**U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**
**FORM 10-Q**[X]QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934.For the Quarterly Period Ended June 30, 2003.[   ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934.For the Transition Period from __________ to __________.
**COMMISSION FILE NUMBER:  0-17893**
**TELTRONICS, INC.**(Exact name of registrant as specified in its charter)
**DELAWARE**(State or other jurisdiction of incorporation or organization)
**59-2937938**(I.R.S. Employer Identification Number)
**2150 WHITFIELD INDUSTRIAL WAYSARASOTA, FLORIDA 34243**(Address of principal executive offices, including zip code)
**941-753-5000**(Registrant'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 [  ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes [  ] No [X]

As of August 14, 2003 there were 7,354,736 shares of the Registrant's Common Stock outstanding.

**INDEX**
**PAGE****PART I.****FINANCIAL INFORMATION**     ITEM 1.FINANCIAL STATEMENTS (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2003 andDecember 31,20023-4Condensed Consolidated Statements of Operations for the three monthsand six months ended June 30, 2003 and 20025Condensed Consolidated Statements of Cash Flows for the six monthsended June 30, 2003 and 20026-7Notes to Condensed Consolidated Financial Statements8     ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS17     ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK23     ITEM 4.CONTROLS AND PROCEDURES23**PART II.****OTHER INFORMATION**     ITEM 1.LEGAL PROCEEDINGS24     ITEM 2.CHANGES IN SECURITIES24     ITEM 3.DEFAULTS UPON SENIOR SECURITIES24     ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS24     ITEM 5.OTHER INFORMATION24     ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K25**SIGNATURE**26**EXHIBIT INDEX**27
2
**PART I - FINANCIAL INFORMATION**
**ITEM 1.     FINANCIAL STATEMENTS (Unaudited)**
**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**

**ASSETS**
 June 30,2003 December 31,2002(Unaudited)**Current assets:**Cash and cash equivalents $          363,998  $          791,020 Accounts receivable, net of allowance for doubtful accounts     of $340,890 at June 30, 2003 and $399,610 at     December 31, 20026,794,698 5,155,877 Costs and estimated earnings in excess of billings on     uncompleted contracts759,758 740,650 Inventories, net5,888,513 6,187,196 Prepaid expenses and other current assets436,543427,904     Total current assets14,243,510 13,302,647  **Property and equipment, net**6,118,871 4,076,265 **Goodwill241,371 241,371 **Other intangible assets, net223,205 253,575 **Other assets263,869274,853     Total assets $     21,090,826 $     18,148,711
The accompanying notes are an integral part of these condensed consolidated financial statements.

3
**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS - Continued**

**LIABILITIES AND SHAREHOLDERS' DEFICIENCY**

 June 30,2003 December 31,2002(Unaudited)**Current liabilities:****     Current portion of long-term debt$        5,052,086 $        2,193,401      Current portion of capital lease obligations23,249 —      Accounts payable6,364,599 4,356,985      Billings in excess of costs and estimated earnings          on uncompleted contracts227,656 1,347,685      Accrued expenses and other current liabilities2,840,091 2,479,300      Deferred revenue1,484,425 1,738,201           Total current liabilities
15,992,106 12,115,572 **Long-term liabilities:**     Long-term debt, net of current portion9,922,389 8,641,785      Capital lease obligations, net of current portion100,325 —           Total long-term liabilities10,022,714 8,641,785 **Shareholders' deficiency:     Common stock, $.001 par value, 40,000,000 shares          authorized, 7,354,736 and 5,930,241 issued and          outstanding at June 30, 2003 and December 31, 2002,          respectively7,355 5,930      Non-voting common stock, $.001 par value, 5,000,000 shares          authorized, zero shares issued and outstanding— —      Preferred Series A stock, $.001 par value, 100,000 shares          authorized, 100,000 shares issued and outstanding100 100      Preferred Series B Convertible stock, $.001 par value, 25,000          shares authorized, 12,625 shares issued and outstanding13 13      Preferred Series C Convertible stock, $.001 par value, 50,000          shares authorized, 40,000 shares issued and outstanding40 40      Additional paid-in capital24,087,413 23,812,232      Deferred compensation(100,000)—      Accumulated other comprehensive loss(60,433)(72,560)     Accumulated deficit(28,858,482)(26,354,401)          Total shareholders' deficiency(4,923,994)(2,608,646)          Total liabilities and shareholders' deficiency$   21,090,826  $   18,148,711 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4
**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)**

Three Months Ended June 30,
Six Months Ended June 30,
2003200220032002**Net sales**     Product sales and installation$10,628,422  $14,629,664  $19,835,501  $26,389,529      Maintenance and service
2,340,817 2,032,128 4,714,244 3,945,281 12,969,239 16,661,792 24,549,745 30,334,810 Cost of goods sold
8,039,172 10,751,207 14,912,758 19,256,008 **Gross profit**
4,930,067 5,910,585 9,636,987 11,078,802 **Operating expenses:**     General and administrative
1,543,271 1,307,768 3,052,422 2,745,989      Sales and marketing
2,521,233 2,491,409 4,689,232 5,657,423      Research and development
1,565,027 934,042 2,689,414 2,049,413      Depreciation and amortization
323,466 338,081 647,321 687,867 5,952,997 5,071,300 11,078,389 11,140,692 Income (loss) from operations
 (1,022,930) 839,285  (1,441,402)(61,890)**Other income (expense):**     Interest
(297,916)(291,370)(596,282)(661,697)     Financing
(84,798)(118,954)(163,398)(164,552)     Litigation costs
— — — (15,500)     Other
926 (9,444)5,801 (11,806)(381,788)(419,768)(753,879)(853,555)Income (loss) before income taxes
(1,404,718)419,517 (2,195,281)(915,445)Provision for income taxes
(3,900)(7,181)(7,800)(14,072) **Net income (loss)
(1,408,618)412,336 (2,203,081)(929,517) **Dividends on Preferred Series****     B and C Convertible stock**
150,500 158,919 301,000 201,178 **Net income (loss) available to****     common shareholders**
 $ (1,559,118)$     253,417  $ (2,504,081)$ (1,130,695)**Net income (loss) per share:**     Basic
 $          (0.24) $           0.05  $          (0.38) $          (0.21)     Diluted
 $          (0.24) $           0.05  $          (0.38) $          (0.21)
The accompanying notes are an integral part of these condensed consolidated financial statements.

