U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-Q SB

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

                     FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

                                        OR

                [   ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

                          FOR THE TRANSITION PERIOD FROM TO


                           Commission 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.)



705 East Main Street, American Fork, Utah                                  84003
-----------------------------------------                                  -----
(Address of principal executive offices)                              (Zip Code)

         Issuer's telephone number, including area code: (801) 756-9606



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Securities  Exchange  Act during the past 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 [ ]



The Issuer had outstanding 3,891,819 shares of common stock on August 1, 1999.

<PAGE>


                                     INDEX


PART I. FINANCIAL INFORMATION                                             Page


     Consolidated Balance Sheets -- June 30, 1999 (Unaudited)
          and December 31, 1998                                             3

     Consolidated Statements of Operations -- Six and Three Months
          Ended June 30, 1999 and 1998, respectively (Unaudited)            4

     Consolidated Statements of Cash Flows -- Six Months Ended
          June 30, 1999 and 1998, respectively (Unaudited)                  5

          Notes to Consolidated Financial Statements (Unaudited)           6,7

          Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                    8,9,10


PART II. OTHER INFORMATION


     Item 4. Submission of Matters to a Vote of Security Holders            11

     Item 6.  Exhibits and Reports on Form 8-K                              12


SIGNATURES                                                                  13




<PAGE>
<TABLE>
<CAPTION>


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

                          Consolidated Balance Sheets


                                                                                          June 30,     December 31,
                                                                                            1999           1998
                   Assets                                                               (Unaudited)      Audited
                   ------                                                               -----------      -------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Current Assets
         Cash and cash equivalents ...............................................   $    29,471    $    63,326
         Trade accounts receivable, less allowance for
             doubtful receivables of $ 91,293 and $111,279, respectively .........       788,345        608,802
         Employee and other receivables ..........................................        88,807         65,514
         Inventories .............................................................       565,242        446,416
         Prepaid expenses ........................................................       110,100        161,942
         Deferred income taxes ...................................................        56,950              -
                                                                                          ------

         Total current assets ....................................................   $ 1,638,915    $ 1,346,000
                                                                                     -----------    -----------

Property, plant and equipment, net ...............................................       556,581        627,085
Software development costs, net ..................................................       129,378        124,922
Intangible assets, net ...........................................................         2,309
                                                                                                         40,974
Other assets .....................................................................       219,776        208,495
                                                                                         -------        -------
                                                                                     $ 2,546,959    $ 2,347,476
                                                                                     ===========    ===========


                   Liabilities and Stockholders' Equity
                   ------------------------------------

Current Liabilities
         Trade accounts payable ..................................................   $   411,324    $   420,270
         Accrued expenses ........................................................       179,937        180,308
         Accrued vacation ........................................................       124,129        131,887
         Current portion of long-term debt .......................................       564,867        601,069
         Deposits and advances ...................................................       195,545        144,273
                                                                                         -------        -------

                  Total current liabilities ......................................     1,475,802      1,477,807
                                                                                       ---------      ---------

Long-term debt, excluding current installments ...................................       374,550        385,000
                                                                                         -------        -------

Stockholders' equity
         Common stock, $.02 par value.  Authorized 50,000,000 shares;
              issued and outstanding 3,891,819 ...................................        77,835         77,835
         Additional paid-in capital ..............................................     4,226,532      4,226,532
         Accumulated deficit .....................................................    (3,607,760)    (3,819,698)
                                                                                      ----------     ----------

                  Total stockholders' equity .....................................       696,607        484,669
                                                                                         -------        -------

                                                                                     $ 2,546,959    $ 2,347,476
                                                                                     ===========    ===========


</TABLE>











                See accompanying notes to financial statements.



