UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

xQuarterly
report under Section 13 or 15(d) of the Securities Exchange Act of 1934
                            For the quarterly period ended April 30, 2005.

oTransition
report under Section 13 or 15(d) of the Exchange Act
                            For the transition period from _______ to ________

Commission file number  000-49626

CORTELCO SYSTEMS PUERTO RICO, INC.
(Exact name of small business issuer as specified in its charter)

|PUERTO RICO              | 66-0567491                       
|------------------------ | ---------------------------------
|(State of incorporation) | (IRS Employer Identification No.)

ParqueInd. Caguas Oeste Road 156 km 58.2, Caguas, Puerto Rico, 00725-0137
(Address of principal executive office)

(787) 758-0000
(Issuer's telephone number, including area code)

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 [ ]

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

1,604,557
shares of Common Stock, $0.01 par value, as of April 30, 2005.

Transitional
Small Business Disclosure Format (Check one):  Yeso  
Nox

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CORTELCO SYSTEMS PUERTO RICO, INC.
FORM 10-QSB
QUARTER ENDED APRIL 30, 2005

INDEX

|                                                                     | 
|-------------------------------------------------------------------- | 
|
|PART I - FINANCIAL INFORMATION                                       | 
|ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)                             | 
|Condensed Balance Sheet (Unaudited)                                  | 
|Condensed Income (Loss) Statements (Unaudited)                       | 
|Condensed Statements of Cash Flows (Unaudited)                       | 
|Notes to Condensed Financial Statements (Unaudited)                  | 
|ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS                        | 
|ITEM 3.  CONTROLS AND PROCEDURES                                     | 
|                                                                    
|PART II - OTHER INFORMATION                                          | 
|ITEM 1.  LEGAL PROCEEDINGS                                           | 
|ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 
|ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                             | 
|ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         | 
|ITEM 5.  OTHER INFORMATION                                           | 
|ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                            | 
|SIGNATURES                                                           | 
|                                                                     | 
|                                                                     | 

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PART
I  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS (UNAUDITED)

CORTELCO SYSTEMS PUERTO RICO, INC.

Condensed Balance Sheet (Unaudited)
April 30, 2005

(Dollars in thousands)

|ASSETS                                               |  |  |   |        |  
|---------------------------------------------------- |  |  | - | ------ | -
|Current assets:                                      |  |  |   |        |  
|Cash and cash equivalents                            |  |  | $ | 381    |  
|Trade accounts receivable, net                       |  |  |   | 1,870  |  
|Inventories, net                                     |  |  |   | 236    |  
|Prepaid expenses                                     |  |  |   | 102    |  
|Total current assets                                 |  |  |   | 2,589  |  
|Property and equipment, net                          |  |  |   | 255    |  
|Total                                                |  |  | $ | 2,844  |  
|                                                    
|LIABILITIES AND STOCKHOLDERS' EQUITY                 |  | 
|Current liabilities:                                 |  |  |   |        |  
|Trade accounts payable                               |  |  | $ | 531    |  
|Due to affiliated entities                           |  |  |   | 441    |  
|Other accrued liabilities                            |  |  |   | 285    |  
|Deferred revenue                                     |  |  |   | 292    |  
|Total current liabilities                            |  |  |   | 1,549  |  
|Stockholders' equity:                                |  |  |   |        |  
|Preferred stock, par value $0.01 per share;          |  |  |   |        |  
|authorized, 10,000,000 shares, no shares issued      |  |  |   |       |  
|Common stock, par value $0.01 per share,             |  |  |   |        |  
|5,000,000 shares authorized; 1,604,557 shares issued |  |  |   |        |  
|and outstanding                                      |  |  |   | 16     |  
|Capital in excess of par value                       |  |  |   | 6,969  |  
|Accumulated deficit                                  |  |  |   | (5,690 | )
|Total stockholders' equity                           |  |  |   | 1,295  |  
|Total                                                |  |  | $ | 2,844  |  

See  notes to condensed financial statements.

1

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CORTELCO SYSTEMS PUERTO RICO, INC.

