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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 THE SECURITIESEXCHANGE ACT OF 1934.For the Quarterly Period Ended June 30, 2002.[   ]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 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the Registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes [X] No [  ]
As of August 14, 2002 there were 5,513,354 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, 2002 andDecember 31, 2001.3-4Condensed Consolidated Statements of Operations for the three monthsand six months ended June 30, 2002 and 2001.5Condensed Consolidated Statements of Cash Flows for the six monthsended June 30, 2002 and 2001.6Notes to Condensed Consolidated Financial Statements7     ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS16-20**PART II.**OTHER INFORMATION21     ITEM 1.LEGAL PROCEEDINGS21     ITEM 2.CHANGES IN SECURITIES21     ITEM 3.DEFAULTS UPON SENIOR SECURITIES21     ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS21     ITEM 5.OTHER INFORMATION21     ITEM 6A.EXHIBITS21     ITEM 6B.REPORTS ON FORM 8-K21**SIGNATURES**22
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**PART I - FINANCIAL INFORMATION**
**ITEM 1.     FINANCIAL STATEMENTS**
**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**
**ASSETS**June 30,2002December 31,2001(Unaudited)**Current assets:Cash and cash equivalents$	     324,292$	     63,307Accounts receivable, net of allowance for doubtful accounts     of $542,961 at June 30, 2002 and $469,860 at     December 31, 20019,979,08910,021,731Costs and estimated earnings in excess of billings on     uncompleted contracts1,030,459638,119Inventories, net7,904,0289,175,567Prepaid expenses and other current assets527,680314,363     Total current assets19,765,54820,213,087**Property and equipment, net**4,395,9385,163,007**Goodwill, net**241,371241,371**Other intangible assets, net**302,445335,814**Other assets**281,982339,569     Total assets$	24,987,284$	26,292,848
The accompanying notes are an integral part of these condensed consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS - Continued**
**LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)**June 30,2002December 31,2001(Unaudited)**Current liabilities:**     Current portion of long-term debt$	 4,606,429 $	 4,550,645      Current portion of capital lease obligations25,969 	79,497      Accounts payable5,313,047 	6,181,434      Billings in excess of costs and estimated earnings          on uncompleted contracts348,905 125,783      Accrued expenses and other current liabilities2,750,380 	2,783,532      Deferred revenue1,861,277 	1,755,421           Total current liabilities14,906,007 	15,476,312 **Long-term liabilities:**     Long-term debt, net of current portion8,840,010 	9,034,748      Capital lease obligations, net of current portion--- 	963      Other long-term liability--- 3,744,355           Total long-term liabilities8,840,010 	12,780,066 **Commitments and contingencies**Shareholders' equity (deficiency):**     Common stock, $.001 par value, 40,000,000 shares          authorized, 5,366,386 and 5,105,844 issued and          outstanding at  June 30, 2002 and December 31, 2001,          respectively5,366 5,106      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, $.001 par value, 50,000          shares authorized, 40,000 shares issued and outstanding40 ---      Additional paid-in capital23,628,424 	19,277,099      Accumulated other comprehensive loss(19,074)(2,941)     Accumulated deficit(22,373,602)(21,242,907)          Total shareholders' equity (deficiency)1,241,267 (1,963,530)          Total liabilities and shareholders' equity (deficiency)$	24,987,284 $	26,292,848 

The accompanying notes are an integral part of these condensed  consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**
**(Unaudited)**Three Months Ended June 30,Six Months Ended June 30,2002200120022001**Net sales**     Product sales and installation$	14,629,664 $	24,204,010 $	26,389,529 $	40,801,670      Maintenance and service2,032,128 1,623,558 3,945,281 3,276,368 16,661,792 25,827,568 30,334,810 44,078,038 Cost of goods sold10,751,207 17,898,822 19,256,008 30,115,073 **Gross profit**5,910,585 7,928,746 11,078,802 13,962,965 **Operating expenses:**     General and administrative1,307,768 1,509,158 2,745,989 3,068,542      Sales and marketing2,491,409 3,167,733 5,657,423 6,241,390      Research and development934,042 1,615,828 2,049,413 3,153,604      Depreciation and amortization338,081 396,535 687,867 794,682 5,071,300 6,689,254 11,140,692 13,258,218 Income (loss) from operations839,285 1,239,492 (61,890)704,747 **Other income (expense):**     Interest(291,370)(379,679)(661,697)(801,077)     Financing(118,954)(96,473)(164,552)(175,124)     