<PAGE>
<TABLE>
<CAPTION>


                                TELS Corporation
                      Consolidated Statements of Operations
                                   (Unaudited)


                                                     Three months ended             Six months ended
                                                           June 30,                      June 30,
                                                           --------                      --------

                                                      1999        1998              1999         1998
                                                      ----        ----              ----         ----
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Net sales ..................................   $ 1,276,952    $ 1,313,640     $ 2,402,554    $ 2,755,155

Cost of goods sold .........................       471,422        678,223         856,450      1,289,513

         Gross profit ......................       805,530        635,417       1,546,104      1,465,642

Research and development expenses ..........        35,382         36,774          65,381         74,739

Selling, general and administrative expenses       675,890        809,975       1,288,748      1,551,038

         Operating income (loss) ...........        94,258       (211,332)        191,975       (160,135)

Other income (expenses):
         Interest income ...................         2,338          5,460           5,714         10,544
         Interest expense ..................       (29,533)       (24,959)        (56,486)       (52,533)
         Other .............................        17,000         13,078          17,000         15,593

         Other expense, net ................       (10,195)        (6,421)        (33,772)       (26,396)

         Income (loss) before income
         tax (benefit) provision  ..........        84,063       (217,753)        158,203       (186,531)

Income tax (benefit), provision ............       (24,783)       (67,250)        (53,733)       (55,661)

         Net income (loss) .................   $   108,846    $  (150,503)    $   211,936    $  (130,870)





Basic and diluted net income (loss)
per common and common equivalent share .....   $       .03    $      (.04)    $       .05    $      (.03)



</TABLE>






                See accompanying notes to financial statements.

<PAGE>
<TABLE>
<CAPTION>




                                TELS Corporation
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                                                               Six months ended
                                                                                   June 30,
                                                                                   --------


                                                                              1999         1998
                                                                              ----         ----
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from operating activities:
      Net income (loss) ................................................   $ 211,936    $(130,870)
      Adjustments to reconcile net income  (loss)
          to net cash provided by operating activities:
              Depreciation of plant and equipment ......................      95,458       87,137
              Amortization of other assets .............................      38,186       50,132
              Amortization of software development costs ...............      48,421       73,700
              Deferred income taxes ....................................     (56,950)     (69,248)
Deferred compensation ..................................................        --         10,175
              Changes in operating assets and liabilities:
                   Receivables .........................................    (202,837)      39,488
                   Inventories .........................................    (118,826)      92,552
                   Prepaid expenses ....................................      51,842      (22,586)
                   Other assets ........................................     (10,802)     (35,178)
                   Trade accounts payable and accrued expenses .........     (17,073)       1,714
                   Deposits and advances ...............................      51,272       16,058
                                                                              ------       ------

                      Net cash provided by operating activities ........      90,627      113,074
                                                                              ------      -------

Cash flows from investing activities:
      Capital expenditures .............................................     (24,953)     (48,777)
      Software development costs and other .............................     (52,879)    (112,750)
      Cash investments .................................................        --        (36,066)
                                                                                          -------

                     Net cash used in investing activities .............     (77,832)    (197,593)
                                                                             -------     --------

Cash flows from financing activities:
      Net borrowings (payments) under line of credit agreement .........     (21,200)     (86,027)
      Principal borrowings (payments) on long-term debt ................     (25,450)     224,628
                                                                             -------      -------


                     Net cash provided by (used in) financing activities     (46,650)     138,601
                                                                             -------      -------

Net increase (decrease) in cash and cash equivalents ...................     (33,855)      54,082

Cash and cash equivalents at beginning of year .........................      63,326       13,845
                                                                              ------       ------

Cash and cash equivalents at end of quarter ............................   $  29,471    $  67,927
                                                                           =========    =========

</TABLE>







                 See accompanying notes to financial statements.



<PAGE>

                                TELS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Interim Financial Statements

     The  financial  statements  for the six months ended June 30, 1999 and 1998
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,  results  of  operations  and cash  flows  for the  periods
presented.  The  financial  statements  and  notes  thereto  should  be  read in
conjunction with the financial statements and notes for the years ended December
31, 1998 and 1997 included in the Company's 1998 Annual Report to the Securities
and Exchange  Commission  on Form  10-KSB.  The results for the six months ended
June 30, 1999, are not necessarily indicative of the results for the year ending
December 31, 1999.

2.    Earnings Per Share

     Basic earnings per share excludes  dilution and is computed by dividing net
earnings  available to common  stockholders  by the weighted  average  number of
common shares  outstanding for the period.  Diluted  earnings per share reflects
the  potential  dilution that could occur if options or warrants to issue common
stock were  exercised  into common  stock.  Stock  options and  warrants are not
included in the 1999 or 1998 calculations  because they are  anti-dilutive.  The
weighted average number of outstanding  common and common equivalent shares used
in this  computation  were 3,891,819 for the three and six months ended June 30,
1999 and 1998.

