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**U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**
**FORM 10-Q**[X]QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934.For the Quarterly Period Ended June 30, 2001.[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE 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 bysection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes [X] No [  ]
As of August 10, 2001 there were 4,856,993 shares of the Registrant's Common Stockoutstanding.
**INDEX**
**PAGE**
**PART I.****FINANCIAL INFORMATION**     ITEM 1.FINANCIAL STATEMENTS (Unaudited)Consolidated Balance Sheets at June 30, 2001 and December 31,2000.3-4Consolidated Statements of Operations for the Three MonthsandSix Months ended June 30, 2001 and 2000.5Consolidated Statements of Cash Flows for the Six Monthsended June 30, 2001 and 2000.6Notes to Interim Consolidated Financial Statements - June 30,20017     ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS12**PART II.**OTHER INFORMATION     ITEM 1.LEGAL PROCEEDINGS15     ITEM 2.CHANGES IN SECURITIES AND USE OF PROCEEDS15     ITEM 3.DEFAULTS UPON SENIOR SECURITIES15     ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS15     ITEM 5.OTHER INFORMATION15     ITEM 6A.EXHIBITS15     ITEM 6B.REPORTS ON FORM 8-K15**SIGNATURES16
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**PART I - FINANCIAL INFORMATION**
**ITEM 1.	FINANCIAL STATEMENTS**
**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**
ASSETSJune 30,2001December 31,2000(Unaudited)**Current Assets:**Cash and cash equivalents$          73,363$          35,292Accounts receivable, net of allowance for doubtful     accounts of $256,000 at June 30, 2001      and $278,500 at December 31, 2000.15,106,12410,594,463Inventories, net10,592,65911,494,314Prepaid expenses and other current assets472,675391,964
     Total current assets26,244,82122,516,033Property and equipment, net5,684,2445,841,728Goodwill and other intangible assets, net709,419760,927Other assets256,439412,779     Total assets$     32,894,923$     29,531,467
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS - Continued**
**LIABILITIES AND SHAREHOLDERS' EQUITY**June 30,2001December 31,2000(Unaudited)**Current Liabilities:**     Current portion of note payable$          7,096,623 $          857,059      Current portion of long-term debt2,690,796 5,042,465      Current portion of capital lease obligations175,472 	313,370      Accounts payable12,884,606 	7,853,835      Accrued expenses and other current liabilities3,480,748 	2,416,614      Deferred income2,353,054	1,333,567           Total current liabilities28,681,299 	17,816,910 **Long-term liabilities:     Note payable, net of current portion0 	6,239,564      Long-term debt, net of current portion0 	1,000,000      Capital lease obligations, net of current portion29,525 	71,862           Total long-term liabilities29,525 	7,311,426 **Commitments and contingencies**Shareholders' equity:     Common stock, $.001 par value, 40,000,000 shares authorized,          4,856,993 and 4,761,291 issued and outstanding at          June 30, 2001 and December 31, 2000, respectively.4,858 4,763      Non-voting common stock, $.001 par value, 5,000,000 shares          authorized, zero shares issued and outstanding.
0 
0      Preferred Series A stock, $.001 par value, 100,000 shares          authorized, 100,000 shares issued and outstanding.