Litigation costs--- --- (15,500)---      Other(9,444)14,325 (11,806)6,849 (419,768)(461,827)(853,555)(969,352)Income (loss) before income taxes419,517 777,665 (915,445)(264,605)Income taxes(7,181)(6,413)(14,072)(11,564) **Net income (loss)**412,336 771,252 (929,517)(276,169) Dividends on Preferred Series     B and C Convertible stock158,919 37,875 201,178 75,750 Net income (loss) available to     common shareholders$	     253,417  $	     733,377  $	(1,130,695)$	   (351,919) **Net income (loss) per share:**     Basic$ 0.05 $ 0.15 $ (0.21)$ (0.07)     Diluted$ 0.05 $ 0.14 $ (0.21)$ (0.07)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
**(Unaudited)**Six Months Ended June 30,20022001**OPERATING ACTIVITIES:     Net loss$	(929,517)$	(276,169)     Adjustments to reconcile net loss to net cash     provided by operating activities:          Provision for doubtful accounts102,106 (22,500)          Provision for obsolete inventories1,116,049 173,972           Depreciation and amortization1,056,214 1,122,550           Amortization of other intangible assets and goodwill33,369 51,508           Amortization of deferred financing costs and other assets121,018 92,379           Shares issued for 401(k) match117,334 127,343           Gain on sale of property and equipment(25,020)---      Changes in operating assets and liabilities:          Accounts receivable(59,464)(4,489,161)          Net increase in costs and estimated earnings in excess               of billings on uncompleted contracts(169,218)---           Inventories155,490 727,683           Prepaid expenses and other current assets(146,185)(80,711)          Decrease in other assets29,637 63,961           Accounts payable(868,387)5,030,771           Accrued expenses and other current liabilities163,394 937,856           Deferred revenue105,856 1,019,487 Net cash flows provided by operating activities802,676 4,478,969 **INVESTING ACTIVITIES:     Acquisition of property and equipment(289,145)(965,965)     Proceeds from sale of property and equipment25,020 899 Net cash flows used in investing activities(264,125)(965,066)**FINANCING ACTIVITIES:     Net borrowings (repayments) on line of credit13,699 (2,601,669)     Net repayments on loans, notes and capital leases(207,144)(930,235)     Proceeds from issuance of common stock74,091 132,887      Dividends paid on Preferred Series B and C Convertible stock(142,079)(75,750)Net cash flows used in financing activities(261,433)(3,474,767)Effect of exchange rate changes on cash(16,133)(1,065)Net increase in cash260,985 38,071 Cash and cash equivalents - beginning of period63,307 35,292 Cash and cash equivalents - end of period$	324,292 $	73,363 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued**
**(Unaudited)**Six Months Ended June 30,20022001**Supplemental noncash financing and investing activities:     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 stock255,645---     Unpaid dividends on Preferred Series C Convertible stock          included in accrued expenses59,099---     Deferred financing fee of $160,200 less amortization          expense of $93,068, included in prepaid expenses and          other current assets67,132---
The accompanying notes are an integral part of these condensed consolidated financial statements.
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**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 contract manufacturing for thetelecommunication industry.
The accompanying condensed consolidated financial statements include the accounts of the Company and iscomprised of its wholly-owned subsidiaries TTG Acquisition Corp. and Teltronics, S.A. de C.V. and its 85% ownedsubsidiary Interactive Solutions, Inc. ("ISI").  All significant intercompany transactions and balances have beeneliminated in consolidation.
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, 2002, arenot necessarily indicative of the results that may be expected for the year ending December 31, 2002.
The balance sheet at December 31, 2001 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, 2001.
Certain amounts in our prior period financial statements have been reclassified to conform to the current periodpresentation.
**NOTE 2 - COMPREHENSIVE INCOME (LOSS)**
Total comprehensive income (loss) is as follows:Three Months Ended June 30,Six Months Ended June 30,2002200120022001Net income (loss)$	412,336 $	771,252 $	(929,517)$	(276,169)Foreign currency translation(15,888)(625)(16,133)(1,065)Total comprehensive income (loss)$	396,448 $	770,627 $	(945,650)$	(277,234)
**NOTE 3 - 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 netincome (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 2002 and 2001 were anti-dilutive and were notincluded in the calculation of diluted net income (loss) per share.
