> U.S. SECURITIES AND EXCHANGE COMMISSION
> Washington, D.C. 20549
> 
> 
> FORM 10-Q
> 
> 
> 
> (Mark One)
> 
> 
> [ X ]
>      QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
> EXCHANGE ACT OF 1934.For the Quarterly Period Ended June 30, 2005[   ]
>      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:
> 0-17893TELTRONICS, INC.(Exact name of registrant as specified in its charter)
> 
> Delaware(State or other jurisdiction of Incorporation or organization)
> 
>      59-2937938(IRS Employer Identification Number)2150 Whitfield Industrial Way, Sarasota, Florida 34243(Address of principal executive
> offices including zip code)
> (941) 753-5000Issuer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  Exchange  Act Rule 12-b-2 of the  Exchange
> Act.)    Yes  [   ]    No  [ X ]
> 
> As of August 15, 2005, there were 7,874,539 shares of the Registrants Common Stock, par value $.001, outstanding. 
> 
> Exhibit index appears on page 13.
> 
> TABLE OF CONTENTS
> 
> 
> 
> 
> PAGEPART I
>      
>      FINANCIAL INFORMATIONITEM 1.
>      FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets at June 30, 2005(Unaudited) and December 31, 2004
>      3Condensed Consolidated Statements of Operations (Unaudited)
> for the Three months and Six months ended June 30, 2005 and 2004
>      4Condensed Consolidated Statements of Cash Flows (Unaudited)
> for the Six months ended June 30, 2005 and 2004
>      5Notes to Condensed Consolidated Financial Statements (Unaudited)
>      6ITEM 2.
>      MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
>      9ITEM 3.
>      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK
>      11ITEM 4.
>      CONTROLS AND PROCEDURES
>      11PART II
>      
>      OTHER INFORMATIONITEM 3.
>      DEFAULTS UPON SENIOR SECURITIES
>      12ITEM 6.
>      EXHIBITS
>      12SIGNATURE
>      13EXHIBIT INDEX
>      142
> 
> PART I  FINANCIAL
> INFORMATION
> 
> 
> ITEM 1. FINANCIAL
> STATEMENTS
> 
> 
> TELTRONICS, INC. AND SUBSIDIARIES
> CONDENSED CONSOLIDATED BALANCE SHEETSIn thousands, except shares and per share amounts
> 
> 
> ASSETS
> 
> 
> 
> 
> June 30,
> December 31,2005
> 2004(Unaudited)Current assets:Cash and cash equivalents
>      $   2,348
>      $   1,580Accounts receivable, net of allowance fordoubtful accounts
>      6,653
>      5,499Costs and estimated earnings in excess of billingson uncompleted contracts
>      276
>      342Inventories, net
>      4,869
>      3,858Other current assets
>      1,500
>      382Total current assets
>      15,646
>      11,661Property and equipment, net
>      2,933
>      3,729Other assets
>      1,002
>      1,034Total assets
>      $ 19,581
>      $ 16,424LIABILITIES AND SHAREHOLDERS' DEFICIENCYCurrent liabilities:Current portion of long-term debt and capitallease obligations
>      $ 13,659
>      $   4,831Accounts payable
>      6,210
>      5,883Other current liabilities
>      5,024
>      3,869Total current liabilities
>      24,893
>      14,583Long-term liabilities:Long-term debt and capital lease obligations,net of current portion
>      128
>      7,885Commitments and contingenciesShareholders' deficiency:Capital stock
>      8
>      8Additional paid-in capital
>      24,302
>      24,301Accumulated deficit and other comprehensive loss
>      (29,750)
>      (30,353)Total shareholders' deficiency
>      (5,440)
>      (6,044)Total liabilities and shareholders' deficiency
>      $ 19,581
>      $ 16,424The accompanying notes are an integral part of these condensed consolidated financial
> statements.
