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                       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 June 30, 1997

                                       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                             (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                                                August 12 ,1997
-----------------------                                      ---------------
Common Stock $.01 par value                                      9,339,201

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<PAGE>



INDEX

INTELLICALL, INC.

Part I.   Financial Information

Item 1.   Financial Statements

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

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

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

          Consolidated  Statements  of Cash  Flows  for  each of the six
          month periods ended June 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..............................................14

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.
       CONSOLIDATED BALANCE SHEETS
       (in thousands, except  per share amounts)
                                                  June 30, 1997        December 31, 1996
                                                  -------------        -----------------
<S>                                                 <C>                    <C>   
ASSETS
Current assets:
      Restricted cash                                $     16               $     15
      Cash and cash equivalents                         2,649                  2,271
      Receivables, net                                 21,024                 22,499
      Inventories                                       7,440                  7,902
      Other current assets                              1,406                  1,684
                                                     --------               --------

      Total current assets                             32,535                 34,371

Fixed assets, net                                       2,134                  1,964
Notes receivable, net                                   1,422                    992
Intangible assets, net                                    883                    928
Capitalized software costs, net                         4,794                  4,904
Other assets, net                                       2,318                  2,095
                                                     --------               --------
                                                      $44,086               $ 45,254
                                                     ========                =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable                               $  7,813               $  6,064
      Dealer payable                                    4,129                  3,737
      Deferred debit card revenue                         626                  1,028
      Accrued liabilities                               1,410                  1,451
      Current portion of long-term debt                    71                     85
                                                     --------                -------

      Total current liabilities                        14,049                 12,365

Long-term debt                                         18,219                 19,312
Deferred revenue                                          278                    595
Other liabilities                                         200                    200
Minority interest                                         159                    113
                                                     --------                -------

      Total liabilities                                32,905                 32,585
                                                      -------                -------

Stockholders' equity:
  Preferred stock, $.01 par value; 1,000,000
      shares authorized; none issued                       --                     --
  Common stock, $.01 par value; 20,000,000
      shares authorized; 9,319,339 and 8,646,278
      shares issued, respectively                          93                     87
  Additional paid-in capital                           53,205                 51,602
  Less common stock in treasury, at cost;
      24,908 shares                                      (258)                  (258)
  Accumulated deficit                                 (41,859)               (38,762)
                                                     --------               --------
      Total stockholders' equity                       11,181                 12,669
                                                     --------               --------
                                                     $ 44,086              $  45,254
                                                     ========              =========
</TABLE>

See notes to consolidated financial statements.

                                      - 1 -

<PAGE>



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

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                 June 30,
                                                      1997                      1996
                                                      ----                      ----
<S>                                               <C>                        <C> 
Revenues and sales:
         Service revenues                         $   20,403                 $ 19,792
         Equipment sales                               4,679                    3,728
                                                     -------                  -------
                                                      25,082                   23,520
                                                     -------                  -------

Costs of revenues and sales:
         Service revenues                             18,565                   17,581
         Equipment sales                               4,481                    3,687
                                                     -------                  -------
                                                      23,046                   21,268
                                                     -------                  -------

Gross profit (loss)
         Service revenues                              1,838                    2,211
         Equipment sales                                 198                       41
                                                     -------                  -------
                                                       2,036                    2,252
  
Selling, general and administrative expenses           2,677                    2,688
Research and development expenses                         77                      182
Provision for doubtful accounts                          147                       81
                                                     -------                  -------
Operating loss                                          (865)                    (699)

Gain on sale of assets                                    --                      572

Interest income                                          133                      142
Interest expense                                        (612)                    (755)

Minority interest                                        (27)                     (29)
                                                     -------                  -------

Net loss                                            $ (1,371)                 $  (769)
                                                    ========                  =======

Net loss per common and common equivalent share     $  (.15)                  $  (.10)
                                                    -------                   -------

Weighted average number of common and common
equivalent shares outstanding                         9,293                     7,843
                                                    =======                   =======

</TABLE>
See notes to consolidated financial statements.


