Effective May 1, 2009, the working capital senior note wasreplaced with a new working capital note in the amount of $1,461,316 (includingaccrued interest). Effective January 1, 2009 the securedpromissory note in the principal amount of $11,601,156 is to be paid in twelvequarterly installments each in the amount of $375,000, with the first payment ofprincipal and interest being due on June 30, 2010, followed by thirteenquarterly installments of principal and interest each in the amount of $500,000,with a final payment of all remaining principal and accrued interest onSeptember 30, 2016. The additional interest due to the modificationswill be accrued in future periods. Asthe troubled debt restructuring involved only modifications of the terms of thedebt, and did not involve a transfer of assets or a grant of an equity interest,the Company accounts for the effects of the restructuring prospectively from thetime of the restructuring, and does not change the carrying amount of theliability on the balance sheet.

These modifications are accounted for as a trouble debt restructuring. Due to the Company`s inability to meet the repayment terms of the senior debtissued in the debt restructuring, the senior debt holder modified the terms ofthe notes effective January 1, 2009 which was subsequently modified on May 1,2009. The interest which we accrued during the quarter ended March 31,2009, represents interest on debt to our senior debt holder advanced to ussubsequent to the debt restructuring, and on our subordinated debentures. Interest at the statedinterest rates on the restructured debt would have been $440,000 for the quarterending March 31, 2009, if the debt had not been treated as a troubled debtrestructuring. Asa result of the troubled debt restructuring, interest on the senior andsubordinated debt through the term of the debt instruments has been added to theamount of the debt on the balance sheet, and is not reflected as interestexpense subsequent to the date of the restructuring. Net interest expense decreased by $558,000 for the quarter ended March 31, 2009compared to the quarter ended March 31, 2008 primarily related to the completionof a troubled debt restructuring (as defined under SFAS 15) on July 31, 2008.

The decrease results primarily from areduction in advertising, and research and development due to a reduction inpersonnel and prototype expenses not required in the current phase ofdevelopment of our new products, and decreases in our general and administrativecosts as part of our overall cost cutting initiatives. Operating expenses for the quarter ended March 31, 2009 decreased by $125,000(7.1%) from the same period in 2008. The decrease for the quarter isprimarily related to the strength of the dollar against the British pound and achange in product mix in the connection/protection segment. The overall gross margin was 25% for the quarter ended March 31, 2009, comparedto 28% for the quarter ended March 31, 2008. The increase inSignal revenue was primarily due to an increase in orders placed by the militarysector. Signal Processing sales forthe quarter ended March 31, 2009 were $1,433,000 versus $1,153,000 for thequarter ended March 31, 2008, an increase of $280,000 (24.3%).

Copper Connection/Protection sales were $6,220,000 for the quarterended March 31, 2009 versus $5,392,000 for the quarter ended March 31, 2008, anincrease of $828,000 (15.4%). The increase was primarily due to increased salesto British Telecommunications and its systems integrators of approximately$425,000, and increased sales to Telmex of $1,426,000, which were partiallyoffset by decreased sales to Ericsson of $794,000. (OTC.BB: PORT) today reported operating income for thequarter ended March 31, 2009 of $294,000 compared to $71,000 for the quarterended March 31, 2008. The net income for the quarter ended March 31, 2009 was$176,000, $0.02 per share (basic and diluted), compared to a net loss for thequarter ended March 31, 2008 of $537,000, ($0.59) per share (basic and diluted).Sales were $7,653,000 for the quarter ended March 31, 2009 versus $6,545,000 forthe quarter ended March 31, 2008, an increase of approximately $1,108,000(16.9%). SYOSSET, N.Y.–(Business Wire)–Porta Systems Corp.