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, 2001, or

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

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

                                TELS Corporation
                 (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 X NO ___

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 $0.

The aggregate market value of the voting common equity held by non-affiliates of
the registrant as of March 31, 2002, was approximately $129,889.

The issuer had issued and outstanding 4,191,819 shares of its Common Stock on
March 31, 2002.
<PAGE>
                                     PART I

Item 1. Business
        --------

General
-------

         TELS  Corporation  ("TELS",  "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.  TELS Corporation exists today as a development
stage company.

         As of June 30,  2001,  the  Company  discontinued  all of its  existing
operations.  Effective July 27, 2001, the Company  transferred its operations to
certain  shareholders  of the Company in exchange  for their  assumption  of the
Company's net liabilities and currently exists as a "public shell".

         MICROMEGA  CORPORATION(TM)  ("Micromega")  was formed on September  26,
1994, as a wholly-owned subsidiary of TELS for the purpose of providing research
and development services for TELS and other companies. MICROMEGA was transferred
by TELS  Corporation on July 27, 2001, to certain  shareholders  in exchange for
their assumption of the Company's net liabilities.

         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. TELS  Corporation  transferred TEL on July
27,  2001,  to certain  shareholders  in exchange  for their  assumption  of the
Company's net liabilities.

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

         TELS ceased all operations on July 27, 2001.

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

         TELS ceased all operations on July 27, 2001.

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

         TELS ceased all operations on July 27, 2001.

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

         TELS ceased all operations on July 27, 2001.

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

                  TELS ceased all operations on July 27, 2001.

                                       1
<PAGE>

Item 1. Business (continued)
        --------------------

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

         TELS ceased all operations on July 27, 2001.

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

         TELS ceased all operations on July 27, 2001.

Employees
---------

         TELS ceased all  operations  on July 27, 2001. As of December 31, 2001,
there were no full-time  employees and two part-time  employees  working for the
Company.

Item 2. Properties
        ----------

         TELS ceased all operations on July 27, 2001, and  transferred  its real
property to a principal in accordance with agreements.

Item 3. Legal Proceedings
        -----------------

         An ex-employee of the Company has asserted an age discrimination  claim
against  the  Company.  The Company  has  tendered  defense of this claim to its
insurance  company and denies any  discrimination  in its relationship with this
ex-employee.

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 2001.






                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       2
<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.

 2001                High     Low          2000              High         Low
 ----                ----     ---          ----              ----         ---
First Quarter        $ .09    $ .13      First Quarter      $ .13       $  .64
Second Quarter         .09      .16      Second Quarter       .17          .38
Third Quarter          .04      .09      Third Quarter        .13          .22
Fourth Quarter         .02      .06      Fourth Quarter       .06          .22

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

         As of March 31, 2002, 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.





                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       3
<PAGE>


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

         The  Company  continues  efforts  towards a merger  with an  acceptable
candidate.  Recent activities and what appear to be improved economic and market
conditions suggest that such a merger may be effected in the near future.

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

         There were no sales  during the third or fourth  quarters of 2001 after
July 27, 2001, as TELS  transferred all of its operations on July 27, 2001. As a
result of the cessation of all TELS operations on July 27, 2001, sales cannot be
compared to previous periods.

         There were no research  and  development  costs for the third or fourth
quarters  of 2001 after July 27,  2001,  as the Company  transferred  all of its
operations on July 27, 2001.

         Company  expenses  incurred in the third and fourth quarters after July
27, 2001,  were reduced to survival  levels only and funds were  borrowed from a
principal  for these  expenses.  As a result of the  transfer  of the  Company's
operations, no detailed analysis of expenses and operations are included here.

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

         As  of  June  30,  2001,  the  Company   reported   $(682,376)  in  net
liabilities.  As a result of the transfer of the Company's operating  subsidiary
and  assumption of all  liabilities  except for certain  future  liabilities  or
obligations of the Company under an employment agreement between the Company and
Dr. Gunter and for public reporting, the liquidity of the Company improved after
June 30, 2001. As a result of the transfer and the cessation of all  operations,
the Company  does not have any revenue  generating  activities  and has become a
development  stage  company.  The Company has no  expectation  of income for the
foreseeable future, subject to a merger occurring in the future.

         The Company will need to borrow funds to cover  ongoing  reporting  and
other  expenses,  and any such new  Company  liabilities  will be paid  from the
proceeds of a merger.  An affiliate  company agreed to loan funds to the Company
for such purposes after July 27, 2001, and throughout 2002.

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

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

Outlook and Uncertainties
-------------------------

         The Company ceased all operations as of July 27, 2001.

                                       4
<PAGE>

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.
         Balance Sheet as of December 31, 2001.
         Statements of Operations for the years ended December 31, 2001 and
            2000.
         Statements of Changes in Stockholders' Deficit for the years ended
            December 31, 2001 and 2000.
         Statements of Cash Flows for the years ended December 31, 2001 and
            2000.
         Notes to Financial Statements for the years ended December 31, 2001
            and 2000.



