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



                       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, 1999

                                       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                                   August 13,1999
-------------------------------------                  --------------
Common Stock $.01 par value                              12,074,385
--------------------------------------------------------------------------------







<PAGE>



INDEX

INTELLICALL, INC.

Part I.           Financial Information

 Item 1.      Financial Statements

              Balance Sheets at June 30, 1999
              (Unaudited) and December 31, 1998................................1

              Statements of Operations for each of the
              three month periods ended June 30, 1999 and 1998
              (Unaudited)       ...............................................3

              Statements of Operations for each of the
              six month periods ended June 30, 1999 and 1998
              (Unaudited)      ................................................4

              Statements of Cash Flows for each of the
              six month periods ended June 30, 1999 and 1998
              (Unaudited)       ...............................................5

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

 Item 2.      Management's Discussion and Analysis of Financial Condition and
              Results of Operations...........................................17

Part II.      Other Information

 Item 4.      Submission of Matters to a Vote of Security Holders.............24

 Item 5.      Other Information...............................................24

 Item 6.      Exhibits and Reports on Form 8-K................................25

Signatures....................................................................26












<PAGE>




Part I.  Financial Information
     Item 1.  Financial Statements

INTELLICALL, INC.
       BALANCE SHEETS
      ASSETS
      (in thousands)
<TABLE>
<CAPTION>

                                                                                 June 30, 1999       December 31, 1998
                                                                                 -------------       -----------------
                                                                                  (unaudited)
<S>                                                                                   <C>                    <C>
Current assets
     Cash and cash equivalents .................................                      $     10               $     16
     Receivables................................................                         5,481                 11,267
          Less allowance for doubtful accounts..................                         2,594                  3,417
                                                                                      --------               --------
                                                                                         2,887                  7,850
     Inventories, net...........................................                         5,071                  5,177
     Related party, net.........................................                           320                    658
     Other current assets.......................................                           169                    197
                                                                                      --------               --------
          Total current assets..................................                         8,457                 13,898
Fixed assets, net...............................................                         1,224                  1,425
Capitalized software costs, net.................................                         2,638                  2,481
Notes receivable, net...........................................                           897                  1,074
Intangible assets, net..........................................                           704                    749
Investment in unconsolidated investee...........................                           848                  1,491
Other assets, net...............................................                         1,117                  1,286
                                                                                      --------               --------
                                                                                      $ 15,885               $ 22,404
                                                                                      ========               ========




See notes to financial statements.
</TABLE>



<PAGE>




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

                                                                                   June 30,1999        December 31, 1998
                                                                                   ------------        -----------------
                                                                                    (Unaudited)
<S>                                                                                   <C>                       <C>
Current liabilities
     Accounts payable..........................................                       $   3,198                 $  2,085
     Accrued transmission, customer commissions and billing
         charges...............................................                             581                      880
     Deferred revenue..........................................                              --                       84
     Accrued liabilities.......................................                             755                      968
     Current portion of long-term debt ........................                             ---                    3,811
                                                                                      ---------                 --------
     Total current liabilities.................................                           4,534                    7,828
Long-term debt ................................................                           9,213                    7,312
Deferred gain on sale of assets................................                             967                      968
Other liabilities..............................................                             250                      250
Commitments and contingent liabilities.........................                              --                       --
                                                                                      ---------                 --------
      Total liabilities                                                                  14,964                   16,358
Stockholders' equity
     Preferred stock, $.01 par value; 1,000,000 shares
         authorized;  zero and 510 shares issued
         and outstanding, respectively.........................                              --                        1
     Common stock, $.01 par value; 20,000,000 shares
          authorized; 12,074,385 and 11,738,001 shares issued,
          respectively.........................................                             121                      117
     Additional paid-in capital................................                          58,054                   57,895
     Less common stock in treasury, at cost;
          24,908 shares........................................                           (258)                    (258)
     Accumulated deficit.......................................                        (56,996)                 (51,709)
                                                                                      ---------                 --------
          Total stockholders' equity...........................                             921                    6,046
                                                                                      ---------                 --------
                                                                                      $  15,885                 $ 22,404
                                                                                      =========                 ========

See notes to financial statements.
</TABLE>


                                      -2-

<PAGE>





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

                                                                                THREE MONTHS ENDED
                                                                                      JUNE 30,
                                                                                1999           1998
                                                                                ----         ------
<S>                                                                          <C>             <C>
Revenues and sales:
         Service revenues                                                    $   2,951       $  7,528
         Equipment sales                                                         1,549          3,321
                                                                             ---------       --------
                                                                                 4,500         10,849
                                                                             ---------       --------
Cost of revenues and sales:
         Service revenues                                                        2,896          7,012
         Equipment sales                                                         1,653          2,557
                                                                             ---------       --------
                                                                                 4,549          9,569
                                                                             ---------       --------
Gross profit(loss):
         Service revenues                                                           55            516
         Equipment sales                                                          (104)           764
                                                                             ---------       --------
                                                                                   (49)         1,280

Selling, general and administrative expenses                                     1,818          2,198
Provision for doubtful accounts                                                    332             59
Research and development expenses                                                  275            262
                                                                             ---------       --------

Operating loss                                                                  (2,474)        (1,239)

Interest income                                                                     59             79

Interest expense                                                                  (537)          (390)

Gain on sale of assets                                                              --            493

Loss in equity investee                                                           (263)          (111)

Other income                                                                       156             --
                                                                             ---------       --------

Net loss                                                                     $  (3,059)      $ (1,168)
                                                                             =========       ========

Basic net loss per share                                                     $   (0.25)      $  (0.12)
                                                                             =========       ========

Weighted average number of shares outstanding                                   12,049          9,762
                                                                             =========       ========