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100      Preferred Series B Convertible stock, $.001 par value, 25,000          shares authorized, 12,625 shares issued and outstanding.13 13      Additional paid-in capital18,971,590 	18,838,798      Accumulated deficit(14,792,462)(14,440,543)          Total shareholders' equity4,184,099 	4,403,131           Total liabilities and shareholders' equity$    32,894,923 $     29,531,467 
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)**Three Months Ended June 30,Six Months Ended June 30,2001200020012000**Net Sales$  25,827,568 $  6,413,107 $  44,078,038 $  13,997,496 Cost of goods sold17,512,521 4,180,507 29,409,701 8,681,644 **Gross profit8,315,047 2,232,600 14,668,337 5,315,852 **Operating expenses:     General and administrative1,673,870 1,137,563 3,420,855 2,117,756      Sales and marketing3,712,092 1,494,764 7,250,334 3,128,574      Research and development1,646,908 1,124,634 3,222,032 2,032,523 7,032,870 3,756,961 13,893,221 7,278,853 Income (loss) from operations1,282,177 (1,524,361)775,116 (1,963,001)**Other income (expense):     Interest(379,679)(209,439)(801,077)(428,562)     Financing(96,473)(74,983)(175,124)(145,877)     Litigation costs0 (251,082)0 (327,882)     Other(28,360)4,920 (63,520)21,942 (504,512)(530,584)(1,039,721)(880,379)Income (loss) before incometaxes777,665 (2,054,945)(264,605)(2,843,380)Income taxes(6,413)0 (11,564)0 **Net Income (Loss)771,252 (2,054,945)(276,169)(2,843,380)Dividends on Preferred Series B     Convertible  Stock37,875 37,875 75,750 75,750 Net income (loss) attributable     to Common Shareholders$     733,377 $  (2,092,820)$     (351,919)$   (2,919,130)**Net income (loss) per share:     Basic$ 0.15 $ (0.48)$ (0.07)$ (0.69)     Diluted$ 0.13 $ (0.48)$ (0.07)$ (0.69)
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**Six Months Ended June 30,20012000**Cash Flows from Operating Activities:     Net loss$      (276,169)$  (2,843,380)     Adjustments to reconcile net loss to net cash      flows provided by (used in) operating activities:          Provision for doubtful accounts(22,500)(63,000)          Provision for obsolete inventories173,972 104,974           Depreciation and amortization1,122,550 752,752           Amortization of deferred financing costs92,379 51,871           Amortization of intangibles51,508 10,088      Changes in operating assets and liabilities,     net of acquisitions and dispositions:          Accounts receivable(4,489,161)1,395,350           Inventories727,683 (610,632)          Prepaid expenses and other current assets(80,711)(105,871)          Accounts payable5,030,771 226,409           Accrued expenses and other current liabilities1,064,134 (14,346)          Deferred income1,019,487 68,898 Net cash flows provided by (used in) operatingactivities4,413,943 (1,026,887)**Cash Flows from Investing Activities:     Acquisition of property and equipment(965,965)(181,856)     Decrease in other assets63,961 43,279      Proceeds from sale of assets899 0 Cash received in acquisition of Telident, Inc. netassets0 762,321 Net cash flows provided by (used in) investingactivities(901,105)623,744 **Cash Flows from Financing Activities:     Net repayment of line of credit(2,601,669)(4,753)     Principal repayments of loans, notes and leases(930,235)(215,113)     Net proceeds from sale of common stock132,887 10,500      Dividends on Preferred Series B Convertible Stock(75,750)(75,750)Net cash flows used in financing activities(3,474,767)(285,116)Net increase (decrease) in cash38,071 (688,259)Cash and cash equivalents - beginning of period35,292 954,764 Cash and cash equivalents - end of period$         73,363 $        266,505 **Supplemental Non-cash Financing and Investing Activities:**     Acquisition of assets of Telident, Inc. for common stock$                 0 $       2,073,626      Acquisition of assets of Harris 20-20 for a note payable$                 0 $       6,884,355 
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
**NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION**
Teltronics, Inc. ("Teltronics" or "Company"), a Delaware corporation, designs, develops,manufactures and markets electronic hardware and application software products, and engagesin contract manufacturing for the telecommunication industry.  Through its majority ownedsubsidiary, Interactive Solutions, Inc. ("ISI") the Company has also engaged in the design andmanufacturing of a portable hardware/software device which allows two-way communicationbetween speaking/hearing impaired individuals and hearing individuals.
The accompanying consolidated financial statements include the accounts of the Company andis comprised of its wholly-owned subsidiaries TTG Acquisition Corp. and Teltronics, S.A. deC.V. and its 85% owned subsidiary Interactive Solutions, Inc. ("ISI").  All significant inter-company transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements and related notes have been prepared inaccordance with the rules and regulations of the Securities and Exchange Commission and onsubstantially the same basis as the annual consolidated financial statements.  In the opinion ofmanagement, the consolidated financial statements reflect all adjustments, consisting only ofnormal recurring adjustments, necessary for a fair presentation of the financial position,operating results, and cash flows for those periods presented.  Operating results for the sixmonth period ended June 30, 2001 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2001.  These consolidated financial statementsshould be read in conjunction with the consolidated financial statements, and notes thereto, forthe year ended December 31, 2000, as presented in the Company's annual report on Form 10-K.
