1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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  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  3,891,819  shares of common stock on
October 31, 1999.


<PAGE>

                                     INDEX


PART I. FINANCIAL INFORMATION                                            Page


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

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

     Consolidated Statements of Cash Flows -- Nine Months Ended
          September 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 11. OTHER INFORMATION


          Item 6.  Exhibits and Reports on Form 8-K                       11


SIGNATURES                                                                12



<PAGE>
<TABLE>
<CAPTION>
                                TELS Corporation
                                ----------------
                           Consolidated Balance Sheets


                                                                                   September 30,   December 31,
                                                                                       1999            1998
                   Assets                                                          (Unaudited)       Audited
                   ------                                                          -----------       -------

<S>     <C>    <C>    <C>    <C>    <C>    <C>

Current Assets
         Cash and cash equivalents ............................................   $   (35,525)   $    63,326
         Trade accounts receivable, less allowance for
             doubtful receivables of $ 97,364 and $81,586, respectively .......       658,172        608,802
         Employee and other receivables .......................................        71,248         65,514
         Inventories ..........................................................       453,021        446,416
         Prepaid expenses .....................................................       137,249        161,942
         Deferred income taxes ................................................        37,000              -
                                                                                       ------

         Total current assets .................................................   $ 1,321,165    $ 1,346,000
                                                                                  -----------    -----------

Property, plant and equipment, net ............................................       522,604        627,085
Software development costs, net ...............................................       116,644        124,922
Intangible assets, net ........................................................        12,723         40,974
Other assets ..................................................................       232,801        208,495
                                                                                      -------        -------

                                                                                  $ 2,205,936    $ 2,347,476
                                                                                  ===========    ===========


                 Liabilities and Stockholders' Equity


Current Liabilities
         Trade accounts payable ...............................................   $   348,398    $   420,270
         Accrued expenses .....................................................        87,431        180,308
         Accrued vacation .....................................................       102,086        131,887
         Current portion of long-term debt ....................................       617,355        601,069
         Deposits and advances ................................................       205,792        144,273
                                                                                      -------        -------

                  Total current liabilities ...................................     1,361,062      1,477,807
                                                                                    ---------      ---------

Long-term debt, excluding current installments ................................       359,467        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 ..................................................    (3,818,962)    (3,819,698)
                                                                                   ----------     ----------

                  Total stockholders' equity ..................................       485,406        484,669
                                                                                      -------        -------

                                                                                  $ 2,205,936    $ 2,347,476
                                                                                  ===========    ===========




</TABLE>









                 See accompanying notes to financial statements.

<PAGE>

<TABLE>
<CAPTION>
                                TELS Corporation

                      Consolidated Statements of Operations
                                   (Unaudited)


                                                                         Three months ended           Nine months ended
                                                                            September 30,               September 30,
                                                                          1999         1998           1999         1998
<S>     <C>    <C>    <C>    <C>    <C>    <C>


Net sales .......................................................  $  1,100,787  $  1,010,029    $ 3,503,341   $ 3,765,184

Cost of goods sold ..............................................       472,458       638,851      1,328,908     1,928,364
                                                                        -------       -------      ---------     ---------

         Gross profit ...........................................       628,329       371,178      2,174,433     1,836,820

Research and development expenses ...............................        33,088        43,535         98,469       118,274

Selling, general and administrative expenses ....................       751,758       639,957      2,040,506     2,190,995
                                                                        -------       -------      ---------     ---------

         Operating income (loss) ................................      (156,517)     (312,314)        35,458      (472,449)
Other income (expenses):
         Interest income ........................................        21,703         1,100         27,417        11,644
         Interest expense .......................................       (32,018)      (41,706)       (88,504)      (94,239)
         Other ..................................................       (17,000)      (12,887)          --           2,706
                                                                        -------       -------                        -----

         Net other expense ......................................       (27,315)      (53,493)       (61,087)      (79,889)
                                                                        -------       -------        -------       -------

         Income (loss) before income tax benefit (provision) ....      (183,832)     (365,807)       (25,629)     (552,338)

Income tax benefit, (provision) .................................       (27,368)       57,085         26,365       112,746
                                                                        -------        ------         ------       -------

         Net income (loss) ......................................   $  (211,200)  $  (308,722)   $       736   $  (439,592)
                                                                    ===========   ===========    ===========   ===========



Net income (loss) per basic and diluted common equivalent share     $      (.05)  $      (.08)   $       .00   $      (.11)
                                                                    ===========   ===========    ===========   ===========



