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

                                   FORM 10-KSB

  (Mark One)

[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, or

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ----------- TO --------------

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

                                TELS Corporation
                 (Name of small business issuer 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: (801)756-9606

             Securities registered under Section 12 (b) of the Act:
                                     "None"

             Securities registered under Section 12 (g) of the Act:
                          Common Stock, $.02 par value

Check  whether  the issuer  (1) has 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 NO __X

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B contained in this form,  and no disclosure  will be contained to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's revenues for its most recent fiscal year were $3,010,025.

The aggregate market value of the voting common equity held by non-affiliates of
the registrant as of March 31, 2000, was approximately $1,552,836.

The issuer had issued and  outstanding  3,891,819  shares of its Common Stock on
March 31, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

Those  sections of portions of the  registrant's  2000 Proxy  Statement  for its
Annual Meeting of Shareholders to be held on June 19, 2000, are  incorporated by
reference into Part III hereof.
<PAGE>

                                     PART I
Item 1. Business

Introduction
------------

         TELS CorporationTM, ("TELS"TM, "Company" or "Registrant" - OTC Bulletin
Board: "TELS") is a Utah Corporation,  incorporated in February,  1981, with its
principal executive offices at 705 East Main Street, American Fork, Utah, 84003,
telephone number (801) 756-9606.

         MICROMEGA  CORPORATIONTM  ("MICROMEGA") is a wholly-owned subsidiary of
TELS  Corporation.  MICROMEGA  was  formed in March,  1991,  for the  purpose of
providing  research  and  development  services  for TELS and  other  companies.
MedTech, Inc., dba Interro, a wholly-owned  subsidiary of MICROMEGA,  was formed
in April, 1991, for the purpose of providing further  development of the Interro
medical  electronics  product.  The Company  permanently closed down all MedTech
operations in 1999,  consisting only of occasional  service  activities since no
Interro  products have been sold for several years,  and disposed of all related
inventory and equipment, all obsolete.

         D. J. GunTEL,  Inc. TM, was formed on May 21, 1993,  as a  wholly-owned
subsidiary of TELS for the purpose of operating the personal  computer  ("P.C.")
reseller division of the Company. This subsidiary was established as a result of
the  acquisition  of the  assets  of  Computer  Express  in 1993  and  also  the
acquisition of the assets of Micro Station in 1994.  Computer  Express and Micro
Station  operated as dba's under D. J. GunTEL,  Inc. The Company  operated  this
P.C.  reseller division through January 1996, at which time the Company made the
decision to  discontinue  all P.C.  reseller  operations  (by closing all of the
Computer  Express  operations  and selling the assets of Micro  Station to Micro
Station  Corporation on March 31, 1996). The Company permanently closed down all
D. J. GunTEL  operations in 1999 since no  operations  had been carried out here
for several years.

         Hash Tech, Inc. TM ("HTI"TM),  a Utah corporation,  was formed on March
31, 1994, as a wholly-owned  subsidiary of TELS for the purpose of operating the
contract manufacturing and assembly division of TELS. This subsidiary was formed
as a  result  of the  acquisition  of the  assets  of Hash  Tech,  a  California
corporation,  on March 31, 1994,  by TELS.  The Company  operated  this contract
manufacturing and assembly division until  mid-November  1999, at which time the
Company made the decision to discontinue all contract manufacturing and assembly
operations (by permanently closing all HTI operations on November 19, 1999).

         TEL electronics,  inc.(R) ("TEL"TM),  was formed on September 26, 1994,
as  a  wholly-owned  subsidiary  of  TELS  for  the  purpose  of  operating  the
telecommunications  business of TELS.  TEL designs,  builds,  sells and services
microprocessor-based  computer  systems for  telecommunications  applications in
various industries, particularly the lodging industry. TEL's diversified line of
telephone  call  management  products are also used in business,  education  and
government  applications,  where they cost-effectively bill and record telephone
system  usage.  TEL also  supplies  interactive  voice  response and  processing
systems and telecommunications specialty products.

General
-------

         TELS'  telecommunications  products  are  used to  provide  management,
accounting,  and  billing  information  to  various  business,   education,  and
government entities, but primarily to the lodging industry.



                                       2
<PAGE>

Products and Services
---------------------

         The Company distributes its telecommunication products through dealers,
distributors,  management  companies and national account chains  throughout the
United States.

         INN-FORM/XL(R),  INN-FORM PLUS(R).  The INN-FORM/XL  provides immediate
on-site billing data,  permitting  hotel/motel guests to make direct-dialed long
distance calls and  eliminating  costly  operator-assisted  calls.  The INN-FORM
PLUS, a larger version of the INN-FORM/XL,  includes many business  features and
is ideal  for  larger  hotels  and  motels  with gift or other  shops,  or other
business needs.

         WIN-SENSETM. This Windows(R)-based business call accounting PC software
system, introduced in 1997, has been designed to compete favorably with software
products  in  the  telephone  call  accounting  business   applications  market.
WIN-SENSE has graphical  representations  in full color, with intuitive commands
and processes.

         The INN-FORM/XL(R),  INN-FORM PLUS(R) and WIN-SENSETM  products account
for a majority of the Company's telecommunications sector sales, followed by the
INN-SURETM, which provides answer detection and verification for phone calls.

         TEL-SENSE(R)  and  TEL-SENSE/K(R).  These products track business phone
usage and record time spent and  charges for  telephone  calls.  These  products
operate   automatically,   reducing  clerical  errors  and  accounting   effort.
TEL-SENSE/K is for smaller key telephone systems.

         TEL-SENSE/PCSTM.  This  product is  targeted  for and used by  personal
computer ("PC") owners.  Product advantages include disk storage for millions of
calls;   interfaces  for   spreadsheet  and  data  base  programs  to  customize
reports/analyses; toll fraud detection; cost control; and trunk planning.

         INN-SURETM.   This  product   provides  answer   detection-verification
information. In many cases, telephone bills generated by long-distance companies
(and  typically  by most  companies,  to include  hotels and  motels)  have been
computed based upon an assumption as to whether a call was answered or not - and
not upon any exact method of knowing  whether such calls  actually are answered.
Thus,  short  answered  calls go  incorrectly  "un-billed" - a loss of revenue -
while longer unanswered calls are incorrectly  billed,  causing  complaints from
customers.  The INN-SURE provides "answer detection" and "answer  verification",
solving these  problems by accounting for (and billing,  in resale  systems) all
answered  calls  regardless of duration and by ignoring  unanswered  calls.  The
INN-SURE system increases  revenues and reduces customer  complaints,  providing
excellent capabilities for any type of business.

         Management believes that the future success of any of its products will
require closer relationships between TELS and its major customers. TEL continues
to provide  additional  services and discounts to its volume  telecommunications
dealers and these  programs  are expected to continue.  Several  activities,  to
include  special  volume  promotions,   support  and  upgrade  agreements,   new
advertising  methods,  etc., are now in place and should help TEL to continue to
improve relationships with major dealers, in particular.

         The Company  plans to continue its travel  program,  attending  various
trade shows and visiting with major dealers from time to time. In addition,  key
management  personnel are involved in travel to coordinate the various  business
activities of TELS.

         Management  believes computer technology will continue to evolve and be
a dominant  element in the  telecommunications  industry.  TELS recognizes major
telecommunications  industry  changes ahead as a result of changes in the "NANP"
(North American  Numbering Plan) and "NADP" (North American Dialing Plan), which
went into effect in 1995. The Company  expects its  telecommunications  products

                                       3
<PAGE>

and/or  enhancements  will  need to be  further  developed  to meet the  changes
expected in 2000 and beyond.  The Company  expects a  continuing  demand for its
products as these future changes occur.

Research and Development
------------------------

         The  Company  spent  $153,108  and  $155,727,  in  addition  to certain
capitalized expenses, on research and development  activities in the years ended
December 31, 1999 and 1998, respectively.  All research and development expenses
for the Company were for activities at or through MICROMEGA.

         TELS formed and operates  MICROMEGA  as a  wholly-owned  subsidiary  to
create an environment  where  engineering  personnel are part of a larger entity
and also to solicit outside contracts with entities other than TELS. The Company
believes that this  arrangement  improves the efficiency and quality in research
and development.  MICROMEGA carried out all research and development for TELS in
1999.

Competition
-----------

         The  telecommunications and computer industries are highly competitive.
The Company competes with a number of manufacturers  and distributors of similar
telecommunications  products,  some of which have a longer operating history and
greater financial strength,  manufacturing  capabilities and name recognition in
the marketplace. In addition, some large telecommunications  companies and other
companies incorporate call accounting, answer detection, voice processing and/or
other  capabilities  into  their  own  products,  which  they sell  directly  or
indirectly into the same marketplace addressed by the Company's products.  There
can be no assurance that the Company will be able to compete  successfully  with
these companies in the future.  Additionally,  there are relatively few barriers
to entry  into this  marketplace.  Because  of the  divestiture  by AT&T and the
changing  regulatory  climate,  AT&T and the regional BELL  operating  companies
("RBOCs") have begun  competing  with the Company and the Company's  dealers and
distributors.  The Company's  ability to meet this competition will depend upon,
among other things, the Company's ability to expand sales capabilities;  attract
management as well as technical and marketing personnel; develop enhancements to
existing  products;  develop and market new  products;  and obtain  financing as
needed.

