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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 March 31, 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 May 10, 2002 there were 5,366,386 shares of the Registrant's Common Stock outstanding.

**INDEX**
**PAGE    **
**PART I.****FINANCIAL INFORMATION**   ITEM 1.FINANCIAL STATEMENTS (Unaudited)Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001.3-4Condensed Consolidated Statements of Operations for the three months endedMarch 31, 2002 and 2001.5Condensed Consolidated Statements of Cash Flows for the three months endedMarch 31, 2002 and 2001.6Notes to Condensed Consolidated Financial Statements8-14   ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS15-19**PART II.**OTHER INFORMATION**   ITEM 1.LEGAL PROCEEDINGS20   ITEM 2.CHANGES IN SECURITIES20   ITEM 3.DEFAULTS UPON SENIOR SECURITIES20   ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS20   ITEM 5.OTHER INFORMATION20   ITEM 6A.EXHIBITS20   ITEM 6B.REPORTS ON FORM 8-K20**SIGNATURES21
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**PART I - FINANCIAL INFORMATION**
**ITEM 1.	FINANCIAL STATEMENTS**
**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**
**ASSETS**March 31,2002December 31,2001(Unaudited)**Current Assets:Cash and cash equivalents$235,808 $63,307 Accounts receivable, net of allowance for doubtful accounts     of $556,274 at March 31, 2002 and $469,860 at     December 31, 2001.9,704,838 10,021,731 Costs and estimated earnings in excess of billings on     uncompleted contracts1,288,421 638,119 Inventories, net8,659,128 9,175,567 Prepaid expenses and other current assets504,333 314,363      Total current assets20,392,528 20,213,087 **Property and equipment, net4,775,183 5,163,007 **Goodwill, net241,371 241,371 **Other intangible assets, net319,130 335,814 **Other assets278,661339,569     Total assets$26,006,873 $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)**
March 31,2002December 31,2001(Unaudited)**Current liabilities:     Current portion of long-term debt$4,483,709 $4,550,645      Current portion of capital lease obligations47,780 79,497      Accounts payable6,104,634 6,181,434      Billings in excess of costs and estimated earnings on          uncompleted contracts328,124 125,783      Accrued expenses and other current liabilities3,501,357 2,783,532      Deferred revenue1,819,053 1,755,421           Total current liabilities16,284,657 15,476,312 **Long-term liabilities:     Long-term debt, net of current portion8,938,928 9,034,748      Capital lease obligations, net of current portion234 963      Other long-term liability--- 3,744,355           Total long-term liabilities8,939,162 12,780,066 **Commitments and contingencies**Shareholders' equity (deficiency):     Common stock, $.001 par value, 40,000,000 shares          authorized, 5,275,755 and 5,105,844 issued and          outstanding at March 31, 2002 and December 31, 2001,          respectively5,276 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 capital23,407,830 19,277,099      Accumulated other comprehensive loss(3,186)(2,941)     Accumulated deficit(22,627,019)(21,242,907)          Total shareholders' equity (deficiency)783,054 (1,963,530)          Total liabilities and shareholders' equity (deficiency)$26,006,873 $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 March 31,20022001**Net Sales     Product sales and installation$11,759,865 $16,597,660      Maintenance and service1,913,153 1,652,810 13,673,018 18,250,470 Cost of goods sold8,182,801 11,897,180 Gross profit5,490,217 6,353,290 **Operating expenses:     General and administrative1,438,221 1,551,607      Sales and marketing3,488,014 3,335,628      Research and development1,115,371 1,535,790      Depreciation and amortization349,786 437,326 6,391,392 6,860,351 Loss from operations(901,175)(507,061)**Other expenses:     Interest(370,327)(421,398)     Financing(45,598)(78,651)     Litigation costs(15,500)---      Other(2,362)(35,160)(433,787)(535,209)Loss before income taxes(1,334,962)(1,042,270)Income taxes(6,891)(5,151) **Net loss(1,341,853)(1,047,421) Dividends on Preferred Series B and C Convertible stock42,259 37,875  Net loss available to common shareholders$(1,384,112)$(1,085,296) **Net loss per share:     Basic$(0.26)$(0.23)     Diluted$(0.26)$(0.23)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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**TELTRONICS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