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The following table sets forth the unaudited computation of basic and diluted net income (loss) per share:Three Months Ended June 30,Six Months Ended June 30,2002200120022001**BasicNet income (loss)$	412,336 $	771,252 $	(929,517)$	(276,169)Preferred dividends(158,919)(37,875)(201,178)(75,750)     Net income (loss) available to          common shareholders$	253,417 $	733,377 $	(1,130,695)$	(351,919)Weighted average shares outstanding5,347,463 4,840,860 5,289,052 4,821,487      Net income (loss) per share$ 0.05 $ 0.15 $ (0.21)$ (0.07)**DilutedNet income (loss)$	412,336 $	771,252 $	(929,517)$	(276,169)Preferred dividends--- --- (201,178)(75,750)     Net income (loss) available to          common shareholders$	412,336 $	771,252 $	(1,130,695)$	(351,919)Weighted average shares outstanding5,347,463 4,840,860 5,289,052 4,821,487 Effect of dilutive securities     Employee stock options--- 261,108 --- ---      Convertible preferred stock2,175,974 459,091 --- ---      Dilutive potential common shares7,523,437 5,561,059 5,289,052 4,821,487      Net income (loss) per share$ 0.05 $ 0.14 $ (0.21)$ (0.07)
**NOTE 4 - INVENTORIES**
The major classes of inventories are as follows:June 30,2002December 31,2001(Unaudited)Raw materials$5,521,709 $5,963,289Work-in-process1,255,9271,136,911Finished goods 1,126,392 2,075,367$7,904,028$9,175,567
The reserve for slow moving and obsolete inventories was $1,924,000 and $1,235,000 as of June 30, 2002 andDecember 31, 2001, respectively.
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**NOTE 5 - DEBT**
Debt consists of the following:June 30,2002December 31,2001(Unaudited)
Secured promissory note - payable in monthly installments of $96,805 withinterest at 8% commencing May 1, 2002 with a balloon payment of$7,196,801 due May 2006.$ 9,089,611 $ 9,196,801
Bank line of credit - On December 22, 1998, the Company's principallender, The CIT Group/Credit Finance, Inc. ("CIT") entered into anAmendment to the Company's existing Line of Credit Facility and TermLoan.  Under the Amendment, the interest rate is 2.0% above prime rate,maximum availability is $5,500,000 and a prepayment penalty is assessedat 1.5%.  On October 28, 2000, the Line of Credit Facility was extendedto October 28, 2002.  Substantially all of the Company's present andfuture assets, except for fixed assets, are pledged as collateral withborrowings limited to certain gross availability formulas based on accountsreceivable and inventory as defined in the agreement.  The facilityprovides for minimum loan fees, unused line fees and renewal term fees.The outstanding borrowings are classified as a current liability.  TheCompany incurred renewal loan fees of $55,000 during 1999.  A directorof the Company has personally guaranteed a portion of the facility.  AtJune 30, 2002 and December 31, 2001, the Company had $2,327,811 and$2,341,510 available respectively, pursuant to this facility.  The availabilityof this unused line of credit is restricted based on availability formulas.3,172,1893,158,490
Senior Secured Loan - initially payable in quarterly payments at 12% anddue April 30, 2000.  In May 2000, the Company amended and restated theloan to revise the maturity date to February 13, 2002.  The loan wassubsequently amended in May 2002 with a revised maturity date of August13, 2002 with monthly payments of $35,000 commencing May 1, 2002.909,4431,000,000
Notes payable to finance companies, payable in monthly installments of$4,200 with interest at 5%.  The notes mature through May 2007 and arecollateralized by vehicles.203,025160,752
Notes payable - officer, payable upon demand with interest accruing at 8%per annum.72,17169,350Total13,446,43913,585,393Less current portion4,606,4294,550,645Long-term portion$ 8,840,010$ 9,034,748
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.  This amount was classified withinaccrued expenses and other current liabilities as of December 31, 2001.  Monthly payments of $96,805 in principaland interest commenced in May 2002 and continue until May 2006 at which time a balloon payment of the remainingunpaid balance of $7,196,801 will be due.  The interest is 8%.  In conjunction with the restructuring, Harris agreedto convert $4,000,000 of accrued expenses owed by the Company for additional inventory and services providedin connection with the transition of the 20-20® Switching Product Line to the Company, to 40,000 shares of PreferredSeries C Convertible stock.
