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**U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**
**FORM 10-Q**[X]QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934.For the Quarterly Period Ended June 30, 2001.[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934.For the Transition Period from __________ to __________.
**COMMISSION FILE NUMBER:  0-17893**
**TELTRONICS, INC.**(Exact name of registrant as specified in its charter)
**DELAWARE**(State or other jurisdiction of incorporation or organization)
**59-2937938**(I.R.S. Employer Identification Number)
**2150 WHITFIELD INDUSTRIAL WAYSARASOTA, FLORIDA 34243**(Address of principal executive offices, including zip code)
**941-753-5000**(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed bysection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes [X] No [  ]
As of August 10, 2001 there were 4,856,993 shares of the Registrant's Common Stockoutstanding.
**INDEX**
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**PART I.****FINANCIAL INFORMATION**     ITEM 1.FINANCIAL STATEMENTS (Unaudited)Consolidated Balance Sheets at June 30, 2001 and December 31,2000.3-4Consolidated Statements of Operations for the Three MonthsandSix Months ended June 30, 2001 and 2000.5Consolidated Statements of Cash Flows for the Six Monthsended June 30, 2001 and 2000.6Notes to Interim Consolidated Financial Statements - June 30,20017     ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS12**PART II.**OTHER INFORMATION     ITEM 1.LEGAL PROCEEDINGS15     ITEM 2.CHANGES IN SECURITIES AND USE OF PROCEEDS15     ITEM 3.DEFAULTS UPON SENIOR SECURITIES15     ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS15     ITEM 5.OTHER INFORMATION15     ITEM 6A.EXHIBITS15     ITEM 6B.REPORTS ON FORM 8-K15**SIGNATURES16
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**PART I - FINANCIAL INFORMATION**
**ITEM 1.	FINANCIAL STATEMENTS**
**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**
ASSETSJune 30,2001December 31,2000(Unaudited)**Current Assets:**Cash and cash equivalents$          73,363$          35,292Accounts receivable, net of allowance for doubtful     accounts of $256,000 at June 30, 2001      and $278,500 at December 31, 2000.5,106,12410,594,463Inventories, net10,592,65911,494,314Prepaid expenses and other current assets472,675391,964
     Total current assets26,244,82122,516,033Property and equipment, net5,684,2445,841,728Goodwill and other intangible assets, net709,419760,927Other assets256,439412,779     Total assets$     32,894,923$     29,531,467
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS - Continued**
**LIABILITIES AND SHAREHOLDERS' EQUITY**June 30,2001December 31,2000(Unaudited)**Current Liabilities:**     Current portion of note payable$          7,096,623 $          857,059      Current portion of long-term debt2,690,796 5,042,465      Current portion of capital lease obligations175,472 	313,370      Accounts payable12,884,606 	7,853,835      Accrued expenses and other current liabilities3,480,748 	2,416,614      Deferred income2,353,054	1,333,567           Total current liabilities28,681,299 	17,816,910 **Long-term liabilities:     Note payable, net of current portion0 	6,239,564      Long-term debt, net of current portion0 	1,000,000      Capital lease obligations, net of current portion29,525 	71,862           Total long-term liabilities29,525 	7,311,426 **Commitments and contingencies**Shareholders' equity:     Common stock, $.001 par value, 40,000,000 shares authorized,          4,856,993 and 4,761,291 issued and outstanding at          June 30, 2001 and December 31, 2000, respectively.4,858 4,763      Non-voting common stock, $.001 par value, 5,000,000 shares          authorized, zero shares issued and outstanding.
0 
0      Preferred Series A stock, $.001 par value, 100,000 shares          authorized, 100,000 shares issued and outstanding.