                                      - 2 -

<PAGE>



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

                                                            Six Months Ended
                                                                 June 30,
                                                     1997                       1996
                                                     ----                       ----
<S>                                               <C>                        <C>   
Revenues and sales:
         Service revenues                         $ 40,285                   $ 32,771
         Equipment sales                             7,951                      7,979
                                                   -------                    -------
                                                    48,236                     40,750
                                                   -------                    -------
Costs of revenues and sales:
         Service revenues                           36,452                     28,712
         Equipment sales                             8,098                      7,356
                                                   -------                    -------
                                                    44,550                     36,068
                                                   -------                    -------

Gross profit (loss)
         Service revenues                            3,833                      4,059
         Equipment sales                              (147)                       623
                                                   -------                    -------
                                                     3,686                      4,682

Selling, general and administrative expenses         5,306                      5,224
Research and development expenses                      196                        322
Provision for doubtful accounts                        252                        162
                                                   -------                    -------

Operating loss                                      (2,068)                    (1,026)

Gain on sale of assets                                  --                        572

Interest income                                        229                        242
Interest expense                                    (1,212)                    (1,526)

Minority interest                                      (46)                       (29)
                                                  --------                    -------

Net loss                                         $  (3,097)                  $ (1,767)
                                                 =========                   ========

Net loss per common and common equivalent share  $   (.34)                   $   (.23)
                                                 --------                    --------

Weighted average number of common and common
equivalent shares outstanding                       9,071                       7,720
                                                 ========                     =======

</TABLE>
See notes to consolidated financial statements.



                                      - 3 -

<PAGE>



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

                                                            Six Months Ended
                                                                June 30,
                                                        1997                      1996
                                                        ----                      ----
<S>                                                  <C>                       <C> 
Operating Activities:
   Net loss                                          $ (3,097)                 $ (1,767)

   Adjustments  to  reconcile  net loss to 
     net cash  provided by operating
     activities:
     Depreciation and amortization                      1,876                     1,955
     Provision for doubtful accounts                      252                       162
     Provision for inventory                               18                        36
     Minority interest in income of subsidiary             46                        29

     Changes in operating assets and liabilities:
        Restricted cash                                    (1)                      483
        Receivables                                       563                    (2,308)
        Inventories                                       444                       483
        Other current assets                              236                      (807)
        License fee receivable                             77                       397
        Investment in sales type leases                   150                       188
        Notes receivable                                  (27)
        Accounts payable                                2,140                     3,066
        Accrued liabilities                              (443)                      (44)
        Deferred revenues                                (317)                     (194)
        Other                                              31                      (947)
                                                     --------                  --------

Net cash provided by operating activities            $  1,948                  $  1,917
                                                     --------                  --------

</TABLE>





Continued on next page


                                      - 4 -

<PAGE>



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

<TABLE>
<CAPTION>
                                                                              Six Months Ended
                                                                                  June 30,
                                                                         1997                1996                               
                                                                         ----                ----                         
<S>                                                                     <C>               <C>  
Investing activities:
         Purchase of equipment                                             (606)             (324)
         Capitalized software                                              (891)           (1,100)
                                                                        -------           -------

Net cash used in investing activities                                    (1,497)           (1,424)
                                                                        -------           -------

Financing activities:
         Proceeds from borrowing on long-term debt                           --             2,900
         Issuance of warrant                                                 --               100
         Principal payments on long-term debt                              (312)           (2,119)
         Proceeds from issuance of stock                                    239               166
                                                                        -------           -------

Net cash (used in) provided by financing activities                         (73)            1,047
                                                                        -------           -------

Net increase in cash and cash equivalents                                   378             1,540
Cash and cash equivalents at beginning of period                          2,271               613
                                                                        -------           -------

Cash and cash equivalents at end of period                              $ 2,649           $ 2,153
                                                                        =======           =======

Supplemental cash flow information:
         Interest paid                                                  $   958           $   863
                                                                        =======           =======

Supplemental schedule of noncash investing and financing activities:
         Conversion of long-term debt to common stock                   $   945           $ 1,150
                                                                        =======           =======



</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 six months  ended June 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 reclassified
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 second quarter
of 1997 and 1996 were $416,000 and $600,000.  The Company recorded  $446,000 and
$387,000 of software  amortization  expense for the three  months ended June 30,
1997 and 1996, respectively.

