**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 September 30, 2001.[  ]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 November 7, 2001 there were 5,040,142 shares of the Registrant's Common Stock outstanding.

**INDEX**
**PAGE     **
**PART I.****FINANCIAL INFORMATION**     ITEM 1.FINANCIAL STATEMENTS (Unaudited)Consolidated Balance Sheets at September 30, 2001 and December 31, 2000.3-4Consolidated Statements of Operations for the Three Months and Nine MonthsEnded September 30, 2001 and 2000.5Consolidated Statements of Cash Flows for the Nine Months EndedSeptember 30, 2001 and 2000.6Notes to Interim Consolidated Financial Statements - September 30, 20017     ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS12**PART II.**OTHER INFORMATION     ITEM 1.LEGAL PROCEEDINGS15     ITEM 2.CHANGES IN SECURITIES15     ITEM 3.DEFAULTS UPON SENIOR SECURITIES15     ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS15     ITEM 5.OTHER INFORMATION15     ITEM 6A.EXHIBITS15     ITEM 6B.REPORTS ON FORM 8-K15**SIGNATURES**16
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**PART I - FINANCIAL INFORMATION**
**ITEM 1.   FINANCIAL STATEMENTS**
**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**
**ASSETSSeptember 30,2001December 31,2000(Unaudited)**Current Assets:**Cash and cash equivalents$          71,539$          35,292Accounts receivable, net of allowance for doubtful accounts     of $192,820 at September 30, 2001 and $278,500 at     December 31, 2000.15,343,21610,594,463Inventories, net8,964,33211,494,314Prepaid expenses and other current assets526,956391,964
     Total current assets24,906,04322,516,033Property and equipment, net5,429,0785,841,728Goodwill and other intangible assets, net683,666760,927Other assets193,083412,779     Total assets$	31,211,870$	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**	September 30,2001	December 31,2000(Unaudited)**Current Liabilities:**     Current portion of note payable$       7,096,623 $       857,059      Current portion of long-term debt5,310,608 	5,042,465      Current portion of capital lease obligations111,557 	313,370      Accounts payable11,953,328 	7,853,835      Accrued expenses and other current liabilities3,584,546 	2,416,614      Deferred income2,156,065 	1,333,567           Total current liabilities30,212,727 	17,816,910 **Long-term liabilities:**     Note payable, net of current portion0 	6,239,564      Long-term debt, net of current portion0 	1,000,000      Capital lease obligations, net of current portion4,558 	71,862           Total long-term liabilities4,558 	7,311,426 **Commitments and contingencies****Shareholders' equity:**     Common stock, $.001 par value, 40,000,000 shares          authorized, 5,040,142 and 4,761,291 issued and          outstanding at September 30, 2001 and December 31, 2000,          respectively.5,042 4,763      Non-voting common stock, $.001 par value, 5,000,000 shares          authorized, zero shares issued and outstanding.
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0      Preferred Series A stock, $.001 par value, 100,000 shares          authorized, 100,000 shares issued and outstanding.