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100      Preferred Series B Convertible stock, $.001 par value, 25,000          shares authorized, 12,625 shares issued and outstanding.13 13      Additional paid-in capital18,971,590 	18,838,798      Accumulated deficit(14,792,462)(14,440,543)          Total shareholders' equity4,184,099 	4,403,131           Total liabilities and shareholders' equity$    32,894,923 $     29,531,467 
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)**Three Months Ended June 30,Six Months Ended June 30,2001200020012000**Net Sales$  25,827,568 $  6,413,107 $  44,078,038 $  13,997,496 Cost of goods sold17,512,521 4,180,507 29,409,701 8,681,644 **Gross profit8,315,047 2,232,600 14,668,337 5,315,852 **Operating expenses:     General and administrative1,673,870 1,137,563 3,420,855 2,117,756      Sales and marketing3,712,092 1,494,764 7,250,334 3,128,574      Research and development1,646,908 1,124,634 3,222,032 2,032,523 7,032,870 3,756,961 13,893,221 7,278,853 Income (loss) from operations1,282,177 (1,524,361)775,116 (1,963,001)**Other income (expense):     Interest(379,679)(209,439)(801,077)(428,562)     Financing(96,473)(74,983)(175,124)(145,877)     Litigation costs0 (251,082)0 (327,882)     Other(28,360)4,920 (63,520)21,942 (504,512)(530,584)(1,039,721)(880,379)Income (loss) before incometaxes777,665 (2,054,945)(264,605)(2,843,380)Income taxes(6,413)0 (11,564)0 **Net Income (Loss)771,252 (2,054,945)(276,169)(2,843,380)Dividends on Preferred Series B     Convertible  Stock37,875 37,875 75,750 75,750 Net income (loss) attributable     to Common Shareholders$     733,377 $  (2,092,820)$     (351,919)$   (2,919,130)**Net income (loss) per share:     Basic$ 0.15 $ (0.48)$ (0.07)$ (0.69)     Diluted$ 0.13 $ (0.48)$ (0.07)$ (0.69)
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**Six Months Ended June 30,20012000**Cash Flows from Operating Activities:     Net loss$      (276,169)$  (2,843,380)     Adjustments to reconcile net loss to net cash      flows provided by (used in) operating activities:          Provision for doubtful accounts(22,500)(63,000)          Provision for obsolete inventories173,972 104,974           Depreciation and amortization1,122,550 752,752           Amortization of deferred financing costs92,379 51,871           Amortization of intangibles51,508 10,088      Changes in operating assets and liabilities,     net of acquisitions and dispositions:          Accounts receivable(4,489,161)1,395,350           Inventories727,683 (610,632)          Prepaid expenses and other current assets(80,711)(105,871)          Accounts payable5,030,771 226,409           Accrued expenses and other current liabilities1,064,134 (14,346)          Deferred income1,019,487 68,898 Net cash flows provided by (used in) operatingactivities4,413,943 (1,026,887)**Cash Flows from Investing Activities:     Acquisition of property and equipment(965,965)(181,856)     Decrease in other assets63,961 43,279      Proceeds from sale of assets899 0 Cash received in acquisition of Telident, Inc. netassets0 762,321 Net cash flows provided by (used in) investingactivities(901,105)623,744 **Cash Flows from Financing Activities:     Net repayment of line of credit(2,601,669)(4,753)     Principal repayments of loans, notes and leases(930,235)(215,113)     Net proceeds from sale of common stock132,887 10,500      Dividends on Preferred Series B Convertible Stock(75,750)(75,750)Net cash flows used in financing activities(3,474,767)(285,116)Net increase (decrease) in cash38,071 (688,259)Cash and cash equivalents - beginning of period35,292 954,764 Cash and cash equivalents - end of period$         73,363 $        266,505 **Supplemental Non-cash Financing and Investing Activities:**     Acquisition of assets of Telident, Inc. for common stock$                 0 $       2,073,626      Acquisition of assets of Harris 20-20 for a note payable$                 0 $       6,884,355 
The accompanying notes are an integral part of these consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESNOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
**NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION**
Teltronics, Inc. ("Teltronics" or "Company"), a Delaware corporation, designs, develops,manufactures and markets electronic hardware and application software products, and engagesin contract manufacturing for the telecommunication industry.  Through its majority ownedsubsidiary, Interactive Solutions, Inc. ("ISI") the Company has also engaged in the design andmanufacturing of a portable hardware/software device which allows two-way communicationbetween speaking/hearing impaired individuals and hearing individuals.
The accompanying consolidated financial statements include the accounts of the Company andis comprised of its wholly-owned subsidiaries TTG Acquisition Corp. and Teltronics, S.A. deC.V. and its 85% owned subsidiary Interactive Solutions, Inc. ("ISI").  All significant inter-company transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements and related notes have been prepared inaccordance with the rules and regulations of the Securities and Exchange Commission and onsubstantially the same basis as the annual consolidated financial statements.  In the opinion ofmanagement, the consolidated financial statements reflect all adjustments, consisting only ofnormal recurring adjustments, necessary for a fair presentation of the financial position,operating results, and cash flows for those periods presented.  Operating results for the sixmonth period ended June 30, 2001 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2001.  These consolidated financial statementsshould be read in conjunction with the consolidated financial statements, and notes thereto, forthe year ended December 31, 2000, as presented in the Company's annual report on Form 10-K.
