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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


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

                For the quarterly period ended September 30, 1997

                                       OR

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

                           Commission File No. 1-10588


                                INTELLICALL, INC.
             (Exact name of registrant as specified in its charter)

    Delaware                                                  75-1993841
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                           Identification Number)

                            2155 Chenault, Suite 410
                              Carrollton, TX 75006
                    (Address of principal executive offices)

                                 (972) 416-0022
              (Registrant's telephone number, including area code)


Indicate by check mark  whether the  registrant  (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities  Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing  requirements  for
the past 90 days.

         Yes   X                                                       No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

                                                               Outstanding at
               Class                                         November  10,1997
Common Stock $.01 par value                                       9,435,736
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<PAGE>



INDEX

INTELLICALL, INC.

Part I.  Financial Information

 Item 1. Financial Statements

         Consolidated Balance Sheets at September 30, 1997
         (Unaudited) and December 31, 1996....................................1

         Consolidated  Statements of  Operations  for each of the three
         month periods ended September 30, 1997 and 1996
         (Unaudited)..........................................................2

         Consolidated  Statements  of  Operations  for each of the nine
         month periods ended September 30, 1997 and 1996
         (Unaudited)..........................................................3

         Consolidated  Statements  of Cash  Flows  for each of the nine
         month periods ended September 30, 1997 and 1996
         (Unaudited)..........................................................4

         Notes to Consolidated Financial Statements...........................6

 Item 2. Management's Discussion and Analysis of Financial Condition and
         Results of Operations...............................................15

Part II. Other Information

 Item 6. Exhibits and Reports on Form 8-K....................................21


Signatures...................................................................21











<PAGE>



Part I.  Financial Information
     Item 1.  Financial Statements
<TABLE>
<CAPTION>
INTELLICALL, INC.
       CONSOLIDATED BALANCE SHEETS
       (in thousands, except  per share amounts)
<S>                                                <C>                        <C>  
                                                   September 30, 1997         December 31, 1996
                                                   ------------------         -----------------
ASSETS                                                (unaudited)
Current assets:
      Restricted cash                                  $      18                   $     15
      Cash and cash equivalents                              241                      2,271
      Receivables, net                                    26,167                     22,499
      Inventories, net                                     3,345                      7,902
      Other current assets                                 1,307                      1,684
                                                        --------                   --------

      Total current assets                                31,078                     34,371

Fixed assets, net                                          7,534                      1,964
Notes receivable, net                                      1,219                        992
Intangible assets, net                                    17,849                        928
Capitalized software costs, net                            3,083                      4,904
Other assets, net                                          2,817                      2,095
                                                        --------                   --------
                                                        $ 63,580                    $45,254
                                                        ========                    =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable                                  $  9,727                  $   6,064
      Dealer payable                                       4,425                      3,737
      Deferred debit card revenue                            689                      1,028
      Accrued liabilities                                  2,539                      1,451
      Current portion of long-term debt                    1,450                         85
                                                        --------                  ---------

      Total current liabilities                           18,830                     12,365

Long-term debt                                            20,867                     19,312
Deferred revenue                                              --                        595
Other liabilities                                            465                        200
Minority interest                                          3,991                        113
                                                       ---------                   --------

      Total liabilities                                   44,153                     32,585
                                                        --------                    -------

Redeemable preferred stock, $100 par value,111,960 and                        
  zero shares issued and outstanding, respectively        11,196                        --
Stockholders' equity:
  Preferred stock, $.01 par value; 1,000,000
      shares authorized; 4,000 and zero issued and
      oustanding, respectively                                 1                         --
  Common stock, $.01 par value; 20,000,000
      shares authorized; 9,460,644 and 8,646,278
      shares issued and outstanding, respectively             95                        87
  Additional paid-in capital                              57,436                    51,602
  Less common stock in treasury, at cost; 24,908 shares     (258)                     (258)
  Accumulated deficit                                    (49,043)                  (38,762)
                                                        --------                  --------
      Total stockholders' equity                           8,231                    12,669
                                                       ---------                  --------
                                                        $ 63,580                 $  45,254
                                                        ========                 =========
</TABLE>

See notes to consolidated financial statements.


                                      - 1 -

<PAGE>


<TABLE>
<CAPTION>
INTELLICALL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)


                                                                           Three Months Ended
                                                                              September 30,
                                                                      1997                     1996
                                                                      ----                     ----
<S>                                                               <C>                       <C>   
Revenues and Sales:
         Service revenues                                         $  24,991                 $  23,373
         Equipment sales                                              5,770                     2,899
                                                                   --------                  --------
                                                                     30,761                    26,272
                                                                   --------                  --------

Cost of revenues and sales:
         Service revenues                                            22,750                   20,898
         Equipment sales                                             10,410                    5,956
                                                                   --------                 --------
                                                                     33,160                   26,854
                                                                   --------                 --------

Gross profit (loss)
         Service revenues                                             2,241                    2,475
         Equipment sales                                             (4,640)                  (3,057)
                                                                   --------                 --------
                                                                     (2,399)                    (582)

Selling, general and administrative expenses                          3,572                    2,896
Research and development expenses                                       257                       87
Provision for doubtful accounts                                         273                       80
                                                                   --------                 --------

Operating loss                                                       (6,501)                  (3,645)

Interest income                                                         216                      365
Interest expense                                                       (619)                    (768)
Minority interest                                                       (83)                     (70)
                                                                  ---------                ---------
Loss before income taxes                                             (6,987)                  (4,118)

Income tax refund                                                        --                    1,303
Income tax expense                                                     (142)                      --
                                                                   --------                ---------

Net loss                                                             (7,129)                  (2,815)
Preferred stock dividend                                                (55)                      --
                                                                  ---------                ---------
Net loss available to common shareholders                         $  (7,184)               $  (2,815)
                                                                  =========                =========

Net loss per share                                                $    (.77)               $    (.35)
                                                                  =========                =========

Weighted average number of common and common
equivalent shares outstanding                                         9,334                    8,102
                                                                  =========                =========

</TABLE>
See notes to consolidated financial statements.




