<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       March 31, 1998
                               --------------------------------------------

                                          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 March 31, 1998.

<PAGE>

PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS




                                 TELTONE CORPORATION


                                    BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                 March 31       June 30
                                                                     1998          1997
ASSET                                                          (Unaudited)
---------------------------------------------------------------------------------------
<S>                                                           <C>           <C>
Current assets
     Cash. . . . . . . . . . . . . . . . . . . . . . . . . .  $   292,219   $   530,074
     Trade accounts receivable (net of allowance for
        doubtful accounts of ($35,091and $35,024). . . . . .    1,360,228     1,315,819
     Inventories 
        Raw materials. . . . . . . . . . . . . . . . . . . .      515,423       699,414
        Work in process. . . . . . . . . . . . . . . . . . .      158,395        74,405
        Finished goods . . . . . . . . . . . . . . . . . . .      369,819       575,274
                                                              -----------   -----------

             Total inventories . . . . . . . . . . . . . . .    1,043,637     1,349,093
                                                              -----------   -----------

     Other current assets. . . . . . . . . . . . . . . . . .       73,375        33,922
                                                              -----------   -----------

             Total current assets. . . . . . . . . . . . . .    2,769,459     3,228,908
                                                              -----------   -----------

Property, plant and equipment - at cost. . . . . . . . . . .    2,430,794     2,346,028
     Less accumulated depreciation . . . . . . . . . . . . .   (2,159,561)   (2,051,926)
                                                              -----------   -----------

             Property, plant and equipment - net . . . . . .      271,233       294,102
 
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 3,040,692   $ 3,523,010
                                                              -----------   -----------
                                                              -----------   -----------

</TABLE>


See Notes to Financial Statements.                                             2

<PAGE>

ITEM 1. FINANCIAL STATEMENTS (continued)



                                 TELTONE CORPORATION


                                    BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                           March 31         June 30
                                                                               1998            1997
LIABILITIES AND STOCKHOLDERS' EQUITY                                     (Unaudited)
---------------------------------------------------------------------------------------------------
<S>                                                                       <C>          <C>
Current liabilities
     Accounts payable - trade. . . . . . . . . . . . . . . . . . . . .  $   531,511     $   548,599 
     Accrued compensation and benefits . . . . . . . . . . . . . . . .      343,658         406,714 
     Accrued warranty expense. . . . . . . . . . . . . . . . . . . . .       34,178          33,373 
     Notes payable to bank . . . . . . . . . . . . . . . . . . . . . .      200,000         400,000 
     Other accrued expenses. . . . . . . . . . . . . . . . . . . . . .       55,469          63,580 
                                                                        -----------     -----------

                     Total current liabilities . . . . . . . . . . . .    1,164,816       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         . . . . . . . . . . . . . . . . . . . . . . . . .   (3,185,958)     (2,991,090)
                                                                        -----------     -----------
         Stockholders' equity. . . . . . . . . . . . . . . . . . . . .    1,875,876       2,070,744 
                                                                        -----------     -----------

TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 3,040,692     $ 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                  Nine Months
                                                          Ended March 31                Ended March 31
                                                       1998            1997           1998           1997
---------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>            <C>
Net sales. . . . . . . . . . . . . . . . . .     $ 2,417,257    $ 2,567,290    $ 6,779,132   $ 7,593,023
Cost of goods sold . . . . . . . . . . . . .       1,309,264      1,654,149      3,816,515     4,608,660
                                                 -----------    -----------    -----------   -----------

Gross margin on sales. . . . . . . . . . . .       1,107,993        913,141      2,962,617     2,984,363
                                                 -----------    -----------    -----------   -----------


Operating expenses
     Selling, general and administrative . .         757,110        759,785      2,173,095     2,227,878
     Engineering and development . . . . . .         204,492        312,833        952,825       714,064
                                                 -----------    -----------    -----------   -----------

               Total operating expenses. . .         961,602      1,072,618      3,125,920     2,941,942
                                                 -----------    -----------    -----------   -----------

Income (loss) from operations. . . . . . . .         146,391       (159,477)      (163,303)       42,421

Other (expense) income . . . . . . . . . . .         (14,659)       (33,584)       (31,565)      (92,121)
                                                 -----------    -----------    -----------    -----------

Income (loss) before tax . . . . . . . . . .         131,732       (193,061)      (194,868)      (49,700)
                                                 -----------    -----------    -----------   -----------

Income (loss) tax provision  . . . . . . . .          -              -              -             -     
                                                 -----------    -----------    -----------   -----------

Net income (loss). . . . . . . . . . . . . .     $   131,732    $  (193,061)   $  (194,868)  $   (49,700)
                                                 -----------    -----------    -----------   -----------
                                                 -----------    -----------    -----------   -----------

Net income (loss) per share:
     Basic                                       $       .02    $      (.03)   $      (.03)  $      (.01)
                                                 -----------    -----------    -----------   -----------
                                                 -----------    -----------    -----------   -----------
     Diluted                                     $       .02    $      (.03)   $      (.03)  $      (.01)
                                                 -----------    -----------    -----------   -----------
                                                 -----------    -----------    -----------   -----------


