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


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


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

                  For the quarterly period ended March 31, 1998

                                       OR

                ( ) TRANSITION REPORT UNDER 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 incorporation or organization)       (I.R.S. Employer 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                                              May 12,1998
Common Stock $.01 par value                                9,850,133
--------------------------------------------------------------------------------



<PAGE>





INDEX

INTELLICALL, INC.

Part I.           Financial Information

     Item 1.      Financial Statements

                  Balance Sheets at March 31, 1998
                  (Unaudited) and December 31, 1997..........................1

                  Statements of Operations for each of the
                  three month periods ended March 31, 1998 and 1997
                  (Unaudited)       .........................................3

                  Statements  of Cash Flows for each of the three month  periods
                  ended March 31, 1998 and 1997
                  (Unaudited)       .........................................4

                  Notes to Financial Statements..............................5

     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...........................18

Signatures...................................................................19











<PAGE>



Part I.  Financial Information
     Item 1.  Financial Statements

<TABLE>
<CAPTION>
INTELLICALL, INC.
       BALANCE SHEETS

ASSETS
(in thousands)

                                                                             
                                                                             March 31, 1998          December 31, 1997
                                                                             --------------          -----------------
                                                                                (unaudited)
<S>                                                                                  <C>                 <C>
Current assets

     Restricted cash ..................................................              $  17                $ 2,488

     Cash and cash equivalents ........................................                 --                     66

     Amount due on sale of ILD stock ..................................              5,963                     --

     Receivables.......................................................             15,821                 34,881

          Less allowance for doubtful accounts.........................              4,576                  6,211
                                                                                 ---------              ---------

                                                                                    11,245                 28,670

     Inventories, net..................................................              4,730                  5,002

     Related party, net................................................                581                     --

     Other current assets..............................................                448                  1,908
                                                                                 ---------              ---------

     Total current assets..............................................             22,984                 38,134

     Fixed assets, net.................................................              1,666                  8,387

     Capitalized software costs, net...................................              2,157                  2,968

     Notes receivable, net.............................................              1,125                  1,125
 
     Intangible assets, net............................................                816                 31,802
 
     Investment in unconsolidated investee.............................              2,134                     --

     Other assets, net.................................................              1,506                  2,373
                                                                                 ---------              ---------

                                                                                  $ 32,388               $ 84,789
                                                                                  ========               ========




See notes to financial statements.
</TABLE>


                                      - 1 -

<PAGE>



<TABLE>
<CAPTION>
INTELLICALL, INC.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands, except share information)

                                                                                 March 31,1998        December 31, 1997
                                                                                 -------------        -----------------
                                                                                               
                                                                                (Unaudited)
<S>                                                                                  <C>                <C> 
Current liabilities
     Accounts payable..........................................                       $ 4,861                  $11,320
     Accrued transmission, customer commissions and billing
         charges...............................................                         1,360                   12,222
     Deferred revenue..........................................                            84                    1,262
     Accrued liabilities.......................................                           966                    4,456
     Capital lease obligation, current.........................                            --                      157
     Current portion of long-term debt ........................                         1,007                    4,928
                                                                                     --------             ------------
     Total current liabilities.................................                         8,278                   34,345
Long-term debt ................................................                        10,745                   21,217
Deferred gain on sale to unconsolidated investee...............                           968                       --
Capital lease obligation ......................................                            --                      843
Other liabilities..............................................                           250                      948
Minority interest..............................................                            --                    6,769
Commitments and contingent liabilities.........................                            --                       --
                                                                                   ----------            -------------
      Total liabilities                                                                20,241                   64,122
Redeemable preferred stock Series B-2, $100 par value;
     zero and 111,960 shares issued and outstanding,
     respectively..............................................                            --                   11,196
Redeemable preferred stock Series B-3, $300 par value; zero
     and 6,667 shares issued and outstanding,
     respectively..............................................                            --                    2,000
Stockholders' equity
     Preferred stock, $.01 par value; 1,000,000 shares
         authorized;  3,740 and 4,000 shares issued
         and outstanding, respectively.........................                             1                        1
     Common stock, $.01 par value; 20,000,000 shares
          authorized; 9,582,980 and 9,471,944 shares issued,
          respectively.........................................                            96                       95
     Additional paid-in capital................................                        57,534                   57,486
     Less common stock in treasury, at cost;
          24,908 shares........................................                         (258)                    (258)
     Accumulated deficit.......................................                      (45,226)                 (49,853)
                                                                                   ---------                  -------
          Total stockholders' equity...........................                        12,147                    7,471
                                                                                   ----------                  -------
                                                                                     $ 32,388                 $ 84,789
                                                                                     ========                 ========