Fully diluted net loss per share                                             $   (0.25)      $  (0.12)
                                                                             =========       ========

Shares used in fully diluted net loss per share calculation                     12,049          9,762
                                                                             =========       ========

See notes to financial statements.
</TABLE>


                                      - 3 -


<PAGE>





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

                                                                                   SIX MONTHS ENDED
                                                                                       JUNE 30,
                                                                                1999           1998
                                                                                ----           ----
<S>                                                                          <C>             <C>
Revenues and sales:
         Service revenues                                                    $  6,109        $ 13,147
         Equipment sales                                                        6,380           7,583
                                                                             --------        --------
                                                                               12,489          20,730
                                                                             --------        --------
Cost of revenues and sales:
         Service revenues                                                       6,164          12,282
         Equipment sales                                                        5,922           6,069
                                                                             --------        --------
                                                                               12,086          18,351
                                                                             --------        --------
Gross profit(loss):
         Service revenues                                                         (55)            865
         Equipment sales                                                          458           1,514
                                                                             --------        --------
                                                                                  403           2,379

Selling, general and administrative expenses                                    3,764           4,266
Provision for doubtful accounts                                                    86             144
Research and development expenses                                                 499             557
                                                                             --------         -------

Operating loss                                                                 (3,946)         (2,588)

Interest income                                                                   120             158

Interest expense                                                               (1,006)           (782)

Gain on sale of assets                                                             --           6,892

Loss in equity investee                                                          (621)           (330)

Other income                                                                      165              --
                                                                             --------         -------
Net income (loss)                                                            $ (5,288)        $ 3,350
                                                                             ========         =======

Basic net income (loss) per share                                            $  (0.44)        $  0.35
                                                                             ========         =======

Weighted average number of shares outstanding                                  12,039           9,616
                                                                             ========         =======

Fully diluted net income (loss) per share                                    $  (0.44)        $  0.30
                                                                             ========         =======

Shares used in fully diluted net income (loss) per share calculation           12,039          12,499
                                                                             ========         =======

See notes to financial statements.
</TABLE>


                                      - 4 -


<PAGE>





INTELLICALL, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED
                                                                                      JUNE 30,
                                                                                1999           1998
                                                                                ----           ----
<S>                                                                         <C>             <C>
Operating activities:
         Net income (loss)                                                  $ (5,288)       $  3,350
         Adjustments to reconcile net income (loss) to
           net cash provided by (used in) operating activities:
           Gain on sale of investments                                            --          (6,892)
           Depreciation and amortization                                       1,110             995
           Provision for doubtful accounts                                        86             144
           Provision for inventory                                              (152)            150
           Loss of equity investee                                               621             330

         Changes in operating assets and liabilities (See Note 1):
            Restricted cash                                                       --              (5)
            Receivables                                                        4,892           2,173
            Inventories                                                          258          (1,066)
            Related party                                                        338             260
            Other current assets                                                  28              64
            Notes receivable                                                     163              20
            Accounts payable                                                   1,114          (3,511)
            Accrued transmissions, customer commissions
                  and billing charges                                           (299)           (573)
            Accrued liabilities                                                 (297)           (247)
            Deferred gain on sale of assets                                       (1)            968
            Other                                                               (107)           (275)
                                                                            --------        --------
Net cash provided by (used in) operating activities                            2,466          (4,115)
Investing activities:
         Purchase of equipment                                                   (96)           (296)
         Capitalized software                                                   (565)           (500)
         Cash received on sale of assets                                          --           8,463
                                                                            --------        --------
Net cash provided by (used in) investing activities                             (661)          7,667
Financing activities:
         Borrowings on notes payable                                           2,000              --
         Payments on notes payable                                            (1,000)            (28)
         Net repayments on line of credit                                     (2,811)         (1,918)
         Proceeds from issuance of stock under stock option plans                 --             394
                                                                            --------        --------
Net cash used in financing activities                                         (1,811)         (1,552)
Net increase(decrease) in cash and cash equivalents                               (6)          2,000
Cash and cash equivalents at beginning of period                                  16              --
                                                                            --------        --------
Cash and cash equivalents at end of period                                  $     10        $  2,000
                                                                            ========        ========
Supplemental cash flow information:
         Interest paid                                                      $    491        $    573
                                                                            ========        ========
Supplemental non cash information:
Conversion of debt to equity                                                $     --         $   210
                                                                            ========         =======
See notes to financial statements.
</TABLE>

                                      - 5 -


<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. 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 and six months ended June 30, 1999, are
not  necessarily  indicative of the results of operations  expected for the full
year 1999. The financial  statements  herein should be read in conjunction  with
the  financial  statements  and notes thereto  included in the Company's  Annual
Report on Form 10-K for the year ended December 31, 1998.

         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
1999 and 1998 were $250,000 and  $250,000,  respectively.  The Company  recorded
$219,000  and  $135,000 of software  amortization  expense for the three  months
ended June 30, 1999 and 1998.

For the six  months  ended  June 30,  1999 and  1998,  the  Company  capitalized
$565,000 and $500,000,  respectively. The software amortization expense recorded
was $408,000 and $254,000 for the six months ended June 30, 1999 and 1998.

         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.