<PAGE>


                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Index to Financial Statements

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





                                                                        Page
                                                                        ----

Independent Auditors' Report                                            F-2


Balance Sheet                                                           F-3


Statement of Operations                                                 F-4


Statement of Stockholders' Deficit                                      F-5


Statement of Cash Flows                                                 F-6


Notes to Financial Statements                                           F-7

--------------------------------------------------------------------------------
                                                                             F-1
<PAGE>


                                                    INDEPENDENT AUDITORS' REPORT





To the Board of Directors and Stockholders of
TELS Corporation


We  have  audited  the  accompanying   balance  sheet  of  TELS  Corporation  (A
Development  Stage Company) as of December 31, 2001, and the related  statements
of  operations,  stockholders'  deficit,  and cash  flows  for the  years  ended
December 31, 2001 and 2000. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of TELS Corporation (A Development
Stage  Company) as of December 31, 2001,  and the results of its  operations and
its cash flows for the years ended  December  31, 2001 and 2000,  in  conformity
with accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company no
longer  generates  revenue and has a working capital deficit and a stockholders'
deficit. 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  financial  statements do not include any adjustment
that might result from the outcome of this uncertainty.


                                                TANNER + CO.

Salt Lake City, Utah
March 13, 2002

                                                                             F-2
<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                                   Balance Sheet

                                                               December 31, 2001
--------------------------------------------------------------------------------


              Assets
              ------

     Cash and cash equivalents                                  $           -
                                                                ---------------

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

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

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

Current liabilities:
     Related party accounts payable                             $       84,043
     Accrued expense                                                     8,333
                                                                ----------------

                  Total current liabilities                             92,376
                                                                ----------------

Commitments and contingencies                                               -

Stockholders' deficit:
     Common stock, $.02 par value, authorized
       50,000,000 shares; issued and outstanding
       4,191,819 shares                                                 83,835
     Additional paid-in capital                                      4,995,073
     Accumulated deficit                                            (5,036,848)
     Deficit accumulated during the development stage                 (102,436)
     Deferred compensation                                             (32,000)
                                                                ----------------

                  Total stockholders' deficit                          (92,376)
                                                                ----------------

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

--------------------------------------------------------------------------------
See accompanying notes to financial statements.                              F-3

<PAGE>
<TABLE>
<CAPTION>

                                                                                           TELS CORPORATION
                                                                              (A Development Stage Company)
                                                                                    Statement of Operations

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

                                                                              2001             2000
                                                                        -----------------------------------

<S>                                                                     <C>                 <C>
Net sales                                                               $             -     $            -
Operating expenses                                                              108,376                  -
                                                                        -----------------------------------

                  Loss from continuing operations
                    before income tax provision                                (108,376)                 -

Income tax provision                                                                  -                  -
                                                                        -----------------------------------

                  Loss from continuing operations                              (108,376)                 -

     Income (loss) from discontinued operations,
       net of income taxes                                                        5,940            (98,765)
                                                                        -----------------------------------

                  Net loss                                              $      (102,436)    $      (98,765)
                                                                        -----------------------------------

Loss per share - basic and diluted:
     Continuing operations                                              $          (.02)    $          .00
     Discontinued operations                                                        .00               (.02)
                                                                        -----------------------------------

                                                                        $          (.02)    $         (.02)
                                                                        -----------------------------------

Weighted average shares - basic and diluted                                   4,192,000           4,012,000
                                                                        -----------------------------------

-----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                         F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                                                                   TELS CORPORATION
                                                                                                      (A Development Stage Company)
                                                                                                 Statement of Stockholders' Deficit

                                                                                             Years Ended December 31, 2001 and 2000
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                          Deficit
                                                                                        Accumulated
                                           Common Stock      Additional                  During The
                                       -------------------    Paid-in      Accumulated   Development    Deferred      Stockholders'
                                         Shares    Amount     Capital        Deficit        Stage      Compensation      Deficit
                                       --------------------------------------------------------------------------------------------

<S>                                    <C>        <C>      <C>            <C>            <C>              <C>            <C>
Balance, January 1, 2000               3,891,819  $ 77,835 $  4,228,741   $ (4,938,083)  $      -    $         -    $    (631,507)

Stock bonus                              300,000     6,000       90,000              -          -        (96,000)              -

Amortization of deferred compensation          -         -            -              -          -         32,000           32,000

Net loss                                       -         -            -        (98,765)         -              -          (98,765)
                                       ------------------------------------------------------------------------------------------

Balance, December 31, 2000             4,191,819    83,835    4,318,741     (5,036,848)         -        (64,000)        (698,272)

Sale of discontinued operations                -         -      676,332              -          -              -          676,332

Amortization of deferred compensation          -         -            -              -          -         32,000           32,000

Net loss                                       -         -            -              -    (102,436)            -         (102,436)
                                       ------------------------------------------------------------------------------------------

Balance, December 31, 2001             4,191,819  $ 83,835 $  4,995,073   $ (5,036,848)  $(102,436)  $   (32,000)   $     (92,376)
                                       ------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                                               F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                                          TELS CORPORATION
                                                                             (A Development Stage Company)
                                                                                   Statement of Cash Flows

