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UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C. 20549


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FORM 10-K

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One) | 
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934    
|           |  |                                                                                         
|           |  | For the fiscal year ended July 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 000-49626

CORTELCO SYSTEMS PUERTO RICO, INC.

(Exact name of registrant as specified in its charter)

|                         |  |                                     
|------------------------ |  | ------------------------------------
|PUERTO RICO              |  | 66-0567491                          
|(State of incorporation) |  | (I.R.S. Employer Identification No.)

1550 Ponce de Leon Avenue, Suite 100, San Juan, Puerto Rico 00926

(Address of principal executive offices)


(787) 758-0000

(Telephone number)


Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

(Title of each class)

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. YESx   NOo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.   o

The aggregate market value of the shares of common stock held by
non-affiliates of the registrant was approximately $535,896 based upon the
closing sale price as quoted on the OTC Bulletin Board on 09/30/02. The number
of outstanding shares of the registrants $0.01 par value common stock was
1,204,557 shares as of that date.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrants Proxy Statement for the 2002 Annual
Meeting of Shareholders are incorporated by reference in Part III.





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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | ITEM 1. BUSINESS                                                                             
|                                                   | ITEM 2. PROPERTIES                                                                           
|                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                           
|                                                   | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                   | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                   | ITEM 1. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                   | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                                          
|                                                   | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                   | ITEM 11. EXECUTIVE COMPENSATION.                                                             
|                                                   | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                   | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.                               
|PART IV                                           
|                                                   | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 8-K.                        
|SIGNATURES                                        
|EX-23 CONSENT OF INDEPENDENT AUDITORS             
|EX-99.1 OFFICER'S CERTIFICATION OF PERIODIC REPORT



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TABLE OF CONTENTS

|         |  |          |  |                                                                                       |  |      |  | 
|-------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | ---- |  | 
|         |  |          |  |                                                                                       |  | Page
|         |  |          |  |                                                                                       |  |     
|PART I   |  |          |  |                                                                                       |  | 1   
|         |  | ITEM 1.  |  | BUSINESS                                                                              |  | 1   
|         |  | ITEM 2.  |  | PROPERTIES                                                                            |  | 4   
|         |  | ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 5   
|         |  | ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 6   
|PART II  |  |          |  |                                                                                      
|         |  | ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 6   
|         |  | ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 7   
|         |  | ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |  | 9   
|         |  | ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 20  
|         |  | ITEM 9.  |  | CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 39  
|PART III |  |          |  |                                                                                       |  | 39  
|         |  | ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 39  
|         |  | ITEM 11. |  | EXECUTIVE COMPENSATION.                                                               |  | 39  
|         |  | ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 39  
|         |  | ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.                                 |  | 39  
|PART IV  |  |          |  |                                                                                       |  | 40  
|         |  | ITEM 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 8-K.                          |  | 40  

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PART I

FORWARD-LOOKING STATEMENTS

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 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. We also
direct your attention to the risk factors affecting our business that are
discussed elsewhere in Item 7. We disclaim 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 consolidated financial statements and the notes included
thereto in Item 8.




ITEM 1. BUSINESS

Introduction

Cortelco Systems Puerto Rico, Inc. (the Company) is a value-added reseller of
numerous third-party brands of voice and data communications systems as well as
cellular telephones and airtime. We provide value through our sales
distribution network and our service. The products we sell help enterprises
communicate more effectively with customers and increase customer satisfaction
and loyalty. We conduct most of our business in Puerto Rico, although we also
sell voice and data communications systems elsewhere in the Caribbean and Latin
America.

We were incorporated in March 1999 under the laws of the Commonwealth of Puerto
Rico. At the time of incorporation, our sole stockholder was Cortelco Puerto
Rico, Inc. (CPR). Prior to becoming a wholly-owned subsidiary of eOn
Communications Corporations (eOn) in April 1999, CPR contributed
substantially all of its operations and certain assets and liabilities to us.
On July 31, 2002, we were spun-off from eOn as a separate entity to the
stockholders of eOn.

Our reportable segments are Communications Systems and Cellular Airtime
Services, each of which offers different products and services. Each segment
requires different technology and marketing strategies. The Communications
Systems segment offers communications solutions that address voice and data
network switching while the Cellular Airtime Services segment resells cellular
airtime and cellular telephones in Puerto Rico.

Through our Communications Systems segment we install, program, and service
voice and data communications systems such as customer premise PBXs, call
center voice switches and applications, as well as reselling computers and
local area networks to enterprises and businesses of all sizes. PBXs are
private telephone switching systems, usually located on a customers premises,
which provide telephone services within the customers premises, as well as
access to the public switched network. Through our Cellular Airtime Services
segment we resell cellular telephones either separately or in conjunction with
buying and reselling cellular airtime from cellular carriers, predominantly the
Puerto Rico Telephone Corporation (PRTC). We also receive sales commissions
from cellular carriers for signing up customers with the carriers, in which
case we do not buy and resell the actual cellular airtime. No bundling of
cellular telephones and cellular airtime takes place as the telephone suppliers
and the airtime providers are different entities.

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Industry Overview

Our markets are generally characterized by numerous competitors that often
distribute many of the same products that we distribute. Therefore, price
competition is often intense for many of the products that we distribute. As
other value-added resellers sometimes offer the same equipment as us, the
quality of customer service provided is often the differentiating factor in
winning new customers.

Our Strategy

We are continually assessing the addition of new brands of voice and data
communications equipment to distribute and new cellular products to offer in
the markets we serve. Historically, we derived virtually all of our revenues
from sales in Puerto Rico. We expect to increase sales to customers outside of
Puerto Rico as we continue to establish our distribution channels elsewhere in
the Caribbean and Latin America. Additionally, we will continue to assess
possible acquisitions of other companies or assets to increase our product
offering and our installed base of service customers.

Acquisition of Certain Assets of Ochoa Telecom

During May 2001, we acquired certain assets consisting of accounts receivable,
inventory, computers, and the installed customer base of Ochoa Telecom, Inc., a
company engaged in the sale, installation, and maintenance of integrated voice
communications equipment in Puerto Rico. In connection with this acquisition,
we executed a promissory note in favor of Ochoa Telecom in the amount of
$1,400,000. The principal balance on this note was $50,000 at July 31, 2002.
Assets acquired from Ochoa Telecom collateralize the note payable. The
purchase price of these assets, including acquisition costs, exceeded the fair
value of the assets by $382,000, and we accounted for this as goodwill at the
time of the acquisition.

Products and Services

We sell, install, and service the voice and data communications and cellular
products of a number of equipment manufacturers, including eOn, Avaya, Lucent,
Nortel, Hitachi, Mitel, NEC, Cortelco, Nokia, Ericsson, and Motorola among
others. We also resell cellular airtime that we purchase form cellular
carriers, predominantly PRTC. We do not make any of the products that we sell.

Customers

Our customers include both enterprises in our voice and data communications
systems business and individual retail customers in our cellular business. We
do not derive a significant portion of our revenues from any single customer.

Sales and Marketing

We sell our voice and data communications systems and our cellular products
both through a direct sales force and through a network of authorized dealers.
Most of the voice and data communications systems we sell are installed
directly by us, while approximately half of the sales of our cellular phones
and airtime are done through our dealer network. We advertise our voice and
data communications products primarily through trade shows and hosted marketing
presentations, while most advertising for our cellular products is done through
newspapers and other print media.

Customer Service and Support

We earned approximately $3.3 millions of our revenue in fiscal 2002 from the
servicing of voice and data communications systems previously installed.
Customers generally sign maintenance agreements which detail the services
provided and the fees charged for delivering such services. The equipment
manufacturers train our personnel in the products that we distribute and
service through training courses offered. A key factor in assessing whether to
distribute additional equipment brands or acquire assets of other distributors
is the size of an installed base of customers in the markets and the technical
expertise required to service the equipment.

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Intellectual Property

We do not have any patents, trademarks, or licenses in the conduct of our
business. We conduct most of our operations under the trade names Cortelco
and Cellular Outlet which are well known by customers in Puerto Rico. Under
Puerto Rican law, we have a proprietary interest in these tradenames for so
long as we continue to actively use these trade names.

Competition

The market we serve in the communications industry is highly competitive.
Competitive factors include (1) market acceptance of the products, services and
technology solutions that we provide, (2) pending and future legislation
affecting the communications industry, (3) name recognition and market share,
(4) our ability to provide integrated communication and data solutions for
customers in a dynamic industry, and (5) the introduction of new technologies.

The dominant competitor in the Puerto Rico market is PRTC, which is
significantly larger than any competitor in the market. However, recently PRTC
has begun to reduce its voice equipment installation and service business in
order to apply its resources to other markets that it deems more attractive.
PRTC has traditionally been the reseller, installer, and service company in
Puerto Rico for Nortel Networks, the largest voice communications equipment
provider in Puerto Rico. As PRTC exits the reseller and service business for
customer premise voice products, we will compete with other resellers in the
attempt to acquire the maintenance contracts on their customers. Buyers of
enterprise voice communications systems are generally very sensitive to price
and, to a lesser degree, customer service. Therefore, having the lowest sales
price is often the key to winning a customer initially and resellers will often
compete aggressively on price in order to win customers for maintenance
purposes. We are one of the largest resellers in the Puerto Rico market. We
believe that our size offers a competitive advantage in continuing to grow our
Communications Systems segment as the large resellers are better able to
compete on sales price due to discounts received from equipment manufacturers
for larger volume purchases.

Some of our competitors in the communications business are small,
owner-operated companies typically located and operated in a single geographic
area. Certain of these smaller competitors may have lower overhead cost
structures and, consequently, may be able to charge lower rates for their
services. Therefore, our relative size may be a competitive disadvantage
because we have higher overhead cost structures, and lack as much flexibility
to charge lower rates for our services.

There also are a number of large, integrated national companies engaged in
providing commercial services in the service lines in which we intend to focus,
some of which also manufacture and sell directly the products that we service
and sell. Certain of our larger competitors may have greater financial
resources to finance acquisition and internal growth opportunities and may be
willing to pay higher prices than us for acquisition opportunities. As a
result, we have a competitive disadvantage compared to these larger
competitors.

Future competition may be encountered from other newly formed or existing
public or private service companies with aggressive acquisition and marketing
programs. Certain products and services that we offer are manufactured or
supplied by others. This presents a competitive disadvantage to us since we
incur the risk of partial reliance upon third-party systems and services, as
well as risks associated with the need to integrate services and solutions
across networks, platforms and equipment manufactured or supplied by various
companies.

Employees

As of July 31, 2002, we had approximately 80 employees, including 33 in sales
and marketing, 33 in customer service and support, and 14 in finance and
administration.

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Executive Officers

The following table sets forth information as to the persons who serve as our
executive officers. Our board of directors may appoint additional executive
officers from time to time.

|                  |  |     |    |       |  |                                                                         
|----------------- |  | --- | -- | ----- |  | ------------------------------------------------------------------------
|Name              |  | Age |    | Title
|                  |  |     |    |      
|Sergio R. Moren   |  |     | 57 |       |  | Director, President, and Chief Executive Officer                        
|Francisco Sanchez |  |     | 55 |       |  | Chief Financial Officer, and Vice President -
Finance and Administration
|Jose Alvarez      |  |     | 46 |       |  | Vice President  Operations and General Manager
of Cellular Division    
|Manuel del Toro   |  |     | 54 |       |  | Vice President  Sales and Marketing                                    

SERGIO R. MOREN became President, Chief Executive Officer, and a Director of
the Company in April 1999. From February 1998 until April 1999, Mr. Moren was
President of CPR. From January 1996 to February 1998, Mr. Moren was Vice
President of Integrated Technologies, a contract manufacturer. Prior to 1996,
Mr. Moren held executive positions in manufacturing, sales and marketing at ITT
Industries, Inc., an engineering and manufacturing company, including President
and General Manager of ITT Qume Caribe, a division of ITT Industries. Mr.
Moren received a masters degree from Harvard University and a B.S. from Santa
Maria University.

FRANCISCO SANCHEZ became Chief Financial Officer of the Company in July 2000
and became Vice President  Finance and Administration in April 1999. Mr.
Sanchez served as a director of the Company from January 2002 to September
2002. He was Vice President  Finance and Administration of CPR from July 1998
until April 1999. From June 1987 to 1998, Mr. Sanchez was Caribbean Region
Comptroller for H.B. Fuller Company. From June 1978 to May 1987, Mr. Sanchez
held executive positions, Assistant Comptroller in manufacturing, sales and
marketing at ITT Industries, Inc. Mr. Sanchez received a masters degree from
Metropolitan University and a BBA from Puerto Rico University.

JOSE ALVAREZ became Vice President  Operations and General Manager of Cellular
Division of the Company in August 2001. From August 2000 to August 2001, Mr.
Alvarez was an Executive Vice President of eOn. From February 2000 to August
2000, Mr. Alvarez was Director of Operations, Export Sales & Cellular Division,
of eOn. From June 1999 to February 2000, Mr. Alvarez was Operations Director
of the Company. From January 1991 to February 1999, Mr. Alvarez was President
of Almacenes Gonzalez, a retail shoe company. Mr. Alvarez received a masters
degree from Northeastern University and an undergraduate degree from the
College of the Holy Cross.

MANUEL DEL TORO became Vice President of Sales and Marketing of the Company in
September 2001. From December 2000 to September 2001, Mr. del Toro was a
telecommunications and marketing consultant. Mr. del Toro worked with
Telefonica de Larga Distancia of Puerto Rico, Inc., a telecommunications
company, from July 1992 to December 2000. From July 1973 to 1989, Mr. del Toro
was Director of Sales and Marketing of Cortelco Puerto Rico, Inc., then a
subsidiary of ITT Corporation. Mr. del Toro received a Bachelor of Arts as
Architect Designer at the University of Puerto Rico.

Governmental Regulation

We are not directly regulated by any governmental agency. However, the Federal
Communications Commission and Junta Reglamentadora de Telecomunicaciones de
Puerto Rico have regulations which address consumer products that connect to
the public telephone network. In addition, the Federal Communications
Commission regulates electronic emissions of consumer products such as cellular
telephones. Our business could be adversely affected if these agencies modify
or adopt new regulations. Such regulations could impact the cost of the
products we sell or limit the types of products that we may sell, thus reducing
our revenues.




ITEM 2. PROPERTIES

Our corporate headquarters is located in approximately 20,000 square feet of a
facility located in San Juan, Puerto Rico. We lease this facility from
Cortelco Puerto Rico, Inc., a wholly-owned subsidiary of Cortelco Systems
Holding Corporation, our former owner and an affiliate through common stock
ownership. The lease on this facility expires in April 2004. Virtually all of
our employees work at this facility, other than those that work at the direct

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sales cellular outlets operated by us. We are planning to move the operation
to a less expensive facility in the municipality of Caguas, Puerto Rico, about
20 minutes from the present facility. This move will allow us to reduce rent
expense and potentially receive tax exemption grants to operate under the line
assembly process known as the light manufacturing concept.




ITEM 3. LEGAL PROCEEDINGS

From time to time, we may be a party to legal proceedings incidental to our
business. We do not believe that any of these proceedings will have a material
adverse effect on our business or financial condition.