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100      Preferred Series B Convertible stock, $.001 par value, 25,000          shares authorized, 12,625 shares issued and outstanding.13 13      Additional paid-in capital19,178,521 	18,838,798      Accumulated deficit(18,189,091)(14,440,543)          Total shareholders' equity994,585 	4,403,131           Total liabilities and shareholders' equity$   31,211,870 $   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 EndedSeptember 30,Nine Months EndedSeptember 30,2001200020012000**Net Sales**$  10,238,565 $  13,613,796 $  54,316,603 $  27,611,292 Cost of goods sold6,687,529 6,684,521 36,097,230 15,366,165 **Gross profit**3,551,036 6,929,275 18,219,373 12,245,127 **Operating expenses:**     General and administrative1,607,239 1,431,825 5,028,094 3,549,581      Sales and marketing3,286,127 2,425,311 10,536,461 5,553,885      Research and development1,458,668 1,670,392 4,680,700 3,702,915 6,352,034 5,527,528 20,245,255 12,806,381 (Loss) income from operations(2,800,998)1,401,747 (2,025,882)(561,254)**Other expense:**     Interest(391,145)(436,931)(1,192,222)(865,493)     Financing(102,820)(96,068)(277,944)(241,945)     Litigation costs0 (44,967)0 (372,849)     Other(49,551)(20,534)(113,071)1,408 (543,516)(598,500)(1,583,237)(1,478,879)(Loss) income before income taxes(3,344,514)803,247 (3,609,119)(2,040,133)Income taxes(14,240)(46,261)(25,804)(46,261)**Net (loss) income**(3,358,754)756,986 (3,634,923)(2,086,394)Dividends on Preferred Series BConvertible  Stock37,875 37,875 113,625 113,625 Net (loss) income attributable toCommon Shareholders$ (3,396,629)$    719,111 $ (3,748,548)$ (2,200,019)**Net (loss) income per share:**     Basic$ (0.68)$ 0.15 $ (0.75)$ (0.50)     Diluted$ (0.68)$ 0.14 $ (0.75)$ (0.50)
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)**Nine Months Ended September 30,20012000**Cash Flows from Operating Activities:**     Net loss$ (3,634,923)$ (2,086,394)     Adjustments to reconcile net loss to net cash     flows provided by operating activities:          Provision for doubtful accounts(85,680)38,200           Provision for obsolete inventories233,740 357,046           Depreciation and amortization1,567,651 1,263,290           Amortization of deferred financing costs155,734 77,835           Amortization of intangibles77,261 40,173           Stock compensation expense156,701 0      Changes in operating assets and liabilities, net of     acquisitions and dispositions:          Accounts receivable(4,663,073)(2,712,790)          Inventories2,296,242 (691,322)          Prepaid expenses and other current assets(134,992)(89,190)          Accounts payable4,099,493 2,336,756           Accrued expenses and other current liabilities1,167,932 794,642           Deferred income822,498 958,470           Other assets63,962 0 Net cash flows provided by operating activities2,122,546 286,716 **Cash Flows from Investing Activities:**     Acquisition of property and equipment(1,155,900)(404,853)     Decrease in other assets0 68,997      Proceeds from sale of assets899 0      Cash received in acquisition of Telident, Inc. net assets0 762,321 Net cash flows (used in) provided by investing activities(1,155,001)426,465 **Cash Flows from Financing Activities:**     Net proceeds from (repayment of) line of credit14,196 (147,423)     Principal repayments of loans, notes and leases(1,015,170)(1,072,254)     Net proceeds from sale of common stock183,301 10,500      Dividends on Preferred Series B Convertible Stock(113,625)(113,625)Net cash flows used in financing activities(931,298)(1,322,802)Net increase (decrease) in cash and cash equivalents36,247 (609,621)Cash and cash equivalents - beginning of period35,292 954,764 Cash and cash equivalents - end of period$      71,539 $    345,143 **Supplemental Non-cash Financing and Investing Activities:**     Acquisition of assets of Telident, Inc. for common stock$                0$ 2,073,626     Acquisition of assets of Harris 20-20 for a note payable$                0$ 6,884,355     Employer Stock match 401(k)$     156,701$      80,264
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 marketselectronic hardware and application software products, and engages in contract manufacturing for thetelecommunication industry.  Through its majority owned subsidiary, Interactive Solutions, Inc. ("ISI") the Companyhas also engaged in the design and manufacturing of a portable hardware/software device which allows two-waycommunication between speaking/hearing impaired individuals and hearing individuals.
The accompanying consolidated financial statements include the accounts of the Company and is comprised ofits wholly-owned subsidiaries TTG Acquisition Corp. and Teltronics, S.A. de C.V. and its 85% owned subsidiaryInteractive Solutions, Inc. ("ISI").  All significant inter-company transactions and balances have been eliminatedin consolidation.