5
**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)**

Six Months Ended June 30,20032002**OPERATING ACTIVITIES:**     Net loss $    (2,203,081) $       (929,517)     Adjustments to reconcile net loss to net cash     provided by (used in) operating activities:          Provision for doubtful accounts106,228 102,106           Provision for slow moving inventories92,890 1,116,049           Depreciation and amortization918,736 1,056,214           Amortization of other intangible assets30,370 33,369           Amortization of deferred financing costs13,500 121,018           Fair value of Common stock issued to 401(k) plan 33,648 117,334           Gain on sale of property and equipment(75)(25,020)          Amortization of deferred compensation costs102,369 —      Changes in operating assets and liabilities:          Accounts receivable(1,745,049)(59,464)          Costs and estimated earnings in excess of billings on               uncompleted contracts(19,108)(392,340)          Inventories205,793 155,490           Prepaid expenses and other current assets22,799 (146,185)          Other assets(2,516)29,637           Accounts payable1,857,114 (868,387)          Billings in excess of costs and estimated earnings on               uncompleted contracts(1,120,029)223,122           Accrued expenses and other current liabilities326,984 163,394           Deferred revenue(253,776)105,856 Net cash flows provided by (used in) operating activities(1,633,203)802,676 **INVESTING ACTIVITIES:**     Acquisition of property and equipment(578,516)(289,145)     Proceeds from sale of property and equipment75 25,020 Net cash flows used in investing activities(578,441)(264,125)**FINANCING ACTIVITIES:**     Net borrowings on line of credit2,326,564 13,699      Net principal repayments on loans, notes and capital leases(446,527)(207,144)     Proceeds from issuance of Common stock42,958 74,091      Dividends paid on Preferred Series B and C Convertible stock(150,500)(142,079)Net cash flows provided by (used in) financing activities1,772,495 (261,433)Effect of exchange rate changes on cash12,127 (16,133)Net increase (decrease) in cash and cash equivalents(427,022)260,985 Cash and cash equivalents - beginning of period791,020 63,307 Cash and cash equivalents - end of period $        363,998  $        324,292 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued(Unaudited)**

Six Months Ended June 30,20032002**Supplemental noncash financing and investing activities:**   Capital lease obligation incurred $        132,826 —    Fair value of Common stock issued for compensation of      $200,000 less amortization expense of $100,000,      included in deferred compensation100,000 —    Purchase of Vortex technology for debt2,250,000 —    Assumption of deferred compensation liabilities included      in prepaid expenses and other current assets, and      accrued expenses related to purchase of Vortex technology33,807 —    Unpaid dividends on Preferred Series B and C Convertible      stock included in accounts payable150,500 —    Conversion of other long-term liability to Preferred      Series C Convertible stock— $      3,744,355    Conversion of certain accrued expenses to Preferred      Series C Convertible stock— 255,645    Unpaid dividends on Preferred Series B and C Convertible      stock included in accrued expenses— 59,099    Deferred financing fee of $160,200 less amortization      expense of $93,068, included in prepaid expenses      and other current assets— 67,132 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7
**TELTRONICS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION**
Teltronics, Inc. ("Teltronics" or "Company"), a Delaware corporation, designs, develops, installs, manufactures andmarkets electronic hardware and application software products, and engages in electronic manufacturing servicesprimarily in the telecommunication industry.

The accompanying condensed consolidated financial statements include the accounts of the Company and arecomprised of its wholly-owned subsidiaries TTG Acquisition Corp., Teltronics, S.A. de C.V., and 36371 Yukon Inc.In July 2002, the Company sold ownership of its Interactive Solutions, Inc. ("ISI") subsidiary and converted all debtand obligations owed to the Company by ISI to 50,000 shares of Series A Preferred stock of ISI, which werepledged as collateral to Finova Mezzanine Capital Inc.  In connection with the sale of ISI, the Company's commonstock ownership of ISI was reduced from 85% to 15%.  Management of the Company determined the value of theSeries A Preferred stock to not be material, as a result, no gain on the sale of ISI was recognized.  The Company'ssale of ISI enables the Company to focus on our core business.  All significant intercompany transactions andbalances have been eliminated in consolidation.

Effective May 30, 2003, the Company closed on its acquisition of the Vortex Technology and related assets fromTri-Link Technologies Inc. ("Tri-Link").  Tri-Link designed a pure soft switch that utilizes Ethernet LAN to providevoice over internet protocol ("VoIP").  Our new product offering derived from this technology, Cypreon, is the firstIP-PCX solution to deliver advanced telephone, videoconferencing, and LAN capabilities in an easily-installedsystem. Cypreon is scheduled for commercial release in August 2003.  The Vortex technology and assets are beingheld in 36371 Yukon Inc.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States for interim financial information and with theinstructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the informationand notes required by generally accepted accounting principles for complete financial statements.  In the opinionof management, all adjustments (consisting of normal recurring accruals) considered necessary for a fairpresentation have been included.  Operating results for the three and six month periods ended June 30, 2003, arenot necessarily indicative of the results that may be expected for the year ending December 31, 2003.

The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date butdoes not include all of the information and notes required by generally accepted accounting principles for completefinancial statements.

For further information, refer to the consolidated financial statements and notes thereto included in the Company'sannual report on Form 10-K for the year ended December 31, 2002.

*Seasonality*The Company has experienced seasonality due in part to purchasing tendencies of our customers during the fourthand first quarters of each calendar year.  Consequently, net sales for the fourth and first quarters of each calendaryear are typically not as strong as results during the other quarters.  The net sales of the Company continued tobe impacted by the general slowdown of telecommunications expenditures.

8
**NOTE 2 - ACCOUNTING FOR STOCK-BASED COMPENSATION**

Statement of Financial Accounting Standards ("SFAS") No. 123, *Accounting for Stock-Based Compensation*,encourages, but does not require, companies to record compensation cost for stock-based employee compensationplans based on the fair value of options granted.  The Company has chosen to account for stock basedcompensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25,*Accounting for Stock Issued to Employees*, and related interpretations.  Accordingly, because the grant price equalsthe market price on the date of grant for options issued by the Company, no compensation expense is recognizedfor stock options issued to employees.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, *Accounting for Stock BasedCompensation - Transition and Disclosure*, which amends SFAS No. 123.  SFAS No. 148 requires more prominentand frequent disclosures about the effects of stock-based compensation.

Had compensation cost for the Company's stock options been recognized based upon the estimated fair value onthe grant date under the fair value methodology prescribed by SFAS No. 123, the Company's net income (loss) andnet income (loss) per share would have been as follows:

Three Months Ended June 30,Six Months Ended June 30,2003200220032002 Net income (loss) - as reported$ (1,408,618)$    412,336$ (2,203,081)$    (929,517)Stock-based employee compensation   cost if the fair value method   had been applied(55,692)(55,272)(111,555)(110,544)Net income (loss) - pro forma$ (1,464,310)$   357,064 $ (2,314,636)$ (1,040,061) Net income (loss) per share:     Basic - as reported$         (0.24)$         0.05 $         (0.38)$         (0.21)     Basic - pro forma$         (0.25)$         0.04 $         (0.40)$         (0.23)      Diluted - as reported$         (0.24)$         0.05 $         (0.38)$         (0.21)     Diluted - pro forma$         (0.25)$         0.04 $         (0.40)$         (0.23)
The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, toreflect market conditions and the Company's experience.