In 1997, Cellu-Tel, Inc. filed a lawsuit against us in Superior Court, San
Juan, Puerto Rico. The complaint alleges that we breached the terms of our
contract by ceasing to supply services to the plaintiff. The plaintiff seeks
damages of approximately $854,430. Discovery proceedings are being conducted.
As a result of the information obtained during discovery, we filed a Third
Party Complaint against City Cellular, Inc. and Edgardo Correa, who is the
President of Cellu-Tel, Inc. and City Cellular, Inc. We alleged in the Third
Party Complaint that City Cellular is a business conduit (an alter ego) of
plaintiff Cellu-Tel, Inc. We have also alleged that City Cellular has
continued to conduct the business of plaintiff. We also believe that City
Cellular has received the benefits and income that plaintiff would have
received, if any. Therefore, we believe that City Cellular is directly
responsible to Cellu-Tel. City Cellular has answered the Third Party Complaint
and denied the allegations and raised several defenses. We intend to follow
through with discovery proceedings regarding the Third Party Complaint. We
believe that this litigation is without merit and will not have a material
adverse effect on our business.

In 2001, Jorge Basmeson, a former employee of the Company, filed a lawsuit
against us in Court of First Instance, Superior Court, San Juan Section, Puerto
Rico. The plaintiff, whose employment we terminated, alleges that his
dismissal was unjustified and violated applicable discrimination laws. The
plaintiff seeks damages of approximately $600,000. The suit was settled for
$15,000 on May 28, 2002.

In 2001, Jose Gonzalez-Nogueras and Luis Luhring-Arizmendi filed a lawsuit
against us in Court of First Instance, San Juan, Puerto Rico. The plaintiffs
were terminated from employment upon diverse circumstances. Mr. Gonzalez
resigned voluntarily alleging that he had problems adjusting to the operational
system and corporate culture of the Company. Mr. Luhring was recruited for 90
days as a probationary employee. Before ending his probationary period, the
Company decided not to offer Mr. Luhring permanent employment. The plaintiffs
seek $5,074,321 for Mr. Gonzalez and $3,072,000 for Mr. Luhring, for alleged
damages and loss of business. The Company filed a motion requesting an
extension of time to answer the complaint and filed a motion to severe the
cases that was granted by the Court, and up to this date Counsel for Plaintiffs
has not yet filed the new Complaints to re-initiate the proceedings. We
believe that all of these allegations are false, and that this litigation is
without merit and will not have a material adverse effect on our business.

In 2001, Jorge Berrios filed a lawsuit against us in Court of First Instance,
Caguas, Puerto Rico. The plaintiff alleges that he was unjustly dismissed from
employment. He claims compensation in the amount of $300,000 in damages and
$32,910.16 as a statutory severance payment. This case is in the initial
stage, with the Company having filed an answer to the complaint. Very recently
Plaintiff retained new legal representation. The Company is strongly defending
its case, because the dismissal of Berrios was based upon good cause for his
repeated negligence, which caused the company thousand of dollars in losses.
We believe that this litigation is without merit and will not have a material
adverse effect on our business.

In January 2002, Edwin Colberg filed a lawsuit against us in the Court of First
Instance, Superior Part, San Juan, Puerto Rico. The plaintiff alleges that he
was unjustly dismissed from employment, that the Company discriminated against
him on the basis of his age, and that he suffered mental anguish as a result of
his dismissal. His total claim is in the amount of $7,348,000. Discovery
proceedings are being conducted. We have conducted an investigation of the
allegations and concluded from our investigation that no discrimination of any
type occurred. We believe that our actions were justified by business reasons,
and that this litigation is without merit and will not have a material adverse
effect on our business.

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

None.




PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock and Dividends

There currently is no established public trading market for any class of our
capital stock. We are not currently offering any shares of our capital stock
publicly, nor have we publicly proposed to conduct such an offering. Shares of
our common stock are reported on the OTC Bulletin Board under the symbol
CPROF.

The OTC Bulletin Board is a quotation service that displays quotes, last-sale
prices and volume information regarding over-the-counter (OTC) equity
securities. An OTC equity security generally is any equity security that is
not listed or traded on a national securities exchange nor is authorized for
quotation on The NASDAQ Stock Market.

The OTC Bulletin Board is only a quotation medium, not an issuer listing
service, and should not be confused with The NASDAQ Stock Market. Market makers
for OTC Bulletin Board securities generally are required only to match up
willing buyers and sellers. Generally, market makers are not required to
purchase securities directly from willing sellers or sell securities directly
to willing buyers. For this and other reasons, the trading markets for OTC
equity securities are generally significantly less liquid than the trading
markets for securities listed on a national securities exchange or authorized
for quotation on The NASDAQ Stock Market and, therefore, there may be a
substantial delay in execution of trades. In addition, an active trading market
in the Company common stock may not develop.

As of September 30, 2002, there were 215 shareholders of record of our common
stock and, to the best of our knowledge, approximately 5,000 beneficial owners
whose shares of common stock were held in the names of brokers, dealers, and
clearing agencies.

During fiscal 2002, we did not declare any dividends on our capital stock. We
currently intend to retain any earnings to finance the operation and expansion
of our business and, therefore, do not expect to pay cash dividends on our
common stock in the foreseeable future.

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

The following table summarizes our equity compensation plan as of July 31,
2002:

Equity Compensation Plan Information

|                    |       |                         |   |                      |   |                                      |        
|------------------- | ----- | ----------------------- | - | -------------------- | - | ------------------------------------ | -------
|                    |       | Number of securities to |   | Weighted-average     |   | Number of securities remaining      
|                    |       | be issued upon exercise |   | exercise price of    |   | available for future issuance under 
|                    |       | of outstanding options, |   | outstanding options, |   | equity compensation plans (excluding
|Plan category       |       | warrants and rights     |   | warrants and rights  |   | securities reflected in column (a)) 
|                    |       |                         |   |                      |   |                                     
|                    |       | (a)                     |   | (b)                  |   | (c)                                 
|                   
|Equity compensation |       |                        |   |                     |   | 125,000                             
|plans approved by   |       |                         |   |                      |   |                                     
|security holders    |       |                         |   |                      |   |                                     
|                   
|Equity compensation |       |                        |   |                     |   |                                    
|plans not approved  |       |                         |   |                      |   |                                     
|by security holders |       |                         |   |                      |   |                                     
|                   
|                    | Total |                         |  |                      |  |                                      | 125,000




ITEM 6. SELECTED FINANCIAL DATA

We were incorporated in March 1999 under the laws of the Commonwealth of Puerto
Rico. At the time of incorporation, our sole stockholder was Cortelco Puerto
Rico, Inc. Prior to becoming a wholly-owned subsidiary of eOn in April 1999,
Cortelco Puerto Rico, Inc. contributed substantially all of their operations
and certain assets and liabilities to us.

You should read the following selected financial data set forth below in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and our historical financial statements and related
notes included elsewhere in this report.

The selected statement of operations data presented below for the years ended
July 31, 2002, 2001 and 2000, and for the period from commencement of
operations April 8, 1999 through July 31, 1999, and the selected balance sheet
data as of July 31, 2002, 2001 and 2000, are derived from our historical
financial statements audited by Deloitte & Touche LLP, independent auditors.
The selected balance sheet data as of July 31, 1999 are derived from our
historical financial statements. The selected statement of operations data of
our predecessor company, Cortelco Puerto Rico, Inc., for the period from August
1, 1998 through April 7, 1999 are derived from historical financial statements
of Cortelco Puerto Rico, Inc. audited by Deloitte & Touche LLP. The selected
statement of operations data of Cortelco Puerto Rico, Inc. for the year ended
July 31, 1998, and the selected balance sheet data as July 31, 1998, are
derived from historical financial statements of Cortelco Puerto Rico, Inc.

The pro forma net income (loss) per share data gives effect to eOns
distribution to eOns shareholders of all the Companys shares held by eOn on
the basis of one share of the Companys stock for every ten shares of eOn
common stock outstanding as if such distribution had occurred as of the
beginning of the earliest period presented.

The selected financial information of our predecessor company, Cortelco Puerto
Rico, Inc., included herein is not necessarily indicative of our results of
operations, financial position, and cash flows as if we had operated as a
stand-alone entity at such times nor is it indicative of our results of
operations, financial position, and cash flows in the future.

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|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |       |       | 
|------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ---------------------------------- | ----- | ---------------------------------------- | ------ | -------------------- | ----- | ------------------- | ------ | ----- | ----- | ---- | ----- | ------------------- | ----- | ----------- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                                                              |                                     |                          |         | Cortelco Systems Puerto Rico, Inc. |       | Cortelco Puerto Rico, Inc. (Predecessor)
|                                                                                                              |                                     |                          |         |                                    |       |                                         
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       | Period from April 8 |       | Period from |        |       |       |  
|                                                                                                              |                                     |                          |         | Year Ended July 31,                |       | to July 31,                              |        | August 1 to April 7, |       | Year Ended July 31,
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                    
|                                                                                                              |                                     |                          |         | 2002                               |       | 2001                                     |        | 2000                 |       | 1999                |        | 1999  |       | 1998
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |     
|In thousands, except per share data:                                                                          |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|Statement of Operations Data:                                                                                 |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|Net revenues                                                                                                  |                                     | $                        | 10,384  |                                    |       | $                                        | 22,181 |                      |       | $                   | 24,262 |       |       | $    | 7,073 |                     |       | $           | 11,109 |       |       | $ | 14,278 |      
|Cost of revenues                                                                                              |                                     |                          | 8,152   |                                    |       |                                          | 17,450 |                      |       |                     | 18,701 |       |       |      | 5,213 |                     |       |             | 7,974  |       |       |   | 9,633  |      
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|                                                                                                              |                                     | Gross Profit             |         |                                    | 2,232 |                                          |        |                      | 4,731 |                     |        |       | 5,561 |      |       |                     | 1,860 |             |        |       | 3,135 |   |        |       | 4,645 | 
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|Operating Expense:                                                                                            |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|                                                                                                              | Selling, general and
Administrative |                          |         | 4,108                              |       |                                          |        | 5,329                |       |                     |        | 5,012 |       |      |       | 1,550               |       |             |        | 1,871 |       |   |        | 4,131 |      
|Separation costs                                                                                              |                                     |                          | 458     |                                    |       |                                          |       |                      |       |                     |       |       |       |      |      |                     |       |             |       |       |       |   |       |      
|Special charges                                                                                               |                                     |                          | 320     |                                    |       |                                          | 62     |                      |       |                     |       |       |       |      |      |                     |       |             |       |       |       |   |       |      
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|                                                                                                              |                                     | Total operating expenses |         |                                    | 4,886 |                                          |        |                      | 5,391 |                     |        |       | 5,012 |      |       |                     | 1,550 |             |        |       | 1,871 |   |        |       | 4,131 | 
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|Income (loss) from operations                                                                                 |                                     |                          | (2,654  | )                                  |       |                                          | (660   | )                    |       |                     | 549    |       |       |      | 310   |                     |       |             | 1,264  |       |       |   | 514    |      
|Interest income                                                                                               |                                     |                          | (26     | )                                  |       |                                          | (15    | )                    |       |                     | (21    | )     |       |      | (20   | )                   |       |             | (23    | )     |       |   | (42    | )    
|Interest expense                                                                                              |                                     |                          | 5       |                                    |       |                                          |       |                      |       |                     | 67     |       |       |      | 16    |                     |       |             | 367    |       |       |   | 348    |      
|Other (income)/expense                                                                                        |                                     |                          |         |                                    |       |                                          |       |                      |       |                     |       |       |       |      |      |                     |       |             | (21    | )     |       |   | (17    | )    
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|Income (loss) from operations before income
taxes                                                             |                                     |                          | (2,633  | )                                  |       |                                          | (645   | )                    |       |                     | 503    |       |       |      | 314   |                     |       |             | 941    |       |       |   | 225    |      
|Income tax expense                                                                                            |                                     |                          |        |                                    |       |                                          |       |                      |       |                     | 30     |       |       |      | 10    |                     |       |             | 152    |       |       |   |       |      
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|Net income (loss)                                                                                             |                                     | $                        | (2,633  | )                                  |       | $                                        | (645   | )                    |       | $                   | 473    |       |       | $    | 304   |                     |       | $           | 789    |       |       | $ | 225    |      
|                                                                                                              |                                     |                          |         |                                    |       |                                          |        |                      |       |                     |        |       |       |      |       |                     |       |             |        |       |       |   |        |      
|Basic and diluted net income (loss) per share                                                                 |                                     |                          | (263.30 | )                                  |       | $                                        | (64.50 | )                    |       | $                   | 47.30  |       |       | $    | 30.40 |                     |       |             |        |       |       |   |        |      
|Weighted-average number of shares
outstanding used in computing basic and
diluted net income (loss) per share |                                     |                          | 10      |                                    |       |                                          | 10     |                      |       |                     | 10     |       |       |      | 10    |                     |       |             |        |       |       |   |        |      
|Pro forma basic and diluted net income
(loss) per share                                                       |                                     | $                        | (2.19   | )                                  |       | $                                        | (0.54  | )                    |       | $                   | 0.39   |       |       | $    | 0.25  |                     |       |             |        |       |       |   |        |      
|Shares used in computing pro forma basic and
diluted net income (loss) per unit                               |                                     |                          | 1,205   |                                    |       |                                          | 1,205  |                      |       |                     | 1,205  |       |       |      | 1,205 |                     |       |             |        |       |       |   |        |      

|                    |                                         |          |   |       |  |          |   |        |  |  |   |        |  |  |      |       |  |  |  |  |  |  |   |       |  
|------------------- | --------------------------------------- | -------- | - | ----- |  | -------- | - | ------ |  |  | - | ------ |  |  | ---- | ----- |  |  |  |  |  |  | - | ----- | -
|                    |                                         |          |   |       |  |         
|                    |                                         | July 31, |   |       |  | July 31,
|                    |                                         |          |   |       |  |         
|                    |                                         | 2002     |   | 2001  |  | 2000     |   | 1999   |  |  |   |        |  |  | 1998 |      
|                    |                                         |          |   |       |  |         
|Balance Sheet Data: |                                         |          |   |       |  |          |   |        |  |  |   |        |  |  |      |       |  |  |  |  |  |  |   |      
|                    | Cash and cash equivalents               |          | $ | 333   |  |          | $ | 959    |  |  | $ | 644    |  |  | $    | 71    |  |  |  |  |  |  | $ | 100   |  
|                    | Working Capital                         |          |   | 3,458 |  |          |   | 3,375  |  |  |   | 4,499  |  |  |      | 2,729 |  |  |  |  |  |  |   | 1,776 |  
|                    | Goodwill, net                           |          |   | 382   |  |          |   | 382    |  |  |   |       |  |  |      |      |  |  |  |  |  |  |   |      |  
|                    | Total assets                            |          |   | 6,821 |  |          |   | 10,752 |  |  |   | 11,729 |  |  |      | 8,793 |  |  |  |  |  |  |   | 5,833 |  
|                    | Long-term debt                          |          |   |      |  |          |   |       |  |  |   |       |  |  |      |      |  |  |  |  |  |  |   | 3,400 |  
|                    | Total stockholders equity (deficiency) |          |   | 4,376 |  |          |   | 4,403  |  |  |   | 5,015  |  |  |      | 2,518 |  |  |  |  |  |  |   | (380  | )

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|        |  |                                                                
|------- |  | ---------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
|        |  | RESULTS OF OPERATIONS                                          

Overview

We are a value-added reseller of numerous third-party brands of voice and data
communication systems as well as cellular telephones and airtime. Most of our
business is conducted in Puerto Rico, although we also sell communications
systems in the Caribbean and Latin America. Our products help enterprises
communicate more effectively with customers and increase customer satisfaction
and loyalty. We sell both to enterprises in our voice and data communications
business and to individual retail customers in our cellular business.

