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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-QSB

(Mark One)

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

For the quarterly period ended May 31, 2002.

or

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-4465

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eLEC Communications Corp.(Name of Small Business Issuer as Specified in Its Charter)

New York(State or Other Jurisdiction
of Incorporation or Organization)

13-2511270(I.R.S. Employer Identification No.)543 Main Street New Rochelle, New York(Address of Principal Executive Offices)

10801(Zip Code)


Issuer's Telephone Number, Including Area Code914-633-6500

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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 ý    No o

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 15,619,282 shares of Common Stock, par value $.10 per
share, as of July 1, 2002.

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

eLEC Communications Corp. and Subsidiaries  Condensed Consolidated Balance Sheets

|                                                                      |                                                                                                 | May 31, 2002                          |           
|--------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------- | ----------
|
|Assets                                                                |                                                                                                 |                                       |           
|Current assets:                                                       |                                                                                                 |                                       |           
|                                                                      | Cash and cash equivalents                                                                       |                                       | $         
|                                                                      | Accounts receivable                                                                             |                                       |           
|                                                                      | Investment securities                                                                           |                                       |           
|                                                                      | Other investments                                                                               |                                       |           
|                                                                      | Prepaid expenses and other current assets                                                       |                                       |           
|                                                                      |                                                                                                 |                                       |           
|Total current assets                                                  |                                                                                                 |                                       | 4,161,004 
|Property, plant and equipment, net                                    |                                                                                                 |                                       | 1,980,555 
|Other assets                                                          |                                                                                                 |                                       | 461,945   
|                                                                      |                                                                                                 |                                       |           
|Total assets                                                          |                                                                                                 | $                                     | 6,603,504 
|                                                                      |                                                                                                 |                                       |           
|Liabilities and stockholders' equity deficiency                       |                                                                                                 |                                       |           
|Current liabilities:                                                  |                                                                                                 |                                       |           
|                                                                      | Secured short-term borrowings                                                                   |                                       | $         
|                                                                      | Current maturities of long-term debt and capital lease obligations                              |                                       |           
|                                                                      | Accounts payable and accrued expenses                                                           |                                       |           
|                                                                      | Taxes payable                                                                                   |                                       |           
|                                                                      |                                                                                                 |                                       |           
|Total current liabilities                                             |                                                                                                 |                                       | 13,734,410
|                                                                      |                                                                                                 |                                       |           
|Long-term debt and capital lease obligations, less current maturities |                                                                                                 |                                       | 1,239,297 
|                                                                      |                                                                                                 |                                       |           
|Stockholders' equity:                                                 |                                                                                                 |                                       |           
|                                                                      | Preferred stock, $.10 par value, 1,000,000 shares authorized Series B issued, 16 shares in 2002 |                                       |           
|                                                                      | Common stock $.10 par value, 50,000,000 shares authorized, 15,619,282 issued in 2002            |                                       |           
|                                                                      | Capital in excess of par value                                                                  |                                       |           
|                                                                      | Deficit                                                                                         |                                       |           
|                                                                      | Treasury stock at cost, 11,000 shares                                                           |                                       |           
|                                                                      | Accumulated other comprehensive income, unrealized gain on securities                           |                                       |           
|                                                                      |                                                                                                 |                                       |           
|                                                                      |                                                                                                 | Total stockholders' equity deficiency |           
|                                                                      |                                                                                                 |                                       |           
|Total liabilities and stockholders' equity                            |                                                                                                 | $                                     | 6,603,504 
|                                                                      |                                                                                                 |                                       |           

