UNITED STATES
                       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, 1997

                                       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.)



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



Check  whether  the  registrant  (1) filed all  reports  required to be filed by
Section 13 or 15 (d) of the  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 Registrant had issued and  outstanding  3,891,774  shares of common stock on
August 1, 1997.



<PAGE>


                                TELS Corporation


                                     INDEX


PART I. FINANCIAL INFORMATION                                           Page

Consolidated Balance Sheets -- June 30, 1997 and December 31, 1996       3

Consolidated Statements of Operations -- Six and Three Months            4
     Ended June 30, 1997 and 1996, respectively

Consolidated Statements of Cash Flows -- Six Months Ended                5
     June 30, 1997 and 1996, respectively

Notes to Consolidated Financial Statements                               6

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


PART 11. OTHER INFORMATION

Item 1.  Legal Proceedings                                               9

Item 4.  Submission of Matters to a Vote of Security Holders             9

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


SIGNATURES                                                               10



<PAGE>

<TABLE>
<CAPTION>

                                TELS Corporation

                           Consolidated Balance Sheets



                                                                                     June 30,       December 31,
                                                                                       1997            1996
                    Assets                                                          (Unaudited)      Audited
                    ------                                                          -----------    -----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                    
Current Assets
         Cash and cash equivalents .............................................   $    87,114    $    31,980
         Cash investments ......................................................        63,614         62,399
         Trade accounts receivable, less allowance for
              doubtful receivables of $ 116,633 and $ 127,852 respectively .....       764,203        736,771
         Employee and other receivables ........................................       110,499        117,692
         Inventories ...........................................................       718,049        750,427
         Prepaid expenses ......................................................       143,082        158,367
         Deferred income taxes .................................................       195,368        195,368
                                                                                   -----------    -----------

                  Total current assets .........................................     2,081,929      2,053,004
                                                                                   -----------    -----------

         Property, plant and equipment, net ....................................       797,449        894,705
         Software development costs, net .......................................       171,891        146,142
         Intangible assets, net ................................................       159,330        199,144
         Deferred income taxes .................................................       696,108        657,709
         Other assets ..........................................................       181,092        161,673
                                                                                   -----------    -----------
                                                                                   $ 4,087,799    $ 4,112,377
                                                                                   ===========    ===========


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

Current Liabilities
         Current portion of long-term debt .....................................       706,666        624,276
         Trade accounts payable ................................................       372,962        401,433
         Accrued expenses ......................................................       296,799        308,233
         Accrued vacation ......................................................       102,126         92,716
         Deposits and advances .................................................       109,822        118,679
                                                                                   -----------    -----------

                  Total current liabilities ....................................     1,588,375      1,545,337
                                                                                   -----------    -----------

Long-term debt, excluding current installments .................................       210,200        235,739
                                                                                   -----------    -----------

Stockholders' equity
         Common stock, $.02 par value.  Authorized 10,000,000 shares;
              issued and outstanding 3,891,774 and 3,891,774 respectively.......        77,835         77,835
         Additional paid-in capital ............................................     4,226,532      4,226,532
         Accumulated deficit ...................................................    (1,984,718)    (1,922,391)
         Deferred compensation .................................................       (30,425)       (50,675)
                                                                                    -----------    -----------

                  Net stockholders' equity .....................................     2,289,224      2,331,301
                                                                                    -----------    -----------


                                                                                   $ 4,087,799    $ 4,112,377
                                                                                   ===========    ===========
</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,

                                                                 1997          1996       1997         1996
                                                                 -----        -----       -----        ----
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Net sales ................................................   $ 1,628,804   $ 1,692,771 $ 2,997,403  $ 3,531,777

Cost of goods sold .......................................       826,594       852,605   1,563,135    2,010,468
                                                             -----------   ----------- -----------  ----------- 

         Gross Profit ....................................      802,210        840,166   1,434,268    1,521,309

Research and development expenses ........................       44,040         23,246      70,444       67,352

