---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549







FORM 10-Q/A





(Mark One)



[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2008.





[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY EXCHANGE ACT OF 1934

For the transition period from _______ to ________





Commission file number  000-49626







CORTELCO SYSTEMS PUERTO RICO, INC.

(Exact name of Registrant issuer as specified in its charter)







PUERTO RICO                             66-0567491

(State of incorporation)             (IRS Employer Identification No.)







Parque Ind. Caguas Oeste Road 156 km 58.2, Caguas, Puerto Rico, 00725-0137

(Address of principal executive office)







(787) 704-0000

(Issuers telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 [    ]



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filler, a non-accelerated filer, or a small reporting company.  See the definitions of large accelerated filer, accelerated filer" and small reporting company in Rule 12b-2 of the Exchange Act.



|                        |        |                         |        
|----------------------- | ------ | ----------------------- | -------
|Large accelerated filer | [    ] | Accelerated filer       | [     ]
|Non-accelerated filer   | [    ] | Small reporting company | [ X ]  



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes [   ]  No [ X ]



State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:



1,588,536 shares of Common Stock, $0.01 par value, as of October 31, 2008.





---

EXPLANATORY NOTE



Cortelco is filing this Amendment No. 1 on Form 10-Q/A (Amendment) to our Quarterly Report on Form 10-Q for the three months ended October 31, 2008 to provide additional information regarding to Notes to Condensed Financial Statements (Unaudited), section Major customers, Commitments and Contingencies, and Item 2  Managements discussion and analysis of financial condition and results of operation, section Overview, and Liquidity and Capital resources.

In addition, Cortelco is also attaching to this amendment, a currently-dated Exhibit 31.1 and 31.2 Certification Pursuant to Rules 13A-14(A) of the Security Exchange Act of 1934.

Except as set forth below, this Form 10-Q/A does not modify, amend or update in any way any other items or disclosure in the Form 10-Q. This Form 10-Q/A continues to speak as of the date of the original Form 10-Q and other than as specifically reflected in the Form 10-Q/A does not reflect events occurring after the filing of the original Form 10-Q.





---

Cortelco Systems Puerto Rico, Inc.

Notes to Condensed Financial Statements (Unaudited)

For the Three Months Ended October 31, 2008 and 2007





Major customers



Cortelco's business activities primarily are with customers located in Puerto Rico and to a lesser extent the US Virgin Islands. Trade accounts receivable reflect a broad customer base in the local markets. Cortelco routinely assesses the financial strength of its customers. Phoneworks, a telephone billing customer, generated revenues of approximately 12%, and 14% of Cortelcos total revenues for quarter ended October 31, 2008 and 2007, respectively.



Commitments





Cortelco leases its principal facilities from the Municipality of Caguas under an operating lease agreement that expired on November 30, 2007, with an extension of one year that expires on November 20, 2008. The Municipality offered to sell the building, and Cortelco has negotiated the final price and conditions. Rent expense related to this agreement was approximately $13,000 for the three months ended October 31, 2008 and 2007, respectively. However, Cortelco has an opportunity to obtain new facilities under a lease contract, with beneficial lease term, from the Puerto Rico Development Company, (PRIDCO) a government development program. At the present, Cortelco also leases warehouse facilities from PRIDCO under an operating lease agreement that expires on December 30, 2012. Rent expense related to this agreement was approximately $7,000 for the three months ended October 31, 2008 and 2007, respectively.



Contingencies



Cortelco is currently subject to claims regarding an alleged employment issue and property taxes as follows:



On November 16, 2001, Jorge Gonzalez-Nogueras filed a complaint in the Court of First Instance, San Juan, Puerto Rico alleging that CSPR offered him employment in order to reduce competition from other enterprises and with the ill intent to take advantage of his business. After accepting employment, Mr. Gonzalez-Nogueras resigned voluntarily alleging problems adjusting to the corporate culture of CSPR. Mr. Gonzalez-Nogueras seeks $5,074,321 for alleged damages and loss of business. CSPR filed a Motion for Summary Judgment and such motion is under the consideration of the Court. Cortelco is strongly defending this case because it believes all allegations of conspiracy are false, because Mr. Gonzalez-Nogueras did not have a profitable competing business and his resignation was voluntary. Cortelcos management believes based on the opinion of counsel that Cortelco has strong defenses to allow Cortelco to prevail. However, at the present time, an outcome of the case cannot be determined. Accordingly, no provision for losses, if any, has been recorded in the financial statements.



The Municipal Revenue Collection Center of Puerto Rico ("CRIM") conducted a personal property tax audit for the years 1999 and 2000 as a result of certain alleged debts arising in CRIM's system for the years 2001 through 2005, in the principal amount of approximately $320,000 (approximately $555,000 as of October 31, 2008, including interest and penalties).  The alleged debts arose from CRIM's disallowance of certain credits for overpayments from 1999 and 2000, claimed in the 2001 through 2005 personal property tax returns.  During the audit process, CRIM alleged that some components of the inventory reported as exempt should be taxable.  The parties met several times and an informal administrative hearing was held on September 27, 2006.  Cortelco submitted its position in writing within the time period provided by CRIM.  Cortelco believes it has strong arguments to support the position that the components of inventory qualify as raw material.  However, at this point, Cortelco cannot predict the outcome of this matter.  Accordingly, no provision for losses, if any, has been recorded in the financial statements.

























1



---



ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



Overview



Cortelco is a value-added reseller of third-party brands of voice, data, security, applications, transmission services and telephone billing services. Cortelco is a one-stop-shop to its customers for all of their telecommunications needs. Cortelcos products help enterprises communicate more effectively with customers and increase their customer satisfaction and loyalty.