                                      - 2 -

<PAGE>


<TABLE>
<CAPTION>
INTELLICALL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)


                                                                                  Nine Months Ended
                                                                                    September 30,
                                                                             1997                    1996
                                                                             ----                    ----
<S>                                                                       <C>                    <C>
Revenues and sales:
         Service revenues                                                 $  65,276              $   56,144
         Equipment sales                                                     13,721                  10,878
                                                                            -------                 -------
                                                                             78,997                  67,022
                                                                            -------                 -------

Costs of revenues and sales:
         Service revenues                                                    59,202                  49,610
         Equipment sales                                                     18,508                  13,312
                                                                            -------                 -------
                                                                             77,710                  62,922
                                                                            -------                 -------

Gross profit (loss)
         Service revenues                                                     6,074                  6,534
         Equipment sales                                                     (4,787)                (2,434)
                                                                            -------                -------
                                                                              1,287                  4,100

Selling, general and administrative expenses                                  8,876                  8,247
Research and development expenses                                               455                    282
Provision for doubtful accounts                                                 525                    242
                                                                           --------                -------


Operating loss                                                               (8,569)                (4,671)

Gain on sale of assets                                                           --                    572
Interest income                                                                 445                    607
Interest expense                                                             (1,831)                (2,294)

Minority interest                                                              (129)                   (99)
                                                                           --------               --------
Loss before income taxes                                                    (10,084)                (5,885)

Income tax refund                                                                --                  1,303
Income tax expense                                                             (142)                    --
                                                                           --------              ---------

Net loss                                                                    (10,226)                (4,582)
Preferred stock dividend                                                        (55)                    --
                                                                          ---------              ---------
Net loss available to common shareholders                                 $ (10,281)             $  (4,582)
                                                                          =========              =========

Net loss per common and common equivalent share                           $   (1.12)             $    (.58)
                                                                          ---------              ---------

Weighted average number of common and common
equivalent shares outstanding                                                 9,211                  7,877
                                                                           ========                =======

</TABLE>
See notes to consolidated financial statements.


                                      - 3 -

<PAGE>


<TABLE>
<CAPTION>
INTELLICALL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)


                                                                                       Nine Months Ended
                                                                                          September 30,
                                                                                1997                     1996
                                                                                ----                     ----
<S>                                                                         <C>                       <C>    
Operating Activities:
         Net loss                                                           $ (10,226)                $  (4,582)

         Adjustments to reconcile net loss to net cash (used in) provided by
           operating activities:
           Depreciation and amortization                                        4,667                     2,865
           Provision for doubtful accounts                                        934                       242
           Provision for inventory                                              4,382                     2,754
           Minority interest in income of subsidiary                              129                        99

           Changes in operating assets and liabilities:
              Restricted cash                                                      (3)                      481
              Receivables                                                      (5,379)                   (2,687)
              Inventories                                                         175                       975
              Other current assets                                                314                      (900)
              License fee receivable                                              152                       584
              Investment in sales type leases                                     142                       498
              Notes receivable                                                      8                     1,425
              Accounts payable                                                  4,351                     3,126
              Accrued liabilities                                                (223)                     (480)
              Deferred revenues                                                  (595)                     (379)
              Other                                                              (748)                     (890)
                                                                             --------                  --------

Net cash (used in) provided by operating activities                         $  (1,920)                 $  3,131
                                                                             --------                  --------






Continued on next page



                                      - 4 -

<PAGE>



INTELLICALL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - continued
(in thousands)

                                                                                       Nine Months Ended
                                                                                         September 30,
                                                                                1997                      1996
                                                                                ----                      ----

Investing activities:
         Purchase of equipment                                                   (807)                     (554)
         Capitalized software                                                  (1,162)                   (1,650)
         Acquisition of Worldcom assets                                       (10,021)                       --
                                                                              -------                  --------

Net cash used in investing activities                                         (11,990)                   (2,204)
                                                                              -------                  --------

Financing activities:
         Net borrowings on lines of credit                                      4,028                       (17)
         Issuance of warrant                                                       --                       100
         Proceeds from issuance of common stock in ILD                          3,250                        --
         Proceeds from issuance of stock in Intellicall                         4,602                       378
                                                                              -------                  --------

Net cash provided by financing activities                                      11,880                       461
                                                                              -------                  --------

Net (decrease) increase in cash and cash equivalents                           (2,030)                    1,388
Cash and cash equivalents at beginning of period                                2,271                       613
                                                                              -------                  --------

Cash and cash equivalents at end of period                                  $     241                  $  2,001
                                                                            =========                  =========

Supplemental cash flow information:
         Interest paid                                                      $   1,281                  $  1,691
                                                                            =========                  ========

Supplemental schedule of noncash investing and financing activities:
Conversion of long-term debt to common stock                                $   1,320                  $  1,200
                                                                            =========                  ========

Stock issued in acquisition of WorldCom assets                              $  11,696                  $     --
                                                                             ========                  ========

Preferred stock dividend declared                                           $      55                  $     --
                                                                            =========                  ========

</TABLE>
See notes to consolidated financial statements.



                                      - 5 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)



NOTE 1 - CERTAIN ACCOUNTING POLICIES

         Basis  of  Presentation.   The  accompanying   consolidated   financial
statements of Intellicall, Inc. (the "Company") have been prepared in accordance
with the  requirements of Form 10-Q and do not include all disclosures  normally
required by generally accepted  accounting  principles or those normally made in
annual reports on Form 10-K. In management's  opinion,  however, all adjustments
necessary for a fair  presentation  of the results of operations for the periods
shown have been made and are of a normal and recurring nature.

         The results of operations for the nine months ended  September 30, 1997
are not  necessarily  indicative of the results of operations  for the full year
1997. The consolidated financial statements herein should be read in conjunction
with the  consolidated  financial  statements and notes thereto  included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.

         Statement Presentation.  Certain prior year amounts have been reclassi-
fied to conform to the current year presentation.

         Software  Development  Costs. The Company  capitalizes costs related to
the development of certain  software  products.  In accordance with Statement of
Financial  Accounting  Standards  No. 86,  capitalization  of costs  begins when
technological  feasibility  has been  established  and ends when the  product is
available  for  general  release to  customers.  Amortization  is computed on an
individual  product basis based on the products'  estimated  economic life using
the straight line method, not to exceed five years.

         The  amounts of software  development  costs  capitalized  in the third
quarter of 1997 and 1996 were $271,000 and $550,000,  respectively.  The Company
recorded  $397,000 and $388,000 of software  amortization  expense for the three
months ended September 30, 1997 and 1996, respectively.