Our reportable segments are Communications Systems and Cellular Airtime
Services, each of which offers different products and services. Each segment
requires different technology and marketing strategies. The Communications
Systems segment offers communications solutions that address voice and data
network switching while the Cellular Airtime Services segment resells cellular
airtime and cellular telephones in Puerto Rico. The Communications Systems
segment revenues are comprised mostly of sales of PBX customer premise
equipment. Cellular Airtime Services revenues were 18% of our total revenues
in fiscal 2002 as compared to 47% in fiscal 2001. Revenue derived from
Cellular Airtime Services was exceptionally high in fiscal year 2001 because of
the significant revenues that resulted from a new cellular carrier trying to
gain market share in Puerto Rico in the first half of that fiscal year. We
anticipate that these revenues will continue to decline. As Communications
Systems revenues will constitute a larger portion of our revenue in the future
than in fiscal 2001, it is important that we continue to add to our product and
service offering and increase our installed base of customers. Service
revenues from our Communications Systems segment have our highest gross
margins, greater than the resale of third-party communications systems
equipment or our Cellular Airtime Services segment.

We anticipate increasing the revenues in the Communications Systems segment
while trying to closely control our selling, general, and administrative
expenses. We will continually look for ways to increase our installed base of
customers via acquisitions or by distributing new types of voice and data
communications products as our highest gross margins are from service revenues
in our Communications Systems segment. Our recent losses were mainly a result
of expanding our sales and administrative infrastructure following our rapid
growth in fiscal 1999 and the first half of fiscal 2000. In fiscal 2001, we
restructured our business to address the downward cycle in the
telecommunications industry and began to look for ways to increase our higher
margin business by acquiring certain assets of Ochoa Telecom in Puerto Rico.
While the telecommunications market has continued to be depressed in Puerto
Rico due to macroeconomic factors in the country, we will continue to seek
acquisition opportunities that allow us to increase our maintenance revenues in
the Communications Systems segment.

We recognize revenues from the communications systems we install upon
completion of the installation services and acceptance by the customer due to
the customized nature of each installation. We recognize revenues upon
shipment for communications systems and cellular telephones shipped to dealers
because, at that point, we have no further obligations to our dealers to either
deliver additional products or perform services. We also recognize revenues
upon shipment for cellular telephones sold to retail customers. We recognize
cellular sales commission revenues when retail contracts are submitted to
cellular carriers and revenues for resold cellular airtime when the customer
uses the airtime. Revenues from communications systems service contracts are
recognized over the life of the individual contracts. Currently, we sell and
service communications systems from eOn, as well as various third-party
communications systems from various manufacturers.

Our operating expenses consist mainly of salaries of our sales, marketing,
service, and administrative personnel and associated overhead. We recognize
these expenses as incurred. As we distribute the products of third parties and
do not sell any products that we design or develop ourselves, we do not incur
any costs for research and development. While we have essentially operated as
a stand-alone entity from our parent due to our location in Puerto Rico, with
separate audits, legal counsel, corporate officers, and accounting and
administrative functions, we have not previously operated as a stand-alone
public company. Therefore, we anticipate that we will incur additional general
and administrative expenses due to public company reporting requirements that
were previously performed by our parent.

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Net revenues in quarters ending January 31 generally decline from the previous
quarter, reflecting seasonal factors that affect some of our customers and the
market for voice and data communication systems in Puerto Rico. Customers in
such markets as call centers and retail outlets have seasonal buying patterns
and do not purchase substantial amounts of equipment during the quarters ending
January 31. An increase in total net revenues from October 31, 1999 to January
31, 2000, however, was due mainly to single-line telephone sales to the Puerto
Rico Telephone Company and is not indicative of the usual seasonal pattern of
our business.

Results of Operations

Fiscal Year Ended July 31, 2002, Compared To Fiscal Year Ended July 31,
2001

Net Revenues

Net revenues decreased 53.2% to $10.4 million in fiscal 2002 from $22.2 million
in fiscal 2001. The results primarily reflected decreased revenues of
approximately $8.5 million from the Cellular Airtime Services segment and $3.3
revenues from the Communications Systems segment. Communications Systems
segment revenues include $1.0 million and $0.4 during fiscal 2002 and fiscal
2001, respectively, from sales attributable to the portion of our business we
acquired from Ochoa Telecom, an installer of integrated communications systems,
in May 2001. See Business-Our Strategy. The Cellular Airtime Services
revenues decreased in the current year due mainly to a general decline in
demand and significant revenues in the prior year associated with a new
cellular carrier that was trying to build market share in Puerto Rico during
the first half of fiscal year 2001.

Cost of Revenues and Gross Profit

Cost of revenues consists primarily of purchases from our equipment
manufacturers and other suppliers and costs incurred for final assembly,
quality assurance and installation of our systems. Gross profit decreased
53.2% to $2.2 million in fiscal 2002 from $4.7 million in fiscal 2001. The
decrease resulted primarily from decreased revenues in Cellular Airtime
Services, offset partially by a greater percentage of higher margin
Communications Systems revenues and higher margins on Communications Systems
revenues in the current year. Our gross margins were 21.5% in fiscal 2002 and
21.3% in fiscal 2001. The gross margin in fiscal 2001 reflected a
significantly higher mix of lower margin Cellular Airtime Services revenue.
Cost of revenues includes $0.4 million for inventory obsolescence charges in
fiscal 2002.

Selling, General and Administrative Expenses

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 22.9% to $4.1 million in fiscal 2002 from $5.3 million in fiscal 2001.
The decrease was primarily due to decreased headcount in the Communications
Systems and Cellular Airtime Services segments in fiscal 2002 compared to
fiscal 2001. See Special Charges. These expenses as a percentage of
revenues increased to 39.6% in fiscal 2002 from 24.0% in fiscal 2001, as expense
reductions from our restructuring plans were not proportionate to the decline
in revenues.

Separation Costs

Separation costs were $0.5 million in fiscal 2002, representing legal and
accounting fees associated with our separation from eOn. We incurred no
separation costs in fiscal 2001.

Special Charges

To reduce costs and improve productivity, we adopted a restructuring plan that
resulted in employee reductions in the second quarter of fiscal 2001 and the
second and third quarters of fiscal year 2002. The major component of the
plan, and all of the charges, was comprised of severance payments related to
reductions in our workforce of approximately 29%.

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The following table provides detail about the special charges recorded during
fiscal year 2002 and the associated liabilities at July 31, 2002 (in
thousands):

|                     |  |         |     |              |  |                   |     |                   |  |  |   |  |  |   |     | 
|-------------------- |  | ------- | --- | ------------ |  | ----------------- | --- | ----------------- |  |  | - |  |  | - | --- | 
|                     |  | Charges |     | Expenditures |  | Other Adjustments |     | Liability Balance
|                     |  |         |     |              |  |                   |     |                  
|Termination benefits |  | $       | 320 |              |  | $                 | (32 | )                 |  |  |  |  |  | $ | 288 | 

Net workforce reductions under the plan will reduce our future employee
expense. The decrease in costs as a result of the restructuring activities
outlined above primarily impact wages and benefits in our selling, general and
administrative expenses.

Interest Income

Interest income was nominal in both fiscal 2002 and 2001. In addition, we had
no interest expense in either fiscal 2002 or fiscal 2001 as we retired our
credit facility in conjunction with the initial public offering of eOn in
February 2000.

Income Tax Expense

We recognized no income tax benefit in fiscal 2002 or fiscal 2001 because we
cannot conclude that it is more likely than not that deferred tax assets will
be realized in the future.

Fiscal Year Ended July 31, 2001, Compared To Fiscal Year Ended July 31, 2000

Net Revenues

Total revenues decreased 8.6% to $22.2 million in fiscal 2001 from $24.3
million in fiscal 2000. These results primarily reflected decreased revenues
from the Communications Systems segment of $3.3 million, offset partially by
increased revenues from the Cellular Airtime Services segment of approximately
$1.2 million. Fiscal 2001 Communications Systems results included $0.4 million
in revenues from Ochoa products. The decreased Communications Systems revenues
in fiscal 2001 reflected the significant revenues in fiscal 2000 that resulted
from Year 2000 upgrades, while increased Cellular Airtime Services revenues
reflected the addition of new third-party cellular products distributed in
Puerto Rico.

Cost of Revenues and Gross Profit

Gross profit decreased 14.9% to $4.7 million in fiscal 2001 from $5.6 million
in fiscal 2000. The decrease resulted primarily from decreased revenues and
additional inventory reserves incurred in the current year due to product
obsolescence. Our gross margins were 21.3% in fiscal 2001 and 22.9% in fiscal
2000. Cost of revenues includes $0.2 million for inventory obsolescence
charges for fiscal 2001 and $0.0 million for fiscal 2000.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 6.3% to $5.3 million in
fiscal 2001 from $5.0 million in fiscal 2000. The increase was primarily due to
increased payroll, benefit, and advertising costs associated with Cellular
Airtime Services revenues through our direct sales channel. These expenses as a
percentage of total revenues were 24.0% in fiscal 2001 and 20.7% in fiscal
2000.

Interest Income and Expense, Net

Interest income was nominal during fiscal years 2001 and 2000. In addition, we
had no interest expense in fiscal year 2001 compared to $0.1 million in expense
for fiscal 2000. The decrease in expense was due to the retirement of our
credit facility in conjunction with the initial public offering of stock of eOn
in February 2000.

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Special Charges

To reduce costs and improve productivity, eOn and the Company adopted a
restructuring plan in fiscal 2001. The major component of the plan and all of
the charges comprised estimated severance payments related to reductions in our
workforce of approximately 30%.

The following table provides detail about the special charges recorded during
fiscal year 2001 and the associated liabilities at July 31, 2001 (in
thousands):

|                     |  |         |     |              |  |                   |     |                   |  |   |     |   |  |   |   | 
|-------------------- |  | ------- | --- | ------------ |  | ----------------- | --- | ----------------- |  | - | --- | - |  | - | - | 
|                     |  | Charges |     | Expenditures |  | Other Adjustments |     | Liability Balance
|                     |  |         |     |              |  |                   |     |                  
|Termination benefits |  | $       | 152 |              |  | $                 | (62 | )                 |  | $ | (90 | ) |  | $ | 0 | 

The adjustment reflected above relates to a reduction in the estimated total
severance costs associated with the restructuring plan.

Net workforce reductions under the plan will reduce our future employee
expense. The employee reductions took place in the second quarter of fiscal
2001. The decrease in costs as a result of the restructuring activities
outlined above will primarily impact wages and benefits in our selling, general
and administrative expense.

Income Tax Expense

We recognized no income tax benefit in fiscal year 2001 because we cannot
conclude that it is more likely than not that deferred tax assets will be
realized in the future.

Liquidity and Capital Resources

Prior to the initial public offering of eOn, we funded our operations primarily
through cash generated from operations and periodic borrowings under our former
revolving credit facility. Subsequent to the initial public offering, eOn
periodically provided funds through parent-subsidiary loans as our credit
facility was retired with funds from the initial public offering. The last
funds received from eOn were in November 2000 and we have funded all cash
requirements and loan repayments to eOn of $2.25 million since that date from
operating revenues.

Net cash provided by operating activities was $0.2 million in fiscal 2002.
Cash provided by operating activities in fiscal 2002 was due primarily to
increase collections of receivables, offset by a decrease in accounts payable
and the net loss from operations.

Net cash used in investing activities was $0.1 million in fiscal 2002,
primarily due to expenditures for office automation.

Net cash used in financing activities was $0.7 million in fiscal 2002,
resulting from repayment of part of the note payable issued in conjunction with
the Companys acquisition of certain assets from Ochoa in May 2001. During
fiscal 2002, the net amounts previously advanced from eOn to the Company were
reclassified as capital contributions and no further repayment of the amounts
is required. Cash provided from financing activities during fiscal 2001
represents $0.5 million in net advances from eOn.

The Companys significant revenue decrease and
resulting loss from operations in fiscal 2002 and its lack of
financing resources raise substantial doubt about its ability to
continue as a going concern. Management plans include the reduction
of operating costs and the increase in sales to customers outside of
Puerto Rico as the Company continues to establish distribution
channels elsewhere in the Caribbean and Latin America. In addition,
the Company will continue to assess possible acquisitions of other
companies or assets to increase its products offering and its
installed base of service customers. The Companys goal is to
improve cash flows and to ultimately generate operating profits.
However, no assurances can be given that the Company will be
successful in achieving profitability and positive cash flows.

ADDITIONAL RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

You should carefully consider the risks described below when evaluating
ownership of the Companys stock. If any of the following risks occur, the
Companys business, operating results and financial condition could be
seriously

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harmed. Additional risks and uncertainties that the Company is presently not
aware of could also impair its business, operating results and financial
condition.

RISKS RELATED TO OUR BUSINESS

If we are unable to raise additional capital on acceptable terms, our ability
to market our products and services and grow and operate our business could be
harmed.

The Company's significant revenue decrease and resulting loss
from operations in fiscal 2002 and its lack of financing resources raise substantial
doubt about its ability to continue as a going concern. Management plans include
the reduction of operating costs and the increase in sales to customers outside of
Puerto Rico as the Company continues to establish distribution channels elsewhere
in the Caribbean and Latin America. In addition, the Company will
continue to assess
possible acquisitions of other companies or assets to increase its products
offering and its installed base of service customers. The Company's goal is to improve cash flows and to ultimately generate operating profits.
However, no assurances can be given that the Company will be successful in achieving profitability and positive cash flows.
The magnitude of our future capital requirements will depend on many factors, including, among others, investments in
working capital, and the amount of income generated by operations. If we need to raise
additional capital, that capital may not be available on acceptable terms, or at all.
If we cannot raise necessary additional capital on acceptable terms, we may not be able to
successfully market our products and services, take advantage of future opportunities, respond
to competitive pressures or unanticipated requirements or even continue operating our business.

If we are not able to sustain our traditional private branch exchange
(PBX) market, our business, operating results, and financial condition could be
harmed.

Approximately 41.7% and 37.6% of our revenues for fiscal year 2002 and 2001,
respectively, were from sales of PBX customer premise equipment. Our PBX
revenues declined 56.6% from fiscal year 2000 to fiscal year 2002 due mainly to
a decline in the overall PBX market and significant Year 2000 upgrade revenues.
These revenues comprise approximately 56.3% of our Communications Systems
segment revenues as virtually all enterprise voice communications systems sold
worldwide today are PBXs. The remainder of the segment revenues is service
revenues.

We may not be able to sustain our PBX market revenues because the
traditional PBX market is declining. One reason for the decline of the
traditional PBX market is the emergence of voice switching platforms based on
standard PCs and the continued introduction of IP based voice and data
communications devices by many of the large equipment manufacturers such as
Nortel Networks, Avaya, Mitel, NEC, Toshiba, Panasonic, and Siemens. If we are
not able to sustain our traditional PBX revenues or properly train our
personnel to sell and service the newer products developed by these companies,
our business, operating results and financial condition could be harmed.

If we fail to obtain and market new telecommunication and data products or to
add features to our existing telecommunication and data products, we may not be
able to generate sufficient revenues to sustain our business.

Our success is highly dependent upon the continued successful timely
introduction of new telecommunication and data products and new models of our
existing telecommunications and data products containing additional features.
The markets for our products are characterized by rapid technological change,
frequent new product introductions, uncertain product life cycles and changing
customer requirements. The rapid change in customers requirements and the
constant introduction of new products by our suppliers could cause
technological obsolescence of some of our inventory, which could harm our
business, operating results and financial condition.

The success of new products and new models with additional features depends on
a number of factors, including strategic allocation of limited financial and
technical resources, accurate forecasting of consumer demand, and market and
industry acceptance of our products and services. If we are unable to
successfully train our sales and technical personnel to sell and service the
new telecommunications and data products developed by our equipment
manufacturers, our business, operating results, and financial condition could
be harmed.

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We face intense competition from participants in the telecommunications and
data value-added reseller markets, which may impair our revenues and ability to
obtain new customers and maintain existing customers.