> 3
> 
> TELTRONICS, INC. AND SUBSIDIARIES
> UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSIn thousands, except shares and per share amounts
> 
> 
> 
> Three MonthsEnded June 30,
>      Six Months  Ended June 30,2005
>      2004
>      2005
>      2004Net salesProduct sales and installation
>      $       9,671
>      $     9,627
>      $   16,285
>      $   18,421Maintenance and service
>      3,336
>      2,517
>      6,515
>      5,03013,007
>      12,144
>      22,800
>      23,451Cost of goods sold
>      7,451
>      7,635
>      13,034
>      13,873Gross profit
>      5,556
>      4,509
>      9,766
>      9,578Operating expenses:General and administrative
>      1,263
>      1,278
>      2,788
>      2,889Sales and marketing
>      1,809
>      2,190
>      3,874
>      4,412Research and development
>      945
>      830
>      1,959
>      1,6944,017
>      4,298
>      8,621
>      8,995Income from operations
>      1,539
>      211
>      1,145
>      583Other income (expense):Interest
>      (395)
>      (515)
>      (743)
>      (949)Gain on sale of abandoned technology
>      ---
>      ---
>      495
>      ---Other
>      51
>      3
>      66
>      ---(344)
>      (512)
>      (182)
>      (949)Income (loss) before income taxes
>      1,195
>      (301)
>      963
>      (366)Income taxes
>      3
>      1
>      8
>      3Net income (loss)
>      1,192
>      (302)
>      955
>      (369)Dividends on Preferred Series B and C
>      Convertible stock
>      163
>      158
>      322
>      311Net income (loss) available to common
>      Shareholders
>      $       1,029
>      $      (460)
>      $        633
>      $      (680)Net income (loss) per share:Basic
>      $         0.13
>      $    (0.06)
>      $       0.08
>      $    (0.09)Diluted
>      $         0.11
>      $    (0.06)
>      $       0.08
>      $    (0.09)Weighted average shares outstanding:Basic
>      7,874,539
>      7,838,686
>      7,870,826
>      7,817,178Diluted
>      10,905,227
>      7,838,686
>      7,960,217
>      7,817,178The accompanying notes are an integral part of these condensed consolidated financial
> statements.
> 
> 4
> 
> TELTRONICS, INC. AND SUBSIDIARIESUNAUDITED CONDENSED
> CONSOLIDATED STATEMENTS OF CASH FLOWSIn thousands, except shares and per share amounts
> 
> Six Months Ended June 30,2005
>      2004NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
>      $     (455)
>      $    469INVESTING ACTIVITIES - NET
>      297
>      (316)FINANCING ACTIVITIES:Net borrowings on line of credit
>      1,394
>      229Other
>      (437)
>      (141)Net cash flows provided by financing activities
>      957
>      88Effect of exchange rate changes on cash
>      (31)
>      6Net increase in cash and cash equivalents for the period
>      768
>      247Cash and cash equivalents - Beginning of Period
>      1,580
>      146Cash and cash equivalents - End of Period
>      $    2,348
>      $    393The accompanying notes are an integral part of these condensed consolidated financial
> statements.
> 5
> 
> TELTRONICS, INC. AND SUBSIDIARIES
> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSIn thousands, except shares and per share amounts(Unaudited)
> 
> 
> NOTE 1  BASIS OF
> PRESENTATION
> 
> 
> The accompanying unaudited condensed
> consolidated financial statements have been prepared in accordance with accounting
> principles generally accepted in the United States for interim financial information and
> with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
> not include all of the information and notes required by generally accepted accounting
> principles for complete financial statements. In the opinion of management, all
> adjustments (consisting of normal recurring accruals) considered necessary for a fair
> presentation have been included. Operating results for the six month period ended June 30,
> 2005, are not necessarily indicative of the results that may be expected for the year
> ending December 31, 2005.
> 
> 
> The balance sheet at December 31, 2004
> has been derived from the audited financial statements at that date but does not include
> all of the information and notes required by generally accepted accounting principles for
> complete financial statements.
> 
> 
> For further information, refer to the
> consolidated financial statements and notes thereto included in the Companys annual
> report on Form 10-K for the year ended December 31, 2004.
> 
> 
> NOTE 2 
> COMPREHENSIVE INCOME (LOSS)
> 
> 
> Total comprehensive income (loss) is
> as follows:
> 
> 
> Three Months EndedJune 30,
>      Six Months EndedJune 30,2005
>      2004
>      2005
>      2004Net income (loss)
>      $ 1,192
>      $(302)
>      $ 955
>      $(369)Foreign currency translation
>      (6)
>      (1)
>      (30)
>      6Total comprehensive income (loss)
>      $ 1,186
>      $(303)
>      $ 925
>      $(363)6
> 
> NOTE 3  NET INCOME
> (LOSS) PER SHARE
> 
> 
> The following table sets forth the
> computation of basic and diluted net loss per share for the periods indicated:
> 
> 
> 
> Three Months EndedJune 30,
>      Six Months EndedJune 30,Net income per share
>      2005
>      2004
>      2005
>      2004BasicNet income (loss)
>      $        1,192
>      $       (302)
>      $         955
>      $       (369)Preferred dividends
>      (163)
>      (158)
>      (322)
>      (311)1,029
>      (460)
>      633
>      (680)Weighted average shares outstanding
>      7,874,539
>      7,838,686
>      7,870,826
>      7,817,178Net income (loss) per share
>      $          0.13
>      $     (0.06)
>      $        0.08
>      $     (0.09)DilutedNet income (loss)
>      $        1,192
>      $       (302)
>      $         955
>      $       (369)Preferred dividends
>      ---
>      (158)
>      (322)
>      (311)Interest
>      32
>      ---
>      ---
>      ---1,224
>      (460)
>      633
>      (680)Weighted average shares outstanding
>      10,905,227
>      7,838,686
>      7,960,217
>      7,817,178Net income (loss) per share
>      $          0.11
>      $     (0.06)
>      $        0.08
>      $     (0.09)For the three and six months ended June
> 30, 2005 and 2004, options to purchase 1,541,350 and 1,664,000 shares of common stock,
> respectively, were not included in the computation of diluted net loss per share because
> the effect would be anti-dilutive.