Condensed Income (Loss) Statements (Unaudited)
 For the Three Months and Nine Months Ended April 30, 2005 and 2004

(Dollars in
thousands, except per share data)

|                                                          | Three Months EndedApril 30 |  | Nine Months EndedApril 30
|--------------------------------------------------------- | -------------------------- |  | -------------------------
|
|Net revenues:                                             |                            |  |                          
|Products                                                  |                            |  | $                        
|Services                                                  |                            |  |                          
|                                                          |                            |  |                          
|Total net revenues                                        |                            |  |                          
|                                                          |                            |  |                          
|Cost of revenues:                                         |                            |  |                          
|Products                                                  |                            |  |                          
|Services                                                  |                            |  |                          
|                                                          |                            |  |                          
|Total cost of revenues                                    |                            |  |                          
|                                                          |                            |  |                          
|Gross profit                                              |                            |  |                          
|                                                          |                            |  |                          
|Operating expenses:                                       |                            | 
|Selling, general, & administrative                        |                            |  |                          
|                                                          |                            |  |                          
|Total operating expenses                                  |                            |  |                          
|                                                          |                            |  |                          
|Income (loss) from operations                             |                            |  |                          
|Other income, net:                                        |                            |  |                          
|                                                          |                            |  |                          
|Income (loss) before income taxes                         |                            |  |                          
|                                                          |                            |  |                          
|Provision for income taxes:                               |                            | 
|Current assuming no carryforward benefit                  |                            |  |                          
|Change in valuation allowance                             |                            |  |                          
|                                                          |                            |  |                          
|Total income tax expense                                  |                            |  |                          
|                                                          |                            |  |                          
|Net income (loss)                                         |                            |  | $                        
|                                                          |                            |  |                          
|Basic and diluted net income (loss)      per common share |                            |  | $                        
|                                                          |                            |  |                          

See notes to condensed financial statements.

2

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CORTELCO SYSTEMS PUERTO RICO, INC.

Condensed Statements of Cash Flows (Unaudited)
For the Three Months and Nine Months Ended April 30, 2005 and 2004

(Dollars in thousands)

|                                                                                                                                                                                         | Three Months EndedApril 30 |  | Nine Months EndedApril 30
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- |  | -------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                                    |                            |  |                          
|Net income (loss)                                                                                                                                                                        |                            |  | $                        
|Adjustments to reconcile net income (loss) to net cash
                                                                                      provided by (used in) operating activities: |                            |  |                          
|Depreciation and amortization                                                                                                                                                            |                            |  |                          
|Provision for doubtful accounts receivable                                                                                                                                               |                            |  |                          
|Inventories write-downs                                                                                                                                                                  |                            |  |                          
|Changes in operating assets and liabilities:                                                                                                                                             |                            |  |                          
|Decrease (increase) in:                                                                                                                                                                  |                            | 
|Trade accounts receivable                                                                                                                                                                |                            |  |                          
|Due to affiliated entities                                                                                                                                                               |                            |  |                          
|Inventories                                                                                                                                                                              |                            |  |                          
|Prepaid expenses                                                                                                                                                                         |                            |  |                          
|Increase (decrease) in:                                                                                                                                                                  |                            |  |                          
|Trade accounts payable                                                                                                                                                                   |                            |  |                          
|Due to affiliated entities                                                                                                                                                               |                            |  |                          
|Accrued liabilities                                                                                                                                                                      |                            |  |                          
|Deferred revenue                                                                                                                                                                         |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|Total adjustments                                                                                                                                                                        |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|Net cash provided by (used in) operating activities                                                                                                                                      |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                                                                                    |                            |  |                          
|Capital expenditures                                                                                                                                                                     |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|Net cash provided by (used in) investing activities                                                                                                                                      |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                                    |                            |  |                          
|Payment of promissory note                                                                                                                                                               |                            |  |                          
|Sales of capital stock                                                                                                                                                                   |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|Net cash provided by financing activities                                                                                                                                                |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|NET CHANGE IN CASH                                                                                                                                                                       |                            |  |                          
|                                                                                                                                                                                        
|CASH, BEGINNING OF PERIOD                                                                                                                                                                |                            |  |                          
|                                                                                                                                                                                         |                            |  |                          
|CASH, END OF THE PERIOD                                                                                                                                                                  |                            |  | $                        
|                                                                                                                                                                                         |                            |  |                          

See notes to condensed financial statements.

