TABLE OF CONTENTS




|                                               |                                                                                               |                                                        |  |  |  |  |  | 
|---------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------ |  |  |  |  |  | 
|Part I. Financial Information                 
|                                               | Item 1. Financial Statements                                                                 
|                                               |                                                                                               | Consolidated Balance Sheets                           
|                                               |                                                                                               | Consolidated Statements of Operations (Unaudited)     
|                                               |                                                                                               | Consolidated Statements of Cash Flows (Unaudited)     
|                                               |                                                                                               | Notes to Consolidated Financial Statements (Unaudited)
|                                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                               | Item 3. Quantitive and qualitative disclosures about market risk                             
|Part II. Other Information                    
|                                               | Item 3. Submission of Matters to a Vote of Security Holders                                  
|                                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                    
|EXHIBIT 3.1                                   
|EX-10.1 Amendment to Loan & Security Agreement
|EXHIBIT 27                                    



---



U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)



For the quarterly period ended September 30,
2000

/     / Transition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from  to .

Commission file number 0-16715

PhoneTel Technologies, Inc.

(Exact Name of Registrant as Specified in Its Charter)


|                                                                           |  |                                     
|-------------------------------------------------------------------------- |  | ------------------------------------
|Ohio                                                                       |  | 34-1462198                          
|                                                                           |  |                                     
|(State or Other Jurisdiction of Incorporation or
        Organization)     |  | (I.R.S. Employer Identification No.)
|                                                                          
|North Point Tower, 7thFloor, 1001 Lakeside
        Avenue, Cleveland, Ohio |  | 44114-1195                          
|                                                                           |  |                                     
|(Address of Principal Executive Offices)                                   |  | (Zip Code)                          

(216) 241-2555

(Issuers Telephone Number, Including Area Code)


Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days.

Yes  X     No

Applicable only to Issuers Involved in Bankruptcy

Proceedings during the Preceding Five Years


Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13, or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a
court.

Yes  X     No

Applicable only to Corporate Issuers

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date: As of November 10, 2000, 10,189,684
shares of the registrants Common Stock, $.01 par value,
were outstanding.



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##### Table of Contents



PhoneTel Technologies, Inc. and Subsidiary

Form 10-Q


Nine and Three Months Ended September 30, 2000


INDEX

|                              |  |         |  |                                                                                                               |  |         
|----------------------------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |         |  |                                                                                                               |  | Page No.
|                             
|                             
|                             
|                             
|Part I. Financial Information |  |        
|                             
|                              |  | Item 1. |  | Financial Statements                                                                                          |  |         
|                             
|                              |  |         |  | Consolidated Balance Sheets as of December 31, 1999 and
        September 30, 2000                            |  | 3       
|                             
|                              |  |         |  | Consolidated Statements of Operations for the Nine and Three
        Months Ended September 30, 1999 and 2000 |  | 4       
|                             
|                              |  |         |  | Consolidated Statements of Cash Flows for the Nine Months Ended
        September 30, 1999 and 2000           |  | 5       
|                             
|                              |  |         |  | Notes to Consolidated Financial Statements                                                                    |  | 6       
|                             
|                              |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition
        and Results of Operations                 |  | 11      
|                             
|                              |  | Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                    |  | 18      
|                             
|                             
|                             
|                             
|                             
|Part II. Other Information    |  |        
|                             
|                              |  | Item 3. |  | Submission of Matters to a Vote of Security Holders                                                           |  | 18      
|                             
|                              |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                              |  | 19      
|                             
|                             
|                             
|                             
|                             
|Signatures                    |  |         |  | 20                                                                                                           

2



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##### Table of Contents






Part I. Financial Information




Item 1. Financial Statements


PhoneTel Technologies, Inc. and Subsidiary




Consolidated Balance Sheets


(In thousands except share and per share amounts)


|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |        |         |       |        | 
|------------------------------------ | ----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | -------------------------- | ------ | ----- | ------- | ------ | ------- | ----- | ------ | 
|                                     |                               |                                                                                                                                                                                                                       
|                                     |                               | Successor Company                                                                                                                                                                                                     
|                                     |                               |                                                                                                                                                                                                                       
|                                     |                               |                                                                                                                                                                                                                        |                                 | (Unaudited)               
|                                     |                               | December 31                                                                                                                                                                                                            |                                 | September 30              
|                                     |                               | 1999                                                                                                                                                                                                                   |                                 | 2000                      
|                                     |                               |                                                                                                                                                                                                                        |                                 |                           
|Assets                               |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Current assets:               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |        |        
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Cash                                                                                                                                                                                                                   |                                 | $                          | 5,700  |       |         | $      | 4,903   |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accounts receivable, net of allowance for doubtful accounts of
        $1,339 and $1,854, respectively                                                                                                                 |                                 |                            | 11,246 |       |         |        | 12,097  |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Other current assets                                                                                                                                                                                                   |                                 |                            | 1,144  |       |         |        | 1,462   |      
|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|                                     |                               |                                                                                                                                                                                                                        |                                 | Total current assets       |        |       | 18,090  |        |         |       | 18,462 | 
|                                    
|                                    
|                                    
|                                    
|                                    
|                                     | Property and equipment, net   |                                                                                                                                                                                                                        |                                 | 22,741                     |        |       |         | 19,743 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Intangible assets, net        |                                                                                                                                                                                                                        |                                 | 83,057                     |        |       |         | 70,484 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other assets                  |                                                                                                                                                                                                                        |                                 | 511                        |        |       |         | 568    |        
|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|                                     |                               | $                                                                                                                                                                                                                      | 124,399                         |                            |        | $     | 109,257 |       
|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|Liabilities and Shareholders Equity |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Current liabilities:          |                                                                                                                                                                                                                        |                                 |                            |        |       |         |        |        
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Current portion of long-term debt                                                                                                                                                                                      |                                 | $                          | 1,172  |       |         | $      | 1,286   |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accounts payable                                                                                                                                                                                                       |                                 |                            | 5,272  |       |         |        | 5,021   |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accrued expenses:                                                                                                                                                                                                      |                                 |                            |        |       |         |        |         |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               |                                                                                                                                                                                                                        | Location commissions            |                            |        | 2,841 |         |        |         | 2,617 |       
|                                    
|                                    
|                                    
|                                    
|                                     |                               |                                                                                                                                                                                                                        | Line and transmission charges   |                            |        | 1,902 |         |        |         | 2,315 |       
|                                    
|                                    
|                                    
|                                    
|                                     |                               |                                                                                                                                                                                                                        | Personal property and sales tax |                            |        | 2,672 |         |        |         | 2,770 |       
|                                    
|                                    
|                                    
|                                    
|                                     |                               |                                                                                                                                                                                                                        | Interest                        |                            |        | 461   |         |        |         | 490   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                               |                                                                                                                                                                                                                        | Salaries, wages and benefits    |                            |        | 502   |         |        |         | 558   |       
|                                    
|                                    
|                                    
|                                    
|                                     |                               |                                                                                                                                                                                                                        | Other                           |                            |        | 137   |         |        |         | 579   |       
|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|                                     |                               |                                                                                                                                                                                                                        |                                 | Total current liabilities  |        |       | 14,959  |        |         |       | 15,636 | 
|                                    
|                                     | Long-term debt                |                                                                                                                                                                                                                        |                                 | 48,642                     |        |       |         | 51,004 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Commitments and contingencies |                                                                                                                                                                                                                        |                                 |                           |        |       |         |       |        
|                                    
|                                    
|                                    
|                                    
|                                    
|                                     | Shareholders Equity :        |                                                                                                                                                                                                                        |                                 |                            |        |       |         |        |        
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Common Stock  $0.01 par value; 15,000,000 and
        45,000,000 shares authorized, 10,188,630 and 10,189,684 shares
        issued and outstanding at December 31, 1999 and
        September 30, 2000, respectively |                                 |                            | 102    |       |         |        | 102     |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Additional Paid-in Capital                                                                                                                                                                                             |                                 |                            | 63,390 |       |         |        | 63,429  |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accumulated Deficit                                                                                                                                                                                                    |                                 |                            | (2,694 | )     |         |        | (20,914 | )    
|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|                                     |                               |                                                                                                                                                                                                                        |                                 | Total Shareholders Equity |        |       | 60,798  |        |         |       | 42,617 | 
|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       
|                                     |                               | $                                                                                                                                                                                                                      | 124,399                         |                            |        | $     | 109,257 |       
|                                     |                               |                                                                                                                                                                                                                        |                                 |                            |        |       |         |       

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

3



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##### Table of Contents



PhoneTel Technologies, Inc. and Subsidiary




Consolidated Statements of Operations (Unaudited)