**NOTE 3 - COMPREHENSIVE INCOME (LOSS)**

Total comprehensive income (loss) is as follows:

Three Months Ended June 30,Six Months Ended June 30,2003200220032002 Net income (loss)$	(1,408,618)$	412,336 $	(2,203,081)$	(929,517)Foreign currency translation6,153 (15,888)12,127 (16,133)Total comprehensive income (loss)$	(1,402,465)$	396,448 $	(2,190,954)$	(945,650)
**NOTE 4 - NET INCOME (LOSS) PER SHARE**

Basic net income (loss) per share is computed by dividing net income (loss), adjusted for preferred stock dividends,by the weighted average number of issued common shares outstanding during the applicable period.  Diluted net

9
income (loss) per share is computed by dividing net income (loss), adjusted for preferred stock dividends, by theweighted average number of issued common shares and potential common shares.  Potential common sharesconsist of convertible preferred stock, stock options (vested and unvested) and warrants and are computed usingthe treasury stock method.  Certain potential common shares for 2003 and 2002 were anti-dilutive and were notincluded in the calculation of diluted net income (loss) per share.

The following table sets forth the computation of basic and diluted net income (loss) per share:

Three Months Ended June 30,Six Months Ended June 30,2003200220032002**BasicNet income (loss)$ (1,408,618)$    412,336 $ (2,203,081)$   (929,517)Preferred dividends(150,500)(158,919)(301,000)(201,178)     Net loss available to common          shareholders$ (1,559,118)$    253,417 $ (2,504,081)$ (1,130,695)Weighted average shares outstanding6,514,821 5,347,463 6,598,455 5,289,052      Net income (loss) per share$         (0.24)$         0.05 $         (0.38)$         (0.21)**Diluted**Net income (loss)$ (1,408,618)$    412,336 $ (2,203,081)$   (929,517)Preferred dividends(150,500)— (301,000)(201,178)     Net income (loss) available to          common shareholders$ (1,559,118)$    412,336 $ (2,504,081)$ (1,130,695)Weighted average shares outstanding6,514,821 5,347,463 6,598,455 5,289,052 Effect of dilutive securities     Employee stock options— — — —      Convertible preferred stock— 2,175,974 — —      Warrants— — — —      Dilutive potential common shares6,514,821 7,523,437 6,598,455 5,289,052      Net income (loss) per share$         (0.24)$         0.05 $         (0.38)$         (0.21)
**NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS**

 June 30,2003 December 31,2002(Unaudited)Costs incurred on uncompleted contracts$ 1,506,403 $   967,379 Estimated earnings735,412 950,926 2,241,815 1,918,305 Less: Billings to date1,709,713 2,525,340 $   532,102 $  (607,035)Included in accompanying condensed consolidated balance          sheets under the following captions:Costs and estimated earnings in excess of billings on          uncompleted contracts759,758 740,650 Billings in excess of costs and estimated earnings on          uncompleted contracts(227,656)(1,347,685)$    532,102 $   (607,035)
10
Costs and estimated earnings on uncompleted contracts includes unbilled revenue of approximately $230,000 and$321,000 as of June 30, 2003 and December 31, 2002, respectively.

**NOTE 6 - INVENTORIES**

The major classes of inventories are as follows:

 June 30,2003 December 31, 2002(Unaudited)Raw materials$ 3,075,398$ 3,195,656Work-in-process1,198,189979,036Finished goods1,614,9262,012,504$ 5,888,513$ 6,187,196
The valuation allowance for slow moving inventories was $1,414,000 and $2,151,000 as of June 30, 2003 andDecember 31, 2002, respectively.

**NOTE 7 - OTHER INTANGIBLE ASSETS**

The Company's other intangible assets are as follows:

  June 30, 2003 (Unaudited) LifeGrossCarryingAmountAccumulatedAmortizationTotalCustomer list5 years$  202,332$  137,761$  64,571Patent14 years, 7 months239,89981,265158,634     Total $  442,231$  219,026$  223,205
  December 31, 2002 LifeGrossCarryingAmountAccumulatedAmortizationTotalCustomer list5 years$  202,332$  114,646$  87,686Patent14 years, 7 months239,89974,010165,889     Total $  442,231$  188,656$  253,575
Amortization is provided over the estimated useful lives of the respective assets using the straight-line method.Amortization expense related to intangible assets was $15,185 and $16,685 for the three months ended June 30,2003 and 2002, respectively.   Amortization expense related to intangible assets was $30,370 and $33,369 for thesix months ended June 30, 2003 and 2002, respectively.  Estimated amortization expense related to other intangibleassets for each of the five years in the period ending December 31, 2008 and thereafter is: 2003 - $30,370;  2004 -$44,396;  2005 - $26,079;  2006 - $14,510;  2007 - $14,510; 2008 - $14,510;  thereafter - $78,830.

11
**NOTE 8 - DEBT**

Debt consists of the following:

June 30,2003December 31,2002
(Unaudited)Secured promissory note - payable to Harris Corporation in monthly installments of$96,805 with interest at 8% commencing May 1, 2002 with a balloon payment of$7,196,801 due May 2006.$ 8,677,789 $ 8,868,717
Bank line of credit - On December 22, 1998, the Company's principal lender, TheCIT Group/Business Credit, Inc. ("CIT") amended the Company's existing Line ofCredit Facility and Term Loan whereby, the interest rate was 2.0% above primerate, maximum credit was $5,500,000 and an early termination fee was assessedat 1.5%.  On October 28, 2000, the Line of Credit Facility was extended to October28, 2002.  A director of the Company had personally guaranteed a portion of thefacility.  On October 16, 2002, the Company entered into the ThirteenthAmendment to Loan and Security Agreement (the "Amendment") with CIT.  ThisAmendment extended the term from October 28, 2002 to October 28, 2004 andmodified the interest rate from prime plus 2.0% to prime plus 2.5%.  The applicablemargin (2.5%) may vary from 2.0% to 3.0% depending on the Company's financialresults for the year ended December 31, 2002 and the year ending December 31,2003.  At June 30, 2003, the Company's interest rate was 7.0%.  The maximumcredit remained at $5,500,000 while the early termination fee was modified from1.5% to 1.0% of the maximum credit.  In connection with this Amendment, CIT hasreleased a director of the Company from any and all obligations under any guarantyagreement or arrangement in favor of CIT.