See
notes to the condensed consolidated financial statements

2

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eLEC Communications Corp. and Subsidiaries  Condensed Consolidated Statements of Operations and Comprehensive Loss  (Unaudited)

|                                                                                  |                                     | For the Six Months Ended |            | For the Three Months Ended |          
|--------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ---------- | -------------------------- | ---------
|
|Revenues                                                                          |                                     | $                        | 8,175,683  |                            | $        
|Cost of revenues                                                                  |                                     |                          | 5,484,594  |                            |          
|                                                                                  |                                     |                          |            |                            |          
|Gross profit                                                                      |                                     |                          | 2,691,089  |                            |          
|                                                                                  |                                     |                          |            |                            |          
|Costs and expenses:                                                               |                                     |                          |            |                            |          
|                                                                                  | Selling, general and administrative |                          |            | 4,996,301                  |          
|                                                                                  | Depreciation and amortization       |                          |            | 136,219                    |          
|                                                                                  |                                     |                          |            |                            |          
|                                                                                  |                                     | Total costs and expenses |            |                            | 5,132,520
|                                                                                  |                                     |                          |            |                            |          
|Loss from operations                                                              |                                     |                          | (2,441,431 | )                          |          
|                                                                                  |                                     |                          |            |                            |          
|Other income (expense):                                                           |                                     |                          |            |                            |          
|Interest expense                                                                  |                                     |                          | (298,903   | )                          |          
|Interest income                                                                   |                                     |                          | 10,603     |                            |          
|Miscellaneous income, net                                                         |                                     |                          | 641,242    |                            |          
|                                                                                  |                                     |                          |            |                            |          
|                                                                                  |                                     |                          | 352,942    |                            |          
|                                                                                  |                                     |                          |            |                            |          
|Loss from continuing operations                                                   |                                     |                          | (2,088,489 | )                          |          
|Gain from discontinued operations                                                 |                                     |                          |           |                            |          
|                                                                                  |                                     |                          |            |                            |          
|Net loss                                                                          |                                     |                          | (2,088,489 | )                          |          
|Other comprehensive income (loss)unrealized gain (loss) on marketable securities |                                     |                          | 514,817    |                            |          
|                                                                                  |                                     |                          |            |                            |          
|Comprehensive loss                                                                |                                     | ($                       | 1,573,672  | )                          | ($       
|                                                                                  |                                     |                          |            |                            |          
|Basic and diluted loss per share                                                  |                                     | ($                       | 0.13       | )                          | ($       
|                                                                                  |                                     |                          |            |                            |          
|Weighted average number of common shares outstanding                              |                                     |                          | 15,606,079 |                            |          
|                                                                                  |                                     |                          |            |                            |          

See
notes to the condensed consolidated financial statements.

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eLEC Communications Corp. and Subsidiaries  Condensed Consolidated Statements of Cash Flows  (Unaudited)

|                                                     |                                                                | For the Six Months Ended |           
|---------------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ----------
|
|Net cash provided by (used in) operating activities: |                                                                | $                        | 870,480   
|                                                     |                                                                |                          |           
|Cash flows from investing activities:                |                                                                |                          |           
|                                                     | Purchase of property and equipment                             |                          |           
|                                                     | Proceeds from sale of marketable securities                    |                          |           
|                                                     | Proceeds from sale of property                                 |                          |           
|                                                     | Proceeds from agreement to sell subsidiary                     |                          |           
|                                                     |                                                                |                          |           
|Net cash provided by investing activities            |                                                                |                          | 712,270   
|                                                     |                                                                |                          |           
|Cash flows from financing activities:                |                                                                |                          |           
|                                                     | (Decrease) increase in loans payable to financial institutions |                          |           
|                                                     | Pay-off of Canadian mortgage                                   |                          |           
|                                                     | Proceeds from exercise of stock options                        |                          |           
|                                                     |                                                                |                          |           
|Net cash (used in) provided by financing activities  |                                                                |                          | (1,705,486
|                                                     |                                                                |                          |           
|Decrease in cash and cash equivalents                |                                                                |                          | (122,736  
|Cash and cash equivalents at beginning of period     |                                                                |                          | 797,616   
|                                                     |                                                                |                          |           
|Cash and cash equivalents at the end of period       |                                                                | $                        | 674,880   
|                                                     |                                                                |                          |           
|Supplemental disclosures of cash flow information    |                                                                |                          |           
|Cash paid during the period for:                     |                                                                |                          |           
|                                                     | Interest                                                       |                          | $         
|                                                     |                                                                |                          |           

See
notes to the condensed consolidated financial statements.