**(Unaudited)**Three Months Ended March 31,20022001**OPERATING ACTIVITIES:**     Net loss$(1,341,853)$(1,047,421)     Adjustments to reconcile net loss to net cash     provided by operating activities:          Provision for doubtful accounts86,414 (2,500)          Provision for obsolete inventories150,000 56,835           Depreciation and amortization533,739 576,608           Amortization of other intangible assets16,684 25,754           Amortization of deferred financing costs and other assets21,200 21,000           Shares issued for 401(k) match56,850 61,074      Changes in operating assets and liabilities:          Accounts receivable230,479 (8,437,983)          Net increase in costs and estimated earnings in               excess of billings on uncompleted contracts(447,961)---           Inventories366,439 (971,903)          Prepaid expenses and other current assets(189,970)(424,527)          Accounts payable(76,800)4,892,803           Accrued expenses and other current liabilities969,086 951,114           Deferred revenue63,632 9,545,165 Net cash flows provided by operating activities437,939 5,246,019 **INVESTING ACTIVITIES:**     Acquisition of property and equipment(145,915)(254,181)     Proceeds from sale of assets--- 899      Decrease in other assets39,708 89,151 Net cash flows used in investing activities(106,207)(164,131)**FINANCING ACTIVITIES:**     Net repayments on line of credit(184,356)(4,211,529)     Net principal repayments on loans, notes and leases(10,846)(845,806)     Dividends paid on Preferred Series B Convertible stock(37,875)(37,875)     Proceeds from issuance of common stock74,091 --- Net cash used in financing activities(158,986)(5,095,210)Effect of exchange rate changes on cash(245)(440)Net increase (decrease) in cash and cash equivalents172,501 (13,762)Cash and cash equivalents - beginning of period63,307 35,292 Cash and cash equivalents - end of period$235,808 $21,530 
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)**Three Months Ended March 31,20022001SUPPLEMENTAL NONCASH FINANCING ANDINVESTING 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 expenses4,384 --- 
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 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 intercompany transactions and balances have been eliminated inconsolidation.
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 month period ended March 31, 2002, are notnecessarily 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 LOSS**
Total comprehensive loss for the three month period ended March 31, 2002 was $1,342,098 comprising net lossof $1,341,853 and a net reduction for foreign currency translation of $245.  Total comprehensive loss for the threemonth period ended March 31, 2001 was $1,047,861 comprising net loss of $1,047,421 and a net reduction forforeign currency translation of $440.
**NOTE 3 - NET LOSS PER SHARE**
Basic net loss per share is computed by dividing net loss, adjusted for preferred stock dividends, by the weightedaverage number of issued common shares outstanding during the applicable period.  Diluted net loss per share iscomputed by dividing net loss, adjusted for preferred stock dividends, by the weighted average number of commonshares adjusted for potential common shares.  Potential common shares consist of convertible preferred stock,stock options (vested and unvested) and warrants and are computed using the treasury stock method.  Potentialcommon shares for 2002 and 2001 were anti-dilutive and were not included in the calculation of diluted net lossper share.
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The following table sets forth the unaudited computation of basic and diluted net loss per share:Three Months Ended March 31,20022001**BasicNet loss$(1,341,853)$(1,047,421)Preferred dividends(42,259)(37,875)    Net loss available to common shareholders$(1,384,112)$(1,085,296)Weighted average shares outstanding5,229,992 4,802,804      Net loss per share$(0.26)
$(0.23)**Diluted**Net loss$(1,341,853)$(1,047,421)Preferred dividends(42,259)(37,875)     Net loss available to common shareholders$(1,384,112)$(1,085,296)Weighted average shares outstanding5,229,992 4,802,804 Net effect of dilutive stock options using the treasury     stock method--- --- Net effect of dilutive warrants using the treasury     stock method--- ---      Dilutive potential common shares5,229,992 4,802,804      Net loss per share$(0.26)$(0.23)
**NOTE 4 - INVENTORIES**
The major classes of inventories are as follows: March 31,2002 December 31,2001(Unaudited)Raw materials$6,122,105$5,963,289Work-in-process954,8301,136,911Finished goods 1,582,1932,075,367$8,659,128$9,175,567
The reserve for slow moving and obsolete inventories was $1,135,000 and $1,235,000 as of March 31, 2002 andDecember 31, 2001, respectively.

