SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934




For Quarter Ended September 30, 1996         File No.                  0-12993
                                                                     -----------




                                TELS Corporation
--------------------------------------------------------------------------------

             (Exact name of registrant as specified in its charter)



             Utah                                             87-0373840
------------------------------                      ----------------------------

(State or other jurisdiction of                             (IRS Employer
incorporation or organization)                            Identification No.)



406 West South Jordan Parkway, Suite 250, South Jordan, Utah          84095
 
-------------------------------------------------------------      -------------

(Address of principal executive offices)                            Zip Code



Registrant's telephone number, including area code               (801) 571-1182
                                                                               




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  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
                                      -----------              -----------
                                                                               



Shares of common stock outstanding on October 30, 1996       3,899,819      


                                                         1
<PAGE>










                                TELS Corporation


                                      INDEX



PART I. FINANCIAL INFORMATION                                               Page


     Consolidated Balance Sheets -- September 30, 1996
          and December 31, 1995                                              3

     Consolidated Statements of Operations -- Three and
          Nine Months Ended September 30, 1996 and 1995,
          respectively                                                       4

     Consolidated Statements of Cash Flows -- Nine Months Ended              
          September 30, 1996 and 1995, respectively                          5

     Notes to Consolidated Financial Statements                              6

 
     Management's Discussion and Analysis of Financial                      
          Condition and Results of Operations                               7,8


PART 11. OTHER INFORMATION

     Item 1.  Legal Proceedings                                              9

     Item 6.  Exhibits and Reports on Form 8-K                               9


SIGNATURES                                                                  10


                                        2
<PAGE>



 
                                TELS Corporation

                           Consolidated Balance Sheets
                    September 30, 1996 and December 31, 1995



<TABLE>
<CAPTION>
                                                                                          1996                     1995
                             Assets                                                   (Unaudited)                Audited
                            --------
                                                                                    -------------            --------------

Current Assets
<S>                                                                                  <C>                       <C>        
      Cash and cash equivalents                                                      $    59,122               $    28,075
      Investments                                                                         60,330                    56,617
      Trade accounts receivable, less allowance for
          doubtful receivables of $89,987 and $105,788 respectively                      842,313                 1,044,128
      Employee and other receivables                                                     138,891                   121,863
      Inventories                                                                        931,075                 1,100,044
      Prepaid expenses                                                                   182,076                    79,089
      Deferred income taxes                                                              162,253                   118,900
      Net assets - discontinued operations                                               390,314                   757,750
                                                                                   --------------            --------------


          Total current assets                                                         2,766,374                 3,306,466
                                                                                   --------------            --------------


Property, plant and equipment, net                                                       954,922                 1,087,778
Software development costs, net                                                          123,295                   140,080
Intangible assets, net                                                                   220,013                   279,162
Deferred income taxes                                                                    322,471                   314,850
Other assets                                                                             144,239                   130,832
                                                                                   --------------            --------------
                                                                                    $  4,531,314              $  5,259,168 


          Liabilities and Stockholders' Equity
Current Liabilities
      Current portion of long-term debt                                                  780,116                 1,283,962
      Trade accounts payable                                                             421,953                   313,002
      Accrued expenses                                                                   186,555                   382,016
      Accrued vacation                                                                    73,444                   115,404
      Deposits and advances                                                              138,322                   115,582
                                                                                   --------------            --------------


          Total current liabilities                                                    1,600,390                 2,209,966
                                                                                   --------------            --------------


Long-term debt, excluding current installments                                           237,973                   346,195
                                                                                   --------------            --------------


Stockholders' equity
      Common stock, $.02 par value.  Authorized 10,000,000 shares;
          issued and outstanding 3,899,819 and 3,892,274                                  77,945                    77,825
      Additional paid-in capital                                                       4,234,147                 4,231,567
      Accumulated deficit                                                             (1,545,841)               (1,495,210)
      Deferred compensation                                                              (73,300)                 (111,175)
                                                                                   --------------            --------------


          Net stockholders' equity                                                     2,692,951                 2,703,007
                                                                                   --------------            --------------


                                                                                    $  4,531,314              $  5,259,168 




                 See accompanying notes to financial statements.