Selling, general and administrative expenses .............      717,164        820,112   1,422,883    1,546,278
                                                            -----------    -----------  ----------- -----------

         Operating income (loss) .........................       41,006         (3,192)    (59,059)     (92,321)

Other income (expenses):
         Interest income .................................        3,564          2,549       4,720        5,850
         Interest expense ................................      (21,982)       (26,294)    (49,484)     (46,553)
         Other ...........................................        2,617         (1,355)      6,097        5,083
                                                                                                                         

         Net Other .......................................      (15,801)       (25,100)    (38,667)     (35,620)
                                                             -----------    -----------  ----------  -----------  

         Income (loss) from  operations before
         income tax benefit (provision) ..................       25,205        (28,292)    (97,726)     (127,941)

Income tax benefit, (provision) ..........................       (4,101)        (6,922)     35,399        25,052
                                                             -----------    -----------   ---------  ------------

         Net income (loss) ............................... $     21,104    $   (35,214)  $ (62,327)  $  (102,889)
                                                            ============     ===========   =========  ============ 
                                                                                                                         





Net income (loss) per common and common equivalent share.. $        .01    $      (.01)  $     (.02) $      (.03)
                                                           ============     ===========   ==========  =========== 
                                                                                                                         

</TABLE>








                                  See accompanying notes to financial statements



<PAGE>
<TABLE>
<CAPTION>


                                                 TELS Corporation

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

                                                                                1997         1996
                                                                            -----------  ------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from operating activities:
      Net income (loss) .................................................   $ (62,327)   $(102,889)
      Adjustments to reconcile net income (loss)
          to net cash provided by operating activities:
              Depreciation of plant and equipment .......................     120,452      156,697
              Amortization of other assets ..............................      39,812       81,510
              Amortization of software development costs ................      53,101       44,726
              Deferred income taxes .....................................     (38,399)      50,974
              Deferred compensation .....................................      20,250       30,250
              Changes in operating assets and liabilities:
                   Receivables ..........................................     (20,239)     297,604
                   Inventories ..........................................      32,378      163,252
                   Prepaid expenses .....................................      15,285      (45,650)
                   Other assets .........................................     (19,418)      31,379
                   Trade accounts payable and accrued expenses ..........     (30,495)    (201,236)
                   Deposits and advances ................................      (8,857)     (94,400)
                   Non cash charges and working capital changes
                     of discontinued operations .........................                  420,599
                                                                             ---------   ---------    
                      Net cash provided by operating activities .........     101,543      832,816
                                                                             ---------   ---------

Cash flows from investing activities:
      Capital expenditures ..............................................     (23,196)     (76,029)
      Software development costs ........................................     (78,850)     (27,606)
      Cash investments ..................................................      (1,215)       2,880

                     Net cash (used in) investing activities ............    (103,261)    (130,235)
                                                                             ---------   ---------

Cash flows from financing activities:
      Net (payments) borrowings under line of credit agreement ..........     116,416     (336,646)
      Financing activities of discontinued operations ...................                 (159,738)
      Principal payment on long-term debt ...............................     (59,564)    (134,772)
                                                                             ---------   ---------


                     Net cash (used in) provided by  financing activities      56,852     (631,156)
                                                                             ---------   ---------

Net increase in cash and cash equivalents ...............................      55,134       71,425

Cash and cash equivalents at beginning of year ..........................      31,980       28,075

Cash and cash equivalents at end of quarter .............................   $  87,114    $  99,500
                                                                            =========    =========
</TABLE>









                                  See accompanying notes to financial statements


<PAGE>


                                TELS Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Interim Financial Statements

      The financial  statements for the three and six months ended June 30, 1997
      and 1996, 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 1997 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, 1996 and 1995 included in the Company's 1996 Annual Report to
      the Securities and Exchange Commission on Form 10-K.

      The results for the six months  ended June 30, 1997,  are not  necessarily
      indicative of the results for the year ending December 31, 1997.