         There can be no  assurance  that the  Company  will be able to  compete
successfully with these companies or other telecommunications competitors in the
future.

Changing Marketplace
--------------------

         As a result  of  governmental  actions,  AT&T has been  divided  into a
number of  independent  public  companies,  each with a  separate  and  distinct
charter.  Each  of  these  independent  companies  has a  major  impact  on  the
telecommunications  industry. AT&T and the RBOCs are aggressively pursuing their
independent  activities,  while  evolving  technologies  are  creating  many new
opportunities   for   wireless,   cable   and   utilities   companies   in   the
telecommunications marketplace. As a result of changes in the telecommunications
industry, there can be no assurance that the Company's products will continue to
find a  receptive  marketplace.  These  changes  have  adversely  affected  many
dealers,  distributors,  and manufacturers in the  telecommunications  industry.
Since major  competitive  forces in the  telecommunications  industry  exist and
since new  technologies may tend to favor larger and  better-financed  companies
with their often  entrenched  distribution  networks,  there can be no assurance
that a dealer and  distributor  network  will  continue to exist in its previous
form or, if such exists,  that the network  will  consist of enough  dealers and
distributors  committed to TELS'  products  sufficient  to generate a profitable
level of sales for TELS.

                                       4
<PAGE>

Competitive Strategy
--------------------

         Management believes the Company's products compete on the basis of (i):
product quality, meaning features, technology,  reliability,  simplicity of use,
price, and size and (ii): service quality,  meaning responsive  customer support
and company personnel  dedicated to profitably  satisfying every customer.  From
the outset,  the  Company's  telecommunications  products have been designed for
small  and  medium-sized   hotels,   professional  firms  and  general  business
establishments.  TELS' telecommunications products are based on state-of-the-art
technologies and designs, yet are relatively simple in function, with the result
that they may be priced lower than  competitors'  products  without  sacrificing
profit   margin.   Management   believes  that  the  wholesale   prices  of  its
telecommunications  products are competitive relative to their features, thereby
allowing  the  end-user's  price  to be  lower  than  or  close  to  that of its
competitors.  The Company has seen a general  reduction in the retail  prices of
certain of its competitors'  telecommunications  products,  and thus the Company
cannot predict at present  whether it will continue to enjoy its current pricing
advantage.  Moreover,  there can be no assurance that the price of the Company's
telecommunications products will not increase.

         TELS'  stand-alone  telephone call accounting  products are designed to
include advanced features,  to occupy a minimum amount of space, to be very easy
to use,  and to sell at  competitive  prices.  The small  physical  product size
(smaller than an average size telephone)  provides a competitive  advantage over
the larger and more bulky equipment marketed by many competitors.

Proprietary Rights
------------------

         TELS does not  currently  hold,  nor has it applied  for,  any patents.
Management  does not believe that the Company's  business is dependent  upon the
acquisition of patents.  TELS always seeks special copyright  protection for its
names, software and developmental  products. The Company designs its own printed
circuit boards and software for use in its  telecommunications  products.  TELS'
proprietary  telecommunications  software is either  imbedded in machine code in
microprocessor  memories or is available on protected,  but standard,  PC discs.
Management  believes that the circuit boards and the software would be difficult
to "reverse engineer".  The Company continues to take steps to protect its trade
names and trademarks and the products and software it develops through licensing
or  other  approaches  designed  to  contractually   protect  TELS'  proprietary
information.  There can be no assurance that  competitors may not  independently
develop  the same or  similar  technology  or  obtain  access  to the  Company's
proprietary  technology.   TELS  has  no  proprietary  rights  to  the  products
previously marketed in its computer sector businesses.

Manufacturing and Supply
------------------------

         TELS'   telecommunications   products  are  assembled  from  components
manufactured by unaffiliated  suppliers and designed for modular assembly.  This
approach permits efficient use of the Company's production staff in the assembly
and  testing of these  purchased  items and the end  products.  The  Company has
designed its own printed  circuit  boards for its  telecommunications  business,
which   are   manufactured   to   TELS'    specifications   by   subcontractors.
Telecommunications  products are generally  designed to permit  multiple  source
procurement,  and it is TELS' policy to develop  multiple  sources of supply for
components  it uses.  There have been  occasional  shortages  of the  electronic
components  included  in TELS'  telecommunications  products,  and,  during such
periods, suppliers have rationed the available components among their customers.
TELS may experience  manufacturing  delays,  sales delays,  additional  costs or

                                       5
<PAGE>

contract  cancellations  if  certain  of its  suppliers  should  fail to deliver
sufficient  computer products.  To date,  management  believes that TELS has not
been  materially  adversely  affected  by any  failure of  suppliers  to deliver
systems or components on schedule.

Customer Service
----------------

         The Company's  telecommunications products are serviced by its dealers,
with  assistance as required from TEL  employees.  It has been TELS'  experience
that its products  have not required a  significant  amount of customer  service
support because of their design, simplicity and reliability.

         Each of the Company's call  accounting  products now carries a two year
limited  warranty  covering the material and  workmanship  of the entire system,
including the material and  workmanship of the systems'  printed  circuit boards
and electronic components. Other Company telecommunications products carry a one
year warranty. Products purchased for resale, such as printers, computers, etc.,
carry the original manufacturer's warranty only.

Federal and State Regulations
-----------------------------

         The FCC has adopted  regulations with respect to the interconnection of
communications  equipment with telephone lines and  regulations  with respect to
radiation  emanations  of  certain  equipment.  TELS  has  complied  with  these
regulations and received all necessary FCC approvals for its  telecommunications
products,  or has  submitted  products  for  testing  and  certification  and is
submitting  all new products that the Company  believes  should be submitted for
such testing as they are completed.  TELS anticipates that the new products will
be approved, but there can be no assurance that such approvals will be obtained.
Products  purchased  for resale,  such as  printers,  computers,  etc.,  include
original manufacturer's certifications of compliance with FCC regulations.

         Rulings by the FCC adopted in 1976 and 1980 permit  users of the public
switched  network  services,   i.e.,   hotels,   network   managers,   equipment
manufacturers, and other potential resellers, to earn revenues through resale on
telephone calls.  These rulings have enabled hotel and other users of the public
switch network  services to convert their  telephone  operations  centers from a
service or a convenience to a potential profit center.

Employees:  As of December 31, 1999, the Company had 28 full-time employees.
----------

Item 2. Properties

         The Company  currently owns and occupies a facility with  approximately
15,000  square feet of space in American  Fork,  Utah,  which was  purchased  on
August 15, 1984,  and includes a 4,800 square foot  addition  completed in 1988.
This  facility  houses  the  Company's  telecommunication,   administrative  and
research and development  offices. The Company leases a 15,000 square foot space
in a building  located in Santa Clara,  California,  which  formerly  housed the
contract manufacturing and assembly operation, but which was subleased beginning
on November 19, 1999.  Payments  from the  sublessor  are equal to the amount of
payments by the Company and, per the  sublease,  are to be made  directly to the
lessor.  It is anticipated  that the lessor and sublessor will rewrite the lease
and the Company  will be removed  from the process  entirely in the near future.
Management  believes that the American Fork facility is adequate for  operations
and  production  needs at current  and the near  future  anticipated  production
levels.


                                       6
<PAGE>

Item 3. Legal Proceedings

         As a result of closing HTI and the contract  manufacturing and assembly
division  totally  and  ceasing  all  related  operations,  two claims have been
lodged.  The California  Department of Labor has sent documents to TELS covering
alleged vacation pay owed by HTI to a number of HTI's former employees, in total
alleged to be approximately  $25,000. In addition, one HTI vendor has filed suit
against HTI in the Santa Clara District Court concerning  approximately  $50,000
allegedly owed and unpaid by HTI.

Item 4. Submission of Matters to a Vote of Security Holders.

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of fiscal year 1999.
















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                                       7
<PAGE>



                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Market Listing
--------------

         The  Company is  currently  listed on the OTC  Bulletin  Board with the
symbol  "TELS".  The OTC Bulletin  Board is run by the National  Association  of
Securities  Dealers  ("NASD")  and is  maintained  by  Nasdaq  as an  electronic
trade-and-quote-reporting forum.

Price Range of Common Stock
---------------------------

         Effective  September  30, 1998,  the  Company's  common  stock  started
trading on The NASD OTC Bulletin  Board under the symbol  "TELS".  The following
table  sets  forth  the  range of high and low  sales  prices  per  share of the
Company's  common  stock  for the  calendar  quarters  indicated,  as  reported.
Quotations  represent actual  transactions in NASD and Nasdaq's quotation system
but do not include retail markup, markdown or commission.