The unaudited consolidated financial statements and related notes have been prepared in accordance with the rulesand regulations of the Securities and Exchange Commission and on substantially the same basis as the annualconsolidated financial statements.  In the opinion of management, the consolidated financial statements reflect alladjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financialposition, operating results, and cash flows for those periods presented.  Operating results for the nine month periodended September 30, 2001 are not necessarily indicative of the results that may be expected for the year endingDecember 31, 2001.  These consolidated financial statements should be read in conjunction with the consolidatedfinancial statements, and notes thereto, for the year ended December 31, 2000, as presented in the Company'sannual report on Form 10-K.
In July, 2001, the FASB issued Statements of Financial Accounting Standards No. 141, *Business Combinations*and No. 142, *Goodwill and Other Intangible Assets*.  Statement 141 eliminates the pooling-of-interests method ofaccounting for business combinations except for qualifying business combinations that were *initiated* prior to July1, 2001.  Statement 141 further clarifies the criteria to recognize intangible assets separately from goodwill.  Therequirements of Statement 141 are effective for any business combination accounted for by the purchase methodthat is completed after June 30, 2001.
Under Statement 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewedannually for impairment.  Separable intangible assets that are not deemed to have an indefinite life will continueto be amortized over their useful lives.  The amortization provisions of Statement 142 apply to goodwill andintangible assets acquired after June 30, 2001.  With respect to goodwill and intangible assets acquired prior to July1, 2001,  the Company is required to adopt Statement 142 in its fiscal year beginning after December 15, 2001.
The Company does not believe the implementation of these standards will have a material effect on its financialstatements.
**NOTE 2 - ACQUISITIONS**
**Telident, Inc.**
On May 18, 2000, the Company acquired substantially all of the assets and assumed certain liabilities of Telident,Inc., a Minnesota corporation ("Seller") located in Minneapolis, Minnesota.  The Company acquired all of theSeller's rights to and in certain technology for the identification or location of emergency 911 telephone calls.
The Company delivered  662,500  shares of its $.001 par value voting common stock for substantially all of theassets of the Seller.
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The acquisition has been accounted for using the purchase method of accounting and operations of the acquiredbusiness are included in the Company's results of operations from the date of acquisition.  The purchase price hasbeen assigned to the net assets acquired based on management's estimate of the fair value of such assets andliabilities at the date of acquisition as follows:Cash$     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 current liabilities(239,505)Deferred Income(28,146)Long-Term debt(2,990)Net assets acquired$2,073,626 
**Harris Corporation 20-20 Switching Product Line**
On June 30, 2000, the Company acquired certain equipment, inventory and intellectual property rights related tothe 20-20® switching technology and associated products of Harris Corporation Communications Products Divisionlocated in Melbourne, Florida ("Harris"), under an Asset Sale Agreement dated June 30, 2000 ("Agreement").
Under the Agreement, the Company acquired the assets and assumed on-going support obligations for certain ofHarris' Communications Products Division customers in consideration for $6,884,355 paid for with a promissorynote with interest at 10.5% per annum ("Note").
The acquisition has been accounted for using the purchase method of accounting and results of operations  of theacquired business are included in the Company's results of operations from the date of acquisition.  The purchaseprice has been assigned to the net assets acquired based on management's estimate of the fair value of suchassets and liabilities at the date of acquisition as follows:Inventory, net$ 5,277,113 Property and equipment, net3,083,025 Customer lists and patents206,210 Note payable(6,884,355)Accrued expenses and other current liabilities(1,629,993)Accounts payable(52,000)Net assets acquired$              0 
**NOTE 3 - NET (LOSS) INCOME PER SHARE**
Basic net (loss) income per share is computed by dividing net (loss) income, adjusted for preferred stock dividends,by the weighted average number of issued common shares outstanding during the applicable period.  Diluted net(loss) income per share is computed by dividing net (loss) income, 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 2001 and 2000 were anti-dilutive and were notincluded in the calculation of diluted net (loss) income per share.