         For the nine months  ended  September  30,  1997 and 1996,  the Company
capitalized $1,162,000 and $1,650,000,  respectively.  The software amortization
expense  recorded  was  $1,400,000  and  $1,154,000  for the nine  months  ended
September  30, 1997 and 1996,  respectively.  Also in the third quarter of 1997,
the Company wrote down  capitalized  software costs to its net realizable value,
taking a charge of $1,584,000.

         Cash and Cash Equivalents. Cash and cash equivalents include short-term
liquid investments purchased with remaining maturities of three months or less.

         Earnings per Share.  In February 1997, the Financial Accounting 
Standards Board issued FAS No. 128, Earnings per Share ("FAS 128"), which is 
effective for financial


                                      - 6 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)



statements issued for periods ending after December 15, 1997,  including interim
periods.  Effective  December  31, 1997,  the Company will adopt FAS 128,  which
establishes standards for computing and presenting earnings per share (EPS). The
statement requires dual presentation of basic and diluted EPS on the face of the
income  statement for entities with complex  capital  structures  and requires a
reconciliation  of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
the effect of  potentially  dilutive  securities  while diluted EPS reflects the
potential  dilution that would occur if  securities or other  contracts to issue
common  stock were  exercised,  converted  into or resulted  in the  issuance of
common stock that then shared in the  earnings of the entity.  For the three and
nine months  ended  September  30, 1997 and 1996,  calculated  basic and diluted
earnings  per  share  equal  earnings  per  share  shown  on  the  face  of  the
consolidated statements of operations.

         Disclosures about Segments of an Enterprise and Related Information. In
June 1997, FASB issued Financial  Accounting Standard No. 131, Disclosures about
Segments  of an  Enterprise  and  Related  Information  ("FAS  131"),  which  is
effective for fiscal years beginning after December 15, 1997.  Effective January
1, 1998, the Company will adopt FAS 131.

         Other.  The allowance for doubtful accounts was $4.5 million at 
September 30, 1997, and $3.2 million at December 31, 1996.




                                      - 7 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)



NOTE 2 - LONG-TERM DEBT AND LINE OF CREDIT

         As of September  30, 1997 and December 31,  1996,  the  Company's  debt
consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                September 30,       December 31,
                                                                                    1997                1996
                                                                                    ----                ----
<S>                                                                             <C>                   <C>   
Intellicall, Inc.
         8% Convertible subordinated notes, due 2000                            $  2,840              $  4,160
         8% Convertible subordinated notes, due 2001                               5,000                 5,000
         Convertible subordinated note, due 1999                                   1,000                 1,000
         Asset-based note collateralized by certain assets, due 1999               5,398                 6,862
         Installment note, due 1998                                                   50                   113
                                                                               ----------           ----------
                                                                                  14,288                17,135
         Less unamortized debt discount                                             (481)                 (660)
                                                                               ---------            ----------
                                                                                  13,807                16,475
                                                                               ---------            ----------
ILD Teleservices, Inc.
         Senior secured debt, due 2001                                             2,000                2,000
         Convertible subordinated notes, due 2001                                  1,000                1,000
         Revolving credit facility due 2001                                          563                   --
         Term loan facility due 2001                                               5,000                   --
                                                                               ---------            ---------
                                                                                   8,563               3,000
         Less unamortized debt discount                                              (53)                (78)
                                                                               ---------            --------
                                                                                   8,510               2,922
                                                                               ---------           ---------

              Total debt                                                          22,317              19,397

         Less: Current portion of long-term debt                                  (1,450)                (85)
                                                                               ---------           ---------
              Total long-term debt                                              $  20,867          $  19,312
                                                                               ==========          =========
</TABLE>


              On February  15, 1994 the Company  issued a $1.0  million,  10.0%,
convertible,   subordinated  note  to  T.J.  Berthel  Investments,  L.P.,  whose
ownership also controls 8.9% of the Company's outstanding common stock. Interest
is payable  quarterly and commenced March 31, 1994. The entire  principal amount
matures on March 31, 1999.  The note may be converted by the holder into 160,000
shares of the Company's common stock at any time.

         On December 29, 1995 the Company  completed the sale of $7.5 million of
8.0%  convertible  subordinated  notes,  due  December  31,  2000,  to Banca Del
Gottardo  in  Lugano,  Switzerland  with the  proceeds  used to repay the Nomura
Series B Notes and for  working  capital  purposes.  The notes were  issued with
warrants to purchase 300,000 shares of the Company's common stock. The notes are
convertible  into 1,785,714  shares of the Company's  common stock at a price of
$4.20 per share. As of September 30, 1997, $4,660,000 of the Banca Del


                                      - 8 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)



Gottardo  Notes has been converted to 1,109,517  shares of the Company's  common
stock. Interest is payable semi-annually and commenced June 30, 1996.

         On May  10,  1996 a  majority  owned  subsidiary  of the  Company,  ILD
Teleservices,  Inc.  ("ILD"),  completed  the  sale of  $1.0  million  of  10.0%
convertible  subordinated notes, due May 10, 2001, to Triad-ILD  Partners,  L.P.
and  Morris   Telecommunications,   LLC  in  the  amounts  of  $666,666.67   and
$333,333.33,  respectively.  The notes can be  converted  at the rate of one (1)
share of common stock of ILD for each $90.00 of  principal  then due the holder.
Also issued with the notes was a warrant to purchase  6,000 shares at $90.00 per
share. Interest is paid quarterly.

         On May 10, 1996 ILD issued  Secured  Promissory  Notes in the aggregate
principal  amount of $2,000,000  with warrants to purchase an aggregate of 7,239
shares  of ILD  common  stock at a price  of $0.01  per  share.  Sirrom  Capital
Corporation purchased a note in the original amount of $1,500,000 with a warrant
to purchase 5,429 shares of common stock at a price of $0.01 per share and Reedy
River Ventures  Limited  Partnership  purchased a note in the original amount of
$500,000  with a warrant to purchase  1,810 shares of common stock at a price of
$0.01 per share.  The notes are  payable on May 10,  2001 and bear  interest  at
13.5% annually.
Interest is paid monthly.

         On November 22, 1996 the Company  completed the sale of $5.0 million of
8.0%  convertible  subordinated  notes,  due  November  22,  2001,  to Banca Del
Gottardo in Lugano, Switzerland. The notes were issued with warrants to purchase
200,000 shares of the Company's  common stock at $5.00 per share.  The notes are
convertible  into one million shares of the Company's common stock at a price of
$5.00 per share. Interest is payable semi-annually beginning May 1997.