<TABLE>
<CAPTION>

1999                        High              Low             1998                High             Low
-----                      -----              ---             ----                ----             ----
<S>                        <C>              <C>              <C>               <C>              <C>
First Quarter              $  .14           $  .06           First Quarter     $   .50          $  .34
Second Quarter                .30              .08           Second Quarter        .58             .41
Third Quarter                 .52              .18           Third Quarter         .59             .25
Fourth Quarter                .41              .11           Fourth Quarter        .31             .06
</TABLE>

Approximate Number of Equity Security Holders:
----------------------------------------------

         As of March 31, 2000, there were  approximately  1,000  shareholders of
record of the Company's common stock.  Included in the number of shareholders of
record are shares held in  "nominee"  or "street"  names.  Because  many of such
shares are held by brokers and other institutions on behalf of shareholders, the
Company is unable to estimate the total number of shareholders reported by these
record holders.

Dividends:
----------

         The  Company has not paid  dividends  to date and intends to retain its
future  earnings to finance the  development  and growth of its business.  Under
loan  agreements,  the Company is required to obtain  permission from the lender
for the payment of any cash  dividends.  The Company intends for the foreseeable
future  to  continue  the  policy of  retaining  its  earnings  to  finance  the
development and growth of its business.

Item 6. Management's Discussion  and Analysis of Financial Condition and Results
        of Operations

         The  following  discussion  should  be read  in  conjunction  with  the
Company's  Consolidated Financial Statements and the Notes thereto, all included
elsewhere herein.



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                                       8
<PAGE>

Results of  Operations
----------------------

         Overall  sales  continued  to  decrease in 1999 at HTI,  the  Company's
contract  manufacturing and assembly division.  The reduction in HTI sales had a
major  impact on the  profitability  and cash flow of the  Company.  The Company
invested  significant  efforts and monies in the HTI business for over a year in
the belief that the business  could be restored to its previous  levels.  During
this time,  the HTI business was  evaluated at every step along the way.  Around
the  middle of 1999,  new  information  came to light  that led the  Company  to
recognize  that HTI was in a more  serious  situation  than had been  previously
understood,  so the Company evaluated various alternatives to sell or close HTI.
Negotiations  with a merger candidate that proposed an acceptable  resolution of
the HTI situation entered final stages in the fall, but the candidate  abandoned
the process in October  1999.  It became  obvious that HTI would cause a serious
loss  for the  Company  for  1999.  Investments  into  HTI  ceased  and top TELS
management  made a number  of  personnel  changes,  terminating  several  senior
managers.  Due to the  worsening  situation,  it was not possible to finance the
continuing  losses at HTI,  provide  sufficient  investments  to  return  HTI to
profitability and maintain TELS as a viable company.  HTI was permanently closed
in late November 1999.

         Consolidated net sales for continuing  operations in 1999 increased 15%
to $3,010,025 from $2,604,203 in 1998. The increase in sales is due primarily to
increased sales  activities in the business and lodging call  accounting  areas,
due to increased  business  construction  in several  parts of the country,  and
major efforts to sign various support and upgrade agreements with customers. Due
to planned  product  enhancements  and new  products  expected to be  introduced
during  2000,  the  Company  anticipates  that sales to  national  accounts  and
dealers, and sales of business call accounting systems, will increase in 2000.

         Consolidated  gross profit for continuing  operations  increased 14% or
$278,613 in 1999. The gross profit for continuing operations in 1999 represented
75% of sales. In 1998, gross profit of $1,991,632  represented 76% of sales. The
change in gross profit is due to changes in the sales mix from 1998 to 1999.  In
2000,  the  Company  anticipates  that  the  gross  profit  percentage  will  be
consistent with 1999 results.

         The consolidated research and development expense of $153,108 for 1999,
as compared to  $155,727  for 1998,  continues  to consist  mostly of  personnel
expense for  development  and  enhancement  projects.  The Company is continuing
efforts  in  research  and  development  for  enhanced  and new  products  to be
introduced into its markets.  As opportunities to improve existing  products and
to introduce new products arise,  the Company may need to increase  research and
development activity in the near future.

         Consolidated selling, general and administrative expenses increased 24%
to $2,416,398  for 1999 when compared to $1,943,475  for 1998.  This increase in
1999 is attributable to non-recurring activities related to expenses relating to
HTI operations and closure, legal expenses and refinancing of the Company's line
of credit.  In 1999 the Company  incurred  expenses  relating to a major  merger
process that was not successful and for legal fees involving  litigation and the
closure of HTI.  Management  anticipates  that it will need to make a  concerted
effort  to  reduce  expenses  in 2000 in all  operations  of the  Company  as it
continues to focus its efforts toward increased  profitability.  As a percentage
of consolidated net sales, selling, general and administrative expenses were 80%
in 1999 compared to 75% in 1998.




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                                       9
<PAGE>

         For 1999,  the Company  reported a loss from  continuing  operations of
$(299,261) or $(.08) per share, compared to a loss from operations of $(107,570)
or $(.03) per share for 1998. The net loss for 1999 was  $(1,118,385)  or $(.28)
per share compared to the net loss of  $(1,993,963) or $(.51) per share in 1998.
Continued losses,  in general,  are attributable to the decline in sales related
to contract  manufacturing  and  assembly  operations  and the closure of HTI in
November  1999.  Losses  were also  partly due to  increases  in  administrative
expenses,  primarily legal and acquisition expenses,  surrounding the closure of
HTI and merger  activities.  The  increased  loss from  operations  in 1999,  as
compared to 1998, is attributable  to significant  investments of time and money
made  in 1998  and  1999 to  assist  the  contract  manufacturing  and  assembly
operation to return to profitability and to negotiate merger possibilities.  The
reduction in net loss for 1999, as compared to 1998, is mostly  attributable  to
the Company's  total  discontinuance  of such  investments  in early 1999 and an
emphasis on cost reductions. The Company has continued with its decision to keep
a valuation allowance at a level to fully offset its net deferred tax asset.

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

         In 1999,  the Company  negotiated a new line of credit.  This  $750,000
line  consists  of a line for the  telecommunications  division,  which  remains
active,  and a line for the  discontinued  contract  manufacturing  and assembly
division,   inactive  since  November  1999.  The  line  is   collateralized  by
receivables,  inventory,  other assets,  a second  mortgage on the American Fork
property and a personal guarantee by an Officer.

         As the  HTI  business  diminished,  losses  mounted  and  the  contract
manufacturing  and  assembly  division was closed  down,  the Company  sought to
restructure  the HTI  portion of its line into a one-year  note with the secured
lender. As of April 10, 2000, the discontinued operations line was approximately
$120,000 and the telecommunications  operations line was approximately $122,000,
although  the   telecommunications   line  varies  with  sales  and   collection
activities.  During  the last half of 1999,  an  Officer  provided  loans to the
Company  totaling over $80,000 and two Officers  added other loans totaling over
$70,000 during early 2000.

         At December 31, 1999, the Company reported that current  liabilities of
$1,492,246 exceeded current assets of $589,587 by $902,659.

         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.

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

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

Effects of Inflation
--------------------

         The  Company's  operations  have not  been  significantly  affected  by
inflation during the periods covered in this report.


                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       10
<PAGE>

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

         The    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  which  might  affect the  Company;  (iv)
anticipated  working capital or other cash  requirements and inability to obtain
financing;  (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.

         The Company's  sales of telephone call accounting  systems  continue at
levels somewhat below 1999 in the first quarter of 2000 and management  believes
that this trend will continue for the immediate  future,  with increased  sales,
compared  to  1999,  expected  in the  summer  and  fall of  2000.  The  expense
reductions implemented in the telecommunications area in the latter part of 1999
and the first  quarter of 2000,  coupled with  ongoing  expense  reductions  and
expected  increased  sales  of  telephone  call  accounting   products  and  the
diminishing  affect of  discontinued  operations,  should all add to improve the
Company's operating results in 2000.

         The  Company  has  incurred  significant  losses in the last two years,
creating a working  capital  deficit at December 31, 1999. The net loss for 1999
is  attributable  to the decline in revenues in the contract  manufacturing  and
assembly division, which was shut down completely on November 19, 1999.

         Although  the Company has  discontinued  its losing  operations  in the
contract manufacturing and assembly division and although the telecommunications
division has improved  operations in early 2000 as compared to 1999, there is no
assurance  that the cash flows or profits from the  telecommunications  division
will continue,  or, if they do, that such will provide the basis for the Company
to  sustain  ongoing  operations.  There is also no  assurance  that  pressures,
distractions and  requirements  that could affect the Company because of the now
defunct  contract  manufacturing  and  assembly  division  will  not  materially
adversely affect the Company.

         The Company's business and products may be significantly  influenced by
the constantly  changing body of regulatory laws and  regulations  which require
that certain regulatory standards be met and impose liability for the failure to
comply  with  such  standards.  While  the  Company  endeavors  at  each  of its
facilities to assure compliance with regulatory laws and regulations,  there can
be no assurance  that the  Company's  operations  or  activities,  or historical
operations  by others at the  Company's  locations,  will not result in civil or
criminal  enforcement  actions  or  private  actions  that could have a material
adverse effect on the Company.