In July, 2001, the FASB issued Statements of Financial Accounting Standards No. 141, *Business Combinations* and No. 142, *Goodwill and Other Intangible Assets*.  Statement 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001.  Statement 141 further clarifies the criteria to recognize intangible assets separately from goodwill.  The requirements of Statement 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001.
Under Statement 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment.  Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives.  The amortization provisions of Statement 142 apply to goodwill and intangible assets acquired after June 30, 2001.  With respect to goodwill and intangible assets acquired prior to July 1, 2001,  the Company is required to adopt Statement 142 in its fiscal year beginning after December 15, 2001.
The Company does not believe the implementation of these standards will have a material effect on its financial statements.
**NOTE 2 - ACQUISITIONS**
**Telident, Inc.**
On May 18, 2000, the Company acquired substantially all of the assets and assumed certainliabilities of Telident, Inc., a Minnesota corporation ("Seller") located in Minneapolis, Minnesota.The Company acquired all of the Seller's rights to and in certain technology for the identificationor location of emergency 911 telephone calls.
The Company delivered  662,500  shares of its $.001 par value voting common stock forsubstantially all of the assets of the Seller.
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The acquisition has been accounted for using the purchase method of accounting andoperations of the acquired business are included in the Company's results of operations fromthe date of acquisition.  The purchase price has been assigned to the net assets acquired basedon management's estimate of the fair value of such assets and liabilities at the date ofacquisition as follows:Cash$762,321 Accounts receivable, net610,998 Inventory, net260,757 Prepaid expenses and other current assets26,168 Property and equipment, net240,234 Other assets6,282 Goodwill and identifiable intangible assets514,299 Accounts payable(76,792)Accrued expenses and other currentliabilities(239,505)Deferred Income(28,146)Long-Term debt(2,990)Net assets acquired$2,073,626 
**Harris Corporation 20-20 Switching Product Line**
On June 30, 2000, the Company acquired certain equipment, inventory and intellectual propertyrights related to the 20-20® switching technology and associated products of Harris CorporationCommunications Products Division located in Melbourne, Florida ("Harris"), under an Asset SaleAgreement dated June 30, 2000 ("Agreement").
Under the Agreement, the Company acquired the assets and assumed on-going supportobligations for certain of Harris' Communications Products Division customers in considerationfor $6,884,355 paid for with a promissory note with interest at 10.5% per annum ("Note").
The acquisition has been accounted for using the purchase method of accounting and resultsof operations  of the acquired business are included in the Company's results of operations fromthe date of acquisition.  The purchase price has been assigned to the net assets acquired basedon management's estimate of the fair value of such assets and liabilities at the date ofacquisition as follows:Inventory, net$ 5,277,113 Property and equipment, net3,083,025 Customer lists and patents206,210 Note payable(6,884,355)Accrued expenses and other currentliabilities(1,629,993)Accounts payable(52,000)Net assets acquired$             0 
**NOTE 3 - NET INCOME (LOSS) PER SHARE**
Basic net loss per share is computed by dividing net loss, adjusted for preferred stock dividends,by the weighted average number of issued common shares outstanding during the applicableperiod.  Diluted net loss per share is computed by dividing net loss, adjusted for preferred stockdividends, by the weighted 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 arecomputed using the treasury stock method.  Certain potential common shares for 2001 and 2000were anti-dilutive and were not included in the calculation of diluted net loss per share.
