the date of the meeting.

2.5.          Voting List.—The secretary or stock transfer agent or registrar of the Corporation shall prepare a complete list of the shareholders entitled to vote at each shareholders’ meeting or any adjournment thereof.  The list may consist of cards arranged alphabetically or any equipment which permits the visual display of the information required by this section.  The list shall be

(a)           arranged alphabetically within each class, series, or group of shareholders maintained by the Corporation for convenience of reference, with the address of, and the number of shares held by, each shareholder;

(b)           produced (or available by means of a visual display) at the time and place of the meeting;

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(c)           subject to the inspection of any shareholder for reasonable periods during the meeting; and

(d)           prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any meeting.

2.6.          Inspectors.—The board may, in advance of any shareholders’ meeting, appoint one or more inspectors to act at the meeting or any adjournment thereof.  If the board does not appoint an inspector or inspectors, the presiding officer at the shareholders’ meeting may, and on the request of any shareholder entitled to vote at the meeting shall, appoint one or more persons to act in that capacity.  Each inspector shall take and sign an oath to execute faithfully the duties of inspector at the meeting with strict impartiality and to the best of his or her ability.  No person shall be elected a director at a meeting at which that person has served as an inspector.

2.7.          Notice of Meetings.—Written notice of the time, place and purposes of each shareholders’ meetings shall be given to each shareholder entitled to vote at the meeting at least ten and not more than sixty days before the date of the meeting.  The notice may be given personally, by first class United States mail or by courier service, charges prepaid, by facsimile transmission, or any other reasonable means of delivery.  The notice may be sent to the shareholder at his or her address appearing on the books of the Corporation or to any other business or residence address of the shareholder known to the Corporation.  The notice shall be deemed given at the time it is delivered personally, delivered to the courier service, deposited in the United States mail, transmitted by facsimile (and there is no reason to believe it was not received), or delivered by any other method (provided that method is reasonably believed to be at least as quick and reliable as first class United States mail).

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2.8.          Voting Rights.—Shareholders shall be entitled to vote their stock in the manner provided by law or as modified by the certificate of incorporation as amended or restated from time to time.

2.9.          Proxies.

2.9.1.  Every shareholder entitled to vote at a shareholder meeting may authorize another person or persons to act for him or her by proxy.  Every proxy shall be executed by the shareholder or his or her agent, but a proxy may be given by telegram, cable, or any other means of electronic communication that results in a writing.

2.9.2.  No proxy shall be valid after eleven months from the date of its execution unless a longer time is expressly provided therein.  A proxy shall be revocable at will unless it states that it is irrevocable and is coupled with an interest either in the stock itself or in the Corporation.  A proxy shall not be revoked by the death or incapacity of the shareholder, but the proxy shall continue in force until revoked by the personal representative or guardian of the shareholder.

2.9.3.  The presence at a meeting of any shareholder who has given a proxy shall not revoke the proxy unless the shareholder (i) files written notice of the revocation with the secretary of the meeting prior to the voting of the proxy or (ii) votes the shares subject to the proxy by written ballot.  A person named as proxy of a shareholder may, if the proxy so provides, substitute another person to act in his or her place, including any other person named as proxy in the same proxy.  The substitution shall not be effective until an instrument effecting it is filed with the secretary of the meeting.

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2.9.4.  Each person holding a proxy shall either file the proxy with the secretary of the meeting or the inspectors at the start of the meeting or shall submit the proxy to the inspectors together with his or her ballot, as determined by the presiding officer.  No proxy shall be counted or acted upon that is submitted to the secretary of the meeting or the inspectors any later than the first time during the meeting a vote is taken by ballot.

2.10.        Closing the Polls.

2.10.1.  After the polls are closed as provided herein, no additional votes nor any changes of votes shall be received or recognized, regardless of whether the votes have been tabulated and the results reported to the meeting.

2.10.2.  If a vote is taken by any method other than by ballot, the voting shall be completed and the polls closed upon the announcement of the result of the vote by the presiding officer.