3

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Cortelco
Systems Puerto Rico, Inc.

Notes to Condensed Financial Statements (Unaudited)
For the Nine Months Ended April 30, 2005 and 2004

Basis of
Presentation

The
accompanying unaudited condensed financial statements have been prepared by
Cortelco Systems Puerto Rico, Inc. (CSPR or the
Company). It is managements opinion that these statements
include all adjustments necessary to present fairly the financial position,
results of operations, and cash flows as of April 30, 2005 and for all periods
presented.

Certain
information and footnote disclosures normally included in the annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These condensed
financial statements should be read in conjunction with the financial statements
and notes as of July 31, 2004 and for the periods then ended, which are included
in the Annual Report on Form 10-KSB for the year ended July 31, 2004 filed with
the Securities and Exchange Commission.

The
accompanying unaudited condensed financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
However, our independent public accountants have expressed doubt about our
ability to continue as a going concern in their report on our annual audited
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Significant
Accounting Policies

Use
of EstimatesThe preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Fair
value of financial instruments  The carrying amounts of cash is a
reasonable estimate of its fair value. The carrying amounts of accounts
receivable, accounts payable (including to related parties), accrued expenses,
and deposit liabilities approximate fair value due to their short-term
maturities.

Revenue
Recognition The Company recognizes revenues for
equipment shipped to customers only after completion of installation services
and acceptance by the customer due to the customized nature of each
installation. Revenues from communications systems service contracts are
recognized over the life of the individual contracts. Currently, the Company
sells and services communications systems purchased from various third-party
vendors. The Company allocates fees from multiple-element arrangement to the
elements based on the relative fair value of each element. The Company believes
that its revenues recognition policies are compliant with Staff Accounting
Bulleting No. 101, Revenue Recognition in Financial Statements.

Cash
 Cash includes cash deposited in high-credit qualified financial
institutions.

Allowance
for Doubtful Accounts  The allowance for doubtful accounts is an
amount that management believes will be adequate to absorb losses on existing
accounts receivable that are considered uncollectible based on evaluations of
collectibility of accounts receivable and prior credit experience.

Inventories
 Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method. Returned equipment and
inventory, mostly related to warranty claims and replacements of outdated
communication systems, is accounted at no cost, unless repaired, as which time,
it is valued at the lower of the repair cost or its net realizable value.

4

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Maintenance
contracts  Maintenance contract revenues are recognized over the
remaining life of each contract (usually one year) based on the straight-line
method.

The
following table summarizes the activity relating to the unexpired maintenance
contracts during the third quarter of this fiscal year.

|(Dollars in thousands) | January 31, 2005LiabilityBalance |  | Additions |     | Deductions |   | April 30, 2005LiabilityBalance | 
|---------------------- | -------------------------------- |  | --------- | --- | ---------- | - | ------------------------------ | 
|Maintenance Contracts  |                                  |  | $         | 217 |            | $ | 107                            | 

Product
Warranties  The Company gives a one-year warranty to certain products
sold. The Company recognizes an accrued warranty liability when it sells a
product. This amount is an estimate of the cost of labor to be performed if that
warranty is exercised, based on experience. If the Company is required to
perform on its warranty, it sends the product to the manufacturer that normally
warrants the product. The Company only incurs the cost of labor of technicians
and return freight. The Company recognizes warranty revenue over the term of the
warranty period. The costs related to warranties exercised are recognized
directly as cost of sales when incurred.