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The following unaudited table sets forth the computation of basic and diluted net loss per share:Three Months Ended June 30,Six Months Ended June 30,2001200020012000**BasicNet income (loss)$  771,252 $	(2,054,945)$  (276,169)$	(2,843,380)Preferred dividends adjustment(37,875)(37,875)(75,750)(75,750)     Net income (loss) attributable to          common shareholders$  733,377 $	(2,092,820)$ 	(351,919)$	(2,919,130)Weighted average shares outstanding4,840,860 4,388,132 4,821,487 4,223,272      Net income (loss) per share$ 0.15 $ (0.48)$ (0.07)$ (0.69)**DilutedNet income (loss)$  	771,252 $	(2,054,945)$  	(276,169)$	(2,843,380)Preferred dividends adjustment0 (37,875)(75,750)(75,750)     Net Income (loss) attributable to          common shareholders$  771,252 $	(2,092,820)$ 	(351,919)$	(2,919,130)Weighted average shares outstanding4,840,860 4,388,132 4,821,487 4,223,273 Net effect of dilutive stock options     using the treasury stock method261,108 0 0 0 Net effect of dilutive convertible     preferred stock using if converted     method909,091 0 0 0      Dilutive potential common shares6,011,059 4,388,132 4,821,487 4,223,273      Net income (loss) per share$ 0.13 $ (0.48)$ (0.07)$ (0.69)
**NOTE 4 - INVENTORIES
The major classes of inventories are as follows:June 30,2001December 31,2000(Unaudited)Raw materials$7,671,170$8,794,585 Work-in-process1,197,3841,276,872 Finished goods1,724,1051,422,857$10,592,659$11,494,314
Provision for obsolete inventories was $173,972 at June 30, 2001 and $462,246 at December31, 2000.
**NOTE 5 - DEBT
On October 28, 2000, the Company's principal lender, The CIT Group/Credit Finance, Inc. ("CIT")extended the Company's existing Line of Credit Facility and Term Loan.  Under the extension agreement,the interest rate is 2.0% above prime rate, maximum availability is $5,500,000, a prepayment penalty is assessed at 1.5% and the due date is October 28, 2002.  Substantially all of the Company's present and future assets, except for fixed assets, are pledged as collateralwith borrowings limited to certain gross availability formulas based on accounts receivable andinventory as defined in the agreement.  The facility provides for minimum loan fees, unused linefees and renewal term fees.  The outstanding borrowings are classified as a current liability.  Adirector of the Company has personally guaranteed a portion of the facility.  At June 30, 2001the Company had $3,875,844 available subject to restrictions based on availability formulas.
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On May 12, 2000 and June 30, 2000, the Company amended and restated the $1,750,000 ofSubordinated Secured Debentures Agreement with Finova Capital.  The Company repaid$750,000 of the Debentures on September 29, 2000, $250,000 on October 31, 2000 and theremaining $750,000 was paid by March 30, 2001.
On May 12, 2000, the Company amended and restated the $1,000,000 Loan Agreement withFinova Capital originally entered into on February 25, 1998 and originally due February 25,1999.  The Loan Agreement has a revised maturity of February 13, 2002.  The interest rate is12%.  The Holder of the Loan received 365,000 warrants to purchase the Company's CommonStock at an exercise price of $2.75 per share.  These warrants are exercisable in whole, or inpart, at any time during a five-year holding period beginning on the date of issuance.  The Loancontains certain financial covenants, including restrictions which could effect future funding ofISI by the Company.
The Company maintains a promissory note ("Note") to the Harris Corporation related to the acquisition of the 20-20® Product Line which was amended August 17, 2000 to extend the maturity to September 29, 2000 and wasfurther amended October 30, 2000.  Under this amendment, the principal and capitalizedinterest total was stated at $7,096,623, the due date was extended to December 31, 2000 andinterest was changed to 10.5% effective October 4, 2000 and was to be paid monthly startingNovember 1, 2000.