The telecommunications and data value-added reseller markets are intensely
competitive and rapidly evolving. In addition, there are few barriers to entry
into the telecommunications and data value-added reseller markets, and new
entrants to these markets may develop and offer products that will compete
directly with our products and services. Rapid technological innovation and
intense price competition characterize the markets, and the competition for new
customers and for retention of existing customers is intense.

Some of the products and services provided by us are available through
competitors with long operating histories in our markets and many of these
products are already familiar to and accepted by consumers. Many of the
manufacturers and distributors of these competing telecommunication and data
products and services have substantially greater brand recognition, market
presence, distribution channels, advertising and marketing budgets and
promotional and other strategic partners than us.

Actions by our competitors could result in price reductions, reduced margins
and loss of market share, any of which would damage our business. We cannot
assure you that we will be able to compete successfully against these
competitors.

The lengthy sales cycles of some of our products and the difficulty in
predicting the timing of our sales may cause fluctuations in our quarterly
operating results.

The uncertainty of our sales cycle makes the timing of sales difficult to
predict and may cause fluctuations in our quarterly operating results. Our
sales cycles generally vary from one to twelve months based on the size of the
system to be installed and the various requirements of our potential customers.
The purchase of our products may involve a significant commitment of our
customers time, personnel, financial, and other resources. We generally
recognize revenues on the date of shipment for communications systems and
cellular telephones shipped to dealers and upon completion of installation for
communications systems sold directly to end users. For cellular sales
commission revenues we recognize revenues when retail contracts are submitted
to cellular carriers. Resold cellular airtime is recognized as revenues as the
airtime is actually used. Also, it is difficult to predict the timing of
indirect sales because we have little control over the selling activities of
our dealers and value-added resellers.

We incur substantial sales and marketing expenses and spend significant
management time before customers place orders with us, if at all. Revenues from
a specific customer may not be recognized in the quarter in which we incur
related sales and marketing expense, which may cause us to miss our revenue or
earnings expectations.

Seasonal trends may cause our quarterly operating results to fluctuate, which
may adversely affect the market price of our stock.

Telecommunications product sales have traditionally been much lower in Puerto
Rico, our main market, during the winter holiday season than during other times
of the year due to the potential business disruption caused by installing new
communications systems, and the extended winter holiday season present in
Puerto Rico due to local custom. Although predicting consumer demand for our
products will be very difficult, we believe that sales of telecommunications
systems will be disproportionately low during this period when compared to
other times of the year due to the factors above and the seasonal buying
patterns of many of our customers. Any fluctuation in our quarterly operating
results may cause the market price of our stock to decline, and that decline
may be substantial if the fluctuation is caused by factors other than
anticipated seasonal buying patterns of customers. Finally, if we are unable
to accurately forecast and respond to consumer demand for our
telecommunications systems, our reputation and brand may suffer, and the market
price of our stock would likely fall.

Unanticipated difficulties in integrating our recent purchase of certain assets
could harm our business.

In May 2001, we purchased certain assets from Ochoa Telecom, a company engaged
in the sale, installation, and maintenance of integrated communications
equipment in Puerto Rico. The assets consisted of product inventory, accounts
receivable, and some computer equipment for the certain Ochoa personnel that we
hired. The purchase was financed through a note payable to Ochoa,
collateralized by the assets acquired. Although sales of Ochoa

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products since the date of acquisition have contributed positively to our
financial results, future operating results may be adversely affected if we are
not able to realize continued operating efficiencies through the further
consolidation of certain sales, administrative, and customer service functions.

Any future business acquisitions may disrupt our business, dilute stockholder
value or distract management attention.

As part of our ongoing business strategy, we may consider additional
acquisitions of, or significant investments in, businesses that offer products,
services and technologies complementary to our own. In particular, we may
pursue acquisitions and strategic alliances as a means of acquiring additional
brands of communications systems to sell and service. Such acquisitions could
materially adversely affect our operating results and the price of our stock.
Acquisitions also entail numerous risks, including:



| |  |  | difficulty of assimilating the operations, products and personnel of the
acquired businesses;                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | potential disruption of our ongoing business;                                                                                       
|
| |  |  | unanticipated costs associated with the acquisition;                                                                                
|
| |  |  | inability of management to manage the financial and strategic
position of acquired or developed products, services and technologies;
|
| |  |  | inability to maintain uniform standards, controls, policies and
procedures; and                                                     
|
| |  |  | impairment of relationships with employees and customers that may
occur as a result of integration of the acquired business.        

To the extent that shares of our stock or other rights to purchase stock are
issued in connection with any future acquisitions, dilution to our existing
stockholders will result and our earnings per share may suffer. Any future
acquisitions or strategic investments may not generate additional revenue or
provide any benefit to our business, and we may not achieve a satisfactory
return on our investment in any acquired businesses.

If we lose key management personnel, we may not be able to successfully operate
our business.

Our future performance will be substantially dependent on the continued
services of our senior management, especially our President and Chief Executive
Officer, Sergio R. Moren, and other key personnel. The loss of any members of
our executive management team and our inability to hire additional executive
management could harm our business and results of operations. We employ our key
personnel on an at-will basis. We do not maintain key person insurance policies
on any of the members of our executive management team.

We may be unable to hire and retain sales, marketing, and service personnel to
execute our business strategy.

Competition for highly qualified personnel is intense due to the limited number
of people available with the necessary technical skills, and we may not be able
to attract, assimilate or retain such personnel. If we cannot attract, hire and
retain sufficient qualified personnel, we may not be able to successfully
market, sell, or service new products.

Since we do not have exclusive agreements with our manufacturers, manufacturers
may enter into dealer agreements with our competitors, which may adversely
affect our business.

We distribute and service products designed and manufactured by eOn, Avaya,
Nortel, Hitachi, Mitel, Toshiba, NEC, Cortelco, Nokia, Ericsson, Motorola, and
others. However, we do not have exclusive distribution agreements with these
companies and have competitors in our major markets that sell the same
products. Our customers often have the option of purchasing similar
communications systems from other distributors in our markets. A decision by
the manufacturer to sell to other dealers in our market increases competitive
pressures on the Company, and may adversely affect our business.

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If we are unable to establish and maintain satisfactory relationships with the
manufacturers of our products that we expect to sell and service, our business
will suffer.

We acquire all of our products that we sell from manufacturers pursuant to the
terms of distribution agreements. The loss of our distribution agreements with
our product manufacturers would reduce our revenues, increase obsolescence risk
to our existing inventory, and materially harm our business.

We depend on a limited number of third parties to manufacture and supply our
products, and we may be unable to operate our business if those parties do not
perform their obligations.

We expect to rely on eOn and other third-party suppliers for many of the
products that we distribute and service, including telecommunications and data
systems as well as cellular phones and accessories. We do not have long-term
agreements in place with our suppliers and we do not control the time and
resources that these third parties devote to our business. We cannot be sure
that these parties will perform their obligations as expected or that any
revenue, cost savings or other benefits will be derived from the efforts of
these parties. If any of our third party suppliers breaches or terminates its
agreement with us or otherwise fails to perform its obligations in a timely
manner, we may be delayed or prevented from delivering some of our products and
services. Because our relationships with these parties are non-exclusive, they
may also support products or services that compete directly with ours or offer
similar or greater support to our competitors. Any of these events could
require us to undertake unforeseen additional responsibilities or devote
additional resources to deliver our products and services. This outcome would
harm our ability to compete effectively and perform our services.

We face many risks in expanding our international operations into the Caribbean
and Latin America

Sales outside of Puerto Rico accounted for approximately 7.7% of our total
revenues during fiscal 2002. We expect to increase sales to customers outside
Puerto Rico as we establish additional distribution channels in the Caribbean
and Latin America. However, foreign markets for our products may develop more
slowly than currently anticipated. We may not be able to successfully
establish international distribution channels, or we may not be able to hire
the additional personnel necessary to support such distribution channels.

Our future results could be harmed by economic, political, regulatory and other
risks associated with our reliance on international sales and operations.

As stated above, sales outside of Puerto Rico accounted for approximately 7.7%
of our total revenues during fiscal 2002. We anticipate that revenue from
international sales will continue to represent a significant portion of our
total revenue. Because of our operations and relationships in other parts of
the Caribbean and in Latin America, and our reliance on foreign third-party
manufacturing, assembly and testing operations, we are subject to the risks of
conducting business outside of Puerto Rico, including:



| |  |  | changes in a specific countrys or regions political or economic
conditions, particularly in Latin American markets;
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | trade protection measures and import or export licensing requirements;                                               
|
| |  |  | potentially negative consequences from changes in tax laws;                                                          
|
| |  |  | difficulty in managing widespread sales and customer service operations;
and                                         
|
| |  |  | less effective protection of intellectual property.                                                                  

We currently sell outside Puerto Rico in the Dominican Republic, Panama, and
Costa Rica and continue in attempts to increase our business in these
countries. All our sales are denominated in United States dollars.

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We are currently involved in litigation, which, if resolved unfavorably, could
have a material adverse effect on our business.

We are currently subject to one lawsuit regarding an alleged breach of
contract, and three lawsuits regarding employment issues. In the breach of
contract case, the plaintiff alleges that we breached the terms of our contract
by ceasing to supply services to the plaintiff, and the plaintiff seeks damages
of approximately $854,430. In the employment lawsuits, each of the plaintiffs
are former employees of our company, and they each allege under various
theories of law that their dismissal from employment by the Company was
unjustified. Collectively, the employment law cases allege damages of
approximately $13 million. We have analyzed each lawsuit with our legal
advisers, and we do 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 we are 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.

Laws or regulations that govern the telecommunications industry and copyrighted
works could expose us to legal action if we fail to comply or could require us
to change our business.

Because our products and services provide our customers with access to the
public telephone system and other methods of electronic communication, the
products we sell are subject to the regulations of the Federal Communications
Commission and Junta Reglamentadora de Telecomunicaciones de Puerto Rico,
relating to consumer products that connect to the public telephone network and
electronic emissions of consumer products.

Changes in the regulatory climate or the enforcement or interpretation of
existing laws could expose us to legal action if we fail to comply. In
addition, any of these regulatory bodies could promulgate new regulations or
interpret existing regulations in a manner that would cause us to incur
significant compliance costs or force us to alter the features or functionality
of our products and services.

Product defects, system failures or interruptions may have a negative impact on
our revenues, damage our reputation and decrease our ability to attract new
customers.

Errors and product defects can result in significant warranty and repair
problems, which could cause customer relations problems. Correcting product
defects requires significant time and resources, which could delay product
releases and affect market acceptance of our products. Any delivery by us of
products with undetected material product defects could harm our credibility
and market acceptance of our products.

The products we sell and service may have undetected faults leading to
liability claims, which could harm our business.

The products we sell and service may contain undetected faults or failures. Any
failures of these products could result in significant losses to our customers,
particularly in mission-critical applications. A failure could also result in
product returns and the loss of, or delay in, market acceptance of our
products. In addition, any failure of the products we sell could result in
claims against us. Our purchase agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability
claims. Although we are unaware of any specific laws or cases that would
invalidate our purchase agreement limitation of liability provisions, there is
a risk that such provisions may not be effective as a result of federal, state
or local laws or ordinances or unfavorable judicial decisions in Puerto Rico or
other countries. We maintain insurance to protect against certain claims
associated with the use of our products, but our insurance coverage may not
adequately cover all possible claims asserted against us. In addition, even
claims that ultimately are unsuccessful could be expensive to defend and
consume management time and resources.

Our charter contains certain anti-takeover provisions that may discourage
take-over attempts and may reduce our stock price.

Our 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

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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 us 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.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (the FASB) issued SFAS
No. 141, Business Combinations. SFAS No. 141 requires that all business
combinations be accounted for under the purchase method only and that certain
acquired intangible assets in a business combination initiated after June 30,
2001 be recognized as assets apart from goodwill. Adoption of SFAS No. 141 did
not have a significant effect on the Companys results of operations or
financial position.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets(SFAS 142). SFAS No. 142 eliminates the amortization of goodwill and
indefinite-lived intangible assets and initiates an annual review for
impairment. Identifiable intangible assets with a determinable useful life
will continue to be amortized. The amortization provisions apply to goodwill
and other intangible assets acquired after June 30, 2001. Goodwill and other
intangible assets acquired prior to June 30, 2001 will be affected upon
adoption. The Company adopted SFAS No. 142 effective August 1, 2001, and
performed an impairment test of its existing goodwill based on a fair value
concept. It is managements assessment that goodwill impairment did not result
upon adoption. As of July 31, 2002 and 2001, the Company has net unamortized
goodwill of $382,000.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The Company was required to implement SFAS
No. 143 on August 1, 2002. Adoption of SFAS No. 143 did not have a significant
effect on the Companys results of operations or financial position.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. However, SFAS No. 144 retains the fundamental provisions of
SFAS No. 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sale. Previous guidance for financial accounting and
reporting for the impairment or disposal of long-lived assets and for segments
of a business to be disposed of. The Company was required to implement SFAS
No. 144 on August 1, 2002. Adoption of SFAS No. 144 did not have a significant
effect on the Companys results of operations or financial position.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44 and
64, Amendment of SFAS No. 13, and Technical Corrections. SFAS No. 145 rescinds
SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt  an
amendment of APB Opinion No. 30, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the
criteria in Opinion No. 30 will now be used to classify those gains and losses.
This amendment was effective on August 1, 2002. SFAS No. 145 did not have a
significant effect on the Companys financial condition or results of
operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
With Exit or Disposal Activities. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. SFAS No. 146 applies to costs associated with an exit activity but
does not involve an entity newly acquired in a business combination or with a
disposal activity covered by SFAS No. 144. SFAS No. 146 does not apply to
costs associated with a retirement of long-lived assets covered by SFAS No.
143. The Company is required to implement SFAS No. 146 for exit or disposal
activities that are initiated after December 31, 2002, and have not yet
determined the impact that this statement will have on its results of
operations or financial position.

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Quarterly Financial Data (Unaudited)

Quarterly financial data for the years ended July 31, 2002 and 2001 is
summarized as follows:

|                                                       |  |         |       |         |  |         |        |         |  |   |        |   |  |   |         |  
|------------------------------------------------------ |  | ------- | ----- | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------- | -
|2002                                                   |  | First   |       | Second  |  | Third   |        | Fourth 
|(In Thousands, Except Per Share Data)                  |  | Quarter |       | Quarter |  | Quarter |        | Quarter
|                                                       |  |         |       |         |  |         |        |        
|Net revenues                                           |  | $       | 3,880 |         |  | $       | 2,484  |         |  | $ | 1,769  |   |  | $ | 2,251   |  
|                                                       |  |         |       |         |  |         |        |         |  |   |        |   |  |   |         |  
|Gross profit                                           |  |         | 1,030 |         |  |         | 570    |         |  |   | 359    |   |  |   | 273     |  
|                                                       |  |         |       |         |  |         |        |         |  |   |        |   |  |   |         |  
|Net loss                                               |  |         | (66   | )       |  |         | (570   | )       |  |   | (901   | ) |  |   | (1,096  | )
|                                                       |  |         |       |         |  |         |        |         |  |   |        |   |  |   |         |  
|Net loss per common share  basic and diluted          |  | $       | (6.60 | )       |  | $       | (57.00 | )       |  | $ | (90.10 | ) |  | $ | (109.60 | )
|Proforma
net loss per common share  basic and diluted |  | $       | (0.05 | )       |  | $       | (0.47  | )       |  | $ | (0.75  | ) |  | $ | (0.91   | )

|                                                                |  |         |       |         |  |         |        |         |  |   |        |   |  |   |       | 
|--------------------------------------------------------------- |  | ------- | ----- | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ----- | 
|2001                                                            |  | First   |       | Second  |  | Third   |        | Fourth 
|(In Thousands, Except Per Share Data)                           |  | Quarter |       | Quarter |  | Quarter |        | Quarter
|                                                                |  |         |       |         |  |         |        |        
|Net revenues                                                    |  | $       | 6,343 |         |  | $       | 6,373  |         |  | $ | 3,737  |   |  | $ | 5,728 | 
|                                                                |  |         |       |         |  |         |        |         |  |   |        |   |  |   |       | 
|Gross profit                                                    |  |         | 1,471 |         |  |         | 712    |         |  |   | 965    |   |  |   | 1,583 | 
|                                                                |  |         |       |         |  |         |        |         |  |   |        |   |  |   |       | 
|Net income (loss)                                               |  |         | 41    |         |  |         | (985   | )       |  |   | (130   | ) |  |   | 429   | 
|                                                                |  |         |       |         |  |         |        |         |  |   |        |   |  |   |       | 
|Net income (loss) per common share 
basic and diluted          |  | $       | 4.10  |         |  | $       | (98.50 | )       |  | $ | (13.00 | ) |  | $ | 42.90 | 
|Proforma
net income (loss) per common share 
basic and diluted |  | $       | 0.03  |         |  | $       | (0.82  | )       |  | $ | (0.11  | ) |  | $ | 0.36  | 

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The majority of our cash equivalents are invested in variable rate instruments
with frequent rate resets. Because these securities have short effective
maturities, we believe the market risk for such holdings is insignificant. In
addition, the vast majority of the Companys sales are made in U.S. dollars,
and consequently, we believe that our foreign exchange rate risk is immaterial.
We do not have any derivative instruments and do not engage in hedging
transactions.