                                        3
</TABLE>

<PAGE>



                                TELS Corporation

                      Consolidated Statements of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                           Three months ended              Nine months ended
                                                                              September 30,                  September 30,
                                                                      ----------------------------  -----------------------------



                                                                          1996            1995             1996            1995
                                                                     --------------  --------------   --------------  --------------


<S>                                                                  <C>             <C>               <C>              <C>       
Net sales                                                            $  1,671,874    $  1,728,319      $ 5,203,651      $5,956,047
                                                                                           
Cost of goods sold                                                        936,747         946,751        2,947,215       2,817,490
                                                                     --------------  --------------   --------------  --------------


    Gross profit                                                          735,127         781,568        2,256,436       3,138,557
                                                                                                            

Research and development expenses                                          14,458          28,257           81,810         169,938
Selling, general and administrative expenses                              678,845         808,848        2,225,124       2,574,814
                                                                     --------------  --------------   --------------  --------------


     Operating income (loss)                                               41,824         (55,537)         (50,498)        393,805

Other income (deductions):
     Interest income                                                        1,564           2,009            7,414           9,179
     Interest expense                                                     (26,808)        (11,963)         (73,361)        (53,112)
     Other                                                                 26,372         (16,179)          31,455          18,368
                                                                     --------------  --------------   --------------  --------------


        Net other                                                           1,128         (26,133)          34,492)        (25,565)
                                                                     --------------  --------------   --------------  --------------


       Income (loss) from continuing operations before
       income tax benefit (provision)                                      42,952         (81,670)         (84,990)        368,240


Income tax benefit, (provision)                                            (8,500)         23,250           34,359         (24,748)
                                                                     --------------  --------------   --------------  --------------

Net income (loss) from continuing operations                               34,452         (58,420)         (50,631)        343,492


                                                                                                            
Loss from discontinued operations (net of tax benefit)                     (5,053)        (58,863)         (22,860)        (98,740)

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

 

       Net income (loss)                                              $    29,399        (117,283)         (73,491)        244,752
                                                                                                            
                                                                     --------------  --------------   --------------  --------------
                                                                     --------------  --------------   --------------  --------------





Net income (loss) per common and common equivalent share:

     From continuing operations                                      $        .01    $       (.01)    $       (.01)   $        .08
 
     Discontinued operations                                                 (.00)           (.01)            (.01)           (.02)

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




Net income (loss) per common and common equivalent share
                                                                     $        .01    $       (.02)   $        (.02)   $        .06
                                                                                           
                                                                     --------------  --------------   --------------  --------------
                                                                     --------------  --------------   --------------  --------------




                 See accompanying notes to financial statements

                                        4
</TABLE>
<PAGE>


 
                                TELS Corporation

                      Consolidated Statements of Cash Flows

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                                 Nine months ended


                                                                                                   September 30,
                                                                                   ----------------------------------------


Increase (Decrease) in Cash and Cash Equivalents                                           1996                      1995
         -------------------------------------------------------
                                                                                   --------------            --------------


Cash flows from operating activities:
<S>                                                                              <C>                         <C>          
      Net income (loss)                                                          $       (73,491)            $     244,752
      Adjustments to reconcile net income
          to net cash provided by operating activities:
              Depreciation of plant and equipment                                        218,796                   220,390
              Amortization of other assets                                                60,900                    36,218
              Amortization of software development costs                                  55,559                   123,707
              Deferred income taxes                                                       36,520                    17,000
              Deferred compensation                                                       37,875                    26,373
              Changes in operating assets and liabilities:
                   Receivables                                                           184,787                   162,438
                   Inventories                                                           168,969                   (83,986)
                   Prepaid expenses                                                     (102,987)                   17,929
                   Other assets                                                          (15,157)                  (32,744)
                   Trade accounts payable and accrued expenses                          (128,470)                  110,144
                   Deposits and advances                                                  22,740                    (1,360)
                   Non cash charges and working capital changes
                     of discontinued operations                                          367,436                  (767,326)
                                                                                   --------------            --------------


