1


                     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 MARCH 31, 2001

                                       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 4,191,819 shares of common stock on May 1, 2001.



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<CAPTION>


                                TELS Corporation


                                      INDEX


PART I. FINANCIAL INFORMATION                                                                 Page
                                                                                              ----

<S>                                                                                        <C>

          Consolidated Balance Sheets -- March 31, 2001 (Unaudited) and
                  December 31, 2000                                                             3

          Consolidated Statements of Operations -- Three Months Ended
                  March 31, 2001 and 2000 (Unaudited)                                           4

          Consolidated Statements of Cash Flows -- Three Months Ended
                  March 31, 2001 and 2000 (Unaudited)                                           5

          Notes to Consolidated Financial Statements (Unaudited)                                6

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


PART II. OTHER INFORMATION


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


SIGNATURES                                                                                      9



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<TABLE>
<CAPTION>


                                TELS Corporation

                      Condensed Consolidated Balance Sheets


                                                                                   March 31,        December 31,
                                                                                       2001                2000
                                     Assets                                      (Unaudited)            Audited
                                     ------                                      ----------             -------
<S>                                                                          <C>               <C>

Current Assets
         Cash and cash equivalents                                           $       3,322     $       45,076
         Accounts receivable, net                                                  304,316            302,478
         Inventories, net                                                          137,937            151,942
         Prepaid expenses                                                           16,860             25,152
                                                                              ------------       -------------

                  Total current assets                                             462,435            524,648

Property, plant and equipment, net                                                 364,033            380,609
Cash surrender value of life insurance                                             105,967             98,995
Other assets                                                                         7,500              7,500
                                                                              -------------        ------------

                                                                             $     939,935        $  1,011,752
                                                                              =============        ============


                  Liabilities and Stockholders' Deficit

Current Liabilities
         Accounts payable                                                    $     128,354        $    188,709
         Accrued expenses                                                          250,500             268,576
         Note payable                                                              128,457             149,510
         Note payable - related parties                                            272,660             272,660
         Current portion of long-term debt                                          70,559              24,764
         Deferred Income                                                           126,024             118,543
                                                                                -----------         -----------

                  Total current liabilities                                        976,554           1,022,762

Long-term debt, excluding current installments                                     636,973             687,262
                                                                                -----------         -----------

                  Total liabilities                                              1,613,527           1,710,024
                                                                                -----------         -----------

Stockholders' deficit
         Common stock, $.02 par value.  Authorized 50,000,000 shares;
              issued and outstanding 4,191,819 shares                               83,835              83,835
         Additional paid-in capital                                              4,318,741           4,318,741
         Accumulated deficit                                                    (5,020,168)         (5,036,848)
         Deferred compensation                                                     (56,000)            (64,000)
                                                                              --------------    ---------------

                  Total stockholders' deficit                                     (673,592)           (698,272)
                                                                              --------------    ---------------

                                                                              $    939,935        $  1,011,752
                                                                              ============        ============


                               See accompanying notes to condensed consolidated financial statements.

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<CAPTION>


                                TELS Corporation

                 Condensed Consolidated Statements of Operations
                                   (Unaudited)


                                                                          Three months ended
                                                                              March  31,
                                                                     ---------------------------


                                                                            2001          2000
                                                                            ----          ----
<S>                                                                  <C>            <C>

Net sales                                                            $   563,142    $    613,080

Cost of goods sold                                                       103,790         143,244
                                                                     -----------     -----------

         Gross profit                                                    459,352         469,836


Research and development expenses                                         18,165          24,282


Selling, general and administrative expenses                             382,808         419,233
                                                                      ----------     -----------

         Operating income                                                 58,379          26,321
                                                                     -----------    ------------

Other income (expenses):
         Interest expense                                                (41,724)        (22,069)
         Other income                                                         25           3,492
                                                                  --------------    ------------

         Other expense, net                                              (41,699)        (18,577)
                                                                     -----------    ------------

         Income before income
         tax (provision)  benefit                                         16,680           7,744


Income tax (provision) benefit                                               -              (100)
                                                                 ---------------    ------------

Income from continuing operations                                         16,680           7,644
Loss from discontinued operations                                            -           (13,284)
                                                                 ---------------    ------------

         Net (loss) income                                           $    16,680   $      (5,640)
                                                                 ===============   =============




Basic and diluted net (loss) earnings per common share           $          0.00   $       (0.00)
                                                                 ===============   =============

Weighted average shares - basic and diluted                            4,191,819       3,891,819
                                                                    ------------    ------------





                 See accompanying notes to condensed consolidated financial statements
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<CAPTION>


                                TELS Corporation

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                               Three months ended

                                                                                            March 31,
                                                                                            --------