The
following table summarizes the activity relating to the warranty reserve during
the third quarter of this fiscal year.

|(Dollars in thousands) | January 31, 2005LiabilityBalance |  | Additions |    | Deductions |   | April 30, 2005LiabilityBalance | 
|---------------------- | -------------------------------- |  | --------- | -- | ---------- | - | ------------------------------ | 
|Warranty Reserve       |                                  |  | $         | 62 |            | $ | 15                             | 

Accounting
for income taxesDeferred income taxes are accounted
for using the asset and liability method of accounting. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and the respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

On
August 4, 2003, the Company was granted certain tax exemption benefits under the
Commonwealth of Puerto Rico Law 135 of December 2, 1997, as amended. Under the
ten-year decree, beginning on December 30, 2002, the Companys process of
assembling communication equipment will enjoy preferential tax rates, as
follows:

| | Tax       |  | Benefit       | 
| | --------- |  | ------------- | 
| |           |  |               | 
| | Income    |  | 7% flat tax   | 
| | Property  |  | 90% exemption | 
| | Municipal |  | 60% exemption | 

5

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Recent
Accounting Pronouncements

In
December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary
Assets-an amendment of APB Opinion No. 29. This Statement amends Opinion 29
to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The future implementation of
this Statement will have no significant effect on the Companys financial
position or results of operations.

Other
recently issued FASB Statements or Interpretations, SEC Staff Accounting
Bulletins, and AICPA Emerging Issue Task Force Consensuses have either being
implemented in prior periods or are not applicable to the Company.

Securities
Authorized for Issuance Under the Companys Equity Compensation Plan

The
following table summarizes the Company equity compensation plan as of April 30,
2005:

|Plan category                                            | Number of securities to be issuedupon exercise of outstandingoptions, warrants and rights |  | Weighted-average exercise priceof outstanding options,warrants and rights |     | Number of securities remainingavailable for future issuableunder equity compensationplans (excluding securitiesreflected in column (a) | 
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | --- | -------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                         |                                                                                           |  |                                                                           | (a) |                                                                                                                                        | 
|Equity compensation plansapproved by securityholders     |                                                                                           |  |                                                                           |    |                                                                                                                                        | 
|                                                        
|Equity compensation plansnot approved by securityholders |                                                                                           |  |                                                                           |    |                                                                                                                                        | 
|                                                         |                                                                                           |  |                                                                           |     |                                                                                                                                        | 
|Total                                                    |                                                                                           |  |                                                                           |    |                                                                                                                                        | 
|                                                         |                                                                                           |  |                                                                          

Inventories

Inventories
consist of the following:

|                                                           | April 30, 2005(In thousand)
|---------------------------------------------------------- | ---------------------------
|Purchased components, net                                  |                            
|                                                          
|Components and materials related toinstallation in process |                            
|                                                          
|Parts and materials for sale, net                          |                            
|                                                           |                            
|Total inventories                                          |                            

6

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Income
(Loss) per Common Share

The
Company reports its earnings per share (EPS) using Financial
Accounting Standards Board (FASB) Statement No. 128, Earnings Per
Share(SFAS 128). SFAS 128 requires dual presentation of
basic and diluted EPS. Basic EPS is computed by dividing income (loss)
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.

The
computations of basic and diluted income (loss) per share were as follows:

|                                                    | Three Months EndedApril 30 |  | Nine Months EndedApril 30 |          
|--------------------------------------------------- | -------------------------- |  | ------------------------- | ---------
|
|Basic and diluted income(loss) per share:           |                            |  |                           |          
|                                                   
|Net income (loss)                                   |                            |  | $                         | 52       
|                                                   
|Weighted average number ofcommon shares outstanding |                            |  |                           | 1,604,557
|                                                   
|Income (loss) fromoperations per share              |                            |  | $                         | 0.03     

Contingencies

CSPR
is currently subject to three pending lawsuits. One lawsuit regarding an alleged
breach of contract, a second lawsuit regarding employment issues, and a third
lawsuit that is partially disposed of, in which the Company was included as a
Third Party Defendant. In the breach of contract case, the plaintiff alleges
that CSPR breached the terms of the contract by ceasing to supply services to
the plaintiff, and the plaintiff seeks damages of approximately $854,430. In the
employment lawsuit, the plaintiff is a former employee of the Company, who
alleges under various theories of law that he, was forced to resign therefore
constituting an unlawful dismissal from employment. With respect to the third
lawsuit, a class action case, the Company reached an agreement with the other
party defendant, Ochoa Telecom, in which it was agreed that Ochoa would cover
all of CSPRs legal fees and any judgment against CSPR that may result from
this case. In addition, the court dismissed three of the plaintiffs claims
thru a summary motion presented by Ochoa; leaving one plaintiff, which in the
event of a negative outcome, shall have no impact to CSPR as agreed with Ochoa.
CSPR has analyzed each lawsuit with our legal advisors, and the Company does not
believe that any of these cases will result in an unfavorable outcome that would
have a material adverse effect upon our business. However, in the event of one
or more unfavorable determinations against us, such litigation could have a
material adverse effect on our business by harming earnings if the Company is
liable for a significant monetary judgment, by harming our reputation with our
customers through any adverse publicity generated from an unfavorable
determination, or by adversely affecting our relationship with current and
prospective employees of our company.