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

                                                                                2001            2000
                                                                           -------------------------------
<S>                                                                        <C>               <C>
Cash flows from operating activities:
     Net loss                                                              $      (102,436)  $     (98,765)
     (Income) loss from discontinued operations                                     (5,940)         98,765
     Adjustments to reconcile net loss to net cash
       provided by operating activities:
         Amortization of deferred compensation                                      16,000               -
         Increase in:
              Related party accounts payable                                        84,043               -
              Accrued expenses                                                       8,333               -
                                                                           -------------------------------

         Net cash provided by continuing operations                                      -               -
         Net cash provided by discontinued operations                               28,725          52,145
                                                                           -------------------------------

                  Net cash provided by
                  operating activities                                              28,725          52,145
                                                                           -------------------------------

Cash flows from investing activities:
         Net cash used in continuing operations                                          -               -
         Net cash used in discontinued operations                                  (37,441)         (3,496)
                                                                           -------------------------------

                  Net cash used in
                  investing activities                                             (37,441)         (3,496)
                                                                           -------------------------------

Cash flows from financing activities:
         Net cash used in continuing operations                                          -               -
         Net cash used in discontinued operations                                  (36,360)         (7,040)
                                                                           -------------------------------

                  Net cash used in
                  financing activities                                             (36,360)         (7,040)
                                                                           -------------------------------

                  Net (decrease) increase  in cash                                 (45,076)         41,609

Cash at beginning of year                                                           45,076           3,467
                                                                           -------------------------------

Cash at end of year                                                        $             -   $      45,076
                                                                           -------------------------------

Supplemental disclosure of cash flow information:
Cash paid during the year for:
     Interest                                                              $             -   $           -
                                                                           -------------------------------

     Income taxes                                                          $           100   $         100
                                                                           -------------------------------

----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                        F-6
</TABLE>
<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements

                                                      December 31, 2001 and 2000
--------------------------------------------------------------------------------

1.   Organization       Organization
     and                TELS  Corporation (the Company) was organized to design,
     Significant        manufacture   and  sell   telecommunications   and  call
     Accounting         accounting   products   to  hotels,   motels  and  small
     Policies           businesses  throughout the United States. As of June 30,
                        2001,  the  Company  discontinued  all of  its  existing
                        operations.   Effective   July 27,  2001,   the  Company
                        transferred  its  operations to  certain shareholders of
                        the Company in exchange  for  their  assumption  of  the
                        Company's net liabilities.

                        As  a  result  of  the  Company's   disposition  of  its
                        operating  activities,  the  Company  does  not have any
                        revenue   generating   activities   and  has   become  a
                        development stage company as defined by SFAS No 7 at the
                        time of disposition.  Cumulative amounts since inception
                        of the development stage (July 27, 2001) are essentially
                        the same as those  amounts  reported  for the year ended
                        December 31, 2001.

                        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.

                        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.


--------------------------------------------------------------------------------
                                                                             F-7

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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

1.   Organization       Earnings (Loss) Per Common Share - Continued
     and                The computation of diluted  earnings per common share is
     Significant        based  on  the   weighted   average   number  of  shares
     Accounting         outstanding  during  the  year,  plus the  common  stock
     Policies           equivalents  that would arise from the exercise of stock
     Continued          options outstanding, using the treasury stock method and
                        the  average  market  price per share  during  the year.
                        Options to purchase 131,500 and 554,500 shares of common
                        stock at prices ranging from $.13 to $.60 per share were
                        outstanding at December 31, 2001 and 2000, respectively,
                        but were not included in the diluted earnings (loss) per
                        share  calculation  because  the effect  would have been
                        antidilutive.

                        Use  of  Estimates  in  the   Preparation  of  Financial
                        Statements
                        The  preparation  of financial  statements in conformity
                        with  accounting  principles  generally  accepted in the
                        United  States of America  requires  management  to make
                        estimates  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 2000 financial  statements  have
                        been  reclassified  to  conform  with the  current  year
                        presentation.


2.   Going              As  a  result  of  the  Company's   disposition  of  its
     Concern            operating  activities,  the  Company  does  not have any
                        revenue generating activities and thus no expectation of
                        income  for  the  foreseeable  future.  Due  to  ongoing
                        reporting and other expenses,  the Company has developed
                        a working capital  deficit and a  stockholders'  deficit
                        since  disposition  of its operating  activities.  These
                        conditions raise  substantial doubt about the ability of
                        the  Company  to  continue  as  a  going  concern.   The
                        financial statements do not include any adjustments that
                        might result from the outcome of this uncertainty.

--------------------------------------------------------------------------------
                                                                             F-8

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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

2.   Going              The  Company's  plan with  respect  to 2002 is to borrow
     Concern            funds  to  cover  its  new  liabilities  resulting  from
     Continued          ongoing expenses and to seek out an appropriate business
                        with  which  it  can  enter  into  a  merger,  with  the
                        expectation  that the Company's new liabilities  will be
                        paid from the proceeds of the reverse merger. Failure to
                        accomplish  management's  plan in 2002  could  result in
                        further erosion of the Company's financial condition and
                        failure to meet its financial  obligations.  There is no
                        assurance  that the  Company or its  management  will be
                        successful.