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The following unaudited table sets forth the computation of basic and diluted net (loss) income per share:Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2001200020012000**BasicNet (loss) income$ (3,358,754)$     756,986 $ (3,634,923)$ (2,086,394)Preferred dividends adjustment(37,875)(37,875)(113,625)(113,625)     Net (loss) income attributable to          common shareholders$ (3,396,629)$     719,111 $ (3,748,548)$ (2,200,019)Weighted average shares outstanding5,012,622 4,730,090 4,999,189 4,393,444      Net (loss) income per share$ (0.68)$ 0.15 $ (0.75)$ (0.50)**Diluted**Net (loss) income$ (3,358,754)$     756,986 $ (3,634,923)$ (2,086,394)Preferred dividends adjustment(37,875)(37,875)(113,625)(113,625)     Net (loss) income attributable to          common shareholder$ (3,396,629)$     719,111$ (3,748,548)$ (2,200,019)Weighted average shares outstanding5,012,622 4,730,090 4,999,189 4,393,444 Net effect of dilutive stock options     using the treasury stock method0 178,677 0 0 Net effect of dilutive convertible     preferred stock using if converted     method0 70,712 0 0      Dilutive potential common shares5,012,622 4,979,479 4,999,189 4,393,444      Net (loss) income per share$ (0.68)$ 0.14 $ (0.75)$ (0.50)
**NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable at September 30, 2001 and December 31, 2000 are as follows:September 30,2001December 31,2000(Unaudited)Accounts receivable $ 15,536,036 $ 10,872,963 Less provision for doubtful accounts(192,820)(278,500)$ 15,343,216 $ 10,594,463 
The Company recorded approximately $2.8 million in sales to one customer for 2000 based on the estimated net realizable value as determined by the facts and circumstances at December 31, 2000.  In September of 2001, the Company reached an agreement to accept approximately $1.9 million in settlement of this sale.
**NOTE 5 - INVENTORIES
The major classes of inventories are as follows:September 30,2001December 31,2000(Unaudited)Raw materials$ 6,334,722$ 8,794,585Work-in-process864,9961,276,872Finished goods1,764,6141,422,857$ 8,964,332$ 11,494,314
The reserve for obsolete inventories has been allocated to the major classes of inventory and was $1,140,724 atSeptember 30, 2001 and $996,557 at December 31, 2000.
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**NOTE 6 - DEBT
On October 28, 2000, the Company's principal lender, The CIT Group/Credit Finance, Inc. ("CIT") extended theCompany's existing Line of Credit Facility and Term Loan.  Under the extension agreement, the interest rate is 2.0%above prime rate, maximum availability is $5,500,000, a prepayment penalty is assessed at 1.5% and the due dateis October 28, 2002.  Substantially all of the Company's present and future assets, except for fixed assets, arepledged as collateral with borrowings limited to certain gross availability formulas based on accounts receivable andinventory as defined in the agreement.  The facility provides for minimum loan fees, unused line fees and renewalterm fees.  The outstanding borrowings are classified as a current liability.  A director of the Company has personallyguaranteed a portion of the facility.  At September 30, 2001 the Company had $1,257,374 available subject torestrictions based on availability formulas.
On May 12, 2000 and June 30, 2000, the Company amended and restated the $1,750,000 of Subordinated SecuredDebentures Agreement with Finova Capital.  The Company repaid $750,000 of the Debentures on September 29,2000, $250,000 on October 31, 2000 and the remaining $750,000 was paid by March 30, 2001.  The Holder of theDebentures received 525,000 warrants to purchase the Company's Common Stock at an exercise price of $2.75per share.  These warrants are exercisable in whole, or in part, at any time during a five-year period beginning onthe date of issuance.  The Debentures contain certain financial covenants, including restrictions which could affectfuture funding of ISI by the Company.
On May 12, 2000, the Company amended and restated the $1,000,000 Loan Agreement with Finova Capitaloriginally entered into on February 25, 1998 and originally due February 25, 1999.  The Loan Agreement has arevised maturity of February 13, 2002.  The interest rate is 12%.  The Holder of the Loan received 365,000 warrantsto purchase the Company's Common Stock at an exercise price of $2.75 per share.  These warrants are exercisablein whole, or in part, 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 of ISI by the Company.