                                       11
<PAGE>

         The Company's future operating  results depend in part upon its ability
to retain and attract qualified engineering,  manufacturing,  technical,  sales,
and support  personnel for its  operations.  Competition  for such  personnel is
intense and there can be no  assurance  that the Company will be  successful  in
attracting or retaining  such  personnel.  The failure to attract or retain such
persons could materially  adversely affect the Company's business and results of
operations.

         The  Company's  success  will  depend  in  significant  part  upon  the
continued contributions of its officers and key personnel,  many of who would be
difficult to replace.  The loss of any key person could have a material  adverse
effect on the  business,  financial  condition  and results of operations of the
Company.

Impact of Recently Issued Accounting Standards
----------------------------------------------

         In June 1999, the FASB issued SFAS No. 137,  "Accounting for Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  date of FASB
Statement  No. 133. The Company  believes that the adoption of SFAS 133 will not
have any material effect on the financial statements of the Company. In December
1999,  the Securities and Exchange  Commission  ("SEC") issued Staff  Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements, which
provides guidance on the recognition,  presentation and disclosure of revenue in
financial  statements  filed with the SEC. SAB 101  outlines the basic  criteria
that must be met to  recognize  revenue and  provides  guidance  for  disclosure
related to  revenue  recognition  policies.  Though  the  Company  is  currently
evaluating  the  impact  (if any) of SAB 101,  the  Company  does not  presently
believe it will have a material  effect on the  financial  position or result of
operations of the Company.

Item 7. Financial Statements and Supplementary Data.

         The following  constitutes a list of Financial  Statements  and related
notes as required in Part II of this report.

                  Report of Tanner + Company.
                  Report of PricewaterhouseCoopers, LLP.
                  Consolidated Balance Sheet as of December 31, 1999.
                  Consolidated  Statements  of  Operations  for the years  ended
                           December 31, 1999 and 1998.
                  Consolidated  Statements of Changes in  Stockholders'  Deficit
                           for the years ended December 31, 1999 and 1998.
                  Consolidated  Statements  of Cash  Flows for the  years  ended
                           December 31, 1999 and 1998.
                  Consolidated Notes to Financial Statements for the years ended
                           December 31, 1999 and 1998.

Item 8. Disagreements on Accounting and Financial Disclosures. - None.



                      (THIS SPACE INTENTIONALLY LEFT BLANK)


                                       12
<PAGE>

                                                    INDEPENDENT AUDITORS' REPORT






To the Board of Directors and Stockholders of
TELS Corporation


We have audited the accompanying  consolidated balance sheet of TELS Corporation
as of December 31, 1999, and the related consolidated  statements of operations,
stockholders'   deficit,   and  cash  flows  for  the  year  then  ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of TELS Corporation as
of December 31, 1999,  and the results of their  operations and their cash flows
for the year  then  ended  in  conformity  with  generally  accepted  accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  As discussed in Note 2, the
Company  has an  accumulated  deficit,  a deficit  in  working  capital  and has
suffered  significant  losses.  These issues raise  substantial  doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 2. The  accompanying  consolidated  financial
statements do not include any  adjustment  that might result from the outcome of
this uncertainty.


                                   TANNER + Co.

Salt Lake City, Utah
April 7, 2000



<PAGE>
                                             Report of Independent Accountants


To the Shareholders and Board of Directors of
  TELS Corporation and Subsidiaries:

In our  opinion,  the  consolidated  statements  of  operations,  of  changes in
stockholders' equity and cash flows for the year ended December 31, 1998 present
fairly,  in all material  respects,  the results of operations and cash flows of
TELS  Corporation  and its  subsidiaries  (the  "Company")  for the  year  ended
December 31, 1998, in conformity with accounting  principles  generally accepted
in the United States.  These financial  statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based  on our  audit.  We  conducted  our  audit of these
statements  in  accordance  with auditing  standards  generally  accepted in the
United  States  which  require  that we plan and  perform  the  audit to  obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable  basis for the opinion  expressed above. We have not
audited  the  consolidated  financial  statements  of the Company for any period
subsequent to December 31, 1998.

The financial  statements referred to above have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company suffered a significant loss from operations in
1998, has an  accumulated  deficit and has a net working  capital  deficit that,
along with other factors, raises substantial doubt about its ability to continue
as a going  concern.  Management's  plans in  regard to these  matters  are also
described in Note 2. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.


                      PricewaterhouseCoopers LLP


PricewaterhouseCoopers LLP
Salt Lake City, Utah
April 14, 1999





<PAGE>
<TABLE>
<CAPTION>


                                                                                          TELS CORPORATION
                                                                                Consolidated Balance Sheet

                                                                                         December 31, 1999
----------------------------------------------------------------------------------------------------------


              Assets
              ------
<S>                                                                                     <C>

Current asset:
     Cash and cash equivalents                                                          $            3,467
     Accounts receivable, net                                                                      371,714
     Inventories, net                                                                              133,421
     Prepaid expenses                                                                               80,985
                                                                                        ------------------

                  Total current assets                                                             589,587

Property and equipment, net                                                                        442,398
Software development costs, net                                                                     74,775
Cash surrender value of life insurance                                                             107,960
Other assets                                                                                         8,519
                                                                                        ------------------

                                                                                        $        1,223,239
                                                                                        ------------------

----------------------------------------------------------------------------------------------------------
              Liabilities and Stockholders' Deficit
              -------------------------------------

Current liabilities:
     Cash overdraft                                                                     $           22,252
     Accounts payable                                                                              280,278
     Accrued expenses                                                                              300,498
     Current portion of long-term debt                                                             352,187
     Deferred income                                                                               145,736
     Net liabilities of discontinued operations                                                    353,985
                                                                                        ------------------

                  Total current liabilities                                                      1,454,936

Long-term debt                                                                                     399,810
                                                                                        ------------------

                  Total liabilities                                                              1,854,746
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' deficit:
     Common stock, $.02 par value, authorized 50,000,000
       shares; issued and outstanding 3,891,819 shares                                              77,835
     Additional paid-in capital                                                                  4,228,741
     Accumulated deficit                                                                        (4,938,083)
                                                                                        ------------------

                  Total stockholders' deficit                                                     (631,507)
                                                                                        ------------------

                                                                                        $        1,223,239
                                                                                        ------------------


----------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                                                                          TELS CORPORATION
                                                                      Consolidated Statement of Operations

                                                                                  Years Ended December 31,
-------------------------------------------------------------------------------------------------------------------



                                                                             1999              1998
                                                                       -----------------------------------

<S>                                                                    <C>                  <C>
Net sales                                                              $       3,010,025    $    2,604,203
Cost of goods sold                                                               739,780           612,571
                                                                       -----------------------------------

                  Gross profit                                                 2,270,245         1,991,632

Operating expenses:
     Research and development expenses                                           153,108           155,727
     Selling, general and administrative expenses                              2,416,398         1,943,475
                                                                       -----------------------------------

                  Loss from operations                                          (299,261)         (107,570)
                                                                       -----------------------------------

Other income (expense):
     Interest income                                                                   -             4,838
     Interest expense                                                            (80,211)          (76,149)
     Other, net                                                                  (69,891)                -
                                                                       -----------------------------------

                                                                                (150,102)          (71,311)
                                                                       -----------------------------------

                  Loss before benefit (provision) for  income
                  taxes and discontinued operations                             (449,363)         (178,881)

Benefit (provision) for income taxes                                                   -          (843,286)

Loss from discontinued operations, net of income taxes                          (669,022)         (971,796)
                                                                       -----------------------------------

                  Net loss                                             $      (1,118,385)   $   (1,993,963)
                                                                       -----------------------------------

Loss per share - basic and diluted                                     $            (.29)   $         (.51)
                                                                       -----------------------------------

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



----------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                                           TELS CORPORATION
                                                        Consolidated Statement of Changes in Stockholders' Equity (Deficit)

                                                                                     Years Ended December 31, 1999 and 1998
---------------------------------------------------------------------------------------------------------------------------




                                             Common Stock        Additional                                    Stockholders'
                                       ---------------------       Paid-in      Accumulated        Deferred      Equity
                                          Shares      Amount       Capital        Deficit        Compensation    (Deficit)
                                       ------------------------------------------------------------------------------------

<S>                                     <C>         <C>          <C>           <C>             <C>             <C>
Balance, January 1, 1998                3,891,819   $ 77,835     $ 4,226,532   $ (1,825,735)   $  (10,175)     $  2,468,457

Amortization of deferred
  compensation                                  -          -               -              -        10,175            10,175

Net loss                                        -          -               -     (1,993,963)            -        (1,993,963)
                                       ------------------------------------------------------------------------------------

Balance, December 31, 1998              3,891,819     77,835       4,226,532     (3,819,698)            -           484,669

Grant of stock options                          -          -           2,209              -             -             2,209

Net loss                                        -          -               -     (1,118,385)            -        (1,118,385)
                                       ------------------------------------------------------------------------------------

