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



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


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

                For the quarterly period ended September 30, 1996

                                       OR

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

                           Commission File No. 1-10588


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

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

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

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


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

         Yes   X                                                 No

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

                                                             Outstanding at
          Class                                              November 7,1996
Common Stock $.01 par value                                     8,611,443
------------------------------------------------------------------------------




<PAGE>



INDEX

INTELLICALL, INC.

Part I.   Financial Information

 Item 1.  Financial Statements

          Consolidated Balance Sheets at September 30, 1996
          (Unaudited) and December 31, 1995..................................1

          Consolidated  Statements of  Operations  for each of the three
          month periods ended September 30, 1996 and 1995
          (Unaudited)........................................................2

          Consolidated  Statements  of  Operations  for each of the nine
          month periods ended September 30, 1996 and 1995
          (Unaudited)........................................................3

          Consolidated  Statements  of Cash  Flows  for each of the nine
          month periods ended September 30, 1996 and 1995
          (Unaudited)........................................................4

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

 Item 2.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations.............................................10

Part II.  Other Information

 Item 6.  Exhibits and Reports on Form 8-K..................................13


Signatures..................................................................14











<PAGE>



Part I.  Financial Information
     Item 1.  Financial Statements
<TABLE>
<CAPTION>
INTELLICALL, INC.
       CONSOLIDATED BALANCE SHEETS (UNAUDITED)
       (in thousands, except share information)

                                                          September 30, 1996            December 31, 1995
                                                          -----------------            -----------------
                                                        
<S>                                                           <C>                               <C>
ASSETS
Current assets:
      Restricted cash                                          $        11                    $     492
      Cash and cash equivalents                                      2,001                          613
      Receivables, net                                              23,987                       23,008
      Receivables from related party                                   272                          272
      Inventories                                                    8,210                       11,939
      Other current assets                                           1,363                          587
                                                                  --------                     --------

      Total current assets                                          35,844                       36,911

Fixed assets, net                                                    1,942                        2,089
License fees receivable                                                 --                          253
Investment in sales-type leases                                         --                           96
Notes receivable, net                                                1,589                        2,695
Intangible assets, net                                                 951                        1,018
Capitalized software costs, net                                      4,848                        4,352
Other assets                                                         1,727                        1,230
                                                                  --------                     --------
                                                                 $  46,901                     $ 48,644
                                                                 =========                     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable                                           $   9,533                    $   6,406
      Other liabilities                                              2,245                        2,725
      Current portion of long-term debt                             12,675                       15,474
                                                                   -------                      -------

      Total current liabilities                                     24,453                       24,605

Long-term debt                                                      10,214                        8,620
Deferred revenue                                                     1,597                        1,976
Other liabilities                                                      200                          200
Minority interest                                                       99                           --

Stockholders' equity:
  Preferred stock, $.01 par value; 1,000,000
      shares authorized; none issued                                    --                           --
  Common stock, $.01 par value; 20,000,000
      shares authorized; 8,126,828 and 7,702,951
      shares issued, respectively                                       81                           77
  Additional capital                                                48,864                       47,191
  Less common stock in treasury, at cost;
      24,908 shares                                                   (258)                        (258)
  Accumulated deficit                                              (38,349)                     (33,767)
                                                                  --------                     --------
      Total stockholders' equity                                    10,338                       13,243
                                                                  --------                     --------
                                                                 $  46,901                    $  48,644
                                                                 =========                    =========

See notes to consolidated financial statements.
</TABLE>


                                      - 1 -

<PAGE>



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

                                                      Three Months Ended
                                                         September 30,
                                                  1996                  1995
                                                  ----                  ----
<S>                                           <C>                     <C>   
Revenues and Sales:
         Service revenues                     $  23,373               $ 15,126
         Equipment sales                          2,899                  4,105
                                              ---------              ---------
                                                 26,272                 19,231

