UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000

                           Commission File No. 0-15205

                                  ELCOTEL, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                    59-2518405
   (State or other jurisdiction of                       (IRS Employer
    incorporation or organization)                    Identification No.)

 6428 Parkland Drive, Sarasota, Florida                      34243
(Address of principal executive offices)                   (Zip Code)

                                 (941) 758-0389
              (Registrant's telephone number, including area code)

                                    No Change
              (Former name, former address and former 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 [ ]

As of February 9, 2001, there were 13,779,991 shares of the Registrant's  Common
Stock outstanding.

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

                         ELCOTEL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (Dollars, except per share amounts, in thousands)

                                                      December 31,     March 31,
                                                          2000           2000
                                                      ------------     ---------
                                                      (Unaudited)
ASSETS
Current assets:
    Cash                                                $  2,169       $ 1,153
    Accounts and notes receivable, less allowance
        for credit losses of $2,049 and $1,593             8,690         8,073
    Inventories                                            6,944         8,768
    Refundable income taxes                                   72            82
    Prepaid expenses and other current assets                644           997
                                                        --------       -------
          Total current assets                            18,519        19,073
Property, plant and equipment, net                         5,069         5,867
Notes receivable, less allowance for credit
  losses of $2 and $272                                       21           395
Identified intangible assets, net of accumulated
  amortization of $3,418 and $2,665                        5,780         6,610
Capitalized software, net of accumulated amortization
  of $1,004 and $505                                       4,954         4,786
Goodwill, net of accumulated amortization
  of $2,081 and $1,567                                    21,888        22,403
Other assets                                                 569           575
                                                        --------       -------
                                                        $ 56,800       $59,709
                                                        ========       =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                    $  6,079       $ 4,868
    Deferred revenue                                       1,624             -
    Customer advances                                      1,496           329
    Accrued expenses and other current liabilities         2,507         2,794
    Notes, debt and capital lease obligations payable
      - current                                           11,374        11,611
                                                        --------       -------
          Total current liabilities                       23,080        19,602
Notes, debt and capital lease obligations payable
    - noncurrent                                             187           208
                                                        --------       -------
                                                          23,267        19,810
                                                        --------       -------
Commitments and contingencies                              --           --
Stockholders' equity:
    Common stock, $.01 par value, 40,000,000 shares
      authorized, 13,831,991 and 13,794,391 shares
      issued, respectively                                   138           138
    Additional paid-in capital                            47,565        47,423
    Accumulated deficit                                  (13,741)       (7,508)
    Accumulated other comprehensive (loss) income           (252)           23
    Less - cost of 52,000 shares of common stock in
      treasury                                              (177)         (177)
                                                        --------       -------
          Total stockholders' equity                      33,533        39,899
                                                        --------       -------
                                                        $ 56,800       $59,709
                                                        ========       =======

      The  accompanying  notes  are  an  integral  part  of  these  consolidated
financial statements.


                                       2
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                          AND OTHER COMPREHENSIVE LOSS
                (Dollars, except per share amounts, in thousands)

<TABLE>
<CAPTION>
                                                      Three Months Ended                Nine Months Ended
                                                         December 31,                      December 31,
                                                -------------------------------   -------------------------------
                                                     2000            1999             2000             1999
                                                ---------------  --------------   --------------  ---------------
<S>                                             <C>              <C>              <C>             <C>
Revenues and net sales:
  Product sales                                 $        4,209   $       7,984    $      16,677   $       27,284
  Services                                               1,621           4,685            5,516           11,594
                                                --------------   -------------    -------------   --------------
                                                         5,830          12,669           22,193           38,878
                                                --------------   -------------    -------------   --------------
Cost of revenues and sales:
  Cost of products sold                                  3,165           5,364           12,609           18,799
  Cost of services                                       1,528           3,810            5,151            9,949
                                                --------------   -------------    -------------   --------------
                                                         4,693           9,174           17,760           28,748
                                                --------------   -------------    -------------   --------------
Gross profit                                             1,137           3,495            4,433           10,130
                                                --------------   -------------    -------------   --------------
Other costs and expenses:
    Selling, general and administrative                  1,584           2,554            5,403            7,888
    Engineering, research and development                  702           1,850            2,588            4,730
    Restructuring charges                                    -             700                -              700
    Amortization                                           498             526            1,507            1,575
    Interest expense, net                                  423             202            1,168              513
                                                --------------   -------------    -------------   --------------
                                                         3,207           5,832           10,666           15,406
                                                --------------   -------------    -------------   --------------
Loss before income tax benefit                          (2,070)         (2,337)          (6,233)          (5,276)
Income tax benefit                                           -             853                -            1,868
                                                --------------   -------------    -------------   --------------
Net loss                                                (2,070)         (1,484)          (6,233)          (3,408)
Other comprehensive loss, net of tax:
Holding loss on marketable securities                      (94)            (23)            (275)             (72)
                                                ==============   =============     =============  ==============
Comprehensive loss                              $       (2,164)  $      (1,507)   $      (6,508)  $       (3,480)
                                                ===============  =============    ==============  ==============

Loss per common and common equivalent share:
      Basic                                     $        (0.15)  $       (0.11)   $       (0.45)  $        (0.25)
                                                ==============   =============    =============   ==============
      Diluted                                   $        (0.15)  $       (0.11)   $       (0.45)  $        (0.25)
                                                ==============   =============    =============   ==============

Weighted average number of common and
common equivalent shares outstanding:
      Basic                                             13,847          13,509           13,788           13,503
                                                ==============   =============    =============   ==============
      Diluted                                           13,847          13,509           13,788           13,503
                                                ==============   =============    =============   ==============
</TABLE>

      The  accompanying  notes  are  an  integral  part  of  these  consolidated
financial statements.


                                       3
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

                                                              Nine Months Ended
                                                                December 31,
                                                           ---------------------
                                                             2000         1999
                                                           ---------   ---------
Cash flows from operating activities
    Net loss                                                $(6,233)   $ (3,408)
    Adjustments to reconcile net loss to net
      cash (used for) provided by operating activities:
        Depreciation and amortization                         3,151       2,619
        Provision for credit losses                             239         373
        Loss on impairment of assets                              -         148
        Loss on disposal of assets                                2           -
        Provisions for obsolescence and warranty
          expense                                               438       1,313
        Stock option compensation                                93          66
        Value of services received in return for
          issuance of common stock purchase warrants             24           -
        Deferred tax benefit                                      -      (1,868)
        Changes in operating assets and liabilities:
          Accounts and notes receivable                        (482)      1,882
          Inventories                                         1,605       3,289
          Refundable income taxes                                10       1,503
          Prepaid expenses and other current assets             123         369
          Other assets                                         (257)        (89)
          Accounts payable                                    1,211         981
          Deferred revenue                                    1,624           -
          Customer advances                                   1,167        (128)
          Accrued expenses and other current liabilities       (589)       (395)
                                                            -------    --------
      Net cash provided by operating activities               2,126       6,655
                                                            -------    --------
Cash flows from investing activities
    Capital expenditures                                       (108)     (1,719)
    Capitalized software                                       (667)     (3,080)
                                                            -------    --------
      Net cash (used for) investing activities                 (775)     (4,799)
                                                            -------    --------
Cash flows from financing activities
    Net proceeds under revolving credit
      lines                                                       -       1,191
    Decrease in bank overdraft                                    -      (1,428)
    Principle payments                                         (398)       (604)
    Proceeds from exercise of common stock
      options                                                    63          19
                                                            -------    --------
      Net cash (used for) financing activities                 (335)       (822)
                                                            -------    --------
Increase in cash                                              1,016       1,034
Cash, beginning of period                                     1,153          16
                                                            =======    ========
Cash, end of period                                         $ 2,169    $  1,050
                                                            =======    ========

      The  accompanying  notes  are  an  integral  part  of  these  consolidated
financial statements.


                                       4
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars, except per share amounts, in thousands)
                                   (unaudited)

1.    GENERAL

      Elcotel,  Inc. and its wholly owned  subsidiaries (the "Company")  design,
      develop,  manufacture and market a comprehensive line of integrated public
      communications  products and services. The Company's product line includes
      microprocessor-based  payphone  terminals known in the industry as "smart"
      or  "intelligent"  payphones,  software  systems  to  manage  and  control
      networks of the  Company's  smart  payphone  terminals,  electromechanical
      payphone  terminals  also  known  in the  industry  as  "dumb"  payphones,
      replacement  components  and  assemblies,  and  an  offering  of  industry
      services  including  repair,   upgrade  and  refurbishment  of  equipment,
      customer  training and  technical  support.  In addition,  the Company has
      developed  non-PC  Internet  terminal  appliances  for  use  in  a  public
      communications  environment,  which will enable the on-the-go user to gain
      access to  Internet-based  content and  information  through the Company's
      client-server  network  supported by its back office software system.  The
      Company's non-PC Internet terminal appliances were designed to provide the
      features of traditional smart payphone terminals,  to provide connectivity
      to Internet-based  content, to support e-mail and e-commerce services, and
      to generate revenues from display advertising, sponsored content and other
      services in addition to traditional  revenues from public  payphones.  The
      Company's service bureau network is designed to manage and deliver display
      advertising   content,   Internet-based   content  and   specialized   and
      personalized  services to its non-PC  Internet  terminal  appliances.  The
      Company's  Internet  appliance  business is presently  in the  development
      stage and has just begun to generate revenues.