         On  November  22,  1996 the Company  entered  into a Loan and  Security
Agreement  (the "Loan  Agreement")  with Finova Capital  Corporation  ("Finova")
pursuant  to which  Finova  agreed to loan the  Company up to  $12,000,000  (the
"Loan")  based on an available  borrowing  base.  The  borrowing  base  consists
primarily  of call  traffic  and trade  equipment  receivables,  and  inventory,
subject to eligibility requirements determined by Finova. Amounts loaned subject
to the borrowing  base are  determined by  percentages  established  in the Loan
Agreement, but are within the discretion of Finova. Such percentages are subject
to  change  based on  experience  and  Finova's  expectations  regarding  future
collectibility of receivables and usage of inventory.

         The Loan is evidenced by a Secured  Revolving  Credit Note (the "Note")
payable to the order of Finova.  Borrowings  under the Loan bear interest at the
rate of prime plus 1.75%. The interest rate may be decreased prospectively by up
to 0.5% based on future  profitability  of the  Company.  The  Company  used the
proceeds from the Finova Loan and Gottardo Notes


                                      - 9 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)



(net of placement fees of $509,406) to repay the remaining balance of its Series
A Notes due to Nomura Holding America, Inc in the amount of $12.7 million.  Also
the Loan has an unused line fee equal to one quarter of one percent  (0.25%) per
annum of the unused  portion of the Total  Facility  and a facility fee equal to
one-half  of one percent  (0.50%) per annum of the amount of the Total  Facility
payable on the first anniversary of the Agreement and annually thereafter.

         The initial  term of the Loan  Agreement  is three years at which time,
unless extended, all amounts then outstanding must be repaid. The Loan Agreement
contains prepayment  penalties in the event it is terminated prior to expiration
of its initial  term.  The Loan is secured by first and prior liens and security
interests encumbering substantially all of the assets of the Company,  including
inventory,  equipment, accounts receivable, general intangibles,  trademarks and
tradenames.  The Loan  Agreement  contains  various  restrictions  (including  a
prohibition   against  the  payment  of   dividends,   limitations   on  capital
expenditures,  and restrictions on investments) and financial ratio  maintenance
requirements (including minimum working capital and net worth requirements).  As
of September 30, 1997 Finova waived the  company's  non-compliance  with certain
covenants.

         On August 29, 1997 ILD entered into a Loan and Security  Agreement with
Nationsbank, N.A. ("Nations") pursuant to which Nations agreed to loan ILD up to
$20,000,000 (the "Revolving  Credit Loan") based on an available  borrowing base
comprised primarily of ILD's receivables,  inventory,  contract rights,  general
intangibles,  equipment,  and deposit  accounts.  Borrowing  under the revolving
credit loan bears  interest at the current rate of 9% and is  calculated  (a) in
the case of Prime Rate  Advances and LIBOR  Advances  made prior to December 30,
1998,  to the sum of the Prime Rate plus .50% per annum and LIBOR plus 2.75% per
annum,  respectively,  (b) in the case of Prime Rate Advances and LIBOR Advances
made on or after  December 31, 1998, to the sum of the Prime Rate plus an amount
dependent  on the  calculation  of (Senior  Funded  Debt/EBITDA)  and is payable
monthly.  ILD borrowed  $1,221,000 on the Revolver Credit Loan to pay for assets
acquired  from  WorldCom.  The  revolving  credit loan has an unused line fee of
one-quarter  of  one  percent  (0.25%)  per  annum  of  the  difference  between
$20,000,000 and the average daily  outstanding  balances of the revolving credit
loans during the period for which the unused line fee is due. ILD further paid a
closing fee of $300,000 to Nations and an annual  administrative fee of $25,000.
The revolving credit loan's initial term ends February 13, 2001.

     On August 27, 1997  Nations  also agreed to loan ILD $5.0 million in a term
loan due  February  13, 2001 with an  interest  rate of 11.5% per annum or prime
plus 2.5% per annum payable  quarterly  beginning  March 31, 1998. The term loan
requires a mandatory  reduction  in the amount of $500,000  payable on or before
March 31,  1998.  The  principal  balance  is due and  payable  in (i) eight (8)
consecutive  quarterly  installments  in  an  amount  equal  to  $300,000  each,
commencing  on the  last  day of the  first  (1st)  fiscal  quarter  of 1998 and
continuing on the 


                                     - 10 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)



last day of each and every fiscal quarter  thereafter through and including
the last  fiscal  quarter  in  1999,  and (ii)  four (4)  consecutive  quarterly
installments in an amount equal to $420,000 each,  commencing on the last day of
the first (1st)  fiscal  quarter of 2000 through and  including  the last fiscal
quarter  of 2000 and  (iii)  one (1) final  installment  in an  amount  equal to
$420,000 on the earlier to occur of (A) the Termination Date or (B) the last day
of the first (1st) fiscal  quarter of 2001.  Any portion of the Term Loan repaid
may not be reborrowed.

     The  Nations loan  agreement  contains  various restrictions (including  a
prohibition   against  the  payment  of   dividends,   limitations   on  capital
expenditures,  and restrictions on investments) and financial ratio  maintenance
requirements (including fixed charge coverage and net worth requirements).

NOTE 3 - INVENTORY

         As of September 30, 1997 and December 31, 1996, the Company's inventory
consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                  September 30,         December 31,
                                                      1997                  1996
                                                      ----                  ----
         <S>                                    <C>                    <C>   
         Raw materials                          $     1,557            $     4,850
         Work-in-process                                286                    511
         Finished goods                               1,502                  2,541
                                                   --------               --------
              Total inventory                   $     3,345            $     7,902
                                                ===========            ===========
</TABLE>

         Inventories in 1997 were written down $4.4 million to its estimated net
realizable value.


NOTE 4 - LITIGATION

         In April  1997,  U.S.  Long  Distance,  Inc.  ("USLDI")  filed a Second
Amended Complaint against the Company.  The case is pending in the United States
District  Court for the Western  District in San Antonio,  Texas.  The complaint
seeks actual damages of $4.0 million,  exemplary  damages,  attorney's  fees and
interest for the Company's alleged tortious interference of USLDI's existing and
prospective   contractual   relationships  with  PhoneTel   Technologies,   Inc.
("PhoneTel").  The Second  Amended  Complaint  alleges  the Company and its then
subsidiary, Intellicall Operator Services, Inc. interfered with USLDI's existing
contractual  relationship  with  PhoneTel,   another  defendant,  when  PhoneTel
executed an operator services agreement with the Company and its subsidiary. The
Company intends to vigorously  contest the  allegations  contained in the Second
Amended Complaint.