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**NOTE 5 - LONG TERM DEBT**
Debt consists of the following:March 31,2002December 31,2001
(Unaudited)
Secured promissory note - payable in monthly installments of $96,805with interest at 8% commencing May 1, 2002 with a balloon payment of$7,196,801 due May 2006.$ 9,196,801$ 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 isassessed at 1.5%.  On October 28, 2000, the Line of Credit Facility wasextended to October 28, 2002.  Substantially all of the Company's presentand future assets, except for fixed assets, are pledged as collateral withborrowings limited to certain gross availability formulas based onaccounts receivable and inventory as defined in the agreement.  Thefacility provides for minimum loan fees, unused line fees and renewalterm fees.  The outstanding borrowings are classified as a current liability.The Company incurred renewal loan fees of $55,000 during 1999.  Adirector of the Company has personally guaranteed a portion of thefacility.  At March 31, 2002 and December 31, 2001, the Company had$2,525,866 and $2,341,510 available respectively, pursuant to thisfacility.  The availability of this unused line of credit is restricted based onavailability formulas.2,974,1343,158,490
Senior Secured Loan - payable in quarterly interest payments at 12% andinitially due April 30, 2000.  In May 2000, the Company amended andrestated the loan to revise the maturity date to February 13, 2002.  Theloan was subsequently amended in May 2002 with a revised maturity dateof August 13, 2002.1,000,0001,000,000
Notes payable to finance companies, payable in monthly installments of$3,217 with interest at 5%.  The notes mature through December 2006and are collateralized by vehicles.180,955160,752Notes payable - officer, payable upon demand with interest accruing at8% per annum.70,74769,350Total13,422,63713,585,393Less current portion4,483,7094,550,645Long-term portion$ 8,938,928$ 9,034,748
The Company maintains a promissory note ("Note") to the Harris Corporation ("Harris") related to the acquisitionof the 20-20® Product Line, which was amended August 17, 2000 to extend the maturity to September 29, 2000and was further amended on October 30, 2000.  Under this agreement, the principal and capitalized interest totalwas stated at $7,096,623, the due date was extended to December 31, 2000 and the interest rate was changed to10.5%, effective October 4, 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.  Pending execution of the contemplated restructuring, Harris and the Company agreed that theprincipal of the Note would be 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 in connection with the transition of
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the 20-20® Switching Product Line to the Company; the maturity date of the Note was extended to April 30, 2002;and interest only payments at a rate of 10.5% per annum commenced in May 2001.  A principal payment of$500,000 was made in September of 2001.
This Note was restructured on March 27, 2002, under a Master Restructuring Agreement.  Under this restructuring,the principal and capitalized interest total was stated at $9,196,801.  The Company made principal payments of$500,000 during the three month period ended March 31, 2002.  This amount was classified within accruedexpenses and other current liabilities as of December 31, 2001.  Monthly payments of $96,805 in principal andinterest commence 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 rate was changed to 8%.  In conjunction with therestructuring, Harris agreed to convert $4,000,000 of accrued expenses owed by the Company for additionalinventory and services provided in connection with the transition of the 20-20® Switching Product Line to theCompany, to 40,000 shares of Preferred Series C Convertible stock.
