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, 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 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  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
October 31, 1997.



<PAGE>


                                TELS Corporation


                                     INDEX


PART I. FINANCIAL INFORMATION                                              Page


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

        Consolidated Statements of Operations -- Three and Nine Months      4
                  Ended September 30, 1997 and 1996, respectively

        Consolidated Statements of Cash Flows -- Nine Months Ended          5
                  September 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 6.  Exhibits and Reports on Form 8-K                          9


SIGNATURES                                                                 10



<PAGE>
<TABLE>
<CAPTION>
                                TELS Corporation

                           Consolidated Balance Sheets





                                                                                   September 30,   December  31,
                                                                                       1997             1996
                                     Assets                                         (Unaudited)       Audited
                                     ------                                         -----------    ------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Current Assets
         Cash and cash equivalents .............................................   $    58,275    $    31,980
         Cash investments ......................................................        66,159         62,399
         Trade accounts receivable, less allowance for
              doubtful receivables of $ 123,038 and $ 127,852 respectively .....       897,212        736,771
         Employee and other receivables ........................................       112,117        117,692
         Inventories ...........................................................       709,139        750,427
         Prepaid expenses ......................................................       112,724        158,367
         Deferred income taxes .................................................       225,248        195,368
                                                                                   -----------    -----------

                  Total current assets .........................................     2,180,874      2,053,004
                                                                                   -----------    -----------

         Property, plant and equipment, net ....................................       758,449        894,705
         Software development costs, net .......................................       178,540        146,142
         Intangible assets, net ................................................       140,124        199,144
         Deferred income taxes .................................................       631,826        657,709
         Other assets ..........................................................       187,180        161,673
                                                                                   -----------    -----------
                                                                                   $ 4,076,993    $ 4,112,377
                                                                                   ===========    ===========


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

Current Liabilities
         Current portion of long-term debt .....................................       685,992        624,276
         Trade accounts payable ................................................       371,632        401,433
         Accrued expenses ......................................................       213,681        308,233
         Accrued vacation ......................................................       100,892         92,716
         Deposits and advances .................................................       116,546        118,679
                                                                                   -----------    -----------

                  Total current liabilities ....................................     1,488,743      1,545,337
                                                                                   -----------    -----------

Long-term debt, excluding current installments .................................       197,335        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 ...................................................    (1,893,152)    (1,922,391)
         Deferred compensation .................................................       (20,300)       (50,675)
                                                                                   -----------    -----------

                  Net stockholders' equity .....................................     2,390,915      2,331,301
                                                                                   -----------    -----------


                                                                                   $ 4,076,993    $ 4,112,377
                                                                                   ===========    ===========







</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,

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

Net sales ................................................   $ 1,719,386    $ 1,671,874   $  4,716,789    $ 5,203,651

Cost of goods sold .......................................       753,288        936,747      2,316,423      2,947,215
                                                             -----------    -----------   ------------    -----------

         Gross profit ....................................       966,098        735,127      2,400,366      2,256,436

Research and development expenses ........................        29,780         14,458        100,224         81,810

Selling, general and administrative expenses .............       776,010        678,845      2,198,893      2,225,124
                                                             -----------    -----------    -----------    -----------

         Operating income (loss) .........................       160,308         41,824        101,249        (50,498)

Other income (expenses):
         Interest income .................................         6,428          1,564         11,148          7,414
         Interest expense ................................       (37,603)       (26,808)       (87,088)       (73,361)
         Other ...........................................           949         26,372          7,049         31,455
                                                             -----------    -----------     -----------    -----------

         Net other .......................................       (30,226)         1,128        (68,891)       (34,492)
                                                             -----------    -----------     -----------    -----------

         Income (loss) from  operations before
                  income tax benefit (provision) .........       130,082         42,952         32,356        (84,990)

Income tax benefit, (provision) ..........................       (38,518)       (13,553)        (3,119)        11,499
                                                             -----------    -----------     -----------    -----------

         Net income (loss) ...............................  $     91,564    $    29,399    $    29,239    $   (73,491)
                                                             ===========     ==========     ===========    ===========