3.   Discontinued       As of June 30, 2001, the Company discontinued all of its
     Operations         existing  operations,  which  consisted  of the  design,
                        manufacture  and  sale of  telecommunications  and  call
                        accounting   products   to  hotels,   motels  and  small
                        businesses. During the year ended December 31, 2000, the
                        Company discontinued its contract manufacturing segment.
                        Effective July 27, 2001,  the  Company  transferred  its
                        telecommunications  and call accounting  operations to a
                        shareholder   of  the  Company  in   exchange   for  his
                        assumption of the Company's net liabilities of $676,332.
                        No gain was  recognized as the  discontinued  operations
                        were  transferred to a related party and the gain amount
                        was recorded as a contribution of capital.

                        Condensed discontinued operations are as follows:

                                                    Years Ended
                                                    December 31,
                                         ----------------------------------
                                               2001              2000
                                         ----------------------------------

 Revenue                                 $       1,312,222 $     2,557,755
 Costs and expenses                              1,306,282       2,656,520
                                         ----------------------------------

 Net income (loss) before income taxes               5,940         (98,765)
 Income taxes                                            -               -
                                         ----------------------------------

 Net income (loss)                       $           5,940 $       (98,765)
                                         ----------------------------------


--------------------------------------------------------------------------------
                                                                             F-9

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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



4.   Related            Related    party    accounts    payable    consists   of
     Party              reimbursements payable to a company (affiliate) owned by
     Accounts           a shareholder of the Company.  When the Company  accrues
     Payable            officer salaries, related payroll taxes and benefits and
                        other expenses,  an affiliate of the Company assumes the
                        obligation  to pay these accrued  liabilities  under the
                        condition  that the Company is liable to  reimburse  the
                        affiliate.


5.   Income             The  income tax  benefit  (provision)  differs  from the
     Taxes              amount  computed at federal  statutory  rates as follows
                        for the year ended December 31:

                                                2001               2000
                                          -------------------------------------

   Income tax benefit (provision)
     at federal statutory rate            $          35,000 $           33,000
   State income tax                                   5,000              4,000
   Transfer of discontinued operations             (264,000)                 -
   Other                                             (8,000)           (11,000)
   Change in valuation allowance                    232,000            (26,000)
                                          -------------------------------------

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

                        Deferred tax assets  (liabilities)  are comprised of the
                        following at December 31, 2001:



                NOL carry forwards                         $      1,312,000
                General business tax credits                         80,000
                Charitable contribution
                  deduction carry forward                             2,000
                                                            ----------------

                                                                  1,394,000

                Valuation allowance                              (1,394,000)
                                                           ----------------

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


--------------------------------------------------------------------------------
                                                                            F-10

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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



5.   Income             As of December 31, 2001,  the Company has net  operating
     Taxes              loss  carry  forwards  (NOL) and  general  business  tax
     Continued          credit  carry  forwards  (GB)  for  federal  income  tax
                        purposes which expire as follows:

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

                        2002             $               -     $     14,000
                        2003                             -           24,000
                        2004                             -           20,000
                        2005                        15,000                -
                        2006                             -           11,000
                        2007                         6,000           11,000
                        2008                       648,000                -
                        2010                       151,000                -
                        2011                       638,000                -
                        2018                       797,000                -
                        2019                     1,008,000                -
                        2021                       102,000                -
                                         ----------------------------------

                                         $       3,365,000     $     80,000
                                         ----------------------------------

                        The  Company  has a  charitable  contribution  deduction
                        carry forward of $6,000, which expires in 2005.

                        The Company has  established  a valuation  to offset the
                        net  deferred  tax  asset  due  to  the  uncertainty  of
                        realization  caused by the Company's  recurring  losses,
                        working capital deficiency and accumulated deficit.

6.   Capital            The Company has  established a series of preferred stock
     Stock              with a total of 10,000,000  authorized  shares and a par
                        value of $1, and one  series of common  stock with a par
                        value  of $.02  and a  total  of  50,000,000  authorized
                        shares.


--------------------------------------------------------------------------------
                                                                            F-11

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


7.   Stock              Stock Option and Bonus Plans
     Option             On June 7, 1993,  the Board of  Directors  approved  the
     Plans              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.