> 
> 
> For the three and six months ended
> June 30, 2005 and 2004, warrants to purchase 1,190,000 shares of common stock were not
> included in the computation of diluted net loss per share because the effect would be
> anti-dilutive.
> 
> 
> NOTE 4  INVENTORIES
> 
> 
> The major classes of inventories are
> as follows:
> 
> 
> June 30, 2005
>      December 31, 2004(Unaudited)Raw materials
>      $   2,920
>      $   1,707Work-in-process
>      535
>      759Finished goods
>      1,414
>      1,392$   4,869
>      $   3,858NOTE 5  SUBSEQUENT
> EVENTS
> 
> 
> On July 6, 2005 the Company entered
> into a new Revolving Credit, Term Loan and Security Agreement (Agreement)
> under which the Company obtained a $3,000 term loan (Term Loan) and was
> granted an $8,000 revolving credit facility (Revolver). Advances under the
> Revolver are based on a borrowing base formula that provides for, among other things,
> eligibility based on certain percentages of receivables and inventory. Advances under the
> Revolver bear interest at prime plus 2.5% while the Term Loan, which is payable in 36
> monthly installments based on a six year amortization, bears interest at prime plus 3.5%.
> Substantially all of the Companys assets are pledged to secure borrowings under the
> Agreement.
> 7
> Under the terms of the Agreement, the
> Company used approximately $8,100 under the facility to satisfy the Companys debt
> under its previous line of credit facility and its Secured Promissory Note. The Company
> recognized a gain of $3,622 or $0.46 per basic share on the extinguishment of the Secured
> Promissory Note.
> 
> 
> The Company also issued a warrant to
> purchase 236,236 Common shares in connection with the Agreement. The warrant is
> exercisable for a period of up to ten years at a price, which is subject to escalation
> under certain conditions, of $0.35 per share. The Company recorded a deferred charge of
> $57 in connection with issuing the warrant which will be amortized over the three year
> term of the Agreement.
> 
> 8
> ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
>               RESULTS OF OPERATIONS   
> (In thousands, except shares and per share amounts)
> 
> 
> 
> FORWARD-LOOKING STATEMENTS
> 
> 
> References in this report to the
> Company, Teltronics, we. or us mean
> Teltronics, Inc. together with its subsidiaries, except where the context otherwise
> requires. A number of statements contained in this Quarterly Report on Form 10-Q are
> forward-looking statements, which are made pursuant to the safe harbor provisions of the
> Private Securities Litigation Reform Act of 1995. These forward-looking statements can
> generally be identified as such because the context of the statement will include words
> such as we believe, anticipate, expect, or words of
> similar import. Similarly, statements that describe our future plans, objectives,
> strategies or goals are also forward-looking statements. These forward-looking statements
> involve a number of risks and uncertainties that may materially adversely affect the
> anticipated results. Such risks and uncertainties include, but are not limited to, the
> timely development and market acceptance of products and technologies, competitive market
> conditions, successful integration of acquisitions, the ability to secure additional
> sources of financing, the ability to reduce operating expenses, 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 the forward-looking statements made herein and are cautioned not
> to place undue reliance on such forward-looking statements. The forward-looking statements
> made herein are only made as of the date of this Form 10-Q and we disclaim any obligation
> to publicly update such forward-looking statements to reflect subsequent events or
> circumstances.