Average number of shares outstanding:
     Basic                                         6,682,437      6,682,437      6,682,437     6,666,937
     Diluted                                       6,927,437      6,716,510      6,682,437     6,733,120

</TABLE>

See Notes to Financial Statements.                                             4

<PAGE>

ITEM 1.   FINANCIAL STATEMENTS (continued)


                                 TELTONE CORPORATION


                               STATEMENTS OF CASH FLOWS
                                     (Unaudited)
<TABLE>
<CAPTION>

                                                                                 Nine Months
                                                                                Ended March 31
                                                                            1998               1997 
----------------------------------------------------------------------------------------------------

<S>                                                                   <C>                <C>
Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .          $ (194,868)        $  (49,700)
Adjustments to reconcile net loss to cash provided
  by operating activities:
     Depreciation. . . . . . . . . . . . . . . . . . . . . .             107,635             93,549
Changes in:
     Trade accounts receivable . . . . . . . . . . . . . . .             (44,409)          (223,999)
     Inventories . . . . . . . . . . . . . . . . . . . . . .             305,456            168,120
     Accounts payable and accrued liabilities. . . . . . . .             (87,450)           433,597
     Other . . . . . . . . . . . . . . . . . . . . . . . . .             (39,453)           (31,437)
                                                                      -----------        -----------

               Cash provided by operating activities . . . .              46,911            390,130

Investing activities:
     Investment in property, plant and equipment . . . . . .             (84,766)          (110,717)
                                                                      -----------        -----------

               Cash used by investing activities . . . . . .             (84,766)          (110,717)

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. . . . . . . . .            (237,855)           139,823
Cash and cash equivalents, beginning of period . . . . . . .             530,074            147,896
                                                                      -----------        -----------
Cash and cash equivalents, end of period . . . . . . . . . .          $  292,219         $  287,719
                                                                      -----------        -----------
                                                                      -----------        -----------

</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 666,000 shares of common stock are
     outstanding and 126,750 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 March 31, 1998, the Company had net operating loss carryforwards of
     approximately $12,476,000.  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 nine months of fiscal 1998 or 1997.




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
March  31, 1998, 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 MARCH 31, 1998 AND 1997

Sales for the third quarter of fiscal 1998 were $2,417,000, which represents a
6% decrease from the $2,567,000 for the same period last year.  This decrease
was primarily driven by the decline in integrated circuit shipments for the
quarters ended March 31, 1998 and 1997, which were $649,000 and $801,000,
respectively.

Gross margin percentage increased from 36% in the third quarter of fiscal 1997
to 46% for  the same period in the current year.  The prior period margin was
adversely affected by the Company establishing an additional allowance of
$99,269 as a result of a decision to discontinue certain of the Company's older
products.  Exclusive of this additional allowance, the Company's gross margin
would have been 39%.  The majority of the remaining shortfall in gross margin
percentage in the prior period was due to a large custom order which began
shipping in the quarter ended December 31, 1996, and completed shipping in the
quarter ended March 31, 1997, that was given special volume pricing.  Gross
margin percentage for the current period ended March 31, 1998, is representative
of historical margins subject to product mix variations which are normal
occurrences for the Company.

Operating expenses decreased from $1,073,000 in the third quarter of fiscal 1997
to $962,000 in fiscal 1998.  The decrease is primarily due to a reduction in
engineering and development costs.

The more favorable gross margin, coupled with the decrease in operating expenses
over the same period last year, resulted in net income of $132,000 in the third
quarter this year versus a  net loss of $193,000 for the third quarter last
year.

NINE MONTHS ENDED MARCH 31, 1998 AND 1997

For the nine months ended March 31, 1998 and 1997, net sales were $6,779,000 and
$7,593,000, respectively.  The decrease of 11% was driven by a 24% decrease in
integrated circuit shipments and a 3% decrease in CPE (customer premise
equipment) products.  Gross margin percentage increased from 39% to 44% for the
nine months ended March 31, 1997 and 1998, respectively.   The lower margin
percentage in the prior period was driven by the additional allowance on
discontinued products and the special volume pricing arrangements discussed
above.

The most significant change between the first nine months of fiscal 1998 and
1997 was the Company's expenditures on engineering and development.  Engineering
and development costs increased 33% to $953,000 for the nine months ended March
31, 1998.  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 and early fiscal 1999.  The Company does not
expect this level of engineering and development efforts to continue throughout
the year as evidenced by the lower spending levels in the current quarter ended
March 31, 1998.


                                                                               7
<PAGE>

The significant increase in engineering and development costs contributed to a
net loss of $195,000 for the nine months ended March 31, 1998, as compared to a
net loss of $50,000 for the same period last year.

At March 31, 1998, approximately $12,476,000 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.


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 net loss for the
first nine 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 March 31, 1998, 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  May 6, 1998                       By  /s/ RICHARD W. SOSHEA
    ------------------------               -------------------------------------
                                           Richard W. Soshea
                                           President & Chief Executive Officer




Date  May 6, 1998                       By  /s/ JEFFREY B. deCILLIA 
    ------------------------               -------------------------------------
                                           Jeffrey B. deCillia
                                           Vice President Finance & Chief
                                           Financial Officer


                                                                              10