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

                                   FORM 10-QSB

[ X ]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

For the Quarterly Period Ended:     December 31, 1996

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

For the Transition Period from       to

Commission File Number:    0-17190

                      WASATCH EDUCATION SYSTEMS CORPORATION
        (Exact name of small business issuer as specified in its charter)

           UTAH                                          87-0458433
-------------------------------          ---------------------------------------
(State or other jurisdiction of               (IRS Employer Identification No.)
incorporation or organization)

                         5250 South 300 West, Suite 101
                           Salt Lake City, Utah 84107
                    (Address of principal executive offices)

                                 (801) 261-1001
                           (Issuer's telephone number)

                                    No Change
              (Former name, former address and former fiscal year,
               if changed since last report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

 X  yes      no

The Company had 3,606,668  shares of common stock,  no par value  outstanding at
January 30, 1997.


<PAGE>
<TABLE>
<CAPTION>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                      Wasatch Education Systems Corporation
                             Condensed Balance Sheet
                                   (Unaudited)
Assets                                                                                  December 31,
                                                                                            1996
                                                                                     ----------------
<S>                                                                                  <C>
Current assets:
   Cash                                                                                 $    193,772
   Accounts receivable, net of allowance for doubtful accounts of $15,000                    376,965
   Inventories                                                                                61,791
   Other current assets                                                                       26,639
                                                                                     ----------------
      Total current assets                                                                   659,167

Equipment, furniture and fixtures, net of accumulated
   depreciation of $641,309                                                                  141,547

Courseware development costs, net of accumulated
  amortization of $2,691,952                                                               3,629,813

Other assets, net                                                                             18,333
                                                                                     ================
      Total assets                                                                        $4,448,860
                                                                                     ================

Liabilities and stockholders' equity

Current liabilities:
   Convertible subordinated debentures                                                    $1,197,000
   Accounts payable                                                                          277,710
   Accrued employee costs                                                                    199,255
   Other accrued liabilities                                                                  19,486
   Deferred revenue                                                                          264,482
                                                                                     ----------------
      Total current liabilities                                                            1,957,933
                                                                                     ----------------

Stockholders' equity:
   Preferred  stock,   20,000,000   shares   authorized   Series  A  convertible
      redeemable, 4,412,431 shares
        outstanding, $4,412,431 involuntary liquidation value                              4,628,285
      Series B $.375 cumulative convertible redeemable,
         91,151 shares outstanding, $158,254
         involuntary liquidation value                                                       118,496
      Series C redeemable, 5,300,000 shares outstanding,
         $5,300,000 preferred liquidation value                                            5,300,000
   Common stock, no par value; 200,000,000 shares authorized,
      3,606,668 shares outstanding                                                        11,781,511
   Accumulated deficit                                                                   (19,337,365)
                                                                                     ----------------
      Total stockholders' equity                                                           2,490,927
                                                                                     ----------------
         Total liabilities and stockholders' equity                                     $  4,448,860
                                                                                     ================


             The accompanying notes are an integral part of this condensed balance sheet.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                      Wasatch Education Systems Corporation
                        Condensed Statements of Operations
                                   (Unaudited)

                                                                  Three Months Ended December 31,
                                                                       1996              1995
                                                               -----------------   ----------------
<S>                                                            <C>                     <C>
Revenue:
  Courseware license rights                                     $   138,168            $    205,888
  Services and other                                                138,611                 181,384
                                                               -----------------   ----------------
                                                                    276,779                 387,272
                                                               -----------------   ----------------

Cost of revenue:
  Courseware license rights                                         307,561                 260,418
  Services and other                                                144,783                 138,273
                                                               -----------------   ----------------
                                                                    452,344                 398,691
                                                               -----------------   ----------------
Gross margin (deficit)                                             (175,565)                (11,419)
                                                               -----------------   ----------------

Operating expenses:
  General and administrative                                        142,653                 335,568
  Sales and marketing                                               102,470                 214,981
  Research and development                                           78,129                  74,330
                                                               -----------------   ----------------
                                                                    323,252                 624,879
                                                               -----------------   ----------------
Loss from operations                                               (498,817)               (636,298)

Interest expense                                                     40,731                  40,190
                                                               -----------------   ----------------
Net loss                                                           (539,548)               (676,488)

Unpaid and undeclared preferred stock dividends                       4,546                   4,546
                                                               =================   ================
Loss attributable to common stockholders                        $  (544,094)           $   (681,034)
                                                               =================   ================

   Net loss per common share                                    $      (.15)           $       (.19)
                                                               =================   ================