> 
> 
> RESULTS OF OPERATIONS
> 
> 
> Net Sales and Gross
> Profit Margin
> 
> 
> Net sales increased $863 or 7.1% for the
> three month period ended June 30, 2005 as compared to the same period in 2004. Net sales
> decreased $651 or 2.8% for the six month period ended June 30, 2005 as compared to the
> same period in 2004. The three month increase is primarily the result of a shift in
> customer demands from the first quarter to the second quarter. The decrease in sales for
> the six months ending June 30, 2005 is primarily attributable to the ongoing downturn in
> the Intelligent Systems Management market as customers switch from the Time Division
> Multiplexing technology to the Internet Protocol technology.
> 
> 
> 
> Gross profit margin for the three
> month period ended June 30, 2005 and 2004 was 42.7% and 37.1%, respectively. Gross profit
> margin for the six month period ended June 30, 2005 and 2004 was 42.8% and 40.8%,
> respectively. Gross profit margin percentage is driven by sales mix, manufacturing
> variances and project management.
> 
> 
> Operating Expenses
> 
> 
> Operating expenses were $4,017 and
> $4,298 for the three month period ended June 30, 2005 and 2004, respectively.
> 
> 
> General and administrative expenses
> decreased $15 for the three month period ended June 30, 2005 as compared to the same
> period in 2004. The net decrease was primarily the result of a $45 decrease in
> depreciation expense, a $27 decrease in employee recruitment, and $62 decrease in auditing
> and legal fees, partially offset by an increase of $41 in the provision for doubtful
> accounts, an increase of $31 in rent, and an increase of $32 temporary help.
> 
> 
> Sales and marketing expenses decreased
> $381 for the three month period ended June 30, 2005 as compared to the same period in
> 2004. The net decrease was primarily the result of a $87 decrease in depreciation expense,
> an $85 decrease in commissions, a $53 decrease in travel and entertainment, and a $140
> decrease associated with a change in facilities in the NYC sales office.
> 9
> Research and development expenses
> increased $115 for the three month period ended June 30, 2005 as compared to the same
> period in 2004. The net increase was primarily a result of the addition of new staff at
> the Atlanta facility.
> 
> 
> Operating expenses were $8,621 and
> $8,995 for the six month period ended June 30, 2005 and 2004, respectively.
> 
> 
> General and administrative expenses
> decreased $101 for the six month period ended June 30, 2005 as compared to the same period
> in 2004. The net decrease was primarily the result of a $85 decrease in depreciation
> expense, and a $165 decrease in the provision for doubtful accounts resulting from the
> collection of outstanding specific accounts. These are partially offset by an increase of
> $60 in auditing and legal fees, and an increase of $82 in compensation and employee fringe
> expenses.
> 
> 
> Sales and marketing expenses decreased
> $538 for the six month period ended June 30, 2005 as compared to the same period in 2004.
> The net decrease was primarily a result of the decrease in severance costs of $114 related
> to the reduction in force in the NYC sales office, a decrease of $80 in commission
> expense, a $144 reduction in depreciation expense, and a $196 decrease in rent expense
> associated with the change in facility in NYC.
> 
> 
> Research and development expenses increased
> $265 for the six month period ended June 30, 2005 as
> compared to the same period in 2004. The net increase was primarily a result of the
> addition of new staff at the Atlanta facility, offset by a $38 reduction in depreciation expense.
> 
> 
> Other Income (Expense)
> 
> 
> Other expense was $344 and $512 for
> the three month period ended June 30, 2005 and 2004, respectively. For the three month
> period ended June 30, 2005 interest expense decreased $33, financing costs decreased $84
> and other expenses decreased $48. The decrease in interest expense was a result of the
> decrease in the interest rate on the note payable to Harris Corporation.
> 
> 
> Other expense was $182 and $949 for
> the six month period ended June 30, 2005 and 2004, respectively. For the six month period
> ended June 30, 2005 interest expense decreased $104, financing costs decreased $99 and
> other expenses decreased $66. The decrease in interest expense was a result of the
> decrease in the interest rate on the note payable to Harris Corporation.
> 
> 
> The six month period ended June 30,
> 2005 also included a gain of $495 on the sale of abandoned technology.
> 
> 
> LIQUIDITY AND CAPITAL
> RESOURCES
> 
> 
> In April 2005 we amended our former
> credit facility to extend the maturity of the facility until March 31, 2006. The
> Companys interest rate under the facility was 9.0% at June 30, 2005 and 8.25% at
> December 31, 2004.
> 
> 
> In July 2005, the Company entered into
> a new Revolving Credit, Term Loan and Security Agreement (New Agreement) under
> which the Company obtained a $3,000 term loan (Term Loan) and was granted an
> $8,000 revolving credit facility (Revolver). Advances under the Revolver are
> based on a borrowing base formula that provides for, among other things, eligibility based
> on certain percentages of receivables and inventory. Advances under the Revolver bear
> interest at prime plus 2.5% while the Term Loan, which is payable in 36 monthly
> installments based on a six year amortization, bears interest at prime plus 3.5%.