Substantially all of the Company's present and future assets, except for fixedassets, are pledged as collateral with borrowings limited to certain gross availabilityformulas based on accounts receivable and inventory as defined in the agreement.The facility provides for minimum loan fees, unused line fees and renewal termfees.  The outstanding borrowings are classified as a current liability.  At June 30,2003, the Company had $486,000 available,  pursuant to this facility.  Theavailability of this unused line of credit is restricted based on availability formulas.3,339,9801,013,416
Senior Secured Promissory Note - On September 30, 2002, the Company enteredinto a Fourth Amended and Restated Senior Secured Promissory Note with arevised maturity date of August 13, 2003, interest at 14% and monthly principal andinterest payments of $55,000, commencing October 1, 2002.403,797693,477
Note payable to Tri-Link in quarterly principal installments of $187,500 plus interestat 6.5% commencing August 1, 2003, with final payment due May 2006.2,250,000— 
Notes payable to finance companies, payable in monthly installments of $7,000 withinterest at approximately 5%.  The notes mature through March 2008 and arecollateralized by vehicles.302,909259,576Total14,974,47510,835,186Less current portion5,052,0862,193,401Long-term portion$ 9,922,389$ 8,641,785
12
The Company maintains a promissory note to Harris Corporation ("Harris") related to the acquisition of the 20-20®Product Line, which was restructured on March 27, 2002, under a Master Restructuring Agreement.  Under thisrestructuring, the principal and capitalized interest total was stated at $9,196,801.  The Company made principalpayments of $500,000 during the three month period ended March 31, 2002.  Monthly payments of $96,805 inprincipal and interest commenced in May 2002 and continue until May 2006 at which time a balloon payment of theremaining unpaid balance of $7,196,801 will be due.  The interest rate is 8%.  In conjunction with the restructuring,Harris agreed to convert $4,000,000 of accrued expenses owed by the Company for additional inventory andservices provided in connection with the transition of the 20-20® Switching Product Line to the Company, to 40,000shares of Preferred Series C Convertible stock.  The Note is secured by a first lien on certain of the acquired assetsand a lien on the Company's other assets.

On February 25, 1998, the Company entered into Senior Secured Loans ("Loans") for $1,000,000 and $280,000.Interest was initially paid quarterly starting May 15, 1998.  On May 12, 2000, the Company amended and restatedthe $1,000,000 Loan Agreement originally entered into on February 25, 1998 with Finova Mezzanine Capital Corp.("Finova") and originally due February 25, 1999 to extend the maturity to February 13, 2002.  On May 1, 2002,Finova and the Company entered into a Third Amended and Restated Senior Secured Promissory Note.  OnSeptember 30, 2002, Finova and the Company entered into a Fourth Amended and Restated Senior SecuredPromissory Note ("Note").  Under the terms of the Note, monthly principal and interest payments of $55,000 arerequired commencing October 1, 2002 until August 13, 2003 at which time a balloon payment of the remainingunpaid balance of $303,000 will be due.  The interest rate was increased from 12% to 14%.

In August 2003, Finova and the Company reached an understanding to further amend the Senior Secured Promissory Note owed by the Company to Finova.  The understanding contemplates extension of the Note repayment.  The current note was due to be repaid with a balloon payment of $303,000 on August 13, 2003.  The proposed amendment extends the Note repayment to February 1, 2004 with principal and interest payments of $55,000 monthly (interest at 14%).

The Holder of the Loans previously received 890,000 warrants to purchase the Company's Common stock at anexercise price of $2.75 per share.  These warrants were exercisable in whole, or in part, at any time during a five-year holding period beginning on the date of issuance.   In connection with the Third Amended and Restated SeniorSecured Promissory Note, Finova and the Company entered into an Amended and Restated Stock PurchaseWarrant that modified the terms of the 890,000 previously issued warrants to change the exercise price to $1.00per share and extend the exercise period to February 26, 2004.  As a result of modifying the exercise price andextending the exercise period of the 890,000 warrants, the Company  recorded a deferred financing fee ofapproximately $160,200 in May 2002.  This fee was expensed as a financing cost in our condensed consolidatedstatements of operations in 2002.

The covenants in the Secured Promissory Note, Loan and Security Agreement and the Senior Secured PromissoryNote restrict certain sales of assets; mergers and acquisitions; borrowings and guarantees; dividends andredemptions; creation of liens; investments; issuance of subsidiary shares; and transactions with affiliates.

The consideration for the assets purchased from Tri-Link was $2,500,000, of which $250,000 was paid at closingwith the remaining balance of $2,250,000 being paid in quarterly principal installments of $187,500 plus interest at6.5%.  The note is collateralized primarily by the Vortex technology and technology assets.  Tri-Link shall be entitled,at its sole option, to convert at any time and from time to time, increments of not less than $250,000 of the balanceof the purchase price then remaining unpaid into shares of the Company's voting common stock ranging from $0.22per share to $1.00 per share.  The total of all amounts that can be converted is $750,000.

**NOTE 9 - EXIT ACTIVITY**

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.146 *Accounting for Costs Associated with Exit or Disposal Activities* (SFAS No. 146).  SFAS No. 146 requiredrecognition of costs associated with exit or disposal activities when they are incurred rather than at the date of acommitment to an exit or disposal plan.  Costs covered by the standard include lease termination costs and certain

13
employee severance costs that are associated with a restructuring, discontinued operation, plant closing or otherexit or disposal activity.

The Company reduced its work force by approximately 15% at June 30, 2003.  The reduction in force was part of an overall effort by the Company to reduce its expenses to better align them with the current sales levels.  The reduction in force was across the Company and affected the majority of employee groups and locations.  As a result of the reduction in force, the Company recognized a one time termination benefit charge of approximately $250,000.  This charge has been allocated to cost of goods sold and the various operating expense categories that it related to.

The changes in the Company's termination benefit obligation for the six months ended June 30, 2003 are as follows:

Balance, beginning of the period$            — Termination benefit accruals during period250,000 Payments made during the period— Balance, end of the period$  250,000 
The Company leases office space for a research and development facility in Dallas, Texas.  The lease expires inDecember 2006.  In December 2002, the Company closed its facility in Dallas, Texas.  Teltronics will continue toincur rental costs under the Dallas lease agreement without receiving any future economic benefit.

Teltronics early adopted the provisions of SFAS No. 146 in 2002, and as a result, the Company recorded anexpense of approximately $437,000 in December 2002 that represented the present value of our liability (leaseobligation) as of December 31, 2002.  This expense was reported as a general and administrative expense in ourconsolidated statements of operations for 2002.  Prior to the closing of our Dallas facility, our Dallas rental expenseswere reported as a research and development expense.  Commencing January 1, 2003, our Dallas rental expensesare reported as a general and administrative expense.

The changes in the Company's lease obligation for the six months ended June 30, 2003 are as follows:

Balance, beginning of the period$  437,000 Accretion in present value of lease obligation during the period16,400 Other rental expenses3,600 Payments made during the period(24,500)Balance, end of the period$  432,500 
**NOTE 10 - WARRANTY**
The Company provides currently for the estimated cost that may be incurred under product warranties.  Factors thataffect the Company's warranty liability include the number of installed units, historical and anticipated rates ofwarranty claims, and cost per claim.  The Company provides a limited warranty on its products, for a period from3 to 18 months (depending on the product), under which the Company agrees to repair or replace, in the Company'ssole discretion, units defective in material or workmanship, provided the equipment has not been subjected toalteration or abuse.