      On January 22, 2001,  Elcotel,  Inc. and its subsidiaries  filed voluntary
      petitions in the United States  Bankruptcy Court in the Middle District of
      Florida  (the  "Bankruptcy  Court")  under  Chapter  11 of Title 11 of the
      United States  Bankruptcy  Code (the  "Bankruptcy  Code").  The Company is
      presently operating its business as a debtor-in-possession  and is subject
      to the jurisdiction of the Bankruptcy Court while a plan of reorganization
      is  formulated.  The  Company's  need  to  seek  relief  afforded  by  the
      Bankruptcy  Code is due,  in  part,  to debt  associated  with  continuing
      investment in wireless  products for its payphone  business and developing
      its Internet appliance business, significant financial pressure created by
      a shrinking  payphone  market and a  foreclosure  action  commenced by the
      Company's  senior secured lender (see Note 4). As a  debtor-in-possession,
      the Company is  authorized  to operate its  business but may not engage in
      transactions  outside its ordinary course of business without the approval
      of the Bankruptcy Court. See Note 2.

      The accompanying  unaudited  consolidated  balance sheet of the Company at
      December 31, 2000 and the unaudited consolidated  statements of operations
      and other  comprehensive  loss for the three  months and nine months ended
      December  31,  2000 and 1999 and of cash flows for the nine  months  ended
      December  31, 2000 and 1999 have been  prepared  pursuant to the rules and
      regulations  of the  Securities  and Exchange  Commission  without  audit.
      Certain  information  and  footnote   disclosures   normally  included  in
      financial  statements  prepared  in  accordance  with  generally  accepted
      accounting  principles  have been condensed or omitted.  In the opinion of
      management,   the  financial  information  included  herein  reflects  all
      adjustments  considered necessary to present fairly the financial position
      of the Company at December 31, 2000 and the results of its  operations and
      cash flows for all periods  presented,  and, all such adjustments are of a
      normal and  recurring  nature.  The  results of  operations  for the three
      months  and nine  months  ended  December  31,  2000  are not  necessarily
      indicative of the results for the full fiscal year.


                                       5
<PAGE>

      The accompanying  unaudited  consolidated  financial  statements have been
      prepared on a going concern basis,  which assumes continuity of operations
      and  realizations of assets and liquidation of liabilities in the ordinary
      course of business.  These unaudited  consolidated financial statements do
      not include any adjustments  reflecting the possible future effects on the
      recoverability and classification of assets or the amount of assets or the
      amount  and  classification  of  liabilities  that  may  result  from  the
      uncertainties  discussed  herein.  The Company's recent operating  losses,
      liquidity issues and the reorganization  proceedings  commenced on January
      22, 2001 raise  substantial  doubt about the Company's ability to continue
      as a going  concern.  The  ability of the  Company to  continue as a going
      concern  and the  appropriateness  of using  the  going  concern  basis of
      accounting is dependent upon,  among other things,  confirmation of a plan
      of  reorganization,  success of future  operations after such confirmation
      and the  ability to  generate  sufficient  cash flow from  operations  and
      financing sources to meet obligations.

      The Company's unaudited  consolidated  financial  statements for the three
      months and nine months ended December 31, 1999 have been  reclassified  to
      conform to the  presentation  at and for the three  months and nine months
      ended December 31, 2000. The consolidated  balance sheet at March 31, 2000
      has  been  derived  from  the  Company's  audited  consolidated  financial
      statements  as of and for the year ended March 31,  2000.  It is suggested
      that  these  unaudited   consolidated  financial  statements  be  read  in
      conjunction with the consolidated  financial  statements and notes thereto
      included in the  Company's  Annual Report on Form 10-K for the fiscal year
      ended March 31, 2000.

      The Company's consolidated financial statements subsequent to December 31,
      2000 will be  presented  in  conformity  with the  American  Institute  of
      Certified  Public  Accountants  Statement  of  Position  90-7,  "Financial
      Reporting by Entities in  Reorganization  under the Bankruptcy Code" ("SOP
      90-7").  The statement  requires a segregation of  liabilities  subject to
      compromise  by the  Bankruptcy  Court as of the date the  Company  and its
      subsidiaries  filed  voluntary  petitions  in  the  Bankruptcy  Court  and
      identification of all transactions and events that are directly associated
      with the reorganization of the Company.  Pursuant to SOP 90-7, prepetition
      liabilities  will be reported on the basis of the expected amounts of such
      allowed  claims,  as opposed to the amounts for which those  claims may be
      settled. Under a confirmed final plan of reorganization,  those claims may
      be settled at amounts substantially less than their allowed amounts.

2.    PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

      On  January  22,  2001  (the  "Petition  Date"),  Elcotel,  Inc.  and  its
      subsidiaries  filed  voluntary  petitions  (collectively  the  "Chapter 11
      Proceedings") in the United States Bankruptcy Court in the Middle District
      of  Florida.  The  Company  is  presently  operating  its  business  as  a
      debtor-in-possession  and is subject to the jurisdiction of the Bankruptcy
      Court while a plan of reorganization is formulated.  The Company's need to
      seek relief  afforded  by the  Bankruptcy  Code is due,  in part,  to debt
      associated  with  continuing  investment  in  wireless  products  for  its
      payphone  business  and  developing  its  Internet   appliance   business,
      significant  financial pressure created by a shrinking payphone market and
      a foreclosure  action  commenced by the Company's senior secured lender on
      January 12, 2001 (see Note 4). As a  debtor-in-possession,  the Company is
      authorized  to operate  its  business  but may not engage in  transactions
      outside  its  ordinary  course of  business  without  the  approval of the
      Bankruptcy Court.

      Section  362 of  the  Bankruptcy  Code  imposes  an  automatic  stay  that
      precludes  the Company's  senior  secured  lender and other  creditors and
      interested  parties  from  taking any  remedial  action in response to any
      default  outside of the Chapter 11 Proceedings  without  obtaining  relief
      from the automatic stay from the Bankruptcy Court. In addition,  under the
      Bankruptcy Code, the Company may assume or reject executory  contracts and
      unexpired leases,  including lease obligations.  Parties affected by these
      rejections  may file claims with the Bankruptcy  Court in accordance  with
      the  reorganization   process.  The  review  of  the


                                       6
<PAGE>

      Company's  executory  contracts  and unexpired  leases and decisions  with
      respect to assuming or  rejecting  the  contracts  and the approval of the
      Bankruptcy Court are pending.

      On January 25, 2001,  the Company  received  approval from the  Bankruptcy
      Court  to pay  prepetition  and  postpetition  employee  wages,  salaries,
      benefits  and  other  employee  obligations.  The  Bankruptcy  Court  also
      approved orders providing for the joint  administration  of the Chapter 11
      Proceedings   and  granting   authority,   among  other  things,   to  pay
      postpetition  obligations  to suppliers  and other parties in the ordinary
      course of business.  Presently,  substantially all prepetition liabilities
      at the Petition Date are considered liabilities subject to compromise.

      The  Company  intends  to develop a plan of  reorganization  (the "Plan of
      Reorganization")  through  negotiation  with the  Company's  key  creditor
      constituencies  including  its  senior  secured  lender  and the  official
      unsecured   creditors   committee  when   appointed.   Substantially   all
      prepetition  liabilities  will be subject to settlement  under the Plan of
      Reorganization to be submitted by the Company.  The Plan of Reorganization
      must be voted upon by each impaired  class of creditors of the Company and
      approved by the Bankruptcy  Court. No assurance can be given regarding the
      timing of the Plan of  Reorganization,  the likelihood that such plan will
      be  developed,  or the  terms of which  such plan may be  conditioned.  In
      addition,  there can be no assurance that the Plan of Reorganization  will
      be  approved  by the  requisite  holders  of claims and  confirmed  by the
      Bankruptcy Court, or that the Plan of Reorganization  will be consummated.
      If the Company's  Plan of  Reorganization  is not accepted by the required
      number  of  impaired  creditors  and  equity  holders  and  the  Company's
      exclusive   right  to  file  and  solicit   acceptance   of  the  plan  or
      reorganization  ends, any party in interest may subsequently  file its own
      plan of reorganization for the Company. The Bankruptcy Court may confirm a
      plan of reorganization  notwithstanding  the non-acceptance of the plan by
      an impaired class of creditors or equity  holders if certain  requirements
      of the Bankruptcy Code are met.

3.    INVENTORIES

      Inventories  at December  31, 2000 and March 31,  2000 are  summarized  as
      follows:

                                       December 31,      March 31,
                                           2000             2000
                                       ------------     -----------

      Finished products                $      2,467     $    1,679
      Work-in-process                           703          1,068
      Purchased components                    5,812          7,835
                                       ------------     ----------
                                              8,982         10,582
      Reserve for obsolescence               (2,038)        (1,814)
                                       ------------     ----------
                                       $      6,944     $    8,768
                                       ============     ==========

      Inventories  at December  31,  2000  include  approximately  $1,430 of the
      Company's Internet  appliances shipped to customers pursuant to market and
      field trial  agreements.  During the nine months ended  December 31, 2000,
      sales exclude deferred revenue of approximately  $1,624 primarily  related
      to  shipments of  Grapevine  terminals  pursuant to market and field trial
      agreements with domestic telephone companies,  the recognition of which is
      subject to  acceptance  of the  terminals at the  conclusion  of the trial
      agreements.