(In thousands except for share and per share amounts)


|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |        |  
|--------------------------------------------------------------- | -------------------------------------------------- | ----------------- | ---------- | ------------------ | - | ----------- | ---------- | --------- | - |  | ---------- | ------- | - |  | ---------- | ------ | -
|                                                                |                                                    |                   |            |                   
|                                                                |                                                    | Nine Months Ended |            | Three Months Ended
|                                                                |                                                    | September 30      |            | September 30      
|                                                                |                                                    |                   |            |                   
|                                                                |                                                    | 1999              |            | 2000               |   | 1999        |            | 2000     
|                                                                |                                                    | Predecessor       |            | Successor          |   | Predecessor |            | Successor
|                                                                |                                                    | Company           |            | Company            |   | Company     |            | Company  
|                                                                |                                                    |                   |            |                    |   |             |            |          
|Revenues:                                                       |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Coin calls                                         |                   |            | $31,374            |   |             |            | $25,613   |   |  |            | $10,511 |   |  |            | $8,688 |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Non-coin telecommunication services                |                   |            | 28,766             |   |             |            | 24,972    |   |  |            | 9,934   |   |  |            | 9,086  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other                                              |                   |            | 204                |   |             |            | 391       |   |  |            | 135     |   |  |            | 167    |  
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|                                                                |                                                    |                   | 60,344     |                    |   |             | 50,976     |           |   |  | 20,580     |         |   |  | 17,941     |       
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Operating expenses:                                             |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Line and transmission charges                      |                   |            | 15,757             |   |             |            | 12,475    |   |  |            | 4,866   |   |  |            | 4,649  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Telecommunication and validation fees              |                   |            | 7,256              |   |             |            | 5,564     |   |  |            | 2,603   |   |  |            | 2,082  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Location commissions                               |                   |            | 9,951              |   |             |            | 6,640     |   |  |            | 3,549   |   |  |            | 2,291  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Field operations                                   |                   |            | 15,706             |   |             |            | 13,297    |   |  |            | 5,167   |   |  |            | 4,320  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Selling, general and administrative                |                   |            | 7,670              |   |             |            | 7,074     |   |  |            | 2,565   |   |  |            | 2,369  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Depreciation and amortization                      |                   |            | 17,738             |   |             |            | 13,110    |   |  |            | 5,803   |   |  |            | 4,357  |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Other unusual charges and contractual settlements  |                   |            | 1,287              |   |             |            | 3,004     |   |  |            | 1,214   |   |  |            | 2,894  |  
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|                                                                |                                                    |                   | 75,365     |                    |   |             | 61,164     |           |   |  | 25,767     |         |   |  | 22,962     |       
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Loss from operations                                            |                                                    |                   | (15,021    | )                  |   |             | (10,188    | )         |   |  | (5,187     | )       |   |  | (5,021     | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Other income (expense):                                         |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Interest expense                                   |                   |            | (16,685            | ) |             |            | (8,229    | ) |  |            | (5,787  | ) |  |            | (2,848 | )
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Interest and other income                          |                   |            | 156                |   |             |            | 197       |   |  |            | 46      |   |  |            | 55     |  
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|                                                                |                                                    |                   | (16,529    | )                  |   |             | (8,032     | )         |   |  | (5,741     | )       |   |  | (2,793     | )     
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Loss before exraordinary item                                   |                                                    |                   | (31,550    | )                  |   |             | (18,220    | )         |   |  | (10,928    | )       |   |  | (7,814     | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Extraordinary item  loss on extinguishment of debt             |                                                    |                   | (2,094     | )                  |   |             |           |           |   |  | (2,094     | )       |   |  |           |       
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Net loss                                                        |                                                    |                   | ($33,644   | )                  |   |             | ($18,220   | )         |   |  | ($13,022   | )       |   |  | ($7,814    | )     
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Earnings (loss) per share calculation:                          |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|                                                               
|                                                               
|                                                               
|                                                               
|Loss before extraordinary item                                  |                                                    |                   | ($31,550   | )                  |   |             | ($18,220   | )         |   |  | ($10,928   | )       |   |  | ($7,814    | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Preferred dividend payable in kind                 |                   |            | (13                | ) |             |            |          |   |  |            | (5      | ) |  |            |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accretion of 14% Preferred to its redemption value |                   |            | (1,197             | ) |             |            |          |   |  |            | (416    | ) |  |            |       |  
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Loss before extradinaory item applicable to common shareholders |                                                    |                   | (32,760    | )                  |   |             | (18,220    | )         |   |  | (11,349    | )       |   |  | (7,814     | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Extraordinary item  loss on extinguishment of debt             |                                                    |                   | (2,094     | )                  |   |             |           |           |   |  | (2,094     | )       |   |  |           |       
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Net loss applicable to common shareholders                      |                                                    |                   | ($34,854   | )                  |   |             | ($18,220   | )         |   |  | ($13,443   | )       |   |  | ($7,814    | )     
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Loss per common share before extraordinary item                 |                                                    |                   | ($1.75     | )                  |   |             | ($1.79     | )         |   |  | ($0.61     | )       |   |  | ($0.77     | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Extraordinary item  loss on extinguishment of debt             |                                                    |                   | (0.11      | )                  |   |             |           |           |   |  | (0.11      | )       |   |  |           |       
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Net loss per common share, basic and diluted                    |                                                    |                   | ($1.86     | )                  |   |             | ($1.79     | )         |   |  | ($0.72     | )       |   |  | ($0.77     | )     
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       
|Weighted average number of shares, basic and diluted            |                                                    |                   | 18,754,133 |                    |   |             | 10,189,099 |           |   |  | 18,754,133 |         |   |  | 10,189,684 |       
|                                                                |                                                    |                   |            |                    |   |             |            |           |   |  |            |         |   |  |            |       

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

4



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##### Table of Contents



PhoneTel Technologies, Inc. and Subsidiary




Consolidated Statements of Cash Flows (Unaudited)


(In thousands)


|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |        |        |  
|------------------------------------------------------ | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------ | --------- | ------ | - | ------ | ------ | ------ | -
|                                                       |                                                                                       |                                                                                   
|                                                       |                                                                                       | Nine Months Ended                                                                 
|                                                       |                                                                                       | September 30                                                                      
|                                                       |                                                                                       |                                                                                   
|                                                       |                                                                                       | 1999                                                                               |        | 2000     
|                                                       |                                                                                       | Predecessor                                                                        |        | Successor
|                                                       |                                                                                       | Company                                                                            |        | Company  
|                                                       |                                                                                       |                                                                                    |        |          
|Cash flows provided by (used in) operating activities: |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net loss                                                                              |                                                                                    |        | ($33,644  | )      |   | ($     | 18,220 | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Adjustments to reconcile net loss to net cash flow from
        operating activities: |                                                                                    |        |           |        |   |        |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Depreciation and amortization                                                      |        |           | 17,738 |   |        |        | 13,110 |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Extraordinary loss on extinguishment of debt                                       |        |           | 2,094  |   |        |        |       |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Write-off of intangible assets  location contracts                                |        |           | 864    |   |        |        | 2,880  |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Non-cash interest expense                                                          |        |           | 1,628  |   |        |        | 3,832  |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Increase in allowance for doubtful accounts                                        |        |           | 589    |   |        |        | 515    |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Gain on disposal of assets                                                         |        |           | (41    | ) |        |        | (83    | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Stock compensation expense                                                         |        |           |       |   |        |        | 28     |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Changes in current assets                                                          |        |           | 1,179  |   |        |        | (1,684 | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                       | Changes in current liabilities, net of reclassifications of
        long-term debt |        |           | 7,737  |   |        |        | 563    |  
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                       |                                                                                       |                                                                                    | (1,856 | )         |        |   | 941    |       
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|Cash flows provided by (used in) investing activities: |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Purchases of property and equipment                                                   |                                                                                    |        | (1,158    | )      |   |        | (857   | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred charges  commissions and signing bonuses                                    |                                                                                    |        | (373      | )      |   |        | (738   | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Proceeds from sale of assets                                                          |                                                                                    |        | 62        |        |   |        | 99     |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Change in other assets                                                                |                                                                                    |        | 23        |        |   |        | (57    | )     
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                       |                                                                                       |                                                                                    | (1,446 | )         |        |   | (1,553 | )     
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|Cash flows provided by (used in) financing activities: |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Proceeds from debt issuances                                                          |                                                                                    |        | 47,975    |        |   |        |       |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Principal payments on borrowings                                                      |                                                                                    |        | (42,717   | )      |   |        | (52    | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Debt financing and restructuring costs                                                |                                                                                    |        | (1,397    | )      |   |        | (144   | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                 |                                                                                    |        |          |        |   |        | 11     |       
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                       |                                                                                       |                                                                                    | 3,861  |           |        |   | (185   | )     
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|Increase (decrease) in cash                            |                                                                                       |                                                                                    | 559    |           |        |   | (797   | )     
|                                                      
|                                                      
|                                                      
|                                                      
|Cash at beginning of period                            |                                                                                       |                                                                                    | 5,768  |           |        |   | 5,700  |       
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|Cash at end of period                                  |                                                                                       | $                                                                                  | 6,327  |           |        | $ | 4,903  |       
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|Supplemental disclosure:                               |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Interest paid during the period                                                       |                                                                                    | $      | 3,848     |        |   | $      | 4,368  |       
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|Non-cash Transactions:                                 |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred financing costs                                                              |                                                                                    |        |          |        |   | $      | 2,070  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                 |                                                                                    |        |          |        |   |        | 39     |       
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       
|                                                       |                                                                                       | $                                                                                  |       |           |        | $ | 2,109  |       
|                                                       |                                                                                       |                                                                                    |        |           |        |   |        |       

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

5



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##### Table of Contents



PhoneTel Technologies, Inc. and Subsidiary




Notes to Consolidated Financial Statements (Unaudited)


For the Nine and Three Months Ended September 30, 1999 and
2000


(In thousands of dollars except for installed public pay
telephone, share and per share amounts)


1.  Basis of Presentation

The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the nine
and three months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 2000. For further information,
refer to the consolidated financial statements and footnotes
thereto included in the Companys Annual Report on
Form 10-K for the year ended December 31, 1999.