                      Net cash provided by operating activities                          833,477                    73,535
                                                                                   --------------            --------------


Cash flows from investing activities:
      Capital expenditures                                                               (56,460)                 (298,064)
      Software development costs                                                         (38,774)                 (100,040)
      Cash investments                                                                     3,713                     2,467
      Gain (loss) on disposal of equipment                                               (29,480)
                                                                                   --------------            --------------


                     Net cash used in investing activities                              (121,001)                 (395,637)
                                                                                   --------------            --------------


Cash flows from financing activities:
      Net (payments) borrowings under line of credit agreement                          (458,244)                  146,594
      Financing activities of discontinued operations                                    (72,061)                  (43,766)
      Principal payment on long-term debt                                               (153,824)                  (71,665)
      Proceeds from issuance of common stock                                               2,700                   145,460
                                                                                    -------------            --------------


                     Net cash (used in) provided by financing activities                (681,429)                  176,623
                                                                                   --------------            --------------


Net increase (decrease) in cash and cash equivalents                                      31,047                  (145,479)

Cash and cash equivalents at beginning of year                                            28,075                   172,399
                                                                                   --------------            --------------


Cash and cash equivalents at end of quarter                                        $      59,122             $      26,920 
                                                                                   ==============            ==============      
Supplemental Disclosures of cash flow information
      Cash paid year to date for interest                                          $      73,361             $      70,725 

                                                                                   ==============            ==============
</TABLE>
                 
                 See accompanying notes to financial statements

                                        5
<PAGE>




                                TELS Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Interim Financial Statements

      The financial statements for the  three and six months ended September 30,
      1996 and 1995, are unaudited.  However, the Company, in  its  opinion, has
      made  all  adjustments  (consisting  only  of  normal  recurring accruals)
      necessary  to  present  fairly  the  financial  position  and  the results
      of operations for the periods presented. The financial statements for 1996
      are subject to adjustment at the end of the year when they will be audited
      by  independent  accountants.  The  financial statements and notes thereto
      should be read in conjunction with  the financial statements and notes for
      the years ended  December 31, 1995 and 1994 included in the Company's 1995
      Annual Report to the Securities and Exchange Commission on Form 10-K.

      The  results  for  the  nine  months  ended  September  30, 1996,  are not
      necessarily indicative  of  the  results  for the year ending December 31,
     1996.

2.    Earnings Per Share

      Earnings per common and  common equivalent share is computed  based on the
      weighted  average  number  of  shares  outstanding.   For purposes of this
      computation,  stock  options  and  warrants  are  treated  as common stock
      equivalents at issuance. Stock options and stock warrants are not included
      in  the  1996  calculation  because  they are anti-dilutive.  The weighted
      average number of outstanding common and common equivalent  shares used in
      this  computation  were  4,025,200  and  3,899,819  for the three and nine
      months ended September 30, 1996, and 4,106,300 and 4,110,300 for the three
      and nine months ended September 30, 1995.

3.    Consolidated Financial Statements

      For  the  periods  ended  September  30,  1996,  and  1995,  all  material
      intercompany   accounts   and   transactions  have   been   eliminated  in
      consolidation.  Inventories of continuing operations at September 30, 1996
      and December 31, 1995 consisted of the following:
                                                    1996                  1995  
          Finished goods                        $  40,363           $   129,355
          Work-in-process                         255,244               283,937
          Raw Materials and supplies              698,900               746,684
          Reserve for obsolete inventory          (63,432)              (59,932)
                                                $ 931,075           $ 1,100,044 

4.    Impact of Recently Adopted Accounting Standards

      Effective  January 1,  1996,  the  Company  adopted Statement of Financial
      Accounting  Standards  (SFAS)  No.  121,  "Accounting  for  the Impairment
      of Long-Lived Assets and for Long Lived Assets to be  Disposed of".   SFAS
      121  requires  that  long-lived assets and certain identifiable intangible
      assets  to  be  held  and  used by an entity be  reviewed  for  impairment
      whenever  events  or  changes in  circumstances indicate that the carrying
      amount of an asset may not be  recoverable.   Accordingly, the Company has
      reviewed its long-lived assets for the period ending September  30,  1996,
      and has determined that the impact of SFAS 121 is not material and that an
      adjustment is not required at this time.