--------------------------------------------------------------------------------
                                                                            F-12

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


7.   Stock              Information regarding the option plans is as follows:
     Option
     Plans
     Continued                                  Number of     Option Price
                                                Options       Per Share
                                             ------------------------------

        Outstanding at January 1, 2000           628,500    $ 0.14 - 1.59
                Granted                          255,000      0.13 - 0.14
                Exercised                              -                -
                Forfeited                       (329,000)     0.13 - 1.59
                Expired                                -                -
                                             ------------------------------

        Outstanding at December 31, 2000         554,500      0.13 - 1.11
                 Granted                               -                -
                 Exercised                             -                -
                 Forfeited                      (423,000)     0.13 - 1.11
                   Expired                             -                -
                                             ------------------------------

        Outstanding at December 31, 2001         131,500    $ 0.13 - 0.60
                                             ------------------------------

                        Options  exercisable  and available for future grant are
                        as follows:

                                                      December 31,
                                           -----------------------------------
                                                 2001              2000
                                           -----------------------------------

                Options exercisable              114,833          324,500
                Options available for grant    3,039,651        2,616,651


--------------------------------------------------------------------------------
                                                                            F-13

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


8.   Stock-             The Company has adopted the  disclosure-only  provisions
     Based              of Statement of Financial  Accounting  Standards  (SFAS)
     Compensation       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 2001 and
                        2000,  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,
                                         -----------------------------------
                                               2001              2000
                                         -----------------------------------

        Net loss - as reported           $       (102,436)   $      (98,765)
        Net loss - pro forma             $       (103,427)   $     (119,036)
        Loss per share - as reported     $           (.02)   $         (.02)
        Loss per share - pro forma       $           (.02)   $         (.03)
                                         -----------------------------------


                        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,
                                         -----------------------------------
                                               2001              2000
                                         -----------------------------------

        Expected dividend yield                      -                   -
        Expected stock price volatility              -                 116%
        Risk-free interest rate                      -                   6%
        Expected life of options                     -             10 years
                                         -----------------------------------


--------------------------------------------------------------------------------
                                                                            F-14

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


8.   Stock-             The following table summarizes  information  about stock
     Based              options outstanding at December 31, 2001:
     Compensation
     Continued

                   Number       Weighted                  Number
                 Outstanding     Average    Weighted    Exercisable  Weighted
                     at         Remaining   Average         at       Average
   Range of     December 31,   Contractual  Exercise   December 31,  Exercise
Exercise Prices     2000          Life        Price        2000        Price
-------------------------------------------------------------------------------

$          0.13       125,000    2.76 years $     0.13       108,333  $    0.13
           0.60         6,500    5.18 years       0.60         6,500  $    0.60
-------------------------------------------------------------------------------

$ 0.13 to 0.60        131,500    2.88 years $     0.15       114,833  $    0.16
-------------------------------------------------------------------------------

                        The weighted average fair value of options issued during
                        2000 was $.10.


9.   Supplemental       During the year ended December 31, 2001, the Company:
     Disclosure of
     Cash Flow          o  Transferred   all  of   its   operations  to  certain
     Information           shareholders in exchange for their assumption  of the
                           Company's net liabilities  of $676,332.  The gain was
                           recorded as a contribution of capital.

                        o  Issued notes  payable  totaling  $70,608 for expenses
                           due an officer prior to the sale of its operations.

                        During the year ended December 31, 2000, the Company:

                        o  Sold  HTI,  a  company  with  net  liabilities,  to a
                           shareholder.  Prior to the sale the company increased
                           its  investment  in HTI by $354,426 in exchange for a
                           note payable of $310,000 and accounts  receivable  of
                           $44,426.

                        o  Issued  300,000  shares of stock valued at $96,000 to
                           an officer as compensation and deferred compensation.

                        o  Issued a note  payable to an officer  for  $16,042 in
                           exchange for services.

                        o  Issued a note payable to an  officer  or  $15,945  in
                           exchange for the use of equipment.

--------------------------------------------------------------------------------
                                                                            F-15

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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

9.   Supplemental       o  Sold its investment in HTI for $10 to an entity owned
     Disclosure of         by an officer of the Company.
     Cash Flow
     Information        o  Issued a note  payable to an officer  for  $25,000 in
     Continued             exchange  for the  officer's  personal  guarantee  of
                           debt.

10.  Commitments        Employment And Bonus Agreements
     and                The  Company has entered  into an  employment  agreement
     Contingencies      with an  officer/shareholder  that expires  December 31,
                        2003.  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  100% to 299% 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.

                        During the year ended  December  31,  2000,  the Company
                        paid the  officer/shareholder  a stock  bonus of 300,000
                        shares of the Company's  common stock.  This bonus vests
                        over three years,  beginning  in 2000,  and requires the
                        Company to pay the  officer/shareholder  cash amounts of
                        $20,000 per year through 2002 to offset tax  liabilities
                        associated with the stock bonus.

                        The  officer/shareholder  has agreed with the Company to
                        reduce the  officer/shareholder's  salary  from July 27,
                        2001,  through December 31, 2002. This reduction is made
                        at  the  officer/shareholder's  discretion  and  may  be
                        reversed at any time.

--------------------------------------------------------------------------------
                                                                            F-16

<PAGE>

                                                                TELS CORPORATION
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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

10.  Commitments        Litigation
     and                The Company may become or is subject to  investigations,
     Contingencies      claims or  lawsuits  ensuing  out of the  conduct of its
     Continued          business,   including  those  related  to  environmental
                        safety  and  health,   product   liability,   commercial
                        transactions,  etc.  The Company is  currently  aware of
                        certain  items  involving  potential  litigation  with a
                        former employee,  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.