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 to the Company's Common stock at $2.75 per share subjectto adjustment.  The Company has the right to redeem all or a portion of the then outstanding Preferred Series CConvertible stock at any time at 100% of the face value plus accrued and unpaid 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 May1, 2002 until August 13, 2002 at which time all outstanding principal and interest is due.  The interest rate remainedunchanged at 12%.  The Holder of the Loans previously received 890,000 warrants to purchase the Company'sCommon stock at an exercise price of $2.75 per share.  These warrants were exercisable in whole, or in part, atany time during a five-year holding period beginning on the date of issuance.   In connection with the Note, Finovaand the Company entered into an Amended and Restated Stock Purchase Warrant ("Warrant") that modified theterms of the 890,000 previously issued warrants to change the exercise price to $1.00 per share and extend theexercise period to February 26, 2004.  The Note contains certain covenants.
As a result of modifying the exercise price and extending the exercise period of the 890,000 warrants, the Companywill be recording a deferred financing fee of approximately $160,000 in May 2002.  This fee will then be expensedas a financing cost in our condensed consolidated statements of operations in the three month periods ending June30, 2002 and September 30, 2002, in the amounts of approximately $91,000 and $69,000, respectively.
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. The Company is incompliance with the terms of the above covenants.
**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 5,000,000shares, 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 and Senior Vice President of Business Development and subject to resale restrictions including the right of theCompany to approve or disapprove any sale, transfer or disposition to any third party not controlled by the Director.Each share is entitled to 400 votes and is not entitled to any dividends.  Accordingly, this would give the Senior VicePresident voting control of the Company.
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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 pershare, payable quarterly.  The annual dividend rate will increase to $18 per share on February 27, 2004 and to $20per share on February 27, 2005.  The holder of the Preferred Series B Convertible stock initially had the right atits option to convert to the Company's Common stock at $2.75 per share.  The Company adjusted the conversionprice on April 22, 2002 for the Preferred Series B Convertible stock from $2.75 to $1.75 per share in conjunctionwith the amendment and restatement of the Note.  The Preferred Series B Convertible stock can be called by theCompany only if the twenty-day average bid price of the Company's common stock exceeds $5.50 per share.Beginning May 2002, the Company has the right to redeem the Preferred Series B Convertible stock in full at 100%of the face value plus accrued and unpaid dividends.  The Preferred Series B Convertible stock contains certainfinancial covenants.
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 StockPurchase 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**March 31,2002December 31,2001(Unaudited)Costs incurred on uncompleted contracts$2,499,273 $770,551 Estimated earnings935,993 534,505 3,435,266 1,305,056 Less: Billings to date2,474,969 792,720 $960,297 $512,336 Included in accompanying condensed consolidated balance          sheets under the following captions:Costs and estimated earnings in excess of billings on          uncompleted contracts$1,288,421 $638,119 Billings in excess of costs and estimated earnings on          uncompleted contracts(328,124)(125,783)$960,297 $512,336 
**NOTE 8 - GOODWILL**
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards(SFAS) No. 142, *Goodwill and Other Intangible Assets.*  SFAS No. 142 requires that goodwill and intangible assetswith indefinite useful lives no longer be amortized but instead tested for impairment at least annually. SFAS No.142 also requires that intangible assets with definite useful lives be amortized over their respective estimated usefullives to their estimated residual values.  The Company fully adopted the provisions of SFAS No. 142 effectiveJanuary 1, 2002.
Under SFAS No. 142, the Company is required to perform a transitional impairment test for its goodwill as of thedate of adoption.  Step one of the transitional goodwill impairment test, which compares the fair values of the
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Company's reporting units to their respective carrying values, will be completed by June 30, 2002.  Transitionalimpairment losses for goodwill, if any, will be recognized as the cumulative effect of a change in accountingprinciple in the consolidated statement of operations.  The Company is currently evaluating the impact of thetransitional goodwill impairment requirements of SFAS No. 142 on its results of operations and financial position.
