UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-Q SB

           [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1997

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from      to


                           Commission File No. 0-12993
                           ---------------------------



                                TELS Corporation
                                ----------------
             (Exact name of registrant as specified in its charter)



             Utah                                                     87-0373840
-------------------------------                                       ----------
(State or other jurisdiction of                                    (IRS Employer
incorporation or organization)                               Identification No.)



406 West South Jordan Parkway, Suite 250, South Jordan, Utah               84095
------------------------------------------------------------               -----
(Address of principal executive offices)                              (Zip Code)

       Registrant's telephone number, including area code: (801) 571-1182



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 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
May 1, 1997.



<PAGE>


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


                                     INDEX
                                     -----


PART I. FINANCIAL INFORMATION                                              Page
                                                                           ----


     Consolidated Balance Sheets -- March 31, 1997, and December 31, 1996     3

     Consolidated Statements of Operations -- Three Months Ended
          March 31, 1997, and 1996, respectively                              4

     Consolidated Statements of Cash Flows -- Three Months Ended
          March 31, 1997, and 1996, respectively                              5

     Notes to Consolidated Financial Statements                               6

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


PART II. 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




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

Current Assets
         Cash and cash equivalents .............................................   $    29,790    $    31,980
         Cash Investments ......................................................        62,829         62,399
         Trade Accounts receivable, less allowance for
             doubtful receivable of $ 113,860 and $ 127,852 respectively .......       658,094        736,771
         Employee and other receivables ........................................       115,304        117,692
         Inventories ...........................................................       734,440
                                                                                                      750,427
         Prepaid expenses ......................................................       145,935        158,367
         Deferred income taxes .................................................       210,471        195,368
                                                                                   -----------    -----------

                  Total current assets .........................................     1,956,863      2,053,004
                                                                                   -----------    -----------

         Property, plant and equipment, net ....................................       848,367        894,705
         Software development costs, net .......................................       151,386        146,142
         Intangible assets, net ................................................       178,987        199,144
         Deferred income taxes .................................................       683,606        657,709
         Other assets ..........................................................       165,985        161,673
                                                                                   -----------    -----------
                                                                                   $ 3,985,194    $ 4,112,377
                                                                                   ===========    ===========


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

Current Liabilities
         Current portion of long-term debt .....................................       747,413        624,276
         Trade accounts payable ................................................       274,167        401,433
         Accrued expenses ......................................................       281,105        308,233
         Accrued vacation ......................................................       100,997         92,716
         Deposits and advances .................................................       102,015        118,679
                                                                                   -----------    -----------

                  Total current liabilities ....................................     1,505,697      1,545,337
                                                                                   -----------    -----------

Long-term debt, excluding current installments .................................       221,502        235,739
                                                                                   -----------    -----------

Stockholders' equity
         Common stock, $.02 par value.  Authorized 10,000,000 shares;
              issued and outstanding 3,891,774 and 3,891,274 respectively.......        77,835         77,835
         Additional paid-in capital ............................................     4,226,532      4,226,532
         Accumulated deficit ...................................................    (2,005,822)    (1,922,391)
         Deferred Compensation .................................................       (40,550)       (50,675)
                                                                                   -----------    -----------

                  Net stockholders' equity .....................................     2,257,995      2,331,301
                                                                                   -----------    -----------

                                                                                  $  3,985,194    $ 4,112,377
                                                                                   ===========     ===========
</TABLE>








                       See accompanying notes to financial statements.




<PAGE>
<TABLE>
<CAPTION>


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

                      Consolidated Statements of Operations
                                   (Unaudited)


                                                               Three months ended
                                                                    March 31 ,

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

Net sales ..............................................   $ 1,368,599    $ 1,839,006

Cost of goods sold .....................................       736,541      1,157,863
                                                           -----------    -----------    

         Gross profit ..................................       632,058        681,143

Research and development expenses ......................        26,404         44,106

Selling, general and administrative expenses ...........       705,719        726,166
                                                            -----------   -----------

         Operating income (loss) .......................      (100,065)       (89,129)

Other income (expenses):
         Interest income ...............................         1,156          3,301
         Interest expense ..............................       (27,502)       (20,259)
         Other .........................................         3,480          6,438
                                                            -----------   -----------

         Net Other .....................................       (22,866)       (10,520)
                                                            -----------   -----------

         Income (loss) from  operations before
         income tax benefit (provision) ................      (122,931)       (99,649)

Income tax benefit, (provision) ........................        39,500         31,974
                                                            -----------   -----------

         Net income (loss) .............................   $   (83,431)   $   (67,675)
                                                           ===========    =========== 
                                                            





Net income (loss) per common and common equivalent share   $      (.02)   $      (.02)
                                                           ===========    =========== 
</TABLE>
              



















                 See accompanying notes to financial statements



<PAGE>
<TABLE>
<CAPTION>


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

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                                                                     Three months ended
                                                                                          March 31,