</TABLE>









                 See accompanying notes to financial statements



<PAGE>

<TABLE>
<CAPTION>
                                TELS Corporation

                      Consolidated Statements of Cash Flows
                                   (Unaudited)

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

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

Cash flows from operating activities:
      Net income (loss) .................................................   $     736    $(439,592)
      Adjustments to reconcile net income (loss)
          to net cash provided by operating activities:
              Depreciation of plant and equipment .......................     143,187      139,630
              Amortization of other assets ..............................      24,385       58,788
              Amortization of software development costs ................      83,806      114,288
              Deferred income taxes .....................................     (37,000)    (130,235)
              Deferred compensation .....................................        --         10,175
              Changes in operating assets and liabilities:
                   Receivables ..........................................     (55,104)      57,089
                   Inventories ..........................................      (6,605)     290,266
                   Prepaid expenses .....................................      24,693       15,498
                   Other assets .........................................     (20,439)     (39,766)
                   Trade accounts payable and accrued expenses ..........    (194,549)     130,097
                   Deposits and advances ................................      61,519       32,465
                                                                               ------       ------

                     Net cash provided by operating activities ............    24,629      238,703
                                                                               ------      -------

Cash flows from investing activities:
      Capital expenditures ..............................................     (38,706)     (61,744)
      Software development costs ........................................     (75,528)    (126,080)
      Cash investments ..................................................        --         20,668
                                                                                            ------

                     Net cash used in investing activities ..............    (114,234)    (167,668)
                                                                             --------     --------

Cash flows from financing activities:
      Net (payments) borrowings under line of credit agreement ..........       4,224     (157,758)
      Proceeds from long-term debt ......................................        --        429,577
      Principal payment on long-term debt ...............................     (13,471)    (302,184)
                                                                              -------     --------


                     Net cash (used in) provided by financing activities       (9,247)     (30,365)
                                                                               ------      -------

Net increase in cash and cash equivalents ...............................     (98,852)      40,670

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

Cash and cash equivalents at end of quarter .............................   $ (35,525)   $  54,515
                                                                            =========    =========





</TABLE>







                 See accompanying notes to financial statements



<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    Interim Financial Statements

     The financial  statements for the three and nine months ended September 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 for 1999 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, 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 nine months ended  September 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 six and nine months ended September
30, 1999 and 1998.

3.    Inventories

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

                                                       1999            1998
                                                       ----            ----
          Finished goods                          $   25,351      $   64,962
          Work-in-process                            135,953          69,045
          Raw Materials and supplies                 597,458         573,369
          Reserve for obsolete inventory            (305,741)       (260,960)
                                                    --------        --------
                                                  $  453,021      $  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 ....................   $ 2,367,113    $ 2,396,585
           Contract manufacturing and assembly ...     1,136,228      1,368,599
           Corporate and other ...................            --             --
                                                     $ 3,503,341    $ 3,765,184
                                                     ===========    ===========

         Operating income (loss):
           Telecommunications ....................   $   274,569    $   134,781
           Contract manufacturing and assembly....      (149,530)      (240,651)
           Corporate and other ...................       (89,581)      (366,579)
                                                         -------       --------
                                                     $    35,458    $  (472,449)
                                                     ===========    ===========

        Identifiable assets:
           Telecommunications ....................   $   833,819    $   992,351
           Contract manufacturing and assembly ...       543,808        730,398
           Corporate and other ...................       828,309        624,727
                                                         -------        -------
                                                     $ 2,205,936    $ 2,347,476
                                                     ===========    ===========

         Depreciation and amortization expense:
           Telecommunications ....................   $    89,667    $   133,923
           Contract manufacturing and assembly ...        85,007        129,626
           Corporate and other ...................        76,704         49,157
                                                          ------         ------
                                                     $   251,378    $   312,706
                                                     ===========    ===========

           Interest expense:
           Telecommunications ....................   $    30,718    $    40,728
           Contract manufacturing and assembly ...        27,645         24,736
           Corporate and other ...................        30,141         28,775
                                                          ------         ------
                                                     $    88,504    $    94,239
                                                     ===========    ===========

</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.


  RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
                         COMPARED TO SEPTEMBER 30, 1998

     Consolidated  1999 third  quarter net sales of  $1,100,787  increased by 9%
when compared to the third quarter of 1998 sales of $1,010,029. Consolidated net
sales  for  the  nine  months  ended  September  30,  1999,  decreased  by 7% to
$3,503,341  when  compared  to  $3,765,184  of net sales for the same nine month
period of 1998.  The  decrease in sales is due  primarily  to  economic  factors
affecting the electronics manufacturing industry causing a sales decrease at HTI
of 17% for the first nine months of 1999,  when compared with the same period of
1998.  Sales in the telephone call accounting  division  decreased by 1% for the
nine months ending September 30, 1999, when compared to the same period in 1998.