                                       7
<PAGE>

4.    NOTES AND DEBT OBLIGATIONS PAYABLE

      As of March 31,  2000,  the  Company  was in default of certain  financial
      covenants  contained  in the  Loan  and  Security  Agreements  (the  "Loan
      Agreements")  between  the Company and its bank.  On April 12,  2000,  the
      Company  entered  into  a  Forbearance  and  Modification  Agreement  (the
      "Forbearance Agreement") with its bank that modified the terms of the Loan
      Agreements.  Under the terms of the  Forbearance  Agreement,  the maturity
      date of all indebtedness outstanding under the Loan Agreements,  including
      indebtedness outstanding under revolving credit lines, an installment note
      and a mortgage note was  accelerated to July 31, 2000. The annual interest
      rates of the  installment  note and mortgage note were  increased to 11.5%
      from  7.55% and 8.5%,  respectively.  The annual  interest  rate under the
      revolving  credit lines was  increased  from one and  one-half  percentage
      point over the bank's floating 30 day Libor Rate (7.63% at March 31, 2000)
      to two and  one-half  percentage  points above the bank's  floating  prime
      interest rate (11.5% at April 12, 2000). In addition,  the availability of
      additional  funds  under a $2,000  export  revolving  credit line (none of
      which was outstanding) and a $1,500 equipment  revolving credit line ($281
      of  which  was  outstanding)  was  cancelled.   Further,  the  Forbearance
      Agreement  permitted an overadvance of indebtedness  outstanding under the
      Company's  working capital  revolving  credit line and installment note of
      $2,800 through June 30, 2000 and $1,500 for the remainder of its term.

      Effective July 31, 2000, the Company entered into a Second Forbearance and
      Modification Agreement (the "Second Forbearance  Agreement").  Pursuant to
      the  Second  Forbearance  Agreement,  the  maturity  date of  indebtedness
      outstanding  under the Loan  Agreements was extended to September 30, 2000
      and the  fixed and  floating  interest  rates of  outstanding  notes  were
      increased to three percentage  points above the bank's prime interest rate
      (12.5% at July 31, 2000). In addition, the permitted overadvance under the
      working capital  revolving  credit line and installment note was increased
      to $2,800.

      The Second  Forbearance  Agreement  expired on  September  30,  2000,  and
      accordingly,  all obligations outstanding under the Loan Agreements became
      due and payable.  The Company  failed to pay such  obligations  and ceased
      making principal and interest payments to the bank.

      On January 12, 2001,  the bank filed a lawsuit  against the Company in the
      Circuit Court of the Twelfth  Judicial  Circuit in and for Manatee County,
      Florida  Civil  Division  (the  "Court") to  foreclose on the mortgage and
      other security  agreements on the Company's real and personal property and
      substantially all other assets of the Company (the "Collateral")  securing
      obligations  payable  to the  bank  pursuant  to  the  terms  of the  Loan
      Agreements.   The  suit  alleged  that  the  Company  failed  to  pay  its
      obligations under the loan agreements including principal of approximately
      $11,200,  non-default  interest of approximately  $509,  default interest,
      fees,  expenses and costs and breached other terms of the Loan Agreements,
      and  requested  the Court to enter a judgment  of  foreclosure,  appoint a
      receiver to take  possession and control over the Collateral and award the
      bank such other and further relief appropriate under the circumstances.

      As described in Note 2, the Company and its  subsidiaries  filed voluntary
      petitions  for  reorganization  under  Chapter  11 of  the  United  States
      Bankruptcy  Code on January 22, 2001.  Section 362 of the Bankruptcy  Code
      imposes an automatic stay that precludes the bank from taking any remedial
      action pursuant to the foreclosure suit.


                                       8
<PAGE>

5.    STOCKHOLDERS' EQUITY

      Changes in  stockholders'  equity for the nine months  ended  December 31,
      2000 are summarized as follows:

<TABLE>
<CAPTION>
                                                                            Accumulated
                                             Additional                        Other
                                   Common      Paid-in      Accumulated    Comprehensive   Treasury
                                    Stock      Capital        Deficit      Income (Loss)     Stock       Total
                                   ------    ----------     -----------    -------------   --------    --------
<S>                                 <C>       <C>            <C>                 <C>        <C>        <C>
Balance at March 31, 2000           $ 138     $ 47,423       $  (7,508)    $         23     $ (177)    $ 39,899
Exercise of stock options                           73                                                       73
Issuance of common stock
  purchase warrants                                 69                                                       69
Holding loss on marketable
  securities, net of tax                                                           (275)                   (275)
Net loss for the period                                         (6,233)                                  (6,233)
                                   ------    ---------      ----------     ------------    -------     --------
Balance at December 31, 2000        $ 138     $ 47,565       $ (13,741)    $       (252)    $ (177)    $ 33,533
                                   ======    =========      ==========     ============    =======     ========
</TABLE>

On May 1, 2000,  the Company  issued  warrants to purchase  53,827 shares of its
common  stock at a purchase  price of $2.40 per share as a retainer for services
valued at $49 to be rendered to the Company over a two-year period ending May 1,
2002.  The  warrants  are  exercisable  in whole or in part during the  two-year
period  ending  May 1, 2002 at which  time they  expire.  The  warrants  contain
anti-dilution  provisions  providing  for  adjustments  of the  number of shares
purchasable and the exercise price under certain  circumstances.  The fair value
of the warrants  (based on the  Black-Scholes  Option pricing method assuming an
expected life of two years,  a risk free interest rate of 6.6% and volatility of
77%) is being charged to operations over the life of the warrant.

On May 22, 2000,  the Company issued  warrants to purchase  18,938 shares of its
common  stock at a purchase  price of $2.475  per share in return  for  services
rendered to the Company valued at $20 (based on the Black-Scholes Option pricing
method  assuming an expected  life of three years,  a risk free interest rate of
6.6% and  volatility of 77%).  The warrants are  exercisable in whole or in part
during the five-year  period ending May 22, 2005 at which time they expire.  The
warrants  contain  anti-dilution  provisions  providing for  adjustments  of the
number of shares purchasable and the exercise price under certain circumstances.
The fair value of the warrants was charged to operations  during the nine months
ended December 31, 2000.

On October 31, 2000,  the Company  granted  options  under its 1991 Stock Option
Plan to  employees,  including  officers,  to  purchase  757,500  shares  of the
Company's  common stock at an exercise price of $.75 per share. The options were
granted  as an  incentive  to  remain  in the  employ  of the  Company,  and are
exercisable on a pro rata basis over the succeeding twenty-four (24) months.


                                       9
<PAGE>

6.    SUPPLEMENTAL CASH FLOW INFORMATION

      A summary of the Company's supplemental cash flow information for the nine
      months ended December 31, 2000 and 1999 is as follows:

                                                               2000      1999
                                                             --------  --------

      Cash paid (received) during the period for:
         Interest                                             $ 584   $   698
         Income taxes                                           (10)   (1,503)

      Non-cash investing and financing activities:
         Equipment acquired under capital lease
           obligations                                          140        --
         Receipt of marketable securities to satisfy
           accounts receivable resulting in an increase
           in other current assets and a reduction in
           accounts receivable                                   --       287
         Unrealized loss on marketable securities
           resulting in an decrease in stockholders'
           equity and other current assets                      275       114
         Tax benefit from unrealized loss on marketable
           securities resulting in an increase in current
           deferred tax assets and stockholders' equity          --        42
         Compensation related to exercised stock options
           resulting in an increase in stockholders's equity
           and a decrease in accrued expenses                    10        --
         Increase in prepaid expenses and stockholders'
           equity upon issuance of common stock
           purchase warrants                                     45        --

7.    LOSS PER SHARE

      Loss  per  common  share is  computed  in  accordance  with  Statement  of
      Financial  Accounting  Standards No. 128, Earnings Per Share ("SFAS 128").
      SFAS 128  requires  disclosure  of basic  earnings  (loss)  per  share and
      diluted  earnings  (loss) per share.  Basic  earnings  (loss) per share is
      computed by dividing net income by the weighted  average  number of shares
      of common stock outstanding during the period. Diluted earnings (loss) per
      share is computed by dividing net income by the weighted average number of
      shares of common stock  outstanding  and potential  dilutive common shares
      outstanding during the period.

      The weighted average number of shares of common stock  outstanding used to
      compute basic loss per share for the three months ended  December 31, 2000
      and 1999 was 13,847,024 shares and 13,509,258  shares,  respectively.  The
      weighted  average  number of shares of common  stock  outstanding  used to
      compute  basic loss per share for the nine months ended  December 31, 2000
      and 1999 was 13,787,592 shares and 13,502,881 shares, respectively.  There
      were no potential  dilutive  common  shares  outstanding  during the three
      months and nine months  ended  December  30, 2000 and 1999 for purposes of
      computing diluted loss per share.


                                       10
<PAGE>

8.    DISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION

      The Company has two business segments,  the public payphone market segment
      and  the  public  Internet  appliance  market  segment,  which  is in  the
      development  stage.  The  Company's  customers  include  private  payphone
      operators and telephone companies in the United States and certain foreign
      countries and its distributors.  The Company evaluates segment performance
      based on gross profit and its overall  performance based on profit or loss
      from operations before income taxes. Previously,  the Company analyzed its
      business based on three customer groups  consisting of domestic  telephone
      companies,   domestic   private  payphone   operators  and   international
      customers.  Because  of the  development  of its  Internet  business,  the
      Company now  analyzes  its business  based on two  segments,  the payphone
      market segment and the Internet appliance market segment.

      The products and services provided by each of the reportable  segments are
      similar in nature,  particularly with regard to public  telecommunications
      terminals and related services.  However, the public terminals provided by
      the  Internet   appliance   segment   provide  the  capability  to  access
      internet-based  content in  addition  to their  public  telecommunications
      capability  and the services of this  segment  include the  management  of
      content delivered to the interactive terminals.  There are no transactions
      between the reportable segments.  External customers account for all sales
      revenue of each reportable  segment.  The information  that is provided to
      the  chief  operating  decision  maker to  measure  the  profit or loss of
      reportable  segments  includes  sales,  cost of sales  and  gross  profit.
      General  operating  expenses,  including  depreciation  on shared  assets,
      amortization  of  goodwill  and  intangible  assets and  interest  are not
      included in the information provided to the chief operating decision maker
      to measure performance of reportable segments.

