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, 2000

                                       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 small business issuer 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, 2000.

                                       1
<PAGE>

                                TELS Corporation

<TABLE>
<CAPTION>
                                      INDEX


PART I. FINANCIAL INFORMATION                                                                 Page


<S>                                                                                           <C>
          Consolidated Balance Sheets -- June 30, 2000 (Unaudited) and
                  December 31, 1999                                                             3

          Consolidated Statements of Operations - Three- and Six Months Ended
                  June 30, 2000 and 1999 (Unaudited)                                            4

          Consolidated Statements of Cash Flows -- Three Months Ended
                  June 30, 2000 and 1999 (Unaudited)                                           5,6

          Notes to Consolidated Financial Statements (Unaudited)                                7

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


PART II. OTHER INFORMATION


          Item 6.  Exhibits and Reports on Form 8-K                                            10


SIGNATURES                                                                                     11
</TABLE>



                                       2
<PAGE>

<TABLE>
<CAPTION>

                                                           TELS Corporation


                                                      Consolidated Balance Sheets


                                                                                   June 30,       December 31,
                                                                                    2000              1999
                                     Assets                                     (Unaudited)          Audited
                                                                             ------------         -----------
Current Assets
<S>                                                                         <C>                   <C>
         Cash and cash equivalents                                          $       7,656         $     3,467
         Trade accounts receivable, less allowance for
             doubtful receivables of $ 31,600 and $ 33,485, respectively          341,278             371,714
         Inventories, net                                                         131,848             133,421
         Prepaid expenses                                                          73,105              80,985
                                                                             ------------         -----------

                  Total current assets                                            553,887             589,587
                                                                             ------------         -----------

Property, plant and equipment, net                                                413,436             442,398
Software development costs, net                                                   108,199              74,775
Cash surrender value of life insurance                                            107,960             107,960
Other assets                                                                        8,519               8,519
                                                                             ------------         -----------
                                                                             $  1,192,001         $ 1,223,239
                                                                             ============         ===========


                  Liabilities and Stockholders' Deficit

Current Liabilities
         Cash overdraft                                                      $     46,274         $    22,252
         Trade accounts payable                                                   461,771             280,278
         Accrued expenses                                                         253,994             300,498
         Current portion of long-term debt                                        297,018             352,187
         Deferred Income                                                          147,945             145,736
         Net liabilities of discontinued operations                               369,884             353,985
                                                                             ------------         -----------
                  Total current liabilities                                     1,576,886           1,454,936
                                                                             ------------         -----------
Long-term debt, excluding current installments                                    387,455             399,810
                                                                             ------------         -----------
                  Total liabilities                                             1,964,341           1,854,746
                                                                             ------------         -----------
Stockholders' deficit
         Common stock, $.02 par value.  Authorized 50,000,000 shares;
              issued and outstanding 3,891,819 shares                              77,835              77,835
         Additional paid-in capital                                             4,325,541           4,228,741
         Unearned Compensation                                                   (156,000)                  -
         Accumulated deficit                                                   (5,019,716)         (4,938,083)
                                                                             ------------         -----------
                  Total stockholders' deficit                                    (772,340)           (631,507)
                                                                             ------------         -----------
                                                                             $  1,192,001        $  1,223,239
                                                                             ============         ===========
                                     See accompanying notes to consolidated financial statements.
</TABLE>

                                        3
<PAGE>
<TABLE>
<CAPTION>

                                                           TELS Corporation


                                                 Consolidated Statements of Operations
                                                              (Unaudited)


                                                      Three months ended                   Six months ended
                                                            June 30,                           June 30,
                                                     ----------------------           -----------------------
                                                      2000             1999            2000              1999


<S>                                               <C>           <C>                <C>               <C>
Net sales                                         $  711,274    $   830,096        $ 1,324,354       $ 1,595,924

Cost of goods sold                                   142,788         208,695           286,032           361,204
                                                  -----------   ------------       -----------       -----------
         Gross profit                                568,486         621,401         1,038,322         1,234,720

Research and development expenses                      1,880          35,382            26,162            65,381