     Gross  profit  for the third  quarter of 1999  increased  to  $628,329,  an
increase of $257,151 when compared to gross profit for the third quarter of 1998
of $371,178.  The gross profit  margin as a percentage  of sales was 57% for the
third quarter of 1999,  compared to 37% for the third quarter of 1998. The gross
profit  margin for the nine months ending  September 30, 1999,  increased to 62%
when compared to 49% for the nine months ending September 30, 1998.

     Total  research  and  development   expenses   including   amortization  of
previously  capitalized  development costs for the third quarter and nine months
ending  September  30, 1999 were $33,088 and $98,469  respectively,  compared to
$43,535 and $118,385 for the same periods in 1998. 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 1999 and 2000 to
take advantage of technology changes in the industry.

<PAGE>


     Selling,  general and  administrative  expenses  for the nine months  ended
September  30,  1999  decreased  by  $150,489  to  $2,040,506  when  compared to
$2,190,995 for the same period in 1998. For the third quarter of 1999,  selling,
general and administrative  expenses were $751,758,  an increase of $111,801, or
17%, when compared to $639,957 for the third quarter of 1998. As a percentage of
net sales, selling,  general and administrative  expenses were 68% for the third
quarter of 1999, and 63% for the third quarter of 1998.  Management's efforts to
reduce costs were offset  somewhat by expenses  related to litigation,  funding,
and  acquisition  costs.  Management of the Company is continuing its efforts to
reduce  administrative  expenses until such time that  increased  sales revenues
warrant expansion and/or growth.

     The Company  reported a consolidated net loss for the third quarter of 1999
of  $(211,200)  or  $(.05)  per share  compared  to a  consolidated  net loss of
$(308,722) or $(.08) per share in 1998. For the nine months ending September 30,
1999, the Company  reported a net income of $736 or ($.00) per share compared to
a net loss of $(439,592) or $(.11) per share for the same period of 1998. Losses
continue  to be  attributed  to the  significantly  lower  sales  levels  in the
electronics contract manufacturing division.

Liquidity and Capital Resources

     As  of  September  30,  1999,  the  Company   reported  current  assets  of
$1,321,165,  and current  liabilities  of  $1,361,063,  resulting in net working
capital of  $(39,898).  This is a decrease  of  $482,762  when  compared  to net
working  capital of $442,864 at September  30,  1998.  The  Company's  operating
activities  provided  $24,634  of cash  during  the first  nine  months of 1999,
compared to $238,703 of cash provided in operating  activities  during the first
nine months of 1998. Cash provided by operating  activities was used to purchase
equipment of $38,705 and capitalized  software  development costs of $75,529. In
1999, the Company increased its line of credit by $4,220.  The Company's working
capital  has been  severely  impacted  by  reductions  in sales  from its  major
customers in the contract manufacturing  division,  where sales decreased by 17%
for the nine months of 1999 when compared to 1998. The Company replaced its line
of credit with a different lender in September of 1999.


<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  expects these projects to be successfully  completed  during the fourth
quarter 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 evaluated its existing  accounting  software for compliance with Y2K and
determined that an upgrade to the existing accounting system was required.  This
upgrade has been purchased and has been installed.

     TELS  Corporation's  Proprietary  Call  Accounting  Products  (INN-FORM XL,
INN-FORM Plus, INN-FORM Express 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-SENSE PCS,  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 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  Company  recognizes  that  there  is some
probability  of a slow down in sales around the end of 1999 and the beginning of
2000 as more conservative  customers  postpone  purchases until Y2K matters have
become more definite.

     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,  the effects of any sales slow down related to Y2K, 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.














                      (THIS SPACE INTENTIONALLY LEFT BLANK)




<PAGE>

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


                           PART II. OTHER INFORMATION


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

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

     (b).  Reports on Form 8-K:

           No reports on Form 8-K were filed for the third quarter of 1999.




<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:  November 12, 1999                              By:    /s/ John L. Gunter
        -----------------                                     ------------------
                                                                  John L. Gunter
                                                                Chairman and CEO



Dated:  November 12, 1999                             By:   /s/ Ronald A. Haller
        -----------------                                   --------------------
                                                                Ronald A. Haller
                                                                      Controller