UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

|(Mark One)                                                    |                                                                                  
|------------------------------------------------------------- | ---------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the quarterly period ended March 31, 2005                
|o                                                             | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934          
|For the transition period
from                             to

Commission file number 000-50712

ETS PAYPHONES, INC.(Exact name of small business issuer as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)                        |  | 58-2131736(I.R.S. Employer Identification No.)
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1490 Westfork Drive, Suite G, Lithia Springs, Georgia(Address of principal executive offices) |  | 30122-1509(Zip Code)                          

(770) 819-1600(Issuer's telephone number)

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes ý    No o

As of March 31, 2005, there were outstanding 4,987,624 shares of the Issuer's common stock $.0001 par value.



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ETS PAYPHONES, INC.  INDEX TO FORM 10-QSB  MARCH 31, 2005

|Part I. Financial Information |  |                                                                                                                 
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------
|Item 1.                       |  | Financial Statements                                                                                            
|                              |  | Balance Sheet March 31, 2005 (Unaudited)                                                                        
|                              |  | Statements of Operations For the three months ended March 31, 2005 and March 31, 2004 (Unaudited)               
|                              |  | Statements of Cash Flows For the three months and six months ended March 31, 2005 and March 31, 2004 (Unaudited)
|                              |  | Notes to Financial Statements                                                                                   
|Item 2.                       |  | Plan of Operation                                                                                               
|Item 3.                       |  | Controls and Procedures                                                                                         
|Part II. Other Information    |  |                                                                                                                 
|Item 5.                       |  | OTHER INFORMATION                                                                                               
|Item 6.                       |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                
|Signatures                    |  | 12                                                                                                              

2

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PART I. FINANCIAL INFORMATION

ETS PAYPHONES, INC.
BALANCE SHEET
MARCH 31, 2005
Unaudited

|ASSETS                               |                                                                                                               
|------------------------------------ | --------------------------------------------------------------------------------------------------------------
|CURRENT ASSETS                       |                                                                                                               
|                                     | Cash                                                                                                          
|                                     | Cash, restricted                                                                                              
|                                     | Accounts receivable                                                                                           
|                                     | Inventories                                                                                                   
|                                     | Prepaid expenses                                                                                              
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     |                                                                                                               
|FIXED ASSETS                         |                                                                                                               
|                                     | Payphones                                                                                                     
|                                     | Other property and equipment                                                                                  
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     | Accumulated depreciation                                                                                      
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     |                                                                                                               
|OTHER ASSETS                         |                                                                                                               
|                                     | Deposits                                                                                                      
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     |                                                                                                               
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                               
|CURRENT LIABILITIES                  |                                                                                                               
|                                     | Accounts payable                                                                                              
|                                     | Accrued expenses                                                                                              
|                                     | Accrued taxes                                                                                                 
|                                     | 401k payable                                                                                                  
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     |                                                                                                               
|SHAREHOLDERS' EQUITY                 |                                                                                                               
|                                     | Common Stock, par value $.0001 per share; authorized 6,000,000 shares; 4,987,624 shares issued and outstanding
|                                     | Additional Paid in Capital                                                                                    
|                                     | Accumulated deficit                                                                                           
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     |                                                                                                               
|                                     |                                                                                                               

