<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                September 30, 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)


                                    (206) 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 September 30, 1997.


<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS





                           TELTONE CORPORATION


                              BALANCE SHEETS




<TABLE>
<CAPTION>
                                                                         September 30             June 30
                                                                                 1997                1997
ASSET                                                                      (Unaudited)
---------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>
Current assets
    Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $   346,648         $   530,074
    Trade accounts receivable (net of allowance for
         doubtful accounts of ($35,006 and $35,024). . . . . . . .         1,385,419           1,315,819
    Inventories
         Raw materials . . . . . . . . . . . . . . . . . . . . . .           549,796             699,414
         Work in process . . . . . . . . . . . . . . . . . . . . .           122,617              74,405
         Finished goods. . . . . . . . . . . . . . . . . . . . . .           438,990             575,274
                                                                         -----------         -----------

                   Total inventories . . . . . . . . . . . . . . .         1,111,403           1,349,093
                                                                         -----------         -----------

    Other current assets . . . . . . . . . . . . . . . . . . . . .            46,017              33,922
                                                                         -----------         -----------

                   Total current assets. . . . . . . . . . . . . .         2,889,487           3,228,908
                                                                         -----------         -----------

Property, plant and equipment - at cost. . . . . . . . . . . . . .         2,363,488           2,346,028
    Less accumulated depreciation. . . . . . . . . . . . . . . . .        (2,086,779)         (2,051,926)
                                                                         -----------         -----------

                   Property, plant and equipment - net . . . . . .           276,709             294,102

TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 3,166,196         $ 3,523,010
                                                                         -----------         -----------
                                                                         -----------         -----------
</TABLE>

                                                                               2


<PAGE>

ITEM 1.  FINANCIAL STATEMENTS (continued)



                              TELTONE CORPORATION


                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         September 30             June 30
                                                                                 1997                1997
LIABILITIES AND STOCKHOLDERS' EQUITY                                       (Unaudited)
---------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>
Current liabilities
    Accounts payable - trade . . . . . . . . . . . . . . . . . . .        $  580,860          $  548,599
    Accrued compensation and benefits. . . . . . . . . . . . . . .           404,103             406,714
    Accrued warranty expense . . . . . . . . . . . . . . . . . . .            32,631              33,373
    Notes payable to bank. . . . . . . . . . . . . . . . . . . . .           200,000             400,000
    Other accrued expenses . . . . . . . . . . . . . . . . . . . .            66,227              63,580
                                                                          ----------          ----------

         Total current liabilities . . . . . . . . . . . . . . . .         1,283,821           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;
        issued and outstanding 5,606,796 and 5,606,796 shares  . .         2,998,685           2,988,685
    Deficit  . . . . . . . . . . . . . . . . . . . . . . . . . . .        (3,179,459)         (2,991,090)
                                                                          ----------          ----------
        Stockholders' equity . . . . . . . . . . . . . . . . . . .         1,882,375          2,070,744
                                                                          ----------          ----------

TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $3,166,196          $3,523,010
                                                                          ----------          ----------
                                                                          ----------          ----------

</TABLE>


                                                                              3
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS (continued)



                              TELTONE CORPORATION

                            STATEMENTS OF OPERATIONS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                     Three Months
                                                                                  Ended September 30
                                                                                1997               1996
---------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                 <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 2,239,469         $ 2,385,284
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . .         1,291,165           1,382,860
                                                                         -----------         -----------
Gross margin on sales. . . . . . . . . . . . . . . . . . . . . . .           948,304           1,002,424
                                                                         -----------         -----------


Operating expenses
    Selling, general and administrative. . . . . . . . . . . . . .           691,711             725,836
    Engineering and development. . . . . . . . . . . . . . . . . .           426,016             204,577
                                                                         -----------         -----------


         Total operating expenses. . . . . . . . . . . . . . . . .         1,117,727             930,413
                                                                         -----------         -----------

(Loss) income from operations. . . . . . . . . . . . . . . . . . .          (169,423)             72,011

Other expense - net                              . . . . . . . .              18,946              30,703
                                                                         -----------         -----------

(Loss) income before tax . . . . . . . . . . . . . . . . . . . . .          (188,369)             41,308

Income tax provision . . . . . . . . . . . . . . . . . . . . . . .                                     -                  -
                                                                         -----------         -----------

Net (loss) income  . . . . . . . . . . . . . . . . . . . . . . . .       $  (188,369)        $    41,308
                                                                         -----------         -----------
                                                                         -----------         -----------

Net (loss) income per common share . . . . . . . . . . . . . . . .       $      (.03)        $       .01
                                                                         -----------         -----------
                                                                         -----------         -----------