Weighted average common and common
   equivalent shares outstanding                                  3,606,668               3,571,512
                                                               =================   ================

         The  accompanying  notes  are  an  integral  part  of  these condensed statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                      Wasatch Education Systems Corporation
                       Condensed Statements of Operations
                                   (Unaudited)

                                                                    Six Months Ended December 31,
                                                                       1996               1995
                                                               -----------------   ----------------
<S>                                                            <C>                 <C>
Revenue:
  Courseware license rights                                     $    537,572        $  1,102,789
  Services and other                                                 248,066             342,917
                                                               -----------------   ----------------
                                                                     785,638           1,445,706
                                                               -----------------   ----------------

Cost of revenue:
  Courseware license rights                                          605,237             493,152
  Services and other                                                 273,956             319,838
                                                               -----------------   ----------------
                                                                     879,193             812,990
                                                               -----------------   ----------------
Gross margin (deficit)                                               (93,555)            632,716
                                                               -----------------   ----------------

Operating expenses:
  General and administrative                                         398,494             617,740
  Sales and marketing                                                225,308             386,983
  Research and development                                           162,144             134,675
                                                               -----------------   ----------------
                                                                     785,946           1,139,398
                                                               -----------------   ----------------
Loss from operations                                                (879,501)           (506,682)

Interest expense, net of interest income                              81,461              80,922
                                                               -----------------   ----------------
Net loss                                                            (960,962)           (587,604)

Unpaid and undeclared preferred stock dividends                        9,092               9,092
                                                               =================   ================
Net income attributable to common stockholders                  $   (970,054)       $   (596,696)
                                                               =================   ================

Net loss per common share                                       $       (.27)       $       (.17)
                                                               =================   ================

Weighted average common and common
   equivalent shares outstanding                                   3,601,300           3,570,370
                                                               =================   ================

       The  accompanying  notes  are  an  integral  part  of  these condensed statements.
</TABLE>



<PAGE>
<TABLE>
<CAPTION>



                      Wasatch Education Systems Corporation
                       Condensed Statements of Cash Flows
                                   (Unaudited)

                                                                    Six Months Ended December 31,
                                                                       1996               1995
                                                                 ---------------     --------------
<S>                                                             <C>                     <C>
Cash flows from operating activities:
  Net loss                                                       $   (960,962)       $   (587,604)
     Adjustments to reconcile net loss to net
        cash provided by operating activities:
          Depreciation and amortization                               665,682             570,465
            Increase (decrease) in cash from:
              Accounts receivable                                     511,717             885,760
              Inventories                                               4,891              (3,625)
              Other current assets                                     10,200                 149
              Accounts payable                                        151,977            (187,651)
              Accrued liabilities                                     (86,267)           (221,979)
              Deferred revenue                                         40,240             (44,119)
                                                                ----------------     --------------
                Net cash provided by operating activities             337,478             411,396
                                                                ----------------     --------------


Cash flows from investing activities:
  Purchase of equipment, furniture and fixtures                        (4,730)            (81,680)
  Additions to courseware development costs                          (238,590)           (263,169)
                                                                ----------------     --------------
               Net cash used in investing activities                 (243,320)           (344,849)
                                                                ----------------     --------------

Increase in cash                                                       94,158              66,547

Cash at beginning of period                                            99,614              76,150
                                                                ----------------     --------------
Cash at end of period                                            $    193,772        $    142,697
                                                                ================     ==============

Supplemental disclosure of cash flow information:
   Cash paid for interest                                        $     40,732        $     80,922
                                                                ================     ==============
   Cash paid for income taxes                                    $        600        $     13,290
                                                                ================     ==============

      The  accompanying  notes  are  an  integral  part  of  these condensed statements.
</TABLE>

<PAGE>


                      Wasatch Education Systems Corporation
                     Notes to Condensed Financial Statements
                                   (Unaudited)

(1) PRESENTATION OF INTERIM FINANCIAL STATEMENTS

The accompanying  unaudited condensed financial statements have been prepared by
the Company in accordance  with the rules and  regulations of the Securities and
Exchange Commission for Form 10-QSB, and accordingly,  do not include all of the
information and footnotes required by generally accepted accounting  principles.
In  the  opinion  of  management,   these  financial   statements   reflect  all
adjustments,  which consist of normal recurring adjustments, which are necessary
to present fairly the Company's  financial  position,  results of operations and
cash flows as of December 31, 1996 and for the periods presented  herein.  These
unaudited condensed financial  statements should be read in conjunction with the
financial  statements and notes thereto  included in the Company's Annual Report
on Form  10-KSB  for the  fiscal  year  ended  June 30,  1996.  The  results  of
operations  for the  three  and six  months  ended  December  31,  1996  are not
necessarily  indicative of the results that may be expected for the remainder of
the fiscal year ending June 30, 1997.