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


</TABLE>






                 See accompanying notes to financial statements



<PAGE>
<TABLE>
<CAPTION>


                                TELS Corporation

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                                                               Nine months ended
                                                                                 September 30,  
                                                                               1997         1996
                                                                            ---------     ---------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Cash flows from operating activities:
      Net income (loss) .................................................   $  29,239    $ (73,491)
Adjustments to reconcile net income (loss)
          to net cash provided by operating activities:
              Depreciation of plant and equipment .......................     180,752      218,796
              Amortization of other assets ..............................      59,020       60,900
              Amortization of software development costs ................      81,127       55,559
              Deferred income taxes .....................................      (3,997)      36,520
              Deferred compensation .....................................      30,375       37,875
              Changes in operating assets and liabilities:
                   Receivables ..........................................    (154,866)     184,787
                   Inventories ..........................................      41,288      168,969
                   Prepaid expenses .....................................      45,643     (102,987)
                   Other assets .........................................     (25,507)     (15,157)
                   Trade accounts payable and accrued expenses ..........    (116,177)    (128,470)
                   Deposits and advances ................................      (2,133)      22,740
                   Non cash charges and working capital changes
                     of discontinued operations .........................                  367,436
                                                                            ---------    ---------
                      Net cash provided by operating activities .........     164,764      833,477
                                                                            ---------    ---------

Cash flows from investing activities:
      Capital expenditures ..............................................     (44,496)     (56,460)
      Software development costs ........................................    (113,525)     (38,774)
      Cash investments ..................................................      (3,760)       3,713
      Loss on disposal of equipment .....................................                  (29,480)
                                                                             ---------    ---------

                     Net cash used in investing activities ..............    (161,781)    (121,001)
                                                                             ---------    ---------

Cash flows from financing activities:
      Net (payments) borrowings under line of credit agreement ..........     100,739     (458,244)
      Financing activities of discontinued operations ...................                  (72,061)
      Principal payment on long-term debt ...............................     (77,427)    (153,824)
      Proceeds from issuance of common stock ............................                    2,700
                                                                             ---------    ---------

                     Net cash (used in) provided by  financing activities      23,312     (681,429)
                                                                             ---------    ---------

Net increase in cash and cash equivalents ...............................      26,295       31,047

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

Cash and cash equivalents at end of quarter .............................   $  58,275    $  59,122
                                                                             =========    =========

</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 nine months ended September 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  nine  months  ended  September  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 nine  months
      ended  September  30, 1997,  and 4,025,200 and 3,899,819 for the three and
      nine months ended September 30, 1996.

3.    Consolidated Financial Statements

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

4.    Inventories

      Inventories  at September 30, 1997 and December 31, 1996  consisted of the
      following:
                                                      1997            1996
                                                   ---------       ---------
          Finished goods                          $   46,928      $   52,795
          Work-in-process                            142,435         235,483
          Raw Materials and supplies                 623,925         584,013
          Reserve for obsolete inventory            (104,149)       (121,864)
                                                   ---------       --------- 
                                                  $  709,139      $  750,427
                                                  ==========       =========
                                                  
5.    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 NINE MONTHS ENDED SEPTEMBER 30, 1997
                         COMPARED TO SEPTEMBER 30, 1996

         Consolidated 1997 third quarter net sales of $1,719,386 increased by 3%
when compared to the third quarter of 1996 sales of $1,671,874. Consolidated net
sales  for  the  nine  months  ended  September  30,  1997,  decreased  by 9% to
$4,716,789  when  compared  to  $5,203,651  of net sales for the same nine month
period of 1996. The decrease in sales is due primarily to a decline in net sales
from the  manufacturing  division,  HTI, where sales decreased 22% for the first
nine months 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 14% for
the nine months ending  September 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,  to  increased   sales  from  the  Company's   dealer
distribution channel, and to increased sales through national accounts.

         Gross profit for the third quarter of 1997,  increased to $966,098,  an
increase of $230,971 when compared to gross profit for the third quarter of 1996
of $735,127.  The gross profit  margin as a percentage  of sales was 56% for the
third quarter of 1997,  compared to 44% for the third quarter of 1996. The gross
profit margin for the nine months ending September 30, 1997 improved to 51% when
compared to 43% for the nine months ending  September  30, 1996.  This change is
due to  increased  sales  levels  of  telephone  call  accounting  products  and
reductions in manufacturing costs in the contract  manufacturing  business.  For
the nine months ended  September 30, 1997, the Company's sales of telephone call
accounting  products  increased from 33% 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.



<PAGE>


                                TELS Corporation

         Total  research and  development  expenses  including  amortization  of
previously  capitalized  development costs for the third quarter and nine months
ending  September 30, 1997 were $29,780 and $100,224  respectively,  compared to
$14,458 and $81,810 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 the Company hopes to develop.