Balance, December 31, 1999              3,891,819   $ 77,835     $ 4,228,741   $ (4,938,083)   $        -      $   (631,507)
                                       ------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                          TELS CORPORATION

                                                                      Consolidated Statement of Cash Flows

                                                                                  Years Ended December 31,
----------------------------------------------------------------------------------------------------------



                                                                             1999              1998
                                                                       -----------------------------------

<S>                                                                    <C>                <C>

Cash flows from operating activities:
     Net loss                                                          $  (1,118,385)     $     (1,993,963)
     Loss from discontinued operations                                       669,022               971,796
     Adjustments to reconcile netloss to net cash
       provided by (used in) operating activities:
         Depreciation and amortization                                       234,343               260,603
         Loss on disposal of assets                                            2,868                     -
         Deferred income taxes                                                     -               840,886
         Stock bonuses and amortization of
           deferred compensation                                                   -                10,175
         Stock compensation                                                    2,209                     -
         (Increase) decrease in:
              Accounts receivable                                            124,243                42,227
              Inventories                                                     76,363                15,717
              Prepaid expenses                                                71,165               (13,194)
              Other assets                                                    84,293               (31,641)
         Increase (decrease) in:
              Accounts payable                                               124,903               101,954
              Accrued expenses                                                67,356                85,727
              Deferred income                                                 26,284                20,703
                                                                       -----------------------------------

         Net cash provided by continuing operations                          364,664               310,990
         Net cash used in discontinued operations                           (208,881)             (317,751)
                                                                       -----------------------------------

                  Net cash provided by (used in)
                  operating activities                                       155,783                (6,761)
                                                                       -----------------------------------

Cash flows from investing activities:
     Software development costs                                             (102,911)              (90,252)
     Capital expenditures                                                    (25,905)              (31,536)
     Redemption of investments                                                     -                72,198
     Purchases of investments                                                      -                (4,834)
                                                                       -----------------------------------

         Net cash used in continuing operations                             (128,816)              (54,424)
         Net cash used in discontinued operations                               (812)              (31,678)
                                                                       -----------------------------------

                  Net cash used in
                  investing activities                                      (129,628)              (86,102)
                                                                       -----------------------------------


----------------------------------------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                                                                          TELS CORPORATION
                                                                      Consolidated Statement of Cash Flows
                                                                                                 Continued

----------------------------------------------------------------------------------------------------------



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

Cash flows from financing activities:
     Cash overdraft                                                           22,252                     -
     Net repayments under lin
       of credit agreement                                                   (16,225)                    -
     Payments on long-term debt                                              (37,416)             (189,894)
     Principal borrowings on long-term debt                                   79,623               193,361
                                                                       -----------------------------------

         Net cash provided by continuing operations                           48,234                 3,467
         Net cash (used in) provided by discontinued operations             (134,248)              138,877
                                                                       -----------------------------------


                  Net cash (used in) provided by
                  financing activities                                       (86,014)              142,344
                                                                       -----------------------------------

                  Net (decrease) increase in cash                            (59,859)               49,481

Cash at beginning of year                                                     63,326                13,845
                                                                       -----------------------------------

Cash at end of year                                                    $       3,467      $         63,326
                                                                       -----------------------------------


Supplemental disclosure of cash flow information:                             1999               1998
                                                                       -----------------------------------

Cash paid during the year for:
     Interest                                                          $     117,836      $        130,675
                                                                           -------------------------------

     Income taxes                                                      $       4,800      $          4,800
                                                                       -----------------------------------


----------------------------------------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>


                                                                TELS CORPORATION
                                      Notes to Consolidated Financial Statements

                                                      December 31, 1999 and 1998
--------------------------------------------------------------------------------


1.   Organization and Significant Accounting Policies

Organization
TELS Corporation and its wholly owned  subsidiaries  TEL  Electronics,  Inc., DJ
GunTEL, Inc., Hash Tech, Inc., Medtech,  Inc., and MICROMEGA  CORPORATION,  (the
Company) designs,  manufactures and sells telecommunications and call accounting
products to hotels,  motels and small  businesses  throughout the United States.
During the year ended December 31, 1999, the Company discontinued the operations
of Hash Tech, Inc. (see Note 17). Discontinued operations consisted primarily of
contract production and assembly services for computer and electronics companies
located mainly in California.


Principles of Consolidation
The consolidated  financial  statements  include the accounts of the Company and
its  wholly  owned  subsidiaries.  All  significant  intercompany  balances  and
transactions have been eliminated in consolidation.


Cash and Cash Equivalents
The Company considers all highly liquid investments with original  maturities to
the Company of three months or less to be cash equivalents.


Inventories
Raw  materials  are  stated at the lower of cost or market.  Cost is  determined
using the average  cost  method,  which  approximates  the  first-in,  first-out
method.  Work-in-process  and  finished  goods  are  stated  at the  accumulated
manufacturing cost, but not in excess of market.


Property and Equipment
Property and  equipment  are recorded at cost,  less  accumulated  depreciation.
Depreciation  and  amortization on capital leases and property and equipment are
determined using the straight-line method over the estimated useful lives of the
assets or terms of the lease.  Expenditures  for  maintenance  and  repairs  are
expensed when incurred and betterments are capitalized. Gains and losses on sale
of property and equipment are reflected in the statement of operations.


--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



1.   Organization and Significant Accounting Policies Continued

Software Development Costs
The Company  capitalizes  certain costs  associated with development of software
that will be sold as part of its principal products. Amortization of these costs
is  calculated  using the  straight-line  method  over 24 months or the ratio of
current year gross  revenue to total  current and  anticipated  gross  revenues,
whichever results in the greater annual amortization.


The  realizability of software  development  costs is evaluated  periodically as
events or  circumstances  indicate a possible  inability to recover the carrying
amount.  Such evaluation is based on various  analyses,  including cash flow and
profitability projections.


Revenue Recognition
Revenues were derived primarily from sales of telephone call accounting products
and custom assembly  services of  electro-mechanical,  cable and printed circuit
boards. Revenues are recorded at the time of shipment of products or performance
of services. Revenues from service contracts are recognized in earnings over the
terms of the contract.


Income Taxes
The Company  accounts  for income  taxes using the asset and  liability  method.
Under the asset and liability  method,  deferred tax assets and  liabilities are
recognized for future tax consequences  attributable to differences  between the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment date.


Earnings (Loss) Per Common Share
The  computation  of basic  earnings  (loss)  per  common  share is based on the
weighted average number of shares outstanding during each year.


--------------------------------------------------------------------------------



<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



1.   Organization and Significant Accounting Policies Continued

Earnings (Loss) Per Common Share - Continued
The  computation  of diluted  earnings per common share is based on the weighted
average  number of shares  outstanding  during the year,  plus the common  stock
equivalents  that would arise from the  exercise of stock  options and  warrants
outstanding,  using the treasury  stock method and the average  market price per
share during the year.  Options to purchase 628,500 and 597,250 shares of common
stock at  prices  ranging  from  $.14 to $1.59 per  share  were  outstanding  at
December  31, 1999 and 1998  respectively,  but were not included in the diluted
earnings  (loss)  per share  calculation  because  the  effect  would  have been
antidilutive.


Concentration of Credit Risk and Significant Customer
Financial  instruments which potentially subject the Company to concentration of
credit risk consist  primarily  of trade  receivables.  In the normal  course of
business, the Company provides credit terms to its customers.  Accordingly,  the
Company  performs  ongoing  credit  evaluations  of its  customers and maintains
allowances for possible losses which, when realized,  have been within the range
of management's expectations.


The  Company's  customer  base  consists  primarily  of the  hotel  and  leisure
industry.  Although the Company is directly  affected by the well- being of this
industry, management does not believe significant credit risk exists at December
31, 1999.


The Company  maintains its cash in bank deposit  accounts which,  at times,  may
exceed federally  insured limits.  The Company has not experienced any losses in
such accounts and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.


Major  customers  are  those  customers  that  account  for 10% or more of total
revenue.  There were no customers in this  category  during 1999.  In 1998,  the
Company had sales to a major customer which represented 12% of total sales.


--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



1.   Organization and Significant Accounting Policies Continued

Use of Estimates in the  Preparation of Financial  Statements
The preparation of financial  statements in conformity  with generally  accepted
accounting  principles requires management to make estimate and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.


Reclassifications
Certain  amounts  in  the  1998  consolidated  financial  statements  have  been
reclassified to conform with the current year presentation.


2.   Going Concern

At  December  31,  1999,  the  Company  has  a  working  capital  deficiency,  a
stockholders' deficit and has suffered significant losses during the years ended
December 31, 1999 and 1998. These conditions raise  substantial  doubt about the
ability  of the  Company  to  continue  as a  going  concern.  The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


The Company's plan with respect to 2000 is to restructure debt, reduce operating
expenses and increase sales in the telephone call accounting  division.  Failure
to accomplish  management's plan in 2000 and to generate positive operating cash
flow could result in further  erosion of the Company's  financial  condition and
failure to meet its financial obligations.