     For the six months ended June 30, 1997 and 1996, respectively,  the Company
capitalized  $891,000  and  $1.1  million.  The  software  amortization  expense
recorded  was $1.0  million and  $767,000 for the six months ended June 30, 1997
and 1996.

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



                                      - 6 -

<PAGE>


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




     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  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 six months  ended  June 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 $3.3 million at June 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 June 30, 1997 and December 31, 1996,  the Company's debt consisted of
the following (in thousands):

<TABLE>
<CAPTION>
                                                                                    June 30,        December 31,
                                                                                      1997                1996
                                                                                      ----                ----
<S>                                                                                <C>                 <C>  
Intellicall, Inc.
         8% Convertible subordinated notes, due 2000                                $ 3,215            $  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                  6,598               6,862
         Installment note, due 1998                                                      71                 113
                                                                                  ---------           ---------
                                                                                     15,884              17,135
         Less unamortized debt discount                                                (533)               (660)
                                                                                  ---------           ---------
                                                                                     15,351              16,475
                                                                                  ---------           ---------
ILD Communications, Inc.
         Senior secured debt, due 2001                                                2,000               2,000
         Convertible subordinated notes, due 2001                                     1,000               1,000
                                                                                  ---------           ---------
                                                                                      3,000               3,000
         Less unamortized debt discount                                                 (61)                (78)
                                                                                  ---------           ---------
                                                                                      2,939               2,922
                                                                                  ---------           ---------

              Total debt                                                             18,290              19,397

         Less: Current portion of long-term debt                                        (71)                (85)
                                                                                  ---------           ---------
              Total long-term debt                                                $  18,219          $   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

                                      - 8 -

<PAGE>


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




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 June 30, 1997, $4.3 million of
the Banca Del  Gottardo  Notes has been  converted  to  1,020,232  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.

                                      - 9 -

<PAGE>


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





     The Loan is  evidenced  by a Secured  Revolving  Credit  Note (the  "Note")
payable to the order of Finova.  Borrowing  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 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 June 30, 1997 the Company was in compliance with all required covenants.

NOTE 3 - INVENTORY

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

         Raw materials                      $     4,422        $     4,850
         Work-in-process                            253                511
         Finished goods                           2,765              2,541
                                               --------           --------
              Total inventory               $     7,440        $     7,902
                                            ===========        ===========







                                     - 10 -

<PAGE>


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




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.

NOTE 5 - ILD COMMUNICATIONS AGREEMENT TO PURCHASE WORLDCOM
OPERATOR SERVICES BUSINESS

     On March 5, 1997 the Company  announced that its majority owned subsidiary,
ILD Teleservices,  Inc. (ILD),  entered into a definitive  agreement to purchase
the operator services business and related assets from WorldCom, Inc. 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 will also enter into a  long-term  operator
services  agreement  with  WorldCom  to handle the  international  and  domestic
operator services requirements of WorldCom.  In addition,  ILD will enter into a
network services contract with WorldCom.

NOTE 6 - SUBSEQUENT EVENT

     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

                                     - 11 -

<PAGE>


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




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.

     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 also agreed with the Investors to file a registration statement
on the common stock underlying the conversion of the preferred stock and to have
such registration  statement declared effective by the SEC within ninety days of
the Closing Date.

                                     - 12 -

<PAGE>


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





     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.



























                                     - 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 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 half of 1997 the Company generated $1,948,000 of cash from
operations and invested  $606,000 in capital  equipment and $891,000 in software
development.  Borrowings  under the Company's notes decreased  $312,000 and cash
proceeds from the exercise of stock options totaled $239,000.  The net result of
such  changes  described  above  was  a  $378,000  increase  in  cash  and  cash
equivalents.

     An increase in cash of $2.8 million arose from the net effect of changes in
operating assets and liabilities. Most significantly was an increase in accounts
payable of $2.14  million  during the first  half of 1997.  The equity  offering
described  in Note 6  resulted  in a  reduction  of  accounts  payables  and the
outstanding obligation to Finova Capital Corporation.