In March, 2001, Harris and the Company reached an understanding to further amend the Note owed by theCompany to Harris.  The understanding contemplates partial payment of the existing principal of the Note during the third quarter of 2001 and payment of the balance under the amended Note with interest only at a rate of 10.5% per annumduring an initial period of six months and amortization of the adjusted principal balance ineighteen monthly installments commencing seven months after execution of the amended Note and issuance of warrants to acquire shares of the common stock of the Company.  There can be no assurance that the contemplated Note restructuring willoccur or that it will close on the terms contemplated.  Pending execution of the contemplatedrestructuring, Harris and the Company have agreed that the principal of the Note has beenincreased by an additional amount of $2,642,941 to reflect the aggregate payables owed by theCompany to Harris for additional inventory and services provided; the maturity date of the Notehas been extended to April 30, 2002; and interest only payments at a rate of 10.5%  commencedin May, 2001.
The Note is secured by a first lien on the assets and a lien on the Company's other assets.
**NOTE 6 - SHAREHOLDERS' EQUITY**
The total number of shares of all classes of capital stock which the Company has the authorityto issue is 50,000,000 shares divided into three classes of which 5,000,000 shares, par value$.001 per share are designated Preferred stock, 40,000,000 shares, par value $.001 per shareare designated Common stock and 5,000,000 shares, par value $.001 per share, are designatedNon-Voting Common stock.
(A)     **Preferred Stock** - On February 25,1998, the Company issued 25,000 shares of Preferred Series B Convertible Stock for$2,500,000.  The Preferred Series B Convertible Stock provides for a $12 per share annualdividend, payable quarterly starting May 15, 1998.  The dividend increases to $20 after fouryears.  Fees paid in connection with this Preferred Stock totaled $12,500.  The holder of thePreferred Series B Convertible Stock has
the right at its option to convert to the Company'sCommon Stock at $2.75 per share.  The Preferred Series B Convertible Stock cannot be calledfor two years and after two years, only if the twenty-day average bid price of the Company'scommon stock exceeds $5.50 per share.  After four years, the Company has the right to redeemthe 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 financialcovenants.
(B)     **Warrants** - On February 25, 1998,the Company issued 890,000 warrants to purchase the Company's common stock at an exerciseprice of $2.75 per share.  These warrants are exercisable in whole, or in part, at any time duringa five year period beginning on the date of issuance.  The fair value of the warrants wasrecorded as deferred financing costs and totaled $569,600.  This amount is being amortized tofinancing expense over the life of the Subordinated Secured Debentures and Senior SecuredLoans.
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**NOTE 7 - SEGMENT INFORMATION
The Company's operations are classified into three reportable segments, Teltronics,  ISI andMexico.  Each reportable segment is staffed separately, requires different technology andmarketing strategies and sells to different customers.
The accounting policies of the Segments are the same.  Inter-segment sales and transfers arerecorded at Teltronics' cost  plus a normal margin for electronic manufacturing.  Companymanagement evaluates performance based on segment profit, which is net income or (loss)before taxes, excluding nonrecurring gains or losses.
The following table presents information about reportable segment operations and assets.Three Months EndedJune 30,Six Months EndedJune 30,2001200020012000**Net Sales**    Teltronics$	25,270,000 $	6,226,000 $	43,410,000 $	13,712,000      Mexico3,000 0 3,000 0      ISI555,000 187,000 665,000 285,000      Total sales$	25,828,000 $	6,413,000 $	44,078,000 $	13,997,000 **Depreciation and Amortization**     Teltronics$    	526,000 $    	250,000 $ 	1,083,000 $    	492,000      Mexico2,000 0 2,000 0      ISI18,000 130,000 38,000 261,000      Total depreciation and amortization$    	546,000 $    	380,000 $	1,123,000 $    	753,000 **Interest and Financing Costs     Teltronics$    	476,000 $    	284,000 $    	976,000 $    	574,000      