      The sales revenue and gross profit (loss) of each  reportable  segment for
      the three months ended December 31, 2000 and 1999 is set forth below:

                                          2000                   1999
                                    ------------------     -----------------
                                               Gross
                                               Profit                 Gross
                                     Sales     (Loss)       Sales     Profit
                                     -----     ------       -----     ------
      Payphone segment              $5,726    $  1,586     $12,669    $3,495
      Internet appliance segment       104        (449)         --        --
                                    ------    --------     -------    ------
                                    $5,830    $  1,137     $12,669    $3,495
                                    ======    ========     =======    ======

      The sales revenue and gross profit (loss) of each  reportable  segment for
      the nine months ended December 31, 2000 and 1999 is set forth below:

                                          2000                   1999
                                    ------------------     -----------------
                                               Gross
                                               Profit                 Gross
                                     Sales     (Loss)       Sales     Profit
                                     -----     ------       -----     ------
      Payphone segment             $20,966    $  5,799     $38,878   $10,130
      Internet appliance segment     1,227      (1,366)         --        --
                                   -------    --------     -------   -------
                                   $22,193    $  4,433     $38,878   $10,130
                                   =======    ========     =======   =======


                                       11
<PAGE>

      The sales  revenue of each  reportable  segment by customer  group for the
      three  months  and  nine  months  ended  December  31,  2000  and  1999 is
      summarized as follows:

                                     Three Months Ended       Nine Months Ended
                                          December 31,            December 31,
                                     ------------------     --------------------
                                        2000      1999        2000        1999
                                     --------   -------     --------    --------
      Payphone segment:
        Telephone companies          $ 4,041    $ 7,415     $14,542     $22,808
        Private operators and
           distributors                  685      3,724       3,988      10,614
        International operators        1,000      1,530       2,436       5,456
      Internet appliance segment:
        International operators           43         --       1,038          --
        Telephone companies               61         --         166          --
        Private operators and
           distributors                   --         --          23          --
                                     -------    -------     -------     -------
                                     $ 5,830    $12,669     $22,193     $38,878
                                     =======    =======     =======     =======

      The  Company  does not  allocate  assets or other  corporate  expenses  to
      reportable  segments. A reconciliation of segment gross profit information
      to the Company's  consolidated  financial  statements for the three months
      and nine months ended December 31, 2000 and 1999 is as follows:

                                     Three Months Ended       Nine Months Ended
                                         December 31,            December 31,
                                     ------------------     --------------------
                                        2000      1999        2000        1999
                                     --------   -------     --------    --------
      Total gross profit of
        reportable segments          $ 1,137    $ 3,495    $  4,433    $ 10,130
      Unallocated corporate
        expenses                      (3,207)    (5,832)    (10,666)    (15,406)
                                     -------    -------    --------    --------
      Loss before income taxes       $(2,070)   $(2,337)   $ (6,233)   $ (5,276)
                                     =======    =======    ========    ========


                                       12
<PAGE>

      Information  with  respect  to  sales  of  products  and  services  of the
      Company's  reportable  segments  during the three  months and nine  months
      ended December 31, 2000 and 1999 is set forth below:

                                        Three Months Ended    Nine Months Ended
                                            December 31,         December 31,
                                        ------------------  --------------------
                                           2000     1999      2000      1999
                                        --------  -------   --------  --------
      Payphone segment:
        Payphone terminals              $ 1,171   $ 3,025   $ 5,757   $11,034
        Printed circuit board control
          modules and kits                1,833     3,780     7,109    11,723
        Components, assemblies and
          other products                  1,161     1,179     2,655     4,527
        Repair, refurbishment and
          upgrade services                1,500     4,361     4,996    10,670
        Other services                       61       324       449       924
      Internet appliance segment:
        Internet appliance terminals         44        --     1,156        --
        Service and advertising
          revenues                           60        --        71        --
                                        -------   -------   -------   -------
                                        $ 5,830   $12,669   $22,193   $38,878
                                        =======   =======   =======   =======

      The Company  markets its products and services in the United States and in
      certain foreign countries.  The Company's  international business consists
      of export  sales,  and the  Company  does not  presently  have any foreign
      operations.  Sales by  geographic  region  for the three  months  and nine
      months ended December 31, 2000 and 1999 were as follows:

                                        Three Months Ended    Nine Months Ended
                                            December 31,         December 31,
                                        ------------------  --------------------
                                           2000     1999      2000      1999
                                        --------  -------   --------  --------
      United States                     $ 4,787   $11,139   $18,648   $33,422
      Canada                                 43       427     1,313     2,272
      Latin America                       1,000     1,088     2,104     2,707
      Europe, Middle East and Africa         --        --        --       411
      Asia Pacific                           --        15       128        66
                                        -------   -------   -------   -------
                                        $ 5,830   $12,669   $22,193   $38,878
                                        =======   =======   =======   =======


                                       13
<PAGE>

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

All dollar amounts,  except per share data, in this Management's  Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations  are  stated in
thousands.

Forward Looking Statements

The statements  contained in this report which are not historical  facts contain
forward looking information, usually containing the words "believe", "estimate",
"expect" or similar  expressions,  regarding the Company's  financial  position,
business  strategy,  plans,  projections  and  future  performance  based on the
beliefs, expectations,  estimates,  intentions or anticipations of management as
well as assumptions made by and information  currently  available to management.
Such  statements  reflect our current view with respect to future events and are
subject to risks,  uncertainties and assumptions related to various factors that
could cause our actual results to differ  materially  from those expected by us,
including competitive factors,  customer relations,  the risk of obsolescence of
our  products,  relationships  with  suppliers,  the risk of adverse  regulatory
action  affecting our business or the business of our customers,  changes in the
international  business  climate,  product  introduction and market  acceptance,
general economic  conditions,  seasonality,  changes in industry practices,  the
outcome of the bankruptcy  proceeding,  and other uncertainties detailed in this
report and in our other filings with the Securities and Exchange Commission.

Bankruptcy Proceedings

On January 22, 2001,  Elcotel,  Inc. and its subsidiaries  (the "Company") filed
voluntary petitions in the United States Bankruptcy Court in the Middle District
of Florida (the  "Bankruptcy  Court") under Chapter 11 of Title 11 of the United
States  Bankruptcy  Code (the  "Bankruptcy  Code").  The  Company  is  presently
operating  its  business  as  a  debtor-in-possession  and  is  subject  to  the
jurisdiction  of  the  Bankruptcy  Court  while  a  plan  of  reorganization  is
formulated. The Company's need to seek relief afforded by the Bankruptcy Code is
due, in part, to debt associated with continuing investment in wireless products
for its  payphone  business and  developing  its  Internet  appliance  business,
significant  financial  pressure  created by a shrinking  payphone  market and a
foreclosure  action  commenced by the  Company's  senior  secured  lender.  As a
debtor-in-possession,  the Company is authorized to operate its business but may
not engage in transactions  outside its ordinary course of business  without the
approval of the Bankruptcy Court.

The Company's unaudited  consolidated financial statements have been prepared on
a going concern basis,  which assumes  continuity of operations and realizations
of assets and liquidation of liabilities in the ordinary course of business. The
Company's  unaudited  consolidated  financial  statements  do  not  include  any
adjustments  reflecting the possible  future effects on the  recoverability  and
classification   of  assets  or  the   amount  of  assets  or  the   amount  and
classification of liabilities that may result from the  uncertainties  discussed
herein.  The  Company's  recent  operating  losses,  liquidity  issues  and  the
reorganization  proceedings  raise substantial doubt about the Company's ability
to  continue  as a going  concern.  The  ability of the Company to continue as a
going  concern  and the  appropriateness  of using  the going  concern  basis of
accounting  is dependent  upon,  among other things,  confirmation  of a plan of
reorganization,  success of future  operations  after such  confirmation and the
ability to generate  sufficient cash flow from operations and financing  sources
to meet obligations.


                                       14
<PAGE>

Results of Operations

                  Three Months Ended December 31, 2000 Compared
                   to the Three Months Ended December 31, 1999

We  reported  a net loss of $2,070,  or $.15 per  diluted  share,  for the three
months  ended  December 31, 2000 on net sales and revenues of $5,830 as compared
to a net loss of $1,484  ($2,337  before  income tax  benefits,  as  compared to
recognizing  no income tax benefits  during the three months ended  December 31,
2000),  or $.11 per diluted share,  on net sales and revenues of $12,669 for the
three months ended  December  31, 1999.  Operating  results for the three months
ended  December 31, 2000 as compared to the three months ended December 31, 1999
reflect a decline in sales and revenues of 54%, a decline in gross profit of 67%
and a decline in other costs and expenses of 45%.

The  following  table shows  certain  line items in the  accompanying  unaudited
consolidated statements of operations and other comprehensive loss for the three
months ended  December  31, 2000 (third  quarter of fiscal 2001) and 1999 (third
quarter of fiscal 2000) that are discussed below together with amounts expressed
as a percentage of sales.