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eLEC COMMUNICATIONS CORP.    Notes To Condensed Consolidated Financial Statements (Unaudited)

Note 1-Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of Regulation S-B. Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six-month period ended May 31, 2002 are not necessarily indicative of the results that may be expected for the year ended
November 30, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended
November 30, 2001.

Note 2-Principal Financing Arrangements

On October 23, 2000, we converted our existing receivable sales agreement between RFC Capital Corporation ("RFC") and Essex Communications, Inc.
("Essex"), to a loan and security agreement with RFC. The loan agreement initially provided for a loan facility of up to $5,000,000 based upon a borrowing eligibility formula contained in the
agreement. Loans under the loan agreement, as amended, bear interest at a rate per annum equal to the prime rate plus 7.5% (12.25% at May 31, 2002), and require an annual fee of $75,000. The
loan agreement contains various financial and operating covenants on the part of Essex, including restrictions on borrowings, payment of dividends, asset dispositions and capital expenditures. All
amounts payable under the loan agreement are secured by substantially all of the assets of Essex. As the parent company of Essex, we have guaranteed the repayment of all borrowings under the loan
agreement, and had pledged as collateral 1,000,000 shares of common stock of Talk America Holdings Inc. ("Talk"). In June 2002, RFC directed that all of such pledged shares be sold to
repay a portion of the borrowings under the agreement. The loan agreement has a termination date of the earlier of (a) October 23, 2003; (b) the occurrence of a termination event
(as defined); (c) the occurrence of an event of seller default (as defined); or (d) 90 days following payment by Essex of a termination fee (as defined). In addition, upon
execution of the loan agreement,
we granted RFC warrants to purchase 200,000 shares of our common stock. On February 14, 2002, the loan facility was amended to change the borrowing eligibility formula. The new formula requires
Essex to have additional collateral in the form of current accounts receivable balances in order to borrow the amounts Essex is currently borrowing. This change has forced Essex to stretch out
payments to its vendors and to seek other sources of cash for operations. Furthermore, effective November 30, 2001, Essex was in default on its loan agreement with RFC, and we therefore
classified the RFC loan as a current liability on our balance sheet. In conjunction with the amendment, the interest rate charged by RFC was increased by 3% per annum. On April 3, 2002, we
entered into a forbearance agreement in which, among other things, it was agreed that RFC would not initiate further action against Essex or the pledged collateral prior to May 31, 2002,
provided that Essex is not otherwise in default under the loan agreement or under the forbearance agreement. The forbearance agreement included a provision that required us to enter into an agreement
with a third-party to sell all or a portion of Essex's business by May 11, 2002, which presently accounts for substantially all of the Company's revenue. We were granted an extension to
May 31, 2002 to sell all or a portion of Essex's business. Although we have had ongoing discussions with several interested parties, we were unable to sell Essex by such date and are in
violation of the forbearance agreement. RFC offered to extend the forbearance agreement for an additional month at a cost we believed was too high. On July 17, 2002, we received written notice
from RFC advising that Essex was in violation of both the loan agreement and the forbearance agreement and accelerating the maturity date of our loan, notifying us that RFC would no longer make

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cash advances under the loan agreement and demanding that we make full repayment of all amounts outstanding under our loan agreement by August 15, 2002.

Note 3-Investment Securities

Details as to investment securities at May 31, 2002 are as follows:

Cost

Fair
Value

Unrealized
Holding GainEquity securities

$
10,308

$
635,748

$
625,440


Our
investment securities at May 31, 2002 consisted of 345,515 common shares of Talk valued at $1.84 per share. At May 31, 2002, 265,000 of such shares were held in escrow
by RFC as collateral for funds borrowed under the loan agreement. In June 2002, RFC directed that these shares be sold to repay a portion of the borrowings under the agreement. Upon sale, we
realized proceeds of approximately $781,000, which funds were applied to repay a portion of the RFC loan. The Talk shares have been subject to market fluctuations and at July 15, 2002 closed at
$3.79 a share.