Cost of revenues and sales:
         Service revenues                        20,898                 12,553
         Equipment sales                          5,956                  4,518
                                              ---------              ---------
                                                 26,854                 17,071

Gross profit
         Service revenues                         2,475                  2,573
         Equipment sales                         (3,057)                  (413)
                                              ---------              ---------
                                                   (582)                 2,160

Selling, general and administrative expenses      2,832                  2,407
Research and development expenses                   151                    793
Provision for doubtful accounts                      80                    196
                                             ----------              ---------
                                                  3,063                  3,396


Operating loss                                   (3,645)                (1,236)

Interest income                                     365                    112
Interest expense                                   (768)                  (734)

Minority interest                                   (70)                    --
                                              ---------              ---------
Loss before income taxes                         (4,118)                (1,858)
Income tax refund                                 1,303                     --
                                              ---------              ---------

Net loss                                      $  (2,815)             $  (1,858)
                                              =========              =========

Net loss per share                            $    (.35)             $    (.24)
                                              =========              =========

Weighted average number of common and common
equivalent shares outstanding                     8,102                  7,677
                                              =========             ==========


See notes to consolidated financial statements.
</TABLE>










                                      - 2 -

<PAGE>



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


                                                      Nine Months Ended
                                                        September 30,
                                                  1996                 1995
                                                  ----                 ----
<S>                                            <C>                  <C>  
Revenues and Sales:
         Service revenues                      $ 56,144             $ 42,541
         Equipment sales                         10,878               16,135
                                               --------             --------
                                                 67,022               58,676

Cost of revenues and sales:
         Service revenues                        49,610               35,270
         Equipment sales                         13,312               15,416
                                               --------             --------
                                                 62,922               50,686

Gross profit
         Service revenues                         6,534                7,271
         Equipment sales                         (2,434)                 719
                                               --------             --------
                                                  4,100                7,990

Selling, general and administrative expenses      8,056                6,966
Research and development expenses                   473                1,850
Provision for doubtful accounts                     242                  582
                                               --------             --------
                                                  8,771                9,398


Operating loss                                   (4,671)              (1,408)

Gain on sale of assets                              572                1,607
Interest income                                     607                  364
Interest expense                                 (2,294)              (2,563)

Minority interest                                   (99)                 --
                                               --------            --------
Loss before income taxes                         (5,885)             (2,000)
Income tax refund                                 1,303                  --
                                               --------            --------

Net loss                                      $  (4,582)           $ (2,000)
                                              =========            ========

Net loss per share                            $    (.58)           $   (.26)
                                              ---------            --------

Weighted average number of common and common
equivalent shares outstanding                    7,877                7,669
                                              ========             ========


See notes to consolidated financial statements.
</TABLE>


                                      - 3 -

<PAGE>


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




                                                                              Nine Months Ended
                                                                                September 30,
                                                                           1996               1995
                                                                           ----               ----
<S>                                                                    <C>               <C>   
Operating Activities:
    Net loss                                                           $ (4,582)         $ (2,000)

    Adjustments  to  reconcile  net loss to net cash
      provided by operating activities:
      Depreciation and amortization                                       2,865             2,837
      Provision for doubtful accounts                                       242               582
      Provision for inventory                                             2,754                54
      Minority interest in income of subsidiary                              99                --

      Changes in operating assets and liabilities:
         Decrease (increase) in restricted cash                             481              (764)
         (Increase) in receivables                                       (2,687)             (156)
         Decrease (increase) in inventories                                 975              (945)
         (Increase) in other current assets                                (900)             (226)
         Decrease in license fee receivable                                 584             1,974
         Decrease in investment in sales type leases                        498             1,897
         Decrease in related party receivable                                --               526
         Decrease in notes receivable                                     1,425               829
         Increase in accounts payable                                     3,126               479
         (Decrease) in accrued liabilities                                 (480)              (26)
         (Decrease) increase in deferred revenues                          (379)            2,136
         (Decrease) increase in other                                      (890)              306
                                                                       --------          --------