In July, 2001, the FASB issued Statements of Financial Accounting Standards No. 141, *Business Combinations* and No. 142, *Goodwill and Other Intangible Assets*.  Statement 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001.  Statement 141 further clarifies the criteria to recognize intangible assets separately from goodwill.  The requirements of Statement 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001.
Under Statement 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment.  Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives.  The amortization provisions of Statement 142 apply to goodwill and intangible assets acquired after June 30, 2001.  With respect to goodwill and intangible assets acquired prior to July 1, 2001,  the Company is required to adopt Statement 142 in its fiscal year beginning after December 15, 2001.
The Company does not believe the implementation of these standards will have a material effect on its financial statements.
**NOTE 2 - ACQUISITIONS**
**Telident, Inc.**
On May 18, 2000, the Company acquired substantially all of the assets and assumed certainliabilities of Telident, Inc., a Minnesota corporation ("Seller") located in Minneapolis, Minnesota.The Company acquired all of the Seller's rights to and in certain technology for the identificationor location of emergency 911 telephone calls.
The Company delivered  662,500  shares of its $.001 par value voting common stock forsubstantially all of the assets of the Seller.
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The acquisition has been accounted for using the purchase method of accounting andoperations of the acquired business are included in the Company's results of operations fromthe date of acquisition.  The purchase price has been assigned to the net assets acquired basedon management's estimate of the fair value of such assets and liabilities at the date ofacquisition as follows:Cash$762,321 Accounts receivable, net610,998 Inventory, net260,757 Prepaid expenses and other current assets26,168 Property and equipment, net240,234 Other assets6,282 Goodwill and identifiable intangible assets514,299 Accounts payable(76,792)Accrued expenses and other currentliabilities(239,505)Deferred Income(28,146)Long-Term debt(2,990)Net assets acquired$2,073,626 
**Harris Corporation 20-20 Switching Product Line**
On June 30, 2000, the Company acquired certain equipment, inventory and intellectual propertyrights related to the 20-20® switching technology and associated products of Harris CorporationCommunications Products Division located in Melbourne, Florida ("Harris"), under an Asset SaleAgreement dated June 30, 2000 ("Agreement").
Under the Agreement, the Company acquired the assets and assumed on-going supportobligations for certain of Harris' Communications Products Division customers in considerationfor $6,884,355 paid for with a promissory note with interest at 10.5% per annum ("Note").
The acquisition has been accounted for using the purchase method of accounting and resultsof operations  of the acquired business are included in the Company's results of operations fromthe date of acquisition.  The purchase price has been assigned to the net assets acquired basedon management's estimate of the fair value of such assets and liabilities at the date ofacquisition as follows:Inventory, net$ 5,277,113 Property and equipment, net3,083,025 Customer lists and patents206,210 Note payable(6,884,355)Accrued expenses and other currentliabilities(1,629,993)Accounts payable(52,000)Net assets acquired$             0 
**NOTE 3 - NET INCOME (LOSS) PER SHARE**
Basic net loss per share is computed by dividing net loss, adjusted for preferred stock dividends,by the weighted average number of issued common shares outstanding during the applicableperiod.  Diluted net loss per share is computed by dividing net loss, adjusted for preferred stockdividends, by the weighted average number of issued common shares and potential common shares.  Potential common sharesconsist of convertible preferred stock, stock options (vested and unvested) and warrants and arecomputed using the treasury stock method.  Certain potential common shares for 2001 and 2000were anti-dilutive and were not included in the calculation of diluted net loss per share.
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The following unaudited table sets forth the computation of basic and diluted net loss per share:Three Months Ended June 30,Six Months Ended June 30,2001200020012000**BasicNet income (loss)$  771,252 $	(2,054,945)$  (276,169)$	(2,843,380)Preferred dividends adjustment(37,875)(37,875)(75,750)(75,750)     Net income (loss) attributable to          common shareholders$  733,377 $	(2,092,820)$ 	(351,919)$	(2,919,130)Weighted average shares outstanding********************************