                                                                                      2001             2000
                                                                                      ----             ----
<S>                                                                              <C>                <C>
Cash flows from operating activities:
      Net income  (loss)                                                         $   16,680         $  (5,640)
      Income (loss) from discontinued operations                                        -              13,284
      Adjustments to reconcile net income (loss) to net cash
          provided by (used in) operating activities:
              Depreciation and Amortization                                          16,576            16,531
              Provision for losses on accounts receivable                             5,350              -

              Deferred compensation                                                   8,000              -

              (Increase) Decrease in:
                   Accounts Receivable                                               (7,188)          100,116
                   Inventories                                                       14,005             3,305

                   Prepaid Expenses                                                   8,292           (16,497)
              Increase (Decrease) in:
                   Accounts Payable                                                 (60,355)          (33,163)
                   Accrued Expenses                                                 (18,076)          (31,711)
                   Deferred Income                                                    7,481            (6,043)
                                                                                 -----------       ----------

                   Net cash (used in) provided by operating activities               (9,235)           40,182
                                                                                ------------       ----------

Cash flows from investing activities:
      Software development costs                                                        -             (19,443)
      Increase in cash surrender value of life insurance                             (6,972)           (5,000)
      Capital expenditures                                                          -                     (81)
                                                                                ------------      ------------


                    Net cash used in investing activities                           (6,972)           (24,524)
                                                                                ------------       -----------

Cash flows from financing activities:
      Cash overdraft                                                                    -              39,583
      Payments on short- and long-term debt                                         (25,547)         (107,138)
      Principle borrowings on short- and long-term debt                                 -              50,000
                                                                               -------------      ------------

                   Net cash used in financing activities                            (25,547)          (17,555)
                                                                               -------------     -------------

Net decrease in cash                                                               (41,754)           (1,897)
Cash at beginning of quarter                                                         45,076             3,467
                                                                               ------------      -------------

Cash at end of quarter                                                         $      3,322      $      1,570
                                                                               =============     =============


Supplemental disclosures of cash flow information: Cash paid during the quarter
      for:
          Interest                                                             $     37,837      $     22,068
                                                                               =============     =============

          Income taxes                                                         $        -        $         -
                                                                               =============     =============


                  See accompanying notes to condensed consolidated financial statements
</TABLE>
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                                TELS Corporation


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.    Interim Financial Statements

          The financial statements for the three months ended March 31, 2001 and
      2000, 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 years ended December 31, 2000 and 1999 included in the Company's
      2000 Annual Report to the Securities and Exchange Commission on Form
      10-KSB. Results for the three months ended March 31, 2001, are not
      necessarily indicative of results for the year ending December 31, 2001.

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 common stock
      equivalents including options or warrants to issue common stock were
      exercised into common stock. Stock options for 512,500 shares and 628,500
      shares were outstanding at March 31, 2001 and 2000, respectively. Common
      stock equivalents are not included in diluted earnings per share when
      their effect is anti-dilutive. The weighted average number of outstanding
      common and common equivalent shares used in computations were 4,191,819
      for the three months ended March 31, 2001, and 3,891,819 for the three
      months ended March 31, 2000.

3.    Inventories

          Inventories at March 31, 2001 and December 31, 2000 consisted of the
following:

<TABLE>
<CAPTION>
                                                                        2000              2001
                                                                   ------------      ------------

<S>                                                                  <C>              <C>
          Finished goods                                             $    26,570      $    35,725
          Work-in-process                                                 56,108           38,970

          Raw material and supplies                                       70,725           92,713
          Reserve for obsolete inventory                                 (15,466)         (15,466)
                                                                     ------------     ------------
                                                                      $  137,937      $   151,942
                                                                     ============     ============
</TABLE>


4.    Impact of Recently Issued Accounting Standards
      -----------------------------------------------

         SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, was issued in September 2000. SFAS
No. 140 is a replacement of SFAS No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. Most of the provisions
of SFAS No. 125 were carried forward to SFAS No. 140 without reconsideration by
the Financial Accounting Standards Board (FASB), and some were changed only in
minor ways. In issuing SFAS No. 140, the FASB included issues and decisions that
had been addressed and determined since the original publication of SFAS No.
125. SFAS No. 140 is effective for transfers after March 31, 2001. Management
does not expect the adoption of SFAS No. 140 to have a significant impact on the
financial position or results of operations of the Company.

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                                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 Company 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) shortage of reliable market data for 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 ended March 31, 2001
                           compared to March 31, 2000

         Consolidated net sales during the first quarter of 2001 decreased
$49,938, or 8%, to $563,142, when compared to $613,080 in net sales for the
first quarter of 2000. The decrease in sales is due to a general economic
slowdown adversely affecting the lodging industry and to the Company's inability
to finance marketing and sales efforts at higher levels. No individual customer
accounted for 10% or more of sales in the first quarter of 2001.