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ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CORTELCO SYSTEMS PUERTO RICO, INC.INDEX TO FINANCIAL STATEMENTS

|                                                                                               |  |     
|---------------------------------------------------------------------------------------------- |  | ----
|                                                                                               |  | PAGE
|                                                                                               |  |     
|Financial Statements of Cortelco Systems Puerto Rico, Inc.:                                    |  |     
|                                                                                               |  |     
|Independent Auditors Report                                                                   |  | 21  
|Balance Sheets as of July 31, 2002 and 2001.                                                   |  | 22  
|Statements of Operations for the Years Ended July 31, 2002, 2001 and 2000                      |  | 23  
|Statements of Changes in Stockholders Equity for the Years Ended July
31, 2002, 2001 and 2000 |  | 24  
|Statements of Cash Flows for the Years Ended July 31, 2002, 2001 and 2000                      |  | 25  
|Notes to the Financial Statements F-                                                           |  | 26  
|Financial Statement Schedule II -Valuation and Qualifying Accounts                             |  | 38  

All other schedules have been omitted since the required information is not
presented or not present in amount sufficient to require submission of the
schedules, or because the information required is included in the financial
statements or notes thereto.

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of
Cortelco Systems Puerto Rico, Inc.:

We have audited the accompanying balance sheets of Cortelco Systems Puerto
Rico, Inc. as of July 31, 2002 and 2001, and the related statements of
operations, changes in stockholders equity and cash flows for each of the
three years in the period ended July 31, 2002. Our audits also included the
financial statement schedule listed in the Index as Schedule II for each of the
three years in the period ended July 31, 2002. These financial statements and
financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Cortelco Systems Puerto Rico, Inc. at July
31, 2002 and 2001, and the results of its operations and its cash flows for
each of the three years in the period ended July 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.

As discussed in Note 1 to the financial statements, effective July 31, 2002,
Cortelco Systems Puerto Rico, Inc. was spun-off from eOn Communications
Corporation and became an independent entity headquartered in San Juan, Puerto
Rico.

The accompanying financial statements have been prepared assuming that Cortelco
Systems Puerto Rico, Inc. will continue as a going concern. As discussed in
Note 2 to the financial statements, Cortelco Systems Puerto Rico, Inc.s
2002 significant revenue decrease and resulting loss from operations
and its lack of financing resources raise
substantial doubt about its ability to continue as a going concern.
Managements plans concerning these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP

Puerto Rico

August 26, 2002

Stamp No. 1848900

affixed to original.

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CORTELCO SYSTEMS PUERTO RICO, INC.

BALANCE SHEETS
JULY 31, 2002 AND 2001
(Dollars in Thousands, Except Per Share Data)

|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |       |       | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | ------ | ----- | - | ------ | ----- | ----- | 
|ASSETS                               |                                                                                                                                                                            | 2002                       |       | 2001  
|CURRENT ASSETS:                      |                                                                                                                                                                            |                            |       |        |       |   |        |      
|                                     | Cash and cash equivalents                                                                                                                                                  |                            | $     | 333    |       |   | $      | 959   |      
|                                     | Trade accounts receivable, net                                                                                                                                             |                            |       | 2,016  |       |   |        | 4,144 |      
|                                     | Due from affiliated entities                                                                                                                                               |                            |       | 187    |       |   |        | 338   |      
|                                     | Current portion of investment in sales-type leases                                                                                                                         |                            |       | 82     |       |   |        | 100   |      
|                                     | Inventories                                                                                                                                                                |                            |       | 2,989  |       |   |        | 3,803 |      
|                                     | Prepaid expenses                                                                                                                                                           |                            |       | 296    |       |   |        | 380   |      
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      
|                                     |                                                                                                                                                                            | Total current assets       |       |        | 5,903 |   |        |       | 9,724 | 
|INVESTMENT IN SALES-TYPE LEASES      |                                                                                                                                                                            |                            | 47    |        |       |   | 74     |      
|PROPERTY, PLANT AND EQUIPMENT, Net   |                                                                                                                                                                            |                            | 489   |        |       |   | 547    |      
|GOODWILL                             |                                                                                                                                                                            |                            | 382   |        |       |   | 382    |      
|OTHER ASSETS                         |                                                                                                                                                                            |                            |      |        |       |   | 25     |      
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      
|TOTAL                                |                                                                                                                                                                            | $                          | 6,821 |        |       | $ | 10,752 |      
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                                                            |                            |       |        |       |   |        |      
|CURRENT LIABILITIES:                 |                                                                                                                                                                            |                            |       |        |       |   |        |      
|                                     | Trade accounts payable                                                                                                                                                     |                            | $     | 1,262  |       |   | $      | 1,881 |      
|                                     | Due to affiliated entities                                                                                                                                                 |                            |       | 147    |       |   |        | 2,640 |      
|                                     | Other accrued liabilities                                                                                                                                                  |                            |       | 671    |       |   |        | 635   |      
|                                     | Deferred revenue                                                                                                                                                           |                            |       | 315    |       |   |        | 406   |      
|                                     | Note payable                                                                                                                                                               |                            |       | 50     |       |   |        | 787   |      
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      
|                                     |                                                                                                                                                                            | Total current liabilities  |       |        | 2,445 |   |        |       | 6,349 | 
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      
|COMMITMENTS AND CONTINGENCIES        |                                                                                                                                                                            |                            |       |        |       |   |        |      
|STOCKHOLDERS EQUITY:                |                                                                                                                                                                            |                            |       |        |       |   |        |      
|                                     | Preferred stock, par value $.01 per share; authorized, 10,000,000
shares, no shares issued                                                                                 |                            |       |       |       |   |        |      |      
|                                     | Common stock, par value $.01 and $100 per share; 5,000,000
and 10,000 shares authorized, 1,204,557 and 10,000 shares issued
and outstanding in 2002 and 2001, respectively |                            |       | 12     |       |   |        | 1,000 |      
|                                     | Capital in excess of par value                                                                                                                                             |                            |       | 6,865  |       |   |        | 3,271 |      
|                                     | Retained earnings (deficit)                                                                                                                                                |                            |       | (2,501 | )     |   |        | 132   |      
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      
|                                     |                                                                                                                                                                            | Total stockholders equity |       |        | 4,376 |   |        |       | 4,403 | 
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      
|TOTAL                                |                                                                                                                                                                            | $                          | 6,821 |        |       | $ | 10,752 |      
|                                     |                                                                                                                                                                            |                            |       |        |       |   |        |      

See notes to financial statements.

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CORTELCO SYSTEMS PUERTO RICO, INC.

STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2002, 2001 AND 2000
(Dollars in Thousands, Except Per Share Data)

|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |        |        | 
|------------------------------------------------------- | ------------------------------------ | ------------------------ | ------- | ----- | ------ | ---- | ------ | ------ | ------ | - | ----- | ------ | ------ | 
|                                                        |                                      |                          |         | 2002  |        | 2001 |        | 2000  
|NET REVENUES:                                           |                                      |                          |         |       |        |      |        |        |        |   |       |       
|                                                        | Products                             |                          | $       | 7,017 |        |      | $      | 19,337 |        |   | $     | 20,979 |       
|                                                        | Services                             |                          |         | 3,367 |        |      |        | 2,844  |        |   |       | 3,283  |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|                                                        |                                      | Total net revenues       |         |       | 10,384 |      |        |        | 22,181 |   |       |        | 24,262 | 
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|COST OF REVENUES:                                       |                                      |                          |         |       |        |      |        |        |        |   |       |       
|                                                        | Products                             |                          |         | 6,358 |        |      |        | 16,099 |        |   |       | 16,659 |       
|                                                        | Services                             |                          |         | 1,794 |        |      |        | 1,351  |        |   |       | 2,042  |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|                                                        |                                      | Total cost of revenues   |         |       | 8,152  |      |        |        | 17,450 |   |       |        | 18,701 | 
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|GROSS PROFIT                                            |                                      |                          | 2,232   |       |        |      | 4,731  |        |        |   | 5,561 |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|OPERATING EXPENSES:                                     |                                      |                          |         |       |        |      |        |        |        |   |       |       
|                                                        | Selling, general, and administrative |                          |         | 4,108 |        |      |        | 5,329  |        |   |       | 5,012  |       
|                                                        | Special charges                      |                          |         | 320   |        |      |        | 62     |        |   |       |        |       
|                                                        | Separation costs                     |                          |         | 458   |        |      |        |        |        |   |       |        |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|                                                        |                                      | Total operating expenses |         |       | 4,886  |      |        |        | 5,391  |   |       |        | 5,012  | 
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|INCOME (LOSS) FROM OPERATIONS                           |                                      |                          | (2,654  | )     |        |      | (660   | )      |        |   | 549   |       
|INTEREST EXPENSE (INCOME), NET                          |                                      |                          | (21     | )     |        |      | (15    | )      |        |   | 46    |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES         |                                      |                          | (2,633  | )     |        |      | (645   | )      |        |   | 503   |       
|PROVISION FOR INCOME TAXES                              |                                      |                          |         |       |        |      |        |        |        |   | 30    |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|NET INCOME (LOSS)                                       |                                      | $                        | (2,633  | )     |        | $    | (645   | )      |        | $ | 473   |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|BASIC AND DILUTED NET INCOME (LOSS) PER SHARE           |                                      | $                        | (263.30 | )     |        | $    | (64.50 | )      |        | $ | 47.30 |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING           |                                      |                          | 10      |       |        |      | 10     |        |        |   | 10    |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|PRO FORMA BASIC AND DILUTED NET INCOME (LOSS) PER SHARE |                                      | $                        | (2.19   | )     |        | $    | (0.54  | )      |        | $ | 0.39  |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       
|PRO FORMA WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING |                                      |                          | 1,205   |       |        |      | 1,205  |        |        |   | 1,205 |       
|                                                        |                                      |                          |         |       |        |      |        |        |        |   |       |       

See notes to financial statements.

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CORTELCO SYSTEMS PUERTO RICO, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
YEARS ENDED JULY 31, 2002, 2001 AND 2000
(Dollars in Thousands, Except Per Share Data)

|                       |                                                                                              |   |        |      |           |   |            |       |          |   |        |        |   |   |       |        |  
|---------------------- | -------------------------------------------------------------------------------------------- | - | ------ | ---- | --------- | - | ---------- | ----- | -------- | - | ------ | ------ | - | - | ----- | ------ | -
|                       |                                                                                              |   |        |      |           |   | Capital in |       | Retained |   |        |        |  
|                       |                                                                                              |   | Common |      | Excess of |   | Earnings   |       |          |   |       
|                       |                                                                                              |   | Stock  |      | Par Value |   | (Deficit)  |       | Total   
|BALANCE, JULY 31, 1999 |                                                                                              | $ | 1,000  |      |           | $ | 1,518      |       |          |   |       |        |   |   | 2,518 |       
|                       | Capital contribution from parent in payment
of previously declared dividend                  |   |        |      |           |   |            | 397   |          |   |        | 304    |   |   |       | 701    |  
|                       | Capital contribution by parent                                                               |   |        |      |           |   |            | 1,323 |          |   |        |        |   |   |       | 1,323  |  
|                       | Net income                                                                                   |   |        |      |           |   |            |       |          |   |        | 473    |   |   |       | 473    |  
|                       |                                                                                              |   |        |      |           |   |            |       |          |   |        |        |   |   |       |       
|BALANCE, JULY 31, 2000 |                                                                                              |   | 1,000  |      |           |   | 3,238      |       |          |   | 777    |        |   |   | 5,015 |       
|                       | Capital contribution by parent                                                               |   |        |      |           |   |            | 33    |          |   |        |        |   |   |       | 33     |  
|                       | Net loss                                                                                     |   |        |      |           |   |            |       |          |   |        | (645   | ) |   |       | (645   | )
|                       |                                                                                              |   |        |      |           |   |            |       |          |   |        |        |   |   |       |       
|BALANCE, JULY 31, 2001 |                                                                                              |   | 1,000  |      |           |   | 3,271      |       |          |   | 132    |        |   |   | 4,403 |       
|                       | Capital contribution by parent                                                               |   |        |      |           |   |            | 2,910 |          |   |        |        |   |   |       | 2,910  |  
|                       | Reclassification due to change in the par value
and additional shares of common stock issued |   |        | (988 | )         |   |            | 988   |          |   |        |        |   |   |       |        |  
|                       | Uncollected note receivable from related party                                               |   |        |      |           |   |            | (304  | )        |   |        |        |   |   |       | (304   | )
|                       | Net loss                                                                                     |   |        |      |           |   |            |       |          |   |        | (2,633 | ) |   |       | (2,633 | )
|                       |                                                                                              |   |        |      |           |   |            |       |          |   |        |        |   |   |       |       
|BALANCE, JULY 31, 2002 |                                                                                              | $ | 12     |      |           | $ | 6,865      |       |          | $ | (2,501 | )      |   | $ | 4,376 |       
|                       |                                                                                              |   |        |      |           |   |            |       |          |   |        |        |   |   |       |       

See notes to financial statements.