      Effective  January  1,  1996,  the  Company adopted Statement of Financial
      Accounting  Standards   (SFAS   No.  123,   "Accounting   for  Stock-Based
      Compensation", and has elected to report the effects of SFAS 123 under the
      disclosure method.  SFAS 123 defines a fair value method of accounting for
      employee stock options and requires pro forma  net income and earnings per
      share  disclosure.  The  Company  has  applied  the  "Black Scholes Option
      Pricing  Model"  to  value  all  options  issued  in  1995  and  1996, and
      determined that the applicable amounts do not materially affect net income
      or earnings per share for the periods ended September 30, 1996 and 1995.

                                        6
<PAGE>

                                TELS Corporation

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

      The  following   Management  Discussion  and  Analysis   contains  certain
"forward-looking  statements"  within  the  meaning  of  the  Private Securities
Litigation Reform Act of 1995,  including, among others (i)results of operations
(including  expected  changes  in the Company's gross profit margin and general,
administrative  and selling expenses);  (ii) the Company's business strategy for
increasing sales; (iii) the Company's strategy to increase its size and customer
base;  and (iv) the Company's ability to distinguish itself from its current and
competitors.

      These  forward-looking  statements  are  based  largely  on  the Company's
current  expectations  and  are  subject to a number of risks and uncertainties.
Actual  results  could  differ materially from these forward-looking statements.
Important  factors  to  consider  in  evaluating such forward-looking statements
include  (i)  delays in the release of new products or new  versions of existing
products; (ii) the shortage of reliable market data regarding the telephone call
management  and  contract  manufacturing  industries  market;  (iii)  changes in
external  competitive  market  factors  or  in the  Company's internal budgeting
process which  might impact trends in the Company's results of operations;  (iv)
anticipated  working  capital  or  other  cash requirements;  (v) changes in the
Company's  business  strategy  or  an  inability  to execute its strategy due to
unanticipated  changes in the market:  and (vi) various competitive factors that
may prevent the Company from competing successfully in the marketplace. In light
of  these  risks  and  uncertainties,  there can be no assurance that the events
contemplated  by  the forward-looking  statements  contained herein will in fact
occur.

Continuing Operations

      Consolidated  net  sales  for  the  nine  months ended September 30, 1996,
decreased  by 12.6% to $5,203,651 when compared  to $5,956,047  of net sales for
the nine months of 1995.  Consolidated net sales of $1,671,874 decreased by 3.2%
when compared to the third quarter of 1995 sales of $1,728,319.  The decrease in
sales is due to a 33.2% decline in  shipments of the Company's telecommunication
products for the first nine months of 1996,  when compared to the same period of
1995 sales levels.   For  the  third quarter of 1996,  telecommunication produc
sales were at the same level as the third quarter of 1995.  The Company believes
that the decrease in sales is the result of an extraordinary  sales level in the
first and second quarters of 1995, that was caused by the changes created by the
North  American  Numbering  Plan  ("NANP")  which became effective in 1995.  The
decrease  in  sales of telecommunications products was offset somewhat by a 3.5%
increase in sales by the Company's contract manufacturing sector.

     Gross  profit  for  the  third  quarter of 1996,  decreased to  $735,127, a
reduction of $46,441  when  compared  to  gross profit for the second quarter of
1995 of $781,568. The gross profit margin as a percentage of sales was 43.9% for
the third quarter of 1996 compared to 45.2% for the second quarter of 1995.  The
reduction  in the  gross  profit  margin  as  a  percent  of sales is due to the
decreased  sales  of  telecommunications products which represented 37% of total
sales  in  1996,  compared  to 35% of total sales in 1995.   For the nine months
ending  September  30, 1996, the gross profit margin was 43.4% compared to 52.7%
in 1995.   As  this sales mix continues for the remainder of 1996,  the  company
expects the gross profit margin to remain  at  approximately  45% for the fourth
quarter of 1996.