Changes in the Company's product liability during the six months ended June 30, 2003 are as follows:

Balance, beginning of the period$  315,000 Warranties issued during the period106,953 Payments made during the period(95,953)Changes in liability for pre-existing warranties during the period11,000 Balance, end of the period$  337,000 
14
**NOTE 11 - SHAREHOLDERS' EQUITY**

The total number of shares of all classes of capital stock, which the Company has the authority to issue is50,000,000 shares divided into three classes of which 5,000,000 shares, par value $.001 per share are designatedPreferred stock, 40,000,000 shares, par value $.001 per share are designated Common stock and 5,000,000 shares,par value $.001 per share, are designated Non-Voting Common stock.

**(A)   Preferred stock - The Preferred Series A stock are restricted securities owned by the Company's Director and Senior Vice President of Business Development and subject to resale restrictions including the right of the Company to approve or disapprove any sale, transfer or disposition to any third party not controlled by the Director.  Eachshare is entitled to 400 votes and is not entitled to any dividends.  Accordingly, this would give the Senior VicePresident voting control of the Company.
The Preferred Series B Convertible stock provided for a $12 per share annual dividend, payable quarterly andincreasing to $20 in May 2002.  On April 22, 2002, the terms of the Preferred Series B Convertible stock weremodified, whereby the annual dividend rate increased from $12 per share to $16 per share, payable quarterly,effective February 26, 2002.  The annual dividend rate will increase to $18 per share on February 27, 2004 and to$20 per share on February 27, 2005.  The holder of the Preferred Series B Convertible stock initially had the rightat its option to convert to the Company's Common stock at $2.75 per share.  The Company adjusted the conversionprice on April 22, 2002 for the Preferred Series B Convertible stock from $2.75 to $1.75 per share in conjunctionwith the Third Amended and Restated Senior Secured Promissory Note.  Commencing in May 2002, the Companyhas the right to redeem the Preferred Series B Convertible stock in full at 100% of the face value plus accrued andunpaid dividends.  The Preferred Series B Convertible stock contains certain covenants.

The Company issued 40,000 shares of Preferred Series C Convertible stock to Harris Corporation in March 2002in connection with the Master Restructuring Agreement.  The Preferred Series C Convertible stock provides for a$10 per share annual dividend, payable quarterly beginning May 15, 2002.  The annual dividend increases to $20per share beginning April 1, 2007.  The holder of the Preferred Series C Convertible stock has the right at its optionto convert to the Company's Common stock at $2.75 per share subject to adjustment.  The Company has the rightto redeem all or a portion of the then outstanding Preferred Series C Convertible stock at any time at 100% of theface value plus accrued and unpaid dividends.

**(B)   Common stock** -  The Company recorded the issuance of 1.0 million shares of Common stock with a fair value of $200,000 as deferred compensation for 2003 services by its Board of Directors.  The deferred compensation will be expensed as a general and administrative expense in our condensed consolidated statements of operationscommencing January 1, 2003 through December 31, 2003.  As of June 30, 2003, the deferred compensation of$100,000 is included in shareholders' deficiency of our condensed consolidated balance sheets.

In April 2003, the Company issued 362,184 shares with a fair value of $42,958 in connection with the EmployeeStock Purchase Plan.

In June 2003, the Company issued 62,311 shares with a fair value of $33,648 to the Savings Plan ("401(k) plan").

**(C)   Warrants - In connection with the Third Amended and Restated Senior Secured Promissory Note, Finova and the Company entered into an Amended and Restated Stock Purchase Warrant that modified the terms of the890,000 previously issued warrants to change the exercise price to $1.00 per share and extend the exercise periodto February 26, 2004.
In connection with our financial advisory and investment banking agreement entered into in September 2002 withAtlantic American Capital Advisors, LLC, the Company issued warrants to purchase 300,000 shares of its Commonstock at an exercise price of $1.00 per share.  The exercise period of the warrants is five years.

15
**NOTE 12 - SEGMENT INFORMATION**

The Company's operations are classified into three reportable segments, Teltronics, ISI and Mexico.  As furtherdescribed in Note 1, ISI was sold in July 2002.  Each reportable segment is staffed separately, requires differentechnology and marketing strategies and sells to different customers.

The accounting policies of the segments are the same.  Company management evaluates performance based onsegment profit (loss), which is net income (loss) before taxes, excluding nonrecurring gains or losses.

The following table presents information about reportable segment operations and assets.

Three Months EndedJune 30,Six Months EndedJune 30,2003200220032002**Net sales**     Teltronics$   12,779,000  $  16,458,000 $   24,301,000 $  29,769,000      Mexico190,000 120,000 249,000 407,000      ISI— 84,000 — 159,000      Total net sales$   12,969,000  $  16,662,000 $   24,550,000 $  30,335,000 **Depreciation and Amortization     Teltronics$        449,000 $       515,000 $        914,000  $    1,038,000      Mexico3,000 1,000 5,000 4,000      ISI— 6,000 — 14,000      Total depreciation and amortization$       452,000 $       522,000 $        919,000 $    1,056,000 **Interest and Financing Costs     Teltronics$       383,000 $       410,000 $        760,000 $       826,000      Mexico— — — —      ISI— — — —      Total interest and financing costs$       383,000 $       410,000 $        760,000 $       826,000 **Segment Profit (Loss)**     Teltronics$   (1,409,000)$       443,000 $    (2,163,000)$     (959,000)     Mexico4,000 (59,000)(32,000)(3,000)     ISI— 36,000 — 47,000      Income (loss) before income taxes$   (1,405,000)$       420,000  $    (2,195,000)$     (915,000)**Segment Assets**     Teltronics$  20,998,000      Mexico93,000      ISI—      Total segment assets$ 21,091,000  **Acquisition of Property and   Equipment**     Teltronics$       315,000 $       142,000 $        579,000 $      288,000      Mexico— — — —      ISI— 1,000 — 1,000      Total acquisition of property and          equipment$       315,000 $       143,000 $        579,000 $      289,000 
16
**ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**FORWARD-LOOKING STATEMENTS**

*References in this report to the "Company," "Teltronics," "we." or "us" mean Teltronics, Inc. together with itssubsidiaries, except where the context otherwise requires.  A number of statements contained in this QuarterlyReport on Form 10-Q are forward-looking statements, which are made pursuant to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995.  These forward-looking statements can generally be identified assuch because the context of the statement will include words such as we "believe," "anticipate," "expect," or wordsof similar import.  Similarly, statements that describe our future plans, objectives, strategies or goals are alsoforward-looking statements.  These forward-looking statements involve a number of risks and uncertainties that maymaterially adversely affect the anticipated results.  Such risks and uncertainties include, but are not limited to, thetimely development and market acceptance of products and technologies, competitive market conditions, successfulintegration of acquisitions, the ability to secure additional sources of financing, the ability to reduce operatingexpenses, and other factors described in the Company's filings with the Securities and Exchange Commission.Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating theforward-looking statements made herein and are cautioned not to place undue reliance on such forward-lookingstatements.  The forward-looking statements made herein are only made as of the date of this Form 10-Q and wedisclaim any obligation to publicly update such forward-looking statements to reflect subsequent events orcircumstances.*

**Critical Accounting Policies**

The discussion and analysis of our financial condition and results of operations are based on our consolidatedfinancial statements that have been prepared under generally accepted accounting principles. The preparation offinancial statements in conformity with generally accepted accounting principles requires our management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenue and expensesduring the reporting period. Actual results could materially differ from those estimates because the estimatesrepresent judgments made at specific dates for events that are ongoing.  We have identified the following criticalaccounting policies that affect the more significant judgments and estimates used in preparing our consolidatedfinancial statements.  The consolidated financial statements and the related notes thereto should be read inconjunction with the following discussion of our critical accounting policies.