Cortelco integrates, sells, installs, and services the voice and data communications, including the newer VoIP, and a number of equipment manufacturers, including Avaya, Mitel, Cisco, Microsoft, Cortelco, eOn, Nortel, Hitachi, NEC, McAfee, Juniper, Extreme Networks, among others. As part of Cortelcos business strategy, Cortelco offers telephony billing services provided through the Puerto Rico Telephone (PRT the main local telephone company) and Sprint.

Cortelco continues to closely monitor its operating costs and expenses. Cortelco will also look for ways to increase its base of customers by improving equipment sales and customer service performance, along with increasing in maintenance service sales efforts.  To improve service performance, Cortelco will continue its training program to develop more highly qualified technicians and salespersons. Cortelco is a Gold Avaya Business Partner, Platinum Mitel Business Partner, Advance Nortel Business Partner and has a McAfee Premium Business Partner certification. These levels of Business Partners entitle Cortelco to additional discounts and special technical trainings, and improve its competitive position with customers and suppliers. To continue its service performance, Cortelco began working with Cisco, and created a new department specializing in Data and Security with experts certified in Cisco Certified Network Associate (CCNA) and Cisco Sell Expert (CSE) among other certifications. To develop this new Data and Security Department, CSPR has incorporated other trademarks like McAfee, Juniper, Extreme and Artiris and hired three persons dedicated to support this area, including configuration, sales and technical support. The Company is pursuing an increase in productivity with continuing improvements in customer service and support through web ticketing and project management programs.

Despite the recession in the local economy, Cortelco continues to attain its objectives in sales. Management expects to continue the same trend in sales in the near-term even though the margins could be reduced due to the greater competition for business in the local market due to the recession. To maintain current margin levels, Cortelco will emphasize not only the sale of products but also sales of services. Cortelco believes the services business will provide opportunities for growth and better margins. The strong regulations imposed by the regulatory agencies in the areas of security, compliance and procedures to the health, banking and insurance markets, provide an opportunity to offer our expertise and products in those fields to some of Cortelcos most important customers and also opens the door to other potential customers. In addition, the knowledge acquired in the communication business during the past years will allow Cortelco to improve the revenues in this area with its customer base by attaining better margins.

Cortelco, a Puerto Rico corporation, was a wholly-owned subsidiary of eOn Communications Corporation (eOn) through July 30, 2002.  Effective July 31, 2002, Cortelco was spun-off from eOn.  After such spin-off, Cortelco became an independent entity headquartered in San Juan, Puerto Rico.   David Lee is a controlling stockholder of both eOn and Cortelco, as well as Cortelco, Inc. (Cortelco USA), a company headquartered in Corinth, Mississippi. From time to time, Cortelco purchases goods and services from eOn and Cortelco USA, but the dollar amount of these transactions is not material to Cortelco. One of the executive officers of Cortelco USA is a member of the Cortelco Board of Directors. Any transactions between Cortelco and eOn or Cortelco USA are conducted on market terms and conditions, with any interested parties abstaining from voting or otherwise approving the transactions. eOn and Cortelco USA have been suppliers of telephone systems and related spare parts to Cortelco for many years. At present, Cortelco still buys some spare parts from eOn and Cortelco USA to service its customers in Puerto Rico, but these transactions are not material.  Neither eOn nor Cortelco USA compete with Cortelco in its market which is primarily in Puerto Rico.

Cortelco conducts most of its business in Puerto Rico, and also sells telephone equipment in the Caribbean and Latin America, although sales outside Puerto Rico are not of a recurring nature.

While the Company believes that there are a number of positive trends in its business, no assurance can be given that CSPR will be successful in achieving its near-term goals. Factors that are beyond our control, such as economic events, technological changes, and business trends may influence our financial performance and goals.







2



---



Liquidity and Capital resources



Cortelcos cash position decreased for the quarter ended October 31, 2008 compared to the July 31, 2008 balance. This decrease is principally due to the significant increase in projects in process as of October 31, 2008. This factor will continue to affect our cash position through the second quarter until the projects in process are completed and collected. Cortelco has principally relied on cash provided from operations as its primary source of capital and even with the increase in projects in process, management believes that, in the near term, cash flows from operations will be sufficient to meet obligations.  If such resources are not sufficient, Cortelco has available a $400,000 credit line from a Puerto Rico financial institution. Cortelcos funding status is dependent primarily on its cash flow, which fluctuates based on sales, profit margins, inventories, and the control of selling, general and administrative expenses. Cortelco is dependent on existing cash and cash equivalents, and operating cash flows to finance operations and meet capital needs. Currently, with Cortelcos recent expansion into the service segment, management anticipates that sales will continue to meet objectives. However, because most sales involve a new project to be negotiated, sale predictions involve significant uncertainties.

Cortelco does not have material commitments for the current fiscal year. Should actual results differ significantly from the management current assumptions, the liquidity position could be adversely affected and the Company could be in a position that would require to raise additional capital, which may not be available or may not be available on acceptable terms.















3



---

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934



I, Juan Carlos Ramos, certify that:

1.

I have reviewed this report on Form 10-Q of Cortelco Systems Puerto Rico, Inc.;



2.

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



3.

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



4.

The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a)

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



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

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



(d)

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



5.

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



(a)

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

(b)

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



Date: April 9, 2009

/s/   Juan Carlos RamosJuan Carlos Ramos
Chief Executive Officer



4



---

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934



I, Francisco Sanchez, certify that:

1.

I have reviewed this report on Form 10-Q of Cortelco Systems Puerto Rico, Inc.;



2.

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



3.

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



4.

The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a)

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



(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

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



(d)

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



5.

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



(a)

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

(b)

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



Date: April 9, 2009

/s/   Francisco SanchezFrancisco Sanchez
Chief Financial Officer

5



---