      Research  and  development  expenditures  for  the  third quarter and nine
months of 1996,  were $14,458 and $81,810 respectively,  compared to $28,257 and
$169,938  for  the  same  periods  in 1995.   The total research and development
expense  for  the  nine  months ending  September 30,  1996 consisted of $26,251
in  current  expense  and   $55,559  of  amortization  expense   for  previously
capitalized  software  development  costs.   For the third quarter of 1996,  the
Company  continued  to  develop  the  INN-FORMR  Express  and  the  WIN-SENSETM,
telephone call accounting products.  These products are scheduled for release in
the  fourth  quarter  of  1996.   The  Company  is  continuing  its research and
development efforts on  products  which bring together technological advances in
the  telecommunications  industry  and  believes  that  it  will be necessary to
increase  its  level  of research and development in the fourth quarter of 1996,
and the first half of  1997,  to take advantage of technology changes which have
and are expected to develop.

      Selling,  general and administrative expenses were  $678,845 for the third
quarter  of  1996,  compared  to  $808,848  for the third quarter of 1995.  This
decrease  of  $130,003 or 16% in 1996,  is  mainly due to the expense reductions
implemented by  management of the Company as a result of lower sales activity in
the  first  nine  months  of  1996,  and  efforts  aimed  at improving operating
efficiencies.   As a percentage of net sales, administrative expenses were 40.6%
for the third quarter of 1996, and 46.8% for the third quarter of 1995.  For the
nine  months  ending  September  30,  1996,  selling, general and administrative
expenses were $2,225,124  compared to $2,574,814 for 1995.   Management believes
that  it  may be necessary to continue to reduce  administrative expenses in the
near  term  until  such time  that sales activities warrant any expansion and/or
growth.

                                        7
<PAGE>


                                TELS Corporation


Item 2.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations (continued)

      The  Company  reported  consolidated net income from continuing operations
for the third quarter of 1996 of $34,452. This is a significant improvement when
compared to the third quarter net loss from continuing operations of $58,420 for
1995.  The third quarter net income is an improvement in earnings over the first
half of 1996,  and  is  attributable to lower administrative expenses and to the
Company's  continuing  focus  on core strengths and technologies.   For the nine
months  ending  September  30,  1996,  the  Company  incurred  a  net  loss from
continuing  operations  of  $50,631  compared  to  net  income  from  continuing
operations of $343,492 for same period of 1995.


Discontinued Operations

      The  Company  discontinued  its  P.C. reseller businesses located in Texas
during  the  first  quarter  of  1996.   Accordingly,  the  Company  recorded an
estimated  liability  of  $292,000  at  December  31,  1995,  to account for the
estimated  losses  which  were  to occur on discontinuance.  For the nine months
ending  September  30,  1996,  the  Company  incurred  additional  expenses from
discontinuance of $22,860.



Liquidity and Capital Resources


      As  of  September  30,  1996,  the  Company  reported  current  assets  of
$2,766,374,  and  current  liabilities  o f $1,600,390, resulting in net working
capital  of $1,165,984.  This  is  an  increase  of $69,484 when compared to net
working capital of $1,096,500 at December 31, 1995.  Working capital contributed
by the disposition  of assets  from discontinued operations of $367,436 was used
to purchase equipment of $56,460 and for capitalized software  development costs
of $38,774.  The Company also used these funds and funds generated by operations
to reduce its  line  of  credit  by  $458,244,  and reduce its long term debt by
$153,824.   Cash provided from operations of $833,477 was primarily attributable
to reductions in accounts receivable of $184,787,  and  inventories of $168,969.
The  Company  discontinued  the  P.C.  reseller  operations  in  Texas  and  has
substantially completed this divestiture as of September 30, 1996. Management of
the company believes that  the current working capital level will meet it's cash
requirements  for  the  foreseeable  future,  but  anticipates  that  additional
financing  through  debt  and/or  equity  will  be needed to fund material sales
growth,  future acquisitions and final development and marketing of new products
under development and consideration.