Mexico0 0 0 0      ISI0 0 0 0      Total interest and financing costs$    	476,000 $    	284,000 $    	976,000 $    	574,000 **Segment Profits     Teltronics$    	962,000 $	(1,434,000)$    	305,000 $	(1,807,000)     Mexico(179,000)0 (268,000)0      ISI(5,000)(621,000)(302,000)(1,036,000)     Net income (loss) before taxes$    	778,000 $	(2,055,000)$    	(265,000)$	(2,843,000)**Segment Assets     Teltronics$	32,339,000 $	22,519,000 $	32,339,000 $	22,519,000      Mexico199,000 0 199,000 0      ISI357,000 732,000 357,000 732,000      Total segment assets$	32,895,000 $	23,251,000 $	32,895,000 $	23,251,000 **Acquisition of Property and Equipment     Teltronics$    	629,000 $      	25,000 $    	862,000 $    	163,000      Mexico76,000 0 90,000 0      ISI7,000 0 14,000 19,000      Total acquisition of property and          equipment$    	712,000 $      	25,000 $    	966,000 $    	182,000 
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**ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**
**FORWARD-LOOKING STATEMENTS**
A number of statements contained in this Quarterly Report on Form 10-Q are forward-lookingstatements which are made pursuant to the Safe Harbor provisions of the Private SecuritiesLitigation Reform Act of 1995.  These forward-looking statements involve a number of risks anduncertainties, including the timely development and market acceptance of products andtechnologies, competitive market conditions, successful integration of acquisitions, the ability tosecure additional sources of financing, the ability to reduce operating expenses, the ability tocomply with the rules for inclusion in the Nasdaq Stock Market and other factors described in theCompany's filings with the Securities and Exchange Commission.  The actual results that theCompany achieves may differ materially from any forward-looking statements due to such risksand uncertainties.
**RESULTS OF OPERATIONS
The following unaudited tables set forth certain data, expressed as a percentage of revenue,from the company's consolidated Statements of Operations for the three and six month periodsended June 30, 2001 and 2000.Three Months EndedJune 30,Six Months EndedJune 30,2001200020012000Net sales100.0% 100.0% 100.0% 100.0% Cost of goods sold67.8% 65.2% 66.7% 62.0%      Gross profit32.2% 34.8% 33.3% 38.0% Operating expenses:     General and administrative6.5% 17.7% 7.8% 15.1%      Sales and marketing14.4% 23.3% 16.4% 22.3%      Research and development6.4% 17.5% 7.3% 14.6% 27.3% 58.5% 31.5% 52.0%      Income (loss) from operations4.9% (23.7%)1.8% (14.0%)Other income (expense):     Interest(1.5%)(3.3%)(1.8%)(3.1%)     Financing(0.4%)(1.2%)(0.4%)(1.0%)     Litigation costs0.0% (3.9%)0.0% (2.3%)     Other(0.1%)0.1% (0.1%)0.1% (2.0%)(8.3%)(2.3%)(6.3%)     Income (loss) before incometaxes2.9% (32.0%)(0.5%)(20.3%)     Income tax expense0.0% (0.0%)0.0% (0.0%)     Net income2.9% (32.0%)(0.5%)(20.3%)
**Three Months Ended June 30, 2001 and 2000.**
Sales were $25,828,000 for 2001 as compared to $6,413,000 for 2000.  This increase was dueto strong sales from the 20-20® acquisition.
Gross profit was $8,315,000 or 32.2% for 2001 as compared to $2,233,000 or 34.8% for 2000.The increase was due to strong sales from the 20-20® acquisition.
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General and administrative expenses were $1,674,000 for 2001 as compared to $1,138,000 for2000.  The increase was due to increased payroll and benefit plan expenses due primarily to the 20-20® acquisition.
Sales and marketing expenses were $3,712,000 for 2001 as compared to $1,495,000 for 2000.The increase is due to increased payroll, travel, marketing and depreciation expenses due primarily to the 20-20® acquisition.
Research and development expenses were $1,647,000 for 2001 as compared to $1,125,000 for2000.  The increase is due primarily to the 20-20® acquisition
Income (loss) from operations was $1,282,000 for 2001 as compared to $(1,524,000) for 2000.This increase relates to strong sales from the 20-20® acquisition.
Other expense was $505,000 for 2001 as compared to $531,000 for 2000.  The decrease relatesto reduced litigation expenses, offset by increased interest charges on debt used to fund the Harris 20-20® acquisition.
Income tax expense for 2001 was $6,400 based on Alternative Minimum Tax.
The net income was $771,000 for 2001 as compared to net loss of $2,055,000 for 2000.