See notes to financial statements.
</TABLE>

                                      - 2 -

<PAGE>


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




                                                                       THREE MONTHS ENDED
                                                                            MARCH 31,
                                                                       1998            1997
                                                                       ----            ----                                    

<S>                                                                   <C>            <C>
Revenues and sales:
         Service revenues                                             $  5,619        $ 19,882
         Equipment sales                                                 4,262           3,272
                                                                      --------          ------
                                                                         9,881          23,154
                                                                      --------        --------

Cost of revenues and sales:
         Service revenues                                                5,270          17,887
         Equipment sales                                                 3,512           3,617
                                                                       -------         -------
                                                                         8,782          21,504
                                                                       -------         -------

Gross profit:
         Service revenues                                                  349           1,995
         Equipment sales                                                   750            (345)
                                                                        ------         -------
                                                                         1,099           1,650

Selling, general and administrative expenses                             2,068           2,630
Provision for doubtful accounts                                             85             104
Research and development expenses                                          295             119
                                                                        ------          ------

Operating loss                                                          (1,349)         (1,203)

Interest income                                                             80              96

Interest expense                                                          (393)           (600)

Gain on sale of assets                                                   6,399              --

Equity in loss of investee                                                (219)             --

Minority interest                                                           --             (19)
                                                                       -------         -------

Net income (loss)                                                     $  4,518       $  (1,726)
                                                                      ========       =========

Basic net income (loss) per share                                     $    .48       $    (.19)
                                                                      ========       =========

Weighted average number of shares outstanding                            9,468           9,001
                                                                      ========       =========

Fully diluted net income (loss) per share                             $    .37       $   (0.19)
                                                                      ========       =========

Shares used in fully diluted net income (loss) per share calculation    12.610           9,001
                                                                       =======       =========

See notes to financial statements.
</TABLE>

                                      - 3 -

<PAGE>



<TABLE>
<CAPTION>
INTELLICALL, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)                                                            THREE MONTHS ENDED
                                                                              MARCH 31,
                                                                       1998            1997
                                                                       ----            ----
<S>                                                                   <C>            <C>
 Operating Activities:
         Net income (loss)                                          $  4,518        $ 1,726)
         Adjustments to reconcile net income (loss) to
           net cash provided by operating activities:
           Depreciation and amortization                                 495            992
           Provision for doubtful accounts                                85            104
           Provision for inventory                                        75             --
           Equity in loss of investee                                    219             --
           Minority interest in income of ILD                             --             19
           Changes in operating assets and liabilities (See Note 1):
              Restricted cash                                             (5)            (2)
              Amount due on sale of stock                             (5,963)            --
              Receivables                                              3,749          1,279
              Inventories                                                167           (492)
              Related party                                             (451)            --
              Other current assets                                       203            125
              Notes receivable                                           (23)          (263)
              Accounts payable                                        (1,125)         1,202
              Transmissions, commissions and billing charges          (1,284)          (357)
              Accrued liabilities                                       (150)           (55)
              Deferred revenue                                            --           (351)
              Deferred gain on sale to unconsolidated investee           968             --
              Other                                                    1,671            121
                                                                   ---------        -------
Net cash provided by operating activities                              3,149            596
Investing activities:
         Purchase of equipment                                          (211)          (250)
         Capitalized software                                           (250)          (475)