The following is a summary of net loss and net loss per share for the three months ended March 31, 2001 asadjusted to remove the amortization of goodwill:Net loss - as reported$(1,047,421)Goodwill amortization5,457 Net loss - adjusted$(1,041,964)Basic loss per share of common stock:Net loss - as reported $(0.23)Goodwill amortization0.01 Net loss - adjusted$(0.22)Diluted loss per share of common stock:Net loss - as reported$(0.23)Goodwill amortization0.01 Net loss - adjusted$(0.22)
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 March 31,2002:December 31, 2001GrossCarrying Amount Accumulated Amortization Total**Definite Useful Lives**Customer List$ 232,332$  76,917$ 155,415Patent  239,899   59,500  180,399     Total$ 472,231$ 136,417$ 335,814
March 31, 2002GrossCarrying Amount Accumulated Amortization  Total **Definite Useful LivesCustomer List$ 232,332$  89,974$ 142,358Patent  239,899   63,127  176,772     Total$ 472,231$ 153,101$ 319,130
Amortization expense related to intangible assets was $16,684 and $20,297 for the three months ended March 31,2002 and 2001, respectively.  Estimated amortization expense related to intangible assets for each of the yearsin 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 - $107,848.
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**NOTE 9 - SEGMENT INFORMATION**
The Company's operations are classified into three reportable segments, Teltronics,  ISI and Mexico.  Eachreportable segment is staffed separately, requires different technology and marketing strategies and sells todifferent customers.
The accounting policies of the Segments are the same.  Intersegment sales and transfers are recorded atTeltronics' cost  plus a normal margin for electronic manufacturing.  Company management evaluates performancebased on segment profit, which is net income (loss) before taxes, excluding nonrecurring gains or losses.
The following table presents unaudited  information about reportable segment operations and assets.Three Months EndedMarch 31,20022001**Net SalesTeltronics$ 13,311,000 $ 18,140,000 Mexico287,000 --- ISI75,000 110,000 Total sales$ 13,673,000 $ 18,250,000 **Depreciation and Amortization**Teltronics$     523,000 $     557,000 Mexico3,000 --- ISI8,000 20,000 Total depreciation and amortization$     534,000 $     577,000 **Interest and Financing CostsTeltronics$     416,000 $     500,000 Mexico
--- 
--- ISI--- --- Total interest and financing costs$     416,000 $     500,000 **Segment Profit (Loss)**Teltronics$ (1,402,000)$   (656,000)Mexico56,000 (89,000)ISI11,000 (297,000)Loss before income taxes$ (1,335,000)$ (1,042,000)**Segment AssetsTeltronics$ 25,615,000 $ 38,743,000 Mexico334,000 48,000 ISI58,000 48,000 Total segment assets$ 26,007,000 $ 38,839,000 **Acquisition of Property and EquipmentTeltronics$     146,000 $     233,000 Mexico--- 14,000 ISI--- 7,000 Total acquisition of property and equipment$     146,000 $     254,000 
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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 whichare made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  Theseforward looking statements involve a number of risks and uncertainties, including the timely development andmarket acceptance of products and technologies, competitive market conditions, successful integration ofacquisitions, the ability to secure additional sources of financing, the ability to reduce operating expenses and otherfactors described in the Company's filings with the Securities Exchange Commission.  The actual results that theCompany achieves may differ materially from any 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 month period ended March 31, 2002, are not necessarily indicative of theresults 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.Installation 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.
15In applying this policy, estimates of project installation cost and the percentage of work completedare updated on a monthly basis for each school.  To the extent that billings exceed recognizedrevenues, deferred revenue is established.  To the extent actual costs incurred are less than orgreater than recognized expenses, accrual or prepaid balances are established.  Maintenancerevenue is recorded ratably over the maintenance term.- 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 deferredrevenues.
*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 bad debt reserves in the future.