                                     - 11 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)




NOTE 5 - ILD TELESERVICES PURCHASE OF WORLDCOM OPERATOR SERVICES
BUSINESS

         On September  2, 1997 the Company  announced  that its  majority  owned
subsidiary,  ILD  Teleservices,  Inc.  (ILD),  purchased  the operator  services
business  and  related  assets  from  WorldCom,  Inc.  ("WorldCom").  The assets
acquired by ILD include the operator services and related long distance customer
contracts, operator service centers in San Antonio, Texas, Las Vegas, Nevada and
Boca Raton,  Florida and switching  facilities in Dallas, Texas and Los Angeles,
California as well as Worldcom's  billing and  collection  operations and inmate
operator  services  businesses.  ILD  also  entered  into a  long-term  operator
services  agreement  with  WorldCom  to handle the  international  and  domestic
operator  services  requirements  of WorldCom.  In addition,  ILD entered into a
network services contract with WorldCom.

         The  acquisition  has been  accounted for under the purchase  method as
prescribed by Accounting Principles Board Number 16 "Business Combinations". The
results of operations of the acquired  business are included in the consolidated
financial statements from the date of acquisition.  The purchase price was $21.4
million net of  $1.2 million of liabilities assumed.  ILD paid $550,000 in cash,
issued 111,960 shares of redeemable  preferred  stock at $100 per share,  issued
34,403.67  shares  of  common  stock  for  $3,750,000,  and  entered  into  loan
agreements  with  Nationsbank  in the  amount  of  $6.2  million (including 
$325,000 of debt costs - see Note 2).

         Approximately $14.5 million has been assigned to the excess of purchase
price over the fair value of net assets of the business  acquired.  The asset is
amortized using the straight-line method over 25 years.  Also $2.5 million was
assigned to contracts acquired and are being amortized over 6 years.

         The following unaudited proforma consolidated results of operations for
the nine  months  ended  September  30,  1997 and 1996 are  presented  as if the
WorldCom  acquisition  had been made at the beginning of each period  presented.
The unaudited proforma  information is not necessarily  indicative of either the
results of operations that would have occurred had the purchase been made during
the periods presented or the future results of the combined operations.



                                     - 12 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                       Nine months ended September 30,
                                                      (in thousands, except per share)
                                                         1997                   1996
                                                     -----------             ---------
         <S>                                        <C>                  <C> 
         Net sales                                  $   130,873          $   139,169
         Net loss                                       (10,217)              (6,191)
         Net loss per common share and
            common share equivalent                       (1.11)                (.79)
</TABLE>


NOTE 6 - EQUITY FINANCING

         On July 21,  1997 (the  "Closing  Date")  the  Company  entered  into a
Securities Purchase Agreement (the "Purchase Agreement") with four institutional
investors (the "Investors") pursuant to which the Investors purchased $4,000,000
of the  Company's  7%  Series A  Convertible  preferred  stock  (the  "preferred
stock").  The Company  utilized the net proceeds  from the sale of the preferred
stock (approximately $3,800,000) to pay down indebtedness to Finova.

         Commencing 90 days after the Closing Date,  the preferred  stock,  plus
all accrued  dividends,  is convertible  into common stock of the Company at the
option of each  Investor at a  conversion  price equal to the lower of $5.05 per
share (the  "Fixed  Conversion  Price") or eighty  percent  (80%) of the average
fifteen  day trading  price  preceding  the date of  conversion  (the  "Variable
Conversion  Price").  However,  in the event any Investor  acquires common stock
upon conversion of the preferred stock and the conversion  price is based on the
Variable  Conversion  Price,  such  Investor  must pay a fee to the  Company  as
follows:

         a) in the event the issuance of such common stock occurs from 91 to 180
days after the  Closing  Date,  the fee  payable to the Company is 25% times the
Variable Conversion Price times the number of such shares of common stock; and

         b) in the event the  issuance of such common  stock  occurs from 181 to
365 days after the Closing  Date,  the fee payable to the Company is 6.25% times
the Variable Conversion Price times the number of such shares of common stock.

         Any shares of preferred  stock  outstanding two years after the Closing
Date will automatically convert into common stock.



                                     - 13 -

<PAGE>



         The  Investors  may  require the  Company to redeem  certain  shares of
preferred  stock (i) in the event the number of shares of common stock  issuable
upon conversion  (based on the conversion  price in existence from time to time)
multiplied  by 1.25 would  exceed the maximum  number of shares of common  stock
which the Company can issue without shareholder  approval pursuant to applicable
New York Stock Exchange  Guidelines,  unless shareholder approval is so obtained
within  120 days of such  occurrence,  (ii) in the  event the  Company  fails to
reserve an  adequate  number of shares of common  stock as  contemplated  by the
designation of preferred stock creating the preferred stock (the "Designation"),
unless such failure is cured by board of directors and/or shareholder  approvals
as required,  (iii) in the event the Company fails to honor a conversion  notice
and (iv) in other  events  as more  fully  set  forth  in the  Designation.  Any
redemptions,  however, are limited to the Company's borrowing availability under
its loan agreement with Finova, as further described below.

         The  Designation  grants  to the  Company  the  option,  under  certain
circumstances,  to redeem for cash any shares of preferred  stock  submitted for
conversion  if the  Variable  Conversion  Price is less than $4.00 per share and
funds are available under the Company's loan agreement with Finova.

         The  Company  filed  a  registration  statement  on  the  common  stock
underlying the conversion of the preferred stock on September 5, 1997.

         In conjunction  with the issuance of the preferred  stock,  the Company
entered into a Second  Amendment to the Loan and Security  Agreement with Finova
(the "Second  Amendment").  The Second Amendment modified one financial covenant
and allowed the Company to redeem the  preferred  stock as  contemplated  in the
Designation  if (i) following and giving effect to such  redemption  the Company
shall have excess  borrowing  availability  under its borrowing base of not less
than $500,000, and shall have paid in full or made provision for payment in full
of all of Company's accounts payable in excess of $500,000 which are outstanding
beyond their due date and are not contested in good faith by the Company and all
book  overdrafts  and (ii) at the time of such  redemption  no event of Monetary
Default,  as defined in the loan agreement with Finova, and no event which, with
notice or passage of time or both, would constitute an event of Monetary Default
under the loan agreement  with Finova has occurred and is  continuing,  or would
result from such redemption.