ITEM 2.   MANAGEMENTS
DISCUSSION AND ANALYSIS.

This
report contains unaudited forward-looking statements within the meaning of the
federal securities laws. Unaudited forward-looking statements are those that
express managements views of future events, developments, and trends. In
some cases, these statements may be identified by terminology such as
may, will, should, expects,
plans, intends, anticipates,
believes, estimates, predicts,
potential, or continue or the negative of such terms and
other comparable expressions. Unaudited forward-looking statements include
statements

7

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regarding our
anticipated or projected operating performance,  financial results, liquidity and capital
resources. These statements are based  on managements beliefs, assumptions, and
expectations, which in turn are  based on the information currently available to
management. Information  contained in these unaudited forward-looking statements is
inherently uncertain,  and our actual operating performance, financial results,
liquidity, and capital  resources may differ materially due to a number of factors, most
of which are  beyond our ability to predict or control. The Company also directs your
attention to the risk factors affecting our business that are discussed on this  Item.
CSPR disclaims any obligation to update any of the unaudited  forward-looking statements
contained in this report to reflect any future events  or developments. The following
discussions should be read in conjunction with  our unaudited financial statements and
the notes included thereto.

Financial
Condition

Near
term, the Companys cash position has improved as a result of lower
receivables, however, our continuance as a going concern is still dependent upon
our ability to improve profitability above the break-even point, generate cash
from our receivables on a timely basis and to retain continued support from our
suppliers. Our independent public accountants have expressed doubt about our
ability to continue as a going concern in their report on our annual audited
financial statements.

CSPR
achieved the budgeted sales in the first quarter ended October 31, 2004 and in
this current quarter ended April 30, 2005. However due to the postponement of
large new system installations by three customers, the sales budget for the
second quarter ended January 31, 2005 was narrowly missed. While the sales
outlook for the balance of the year is aligned with the annual budgeted sales,
there remains the concern of obtaining additional sources of funds to be able to
comply with our main equipment suppliers payment terms. CSPR must continue
to seek better payments terms from its suppliers or to obtain a line of credit
from a Puerto Rican financial institution.

In
October 2004, CSPR hired Juan Carlos Ramos to fill the position of General
Manager. As General Manager, he reports directly to the Companys President
and is responsible for improving customer service, increasing installation and
maintenance efficiencies, and attaining better sales results.

In
January 2005, an agreement was reached between Cortelco, Inc. (CI) a related
private company headquartered in Corinth, Mississippi, and CSPR whereby CSPR has
been appointed as the Territory and Export Representative for all of CIs
communications products for the defined territory. The defined territory
currently includes Argentina, Bolivia, Brazil, Chile, Colombia, Dominican
Republic, Ecuador, El Salvador, Guyana, Haiti, Paraguay, Peru, Puerto Rico,
Suriname, Uruguay, Venezuela, and the U.S. Virgin Islands. As part of this
agreement, CSPR in turn will provide assistance to CI to promote export sales in
a total of fourteen separate and distinct countries that are located in the
Caribbean and Latin American (CALA) or South America. Both companies are seeking
to continue to find new sales opportunities due to this alliance. The revenue
for export is classified as part of Product in the Income Statement.

No
assurance can be given that CSPR will be successful in achieving our near term
goals necessary to raise sufficient cash and meet the Companys obligations
with our customers and suppliers. Ultimately, the Company must achieve
profitable operations if the Company is to be a viable entity.