                                      - 6 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS



NOTE 2 - EARNINGS(LOSS) PER SHARE

         The following  table sets forth a  reconciliation  of the numerator and
denominator  used in the basic and diluted EPS computation for the three and six
month periods ended June 30, 1999 and 1998, respectively:

<TABLE>
<CAPTION>
                                                           Three months      Three months      Six months      Six months
                                                              ended              ended           ended            ended
                                                             June 30,           June 30,        June 30,         June 30,
                                                               1999               1998            1999             1998
                                                            -----------       ----------       ----------      ----------

<S>                                                        <C>               <C>              <C>              <C>
Net income (loss)                                          $  (3,059)        $  (1,168)       $  (5,288)       $  3,350
Basic:
    Weighted average number of shares outstanding             12,049             9,762           12,039           9,616
                                                              ======             =====           ======           =====


Diluted:
   Weighted average number of shares outstanding used
       in the basic net income (loss) per share calculation   12,049             9,762           12,039           9,616
    Weighted average shares from assumed exercise of
        dilutive stock options and warrants, net of shares
        assumed to be repurchased with exercise proceeds          --                --               --             310
     Assumed conversion of Series A Preferred Stock
        at beginning of period                                    --                --               --             787
     Assumed conversion of convertible debt                       --                --               --           1,786
                                                              ------             -----           ------          ------

     Weighted average number of shares outstanding used
         in the fully diluted net income (loss) per share
         calculation                                          12,049             9,762           12,039          12,499
                                                              ======             =====           ======          ======
</TABLE>

         In accordance with FAS 128, options and warrants to purchase  3,152,878
and  2,945,205  shares  of  Common  Stock  were  excluded  in  the  diluted  EPS
calculation because they were antidilutive,  for the three months ended June 30,
1999 and  1998,  respectively.  Conversion  of debt  and  preferred  stock  were
antidilutive  and  therefore  were  excluded for both of the three month periods
calculations.  For the six month periods  ended June 30, 1999 and 1998,  options
and warrants to purchase 3,152,878 and 1,262,180 shares respectively,  of Common
Stock  were  excluded  in  the  diluted  EPS   calculation   because  they  were
antidilutive.  The June 30, 1999 calculation  excluded 2,916,513 shares issuable
upon conversion of debt because they were antidilutive.

                                      - 7 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS



 NOTE 3 - LONG-TERM DEBT AND LINE OF CREDIT
         The Company's debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                    June 30,         December 31,
                                                                                      1999                 1998
                                                                                 ------------        -----------
<S>      <C>                                                                     <C>                 <C>
         8% Convertible subordinated notes, due 2000                             $     2,630         $     2,630
         8% Convertible subordinated notes, due 2001                                   5,000               5,000
         Convertible subordinated note, due 1999                                          --               1,000
         Asset-based note collateralized by certain assets, due 1999                      --               2,811
         7% Convertible subordinated notes, due 2004                                   2,000                  --
                                                                                 -----------        ------------
                                                                                       9,630              11,441
         Less unamortized debt discount                                                 (417)               (318)
                                                                                 -----------        ------------
              Total debt                                                               9,213              11,123
                                                                                 -----------        ------------

         Less: Current portion of long-term debt                                          --              (3,811)
                                                                                 -----------        ------------
              Total long-term debt                                               $     9,213        $      7,312
                                                                                 ===========        ============
</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 4.2% of the Company's outstanding common stock. Interest
is payable  quarterly and commenced  March 31, 1994. The Company paid the entire
principal amount, including any accrued interest, on April 8, 1999.

         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 at $4.20 per share. As a
result of activating certain anti-dilution provisions,  the warrants entitle the
holder to purchase  418,507  shares of Common  Stock,  exercisable  at $3.01 per
share.  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,  1999 $4.87  million of the
Banca Del Gottardo  Notes were  converted to 1,159,517  shares of the  Company's
Common Stock. Interest is payable semi-annually and commenced June 30, 1996.

         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.  As a result of  activating  certain  anti-dilution  provisions,  the
warrants  entitle  the  holder to  purchase  255,643  shares  of  Common  Stock,
exercisable  at $3.91 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.


                                      - 8 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS




         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  consisted
primarily of call traffic and trade equipment receivables and inventory, subject
to eligibility  requirements determined by Finova. Amounts loaned subject to the
borrowing base were determined by percentages established in the Loan Agreement.

         The initial term of the Loan  Agreement  was three years.  The Loan was
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).  On January 28, 1999, the Company
retired all of its obligations to Finova.

         On January 27, 1999, the Company  closed and commenced  funding under a
Receivable  Sale Agreement (the "RFC  Agreement")  with RFC Capital  Corporation
("RFC")  pursuant to which RFC has agreed to purchase  from the Company  certain
telecommunication receivables generated by the Company in the ordinary course of
the Company's  business.  The proceeds from the initial sale of receivables were
used to pay all of the Company's  obligations to Finova and for working  capital
purposes.  The RFC Agreement calls for RFC to purchase eligible receivables from
the Company  from time to time upon  presentation  thereof for a purchase  price
equal to the net value of such  receivables.  Net value is designed to yield RFC
an  effective  rate of prime plus  2.75% plus allow RFC to retain a holdback  of
5.00% in the face amount of the receivables, net of collections,  against future
collection risk.

         Under  the RFC  Agreement,  the  Company  performs  certain  servicing,
administrative and collection  functions with respect to the receivables sold to
RFC. Also,  pursuant to the terms of the RFC Agreement,  the Company has granted
to RFC a security  interest in and to the Company's  receivables not sold to RFC
and the  Company's  customer  base  relating to the  generation of such accounts
receivable.

         The initial term of the RFC Agreement is to December 21, 2000.

         On April 9, 1999 the  Company  was  granted  bridge  financing  of $1.0
million  by Banca  del  Gottardo  in  Lugano,  Switzerland  for the  purpose  of
satisfying all  obligations  to T.J.  Berthel  Investments.  The $1.0 million in
bridge  financing,  together  with an  additional  $1.0  million  to be used for
working  capital   purposes  was  refinanced  by  Banca  del  Gottardo  into  7%
convertible  long-term  notes due June 11,  2004.  The notes  were  issued  with
warrants  to  purchase  200,000  shares  at $1.55  per  share.  These  notes are
convertible into 1.3 million shares of the Company's Common Stock at a

                                      - 9 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS



price of $1.55 per share. In connection with issuing the notes,  the Company has
granted to Banca del  Gottardo a right of  prepayment  from the sale of all or a
portion of 50% of Intellicall's ownership of ILD.