Net cash used in investing activities                                   (461)          (725)

Financing activities:
         Net proceeds from (repayments on) line of credit             (2,781)            45
         Proceeds from issuance of stock under stock option plans         93            234
                                                                    --------        -------
Net cash (used in) provided by financing activities                   (2,688)           279
Net increase in cash and cash equivalents                                 --            150
Cash and cash equivalents at beginning of period                          --          2,271
                                                                    --------        -------
Cash and cash equivalents at end of period                          $     --        $ 2,421
                                                                    ========        =======
Supplemental cash flow information:
         Interest paid                                              $    141        $   323
                                                                    ========        =======
Supplemental non cash information:
         Conversion of debt to equity                               $     --        $   945
                                                                    ========        =======
         Conversion of preferred stock to common stock              $    260        $    --
                                                                    ===========     =======

See notes to financial statements.
</TABLE>

                                      - 4 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS




NOTE 1 - CERTAIN ACCOUNTING POLICIES

         Basis  of  Presentation.   The  accompanying  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.  The  financial  statements  as of  December  31, 1997 and
results of operations for the quarter ended March 31, 1997 include the financial
position and results of operations of the  Company's  majority-owned  subsidiary
ILD  Telecommunications,  Inc. ("ILD"). In the quarter ended March 31, 1998, the
Company's ownership percentage of ILD decreased from 53.66% at December 31, 1997
to 42.91% at March 31, 1998 (See Note 7 herein). Accordingly,  effective January
1, 1998, the Company accounted for its investment in ILD under the equity method
of accounting  retroactively  to January 1, 1998. In management's  opinion,  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 three months  ended March 31, 1998,  are not
necessarily  indicative of the results of operations  expected for the full year
1998. The 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, 1997.

         Statement Presentation.  Certain prior year amounts have been reclassi-
fied to conform to 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 first quarter of
1998 and 1997 were $250,000 and  $475,000,  respectively.  The Company  recorded
$119,000  and  $555,000 of software  amortization  expense for the three  months
ended March 31, 1998 and 1997, respectively.

         Cash and Cash  Equivalents.  For  purposes  of the  balance  sheets and
statements of cash flows,  cash and cash equivalents  include  short-term liquid
investments purchased with remaining maturities of three months or less.

                                      - 5 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS





              Earnings  per Share:  Basic net  income  (loss) per share has been
computed in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share",  ("FAS 128") using the weighted  average  number of common
shares outstanding.  The provision and disclosure  requirements for FAS 128 were
required to be adopted for interim and annual  periods ending after December 15,
1997, with restatement of EPS for all prior periods.

         The following  table sets forth a  reconciliation  of the numerator and
denominator  used in the basic and diluted EPS  computation  for the three month
periods ended March 31, 1998 and 1997, respectively:


<TABLE>
<CAPTION>
                                                                Three months      Three months
                                                                   ended             ended
                                                                 March 31,         March 31,
                                                                   1998              1997
                                                                 -----------      ------------

<S>                                                               <C>          <C>       
Net income (loss)                                                 $  4,518     $  (1,726)
Basic:
    Weighted average number of shares outstanding                    9,468         9,001
                                                                  ==========     =========


Diluted:
   Weighted average number of shares outstanding used
       in the basic net income (loss) per share calculation            9,468        9,001
    Weighted average shares from assumed exercise of
        dilutive stock options and warrants, net of shares
        assumed to be repurchased with exercise proceeds                 325           --
     Assumed conversion of Series A Preferred Stock
        at beginning of period                                           980           --
     Assumed conversion of convertible debt                            1,837           --
                                                                   ---------     --------

     Weighted average number of shares outstanding used
         in the fully diluted net income (loss) per share
         calculation                                                  12,610        9,001
                                                                   =========     ========
</TABLE>

         In accordance with FAS 128, options and warrants to purchase  1,135,250
and 2,907,505 shares respectively,  of Common Stock were excluded in the diluted
EPS  calculation  when they were  antidilutive,  as applicable,  for the periods
presented.  Conversion of debt and preferred stock was excluded for the December
31, 1997 calculation because they were antidilutive.