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  1997 or 1996  calculations  because  they are  anti-dilutive.  The
      weighted average number of outstanding common and common equivalent shares
      used in this computation were 3,891,774 for the three and six months ended
      June 30, 1997,  and  3,892,274 for the three and six months ended June 30,
      1996.

3.    Consolidated Financial Statements

      For the periods ended June 30, 1997, and 1996,  all material  intercompany
      accounts and transactions have been eliminated in consolidation.

      Inventories  at June 30,  1997 and  December  31,  1996  consisted  of the
      following:

                                                 1997              1996
                                               --------         --------
          Finished goods                     $   48,502       $   52,795
          Work-in-process                       145,310          235,483
          Raw Materials and supplies            646,101          584,013
          Reserve for obsolete inventory       (121,864)        (121,864)
                                               --------         --------
                                             $  718,049       $  750,427

 4.   Impact of Recently Adopted Accounting Standards

      In March, 1997, the Financial  Accounting Standards Board issued Statement
      of  Financial  Accounting  Standards  No. 128,  Earnings  Per Share.  This
      statement  establishes standards for computing and presenting earnings per
      share ("EPS") and applies to entities with  publicly-held  common stock or
      potential  common  stock.  This  statement  simplifies  the  standards for
      computing EPS and makes them  comparable to  international  EPS standards.
      This statement is effective for financial  statements for both interim and
      annual  periods  ending after  December 15, 1997. The company is currently
      evaluating the impact of the recently issued  statement and will adopt the
      requirements for the year ending December 31, 1997.

     The Company has reviewed all other  recently  issued,  but not yet adopted,
     accounting  standards in order to determine  their effects,  if any, on the
     results of operations or financial  position of the Company.  Based on that
     review, the Company believes that none of these  pronouncements will have a
     significant effect on current or future earnings or operations.
<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.

          RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
                            COMPARED TO JUNE 30, 1996

         Consolidated  net  sales  for the  six  months  ended  June  30,  1997,
decreased by 15% to $2,997,403  when compared to $3,531,777 of net sales for the
six months of 1996.  Consolidated  net sales of $1,628,804  decreased by 4% when
compared  to the second  quarter of 1996 sales of  $1,692,771.  The  decrease in
sales is due primarily to a decline in revenue from the  manufacturing  division
where sales  decreased  27% for the first half of 1997,  when  compared with the
same period of 1996.  This decrease in sales in the  manufacturing  division was
offset  somewhat  by an  increase  in sales  in the  telephone  call  accounting
division  where sales  increased by 15% for the six months ending June 30, 1997,
when  compared  to the same period in 1996.  This  increase  in  telephone  call
accounting sales is due to new products released in early 1997,  increased sales
from the Company's dealer distribution channel, and through national accounts.

         Gross profit for the second quarter of 1997,  decreased to $802,210,  a
reduction  of $37,956 when  compared to gross  profit for the second  quarter of
1996 of $840,166.  The gross profit  margin as a percentage of sales was 49% for
the second quarter of 1997,  compared to 50% for the second quarter of 1996. The
gross profit  margin for the first half of 1997 improved to 48% when compared to
43% for the first half of 1996.  This change is due to increased sales levels of
telephone call accounting products and reductions in manufacturing costs at HTI.
For the first half of 1997,  the Company's  sales of telephone  call  accounting
products  increased  from 31% of total  sales in 1996,  to 42% of total sales in
1997. The telephone call  accounting  products have  traditionally  had a higher
gross profit margin than products and service sales in the manufacturing sector.

         Total  research and  development  expenses  including  amortization  of
previously  capitalized  development costs for the second quarter and six months
of 1997 were $44,040 and $70,444  respectively,  compared to $23,246 and $67,352
for the same  periods  in 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 1997 to take  advantage of
technology changes which are expected to develop.