Our critical accounting policies and estimates are as follows:

*Revenue recognition*.  The revenue recognition process requires management to make assumptions based onhistorical results, future expectations, changes in credit-worthiness of customers, and other relevant factors.Teltronics generates revenues through different sources.
- Contract Manufacturing.  Revenues from sales of product including our contract manufacturingbusiness are recognized when the product is shipped.  The Company's policy is to recognize revenueand related costs when the order has been shipped from our facilities, which is also the same pointthat title passes under the terms of the purchase order.  Based on the Company's history of providingcontract manufacturing services, we believe that collectibility at June 30, 2003 is reasonably assured.Performance of Construction-Type Contracts.  The Company's policy is to recognize revenue andrelated costs on the construction-type contracts in accordance with Statement of Position 81-1*Accounting for Performance of Construction-Type and Certain Production-Type Contracts*(SOP 81-1).SOP 81-1 provides two generally accepted methods of accounting for construction or production typecontracts: (1) the percentage of completion method and (2) the completed contract method.  Thedetermination of which of the two methods is preferable should be based on a careful evaluation ofcircumstances because the two methods should not be acceptable alternatives for the samecircumstances.
17
The percentage of completion method recognizes revenue and related costs as work on a contractprogresses.  The progress of a contract in terms of recognizing revenue and related costs is based onsatisfying the milestones for the specified contract.

The completed contract method recognizes revenue and related costs when the contract is completedand all costs and related revenues are reported as deferred items in the balance sheet until that time.

Our primary construction-type contracts are with the Board of Education of the City of New York.  Weaccepted the assignment of a contract from Harris Corporation in connection with the Company'sacquisition of Harris Corporation's 20-20® Switching Product Line in June 2000.  This contract, withthe Board of Education of the City of New York ("the Board"), specified that the Contractor (Teltronics)would provide telephone systems and peripheral equipment and cabling including systemsmaintenance and support.
Maintenance and service.  Revenue from support and maintenance activities is recognized ratablyover the term of the maintenance period and the unrecognized portion is included in deferred revenue.Costs from support and maintenance activities are recognized when the related revenue is recognizedor when those costs are incurred, whichever occurs first.
*Allowance for doubtful accounts.*  A considerable amount of judgment is required when we assess the ultimate realization of receivables, including assessing the probability of collection and the current credit-worthiness of eachcustomer.  We maintain an allowance for doubtful accounts based on management's assessment of the age of thereceivables and financial stability of the customer.  We evaluated our allowance for doubtful accounts based on therecent downturn in the economy and increased them as we saw necessary.  If the financial condition of any of ourcustomers deteriorates, we may record additions to our allowance for doubtful accounts in the future.

*Slow moving inventory.  We write down our slow moving inventory equal to the difference between the carrying value of the inventory and the estimated market value based on assumptions about future product life cycles,product demand and market conditions.  If actual product life cycles, product demand or market conditions are lessfavorable than those projected by management, additional inventory write-down may be required.
*Impairment of Intangible and Long-Lived Assets.  Long-lived assets consist primarily of fixed assets.  We periodically evaluate the recovery of long-lived assets when impairment indicators are present.  Our judgments regarding theexistence of impairment indicators are based on legal factors, market conditions, estimated future cash flows,expected useful life of long-lived assets and the operational performance of our business.  Future events couldcause us to conclude that impairment indicators exist and that long-lived assets associated with our business areimpaired.
*Warranty and Service.  The Company provides a limited warranty on most of its products, for a period of 3 to 18 months (depending on the product), under which the Company agrees to repair or replace, at the Company's solediscretion, units defective in material or workmanship, provided the equipment has not been subjected to alterationor abuse.  The Company's technical service and engineering staff provide support services over the telephone tocustomers with installation or operational questions.  Warranty and other repair services are provided by theCompany.
*Contingencies and Litigation.* We are subject to proceedings, lawsuits and other claims related to class action lawsuits and other matters.  We are required to assess the likelihood of any adverse judgments or outcomes to thesematters as well as potential ranges of probable losses.  These estimates are often initially developed substantiallyearlier than when the ultimate loss is known.  In each accounting period, a determination of the amount of lossaccrual required, if any, for these contingencies is made after careful review of each individual issue.  We are ofteninitially unable to develop a best estimate of loss, and therefore, the minimum amount, which could be zero, isrecorded.  The required accruals may change in the future due to new developments in each matter or changes inapproach such as a change in settlement strategy in dealing with these matters.  Occasionally, a best estimate ischanged to a lower amount when events result in an expectation of a more favorable outcome than previouslyexpected.

18
**Seasonality**

The Company has experienced seasonality due in part to purchasing tendencies of our customers during the fourthand first quarters of each calendar year.  Consequently, net sales for the fourth and first quarters of each calendaryear are typically not as strong as results during the other quarters.  The net sales of the Company continued to beimpacted by the general slowdown of telecommunications expenditures.

**RESULTS OF OPERATIONS**

The following unaudited tables set forth certain data, expressed as a percentage of net sales, from the Company'sunaudited condensed consolidated Statements of Operations for the three and six month periods ended June 30,2003 and 2002.

Three Months EndedJune 30,Six Months EndedJune 30,2003200220032002Net sales100.0% 100.0% 100.0% 100.0% Cost of sales62.0% 64.5% 60.7% 63.5% Gross profit38.0% 35.5% 39.3% 36.5% Operating expenses:     General and administrative11.9% 7.8% 12.4% 9.0%      Sales and marketing19.4% 15.0% 19.1% 18.7%      Research and development12.1% 5.6% 11.0% 6.7%      Depreciation and amortization2.5% 2.0% 2.6% 2.3% 45.9% 30.4% 45.1% 36.7% Income (loss) from operations(7.9%)5.1% (5.8%)(0.2%)Other income (expense):     Interest(2.3%)(1.8%)(2.4%)(2.2%)     Financing(0.7%)(0.7%)(0.7%)(0.6%)     Litigation costs— — — (0.1%)     Other— (0.1%)— — (3.0%)(2.6%)(3.1%)(2.9%)Income (loss) before income taxes(10.9%)2.5% (8.9%)(3.1%)Provision for income taxes(0.1%)— — — Net income (loss)(11.0%)2.5% (8.9%)(3.1%)
**Net Sales**

Net sales decreased 22.2% and 19.1% for the three month and six month periods ended June 30, 2003,respectively, as compared to the same periods in 2002.  The decrease in net sales for both periods was primarilyattributable to a slow down in the telecommunications market as evidenced by a decrease in net sales from our fivelargest customers in the three month and six month periods ended June 30, 2003 as compared to the same periodsin 2002 of approximately $2.7 million or 27.4% and $4.7 million or 26.9%, respectively.