                                           Percent                 Percent
                                  2000     of Sales      1999     of Sales
                                 ------    --------    --------   --------

Revenues and net sales           $5,830        100%    $ 12,669       100%
Cost of revenues and sales        4,693         80        9,174        72
Gross profit                      1,137         20        3,495        28
Selling, general and
  administrative expenses         1,584         27        2,554        20
Engineering, research and
  development expenses              702         12        1,850        15
Restructuring charges                --         --          700         6
Interest expense                    423          7          202         2
Income tax (benefit)                 --         --         (853)       (7)

Revenues  and net sales by  business  segment and  customer  group for the three
months ended  December 31, 2000 and 1999  together with the increase or decrease
and with the increase or decrease  expressed as a percentage change is set forth
below:

                                                         Increase   Percentage
                                  2000      1999        (Decrease)    Change
                                -------   --------      ----------  ----------

Payphone Business:
  Telephone companies           $ 4,041   $  7,415      $(3,374)      (46%)
  Private operators and
    distributors                    685      3,724       (3,039)      (82)
  International operators         1,000      1,530         (530)      (35)
Internet Appliance Business:
  International operators            43         --           43        --
  Telephone companies                61         --           61        --
                                -------   --------      -------       ----
                                $ 5,830   $ 12,669      $(6,839)      (54%)
                                =======   ========      =======       ====

The  decrease in revenues  and net sales of our  payphone  business is primarily
attributable  to a decrease in volume of product sales and services  provided to
all customer groups. We believe that the decreases in


                                       15
<PAGE>

domestic  product sales and service  revenues are primarily  attributable to the
contraction of the installed base of payphone  terminals in the domestic  market
and to declining  revenues of payphone  service  providers  caused by increasing
usage of  wireless  services  and a  higher  volume  of  dial-around  calls.  In
addition,  continuing  downward pricing pressures  contributed to the decline in
revenues and net sales to domestic  customers.  The decrease in revenues and net
sales  of  our  payphone  business  to  international   operators  is  primarily
attributable  to a decrease  in export  volume of payphone  terminals  to Canada
Payphone  Corporation,  which we believe is attributable to the  introduction of
our Internet terminal appliances.

We  began  commercial   shipments  of  our  Internet  terminal  appliances  (the
GrapevineTM  terminals)  at the end of fiscal  year 2000 under a  contract  with
Canada Payphone Corporation. No sales of Grapevine terminals were made to Canada
Payphone  Corporation  during the three months ended December 31, 2000, which we
believe is primarily  attributable to delays in field deployments related to our
program to incorporate design changes and enhancements suggested by field trials
and initial deployments of Grapevine terminals last quarter.  Sales and revenues
for the three  months  ended  December  31, 2000  exclude  deferred  revenues of
approximately  $1,624  primarily  related to  shipments  of  Grapevine  terminal
pursuant to market and field trial agreements with domestic telephone companies,
the  recognition  of which is  subject to  acceptance  of the  terminals  at the
conclusion of the trial  agreements.  Sales of Grapevine  terminals to telephone
companies during the third quarter of fiscal 2001 were made under a market trial
agreement  with  a  major  inter-exchange   carrier.   Revenues  from  Grapevine
back-office services accounted for 42% of revenues and net sales of our Internet
appliance business in the third quarter of fiscal 2001.

Revenues  and net sales of products  and  services  for the three  months  ended
December 31, 2000 and 1999  together  with the increase or decrease and with the
increase or decrease expressed as a percentage change is set forth below:

                                                           Increase   Percentage
                                        2000      1999    (Decrease)    Change
                                        ----      ----    ----------  ----------
Products:
   Payphone terminals                 $ 1,171   $  3,025   $(1,854)      (61%)
   Internet terminal appliances            44         --        44        --
   Printed circuit board control
      modules and kits                  1,833      3,780    (1,947)      (52)
   Components, assemblies and other
      products                          1,161      1,179       (18)       (2)
Services:
   Repair, refurbishment and upgrade
      services                          1,500      4,361    (2,861)      (66)
   Other services                         121        324      (203)      (63)
                                      -------   --------   -------       ----
                                      $ 5,830   $ 12,669   $(6,839)      (54%)
                                      =======   ========   =======       ====

Cost of sales and gross profit margins as a percentage of net sales and revenues
approximated 80% and 20%, respectively,  for the third quarter of fiscal 2001 as
compared to 72% and 28%, respectively, for the third quarter of fiscal 2000. The
reduction in gross profit as a percent of sales is primarily  due to the startup
of service  operations  of our Internet  appliance  business.  Gross profit from
product sales  increased to  approximately  25% of sales during the three months
ended  December 31, 2000 from 24% of sales for the three  months ended  December
31, 1999 primarily due to the Company's cost reduction initiatives. Gross profit
from services decreased to approximately 6% of revenues for the third quarter of
fiscal 2001 from  approximately  19% of revenues for the third quarter of fiscal
2000 primarily due to the establishment of our Grapevine back-office  management
operations.  We believe that our product and services  gross profit margins will
improve as the  manufacturing  volume and installed base of Grapevine  terminals


                                       16
<PAGE>

increases.  However, there can be no assurance that our Grapevine volume and the
installed  base of  Grapevine  terminals  will  increase,  and or that our gross
profit margins will improve.

Sales and gross profit  (loss) of each  reportable  segment for the three months
ended December 31, 2000 and 1999 is set forth below:

                                           2000                   1999
                                    -------------------    -----------------
                                               Gross
                                               Profit                 Gross
                                     Sales     (Loss)      Sales      Profit
                                     -----     ------      -----      ------
Payphone segment                    $5,726    $  1,586     $12,669    $3,495
Internet appliance segment             104        (449)         --        --
                                    ------    --------     -------    ------
                                    $5,830    $  1,137     $12,669    $3,495
                                    ======    ========     =======    ======

Gross  profit  from  our  payphone   business   remained   fairly   constant  at
approximately  28% of net sales and revenues for the three months ended December
31, 2000 and 1999.  During the three months ended December 31, 2000, we incurred
a negative gross profit in our Internet  appliance business primarily because of
the establishment of our back-office  management  operations and the start-up of
manufacturing  Grapevine  terminals.  Attaining a gross  profit in our  Internet
appliance  business is primarily  dependent  upon our ability to increase  sales
volume and achieve a volume of  terminal  installations  sufficient  to generate
recurring  service  revenues  in  excess  of the  fixed  operating  costs of our
back-office management operations.

Selling, general and administrative expenses decreased by $970, or approximately
38%, during the third quarter of fiscal 2001 as compared to the third quarter of
fiscal 2000,  and  represented  27% of net sales and revenues  versus 20% of net
sales and revenues in the third quarter of fiscal 2000. The decrease in selling,
general and administrative  expenses is primarily attributable to a reduction in
personnel and other operating  expenses as a result of the  restructuring of our
payphone  business  during the latter  part of fiscal  2000 and again in October
2000,  and a decline  in  variable  selling  expenses,  which is  related to the
decline  in sales.  Professional  fees of  approximately  $243,000  incurred  in
connection  with the  bankruptcy  proceedings  offset the  decline  in  selling,
general and administrative expenses resulting from our restructuring efforts.

Engineering,   research  and  development   expenses  decreased  by  $1,148,  or
approximately  62%,  during the third  quarter of fiscal 2001 as compared to the
third quarter of fiscal 2000 as a result of a reduction in resources  devoted to
the development of our e-Prism  back-office  management system and our Grapevine
terminals  released to the market at the end of fiscal 2000 and a  restructuring
of these  activities  during the first and third  quarters  of fiscal  2001.  In
addition,  the Company ceased capitalizing software development costs related to
the  development  of its e-Prism  back-office  management  system and  Grapevine
terminals  during  the  third  quarter  of  fiscal  2001.  Capitalized  software
development costs approximated $1,154 during the third quarter of fiscal 2000.

During the three months ended December 31, 1999, we implemented a  restructuring
plan to close our  Sarasota,  Florida  manufacturing  facility  and  consolidate
manufacturing operations, resize our core payphone business operations, reorient
our distribution strategy and begin to build support operations to introduce our
public access Internet appliance products to the market and provide the services
related  thereto.   In  connection  with  this   restructuring,   we  recognized
restructuring  charges of $700 during the three months ended  December 31, 1999.
These restructuring charges consisted of estimated employee


                                       17
<PAGE>

termination benefits under severance and benefit arrangements of $575 and future
lease  payments  of $125  related  to the  closure  of  leased  facilities.  The
restructuring  charges do not include the  recognition  of impairment  losses of
$148  related  to closed  facilities  and the  Company's  decision  to abandon a
software  development  project  related  to  certain  discontinued   activities.
Impairment  losses of $140 and $8 are  classified as  engineering,  research and
development   expenses  and  selling,   general  and  administrative   expenses,
respectively, during the three months ended December 31, 1999. Effective October
31, 2000, the Company restructured its business and terminated the employment of
approximately 40 employees to reduce its costs and expenses. The Company did not
recognize any restructuring  charges as a result the restructuring.  The October
2000  restructuring  is  expected to result in cost and  expense  reductions  of
approximately $1,600 annually.

The increase in net interest  expense during the third quarter of fiscal 2001 as
compared to the same quarter last year is primarily  attributable to an increase
in  the  interest  rates  under  our  bank  notes  payable  as a  result  of the
modifications  to our bank loan  agreements,  as further  described  below under
"Liquidity and Capital Resources".

During the third quarter of fiscal 2000, we recognized tax benefits of $853 on a
pre-tax loss of $2,337.  Tax benefits for the third  quarter of fiscal 2001 were
offset by an increase in the  valuation  allowance  against  deferred tax assets
because of the  uncertainty  as to  whether  we will be able to realize  the tax
benefits.

                  Nine Months Ended December 31, 2000 Compared
                   to the Nine Months Ended December 31, 1999

We reported a net loss of $6,233, or $.45 per diluted share, for the nine months
ended  December  31, 2000 on net sales and  revenues of $22,193 as compared to a
net  loss  of  $3,408  ($5,276  before  income  tax  benefits,  as  compared  to
recognizing  no income tax benefits  during the nine months  ended  December 31,
2000),  or $.25 per diluted share,  on net sales and revenues of $38,878 for the
nine months ended December 31, 1999. Operating results for the nine months ended
December 31, 2000 as compared to the nine months ended December 30, 1999 reflect
a decline  in sales of 43%,  a decline  in gross  profit of 56% and a decline in
other costs and expenses of 31%.