*Slow moving and obsolete inventory.  We write down our slow moving and obsolete inventory equal to thedifference between the carrying value of the inventory and the estimated market value based on assumptions aboutfuture product life cycles, product demand and market conditions.  If actual product life cycles, product demandor market conditions are less favorable than those projected by management, additional inventory write-down maybe 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 not yet determined the effect of adoption of 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 tothese matters as well as potential ranges of probable losses.  A determination of the amount of loss accrualrequired, in any, for these contingencies are made after careful review of each individual issue.  The requiredaccruals may change in the future due to new developments in each matter or changes in approach such as achange in settlement 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 revenue, from the Company'scondensed consolidated Statements of Operations for the three month periods ended March 31, 2002 and 2001.Three Months EndedMarch 31,20022001Net sales100.0% 100.0% Cost of goods sold59.8    65.2         Gross profit40.2    34.8    Operating expenses:     General and administrative10.5    8.5         Sales and marketing25.5    18.3         Research and development8.2    8.4         Depreciation and amortization2.6    2.4    46.8    37.6         Loss from operations(6.6)   (2.8)   Other expenses:     Interest(2.8)   (2.3)        Financing(0.3)   (0.4)        Litigation costs(0.1)   ---          Other costs---     (0.2)   (3.2)   (2.9)        Loss before income taxes(9.8)   (5.7)        Income taxes---     ---          Net loss(9.8)   (5.7)   
**Net Sales
Net sales decreased 25% for the three month period ended March 31, 2002 from the same period in 2001.  Thedecrease in net sales for 2002 from 2001 is primarily due to a $20 million project with the City of New York Boardof Education (the "Board") for which the majority of the work was completed in the first quarter of 2001.  We havehad strong sales to IBM and the Board during the first quarter of 2002 of approximately $5.0 million that havecontributed significantly to our sales in 2002.
**Gross Profit Margin
Gross profit margin was 40% for the three month period ended March 31, 2002 as compared to 35% for the samethree months of 2001.  The increase in gross profit margins reflects a change in certain aspects of our 20-20Switching Product Line.  In 2001, many of the jobs we performed included both cabling and switching and resultedin lower margins due to the overall duration of the projects and the project management required.  During late 2001and early 2002, we were able to separate the cabling and the switching to enable us to more closely monitor thecosts for each component and therefore increase the margins.
**Operating Expenses
Operating expenses were $6.4 million for the first quarter of 2002 as opposed to $6.9 million for the same quarterin 2001.
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The decrease from the first quarter 2001 to the first quarter 2002 in general and administrative expenses ofapproximately $113,000 is due primarily to the reductions in work force that were implemented during 2001 andthe reductions in transition expenses related to the 20-20® Switching Product Line.
The increase in sales and marketing expense of approximately $152,000 for the first quarter of  2002 versus thefirst quarter of 2001 is attributable to severance benefits accrued for two employees who were terminated duringthe first quarter of 2002 of approximately $280,000, new personnel in Salt Lake City, Utah and Petaluma, Californiato initiate our direct sales efforts in those marketplaces in December 2001 and January 2002, which were partiallyoffset by  the reductions in work force that were implemented during 2001 and the reductions in transition expensesrelated to the 20-20® Switching Product Line.
The decrease in research and development from 2002 to 2001 was approximately $420,000 and was a result ofthe reductions in work force that were implemented during 2001.
**Other Expenses
Other expenses were approximately $434,000 in the first quarter of 2002 and $535,000 in the first quarter of 2001.The decrease in other expenses are primarily related to a reduction in interest and financing expense of $84,000.