NOTE 4 - INVENTORIES

         As of June 30, 1999 and December 31, 1998,  the Company's  inventories,
net of related reserves, consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                                  June 30,     December 31,
                                                   1999           1998
                                                  ---------    -----------
<S>                                              <C>           <C>
         Raw materials                           $   3,774     $    3,629
         Work-in-process                               525            428
         Finished goods                                772          1,120
                                                 ---------     ----------
              Total inventories, net             $   5,071     $    5,177
                                                 =========     ==========
</TABLE>


NOTE 5 - LITIGATION AND CONTINGENCIES
         From time to time,  the  Company is subject  to legal  proceedings  and
claims  in  the  ordinary  course  of  business,  including  claims  of  alleged
infringement of trademarks and other  intellectual  property rights. The Company
is not  currently  aware of any legal  proceedings  or claims  that the  Company
believes will have,  individually or in the aggregate, a material adverse effect
on the Company's financial position, results of operations or cash flows.


NOTE 6 - EQUITY FINANCING

         On July 21,  1997 (the  "Closing  Date")  the  Company  entered  into a
Securities Purchase Agreement (the "Purchase Agreement") with four institutional
investors (the "Investors") pursuant to which the Investors purchased $4,000,000
of the Company's 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,  1999,  all of the  Company's  Series  A  convertible
preferred  stock had been converted for 2.5 million shares of common stock.  The
Company  filed a  registration  statement  on the common  stock  underlying  the
conversion of the preferred stock on September 5, 1997.

                                     - 10 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS





NOTE 7 - SALE OF PREPAID SERVICES OPERATION

         On January 1, 1998 the Company sold its prepaid  services  operation to
ILD  Telecommunications,  Inc.  ("ILD") 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.  As of March 31, 1999,  ILD had agreed to payment
arrangements to satisfy the $1,000,000  promissory  note. 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 June 30, 1999, the Company had 967,000 of deferred gain.


NOTE 8 - SALE OF STOCK OF ILD

         On March 30, 1998,  the Company sold to SMCO,  LLP 18,348.62  shares of
ILD 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 $325.00 each and recorded a gain on the sale in the
amount  of  $5.6  million.  The  transaction  lowered  the  Company's  ownership
percentage to 42.9% as of March 31, 1998. Accordingly,  the Company accounts for
its  investment in ILD under the equity method of  accounting  retroactively  to
January 1, 1998.

         On  April  3,  1998 the  Company  sold  1,539  shares  of its  Series A
preferred stock in ILD to SMCO  Investments,  LLC. The  transaction  lowered the
Company's ownership percentage to 42.0% as of April 3, 1998.


NOTE 9 - BUSINESS SEGMENTS

         The Company has two reportable  segments,  services and equipment.  The
services segment provides billing and collection services to owners of payphones
who use the Company's  automated  operator  technology.  The  equipment  segment
manufactures and sells payphones, switches and related software.



                                     - 11 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS



         The accounting policies of the segments are the same as those described
in  Note  1,  Certain  Accounting   Policies.   The  Company  evaluates  segment
performance  based on  revenues,  gross  profit and net income  before taxes and
interest.

         Financial  information that is provided to the chief operating decision
maker  includes  revenues,  gross profit and net income.  Note that there are no
intersegment  revenues.  The Company's primary measure of profit, net income, is
that by  which  it  formulates  decisions  and  communicates  to  investors  and
analysts.  Gross profit data is provided for additional  information.  Financial
information  internally  reported for the quarters ended June 30, 1999 and 1998,
and the six months ended June 30, 1999 and 1998 is as follows (in thousands):


                                     - 12 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS






<TABLE>
<CAPTION>

                                                            QUARTER ENDED JUNE 30, 1999



                                      SERVICES         EQUIPMENT         SUBTOTAL         CORPORATE(4)         TOTAL
                                      --------         ---------         --------         ---------            -----

<S>           <C>                        <C>               <C>             <C>                 <C>            <C>
              REVENUES(1)                2,951             1,549           4,500                              4,500
                                         65.6%             34.4%           100.0%

             GROSS PROFIT                                                                                       (49)
                (LOSS)(2)                   55              (104)            (49)
                                         52.9%            100.0%             N/A

             NET  LOSS(3)                 (122)           (2,352)         (2,474)              (585)         (3,059)
                                          4.9%             95.1%          100.0%



<FN>
(1) Equipment revenues include international sales of $187.

(2) Percentage is determined based on the greater of the absolute amount of all
    segments  reporting a positive  gross  profit or all  segments  reporting a
    negative  gross  profit.  The absolute  amount of all segments  reporting a
    positive  gross  profit is $55,  while the  absolute  value of all segments
    reporting a negative gross profit is $104. Accordingly, the percentages are
    calculated based on a denominator of $104.

(3) Percentage is determined based on the greater of the absolute amount of all
    segments  reporting a profit or all segments reporting a loss. The absolute
    amount of all segments reporting a profit is zero, while the absolute value
    of all segments  reporting a loss is $2,474.  Accordingly,  the percentages
    are calculated based on a denominator of $2,474.

(4) Note that "corporate" is not a segment. As a consequence, percentage amounts
    are not calculated for "Corporate".
</FN>
</TABLE>

                                     - 13 -


<PAGE>


                                                    INTELLICALL, INC.