Certain amounts relating to 1999 have been reclassified to
conform to the current quarter presentation. The
reclassifications have had no impact on total assets,
shareholders equity or net loss as previously reported.

2.  Debt Restructuring and Chapter 11
Bankruptcy Filing

On July 14, 1999, the Company commenced a case under
Chapter 11 of the United States Bankruptcy Code and filed
its prepackaged plan of reorganization in the United States
Bankruptcy Court for the Southern District of New York (the
Prepackaged Plan). On October 20, 1999, the
Court entered an order confirming the Companys Prepackaged
Plan, which became effective on November 17, 1999 (the
Consummation Date).

Pursuant to the terms of the Prepackaged Plan, claims of
employees, trade and other creditors of the Company, other than
holders of the Companys $125,000 aggregate principal
amount 12% Senior Notes, due 2006 (the Senior
Notes), were to be paid in full in the ordinary course,
unless otherwise agreed, with the Company retaining its rights
and defenses with respect to such claims. Holders of the Senior
Notes received 9,500,000 shares of a new issue of common stock
(Common Stock (Successor Company)) in satisfaction
of the Senior Notes and accrued interest thereon. In addition,
pursuant to the Prepackaged Plan, an unofficial committee
representing holders of a majority in principal amount of the
Senior Notes (the Unofficial Committee) appointed
four of the five members of the Board of Directors of the
Company (the New Board).

Holders of the Companys 14% Cumulative Redeemable
Convertible Preferred Stock (the 14% Preferred)
received 325,000 shares of Common Stock (Successor Company) and
warrants to purchase up to 722,200 shares of Common Stock
(Successor Company) at an exercise price of $10.50 per share
which expire three years from the date of grant (New
Warrants). Holders of existing common stock (Common
Stock (Predecessor Company)) received 175,000 shares of
Common Stock (Successor Company) and New Warrants to purchase up
to 388,900 shares of Common Stock (Successor Company). Options
and warrants to purchase Common Stock (Predecessor Company) were
extinguished pursuant to the Prepackaged Plan.

The equity interests issued in connection with the Prepackaged
Plan are subject to dilution by certain other equity issuances,
including the issuance of 205,000 shares of Common Stock
(Successor Company) to certain financial advisors for services
rendered in connection with the reorganization, and issuances
resulting from the exercise of certain options to purchase up to
5% of Common Stock (Successor Company) which have or will be
granted by the New Board pursuant to the terms of a management
incentive plan and other awards included as part of the
Prepackaged Plan.

6



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##### Table of Contents



3.  Fresh Start Reporting

Upon emergence from its Chapter 11 proceedings, the Company
adopted fresh start reporting pursuant to the provisions of
AICPA Statement of Position 90-7 (SOP 90-7). The
Company has recorded the effects of fresh start reporting as of
November 17, 1999, the Consummation Date of the
Companys Prepackaged Plan. In accordance with SOP 90-7,
assets and liabilities have been restated as of
November 17, 1999 to reflect the reorganization value of
the Company, which approximates their fair value at the
Consummation Date. In addition, the accumulated deficit of the
Company through the Consummation Date has been eliminated and
the debt and capital structure of the Company has been recast
pursuant to the provisions of the Prepackaged Plan. Thus, the
balance sheets as of December 31, 1999 and
September 30, 2000 reflect a new reporting entity (the
Successor Company) and are not comparable to periods
prior to November 17, 1999 (the Predecessor
Company). Furthermore, the accompanying consolidated
statements of operations and cash flows of the Predecessor
Company report operations prior to the Consummation Date and the
effect of adopting fresh start reporting and are thus not
comparable with the results of operations and cash flows of the
Successor Company.

4.  Accounts Receivable and Dial-Around
Compensation

A dial-around call occurs when a non-coin call is placed from
the Companys public pay telephone which utilizes any
carrier other than the presubscribed carrier (the Companys
dedicated provider of long distance and operator assisted
calls). The Company receives revenues from such carriers and
records those revenues from dial-around compensation based upon
the per-phone or per-call rate in effect under orders issued by
the Federal Communications Commission (the FCC).
Retroactive changes in the dial-around compensation rate
pursuant to orders issued by the FCC are accounted for as
changes in accounting estimates and are recorded as adjustments
to revenues at the beginning of the most recent period prior to
the announcement of such changes by the FCC. At
December 31, 1999 and September 30, 2000, accounts
receivable included $10,636 and $11,082, respectively, arising
from dial-around compensation. Such receivables are typically
received on a quarterly basis at the beginning of the second
quarter following the quarter in which such revenues are
recognized. For the nine months ended September 30, 1999
and 2000, revenues from non-coin telecommunication services
included $11,524 and $10,448, respectively, for dial-around
compensation.

Effective November 6, 1996, pursuant to the rules and
regulations promulgated by the FCC under section 276 of the
Telecommunications Act (Section 276), the FCC
issued an order to achieve fair compensation for dial-around
calls placed from pay telephones through deregulation and
competition (the 1996 Payphone Order). Among other things,
the 1996 Payphone Order prescribed compensation payable to the
payphone providers by certain interexchange carriers
(IXCs) for dial-around calls placed from payphones.
To facilitate per-call compensation, the FCC required the
payphone providers to transmit payphone specific coding digits
that would identify each call as originating from a payphone
(Flex Ani) and required local exchange carriers
(LECs) to make such coding available to the payphone
providers as a transmit item included in the local access line
service. The 1996 Payphone Order set an initial monthly rate of
$45.85 per pay telephone for the first year after its
implementation (the Interim Period), an increase from
the monthly per pay telephone rate of $6.00 in periods prior to
its implementation. Thereafter, the FCC set dial-around
compensation on a per-call basis at the assumed deregulated coin
rate of $0.35. The Interim Period monthly rate was arrived at by
the product of the assumed deregulated coin rate ($0.35) and the
then monthly average compensable dial-around calls per payphone.
A finding from the record established at the time that the
monthly average compensable calls was 131.

The 1996 Payphone Order was appealed by various parties,
including the IXCs, to the United States Court of Appeals for
the District of Columbia Circuit (the Appeals
Court). Among other items, the Appeals Court found that
the FCC erred in using a market-based method for calculating the
amount of dial-around compensation and further determined that
the method for determining the allocation of payment among IXCs
was erroneous. In July 1997, the Appeals Court vacated that portion of
the 1996 Payphone Order which prescribed the amount and method of
allocating the payment of dial-around compensation among the IXCs and remanded the 1996 Payphone
Order to the FCC for further consideration.

In response to the remand by the Appeals Court, in
October 1997 the FCC issued a new order implementing
Section 276 (the 1997 Payphone Order). The FCC
used a market-based method to determine a per- call compensation
rate, reduced it by certain costs attributable to a coin call
which it did not believe applied to a

7



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##### Table of Contents



dial-around call, and adjusted the per-call rate from $0.35 to
$0.284 (the Default Rate). The FCC concluded that
the Default Rate should be applied prospectively in determining
compensation beginning October 7, 1997 and reiterated that payphone
providers were entitled to compensation for every call pursuant
to the provisions of Section 276; however, the FCC deferred
for later decision the amount and method of allocating the payment among
the IXCs during the Interim Period.

The 1997 Payphone Order was subsequently appealed by various
parties. In May 1998, the Appeals Court again remanded the
per-call compensation rate to the FCC for further explanation,
without vacating the Default Rate, indicating that the FCC had
failed to adequately explain its derivation of the Default Rate.