19
**Gross Profit Margin**

Gross profit margin increased by 2.5 and 2.8 percentage points for the three month and six month periods endedJune 30, 2003, respectively, as compared to the same periods in 2002.  Our gross profit margin for the three monthperiods ended June 30, 2003 and 2002 was 38.0% and 35.5%, respectively.  Our gross profit margin for the sixmonth periods ended June 30, 2003 and 2002 was 39.3% and 36.5%, respectively.  The increase in our gross profitmargin was caused by changes in product mix and an improvement in our project management of certain projectsthat require additional attention due to the nature and extended time of the project.

**Operating Expenses**

Operating expenses increased $882,000 and decreased $62,000 for the three month and six month periods endedJune 30, 2003, respectively, as compared to the same periods in 2002.  In June 2003, the Company eliminatedpositions to reduce its costs.  The related severance costs of approximately $175,000 for the eliminated positionswere recorded at June 30, 2003.

General and administrative expenses increased $236,000 and $306,000 for the three month and six month periodsended June 30, 2003, respectively, as compared to the same periods in 2002.  The increases for the three monthand six month periods ended June 30, 2003 were primarily a result of severance, medical claims, and deferredcompensation for the Board of Directors.

Sales and marketing expenses increased $30,000 and decreased $968,000 for the three month and six monthperiods ended June 30, 2003, respectively, as compared to the same periods in 2002.  The increase for the threemonth period was directly related to severance expense recorded in June 2003 due to a reduction in force.  Thiswas partially offset by the reductions in work force implemented during the fourth quarter of 2002.  The decreasefor the six months ended June 30, 2003 was primarily a result of the severance benefits associated with twoemployees terminated in the first quarter of 2002 of approximately $280,000 and reductions in work forceimplemented during the fourth quarter 2002, which were offset by severance expense recorded in June 2003 dueto a reduction in force.

Research and development expenses increased $631,000 and $640,000 for the three month and six month periodsended June 30, 2003, respectively, as compared to the same periods in 2002.  The increases were primarily dueto the increased costs associated with the development of new products, specifically Cypreon, additional expenserelated to severance expense recorded in June 2003 due to a reduction in force and medical claims.  These itemswere partially offset by the reduction in workforce related to closing the Dallas office in December 2002.

**Other Expenses**

Other expenses decreased $38,000 and $100,000 for the three month and six month periods ended June 30, 2003,respectively, as compared to the same periods in 2002.  For the three month period ended June 30, 2003, financingcosts decreased approximately $34,000, interest expense increased $6,000, and other expenses decreased$10,000.  The decrease in financing costs was directly related to a $93,000 financing expense for the re-pricing ofthe Finova warrants in 2002.  This decrease was offset by the increased financing costs in the three month periodended June 30, 2003 related to Atlantic American.  The decrease in other expenses is due to an overall decreasein the loss on currency exchange recorded as compared to the prior period.

For the six month period ended June 30, 2003, financing costs decreased approximately $1,000, interest expensedecreased $65,000, litigation costs decreased $16,000 and other expenses decreased $18,000.  The decrease inthe interest expense for the six months ended June 30, 2003 is primarily related to the principal repayments on ourdebt.  The Company began making payments on the Harris and Finova debt May 1, 2002.

20
**LIQUIDITY AND CAPITAL RESOURCESCash flows for the six months ended June 30, 2003**

Operating Activities

Net cash flows used in operating activities were $1,633,000 for the six month period ended June 30, 2003.  The$1,633,000 was comprised of the following items: (1) net loss of $2,203,000, (2) non-cash expenses of $1,298,000,and (3) a net decrease in working capital of $728,000.  The reduction in working capital resulted primarily from theuse of cash on uncompleted projects and timing of our collection on outstanding receivables during the first half of2003 as compared with the fourth quarter of 2002.  Generally, working capital requirements will increase or decreasewith sequential changes in quarterly revenue levels and the timing of expenditures on uncompleted projects,collections on outstanding receivables, and payments on payables.  We are continuing to focus on reducing ourworking capital requirements through more favorable billing terms, our collection efforts and expense reductions.

Investing Activities

Net cash flows used in investing activities were $578,000 for the six month period ended June 30, 2003.  TheCompany acquired property and equipment of $578,000 to support its operations including service vehicles andmanufacturing equipment.

Financing Activities

Net cash flows provided by financing activities were $1,772,000 for the six month period ended June 30, 2003.  The$1,772,000 was comprised of the following items: (1) net borrowings of $2,327,000 on the line of credit, (2) netrepayments of $447,000 on loans, notes and capital leases, (3) proceeds of $43,000 related to the Employee StockPurchase Plan, and (4) dividends paid of $151,000 on Preferred Series B and C Convertible stock.

**Liquidity**

We have historically funded our liquidity needs with cash from operations and bank borrowings.  At June 30, 2003,our principal sources of liquidity consisted of cash and available borrowings under our line of credit.  As of June 30,2003, the Company had cash and cash equivalents of $363,998 as compared to $791,020 as of December 31, 2002.Working capital (deficit) as of June 30, 2003 and December 31, 2002 was $(1,748,596) and $1,187,075,respectively.

Our principal obligations as of June 30, 2003, consisted primarily of the following items: (1) a secured promissorynote payable to Harris Corporation of $8.7 million, of which $485,000 is due and payable within the next twelvemonths, (2) a senior secured promissory note in the amount of $404,000 payable to Finova that matures on August13, 2003, requiring a balloon payment of $303,000, (3) dividends on our Series B and Series C Preferred Stock, ofwhich $754,000 will be due and payable within the next twelve months, (4) a bank line of credit payable to CIT of$3.3 million, and (5) a secured promissory note for $2,250,000 aggregate principal amount payable to Tri-Link, ofwhich $ 750,000 is due and payable within the next twelve months.

In August 2003, Finova and the Company reached an understanding to further amend the Senior Secured Promissory Note owed by the Company to Finova.  The understanding contemplates extension of the Note repayment.  The current note was due to be repaid with a balloon payment of $303,000 on August 13, 2003.  The proposed amendment extends the Note repayment to February 1, 2004 with principal and interest payments of $55,000 monthly (interest at 14%).

