> U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, 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 March 31, 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:
> 0-17893
> 
> 
> TELTRONICS, 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 codeIndicate 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 May 10, 2005, there were 7,874,539 shares of the Registrants Common Stock, par value $.001, outstanding.
> Exhibit index appears on page 12.
> 
> TABLE OF CONTENTS
> 
> 
> 
> PAGEPART I
>      FINANCIAL INFORMATIONITEM 1.
>      FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets at March 31, 2005
>                      (Unaudited) and December 31, 2004
>      3Condensed Consolidated Statements of Operations (Unaudited)
>                      for the Three months ended March 31, 2005 and 2004
>      4Condensed Consolidated Statements of Cash Flows (Unaudited)
>                      for the Three months ended March 31, 2005 and 2004
>      5Notes to Condensed Consolidated Financial Statements (Unaudited)
>      6ITEM 2.
>      MANAGEMENT'S DISCUSSION AND ANALYSIS OF
>                      FINANCIAL CONDITION AND RESULTS OF OPERATIONS
>      8ITEM 3.
>      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
>                      MARKET RISK
>      9ITEM 4.
>      CONTROLS AND PROCEDURES
>      9PART II
>      OTHER INFORMATIONITEM 3.
>      DEFAULTS UPON SENIOR SECURITIES
>      10ITEM 6.
>      EXHIBITS AND REPORTS ON FORM 8-K
>      10SIGNATURE
>      11EXHIBIT INDEX
>      122
> 
> PART I  FINANCIAL INFORMATION
> ITEM  1.   FINANCIAL STATEMENTS
> 
> 
> TELTRONICS, INC. AND SUBSIDIARIES
> CONDENSED CONSOLIDATED BALANCE SHEETSIn thousands, except shares and per share amounts
> 
> 
> 
> ASSETS
> 
> March 31,
>      
>      December 31,2005
>  
>      2004(Unaudited)Current assets:Cash and cash equivalents
>      $      880
>      
>      $   1,580Accounts receivable, net of allowance fordoubtful accounts
>      5,404
>      
>      5,499Costs and estimated earnings in excess of billingson uncompleted contracts
>      655
>      
>      342Inventories, net
>      4,585
>      
>      3,858Other current assets
>      1,033
>      
>      382Total current assets
>      12,557
>      
>      11,661Property and equipment, net
>      3,345
>      
>      3,729Other assets
>      978
>      
>      1,034Total assets
>      $ 16,880
>      
>      $ 16,424LIABILITIES AND SHAREHOLDERS' DEFICIENCYCurrent liabilities:Current portion of long-term debt and capitallease obligations
>      $   4,698
>      
>      $   4,831Accounts payable
>      7,238
>      
>      5,883Other current liabilities
>      3,938
>      
>      3,869Total current liabilities
>      15,874
>      
>      14,583Long-term liabilities:Long-term debt and capital lease obligations,net of current portion
>      7,468
>      
>      7,885Commitments and contingenciesShareholders' deficiency:Capital stock
>      8
>      
>      8Additional paid-in capital
>      24,302
>      
>      24,301Accumulated deficit and other comprehensive loss
>      (30,772)
>      
>      (30,353)Total shareholders' deficiency
>      (6,462)
>      
>      (6,044)Total liabilities and shareholders' deficiency
>      $ 16,880
>      
>      $ 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 Months Ended March 31,2005
>      
>      2004Net salesProduct sales and installation
>      $        6,614
>      
>      $        8,794Maintenance and service
>      3,179
>      
>      2,5139,793
>      
>      11,307Cost of goods sold
>      5,583
>      
>      6,238Gross profit
>      4,210
>      
>      5,069Operating expenses:General and administrative
>      1,525
>      
>      1,611Sales and marketing
>      2,065
>      
>      2,222Research and development
>      1,014
>      
>      8644,604
>      
>      4,697Income (loss) from operations
>      (394)
>      
>      372Other income (expense):Interest
>      (348)
>      
>      (434)Gain on sale of abandoned technology
>      495
>      
>      ---Other
>      15
>      
>      (3)162
>      
>      (437)Loss before income taxes
>      (232)
>      
>      (65)Income taxes
>      5
>      
>      2Net loss
>      (237)
>      
>      (67)Dividends on Preferred Series B and C Convertible stock
>      159
>      
>      153Net income (loss) available to common shareholders
>      $         (396)
>      
>      $         (220)Net income (loss) per share:Basic and Diluted
>      $       (0.05)
>      
>      $       (0.03)Weighted average shares outstanding:Basic and Diluted
>      7,869,617
>      
>      7,795,670The accompanying notes are an integral part of these condensed consolidated financial
> statements.