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The Note is secured by a first lien on certain of the acquired assets and a lien on the Company's other assets.
The Preferred Series C Convertible stock provides for a $10 per share annual dividend payable quarterly beginningMay 15, 2002.  The dividend increases to $20 beginning April 1, 2007.  The holder of the Preferred Series CConvertible stock has the right at its option to convert the shares of the Preferred Series C to the Company'sCommon stock at $2.75 per share subject to adjustment.  The Company has the right to redeem all or a portion ofthe then outstanding Preferred Series C Convertible stock at any time at 100% of the face value plus accrued andunpaid dividends.
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 ("Note").Under the terms of the Note, monthly principal and interest payments of $35,000 are required commencing May 1,2002 until August 13, 2002 at which time all outstanding principal and interest is due.  The interest rate remainedunchanged at 12%.  The Company is in discussions with Finova regarding restructuring the Note.  The Holder ofthe Loans previously received 890,000 warrants to purchase the Company's Common stock at an exercise price of$2.75 per share.  These warrants were exercisable in whole, or in part, at any time during a five-year holding periodbeginning on the date of issuance.   In connection with the Note, Finova and the Company entered into an Amendedand Restated Stock Purchase Warrant ("Warrant") that modified the terms of the 890,000 previously issued warrantsto change the exercise price to $1.00 per share and extend the exercise period to February 26, 2004.  The Notecontains certain covenants.
As a result of modifying the exercise price and extending the exercise period of the 890,000 warrants, the Companyrecorded a deferred financing fee of approximately $160,000 in May 2002.  This fee will be expensed as a financingcost in our condensed consolidated statements of operations commencing May 1, 2002 through August 13, 2002.
The covenants in the Secured Promissory Note, Loan and Security Agreement and the Senior Secured Loansrestrict certain sales of assets; mergers and acquisitions; borrowings and guarantees; dividends and redemptions;creation of liens; investments; issuance of subsidiary shares; and transactions with affiliates.
**NOTE 6 - 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 andSenior Vice President of Business Development and subject to resale restrictions including the right of the Companyto 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.  Commencing February 26, 2002, the annual dividend rate increased from $12 per share to $16 per share,payable quarterly.  The annual dividend rate will increase to $18 per share on February 27, 2004 and to $20 pershare on February 27, 2005.  The holder of the Preferred Series B Convertible stock initially had the right at itsoption to convert to the Company's Common stock at $2.75 per share.  The Company adjusted the conversion priceon April 22, 2002 for the Preferred Series B Convertible stock from $2.75 to $1.75 per share in conjunction with theamendment and restatement of the Note.  The Preferred Series B Convertible stock can be called by the Companyonly if the twenty-day average bid price of the Company's common stock exceeds $5.50 per share.  Beginning May2002, the Company has the right to redeem the Preferred Series B Convertible stock in full at 100% of the facevalue plus accrued and unpaid dividends.  The Preferred Series B Convertible stock contains certain financialcovenants.
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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)  Warrants - In connection with the Note, Finova and the Company entered into an Amended and Restated Stock Purchase Warrant ("Warrant") that modified the terms of the 890,000 previously issued warrants to change theexercise price to $1.00 per share and extend the exercise period to February 26, 2004.
**NOTE 7 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS**June 30,2002December 31,2001(Unaudited)Costs incurred on uncompleted contracts$3,322,135 $770,551 Estimated earnings 1,754,468  534,505 5,076,603 1,305,056 Less: Billings to date 4,395,049  792,720 $681,554 $512,336 Included in accompanying condensed consolidated balance          sheets under the following captions:Costs and estimated earnings in excess of billings on          uncompleted contracts$1,030,459 $638,119 Billings in excess of costs and estimated earnings on          uncompleted contracts (348,905) (125,783)$681,554 $512,336 
**NOTE 8 - GOODWILL**
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards(SFAS) No. 142, *Goodwill and Other Intangible Assets.*  SFAS No. 142 requires that goodwill and intangible assetswith indefinite useful lives no longer be amortized but instead tested for impairment at least annually. SFAS No. 142also requires that intangible assets with definite useful lives be amortized over their respective estimated useful livesto their estimated residual values.  The Company fully adopted the provisions of SFAS No. 142 effective January1, 2002.