                                     - 14 -

<PAGE>



     The  outstanding  balance under the Company's 8%  convertible  subordinated
notes,  due  2000  declined  $945,000  in the  first  quarter  of 1997  from the
conversion  into common  stock by the holders of such amount of the notes.  Such
conversion had no effect on the cash position of the Company.

     The Company's  future  liquidity  will depend on spending  levels,  working
capital turnover and the volume and timing of equipment sales and gross margins.
There can be no  assurances  that the  Company's  efforts to maintain or enhance
liquidity will be successful, and, 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 as considered necessary.




                                     - 15 -

<PAGE>



Results of Operations

Service  Revenues.  Service  revenues were $20.4 million for the second  quarter
ended June 30, 1997  compared to $19.8  million for the second  quarter in 1996.
For the six month  period  ended  June 30,  1997,  service  revenues  were $40.3
million  compared to $32.8  million for the six months ended June 30, 1996.  The
table below  provides a detailed  analysis  of service  revenues by type for the
three and six month periods ended June 30, 1997 and 1996.

<TABLE>
<CAPTION>
                                                Three Months Ended                              Six Months Ended

                                       June 30, 1997           June 30, 1996          June 30, 1997         June 30, 1996
                                       -------------           -------------          -------------         -------------
<S>                                            <C>                     <C>                    <C>                   <C>    
Call Traffic Revenue                           $10,611                 $10,977                $21,668               $19,999

Long-distance Resale                             1,101                   1,304                  2,209                 2,128

Operator Services                                7,208                   6,536                 13,538                 8,871

Prepaid Calling Services                         1,483                     975                  2,870                 1,773
                                            ----------                --------               --------              --------

  Total Service Revenues                       $20,403                 $19,792                $40,285               $32,771
                                               =======                 =======                =======               =======
</TABLE>


     Call  traffic  revenues  declined  $366,000  in the second  quarter of 1997
compared to the second quarter of 1996.  Revenues increased $1.7 million for the
first  half of 1997  compared  to the first  half of 1996.  The period to period
changes  are  principally  the result of changes in the volume of call  revenues
processed under the Company's  Jail*Star inmate services program.  The Jail*Star
program was  implemented in late 1995,  grew  significantly  in the last part of
1996 and was  terminated  in  mid-June  1997.  The growth  pattern in  Jail*Star
revenues  primarily  accounts  for the  increase  in six month  revenues in 1997
compared to 1996. However,  revenues from call traffic continue to be negatively
impacted by dial-around activity.  Such decline is reflected in revenues for the
second quarter of 1997 compared to the same period in 1996.

     Operator  service  revenues were  $672,000 and $4.7 million  higher for the
three and six months  ended June 30,  1997  compared  to 1996.  The  differences
principally arise from the addition of a significant new customer in April 1996,
and a new operating arrangement between the Company and its third party operator
service provider entered into on April 1, 1996. The new agreement  contractually
changed the methods by which the Company  receives  payment for call traffic and
pays for services  rendered.  Based on the terms of the new contract,  beginning
April 1, 1996 the Company began recording  operator services call traffic at its
gross amount, and recording the costs of services provided as cost of sales. The
effect of the  change  on the first  quarter  of 1997 was to  increase  reported
revenue  approximately  $2.5  million.  Also in April of 1996 the Company  began
providing  services to a new customer  accounting for a $2.0 million increase in
revenue from the 1996 to 1997 six month period.

     Prepaid calling services increased $508,000 and $1.1 million for the second
quarter and six months  ended June 30, 1997 as compared to the same time periods
in 1996 due to an

                                     - 16 -

<PAGE>



expanded customer base and higher volume of sales transactions.

     Gross profit from service revenues  decreased $373,000 and $226,000 for the
three and six months ended June 30,  1997,  compared to the three and six months
ended June 30, 1996 despite the higher revenues. Second quarter gross profits in
1997 were adversely affected by the following  factors:  (i) a change in the mix
of call traffic  from high margin  unbundled  services to lower margin  programs
including the Company's  inmate services  program,  (ii) the  implementation  in
April 1996 of the new operator services  agreement  described above that had the
effect of increasing revenues but lowering gross margin  percentages,  and (iii)
higher than  expected  bad debt  charges on  automated  operator  services  call
traffic.