                                              NOTES TO FINANCIAL STATEMENTS







<TABLE>
<CAPTION>
                                                            QUARTER ENDED JUNE 30, 1998



                                      SERVICES         EQUIPMENT         SUBTOTAL         CORPORATE(4)         TOTAL
                                      --------         ---------         --------         ---------            -----

<S>           <C>                        <C>               <C>             <C>                   <C>          <C>
              REVENUES(1)                7,528             3,321           10,849                             10,849
                                         69.4%             30.6%           100.0%

          GROSS PROFIT(2)                  516               764            1,280                --            1,280
                                         40.3%             59.7%           100.0%
     NET INCOME (LOSS)(3)                  313            (1,552)          (1,239)               71           (1,168)
                                         20.2%            100.0%              N/A



<FN>
(1) Equipment revenues include international sales of $176.

(2) Percentage is determined based on the greater of the absolute amount of all
    segments  reporting a positive  gross  profit or all  segments  reporting a
    negative  gross  profit.  The absolute  amount of all segments  reporting a
    positive  gross profit is $1,280,  while the absolute value of all segments
    reporting a negative gross profit is zero. Accordingly, the percentages are
    calculated based on a denominator of $1,280.

(3) Percentage is determined based on the greater of the absolute amount of all
    segments  reporting a profit or all segments reporting a loss. The absolute
    amount of all segments reporting a profit is $313, while the absolute value
    of all segments  reporting a loss is $1,552.  Accordingly,  the percentages
    are calculated based on a denominator of $1,552.

(4) Note that "corporate" is not a segment. As a consequence, percentage amounts
    are not calculated for "Corporate".
</FN>
</TABLE>

                                     - 14 -


<PAGE>


                                                    INTELLICALL, INC.

                                              NOTES TO FINANCIAL STATEMENTS




<TABLE>
<CAPTION>
                                                            SIX MONTHS  ENDED JUNE 30, 1999



                                      SERVICES         EQUIPMENT         SUBTOTAL         CORPORATE(4)         TOTAL
                                      --------         ---------         --------         ---------            -----

              <S>                        <C>               <C>             <C>               <C>              <C>
              REVENUES(1)                6,109             6,380           12,489                             12,489
                                          48.9             51.1%           100.0%

             GROSS PROFIT
                (LOSS)(2)                 (55)               458              403                                403
                                        12.0%             100.0%              N/A

             NET  LOSS(3)                (373)            (3,573)          (3,946)           (1,342)          (5,288)
                                         9.5%              90.5%           100.0%



<FN>
(1) Equipment revenues include international sales of $202.

(2) Percentage is determined based on the greater of the absolute amount of all
    segments  reporting a positive  gross  profit or all  segments  reporting a
    negative  gross  profit.  The absolute  amount of all segments  reporting a
    positive  gross profit is $458,  while the  absolute  value of all segments
    reporting a negative gross profit is $55. Accordingly,  the percentages are
    calculated based on a denominator of $458.

(3) Percentage is determined based on the greater of the absolute amount of all
    segments  reporting a profit or all segments reporting a loss. The absolute
    amount of all segments reporting a profit is zero, while the absolute value
    of all segments  reporting a loss is $3,946.  Accordingly,  the percentages
    are calculated based on a denominator of $3,946.

(4) Note that "corporate" is not a segment. As a consequence, percentage amounts
    are not calculated for "Corporate".
</FN>
</TABLE>

                                     - 15 -


<PAGE>


                                INTELLICALL, INC.

                          NOTES TO FINANCIAL STATEMENTS







<TABLE>
<CAPTION>
                                                            SIX MONTHS ENDED JUNE 30, 1998



                                      SERVICES         EQUIPMENT         SUBTOTAL         CORPORATE(4)         TOTAL
                                      --------         ---------         --------         ---------            -----

<S>           <C>                       <C>                <C>             <C>                 <C>            <C>
              REVENUES(1)               13,147             7,583           20,730                             20,730
                                         63.4%             36.6%           100.0%

          GROSS PROFIT(2)                  865             1,514            2,379                 --           2,379
                                         36.4%             63.6%           100.0%
      NET PROFIT(LOSS)(3)                  459            (3,047)          (2,588)             5,938           3,350
                                         15.1%            100.0%              N/A


<FN>
(1)  Equipment revenues include international sales of $1,723.

(2)  Percentage is determined based on the greater of the absolute amount of all
     segments  reporting a positive  gross  profit or all  segments  reporting a
     negative  gross  profit.  The absolute  amount of all segments  reporting a
     positive  gross profit is $2,379,  while the absolute value of all segments
     reporting a negative gross profit is zero. Accordingly, the percentages are
     calculated based on a denominator of $2,379.

(3)  Percentage is determined based on the greater of the absolute amount of all
     segments  reporting a profit or all segments reporting a loss. The absolute
     amount of all segments reporting a profit is $459, while the absolute value
     of all segments  reporting a loss is $3,047.  Accordingly,  the percentages
     are calculated based on a denominator of $3,047.

(4)  Note that "corporate" is not a segment. As a consequence, percentage amounts
     are not calculated for "Corporate".
</FN>
</TABLE>





                                     - 16 -


<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,"  "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.

Year 2000 Discussion

         The Company has undertaken a program (the "Y2K Program") to ensure that
its  operations,  computer  systems and certain  products  are not  functionally
impaired as a result of a failure to properly  record in any  electronic  medium
the  correct  time and date on and after  January 1, 2000.  The Y2K Program is a
multi-year program which commenced in 1997.