The Company maintains a promissory note ("Note") to the Harris Corporation related to the acquisition of the 20-20®Product Line which was amended August 17, 2000 to extend the maturity to September 29, 2000 and was furtheramended October 30, 2000.  Under this amendment, the principal and capitalized interest total was stated at$7,096,623, the due date was extended to December 31, 2000 and interest was changed to 10.5% effective October4, 2000 and was to be paid monthly starting November 1, 2000.
In March, 2001, Harris and the Company reached an understanding to further amend the Note owed by theCompany to Harris.  The understanding contemplated partial payment of the existing principal of the Note duringthe third quarter of 2001 and payment of the balance under the amended Note with interest only at a rate of 10.5%per annum during an initial period of six months and amortization of the adjusted principal balance in eighteenmonthly installments commencing seven months after execution of the amended Note and issuance of warrants toacquire shares of the common stock of the Company.  A payment of $500,000 was made in September of 2001.There can be no assurance that the contemplated Note restructuring  will occur or that it will close on the termscontemplated.  Pending execution of the contemplated restructuring, Harris and the Company have agreed that theprincipal of the Note has been increased by an additional amount of $2,642,941 to reflect the aggregate payablesowed by the Company to Harris for additional inventory and services provided; the maturity date of the Note hasbeen extended to April 30, 2002; and interest only payments at a rate of 10.5%  commenced in May, 2001.
The Note is secured by a first lien on the acquired assets and a lien on the Company's other assets.
The Company has a note payable to an officer for $67,982 at September 30, 2001.  This note is payable upondemand with interest accruing at 8% per annum.
**NOTE 7 - SHAREHOLDERS' EQUITY**
The total number of shares of all classes of capital stock which the Company has the authority to issue is 50,000,000shares divided into three classes of which 5,000,000 shares, par value $.001 per share are designated Preferredstock, 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.  The Preferred stock has been further divided,authorized and issued as Preferred Series A and Preferred Series B shares.
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**NOTE 8 - 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.  The Company does not have intersegment sales.  Companymanagement evaluates performance based on segment profit, which is income or (loss) before taxes, excludingnonrecurring gains or losses.
The following table presents information about reportable segment operations and assets.Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2001200020012000**Net Sales**     Teltronics$  9,321,000 $ 13,393,000 $ 52,731,000 $ 27,105,000      Mexico587,000 0 590,000 0      ISI330,000 221,000 995,000 507,000      Total sales$ 10,238,000 $ 13,614,000 $ 54,316,000 $ 27,612,000 **Depreciation and Amortization**     Teltronics$      447,000 $      379,000 $  1,530,000 $      871,000      Mexico1,000 0 3,000 0      ISI(3,000)131,000 34,000 392,000      Total depreciation and amortization$      445,000 $      510,000 $ 1,567,000 $  1,263,000 **Interest and Financing Costs**     Teltronics$      494,000 $      533,000 $  1,470,000 $  1,107,000      Mexico0 0 0 0      ISI0 0 0 0      Total interest and financing costs$      494,000 $      533,000 $  1,470,000 $  1,107,000 **Segment Profits**     Teltronics$ (3,343,000)$  1,205,000 $ (3,038,000)$    (602,000)     Mexico111,000 0 (157,000)0      ISI(112,000)(402,000)(414,000)(1,438,000)     (Loss) income before income taxes$ (3,344,000)$      803,000 $ (3,609,000)$ (2,040,000)**Segment Assets**     Teltronics$ 30,690,000 $ 26,455,000 $ 30,690,000 $ 26,455,000      Mexico201,000 0 201,000 0      ISI321,000 724,000 321,000 724,000      Total segment assets$ 31,212,000 $ 27,179,000 $ 31,212,000 $ 27,179,000 **Acquisition of Property andEquipment**     Teltronics$      232,000 $      219,000 $  1,094,000 $      382,000      Mexico(46,000)0 43,000 0      ISI4,000 4,000 18,000 23,000      Total acquisition of property and        equipment$      190,000 $      223,000 $  1,155,000 $      405,000 
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**ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                  RESULTS OF OPERATIONS**
**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 inclusion in the Nasdaq Stock Market 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.