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

3

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ETS PAYPHONES, INC.
STATEMENTS OF OPERATIONS

|                                                     |                                        | For the Three Months Ended March 31, |           
|---------------------------------------------------- | -------------------------------------- | ------------------------------------ | ----------
|
|
|REVENUE                                              |                                        |                                      |           
|                                                     | Coin Calls                             |                                      | $         
|                                                     | Non-coin calls                         |                                      |           
|                                                     | Other payphone revenue                 |                                      |           
|                                                     |                                        |                                      |           
|                                                     |                                        | Total Revenue                        |           
|OPERATING EXPENSES                                   |                                        |                                      |           
|                                                     | Telephone Charges                      |                                      |           
|                                                     | Commissions                            |                                      |           
|                                                     | Service, maintenance and network costs |                                      |           
|                                                     | Depreciation & amortization            |                                      |           
|                                                     | Selling, general and administrative    |                                      |           
|                                                     |                                        |                                      |           
|                                                     |                                        | Total operating expenses             |           
|                                                     |                                        |                                      |           
|Loss from Operations                                 |                                        |                                      | (1,236,805
|OTHER INCOME (EXPENSE)                               |                                        |                                      |           
|                                                     | Interest expense                       |                                      |           
|                                                     | Reorganization expense                 |                                      |           
|                                                     | Loss on asset disposition              |                                      |           
|                                                     | Other income                           |                                      |           
|                                                     |                                        |                                      |           
|                                                     |                                        | Total other income                   |           
|                                                     |                                        |                                      |           
|NET LOSS                                             |                                        | $                                    | (1,025,725
|                                                     |                                        |                                      |           
|Basic and diluted net loss per common share          |                                        | $                                    | (0.21     
|Weighted average number of common shares outstanding |                                        |                                      | 4,987,624 
|                                                     |                                        |                                      |           

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

4

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ETS PAYPHONES, INC.
STATEMENTS OF CASH FLOWS

|                                                 |                                                                            | Three Months Ended                                        |                  
|------------------------------------------------ | -------------------------------------------------------------------------- | --------------------------------------------------------- | -----------------
|
|
|Operating Activities                             |                                                                            |                                                           |                  
|                                                 | Net Loss                                                                   |                                                           | $                
|                                                 | Adjustments to reconcile net loss to net cash used by operating activities |                                                           |                  
|                                                 |                                                                            | Depreciation expense                                      |                  
|                                                 |                                                                            | Site licenses written down for sites taken out of service |                  
|                                                 |                                                                            | Decrease in restricted cash balance                       |                  
|                                                 |                                                                            | Decrease(increase) in accounts receivable                 |                  
|                                                 |                                                                            | Decrease in inventories                                   |                  
|                                                 |                                                                            | Increase in prepaid expenses                              |                  
|                                                 |                                                                            | Decrease in accounts payable                              |                  
|                                                 |                                                                            | Decrease in tax liabilities                               |                  
|                                                 |                                                                            | Increase in accrued expenses                              |                  
|                                                 |                                                                            | Decrease in other non-current assets                      |                  
|                                                 |                                                                            |                                                           |                  
|                                                 |                                                                            |                                                           | Total Adjustments
|                                                 |                                                                            |                                                           |                  
|Net cash used by operating activities            |                                                                            |                                                           | (642,044         
|                                                 |                                                                            |                                                           |                  
|Investing Activity                               |                                                                            |                                                           |                  
|                                                 | Purchase of fixed assets                                                   |                                                           |                  
|Financing Activity                               |                                                                            |                                                           |                  
|                                                 | Organizational costs                                                       |                                                           |                  
|Net decrease in cash                             |                                                                            |                                                           | (646,966         
|                                                 |                                                                            |                                                           |                  
|Cash, December 31, 2004                          |                                                                            |                                                           | 1,533,841        
|                                                 |                                                                            |                                                           |                  
|Cash, March 31, 2005                             |                                                                            | $                                                         | 886,875          
|                                                 |                                                                            |                                                           |                  
|Supplemental Disclosure of Cash Flow Information |                                                                            |                                                           |                  
|                                                 | Cash paid for interest                                                     |                                                           | $                

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

5

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ETS PAYPHONES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Summary Information

Our unaudited interim financial statements presented herein should be read in conjunction with the audited financial statements of our company contained in our
Form 10-KSB for the year ended December 31, 2004. Interim results are not necessarily indicative of results to be expected for the entire year.

The Company

ETS Payphones, Inc. ("ETS" or the "Company") is a Delaware corporation that operates, services, and maintains a system of payphones. ETS is one of the
largest independent payphone operators in the United States, currently managing approximately 16,000 payphones from nine branch offices handling 29 states, Washington D.C., and Puerto Rico.