                                      - 6 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS




         Disclosures  about  Reporting   Comprehensive  Income:  In  June  1997,
Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income" ("FAS 130") was issued. FAS 130 establishes  standards for reporting and
display of comprehensive income and its components (revenues,  expenses,  gains,
and losses) in a full set of general-purpose  financial statements.  It requires
all items that are  required to be  recognized  under  accounting  standards  as
components of comprehensive  income be reported in a financial statement that is
displayed with the same  prominence as other  financial  statements.  FAS 130 is
effective for fiscal years  beginning  after December 15, 1997. The Company will
adopt this Statement in the year ending December 31, 1998.  Reclassification  of
financial  statements for earlier periods  provided for comparative  purposes is
required upon adoption.  The Company has no components of  comprehensive  income
not already included in net income.


         Disclosures about Segments of an Enterprise and Related Information: In
June 1997,  Statement of Financial  Accounting  Standards  No. 131  "Disclosures
About Segments of an Enterprise and Related Information" ("FAS 131") was issued.
FAS 131  establishes  standards  for the way that  public  business  enterprises
report information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments  in  interim  financial  reports  issued  to  shareholders.  FAS 131 is
effective for financial  statements  for periods  beginning  after  December 15,
1997. The Company will adopt FAS 131 in the year ending December 31, 1998.




                                      - 7 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS




NOTE 2 - LONG-TERM DEBT AND LINE OF CREDIT

         The Company's debt consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                                                      March 31, 1998     December 31, 1997


<S>                                                                   <C>                 <C>                   
Intellicall, Inc.
         8% Convertible subordinated notes, due 2000                  $     2,840         $   2,840
         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        3,323             4,114
         Installment note, due 1998                                             7                28
                                                                       ----------         ---------
                                                                           12,170            12,982
         Less unamortized debt discount                                      (418)             (450)
                                                                       ----------         ---------
                                                                           11,752            12,532
                                                                       ----------         ---------

ILD Telecommunications, Inc. related debt                                      --            13,613
                                                                       ----------         ---------


              Total debt                                                   11,752            26,145

         Less: Current portion of long-term debt                           (1,007)           (4,928)
                                                                      -----------        ----------
              Total long-term debt                                    $    10,745        $   21,217
                                                                      ===========        ==========
</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 7.2% 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 previous
lender 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 March 31, 1998,  $4.66 million of the Banca Del Gottardo Notes were
converted to 1,109,517 shares of the Company's Common Stock. Interest is payable
semi-annually and commenced June 30, 1996.



                                      - 8 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS




         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 with the proceeds used to repay a portion of the
previous lender's debt and for working capital  purposes.  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 (net of  placement  fees of
$509,406)  to repay the  remaining  balance  of its Series A Notes due to Nomura
Holding America,  Inc.,  Intellicall's  previous lender,  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 one
each subsequent anniversary thereof.
Interest is paid monthly.

         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 March 31, 1998 the Company was in compliance with all covenants.



                                      - 9 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS




         At December 31, 1997 ILD Telecommunications,  Inc. (ILD) had $13.6 
million of long term debt due from 1998 through 2001 at interest  rates  ranging
from 9% to 13.5%.


                                     
NOTE 3 - INVENTORY

         As of  March  31,  1998  and  December  31,  1997,  the  Company's  net
inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                              March 31,         December 31,
                                                1998               1997
                                                ----               ----    
<S>                                         <C>                 <C>    
         Raw materials                      $   2,826           $ 2,491
         Work-in-process                          273               378
         Finished goods                         1,631             2,133
                                            ---------           -------
              Total inventories             $   4,730           $ 5,002
                                            =========           =======
</TABLE>
NOTE 4 - LITIGATION AND CONTINGENCIES

         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.



                                     - 10 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS




NOTE 5 - 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 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. As of March 31,
1998,  $260,000 of the Company's  preferred stock had been converted into 66,810
shares of the Company's Common Stock.