During
the three and six months ended May 31, 2002, we sold 822,000 and 916,900 shares of Talk, respectively, realizing a gain of approximately $631,000 and $684,000,
respectively, for the period. Of the 822,000 shares sold during the three-months ended May 31, 2002, 735,000 shares represented a portion of the 1,000,000 shares of Talk originally pledged to
RFC as collateral for funds borrowed under the loan agreement. The gain on the sale of Talk stock is included under the caption "Miscellaneous income, net" on the Condensed Consolidated Statements of
Operations and Comprehensive Loss.

Note 4-Major Customer

During the three and six months ended May 31, 2002, no one customer accounted for more than 10% of revenue.

Note 5-Income Taxes

At November 30, 2001, we had net operating loss carryforwards for Federal income tax purposes of approximately $21,000,000 expiring in the years 2002
through 2021. There is an annual limitation of approximately $187,000 on the utilization of approximately $1,700,000 of such net operating loss carryforwards under the provisions of Internal Revenue
Code Section 382.

As
of May 31, 2002, we had an unrealized gain on our ownership of Talk of approximately $625,000. Upon the sale of the Talk stock, the net operating loss will be reduced to the
extent of any realized gain on the sale. Accordingly, deferred taxes have not been provided on the unrealized gain.

Note 6-Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have
been outstanding if potentially dilutive
securities had been issued unless such inclusion reduced the loss per share. There were no potentially dilutive securities for the three and six months ended May 31, 2002 and 2001.

Note 7-Risks and Uncertainties

We buy substantially all of our telecommunication services from Regional Bell Operating Companies ("RBOC's"), and are, therefore, highly dependent upon them.
    We believe there are less

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desirable suppliers of telecommunication services in the geographical locations in which we conduct business. In addition, we are at risk to regulatory agreements that govern the rates we are to be
charged. In light of the foregoing, it is reasonably possible that the loss of these relationships with the RBOC's or a significant unfavorable change in the regulatory agreements structure would have
a severe near-term impact on our ability to conduct our telecommunications business.

In
certain states, we have been billed for certain amounts from the RBOC's that are in dispute. We believe that the related invoicing of taxes, subscriber line charges, other fees and
features are not in accordance with the agreements negotiated with the RBOC's. At May 31, 2002, we had not paid for or accrued approximately $4,000,000 of such disputed amounts. We continue to
try to resolve these disputes.

As
of May 31, 2002, we reflected undisputed liabilities to the RBOC's of approximately $7,200,000, substantially all of which was past due. Our lack of ability to make these
payments puts us at risk to lose the underlying services that are being provided by the RBOCs. Our lack of ability to pay outstanding invoices to an underlying carrier has forced us to abandon local
service in the states of Florida and Kentucky. For the three and six months ended May 31, 2002 sales in this region accounted for approximately 5% and 6%, respectively, of total sales as
compared to the approximately 8% and 9%, respectively, for the three and six months ended May 31, 2001.

Future
results of operations involve a number of risks and uncertainties. Factors that could affect future operating results and cash flows and cause actual results to vary materially
from historical results include, but are not limited to:



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

The statements contained in this Report that are not historical facts are "forward-looking statements" which can be identified by the use
of forward-looking terminology, such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative thereof or other variations thereon, or by discussions of
strategy that involve risks and uncertainties. Management wishes to caution the reader of the forward-looking statements, that such statements, which are contained in this Report, reflect our current
beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key
employee, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors discussed in our other filings with the Securities and Exchange
Commission, and that these statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of
risks facing us, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause our actual results, performance or
achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation: (1) the availability of additional funds to
successfully pursue our business plan and the ability to repay the RFC debt by August 15, 2002; (2) our success in selling Essex or substantially all of its assets and the selling price
we obtain; (3) our ability to maintain, attract and integrate internal management, technical information and management information systems; (4) the cooperation of incumbent carriers in
implementing the unbundled network elements platform required by the Federal Communications Commission; (5) our ability to market its services to current and new customers and generate customer
demand for its product and services in the geographical areas in which we can operate; (6) our success in gaining regulatory approval to access new markets; (7) our ability to negotiate
and maintain suitable interconnection agreements with the incumbent carriers; (8) the availability and maintenance of suitable vendor relationships, in a timely manner, at reasonable cost;
(9) the impact of changes in telecommunication laws and regulations; (10) the intensity of competition; and (11) general economic conditions. All written and oral forward looking
statements made in connection with this Report that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, prospective investors are cautioned not to place undue reliance on such forward-looking statements.