Under SFAS No. 142, the Company is required to perform a transitional impairment test for its goodwill as of thedate of adoption.  Step one of the transitional goodwill impairment test, which compares the fair values of theCompany's reporting units to their respective carrying values, has been completed by June 30, 2002.  The Companyhas concluded that no impairment is required as of January 1, 2002.  As required by SFAS No. 142, the Companywill perform its annual goodwill impairment test during the fourth quarter of 2002.
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The following is a summary of net income (loss) and net income (loss) per share for the three months and sixmonths ended June 30, 2001 as adjusted to remove the amortization of goodwill:Three Months EndedJune 30, 2001Six Months EndedJune 30, 2001Net income (loss) - as reported$771,252 $(276,169)Goodwill amortization 5,457  10,914 Net income (loss) - adjusted$776,709 $(265,255)Basic income (loss) per share of common stock:Net income (loss) - as reported $0.15 $(0.07)Goodwill amortization ---  --- Net income (loss) - adjusted$0.15 $(0.07)Diluted income (loss) per share of common stock:Net income (loss) - as reported$0.14 $(0.07)Goodwill amortization ---  --- Net income (loss) - adjusted$0.14 $(0.07)
Intangible assets with definite useful lives are amortized over their respective estimated useful lives to theirestimated residual values.  The following is a summary of intangible assets at December 31, 2001 and June 30,2002:December 31, 2001GrossCarryingAmountAccumulatedAmortizationTotal**Definite useful lives**Customer list$ 232,332   $   76,917$ 155,415Patent239,899   59,500180,399     Total$ 472,231   $ 136,417$ 335,814
June 30, 2002GrossCarryingAmountAccumulatedAmortizationTotal**Definite useful lives**Customer list$ 232,332     $ 103,031$ 129,301Patent239,899     66,755173,144     Total$ 472,231     $ 169,786$ 302,445
Amortization expense related to intangible assets was $16,685 and $20,297 for the three months ended June 30,2002 and 2001, respectively.  Amortization expense related to intangible assets was $33,369 and $40,594 for thesix months ended June 30, 2002 and 2001, respectively.  Estimated amortization expense related to intangibleassets for each of the years in the five year period ending December 31, 2006 and thereafter is: 2002 - $66,740;2003 - $66,740;  2004 - $50,396;  2005 - $29,580;  2006 - $14,510;  thereafter - $107,848.
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**NOTE 9 - SEGMENT INFORMATION**
The Company's operations are classified into three reportable segments, Teltronics,  ISI and Mexico.  Eachreportable segment is staffed separately, requires different technology and marketing strategies and sells to differentcustomers.
The accounting policies of the Segments are the same.  Intersegment sales and transfers are recorded at Teltronics'cost  plus a normal margin for electronic manufacturing.  Company management evaluates performance based onsegment profit, which is net income (loss) before taxes, excluding nonrecurring gains or losses.
The following table presents unaudited information about reportable segment operations and assets.Three Months EndedJune 30,Six Months EndedJune 30,2002200120022001**Net sales**     Teltronics$	16,458,000 $	25,270,000 $	29,769,000 $	43,410,000      Mexico120,000 3,000 407,000 3,000      ISI84,000 555,000 159,000 665,000      Total sales$	16,662,000 $	25,828,000 $	30,335,000 $	44,078,000 **Depreciation and amortization     Teltronics$	    515,000 $	    526,000 $	 1,038,000 $	 1,083,000      Mexico1,000 2,000 4,000 2,000      ISI6,000 18,000 14,000 38,000      Total depreciation and amortization$	    522,000 $	    546,000 $	 1,056,000 $	 1,123,000 **Interest and financing costs**     Teltronics$	    410,000 $	    476,000 $	    826,000 $	    976,000      Mexico------------     ISI------------     Total interest and financing costs$	    410,000 $	    476,000 $	    826,000 $	    976,000 **Segment profit (loss)     Teltronics$	    443,000 $	    962,000 $	   (959,000)$	    305,000      Mexico(59,000)(179,000)(3,000)(268,000)     ISI36,000 (5,000)47,000 (302,000)     Income (loss) before income  taxes$	    420,000 $	    778,000 $	   (915,000)$	   (265,000)**Segment assets     Teltronics$	24,647,000 $	32,339,000 $	24,647,000 $	32,339,000      Mexico262,000 199,000 262,000 199,000      ISI78,000 357,000 78,000 357,000      Total segment assets$	24,987,000 $	32,895,000 $	24,987,000 $	32,895,000 **Acquisition of property and equipment**     Teltronics$	    142,000 $	    629,000 $	    288,000 $	    862,000      Mexico--- 76,000 --- 90,000      ISI1,000 7,000 1,000 14,000      Total acquisition of property and          equipment$	    143,000 $	    712,000 $	    289,000 $	    966,000 
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**NOTE 10 - SUBSEQUENT EVENT**
In July 2002, the Company transferred seventy percent ownership of its ISI subsidiary and converted all debt andobligations owed to the Company by ISI to 50,000 shares of Series A Preferred Stock of ISI.  The Series A PreferredStock are non-voting, non-convertible shares with a stated value of $5,000,000 in the event of liquidation of ISI.The owners of ISI, including the Company as owner of the Series A Preferred Stock and fifteen percent of the votingcommon stock of ISI, entered into a Stockholder Agreement under which certain transactions involving ISI requirethe approval of the Company.  The Series A Preferred Stock are subject to redemption in certain circumstances atprices based upon percentages of the valuation of ISI from time to time at the time of redemption.