Net cash provided by operating activities                              $  3,131          $  7,503






Continued on next page
</TABLE>


                                      - 4 -

<PAGE>


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



                                                                             Nine Months Ended
                                                                               September 30,
                                                                          1996               1995
                                                                          ----               ----
<S>                                                                   <C>                 <C>  
Investing activities:
         Purchase of equipment                                             (554)              (798)
         Capitalized software                                            (1,650)            (1,850)
                                                                       --------            -------

Net cash used in investing activities                                    (2,204)            (2,648)

Financing activities:
         Proceeds from borrowings on long-term debt                       3,400              1,660
         Issuance of warrant                                                100                 --
         Principal payments on long-term debt                            (3,417)            (6,600)
         Proceeds from issuance of stock                                    378                 60
                                                                       --------            -------

Net cash provided by (used in) financing activities                         461             (4,880)

Net increase (decrease) in cash and cash equivalents                      1,388                (25)
Cash and cash equivalents at beginning of period                            613                808
                                                                       --------            -------

Cash and cash equivalents at end of period                             $  2,001            $   783
                                                                       ========            =======

Supplemental cash flow information:
         Interest paid                                                 $  1,691            $ 2,277
                                                                       ========            =======

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




See notes to consolidated financial statements.
</TABLE>



                                      - 5 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


0

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, all adjustments  necessary for a
fair  presentation  of the results of operations for the periods shown have been
made and are of a normal and recurring nature.

     The results of operations for the nine months ended  September 30, 1996 are
not necessarily  indicative of the results of operations for the full year 1996.
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, 1995.

     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 three years.

     The amounts of software  development costs capitalized in the third quarter
of both 1996 and 1995 were $550,000.  The Company recorded $388,000 and $217,000
of software  amortization  expense for the three months ended September 30, 1996
and 1995, respectively.

     For the nine months ended  September 30, 1996 and 1995,  respectively,  the
Company capitalized $1,650,000 and $1,850,000. The software amortization expense
recorded was  $1,154,000  and $529,000 for the nine months ended  September  30,
1996 and 1995, respectively.

     Restricted  Cash.  Certain  cash  accounts  serve as  collateral  under the
Company's  Series A Notes as discussed in Note 2 to the  Consolidated  Financial
Statements and, accordingly, are shown as restricted.

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

     Other.  The allowance  for doubtful  accounts was $3.8 million at September
30, 1996, and $3.3 million at December 31, 1995.



                                      - 6 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 2 - LONG-TERM DEBT AND LINE OF CREDIT

     As of  September  30,  1996 and  December  31,  1995,  the  Company's  debt
consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                               September 30,         December 31,
                                                                                   1996                  1995
                                                                                   ----                  ----
<S>                                                                             <C>                    <C>
Intellicall, Inc.
         Variable rate senior bridge notes due 1996, Series A                   $  12,675              $  15,375
         8% Convertible subordinated notes, due 2000                                6,300                  7,500
         Note collateralized by certain leases                                         --                    219
         Convertible subordinated note, due 1999                                    1,000                  1,000
                                                                                 --------               --------
                                                                                   19,975                 24,094
ILD Communications, Inc.
         Senior secured debt, due 1999                                              2,000                     --
         Convertible subordinated notes, due 2001                                   1,000                     --
         Debt discount                                                                (86)                    --
                                                                                 --------               --------
                                                                                    2,914                     --

              Total debt                                                           22,889                 24,094

         Less: Current portion of long-term debt                                  (12,675)               (15,474)
                                                                                 --------               --------
              Total long-term debt                                               $ 10,214               $  8,620
                                                                                 ========               ========
</TABLE>

     On August 11, 1994 the Company issued its Variable Rate Senior Bridge Notes
Due 1996,  Series A ("Series A Notes") and 12.5%  Senior  Bridge Notes Due 1996,
Series B ("Series B Notes")  to Nomura  Holding  America  Inc.  ("Nomura").  The
Series B Notes were repaid in full in 1995 and may not be re-issued. The Company
issued a  warrant  which  entitles  Nomura  to  purchase  551,954  shares of the
Company's common stock,  $.01 par value at $3.50 per share (the "Common Stock").
The notes are secured by collateral  comprising  substantially all the assets of
the Company.