Overview

eLEC Communications Corp. is a full-service telecommunications company that focuses on developing integrated telephone service in the emerging
competitive local exchange carrier ("CLEC") industry. We offer small businesses and residential consumers an integrated set of telecommunications products and services, including local exchange, local
access, domestic and international long distance telephone, and a full suite of features including items such as three-way calling, call waiting and voice mail. We have
built a scalable operating platform that can provision a local phone line, provide dial-tone to our customers, read usage records, rate phone calls for billing purposes, prepare monthly
invoices to customers, provide real-time on-line customer support services at our inbound call centers, capture credit and collection data, calculate gross margins for each
line and perform any moves, adds, changes and repairs that a customer requests. We utilize universal client technology so that our employees and agents can access our system from any personal computer
using any Internet browser.

We
believe that the Telecommunications Act of 1996 (the "Telecommunications Act"), which opened the local exchange market to competition, has created an attractive opportunity for CLECs,
such as eLEC. Like most CLECs, our entry in this industry was dependent upon the provisions of the Telecommunications Act that allow CLECs to lease various elements of the networks of the incumbent
local exchange carriers ("ILECs") that are necessary to provide local telephone service in a cost-effective manner. This aspect of the Telecommunications Act is referred to as "unbundling"
the

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ILEC networks, and allows us to lease unbundled network elements on an as-needed basis and provide such elements to our customers at a lower cost than that which the ILEC is charging.

Although
we believe the opportunity for CLECs is attractive, it is also challenging. We must contend with federal and state government regulators, rapidly changing technologies,
incumbent carriers that are better staffed and capitalized than us and real-time business partners that also carry our customer's phone call, whether it be local, long distance or
international. While we are managing these challenges, we also must provide connectivity, superior customer service and a culture of continuous improvement. Because of the complexity of the business,
we have focused our energies on simplifying our working environment and improving performance through automation. We believe one of the greatest accomplishments in building our business over the past
three years was the development of our own operations support systems ("OSS"). We believe our OSS is the crucial enabler that allows us to effectively support customer orders, service delivery,
service assurance, billing and collections in an automated manner.

Other
CLECs have invested a substantial amount of capital to buy circuit-switched equipment and rollout fiber, only to find that their equipment is severely underutilized and that there
is a significant shortfall in their revenue stream when compared to their capital investment. We refer to this strategy as a "facilities-first" strategy, because the CLEC has invested in its equipment
and placed the equipment in service before the CLEC has developed a customer base. Our strategy is a "customer-first," or a "deferred-build" strategy. We invested our capital in our OSS to support our
customers and we lease facilities on an as-needed basis from ILECs while we build our customer base. After we have obtained a substantial geographical concentration of customers, we will
make decisions regarding the purchase and installation of our own network equipment. This strategy allows us to be very flexible with our customer base as we grow our business. We can move our
customer base to alternative access, if appropriate, and we will not become a captive of our own underutilized equipment, as can happen with a "facilities-first" CLEC. The technological advances in
equipment and the lowering of equipment prices have substantiated our deferred-build strategy.

When
we lease lines from an ILEC, we use the unbundled network elements platform ("UNE-P") service offering. UNE-P allows us to lease the network elements we
need, such as the local line and the port on a local switch, so we can provide local dial tone service to our customers. We are capable of providing virtually all of the same additional voice services
provided by any ILEC, such as three-way calling, call waiting, call forwarding and caller ID. We sell all our services at a fee that is at least ten percent less than the rate charged by
the ILEC. We typically sell our customers the identical service they were buying from the ILEC so our customers see a savings on their telephone bills when they change to our service.

We
believe we can provide competitive service under the UNE-P service offering. We believe UNE-P is the preferable platform for any CLEC to operate under while it
is growing and building a customer base. We have designed our OSS to be flexible and scalable so that any company that wants to begin providing local exchange services utilizing UNE-P can
rely on our OSS.

