> 
**U.S. SECURITIES AND EXCHANGE COMMISSION****Washington, 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 March 31, 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 May 11, 2001 there were 4,856,993 shares of the Registrant's Common Stock outstanding.
**INDEX**
**PAGE     **
**PART I.****FINANCIAL INFORMATION**   ITEM 1.FINANCIAL STATEMENTSConsolidated Balance Sheets at March 31, 2001 and December31, 2000.3-4Consolidated Statements of Operations for the Three Monthsended March 31, 2001 and 2000.5Consolidated Statements of Cash Flows for the Three Monthsended March 31, 2001 and 2000.6Notes to Interim Consolidated Financial Statements7-12   ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS13-14**PART II.**OTHER INFORMATION15   ITEM 1.LEGAL PROCEEDINGS15   ITEM 2.CHANGES IN SECURITIES15   ITEM 3.DEFAULTS UPON SENIOR SECURITIES15   ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS15   ITEM 5.OTHER INFORMATION15   ITEM 6A.EXHIBITS15   ITEM 6B.REPORTS ON FORM 8-K15**SIGNATURES**16
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**PART I - FINANCIAL INFORMATION**
**ITEM 1.     FINANCIAL STATEMENTS**
**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**
**ASSETSMarch 31,2001December 31,2000(Unaudited)**Current Assets:**Cash and cash equivalents$21,530$35,292Accounts receivable, net of allowance for doubtfulaccounts     of $276,000 at March 31, 2001 and $278,500 at     December 31, 2000.19,034,94610,594,463Inventories, net12,409,38211,494,314Prepaid expenses and other current assets816,491391,964     Total current assets32,282,34922,516,033Property and equipment, net5,518,4025,841,728Goodwill and other intangible assets, net735,173760,927Other assets302,628412,779     Total assets$38,838,552$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**March 31,2001December 31,2000(Unaudited)**Current Liabilities:**     Current portion of note payable$857,059 $857,059      Current portion of long-term debt1,082,226 5,042,465      Current portion of capital lease obligations248,126 313,370      Accounts payable12,746,638 7,853,835      Accrued expenses and other current liabilities3,365,998 2,416,614      Deferred income10,878,732 1,333,567           Total current liabilities29,178,779 17,816,910 **Long-term liabilities:**     Note payable, net of current portion6,239,564 6,239,564      Long-term debt, net of current portion0 1,000,000      Capital lease obligations, net of current portion41,300 71,862           Total long-term liabilities6,280,864 7,311,426 **Commitments and contingencies****Shareholders' equity:**     Common stock, $.001 par value, 40,000,000shares          authorized, 4,818,783 and 4,761,291 issued and          outstanding at March 31, 2001 and December 31,          2000, respectively.4,820 4,763      Non-voting common stock, $.001 par value,5,000,000          shares authorized, zero shares issued andoutstanding.0 0      Preferred Series A stock, $.001 par value, 100,000shares          authorized, 100,000 shares issued and outstanding.100 100      Preferred Series B Convertible stock, $.001 parvalue,          25,000 shares authorized, 12,625 sharesissued          and outstanding.13 13      Additional paid-in capital18,899,815 18,838,798      Accumulated deficit(15,525,839)(14,440,543)          Total shareholders' equity3,378,909 4,403,131           Total liabilities and shareholders' equity$38,838,552 $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 March 31,20012000**Net Sales**$18,250,470 $7,584,389 Cost of goods sold11,897,180 4,501,137 **Gross profit**6,353,290 3,083,252 **Operating expenses:**     General and administrative1,746,985 980,193      Sales and marketing3,538,242 1,633,810      Research and development1,575,124 907,889 6,860,351 3,521,892 Loss from operations(507,061)(438,640)**Other income (expense):**     Interest(421,398)(219,123)     Financing(78,651)(70,894)     Litigation costs0 (76,800)     Other(35,160)17,022 (535,209)(349,795)Loss before income taxes(1,042,270)(788,435)Income taxes(5,151)0 **Net Loss**(1,047,421)(788,435) Dividends on Preferred Series B Convertible  Stock37,875 37,875  Net loss attributable to Common Shareholders$(1,085,296)$(826,310)**Net loss per share:**     Basic and Diluted$(.23)$(.20)
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**Three Months Ended March 31,20012000**Cash Flows from Operating Activities:**     Net income (loss)$(1,047,421)$(788,435)     Adjustments to reconcile net income (loss) to netcash     flows provided by (used in) operating activities:          Provision for doubtful accounts(2,500)(71,008)          Provision for obsolete inventories56,835 9,501           Depreciation and amortization576,608 372,940           Amortization of deferred financing costs21,000 25,935           Amortization of intangibles25,754 3,121      Changes in operating assets and liabilities, net of     acquisitions and dispositions:          Accounts