2.10.3.  If a vote is taken by ballot, ballots shall be distributed to each shareholder or proxyholder requesting one, and they shall complete the ballots and return them to the inspectors.  The polls shall be closed by a ruling by the presiding officer within a reasonable period of time after the ballots are distributed and, in any event, no sooner than ten minutes after the distribution of ballots.

2.11.        Quorum.—The presence in person or by proxy of the holders of shares entitled to cast a majority of the votes of each class or series entitled to vote as a class at the meeting and a majority of any two or more classes voting together as a class at such meeting shall constitute a quorum for the transaction of business.  The shareholders present at a duly

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organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

2.12.        Officers of Meetings.—The president shall preside at all meetings of shareholders.  In the absence of the president, the chairman shall preside.  In the absence of both, the most senior vice president shall preside unless the board has provided for someone else to preside.  The secretary shall act as secretary of all meetings of shareholders.  In the absence of the secretary, any assistant secretary who is present shall act as secretary of the meeting.  If no assistant secretary is present, the presiding officer shall designate a secretary of the meeting.

2.13.        Order of Business.—The order of business at all shareholder meetings shall be as follows:

(a)           call to order;

(b)           proof of mailing of notice of meeting, proxy and proxy statement;

(c)           appointment of inspectors, if not previously appointed by board and if demanded by any shareholder;

(d)           report on presence of a quorum;

(e)           reading or waiver of reading of minutes of preceding meeting;

(f)            election of directors, if an annual meeting;

(g)           consideration of other matters contained in the notice of meeting or properly brought before the meeting;

(h)           balloting;

(i)            reports of officers;

(j)            question and answer period;

(k)           report of inspectors;

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(l)            adjournment.

2.14.        Adjourned Meetings.

2.14.1.  Any shareholder meeting may be adjourned to another time or place, whether or not a quorum is present.  In the absence of a quorum no other business may be transacted at a meeting.

2.14.2.  If a shareholder meeting is adjourned for more than thirty days or if the board establishes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting.  No notice of an adjourned meeting need be given if (i) the meeting is adjourned for thirty days or less; (ii) the record date is unchanged; (iii) the time and place of the adjourned meeting is announced at the meeting at which the adjournment is taken; and (iv) the only business transacted at the adjourned meeting is business which might have been transacted at the original meeting.

2.15.        Action by Shareholders Without Meeting.—Any action required or permitted to be taken at a meeting of shareholders by the New Jersey Business Corporation Act or the certificate of incorporation as amended or restated from time to time may be taken without a meeting by a written consent or consents pursuant to N.J.S. 14A:5-6.

ARTICLE III

BOARD OF DIRECTORS

3.1.          Management Authority.—The business and affairs of the Corporation shall be managed under the direction of its board of directors (the board), subject only to the limitations imposed by law and by the Corporation’s certificate of incorporation as amended or restated from time to time.

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3.2.          Number of Directors.—The board shall consist of five members.

3.3.          Qualification of Directors.—Each director must be a United States citizen.  No person shall be eligible to be elected a director who is under the age of 21 on the date of the election.

3.4.          Election.—At each election of directors, each shareholder entitled to vote at the election shall have the right to vote the number of shares owned by that shareholder for as many persons as there are directors to be elected and for whose election the shareholder has a right to vote.

3.5.          Term of Office; Classification of Directors.—The board shall be divided into three classes, the members of each class to serve for three years.  Two directors (or such number as shall be as nearly equal as possible) shall serve in each class.  At the annual meeting of shareholders at which the shareholders approve an amendment to the certificate of incorporation to divide the board into classes, the directors of one class (Class 1) shall be elected for a term to end at the third annual meeting of shareholders following such annual meeting; the directors of the second class (Class 2) shall be elected for a term to end at the second annual meeting of shareholders following such annual meeting; and the directors of the third class (Class 3) shall be elected for a term to end at the next annual meeting of shareholders following such annual meeting.  At each annual meeting thereafter, directors shall be elected to fill the directorships of the class of directors whose terms have expired.  Those directors shall hold office until the third successive annual meeting after their election and until their successors shall have been elected and qualified, so that the term of office of one class of directors shall expire at each annual meeting.