The  following  table shows  certain  line items in the  accompanying  unaudited
consolidated  statements of operations and other comprehensive loss for the nine
months  ended  December  31, 2000  (first  nine months of fiscal  2001) and 1999
(first  nine  months of fiscal  2000) that are  discussed  below  together  with
amounts expressed as a percentage of sales.

                                                    Percent              Percent
                                           2000    of Sales      1999   of Sales
                                         -------   --------   --------  --------
Revenues and net sales                   $22,193     100%     $ 38,878    100%
Cost of revenues and sales                17,760      80        28,748     74
Gross profit                               4,433      20        10,130     26
Selling, general and administrative
  expenses                                 5,403      24         7,888     20
Engineering, research and
  development expenses                     2,588      12         4,730     12
Restructuring charges                         --      --           700      2
Interest expense                           1,168       5           513      1
Income tax (benefit)                          --      --        (1,868)    (5)


                                       18
<PAGE>

Revenues  and net sales by  business  segment  and  customer  group for the nine
months ended  December 31, 2000 and 1999  together with the increase or decrease
and with the increase or decrease  expressed as a percentage change is set forth
below:

                                                          Increase   Percentage
                                      2000      1999     (Decrease)    Change
                                      ----      ----     ----------    ------
Payphone Business:
  Telephone companies               $14,542   $ 22,808    $ (8,266)    (36%)
  Private operators and
    distributors                      3,988     10,614      (6,626)    (62)
  International operators             2,436      5,456      (3,020)    (55)
Internet Appliance Business:
  International operators             1,038         --       1,038      --
  Telephone companies                   166         --         166      --
  Private operators and
    distributors                         23         --          23      --
                                    -------   --------    --------     ----
                                    $22,193   $ 38,878    $(16,685)    (43%)
                                    =======   ========    ========     ====

The decrease in revenues  and net sales of our  payphone  business for the first
nine  months of fiscal  2001 as compared to the first nine months of fiscal 2000
is primarily attributable to a decrease in volume. We believe that the decreases
are  primarily  attributable  to  same  industry  factors  that  influenced  our
performance  for the third  quarter  of  fiscal  2001 as  compared  to the third
quarter of fiscal 2000 as explained above.

During the nine months ended  December 31, 2000,  sales of Grapevine  terminals,
which were  released  to the market  during the latter part of fiscal  2000,  to
Canada Payphone Corporation accounted for the majority of revenues and net sales
of  our  Internet  appliance  business  to  international  operators.  Sales  of
Grapevine terminals to telephone  companies,  private operators and distributors
were  made  under  market  trial  agreements,   including  those  with  a  major
inter-exchange carrier and two of the regional telephone companies, and have not
generated  any  significant  revenues.  However,  during the nine  months  ended
December  31, 2000,  sales  exclude  deferred  revenue of  approximately  $1,624
primarily  related to shipments of  Grapevine  terminals  pursuant to market and
field trial  agreements with domestic  telephone  companies,  the recognition of
which is subject to acceptance  of the terminals at the  conclusion of the trial
agreements.  Also, as previously explained,  sales of Grapevine terminals during
the nine months ended December 31, 2000 were negatively  affected by our program
to  incorporate  design changes and  enhancements  suggested by field trials and
initial deployments of Grapevine terminals,  which we believe have delayed field
deployments by Canada Payphone Corporation.


                                       19
<PAGE>

Revenues  and net sales of  products  and  services  for the nine  months  ended
December 31, 2000 and 1999  together  with the increase or decrease and with the
increase or decrease expressed as a percentage change is set forth below:

                                                          Increase    Percentage
                                    2000      1999        (Decrease)    Change
                                    ----      ----        ----------    ------
Products:
   Payphone terminals             $ 5,757   $ 11,034    $ (5,277)       (48%)
   Internet terminal appliances     1,156         --       1,156         --
   Printed circuit board control
      modules and kits              7,109     11,723      (4,614)       (39)
   Components, assemblies and
      other products                2,655      4,527      (1,872)       (41)
Services:
   Repair, refurbishment and
      upgrade services              4,996     10,670      (5,674)       (53)
   Other services                     520        924        (404)       (44)
                                  -------   --------    --------        ----
                                  $22,193   $ 38,878    $(16,685)       (43%)
                                  =======   ========    ========        ====

Cost of sales and gross profit margins as a percentage of net sales and revenues
approximated 80% and 20%, respectively, for the first nine months of fiscal 2001
as  compared to 74% and 26%,  respectively,  for the first nine months of fiscal
2000.  Gross profit from product sales  declined to  approximately  24% of sales
during the nine months  ended  December  31, 2000 from 31% of sales for the nine
months  ended   December  31,  1999  primarily  due  to:  (i)  the  start-up  of
manufacturing Grapevine terminals;  (ii) the decrease in volume; and (iii) lower
average  prices,  which  were  partially  offset  by cost  reductions  from  the
restructuring of operations during the latter part of fiscal 2000 and during the
third quarter of fiscal 2001 and a decrease in obsolescence  provisions of $545.
Gross profit from  services  decreased to  approximately  7% of revenues for the
first nine months of fiscal 2001 from  approximately  14% of sales for the first
nine months of fiscal 2000 primarily due to the  establishment  of our Grapevine
back-office management  operations,  the impact of which was partially offset by
improved margins from repair and refurbishment services, including a decrease in
obsolescence provisions of $229.

Sales and gross  profit  (loss) of each  reportable  segment for the nine months
ended December 31, 2000 and 1999 is set forth below:

                                        2000                    1999
                                  ------------------     ------------------
                                              Gross
                                             Profit                  Gross
                                   Sales     (Loss)       Sales      Profit
                                   -----     ------       -----      ------
Payphone segment                  $20,966   $  5,799     $38,878    $10,130
Internet appliance segment          1,227     (1,366)         --         --
                                  -------   --------     -------    -------
                                  $22,193   $  4,433     $38,878    $10,130
                                  =======   ========     =======    =======

Gross profit from our payphone  business  increased to approximately  28% of net
sales  and  revenues   for  the  nine  months  ended   December  31,  2000  from
approximately  26% of net sales and revenues for the nine months ended  December
31, 1999  primarily  due to the decrease in  obsolescence  provisions,  improved
margins  from repair and  refurbishment  services and cost  reductions  from the
restructuring  of operations  during the latter part of fiscal 2000,  which were
partially  offset by the impact of lower  volume  and  average  selling  prices.
During the nine months ended  December 31,  2000,  we incurred a negative  gross
profit in our Internet appliance business primarily because of the establishment
of our back-office management operations.


                                       20
<PAGE>

Selling,   general  and   administrative   expenses   decreased  by  $2,485,  or
approximately 32%, during the nine months ended December 31, 2000 as compared to
the nine months ended  December 31, 1999, and  represented  24% of net sales and
revenues  versus  20% of net sales and  revenues  last  year.  The  decrease  in
selling,  general and  administrative  expenses is primarily  attributable  to a
reduction  in  personnel  and  other  operating  expenses  as a  result  of  the
restructuring of our payphone business during the latter part of fiscal 2000 and
during the third quarter of fiscal 2001, current year cost reduction initiatives
and a decline in variable selling  expenses,  which is related to the decline in
sales.

Engineering,   research  and  development   expenses  decreased  by  $2,142,  or
approximately  45%,  during the first nine  months of fiscal 2001 as compared to
the first nine  months of fiscal 2000 as a result of a  reduction  in  resources
devoted to the development of our e-Prism back-office  management system and our
Grapevine  terminals  released  to the  market at the end of  fiscal  2000 and a
restructuring of these activities  during the first and third quarters of fiscal
2001. In addition, software development costs capitalized during the nine months
ended  December  31,  2000  declined  by $2,413 to $667 from $3,080 for the nine
months ended December 31, 1999.

During  the  nine  months  ended  December  31,  1999,  the  Company  recognized
restructuring  charges of $700 as described above. No restructuring charges were
recognized in connection with restructuring efforts taken during the nine months
ended December 31, 2000.

The increase in net interest  expense  during the nine months ended December 31,
2000 as compared to the same period last year is  primarily  attributable  to an
increase in the interest  rates under our bank notes  payable as a result of the
modifications  to our bank loan  agreements,  as further  described  below under
"Liquidity and Capital  Resources," and an increase in the  amortization of debt
issuance expenses of $178.

During the nine months ended  December 31, 1999, we  recognized  tax benefits of
$1,868 on a pre-tax  loss of $5,276.  Tax  benefits  for the nine  months  ended
December 31, 2000 were offset by an increase in the valuation  allowance against
deferred tax assets because of the  uncertainty as to whether we will be able to
realize the tax benefits.

Impact of Inflation

The  Company's  primary  costs,  inventory and labor,  increase with  inflation.
However,  the Company does not believe that  inflation and changing  prices have
had a material impact on its business.

Liquidity and Capital Resources

Liquidity.  Under the terms of bank loan  agreements  as amended  pursuant  to a
Forbearance  and  Modification  Agreement  dated  April 12,  2000 and as further
amended by a Second  Forbearance and Modification  Agreement  effective July 31,
2000 (the "Loan Agreements"),  our bank debt, including indebtedness outstanding
under  revolving  credit  lines,  an  installment  note  and  a  mortgage  note,
aggregating  $11,198  became due and payable on September 30, 2000.  The Company
failed to pay such obligations and also ceased making any principal and interest
payments to the bank.