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  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.

Pending  stockholder  approval,  the Company has entered into an agreement  with
Wasatch  Interactive   Learning  Corporation  ("WILC")  to  sell  the  Company's
Education  Market net assets  (see Note 4). This sale is expected to close on or
about  February 7, 1997.  If this sale is  consummated,  the  operations  of the
Company will change substantially during the remainder of fiscal year 1997.


(2) INCOME TAXES

The Company  accounts  for income  taxes using the  parameters  of  Statement of
Financial  Accounting  Standards ("SFAS") No. 109. SFAS No. 109 requires the use
of the liability method for financial reporting purposes. The Company provides a
valuation  allowance against all deferred income tax assets,  due to uncertainty
as to their ultimate realizability.

The  components of the Company's  deferred  income tax assets as of December 31,
1996 and June 30, 1996 are as follows:

                                    December 31,      June 30,
                                         1996           1996
                                    -----------     -----------
Tax net operating losses            $5,683,000      $5,324,000
Deferred courseware
  development costs                    181,500         363,000
Revenue deferred for
  financial reporting                  101,000          85,000
Reserves and accrued
  liabilities                           10,000          24,000

Total deferred income tax assets     5,975,500       5,796,000
                                    -----------     -----------
Valuation allowance                 (5,975,500)     (5,796,000)
                                    -----------     -----------
Net deferred income tax assets      $    -          $     -
                                    ===========     ===========




<PAGE>


(3) LICENSE AGREEMENT

Effective  September 30, 1995,  the Company  entered into a licensing  agreement
with The Roach Organization,  Inc., doing business as TRO Learning ("TRO").  The
license agreement grants TRO a world-wide,  non-transferable,  exclusive license
to distribute certain of the Company's products as part of the courseware system
marketed by TRO. TRO is obligated to pay to the Company royalties based on sales
of the  Company's  products.  The term of the  agreement  and the license is two
years and one month  commencing  September 30, 1995 and ending October 31, 1997.
The Company  recognized income during the first quarter of fiscal year 1996 from
a one-time  licensing fee of $550,000 upon  execution of the agreement  which is
non-refundable.  Additionally, TRO has guaranteed minimum royalty revenue to the
Company of $800,000 for the period  beginning  November 1, 1996 through June 30,
1997,  should its sales of the Company's  products not meet specified  levels as
set forth within the agreement. If the sales conditions are not met, the minimum
royalty cash payments would be due the Company on July 15, 1997. The Company has
no future  obligations  with respect to service,  support or product relative to
this license agreement.


(4) POTENTIAL SALE OF THE COMPANY'S EDUCATION MARKET NET ASSETS

Effective  July 1, 1996,  pending  stockholder  approval  that will be sought on
February 7, 1997, the Company entered into an Acquisition agreement with Wasatch
Interactive  Learning  Corporation  ("WILC").  The Company,  pending stockholder
approval,  has  agreed to sell to WILC the  Education  Market  net assets of the
Company  relating to or arising  out of the  Company's  business of  developing,
marketing and licensing  proprietary  and third-party  educational  software and
related products and services in the Education  Market.  The Education Market is
defined as preschool;  K-12; juvenile and adult basic education; post secondary;
correctional and corporate  facilities and programs both public and private. The
Company, pending stockholder approval, also has granted an exclusive,  worldwide
license to WILC to market the Company's products and develop derivative products
in the  Education  Market.  Should the sales be  consummated  the  Company  will
receive  cash of  $1,500,000  and future  royalties.  The  Company  will  retain
ownership  of  the  capitalized  courseware  costs,   convertible   subordinated
debentures,  tax net operating loss  carryforwards and intellectual  property as
well as ownership  rights to the products and  additionally the rights to market
the products in the "Home and Retail  Market",  which it intends to pursue.  The
Company   expects  to  recognize  a  gain  on  the  sale,  an  amount  which  is
indeterminable  at this time.  The sale is also  dependent on WILC obtaining the
required funding to complete the transaction.


<PAGE>



ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

Results of Operations:

The following are  explanations of significant  period to period changes for the
three months ended December 31, 1996 and 1995.