         Commencing 90 days after the Closing Date,  the preferred  stock,  plus
all accrued stock dividend  premiums at 7% annually,  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 form 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.

         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.


                                     - 11 -

<PAGE>


                                INTELLICALL, INC.
                          NOTES TO FINANCIAL STATEMENTS




         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 the  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 bank 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.

NOTE 6 - SALE OF PREPAID SERVICES OPERATION

         On January 1, 1998 the Company sold its prepaid  services  operation to
ILD  Telecommunications,  Inc.  in exchange  for (i)  $2,000,000  in cash,  (ii)
forgiveness of the Company's promissory note in the original principal amount of
$2,000,000  which had previously  been executed and delivered to ILD to purchase
18,348.62  shares  of ILD  common  stock  valued  at $109 a share,  and  (iii) a
$1,000,000  promissory  note due at the  earlier  of the  date of  ILD's  public
offering or December 31, 1998. The cash proceeds were used to further reduce the
Company's  indebtedness to Finova.  The Company  recorded a $835,000 gain on the
sale of the prepaid  services  operation  with the balance  recorded as deferred
gain on sale of assets to an unconsolidated  investee. As of March 31, 1998, the
Company had $968,000 of deferred gain.



                                     - 12 -

<PAGE>



NOTE 7 - SALE OF STOCK OF ILD TELECOMMUNICATIONS, INC.

         On March 30, 1998,  the Company sold to SMCO,  LLP 18,348.62  shares of
ILD Telecommunications, Inc. common stock. SMCO is an unrelated third party, the
negotiations for the sale transactions  were at arm's length,  and there were no
additional  obligations or elements of financial  consideration  relating to the
sale  transaction.  The Company  sold the shares for $325 per share and recorded
a gain on the sale in the amount of $5.6 million. The transaction was
consummated on March 30, 1998,  however the proceeds  were actually received by
the Company on April 3, 1998.  Accordingly  an amount due for $6.0  million is
reflected in the Company's balance sheet at March 31, 1998.

NOTE 8 - SUBSEQUENT EVENT

         On  April  3,  1998 the  Company  sold  1,539  shares  of its  Series A
preferred stock in ILD  Telecommunications,  Inc. to SMCO Investments,  LLC. The
shares were sold for $325.00 per share, or $500,175.




                                     - 13 -

<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   (the   "cautionary
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 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.

Recent Developments

         During the first quarter of 1998 the Company's ownership  percentage in
ILD  Telecommunications,  Inc. ("ILD")  declined to approximately  42.91% of the
outstanding  shares of ILD causing the Company to account for its  investment in
ILD under the equity method as consolidation is no longer appropriate. Under the
equity method,  an investment in common stock is generally  shown in the balance
sheet of an  investor  as a single  amount.  Likewise,  an  investor's  share of
earnings  or  losses  from its  investment  is  ordinarily  shown in its  income
statement as a single amount.

         Effective January 1, 1998, Intellicall's investment in ILD is accounted
for  using  the  equity  method.   However,  prior  year  comparative  financial
information  has not been  restated  to the equity  method and is  presented  as
previously reported,  as is required under SEC rules. In reviewing the financial
statements and discussion  contained in this Form 10-Q, the reader must be aware
that  much  of the  information  is not  directly  comparable  as the  financial
information in 1997 includes the operating results and balance sheet information
of ILD. This information is principally not included in the 1998 information.



                                     - 14 -

<PAGE>



Financial Condition


Liquidity and Capital Resources

         During the three  months  ended March 31,  1998 the  Company  generated
$3,149,000 of cash from  operations  including  changes in operating  assets and
liabilities.  The Company invested $211,000 in capital equipment and $250,000 in
software and product  development.  Borrowings  under the Company's  asset based
note agreement with Finova decreased $2,781,000.  The net result of such changes
described resulted in no change in cash and cash equivalents.