Selling, general and administrative expenses         595,921         696,503         1,015,153         1,160,428
                                                  -----------   ------------       -----------       -----------
         Operating income (loss)                     (29,315)       (110,484)           (2,993)            8,911
                                                  -----------   ------------       -----------       -----------
Other income (expense):
         Interest income                                   -               -                 -             3,376
         Interest expense                            (43,906)        (22,148)          (65,975)          (42,401)
         Other income (expense)                         (158)         62,338             3,334            62,338
                                                  -----------   ------------       -----------       -----------
         Other income (expense), net                 (44,064)         40,190           (62,641)           23,313
                                                  -----------   ------------       -----------       -----------
         Income (loss) before income
           tax benefit                               (73,379)        (70,294)          (65,634)           32,224

Income tax (provision), benefit                            -          26,283              (100)           56,733
                                                  -----------   ------------       -----------       -----------
Income (loss) from continuing operations             (73,379)        (44,011)          (65,734)           88,957
Loss from discontinued operations, net                (2,614)        152,857           (15,899)          122,979
   of income taxes
                                                  -----------   ------------       -----------       -----------
         Net (loss) income                        $  (75,993)   $    108,846       $   (81,633)      $   211,936
                                                  ===========   ============       ===========       ===========
Basic and diluted net income (loss)               $     (.02)   $        .03       $      (.02)      $       .05
                                                  ===========   ============       ===========       ===========
   per common share

Weighted average shares - basic and diluted        3,891,819       3,891,819         3,891,819         3,891,819
                                                  -----------   ------------       -----------       -----------


                                      See accompanying notes to consolidated financial statements
                                       4
</TABLE>


<TABLE>
<CAPTION>
                                                           TELS Corporation

                                                 Consolidated Statements of Cash Flows
                                                              (Unaudited)
                                                                                            Six months ended
                                                                                                 June 30,
                                                                                        ------------------------
                                                                                          2000             1999

Cash flows from operating activities:
<S>                                                                                   <C>                <C>
      Net (loss) income                                                               $   (81,633)       $   211,936
      Loss (income) from discontinued operations                                           15,899           (122,979)
      Adjustments to reconcile net (loss) income to net cash
          provided by operating activities:
              Depreciation and Amortization                                                43,312            105,723
              Deferred Income Taxes                                                             -            (56,950)

              (Increase) Decrease in:
                   Accounts Receivable                                                     30,436           (108,796)
                   Inventories                                                              1,573              5,076

                   Prepaid Expenses                                                         7,880             46,965
                   Other Assets                                                                 -            (10,734)

              Increase (Decrease) in:
                   Accounts Payable                                                        25,493            (38,145)
                   Accrued Expenses                                                       (46,504)            (7,677)
                   Deferred Income                                                          2,209             12,039

              Net cash provided by continuing operations                                   95,465             36,458
              Net cash provided by discontinued operations                                      -            162,140

                      Net cash provided by operating activities                            95,465            198,598
                                                                                       ----------        -----------
Cash flows from investing activities:
      Software development costs                                                          (35,304)           (52,888)
      Capital expenditures                                                                (12,470)           (24,141)


              Net cash used in continuing operations                                      (47,774)           (77,029)
              Net cash used in discontinued operations                                          -           (120,564)

                     Net cash used in investing activities                                (47,774)          (197,593)
                                                                                       ----------        -----------
Cash flows from financing activities:
      Cash overdraft                                                                       24,022                  -
      Payments on long-term debt                                                         (136,629)           (16,091)
      Principle borrowings on long-term debt                                               69,105             27,388

          Net cash used in continuing operations                                          (43,502)            11,297
          Net cash used in discontinued operations                                              -            (45,152)

                     Net cash used in financing activities                                (43,502)           (33,855)
                                                                                       ----------        -----------
</TABLE>

                                                                 (continued)

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                           TELS Corporation

                                           Consolidated Statements of Cash Flows (continued)
                                                              (Unaudited)




<S>                                                                                   <C>             <C>
Net increase (decrease) in cash                                                             4,189           (32,850)

Cash at beginning of quarter                                                                3,467            63,326
                                                                                       ----------        ----------

Cash at end of quarter                                                                 $    7,656      $    30,476
                                                                                       ==========       ===========
</TABLE>




Supplemental disclosure of non-cash  investing and financing activities:
     During the quarter ended March 31, 2000,  the Company  issued notes payable
totaling $25,000 for expenses due an officer.  During the quarter ended June 30,
2000,  the Company  recorded a payable of  $156,000  for  unearned  compensation
related to an officer of the Company.





