Results of
Operations and Cash Flow for the Three Months Ended April 30, 2005 and 2004

The
following discussion provides information about the Companys operations,
for the three months ended April 30, 2005 and for the three months ended April
30, 2004.

Net revenues consist of sales of new product and additions
(Products) and services (Services) related to revenues
from maintenance contract and billable services. Net revenues increased 34.5%,
or approximately $589,000 in the three months ended April 30, 2005 compared to
the three months ended April 30, 2004. The results primarily reflect increased
revenue of approximately $624,000 in Products, (of which $329,000 are related to
the previously mentioned territory and export agreement with Cortelco, Inc.) and
a decrease of approximately $35,000 in Services due to market fluctuation in
billable service calls and a decline in maintenance contracts due to
customers decision to acquire new systems from Cortelco with a one year of
warranty.

8

---

Cost
of revenues consists primarily of purchases from equipment manufacturers and
other suppliers and costs incurred for final assembly, quality assurance, system
installation and maintenance labor cost. The gross margin for the three months
ended April 30, 2005 was 26.3% and 27.6% for the three months ended April 30,
2004.

Selling,
general and administrative expenses consist primarily of salaries and benefit
costs, advertising, and facilities and other overhead expenses incurred to
support our business. Selling, general and administrative expenses increased
3.2% to approximately $555,000 in the three months ended April 30, 2005 from
approximately $538,000 in the three months ended April 30, 2004.

Other
income in the three months ended April 30, 2005 was a nonrecurring transaction
of approximately $3,000. In addition, the Company had no significant interest
expense in either the three months ended April 30, 2005 or 2004.

The
resulting income tax was offset by the available carryforward losses, through a
change in valuation allowance.

Cash
flow provided by operating activities was approximately $26,000 in the three
months ended April 30, 2005 and cash flow used in operating activities was
approximately ($37,000) in the three months ended April 30, 2004. Cash provided
by operating activities in the three months of this fiscal year resulted
primarily from an increase in trade accounts payable to affiliates that was
partially offset by a decrease in trade accounts payable. Cash flows provided by
investing activities for the three months ended April 30, 2005 and 2004 was
approximately $3,000 and $1,000, respectively. The change in cash for investing
activities is related to the acquisition of new technical equipment to improve
the performance of our technician force.

Results of
Operations and Cash Flow for the Nine Months Ended April 30, 2005 and 2004

The
following discussion provides information about the Companys operations,
for the nine months ended April 30, 2005 and for the nine months ended April 30,
2004.

Net revenues consist of sales of new product and additions
(Products) and services (Services) related to revenues
from maintenance contract and billable services. Net revenues increased 9%, or
approximately $490,000 in the nine months ended April 30, 2005 compared to the
nine months ended April 30, 2004. The results primarily reflect a increased
revenue of approximately $606,000 in Products, (of which $495,000 are related to
the previously mentioned territory and export agreement with Cortelco, Inc.) and
a decrease of approximately $116,000 in Services due to market fluctuation in
billable service calls and a decline in maintenance contracts due to
customers decision to acquire new systems from Cortelco with a one year of
warranty.

Cost
of revenues consists primarily of purchases from equipment manufacturers and
other suppliers and costs incurred for final assembly, quality assurance, system
installation and maintenance labor cost. The gross margin for the nine months
ended April 30, 2005 was 28.3% and 17.74% for the nine months ended April 30,
2004. The increase in the gross margin was primarily due to the $600,000
inventory valuation adjustment recorded in the quarter ended January 31, 2004.

Selling,
general and administrative expenses consist primarily of salaries and benefit
costs, advertising, and facilities and other overhead expenses incurred to
support our business. Selling, general and administrative expenses decreased
7.6% to approximately $1,650,000 in the nine months ended April 30, 2005 from
approximately $1,785,000 in the nine months ended April 30, 2004. The decrease
was primarily due to a provision of $200,000 for doubtful accounts in the
quarter ended January 31, 2004.

Other
income in the nine months ended April 30, 2005 was a nonrecurring transaction of
approximately $30,000. In addition, the Company had no significant interest
expense in either of the nine months ended April 30, 2005 or 2004.