         Gross profit for the first quarter of 2001 decreased to $459,352, a
decrease of $10,484, or 2%, compared to gross profit for the first quarter of
2000 of $469,836. Gross profit as a percentage of sales increased to 82% for the
quarter, compared to 77% for the same period in 2000. Gross profits should
continue at about 75% of sales.

         For the first quarter of 2001, research and development costs were
$18,165, compared to $24,282 during the same period in 2000. Management believes
ongoing research and development is necessary to stay up to date and take
advantage of beneficial technology changes, but such efforts have been reduced
for the near future.

         Selling, general and administrative ("SG&A") expenses decreased
$36,425, or 9%, to $382,808 for the first quarter of 2001, when compared to
$419,233 for the first quarter of 2000. As a percentage of net sales, SG&A
expenses were 68% for the first quarter of 2001, the same as the first quarter
of 2000.

         The Company reported income from continuing operations of $16,680 for
the first quarter of 2001, compared to $7,644 for the same period in 2000. The
Company reported net income of $16,680 or $0.00 per share for the first quarter
of 2001 compared to a net loss of $(5,640), or $(.00) per share for the same
period in 2000. Management believes incremental operational improvements should
continue in 2001. However, the telecommunications industry is experiencing
drastic changes and these changes, plus a downward trend in general economic
conditions, could limit the Company's ability to meet sales projections. There
can be no assurance that the Company will be able to generate a profitable level
of sales.


<PAGE>

                                TELS Corporation


Liquidity and Capital Resources

         As of March 31, 2001, the Company reported current assets of $462,435
and current liabilities of $976,554, resulting in a net working capital deficit
of $(514,119). During the first quarter of 2001, the Company used $(9,235) in
cash from operating activities, used $(6,972) in cash from investing activities
and used $(25,547) in its financing activities.

         The Company restructured its line of credit with its current lender
during 2000 and believes that it is in compliance with all current requirements
of its line of credit financing agreement. This line comes up for renewal in
September of 2001 and the Company will soon be seeking better terms for its
future line through its current lender or through other lending institutions.
The Company is making timely payments to its trade creditors. As of May 14,
2001, 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 the first
four months of 2001 have been somewhat below the 2000 level, due to the general
economic slowdown that is adversely affecting the lodging industry, the
Company's inability to finance some ongoing marketing and sales efforts at
higher levels and what appears to be a slowdown in telephone call accounting
sales, in general, as the market becomes more saturated. Despite the issues,
operations continue to improve incrementally. Management of the Company believes
progress will continue incrementally, subject to market and economic conditions.

         Failure to accomplish Management's objectives and plans to improve
operations and generate positive operating cash flow in 2001 could result in
further erosion of the Company's financial condition and failure to meet its
financial obligations.

         In addition, Management will continue to seek strategic partnering
possibilities to improve the Company's future prospects and to improve
shareholder value in an expedient manner. Efforts to consummate a merger or to
be acquired have been unsuccessful due to the Company's financial situation and
its small and specialty niche market. The Company's Board of Directors believe
that a reverse merger would best serve the interests of all of the Company's
shareholders, in light of financial and operational difficulties, doubts about
the Company's ability to continue as a going concern, and issues related to the
activities of certain officers in providing guarantees and loans for the
Company. Reverse merger efforts to date have been unsuccessful due to the
complexities of such a process and due to change of control and other issues. To
enter into a reverse merger, the Board must believe that Company shareholders
will have a significantly better opportunity to realize increased value with a
new company than with the Company as it is currently required to operate.

         The Board is now considering actions to establish the Company as a
public shell, so that it would be poised and ready for acceptable reverse merger
opportunities without change of control and other issues, and at the same time
allow repayment to certain officers for their efforts in behalf of the Company.
In such a process, the Company's operations, as conducted through its
wholly-owned subsidiary, TEL electronics, inc., would be split off to certain
officers and the public shell Company would be left with essentially no assets
or liabilities. Since the Company would still be a reporting public company, it
should attract much interest, and then the Board would seek to merge with a new
company that could improve the Company's shareholder value in a more expedient
manner. The Board will seek a "Fairness Opinion" from an independent third party
that specializes in such areas, before such a merger would be effected, to
assure that any such reverse merger would be fair to the minority shareholders
from a financial point of view.

<PAGE>


                                TELS Corporation

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits:

                 None.

(b)      Reports on Form 8-K:

                 No reports on form 8-K were filed in the first quarter of 2001.








                                   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:  May 14, 2001                        By:  /s/ John L. Gunter
--------------------                        ----------------------
                                            John L. Gunter
                                            Chairman and CEO


Dated:  May 14, 2001                        By:  /s/ P. Diane Gunter
--------------------                        ----------------------
                                            P. Diane Gunter
                                            Secretary, Treasurer


Dated:  May 14, 2001                        By:  /s/ Kristie Hall
--------------------                        ----------------------
                                            Kristie Hall
                                            Accountant