--------------------------------------------------------------------------------
                                                                            F-17



<PAGE>

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









                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       5
<PAGE>

                                    PART III

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

         Directors and Executive Officers
         --------------------------------
                  P. Diane Gunter, Director, Corporate Secretary and Treasurer,
                    age 62.

         P. Diane  Gunter was  appointed to the Board in 1999 and was elected to
the Board for a period of one year or until  replaced  in June of 2000.  She was
also  appointed as the Secretary  and Treasurer in 1999.  During the period from
1989 until 1999, Mrs. Gunter was pursuing duties as a homemaker. Mrs. Gunter was
a Director of the Company from its  incorporation  in 1981 until June 1989. Mrs.
Gunter attended Marshall University,  Huntington,  West Virginia.  She served as
Corporate Secretary and Treasurer while she was on the Board, as well as serving
as Finance and Office Manager.  Mrs.  Gunter worked in the insurance  section of
the University of Florida in 1960, as a legal assistant from 1961 until 1963 and
as an administrative assistant at North American Aviation, Space and Information
Systems  Division  from 1963 until  1965.  P. Diane  Gunter is the wife of TELS'
founder, Chairman and President, Dr. John L. Gunter.

                  Dr. John L. Gunter, Chairman of the Board, President, age 65.

         Dr. Gunter,  TELS' founder, has been a Director and President or CEO of
TELS since its inception in February  1981,  and has been President most of that
time. He earned a B.S. in physics from  Marshall  University,  Huntington,  West
Virginia, and a doctorate in physics from Brigham Young University, Provo, Utah.
For five years after graduate school, Dr. Gunter was at the Rochester  Institute
of Technology,  Rochester,  New York, first as Director of Computing  Activities
and Associate Professor, then also as Director (Dean) of the College of Computer
and Information  Sciences and Technology.  Dr. Gunter was a computer  programmer
for Union  Carbide  Corporation,  an Engineer  and Project  Manager for RCA, EDP
Division,  and  a  design  manager  for  North  American  Aviation,   Space  and
Information  Systems  Division.  He was Senior Vice President with Galbraith and
Green,  Inc. Dr. Gunter was a political  appointee of Governor  Calvin  Rampton,
serving as Director of Systems, Planning and Computing for the State of Utah for
five years.  After  working for the State of Utah,  he worked for Boeing,  was a
private consultant and then General Manager for Business Communications Systems,
Inc. Dr. Gunter,  currently President and Chairman of the Board of Directors, is
the husband of P. Diane Gunter, Director of the Company.

         Board Meetings and Committees
         -----------------------------

         During the fiscal year ended December 31, 2001, the Company's  Board of
Directors  held five  meetings  either in person or by  telephone  and  executed
various  resolutions  and  written  actions.  A majority  of  directors  were in
attendance at all of the meetings.

         Compensation of Directors
         -------------------------

         All  directors  during the fiscal year ended  December 31,  2001,  were
Company  employees and thus received no additional or special  remuneration  for
serving as directors.

                      (THIS SPACE INTENTIONALLY LEFT BLANK)


                                       6
<PAGE>


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

         Compliance with Section 16(A) of the Securities Exchange Act of 1934
         --------------------------------------------------------------------

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  directors and executive  officers,  and persons who own more than ten
percent of the Company's  Common Stock, to file with the Securities and Exchange
Commission  initial  reports of ownership and reports of changes in ownership of
Common Stock and other  equity  securities  of the Company.  Except as disclosed
below, to the Company's knowledge,  based solely on information furnished to the
Company and written representations that no other reports were required,  during
the last fiscal year all applicable Section 16(a) filing requirements were met.

Item 10.  Executive Compensation
          ----------------------

         The following table sets forth the aggregate cash  compensation paid by
the Company for services  rendered  during the last three years to the Company's
President  and  Chief  Executive  Officer  and to  each of the  Company's  other
executive officers whose annual salary and bonus exceeded $100,000:
<TABLE>
<CAPTION>


                                       Annual Compensation               Long Term Compensation
                           ------------------------------    ----------------------------------------------------
                                                                        Awards                   Payouts
                                                                           Securities                   All
Name and          Year                       Other Annual     Restricted        LTIP                    Other
Principal         ended    Salary      Bonus    Comp.          Underlying       Option/    Payouts  Compensation
                                                              Stock Awards      SARs
Position          12/31      ($)       ($)        ($)             ($)           (#)          ($)         ($)
--------          -----    -------     -----  -----------     ------------      -------    -------   -----------

<S>               <C>      <C>           <C>      <C>              <C>           <C>          <C>         <C>
John L. Gunter    2001      80,400       0        (1)              0             0            0           0
CEO/President     2000     150,330       0        (1)              0             0            0           0
                  1999     150,330       0        (1)              0             0            0           0
</TABLE>



         (1) Amounts are less than $50,000 or ten percent (10%) of compensation.
         Amounts  for  incidental  benefits,  such as  personal  use of  Company
         automobiles, which accrue to certain officers and which, in the opinion
         of management,  are  job-related and appropriate in connection with the
         conduct of the Company's  business  affairs,  are included in the above
         amounts. Such benefits are not in excess of $50,000 for any individual.