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CORTELCO SYSTEMS PUERTO RICO, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2002, 2001 AND 2000
(In Thousands, Except Per Share Data)

|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |       |     |     |        |  
|-------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------- | -------------------------------------------- | --------------------------------------------------- | ------ | ---- | ----- | ---- | ---- | ---- | ------ | ----- | --- | --- | ------ | -
|                                             |                                                                                                    |                   |                                              |                                                     |        | 2002 |       | 2001 |      | 2000
|CASH FLOWS FROM OPERATING ACTIVITIES:        |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             |                                                                                                    | Net income (loss) |                                              | $                                                   | (2,633 | )    |       | $    | (645 | )    |        | $     | 473 |    
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                   |                                              |                                                     |        |      |       |      |      |      |        |       |    
|                                             |                                                                                                    |                   | Depreciation and amortization                |                                                     |        | 193  |       |      |      | 146  |        |       |     | 156 |       
|                                             |                                                                                                    |                   | Provision for doubtful accounts              |                                                     |        | 72   |       |      |      | 87   |        |       |     | 456 |       
|                                             |                                                                                                    |                   | Loss on disposition of equipment             |                                                     |        | 8    |       |      |      |      |        |       |     |     |       
|                                             |                                                                                                    |                   | Changes in operating assets and liabilities: |                                                     |        |      |       |      |      |      |        |       |     |     |       
|                                             |                                                                                                    |                   |                                              | Decrease (increase) in:                             |        |      |       |      |      |      |        |       |     |     |        |  
|                                             |                                                                                                    |                   |                                              | Trade accounts receivable                           |        |      | 2,056 |      |      |      | 2,422  |       |     |     | (2,225 | )
|                                             |                                                                                                    |                   |                                              | Due from affiliated entities                        |        |      | 75    |      |      |      | (188   | )     |     |     | (52    | )
|                                             |                                                                                                    |                   |                                              | Inventories                                         |        |      | 814   |      |      |      | 737    |       |     |     | (408   | )
|                                             |                                                                                                    |                   |                                              | Prepaid expenses                                    |        |      | 84    |      |      |      | (97    | )     |     |     | 1      |  
|                                             |                                                                                                    |                   |                                              | Other assets                                        |        |      | 25    |      |      |      |        |       |     |     |        |  
|                                             |                                                                                                    |                   |                                              | Increase (decrease) in:                             |        |      |       |      |      |      |        |       |     |     |        |  
|                                             |                                                                                                    |                   |                                              | Trade accounts payable                              |        |      | (619  | )    |      |      | (1,830 | )     |     |     | (476   | )
|                                             |                                                                                                    |                   |                                              | Due to affiliated entities                          |        |      | 189   |      |      |      | 645    |       |     |     | 194    |  
|                                             |                                                                                                    |                   |                                              | Other accrued liabilities                           |        |      | 36    |      |      |      | (110   | )     |     |     |        |  
|                                             |                                                                                                    |                   |                                              | Deferred revenue                                    |        |      | (91   | )    |      |      | 69     |       |     |     | (47    | )
|                                             |                                                                                                    |                   |                                              | Income tax payable                                  |        |      |       |      |      |      | (40    | )     |     |     | 30     |  
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             |                                                                                                    |                   |                                              | Total adjustments                                   |        |      | 2,842 |      |      |      | 1,841  |       |     |     | (2,371 | )
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             |                                                                                                    |                   |                                              | Net cash provided by (used in) operating activities |        |      | 209   |      |      |      | 1,196  |       |     |     | (1,898 | )
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|CASH FLOWS FROM INVESTING ACTIVITIES:        |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             | Capital expenditures                                                                               |                   |                                              | (143                                                | )      |      |       | (154 | )    |      |        | (337  | )  
|                                             | Net decrease (increase) in investment in sales-type leases                                         |                   |                                              | 45                                                  |        |      |       | (84  | )    |      |        | 47    |    
|                                             | Payments for the acquisition of distribution rights                                                |                   |                                              |                                                     |        |      |       | (30  | )    |      |        |       |    
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             |                                                                                                    |                   |                                              | Net cash used in investing activities               |        |      | (98   | )    |      |      | (268   | )     |     |     | (290   | )
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|CASH FLOWS FROM FINANCING ACTIVITIES:        |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             | Payments
on promissory note                                                                        |                   |                                              | (737                                                | )      |      |       | (613 | )    |      |        |       |    
|                                             | Advances from parent                                                                               |                   |                                              |                                                     |        |      |       |      |      |      |        | 1,749 |    
|                                             | Cash
capital contribution from parent                                                              |                   |                                              |                                                     |        |      |       |      |      |      |        | 1,323 |    
|                                             | Net repayments under line of credit                                                                |                   |                                              |                                                     |        |      |       |      |      |      |        | (311  | )  
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|                                             |                                                                                                    |                   |                                              | Net cash provided by (used in) financing activities |        |      | (737  | )    |      |      | (613   | )     |     |     | 2,761  |  
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|NET CHANGE IN CASH AND CASH EQUIVALENTS      |                                                                                                    |                   | (626                                         | )                                                   |        |      | 315   |      |      |      | 573    |      
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |                                                                                                    |                   | 959                                          |                                                     |        |      | 644   |      |      |      | 71     |      
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|CASH AND CASH EQUIVALENTS, END OF YEAR       |                                                                                                    | $                 | 333                                          |                                                     |        | $    | 959   |      |      | $    | 644    |      
|                                             |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      
|See notes to financial statements.           |                                                                                                    |                   |                                              |                                                     |        |      |       |      |      |      |        |      

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CORTELCO SYSTEMS PUERTO RICO, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED JULY 31, 2002, 2001 AND 2000

---

|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Cortelco Systems Puerto Rico, Inc. (CSPR), a Puerto Rico corporation, was
a wholly-owned subsidiary of eOn Communications Corporation (eOn) through
July 30, 2002. Effective July 31, 2002, CSPR was spun-off from eOn to
the eOn stockholders. Each holder of eOn common stock received one share
of CSPR common stock for every ten shares of eOn common stock held as of
July 22, 2002, which was the record date of the distribution. After such
spin-off, CSPR became an independent entity headquartered in San Juan,
Puerto Rico. CSPRs operations include the sale of cellular telephones and
cellular airtime and of integrated communications and data equipment in
Puerto Rico                                                                                                                                                                                                                                                                                                                          
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | The significant accounting policies followed by CSPR in the preparation of
the accompanying financial statements, and the methods of applying these
policies, are summarized below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | 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 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Cash and Cash Equivalents- Cash and cash equivalents include cash in banks
and other highly liquid investments with an original maturity of three
months or less                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Communication Systems and Parts- Revenues from communication systems and
parts include the sales of integrated communications equipment and all the
related installation and implementation services. Revenues are earned and
recognized when the installation services are complete and the customer
accepts and takes title to the equipment. CSPR recognizes revenues from
the communications systems it installs upon completion of the installation
services and acceptance by the customer due to the customized nature of
each installation. CSPR recognizes revenue upon shipment for communications
systems and cellular telephones shipped to dealers because, at that point,
there is no further obligation to the dealers to either deliver additional
products or perform services. CSPR also recognizes revenues upon shipment
for cellular telephones sold to retail customers. Service revenues for
maintenance contracts are recognized over the life of the service contracts
on a straight-line basis
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Cellular Line Activities- Revenues from cellular line activities are
comprised principally of sales commissions on cellular line contracts and
line access services placed with various carriers, principally the Puerto
Rico Telephone Corporation (PRTC). These commissions are recognized into
revenue when retail contracts are submitted to carriers as we have no
further obligation to the carrier. For those contracts submitted to the
carriers from our authorized dealers, the full amount of the commission
revenues are recognized and any commissions paid to the dealer are included
as a component of cost of revenues. Revenues from the resale of cellular
telephones are recognized upon shipment and revenues from the resale of
cellular airtime are recognized upon actual use by the                                                                                                                                                                                                           

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customer. In instances where the telephone is sold in conjunction with the
resale of cellular airtime, the amounts recognized as revenue for the
telephone and airtime, respectively, are based on the relative fair value
of each element underlying the arrangement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | 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. Because of uncertainties inherent in the estimation process
and the future availability of additional information, managements
estimate of credit losses inherent in the existing accounts receivable and
the related allowance may change in the near term                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Lease Contracts- Lease contracts portfolio consists of sales-type lease
contracts of integrated voice-data communication systems with terms of 12
to 48 months, including maintenance contracts. Currently, CSPR is running
off its established lease portfolio balances and referring customers to
commercial financial institutions for this service. Interest income and
maintenance contract revenues are recognized over the remaining life of the
leases, based on the interest method and straight-line method,
respectively                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | 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 recorded at net realizable value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Property, Plant and Equipment Property, plant and equipment is recorded
at cost and depreciated over its estimated useful life, generally three to
ten years, using the straight-line method. When assets are sold, retired
or otherwise disposed of, their cost and related accumulated depreciation
are removed from the accounts, and any gain or loss is credited or charged
to income. Significant improvements to leased property are capitalized and
amortized over the term of the lease. Maintenance and repairs are
expensed                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Product Warranties- CSPR guarantees the replacement or repair of certain
products. Costs associated with these warranty programs are estimated and
accrued at the time of sale on the basis of expected net future costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Impairment of Long-Lived AssetsCSPR periodically reviews long-lived
assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable from the
estimated future net cash flows expected to result from the use of the
asset. Any indicated impairment would be measured as the amount by which
the carrying amount of the asset exceeds its fair value. Long-lived assets
to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell. No indications of impairment are evident as a
result of such review                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | 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

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Income (Loss) per
Common Share  The company reports its earning per share
(EPS) using Financial Accounting Standards Board
(FASB) Statement No. 128, Earning Per Share(SFAS 128). SFAS 128 requires dual
presentation of basic and dilute EPS. Basic EPS is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Dilute
EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock.                                                                                                                                                                                                                                                                                     
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Goodwill  Goodwill represents the excess of cost paid for certain net
assets over the book value of the assets acquired. Goodwill was amortized
on a straight-line basis over ten years until the adoption of Statement of
Financial Accounting Standards (SFAS) No. 142 (see below)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Recent Accounting
Pronouncements In June 2001, the FASB issued SFAS No. 141, Business Combinations.
SFAS No. 141 requires that all business combinations be accounted for under
the purchase method only and that certain acquired intangible assets in a
business combination initiated after June 30, 2001 be recognized as assets
apart from goodwill. Adoption of SFAS No. 141 did not have a significant
effect on CSPRs results of operations or financial position                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets(SFAS 142). SFAS No. 142 eliminates the amortization of goodwill
and indefinite-lived intangible assets and initiates an annual review for
impairment. Identifiable intangible assets with a determinable useful life
will continue to be amortized. The amortization provisions apply to
goodwill and other intangible assets acquired after June 30, 2001.
Goodwill and other intangible assets acquired prior to June 30, 2001 will
be affected upon adoption. CSPR adopted SFAS No. 142 effective August 1,
2001, and performed an impairment test of its existing goodwill based on a
fair value concept. It is managements assessment that goodwill impairment
did not result upon adoption. As of July 31, 2002 and 2001, CSPR has net
unamortized goodwill of $382,000.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets
and the associated retirement costs. CSPR was required to implement SFAS
No. 143 on August 1, 2002. Adoption of SFAS No. 143 did not have a
significant effect on CSPRs results of operations or financial position                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. However, SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 for (a) recognition and measurement of the
impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. Previous guidance for
financial accounting and reporting for the impairment or disposal of
long-lived assets and for segments of a business to be disposed of. CSPR
was required to implement SFAS No. 144 on August 1, 2002. Adoption of SFAS
No. 144 did not have a significant effect on CSPRs results of operations
or financial position                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections. SFAS No. 145
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt
 an amendment of APB Opinion No. 30, which required all gains and losses
from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result,
the criteria in Opinion No. 30 will now be used to classify those gains and
losses. This amendment was effective on August 1, 2002. SFAS No. 145 did
not have a significant effect on the CSPRs financial condition or results
of operations                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
With Exit or Disposal Activities. SFAS No. 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred. SFAS
No. 146 also establishes that fair value is the objective for initial
measurement of the liability. SFAS No. 146 applies to costs associated
with an exit activity but does not involve an                                                                                                                                                                                                                                                                                                                                                              

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | entity newly acquired in a business combination or with a disposal
activity covered by SFAS No. 144. SFAS No. 146 does not apply to costs
associated with a retirement of long-lived assets covered by SFAS No. 143.
CSPR is required to implement SFAS No. 146 for exit or disposal activities
that are initiated after December 31, 2002, and has not yet determined the
impact that this statement will have on its results of operations or
financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |  | Reclassifications - Certain reclassifications have been made to the 2001
and 2000 financial statements to conform with the 2002 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2. |  | GOING CONCERN AND MANAGEMENT PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |  | The accompanying 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.
CSPRs
2002 significant revenue decrease and resulting loss from operations
and its lack of financing
resources (previously available through parent advances used to fund
operations, as discussed in more detail in Note 9) raise substantial doubt
about its ability to continue as a going concern. Management plans include
the reduction of operating costs and the increase in sales to customers
outside of Puerto Rico as CSPR continues to establish distribution channels
elsewhere in the Caribbean and Latin America. In addition, CSPR will
continue to assess possible acquisitions of other companies or assets to
increase its products offering and its installed base of service customers.
CSPRs goal is to improve cash flows and to ultimately generate
operating profits. However, no assurances can be given that CSPR will be
successful in achieving profitability and positive cash flows.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3. |  | ACQUISITION OF NET ASSETS OF OCHOA TELECOM, INC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |  | Effective May 14, 2001, CSPR acquired certain assets from Ochoa Telecom
(Ochoa), a company engaged in the sale, installation and maintenance of
integrated communications equipment in Puerto Rico, in exchange for a note
payable of $1,400,000. The acquisition was accounted for using the purchase
method in accordance with APB Opinion No. 16, and, accordingly, the
operating results of Ochoa have been included in CSPRs financial
statements since the date of acquisition. The purchase price of $1,400,000,
including direct costs of acquisition, exceeded the fair value of net
assets acquired by $382,000, which is presented as goodwill in the
accompanying balance sheets. CSPR did not acquire any of the liabilities
of Ochoa or any of the prepaid expenses, certain equipment such as
furniture and fixtures, or any of the capitalized leasehold improvements.                                                                                                                                                                                                                                                                                                                                                                 

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| |  |                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The following summarized unaudited pro forma results of operations for the
years ended July 31, 2001 and 2000 assumes the acquisition had occurred as
of August 1 of each year. Actual summarized audited results of operations
for the year ended July 31, 2002 is also presented

|                                                        |                               |   |                                       |        |      |   |           |        |   |   |       |        | 
|------------------------------------------------------- | ----------------------------- | - | ------------------------------------- | ------ | ---- | - | --------- | ------ | - | - | ----- | ------ | 
|                                                        |                               |   |                                       |        |      |   | Pro Forma
|                                                        |                               |   | Actual                                |        |     
|                                                        |                               |   | 2002                                  |        | 2001 |   | 2000     
|                                                        |                               |   |                                       |        |      |   |          
|                                                        |                               |   | (In Thousands, except per share data)
|Pro forma information:                                  |                               |   |                                       |        |      |   |           |        |   |   |       |       
|                                                        | Net revenues                  |   | $                                     | 10,384 |      |   | $         | 23,818 |   |   | $     | 28,363 | 
|                                                        | Income (loss)
from operations |   |                                       | (2,654 | )    |   |           | (1,156 | ) |   |       | 538    | 
|                                                        | Net income (loss)             |   |                                       | (2,633 | )    |   |           | (1,096 | ) |   |       | 439    | 
|Basic and diluted net income (loss)
per share           |                               | $ | (263.30                               | )      |      | $ | (109.60   | )      |   | $ | 43.90 |       
|Pro
forma basic and diluted net income (loss) per share |                               | $ | (2.19                                 | )      |      | $ | (0.91     | )      |   | $ | 0.36  |       

|   |  |                                                  
|-- |  | -------------------------------------------------
|4. |  | TRADE ACCOUNTS RECEIVABLE                        
|   |  |                                                  
|   |  | Trade accounts receivable at July 31, consist of:

|                                                         |                   |   |                |     |      |   |       |     | 
|-------------------------------------------------------- | ----------------- | - | -------------- | --- | ---- | - | ----- | --- | 
|                                                         |                   |   | 2002           |     | 2001
|                                                         |                   |   |                |     |     
|                                                         |                   |   | (In Thousands)
|Communication systems and parts                          |                   | $ | 2,061          |     |      | $ | 3,692 |    
|Cellular lines activities:                               |                   |   |                |     |      |   |       |    
|                                                         | Billed services   |   |                | 550 |      |   |       | 751 | 
|                                                         | Unbilled services |   |                | 232 |      |   |       | 94  | 
|Cellular line activation commissions                     |                   |   | 37             |     |      |   | 406   |    
|                                                         |                   |   |                |     |      |   |       |    
|Total                                                    |                   |   | 2,880          |     |      |   | 4,943 |    
|Less
allowance for doubtful accounts and sales allowance |                   |   | 864            |     |      |   | 799   |    
|                                                         |                   |   |                |     |      |   |       |    
|Total                                                    |                   | $ | 2,016          |     |      | $ | 4,144 |    
|                                                         |                   |   |                |     |      |   |       |    

| |  |                                                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Customers deposits on contracts for communication systems and parts,
included in the accompanying financial statements in other accrued
liabilities, amounted to approximately $29,968 and $221,430 at July 31,
2002 and 2001, respectively.

