<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549

                                     FORM 10Q-SB

             /X/   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended     December 31, 1997
                              ---------------------------------------------

                                          OR

            / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                SECURITIES ACT OF 1934


For the transition period from                 to 
                              -----------------   -------------------------
Commission file number           0-11275
                      -----------------------------------------------------


                                 TELTONE CORPORATION
        ----------------------------------------------------------------------
                (Exact name of registrant as specified in its charter)


         WASHINGTON                                             91-0839067
--------------------------------------------------------------------------------
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)


22121 - 20th Avenue SE, Bothell, Washington                             98021
--------------------------------------------------------------------------------
 (Address of principal executive offices)                             (Zip Code)


                                    (425) 487-1515
             ------------------------------------------------------------
                 (Registrant's telephone number, including area code)

                                         N/A
             ------------------------------------------------------------
                 (Former name, former address and former fiscal year)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                              Yes   X        No       
                                 -------       -------

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

        5,606,796 shares of common stock outstanding as of December 31, 1997.


<PAGE>


PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS



                                 TELTONE CORPORATION


                                    BALANCE SHEETS

<TABLE>
<CAPTION>
 

                                                                          December 31        June 30
                                                                                 1997           1997
ASSET                                                                      (Unaudited)
----------------------------------------------------------------------------------------------------

<S>                                                                       <C>            <C>
Current assets
     Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $   234,732    $   530,074
     Trade accounts receivable (net of allowance for
          doubtful accounts of ($33,228 and $35,024) . . . . . . . . .      1,195,571      1,315,819
     Inventories 
          Raw materials. . . . . . . . . . . . . . . . . . . . . . . .        537,201        699,414
          Work in process. . . . . . . . . . . . . . . . . . . . . . .        115,899         74,405
          Finished goods . . . . . . . . . . . . . . . . . . . . . . .        392,962        575,274
                                                                          -----------    -----------

               Total inventories . . . . . . . . . . . . . . . . . . .      1,046,062      1,349,093
                                                                          -----------    -----------

     Other current assets. . . . . . . . . . . . . . . . . . . . . . .         80,140         33,922
                                                                          -----------    -----------

               Total current assets. . . . . . . . . . . . . . . . . .      2,556,505      3,228,908
                                                                          -----------    -----------

Property, plant and equipment - at cost. . . . . . . . . . . . . . . .      2,398,044      2,346,028
     Less accumulated depreciation . . . . . . . . . . . . . . . . . .     (2,122,026)    (2,051,926)
                                                                          -----------    -----------

               Property, plant and equipment - net . . . . . . . . . .        276,018        294,102

TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 2,832,523    $ 3,523,010
                                                                          -----------    -----------
                                                                          -----------    -----------

</TABLE>
 



See Notes to Financial Statements.                                           2
<PAGE>


ITEM 1.   FINANCIAL STATEMENTS (continued)



                                 TELTONE CORPORATION


                                    BALANCE SHEETS

<TABLE>
<CAPTION>
 

                                                                     December 31        June 30
                                                                            1997           1997
LIABILITIES AND STOCKHOLDERS' EQUITY                                  (Unaudited)
-----------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>
Current liabilities
     Accounts payable - trade . . . . . . . . . . . . . . . . . .    $   544,060    $   548,599
     Accrued compensation and benefits. . . . . . . . . . . . . .        252,482        406,714
     Accrued warranty expense . . . . . . . . . . . . . . . . . .         32,812         33,373
     Notes payable to bank. . . . . . . . . . . . . . . . . . . .        200,000        400,000
     Other accrued expenses . . . . . . . . . . . . . . . . . . .         59,025         63,580
                                                                     -----------    -----------

               Total current liabilities. . . . . . . . . . . . .      1,088,379      1,452,266
                                                                     -----------    -----------