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3.6.          Resignation, Removal, and Suspension.—

3.6.1.  Resignation.—Any director may resign at any time by giving a written notice of resignation to the corporation.

3.6.2.  Removal by Shareholders.—Any director may be removed, without cause, by the affirmative vote of the majority of votes cast by the holders of shares entitled to vote for the election of directors.

3.6.3.  Removal or Suspension by Board.—The board shall have the power (i) to remove any director for cause or (ii) to suspend any director, pending a final determination that cause exists for removal, if the board determines in its sole discretion there is a reasonable possibility that cause for removal may exist.  The determination of whether cause exists shall be made by the board in its sole discretion and shall not be set aside unless it is unreasonable, arbitrary, or capricious.  Conduct constituting cause for removal includes, but is not limited to,

(a)           Repeated failure to attend meetings or to maintain a reasonable degree of familiarity with the business conducted by the board;

(b)           Any conduct as a board member or individually which is disloyal or contrary to the interests of the Corporation, such as seeking or obtaining an improper personal benefit on account of the director’s position, exploiting for personal benefit information obtained as a director, or engaging in activities in competition with the Corporation; or

(c)           Engaging in any action that reasonably would be viewed as likely to cause the director’s continued membership on the board to cause embarrassment or ignominy to the board or the Corporation.

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3.7.          Vacancies.—Any vacancy in the board, however caused, including an increase in the number of directors, may be filled by the affirmative vote of a majority of the votes of the remaining directors, even if less than a quorum.  Each director so elected shall hold office until the next succeeding annual meeting of the shareholders.  A vacancy in the board shall be deemed to exist in the case of death, resignation or removal of any director, or if the number of directors is increased.  No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his or her term of office.

3.8.          Place of Meeting.—All meetings of the board shall be held at the principal business office of the Corporation or at such place or places as the board may from time to time determine.

3.9.          Use of Communications Equipment.—If the board determines it to be appropriate, any director may participate in a meeting of the board by means of conference telephone or any other means of communication by which all persons participating in the meeting are able to hear each other.  Upon the request of any director who is not able to attend in person, the secretary shall use his or her best efforts to arrange for appropriate equipment to be used to enable any director so requesting to participate in part or all of the meeting through the use of communication equipment.

3.10.        Regular Meetings.—A regular meeting of the board shall be held without notice immediately following and at the same place as the annual shareholders’ meeting for the purpose of electing officers and conducting any other business as may come before the meeting.  The board may decide to have additional regular meetings which may be held without notice.

3.11.        Special Meetings.—A special meeting of the board may be called for any purpose at any time by the president or by two directors.  The meeting shall be held upon not less

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than two days notice if given by telegram, orally (either by telephone or in person), or by facsimile transmission, upon not less than three days notice if given by overnight courier delivery service, or upon not less than five days notice if given by depositing the notice in the United States mails, first class postage prepaid.  The notice shall be deemed given at the time it is given orally, the facsimile transmission is originated (and there is no reason to believe it was not received), it is delivered to the overnight courier service, or it is deposited in the United States mails.  The notice shall specify the time and place, and may, but need not, specify the purposes, of the meeting.

3.12.        Waivers of Notice.—Any action taken at any meeting of the board, however called and noticed or wherever held, shall be as valid as though the meeting had been duly held after a regular call and notice if a quorum was present and if, before or after the meeting, each of the directors not present signs a written waiver of notice.  All written waivers shall be filed with the corporate records or made a part of the minutes of the meeting.  The attendance of any director at a meeting without protesting prior to the conclusion of the meeting the lack of notice shall constitute a waiver of notice by the director.  The fact of attendance without protest shall be recorded in the minutes of the meeting.

3.13.        Action Without Meeting.—Any action required or permitted to be taken by the board by law, the certificate of incorporation as amended or restated from time to time, or these by-laws may be taken without a meeting, if, prior or subsequent to the action, each member of the board consents in writing to the action.  A consent may be given by cable or telegram or by facsimile.  Each written consent shall be filed with the minutes of the proceedings of the board.  Action by the board by written consent shall have the same force and effect as a unanimous vote of the directors for all purposes.  Any certificate or other document which relates

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to action taken by consent may state that the action was taken by unanimous written consent of the board of directors without a meeting.