         Responsibilities for achieving Y2K compliance have been assigned to two
groups of employees:  the Engineering  Group and the Information  Systems Group.
The  Engineering  Group is responsible  for ensuring that the  functionality  of
certain  of the  Company's  products  is not  impaired  as a result of being Y2K
non-compliant.  The  Information  Systems Group is responsible for assessing and
suitably  modifying or replacing  components of systems and networks used in the
Company's operations,  including those used to process customer call records, so
as to ensure that the  Company's  business  is not  materially  disrupted  by an
instance of Y2K non-compliance over which the Company had control.



                                     - 17 -


<PAGE>






         Engineering  Group Y2K  Program  Status.  The Company  issues  periodic
status  reports on its Web Page  concerning the products which will be certified
for Y2K operation. In general, products which are currently produced,  supported
or widely deployed will be certified.

         Conceptually,  the  certification  process  requires (a) the testing of
selected  existing  products in a simulated Y2K environment to determine whether
remediation  is required (the "Test  Phase"),  (b) the  development  of remedial
software  (the  "Programming   Phase"),   and  (c)  final  testing  and  product
certification  (the  "Final  Test  Phase").  Since the Test Phase  requires  the
development  of test plans and  scripts for a  multitude  of products  and their
components,  it is  necessarily a lengthy one. The Table below  summarizes,  for
each phase, the estimated  historical cost, the percentage of completion at June
30, 1999, estimated total costs and targeted completion dates.


<TABLE>
<CAPTION>
                                                                 Phase
                                              ----------------------------------------------
                                              Test            Programming         Final Test
                                              ----            -----------         ----------

<S>                                        <C>                   <C>             <C>
Estimated Cost to 6/30/99                  $  136,000            $  156,800      $    52,300
Percent Complete at 6/30/99                       94%                   98%              83%
Estimated Total Cost                       $  145,000              $160,000      $    63,000
Estimated Completion Date                        8/99                  8/99            10/99

</TABLE>
         Until the Test  Phase is  complete,  the  timing  and cost of  remedial
programming  can  not be  reliably  estimated.  Y2K  product  modifications  are
expected to be completed principally by Company personnel.

         There can be no assurance that tests and scripts devised by the Company
will detect all instances of Y2K  non-compliance,  or that the scope and cost of
work shown to be required upon completion of testing will be consistent with the
Company's current expectations,  or that appropriate personnel will be available
when required to make and test the modifications, or that upgraded software will
be installed in customer equipment on a timely basis.

         Information  Systems Group ("ISG") Y2K Program Status.  The ISG's areas
of  responsibility  include the evaluation and remediation  (or  replacement) of
information  technology  systems ("IT Systems") used by the Company,  and of the
Y2K readiness of the Company's key vendors.  Based upon its evaluation of the IT
system used to process  customer-submitted call traffic data (the "CTD System"),
the ISG has concluded  that the CTD System  requires a major rewrite and upgrade
to be made Y2K  compatible.  The CTD System upgrade is expected to be undertaken
by existing Intellicall personnel with the use of outside consultants as needed,
to be  completed  by the end of  1999.  The  phases,  estimated  historical  and
projected costs, estimated completion dates and percentages of completion of the
CTD System upgrade are set forth in the following table.

                                     - 18 -


<PAGE>





<TABLE>
<CAPTION>
                                                                        Phase
                                       ---------------------------------------------------------------
                                         System Design              Coding               System Test
                                         -------------              ------               -----------
<S>                                         <C>                     <C>                     <C>
Implementation
--------------
Estimated Cost to 6/30/99                   $  33,300                 51,760                       0
Percent Complete at 6/30/99                      100%                    23%                      0%
Estimated Total Cost                        $  33,300               $225,000                $ 25,000
Estimated Completion Date                        4/99                  10/99                   11/99

</TABLE>
         Estimates of work scope and projected costs may be imprecise,  as there
can be no  assurance  that the CTD System  upgrade  will be completed on time or
within  budget,  or that  it  will be  sufficiently  Y2K  compatible  to  permit
processing  of customer call traffic  without  material  business  disruption or
cost.

         The ISG has completed its  evaluation of IT Systems used by the Company
in  its   manufacturing,   accounting,   administration   and  human   resources
departments, and on the basis of letters of assurance obtained and expected from
third-party  vendors,  has  concluded  that the  Company's  accounting,  MRP and
payroll systems will  fundamentally be Y2K capable in 1999. Letters of assurance
have  been  requested  from  other  key  third-party  vendors  concerning  other
equipment and systems utilized by the Company,  including outside billing agents
used in the collection of customer call traffic  accounts  receivable.  However,
there can be no assurance  that the Company will receive  responses  from all of
its  vendors in a timely  manner,  or that such  responses  will be  accurate or
complete.  Moreover,  the  Company  has not  conducted,  and will be  unable  to
conduct,  an in-depth  evaluation of third-party  providers in relation to their
ability to adequately address Y2K issues.

         The ISG has inventoried all personal  computers and related servers and
software used by the Company. The inventory is largely complete, on the basis of
which,  the  Company  has  tentatively  adopted  a plan to  spend  approximately
$100,000 for replacements and upgrades of the inventoried equipment and software
to  achieve  Y2K  capability  and  otherwise  improved  performance.  Management
believes that the necessary replacements and upgrades can be obtained from third
parties on a timely basis.

         The   success  of   Intellicall's   business   is   dependent   on  and
interconnected with numerous third-party suppliers.  The depth and complexity of
interconnectivity  raises the  probability  that an  unforeseen  Y2K problem may
arise,  notwithstanding  the best  efforts of the Company and its  suppliers  to
avoid  one.  Consequently,   there  can  be  no  assurance  that  the  Company's
operations,  financial condition or prospects will not be materially impaired by
a non-compliant Y2K event over which it had no control.