Revenue for the three  months  ended  December  31,  1996 of $277,000  decreased
$110,000 or 29 percent,  compared to the three months  ended  December 31, 1995.
Courseware license rights revenue decreased by $68,000 or 33 percent to $138,000
for the three months ended December 31, 1996, from $206,000 for the three months
ended  December  31,  1995.  This  decrease  is  primarily  due  to  lower  than
anticipated revenues generated from the Company's dealer  organizations,  due in
part from the Company adding and deleting certain dealer  organizations over the
past year in an effort to find  those  dealer  organizations  which the  Company
feels will  enhance its overall  sales  strategy.  Services  and other  revenues
decreased  $43,000 or 24 percent to $139,000 for the three months ended December
31, 1996 from  $181,000 for the three months ended  December 31, 1995.  Customer
support renewal revenues  decreased $36,000 or 28 percent to $93,000 at December
31, 1996 from  $129,000 at December 31,  1995.  This  decrease is primarily  the
result of delays in receiving annual contracts from customers,  the most notable
of which was the Chicago  area schools  where the new  contract  period began in
September.

Gross  margins  decreased by $165,000 or 1,437  percent to a deficit of $176,000
for the three months  ended  December 31, 1996 from a deficit of $11,000 for the
three months ended  December 31, 1995.  This decrease is primarily the result of
lower overall sales.

Operating expenses decreased by $302,000 or 48 percent to $323,000 for the three
months ended December 31, 1996 from $625,000 for the three months ended December
31, 1995. This decrease is primarily the result of the Company's  ongoing effort
to  maintain  lower  overall  operating  costs  proportional  to  sales  levels.
Additionally,  commissions earned in this quarter are lower due to the decreased
sales levels.

Loss from  operations  decreased by $137,000 or 22 percent to a loss of $499,000
for the three months ended  December 31, 1996 compared to a loss of $636,000 for
the three months ended December 31, 1995.

Interest  expense of $41,000  remained  consistent  with the prior  fiscal  year
period  based  on  the   $1,197,000  of  convertible   subordinated   debentures
outstanding.


The following are  explanations of significant  period to period changes for the
six months ended December 31, 1996 and 1995.

Revenue  for the six  months  ended  December  31,  1996 of  $786,000  decreased
$660,000 or 46 percent,  compared to the six months  ended  December  31,  1995.
Revenue from  courseware  license rights  decreased by $565,000 or 51 percent to
$538,000 for the six months ended December 31, 1996, from $1,103,000 for the six
months ended December 31, 1995.


<PAGE>



This decrease is primarily due to the recognition of a one-time licensing fee of
$550,000  during  the  first  quarter  of  fiscal  year  1996 (see Note 3 to the
condensed  financial  statements).  Excluding  this  one-time  transaction,  the
Company experienced only a 3 percent decrease in new courseware sales during the
six months  ended  December  31, 1996.  Services  and other  revenues  decreased
$95,000 or 28 percent to $248,000  for the six months  ended  December  31, 1996
from  $343,000 for the six months ended  December  31, 1995.  Of this  decrease,
$9,000 is the result of lower text and consumable  sales which resulted from the
lower courseware sales.  Customer support renewal revenues  decreased $79,000 or
33 percent to $159,000 at December 31, 1996 from  $238,000 at December 31, 1995.
This  decrease is primarily the result of delays in receiving  annual  contracts
from  customers;  the most notable of which was the Chicago  area schools  where
approval of our annual contract has been delayed.

Gross margins  decreased by $726,000 or 115 percent to a loss of $94,000 for the
six months  ended  December  31,  1996 from  $633,000  for the six months  ended
December 31, 1995. This decrease is primarily the result of lower overall sales.

Operating  expenses  decreased by $353,000 or 31 percent to $786,000 for the six
months ended December 31, 1996 from $1,139,000 for the six months ended December
31, 1995. General and  administrative  expenses decreased $220,000 or 36 percent
to $398,000 at December 31, 1996 from  $618,000 at December 31, 1995.  Sales and
marketing  expenses  decreased  $162,000 or 42 percent to  $225,000  for the six
months ended December 31, 1996 from $387,000 at December 31, 1995. This decrease
is  primarily  the  result  of lower  commissions  due to lower  overall  sales.
Research and development increased $27,000 or 20 percent to $162,000 for the six
months ended December 31, 1996 from $135,000 at December 31, 1995. This increase
is  primarily  the  result  of the  Company  expensing  a larger  percentage  of
development costs.

Loss from  operations  increased by $373,000 or 74 percent to a loss of $880,000
for the six months ended  December  31, 1996  compared to a loss of $507,000 for
the six months ended December 31, 1995.

Interest  expense of $81,000  remained  consistent  with the prior  fiscal  year
period  based  on  the   $1,197,000  of  convertible   subordinated   debentures
outstanding.