     Interest on the Series A Notes accrued monthly at a rate of prime plus 2.0%
through  December 31, 1995 (10.75% at December 31,  1995),  and accrued at prime
plus 3.0% through  August 11, 1996.  Subsequent to August 11, 1996, the Series A
Notes  accrue  interest  at a rate of prime plus  5.0%.  The Series A Notes were
scheduled to mature on August 11, 1996. Nomura has extended the maturity date to
December  11,  1996.  Interest on the Series A Notes is payable  quarterly.  The
Series A Notes may be issued from time to time  provided  the  aggregate  amount
outstanding does not exceed $12.73 million.

     The note agreement with Nomura  requires the Company to comply with certain
debt covenants. Such covenants require the Company to maintain certain financial
ratios and prohibit the payment of dividends.  As of September 30, 1996,  Nomura
waived the Company's non-compliance with certain covenants.


                                      - 7 -

<PAGE>


                                INTELLICALL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





     The Company is obligated to repay or refinance  the Series A Notes by their
extended  maturity on December 11, 1996.  Management  is currently  completing a
loan from an  asset-based  lender  collateralized  by certain  of the  Company's
assets.  As of the date of this report,  documentation  is in preparation  for a
loan and security agreement and revolving credit note with a total commitment of
up to $12.0  million.  Availability  under  the  revolving  credit  note will be
limited to a formula  amount  based  generally  upon the level of the  Company's
eligible accounts receivable and inventory. The loan and security agreement will
contain  provisions  that  prohibit  the  payment of  dividends  and require the
Company to maintain minimum levels of financial ratios.

     The  Company  has also  received a  commitment  from Banca del  Gottardo in
Lugano, Switzerland to sell $5.0 million of 8.0% convertible subordinated notes,
due  November  22,  2001 with the  proceeds to be used to repay a portion of the
Nomura  Series A Notes,  and for  working  capital  purposes.  The notes will be
issued with warrants to purchase  200,000 shares of the Company's  Common Stock.
The conversion  price of the notes,  and the exercise price of the warrants will
be fixed on  December  18,  1996 at a price  equivalent  to the  average  of the
closing  prices of the  Company's  Common  Stock on the New York Stock  Exchange
during the period from  November 4 to  December  18, 1996 but shall in any event
not be higher than $5.00 per share.

     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 Series B Notes and for
working  capital  purposes.  The notes were  issued  with  warrants  to purchase
300,000 shares of the Company's  Common Stock.  The notes are  convertible  into
1,785,714 shares of the Company's Common Stock at a price of $4.20 per share. As
of  September  30, 1996,  $1.2 million of the Banca Del Gottardo  Notes were
converted to 285,710 shares of the Company's  Common Stock.  On October 28, 1996
an additional  $2.1 million of the Notes were  converted  into 500,000 shares of
the  Company's  common  stock and on November 7, 1996  $40,000 of the Notes were
converted to 9,523 shares.

     On  May  10,  1996  a  majority-owned  subsidiary  of  the  Company,  ILD
Communications,  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.



                                      - 8 -

<PAGE>




     On May 10,  1996,  ILD issued  Secured  Promissory  Notes in the  aggregate
principal amount of $2.0 million 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 $1.5  million  with a
warrant  to  purchase  5,429  shares of common  stock 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 April 31, 1999 and bear interest at 13.5% annually.