3.   Detail of Certain Balance Sheet Accounts

Additional information regarding accounts receivable,  inventories,  and accrued
expenses is presented below:


Accounts Receivable
--------------------

Trade accounts receivable                                 $         405,199
Less allowance for doubtful accounts                                (33,485)
                                                          -----------------

                                                          $         371,714
                                                          -----------------


--------------------------------------------------------------------------------

<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



3.   Detail of Certain Balance Sheet Accounts Continued

Inventories
-----------

Finished goods                                            $          27,756
Work-in-process                                                      45,104
Raw materials                                                        74,341
Reserve for obsolete inventory                                      (13,780)
                                                          -----------------

                                                          $         133,421
                                                          -----------------



Accrued Expenses
----------------

Deposits                                                   $         99,858
Accrued vacation                                                     83,464
Payroll, payroll taxes and benefits                                  53,169
Other                                                                64,007
                                                           ----------------

                                                           $        300,498
                                                           ----------------



4.   Property and Equipment

Property and equipment consists of the following:


Land                                                       $         35,380
Building and improvements                                           488,037
Furniture and equipment                                           1,436,316
                                                           ----------------
                                                                  1,959,733

Less accumulated depreciation and  amortization                  (1,517,335)
                                                           ----------------

                                                           $        442,398
                                                           ----------------


Depreciation  expense totaled $157,022 and $194,278 for the years ended December
31, 1999 and 1998, respectively.


5.   Software Development Costs

Capitalized software development costs consists of the following:


Software development costs                                $         277,481
Less accumulated amortization                                      (202,706)
                                                          -----------------

                                                          $          74,775
                                                          -----------------


--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



5.   Software Development Costs Continued

Amortization  expense related to capitalized  software development costs totaled
$153,058  and  $154,545  for  the  years  ended  December  31,  1999  and  1998,
respectively.


6.   Long-Term Debt

Long-term debt consists of the following:


Mortgage note payable to a bank in monthly
installments of $4,667, including interest
at 9.875%,  final  payment of $357,343 due
May,  2003; secured by real property and
guaranteed by an officer.                                 $         415,921



Revolving line-of-credit payable to a
financing institution, including interest
at the  institution's  prime rate plus 2.75%
(11.25% at December 31, 1999),  due
September 10, 2000,  secured by all Company
assets and guaranteed by an officer.  A
maximum of $750,000 was available under the
line of credit at December  31, 1999 less the
amount owing related to discontinued operations
(see note 17). The Company was not in compliance
with certain requirements related to this line
of credit at December 31, 1999.                                     251,453

Notes payable to an officer, including interest at
12%, due on demand, secured by real property.                        79,623

Contract payable under legal settlement due in
quarterly installments of $5,000, final payment
due March, 2000.                                                      5,000
                                                          -----------------



         Total long-term debt                                       751,997

         Less current portion                                      (352,187)
                                                          -----------------

                                                          $         399,810
                                                          -----------------


--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



6.   Long-Term Debt Continued

Future maturities of long-term debt are as follows:


Years Ending December 31:                                      Amount
                                                          -----------------

     2000                                                 $         352,187
     2001                                                            17,755
     2002                                                            19,612
     2003                                                           362,443
                                                          -----------------

                                                          $         751,997
                                                          -----------------


7.   Leases

The Company  leases office space and  equipment  under  noncancelable  operating
lease  agreements.  Rent  expense was  $123,364 and $144,107 for the years ended
December 31, 1999 and 1998, respectively.


Future minimum rental payments required under operating leases that have initial
or remaining  noncancelable lease terms in excess of one year as of December 31,
1999 are as follows:


     Years Ending December 31:                                  Amount
     -------------------------                            -----------------

              2000                                        $         229,467
              2001                                                  233,526
              2002                                                  234,305
              2003                                                  150,912
                                                          -----------------

     Total minimum lease payments                         $         848,210
                                                          -----------------



--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



7.   Leases Continued

The Company  subleases  office  space  under a  noncancelable  sublease.  Future
minimum lease payments to be received are as follows:


Years Ending December 31:                                         Amount
-------------------------                                         ------

     2000                                                   $       199,290
     2001                                                           214,963
     2002                                                           226,368
     2003                                                           150,912
                                                            ---------------

                                                            $       791,533
                                                            ---------------


8.   Income Taxes

The income tax benefit  (provision)  differs from the amount computed at federal
statutory rates as follows:


                                                    Years Ended
                                                    December 31,
                                         ----------------------------------
                                               1999             1998
                                         ----------------------------------

Income tax benefit (provision) at
  statutory rate                         $         148,000   $       61,000
State income tax                                    22,000            9,000
Other                                              (71,000)         333,634
Change in valuation allowance                      (99,000)      (1,246,920)
                                         ----------------------------------

                                         $               -   $     (843,286)
                                         ----------------------------------


--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



8.   Income Taxes Continued

Deferred tax assets (liabilities) are comprised of the following:


Accounts receivable                                       $          25,000
Inventory                                                           186,000
Property and equipment                                             (160,000)
Accrued liabilities                                                  37,000
Deferred revenue                                                     50,000
General business tax credits                                         92,000
NOL carryforwards                                                 1,225,000
                                                          -----------------

                                                                  1,455,000

Valuation allowance                                              (1,455,000)
                                                          -----------------

                                                          $               -
                                                          -----------------


As of December 31, 1999, the Company has net operating loss carry forwards (NOL)
and general  business  tax credit  carry  forwards  (GB) for federal  income tax
purposes which expire as follows:


Expiration Date                             NOL                 GB
---------------------------------------------------------------------------

2000                                $                  -  $           6,000
2001                                             380,000              6,000
2002                                                   -             14,000
2003                                                   -             24,000
2004                                                   -             20,000
2005                                              60,000                  -
2006                                                   -             11,000
2007                                               6,000             11,000
2008                                             648,000                  -
2010                                             151,000                  -
2011                                             638,000                  -
2018                                             840,000                  -
2019                                             927,000                  -
                                    ---------------------------------------

                                    $          3,650,000  $          92,000
                                    ---------------------------------------


A valuation  allowance  has been  established  that offsets the net deferred tax
asset due to the  uncertainty of realization  caused by the Company's  recurring
losses, working capital deficiency and accumulated deficit.

--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



9.   Capital Stock

The  Company  has  established  a  series  of  preferred  stock  with a total of
10,000,000  authorized shares and a par value of $1.00, and one series of common
stock with a par value of $.02 and a total of 50,000,000 authorized shares.


10.  Stock Option Plans

Stock Option and Bonus Plans
On June 7, 1993, the Board of Directors approved the 1993 TELS Corporation Stock
Option and  Incentive  Plan (the 1993 Plan) which  replaced the  Company's  1984
Stock Option and Bonus Plan (the 1984 Plan). The Company had reserved  1,237,500
shares of its common stock for issuance  under the 1984 Plan,  of which  464,000
remained available for grant. The Company will not make any further grants under
the 1984 Plan.  Under the 1993 plan,  as  amended on June 6, 1994,  the  maximum
number of shares issuable to employees,  non employees,  and consultants  totals
2,000,000  shares.  The exercise  price of options  granted is not less than the
fair  market  value  on the  date of grant  as  determined  by the  Compensation
Committee  (Committee)  appointed by the Board of Directors.  The options become
exercisable over a three-year  period, in equal annual increments  beginning one
year after the date of grant, and expire ten years after the date of grant.


On June 6, 1994, the Board of Directors also approved the TELS  Corporation 1994
Outside Directors Stock Option Plan (the Director Plan) for which 500,000 shares
of the Company's  common stock have been reserved.  Under the Director Plan, non
employee  directors may be granted  stock  options  pursuant to an automatic and
nondiscretionary  grant  mechanism.  Options  granted under this plan fully vest
upon the six month  anniversary  of  receipt  and may be  exercised  at any time
during the period  beginning six months after the date of grant,  and ending ten
years after the date of grant.  The exercise price of the options granted is the
fair market value on the date of grant.