The
Company enters into binding agreements with location owners to operate payphones at locations such as shopping centers, hospitals, hotels, convenience stores, service stations,
grocery stores, restaurants, airports, truck stops and bus terminals. In addition to agreements with private property owners, ETS is party to various agreements with municipalities under which the
Company has been granted the right to provide payphone services on municipal property. In most instances, the site
agreements on location leases entitle the private property owner or municipality to a percentage of revenues as "rent." In other instances, these agreements take the form of franchises pursuant to
which ETS is required to pay either a fixed per phone fee or a percentage of revenues.

Revenue Recognition

The Company derives its revenues from two principal sources: coin calls and non-coin calls. Coin calls represent calls paid for by callers with coins
deposited into the payphone. Coin call revenues are recorded in the amount of coins deposited in the payphones and in the period deposited. We also receive revenues from non-coin calls
made from our payphones. These non-coin calls include credit card, calling card, prepaid calling card, collect and third-party billed calls where the caller dials "0" plus the number or
simply dials "0" for an operator. Non-coin calls often require a number of services, including automated or live operators to answer the call, verifying billing information, validating
calling cards and credit cards, routing and transmitting the call to its destination, monitoring the call's duration and determining the charge for the call, and billing and collecting the applicable
charge. We have contracted with a limited number of operator service providers to handle these calls and perform all associated functions, while paying us a commission on the revenues generated
thereby.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Accordingly, actual results could differ from those
estimates.

The
Company is required to make estimates and assumptions that affect amounts reported in our financial statements and the accompanying notes. It is at least reasonably possible that
these estimates used will change during the current fiscal year.

6

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Net Loss Per Common Share

Basic loss per share is computed based on net loss divided by the weighted average number of common shares outstanding. There were no potential common share
equivalents outstanding during 2004 or 2005, therefore the diluted loss per common share is the same as the basic loss per common share.

Other Income

Other income consists primarily of dial around true-up receipts for prior years' operations.

7

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Item 2. Plan of Operation

ETS Payphones, Inc. owns and operates approximately 16,000 public pay telephones in 29 states concentrated primarily in the Eastern and Southern United
States, as well as the District of Columbia and Puerto Rico. We are an independent owner of payphone equipment placed at locations with client site owners that include retail establishments,
convenience stores, hotels, hospitals and other publicly and privately owned businesses. These locations are owned or managed by over 5000 clients that include Fortune 100 companies as well as single
store accounts and municipalities. We also provide other telecommunications products to certain clients.

Our
primary business is to install and operate payphones pursuant to contracts with location owners. We install public payphones in properties owned or controlled by others where
significant demand exists for public payphone services, such as shopping centers, hospitals, hotels, convenience stores, service stations, grocery stores, restaurants, airports, truck stops and bus
terminals. We service and maintain the payphones and collect the revenue generated.

Risk Factors

The following risk factors should be considered carefully in addition to the other information contained in this report.

1.Regulatory Issues

The enactment of the Telecommunications Act significantly altered the regulatory landscape in which payphone companies operate. Although we believe that the
Telecommunications Act, as implemented by the FCC, addressed certain historical inequities in the payphone marketplace, uncertainties relating to the impact and timing of the implementation of the new
regulatory framework still exist. The uncertainty with the greatest potential financial impact relates to revenue from access code calls and toll-free dialed calls, also referred to as
dial-around compensation. Dial-around compensation accounts for a material percentage of our revenues.
Additionally, the March 2004 United States Court of Appeals, D.C. Circuit decision to vacate the FCC Unbundled Network Element rules will have an unknown effect on local line access pricing,
but may increase prices to payphone service providers.

2.Limited Financial Resources

Our future performance and liquidity will depend on a number of factors, including industry performance, general business and economic conditions, the absence of
contingencies, and other matters, many of which are beyond our control. We will have limited financial resources, and it may be the case that we will not have the funds to make capital improvements
arising other than in the ordinary course of business.