         Dividends declared and accrued for the quarter ended September 30, 1997
were $55,000.



                                     - 14 -

<PAGE>



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

Forward-Looking Statements - Cautionary Statements

         This Form 10-Q contains certain "forward-looking statements" within the
meaning  of  Section  27A of  the  Securities  Act  of  1933,  as  amended  (the
"Securities  Act"),  and Section 21E of the Securities  Exchange Act of 1934, as
amended (the "Exchange Act"). Specifically, all statements other than statements
of historical  facts included in this report  regarding the Company's  financial
position,  business  strategy  and plans and  objectives  of  management  of the
Company   for  future   operations   are   forward-looking   statements.   These
forward-looking statements are based on the beliefs of the Company's management,
as well  as  assumptions  made by and  information  currently  available  to the
Company's  management.  When  used  in  this  report,  the  words  "anticipate",
"believe",  "estimate",  "expect,"  and "intend" and words or phrases of similar
import,  as they relate to the Company or Company  management,  are  intended to
identify forward-looking statements. Such statements reflect the current view of
the  Company  with   respect  to  future   events  and  are  subject  to  risks,
uncertainties  and  assumptions  related to various factors  including,  without
limitation,   competitive  factors,   general  economic   conditions,   customer
relations,   relationships   with  vendors,   the  interest  rate   environment,
governmental regulation and supervision,  seasonality, product introductions and
acceptance, technological change, changes in industry practices described herein
"the "cautionary statements") and one-time events. Although the Company believes
that   expectations  are  reasonable,   it  can  give  no  assurance  that  such
expectations will prove to be correct.  Based upon changing  conditions,  should
any one or more of these  risks or  uncertainties  materialize,  or  should  any
underlying assumptions prove incorrect,  actual results may vary materially from
those  described  herein  as  anticipated,   believed,  estimated,  expected  or
intended.   All   subsequent   written  and  oral   forward-looking   statements
attributable  to the  Company  or persons  acting on its  behalf  are  expressly
qualified in their entirety by the applicable cautionary statements.

Financial Condition

Liquidity and Capital Resources

     During the first nine months of 1997,  the Company used $114,000 of cash in
operations and invested  $1,806,000 of cash in operating assets and liabilities.
In addition,  the Company invested $807,000 in capital equipment,  $1,162,000 in
capitalized  software and  $10,021,000 of cash to purchase the operator  service
business,  customer  contracts and certain  related  assets from  WorldCom.  The
WorldCom  purchase,  and the related  financing  of the  purchase are more fully
described in Note 5 to the unaudited Consolidated Financial Statements.

     In addition to  financing  obtained by the Company in  connection  with the
WorldCom asset  purchase,  the Company raised $3.8 million from the sale of $4.0
million of its 7% Series A  Convertible  Preferred  Stock to four  institutional
investors  in July 1997,  as more  fully  described  in Note 6 to the  unaudited
Consolidated Financial Statements. For the nine months


                                     - 15 -

<PAGE>



ended  September  30,  1997,  $1,320,000  principal  amount of the  Company's 8%
convertible  subordinated  notes, due in 2000, was converted by the holders into
Intellicall  common stock.  The conversion had no effect on the cash position of
the Company,  although it eliminated  future interest  otherwise  payable on the
converted notes.

         The Company's future  liquidity will depend  principally on its ability
to become profitable (before non-cash charges to income), on amounts invested in
non-current  assets and on amounts  required  for  principal  payments  on debt.
Management has no current plans for investing in non-current assets for which it
believes  externally or internally  generated funds will be unavailable.  Except
for principal payments required from time to time under  Intellicall's and ILD's
working  capital lines of credit (which amounts can be re-borrowed  depending on
the level of  eligible  assets),  there are no  principal  payments  required of
Intellicall  (parent company) in 1998. There are,  however,  $300,000  quarterly
principal  payments  commencing  March  31,  1998  and  the  $500,000  mandatory
reduction due March 31, 1998 to NationsBank, N.A. by ILD.

         There  can be no  assurance  that the  Company's  efforts  to  maintain
adequate liquidity will be successful. Although Intellicall's and ILD's lines of
credit are  believed by  management  to be adequate  to fund  near-term  working
capital  growth,  they can not be relied upon to fund losses from  operations of
the magnitude recently incurred by the Company. Under certain circumstances, the
Company  may be  required to limit its  operations,  dispose of certain  assets,
consider the sale of additional  equity,  or take other actions deemed necessary
under the circumstances to maintain adequate liquidity.


Results of Operations

Service  Revenues.  For the three and nine  months  ended  September  30,  1997,
service  revenues  rose,  when  compared  with the  same  periods  in  1996,  by
$1,618,000  (6.9%)  and  $9,132,000  (16.3%)  to  $24,991,000  and  $65,276,000,
respectively.  The change in service revenues,  set forth by type of revenue, is
shown in the following table:

<TABLE>
<CAPTION>
                                                Three Months Ended                             Nine months ended
                                       September 30,           September 30,          September 30,         September 30,
                                           1997                    1996                    1997                  1996
                                           ----                    ----                    ----                  ----
<S>                                       <C>                    <C>                    <C>                   <C>  
Call Traffic Revenue                      $8,707                 $13,945                $30,376               $33,944

Operator Services and
Long-distance Resale                      14,603                   8,578                 30,350                19,577

Prepaid Calling Services                   1,681                     850                  4,550                 2,623
                                        --------                --------               --------              --------

  Total Service Revenues                 $24,991                 $23,373                $65,276               $56,144
                                         =======                 =======                =======               =======


</TABLE>




                                     - 16 -

<PAGE>



         During  both the three and nine  month  periods in 1997,  call  traffic
revenues  declined  $5,238,000  (37.6%) and  $3,568,000  (10.5%),  respectively,
compared   with   their   corresponding   periods   in  1996,   because  of  the
discontinuation in June 1997 of the Company's Jail*Star inmate services program,
and the  continuing  effects of the  practice  known as  "dial-around"  in which
payphone  users use  calling  cards and  numbers  which the Company is unable to
bill. The portion of the decline from 1996 in call traffic revenue  attributable
to the  discontinuance  of the  Jail*Star  program was  $4,240,000  in the three
months ended  September  30, 1997,  and $548,000 in the nine month  period.  The
proportionately   smaller  decline  in  Jail*Star  revenues  in  the  nine-month
comparison  is a function of a large inmate  services  contract  obtained by the
Company in the fourth  quarter of 1996.  The  remainder  of the  decline in call
traffic revenues is principally attributable to "dial-around".