Liquidity and Capital Resources:

At December  31,  1996,  the Company had liquid  assets  (cash and net  accounts
receivable) of $571,000, a decrease of $417,000 or 42 percent from June 30, 1996
when liquid assets were $988,000.  Cash increased  $94,000 primarily as a result
of efforts to  collect  outstanding  accounts  receivable.  Accounts  receivable
decreased  $512,000 or 58 percent to $377,000 at December 31, 1996 from $889,000
at June 30, 1996, primarily due to the lower overall sales level and to a lessor
extent due to increased collection efforts.

Current  assets  decreased by $433,000 or 40 percent to $659,000 at December 31,
1996 from $1,092,000 at June 30, 1996. This decrease was primarily the result of
the $512,000  decrease in accounts  receivable  and a $15,000  decrease in other
current assets, partially offset by the $94,000 increase in cash.

Long-term  assets during the six month period ended  December 31, 1996 decreased
$422,000 or 10 percent to $3,790,000  from $4,212,000 at June 30, 1996. Of this,
$357,000  was a decrease  in  courseware  development  costs net of  accumulated
amortization. This decrease was primarily the result of regular amortization and
a  lessor  amount  of  courseware  development  costs  capitalized.   Equipment,
furniture and fixtures net of accumulated  depreciation decreased by $65,000 for
the six  month  period  ended  December  31,  1996 as a result  of  depreciation
expense.

Current  liabilities  of the  Company  increased  by  $106,000  or 6 percent  to
$1,958,000 at December 31, 1996 from $1,852, 000 at June 30, 1996. This increase
is primarily the result of a an increase of $152,000 in accounts  payable due to
the  Company  extending  the  terms  on  certain   obligations.   Other  accrued
liabilities  decreased  by $46,000  primarily  as the result of the payment of a
certain state sales tax audit liability.


<PAGE>

The Company's working capital decreased by $539,000 or 71 percent from a deficit
of $760,000 at June 30, 1996 to a deficit of  $1,299,000  at December  31, 1996.
This decrease is primarily the result of a lower accounts receivable balance due
to lower overall sales, and an increase in accounts payable discussed above.

Stockholders'  equity  decreased by $961,000 to $2,491,000 at December 31, 1996,
from  $3,452,000 at June 30, 1996. This decrease is the result of a $961,000 net
loss for the six months ended December 31, 1996.

In the  opinion  of  management,  debt  and  equity  capital  resources  must be
increased  for the Company to fully pursue its goals in the next twelve  months.
The Company is addressing  the need for  longer-term  growth capital by entering
into  an  agreement  pending  to  shareholder  approval  to sell  the  Company's
Education  Market Net assets to WILC for  $1,500,000  in cash (see  below),  and
pursuing new sources of investment funding. The Company has in place an accounts
receivable  financing  arrangement which allows the Company to borrow 70 percent
against its qualified accounts receivable at a rate of 3 1/2 percent of the face
value  of  such   receivables.   The  Company  has   $1,197,000  of  convertible
subordinated  debentures that are due on January 31, 1997. Funds from operations
will not be adequate to repay these  debentures,  but the Company may be able to
sell certain assets for an amount in excess of any shortfall. Should the Company
not have available the funds to repay these debentures timely,  then the Company
will pursue an  extension  to the due date.  The Company has no  assurance  that
required capital will be available, or available on terms viable to the Company.

Effective July 1, 1996, the Company  entered into an Acquisition  agreement with
WILC. The Company,  pending  stockholder  approval,  has agreed to sell WILC the
Education  Market  assets  of the  Company  relating  to or  arising  out of the
Company's  business of  developing,  marketing  and  licensing  proprietary  and
third-party  educational  software  and  related  products  and  services in the
Education Market. The Company, pending stockholder approval, also has granted an
exclusive,  worldwide  license  to WILC to market  the  Company's  products  and
develop derivative  products in the Education Market.  Should the transaction be
consummated  the Company will receive cash of $1,500,000  and future  royalties.
The  Company  expects  to  recognize  a gain on the  sale,  an  amount  which is
indeterminable  at this timeThe Company will retain all  capitalized  courseware
costs,   convertible   subordinated   debentures  and  tax  net  operating  loss
carryforwards.



<PAGE>



                           PART II - OTHER INFORMATION



The  information  required by items in Part II is omitted  because the items are
not applicable,  the answer is negative or substantially the same information is
included  elsewhere  in this  report  or has  been  previously  reported  by the
registrant.






<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.







WASATCH EDUCATION SYSTEMS CORPORATION





/s/Barbara Morris                                 January 30, 1997
   Barbara Morris, President & CEO                   Date