On January 12, 2001, the bank filed a lawsuit against the Company in the Circuit
Court of the Twelfth Judicial  Circuit in and for Manatee County,  Florida Civil
Division  (the  "Court")  to  foreclose  on  the  mortgage  and  other  security
agreements on the Company's  real and personal  property and  substantially  all
other assets of the Company (the "Collateral")  securing  obligations payable to
the bank pursuant to the


                                       21
<PAGE>

terms of the Loan  Agreements.  The suit alleged that the Company  failed to pay
its obligations under the Loan Agreements  including  principal of approximately
$11,200,  non-default  interest of approximately  $509, default interest,  fees,
expenses  and  costs  and  breached  other  terms  of the Loan  Agreements,  and
requested  the Court to enter a judgment of  foreclosure,  appoint a receiver to
take  possession  and control over the  Collateral and award the bank such other
and further relief appropriate under the circumstances.

On January 22, 2001, the Company and its subsidiaries filed voluntary  petitions
for  reorganization  under Chapter 11 of the United States  Bankruptcy Code (the
"Bankruptcy  Proceedings").  Section  362  of the  Bankruptcy  Code  imposes  an
automatic stay that precludes the bank from taking any remedial  action pursuant
to the  foreclosure  suit. The Company is presently  operating its business as a
debtor-in-possession  and is subject to the jurisdiction of the Bankruptcy Court
while a plan of reorganization is formulated.  The Company's need to seek relief
afforded  by the  Bankruptcy  Code is due,  in  part,  to debt  associated  with
continuing  investment  in  wireless  products  for its  payphone  business  and
developing  its Internet  appliance  business,  significant  financial  pressure
created by a shrinking  payphone market and the foreclosure  action commenced by
the bank.  As a  debtor-in-possession,  the Company is authorized to operate its
business  but may not engage in  transactions  outside  its  ordinary  course of
business without the approval of the Bankruptcy Court.

During the nine months ended  December 31, 2000,  we used an aggregate of $3,061
of cash to fund  operating  losses,  net of non-cash  charges and  credits,  and
investing  activities  of  $775  related  primarily  to our  Internet  appliance
business.  These cash  requirements were financed from cash flows and reductions
in net operating assets of our payphone  business.  During the nine months ended
December 31, 2000, we restructured  the business to reduce costs and expenses to
a level we believe will generate positive cash flows.  However,  there can be no
assurance  that the cost  reductions  we effected will be sufficient to generate
positive  cash flows since our cash flows are heavily  dependent on the level of
our sales and related gross profit,  and our ability to manage  working  capital
requirements.

We measure our liquidity based upon the amount of our cash balances and funds we
are able to borrow under credit lines and/or funds available from other external
financing  sources.  At December 31, 2000, our cash balances  aggregated $2,169,
and we have no sources of external financing.

The accompanying  unaudited consolidated financial statements have been prepared
on  a  going  concern  basis,   which  assumes   continuity  of  operations  and
realizations  of assets and liquidation of liabilities in the ordinary course of
business.  The unaudited  consolidated  financial  statements do not include any
adjustments  reflecting the possible  future effects on the  recoverability  and
classification   of  assets  or  the   amount  of  assets  or  the   amount  and
classification of liabilities that may result from the  uncertainties  discussed
herein.  The  Company's  recent  operating  losses,  liquidity  issues  and  the
reorganization  proceedings  raise substantial doubt about the Company's ability
to  continue  as a going  concern.  The  ability of the Company to continue as a
going  concern  and the  appropriateness  of using  the going  concern  basis of
accounting  is dependent  upon,  among other things,  confirmation  of a plan of
reorganization,  success of future  operations  after such  confirmation and the
ability to generate  sufficient cash flow from operations and financing  sources
to meet obligations.

Financing  Activities.  Historically,  we have  funded our  operations,  working
capital  requirements and capital  expenditures  from internally  generated cash
flows and funds,  if any,  available  under bank credit lines.  Our credit lines
have been used to finance capital expenditures,  increases in accounts and notes
receivable and  inventories  and decreases in bank overdrafts (as drafts clear),
accounts payable and accrued liability  obligations to the extent permitted when
such requirements exceed cash provided by operations,  if any. We have also used
the financing  available under bank credit lines to fund operations and payments
on long-term debt when necessary.


                                       22
<PAGE>

At December 31, 2000 and March 31, 2000,  outstanding  bank debt under a $10,000
working  capital  line was  $6,095,  and  outstanding  bank debt  under a $4,000
installment note was $3,072 and $3,322,  respectively.  Outstanding indebtedness
under a mortgage  note was $1,750 and $1,762 at December  31, 2000 and March 31,
2000, respectively. We also had outstanding indebtedness of $281 under a capital
equipment  credit line at December  31, 2000 and March 31,  2000.  As  explained
above, our bank indebtedness became due and payable on September 30, 2000.

Pursuant to the terms of the Loan  Agreements,  the annual  interest rates under
the installment note and mortgage note were increased to 11.5% on April 12, 2000
and to 12.5% on July 31,  2000.  The annual  interest  rate under the  revolving
credit  lines was  increased  from one and  one-half  percentage  point over the
bank's  floating 30 day Libor rate (7.63% at March 31, 2000) to two and one-half
percentage  points above the bank's  floating  prime  interest rate on April 12,
2000  (11.5%) and to three  percentage  points above the bank's  floating  prime
interest rate on July 31, 2000 (12.5%).

Indebtedness   outstanding  under  the  Loan  Agreements  is  collateralized  by
substantially  all of our assets.  The Loan  Agreements  contain  covenants that
prohibit  or  restrict  us from  engaging  in certain  transactions  without the
consent of the bank,  including  mergers or  consolidations  and  disposition of
assets,  among  others.  Additionally,  the  Loan  Agreements  contain  specific
financial covenants, including covenants with respect to working capital and net
worth.

During the nine months ended  December 31, 1999,  net proceeds  under bank lines
aggregated  $1,191.  During the nine months ended  December  31,  2000,  we were
unable to borrow any funds under bank credit lines.

Aggregate  principal  payments under notes payable and capital lease obligations
during the nine  months  ended  December  31,  2000 and 1999 were $398 and $604,
respectively.  Also,  during the nine months ended  December 31, 1999 we reduced
our bank overdraft by $1,428.


                                       23
<PAGE>

Operating Activities.  Cash flows (used in) provided by operating activities for
the nine months ended December 31, 2000 and 1999 are summarized as follows:

                                                      2000         1999
                                                    --------     --------
Net loss                                            $(6,233)     $(3,408)
Non-cash charges and credits, net                     3,947        2,651
                                                    -------      -------
                                                     (2,286)        (757)
                                                    -------      -------
Changes in operating assets and liabilities:
Accounts and notes receivable                          (482)       1,882
Inventories                                           1,605        3,289
Accounts payable, accrued expenses and
  other current liabilities                           3,413          458
Other operating assets                                 (124)       1,783
                                                    -------      -------
                                                      4,412        7,412
                                                    -------      -------
                                                    $ 2,126      $ 6,655
                                                    =======      =======

Our operating cash flow is primarily  dependent upon  operating  results,  sales
levels and related credit terms  extended to customers and inventory  purchases,
and the changes in operating assets and liabilities related thereto.  During the
nine months ended  December 31, 2000,  we used $2,286 of cash to fund  operating
losses  net of  non-cash  charges  and  credits.  During the nine  months  ended
December 31, 1999, we used $757 of cash to fund operating losses net of non-cash
charges and credits. During the nine months ended December 31, 2000 and 1999, we
generated  $4,412  and  $7,412 of cash from  changes  in  operating  assets  and
liabilities.  Despite continued cost reductions through restructurings and other
cost reduction  initiatives (see "Results of Operations,"  above),  cash used to
fund operating losses (net of non-cash charges and credits)  increased year over
year as a result of a continued  decline in revenues and net sales. In addition,
the year over year reduction in cash generated from changes in operating  assets
and liabilities is primarily related to the level of operations.

Our operating  assets and liabilities are comprised  principally of accounts and
notes  receivable,  inventories,  accounts  payable,  accrued expenses and other
current  liabilities.  During  the nine  months  ended  December  31,  2000,  we
generated  $1,605 of cash through a reduction in inventories  and $3,413 of cash
through a net increase in accounts payable, deferred revenue, customer advances,
accrued liabilities and other current liabilities,  and we used $482 and $124 of
cash to fund  increases  in  accounts  receivable  and other  operating  assets,
respectively.  During the nine months ended December 31, 2000, customer advances
against  future  purchases  increased  by $1,167 and  deferred  revenue  related
primarily to Grapevine  terminal  shipments  increased by approximately  $1,624.
These  shipments  also affected the change in accounts and notes


                                       24
<PAGE>

receivable and inventories. In comparison, during the nine months ended December
31, 1999, we generated $1,882 and $3,289 of cash through  reductions in accounts
and  notes  receivable  and  inventories,  respectively,  $458 of  cash  from an
increase in accounts payable,  accrued expenses,  other current  liabilities and
$1,783 of cash from reductions in other operating assets,  consisting  primarily
of income taxes receivable.  Cash used to pay  restructuring and  reorganization
obligations  included  in  accrued  liabilities  during  the nine  months  ended
December 31, 2000 and 1999 aggregated $122 and $727,  respectively.  Outstanding
restructuring  and  reorganization  obligations  aggregated $318 at December 31,
2000.

Our current ratio declined to .8 to 1 at December 31, 2000 as compared to .97 to
1 at March 31,  2000  primarily  due to the net loss for the nine  months  ended
December 31, 2000 and the capital asset and  capitalized  software  expenditures
discussed  below.  Extension  of credit to  customers  and  inventory  purchases
represent our principal working capital requirements,  and material increases in
accounts and notes receivable and/or inventories could have a significant effect
on our liquidity.  Accounts and notes receivable and inventories  represented in
the aggregate  84% and 88% of our current  assets at December 31, 2000 and March
31, 2000,  respectively.  We experience varying accounts  receivable  collection
periods from our customer groups, and believe that credit losses will not have a
significant effect on future liquidity as a significant  portion of our accounts
and  notes  receivable  are  due  from  customers  with  substantial   financial
resources.  The level of our  inventories  is  dependent on a number of factors,
including  delivery  requirements  of customers,  availability  and lead-time of
components and our ability to estimate and plan the volume of our business.