> 
> 
> 
> 4
> TELTRONICS, INC. AND
> SUBSIDIARIESUNUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands, except shares and per share amounts
> Three Months Ended March 31,2005
>      
>      2004NET CASH FLOWS USED IN OPERATING ACTIVITIES
>      $  (424)
>      
>      $  (127)INVESTING ACTIVITIES - NET
>      353
>      
>      (45)FINANCING ACTIVITIES:Net borrowings on line of credit
>      (629)
>      
>      1,244Other
>      24
>      
>      (35)Net cash flows provided by (used in) financing activities
>      (605)
>      
>      1,209Effect of exchange rate changes on cash
>      (24)
>      
>      7Net decrease in cash and cash equivalents for the period
>      (700)
>      
>      (86)Cash and cash equivalents - Beginning of Period
>      1,580
>      
>      146Cash and cash equivalents - End of Period
>      $    880
>      
>      $      60The
> 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 three month period ended March
> 31, 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 Ended March 31,2005
>      
>      2004Net loss
>      $    (237)
>      
>      $    (67)Foreign currency translation
>      (24)
>      
>      7Total comprehensive income (loss)
>      $    (261)
>      
>      $    (60)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 Ended March 31,2005
>      
>      2004Basic and dilutedNet loss
>      $         (237)
> 
>      $          (67)Preferred dividends
>      (159)
> 
>      (153)$         (396)
> 
>      $         (220)Weighted average shares outstanding
>      7,869,617
> 
>      7,795,670Net loss per share
>      $       (0.05)
> 
>      $       (0.03)For the three months ended March 31,
> 2005 and 2004, options to purchase 1,700,000 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 months ended March 31,
> 2005 and 2004, warrants to 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:
> 
> 
> 
> 
> March 31, 2005(Unaudited)
>      
>      December 31,2004Raw materials
>      $      2,088
>      
>      $      1,707Work-in-process
>      965
>      
>      759Finished goods
>      1,532
>      
>      1,392$      4,585
>      
>      $      3,8587
> 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 decreased $1,500 or 13.4%
> for the three month period ended March 31, 2005 as compared to the same period in 2004.
> The decrease resulted primarily from a sales lag on a product enhancement introduced in
> late 2004 and a shift of $500 from the first quarter to the second quarter of 2005 as the
> result of a particular government contract put on hold. This order was reinstated in May
> 2005.
> 
> 
> Gross profit margin for the three
> month periods ended March 31, 2005 and 2004 was 43.0% and 44.8%, respectively. The
> decrease in gross profit percentage was primarily driven by sales mix.
> 
> 
> Operating Expenses
> 
> 
> Operating expenses were $4,604 and
> $4,697 for the three month period ended March 31, 2005 and 2004, respectively.
> 
> 
> General and administrative expenses
> decreased $86 for the three month period ended March 31, 2005 as compared to the same
> period in 2004. The net decrease was primarily a result of a $205 decrease in the
> provision for doubtful accounts resulting from the collection of outstanding specific
> accounts, partially offset by an increase of $95 in compensation and benefits, and an
> increase of $34 in expenses related to employee recruitment.
> 
> 
> Sales and marketing expenses decreased
> $158 for the three month period ended March 31, 2005 as compared to the same period in
> 2004. The net decrease was primarily a result of the decrease in severance costs related
> to the reduction in force in the NYC sales office.