In response to the remand of the 1997 Payphone Order, on
February 4, 1999 the FCC issued its Third Report and Order,
and Order on Reconsideration of the Second Report and Order (the
1999 Payphone Order) wherein it adjusted the Default
Rate to $0.238, (the Adjusted Default Rate)
retroactive to October 7, 1997. In adjusting the rate, the
FCC changed from the market-based method used in the 1996 and
1997 Payphone Orders to a cost-based method citing technological
impediments that it viewed as inhibiting the marketplace and the
unreliability of certain assumptions underlying the market-based
method as a basis for altering its analysis. In setting the
Adjusted Default Rate, the FCC incorporated its prior treatment
of certain payphone costs and examined new estimates of payphone
costs submitted as part of the proceeding. Pursuant to the 1999
Payphone Order, the $0.24 amount ($0.238 plus $0.002 for amounts
charged by LECs for providing Flex Ani) will serve as the
Adjusted Default Rate for coinless payphone calls through
January 31, 2002, at which time, parties may petition the
FCC regarding the default amount, issues related to
technological advances, and the expected resultant market
changes.

The 1999 Payphone Order deferred a final ruling on the Interim Period treatment of dial-around compensation to a later, as yet
unreleased order; however, it appears from the 1999 Payphone
Order that the Adjusted Default Rate will be applied in the Interim
Period. The FCC further ruled that a true-up will be
made for all payments or credits, together with applicable
interest due and owing among the IXCs and the payphone service
providers for the payment period November 7, 1996 through
the effective date of the Adjusted Default Rate. In the fourth
quarter of 1998, the Company recorded an adjustment to reduce
revenues previously recognized for the period from
November 7, 1996 to September 30, 1998 due to the
decrease in the Adjusted Default Rate. This adjustment
of $6,075 included $2,342 recorded as revenue in the first nine
months of 1998 and $3,733 recorded as revenue in prior years.

The 1999 Payphone Order had been appealed by various parties.
The Appeals Court heard oral arguments on February 2, 2000
and issued its ruling on the matter in June 2000 in which
it denied all petitions for review of the per-call compensation
rate and kept in place the Adjusted Default Rate mandated by the
1999 Payphone Order. Based upon the information available, the
Company believes that the minimum amount it is entitled to
receive as fair compensation under Section 276 for prior
periods is $31.18 per pay telephone per month based on $0.238
per call and 131 calls per pay telephone per month.

5.  Long-Term Debt

Long-term debt at December 31, 1999 and September 30,
2000 consisted of the following:

|                                                                                                                                                    |  |             |        |              |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                                                                                                                                                    |  | December 31 |        | September 30
|                                                                                                                                                    |  | 1999        |        | 2000        
|                                                                                                                                                    |  |             |        |             
|Exit Financing Agreement, due January 1, 2002 with
        interest payable monthly at 3% above the base rate (12.5% at
        September 30, 2000) |  | $           | 48,799 |              |  | $ | 51,204 |  
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Note Payable-Warrant Put Obligation                                                                                                                 |  |             | 1,010  |              |  |   | 1,049  |  
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Other notes payable                                                                                                                                 |  |             | 5      |              |  |   | 37     |  
|                                                                                                                                                    |  |             |        |              |  |   |        |  
|                                                                                                                                                    |  |             | 49,814 |              |  |   | 52,290 |  
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Less current maturities                                                                                                                             |  |             | (1,172 | )            |  |   | (1,286 | )
|                                                                                                                                                    |  |             |        |              |  |   |        |  
|                                                                                                                                                    |  | $           | 48,642 |              |  | $ | 51,004 |  
|                                                                                                                                                    |  |             |        |              |  |   |        |  

8



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##### Table of Contents



Post Reorganization Loan Agreement

On November 17, 1999, the Company executed an agreement
with certain financial institutions and Foothill Capital
Corporation (Foothill), as lender and agent for the
financial institutions (together the Lenders), for
post reorganization financing (Exit Financing
Agreement). The Exit Financing Agreement provides for a
$46,000 revolving credit commitment (the Maximum
Amount), excluding interest and fees capitalized as part
of the principal balance. The Exit Financing Agreement is
secured by substantially all of the assets of the Company and
was originally scheduled to mature on November 16, 2001.

The Exit Financing Agreement provides for various fees
aggregating $9,440 over the term of the loan, including a $1,150
deferred line fee, which was originally payable on November 17, 2000,
together with interest thereon, and a $10 servicing fee which is
payable each month. At the option of the Company, payment of
other fees, together with interest due thereon, may be deferred
and added to the then outstanding principal balance. Fees due
pursuant to the Exit Financing Agreement are subject to certain
reductions for early prepayment, provided that the Company is
not in default under the Exit Financing Agreement.

The Exit Financing Agreement provides for interest on the
outstanding principal balance at 3% above the base rate (as
defined in the Exit Financing Agreement), with interest on the
Maximum Amount payable monthly in arrears. The Exit Financing
Agreement, as amended on December 31, 1999, includes
covenants, which among other things, require the Company to
maintain ratios as to fixed charges, debt to earnings, current
ratio, interest coverage and minimum levels of earnings,
payphones and operating cash (all as defined in the Exit
Financing Agreement). Other covenants limit the incurrence of
long-term debt, the level of capital expenditures, the payment
of dividends, and the disposal of a substantial portion of the
Companys assets.

The Company and its Lenders executed an amendment to the Exit Financing Agreement
(the Second Amendment) on November 13,
2000. The Second Amendment provides, among other things, for the
deferral of the payment due for the deferred line fee in the
approximate amount of $1.3 million until January 1,
2001 and an extension of the term of the Exit Financing
Agreement until January 1, 2002. The Lenders have also
expressed their intent to approve the proposed sale of
approximately 1,100 pay telephones with a corresponding decrease
in the number of pay telephones the Company is required to
maintain as collateral. The proceeds from the proposed sale of
pay telephones are to be applied to reduce loan principal and
provide credit availability to the Company for capital
expenditures applicable to the expansion of the Companys
pay telephone base.

Warrant Put Obligation and Note Payable

In 1996, the Company issued warrants to purchase shares of
Series A Special Convertible Preferred Stock (the
Series A Warrants) to two former lenders at an
exercise price of $0.20 per share. Each share of Series A
Special Convertible Preferred Stock was convertible into 20
shares of Common Stock (Predecessor Company). On
October 13, 1998, the Company received notice from a former
lender which purported to exercise its put right, as defined in
the agreement for the Series A Warrants (the Warrant
Agreement), with respect to 89,912 Series A Warrants
and 124,300 Common Shares. The Warrant Agreement specified that
the Company was to redeem Series A Warrants that were
convertible into shares of Common Stock (or shares of Common
Stock obtained from such conversion) at a value determined by a
formula, subject to certain limitations, set forth therein. In
1998, the Company recorded an accrued liability and a charge to
additional paid-in-capital of $1,452 relating to this purported
put exercise.

On October 18, 1999, in connection with the Prepackaged
Plan, the Company reached an agreement with the former lender to
settle the claim for $1,000 in the form of a note which is
payable, subject to certain reductions for early payment,
together with deferred interest at 5% per annum, on
November 17, 2004. In addition, the former lender agreed to
forfeit its shares of Common Stock (Successor Company) and New
Warrants which were issued pursuant to the Prepackaged Plan and
immediately canceled. The adjustment to reduce the amount of the
Warrant Agreement put obligation to $1,000, to record a note
payable for this obligation and to credit additional paid-in
capital was recorded by the Company as of November 17, 1999.

9



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##### Table of Contents



6.  14% Cumulative Convertible Preferred Stock
Mandatorily Redeemable (Predecessor Company)

At September 30, 1999, the Predecessor Company had 107,918
shares of 14% Preferred issued and outstanding and cumulative
dividends issuable of 67,843 shares (valued at $1,131). The
Company recorded dividends, declared and undeclared, at their
fair market value and recognized the difference between the
carrying value of the 14% Preferred and the mandatory redemption
amount ($10,546 at September 30, 1999) through monthly
accretions using the interest method. For the nine months ended
September 30, 1999, the carrying value of the 14% Preferred
was increased by $1,197 through accretions. Each share of 14%
Preferred was entitled to receive a quarterly dividend of 0.035
shares of 14% Preferred. Each share of 14% Preferred was
convertible into 10 shares of Common Stock (Predecessor Company)
and was subject to mandatory redemption on June 30, 2000.

As discussed in Note 2, the Successor Company issued 325,000
shares of Common Stock and 722,200 New Warrants in exchange for
the 14% Preferred on November 17, 1999.