The
resulting income tax was offset by the available carryforward losses, through a
change in valuation allowance.

Cash
flow provided by operating activities was approximately $274,000 in the nine
months ended April 30, 2005 and cash flow used in operating activities was
approximately ($46,000) in the nine months ended April 30, 2004. Cash provided
by operating activities in the nine months of this fiscal year resulted
primarily from a decrease in trade

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accounts
receivable and an increase in trade  accounts payable to affiliates that was partially
offset by a decrease in  overall trade accounts payable. Cash flows used in investing
activities for the  nine months ended April 30, 2005 and 2004 was approximately ($19,000)
and  ($13,000), respectively. The change in cash for investing activities is related  to
the acquisition of new technical equipment to improve the performance of our  technician
force.

Other
Relevant Financial Information

The
Companys Board of Directors has the authority to issue up to 10,000,000
shares of preferred stock and to determine the preferences, rights and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of any preferred stock that may be
issued in the future may harm the rights of the holders of common stock. Certain
provisions of our certificate of incorporation and bylaws may make it more
difficult for a third party to acquire control of CSPR without the consent of
our Board of Directors, even if such changes were favored by a majority of the
stockholders. These include provisions that provide for a staggered board of
directors, prohibit stockholders from taking action by written consent and
restrict the ability of stockholders to call special meetings.

CSPRs
officers, directors and five percent or greater stockholders beneficially own or
control, directly or indirectly, approximately 860,334 shares, which in the
aggregate represent approximately 54% voting interest in the outstanding shares
of our common stock. These stockholders have the ability to control all matters
submitted to our stockholders for approval, including the election and removal
of directors and the approval of any business combinations.

The
Company believes our stock fits the definition of a penny stock. The Securities
Exchange Act of 1934 defines a penny stock as any equity security that is not
traded on a national securities exchange or authorized for quotation on The
Nasdaq Stock Market and that has a market price of less than $5.00 per share,
with certain exceptions. Penny stocks are subject to Rule 15g under the
Securities Exchange Act of 1934, which imposes additional sales practice
requirements on broker-dealers who sell such securities. In general, a
broker-dealer, prior to a transaction in a penny stock, must deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer must provide
the customer with current bid and offer quotations for the penny stock,
information about the commission payable to the broker-dealer and its
salesperson in the transaction and monthly statements that disclose recent price
information for each penny stock in the customers account. Finally, prior
to any transaction in a penny stock, the broker-dealer must make a special
written suitability determination for the purchaser and receive the
purchasers written consent to the transaction prior to sale. All of these
requirements may restrict your ability to sell our stock and could limit the
trading volume of our stock and adversely affect the price investors are willing
to pay for our stock.

Off-Balance
Sheet Arrangements

CSPR
was not involved in any significant off-balance sheet arrangements during the
nine months ended April 30, 2005 and for the nine months ended April 30, 2004.

ITEM 3.   CONTROLS
AND PROCEDURES.

Under
the supervision and with the participation of our management, including the
Chief Executive Officer and Chief Financial Officer, the Company has evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e) as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedure are effective. There were no changes in our internal control over
financial reporting during the nine months ended April 30, 2005 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.

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PART II  OTHER INFORMATION

ITEM 1.   LEGAL
PROCEEDINGS.

No new legal
proceedings.

ITEM 2.   UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.   DEFAULTS
UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5.   OTHER
INFORMATION.

None.

ITEM 6.   EXHIBITS
AND REPORTS ON FORM 8-K.

(A) Exhibits.

|ExhibitNumber | Description of Document
|------------- | -----------------------
|31.1          |                        
|32.1          |                        

(B)  Reports On
Form 8-K.

None.

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SIGNATURES

In accordance
with the requirements of the Exchange Act, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                    |                                                                                                                                                                
|------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|                    | Cortelco Systems Puerto Rico, Inc.                                                                                                                             
|Date: June 14, 2005 | /s/ Francisco Sanchez
Francisco Sanchez, Vice President
Chief Financial Officer, Treasurer
Duly Authorized Officer
(Principal Financial and Accounting Officer)

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