3.    Inventories

     Inventories  at June 30, 1999,  and  December  31,  1998,  consisted of the
following:

                                                         1999            1998
                                                         ----            ----
     Finished goods                                 $   67,241        $  64,962
     Work-in-process                                   143,553           69,045
     Raw material and supplies                         565,409          573,369
     Reserve for obsolete inventory                   (210,961)        (260,960)
                                                      --------         --------
                                                    $  565,242        $ 446,416
                                                    ==========        =========










                                   -Continued-



<PAGE>

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


4.     Activity of Business Segments

     In 1998 the Company adopted Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information,  (SFAS
No.  131),  which  governs  disclosures  relating  to  a  business  enterprises'
operating statements.  The accounting policies of the Company's segments are the
same as those described in the "Summary of Significant Accounting Policies." The
Company's  reportable segments are strategic business units that offer different
products  and  services.  They are  managed  separately  because  each  business
requires different technology and marketing strategies. Substantially all of the
Company's  continuing   operations  are  in   telecommunications   and  contract
manufacturing  and  assembly.  Total revenue by industry  segment  includes both
sales to  unaffiliated  customers,  as  reported in the  Company's  consolidated
statements of operations,  and intersegment sales, which are accounted for based
on the estimated fair market value of the products.  Intersegment  sales are not
material.

     Operating  income  (loss) is total  revenue  less  operating  expenses.  In
computing  operating income (loss),  the effects of general corporate  expenses,
interest expense and income taxes are not included.

     Identifiable  assets by segment  are those  that are used in the  Company's
operations in each business segment. One customer in the contract  manufacturing
and assembly  segment,  accounted for approximately 7% of the Company's sales in
the six months ending June 30, 1999. The same customer  accounted for 19% of the
sales for the same period of 1998.  Identifiable assets are principally accounts
receivable,  inventory, property and equipment, capitalized software development
costs and other assets.

     Financial information by segments is as follows:
<TABLE>
<CAPTION>


                                                            1999           1998
                                                            ----           ----
<S>     <C>    <C>    <C>    <C>    <C>    <C>

         Net sales:
           Telecommunications ....................   $ 1,622,805    $ 1,265,679
           Contract manufacturing and assembly ...       779,749      1,489,476
           Corporate and other ...................          --             --
                                                     $ 2,402,554    $ 2,755,155
                                                     ===========    ===========
         Operating income (loss):
           Telecommunications ....................   $   243,152    $    22,285
           Contract manufacturing and assembly           (76,005)      (133,845)
           Corporate and other ...................        24,828        (48,575)
                                                          ------         ------
                                                     $   191,975    $  (160,135)
                                                     ===========    ===========

         Identifiable assets:
           Telecommunications ....................   $   844,446    $   962,574
           Contract manufacturing and assembly ...       736,452        902,995
           Corporate and other ...................       966,061      2,128,347
                                                         -------      ---------
                                                     $ 2,546,959    $ 3,993,916
                                                     ===========    ===========
         Depreciation and amortization expense:
           Telecommunications ....................   $    58,333    $    90,352
           Contract manufacturing and assembly ...        74,040         87,453
           Corporate and other ...................        49,692         33,164
                                                          ------         ------
                                                     $   182,065    $   210,969
                                                     ===========    ===========
           Interest expense:
           Telecommunications ....................   $    23,079    $    13,988
           Contract manufacturing and assembly ...        14,086         24,160
           Corporate and other ...................        19,321         14,385
                                                          ------         ------
                                                     $    56,486    $    52,533
                                                     ===========    ===========


</TABLE>

<PAGE>

                                TELS CORPORATION
                                ----------------


           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; (iv) the Company's ability to successfully  increase its size
through   acquisition/merger   activity;   and  (v)  the  Company's  ability  to
distinguish itself from its current and future 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.

     The Company's sales of telephone call accounting  systems have continued to
improve in the second  quarter of 1999,  increasing  approximately  34% over the
second quarter of 1998,  and  management  believes that this trend will continue
for the  foreseeable  future.  Efforts to improve  sales  coupled  with  expense
reductions  in the  manufacturing  division  are  expected  to help  improve the
Company's operating results throughout 1999.