7.  Shareholders Equity

On March 9, 2000, pursuant to the 1999 Management Incentive
Plan (the 1999 Plan), the Company granted options to
purchase 193,000 shares of Common Stock (Successor Company) to
certain management employees at an exercise price of $1.56 per
share. On April 1, 2000, options to purchase an additional
50,000 shares at an exercise price of $1.16 per share were
granted to an officer of the Company pursuant to the 1999 Plan.
No compensation expense was recorded because the exercise prices
of these options were equal to the market value of the
Companys shares on the respective dates of grant. Such
options vest equally over a three-year period beginning one year
from the date of grant and expire after five years.

On May 23, 2000, the Company granted options to purchase
75,000 shares of Common Stock (Successor Company) to an officer
of the Company pursuant to an employment agreement. Such options
vest immediately, have an exercise price of $0.01 per share, and
expire three years after the date of grant. The Company recorded
$28 of compensation expense under the intrinsic value method of
accounting relating to these options.

Under the Amended and Restated Articles of Incorporation
confirmed as part of the Companys Prepackaged Plan, the
total authorized capital stock of the Successor Company was
15,000,000 shares of Common Stock. On July 18, 2000, the
shareholders approved an amendment to the Amended and Restated
Articles of Incorporation to increase the total authorized
capital stock of the Successor Company to 45,000,000 shares of
Common Stock.

8.  Termination of Merger with Davel
Communications Group, Inc.

On June 11, 1998, PhoneTel Technologies, Inc.,
(PhoneTel) entered into an Agreement and Plan of
Merger and Reorganization (the Davel Merger
Agreement) with Davel Communications Group, Inc., a
publicly held, independent pay telephone provider
(Davel). On July 5, 1998, Peoples Telephone
Company, Inc., a publicly held, independent pay telephone
provider (Peoples), also entered into a merger
agreement (the Peoples Merger Agreement) with Davel.

On September 29, 1998, PhoneTel received a letter from
Davel purporting to terminate the Davel Merger Agreement.
Thereafter, a complaint against PhoneTel was filed in the Court
of Chancery of New Castle County, Delaware by Davel, which was
subsequently amended, alleging, among other things, equitable
fraud and breach of contract relating to the Davel Merger
Agreement. On October 27, 1998, PhoneTel filed its answer
to the amended complaint denying the substantive allegations
contained therein and filed a counterclaim against Davel for
breach of contract. At the same time, PhoneTel filed a third
party claim against Peoples for tortuous interference with
contract alleging that Peoples induced Davel to not comply with
the terms of the Davel Merger Agreement.

PhoneTel is seeking specific performance from Davel, which would
require Davel to comply with the terms of the Davel Merger
Agreement or, alternatively, for compensatory damages and costs
of an unspecified amount. PhoneTel is also seeking injunctive
relief enjoining Peoples from further tortuous interference with
contract and for compensatory damages and costs of an
unspecified amount. Management believes the claims against
PhoneTel are without merit and is pursuing its claims against
Davel and Peoples.

10



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##### Table of Contents



9.  Contingencies

The Company, in the course of its normal operations, is subject
to regulatory matters, disputes, claims and lawsuits. In
managements opinion, all such outstanding matters of which
the Company has knowledge, have been reflected in the financial
statements or will not have a material adverse effect on the
Companys financial position, results of operations or cash
flows.






|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
        Condition and Results of Operations

(In thousands of dollars except for public pay telephones,
per call, share and per share amounts)


Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995

Statements, other than historical facts, contained in this
Form 10-Q are forward looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended, and section 21E of the Securities Exchange Act of
1934, as amended. Although the Company believes that its forward
looking statements are based on reasonable assumptions, it
cautions that such statements are subject to a wide range of
risks and uncertainties with respect to the Companys
operations in fiscal 2000 as well as over the long term such as,
without limitation: (i) a downturn in the public pay
telephone industry which is dependent on consumer spending and
subject to the impact of domestic economic conditions, changes
in technology, and regulations and policies regarding the
telecommunications industry; (ii) the ability of the
Company to accomplish its strategic objectives with respect to
external expansion through selective acquisitions and internal
expansion; and (iii) changes in the dial-around
compensation rate and the coin drop rate. Any or all of these
risks and uncertainties could cause actual results to differ
materially from those reflected in the forward looking
statements. These forward looking statements are based on
certain assumptions and analyses made by the Company in light of
its experience and its perception of historical trends, current
conditions, expected future developments and other factors it
believes are appropriate in the circumstances. In addition, such
statements are subject to a number of assumptions, risks and
uncertainties, including, without limitation, the risks and
uncertainties identified in this report, general economics and
business conditions, the business opportunities (or lack
thereof) that may be presented to and pursued by the Company,
changes in laws or regulations and other factors, many of which
are beyond the control of the Company. Investors and prospective
investors are cautioned that any such statements are not
guarantees of future performance and that actual results or
developments may differ materially from those projected in the
forward looking statements.

Overview

At the end of 1998 and during 1999, the Company began implementing
several profit improvement initiatives. The Company has been
able to obtain lower local access line charges through
negotiations and promotional programs with certain of its
incumbent LECs or by utilizing competitive LECs
(CLECs). The Company entered into agreements with
new operator service providers (OSPs) to obtain an
improvement in rates for operator service revenues and long
distance line charges. In 1999, the Company reduced the number
of field operations personnel, abandoned location contracts
relating to approximately 2,000 unprofitable phones and closed
three district operations facilities resulting in reduced costs.
The Company also reduced the number of administrative and sales
personnel and eliminated or reduced non-essential expenses. In
2000, the Company has continued its process improvement programs and its
cost reduction measures and
has begun to initiate new programs to generate revenues from
calling cards and other prepaid products. In the third quarter
of 2000, the Company abandoned location contracts relating to
approximately 1,500 additional unprofitable phones, closed two
district operations facilities and made additional reductions in
field operations and administrative personnel. The Company
believes these measures have and will continue to have a
positive impact on its results of operations.

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Debt Restructuring and Chapter 11 Bankruptcy Filing

On July 14, 1999, the Company commenced a case under
Chapter 11 of the United States Bankruptcy Code and filed
its prepackaged plan of reorganization in the United States
Bankruptcy Court for the Southern District of New York. On
October 20, 1999, the Court entered an order confirming the
Companys Prepackaged Plan, which became effective on
November 17, 1999.

Pursuant to the terms of the Prepackaged Plan, claims of
employees, trade and other creditors of the Company, other than
holders of the Companys $125,000 aggregate principal
amount 12% Senior Notes were to be paid in full in the ordinary
course, unless otherwise agreed, with the Company retaining its
rights and defenses with respect to such claims. Holders of the
Senior Notes received 9,500,000 shares of a new issue of common
stock in satisfaction of the Companys obligations under
the Senior Notes. In addition, the Unofficial Committee
representing holders of a majority in principal amount of the
Senior Notes appointed four of the five members of the Board of
Directors of the Company.

Holders of the Companys 14% Cumulative Redeemable
Convertible Preferred Stock received 325,000 shares of Common
Stock (Successor Company) and New Warrants to purchase up to
722,200 shares of Common Stock (Successor Company) at an
exercise price of $10.50 per share which expire three years from
the date of grant. Holders of existing Common Stock received
175,000 shares of Common Stock (Successor Company) and New
Warrants to purchase up to 388,900 shares of Common Stock
(Successor Company). Options and warrants to purchase Common
Stock (Predecessor Company) were extinguished pursuant to the
Prepackaged Plan.

The equity interests issued in connection with the Prepackaged
Plan are subject to dilution by certain other equity issuances,
including the issuance of 205,000 shares of Common Stock
(Successor Company) to certain financial advisors for services
rendered in connection with the reorganization, and issuances
resulting from the exercise of certain options to purchase up to
5% of Common Stock (Successor Company) which have been or will
be granted by the New Board pursuant to the terms of a
management incentive plan and other awards included as part of
the Prepackaged Plan.

Results of Operations

Upon emergence from its Chapter 11 proceedings, the Company
adopted fresh start reporting pursuant to the provisions of
AICPA Statement of Position 90-7. The Company recorded the
effects of fresh start reporting as of November 17, 1999,
the Consummation Date of the Companys Prepackaged Plan. In
accordance with SOP 90-7, assets and liabilities have been
restated as of November 17, 1999 to reflect the
reorganization value of the Company, which approximated their
fair values at the Consummation Date. In addition, the
accumulated deficit of the Company through the Consummation Date
was eliminated and the debt and capital structure of the Company
was recast pursuant to the provisions of the Prepackaged Plan.

The Predecessor Companys financial statements (through
November 17, 1999) are not comparable to the Successor
Companys financial statements (subsequent to
November 17, 1999). (See Note 3 to the Companys
Consolidated Financial Statements.) However, for purposes of
managements discussion and analysis of results of
operations, the nine months ended September 30, 1999 is
being compared to the nine months ended September 30, 2000
since the results of operations are comparable except for the
elimination of interest expense relating to the Predecessor
Companys Senior Notes, which resulted from the
implementation of the Prepackaged Plan, and the effect on
depreciation and amortization of adopting fresh start reporting.