The Company derives the majority of its sales from two distinct industries.  The
Company develops,  produces,  sells and services products used in telephone call
management.   The  Company  also  derives  significant  sales  from  a  contract
manufacturing and cable/wire harness service facility.  The Company expects that
sales in  the  telecommunications sector will increase somewhat over 1995 levels
for  the  fourth  quarter  of  1996,  due  to  economic  growth in the industry,
technological changes and product enhancements being introduced. The Company has
grown and expects to grow through acquisition  activity  and  the ability of the
Company to  continue  to  integrate the operations of acquisitions into existing
structures could have a material effect on the results of operations.






                                        8
<PAGE>


                                TELS Corporation


                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings.

          On  February 2,  1996,  Harold and Diane Neuenswander("Neuenswanders")
          filed a complaint in the Superior Court for the County of Santa Clara,
          California,  against  the  Company  and  several  of  its officers and
          directors in their individual and representative capacities,  and also
          against  Hash  Tech  a  wholly  owned  subsidiary of the Company.  The
          Neuenswanders  have alleged causes of action for recision of a certain
          "Asset Purchase Agreement"  dated  March 31,  1996,  civil conspiracy,
          fraud,  violation   of   California   securities   laws,   intentional
          interference with economic advantage, common law gender discrimination
          against  Diane  Neuenswander,   intentional  infliction  of  emotional
          distress, and breach of fiduciary duty.   The Company and its officers
          deny any  wrongdoing in regards to the above allegations  and  believe
          that  the  resolution  of  any  disputes  between  the Company and the
          Neuenswanders should be settled through arbitration in Salt Lake City,
          Utah,  as stipulated in both  the  Asset  Purchase Agreement,  and the
          "Employment  Agreements"  entered  into  in  March, 1994. On April 15,
          1996,  the  Company  filed  a complaint in the Third Judicial District
          Court  of  Salt Lake  City,  Utah,  against the Neuenswanders claiming
          breach of certain "Non-Compete Agreements" between the Company and the
          Neuenswanders and  breach of a  "Severance Agreement"  between  Harold
          Neuenswander and the Company.   In addition,  the  Company has filed a
          complaint with the American Arbitration Association,  which  is  being
          held pending the outcome of certain legal hearings.  On April 9, 1996,
          the Superior Court of Santa Clara,  California,  heard  and denied the
          Company's motion to compel arbitration.   In July,  1996,  the Company
          filed  an  appeal  to  reverse  this decision with the Sixth Appellate
          District in the Court of Appeal of the State of California.



Item 6.  Exhibits and Reports on Form 8-K.

          (b). Reports on Form 8-K:

               No  reports  on  Form  8-K  were  filed  for  the  quarter ending
               September 30, 1996.



                                        9
<PAGE>



                                TELS Corporation

                                   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.


                                                        TELS Corporation


Dated:  October 30, 1996                         By:  /s/ Stephen M. Nelson
                                                    ----------------------------

                                                    Stephen M. Nelson, President
 
 

Dated:  October 30, 1996                         By:  /s/ Deborah Walford
                                                    ----------------------------
                                                  
                                                    Deborah Walford, Controller
 
 






                                       10
<PAGE>












November 1, 1996



National Association of Securities Dealers, Inc.
Attn: NASDAQ Operations
1735 K Street NW
Washington, D. C. 20006

Gentlemen:

On behalf of TELS Corporation and in accordance with Section B.3.C of Part II of
Schedule D of the NASD By-laws, enclosed are three copies,  one manually signed,
of the Company's 10-Q for the quarter ended September 30, 1996, being filed with
the Securities and Exchange Commission.

Sincerely,



Stephen M. Nelson
President




Enclosures

SMN/mr