3.14.        Quorum.—The presence at a meeting of persons entitled to cast a  majority of the votes of the entire board shall constitute a quorum for the transaction of business.

3.15.        Votes Required.—Any action approved by a majority of the votes of directors present at a meeting at which a quorum is present shall be the act of the board.

3.16.        Presiding Officer.—The chairman shall preside at all meetings of the board at which he or she is present.  In the absence of the chairman, the president shall preside.  The secretary or, in the absence of the secretary, an assistant secretary, shall record the minutes of the meeting.  If neither of them is present, the presiding officer shall designate a secretary to record the minutes of the meeting.

3.17.        Adjournment.—Any meeting of the board at which a quorum is present may be adjourned to meet again at a time and place specified by the board when it adjourns the meeting.  No notice of the time and place of the adjourned meeting need be given if it is to be held within three days of the date fixed for the adjourned meeting.

3.18.        Presumption of Assent.—A director who is present at a meeting of the board or any committee thereof of which the director is a member at which action on any corporate matter is taken shall be presumed to have concurred in the action taken unless the director’s dissent is entered in the minutes of the meeting or unless the director files a written dissent to the action with the person acting as the secretary of the meeting before or promptly after the adjournment thereof.  The right to dissent shall not apply to a director who voted in favor of the action.  A director who is absent from a meeting of the board, or any committee thereof of which he or she is a member, at which any action is taken shall be presumed to have

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concurred in the action unless the director files a dissent with the secretary of the corporation within a reasonable time after learning of the action.

3.19.        Expenses and Compensation of Directors.—Members of the board shall be reimbursed for all reasonable expenses incurred by them in connection with attending board or committee meetings.  The board may determine from time to time fees to be paid to each member for service on the board and any committee of the board.  The fees may be based upon a specified amount per annum or a specified amount per meeting attended, a combination of both, or any other reasonable method.  Directors who are compensated officers of the Corporation shall not be paid directors’ fees.

ARTICLE IV

COMMITTEES

4.1.          Establishment of Committees; Executive Committee.—The board may, by action taken by a majority of the entire board, designate from among its members an executive committee, consisting of one or more directors, and may at any time designate additional committees, each of which shall consist of one or more persons.  Subject to the limitations contained in Section 4.8, the executive committee shall have and may exercise all of the authority of the board.  Each other committee shall have whatever authority, not exceeding the authority of the executive committee, as is specifically provided by the board.  Each committee that is delegated the power to act on behalf of the Corporation (a board committee) shall consist exclusively of directors.  A majority of the members of each other committee (advisory committees) shall be directors.  The other members may be officers or other employees of the Corporation or other persons who have experience, expertise, or a special background of value to the areas of responsibility of the committee.

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4.2.          Presiding Officer and Secretary.—The board shall designate the chairman of each committee.  Each committee shall from time to time designate a secretary of the committee who shall keep a record of its proceedings.

4.3.          Vacancies.—Vacancies occurring from time to time in the membership of any committee may be filled by the board for the unexpired term of the member whose death, resignation, removal or disability causes the vacancy, and shall be so filled if, as the result of the vacancy, there shall be less than three directors on the committee, or, in the case of the executive committee, if the president shall be the person whose death, resignation, removal, or disability causes the vacancy.

4.4.          Meetings.—Each committee shall adopt its own rules of procedure and shall meet at whatever times it may determine and shall also meet whenever a meeting is called by the chairman or the chairman of the committee.  Members of committees may attend meetings through the medium of communications equipment (in the same manner as may members of the board), and any committee may act by unanimous written consent in lieu of a meeting (in the same manner as may the board).

4.5.          Notice of Meetings.—If the committee establishes regular meeting dates, it shall not be necessary to give notice of a regular meeting.  Notice of every special meeting shall be given in the manner and within the time periods specified in these by-laws with respect to notices of special meetings of the board.  Notice of any special meeting may be waived in writing by all the absent members of the committee either before or after the meeting.