         The net effect of changes in  operating  assets and  liabilities  was a
decrease in cash of $2.2 million.  The primary  factors  affecting these changes
were a decrease in accounts  receivable of $3.7 million,  a decrease in payables
of $2.4 million,  and the disposition of assets and liabilities of the Company's
prepaid  services  operation  which was sold to ILD.  The  reduction in accounts
receivable was  principally  the result of the seasonal  decline in call traffic
revenues from the fourth quarter of 1997 to the first quarter of 1998.

         In recent years,  the  Company  has  financed  its net losses,  capital
expenditures  and research and development  costs through a combination of asset
sales,  reduction in working  capital  and  external  financing.  As described
in Note 7 to the financial statements, on March 30, 1998 the Company sold a
portion of its interest in ILD to an unrelated third party.  Proceeds from the
sale totaled $6.0 million.  A portion of the proceeds were used for working
capital purposes.  The remainder of the proceeds will be used to fund operations
and for working capital and capital expenditures.  In the  second half of 1998
and beyond,  management  of the Company  believes  that funds required  for 
capital spending,  new product  development,  debt  service and fixed  expenses
will be generated from operations, provided that equipment sales increase by 25%
or more over comparable  sales in 1997, and the mix of products sold continues
to shift toward sales of higher margin products.  Should the anticipated growth
in demand for the Company's  products be insufficient to generate the required
liquidity, the Company may be required to sell assets or seek further external
funding.  If such a situation  were to develop,  the Company  believes  that it
has  adequate opportunities  to  obtain,  in a timely  manner,  the  funds  
required  for its operations.



                                      - 15 -

<PAGE>



Results of Operations


         Service  Revenues.  Service  revenues for the first quarter ended March
31,  1998 were $5.6  million  compared  to $19.9  million for the same period in
1997. The table below provides a detailed  analysis of service  revenues by type
for the quarters ended March 31, 1998 and 1997 (in thousands):.

                                                            Three Months Ended
                                                                 March 31,
                                                            1998         1997
                                                            ----         ----
           
           Call traffic revenue      ..................    $ 5,619     $11,057
           Long-distance resale........................          -       1,108
           Operator services ..........................          -       6,330
           Prepaid calling services....................          -       1,387
                                                           -------     -------
                           Total service revenues          $ 5,619     $19,882
                                                           =======     =======

         Long-distance  resale  and  operator  services  revenues  relate to the
operations of ILD, an unconsolidated  investee in 1998. Prepaid calling services
relate  to a  division  of  Intellicall  sold to ILD on  January  1,  1998  (see
discussion of gain on sale of assets  below).  The $5.4 million  decline in call
traffic  principally  resulted from  discontinuing the Company's inmate services
program,  Jail*Star, in June 1997. Revenues from the Jail*Star program were $4.4
million in the March 31, 1997 quarter.  The program was  discontinued  due to an
unacceptably high experience of uncollectible  phone calls. The remainder of the
decline in call traffic is generally  attributed  to a lower volume of calls per
month on  telephones  using the  Intelli*Star  system.  The lower per phone call
volumes  reflect  the  continuing  high  incidence  of  the  practice  known  as
"dial-around."  This  practice  is the  result  of  payphone  patrons  accessing
operator services systems other than those used by the payphone owner.

         Gross  profits  from  services  were  $349,000  or 6.2% of the  related
revenues for the three  months ended March 31, 1998  compared to $2.0 million or
10.0% of the  related  revenues  for the three  months  ended  March  31,  1997.
However, on a comparable basis (i.e., excluding the revenue streams of ILD), the
pro-forma  Intellicall  gross  profit for the three  months ended March 31, 1997
would have been $1.0  million or 9.5% of the related  revenues.  Absolute  gross
profit  declined  $706,000 for the three months ended March 31, 1998 compared to
the  pro-forma  March 31, 1997  amount.  The decline is due  principally  to the
elimination of Jail*Star revenues.  The gross margin percentage declined for the
1998 period compared to 1997 primarily due to lower  unbundled  revenues in 1998
and the recognition in 1997 of deferred revenues from validation services,  both
of which carried a 100% profit margin.