**Liquidity and Capital Resources
Net cash provided by operating activities
Net cash provided by operating activities was approximately $438,000 for the three month period ended March 31,2002 and was primarily due to a net loss of $1.3 million, non-cash expenses of $865,000, decreases in accountsreceivable and inventory of $597,000, an increase in accrued expenses and other current liabilities of $969,000 andpartially offset by a net increase in costs and estimated earnings in excess of billings on uncompleted contracts of$448,000.  The decrease in accounts receivable is due primarily to collections from the Board of Education duringthe first quarter of 2002.  The decrease in inventories is related to projects completed for the Board of Educationand IBM during the first quarter of 2002.  The increase in accrued expenses and other current liabilities is due toprojects completed for the Board of Education and IBM during the first quarter of 2002 coupled with the accrual ofseverance benefits for two employees terminated during the first quarter of 2002.  The increase in costs andestimated earnings in excess of billings on uncompleted contracts are also related primarily to projects for theBoard of Education and The City of New York Department of Corrections that were started and not yet completedat March 31, 2002
Net cash provided by operating activities was approximately $5.2 million for the quarter ended March 31, 2001.The net loss for the quarter of $1.0 million is offset by $739,000 in non-cash expenses.  The primary changes inoperating assets and liabilities were an increase in accounts receivable of $8.4 million and an increase ininventories of $972,000, which were partially offset by an increase in accounts payable of $4.9 million, an increasein accrued expenses and other current liabilities of $951,000 and an increase in deferred revenue of $9.5 million.The increases in accounts receivable, inventories and deferred revenue were all a result of increased businessrelated to the acquisitions of the Harris 20-20®  Switching Product Line and Telident during the first quarter of 2001.The increase in accounts payable and accrued expenses and other current liabilities were due to expenses relatedto the acquisitions.  Accounts payable was higher than normal at March 31, 2001 and throughout 2001 due totransition expenses related primarily to the acquisition of the Harris 20-20® Switching Product Line.
Net cash used in investing activities
Net cash used in investing activities was approximately $106,000 for the three month period ended March 31, 2002.The Company purchased property and equipment of $146,000.  This was partially offset by a decrease in otherassets of $40,000.
Net cash used in investing activities was approximately $164,000 for the three month period ended March 31, 2001.The net cash flows used in investing activities were a result of acquisitions of property and equipment of $254,000and a decrease in other assets of $89,000.
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Net cash used in financing activities
The net cash used in financing activities for the quarter ended March 31, 2002 was approximately $159,000.  TheCompany had net repayments on its line of credit with The CIT Group of $184,000 and net principal payments of$11,000 primarily related to payments on capital leases.  Additionally, we paid dividends on the Series B Preferredstock of $38,000.  The Company also received proceeds of $74,000 related to its Employee Stock Purchase Plan.
The net cash used in financing activities for the quarter ended March 31, 2001 was approximately $5.1 million.  TheCompany had net repayments on our line of credit with The CIT Group of $4.2 million. The net principal repaymentson loans, notes and leases are primarily related to the repayment of $750,000 to Finova.  Additionally, we paiddividends on the Series B Preferred stock of $38,000.
Liquidity
As of March 31, 2002, we had cash and cash equivalents of approximately $236,000, an increase of approximately$173,000 from cash and cash equivalents held as of December 31, 2001.  We had working capital of $4.1 millionat March 31, 2002 compared to working capital of approximately $4.7 million at December 31, 2001.
As of March 31, 2002, our principal obligations consisted of a note payable to Harris Corporation totalingapproximately $9.2 million, of which approximately $404,000 is expected to be paid within the next 12 months,accrued expenses and other current liabilities of $3.5 million and accounts payable of $6.1 million.
We have a credit facility with The CIT Group/Business Credit, Inc. ("CIT") as described in Note 5 to the condensedconsolidated  financial statements.  The credit facility has a maximum available limit of $5.5 million with an interestrate of 2% above prime.  The Company had borrowings of approximately $3.0 million at March 31, 2002.  Theamount available under this credit facility at March 31, 2002 was $2.5 million subject to restrictions based onavailability formulas.
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.  Asa result, we may require additional funds to support our working capital requirements, or for other purposes, andmay seek to raise such additional funds through public or private equity financings or from other sources.  We maynot be able to obtain adequate or favorable financing at that time.  Any financing we obtain may dilute yourownership interests.  In addition, if our cash flows were to substantially decrease, our long-lived assets or goodwillmay become impaired and we would have to record a charge for impairment, which may be material to our financialposition and results 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**Refer to Note 6 of the Notes to the Condensed Consolidated Financial Statements.**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-KThe Company filed a Form 8-K on February 20, 2002.
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          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.TELTRONICS, INC. May 15, 2002/s/ Patrick G. MinPatrick G. MinVice President and Chief Financial Officer
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