<PAGE>


                                TELS Corporation

         Selling,  general and  administrative  expenses  were  $717,164 for the
second  quarter of 1997,  compared to $820,112  for the second  quarter of 1996.
This decrease of $102,948,  or 13%, in 1997, is mainly due to continuing expense
reductions  implemented  by  management  of the Company.  As a percentage of net
sales,  administrative expenses were 44% for the second quarter of 1997, and 48%
for the  second  quarter  of 1996.  For the six  months  ending  June 30,  1997,
selling,  general  and  administrative  expenses  were  $1,422,883  compared  to
$1,546,278 for 1996. The reductions in administrative expenses in the six months
ending  June 30,  1997,  were  offset  somewhat by  increased  selling  expenses
incurred to introduce the  WIN-SENSETM  and  INN-FORMR  Express  telephone  call
accounting  products begun in late 1996 and continuing into 1997.  Management of
the Company is continuing  its efforts to reduce  administrative  expenses until
such time that increased sales revenues warrant any expansion and/or growth.

         The Company  reported  consolidated  net income from operations for the
second  quarter  of 1997 of  $21,104.  This is a  significant  improvement  when
compared to the second  quarter net loss of $35,214 for 1996. For the six months
ending June 30, 1997, the Company  incurred a net loss of $62,327  compared to a
net loss of $102,889 for the same period of 1996.  This favorable  change in net
loss can be  attributed  to the  increased  sales  levels of  telecommunications
products and lower manufacturing and administrative expenses.

                         LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 1997, the Company reported current assets of $2,081,929,
and current  liabilities  of  $1,588,375,  resulting  in net working  capital of
$493,554.  This is a decrease of $14,113 when compared to net working capital of
$507,667 at December  31,  1996.  Working  capital  provided  by  operating  and
financing  activities was used to purchase equipment of $23,196, for capitalized
software  development  costs of  $78,850,  and to  reduce  accounts  payable  of
$30,495.  The  Company  increased  its  borrowing  under  its line of  credit by
$116,416, and reduced long term debt by $59,564. The Company was able to replace
its line of credit  facility  by  entering  into a new  inventory  and  accounts
receivable  financing agreement with a new lender on July 1, 1997. The agreement
is for twenty four months,  with  interest at prime plus 3%.  Management  of the
Company anticipates that additional financing through debt and/or equity will be
needed  to  fund  sales  growth,  operations,  future  acquisitions,  and  final
development and marketing of new products under consideration.





<PAGE>


                                TELS Corporation


                           PART II. OTHER INFORMATION



Item 1.  Legal Proceedings

         See items  previously  reported on Form 10-QSB for the quarterly period
         ended March 31, 1997.

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

          The annual meeting of  shareholders  was held on June 2, 1997 at which
          time Willard H. Gardner,  Stephen M. Nelson and  Ming-Tzong  Chen were
          re-elected  to serve as directors.  Mr.  Gardner and   Mr. Nelson will
          serve  three year terms  expiring  in 2000,  Mr. Chen will serve a one
          year term  expiring in 1998.  Affirmative  votes cast for Mr.  Gardner
          were 3,152,948,  with 179,620 votes withheld or abstained, and 0 votes
          against.  The  affirmative  votes  represented 95% of the total shares
          voted.  Affirmative  votes cast for Mr.  Nelson were  3,157,848,  with
          174,720  votes  withheld  or  abstained,  and  0  votes  against.  The
          affirmative   votes   represented  95%  of  the  total  shares  voted.
          Affirmative votes cast for Mr. Chen were 3,148,348, with 184,220 votes
          withheld or abstained,  and 0 votes  against.  The  affirmative  votes
          represented 94% of the total shares voted.

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 June 30, 1997


<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 14, 1997                       By:  /s/ Stephen M. Nelson
                                              ---------------------------

                                              Stephen M. Nelson, President



Dated:  August 14, 1997                       By:  /s/ Melody Rasmussen
                                              ---------------------------

                                              Melody Rasmussen, Controller