                                      - 16 -

<PAGE>



         Equipment Sales.  Equipment sales were $4.3 million and $3.3 million in
the three  months  ended March 31, 1998 and 1997,  respectively.  The  following
table analyzes sales by market (in thousands):

                                                            Three Months Ended
                                                                 March 31,
                                                            1998         1997
                                                            ----         ----

     Independent payphone providers................      $ 2,714      $ 3,245
     International      ...........................        1,548           17
     Regulated         ............................            -           10
                                                         -------      -------
         Total equipment sales  ............             $ 4,262      $ 3,272
                                                         =======      =======

         The  increase  in total  equipment  sales  is  attributable  to  higher
international  shipments in 1998, partially offset by lower sales to independent
payphone providers  (IPP's).  The Company believes that IPP sales have been, and
will  continue  to be,  negatively  impacted  by  unresolved  regulatory  issues
surrounding dial-around compensation. Resolution of the dial-around compensation
controversy  is  uncertain  as to both the timing and extent of  payments  to be
received by payphone owners.  It is believed that this uncertainty is causing an
industry-wide slowness in capital purchasing due to uncertain cash flows.

         Gross profit from equipment sales was $750,000 (17.5% of related sales)
for the three  months  ended March 31, 1998 as compared to a loss of $345,000 or
(10.5% of related  sales)  for the three  months  ended  March 31,  1997.  Gross
margins  improved in 1998 compared to 1997 for  principally  two reasons:  lower
capitalized  software  amortization  of a decrease of $436,000  and higher sales
network switching products which are generally more profitable than payphones.
                                    
         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses were $562,000 lower in the quarter ended March 31, 1998
compared to the  quarter  ended March 31,  1997.  Approximately  $276,000 of the
decline related to the fact ILD is now  unconsolidated.  The pro-forma March 31,
1997 general,  selling and administrative  expenses would have been $2.3 million
compared  to $2.1  million  for the three  months  ended  March 31,  1998.  This
improvement was primarily  related to a decline in employee related expenses and
lower travel costs in 1998.

         Research  and  Development  Expenses.  Gross  spending for research and
development  decreased  $49,000 for the three months  ended March 31,  1998,  as
compared to the same period in 1997. In the first  quarter of 1998,  the Company
capitalized  software  development costs of $250,000 compared to $475,000 in the
first  quarter  of 1997.  Capitalized  costs in 1998  related  primarily  to the
AstraTel 2 and the Company's recently introduced N*Genius switch.

         Provision  for Doubtful  Accounts.  During the quarter  ended March 31,
1998 the Company recorded an $85,000 provision for doubtful accounts compared to
$104,000 in the same  quarter in 1997.  The  pro-forma  provision  for  doubtful
accounts, without ILD, for the quarter ended March 31, 1997 was $92,000.



                                      - 17 -

<PAGE>



         Gain on Sale of Assets.  During the first  quarter of 1998 the  Company
reported  gains on sales of assets  totaling $6.4 million.  Such gains  resulted
from partial gain recognition on the January 1998 sale of the Company's  prepaid
services  operation  to ILD and from gain on the March 1998 sale of a portion of
the Company's  ownership  interest in ILD to an unrelated  third party.  The ILD
common stock sold by the Company was originally  acquired in connection with the
disposition of the prepaid services operation.

Part II. Other Information

Item 1.  Legal Proceedings

         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.

Item 6.   Exhibits and Reports on Form 8-K

         (a)      Exhibits: None

         (b)      Reports on Form 8-K:  None.



                                     - 18 -

<PAGE>


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/ John J. McDonald, Jr.
               -----------------------------------------------
                              John J. McDonald, Jr.
                              President and
                              Chief Executive Officer




               /s/ John M. Carradine
               -----------------------------------------------           
                              John M. Carradine
                              Vice President Finance
                              and Chief Financial Officer


Date:   May 15, 1998

                                     - 19 -