         Compared with 1996, prepaid calling card revenues increased by $831,000
(98%) to $1,681,000 in the quarter ended  September 30, 1997. For the nine-month
comparison  with 1996, the gain in prepaid  calling card revenues was $1,927,000
(73%) to  $4,550,000.  During both  periods,  the growth  reflects the Company's
increased sales of prepaid calling cards through retail distributions channels.

         Operator service and long distance resale revenues  registered gains in
1997 of $6,025,000 (70%) and $10,773,000  (55%),  when compared to the three and
nine-month  periods ended September 30, 1996.  Accounting for slightly more than
$5 million of the three-month and nine-month gains were revenues  resulting from
the  acquisition  on  September  2, 1997 of the  operator  service  business and
certain other assets from WorldCom.  The remaining  portions of operator service
revenue growth were generated internally.

         Equipment  Sales.  The Company's  equipment sales were $5.8 million and
$13.7 million for the three and nine months ended September 30, 1997 compared to
$2.9 million and $10.9 million for the three and nine months ended September 30,
1996. The following table presents an analysis of sales to the Company's primary
markets (in thousands):

<TABLE>
<CAPTION>
                                                Three Months Ended                             Nine Months Ended
                                       September 30,           September 30,          September 30,         September 30,
                                           1997                    1996                    1997                  1996
                                           ----                    ----                    ----                  ----
<S>                                       <C>                     <C>                   <C>                    <C>  
Independent payphone                      $4,833                  $2,752                $11,955                $8,485
providers

International & regulated                    937                     147                  1,766                 2,393
                                         -------                 -------              ---------              --------

  Total equipment sales                   $5,770                  $2,899                $13,721               $10,878
                                          ======                  ======                =======               =======
</TABLE>


         Third  quarter  equipment  sales  rose 99% from  $2,899,000  in 1996 to
$5,770,000 in 1997.  The growth in third quarter sales  resulted from  increased
demand for AstraTel 2 payphones, kits and accessories,  and for INP systems used
to render prepaid calling card services.  In the third quarter of 1997, sales of
AstraTel 2 phones and kits were $3.8 million,


                                     - 17 -

<PAGE>



which compares with $1.9 million in sales of prior-generation phones and kits in
the third quarter of 1996. Third quarter sales of INP systems rose from $147,000
in 1996 to $937,000 in 1997.

         Equipment sales  increased  $2,843,000 or 26%, in the nine months ended
September 30, 1997 compared to such sales in the nine months ended September 30,
1996. As in the quarterly  comparison,  increased sales of AstraTel 2 payphones,
kits and  accessories  accounted  for most of the gain.  INP  system  sales rose
during the nine  months  ended  September  30,  1997 and sales of  international
payphones declined.

         Changes in Gross Profit and Gross Margin. Gross profit and gross margin
on service revenues  decreased from $2,475,000 (10.6%) in the 1996 third quarter
to $2,241,000  (9.0%) in the 1997 third quarter.  For the nine month comparison,
gross  profit and gross  margin on service  revenues  declined  from  $6,534,000
(11.6%) in the 1996 period to $6,074,000  (9.3%) in 1997. Both the quarterly and
nine month changes are due primarily to a favorable change in the mix of service
revenues,  the effect of which was more than fully offset by increased  bad debt
expense and a writedown  of certain  intangible  assets  related to call traffic
revenues.  The favorable mix of service revenues resulted from greater growth in
the more  profitable  operator  service and prepaid  calling card  revenues than
decline in the less profitable Jail*Star revenues.


         During all periods being  compared,  the Company  recorded gross losses
and negative  gross margins on equipment  sales due to, in 1996 periods,  a $2.7
million provision for inventory losses,  and in the 1997 periods, a $5.9 million
provision  for  inventory  losses  and for the  impairment  in value of  certain
capitalized  software  development  costs. In both years,  these provisions were
recorded  in  recognition  of the  Company's  limited  success  in moving  older
generations  of  payphone  and INP  products  at prices  above  their  inventory
carrying values.

         Throughout  1997,  the Company has  conducted  numerous  reviews of its
opportunities  to sell old and slow-moving  inventories at various price levels.
Upon completion of these reviews and exhaustion of certain efforts to dispose of
these inventories, management of the Company recorded the $5.9 million provision
for  inventory  losses and for the  impairment  in value of  certain  previously
capitalized  software  development  costs. The reasons for this decision are set
forth in the following paragraph.

         The rate of  acceptance  of the AstraTel 2 and the strength of customer
preference  for the  AstraTel 2 product  line will  require  far  steeper  price
reductions  on older  payphone  products  than had earlier  been  believed to be
necessary.  In some cases,  the AstraTel 2 has  obsoleted  the  Company's  older
payphone  products.  In  international  markets,  the Company has made  repeated
efforts to sell earlier  generations of international  payphones at successively
lower prices and on increasingly  attractive  terms, but the Company's  attempts
have been less successful than formerly  expected.  Because of the disappointing
market  potential  of the  Company's  existing  line of  international  payphone
products,  the  related  software  development  costs of this  line,  as well as
related inventories, were written down to their estimated net


                                     - 18 -

<PAGE>



realizable  value.  Because of  customer  preference,  and the  higher  margins,
technical superiority and field stability of the AstraTel 2, the Company intends
to  incorporate  the  features  and  capability  of the AstraTel 2 in its future
international  product  offerings.  Since its commercial  introduction  in 1994,
sales  of the INP  have  been  sporadic  and  have  generally  fallen  short  of
expectations.  Although  INP sales are  projected  to continue to occur into the
foreseeable  future,  the  level  of such  sales  is  currently  believed  to be
inadequate to permit the full recovery of some INP inventory and certain related
software  development  costs.  Consequently,  the Company  has written  down the
carrying value of excess and slow moving INP inventory and the related  software
development cost as well.