NOTE 3 - INVENTORY

     As of September  30, 1996 and December 31, 1995,  the  Company's  inventory
consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                            September 30,      December 31,
                                                1996               1995
                                                ----               ----
              <S>                           <C>                 <C>   
              Raw materials                 $   3,978           $   6,083
              Work-in-process                     800                 898
              Finished goods                    3,432               4,958
                                             --------            --------
              Total inventory               $   8,210           $  11,939
                                            =========           =========
</TABLE>

NOTE 4 - LITIGATION

     The  Company is subject to various  legal  proceedings  arising  out of the
conduct of its business. It is the opinion of the management of the Company that
the ultimate  disposition of these  proceedings will not have a material adverse
effect  on the  Company's  financial  condition,  cash  flows,  and  results  of
operations.

NOTE 5 - CREATION OF ILD COMMUNICATIONS, INC.

     On May 10,  1996,  the  Company  entered  into an  agreement  with  certain
investor groups to create ILD, a new long-distance re-sale and operator services
company.  The Company  transferred  ownership  in its wholly  owned  subsidiary,
Intellicall Operator Services,  Inc. ("IOS"), to ILD in exchange for cash in the
amount of $2.0  million,  a $1.0  million  subordinated  convertible  note,  and
preferred and common stock representing  approximately 72.5% of the voting stock
of ILD. The other investor groups collectively  purchased $2.0 million, or 27.5%
of the voting stock of ILD, and $1.0 million of ILD's  subordinated  convertible
notes.  ILD also has a secured loan in the amount of $2.0  million.  The Company
recorded a $572,000 gain from the transaction.





                                     - 9 -
<PAGE>



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

Creation of ILD Communications, Inc.

     See Note 2 and Note 5 to the Consolidated Financial Statements.

Financial Condition

Liquidity and Capital Resources.  

     During the nine months  ended  September  30, 1996,  the Company  generated
$3,131,000 of cash from  operations and invested  $554,000 in capital  equipment
and  $1,650,000 in software  development.  The Company  repaid long term debt to
Nomura of $3.2 million and $219,000 to Norwest.  In connection with the creation
of ILD Communications,  ILD received $2.0 million for 27.5% of its common stock,
borrowed  $2.0 million from a secured  lender,  and issued notes  totaling  $1.0
million to the 27.5%  shareholders  of ILD. Cash accounts of the Company and ILD
are  segregated  and neither  company may use the other's cash  balances for any
purposes.  The Company believes that the refinancing of its long-term debt, more
fully described in Note 2 and Note 6 to the Consolidated  Financial  Statements,
combined with cash flow from operations, will enable the Company to maintain its
level of operations for the foreseeable future.

Results of Operations

     Service Revenues. Service revenues were $23.4 million for the third quarter
ended  September  30, 1996  compared to $15.1  million for the third  quarter in
1995. For the nine month period ended September 30, 1996,  service revenues were
$56.1 million  compared to $42.5 million for the nine months ended September 30,
1995. The table below provides a detailed  analysis of service  revenues by type
for the three and nine month periods ended September 30, 1996 and 1995.

<TABLE>
<CAPTION>
                                            Three Months Ended                               Nine Months Ended
                             --------------------------------------------------------------------------------------------------
                                   September 30,           September 30,           September 30,            September 30,
                                       1996                    1995                     1996                    1995
                                       ----                    ----                     ----                    ----
<S>                                   <C>                     <C>                     <C>                      <C>   
Call Traffic Revenue                  $13,837                 $11,144                  $33,661                 $31,819

Long-distance Resale                    1,757                   1,067                    3,885                   2,714

Validation Services                       108                     582                      283                   2,485

Operator Services                       6,821                   1,925                   15,692                   4,845

Prepaid Calling Services                  850                     408                    2,623                     678
                                     --------                --------                 --------               ---------

Total Service Revenues                $23,373                 $15,126                  $56,144                 $42,541
                                      =======                 =======                  =======                 =======
</TABLE>




                                     - 10 -

<PAGE>



     Call traffic revenue  increased $2.7 million and $1.8 million for the three
and nine months  ended  September  30, 1996 from their  comparative  periods in
1995.  Revenues  results  reflect the  overall  increase in the number of phones
generating traffic, especially in the prison sector,  offset by a decline in the
average number of telephone calls per phone.  Also, 1996 traffic continues to be
impacted by the incidence of dial-around.

