UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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


                                    FORM 10-Q
                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended                                    Commission File Number:
 March 31, 1997                                                  0-10211


                             INTER-TEL, INCORPORATED


Incorporated in the State of Arizona                       I.R.S. No. 86-0220994


                        120 North 44th Street, Suite 200
                           Phoenix, Arizona 85034-1822

                                 (602) 302-8900

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


                                  Common Stock

              (12,958,463 shares outstanding as of March 31, 1997)

Indicate by check mark whether the registrant (1) has filed all reports required
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  periods 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
                                      ---   --- 
<PAGE>
                                      INDEX


INTER-TEL, INCORPORATED AND SUBSIDIARIES

                                                                            Page

PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements (Unaudited)

              Condensed consolidated balance sheets--March 31,                3
              1997 and December 31, 1996

              Condensed consolidated statements of income--three              4
              months ended March 31, 1997 and March 31, 1996

              Condensed consolidated statements of cash flows                 5
              --three months ended March 31, 1997 and
              March 31, 1996

              Notes to condensed consolidated financial                       6
              statements--March 31, 1997

Item 2.       Management's Discussion and Analysis of Financial               6
              Condition and Results of Operations

PART II. OTHER INFORMATION                                                   15

SIGNATURES                                                                   17

EXHIBIT 11.1                                                                 18

                                       2
<PAGE>
PART I.  FINANCIAL INFORMATION

INTER-TEL, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)                                        March 31,     December 31,
                                                        1997            1996
                                                        ----            ----
ASSETS
CURRENT ASSETS
     Cash and equivalents                             $  41,843       $  38,936
     Accounts receivable - net                           29,568          29,998
     Inventories                                         21,060          21,280
     Net investment in sales-leases                      10,546           8,243
     Prepaid expenses and other assets                    6,270           7,008
                                                      ---------       ---------
     TOTAL CURRENT ASSETS                               109,287         105,465

PROPERTY & EQUIPMENT                                     11,953          11,189
OTHER ASSETS                                             13,907          15,957
                                                      ---------       ---------
                                                      $ 135,147       $ 132,611
                                                      =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable                                 $   7,922       $   8,915
     Other current liabilities                           16,864          16,841
                                                      ---------       ---------
     TOTAL CURRENT LIABILITIES                           24,786          25,756

DEFERRED TAXES AND OTHER LIABILITIES                     12,805          11,921
SHAREHOLDERS' EQUITY
     Common stock                                        59,948          59,875
     Retained earnings                                   38,134          35,464
     Equity adjustment for foreign
        currency translation                               (503)           (359)
                                                           ----            ---- 
                                                         97,579          94,980
     Less receivable from Employee
        Stock Ownership Trust                               (23)            (46)
                                                      ---------       ---------
     TOTAL SHAREHOLDERS' EQUITY                          97,556          94,934
                                                      ---------       ---------
                                                      $ 135,147       $ 132,611
                                                      =========       =========

                                       3
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except                                  Three Months Ended
per share amounts)                              March 31, 1997    March 31, 1996
                                                --------------    --------------

NET SALES                                           $ 50,322          $ 42,213
Cost of sales                                         28,152            22,901
                                                    --------          --------
GROSS PROFIT                                          22,170            19,312

     Research & development                            1,845             1,704
     Selling, general, and administrative             16,052            13,200
                                                    --------          --------
                                                      17,897            14,904

OPERATING INCOME                                       4,273             4,408

     Interest and other income                           223               446
     Interest expense                                     (7)               (4)
                                                    --------          --------

INCOME BEFORE TAXES                                    4,489             4,850
     Income taxes                                      1,819             1,951
                                                    --------          --------

NET INCOME                                          $  2,670          $  2,899
                                                    --------          --------


NET INCOME PER SHARE                                $    .20          $    .22
                                                    ========          ========

     Average number of shares
         outstanding                                  13,346            13,293
                                                    ========          ========

                                       4
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

                                                       Three Months Ended
(In thousands)                                    March 31, 1997  March 31, 1996
                                                  --------------  --------------