Due
to the changing capital environments during 2001 and our inability to obtain sufficient capital to build both a CLEC and an OSS that caters to a UNE-P and resale customer
base, we have begun to scale back our operations as a CLEC and we have announced that we are considering third-party offers to purchase our largest CLEC, Essex. The bulk of our debt and accounts
payable, approximately $11,300,000 at May 31, 2002, resides in Essex, and we believe the sale of Essex in its entirety, or the sale of the principal assets of Essex, could dramatically improve
our balance sheet and our ability to continue as both a CLEC and an OSS provider.

We
believe many CLECs have failed because they did not have sufficient revenues to support the cost of operating the network they built. We also believe other CLECs have failed because
they did not have the back-office systems necessary to effectively support customer orders, service delivery, service

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assurance, billing and collections in an efficient manner. While we have leased networks to avoid the high cost of building a network and have focused our efforts on building our OSS, we have not
been able to bring our operations to a breakeven point, and have been struggling with negative working capital for more than one year, while our losses continue. Due to our financial condition, we
have been unable to apply funds for effective marketing of customers, and we have been unable to obtain the consent of our lender to the purchase of any customer bases that we have proposed since our
acquisition of Telecarrier Services, Inc. in January 2000. To help conserve cash, we have scaled back our telemarketing efforts, which we believe are predictable as to costs and results,
and moved to a more cash-efficient agent model, which requires smaller cash expenditures up front, but will make it more difficult to predict the timing of when new customers will sign up
for our service.

As
a result of our financial condition, we are exploring alternatives to preserve our OSS. Many of the potential purchasers of all or part of Essex have indicated a desire to utilize our
OSS to serve their UNE-P and resale customers. In addition to looking for a purchaser that will license our OSS, we also have been in discussions regarding the licensing of our OSS to
companies that are seeking to purchase local access lines, but are not currently a licensed CLEC. We believe there are a significant number of venture capital and other investors that are seeking to
capitalize on the availability of local access lines from financially-troubled CLECs that will need a local access platform that can support customer
orders, service delivery, service assurance, billing and collections. We hope to be able to provide them with our platform so that we can generate revenues from our OSS. There can be no assurance that
we will be successful in generating third-party revenues from our OSS, or that we will be able to satisfactorily dispose of Essex, or one or more of our other subsidiaries on satisfactory terms.
Failure to sell Essex or its assets and liabilities on satisfactory terms could cause us to seek to reorganize under applicable bankruptcy laws. Even if we are successful in disposing of Essex, we
still may be forced to reorganize under applicable bankruptcy laws.

Six Months Ended May 31, 2002 vs. Six Months Ended May 31, 2001

Our net revenues for the six-month period ending May 31, 2002 deceased by approximately $1,122,000, or approximately 12%, to approximately
$8,176,000 as compared to approximately $9,298,000 reported for the six-month period ending May 31, 2001. This decrease is directly related to a decrease in the number of customers,
including our largest customer, and number of access lines that we bill each month. Our agents have been concerned about who will be the new owner of Essex, and they have not been as productive in
signing up new accounts for Essex because they want to wait and evaluate any completed transaction. Our limited telemarketing has remained effective in attracting the expected number of new accounts,
based upon how many hours we dial. However, as discussed above, our financial condition has not allowed us to spend the marketing dollars we need to obtain new customers to replace the customers that
we have lost.

Our
gross profit for the six-month period ending May 31, 2002 decreased by approximately $725,000 to approximately $2,691,000 from approximately $3,417,000 reported
for the six-month period ending May 31, 2001, and the gross profit percentage decreased to 32.9% from 36.7% reported in the prior fiscal period. The change in gross profit is
attributable to the decrease in our customer base.

Selling,
general and administrative expenses ("SG&A") decreased by approximately $1,668,000, or approximately 25%, to approximately $4,996,000 for the six-month period ending
May 31, 2002 from approximately $6,664,000 reported in prior fiscal period. This decrease in expense is directly related to our efforts, started in the second half of fiscal 2001, to implement
various cost-cutting measures, which included, among other things, a reduction in staffing of our telemarketing division and reduced spending on our marketing efforts. We continue to
evaluate our operations for efficiencies and our employee staffing requirements, and we expect to implement further SG&A expense reductions in the remainder of fiscal 2002.