         Selling,  general and administrative expenses for the nine months ended
September  30,  1997  decreased  by  $26,231  to  $2,198,893  when  compared  to
$2,225,124 for the same period in 1996. For the third quarter of 1997,  selling,
general and administrative  expenses were $776,010,  an increase of $97,165,  or
14%, when compared to $678,845 for the third quarter of 1996. As a percentage of
net sales, selling,  general and administrative  expenses were 45% for the third
quarter  of 1997,  and 41% for the  third  quarter  of 1996.  This  increase  in
selling, general and administrative expenses is mainly due to additional selling
expenses  incurred to introduce the WIN-SENSETM and INN-FORMR  Express telephone
call  accounting  products  which began 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
third quarter of 1997 of $91,564 or $.02 per share.  This is an increase of 311%
when compared to the third quarter net income of $29,399 for 1996.  For the nine
months  ending  September 30, 1997,  the Company  reported net income of $29,237
compared to a net loss of $73,491 for the same  period of 1996.  This  favorable
change  in net  income  can be  attributed  to the  increased  sales  levels  of
telecommunications products and lower manufacturing expenses.

                         LIQUIDITY AND CAPITAL RESOURCES

         As of  September  30,  1997,  the Company  reported  current  assets of
$2,180,874,  and current  liabilities  of  $1,488,743,  resulting in net working
capital of  $692,131.  This is an  increase  of  $151,924  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 $44,496,
for capitalized software  development costs of $113,525,  and to reduce accounts
payable and accrued  expenses of $116,177.  The Company  increased its borrowing
under its line of credit by  $100,739,  and  reduced  long term debt by $77,427.
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

         On February 2, 1996, the former owners of Hash Tech (Plaintiffs)  filed
         a  complaint  in the  Superior  Court for the  County  of Santa  Clara,
         California,  against  the  Company  and  several  of its  officers  and
         directors in their individual and representative  capacities,  and also
         against HTI, a wholly owned  subsidiary of the Company.  The Plaintiffs
         have alleged causes of action for recision of a certain "Asset Purchase
         Agreement" dated March 31, 1994, civil conspiracy,  fraud, violation of
         California  securities  laws,  common  law gender  discrimination,  and
         intentional  infliction  of  emotional  distress.  The  Company and its
         officers  deny any  wrongdoing in regard to the above  allegations.  On
         October 7, 1997,  the Company filed a  cross-complaint  in the Superior
         Court for the County of Santa Clara,  California against the Plaintiffs
         for  breach  of  "non  compete  agreements,"  breach  of  a  "Severance
         Agreement," and intentional or negligent misrepresentation.

         On October 14, 1997,  the Third  Judicial  District  Court of Salt Lake
         City, Utah, granted a stay in the proceedings.

         See items  previously  reported on Form 10-QSB for the quarterly period
         ended March 31, 1997 and June 30, 1997.

         NASDAQ Market Listing
         ---------------------

         On August 25, 1997 NASDAQ  implemented new requirements for maintaining
         NASDAQ  stock  listings.  To  maintain a NASDAQ  listing of a company's
         stock,  effective 6 months from August 25,  1997,  a company  must at a
         minimum:  be  registered  under  Section  12(g) of the  Securities  and
         Exchange  Act of  1934 or  equivalent;  have  net  tangible  assets  of
         $2,000,000;  have 500,00  shares of stock in the Public  Float;  have a
         market value of $1,000,000 for the Public Float Shares; have two Market
         Makers;  have  a Bid  Price  of  $1.00;  and  have  a  minimum  of  300
         shareholders.  The Company  complies  with all new NASDAQ  requirements
         except the  minimum  Bid Price of Company  Stock.  The  Company  cannot
         provide any assurance that it will meet the bid price by this deadline.
         If the Company ceases to be listed on the Nasdaq Small-Cap  Market,  it
         may continue to be listed on the OTC-Bulletin Board.


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

         (a).  Exhibits:

               Exhibit 27, Financial Data Schedule

         (b).  Reports on Form 8-K:

               No  reports  on  Form  8-K  were  filed  for the  quarter  ending
               September 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:  November 11, 1997                           By:  /s/ Stephen M. Nelson
-------------------------                           ---------------------------
                                                    Stephen M. Nelson, President



Dated:  November 11, 1997                           By:  /s/ Melody Rasmussen
-------------------------                           ---------------------------
                                                    Melody Rasmussen, Controller