**Six Months Ended June 30, 2001 and 2000.**
Sales were $44,078,000 for 2001 as compared to $13,997,000 for 2000. This increase was dueto strong sales from the 20-20® acquisition.
Gross profit was $14,668,000 or 33.3% for 2001 as compared to gross profit of $5,316,000 or38.0% for 2000.  The increase was due to strong sales from the 20-20® acquisition.
General and administrative expenses were $3,421,000 for 2001 as compared to $2,118,000 for2000.  This increase was due to increased payroll and benefit plan expenses due primarily to the 20-20® acquisition.
Sales and marketing expenses were $7,250,000 for 2001 as compared to $3,129,000 for 2000.The increase was due to increased payroll, travel, marketing and depreciation expenses due primarily to the 20-20® acquisition.
Research and development expenses were $3,222,000 for 2001 as compared to $2,033,000 for2000.  The increase is due primarily to the 20-20® acquisition
Income from operations was $775,000 as compared to loss from operations of  $1,963,000 for2000. This  increase relates to strong sales from the 20-20® acquisition.
Other expense was $1,040,000 for 2001 as compared to $880,000 for 2000. The increase relatesto increased long-term debt's interest expense due primarily to the 20-20® acquisition.
Income tax expense for 2001 was $12,000 based on Alternative Minimum Tax.
The net loss was $276,000 for 2001 as compared to $2,843,000 for 2000.
**LIQUIDITY AND CAPITAL RESOURCES**
Cash requirements were met with cash generated from operations and borrowings from The CIT Group/Credit Finance ("CIT").
The Company's working capital ratio was 0.92:1 at June 30, 2001 as compared to 1.26:1 at December 31, 2000.  Net working (deficit) capital was $(2,436,478) at June 30, 2001 as compared to $4,699,000 at December 31, 2000.
The decrease in working capital is due primarily to the promissory note ("Note") related to the acquisition of the Harris Corporation 20-20® Switching Product Line.  The Note was amended in March, 2001 and included provisions to extend the maturity date to April 30, 2002.  The Company continues to have discussions with Harris regarding the
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terms and amount of the Note, including extension of the maturity date.  There can be no assurances that the Note will be renegotiated.
The Company has engaged Dain Rauscher Wessels to act as Placement Agent for a proposed $17.5 million in debt and equity financing.   A portion of the proceeds from this financing will be used to satisfy the Note.  There can be no assurance that the proposed financing will occur on the terms or in the amounts sought by the Company.
Net cash increased by $38,000 for the six months ended June 30, 2001 as compared to adecrease of $688,000 for the six months ended June 30, 2000.  Net cash flows provided byoperating activities were $4,414,000 for the six months ended June 30, 2001 as compared to netcash flows used in operating activities of $1,027,000 for the six months ended June 30, 2000.
Accounts receivable increased by $4,489,000 for the six months ended June 30, 2001 ascompared to a decrease of $1,395,000 for the six months ended June 30, 2000.  This increasewas due to sales related to the New York Board of Education contract in the last month of thequarter.  Inventories decreased by $728,000 for the six months ended June 30, 2001 ascompared to an increase of $611,000 for the six months ended June 30, 2000.  Accountspayable increased by $5,031,000 for the six months ended June 30, 2001 as compared to$226,000 for the six months ended June 30, 2000.
Net cash flows used in investing activities totaled $901,000 for the six months as compared to$624,000 provided by investing activities for the six months ended June 30, 2000.  Acquisitionof property and equipment totaled $966,000 for the six months ended June 30, 2001 ascompared to $182,000 for the six months ended June 30, 2000.
Cash flows used in financing activities totaled $3,475,000 for the six months ended June 30,2001 as compared to $285,000 for the six months ended June 30, 2000.  The Company repaiddebt of $3,532,000 during the six months ended June 30, 2001.  The Company expects thatavailable cash, cash flows from opeations and existing lines of credit will be sufficient to meet its normal operatingrequirements.