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Depreciation
and amortization expense decreased by approximately $334,000 to approximately $136,000 for the six-month period ending May 31, 2002 from approximately
$470,000 reported in the prior fiscal period. The decline is attributed to the impairment charge taken in the fourth quarter of fiscal 2001.

Interest
expense for the six-month period ending May 31, 2002 decreased by approximately $7,000 from the amount reported in the six-month period ending
May 31, 2001 primarily due to decreased average borrowings, offset by higher interest rates charged by our primary lender.

Miscellaneous
income for the six-month periods ending May 31, 2002 and 2001 of approximately $641,000 and $834,000, respectively, resulted primarily from the sale of
Talk shares.

Three Months Ended May 31, 2002 vs. Three Months Ended May 31, 2001

Our net revenues for the three-month period ending May 31, 2002 decreased by approximately $1,384,000, or approximately 27%, to approximately $3,701,000 as
compared to approximately $5,085,000 reported for the three-month period ending May 31, 2001. As discussed above, the decrease is related to the loss of customers, including our largest
customer. In addition, our financial condition has not allowed us to spend the marketing dollars necessary to obtain new customers to replace the customers that we have lost.

Our
gross profit for the three-month period ending May 31, 2002 decreased by approximately $706,000 to approximately $1,246,000 from approximately $1,952,000 reported in the
three-month period ending May 31, 2001, and the gross profit percentage decreased to 33.7% from 38.4% reported in the prior fiscal period. The change in gross profit is attributable to the
decrease in our customer base.

SG&A
expenses decreased by approximately $894,000, or approximately 26%, to approximately $2,527,000 for the three-month period ending May 31, 2002 from approximately $3,421,000
reported in prior fiscal period. This decrease in expense is directly related to our efforts, started in the second half of fiscal 2001, to implement various cost-cutting measures, which
included, among other things, a reduction in staffing of our telemarketing division and reduced spending on our marketing efforts. We continue to evaluate our operations for efficiencies and our
employee staffing requirements, and we expect to implement further SG&A expense reductions in the remainder of fiscal 2002. We have closed our network operations center in Norwalk, Connecticut as part
of this cost cutting move, and we no longer offer our own digital subscriber line service.

Depreciation
and amortization expense decreased by approximately $162,000 to approximately $82,000 for the three-month period ending May 31, 2002 from approximately $244,000
reported in the prior fiscal period. The decline is attributed to the impairment charge taken in the fourth quarter of fiscal 2001.

Interest
expense for the three-month period ending May 31, 2002 decreased by approximately $20,000 from the amount reported in the three-month period ending May 31, 2001
primarily due to decreased average borrowings, offset by higher interest rates charged by our primary lender.

Miscellaneous
income for the three-month periods ending May 31, 2002 and 2001 of approximately $587,000 and $213,000, respectively, resulted primarily from the sale of Talk
shares.

Liquidity and Capital Resources

At May 31, 2002, we had cash and cash equivalents available of approximately $675,000, and negative working capital of approximately $9,573,000. The
negative working capital is due in part to the reclassification of debt with our principal lender on our balance sheet. The full amount of borrowings from the lender, amounting to $2,417,225, was
classified as a current liability at May 31, 2002 because of certain covenant violations in our loan agreement.

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Net
cash provided by (used in) operating activities aggregated approximately $870,000 and ($2,426,000) in the six-month periods ending May 31, 2002 and 2001,
respectively. The principal source of cash in fiscal 2002 was the loss for the period of approximately $2,088,000 offset by the increase in accounts payable and accrued expenses, principally through
the delaying of payments to vendors, of approximately $3,008,000. The principal use of cash in fiscal 2001 was the loss for the period of approximately $3,084,000 and an increase in accounts
receivable of approximately $1,584,000, offset by an increase in accounts payable of approximately $2,363,000

Net
cash provided by investing activities aggregated approximately $712,000 and $674,000 in the six-month periods ending May 31, 2002 and 2001, respectively. The
principal source of cash in fiscal 2002 were the proceeds from the sale of marketable securities of approximately $679,000. The principal sources of cash in fiscal 2001 were the proceeds from the sale
of marketable securities of approximately $895,000 and the proceeds from the sale of property of approximately $933,000, offset by the purchase of property and equipment of approximately $1,184,000.