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|   |  |                                                                      
|-- |  | ---------------------------------------------------------------------
|5. |  | INVESTMENT IN SALES-TYPE LEASES                                      
|   |  |                                                                      
|   |  | Net investment in sales-type lease contracts at July 31, consists of:

|                                          |  |                |     |      |  |   |     | 
|----------------------------------------- |  | -------------- | --- | ---- |  | - | --- | 
|                                          |  | 2002           |     | 2001
|                                          |  |                |     |     
|                                          |  | (In Thousands)
|Future minimum lease contract receivables |  | $              | 209 |      |  | $ | 254 | 
|Less unearned interest income             |  |                | 80  |      |  |   | 80  | 
|                                          |  |                |     |      |  |   |     | 
|Net investment in sales-type leases       |  |                | 129 |      |  |   | 174 | 
|Less current portion                      |  |                | 82  |      |  |   | 100 | 
|                                          |  |                |     |      |  |   |     | 
|Noncurrent portion                        |  | $              | 47  |      |  | $ | 74  | 
|                                          |  |                |     |      |  |   |     | 

| |  |                                                                                                                        
| |  | -----------------------------------------------------------------------------------------------------------------------
| |  | The approximate annual future minimum lease contract gross receivables
under sales-type lease contracts are as follows:

|            |  |                |     | 
|----------- |  | -------------- | --- | 
|Year Ending |  |                |     | 
|July 31,    |  | (In Thousands)
|            |  |               
|2003        |  | $              | 82  | 
|2004        |  |                | 74  | 
|2005        |  |                | 50  | 
|2006        |  |                | 3   | 
|            |  |                |     | 
|Total       |  | $              | 209 | 
|            |  |                |     | 

|   |  |                                    
|-- |  | -----------------------------------
|6. |  | INVENTORIES                        
|   |  |                                    
|   |  | Inventories at July 31, consist of:

|                                                                                                                                  |  |                |       |      |  |   |       | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                                                                                                                  |  | 2002           |       | 2001
|                                                                                                                                  |  |                |       |     
|                                                                                                                                  |  | (In Thousands)
|Purchased components, net of slow moving
inventory of approximately $467,000 and $493,000
for 2002 and 2001, respectively         |  | $              | 1,487 |      |  | $ | 2,178 | 
|Components and materials related to installations in process                                                                      |  |                | 36    |      |  |   | 258   | 
|Parts and materials for sale, net of
slow moving inventory of approximately $460,000 and $310,000
for 2002 and 2001, respectively |  |                | 1,466 |      |  |   | 1,367 | 
|                                                                                                                                  |  |                |       |      |  |   |       | 
|Total                                                                                                                             |  | $              | 2,989 |      |  | $ | 3,803 | 
|                                                                                                                                  |  |                |       |      |  |   |       | 

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|   |  |                                                      
|-- |  | -----------------------------------------------------
|7. |  | PROPERTY, PLANT AND EQUIPMENT                        
|   |  |                                                      
|   |  | Property, plant and equipment at July 31, consist of:

|                                    |  |                |       |      |  |   |       |  
|----------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | -
|                                    |  | 2002           |       | 2001
|                                    |  |                |       |     
|                                    |  | (In Thousands)
|Furniture and fixtures              |  | $              | 613   |      |  | $ | 608   |  
|Computer equipment and software     |  |                | 650   |      |  |   | 631   |  
|                                    |  |                |       |      |  |   |       |  
|Total                               |  |                | 1,263 |      |  |   | 1,239 |  
|Less accumulated depreciation       |  |                | (924  | )    |  |   | (743  | )
|                                    |  |                |       |      |  |   |       |  
|Total                               |  |                | 339   |      |  |   | 496   |  
|Construction in progress            |  |                | 150   |      |  |   | 51    |  
|                                    |  |                |       |      |  |   |       |  
|Property, Plant, and Equipment, Net |  | $              | 489   |      |  | $ | 547   |  
|                                    |  |                |       |      |  |   |       |  

|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|8. |  | NOTE PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | Note payable of $50,000 and $786,858 at July 31, 2002 and 2001,
respectively, represents the remaining portion of a $1,400,000 promissory
note with Ochoa for the acquisition of certain assets (see Note 3). The
principal amount of this note was payable in various installments and did
not accrue interest if it was paid on its respective due date. Any payments
made 15 days after the due date of any installment was to accumulate annual
interest at the rate of 8% from the closing date until fully paid and will
be payable monthly from thereon. This note was originally payable in full
by March 25, 2002. During 2002, CSPR reached an agreement with Ochoa to
extend the due date to June 30, 2002 with no additional interest or penalty
due. The outstanding principal amount of this note payable at July 31,
2002, will be paid off during fiscal year 2003. This note is
collateralized by assets acquired from Ochoa.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|9. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | During the years ended July 31, 2002, 2001 and 2000, CSPR purchased
approximately $679,000, $1,515,000, and $1,745,000, respectively, in
merchandise from Cortelco, Inc. (CI), also an indirect wholly-owned
subsidiary of eOn.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | Net advances received from eOn amounting to approximately $2,200,000 were
outstanding at July 31, 2001. There were no advances due from or payable
to eOn as of July 31, 2002. These advances were non-interest bearing and
had no formal repayment terms. eOn retired CSPRs outstanding credit
facility in the amount of approximately $600,000 in February 2000 and had
periodically made net advances to CSPR for operations since that date. The
average outstanding advance balance from eOn was $2,850,000 during the
fiscal year 2001 period subsequent to eOns initial public offering. In
fiscal year 2002, net advances due to eOn amounting to approximately
$2,200,000 were forgiven by eOn and recorded by CSPR as a capital
contribution from parent.                                                                                                                                                                         
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | In fiscal year
2002, net advances due to eOn amounting to approximately $2,200,000
(see Note 14 as to other 2002 noncash capital contribution of
$710,000) were forgiven by eOn and recorded by CSPR as a capital
contribution from parent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | CSPR leases its building facilities from CPR under an operating lease
agreement that expires on March 31, 2004. Rent expense related to this
agreement for the years ended July 31, 2002, 2001 and 2000, amounted to
$373,000, $304,000, and $315,000, respectively. Future minimum lease                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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|    |  |                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | payments under this agreement for the years ending July 31, 2003 and 2004
are approximately $373,000, and $249,000, respectively.                                                                                                             
|    |  |                                                                                                                                                                                                                                               
|10. |  | INCOME TAXES                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                               
|    |  | A reconciliation between the income tax expense recognized in CSPRs
statements of operations and the income tax expense (benefit) computed by
applying the Puerto Rico statutory income tax rate to income before income
taxes is as follows:

|                                                                    |  |      |                |      |  |      |      |   |  |   |      |  
|------------------------------------------------------------------- |  | ---- | -------------- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                    |  | 2002 |                | 2001 |  | 2000
|                                                                    |  |      | (In Thousands) |     
|                                                                    |  |      |                |      |  |     
|Income tax expense (benefit) at Puerto Rico
statutory rate (39%)    |  | $    | (1,027         | )    |  | $    | (251 | ) |  | $ | 196  |  
|Excess of write-off of bad debts over reserve
for doubtful accounts |  |      |               |      |  |      |     |   |  |   | (213 | )
|Non-deductible accrued expenses                                     |  |      | 22             |      |  |      |     |   |  |   | 34   |  
|Contingent reserves                                                 |  |      | 1,003          |      |  |      | 253  |   |  |   |     |  
|Other, net                                                          |  |      | 2              |      |  |      | (2   | ) |  |   | 13   |  
|                                                                    |  |      |                |      |  |      |      |   |  |   |      |  
|Total income tax expense                                            |  | $    |               |      |  | $    |     |   |  | $ | 30   |  
|                                                                    |  |      |                |      |  |      |      |   |  |   |      |  

| |  |                                                                        
| |  | -----------------------------------------------------------------------
| |  | The components of the net deferred tax asset at July 31 are as follows:

|                                    |                                 |   |                |     |      |   |        |     | 
|----------------------------------- | ------------------------------- | - | -------------- | --- | ---- | - | ------ | --- | 
|                                    |                                 |   | 2002           |     | 2001
|                                    |                                 |   |                |     |     
|                                    |                                 |   | (In Thousands)
|Deferred tax assets resulting from: |                                 |   |                |     |      |   |        |    
|                                    | Inventory reserves              |   | $              | 361 |      |   | $      | 313 | 
|                                    | Other accrued liabilities       |   |                | 290 |      |   |        | 272 | 
|                                    | Allowance for doubtful accounts |   |                | 337 |      |   |        | 312 | 
|                                    | Net operating loss              |   |                | 930 |      |   |        | 247 | 
|                                    |                                 |   |                |     |      |   |        |    
|Total                               |                                 |   | 1,918          |     |      |   | 1,144  |    
|Less valuation allowance            |                                 |   | (1,918         | )   |      |   | (1,144 | )  
|                                    |                                 |   |                |     |      |   |        |    
|Total                               |                                 | $ |               |     |      | $ |       |    
|                                    |                                 |   |                |     |      |   |        |    

| |  |                                                                                                                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CSPR cannot conclude that it is more likely than not that deferred tax
assets will be realized in the future. Accordingly, a valuation allowance
has been recorded for the total amount of the deferred tax asset.

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|    |  |                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                   
|    |  |                                                                                                                                                                                 
|    |  | CSPR leases automobiles and certain other equipment under operating leases.
Future minimum lease payments under noncancellable operating leases at
July 31, 2002 are as follows:

|            |  |                |    | 
|----------- |  | -------------- | -- | 
|Year Ending |  |                |    | 
|July 31,    |  | (In Thousands)
|            |  |               
|2003        |  | $              | 43 | 
|2004        |  |                | 2  | 
|            |  |                |    | 
|Total       |  | $              | 45 | 
|            |  |                |    | 

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | During the years ended July 31, 2002, 2001 and 2000, rent expenses related
to these operating leases amounted to approximately $115,000, $114,000, and
$145,000, respectively.                                                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | CSPR is a defendant in lawsuits arising out of the ordinary course of
business. Management, based on advice from legal counsel, is of the
opinion that the ultimate resolution of these matters will not have a
material effect on CSPRs financial position or results of operations.                                                                                                                                                                                                                                                     
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|12. |  | EMPLOYEE BENEFITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | CSPR participates in the profit sharing savings plan for salaried employees
(the savings plan) of eOn Communications Corporation. Under the terms of
the savings plan, employees may contribute from 2% to 16% of compensation
and an additional voluntary amount. CSPR will match 50% of employees
contributions up to 6% of the employees compensation, as defined, with a
maximum limitation of $2,000 for any one employee. Under the savings plan,
CSPR can elect to make an additional discretionary profit-sharing
contribution.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Contributions to the Savings Plan during the years ended July 31, 2002,
2001,and 2000, amounted to approximately $44,000, $59,000, and $62,000,
respectively.                                                                                                                                                                                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|13. |  | CREDIT RISK CONCENTRATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | CSPRs business activities primarily are with customers located in Puerto
Rico and its trade accounts receivable reflects a broad customer base in
the local market. CSPR routinely assesses the financial strength of its
customers. As a consequence, concentration of credit risk is limited.                                                                                                                                                                                                                                           
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|14. |  | SUPPLEMENTAL CASH FLOW INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Cash paid for interest during the years ended July 31, 2002, 2001 and 2000,
amounted to approximately $5,000, $293, and $67,000, respectively. No
income tax payments were made during the years ended July 31, 2002, 2001
and 2000.                                                                                                                                                                                                                                                                                                       
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Non-cash financing activity for the year ended July 31, 2000 consists of a
payment in the form of a note receivable of a previously declared $701,000
dividend payable via a capital contribution from eOn.                                                                                                                                                                                                                                                                                                                                

34



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| |  |                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | During the year ended July 31, 2001, CSPR acquired certain net assets from
Ochoa. The effect of the acquisition of these assets follows:

|                                                |  |                |        |  
|----------------------------------------------- |  | -------------- | ------ | -
|                                                |  | (In Thousands)
|Increase in tangible assets                     |  | $              | 1,018  |  
|Increase in intangible assets                   |  |                | 382    |  
|Business acquisition financed with note payable |  |                | (1,400 | )

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | In fiscal year 2002 eOn assigned a note receivable from a related
party amounting to approximately $304,000, which was recorded as a
capital contribution from parent. In addition, eOn forgave CSPR's net
accounts payable to related parties amounting to approximately
$406,000, which too was recorded as a capital contribution from
parent. This total capital contribution of $710,000 and the net
advances due to parent of $2,200,000, which was forgiven by eOn at
the time of the spin-off (see Note 1) have been recorded as a
capital contribution of $2,910,000 in the accompanying statements of
changes in stockholders' equity for the year ended July 31,
2002. These noncash transactions are not included in the accompanying
statement of cash flows for the year ended July 31, 2002.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|15. |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | CSPRs reportable segments are Communications Systems and Cellular Airtime
Services, each of which offers different products and services. Each
segment requires different technology and marketing strategies. The
Communications Systems segment offers communications solutions that address
voice and data network switching while the Cellular Airtime Services
segment resells cellular airtime and cellular telephones in Puerto Rico.                                                                                                                                                                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | The accounting policies of the segments are those described in the summary
of significant accounting policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                              |  |                |        |                  |  |                |       |   |  |   |        |  
|----------------------------- |  | -------------- | ------ | ---------------- |  | -------------- | ----- | - |  | - | ------ | -
|                              |  | Communications |        | Cellular         |  |                |       |  
|2002                          |  | Systems        |        | Airtime Services |  | Total         
|                              |  |                |        |                  |  |               
|                              |  |                |        |                  |  | (In Thousands) |       |   |  |  
|Revenues                      |  | $              | 8,512  |                  |  | $              | 1,872 |   |  | $ | 10,384 |  
|Income (loss) from operations |  |                | (2,379 | )                |  |                | (275  | ) |  |   | (2,654 | )
|Interest (income) expense     |  |                | (21    | )                |  |                |      |   |  |   | (21    | )
|Provision for income taxes    |  |                |       |                  |  |                |      |   |  |   |       |  
|Net income (loss)             |  |                | (2,358 | )                |  |                | (275  | ) |  |   | (2,633 | )
|Total assets                  |  |                | 6,371  |                  |  |                | 450   |   |  |   | 6,821  |  
|Capital expenditures          |  |                | 143    |                  |  |                |      |   |  |   | 143    |  
|Depreciation and amortization |  |                | 158    |                  |  |                | 35    |   |  |   | 193    |  