Nine months ended September 30, 2000 compared to nine
months ended September 30, 1999

Revenues

Revenues decreased by $9,368 or 15.5%, from $60,344 for the
first nine months of 1999 to $50,976 for the first nine months
of 2000. This decrease is primarily due to the decrease in the
average number of installed pay telephones and a decline in call
volume as discussed below. The average number of installed pay
telephones decreased from 41,091 for the nine months ended

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September 30, 1999 to 36,962 for the nine months ended
September 30, 2000, a decrease of 4,129 or 10.0%. This
decrease is principally due to the removal of approximately
2,000 pay telephones in the fourth quarter of 1999 and 1,500 pay
telephones in the third quarter of 2000 as part of the
Companys continuing program of evaluating and removing
phones that are no longer profitable. To a lesser degree, the
decrease in the number of pay telephones is due to the timing of
expiring location contracts and the competition for payphone
locations in the marketplace.

Revenues from coin calls were $31,374 and $25,613
for the first nine months of 1999 and 2000, respectively. This
decrease of $5,761, or 18.4% is due principally to the decrease
in the average number of installed pay telephones in the first
nine months of 2000 compared to the first nine months of 1999.
In addition, long distance and local call volumes relating to
coin calls have been adversely affected by the growth of
wireless communication services, which serves as an increasingly
competitive alternative to payphone usage. To a lesser extent,
coin revenue has declined due to the use of prepaid calling
cards and other types of dial-around calls.

Revenues from non-coin telecommunication services
of $24,972 were $3,794 or 13.2% less than the $28,766 of
revenues reported in the first nine months of 1999. Of this
decrease, long distance revenues from operator service providers
declined by $2,718 or 15.8%. This decrease is principally a
result of the reduction in the average number of pay telephones
and the reduction in operator service revenues caused by the
continuing aggressive dial-around advertising by long distance
carriers such as AT&T and MCI Worldcom. Long distance
revenues from operator service providers have also been
adversely affected by the growth in wireless communications. In
addition, revenues from dial-around compensation decreased by
$1,076, from $11,524 in the first nine months of 1999 to $10,448
in the first nine months of 2000, due to the reduction in the
average number of pay telephones in the first nine months of
2000.

Effective November 6, 1996, pursuant to the
rules and regulations promulgated by the FCC under section 276
of the Telecommunications Act, the FCC issued an order to
achieve fair compensation for dial-around calls placed from pay
telephones through deregulation and competition (the 1996
Payphone Order). Among other things, the 1996 Payphone
Order prescribed compensation payable to the payphone providers
by certain interexchange carriers for dial-around calls placed
from payphones. To facilitate per-call compensation, the FCC
required the payphone providers to transmit payphone specific
coding digits that would identify each call as originating from
a payphone (Flex Ani) and required local exchange
carriers to make such coding available to the payphone providers
as a transmit item included in the local access line service.
The 1996 Payphone Order set an initial monthly rate of $45.85
per pay telephone for the first year after its implementation
(the Interim Period), an increase from the monthly per
pay telephone rate of $6.00 in periods prior to its
implementation. Thereafter, the FCC set dial-around compensation
on a per-call basis, at the assumed deregulated coin rate of
$0.35. The Interim Period monthly rate was arrived at by the
product of the assumed deregulated coin rate ($0.35) and the
then monthly average compensable dial-around calls per payphone.
A finding from the record established at the time that the
monthly average compensable calls was 131.

The 1996 Payphone Order was appealed by various
parties, including the IXCs, to the United States Court of
Appeals for the District of Columbia Circuit. Among other items,
the Appeals Court found that the FCC erred in using a
market-based method for calculating the amount of dial-around
compensation and further determined that the method for
determining the allocation of payment among IXCs was erroneous.
In July 1997, the Appeals Court vacated that portion of the 1996
Payphone Order which prescribed the amount and method of allocating
the payment of dial-around compensation among the IXCs and remanded the 1996 Payphone Order to the FCC
for further consideration.

In response to the remand by the Appeals Court,
in October 1997 the FCC issued a new order implementing
Section 276 (the 1997 Payphone Order). The FCC
used a market-based method to determine a per-call compensation
rate, reduced it by certain costs attributable to a coin call
which it did not believe applied to a dial-around call, and
adjusted the per-call rate from $0.35 to $0.284 (the
Default Rate). The FCC concluded that the Default
Rate should be applied prospectively in determining compensation
beginning October 7, 1997 and reiterated that payphone providers
were entitled to compensation for every call pursuant to the
provisions of Section 276; however, the FCC deferred for
later decision the amount and method of allocating the payment among the
IXCs during the Interim Period.

The 1997 Payphone Order was subsequently appealed
by various parties. In May 1998, the Appeals Court again
remanded the per-call compensation rate to the FCC for further
explanation, without vacating the Default Rate, indicating that
the FCC had failed to adequately explain its derivation of the
Default Rate.

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In response to the remand of the 1997 Payphone Order, on
February 4, 1999 the FCC issued its Third Report and Order,
and Order on Reconsideration of the Second Report and Order (the
1999 Payphone Order) wherein it adjusted the Default
Rate to $0.238, (the Adjusted Default Rate)
retroactive to October 7, 1997. In adjusting the rate, the
FCC changed from the market-based method used in the 1996 and
1997 Payphone Orders to a cost-based method citing technological
impediments that it viewed as inhibiting the marketplace and the
unreliability of certain assumptions underlying the market-based
method as a basis for altering its analysis. In setting the
Adjusted Default Rate, the FCC incorporated its prior treatment
of certain payphone costs and examined new estimates of payphone
costs submitted as part of the proceeding. Pursuant to the 1999
Payphone Order, the $0.24 amount ($0.238 plus $0.002 for amounts
charged by LECs for providing Flex Ani) will serve as the
Adjusted Default Rate for coinless payphone calls through
January 31, 2002, at which time, parties may petition the
FCC regarding the default amount, issues related to
technological advances, and the expected resultant market
changes.

The 1999 Payphone Order deferred a final ruling on the Interim Period treatment of dial-around compensation to a later, as yet
unreleased order; however, it appears from the 1999 Payphone
Order that the Adjusted Default Rate will be applied in the Interim
Period. The FCC further ruled that a true-up will be
made for all payments or credits, together with applicable
interest due and owing among the IXCs and the payphone service
providers for the payment period November 7, 1996 through
the effective date of the Adjusted Default Rate. In the fourth
quarter of 1998, the Company recorded an adjustment to reduce
revenues previously recognized for the period from
November 7, 1996 to September 30, 1998 due to the
decrease in the Adjusted Default Rate. This adjustment
of $6,075 included $2,342 recorded as revenue in the first nine
months of 1998 and $3,733 recorded as revenue in prior years.

The 1999 Payphone Order had been appealed by various parties.
The Appeals Court heard oral arguments on February 2, 2000
and issued its ruling on the matter in June 2000 in which
it denied all petitions for review of the per-call compensation
rate and kept in place the Adjusted Default Rate mandated by the
1999 Payphone Order. Based upon the information available, the
Company believes that the minimum amount it is entitled to
receive as fair compensation under Section 276 for prior
periods is $31.18 per pay telephone per month based on $0.238
per call and 131 calls per pay telephone per month.

Other revenues increased $187 from $204 for the nine months
ended September 30, 1999 to $391 for the nine months ended
September 30, 2000. This increase was primarily the result
of the amortization of a deferred operator service bonus
received in January 2000.

Operating Expenses.

Total operating expenses decreased $14,201, or 18.8%, from
$75,365 for the nine months ended September 30, 1999 to
$61,164 for the nine months ended September 30, 2000. The
decrease was due to a reduction in substantially all operating
expense categories, due in part to the decrease in the average
number of installed pay telephones and a corresponding reduction
in field operations personnel in the first nine months of 2000
compared to the first nine months of 1999. Operating expenses
also decreased as a result of the adoption of fresh start
reporting in November 1999 which resulted in a decrease in
depreciation and amortization expense.

Line and transmission charges of $15,757 in the first nine
months of 1999 and $12,475 in the first nine months of 2000
declined by $3,282, or 20.8%. Line and transmission charges
represented 26.1% of total revenues for the nine months ended
September 30, 1999 and 24.5% of total revenues for the nine
months ended September 30, 2000, a decrease of 1.6%. The
dollar and percentage decreases were due to the decrease in the
average number of installed pay telephones, the decrease in
local and long distance line charges that are based upon call
volumes and duration and lower access charges resulting from the
use of CLECs. In addition, in the nine months ended
September 30, 2000, the Company recovered approximately
$1,733 of prior years sales and excise taxes charged by
LECs compared to $1,025 of reductions in line and transmission
charges in 1999 relating to promotional allowances from LECs and
cost-based rate reductions ordered by state regulators.