3.Dependence Upon Third-Party Providers

We assemble payphones from components provided by outside suppliers. In addition, we rely on outside suppliers for local line access, billing and collection
services, and long-distance and operator services. We believe that multiple suppliers are available to meet all of our product and service needs at competitive prices and rates and expect
the availability of such products and services to continue in the future. However, we cannot assure the continuing availability of alternative sources.

8

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4.Competition

We compete with other telecommunications providers, including providers of wireless services, other payphone providers and long-distance carriers.
Many of these competitors have substantially greater financial, marketing, and other resources than the Company.

5.Technological Change and New Services

Continuous technological change, frequent service and product innovations, and evolving industry standards characterize the telecommunications industry. We
believe that our future success will depend in part on our ability to anticipate technological changes and respond in a timely and effective manner to meet new industry standards. Any failure to keep
pace with technological change (including the technical support component required to operate payphones) and new customer service demands could have a material adverse effect on our business.

6.Impact of Seasonality

Our revenue from payphone operations is affected by seasonal variations. Because many of our payphones are located outdoors, weather patterns have differing
effects on our revenue depending on the region of the country where the payphones are located and the enclosure housing of the phone. For example, our payphones throughout the midwestern and eastern
United States produce their highest call volumes during the second and third quarters, when the climate tends to be more favorable. Seasonal variations in revenues could have a material adverse effect
on our business. Changes in the geographic distribution of our payphones may in the future result in different seasonal variations in our results.

7.No established market for the Common Stock.

Our Common Stock is not listed on any stock exchange. Our Common Stock was issued to approximately 12,500 individuals and entities. Ownership interests are
tracked by the transfer agent, American Stock Transfer and Trust Company ("AST&T"), and transfers of ownership may be documented through AST&T. The Common Stock is not traded on any recognized stock
exchange, stock market or bulletin board system and there are no market makers for the Common Stock. There can be no assurance that an active or liquid trading market for our shares of Common Stock
will develop or be maintained.

8.Possible discontinuance of operations

If we are unable to achieve profitability, or if operating losses increase in the future, we may not be able to remain a viable company and may have to
discontinue operations. Our expenses have historically exceeded our revenues and we have sustained losses since our bankruptcy reorganization in December 2002.

9

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Item 3. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (collectively, the "Certifying Officers") are responsible for establishing and maintaining disclosure
controls and procedures for the Company. Based upon such officers' evaluation of these controls and procedures as of a date within 45 days of the filing of this Quarterly Report, and subject to
the limitations noted hereinafter, the Certifying Officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this
Quarterly Report is accumulated and communicated to management, including our principal officers as appropriate, to allow timely decisions regarding required disclosure.

The
Certifying Officers have also indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to
the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses.

Our
management, including each of the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all error and fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all control systems, no evaluation of
controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and their can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not
be detected.

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PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

The date for the 2005 Annual Meeting is October 26, 2005. This is a change from June 1, which was the Annual Meeting date set forth in the 2004
proxy. Proposals of stockholders intended to be presented at the Company's 2005 Annual Meeting of Stockholders must be received by the Secretary of the Company for inclusion in the Company's proxy
statement and form of proxy relating to that meeting by June 13, 2005. Any such stockholder proposal must meet the applicable requirements of the Securities Exchange Act of 1934 and the rules
and regulations thereunder.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|EXHIBIT
NUMBER |  | DESCRIPTION                                                                   
|-------------- |  | ------------------------------------------------------------------------------
|31.1           |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|31.2           |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32.1           |  | Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2           |  | Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

A
report on Form 8-K was filed on February 2, 2005 (File No. 000-50712).

11

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SIGNATURES

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

|                   |  | ETS PAYPHONES, INC.
|------------------ |  | -------------------
|Date: May 13, 2005 |  | By:                
|                   |  | By:                

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