Average common and common
    equivalent shares outstanding  . . . . . . . . . . . . . . . .         6,682,437           6,717,854

</TABLE>


                                                                              4
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS (continued)


                              TELTONE CORPORATION


                            STATEMENTS OF CASH FLOWS
                                  (Unaudited)



<TABLE>
<CAPTION>
                                                                                     Three Months
                                                                                  Ended September 30
                                                                                1997               1996
---------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                  <C>
Cash flows from operating activities:
Net (loss) income  . . . . . . . . . . . . . . . . . . . . . . . .         $(188,369)           $ 41,308
Adjustments to reconcile net (loss) income to net cash provided by
   operating activities:
    Depreciation   . . . . . . . . . . . . . . . . . . . . . . . .            34,853             30,989
Changes in:
    Accounts receivable. . . . . . . . . . . . . . . . . . . . . .           (69,600)           (388,583)
    Inventories  . . . . . . . . . . . . . . . . . . . . . . . . .           237,690              50,835
    Accounts payable and accrued items . . . . . . . . . . . . . .            31,555             343,234
    Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (12,095)            (35,157)
                                                                           ---------            --------

                   Cash provided by operating activities . .  .  .            34,034              42,626
                                                                           ---------            --------

Cash flows from investing activities:
     Investment in property, plant and equipment . . . . . . . . .           (17,460)            (20,407)
                                                                           ---------            --------
                   Cash used for investing activities  . . . . . .           (17,460)            (20,407)
                                                                           ---------            --------

Cash flows from financing activities:
    Note payable to bank . . . . . . . . . . . . . . . . . . . . .          (200,000)                  -
    Employee stock purchases, net. . . . . . . . . . . . . . . . .                 -                 510
                                                                           ---------            --------

                   Cash (used for) provided by
                   financing activities  . . . . . . . . . . . . .          (200,000)                510
                                                                           ---------            --------
Increase (decrease) in cash and equivalents. . . . . . . . . . . .          (183,426)             22,729
Cash and cash equivalents, beginning of period . . . . . . . . . .           530,074             147,896
                                                                           ---------            --------
Cash and cash equivalents, end of period . . . . . . . . . . . . .         $ 346,648            $170,625
                                                                           ---------            --------
                                                                           ---------            --------
</TABLE>


                                                                               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 240,000 shares of common stock
    are outstanding and 80,000 shares remain available for grant.

    The 1992 Employees Stock Option Plan provides for the grant of options to
    purchase up to 800,000 common shares 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 593,500 shares of
    common stock are outstanding and 99,250 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

    At of September 30, 1997, the Company had net operating loss carryforwards
    of approximately $12,470,000.  The carryforwards expire from 2000 to 2012.
    The Company also has investment tax credit as well as research and
    development tax credit carryforwards of $290,000 and $752,000,
    respectively, available to offset future income tax liabilities through
    2001.  Although the Company has adopted the Statement of Financial
    Accounting Standards No. 109 Accounting for Income Taxes, 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 quarter 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.




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
September 30, 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

Net sales for the quarters ended September 30, 1997 and 1996, were $2,239,000
and 2,385,000, respectively.  This decrease was shared equally between the
Company's integrated circuit and customer premise equipment product groups.
Gross margins remained constant at 42% for each of the periods.

The most significant change between the first fiscal quarter of 1996 and 1997
was in the Company's engineering and development efforts.  Engineering and
development costs increased 108% to $426,000 for the quarter ended September 30,
1997.  This increase reflects increased contract development and design work on
the recently introduced 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 sales, combined with the significant increase in engineering and
development costs, resulted in a loss of $188,000 for the quarter ended
September 30, 1997, as compared to a gain of $41,000 for the same quarter last
year.

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 an increase in trade
accounts payable, thus mitigating the effects of the loss for the current
quarter on cash flow.

At September 30, 1997, approximately $12,470,000 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 $290,000 and $752,000, respectively, available to
offset future income tax liabilities through 2001.  Although the Company has
adopted the Statement of Financial Accounting Standards No. 109 Accounting for
Income Taxes, 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

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 September 30, 1997, borrowings under this line
totaled $200,000.

The Company anticipates increased 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.


                                                                              7

<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


                                                                              8
<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     October 27, 1997         By     /s/ RICHARD W. SOSHEA
     -------------------------        ----------------------------------------
                                      Richard W. Soshea
                                      President & Chief Executive Officer




Date     October 27, 1997         By     /s/ JEFFREY B. deCILLIA
     -------------------------        ----------------------------------------
                                      Jeffrey B. deCillia
                                      Vice President Finance & Chief Financial
                                      Officer


                                                                              9