     Results of  operations  for the six months ended June 30, 1999, compared to
June 30, 1998

     Consolidated  net sales for the six months ended June 30,  1999,  decreased
$352,601,  or 13%, to  $2,402,554,  when compared to $2,755,155 of net sales for
the six months ended June 30, 1998. A  significant  portion of this  decrease is
attributable to the decline in revenues in the contract  manufacturing  division
where the Company was reliant on revenue from one customer  which  substantially
reduced  its  orders  with  the  Company.  Sales in the  manufacturing  division
decreased  48% to $779,749 for the six months  ended June 30, 1999,  compared to
$1,489,476 for the period June 30, 1998. The decrease in contract  manufacturing
sales was mostly offset by increased sales of telephone call accounting products
where sales increased by $357,126 or 28% to $1,622,805 for the period ended June
30, 1999, compared to $1,265,679 for the period ended June 30, 1998.

     The gross profit increased 5% to $1,546,104,  when compared to gross profit
for the six months ended June 30, 1998, of  $1,465,642.  The gross profit margin
as a  percentage  of sales  increased  to 64% for the six months  ended June 30,
1999,  compared  to 53% for the  same  period  of  1998.  The  margin  increased
primarily  as a result of the sales  mix.  The  telecommunication  sector  sales
represented 71% of total sales in 1999,  compared to 46% of total sales in 1998.
The telecommunication  product sales traditionally have a higher margin than the
manufacturing sales.

     For the six months ended June 30,  1999,  total  research  and  development
costs including  amortization of previously capitalized research and development
expenses  were  $101,300  compared  to  $186,450  for the same  period  in 1998.
Management  of the Company  believes  that it will be  necessary to increase its
level of research and  development in 1999 to keep its current  product lines up
to date and to take advantage of technology changes which the Company expects to
develop.


<PAGE>

     Selling,  general and administrative  ("SG&A") expenses  decreased $262,290
or 17%, for the six months ended June 30, 1999, when compared to the same period
of 1998. As a percentage of net sales, SG&A expenses were 54% for 1999, compared
to 56% for the same period of 1998.

     The Company reported  consolidated net income of $108,846 or $.03 per share
for the second  quarter and  $211,936 or $.05 per share for the six months ended
June 30, 1999, compared to a net loss of $150,503 or $.04 per share and $130,870
or $.03 per  share  for the same  period  of 1998.  This  improvement  is due to
increased  sales in its core business of telephone  call  accounting,  where the
gross  profit  margin is higher  than in the  contract  manufacturing  division.
Management  continues to reduce  operating  expenses to be in line with revenues
and expects earnings to remain positive throughout 1999.

Liquidity and Capital Resources

     As of June 30, 1999, the Company  reported current assets of $1,638,915 and
current liabilities of $1,475,802, resulting in net working capital of $163,113.
This is a  significant  increase  of  $294,920  when  compared  to a net working
capital  deficit of $131,807 at  December  31,  1998.  The  Company's  operating
activities  provided  $90,627  of cash  during  the  first  six  months of 1999,
compared to $113,074 of cash provided  during the first six months of 1998. Cash
provided by operating  activities was used to purchase equipment of $24,953, and
capitalized  software  development  costs of $52,879.  In 1999, the Company paid
down its line of credit by $21,201 and long-term debt by $25,450.  The first six
months has shown marked improvement in cash flows due to increased sales of call
accounting  products.  However,  the Company's working capital has been severely
impacted  by  reductions  in sales  from its  major  customers  in the  contract
manufacturing  division.  The Company's line of credit matured on July 12, 1999,
and has been renewed until  September 11, 1999. If the Company is unable to find
replacement  financing,  there is no  assurance  that the Company may be able to
repay the line of credit.  The Company continues to be delinquent in payments to
its trade creditors,  particularly in the contract  manufacturing division where
certain  vendors  have  placed the Company on COD basis.  This could  affect the
Company's  ability to meet its customers needs on future orders.  The Company is
continuing its efforts to find additional  financing  through bank financing and
investment  equity  which may be needed to fund  future  acquisitions  and final
development and marketing of new products under consideration.