We have 12,625 shares of Series B and 40,000 shares of Series C Preferred Stock outstanding as of June 30, 2003. Holders of shares of our Series B Preferred Stock are entitled to receive annual dividends of $16 per share, payablequarterly and increasing to $18 per share on February 27, 2004, and to $20 per share on February 27, 2005.Holders of shares of our Series C Preferred Stock are entitled to receive annual dividends of $10 per share, payablequarterly and increasing to $20 per share beginning April 1, 2007.  As of June 30, 2003, we were in arrears ondividend payments on our Series B and Series C Preferred Stock in the amounts of $51,000 and $101,000,

21
respectively, which amounts include interest thereon.  If we are in arrears on four quarterly dividend payments onour Series B Preferred Stock (whether or not consecutive) or any part thereof, including interest, then the numberof directors comprising our Board of Directors shall be increased to a number that allows the holders of our SeriesB Preferred Stock to elect a majority of our Board of Directors.

We have a credit facility with CIT, as described in the notes to our condensed consolidated financial statements.The credit facility has a maximum credit limit of $5.5 million with an interest rate of 2.5% above prime.  Theapplicable margin (2.5%) may vary from 2.0% to 3.0% depending on the Company's financial results for the yearended December 31, 2002 and the year ending December 31, 2003.  The amount available under this credit facilityis subject to restriction based on availability formulas.  The availability formulas relate primarily to the eligibility ofaccounts receivable as part of the Company's borrowing base.  As a result of the foregoing availability restrictions,the amount available under this credit facility as of June 30, 2003, was $486,000.  The CIT credit facility is securedby a lien on substantially all our assets and a pledge of substantially all the capital stock of our subsidiaries.

On June 4, 2003, we completed the acquisition of Vortex technology and related assets from Tri-Link Technologiesof Burnaby, British Columbia, pursuant to an Agreement of Purchase and Sale (the "Agreement") of VortexTechnology dated October 31, 2002, as amended on May 30, 2003, for approximately $2.5 million.  We also agreedto pay to Tri-Link Technologies royalties on the net revenues derived by us from certain components of the Vortextechnology.  We paid $250,000 of the purchase price, in cash, at the closing.  We paid the remainder of thepurchase price, excluding royalties, by delivering our secured promissory note for $2,250,000 aggregate principalamount.  Our secured promissory note in favor of Tri-Link is payable in twelve equal quarterly principal paymentsof $187,500 plus interest at 6.5%, beginning on August 1, 2003.  Our note in favor of Tri-Link is secured by a lienon the Vortex technology and related technology assets.  If we fail to make any quarterly payment on this promissorynote by the end of the tenth day after such payment is due, then on the fortieth day after such payment was due,we must issue to Tri-Link that number of shares of our common stock equal to 22,500 times the number of days (notto exceed 30) by which the applicable payment default exceeds ten days.  In addition, if we fail to make paymentson this note when due, Tri-Link may seek to obtain a judgment and attempt to seize our assets securing this noteto satisfy such past-due payments.  Tri-Link may convert portions of the outstanding balance of our promissory noteinto a maximum of 1,125,000 shares of our common stock at the prices and on the terms and conditions set forthin the Agreement, as amended.

We estimate that our cash on hand as of June 30, 2003, totaling $363,998, future cash flows that we expect togenerate from operations, and availability under our bank line with CIT will be sufficient to fund our operations andour debt obligations through December 31, 2003.  We may require additional funds to support our working capitalrequirements beyond that date.  The Company has engaged the investment banking firm of Atlantic AmericanCapital Advisors, LLC, (Atlantic American) as financial advisor to assist the Company in developing and exploringstrategic opportunities, which include raising capital, mergers, acquisitions, strategic partnerships or joint ventures,and various other services.  Atlantic American engaged Early Bird Capital, LLC in May of 2003 to assist them in theirefforts.  There is no assurance that we will raise any additional capital or that any such strategic alternatives will beconsummated.  If we are unable to raise additional capital or to consummate a feasible alternative transaction, wemay be forced to make additional reductions in our operating expenses.  On the other hand, if we are able raise suchadditional funds through public or private equity financings or from other sources, any financing we obtain may diluteyour ownership interests.  If we raise additional funds through equity financings, we must repay all or a portion ofour promissory notes in favor of Harris and Finova based on the amount of our gross proceeds from any such equityfinancing.

A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain theright to use complementary technologies.  From time to time, in the ordinary course of business, we may evaluatepotential acquisitions of such businesses, products or technologies.

22
**ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We have no material changes to the disclosure under the caption "Quantitative and Qualitative Disclosures AboutMarket Risks" in our Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated hereinby reference.

**ITEM 4.     CONTROLS AND PROCEDURES**

**Evaluation of Disclosure Controls and Procedures**

We maintain disclosure controls and procedures that are designed to ensure that information required to bedisclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periodsspecified in the SEC's rules and forms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.  Management necessarily applied its judgment in assessing the costs andbenefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regardingmanagement's control objectives.

We have carried out an evaluation, under the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures as of the end of the period covered by this Quarterly Report (the "EvaluationDate").

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of the Evaluation Date.

23
**PART II - OTHER INFORMATION**

**ITEM 1.       LEGAL PROCEEDINGS**

From time to time, the Company is a party to litigation, which arises, in the normal course of business.

There have been no changes to the legal proceedings as previously reported on Form 10-K for the year ended December 31, 2002.  Management is not aware of the commencement of any new legal proceedings.

**ITEM 2.       CHANGES IN SECURITIES AND USE OF PROCEEDS - None**

**ITEM 3.       DEFAULTS UPON SENIOR SECURITIES**

As of June 30, 2003, we were in arrears on dividend payments on our Series B and Series C Preferred Stock in the amounts of $51,000 and $101,000, respectively, which amounts include interest thereon.

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

At our Annual Meeting of Stockholders, held on June 26, 2003, the following proposals were voted upon by the stockholders as indicated below:

       1.     To elect the full Board of Directors.

 **Number of Shares****For** **Withheld**Ewen R. Cameron48,123,370882,570Norman R. Dobiesz48,123,370882,570Carl S. Levine48,123,370882,570Gregory G. Barr48,123,370882,570Richard L. Stevens48,123,370882,570
       2.     To ratify the selection of Ernst & Young LLP as independent auditors for the Company.

**For****Against****Abstain**48,226,60239,554739,784
The tabulation of votes for the election of directors resulted in no broker non-votes or abstentions.

**ITEM 5.     OTHER INFORMATION** - None
24
**ITEM 6(a).     EXHIBITS31.1    
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2    
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32      
Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**ITEM 6(b).     REPORTS ON FORM 8-K**

1.     April 1, 2003 - Press Release announcing the Company's 2002 Year End Earnings.

2.     May 15, 2003 - Press Release announcing the Company's First Quarter Earnings for 2003.

3.     June 19, 2003 - The Acquisition of the Vortex Technology and assets from Tri-Link Technologies Inc.

25
          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.TELTRONICS, INC. August 14, 2003/s/ PATRICK G. MINPatrick G. MinVice President Finance and Chief Financial Officer
26
**EXHIBIT INDEX**
ExhibitNumberDescription 31.1    
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2    
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32      
Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

27***************************