Telecommunication and validation fees (consisting primarily of
processing costs relating to operator services) decreased
$1,692, or 23.3%, from $7,256 to $5,564 for the first nine
months of 1999 and 2000, respectively. The dollar decrease was
primarily the result of the decrease in operator service
revenues compared to

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the first nine months of 1999. As a percentage of total revenue,
telecommunication and validation fees decreased from 12.0% in
1999 to 10.9% in 2000 principally due to a change in the
Companys primary operator service provider
(OSP) during the first quarter of 2000. The Company
entered into an agreement with this new OSP which provides for a
reduction in the processing costs as a percentage of gross
operator service revenues.

Location commissions were $6,640 in 2000 compared to $9,951 in
the first nine months of 1999. Location commissions declined by
$3,311, or 33.3%, and represented 16.5% and 13.0% of total
revenues for the nine months ended September 30, 1999 and
2000, respectively. The dollar and percentage decreases are due
to the reduction in revenues in the first nine months of 2000
compared to 1999 and the use of higher commission accrual rates
in the first nine months of 1999 to recognize the increasing
commission rates resulting from location contracts with new and
existing location providers.

Field operations (consisting principally of field operations
personnel and vehicle costs, rents and utilities of the local
service facilities and repair and maintenance of the installed
public pay telephones) decreased $2,409, or 15.3%, from $15,706
for the nine months ended September 30, 1999 to $13,297 for
the nine months ended September 30, 2000. Field operations
represented 26.0% of total revenues for the nine months ended
September 30, 1999 and 26.1% of total revenues for the nine
months ended September 30, 2000. The dollar decrease in the
first nine months of 2000 was primarily due to lower aggregate
salaries and wages resulting from the reduction in personnel and
a decrease in sales and other taxes based on revenues during the
first nine months of 2000. Included in the decrease in sales and
other taxes is $706 for decreases in sales tax assessments
previously recorded as expense and a reduction in universal
telephone service fees (USF fees). As a result of a
court ruling in the first quarter of 2000, USF fees can only be
assessed on interstate coin revenues which reduces the amount of
fees the Company is required to pay.

Selling, general and administrative (SG&A)
expenses declined from $7,670 for the first nine months 1999 to
$7,074 for the nine months ended September 30, 2000, a decrease
of $596 or 7.8%. SG&A expenses represented 12.7% of total
revenues for the nine months ended September 30, 1999 and
13.9% of total revenues for the nine months ended
September 30, 2000. The dollar decrease was primarily due
to a decrease in telephone expense and other cost reductions
offset in part by an increase in professional fees. In the first
nine months of 2000, there was also an increase in the number of
sales personnel offset by a larger reduction in the number of
administrative personnel, which resulted in a net decrease in
the amount of personnel related expenses in the nine months
ended September 30, 2000. The increase in SG&A expenses
as a percentage of total revenues was due to the decrease in
revenues in the nine months ended September 30, 2000.

Depreciation and amortization decreased in 2000 primarily due to
the adoption of fresh start reporting as of November 17,
1999, the Consummation Date of the Companys Prepackaged
Plan. Under fresh start reporting, the carrying values of
property and equipment and of intangible assets were adjusted to
equal the fair value of such assets at that date. The new cost
basis of these assets is being depreciated or amortized over
their remaining useful lives. Depreciation and amortization
decreased $4,628, or 26.1%, from $17,738 for the nine months
ended September 30, 1999 to $13,110 for the nine months
ended September 30, 2000. Depreciation and amortization
represented 29.4% of total revenues for the nine months ended
September 30, 1999 and 25.7% of total revenues for the nine
months ended September 30, 2000.

Other unusual charges and contractual settlements increased by
$1,717 from $1,287 in the nine months ended September 30,
1999 to $3,004 in the nine months ended September 30, 2000.
Other unusual charges and contractual settlements includes
$2,880 for the write-off of the unamortized cost of location
contracts in the third quarter of 2000 relating to the removal
of approximately 1,500 unprofitable pay telephones and other
non-routine professional fees and costs. In the first nine
months of 1999, other unusual charges and contractual
settlements consisted primarily of legal and professional fees
relating to non-routine litigation and the Companys
Prepackaged Plan.

Other Income (Expense)

Other income (expense) is comprised principally of interest
expense incurred on debt and interest income. Total interest
expense decreased by $8,456, or 50.7%, from $16,685 for the nine
months ended September 30, 1999

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to $8,229 for the nine months ended September 30, 2000.
Interest expense represented 27.7% of total revenues for the
nine months ended September 30, 1999 and 16.1% of total
revenues for the nine months ended September 30, 2000, a
decrease of 11.6%. The dollar and percentage decreases resulted
from the conversion of the $125,000 aggregate principal amount
12% Senior Notes to Common Stock (Successor Company) as the
result of the consummation of the Companys Prepackaged
Plan. Excluding $11,844 of interest expense relating to the
Senior Notes in the first nine months of 1999, interest expense
increased by $3,388 due to an increase in the amount of the
Companys secured debt and an increase in the effective
rate of interest arising principally from the amortization of
higher fees relating to the Companys Exit Financing
Agreement.

EBITDA from Recurring Operations

EBITDA from recurring operations (income before interest income,
interest expense, taxes, depreciation and amortization, and
other unusual charges and contractual settlements) increased
$1,922, or 48.0%, from $4,004 for the nine months ended
September 30, 1999 to $5,926 for the nine months ended
September 30, 2000. EBITDA from recurring operations represented
6.6% of total revenues for the nine months ended
September 30, 1999 and 11.6% of total revenues for the nine
months ended September 30, 2000, an increase of 5.0%. The
dollar and percentage increases are primarily due to the
decreases in coin and non-coin telecommunication revenues
(including dial-around compensation) offset by larger decreases
in operating costs. EBITDA from recurring operations is not
intended to represent an alternative to operating income (as
defined in accordance with generally accepted accounting
principles) as an indicator of the Companys operating
performance, or as an alternative to cash flows from operating
activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity. The Company
believes that EBITDA from recurring operations is a meaningful
measure of performance because it is commonly used in the public
pay telephone industry to analyze comparable public pay
telephone companies on the basis of operating performance,
leverage and liquidity. See Liquidity and Capital
Resources for a discussion of cash flows from operating,
investing and financing activities.

Liquidity and Capital Resources

Cash Flows from Operating Activities

The Company had working capital of $2,826 at September 30,
2000 compared to $3,131 at December 31, 1999, a decrease of
$305. This decrease was due primarily to a decrease in cash
resulting from the use of cash in investment activities during
the first nine months of 2000. Net cash provided by (used in)
operating activities during the nine months ended
September 30, 1999 and 2000 was $(1,856) and $940,
respectively. Net cash provided by operating activities resulted
mainly from the net loss for the nine months ended
September 30, 2000 offset by non-cash charges for
depreciation and amortization, non-cash interest expense, and
the write-off of location contracts relating to the removal of
approximately 1,500 unprofitable pay telephones.

Cash Flows from Investing Activities

Cash used in investing activities during the nine months ended
September 30, 1999 and 2000 was $1,446 and $1,552, respectively.
In the first nine months of 1999 and 2000, cash used in
investing activities consisted mainly of purchases of
telephones, other property and equipment and expenditures for
deferred commissions and signing bonuses relating to pay
telephone location contracts. Deferred commissions and signing
bonuses increased over the prior year due to improved sales
which resulted in only a slight decrease in the number of pay
telephones during the first nine months of 2000 following the
removal of 1,500 unprofitable pay telephones in the third
quarter of 2000.

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Cash Flows from Financing Activities

Cash flows provided by (used in) financing activities during the
nine months ended September 30, 1999 and 2000 were $3,861
and $(185), respectively, which in 1999 consisted primarily of
additional borrowing under the Companys credit agreements
offset by expenditures for professional fees for the
restructuring of the Companys Senior Notes. Cash flows
used in financing activities during the nine months ended
September 30, 2000 consisted primarily of expenditures for
professional fees for the proposed refinancing of the
Companys Exit Financing Agreement.

Post Reorganization Loan Agreement

The Company executed an agreement with its Lenders for post
reorganization financing on November 17, 1999. The Exit
Financing Agreement provides for a $46,000 revolving credit
commitment (the Maximum Amount), excluding interest
and fees capitalized as part of the principal balance. The Exit
Financing Agreement is secured by substantially all of the
assets of the Company and was originally scheduled to mature on November 16, 2001.

The Exit Financing Agreement provides for various fees
aggregating $9,440 over the term of the loan, including a $1,150
deferred line fee, which was originally payable on November 17, 2000,
together with interest thereon, and a $10 servicing fee which is
payable each month. At the option of the Company, payment of
other fees, together with interest due thereon, may be deferred
and added to the then outstanding principal balance. Fees due
pursuant to the Exit Financing Agreement are subject to certain
reductions for early prepayment, provided that the Company is
not in default on the Exit Financing Agreement.