receivable(8,437,983)308,288           Inventories(971,903)(349,541)          Prepaid expenses and other current assets(424,527)16,887           Accounts payable4,892,803 (9,680)          Accrued expenses and other current liabilities950,674 234,818           Deferred income9,545,165 271,436 Net cash flows provided by operating activities5,184,505 24,262 **Cash Flows from Investing Activities:**     Acquisition of property and equipment(254,181)(156,794)     Decrease in other assets89,151 6,432      Proceeds from sale of assets899 500 Net cash flows used in investing activities(164,131)(149,862)**Cash Flows from Financing Activities:**     Net repayment of line of credit(4,211,529)(77,022)     Principal repayments of loans, notes and leases(845,806)(108,076)     Net proceeds from sale of common stock61,074 10,500      Dividends on Preferred Series B Convertible Stock(37,875)(37,875)Net cash flows used in financing activities(5,034,136)(212,473)Net decrease in cash(13,762)(338,073)Cash and cash equivalents - beginning of period35,292 954,764 Cash and cash equivalents - end of period$21,530 $616,691 
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 threemonth period ended March 31, 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.
**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.
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 
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**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").  TheNote provided for interest at 12.5% per annum effective August 14, 2000.  The Note is securedby a first lien on the assets and a lien on the Company's other assets.
The Note 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 agreed to further amend the Note owed by theCompany to Harris which contemplates partial payment of the existing principal of the Note andpayment 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.It is expected that the amended Note will be executed and the partial payment made to Harrissimultaneously with the closing of a private placement by the Company at which closingHarris is expected to simultaneously convert a portion of the principal of the Note to convertiblepreferred stock of the Company and be issued warrants to acquire shares of the common stockof the Company.  The Company expects the simultaneous closing of a privateplacement, Harris amended Note, and issuance of convertible preferred stock and warrants ofthe Company to Harris to occur during the third quarter of 2001.  There can be no assurancethat the closing will occur or that it will close on the terms contemplated.  Pending closing ofthe contemplated transaction, Harris and the Company have agreed that the principal of theNote has been increased by an additional amount of $2,642,941 to reflect the aggregatepayables owed by the Company to Harris for additional inventory and services provided; thematurity date of the Note has been extended to April 30, 2002; and interest only payments ata rate of 10.5% will commence on May 1, 2001.
The acquisition has been accounted for using the purchase method of accounting and resultsof operations  of the acquired business are included in the Company's results of operations fromthe date of acquisition.  The purchase price has been assigned to the net assets acquired basedon management's estimate of the fair value of such assets and liabilities at the date ofacquisition as follows:Inventory, net$   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 
Purchase price allocation is open for inventory and fixed asset valuation.
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The unaudited pro forma results presented below include the effects of the acquisitions as ifthey had been consummated at the beginning of the year prior to acquisition.  The unauditedpro forma financial information below is not necessarily indicative of either future results ofoperations or results that might have been achieved had the acquisitions been consummatedat the beginning of the year prior to acquisitions of Telident and Harris.Year EndedDecember 31,2000 Net sales$67,106,506 Net loss$(44,909,028)Net loss available to commonshareholders$(45,060,528)Net loss per share -     Basic$(9.53)     Diluted$(9.53)
**NOTE 3 - NET LOSS PER SHARE**
Basic net loss per share is computed by dividing net loss, adjusted for preferred stock dividends,by the weighted average number of issued common shares outstanding during the applicableperiod.  Diluted net loss per share is computed by dividing net loss, adjusted for preferred stockdividends, by the weighted average number of issued common shares.  Potential commonshares consist of convertible preferred stock, stock options (vested and unvested) and warrantsand are computed using the treasury stock method.  Potential common shares for 2001 and2000 were anti-dilutive and were not included in the calculation of diluted net loss per share.