--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



10.  Stock Option Plans Continued

Information regarding the Option Plans is as follows:


                                              Number of      Option Price
                                               Options        Per Share
                                          ---------------------------------

Outstanding at January 1, 1998                  748,875   $      .45 - 1.59
     Granted                                          -                  -
     Exercised                                        -                  -
     Expired                                   (151,625)  $      .45 - 1.59
                                          ---------------------------------

Outstanding at December 31, 1998                597,250   $      .45 - 1.59
     Granted                                     50,000                 .14
     Exercised                                        -                  -
     Expired                                    (18,750)                .45
                                          ---------------------------------

Outstanding at December 31, 1999                628,500   $      .14 - 1.59
                                          ---------------------------------


Options exercisable and available for future grant are as follows:


                                                    December 31,
                                                1999             1998
                                          ---------------------------------

Options exercisable                             613,496             547,247
Options available for grant                   2,542,651           2,573,901



--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



11. Stock-Based Compensation

The  Company  has  adopted  the  disclosure-only  provisions  of  Statement  for
Financial  Accounting  Standards  (SFAS) No.  123,  Accounting  for  Stock-Based
Compensation.  Accordingly,  no  compensation  cost has been  recognized  in the
financial statements. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for awards in 1999 and
1998,  consistent  with SFAS No. 123, the Company's net earnings per share would
have been reduced to the pro forma amounts indicated below:


                                                     Years Ended
                                                    December 31,
                                          ---------------------------------
                                                1999             1998
                                          ---------------------------------

Net loss - as reported                    $  (1,118,385)  $      (1,993,963)
Net loss - pro forma                      $  (1,121,640)  $      (1,993,963)
Loss per share - as reported              $        (.29)  $            (.51)
Loss per share - pro forma                $        (.29)  $            (.51)
                                          ---------------------------------



The fair value of each option  grant is estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions:


                                                     Years Ended
                                                    December 31,
                                          ---------------------------------
                                                1999             1998
                                          ---------------------------------

Expected dividend yield                   $           -   $              -
Expected stock price volatility                     114%                92%
Risk-free interest rate                               5%                 5%
Expected life of options                       10 years            10 years
                                          ---------------------------------


--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



11. Stock-Based Compensation Continued

The following table summarizes  information  about stock options  outstanding at
December 31, 1999:


                  Number         Weighted     Weighted     Number     Weighted
   Range of   Outstanding at     Average      Average  Exercisable at  Average
   Exercise    December 31,     Remaining     Exercise  December 31,  Exercise
    Prices         1999      Contractual Life  Price        1999        Price
-------------------------------------------------------------------------------
         $0.14     50,000     9.10 years      $  0.14      50,000    $   0.14
$0.45 to $0.60    378,500     4.74 years      $  0.48     363,496    $   0.47
$0.86 to $1.11     40,000     6.11 years      $  0.93      40,000    $   0.93
$1.21 to $1.59    160,000     4.90 years      $  1.45     160,000    $   1.45
                ---------                     -------

                  628,500                     $  0.73     613,496    $   0.73
                ---------                                 -------


Stock  options in the table above  include  50,000  options  that were issued to
outside directors; $2,209 of compensation expense was recognized on the issuance
of these  options.  In April,  1993,  stock  bonus  awards were made to officers
totaling 450,000 shares that vested over a five-year period  commencing in 1993.
Deferred  compensation expense of $10,175 was recognized in 1998 with respect to
this grant.

The weighted average fair value of options issued during 1999 was $.04.


12.  Related Party Transactions

At December 31, 1999,  there are notes  payable due to an officer of the Company
totaling  $79,623.  The notes bear interest at 12%, are secured by real property
and are due on demand.


Included in employee and other  receivables  at December 31, 1998,  is a $39,302
uncollateralized  note  receivable due from an officer of the Company.  The note
bears interest at eight percent and is due on demand.


Selling,  general and  administrative  expenses include payments totaling $2,126
and $12,756 in 1999 and 1998, respectively, to an officer of the Company for the
Company's use of vehicles and property owned by the officer.



--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



13.  Employees' Profit Sharing Plan

The Company has an employee  401(k) profit  sharing plan covering  substantially
all employees who have attained age 21 with service in excess of six months. The
plan  provides  for  Company  contributions  at the  discretion  of the Board of
Directors.  Company  contributions  begin  vesting  after the first full year in
which  eligible  employees  complete  501 hours of  service,  with full  vesting
occurring  after seven years.  Contributions  to the plan during the years ended
December 31, 1999 and 1998, totaled $-0- and $20,000, respectively.


14.  Commitments and Contingencies

Employment Agreement
The  Company  has  entered  into  an   employment   agreement   with  a  certain
officer/shareholder   that  expires   December  31,  2002.   The   agreement  is
automatically  extended each  December for one  additional  year,  unless either
party  gives  written  notice 6 months  in  advance  of the  renewal  date.  The
agreement  provides  the officer with an annual base  salary,  business  expense
reimbursement,  certain employee benefits or equivalent  compensation,  vacation
and paid  holidays,  office  space and  eligibility  for: 1)  bonuses;  2) other
benefit programs which may be offered by the Company to its employees; 3) a lump
sum termination  payment  ranging from 50% to 250% of the  officer/shareholder's
gross   income   for  the  year   preceding   termination.   In  the  event  the
officer/shareholder is terminated for other than cause, the  officer/shareholder
will be entitled to receive  all or part of the items noted  above;  including a
bonus, if paid in the year preceding termination,  for the remaining term of the
agreement as if employment had not terminated. The agreement must be assigned to
acquiring or successor entities and termination of the officer/shareholder  must
be approved by a majority of the directors of the Company.


Litigation
The  Company  may  become or is subject to  investigations,  claims or  lawsuits
ensuing  out  of the  conduct  of  its  business,  including  those  related  to
environmental  safety and health,  product liability,  commercial  transactions,
etc. The Company is currently  aware of certain  items  involving  litigation or
potential  litigation with former employees of the discontinued  operation and a
vendor, but does not believe such claims could have a material adverse affect on
its  financial  position.  No  amounts  have been  accrued  in the  accompanying
consolidated financial statements related to litigation.



--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



15.  Fair Value of Financial Instruments

The Company's financial instruments consist of cash, receivables,  payables, and
notes  payable.  The  carrying  amount  of  cash,   receivables,   and  payables
approximates  fair value because of the  short-term  nature of these items.  The
carrying  amount of notes  payable  approximates  fair  value as the  individual
borrowings bear interest at market interest rates.


16.  Recent Accounting Pronouncements

In June  1999,  the  FASB  issued  SFAS  No.  137,  "Accounting  for  Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  date of FASB
Statement No. 133." SFAS 133 establishes  accounting and reporting standards for
derivative  instruments and requires recognition of all derivatives as assets or
liabilities  in the  statement of financial  position and  measurement  of those
instruments at fair value.  SFAS 133 is now effective for fiscal years beginning
after June 15, 2000. The Company believes that the adoption of SFAS 133 will not
have any material effect on the financial statements of the Company.


In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting  Bulletin  No. 101 ("SAB  101"),  Revenue  Recognition  in  Financial
Statements,  which  provides  guidance  on the  recognition,  presentation,  and
disclosure  of  revenue in  financial  statements  filed  with the SEC.  SAB 101
outlines the basic  criteria that must be met to recognize  revenue and provides
guidance for  disclosure  related to revenue  recognition  policies.  Though the
Company is currently evaluating the impact (if any) of SAB 101, the Company does
not presently  believe it will have a material effect on the financial  position
as result of operations of the Company.



--------------------------------------------------------------------------------


<PAGE>


                                                                TELS CORPORATION

                                      Notes to Consolidated Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



17.  Discontinued Operations

During the year ended  December 31, 1999, in an effort to increase cash flow and
reduce  expenses,  the Company  discontinued  the Hash Tech, Inc. segment of its
operations,  which provided contract  manufacturing and assembly services to the
Company.


Net liabilities and condensed discontinued operations are as follows:


Assets:
     Receivables, net                                     $          47,393
     Inventory, net                                                  27,143
     Property and equipment, net                                     37,310
                                                          -----------------
                                                          $         111,846
                                                          -----------------

Liabilities:
     Notes payable                                        $        (125,807)
     Accounts payable                                              (293,176)
     Accrued expenses                                               (46,848)
                                                          -----------------
                                                          $        (465,831)
                                                          -----------------

Net liabilities of discontinued operations                $        (353,985)
                                                          -----------------




                                              Years Ended December 31,
                                         ----------------------------------
                                               1999             1998
                                         ----------------------------------

Revenue                                  $       1,186,113  $     2,144,101
Costs and expenses                               1,849,135        3,111,097
                                         ----------------------------------

Net loss before income taxes                      (663,022)        (966,996)
Income taxes                                        (6,000)          (4,800)
                                         ----------------------------------

Net loss                                 $        (669,022) $      (971,796)
                                         ----------------------------------




--------------------------------------------------------------------------------


<PAGE>


                                    PART III

Item  9.  Directors,   Executive  Officers,   Promoters,  and  Control  Persons;
Compliance With Section 16(a) of the Exchange Act

         Information   regarding  directors  and  officers  of  the  Company  is
incorporated  by reference from  "Information  Relating to Directors,  Nominees,
Executive Officers,  Promoters, and Control Persons" in the 2000 Proxy Statement
to be  delivered  to  shareholders  in  connection  with the  Annual  Meeting of
Shareholders to be held on June 19, 2000.

         Information  required  by  item  401  and  405  of  Regulation  S-B  is
incorporated by reference from  "Compliance with section 16(a) of the Securities
Exchange  Act  of  1934"  in  the  2000  Proxy  Statement  to  be  delivered  to
shareholders in connection with the Annual Meeting of Shareholders to be held on
June 19, 2000.

Item 10.  Executive Compensation

         Information  regarding  this item is  incorporated  by  reference  from
"Executive  Compensation"  in  the  2000  Proxy  Statement  to be  delivered  to
shareholders in connection with the Annual Meeting of Shareholders to be held on
June 19, 2000.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         Information  regarding  this item is  incorporated  by  reference  from
"Security  Ownership of Certain  Beneficial  Owners and  Management" in the 2000
Proxy  Statement to be delivered to  shareholders  in connection with the Annual
Meeting of Shareholders to be held on June 19, 2000.