                      (THIS SPACE INTENTIONALLY LEFT BLANK)













           See accompanying notes to consolidated financial statements

                                       6
<PAGE>

                                TELS Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Interim Financial Statements
      ----------------------------
          The financial  statements for the three months ended June 30, 2000 and
     1999, 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, 1999 and 1998,  included in the Company's 1999
     Annual Report to the Securities and Exchange Commission on Form 10-KSB. The
     results  for the three  months  ended June 30,  2000,  are not  necessarily
     indicative of results for the year ending December 31, 2000.

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  reflect  the  potential  dilution  that  could  occur if  options or
     warrants to issue  common stock were  exercised  into common  stock.  Stock
     options for 628,500  shares for 2000 are not included in the  calculations,
     since they are  anti-dilutive.  The weighted  average number of outstanding
     common and common  equivalent shares used in this computation was 3,891,819
     for the three months ended on both June 30, 2000 and 1999.

3.    Inventories
      -----------
<TABLE>
<CAPTION>

          Inventories at June 30, 2000 and December 31, 1999 consisted of the following:

                                                                           2000           1999
                                                                     -----------     -----------
          <S>                                                        <C>             <C>
          Finished goods                                             $    33,125     $    27,756
          Work-in-process                                                 63,885          45,104
          Raw material and supplies                                       70,671          74,341
          Reserve for obsolete inventory                                 (35,833)        (13,780)
                                                                     -----------      ----------
                                                                     $   131,848     $   133,421
                                                                     ===========     ===========
</TABLE>





                      (THIS SPACE INTENTIONALLY LEFT BLANK)


                                       7

<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
selling,  general and  administrative  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
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 months and six months ended June 30,
                        2000, compared to JUNE 30, 1999

     Consolidated net sales for continuing  operations during the second quarter
of 2000 decreased $118,822, or 14%, to $711,274 when compared to $830,096 in net
sales for the second quarter of 1999. The decrease in sales is mostly due to the
slowdown  in capital  purchases  apparently  due to weather - and thus  travel -
changes and to lower  guest  revenues in the  lodging  industry.  No  individual
customer  accounted  for 10% or more of sales  in the  second  quarter  of 2000.
Consolidated  net sales for  continuing  operations  for the first  half of 2000
decreased  $271,570,  or 17%, to  $1,324,354  when compared to $1,595,924 in net
sales for the first half of 1999.

     Gross profit for continuing operations decreased to $568,486, a decrease of
$52,915,  or 9%, when compared to gross profit for the second quarter of 1999 of
$621,401.  The gross profit margin as a percentage of sales increased to 80% for
the second  quarter  of 2000,  compared  to 75% for the second  quarter of 1999.
Gross profit for continuing  operations  decreased to $1,038,322,  a decrease of
$196,398,  or 16%, when compared to gross profit for the second  quarter of 1999
of  $1,234,720.  The gross  profit  margin as a  percentage  of sales  increased
slightly  to 78% for the first half of 2000,  compared to 77% for the first half
of 1999.  Gross margins for the near future are expected to continue at close to
current levels.

     For the second  quarter of 2000,  total  research  and  development  costs,
including  amortization  of  previously  capitalized  research  and  development
expenses,  were $1,880,  compared to $35,382 for the same period in 1999, as all
personnel  were focused on operational  changes and new management  information,
finance and accounting  systems.  For the first half of 2000, total research and
development costs, including amortization of previously capitalized research and
development expenses,  were $26,162,  compared to $65,381 for the same period in
1999.  Management of the Company believes that, if the Company  continues in its
current and future operations as in the past, it will be necessary to


                                       8
<PAGE>


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

increase  its level of  research  and  development  in 2000 to keep its  current
product lines up to date and to take advantage of technology  changes from which
the Company expects to benefit.

     Selling,  general  and  administrative  ("SG&A")  expenses  for  continuing
operations  increased  $79,846,  or 15%, to $595,921  for the second  quarter of
2000,  when compared to $516,075 for the same period in 1999. As a percentage of
net sales,  SG&A  expenses were 84% for the second  quarter of 2000,  due due to
lower sales,  as compared to 62% for the same period in 1999.  Selling,  general
and administrative  expenses for continuing  operations  decreased $145,275,  or
13%, to $1,015,153  for the first half of 2000,  when compared to $1,160,428 for
the same period in 1999.  As a percentage  of net sales,  SG&A expenses were 77%
for the first half of 2000, as compared to 73% for the same period in 1999.