The Exit Financing Agreement provides for interest on the
outstanding principal balance at 3% above the base rate (as
defined in the Exit Financing Agreement), with interest on the
Maximum Amount payable monthly in arrears. The Exit Financing
Agreement, as amended on December 31, 1999, includes
covenants, which among other things, require the Company to
maintain ratios as to fixed charges, debt to earnings, current
ratio, interest coverage and minimum levels of earnings,
payphones and operating cash (all as defined in the Exit
Financing Agreement). Other covenants limit the incurrence of
long-term debt, the level of capital expenditures, the payment
of dividends, and the disposal of a substantial portion of the
Companys assets.

The Company and its Lenders executed an amendment to the Exit Financing Agreement
(the Second Amendment) on November 13,
2000. The Second Amendment provides, among other things, for the
deferral of the payment due for the deferred line fee in the
approximate amount of $1.3 million until January 1,
2001 and an extension of the term of the Exit Financing
Agreement until January 1, 2002. The Lenders have also
expressed their intent to approve the proposed sale of
approximately 1,100 pay telephones with a corresponding decrease
in the number of pay telephones the Company is required to
maintain as collateral. The proceeds from the proposed sale of
pay telephones are to be applied to reduce loan principal and
provide credit availability to the Company for capital
expenditures applicable to the expansion of the Companys
pay telephone base.

Warrant Put Obligation and Note PayableIn connection
with the Prepackaged Plan, the Company reached an agreement with
a former lender to settle a claim for the purported exercise of
a put right relating to warrants to purchase shares of
Series A Special Convertible Preferred Stock
(Series A Preferred). The Series A
Preferred was convertible into Common Stock (Predecessor
Company). The claim was settled for $1,000 in the form of a note
which is payable, subject to certain reductions for early
payment, together with deferred interest at 5% per annum, on
November 17, 2004. In addition, the former lender agreed to
forfeit its shares of Common Stock (Successor Company) and New
Warrants which were issued pursuant to the Prepackaged Plan and
immediately canceled.

Liquidity and Capital ExpendituresManagement expects its
recent profit improvement measures and the conversion of the
Companys Senior Notes to Common Stock (Successor Company),
including the elimination of required interest payments, to have
a beneficial impact on cash flows provided by operating
activities. In addition,

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the financial position of the Company has improved as a result
of the consummation of the Prepackaged Plan. The Company has
been seeking financing to replace the Exit Financing Agreement,
to improve the liquidity of the Company and to reduce the cost
of debt service, but has not yet been able to obtain alternate
financing arrangements. However, the Company has been able to
obtain financial support from its Lenders and has executed
an amendment to the Exit Financing Agreement, as discussed above
and in Note 5 to the Consolidated Financial Statements. In
addition, management expects to complete the proposed sale of
approximately 1,100 pay telephones, the proceeds of which may be
used to reduce loan principal and provide credit availability
for expansion purposes. With the Companys continuing
efforts to profitably expand its payphone base and reduce costs,
and with the Companys continued support of its Lenders,
management believes the Company will be able to sustain its
operations through the next year.

For the nine months ended September 30, 2000, the Company
had capital expenditures of $857 which were financed by cash
flows from operating activities. Capital expenditures were
principally for refurbishing and replacing the Companys
pay telephones, related equipment, operating equipment and
computer hardware. The Company has no significant commitments
for capital expenditures at September 30, 2000.

Seasonality

The seasonality of the Companys historical operating
results has been affected by shifts in the geographic
concentrations of its public pay telephones resulting from
acquisitions and other changes to the Companys customer
mix. Historically, first quarter revenues and related expenses
have been lower than other quarters due to weather conditions
that affect pay telephone usage.




Item 3. Quantitive and qualitative disclosures about
market risk

In the normal course of business, the financial position of the
Company is subject to a variety of risks. In addition to the
market risk associated with movements in interest rates on the
Companys outstanding debt, the Company is subject to a
variety of other types of risk such as the collectibility of its
accounts receivable and the recoverability of the carrying
values of its long-term assets. The Companys long-term
obligations primarily consist of borrowings and deferred fees
under the Companys Exit Financing Agreement aggregating
approximately $51 million.

The Companys earnings and cash flows are subject to market
risk resulting from changes in interest rates with respect to
its borrowings under its Exit Financing Agreement. The Company
does not presently enter into any transactions involving
derivative financial instruments for risk management or other
purposes due to the stability in interest rates in recent times
and because Management does not consider the potential impact of
changes in interest rates to be material.

The Companys available cash balances are invested on a
short-term basis (generally overnight) and, accordingly, are not
subject to significant risks associated with changes in interest
rates. Substantially all of the Companys cash flows are
derived from its operations within the United States and the
Company is not subject to market risk associated with changes in
foreign exchange rates.




Part II. Other Information




Item 3. Submission of Matters to a Vote of Security
Holders

On July 18, 2000, the Company held its Annual Meeting of
Shareholders. Total shares of Common Stock eligible to vote as
of the record date were 10,188,794 and total shares voted were
9,569,927 or 93.9%. Certain papers presented at the meeting
which were not proxy cards and did not identify registered
shareholders as of the record date were not recognized as valid
ballots and, therefore, were not counted in the tally of ballots
cast.

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Cumulative voting was in effect pursuant to a shareholder notice
to the Company.

The following Proposals were voted by the Shareholders at the
Annual Meeting of Shareholders.

Election of Directors. The following nominees for
director of the Company, as listed in the proxy statement were
elected (percentages are of shares voted): Thomas M. Barnhart,
II  For 9,535,572 or 99.6%, Withheld 34,362 or 0.4%; John
D. Chichester  For 9,535,539 or 99.6%, Withheld 34,395 or
0.4%; Eugene I. Davis  For 9,534,522 or 99.6%, Withheld
35,412 or 0.4%; Peter G. Graf  For 9,516,207 or 99.4%,
Withheld 53,727 or 0.6%; and Kevin Schottlaender  For
9,535,586 or 99.6%, Withheld 34,348 or 0.4%. Mr. Donald
Winton, who was nominated from the floor during the Annual
Meeting, was not elected as a director of the Company: For 3,730
or 0.04%, Withheld 0.

The proposal to amend the Companys Articles of
Incorporation to increase the number of shares of Common Stock
the Company is authorized to issue from 15,000,000 to 45,000,000
shares was adopted by the
Shareholders: For 5,520,615 or 54.2%, Against 4,049,710 or
39.8%, and Abstain 355 or 0.0%.

The proposal to amend the Companys Articles of
Incorporation to provide the Company with authority to issue up
to 5,000,000 shares of Preferred Stock was defeated by the
Shareholders: For 1,610,239 or 15.8%, Against 4,065,501 or
39.9%, Abstain 1,623 or 0.0%, and Not Voted 3,893,317 or 38.2%.

The proposal to amend the Companys 1999 Management
Incentive Plan (the Plan) to increase the number of shares of Common Stock
available for issuance under the Plan was defeated by the
Shareholders: For 2,127,205 or 20.9%, Against 3,549,184 or
34.8%, Abstain 974 or 0.0%, and Not Voted 3,893,317 or 38.2%.




Item 6. Exhibits and Reports on Form 8-K

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|3.1  |  | Amended and Restated Articles of Incorporation of the Registrant                                                                                                                                                                                                                                                                                                                                                        
|    
|10.1 |  | Amendment Number Two to Loan and Security Agreement dated as
of November 13, 2000 by and among PhoneTel Technologies, Inc. and
Cherokee Communications, Inc. (Borrowers) and the financial
institutions that are signatories thereto and Foothill Capital
Corporation as agent (together Lenders) amending the Loan and
Security Agreement dated as of November 17, 1999, as amended, between
Borrowers and Lenders.
|    
|27   |  | Financial Data Schedule                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(b)  |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|     |  | The Company filed no reports on Form 8-K during the third
        quarter of 2000.                                                                                                                                                                                                                                                                                                                                      

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##### Table of Contents






SIGNATURES

In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.







|                  |  |                                                                                                                                                        
|----------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|                  |  | PHONETEL TECHNOLOGIES, INC.                                                                                                                            
|                 
|                 
|November 14, 2000 |  | By: /s/ John D. Chichester                                                                                                                             
|                  |  |                                                                                                                                                        
|                  |  | John D. Chichester
        President and Chief Executive Officer                                                                                       
|                 
|                 
|November 14, 2000 |  | By: /s/ Richard P. Kebert                                                                                                                              
|                  |  |                                                                                                                                                        
|                  |  | Richard P. Kebert
        Chief Financial Officer,
        Treasurer and Secretary
        (Principal Financial Officer and
        Accounting Officer)

20