Item 12.  Certain Relationships and Related Transactions

         Information  regarding  this item is  incorporated  by  reference  from
"Certain   Transactions"  in  the  2000  Proxy  Statement  to  be  delivered  to
shareholders in connection with the Annual Meeting of Shareholders to be held on
June 19, 2000.










                      (THIS SPACE INTENTIONALLY LEFT BLANK)



<PAGE>


                                     PART IV

Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

   (a) The  following  constitutes  a list of  Financial  Statements,  Financial
   Statement Schedules, and Exhibits required to be included in this report:

     1. Financial Statements - Included in Part II, Report on Audit of Financial
        Statements.
       Report of Tanner + Company.
       Report of PricewaterhouseCoopers, LLP.
       Consolidated Balance Sheet as of December 31, 1999.
       Consolidated Statements of Operations for the years ended
              December 31, 1999 and 1998.
       Consolidated Statement of Changes in Stockholders'  Deficit for the years
              ended December 31, 1999 and 1998.
       Consolidated  Statements  of Cash Flows for the years ended  December 31,
              1999 and 1998.
       Consolidated Notes to Financial  Statements  for the years ended December
              31, 1999 and 1998.

     2. Financial Statement Schedules - None
        Schedules are omitted  because of the absence of conditions  under which
        they are  required or because the required  information  is presented in
        the Financial Statements or Notes thereto.

     3. Exhibits - Exhibit number and description

     3.1  Articles of  Incorporation,  as  amended,  filed as Exhibit 3.1 to the
     Company's Registration Statement on Form S-18, SEC File No. 2-93915-D,  and
     incorporated herein by this reference.

     3.2 By-laws, as amended, filed as Exhibit 3.2 to the Company's Registration
     Statement on form S-18, SEC File No. 2-93915-D,  and incorporated herein by
     this reference.

     3.3 Certificate of Amendment of TEL electronics,  inc. dated July 28, 1987,
     changing  the  corporation   name  from  Tel   Electronics   Inc.,  to  TEL
     electronics,  inc.,  filed as exhibit 10.11 to the Company's  Form 10-K for
     the  year  ended  December  31,  1988,  and  incorporated  herein  by  this
     reference.

     3.4  Articles  of  Amendment  to  the  Articles  of  Incorporation  of  TEL
     electronics,  inc.,  dated May 25,  1989,  adding  Article  XIII - Director
     Liability,  filed as exhibit  3.4 to the  Company's  Form 10-K for the year
     ended December 31, 1989, and incorporated herein by this reference.

     3.5 Certificate of Amendment of TEL electronics, inc., dated July 10, 1990,
     changing the par value of common stock to $.02 and the authorized shares to
     10,000,000,  filed with the Company's form 10-K, and incorporated herein by
     this reference.

     3.6  Certificate of Amendment of TELS  Corporation,  dated August 24, 1994,
     changing  the name of the  Company  from  TEL  electronics,  inc.,  to TELS
     Corporation,  and  increasing  the  number of  authorized  common  stock to
     50,000,000  shares, and authorizing the number of preferred shares of stock
     to 10,000,000  shares,  filed as exhibit 3.6 to the Company's Form 10-K for
     the  year  ended  December  31,  1994,  and  incorporated  herein  by  this
     reference.

<PAGE>

Item 13. Exhibits,  Financial  Statement  Schedules,  and  Reports on  Form 8-K,
     continued

     10.1  1984  Executive  Stock  bonus  Plan,  filed  as  Exhibit  10.1 to the
     Company's Registration Statement on Form S-18, SEC File No. 2-93915-D,  and
     incorporated herein by this reference.

     10.2  1984  Incentive  Stock  Option  Plan  filed  as  Exhibit  10.2 to the
     Company's Registration Statement on Form S-18, SEC File No. 2-93915-D,  and
     incorporated herein by this reference.

     10.3 Form of 1984 Incentive Stock Option Agreement filed as Exhibit 10.3 to
     the Company's  Registration Statement on Form S-18, SEC File No. 2-93915-D,
     and incorporated herein by this reference.

     10.4 1984  Non-Qualified  Stock  Option  Plan filed as Exhibit  10.4 to the
     Company's Registration Statement on Form S-18, SEC File No. 2-93915-D,  and
     incorporated herein by this reference.

     10.5 Form of 1984  Non-Qualified  Stock Option  Agreement  filed as Exhibit
     10.5 to the  Company's  Registration  Statement on Form S-18,  SEC File No.
     2-93915-D, and incorporated herein by this reference.

     10.6 Form of Warrant issued to The Stuart-James  Co.,  incorporated on June
     28, 1985, filed as Exhibit 4.2 to the Company's  Registration  Statement on
     Form  S-18,  SEC  File  No.  2-93915-D,  and  incorporated  herein  by this
     reference.

     10.7 Warrant Agreement  (including the form of warrant) between the Company
     and  Rooney  Pace  dated  April  4,  1984,  filed as  Exhibit  10.10 to the
     Company's Registration Statement on Form S-18, SEC file No. 2-93915-D,  and
     incorporated herein by this reference.

     10.8 Employment  Agreement between the Company and Dr. John L. Gunter dated
     April  1,  1988,   filed  as  Exhibit  to  the  Company's  form  10-K,  and
     incorporated herein by this reference.

     10.9 Warrant  Agreement  (including the Form of Warrant)  issued to Redwood
     Micro Cap Fund,  inc.  dated  November  10,  1993,  filed as exhibit to the
     Company's Registration on Form S-3, Sec File No. 2-93915-D and incorporated
     herein by this reference.

     10.10 Employment Agreement between the Company and Dr. John L. Gunter dated
     March 1, 1994,  filed as  exhibit to the  Company's  1994,  form 10-K,  and
     incorporated herein by this reference.

     10.11 Employment  Agreement between the Company and Stephen M. Nelson dated
     March 1, 1994,  filed as  exhibit to the  Company's  1994,  form 10-K,  and
     incorporated herein by reference.

     10.12  Employment  Agreement  between the  Company and Harold  Neuenswander
     dated March 31, 1994,  filed as exhibit to the Company's  1994,  form 10-K,
     and incorporated herein by reference.

     10.13 Severance  Agreement  between the Company and Stephen M. Nelson dated
     July 1, 1999, filed herein as exhibit to the Company's 1999, form 10-K.

     16.1 Letter on changes in Certifying  Accountant filed as Exhibit 16 to the
     Company's  form 8-K filed on May 4, 1995, and  incorporated  herein by this
     reference.

     16.2 Letter on changes in Certifying  Accountant filed as Exhibit 16 to the
     Company's  form 8-K filed on November 3, 1995, and  incorporated  herein by
     this reference.
<PAGE>

Item 13.  Exhibits,  Financial  Statement  Schedules, and  Reports  on Form 8-K,
     continued

     21. Wholly-owned Subsidiaries of TELS Corporation:
           TEL electronics, inc.                        D. J. GunTEL, Inc.
           MICROMEGA CORPORATION                        HTI (or Hash Tech, Inc.)
           MedTech, Inc.

     23.1 Consent of Certifying  Accountant  filed as Exhibit 23.1 in connection
     to the  Company's  Registration  Statements  on Form  S-8,  SEC File  No.'s
     333-17149,  333-17163,  and  333-17169,  effective  December  2,  1996  and
     incorporated herein by reference.

     23.2 Consent of Certifying  Accountant  filed as Exhibit 23.2 in connection
     to the  Company's  Registration  Statements  on Form  S-8,  SEC File  No.'s
     333-17149,  333-17163,  and  333-17169,  effective  December  2,  1996  and
     incorporated herein by reference.

     23.3 Consent of Certifying  Accountant  filed as Exhibit 23.3 in connection
     to the  Company's  Registration  Statements  on Form  S-8,  SEC File  No.'s
     333-17149,  333-17163,  and  333-17169,  effective  December  2,  1996  and
     incorporated herein by reference.

     27.1 Article 5  Financial Data  Schedule  for year ended December 31, 1999,
     Form 10-KSB.

     (b)   Reports on Form 8-K: No Current Reports on Form 8-K were filed during
     the last quarter of the period covered by this report.

     (c) Financial Statement Schedules: See (a) 2 above.

                                   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
                                                   --------------------------
                                                   (Registrant)

May 12, 2000                                       By:/s/ John L. Gunter
------------                                       --------------------------
    Date                                           John L. Gunter, CEO

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.
<TABLE>

<S>                     <C>                                                                 <C>


/s/ John L. Gunter      Chairman of the Board of Directors, President                       May 12, 2000
------------------      and CEO (Principal Executive Officer)
John L. Gunter

/s/ Diane Gunter
------------------      Director, Secretary, Treasurer                                      May 12, 2000
P. Diane Gunter

/s/ Lawrence A. Palmer
------------------      Controller (Principal Accounting Officer)                           May 12, 2000
Lawrence A. Palmer

</TABLE>