     Equipment Sales.  The Company's  equipment sales were $4.7 million and $8.0
million  for the three and six  months  ended  June 30,  1997  compared  to $3.7
million and $8.0 million for the three and six months  ended June 30, 1996.  The
following  table presents an analysis of sales to the Company's  primary markets
(in thousands):

<TABLE>
<CAPTION>
                                                Three Months Ended                              Six Months Ended

                                       June 30, 1997           June 30, 1996          June 30, 1997         June 30, 1996
                                       -------------           -------------          -------------         -------------
<S>                                             <C>                     <C>                    <C>                   <C>   
Independent payphone                            $3,877                  $2,646                 $7,122                $5,733
providers

International                                      802                     975                    819                 1,842

Regulated                                           --                     107                     10                   404
                                               -------                --------                  -----                ------

  Total equipment sales                         $4,679                  $3,728                 $7,951                $7,979
                                                ======                  ======                 ======                ======
</TABLE>


     The $1.2  million  increase  in  independent  payphone  sales for the three
months ended June 30, 1997 in comparison to the three months ended June 30, 1996
and the $1.4  million  increase  for the six month  period  ended June 30,  1997
compared to the same period in 1996 are a reflection  of customer  acceptance of
the Astra*Tel 2 product, the Company's  line-powered phone introduced in October
1996.


     Gross  profit from  equipment  sales was $198,000 for the three month ended
June 30, 1997  compared to a gross  profit of $41,000 for the three months ended
June 30, 1996. The slightly higher gross profit reflects higher per unit profits
earned on sales of the AstraTel 2 pay  telephone  compared to earlier  products,
which was reduced by certain trade-in allowances,  temporarily elevated material
costs and lower sales  prices  obtained  by the  Company  upon sale of its older
product lines.  Gross loss from equipment  sales was $147,000 for the six months
ended June 30, 1997 in  comparison  to a gross  profit of  $623,000  for the six
months ended June 30, 1996. The negative gross margin is  attributable  to lower
international and regulated sales which carry a favorable margin, an increase in
software  amortization  expense  and lower  prices  obtained  from  sales of the
Company's older product lines.

                                     - 17 -

<PAGE>





     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  decreased  $11,000 for the three months ended June 30,
1997 compared to the three months ended June 30, 1996 and increased  $82,000 for
the six months  ended June 30, 1997  compared  to the six months  ended June 30,
1996.  The  slight  increase  is  attributable  to  higher  spending  at ILD;  a
subsidiary of  Intellicall.  Such increases were offset in the second quarter of
1997 by lower expenses at Intellicall.

     Research  and  Development  Expenses.   Gross  spending  for  research  and
development  decreased $105,000 and $126,000 for the three and six month periods
ended June 30,  1997 to the three and six month  periods  ended  June 30,  1996,
respectively.  In the first half of 1997,  the Company  capitalized  $891,000 as
compared to $1.1 million in the first half of 1996. With the introduction of the
new line-powered phone in the latter part of 1996, more time is spent supporting
the new products and less on the development of them.

     Provision for Doubtful Accounts. During the quarter ended June 30, 1997 the
Company provided  $147,000 for doubtful accounts compared to $81,000 in the same
quarter  in 1996.  For the six  months  ended June 30,  1997 the  provision  was
$252,000 compared to $162,000 for the six months ended June 30, 1996.

Part II. Other Information

Item 6.   Exhibits and Reports on Form 8-K

         (a)      Exhibits: None

         (b)  Reports on Form 8-K:  None as of June 30, 1997.



                                     - 18 -

<PAGE>


Signatures

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


                                            INTELLICALL, INC.



                                            /s/ William O. Hunt 
                                            --------------------
                                            William O. Hunt
                                            Chairman of the Board and
                                            Chief Executive Officer



                                            /s/ John M. Carradine
                                            ---------------------
                                            John M. Carradine
                                            Chief Financial Officer



Date:   August 15, 1997


                                     - 19 -