         Without the $2.7 million and $5.9 million provisions for losses in 1996
and 1997, the Company's  gross profit and gross margin on equipment sales in the
third quarter would have been $357,000 (12.3%) in 1996 and $1,306,000 (22.6%) in
1997.  Similarly,  in the nine months ended September 30, gross profit and gross
margin on equipment sales would have been $266,000 (2.4%) in 1996 and $1,159,000
(8.4%) in 1997. The  quarter-to-quarter  improvements  in gross profit and gross
margin on equipment sales are attributable to the 99% growth in equipment sales,
and to a  favorable  mix of  sales.  Compared  to the  third  quarter  of  1996,
equipment  sales in the 1997 quarter  included  proportionately  higher sales of
application software, INP systems and AstraTel 2 payphones and kits, which carry
higher  margins than other domestic and  international  payphone  products.  The
nine-month  improvement  in gross  profit  and  gross  margin  was less than the
quarterly  improvement,  due to lower (i.e.  26%) growth in equipment sales from
1996 to 1997.  However,  gross profit and gross margin from equipment sales also
benefited from the favorable sales mix noted in the third quarter comparison.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased  $676,000,  or  23%,  in the  quarter  ended
September  30, 1997,  when  compared to the quarter  ended  September  30, 1996.
Primarily  responsible  for the rise in such  expenses  was the  September  1997
purchase of the operator service business and related assets from WorldCom.  Due
to the WorldCom asset purchase,  selling, general and administrative expenses of
ILD increased by approximately $700,000 in the third quarter of 1997 compared to
the third quarter of 1996. Other changes affecting the quarterly comparison were
overall  reductions in sales and customer support costs, as well as in corporate
administrative  expenses.  Notwithstanding  the overall  decline in sales costs,
sales  commissions and advertising costs were higher in the 1997 quarter than in
the comparable 1996 quarter.

     Compared to the nine months ended September 30, 1996, selling,  general and
administrative  expenses  increased  $629,000,  or 7%, to $8,876,000 in the nine
months ended September 30, 1997. The smaller percentage rise in these costs than
that noted in the quarterly  comparison  occurred  since the increased  expenses
arising from the WorldCom  asset  purchase  affected  only one month of the nine
months ended  September  30, 1997.  The same factors that account for  quarterly
changes in selling,  general  and  administrative  expenses  account as well for
changes in the nine month comparison.



                                     - 19 -

<PAGE>



     Research  and  Development  Expenses.  Research  and  development  expenses
increased  $170,000  and  $173,000  in the three and nine  month  periods  ended
September 30, 1997 compared to the three and nine month periods ended  September
30, 1996.  The increases in such expenses  occurred as a result of reductions in
capitalized  software  development  costs. For the three month  comparison,  the
reduction in capitalized software  development costs was $279,000,  for the nine
month comparison the reduction was $488,000.  Before  capitalization of software
development costs,  research and development spending declined $109,000 from the
1996 to the 1997  third  quarter,  and  $315,000  from the 1996 to the 1997 nine
month period.  These spending  reductions  reflect  reduced  staffing levels and
reassignment of certain engineering personnel to other engineering activities.

         Provision for Doubtful  Accounts.  The provision for doubtful  accounts
increased  $193,000 for the quarter  ended  September  30, 1997  compared to the
quarter  ended  September  30,  1996,  and  $283,000  for the nine months  ended
September 30, 1997 compared to the same period in 1996. These increases  reflect
higher   expected  levels  of  collection   losses,   principally  on  equipment
receivables.

         Non-operating  Expenses.  In May 1996, the Company  recorded a $572,000
gain from the sale of an ownership interest in ILD Teleservices. Interest income
declined $149,000 and $162,000,  respectively,  during the comparative three and
nine month periods ended  September 30, 1997.  These reduced  levels of interest
income  resulted  from   reductions  in  leases   receivable  and  license  fees
receivable.  Interest  expense  in the  quarter  ended  September  30,  1997 was
$149,000  lower than in the comparable  1996 quarter,  and $463,000 lower in the
1997 nine month period than in the 1996 nine month period.  There  reductions in
interest  expense  resulted  from (a) lower  interest  rates on debt  payable to
Finova Capital  Corporation  than on debt payable to Nomura Holding America Inc.
(the  Nomura  debt was  refinanced  in the  fourth  quarter  of  1996),  and (b)
reductions  in average  debt  balances due to (i)  conversions  in late 1996 and
during 1997 of  $3,460,000  principal  amount of the  Company's  8%  convertible
subordinated  debentures  into  Intellicall  common  stock and (ii) the use of a
portion  of  proceeds  to pay  down  debt  from  the  issuance  in July  1997 of
Intellicall's 7% Series A convertible preferred stock.  Partially offsetting the
above  factors is  additional  interest  expense  resulting  from debt issued in
September  1997 by ILD in connection  with its purchase of the operator  service
business  and  related  assets  from  WorldCom  (see  Note  5 to  the  unaudited
Consolidated Financial Statements).

         In September 1996, the Company  received a federal income tax refund in
the amount of $1.3 million from the carryback of certain  losses to years beyond
the normal statutory carryback period. In the third quarter of 1997, the Company
recorded  $142,000  of income  tax  expense  related  to  taxable  income of ILD
Teleservices  arising  after  exhaustion  of  ILD  Teleservices  operating  loss
carryforward.




                                     - 20 -

<PAGE>


Part II. Other Information

Item 6.   Exhibits and Reports on Form 8-K

         (a)      Exhibits:

                  The following exhibit is filed as a part of this Quarterly
                  Report on Form 10-Q.

                  Third Amendment to Loan and Security Agreement dated September
                  16, 1997 by and between Finova Capital Corporation and the
                  Company, filed herewith.

         (b)  Reports on Form 8-K.

                  The  following  Form 8-K's were filed during the third quarter
                  ended September 30, 1997:

                  (i)      Form 8-K (Date of earliest  event  reported  July 21,
                           1997) reporting on Items 5 and 7.

                  (ii)     Form 8-K (Date of current event reported September 2,
                           1997) reporting on Items 2 and 7.


Signatures

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


                                                INTELLICALL, INC.



                                                /s/ William O. Hunt
dated 11/13/97                                  -------------------
                                                Chairman of the Board and
                                                Chief Executive Officer



                                                /s/ John M. Carradine
dated 11/13/97                                  ---------------------
                                                Vice President Finance
                                                and Chief Financial Officer
                                                (principal financial officer)



Date: November 14, 1997


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