Stockholders' equity
     Convertible preferred stock - no par value;
         authorized 6,000,000 shares; 1,075,641 shares
         issued and outstanding . . . . . . . . . . . . . . . . .      2,063,149      2,063,149
     Common stock - no par value; authorized 20,000,000
         shares; 5,606,796 shares issued
         and outstanding. . . . . . . . . . . . . . . . . . . . .      2,998,685      2,998,685
     Deficit    . . . . . . . . . . . . . . . . . . . . . . . . .     (3,317,690)    (2,991,090)
                                                                     -----------    -----------
         Stockholders' equity . . . . . . . . . . . . . . . . . .      1,744,144      2,070,744
                                                                     -----------    -----------

TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 2,832,523    $ 3,523,010
                                                                     -----------    -----------
                                                                     -----------    -----------

</TABLE>
 



See Notes to Financial Statements.                                           3
<PAGE>


ITEM 1.   FINANCIAL STATEMENTS (continued)



                                 TELTONE CORPORATION


                               STATEMENTS OF OPERATIONS
                                     (Unaudited)

<TABLE>
<CAPTION>


                                                        Three Months                    Six Months
                                                      Ended December 31             Ended December 31
                                                     1997           1996           1997           1996
---------------------------------------------------------------------------------------------------------

<S>                                               <C>            <C>            <C>            <C>
Net sales . . . . . . . . . . . . . . . . . .     $2,122,406     $2,640,450     $4,361,875     $5,025,734
Cost of goods sold. . . . . . . . . . . . . .      1,216,085      1,571,652      2,507,250      2,954,512
                                                  ----------     ----------     ----------     ----------

Gross margin on sales . . . . . . . . . . . .        906,321      1,068,798      1,854,625      2,071,222
                                                  ----------     ----------     ----------     ----------


Operating expenses
     Selling, general and administrative. . .        724,274        742,256      1,415,985      1,468,093
     Engineering and development. . . . . . .        322,317        196,655        748,333        401,231
                                                  ----------     ----------     ----------     ----------

     Total operating expenses . . . . . . . .      1,046,591        938,911      2,164,318      1,869,324
                                                  ----------     ----------     ----------     ----------

(Loss) income from operations   . . . . . . .       (140,270)       129,887       (309,693)       201,898

Other income (expense). . . . . . . . . . . .          2,039        (27,834)       (16,907)       (58,537)
                                                  ----------     ----------     ----------     ----------

(Loss) income before tax. . . . . . . . . . .       (138,231)       102,053       (326,600)       143,361
                                                  ----------     ----------     ----------     ----------

(Loss) income tax provision . . . . . . . . .            -              -              -              -  
                                                  ----------     ----------     ----------     ----------

Net (loss) income . . . . . . . . . . . . . .     $ (138,231)    $  102,053     $ (326,600)    $  143,361
                                                  ----------     ----------     ----------     ----------
                                                  ----------     ----------     ----------     ----------

Net (loss) income per common and
    common equivalent share . . . . . . . . .     $     (.02)    $      .02     $     (.05)    $      .02
                                                  ----------     ----------     ----------     ----------
                                                  ----------     ----------     ----------     ----------

Average common and common
    equivalent shares outstanding . . . . . .      6,682,437      6,710,956      6,682,437      6,718,539

</TABLE>
 



See Notes to Financial Statements.                                           4
<PAGE>


ITEM 1.   FINANCIAL STATEMENTS (continued)


                                 TELTONE CORPORATION


                               STATEMENTS OF CASH FLOWS
                                     (Unaudited)

<TABLE>
<CAPTION>


                                                                                                  Six Months
                                                                                               Ended December 31
                                                                                              1997           1996
-------------------------------------------------------------------------------------------------------------------

<S>                                                                                       <C>            <C>       
Operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ (326,600)    $  143,361
Adjustments to reconcile net (loss) income to net cash (used by) provided
    by operating activities:
     Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         70,100         60,478
Changes in:
     Trade accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . .        120,248       (305,876)
     Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        303,031        (14,776)
     Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . .       (163,887)      (611,194)
     Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (46,218)       (56,039)
                                                                                          ----------     ----------