         Y2K Risk  Assessment  and  Contingency  Plans.  Intellicall's  business
interruption  insurance  excludes coverage of losses resulting from Y2K defects,
and the  Company  has been  informed  by its  insurance  agent  that  reasonable
insurance protection is unavailable.  Most of the Company's software used in its
accounting,  human resources, payroll and production functions is purchased from
reliable  third-party vendors that have provided assurance of Y2K compatibility.
The planned  modifications  of product and most other  software  will be made by
company personnel in lieu of being outsourced.

                                     - 19 -


<PAGE>





On a  scale  of  difficulty,  such  modifications  are not  expected  to be more
challenging  than  other  software  modifications   routinely  made  by  Company
personnel in the ordinary conduct of their jobs.

         The Company views the inability of the CTD call processing  software to
properly edit decripted call records for  uncollectible  calls after 1999 as the
most probable Y2K worst case scenario.  Notwithstanding  the Company's effort to
rewrite the system by year end, 1999, the Company's contingency plan for the Y2K
problem  relating to the CTD system  includes  decripting  the  customer's  call
records and  submitting  them to third party billing  agents to collect the call
traffic  revenue for the  customer.  This  contingency  plan  essentially  moves
customers using the Easy*Star program to an Unbundled program.

         The Company has no other  contingency  plan at the present time for Y2K
problems that might emerge, but will continue to develop other plans as problems
become evident.  There can be no assurance,  however,  that any plan,  currently
developed or yet to be developed,  will be  sufficiently  timely or effective to
avoid a material disruption of Intellicall's or its customer's operations.


Recent Developments

         On April 9, 1999 the  Company  was  granted  bridge  financing  of $1.0
million  by Banca  del  Gottardo  in  Lugano,  Switzerland  for the  purpose  of
satisfying all  obligations  to T.J.  Berthel  Investments.  The $1.0 million in
bridge  financing,  together  with an  additional  $1.0  million  to be used for
working  capital   purposes  was  refinanced  by  Banca  del  Gottardo  into  7%
convertible  long-term  notes due June 11,  2004.  The notes  were  issued  with
warrants  to  purchase  200,000  shares  at $1.55  per  share.  These  notes are
convertible  into 1.3 million shares of the Company's Common Stock at a price of
$1.55 per share. In connection  with issuing the notes,  the Company has granted
to Banca del Gottardo a right of prepayment from the sale of all or a portion of
50% of Intellicall's ownership of ILD.

                                     - 20 -


<PAGE>





Financial Condition

Liquidity and Capital Resources

         During the six months  ended June 30, 1999 the Company  generated  $2.5
million  of cash from  operations  including  changes  in  operating  assets and
liabilities.

         Net changes in operating  assets and liabilities  during the six months
ended June 30,  1999  provided  a source of cash of $6.1  million.  The  primary
factors  affecting these changes were a decrease in accounts  receivable of $4.9
million and an increase in accounts payable of $1.1 million.

         Cash flows from investing  activities  include capital  expenditures of
$96,000 and expenditures for software and product development of $565,000.

         Cash flows from financing  activities  include a $2.8 million repayment
on the line of credit from  Finova,  a $1.0  million  repayment on the note from
T.J.  Berthel  Investments,  L.P.,  and the issuance of $2.0 million in Notes to
Banca Del Gottardo.

         On January 27, 1999, the Company  closed and commenced  funding under a
Receivable  Sale Agreement (the "RFC  Agreement")  with RFC Capital  Corporation
("RFC")  pursuant to which RFC has agreed to purchase  from the Company  certain
telecommunication receivables generated by the Company in the ordinary course of
the Company's  business.  The proceeds from the initial sale of receivables were
used to pay all of the Company's  obligations to Finova and for working  capital
purposes.  The RFC Agreement calls for RFC to purchase eligible receivables from
the Company  from time to time upon  presentation  thereof for a purchase  price
equal to the net value of such  receivables.  Net value is designed to yield RFC
an  effective  rate of prime plus  2.75% plus allow RFC to retain a holdback  of
5.00% in the face amount of the receivables, net of collections,  against future
collection risk.

         Under  the  RFC  Agreement  the  Company  performs  certain  servicing,
administrative and collection  functions with respect to the receivables sold to
RFC. Also,  pursuant to the terms of the RFC Agreement,  the Company has granted
to RFC a security  interest in and to the Company's  receivables not sold to RFC
and the  Company's  customer  base  relating to the  generation of such accounts
receivables.

         The initial term of the RFC Agreement is to December 21, 2000.

         In and beyond 1999, the Company's  ability to obtain further funds from
external  sources  will  depend in part on its  ability  to  generate  operating
profits, or to substantially reduce its operating losses. Although management of
the Company  believes that the Company's sales will grow during the remainder of
1999 and that  profitability  will improve with sales, there can be no assurance
that the events  necessary for such sales growth will occur as or when expected,
or that future sales growth will be  sufficiently  large or profitable to permit
the Company to finance its activities without recourse to

                                     - 21 -


<PAGE>





continuing  sales  of  assets  or  external  funding  sources.  There  can be no
assurance that under such  conditions,  external funds would be available or, if
available, would not potentially dilute shareholders' interests or returns.


Results of Operations

         Service  Revenues.  Service  revenues for the second quarter ended June
30, 1999 were $3.0 million compared to $7.5 million for the same period in 1998.
For the six month period ended June 30, 1999, service revenues were $6.1 million
compared to $13.1 million for the six months ended June 30, 1998.

Of the $4.5  million  and $7.0  million  decrease  in service  revenues  for the
quarter ended and six months ended June 30, 1999, respectively, $3.0 million and
$4.3 million,  respectively,  was due to the loss of several large customers who
had been using the Intellistar  service and now have billing  arrangements  with
other service  providers.  The remaining  decline,  $1.5 million for the quarter
ended June 30, 1999 and $2.7  million  decline for the six months ended June 30,
1999 is a result  of  dial-around.  Dial-around  is the  increasingly  prevalent
practice by users of accessing alternative operator service systems, placing 800
calls or using prepaid calling cards when using public payphones.