Net
cash (used in) provided by financing activities aggregated approximately ($1,705,000) and $1,723,000 in the six-month periods ending May 31, 2002 and 2001,
respectively. In fiscal 2002, net cash used in financing activities resulted from the repayment of short and long-term debt of approximately $1,750,000, which was partially offset by the
proceeds from the exercise of stock options of approximately $45,000. In fiscal 2001, net cash provided by financing activities resulted from increased borrowings of approximately $2,006,000,
partially offset by a mortgage repayment of approximately $284,000.

See
Note 2. for a discussion of our present situation with our lender, RFC.

For
the six-month period ending May 31, 2002, we had no capital expenditures. We do not expect to make any significant capital expenditures for the remainder of fiscal
2002.

At
May 31, 2002, we owned approximately 345,515 shares of Talk (NASDAQ:TALK). RFC exercised its right to sell 265,000 of these shares in June 2002 without sending us
notification. We have the right to purchase approximately 300,000 additional shares of Talk if we exercise a warrant. The warrant exercise price is $2.10 per share and, at May 31, 2002, was not
in-the-money, as Talk common stock was trading at approximately $1.84 per share at such date. As of July 15, 2002, the warrants have a value, as the closing price of
Talk stock on this date was $3.79. At May 31, 2002, we also owned approximately 280,000 shares of Cordia Corporation (OTCBB:CORG), which shares are "restricted securities," as defined in the
Securities Act of 1933, as amended. Such shares became eligible for sale in the public markets, subject to certain limitations, in February 2002.

The
report of the independent auditors on our 2001 financial statements indicates there is substantial doubt about the Company's ability to continue as a going concern. Management
anticipates that, without the sale of a significant potion of our assets, we must raise up to $5 million to meet the cash requirements needed to continue operations as described previously in
the Overview section. Given the current market price of our stock and the current market conditions in the telecom sector, it is doubtful we will be able to obtain such funding when needed, or that
such funding, if available, will be obtainable on acceptable terms. We are thus attempting to divest some of our customer base or one or more of our operating subsidiaries in order to improve our
financial condition. The failure to raise the necessary funds to finance our operations will have an adverse effect on our ability to carry out our business plan. The inability to carry out this plan
may result in the continuance of unprofitable operations, and the eventual shut down of vendor credit facilities, which would adversely affect our ability to continue operating as a going concern. As
previously noted, we failed to enter into an agreement by the May 31, 2002 date for the sale of Essex or a significant portion of its assets, and consequently we are in default under our
forbearance agreement with RFC. Moreover, our lender has asked for repayment of its entire debt facility by August 15, 2002. Our lender has verbally notified us that it has agreed to an offer
from a third party to purchase Essex. We need our lender's approval to sell Essex, or the assets of Essex. We are working to close a transaction that will pay off our lender and various other
liabilities. However, we cannot be certain that we will be able to complete a sale or pay off our lender in the time frame allotted to us.

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eLEC COMMUNICATIONS CORP.  PART II-OTHER INFORMATION

|Item 3. | Defaults Upon Senior Securities                                             
|------- | ----------------------------------------------------------------------------
|        | We are currently in default in our loan to RFC as discussed in Item 1 above.
|Item 6. | Exhibits and Reports on Form 8-K                                            
|        | (a)                                                                         
|        |                                                                             
|        | (b)                                                                         

During the second quarter of fiscal 2002, we filed a Current Report on Form 8-K reporting that our lender agreed to a two week extension to a
forbearance agreement that required us to sell assets in order to pay off our loan.

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Signatures

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

|                    |  | eLEC COMMUNICATIONS CORP.
|------------------- |  | -------------------------
|Date: July 22, 2002 |  | By:                      

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