> 
> 
> Research and development expenses
> increased $150 for the three month period ended March 31, 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.
> 
> 
> 
> 
> 8
> Other Income (Expense)
> 
> Other income (expense) were $162 and $437 for the three month period ended March 31, 2005 and
> 2004, respectively. For the three month period ended March 31, 2005 interest expense
> decreased $69, financing costs decreased $17 and other expenses decreased $16. The
> decrease in interest expense was a result of the decrease in the interest rate on the note
> payable to Harris.
> 
> 
> The first quarter of 2005 also
> included a gain of $495 on the sale of abandoned technology.
> 
> 
> LIQUIDITY AND CAPITAL RESOURCES
> 
> 
> In April 2005 we amended our credit
> facility which has a maximum credit limit of $5,500. The new facility matures March 31,
> 2006. The facility bears interest at prime plus 2.0% to 3.0% depending on the
> Companys financial results. At March 31, 2005 and December 31, 2004, the
> Companys interest rate was 8.75% and 8.25%, respectively. The amount available under
> this credit facility is subject to restriction based on availability formulas. The
> availability formulas relate primarily to the eligibility of accounts 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 March 31, 2005 was
> $95. The credit facility is secured by a lien on substantially all our assets and a pledge
> of substantially all the capital stock of our subsidiaries.
> 
> 
> In March 2005, the Company paid $530
> to a related party reducing the outstanding loan balance to $248.
> 
> 
> 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 March 31, 2005 that has materially affected,
> or is reasonably likely to materially affect, the Companys internal control over
> financial reporting.
> 
> 
> 
> 9
> PART II - OTHER INFORMATION
> 
> ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
> 
> 
> As of March 31, 2005, we were in
> arrears on dividend payments on our Series B and Series C Preferred Stock in the amounts
> of $173 and $881, respectively, which amounts include interest thereon. We were also in
> arrears on debt payment and the Note Payable to Tri-Link in the amount of $1,080.
> 
> 
> 
> ITEM 6(a).
>      EXHIBITS31.1
>      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 200210.1
>      Extension and Amendment of Lease between ARE Sarasota
> Limited Partnership and Teltronics, Inc. dated March 31, 200510.2
>      New York State Department of Education/DIIT Minibid #2189
> Awarded January 31, 2005 to Teltronics, Inc10.3
>      Amended Loan and Security Agreement between Teltronics, Inc.
> and The CIT Group/Business Credit, Inc. dated April 25, 2005ITEM 6(b).   
> REPORTS ON FORM 8-KThe Company filed two reports on Form
> 8-K during the quarter ended March 31, 2005. Information regarding the item reported on is
> as follows:Date Filed
>      Item Reported OnFebruary 3, 2005
>      1.01 Entry Into a Material Definitive Agreement.
>                         The Company issued a Press Release announcing it had been awarded a Maintenance Contract
>                         with the New York City Board of Education .March 4, 2005
>      1.02 Termination of a Material Definitive Agreement.
>                         The Company issued a Press Release announcing International Media Network AG was unable to
>                         fulfill its obligation to Teltronics.10
> 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:  May 10, 2005
> 
> TELTRONICS, INC.BY: /S/ EWEN R. CAMERON
> Ewen R. CameronPresident & Chief Executive OfficerDated:  May 10, 2005
> 
> BY: /S/ RUSSELL R. LEE III
> Russell R. Lee IIIVice President & Chief Financial Officer11
> EXHIBIT INDEX
> ExhibitNumber
>      Description31.1*
>      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 200210.1*
>      Extension and Amendment of Lease between ARE Sarasota
> Limited Partnership and Teltronics, Inc. dated March 31, 200510.2*
>      New York State Department of Education/DIIT Minibid #2189
> Awarded January 31, 2005 to Teltronics, Inc10.3*
>      Amended Loan and Security Agreement between Teltronics, Inc.
> and The CIT Group/Business Credit, Inc. dated April 25, 2005(*)
>      Filed as an Exhibit to this Report on Form 10-Q for the period ended March 31, 2005.12