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**ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**
**FORWARD-LOOKING STATEMENTS**
A number of statements contained in this Quarterly Report on Form 10-Q are forward-looking statements which aremade pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements involve a number of risks and uncertainties, including the timely development and marketacceptance of products and technologies, competitive market conditions, successful integration of acquisitions, theability to secure additional sources of financing, the ability to reduce operating expenses, the ability to comply withthe rules for continued quotation on the Over the Counter Bulletin Board and other factors described in the Company's filings with theSecurities and Exchange Commission.  The actual results that the Company achieves may differ materially fromany forward-looking statements due to such risks and uncertainties.
**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.  Critical accounting policies have thepotential to have the most significant impact on the consolidated financial statements.
The unaudited condensed consolidated financial statements have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financial information and with the instructions to Form10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and notes requiredby generally accepted accounting principles for complete financial statements.  In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have beenincluded.  Operating results for the three and six month periods ended June 30, 2002, are not necessarily indicativeof the results that may be expected for the year ending December 31, 2002.
Our critical accounting policies and estimates are as follows:
*Revenue recognition.  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 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). 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.
16Installation is awarded on a fixed price and a school-by-school basis and maintenance is awarded fora group of schools.  The term is segmented between installation and maintenance and is of a two yearand 10 year period, respectively.  Installation of each school requires between 4 to 16 weeks.  Therequirements agreement also provides for the transfer of risk of loss for each school at the date thatsystems are operational with title passing upon final acceptance.
In applying this policy, estimates of project installation cost and the percentage of work completed areupdated on a monthly basis for each school.  To the extent that billings exceed recognized revenues,deferred revenue is established.  To the extent actual costs incurred are less than or greater thanrecognized expenses, accrual or prepaid balances are established.-  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.

*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.  For all customers, we recognize reserves for bad debts based on the length of time the receivables arepast due.  We have evaluated our reserves based on the recent downturn in the economy and have increased themas necessary. We may record additional changes to our allowance for doubtful accounts in the future.
*Slow moving and obsolete inventory.  We write down our slow moving and obsolete inventory equal to the difference between the carrying value of the inventory and the estimated market value based on assumptions about futureproduct life cycles, product demand and market conditions.  If actual product life cycles, product demand or marketconditions are less favorable than those projected by management, additional inventory write-down may be required.
*Impairment of Intangible and Long Lived Assets.  Intangibles and long-lived assets consist primarily of goodwill and fixed assets.  We periodically evaluate the recovery of intangible and long lived assets when  impairment indicatorsare present.  Our judgments regarding the existence of impairment indicators are based on legal factors, marketconditions and the operational performance of our business.  Future events could cause us to conclude thatimpairment indicators exist and that goodwill and other intangible or long lived assets associated with our businessare impaired.  Beginning in 2002, the methodology for assessing potential impairments of intangible and long livedassets changed based on new accounting rules issued by the Financial Accounting Standards Board, and relatedpractice implementation issues.  The Company has determined there is no effect of adopting the new accountingrules on its results of operations and financial position.
*Warranty and Service.  The Company provides a limited warranty on most of its products, for a period of 3 to 15 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 at its facility in Sarasota, Florida.
*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.  A determination of the amount of loss accrual required, ifany, for these contingencies are made after careful review of each individual issue.  The required accruals maychange in the future due to new developments in each matter or changes in approach such as a change insettlement strategy in dealing with these matters.