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

Cash flows from operating activities:
      Net income (loss) .........................................................   $ (83,431)   $ (67,675)
      Adjustments to reconcile net income  (loss)
          to net cash provided by operating activities:
              Depreciation of plant and equipment ...............................      60,152       73,022
              Amortization of other assets ......................................      20,157       21,594
              Amortization of software development costs ........................      25,931       22,644
              Deferred income taxes .............................................     (41,000)     (31,974)
Deferred compensation ...........................................................      10,125       15,175
              Changes in operating assets and liabilities:
                   Receivables ..................................................      81,065     (120,495)
                   Inventories ..................................................      15,987       89,280
                   Prepaid expenses .............................................      12,432      (50,712)
                   Other assets .................................................      (4,312)      13,365
                   Trade accounts payable and accrued expenses ..................    (146,113)    (171,427)
                   Deposits and advances ........................................     (16,664)     (27,012)
                   Non cash charges and working capital changes
                     of discontinued operations .................................                  350,064
                                                                                      -------      -------

                      Net cash (used in) provided by operating activities             (65,671)     115,849
                                                                                      -------      -------

Cash flows from investing activities:
      Capital expenditures ......................................................     (13,814)     (73,705)
      Software development costs ................................................     (31,175)     (15,674)
      Cash investments ..........................................................        (430)       1,859
      Gain (loss) on disposal of equipment ......................................                  (13,235)
                                                                                     ---------    ---------

                     Net cash (used in) investing activities ....................     (45,419)    (100,755)
                                                                                     ---------    ---------

Cash flows from financing activities:
      Net borrowings (payments) under line of credit agreement ..................     130,765      103,631
      Financing activities of discontinued operations ...........................                  (28,541)
      Principal payment on long-term debt .......................................     (21,865)     (41,417)
                                                                                     ---------     -------


                     Net cash provided by financing activities ..................     108,900       33,673
                                                                                    ---------    ---------

Net (decrease) increase in cash and cash equivalents ............................      (2,190)      48,767

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

Cash and cash equivalents at end of quarter .....................................   $  29,790    $  76,842
                                                                                    =========    =========

                                                                                   
Supplemental disclosures of cash flow information
      Cash paid during the quarter for interest .................................   $  27,502    $  20,259
                                                                                    =========    =========
</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  months ended March 31, 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,  1995 and 1994  included in the  Company's 1996 Annual
      Report to the Securities and Exchange  Commission on Form 10-K.The results
      for the three months ended March 31, 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 and 3,891,274,  respectively,  for
      the three months ended March 31, 1997 and 1996.

3.    Consolidated Financial Statements

      For the quarter ended March 31, 1997, all material  intercompany  accounts
      and transactions have been eliminated in consolidation.

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

                                                  1997             1996
                                                  ----             ----
                                                
          Finished goods                       $ 75,992         $ 52,795
          Work-in-process                       195,851          235,483
          Raw material and supplies             584,461          584,013
          Reserve for obsolete inventory       (121,864)        (121,864)
                                               --------         -------- 
                                               $734,440         $750,427
                                               ========         ========

4.    Impact of Recently Adopted Accounting Standards

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

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



<PAGE>


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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

         The  following  Management  Discussion  and Analysis  contains  certain
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act  of  1995,  including,  among  others:  (i)  results  of
operations  (including expected changes in the Company's gross profit margin and
general,  administrative  and selling  expenses);  (ii) the  Company's  business
strategy for increasing sales; (iii) the Company's strategy to increase its size
and customer base; (iv) the Company's ability to successfully  increase its size
through   acquisition/merger   activity;   and  (v)  the  Company's  ability  to
distinguish itself from its current and future competitors.

         These  forward-looking  statements  are based  largely on the Company's
current  expectations  and are  subject to a number of risks and  uncertainties.
Actual results could differ  materially from these  forward-looking  statements.
Important  factors to consider in  evaluating  such  forward-looking  statements
include  (i) delays in the release of new  products or new  versions of existing
products; (ii) the shortage of reliable market data regarding the telephone call
management  and  contract  manufacturing  industries  market;  (iii)  changes in
external  competitive  market  factors or in the  Company's  internal  budgeting
process which might impact trends in the Company's  results of operations;  (iv)
anticipated  working  capital or other  cash  requirements;  (v)  changes in the
Company's  business  strategy or an  inability  to execute its  strategy  due to
unanticipated  changes in the market; and (vi) various  competitive factors that
may prevent the Company from competing successfully in the marketplace. In light
of these  risks and  uncertainties,  there can be no  assurance  that the events
contemplated by the  forward-looking  statements  contained  herein will in fact
occur.

Results of  operations  for the three  months  ended March 31, 1997  compared to
March 31, 1996

         Consolidated  net sales for the first quarter of 1997  decreased 26% to
$1,368,599  when compared to $1,839,006 of net sales for the first quarter 1996.
The decrease is  primarily  due to reduced  sales in the contract  manufacturing
sector of $495,341 or 37% for the first  quarter of 1997,  due to lower  overall
industry  sales,  increased  product  competition,  and timely product  delivery
problems.  The decrease in contract  manufacturing  sales was offset somewhat by
increased  sales of $58,288  or 12% in the  telecommunication  products  for the
first quarter of 1997.  This increase was mostly due to sales from new products,
INN-FORM EXPRESS and WIN-SENSE.