         The Company remains a party to an employment agreement with Dr. Gunter,
its  president,  which will remain in force until the Company  effects a reverse
merger or Dr. Gunter cancels the agreement. Under this agreement, the Company is
obligated  to provide  certain  compensation,  to include  termination  payments
amounting  to 2.99 times  annual  compensation,  and Dr.  Gunter is obligated to
continue  significant  efforts to effect a reverse  merger.  The Company and Dr.
Gunter  agreed to reduce  Dr.  Gunter's  compensation  in 2001 and 2002,  at Dr.
Gunter's discretion.








                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       7
<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

         The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 10, 2002, (i) by each person
who is known by the Company to own  beneficially  more than five  percent of the
Company's  outstanding  shares  of  Common  Stock,  (ii)  each of the  Company's
Directors,  (iii) each of the Executive Officers,  and (iv) all of the Directors
and Executive Officers of the Company as a group.

                                          Shares of Common        Percent of
                                          Stock Beneficially     Total Voting
Name and Address of Beneficial Owner           Owned                 Shares
------------------------------------      ------------------     ------------
Dr. John L. Gunter, Director and
 Executive Officer (1), (2)                    851,334                20%
705 East Main Street
American Fork, Utah 84003

P. Diane Gunter, Director  (1)                 196,600                 5%
705 East Main Street
American Fork, Utah 84003

All Directors and Officers as
a Group (2 persons)                          1,047,934                25%

(1)      Dr.  and Mrs.  Gunter may be deemed to have  control of the  Company by
         virtue of their combined ownership of 25% of the Company's  outstanding
         voting shares.
(2)      Includes  voting  securities  and stock held by executive  officers and
         directors,  over which they have voting power but no investment  power.
         Otherwise,  each  director or officer  has sole  voting and  investment
         power over the shares  reported,  except as noted.  This also  includes
         103,334  shares for Mr.  Gunter that he may  acquire  pursuant to stock
         options that are exercisable.
(3)      Includes  voting  securities  and stock held by executive  officers and
         directors,  over which they have voting power but no investment  power.
         Otherwise,  each  director or officer  has sole  voting and  investment
         power over the shares reported, except as noted.
(4)      Includes  voting  securities  and stock held by executive  officers and
         directors,  over which they have voting power but no investment  power.
         Otherwise,  each  director or officer  has sole  voting and  investment
         power over the shares reported, except as noted.
(5)      Pursuant to the rules of the Securities and Exchange Commission, shares
         shown as  "beneficially"  owned  include (a) shares  subject to options
         exercisable  within 60 days of the  Record  Date,  (b)  shares  held by
         unincorporated  entities  and in  trusts  and  estates  over  which  an
         individual holds at least shared voting or investment  powers,  and (c)
         shares  held in trusts and  estates of which at least 10 percent of the
         beneficial  interest of such trust is attributable to specified persons
         in the immediate family of the individual(s) involved. This information
         is not  necessarily  indicative of  beneficial  ownership for any other
         purpose.

Item 11.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

         Stock Options
         -------------

         No options  were  granted  during the fiscal  years ended  December 31,
2001.  During 2000,  105,000  incentive  options were granted to employees other
than  officers.  The table  above  includes  all stock  and stock  options  that
beneficial  owners have or have the right to acquire within 30 days of April 10,
2002.


                                       8
<PAGE>

Stock Option and Stock Bonus Plans
----------------------------------

     Executive Stock Bonus Plan
     --------------------------

         In January  1984,  the  Company's  Board of Directors  adopted the 1984
Executive  Stock  Bonus Plan (the  "Stock  Bonus  Plan").  The Stock  Bonus Plan
provides for the Board of  Directors  or a committee  thereof to grant shares of
the Company's Common Stock, or the right to receive such shares, to officers and
other members of the executive or general  management of the Company,  excluding
such individuals who hold 10% or more of the Company's  Common Stock.  Shares or
rights to shares will be granted without other payment therefore,  as additional
compensation for services rendered to the Company. The Board of Directors,  or a
duly appointed committee thereof, has the power to determine the persons to whom
bonus awards will be made, the number of shares or rights to be granted, and the
terms and conditions under which such grants will be made, including issuance in
installments,  forfeiture  provisions  or other  restrictions.  The  Company has
reserved  537,500 of the authorized but unissued shares of the Company's  Common
Stock for grant under the Stock Bonus Plan. In April, 2000, the Board ratified a
stock bonus of 300,000  shares  vesting  over three  years,  plus a tax bonus to
cover taxes for these  shares,  to Dr.  Gunter in keeping with a proposal by the
Board's  1999  Compensation  Committee.  No shares were  issued  under this plan
during 2001.