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**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 30,2002 and 2001.Three Months EndedJune 30,Six Months EndedJune 30,2002200120022001Net sales100.0% 100.0% 100.0% 100.0% Cost of goods sold64.5% 69.3% 63.5% 68.3%      Gross profit35.5% 30.7% 36.5% 31.7% Operating expenses:     General and administrative7.8% 5.8% 9.0% 7.0%      Sales and marketing15.0% 12.3% 18.7% 14.1%      Research and development5.6% 6.3% 6.7% 7.2%      Depreciation and amortization2.0% 1.5% 2.3% 1.8% 30.4% 25.9% 36.7% 30.1%      Income (loss) from operations5.1% 4.8% (0.2%)1.6% Other income (expense):     Interest(1.8%)(1.5%)(2.2%)(1.8%)     Financing(0.7%)(0.4%)(0.6%)(0.4%)     Litigation costs--- --- (0.1%)---      Other(0.1%)0.1% --- --- (2.6%)(1.8%)(2.9%)(2.2%)     Income (loss) before income taxes2.5% 3.0% (3.1%)(0.6%)     Income taxes--- --- --- ---      Net income (loss)2.5% 3.0% (3.1%)(0.6%)
**Net Sales**
Net sales decreased 35% and 31% for the three month period and six month period ended June 30, 2002,respectively, as compared to the same periods in 2001.  The decrease in net sales for both periods was primarilyrelated to a $20 million project with the City of New York Board of Education (the "Board") that commenced in early2001 and was substantially completed by June 30, 2001.  We have had combined sales to the Board and IBMduring the three month period and six month period ended June 30, 2002 of $7.3 million and $11.1 million,respectively.
**Gross Profit Margin**
Gross profit margin improved by 4.8 percentage points for the three month period and six month period ended June30, 2002, respectively, as compared to the same periods in 2001.  The projects with the Board in 2001 included bothcabling and switching that resulted in lower margins due to the overall duration of the projects and the projectmanagement required.  We have been able to improve our management by separating the two components withina project, which has improved our margins.
**Operating Expenses**
Operating expenses decreased $1.6 million and $2.1 million for the three month period and six month period endedJune 30, 2002, respectively, as compared to the same periods in 2001.
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General and administrative expenses decreased $201,000 and $323,000 for the three month period and six monthperiod ended June 30, 2002, respectively, as compared to the same periods in 2001.  The decreases were primarilyrelated to a reduction in the transition expenses related to the 20-20 Switching Product Line in 2001.
Sales and marketing expenses decreased $676,000 and $584,000 for the three month period and six month periodended June 30, 2002, respectively, as compared to the same periods in 2001.  The decreases resulted primarilyfrom reductions in work force implemented during 2001 that were partially offset by personnel hired in December2001 and January 2002, for our direct sales efforts in our new marketplaces located in Salt Lake City, Utah andPetaluma, California.
Research and development expenses decreased $682,000 and $1.1 million for the three month period and sixmonth period ended June 30, 2002, respectively, as compared to the same periods in 2001.  The decreases resultedprimarily from reductions in work force implemented during 2001.
**Other Expenses**
Other expenses decreased $42,000 and $116,000 for the three month period and six month period ended June 30,2002, respectively, as compared to the same periods in 2001.  The decreases resulted primarily from reductionsin interest expense.
**LIQUIDITY AND CAPITAL RESOURCES**
**Net cash flows provided by operating activities**
Net cash flows provided by operating activities were $803,000 for the six month period ended June 30, 2002.  The$803,000 was comprised of the following items: (1) net loss of $930,000, (2) non-cash expenses of $2,522,000, (3)net increase in operating assets of $190,000, and (3) net decrease in operating liabilities of $599,000.  The netdecrease in operating liabilities was primarily a result of a decrease in accounts payable of $868,000 caused byprojects commencing in 2001 and completed in 2002 for IBM.
Net cash flows provided by operating activities were $4, 479,000 for the six month period ended June 30, 2001.The $4,479,000 was comprised of the following items: (1) net loss of $276,000, (2) non-cash expenses of$1,545,000, (3) net increase in operating assets of $3,778,000, and (4) net increase in operating liabilities of$6,988,000.  The net increase in operating assets was primarily a result of an increase in accounts receivable of$4,489,000.  The net increase in operating liabilities was primarily a result of an increase in accounts payable andaccrued expenses of $5,969,000.  The increases in accounts receivable, accounts payable and accrued expenseswere caused by the substantial completion of a $20 million project with the City of New York Board of Education asof June 30, 2001.