**RESULTS OF OPERATIONS
The following unaudited tables set forth certain data, expressed as a percentage of revenue, from the company'sconsolidated Statements of Operations for the three and nine month periods ended September 30, 2001 and 2000.Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2001200020012000Net sales100.0% 100.0% 100.0% 100.0% Cost of goods sold65.3% 49.1% 66.5% 55.7%      Gross profit34.7% 50.9% 33.5% 44.3% Operating expenses:     General and administrative15.7% 10.5% 9.2% 12.9%      Sales and marketing32.1% 17.8% 19.4% 20.1%      Research and development14.3% 12.3% 8.6% 13.4% 62.1% 40.6% 37.2% 46.4%      (Loss) income from operations(27.4%)10.3% (3.7%)(2.1%)Other (expense) income:     Interest(3.8%)(3.2%)(2.2%)(3.1%)Financing(1.0%)(0.7%)(0.5%)(0.9%)     Litigation costs(0.0%)(0.3%)(0.0%)(1.3%)     Other(0.5%)(0.2%)(0.2%)0.0% (5.3%)(4.4%)(2.9%)(5.3%)     (Loss) income before income taxes(32.7%)5.9% (6.6%)(7.4%)     Income tax expense(0.1%)(0.3%)(0.0%)(0.2%)     Net (loss) income     (32.8%)5.6% (6.6%)(7.6%)
**Net Sales**
Net sales decreased 25% in the third quarter of 2001 and increased 97% for the nine months from the same periodin the prior year.  We acquired Telident and the Harris 20-20® Product Line subsequent to May of 2000.  Thedecrease in the third quarter is due primarily to a $3.6 million project for the Board of Education for the City of NewYork ("Board of Education") that was related to the 20-20® Product Line and completed in September of 2000.  Wealso had an adjustment to reflect a change in an estimate to decrease revenue by approximately $900,000 reflectingthe settlement of a billing issue with the Board of Education in the third quarter of 2001.  These events were partiallyoffset by sales from our Mexican operations which was opened in January 2001.  The sales from these two
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acquisitions, particularly the 20-20® Product Line, where we sold a $20 million project to the Board of Educationfor the City of New York, were the primary drivers for the increase year to date.
**Profit Margin**
Gross profit margin was 35% in the third quarter of 2001 and 34% year to date 2001 compared to 51% and 44% forthe same periods a year ago.  The decrease for the third quarter and year to date is primarily due to two factors.First, Site Event Buffer ("SEB") sales are down approximately 19% from the same quarter in 2000 and 29% fromlast year.  The SEB has been a mainstay of Teltronics and has historically had gross margins of approximately 65%.Also the Company has had significant sales in 2001 ($20 million) from the 20-20® Product Line related to the Boardof Education for the City of New York on which the gross profit margins have been approximately 10% to 15%.
**Operating Expenses**
Operating expenses have increased for the quarter and year to date as compared to last year.  The majority of theincrease is attributable to the acquisitions of Telident and the Harris 20-20® Product Line in 2000.  We also havesome increased costs due to accruals made in the quarter for reductions in staff.  We reduced our overall companystaff by approximately 9%.  We expect that the reductions in staff and other cost saving measures we haveimplemented should result in annual savings of approximately $3 million.  Total operating expenses were 37.2%of net sales for the nine months ending September 30, 2001 as compared to 46.4% for the same period in 2000.
General and administrative expenses were up 12% and 42% for the quarter and nine months ending September 30,2001, respectively over the same periods last year.  The increase is primarily due to higher expenses associatedwith the acquisitions of Telident and the Harris 20-20® Product Line.
Sales and marketing expenses increased by 35% for the quarter ended September 30, 2001 and by 90% for the ninemonth period.  The increase is due in part to additional expenses incurred as a result of the acquisitions of Telidentand the Harris 20-20® Product line.  There were also additional sales and marketing expenses for the opening ofthe Mexican operations in January 2001 and for severance related to the reductions in staff.