     The  Company  reported  a net  loss  for  the  second  quarter  of  2000 of
$(75,993),  or $(.02) per share, compared to net income of $108,846, or $.03 per
share,  for the same  period in 1999.  The  Company  reported a net loss for the
first half of 2000 of $(81,633),  or $(.02) per share, compared to net income of
$211,936,  or $.05 per share,  for the same  period in 1999.  Management  of the
Company  believes that the Company has  orchestrated a major turnaround from the
downturn in the latter part of 1999. Management recognizes that increasing sales
and making  operational  improvements  are taking longer and are more  difficult
than expected,  but believes that results should  continue to improve.  However,
the  telecommunications  industry is  experiencing  drastic  changes which could
limit the Company's ability to meet sales projections in this industry and there
can be no  assurance  that the  Company  will be able to  continue to generate a
profitable level of sales.

Liquidity and Capital Resources
-------------------------------

     As of June 30, 2000,  the Company  reported  current assets of $553,887 and
current liabilities of $1,576,886, resulting in a net working capital deficit of
$(866,999),   only  slightly  improved  from  the  working  capital  deficit  of
$(886,482) at the end of the first quarter of 2000. During the second quarter of
2000,  the  Company's  continuing  operations  generated  $95,465  in cash  from
operating  activities,  used  $(47,774)  in its  investing  activities  and used
$(43,502) in its financing activities.

     At December 31, 1999, the Company was in violation of certain  requirements
of its line of credit financing  agreement  relating to minimum cash flow levels
and issues surrounding the closure of HTI. The Company  restructured its line of
credit  with its  current  lender  and  believes  it is in  compliance  with new
covenants  in place as of August  11,  2000.  The  Company  has  resumed  timely
payments  to many of its  trade  creditors,  and  this  situation  is  improving
monthly. As of August 11, 2000, the Company has been able to make its deliveries
on time and no orders have been canceled.

Outlook: Issues and Uncertainties
---------------------------------

     The Company's sales of telephone call accounting  systems in 2000 have been
below the 1999 level,  due  primarily  to a slowdown  in the lodging  industry's
capital  expenditures.  Operations  continue to improve,  but reduced  revenues,
coupled with the working capital deficit, have seriously slowed improvements. At
December 31, 1999,  the Company's  Certifying  Accountants  stated that,  due to
uncertainties  surrounding the losses in 1999, there was substantial doubt about
the Company's  ability to continue as a going concern.  While operating  results
for the  first  half of 2000 have  been  encouraging,  they have not been of the
magnitude to change that situation. Management has been working apace to improve
operations,   under  serious   constraints,   and  also  has  considered  merger
opportunities  with  several  companies  that  have  approached  TELS.  At  this
juncture,  the Board of Directors  has directed  management  to take all actions
necessary  to make the  Company an  attractive  merger  candidate  for a private
company  seeking a merger  with a public  company.  These  actions  may  include
selling all current  operations  and  liabilities,  thus  seeking to prepare the
Company as an attractive public shell. The Board of Directors  believes that the
Company  would  be a more  attractive  merger  candidate  if it did not have its
current level of liabilities. The Board of Directors also believes

                                      9
<PAGE>


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

that a merger with a private  company  could  provide  shareholders  with a more
vigorous  and  promising  investment  opportunity,   as  the  Company's  current
operations  are not at a level that will permit the Company to recover  from its
past  difficulties  in the short term.  The Board of Directors  believes that it
must consider all reasonable alternatives to increase shareholder value. Failure
to accomplish  management's plans in 2000 could result in further erosion of the
Company's financial condition and in failure to meet its financial obligations.

Year 2000 (Y2K) Computer Systems Compliance
-------------------------------------------

     As the result of  planning  and  implementation  activities  carried out by
research and development personnel under severe conditions, the Company was able
to replace or upgrade most computers,  networks and data bases prior to year-end
and essentially no "Y2K" problems were encountered with the Company's  products,
commercial or internal systems.


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

     (a) Exhibit 27 - Article 5 Financial  Data Schedule for the quarter  ending
June 30, 2000.

     (b) Reports on Form 8-K:

             No reports on form 8-K were filed in the second quarter of 2000.




















                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       10
<PAGE>



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



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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 11, 2000                              By:  /s/ John L. Gunter
                                                     -----------------------
                                                     John L. Gunter
                                                     Chairman,  CEO and
                                                     Principal Financial Officer




                                       11