                    Cash (used for) provided by operating activities . . . . . . . .         (43,326)       438,342

Investing activities:
     Investment in property, plant and equipment . . . . . . . . . . . . . . . . . .         (52,016)       (34,682)
                                                                                          ----------     ----------
     
                    Cash used by investing activities . . . . . . . . . . . . . . . .        (52,016)       (34,682)

Financing activities:
     Note payable to bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (200,000)      (150,000)
     Employee stock purchases, net. . . . . . . . . . . . . . . . . . . . . . . . . .              -         10,410
                                                                                          ----------     ----------

                    Cash used for financing activities . . . . . . . . . . . . . . .        (200,000)      (139,590)
                                                                                          ----------     ----------

(Decrease) increase in cash and equivalents. . . . . . . . . . . . . . . . . . . . .        (295,342)       264,070
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . .         530,074        147,896
                                                                                          ----------     ----------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . .      $  234,732     $  411,966
                                                                                          ----------     ----------
                                                                                          ----------     ----------

</TABLE>



See Notes to Financial Statements.                                           5
<PAGE>


ITEM 1.   FINANCIAL STATEMENTS (continued)


                                 TELTONE CORPORATION



NOTES TO FINANCIAL STATEMENTS
                                     (Unaudited)

--------------------------------------------------------------------------------

1.   STOCKHOLDERS' EQUITY

     The Company has two active stock option plans.  The Nonemployee Directors
     Stock Option Plan provides for the grant of options to purchase up to
     320,000 common shares to outside directors of the Company.  Options are
     granted at the fair market value of the stock on the date of grant and vest
     over a four year period.  The maximum term of an option may not exceed six
     years.  Of this total, options to purchase 200,000 shares of common stock
     are outstanding and 120,000 shares remain available for grant.

     The Employees Stock Option Plan provides for the grant of options to
     purchase up to 900,000 common shares (100,000 of which are pending final
     shareholder approval) to key employees of the Company.  Options are granted
     at the fair market value of the stock on the date of grant and vest over a
     four year period.  The maximum term of an option may not exceed six years. 
     Of this total, options to purchase 753,000 shares of common stock are
     outstanding and 39,750 shares remain available for grant.  In addition,
     options to purchase 400,000 shares of common stock are outstanding under
     certain of the Company's predecessor stock option plans.


2.   FEDERAL INCOME TAX

     As of December 31, 1997, the Company had net operating loss carryforwards
     of approximately $12,608,000.  The carryforwards expire from 2000 to 2012. 
     The Company also has investment tax credit as well as research and
     development tax credit carryforwards of approximately $290,000 and
     $752,000, respectively, available to offset future income tax liabilities
     through 2001.  There is no tax asset recognized for the net operating loss
     carryforwards and tax credits due to the Company's loss history and
     therefore uncertainty regarding future taxable income.   Due to an expected
     annual effective tax rate of zero, the Company recognized no income tax
     expense in the first six months of fiscal 1998 or 1997.


3.   RECENT ACCOUNTING ANNOUNCEMENT

     The Financial Accounting Standards Board has issued Statement of Financial
     Accounting Standards No. 128 "Earnings Per Share" (FAS 128).  The
     pronouncement impacts the way the Company calculates its earnings per share
     and is effective for the year ended June 30, 1998.  Management does not
     expect FAS 128 to have a material effect on the Company's earnings per
     share calculation. 




The unaudited Interim Financial Statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
interim periods presented.  The results of operations for the period ending
December 31, 1997, are not necessarily indicative of operating results to be
expected for the full year.  These interim condensed financial statements should
be read in conjunction with the June 30, 1997, audited financial statements.


                                                                             6
<PAGE>


TELTONE CORPORATION


PART I.   FINANCIAL INFORMATION

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
          AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-QSB may contain forward-looking statements that
involve risks and uncertainties.  These statements may differ materially from
actual future events or results which could cause actual results to differ from
those forward looking statements contained in this Form 10-QSB.


RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996

Sales for the second quarter of fiscal 1998 were $2,122,000 which represents a
20% decrease from the $2,640,000 for the same period last year.  This decrease
was primarily driven by the decline in integrated circuit shipments for the
quarters ended December 31, 1997 and 1996 which were $461,000 and $849,000,
respectively.

As a result, gross margin decreased approximately $160,000 when compared to the
same period last year.  This decrease, combined with a significant increase in
engineering and development expenditure (see further discussion regarding
engineering and development costs below) resulted in a loss of $138,000 for the
second quarter of fiscal 1998 as compared to a profit of $102,000 for the same
period last year.

SIX MONTHS ENDED DECEMBER 31, 1997, 1996

For the six months ended December 31, 1997 and 1996, net sales were $4,362,000
and $5,026,000, respectively.  The decrease of 13% was driven by a 27% decrease
in integrated circuit shipments and a 4% decrease in CPE (customer premise
equipment) products.  Gross margin was $217,000 less than the same period last
year as a result of the decrease in shipments.

The most significant change between the first six months of fiscal 1998 and 1997
was the Company's expenditures on engineering and development.  Engineering and
development costs increased 87% to $748,000 for the six months ended December
31, 1997.  This increase reflects increased development and design work on the
OfficeLink 2000 product and on new lower cost IC chip families planned to be
introduced later in fiscal 1998.  The Company does not expect this level of
engineering and development efforts to continue throughout the year.

The decrease in net sales and gross margin, combined with the significant
increase in engineering and development costs resulted in a loss of $327,000 for
the six months ended December 31, 1997, as compared to a gain of $143,000 for
the same period last year.

At December 31, 1997, approximately $12,608,000 in net operating loss
carryforwards were available to offset future taxable income and expire from
2000 through 2012.  If substantial changes in the Company's ownership should
occur, there may be annual limitations on the utilization of such carryforwards.
The Company also has investment tax credit as well as research and development
tax credit carryforwards of approximately $290,000 and $752,000, respectively,
available to offset future income tax liabilities through 2001.  There is no tax
asset recognized for the net operating loss carryforwards and tax credits due to
the Company's loss history and therefore uncertainty regarding future taxable
income.


                                                                             7
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

During the prior year the Company instituted new policies regarding the
manufacturing and assembly process and its payment of trade payables.  These
changes have resulted in lower inventory levels and improved management of 
trade accounts payable, thus mitigating the effects of the loss for the fist six
months of fiscal 1998 on cash flow.

The Company has a line of credit agreement for $1,500,000, renewable in
September of 1998.  The agreement is collateralized by eligible accounts
receivable, inventory, and other tangible and intangible assets and contains
financial covenants including working capital and debt ratios, as well as
maximum loss provisions.  As of December 31, 1997, borrowings under this line
totaled $200,000.

The Company anticipates continued spending on the development of new products
and thus expects to continue to utilize its lines of credit.  Cash on hand, cash
generated from operations, as well as the lines of credit, should enable the
Company to meet its operating and working capital needs during the next twelve
months.







                                                                             8
<PAGE>


PART II.  OTHER INFORMATION

     Item 1.   LEGAL PROCEEDINGS

               None

     Item 2.   CHANGES IN SECURITIES

               None

     Item 3.   DEFAULTS UPON SENIOR SECURITIES

               None

     Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

               None

     Item 5.   OTHER INFORMATION

               None

     Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

               None





                                                                             9
<PAGE>


SIGNATURES


     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.






                                             TELTONE CORPORATION
                                             (Registrant)



Date          January 27, 1998               By     /s/ RICHARD W. SOSHEA
     -----------------------------------       --------------------------------
                                                 Richard W. Soshea
                                                 President & Chief Executive 
                                                 Officer



Date       January 27, 1998                  By     /s/ JEFFREY B. deCILLIA
     -----------------------------------       --------------------------------
                                                 Jeffrey B. deCillia
                                                 Vice President Finance & Chief 
                                                 Financial Officer






                                                                             10