Research and development expenses have dropped by 13% for the third quarter of 2001 as compared to the samequarter last year.  The decrease from the third quarter of 2000 is due to research and development fees spent in2000 for the enhancement of a product in the Vision® product line for which there were no similar expenses in thethird quarter of 2001.  Research and development expenses have increased for the nine month period by 26%.  Theincrease for the nine month period is a result of the acquisitions of Telident and Harris and expenses for thedevelopment of products for Intelligent Systems Management and the Vision® product lines.
**Other Expense**
Other expense was $543,000 in the third quarter of 2001 as compared to $599,000 for the third quarter of 2000.The decrease is due primarily to the payoff of the Finova note of $1.75 million in the first quarter of 2001 thatresulted in less interest and financing fees and less borrowings from CIT in 2001, partially offset by increasedinterest expense related to the Harris note.
The increase in other expense for the nine months ended September 30, 2001 of $104,000 is primarily due to the interestexpense on the Harris note that was offset by the payoff of the Finova note of $1.75 million in early 2001.
**LIQUIDITY AND CAPITAL RESOURCES**
**Cash flow for the nine months ended September 30, 2001 and September 30, 2000**
**Net Cash Provided by Operating Activities**
Net cash provided by operating activities was $2,122,546 for the nine months ended September 30, 2001 and wasprimarily due to a decrease in inventories of $2,296,242 and increases in accounts payable and accrued expensesand other current liabilities of $4,099,493 and $1,167,932 respectively, partially offset by the net loss of $1,529,516(adjusted for non-cash items) and an increase in accounts receivable of $4,663,073.  The increase in accountsreceivable is largely due to amounts due from the Board of Education of the City of New York ("Board of Education")
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for projects completed during the fourth quarter of 2000 and the first and second quarters of 2001, which areexpected to be collected in the fourth quarter.  The increase in payables and accrued expenses are also related tothe projects for the Board of Education.
Net cash provided by operating activities for the nine months ended September 30, 2000 was $286,716.  The netloss of $309,850 (adjusted for non-cash items) and increase in accounts receivable of $2,712,790 was offset byincreases in accounts payable ($2,336,756), accrued expenses and other liabilities ($794,642) and deferred income($958,470).  The increase in these accounts is due primarily to increased sales from the acquisitions of Telident andthe Harris 20-20® Product Line in 2000.
**Net Cash Flows (Used in) Provided by Investing Activities**
Net cash flows used in investing activities for the nine months ended September 30, 2001 were $1,155,001.  Thiswas due to the acquisition of fixed assets related to the Harris 20-20® and Telident product lines.
Net cash flows provided by investing activities were $426,465 for the nine months ended September 30, 2000.  Thenet cash flows provided were a result of the cash received in the Telident acquisition partially offset by theacquisition of property and equipment related to the Harris 20-20® and Telident product lines.
**Net Cash Flows Used in Financing Activities**
The net cash flows used in financing activities were $931,298 for the nine months ended September 30, 2001 andwas primarily due to repayments of loans, notes and leases of $1,015,170 and dividends on the Preferred SeriesB Convertible Stock.
Net cash used in financing activities for the nine months ended September 30, 2000 was $1,322,802 and was dueto repayments of loans, notes and leases ($1,072,254) and line of credit ($147,423) and dividends on the PreferredSeries B Convertible Stock.
**Liquidity**
Our cash requirements for the remainder of 2001 are primarily to fund operations and debt service.  We haveimplemented cost cutting measures including a reduction in work force during the third quarter of 2001.
We currently have a net working capital deficit of $5,306,684 due to the classification of the promissory note ("Note")related to the acquisition of the Harris 20-20® Product Line as a current liability.  The Note was amended March2001 and included provisions to extend the maturity date to April 30, 2002.  The Company continues to havediscussions with Harris regarding the terms and amount of the Note, including extension of the maturity date.  Therecan be no assurances that the Note will be renegotiated.