**Net cash flows used in investing activities**
Net cash flows used in investing activities were $264,000 for the six month period ended June 30, 2002.  TheCompany acquired property and equipment of $289,000, which was offset by $25,000 of proceeds from the sale ofproperty and equipment.
Net cash flows used in investing activities were $965,000 for the six month period ended June 30, 2002.  TheCompany acquired property and equipment of $966,000, which was offset by $1,000 of proceeds from the sale ofproperty and equipment.
**Net cash flows used in financing activities**
Net cash flows used in financing activities were $261,000 for the six month period ended June 30, 2002.  The$261,000 was comprised of the following items: (1) net borrowings of $14,000 on the line of credit, (2) netrepayments of $207,000 on loans, notes and capital leases, (3) proceeds of $74,000 related to the Employee StockPurchase Plan, and (4) dividends paid of $142,000 on Preferred Series B and C Convertible stock.
Net cash flows used in financing activities were $3,475,000 for the six month period ended June 30, 2001.  The$3,475,000 was comprised of the following items: (1) net repayments of $2,602,000 on the line of credit, (2) net

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repayments of $930,000 on loans, notes and capital leases, (3) proceeds of $133,000 related to the Employee StockPurchase Plan, and (4) dividends paid of $76,000 on Preferred Series B Convertible stock.
**Liquidity**
As of June 30, 2002, the Company had cash and cash equivalents of $324,000 as compared to $63,000 as ofDecember 31, 2002.  Working capital as of June 30, 2002 and December 31, 2001 was $4,860,000 and $4,737,000,respectively.  Principal obligations as of June 30, 2002 were comprised primarily of the following: (1) Promissorynote payable to Harris Corporation of $9,100,000 in which $412,000 is expected to be paid within the next twelvemonths, (2) Bank line of credit payable to The CIT Group/Credit Finance, Inc. ("CIT") of $3,172,000, and (3) Securedloan payable to Finova Mezzanine Capital Corp. of $909,000 that matures on August 13, 2002.  The Company isin discussions with Finova regarding extending the maturity date.
The credit facility with CIT is further described in Note 5 to the condensed consolidated financial statements.  Thecredit facility has a maximum available limit of $5,500,000 with interest at prime plus 2%.
We believe that our cash balances and the cash flows generated by operations will be sufficient to satisfy ouranticipated cash needs for working capital and capital expenditures for at least the next twelve months.  However,because our operating results may fluctuate significantly as a result of a decrease in customer demand or theacceptance of our products, our ability to generate positive cash flows from operations may be jeopardized.  As aresult, we may require additional funds to support our working capital requirements, or for other purposes, and mayseek to raise such additional funds through public or private equity financings or from other sources.  We may notbe able to obtain adequate or favorable financing at that time.  Any financing we obtain may dilute your ownershipinterests.  In addition, if our cash flows were to substantially decrease, our long-lived assets or goodwill may becomeimpaired and we would have to record a charge for impairment, which may be material to our financial position andresults of operations.
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.   We anticipate that our cash requirements forinvesting activities for 2002 will not be significant.
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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 have been no changes to the legal proceedings as previously reported on Form 10-K.  Management is notaware of the commencement of any new legal proceedings.**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**  3
Amended Designations Establishing Series of Shares and Articles of Amendment of Teltronics, Inc. filed with the Delaware Secretary of State on April 29, 2002.  10.1
Third Amended and Restated Senior Secured Promissory Note in the amount of $1,000,000dated and delivered May 2, 2002 by Teltronics, Inc. to Finova Mezzanine Capital, Inc. f/k/aSirrom Capital Corporation.  10.2
Amended and Restated Stock Purchase Warrant covering 525,000 shares Common Stock ofTeltronics, Inc. issued May 2, 2002 to Finova Mezzanine Capital, Inc. f/k/a/Sirrom CapitalCorporation.  10.3
Amended and Restated Stock Purchase Warrant covering 365,000 shares Common Stock ofTeltronics, Inc. issued May 2, 2002 to Finova Mezzanine Capital, Inc. f/k/a/Sirrom CapitalCorporation.  99.1
Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.  99.2
Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.**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 has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.TELTRONICS, INC.August 14, 2002/s/ Patrick G. MinPatrick G. MinVice President Finance & Chief Financial Officer
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