Investing  Activities.  Net cash used for investing  activities  during the nine
months  ended   December  31,  2000  and  1999  amounted  to  $775  and  $4,799,
respectively.   The  Company's   capital   expenditures   consist  primarily  of
manufacturing  tooling and  equipment  and computer  equipment  required for the
support of operations and capitalized  software,  including new product software
development costs. Cash used for capital  expenditures (a significant portion of
which related to tooling during fiscal 2000)  aggregated  $108 and $1,719 during
the nine months ended December 31, 2000 and 1999, respectively.  During the nine
months ended December 31, 2000 and 1999,  capitalized software development costs
aggregated  $667 and $3,080,  respectively.  As of December 31, 2000,  we had no
significant  capital  expenditure  commitments,  nor do we expect to expend  any
significant  funds on capital assets during the next twelve months. In addition,
we have reduced the resources devoted to software  development and do not expect
to  capitalize  additional  software  development  costs  during the next twelve
months.

Prepetition  Debt.  Due to the failure to make  payments,  comply  with  certain
covenants and the commencement of the bankruptcy proceedings,  the Company is in
default on all, or  substantially  all,  of its  prepetition  debt  obligations.
Except as otherwise  may be determined by the  Bankruptcy  Court,  the automatic
stay protection afforded by the bankruptcy  proceedings prevents any action from
being taken with regard to any  defaults  under  prepetition  debt  obligations.
These  obligations  are classified as current  liabilities at December 31, 2000.
However, subsequent to December 31, 2000, a substantial portion of the Company's
liabilities,  including  debt  obligations,  will be classified  as  liabilities
subject to compromise as a result of the bankruptcy proceedings.

Effects of New Accounting Standards

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133 ("SFAS 133"),  Accounting for Derivative
Instruments and Hedging  Activities  (later amended by SFAS 138),  which will be
effective on April 1, 2001 for the Company.  SFAS 133 establishes  standards for
accounting of derivative  instruments  including certain derivative  instruments
embedded in other contracts,  and hedging activities.  SFAS 133 requires,  among
other things,  that all derivatives be recognized in the consolidated  financial
statements  as either  assets or  liabilities  and  measured at fair value.


                                       25
<PAGE>

The  corresponding  gains and losses  should be  reported  based upon the hedged
relationship,  if such a  relationship  exists.  Changes  in the  fair  value of
derivatives  that are not  designated  as  hedges  or that do not meet the hedge
accounting  criteria in SFAS 133 are  required  to be  reported  in income.  The
Company  is in  the  process  of  quantifying  the  impact  of  SFAS  133 on its
consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

We are exposed to market  risk,  including  changes in interest  rates,  foreign
currency  exchange rate risks and market risk with respect to our  investment in
the  marketable  securities  of  Canada  Payphone  Corporation.  Other  than our
investment in marketable securities of Canada Payphone Corporation with a market
value of $50 and $325 at December 31, 2000 and March 31, 2000, respectively,  we
do not hold any  material  financial  instruments  for  trading  purposes or any
investments  in cash  equivalents.  We  believe  that our  primary  market  risk
exposure  relates  to the  effects  that  changes  in  interest  rates  have  on
outstanding  debt  obligations  that do not have fixed rates of  interest.  As a
result of the amendments to our Loan  Agreements,  the annual  interest rates of
our bank  indebtedness were increased by approximately 400 basis points on April
12,  2000  and by  another  50  basis  points  on July  31,  2000.  Based on the
outstanding balance of our debt obligations at December 31, 2000, an increase in
interest  rates of 450 basis points  (4.5%) will result in  additional  interest
expense of approximately $500 annually.  In addition,  changes in interest rates
impact the fair value of our notes receivable and debt obligations.

Our  international  business  consists of export sales,  and we do not presently
have any foreign  operations.  Our export sales to date have been denominated in
U.S.  dollars and as a result,  no losses related to foreign  currency  exchange
rate fluctuations have been incurred.  There is no assurance,  however,  that we
will be able to continue to export our products in U.S. dollar  denominations or
that our business  will not become  subject to  significant  exposure to foreign
currency exchange rate risks.  Certain foreign  manufacturers  produce payphones
and payphone  assemblies for us, and related  purchases have been denominated in
U.S.  dollars.  Fluctuations  in foreign  exchange  rates may affect the cost of
these products.  However, changes in purchase prices related to foreign exchange
rate  fluctuations  to date have not been  material.  We have not  entered  into
foreign currency exchange forward contracts or other derivative  arrangements to
manage risks associated with foreign exchange rate fluctuations.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On January 12, 2001,  Bank of America (the "Bank") filed a lawsuit,  case number
2001-CA-000192,  against Elcotel,  Inc. and its subsidiaries  (the "Company") in
the Circuit  Court of the Twelfth  Judicial  Circuit in and for Manatee  County,
Florida  Civil  Division  (the  "Court") to  foreclose  on a mortgage  and other
security   agreements   on  the  Company's   real  and  personal   property  and
substantially  all  other  assets of the  Company  (the  "Collateral")  securing
obligations  payable to the Bank  pursuant  to the terms of the loan  agreements
between the Bank and the Company (the "Loan Agreements").  The suit alleged that
the Company failed to pay its obligations  under the Loan  Agreements  including
principal of approximately $11.2 million,  non-default interest of approximately
$509,000, default interest, fees, expenses and costs and breached other terms of
the Loan Agreements, and requested the Court to enter a judgment of foreclosure,
appoint a receiver to take  possession and control over the Collateral and award
the bank such other and further relief appropriate under the circumstances.


                                       26
<PAGE>

On January 22, 2001, the Company and its subsidiaries filed voluntary  petitions
in the United  States  Bankruptcy  Court in the Middle  District of Florida (the
"Bankruptcy Court") under Chapter 11 of Title 11 of the United States Bankruptcy
Code  (the  "Bankruptcy  Code").  The  voluntary  petitions  are  being  jointly
administered under case number  01-1077-8C1.  The Company is presently operating
its business as a debtor-in-possession and is subject to the jurisdiction of the
Bankruptcy  Court while a plan of  reorganization  is formulated.  The Company's
need to seek relief  afforded by the  Bankruptcy  Code is due, in part,  to debt
associated  with  continuing  investment  in wireless  products for its payphone
business and developing its Internet appliance business,  significant  financial
pressure  created by a  shrinking  payphone  market and the  foreclosure  action
commenced by the Bank. As a  debtor-in-possession,  the Company is authorized to
operate its  business  but may not engage in  transactions  outside its ordinary
course of business without the approval of the Bankruptcy Court.

Section 362 of the Bankruptcy  Code imposes an automatic stay that precludes the
Bank from taking any remedial action pursuant to the foreclosure suit.

Item 3. Defaults by the Company on its Senior Securities

Effective  July 31,  2000,  the Company  entered into a Second  Forbearance  and
Modification  Agreement  (the  "Agreement")  that modified the terms of the Loan
Agreements.  Pursuant  to the  Agreement,  the  maturity  date  of  indebtedness
outstanding  under the Loan  Agreements was extended to September 30, 2000. This
Agreement  expired on  September  30, 2000,  and  accordingly,  all  obligations
outstanding under the Loan Agreements became due and payable. The Company failed
to pay its obligations to the Bank when due. In addition,  the Company defaulted
with respect to the payment of principal and interest due in September  2000. As
of December 31, 2000, the total  principal  balance  outstanding  under the Loan
Agreements of $11,197,972 is in arrears and interest of  approximately  $500,000
is in arrears.

Item 5. Other Information

On January 22, 2001,  the Company  received  notification  from the Nasdaq Stock
Market, Inc. ("NASDAQ") that it had halted trading in the Company's common stock
in  accordance  with  Marketplace  Rule  4450(f)  pending  receipt and review of
information  requested  from the  Company.  If the Company  does not provide the
information or if NASDAQ  determines  that the  information  does not adequately
address the  notification,  the Company  will  receive a  notification  that its
common stock will be delisted in accordance with  Marketplace  Rule  4450(a)(3).
Upon receipt of a delisting notification, the Company may appeal the decision to
a NASDAQ Listing Qualifications Panel.

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits:

            The following exhibits are filed herewith as part of this report:

            Exhibit
              No.                      Description of Exhibit
            -------                    ----------------------

              27               Financial Data Schedule (Edgar Filing only)



                                       27
<PAGE>

      (b)   Reports on Form 8-K:

      During the three months  ended  December  31,  2000,  the Company  filed a
current  report on Form 8-K  reporting it that  received  notification  from the
Nasdaq Stock  Market,  Inc.  ("NASDAQ")  on November 29, 1999 that the Company's
common  stock has failed to maintain a minimum bid price of $1.00 per share over
the last 30 consecutive trading days as required by Marketplace Rule 4450(a)(5).

                                        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.

                                             Elcotel, Inc.
                                            --------------
                                             (Registrant)

Date: February 12, 2001                     By:  /s/ William H. Thompson
                                            ------------------------------
                                            William H. Thompson
                                            Senior Vice President,
                                            Administration and Finance
                                            (Principal Financial Officer)

                                            By:  /s/ Scott M. Klein
                                            ------------------------------
                                            Scott M. Klein
                                            Controller (Principal Accounting
                                            Officer)


                                       28