4.6.          Quorum.—A quorum at any meeting of a committee shall be the presence of one-half of the members of the entire committee.  Every act or decision done or made by a

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majority of the directors present at a committee meeting duly held at which a quorum is present shall be regarded as the act of the committee.

4.7.          Reports.—Actions taken at a meeting of any committee shall be reported to the board at its next meeting following the committee meeting, except that when the meeting of the board is held within two days after the committee meeting, the report shall, if not made at the first meeting, be made to the board at the second meeting following the committee meeting.

4.8.          Limitations of Powers.—No committee of the board shall have authority to do any of the following:

(a)           make, alter or repeal any by-law of the corporation;

(b)           elect or remove any director, or remove any officer who may be elected or appointed only by the board;

(c)           submit to shareholders any action that requires shareholders’ approval;

(d)           amend or repeal any resolution theretofore adopted by the board which, by its terms, is amendable or repealable only by the board;

(e)           fix the compensation of any officer who is a member of the committee for serving as an officer of the Corporation.

4.9.          Powers of the Board.—The board shall have the power to

(a)           fill any vacancy in any committee;

(b)           appoint one or more directors to serve as alternate members of any committee to act in the absence or disability of any member of that committee with all the powers of the absent or disabled members;

(c)           abolish any committee at its pleasure; and

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(d)           remove any director from membership on any committee at any time, with or without cause.

ARTICLE V

OFFICERS

5.1.          Officers Enumerated.—The board shall elect a chairman of the board, a president, one or more vice presidents, including executive vice presidents and senior vice presidents, a treasurer, and a secretary.  Any two or more offices may be held by the same person.

5.2.          Additional Officers.—The board may from time to time elect any other officers it deems necessary, who shall hold their offices for the terms and have the powers and perform the duties that shall be prescribed from time to time by the board.

5.3.          Election and Term of Office.—Each officer shall hold office until the next annual election of officers, and until his or her successor has been elected and has qualified, unless he or she is earlier removed.  All officers of the Corporation shall hold office at the pleasure of the board.

5.4.          Vacancies.—Any vacancy in any office may be filled by the board.

5.5.          Removal and Resignation.—Any officer may be removed, either with or without cause, by the board or by any officer upon whom the power of removal has been conferred by the board.  Removal of an officer shall be without prejudice to the officer’s contract rights, if any.  Election or appointment of an officer shall not of itself create contract rights.  Any officer may resign at any time by giving written notice to the board or to the president.  A resignation shall take effect on the date of the receipt of the notice or at any later time specified

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therein and, unless otherwise specified therein, the acceptance of the resignation shall not be necessary to make it effective.

5.6.          Powers and Duties.—The officers shall each have such authority and perform such duties in the management of the Corporation as from time to time may be prescribed by the board and as may be delegated by the chairman or president.  Without limiting the foregoing, the following officers shall have the following authority:

(a)           Chief Executive Officer.  The chief executive officer shall, subject only to the direction and control of the board, have general charge and supervision over and responsibility for the business and affairs of the Corporation and the authority to instruct, direct, and control its other officers, employees, and agents.  The chief executive officer may enter into and execute in the name of the corporation, contracts or other instruments in the regular course of business or contracts or other instruments not in the regular course of business that are authorized, either generally or specifically, by the board.  The chief executive officer shall have the power to appoint, fix the compensation of, and suspend or remove all employees of the corporation, including officers, except for the chairman, the president, the executive vice presidents, the treasurer, and the secretary.  The appointment, suspension, removal and fixing the compensation of officers by the chief executive officer shall be subject to whatever guidelines are adopted from time to time by the board and to the approval of the board.  The chief executive officer shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the board.

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(b)           Chairman of the Board.  If a chairman is elected, he shall be chosen from among the members of the board.  Unless the board determines otherwise, the chairman shall be chief executive officer of the corporation.