<PAGE>


Year 2000 (Y2K) Computer Systems Compliance

     Many  older  computer  software  programs  refer to years in terms of their
final two digits only.  Such  programs may  interpret  the year 2000 to mean the
year 1900 instead.  If not corrected,  those  programs could cause  date-related
transaction  failures.  The Company is  continuing  its efforts to address  this
concern.  A project team has  performed  assessments  of all  internal  computer
systems and is developing and  implementing  plans to correct the problems.  The
Company expect these projects to be successfully  completed during the third and
fourth  quarters of 1999.  External and internal costs  specifically  associated
with  modifying  internal  use  software  for Y2K  compliance  are  expensed  as
incurred.  To date, the Company has spent approximately $35,000 on this project.
Remaining  costs to be incurred in 1999 to fix Y2K  problems  are  estimated  at
approximately  $50,000.  The Company  does not expect the costs  relating to Y2K
remediation  to have a material  effect on results of  operations  or  financial
condition.  The Company has  evaluated  its  existing  accounting  software  for
compliance  with  Y2K  and  has  determined  that  an  upgrade  to the  existing
accounting system will be required. This upgrade has been purchased and has been
installed.

     TELS  Corporation's   Proprietary  Call  Accounting  Products  (INN-FORMXL,
INN-FORMPlus,  INN-FORMExpress  and TEL-SENSE) are Y2K compliant.  The hardware,
operating  system and software are all unconcerned  with the year portion of the
date in that they do not store the year nor  perform any  computations  based on
year. The Company's PC-based products (TEL-SENSEPCS, WIN-SENSE and INN-SURE) are
also  Y2K  compliant  for the same  reasons  as  given  above:  they do not base
computations on the year. However, the PC that they may be running on may or may
not be compliant.  PCs are composed of various components (CPU, real time clock,
BIOS,  etc.) some of which may use dates as part of their basic  functioning and
may be vulnerable to the Y2K problem.

     Y2K  problems   could  affect   research   and   development,   production,
distribution,  financial,  administrative and communication operations.  Systems
critical to TELS  Corporation's  business which have been  identified as non-Y2K
compliant   are  either  being   replaced  or  corrected   through   programming
modifications.  In addition to in-house efforts, the Company intends to continue
asking vendors, major customers, service suppliers, communications providers and
banks whose systems  failures  potentially  could have a  significant  impact on
operations to verify their Y2K readiness and test such systems where appropriate
and possible.

     As part of TELS  Corporation's  contingency plan, the Company is developing
plans for those areas that are  critical to TELS'  business  such as  scheduling
and/or  purchase of critical  inventory  parts,  developing  relationships  with
multiple vendor sources,  implementing additional backup procedures and printing
and storing critical documentation.  Based on current plans and efforts to date,
TELS Corporation  anticipates  that  contingency  plans will be completed in the
third quarter of 1999 and that any Y2K issues will not have a material effect on
TELS Corporation's results of operations or financial condition.

     The above  expectations are subject to uncertainties.  For example,  if the
Company is affected by the inability of suppliers or major customers to continue
operations due to Y2K issues,  the results of operations or financial  condition
could be materially impacted.

     The total costs that TELS  Corporation  will incur in  connection  with the
Year 2000 problems will be influenced by the Company's  ability to  successfully
identify Year 2000 systems' flaws, the nature and amount of programming required
to fix the affected problems, the related labor and/or consulting costs for such
remediation,  and the ability of third  parties with whom TELS  Corporation  has
business  relationships  to  successfully  address their own Year 2000 concerns.
These and other unforeseen  factors could have a material adverse effect on TELS
Corporation's results of operations or financial condition.



<PAGE>


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



                           PART II. OTHER INFORMATION


Item 4.  Submission of Matters to a Vote of Security Holders

     The annual meeting of shareholders  was held on June 7, 1999, at which time
Dr. John L. Gunter was re-elected to serve as a director.  Dr. Gunter will serve
a three-year term expiring in 2002.  Affirmative  votes cast for Dr. Gunter were
2,968,620, with 113,091 votes withheld or abstained, and zero votes against.













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<PAGE>


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



Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibit 27 - Article 5 Financial  Data Schedule for the quarter  ending
         June 30, 1999.

     (b) Reports on Form 8-K:

         No reports on form 8-K were filed in the second quarter of 1999.











                      (THIS SPACE INTENTIONALLY LEFT BLANK)

<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:  August 23, 1999                                 By:  /s/ John L. Gunter
        ---------------                                      ------------------
                                                                 John L. Gunter
                                                               Chairman and CEO



Dated:  August 23, 1999                                By:  /s/ Ronald A.Haller
        ---------------                                     -------------------
                                                               Ronald A. Haller
                                                                     Controller