         Gross  profit  decreased  to  $632,058,  a  reduction  of $49,085  when
compared to gross profit for the first  quarter of 1996 of  $681,143.  The gross
profit margin as a percentage of sales  increased to 46.2% for the first quarter
of 1997,  compared  to 37% for the first  quarter of 1996.  The  increase in the
gross  profit  margin as a percent of sales is due  primarily to the lower sales
levels and higher margins in the contract manufacturing sector which represented
62% of total sales in 1997, compared to 73% of total sales in 1996. The contract
manufacturing sector's gross profit margin increased from 22% in 1996 to 29% for
the first quarter of 1997.

         For the first quarter of 1997,  total  research and  development  costs
including  amortization of previously  capitalized  development  expenses,  were
$57,579  compared  to $66,750  for the same  period in 1996.  Management  of the
Company believes that it will be necessary to increase its level of research and
development  in 1997 to keep  its  current  product  line up to date and to take
advantage of technology changes which the Company expects to develop.

         Selling,  general and administrative expenses decreased to $705,719, or
3%, for the first  quarter of 1997,  when  compared  to  $726,166  for the first
quarter of 1996.  The decrease in  administrative  expense was offset by selling
expense associated with the WIN-SENSETM product introduction. As a percentage of
net  sales,  administrative  expenses  were 52% for the first  quarter  of 1997,
compared to 40% for the first quarter of 1996. Management intends to continue to
reduce administrative expenses until such time that sales activities warrant any
expansion and/or growth.



<PAGE>



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

         The Company reported a consolidated net loss from continuing operations
for the first  quarter of 1997 of $83,431,  or $.02 per share.  This is a slight
decrease  when  compared to the first  quarter net loss of $67,675,  or $.02 per
share for the same  period in 1996.  Management  of the  Company  believes  that
profitability  will improve in the second  quarter as a result of  reductions in
expenses,  increased sales from  telecommunication  products, and improved gross
profit margins.

Liquidity and Capital Resources

         As of March 31, 1997, the Company reported current assets of $1,956,853
and current  liabilities  of  $1,505,697,  resulting  in net working  capital of
$451,166.  This is a decrease of $56,501 when compared to net working capital of
$507,667 at December 31, 1996. Working capital provided by financing  activities
was used to purchase equipment of $13,814,  for capitalized software development
costs of  $31,175,  and to reduce  accounts  payable of  $146,113.  The  Company
utilized its line of credit which increased by $130,765.  These  borrowings were
used to fund working capital needs and to reduce long term debt by $21,865.  The
Company is in violation of certain  debt  covenants  under the terms of its loan
agreements.  Though the Company has obtained  waivers of these  violations,  the
Company  will  not  pursue  the  appropriate  waivers  for  expected  violations
subsequent to March 31, 1997, from the lending  institution  because the Company
has been notified that this line of credit will not be renewed in May, 1997. The
Company  expects to refinance this line of credit by entering into a new line of
credit with similar terms with a different  lender.  If the Company is unable to
obtain  a new line of  credit  with  another  lender,  it  would  not be able to
continue  to  operate  at its  current  level.  The  Company  has  entered  into
negotiations  with  lending  institutions  to replace this line of credit and is
considering various alternatives,  including the refinancing of real property to
raise additional funds. The Company is continuing its efforts to find additional
financing  through  investment  equity  which may be needed to fund  operations,
future  acquisitions  and final  development and marketing of new products under
consideration. The Company is evaluating its existing system for compliance with
the year 2000 and has not  determined  the  modifications,  if any, that will be
required. 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 generate a profitable
level of sales.










                      (THIS SPACE INTENTIONALLY LEFT BLANK)




<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
April 15, 1996,  the Company  filed a complaint in the Third  Judicial  District
Court of Salt Lake City, Utah, against the Plaintiffs for breach of "non compete
agreements" and breach of a "Severance Agreement" between the Plaintiffs and the
Company  and on  February  24,  1997,  the  company  filed a Motion for  Summary
judgment in this matter,  which is awaiting  oral  argument.  In  addition,  the
Company has filed a complaint with the American Arbitration  Association,  which
is being held pending the outcome of certain legal  hearings.  On April 9, 1996,
the Superior  Court of Santa Clara,  California,  heard and denied the Company's
motion to compel  arbitration.  In July,  1996,  the Company  filed an appeal to
reverse this decision with the Sixth  Appellate  District in the Court of Appeal
of the State of California. On February 18, 1997, this appeal was denied.

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibit 27 - Article 5  Financial  Data  Schedule  for the quarter
                ending March 31, 1997.

         (b). Reports on Form 8-K:

                No reports on form 8-K were filed in the first quarter of 1997.











                      (THIS SPACE INTENTIONALLY LEFT BLANK)



<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:  May 15, 1997                                By:  /s/ Stephen M. Nelson
--------------------                                --------------------------
                                                    Stephen M. Nelson
                                                    President and Treasurer


Dated:  May 15, 1997                                By:  /s/ Melody Rasmussen
---------------------                               ---------------------------
                                                    Melody Rasmussen
                                                    Controller
                                                    and Chief Financial Officer