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|                              |  |                |        |                  |  |                |        |  |  |   |        |  
|----------------------------- |  | -------------- | ------ | ---------------- |  | -------------- | ------ |  |  | - | ------ | -
|                              |  | Communications |        | Cellular         |  |                |        | 
|2001                          |  | Systems        |        | Airtime Services |  | Total         
|                              |  |                |        |                  |  |               
|                              |  |                |        |                  |  | (In Thousands) |        |  |  |  
|Revenues                      |  | $              | 11,788 |                  |  | $              | 10,393 |  |  | $ | 22,181 |  
|Income (loss) from operations |  |                | (693   | )                |  |                | 33     |  |  |   | (660   | )
|Interest (income) expense     |  |                | (15    | )                |  |                |       |  |  |   | (15    | )
|Provision for income taxes    |  |                |       |                  |  |                |       |  |  |   |       |  
|Net income (loss)             |  |                | (678   | )                |  |                | 33     |  |  |   | (645   | )
|Total assets                  |  |                | 9,274  |                  |  |                | 1,478  |  |  |   | 10,752 |  
|Capital expenditures          |  |                | 82     |                  |  |                | 72     |  |  |   | 154    |  
|Depreciation and amortization |  |                | 111    |                  |  |                | 35     |  |  |   | 146    |  

|                              |  |                |        |                  |  |                |       |  |  |   |        | 
|----------------------------- |  | -------------- | ------ | ---------------- |  | -------------- | ----- |  |  | - | ------ | 
|                              |  | Communications |        | Cellular         |  |                |       | 
|2000                          |  | Systems        |        | Airtime Services |  | Total         
|                              |  |                |        |                  |  |               
|                              |  |                |        |                  |  | (In Thousands) |       |  |  |  
|Revenues                      |  | $              | 15,069 |                  |  | $              | 9,193 |  |  | $ | 24,262 | 
|Income (loss) from operations |  |                | (23    | )                |  |                | 572   |  |  |   | 549    | 
|Interest (income) expense     |  |                | 46     |                  |  |                |      |  |  |   | 46     | 
|Provision for income taxes    |  |                |       |                  |  |                | 30    |  |  |   | 30     | 
|Net income (loss)             |  |                | (69    | )                |  |                | 542   |  |  |   | 473    | 
|Total assets                  |  |                | 9,189  |                  |  |                | 2,540 |  |  |   | 11,729 | 
|Capital expenditures          |  |                | 279    |                  |  |                | 58    |  |  |   | 337    | 
|Depreciation and amortization |  |                | 126    |                  |  |                | 30    |  |  |   | 156    | 

| |  |                                                                                     
| |  | ------------------------------------------------------------------------------------
| |  | Financial information relating to CSPRs revenues by geographic area was as follows:

|                            |  |                |        |      |  |      |        |  |  |   |        | 
|--------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                            |  | 2002           |        | 2001 |  | 2000
|                            |  |                |        |      |  |     
|                            |  | (In Thousands) |        |      |  |     
|Puerto Rico                 |  | $              | 9,579  |      |  | $    | 20,730 |  |  | $ | 23,507 | 
|Caribbean and Latin America |  |                | 805    |      |  |      | 1,451  |  |  |   | 755    | 
|                            |  |                |        |      |  |      |        |  |  |   |        | 
|Total                       |  | $              | 10,384 |      |  | $    | 22,181 |  |  | $ | 24,262 | 
|                            |  |                |        |      |  |      |        |  |  |   |        | 

|    |  |                                                                                                                                                                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|16. |  | SPECIAL CHARGES                                                                                                                                                                                                                                                                                                        
|    |  |                                                                                                                                                                                                                                                                                                                        
|    |  | To reduce costs and improve productivity, CSPR adopted a restructuring plan
in fiscal year 2001, which was effectively amended in fiscal year 2002. The major component of the plan and all of the charges are
comprised of estimated severance payments related to reductions in CSPRs
workforce by approximately 29%

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| |  |                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The following table provides details about the special charges related to
termination benefits recorded during fiscal years 2002 and 2001 and the
associated liabilities at July 31, 2002 and 2001:

|                  |  |                |     |      |  |   |     |  
|----------------- |  | -------------- | --- | ---- |  | - | --- | -
|                  |  | 2002           |     | 2001
|                  |  |                |     |     
|                  |  | (In Thousands)
|Charges           |  | $              | 320 |      |  | $ | 152 |  
|Expenditures      |  |                | (32 | )    |  |   | (62 | )
|Other adjustments |  |                |    |      |  |   | (90 | )
|                  |  |                |     |      |  |   |     |  
|Liability balance |  | $              | 288 |      |  | $ |    |  
|                  |  |                |     |      |  |   |     |  

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | The 2001 other adjustments reflected above relates to a reduction in the
estimated total severance costs associated with the restructuring
plan. The 2002 special charges represent a revision to the estimate
of severance costs resulting from the restructuring plan.                                                                                                                                                                                                                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | Net workforce reductions under the plan will reduce CSPRs future employee
expense. The employee reductions took place in the second quarter of fiscal
year 2001. The decrease in costs as a result of the restructuring activities
outlined above will primarily impact wages and benefits in our selling,
general and administrative expense.                                                                                                                                                                        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|17. |  | PREFERRED AND COMMON STOCK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | The certificate of incorporation of the Company was amended on January 31,
2002 to authorize the issuance of 10,000,000 shares of preferred stock and
5,000,000 shares of common stock, each having a par value of one cent
($0.01). Before this amendment, the Company was only authorized to issue
10,000 shares of common stock, each share having a par value of $100.
As a result, a reclassification of $988,000 was recorded to reduce
the par value of common stock and to increase additional paid-in
capital.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | On July 31, 2002 CSPR issued 1,194,557 shares of common
stock to effect the spin-off to eOn shareholders. The pro forma net
income (loss) per share data give effect to eOn's distribution to
eOn's shareholders of all the company's shares held by eOn on the
basis of one share of the company's stock for every ten shares of eOn
common stock outstanding as if such distribution had occurred as of
the beginning of the earliest period presented.                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | The Board of Directors of the Company is authorized from time to time to
divide the preferred stock into series and to determine the number of
shares of each series and the relative designation, powers, rights and
preferences of each such series. As of July 31, 2002, there were no
outstanding shares of preferred stock.                                                                                                                                                                                       

* * * * *

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Schedule II  Valuation and Qualifying Accounts
($ in thousands)

|                                                    |  |                     |       |                  |  |                |     |            |  |                |   |  |  |   |     |   |  |   |     | 
|--------------------------------------------------- |  | ------------------- | ----- | ---------------- |  | -------------- | --- | ---------- |  | -------------- | - |  |  | - | --- | - |  | - | --- | 
|Column A                                            |  | Column B            |       | Column C         |  | Column D       |     | Column E  
|                                                    |  |                     |       |                  |  |                |     |           
|                                                    |  |                     |       |                  |  | Additions      |     |            |  |                |   |  |  |  
|                                                    |  |                     |       |                  |  |                |     |            |  |                |   |  |  |  
|                                                    |  | Balance at          |       | Charged to Costs |  | Charged to     |     |            |  | Balance at End
|                                                    |  | Beginning of Period |       | and Expenses     |  | Other Accounts |     | Deductions |  | of Period     
|                                                    |  |                     |       |                  |  |                |     |            |  |               
|2000:                                               |  |                     |       |                  |  |                |     |            |  |                |   |  |  |   |     |   |  |   |     | 
|Allowance for
doubtful accounts
and sales allowance |  | $                   | 1,200 |                  |  | $              | 456 |            |  |                |  |  |  | $ | 953 |   |  | $ | 703 | 
|Warranty reserve                                    |  |                     | 310   |                  |  |                | 295 |            |  |                |  |  |  |   | 341 |   |  |   | 264 | 
|2001:                                               |  |                     |       |                  |  |                |     |            |  |                |   |  |  |   |     |   |  |   |     | 
|Allowance for
doubtful accounts
and sales allowance |  |                     | 703   |                  |  |                | 87  |            |  |                |  |  |  |   | (9  | ) |  |   | 799 | 
|Warranty reserve                                    |  |                     | 264   |                  |  |                | 492 |            |  |                |  |  |  |   | 349 |   |  |   | 407 | 
|2002:                                               |  |                     |       |                  |  |                |     |            |  |                |   |  |  |   |     |   |  |   |     | 
|Allowance for
doubtful accounts
and sales allowance |  |                     | 799   |                  |  |                | 72  |            |  |                |  |  |  |   | 7   |   |  |   | 864 | 
|Warranty reserve                                    |  |                     | 407   |                  |  |                | 426 |            |  |                |  |  |  |   | 518 |   |  |   | 315 | 

All other schedules for which provisions are made in the applicable regulations
of the SEC are not required under the related instructions or are inapplicable
and therefore have been omitted.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information set forth under the captions Election of Directors and Section
16(a) Beneficial Ownership Reporting Compliance in the Companys definitive
Proxy Statement for the 2002 Annual Meeting of Shareholders to be held on
December 20, 2002 (the Proxy Statement), which will be filed with the
Securities and Exchange Commission not later than 120 days after July 31, 2002,
are incorporated herein by reference in response to this item.

Information with respect to executive officers is set forth under the caption
Executive Officers in Part I of this report.




ITEM 11. EXECUTIVE COMPENSATION.

Information set forth under the caption Executive Compensation in the Proxy
Statement is incorporated herein by reference in response to this item.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information set forth under the caption Stock Ownership in the Proxy
Statement is incorporated herein by reference in response to this item.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Information set forth under the caption Certain Transactions in the Proxy
Statement is incorporated herein by reference.

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##### Table of Contents






PART IV




ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 8-K.

(A)    (1) Financial Statements

The following information appears in Item 8 of Part II of this Report:



| |  |  | Independent Auditors Report                                                                 
| | - |  | ---------------------------------------------------------------------------------------------
|
| |  |  | Balance Sheets as of
July 31, 2002 and 2001                                                  
|
| |  |  | Statements of Operations for the Years Ended
July 31, 2002, 2001 and 2000                    
|
| |  |  | Statements of Cash Flows for the Years Ended
July 31, 2002, 2001 and 2000                    
|
| |  |  | Statements of Stockholders Equity (Deficit) for
the Years Ended July 31, 2002, 2001 and 2000
|
| |  |  | Notes to Financial Statements                                                                



| |                                  
| | ---------------------------------
| | (2) Financial Statement Schedules

The following financial statement schedule is included in this report:

Schedule II  Valuation and Qualifying Accounts

All other schedules are omitted because they are not required, not applicable,
or the required information is otherwise shown in the consolidated financial
statements or the notes thereto.

(B)  Reports on Form 8-K

None

(C)  Exhibits

The exhibits listed in the Exhibit Index following the signature page of this
report are filed as part of this report or are incorporated by reference
herein.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                                  |  |    |  |                                                                                                    
|--------------------------------- |  | -- |  | ---------------------------------------------------------------------------------------------------
|CORTELCO SYSTEMS PUERTO RICO, INC |  |    |  |                                                                                                    
|                                  |  |    |  |                                                                                                    
|Date: October 26, 2002            |  | By |  | /s/ Francisco Sanchez                                                                              
|                                  |  |    |  |                                                                                                    
|                                  |  |    |  | Francisco Sanchez, Vice President,
Chief Financial Officer, Secretary
(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                       |  |                                                                                                                   |  |                 
|-------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----------------
|Name                                   |  | Title                                                                                                             |  | Date            
|                                       |  |                                                                                                                   |  |                 
|/s/ Sergio MorenSergio Moren           |  | President, Chief Executive Officer
(Principal Executive Officer), Director                                        |  | October 29, 2002
|                                      
|/s/ Francisco SanchezFrancisco Sanchez |  | Vice President, Chief Financial Officer, Secretary
(Principal Financial Officer and Principal Accounting Officer) |  | October 29, 2002
|                                      
|/s/ David S. LeeDavid S. Lee           |  | Director                                                                                                          |  | October 29, 2002
|                                      
|/s/ Lanny N. LambertLanny N. Lambert   |  | Director                                                                                                          |  | October 29, 2002
|                                      
|/s/James W. HopperJames W. Hopper      |  | Director                                                                                                          |  | October 29, 2002

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I, Sergio Moren, certify that:



| |                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed this annual report on Form 10-K of
Cortelco Systems Puerto Rico, Inc. (Registrant);                                                                                                                                                                                                                       
|
| | 2.     Based on my knowledge, this annual 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 annual report; and
|
| | 3.     Based on my knowledge, the financial statements, and
other financial information included in this annual 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 this annual report.                       

|                       |  |                                     
|---------------------- |  | ------------------------------------
|Date: October 29, 2002 |  | /s/ Sergio Moren                    
|                       |  |                                     
|                       |  | Sergio Moren
Chief Executive Officer

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##### Table of Contents



I, Francisco Sanchez, certify that:



| |                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed this annual report on Form 10-K of
Cortelco Systems Puerto Rico, Inc. (Registrant);                                                                                                                                                                                                                       
|
| | 2.     Based on my knowledge, this annual 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 annual report; and
|
| | 3.     Based on my knowledge, the financial statements, and
other financial information included in this annual 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 this annual report.                       

|                       |  |                                          
|---------------------- |  | -----------------------------------------
|Date: October 29, 2002 |  | /s/ Francisco Sanchez                    
|                       |  |                                          
|                       |  | Francisco Sanchez
Chief Financial Officer

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EXHIBIT INDEX

Documents listed below are being filed as exhibits herewith. Exhibits
identified by asterisks (*) are being incorporated herein by reference and,
pursuant to Rule 12b-32 of the General Rules and Regulations promulgated by the
Commission under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed exhibits with the Commission.

|          |  |                                                                                                                                                                       
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                                                       
|Number    |  | Description of Document                                                                                                                                               
|          |  |                                                                                                                                                                       
|3.1 *     |  | Amended and Restated Certificate of Incorporation of Cortelco Systems Puerto Rico,
Inc. (CSPR)                                                                      
|3.2 *     |  | Amended and Restated Bylaws of CSPR.                                                                                                                                  
|4.1 *     |  | Amended and Restated Certificate of Incorporation of CSPR (filed as Exhibit 3.1)                                                                                      
|4.2 *     |  | Amended and Restated Bylaws of CSPR (filed as Exhibit 3.2)                                                                                                            
|4.3*      |  | Form of certificate representing common stock, par value $.01 per share, of CSPR.                                                                                     
|10.1 *    |  | Distribution Agreement dated as of January 30, 2002, between eOn and CSPR (filed as
Exhibit 2.1)                                                                      
|10.2 *    |  | Employee Matters Agreement dated as of January 30, 2002 between eOn and CSPR (filed as
Exhibit 2.2)                                                                   
|10.3 *    |  | Confidential Disclosure Agreement dated as of January 30, 2002 between eOn and CSPR
(filed as Exhibit 2.3)                                                            
|10.4 *    |  | CSPR 2002 Equity Incentive Plan.                                                                                                                                      
|10.5 *    |  | Lease Agreement dated as of March 1, 1999, between CSPR and Cortelco Puerto Rico, Inc.                                                                                
|10.6(a) * |  | Sales Agency Agreement dated as of December 19, 1995, between Celulares Telefonica,
Inc. and CSPR (Spanish)                                                           
|10.6(b) * |  | Sales Agency Agreement dated as of December 19, 1995, between Celulares Telefonica,
Inc. and CSPR (English translation)                                               
|10.7 *    |  | Mitel Caribbean VAR Agreement dated as of December 7, 2001, between Mitel Networks,
Inc. and CSPR.                                                                    
|10.8 *    |  | Asset Purchase Agreement dated as of May 14, 2001, between CSPR and Ochoa Telecom, Inc.                                                                               
|10.9 *    |  | Form of Dealer Agreement between eOn and CSPR.                                                                                                                        
|23        |  | Consent of Independent Auditors                                                                                                                                       
|99.1      |  | Officers Certification of Periodic Report pursuant to Section 906 of Sarbanes-Oxley
Act of 2002.                                                                     
|          |  | *     Incorporated by reference to CSPRs Registration Statement on Form 10 or amendments
thereto, filed with the Securities Exchange Commission on February 12, 2002.

44