> Substantially all of the Companys assets are pledged to secure borrowings under the
> New Agreement.
> 
> 
> Under the terms of the New Agreement,
> the Company used approximately $8,100 under the facility to satisfy the Companys
> debt under its previous line of credit facility and its Secured Promissory Note. The
> Company recognized a gain of $3,622 or $0.46 per basic share on the extinguishment of the
> Secured Promissory Note.
> 
> 10
> The Company also issued a warrant to
> purchase 236,236 Common shares in connection with the New Agreement. The warrant is
> exercisable for a period of up to ten years at a price, which is subject to escalation
> under certain conditions, of $0.35 per share. The Company recorded a deferred charge of
> $57 in connection with issuing the warrant which will be amortized over the three year
> term of the New Agreement.
> 
> 
> In February 2005, an entity controlled
> by a Director of the Company provided a $750 loan to the Company. In March 2005, the
> Company paid $530 to the entity and in June 2005 the remainder of the loan was repaid.
> 
> 
> Seasonality
> 
> 
> The Company has experienced
> seasonality due in part to purchasing tendencies of our customers during the fourth and
> first quarters of each calendar year. Consequently, net sales for the fourth and first
> quarters of each calendar year are typically not as strong as results during the other
> quarters. The net sales of the Company continued to be impacted by the general slowdown of
> telecommunications expenditures.
> 
> 
> ITEM 3.   QUANTITATIVE AND
> QUALITATIVE DISCLOSURES ABOUT MARKET RISK
> 
> 
> We have no material changes to the
> disclosure under the caption Quantitative and Qualitative Disclosures About Market
> Risks in our Annual Report on Form 10-K for the year ended December 31, 2004, and
> incorporated herein by reference.
> 
> 
> ITEM 4.   CONTROLS AND
> PROCEDURES
> 
> 
> The Company, under the supervision and
> with the participation of its management, including the Chief Executive Officer and the
> Chief Financial Officer, evaluated the effectiveness of the design and operation of the
> Companys disclosure controls and procedures (as defined in Rule
> 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of
> the end of the period covered by this report. Based on that evaluation, the Chief
> Executive Officer and the Chief Financial Officer concluded that the Companys
> disclosure controls and procedures are effective in timely making known to them material
> information relating to the Company and the Companys consolidated subsidiaries
> required to be disclosed in the Companys reports filed or submitted under the
> Exchange Act. There has been no change in the Companys internal control over
> financial reporting during the quarter ended June 30, 2005 that has materially affected,
> or is reasonably likely to materially affect, the Companys internal control over
> financial reporting.
> 
> 11
> PART II  OTHER
> INFORMATION
> 
> 
> ITEM 3.   DEFAULTS UPON
> SENIOR SECURITIES
> 
> 
> As of June 30, 2005,  we were in arrears on dividend  payments on our Series B and Series C Preferred  Stock in the
> amounts of $173 and $1,000, respectively, which amounts include interest thereon.
> We were also in arrears on the Note Payable to Tri-Link  Technologies  Inc.  ("Tri-Link")  in the amount of $1,260.
> Teltronics  has contested the claims of Tri-Link in an arbitration  scheduled for hearing in September,  2005 under
> the auspices of the International Centre for Dispute Resolution of the American Arbitration  Association,  in which
> Teltronics  has contended  that all or some of the claims by Tri-Link are without  merit.  As well,  Teltronics has
> asserted  counterclaims  in this  arbitration  and commenced an action in the Untied State District Court (M.D. FL)
> against Hargan-Global Ventures, Inc., a shareholder of Tri-Link, for damages related to the Tri-Link matter.
> 
> 
> ITEM 6.   EXHIBITS
> 
> 
> 
> 31.1
>      Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
>      Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
>      Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200212
> SIGNATURES
> 
> 
> Pursuant
> to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
> this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
> 
> 
> 
> 
> 
> Dated:  August 15, 2005
> 
> TELTRONICS, INC.By: /s/ EWEN R. CAMERON
> Ewen R. CameronPresident & Chief Executive OfficerDated:  August 15, 2005
> 
> By: /s/ RUSSELL R. LEE III
> Russell R. Lee IIIVice President & Chief Financial Officer13
> 
> EXHIBIT INDEX
> 
> ExhibitNumber
>      Description31.1*
>      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.(*)
>      Filed as an Exhibit to this Report on Form 10-Q for the period ended June 30, 2005.14