     Long-distance  revenues increased $690,000 and $1,171,000 for the three and
nine months  ended  September  30, 1996 as compared to the three and nine months
ended September 30, 1995. The higher revenues  resulted from continued growth in
the number of customers buying long-distance services from the Company.

     Prepaid calling revenues were $442,000 and $1,945,000  higher for the three
and nine months  ended  September  30,  1996 as compared to the same  periods in
1995.  The  principal  reasons for the  increases for both time periods were the
additional sales of prepaid cards in retail  environments,  such as direct sales
by grocery store and convenience store chains.

     Validation  service  revenues for the nine months ended  September 30, 1996
were  $2,202,000  lower than the  comparative  nine months in 1995. Such decline
resulted from the sale of the validation assets in June of 1995.

     Operator   services   revenues   reflect  the  largest  increase  from  the
comparative three and nine month periods in 1995. Revenues increased  $4,896,000
and $10,847,000,  respectively for those periods. The addition of a new customer
in April of 1996 resulted in additional revenue of $2,475,000 and $4,889,000 for
the three and nine  months  ended  September  30,  1996.  On April 1, 1996,  the
Company entered into a new operating  arrangement  with its third party operator
service  provider.  The new agreement  gives the Company  greater control of its
customer  base,  and  contractually  changes  the  methods by which the  Company
receives  payment for call  traffic and  services  rendered.  Historically,  the
Company  recorded revenue net of amounts withheld by the service provider as the
operating  contract  provided  for the Company to receive a  commission  on call
traffic. Based on the terms of the new contract, beginning in April of 1996, the
Company began recording  operator services call traffic at its gross amount, and
recording the costs for services provided as cost of sales. The Company believes
the new contractual arrangements warrant the presentation of revenues as a gross
amount.  The  revenue  effect of the change on the three and nine  months  ended
September 30, 1996 was $1.5 million and $2.8 millon respectively.

     Gross  profit from  service  revenues  was $2.5 million or 10.6% of related
sales and $6.5  million or 11.6% of related  sales for the three and nine months
ended  September  30, 1996 as compared to $2.6 million or 17.0% of related sales
and $7.3 million or 17.1% of related sales for the comparable 1995 periods.  The
change in the arrangement for operator services accounts described above for the
decreased gross margin percentages.

                                     - 11 -
<PAGE>

     Equipment Sales.  Revenues from equipment sales were $2.9 million and $10.9
million for the three and nine months  ended  September  30, 1996 as compared to
$4.1 million and $16.1 million for the three and nine months ended September 30,
1995. The decline in sales was  attributable to several  factors.  The Company's
sales were  adversely  affected by unusually  harsh winter  weather in the first
quarter  and  continued  to  be  depressed  by  uncertainty   regarding  pending
regulations to be issued by the Federal  Communications  Commission  (FCC) which
would affect payphone  owners.  Late in the third quarter,  the FCC released new
rules requiring increased payment by interexchange  carriers to private payphone
owners of dial-around  compensation at the rate of approximately  $40 per phone
per month. These increased payment  obligations begin to accrue in November 1996
with payments beginning in April 1997.

     Sales of equipment to  international  and Regulated  Telco customers in the
third  quarter and nine month 1996  periods  have been lower than in  comparable
1995  periods due to reduced  demand  from a large  international  customer  for
payphones and reduced demand from the Regulated Telco segment.