The following unaudited table sets forth the computation of basic and diluted net loss per share:Three Months Ended March 31,20012000**BasicNet income (loss)$(1,047,421)$(788,435)Preferred dividends(37,875)(37,875)     Net loss attributable to common shareholders$(1,085,296)$(826,310)Weighted average shares outstanding4,802,804 4,058,412      Net loss per share$(.23)$(.20)**Diluted**Net income (loss)$(1,047,421)$(788,435)Preferred dividends(37,875)(37,875)     Net loss attributable to common shareholders$(1,085,296)$(826,310)Weighted average shares outstanding4,802,804 4,058,412 Net effect of dilutive stock options using the treasury     stock method0 0 Net effect of dilutive warrants using the treasury     stock method0 0      Dilutive potential common shares4,802,804 4,058,412      Net loss per share$(.23)$(.20)
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**NOTE 4 - INVENTORIES
The major classes of inventories are as follows:March 31,2000December 31,2000(Unaudited)Raw materials$9,098,470 $8,794,585 Work-in-process1,404,388 1,276,872 Finished goods1,906,524 1,422,857 $12,409,382 $11,494,314 
Provision for obsolete inventories were $56,835 at March 31, 2001 and $462,246 at December31, 2000.
**NOTE 5 - LONG TERM DEBT
On February 25, 1998, the Company issued $1,750,000 of Subordinated Secured Debentures(the "Debentures").  The Debentures were due February 13, 2002 and fees paid in connectionwith the Debentures totaled $8,750.  The Debentures do not have a prepayment penalty andare collateralized by a first lien on fixed assets and a second lien on all other assets.  TheHolder of the Debentures received 525,000 warrants to purchase the Company's Common Stockat an exercise price of $2.75 per share.  These warrants are exercisable in whole, or in part, atany time during a five-year period beginning on the date of issuance.  The Debentures containcertain financial covenants, including restrictions which could affect future funding of ISI by theCompany.
On March 29, 1999, the Company amended and restated the $1,750,000 of SubordinatedSecured  Debentures Agreement.  The Debentures have a revised maturity of $500,000 on April30, 2000 and $1,250,000 on February 13, 2002.  The Holder has extended the April 30, 2000maturity date.
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.
In March, 2001, Harris and the Company agreed to further amend the Note owed by theCompany to Harris which contemplates partial payment of the existing principal of the Note andpayment 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.It is expected that the amended Note will be executed and the partial payment made to Harrissimultaneously with the closing of a private placement by the Company at which closingHarris is expected to simultaneously convert a portion of the principal of the Note to convertiblepreferred stock of the Company and be issued warrants to acquire shares of the common stockof the Company.  The Company expects the simultaneous closing of a privateplacement, Harris amended Note, and issuance of convertible preferred stock and warrants ofthe Company to Harris to occur during the third quarter of 2001.  There can be no assurancethat the closing will occur or that it will close on the terms contemplated.    Pending closing ofthe contemplated transaction, Harris and the Company have agreed that the principal of theNote has been increased by an additional amount of $2,642,941 to reflect the aggregatepayables owed by the Company to Harris for additional inventory and services provided; thematurity date of the Note has been extended to April 30, 2002; and interest only payments ata rate of 10.5% will commence on May 1, 2001.
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**NOTE 6 - SHAREHOLDERS' EQUITY**
The total number of shares of all classes of capital stock which the Company has the authorityto issue is 50,000,000 shares divided into three classes of which 5,000,000 shares, par value$.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.
**NOTE 7 - 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 strategiesand 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.
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The following table presents information about reportable segment operations and assets.Three Months EndedMarch 31,20012000**Net Sales**Teltronics$18,140,000 $ 7,486,000 Mexico0 0 ISI110,000 98,000 Total sales$18,250,000 $ 7,584,000 **Depreciation and Amortization**Teltronics$     557,000 $    242,000 Mexico0 0 ISI20,000 131,000 Total depreciation and amortization $     577,000 $    373,000 **Interest and Financing Costs**Teltronics$     500,000 $    290,000 Mexico
0 
0 ISI0 0 Total interest and financing costs$     500,000 $    290,000 **Segment Profits**Teltronics$    (661,000)$   (373,000)Mexico(89,000)0 ISI(297,000)(415,000)Net loss before taxes$ (1,047,000)$   (788,000)**Segment Assets**Teltronics$38,743,000 $14,473,000 Mexico48,000 0 ISI48,000 817,000 Total segment assets$38,839,000 $15,290,000 **Acquisition of Property and Equipment**Teltronics$     233,000 $     138,000 Mexico14,000 0 ISI7,000 19,000 Total acquisition of property and equipment$     254,000 $     157,000 
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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 abilityto secure additional sources of financing, the ability to reduce operating expenses, the abilityto comply with the rules for inclusion in the Nasdaq Stock Market and other factors describedin the Company's filings with the Securities and Exchange Commission.  The actual results thatthe Company achieves may differ materially from any forward-looking statements due to suchrisks and 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 month periods endedMarch 31, 2001 and 2000.Three Months EndedMarch 31,20012000 Net sales100.0% 100.0% Cost of goods sold65.2% 59.3%      Gross profit34.8% 40.7% Operating expenses:     General and administrative9.6% 12.9%      Sales and marketing19.4% 21.5%      Research and development8.6% 12.0% 37.6% 46.4%      Income (loss) from operations(2.8%)(5.7%)Other income (expense):     Interest(2.3%)(2.9%)     Financing(0.4%)(0.9%)     Litigation costs0% (1.0%)     Gain on dispositions0% 0%      Other(0.2%)0.2% (2.9%)(4.6%)     Income (loss) before income taxes(5.7%)(10.3%)     Income tax expense0% 0%      Net income     (5.7%)(10.3%)
**Three Months Ended March 31, 2001 and 2000.**
Sales were $18,250,000 for 2001 as compared to $7,584,000 for 2000.  This increase was dueto strong sales from the 20-20 acquisition.