(c)           President.—If there is no chairman, or in the event of the chairman’s absence or inability to act, or if the board has so designated, the president shall be chief executive officer.  If there is a chairman who is chief executive officer, the president shall be chief operating officer and shall be responsible only to the chairman and to the board for those areas of operation of the business and affairs of the corporation as shall be delegated to the president by the board or by the chairman.  Unless otherwise specified by the board or the chairman, all other officers of the corporation (except the chairman) shall be subject to the authority and supervision of the president.  The president may enter into and execute in the name of the corporation contracts or other instruments in the regular course of business or contracts or other instruments not in the regular course of business that are authorized, either generally or specifically, by the board.

(d)           Vice Presidents.  Each vice president shall perform the duties that may, from time to time, be assigned to him or her by the chief executive officer, the president, or the board.  Vice presidents shall report and be subject to the supervision of the chief executive officer or the president in the performance of their duties unless otherwise specified by the board.  In the absence of the chief executive officer and the president or in the event of the death, inability, or refusal to act of both of them, the vice presidents in the order designated at the time of their election by the board (or in the absence of any designation, then in the order of seniority) shall perform the duties of the chief executive

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officer.  For these purposes, an executive vice president shall be deemed senior to a senior vice president.

(e)           Secretary.  The secretary, or any assistant secretary, shall cause notices of all meetings to be served as prescribed in these by-laws and shall keep the minutes of all meetings and written consents of the shareholders and board.  The secretary shall have charge of the seal of the Corporation and shall perform whatever other duties and possess whatever other powers as are incident to the office or as are assigned by the chief executive officer, president, or the board.

(f)            Treasurer.  The treasurer shall have custody of the funds and securities of the Corporation and shall keep or cause to be kept regular books of account for the Corporation.  The treasurer shall account to the chief executive officer, the president, or the board, whenever they may require, concerning all the treasurer’s transactions and concerning the financial condition of the Corporation.  The treasurer shall perform the duties and possess whatever other powers are incident to the office or are assigned by the chief executive officer, the president, or the board.

ARTICLE VI

CAPITAL STOCK AND OTHER SECURITIES

6.1.          Issuance of Stock and Other Securities.—Certificates of any class of capital stock of the Corporation and certificates representing any other securities of the Corporation shall be signed by the chairman, the president, or any vice president and countersigned by the secretary, any assistant secretary, the treasurer or any assistant treasurer.  The signature of each officer may be an engraved or printed facsimile.  If an officer or transfer agent or registrar whose facsimile signature has been placed upon certificates ceases to hold the official capacity in which

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he or she signed, the certificates may continue to be used.  The certificates may, but need not, be sealed with the seal of the Corporation, or a facsimile of the seal.  The certificates shall be countersigned and registered in whatever manner the board may prescribe.

6.2.          Lost, Stolen and Destroyed Certificates.—In case of lost, stolen or destroyed certificates, new certificates may be issued to take their place upon receipt by the Corporation of a bond of indemnity and under whatever regulations may be prescribed by the board.  The giving of a bond of indemnity may be waived.

6.3.          Transfer of Securities.—The shares of the capital stock or any other registered securities of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by that person’s authorized agent, or by the transferee, upon surrender for cancellation to the transfer agent of an outstanding certificate or certificates for the same number of shares or other security with an assignment and authorization to transfer endorsed thereon or attached thereto, duly executed, together with such proof of the authenticity of the signature and of the power of the assignor to transfer the securities as the Corporation or its agents may require.

6.4.          Record Date for Dividends or Rights.—The board may fix a record date in advance as of which shares of stock shall be held of record to entitle a shareholder to the payment of any dividend, to the allotment of rights, or to exercise rights in respect to any change, conversion or exchange of capital stock of the Corporation.  The record date shall not precede by more than sixty (60) days the date of the dividend payment, or the allotment of rights, or the date when the change, conversion or exchange of capital stock shall take effect.  Only shareholders of record on the record date shall be entitled to receive or exercise the rights or benefits when they

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shall accrue, notwithstanding any transfer of any stock on the books of the Corporation subsequent to the record date.

6.5.          Issuance of Shares.—Shares of the capital stock of the Corporation which have been authorized but not issued may be sold or issued from time to time for such consideration as may be determined by the board.