     In the quarter ended September 30, 1996 and the nine months then ended, the
Company  recorded a negative  gross  profit of $3.1  million  and $2.4  million,
respectively.  These losses are attributable in part to a $2.7 million provision
for slow moving and obsolete  inventories recorded in the third quarter of 1996.
The Company has experienced  weak demand for domestic phone products  throughout
1996, and the lack of improved demand for its  international and Regulated Telco
products.  The pattern of weak demand in the context of the Company's relatively
high  level of  inventory,  and the  October  1996  introduction  of a major new
product  will make it  necessary  for the  Company  to reduce  prices of certain
inventory  items below their carrying value in order to sell them.  Accordingly,
the  Company  increased  inventory  reserves by $2.7  million,  the loss that is
estimated to result from such aggregate price reduction.

     In 1996, the Company's  variable costs and mix of products sold contributed
to an improvement in the Company's gross margins from equipment sales.  However,
this  improvement  has been offset by decreased  selling prices and a decline in
the volume of units sold.  The  reduction  in volume of units sold  requires the
Company to  allocate  fixed  manufacturing  costs over a fewer  number of units.
These factors have led to an inability by the Company to achieve  improvement in
gross  margins  on  equipment  sales.   Even  so,  gross  margins,   before  the
establishment  of the $2.7  million  inventory  provision,  showed  only  slight
deterioration in the third quarter  comparison.  Compared with the quarter ended
September 30, 1995,  the  Company's  loss at the gross profit level had narrowed
from $413,000 in 1995 on $4.1 million in equipment  sales to $357,000 in 1996 on
sales of $2.9 million.

     In the nine month  periods  before  the $2.7  million  provision  discussed
above,  the Company's 1996 gross profit was $266,000 on equipment sales of $10.9
million compared with $719,000 on sales of $16.1 million for 1995. The principal
factors affecting the change in gross profit for the nine month periods were, in
order of  significance,  the decline in sales volume,  change in mix of products
sold and the 1996 decline in variable costs of products sold.


                                     - 12 -

<PAGE>


     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  increased  $309,000 and $1.1 million for the three and
nine months ended  September 30, 1996 compared to the same periods in 1995.  Due
to a reorganization of the Company's engineering  department at the beginning of
1996,  employees  who were  formally  and  principally  engaged  in new  product
development  were  reassigned to application  engineering  and customer  support
functions,  giving rise to a reclassification  of expenses associated with these
employees.  The effect of this change  increases  selling  expense and decreases
research and development  expense by $476,000 and $1.2 million for the three and
nine months ended September 30, 1996,  respectively,  as compared to the amounts
that  would  have  been  reported  had this  reorganization  of the  engineering
department not taken place.

     Research  and  Development  Expenses.   Gross  spending  for  research  and
development  decreased  $642,000  and $1.4 million for the three and nine months
ended  September  30, 1996 as  compared  to the same period in 1995.  During the
first nine months of 1996, the Company capitalized software development costs of
$1,650,000 as compared to  $1,850,0900  in the first nine months of 1995.  Also,
spending increased in travel and prototype development.

     Provision for Doubtful  Accounts.  The provision for doubtful  accounts was
$80,000 and $242,000 for the three and nine months ended  September  30, 1996 as
compared to $196,000 and $582,000 for the three and nine months ended  September
30, 1996.

     Income Tax Refund. In September 1996, the Company received a federal income
tax refund in the amount of $1.3 million and  approximately  $259,000 of related
interest earned on the claim.  The income tax refund related to years beyond the
statutory  carryback  period but were allowed due to special  provisions  of the
U.S. Internal Revenue Code.  Amended income tax returns were originally filed in
August  1995.  The  Company  did not record the income tax  benefit  and related
interest income until the refund was received.

Part II.  Other Information

Item 6.    Exhibits and Reports on Form 8-K

     (a)       Exhibits: None

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



                                     - 13 -


<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/ William O. Hunt
                                          -------------------
                                          Chairman of the Board, President and
                                          Chief Executive Officer



                                         /s/ Michael H. Barnes
                                         ---------------------
                                         Senior Vice President Corporate Staff
                                         and Chief Financial Officer
                                         (principal financial officer)



Date: November 14, 1996


                                     - 14 -