Gross profit was $6,353,000 or 34.8% for 2001 as compared to $3,083,000 or 40.7% for 2000.The decrease was due to product mix, with increased low margin electronic manufacturing salesand cost increases on selected components.
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General and administrative expenses were $1,747,000 for 2001 as compared to $980,000 for2000.  The increase was due to increased payroll and benefit plan expenses.
Sales and marketing expenses were $3,538,000 for 2001 as compared to $1,634,000 for 2000.The increase is due to increased payroll, travel and marketing expenses.
Research and development expenses were $1,575,000 for 2001 as compared to $908,000 for2000.
The increased expenses above relate to additional personnel required for the 20-20 acquisition.
Loss from operations was $507,000 for 2001 as compared to $439,000 for 2000.  This increaserelates to lower gross profit and increased expenses.
Other expense was $535,000 for 2001 as compared to $350,000 for 2000.  Interest andfinancing was $500,000 for 2001 as compared to $290,000 for 2000.
The net loss was $1,047,000 for 2001 as compared to net loss of $788,000 for 2000.
**LIQUIDITY AND CAPITAL RESOURCES**
Cash requirements were met with borrowings from The CIT Group/Credit Finance ("CIT").
The Company's working capital ratio was 1.11:1 at March 31, 2001 as compared to 1.26:1 atDecember 31, 2000.  Net working capital  was $3,104,000 at March 31, 2001 as compared to$4,699,000 at December 31, 2000.
Net cash decreased by $14,000 for the quarter ended March 31, 2001 as compared to adecrease of $338,000 for the quarter ended March 31, 2000.  Net cash flows provided byoperating activities were $5,185,000 for the quarter ended March 31, 2001 as compared to$24,000 for the quarter ended March 31, 2000.
Accounts receivable increased by $8,438,000 for the quarter ended March 31, 2001 ascompared to a decrease of $308,000 for the quarter ended March 31, 2000.  This increase wasdue to sales related to the New York Board of Education contract in the last month of the quarter.  Inventories increasedby $972,000 for the quarter ended March 31, 2001 as compared to an increase of $350,000 forthe quarter ended March 31, 2000.  This increase relates to inventory purchases made forproduction scheduled for the second quarter of 2001.  Accounts payable increased by$4,893,000 for the quarter ended March 31, 2001 as compared to a decrease of $10,000 for thequarter ended March 31, 2000.
Net cash flows used in investing activities totaled $164,000 for the quarter as compared to$150,000 for the quarter ended March 31, 2000.  Acquisition of property and equipment totaled$254,000 for the quarter ended March 31, 2001 as compared to $157,000 for the quarter endedMarch 31, 2000.
Cash flows used in financing activities totaled $5,034,000 for the quarter ended March 31, 2001as compared to $212,000 for the quarter ended March 31, 2000.  The Company repaid debt of$5,057,000 during the quarter ended March 31, 2001.
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 has engaged Dain Rauscher Wessels to raise up to $17.5 million in debt and equity financing.
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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.
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 are conditioned upon closing of a private equity placement byIntelliworxx which has not occurred.  If the private placement is not consummated, it couldresult in a new trial in May, 2001 of the damages owed to Teltronics and ISI by the defendants.There can be no assurance that the Intelliworxx private placement will occur or if it occurs thatTeltronics will be successful in collecting the Settlement payments agreed to be paid by thedefendants.
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.  **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. May 15, 2001/s/ Ewen R. CameronEwen R. CameronPresident & Chief Executive Officer
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