The Company is also still working with Dain Rauscher Wessels (acting as a Placement Agent) to raise debt and/orequity financing.  A portion of the proceeds from this financing would be used to partially pay the Note.  There canbe no assurance that the proposed financing will occur on the terms or in the amounts sought by the Company.
We have a credit facility with The CIT Group/Business Credit, Inc. ("CIT") as described in Note 5 to the financialstatements.  The credit facility has a maximum facility of $5.5 million with an interest rate of 2% above prime.  TheCompany had $1,257,374 available under this credit facility at September 30, 2001 subject to restrictions based onavailability formulas.
We believe that our available sources of liquidity are currently sufficient to meet our requirements through the endof 2001.  The Company continues to rely on Harris' extensions of the maturity of the debt owed by the Companyand we cannot assure you, however that these sources of liquidity will be available when needed or that our actualcash requirements will not be greater than we currently expect.
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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, if determined adversely, would havea material adverse effect upon the business or financial condition of the Company.
In August, 1999, a former employee commenced an action against the Company in the Circuit Court, TwelfthJudicial Circuit, Sarasota County, Florida seeking damages for alleged violations of the Florida Worker'sCompensation Law and the Family and Medical Leave Act.  An answer with affirmative defenses was served andthe action is being defended.
In May, 2000, Teltronics was named in an action commenced in the Circuit Court for the County of St. Clair,Michigan by two former shareholders of Cascade Technology Corporation ("Cascade") seeking release of 52,117shares of Teltronics' common stock held in escrow ("Escrow Stock") and damages, interest and attorneys fees.The Escrow Stock was issued in February, 1999 and placed in escrow to secure indemnification rights ofTeltronics under its 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 delivery of the Escrow Stockto Teltronics.  In September, 2001, the action was settled by execution of a Settlement Agreement under whichthe Escrow Stock was released to the plaintiffs and the Company agreed to issue an aggregate of 15,000 sharesof restricted common stock to the plaintiffs.
**ITEM 2.      CHANGES IN SECURITIES** - None
**ITEM 3.      DEFAULTS UPON SENIOR SECURITIES** - None
**ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
At the annual meeting of stockholders on August 16, 2001, the stockholders of the Company: (1)
Elected the following directors to serve until the next annual meeting of the stockholders:   Norman R. Dobiesz (4,417,210 Common Stock votes and all of the Series A Preferred andSeries B Preferred in favor, 33,071 votes withheld);  Ewen R. Cameron (4,417,999 CommonStock votes and all of the Series A Preferred and Series B Preferred in favor, 32,282 voteswithheld);  Carl S. Levine (4,417,776 Common Stock votes and all of the Series A Preferredand Series B Preferred in favor, 32,505 votes withheld); Gregory G. Barr (4,418,592Common Stock votes and all of the Series A Preferred and Series B Preferred in favor,31,689 votes withheld); and Richard L. Stevens (4,416,543 Common Stock votes and all ofthe Series A Preferred and Series B Preferred in favor, 33,738 votes withheld); and(2)
Ratified the appointment of Ernst & Young LLP as the Company's independent auditors for the 2001 fiscal year (4,423,338 Common Stock votes and all of the Series APreferred and Series B Preferred stock in favor, 8,078 votes opposed, 18,865abstentions).
**ITEM 5.      OTHER INFORMATION** - None
**ITEM 6A.    EXHIBITS** - None 10.1Amended and Restated Employment Agreement between the Company and Ewen R. Cameron dated August 31, 2001 . . . . . . . .(a) 10.2Amended and Restated Employment Agreement between the Company and Norman R. Dobiesz dated August 31, 2001 . . . . . . .(a)
**ITEM 6B.    REPORTS ON FORM 8-K** - None
(a)   Filed as an Exhibit to this Quarterly Report on Form 10-Q for the Nine month period ended September 30,2001.
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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.November 9, 2001/s/ Patrick G. MinPatrick G. MinVice President Finance & Chief Financial Officer******************