On May 12, 2000, the Company amended and restated the $1,000,000 Loan Agreement withFinova Capital originally entered into on February 25, 1998 and originally due February 25,1999.  The Loan Agreement has a revised maturity of February 13, 2002.  The interest rate is12%.  The Holder of the Loan received 365,000 warrants to purchase the Company's CommonStock at an exercise price of $2.75 per share.  These warrants are exercisable in whole, or inpart, at any time during a five-year holding period beginning on the date of issuance.  The Loancontains certain financial covenants, including restrictions which could effect future funding ofISI by the Company.
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**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 is no litigation pending, or to the Company's knowledge, threatened that, ifdetermined adversely, would have a material adverse effect upon the business or financialcondition of the Company.
In August, 1999, a former employee commenced an action against Teltronics in the CircuitCourt, Twelfth Judicial Circuit, Sarasota County, Florida seeking damages for allegedviolations of the Florida Worker's Compensation Law and the Family and Medical Leave Act.An answer with affirmative defenses was served and the action is being defended.
In September, 1999, Teltronics and its subsidiary, ISI, were served with a counterclaim inconnection with litigation commenced in July, 1998, by Teltronics and ISI in the United StatesDistrict Court for the Middle District of Florida against two former employees and entities theycontrol.  Teltronics' and ISI's complaint sought damages and equitable relief against thedefendants for breach of fiduciary duties and contract obligations; fraud; conversion; theft oftrade secrets; interference with contracts and business relations; and violations of federal andstate anti-fraud statutes.  During the trial in May, 2000, certain claims of Teltronics and ISIagainst the defendants and the counterclaims made by the defendants against Teltronics andISI were withdrawn.  After trial of the remaining claims of Teltronics and ISI against thedefendants, the jury rendered a verdict that awarded Teltronics and ISI approximately $16million from the defendants.  In August, 2000, the Court ordered a new trial of the damagesowed to Teltronics and ISI which was scheduled to commence in May, 2001.
In early November, 2000, Teltronics, ISI and the defendants entered into a SettlementAgreement under which the defendants agreed to pay Teltronics $700,000 in cash and deliverrestricted shares of the voting common stock of Intelliworxx in escrow ("Intelliworxx Shares")which could result in Teltronics receiving an additional $4,550,000 over two years upon resaleof the Intelliworxx Shares based upon the price of Intelliworxx Shares at the time of resale.The Settlement payments were conditioned upon closing of a private equity placement byIntelliworxx which did not occur.  In May, 2001, the Settlement Agreement was revised toprovide for payment by Intelliworxx of $700,000 under a two year promissory note with interestcommencing August 1, 2001.  In addition, Intelliworxx was required to pay $7,500 and delivera separate promissory note under which six monthly payments of $7,500 each are to be paidto Teltronics commencing August 1, 2001.  An individual Defendant is obligated to payTeltronics an aggregate of $22,500.  There can be no assurance that Teltronics will besuccessful in collecting the Settlement payments agreed to be paid by the defendants.
In May, 2000, Teltronics was named in an action commenced in the Circuit Court for theCounty of St. Clair, Michigan by two former shareholders of Cascade Technology Corporation("Cascade") seeking release of 52,117 shares of Teltronics' common stock held in escrow("Escrow Stock") and damages, interest and attorneys fees.  The Escrow Stock was issuedin February, 1999 and placed in escrow to secure indemnification rights of Teltronics underits purchase of certain rights and technology from one of the former shareholders of Cascade.Teltronics served an Answer with affirmative defenses and a counterclaim seeking deliveryof the Escrow Stock to Teltronics.   Discovery is substantially completed and a trial isscheduled to commence in September, 2001.**ITEM 2.**CHANGES IN SECURITIES - None**ITEM 3.**DEFAULTS UPON SENIOR SECURITIES - None**ITEM 4.**SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None**ITEM 5.**OTHER INFORMATION - None**ITEM 6A.**EXHIBITS - None**ITEM 6B.**REPORTS ON FORM 8-K - None
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     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.**TELTRONICS, INC.**August 14, 2001/s/ Ewen R. CameronEwen R. CameronPresident & Chief Executive Officer
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