ARTICLE VIICORPORATE SEAL

The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation, and the words “Corporate Seal, New Jersey”.  The seal may be used by causing it or a facsimile thereof to be impressed or reproduced on a document or instrument, or affixed thereto.

ARTICLE VIII
FISCAL YEAR

The fiscal year of the Corporation shall end on December 31 of each calendar year.

ARTICLE IXAMENDMENTS

These by-laws may be altered, amended or repealed by the shareholders or the board.  Any by-law adopted, amended, or repealed by the shareholders may be amended or repealed by the board unless the resolution of the shareholders adopting the by-law expressly reserves the right to amend or repeal it to the shareholders.

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ARTICLE XMISCELLANEOUS

10.1.        Inspection of Corporate Records.—The share register, or duplicate share register, and minutes of proceedings of the shareholders shall be open to inspection for any proper purpose upon the written demand of any person who has been a shareholder of record or holder of a voting trust certificate for at least six months immediately preceding that person’s demand, or any person holding, or so authorized in writing by the holders of, at least five percent of the outstanding shares of any class.  The inspection may be made at any reasonable time not less than five days after the person has given written notice of the demand to the Corporation.  The inspection may be made in person or by an agent or attorney and shall include the right to make extracts.  Demand for inspection shall be made in writing upon the president or secretary of the Corporation.

10.2.        Checks, Drafts, Etc.—All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by the person or persons and in such manner, manually or by facsimile signature, as shall be determined from time to time by the board.

10.3.        Execution of Contracts.—The board may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation.  The authority may be general or confined to specific instances.  No officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount unless so authorized by the board or these by-laws.

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10.4.        Voting Shares of Other Corporations.—The chairman, the president, or any vice president are each authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of stock of any other corporation or corporations standing in the name of this Corporation.  The authority herein granted may be exercised by those officers either in person or by proxy or by power of attorney duly executed by the officer.

1.1.          Force and Effect of By-Laws.—These by-laws are subject to the provisions of the New Jersey Business Corporation Act and the Corporation’s certificate of incorporation as amended or restated from time to time.  If any provision in these by-laws is inconsistent with a provision in that Act or the certificate of incorporation as amended or restated from time to time, the provision of the Act or the certificate of incorporation as amended or restated from time to time shall govern to the extent of such inconsistency.

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Lehrfeld certify that:

1.I have reviewed the quarterly report on Form 10-Q of Photonic Products Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrants and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function(s):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  May 14, 2007

/s/ Daniel Lehrfeld

President and Chief Executive Officer

A signed original of this written statement required by Section 302 has been provided to Photonic Products Group, Inc. and will be retained by Photonic Products Group, Inc. and furnished to the Securities Exchange Commission or its staff upon request.

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William J. Foote certify that:

1.I have reviewed the quarterly report on Form 10-Q of Photonic Products Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrants and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function(s):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  May 14, 2007

/s/ WILLIAM J. FOOTE

Chief Financial Officer

A signed original of this written statement required by Section 302 has been provided to Photonic Products Group, Inc. and will be retained by Photonic Products Group, Inc. and furnished to the Securities Exchange Commission or its staff upon request.

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Photonic Products Group, Inc. on Form 10-Q for the quarter ended March 31, 2007 filed with the Securities and Exchange Commission  (the “Report”), I, Daniel Lehrfeld, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

Dated: May 14, 2007
	/s/ DANIEL LEHRFELD
	President and Chief Executive Officer

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to Photonic Products Group, Inc. and will be retained by Photonic Products Group, Inc. and furnished to the Securities Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Photonic Products Group, Inc. on Form 10-Q for the quarter ended March 31, 2007 filed with the Securities and Exchange Commission (the “Report”), I, William J. Foote, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

Dated: May 14, 2007

/s/ WILLIAM J. FOOTE

Chief Financial Officer
and Secretary

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to Photonic Products Group, Inc. and will be retained by Photonic Products Group, Inc. and furnished to the Securities Exchange Commission or its staff upon request.