     TELS Corporation Stock Option and Incentive Plan for Officers and Key
     ---------------------------------------------------------------------
     Employees of the Company and its Subsidiaries
     ---------------------------------------------

         This Plan,  approved by shareholders on June 7, 1993, replaced the 1984
Incentive  Stock  Option  and the 1984  Non-Qualified  Stock  Option  Plans that
expired.  This newer plan  permits the  granting  of  incentive  stock  options,
non-qualified  stock  options,  stock  appreciation  rights,  stock  performance
shares,  dividend  equivalents  and  restricted  stock.  The Board of  Directors
believes that the Plan will assist TELS in recruiting and retaining  outstanding
individuals  as officers and members of  management  by enabling such persons to
participate  in  the  long-term  growth  of  TELS  and by  providing  additional
incentive to increase  their efforts in promoting  the financial  success of the
Company  and its  subsidiaries.  On June 6,  1994,  the  shareholders  voted  to
increase the number of shares reserved under this plan to a maximum of 2,000,000
shares to be made  subject to awards,  as defined.  No shares were issued  under
this plan in 2001 or 2000.

     TELS Corporation 1994 Outside Directors Stock Option Plan
     ---------------------------------------------------------

         On June 6, 1994, the  shareholders of the Company  approved the Outside
Directors  Stock Option Plan.  This  Director's  Plan  provides for the grant of
non-statutory  stock options to non-employee  Directors of the Company ("Outside
Directors")  pursuant to an automatic,  non-discretionary  grant mechanism.  The
primary  purposes of the Director Plan are to enhance the  Company's  ability to
attract and retain the services of experienced and knowledgeable  individuals to
serve on the Board of  Directors  of the Company  (the  "Board"),  to  encourage
ownership in the Company by the  Directors  of the  Company,  and to provide the
Company's  Directors  with  reward  opportunities  based upon the success of the
Company.  The shareholders  have approved 500,000 shares to be reserved for this
plan. No shares were issued under the plan in 2001 or 2000.



                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       9
<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management'
          --------------------------------------------------------------
          (continued)
          ----------

Employees' Profit Sharing Plan
------------------------------

         The Company has a defined  contribution  401(k) salary  reduction  plan
("401(k) Plan"). Company employees who are at least 21 years of age are eligible
to  participate  in the  401(k)  Plan  after  six  months of  service.  Eligible
employees become participants in the 401(k) Plan on the earlier of the first day
of the  plan  year or the  first  day of the  seventh  month  of the  plan  year
coinciding  with or next  following  the date on which  the  employee  meets the
401(k) Plan's eligibility requirements. By electing to defer a portion of his or
her compensation, a participating employee may make pre-tax contributions to the
401(k) Plan,  subject to limitations under the Internal Revenue Code of 1986, as
amended.  The Company may make matching  contributions to the 401(k) Plan at the
discretion of its Board of Directors.  Participant's  contributions and earnings
are 100% vested, while Company matching  contributions vest in increments over a
seven-year  period.  The Company  made no  contribution  to this Plan in 2001 or
2000.  Participants  may alter their  contribution  amounts at the first of each
month.  The Company  pays all expenses  associated  with  administration  of the
401(k) Plan.

Item 12.  Certain Relationships and Related Transactions
          ----------------------------------------------

         During 1999 and 2000, an officer provided loans to the Company totaling
approximately  $400,000.  These loans were collateralized loans with an interest
rate of twelve percent,  payable upon demand. During 2001, the Company moved all
of its operating  assets and  liabilities  into its only operating  entity,  its
wholly-owned  subsidiary,  TEL electronics,  inc. On July 27, 2001, Dr. and Mrs.
Gunter acquired all of the assets and liabilities of TEL electronics, inc., from
the Company,  leaving the Company's employment agreement with Dr. Gunter intact.
This  acquisition of TEL  electronics,  inc. was deemed to be a transaction that
was fair to  minority  shareholders  by an  independent,  nationally  recognized
valuation firm. Dr. Gunter agreed to reduce his compensation  for a period,  and
Officers  are loaning  funds to the  Company for a period to pay ongoing  public
expenses.  The Company, as of April 10, 2002, is essentially a public shell, and
has no  operations.  Activities  continue to provide  future  opportunities  for
shareholders  by merging  this public shell with a solid  company  seeking to go
public via a merger.






                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       10
<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.
        Balance Sheet as of December 31, 2001.
        Statements of Operations for the years ended December 31, 2001 and 2000.
        Statement of Changes in Stockholders' Deficit for the years ended
           December 31, 2001 and 2000.
        Statements of Cash Flows for the years ended December 31, 2001 and 2000.
        Notes to Financial Statements for the years ended December 31, 2001 and
           2000.

     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.

                                       11
<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 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.

     10.7  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.

     21. Wholly-owned Subsidiaries of TELS Corporation prior to July 27, 2001:
           TEL electronics, inc.                           MICROMEGA CORPORATION

     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, 2000,
     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.

                                       12
<PAGE>

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)


     April 15, 2002                                   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.



Chairman of the Board of Directors,         April 15, 2002 /s/John L. Gunter
President and Principal Executive                          -----------------
Officer                                                       John L. Gunter



Director, Secretary, Treasurer              April 15, 2002 /s/P. Diane Gunter
                                                           ------------------
                                                              P. Diane Gunter











                      (THIS SPACE INTENTIONALLY LEFT BLANK)

                                       13
<PAGE>