         Equipment Sales.  Equipment sales for the second quarter ended June 30,
1999 were $1.5  million  compared to $3.3 million for the same period last year.
For the six month  period  ended  June 30,  1999  equipment  revenues  were $6.4
million compared to $7.6 million for the same period last year.
The following table analyzes sales by market (in thousands):

<TABLE>
<CAPTION>
                                         Three months ended          Six months ended
                                       June 30,      June 30,       June 30,     June 30,
                                         1999         1998           1999          1998
                                     -----------    -----------    ----------    ---------

<S>                                 <C>             <C>            <C>           <C>
Domestic                            $      1,362    $     3,145    $    6,178    $    5,860
International                                187            176          202          1,723
                                     -----------    -----------    ----------    ----------
    Total Equipment Sales           $      1,549    $     3,321    $    6,380    $    7,583
                                     ===========    ===========    ==========    ==========
</TABLE>
The  decrease  in  domestic  sales for the  quarter  ended June 30,  1999 is due
primarily to less than expected  shipments into the newly  deregulated  Canadian
market,  which was affected by a labor strike of Bell Canada telephone  workers.
The  increase  in domestic  sales for the six months  ended June 30, 1999 is due
primarily to shipments  into the newly  deregulated  Canadian  market during the
first  quarter of 1999.  International  sales saw a decrease of $1.5 million for
the six months ended June 30, 1999 when compared to last year,  primarily due to
less than  anticipated  switch sales. It is believed that the weak Asian economy
adversely impacted anticipated sales into the region.



                                     - 22 -


<PAGE>





         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  were $1.8 million for the quarter  ended June 30, 1999
compared to $2.2 million for the same period last year. For the six months ended
June 30, 1999  selling,  general and  administrative  expenses were $3.8 million
compared to $4.3  million for the same  period last year.  Selling,  general and
administrative expenses declined $500,000 for the six months ended June 30, 1999
compared to the same period last year  primarily  due to cost  cutting  measures
undertaken by the Company.

         Research  and  Development  Expenses.  Gross  spending for research and
development  increased  $13,000 for the quarter  ended June 30, 1999 compared to
last year and decreased  $58,000 for the six months ended June 30, 1999.  During
the  quarters  ended June 30,  1999 and June 30,  1998 the  Company  capitalized
$250,000 of software development costs.

         Provision for Doubtful  Accounts.  The provision for doubtful  accounts
decreased  $58,000  for the six months  ended June 30,  1999.  The  decrease  is
primarily  due to increased  efforts to collect aged accounts  receivable  which
were previously reserved for.

         Gain on Sale of Assets.  During the second  quarter ended June 30, 1998
the  Company  reported a gain on sale of assets of  $493,000  from the sale of a
portion of the Company's  ownership  interest in ILD to an unrelated third party
(see Note 8).

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.




                                     - 23 -


<PAGE>





Part II. Other Information



Item 4.  Submission of Matters to a Vote of Security Holders.

         On May 6, 1999 the Company held its annual meeting of  stockholders  in
Dallas,  Texas. At the meeting  stockholders  elected directors and ratified the
appointment of PriceWaterhouseCoopers  LLP as independent public accountants for
the Company.

         Set forth below are the results of the meeting:

(1)      Election of Directors
         ---------------------

<TABLE>
<CAPTION>
                Name                            For             Against              Withheld
                ----                            ---             -------              --------

<S>                                          <C>               <C>                      <C>
         B. Michael Adler                    7,813,067         2,262,670                --
         Thomas J. Berthel                   8,120,302         1,955,435                --
         Lewis E. Brazelton III              9,982,539            93,198                --
         Arthur Chavoya                      9,957,042           118,695                --
         Richard B. Curran                   9,957,039           118,698                --
         William O. Hunt                     9,873,507           202,230                --
         John J. McDonald                    9,440,135           635,602                --
</TABLE>
(2)      Ratification of Auditors
         ------------------------

         For                9,977,427

         Against               17,947

         Withheld              80,363


Item 5.  Other Information

         On June 11, 1999 the Company completed the sale of $2.0 million of 7.0%
convertible  subordinated  notes,  due June 11,  2004,  to Banca del Gottardo in
Lugano,  Switzerland.  The net proceeds  from the sale of the notes were used to
repay  indebtedness  ($1,000,000) with the balance utilized for working capital.
The notes were issued with warrants to purchase  200,000 shares of the Company's
Common Stock at $1.55 per share. The notes are convertible into 1,290,323 shares
of the Company's Common Stock at a price of $1.55 per share. Interest is payable
semi-annually beginning December 1999.


                                     - 24 -


<PAGE>






Item 6.   Exhibits and Reports on Form 8-K

         (a)      The following exhibits are filed as a part of this Quarterly
                  Report on Form 10-Q.

                  *10.1  Note and Warrant Purchase, Paying and
                         Conversion/Exercise Agency Agreement executed with
                         Banca del Gottardo.
                   10.2  Form of 7%  Convertible  Subordinated  Notes  (included
                         within Exhibit 10.2). 10.3 Form of Warrants issued with
                         Notes (included within Exhibit 10.2).
                   10.3  Form of Warrants issued with Notes (included within
                         Exhibit 10.2).

                   *      Filed herewith

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





                                     - 25 -


<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/ R. Phillip Boyd
                           -----------------------------------------------------
                                          R. Phillip Boyd
                                          Vice President Finance
                                          and Chief Financial Officer


Date:   August 16, 1999

                                     - 26 -