OPERATING ACTIVITIES
     NET INCOME                                        $  2,670      $  2,899
     Adjustments to reflect operating activities:
       Depreciation and amortization                      1,069           921
       Changes in operating assets and liabilities         (166)       (7,230)
       Other                                              1,795         2,130
                                                       --------      --------

     NET CASH PROVIDED BY (USED IN)
        OPERATING ACTIVITIES                              5,368        (1,280)

INVESTING ACTIVITIES
     Additions to property and equipment                 (1,709)       (1,597)
     Cash used in acquisition                              (825)            0
                                                       --------      --------

     NET CASH USED IN INVESTING
       ACTIVITIES                                        (2,534)       (1,597)

FINANCING ACTIVITIES
     Proceeds from exercise of stock options                 73            89
                                                       --------      --------

     NET CASH PROVIDED BY FINANCING
       ACTIVITIES                                            73            89

     INCREASE/(DECREASE) IN CASH
        AND EQUIVALENTS                                   2,907        (2,788)

CASH AND EQUIVALENTS AT
     BEGINNING OF PERIOD                                 38,936        39,640
                                                       --------      --------

CASH AND EQUIVALENTS AT
     END OF PERIOD                                     $ 41,843      $ 36,852
                                                       ========      ========

                                       5
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 1997

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring  accruals)  considered  necessary for a fair presentation of
the results for the interim  periods  presented  have been  included.  Operating
results  for the  three  months  ending  March  31,  1997  are  not  necessarily
indicative  of the results that may be expected for the year ended  December 31,
1997. For further  information,  refer to the consolidated  financial statements
and footnotes  thereto  included in the Company's annual report on Form 10-K for
the year ended December 31, 1996.

NOTE B--INCOME PER SHARE

Primary earnings per share assume that outstanding  common shares were increased
by shares issuable upon the exercise of all  outstanding  stock options to which
market price exceeds  exercise price less shares which could have been purchased
with related proceeds.

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings per Share,  which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements for calculating  primary earnings per share, the dilutive effect of
stock options will be excluded.  The impact is expected to result in an increase
in primary  earnings  per share for the first  quarter  ended March 31, 1997 and
March 31, 1996 of $.01 and $.01 per share, respectively. The impact of Statement
128 on the calculation of fully diluted earnings per share for these quarters is
not expected to be material.

                                       6
<PAGE>
PART I.

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

Overview

         Inter-Tel  is  a  single  point  of  contact,  full  service  solutions
integrator providing AXXESS and Axxent digital business communication platforms,
Axxessory Talk voice processing platforms,  call processing and voice processing
software along with various other productivity  enhancing software applications,
computer telephone  integration,  and network services and long distance calling
services,  as well as maintenance,  leasing and support services.  The Company's
Common  Stock is quoted on the Nasdaq  National  Market  System under the symbol
INTL.

         This Report on Form 10-Q contains forward-looking statements within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange Act of 1934.  Actual results could differ  materially  from
those  projected  in the  forward-looking  statements  as a result  of many risk
factors, including,  without limitation, those set forth under "Factors That May
Affect Future Results Of Operations" below.

Results of Operations

         Net sales increased 19.2% to $50.3 million in the first quarter of 1997
from $42.2 million in the first quarter of 1996. Sales from direct sales offices
accounted  for  approximately  $6.2  million of the  increase,  while  wholesale
distribution sales decreased  approximately  $500,000.  The remaining  increases
occurred in long distance sales and other operations.

         The following table sets forth selected  statements of income data as a
percentage of net sales:

                                                         Three months and year
                                                             Ended March 31,
                                                           1997           1996
                                                           ----           ----

Net sales                                                 100.0%         100.0%
Cost of sales                                              55.9           54.3
                                                          ------         ------
Gross profit                                               44.1           45.7
Research and development                                    3.7            4.0
Selling, general and administrative                        31.9           31.3
                                                          ------         ------
Operating income                                            8.5           10.4
Interest and other income                                   0.4            1.1
Interest expense                                            0.0            0.0
Income taxes                                                3.6            4.6
                                                          ------         ------
Net income                                                  5.3%           6.9%
                                                          ------         ------

         Gross  profit for the first  quarter of 1997  increased  14.8% to $22.2
million,  or 44.1% of net sales,  from $19.3 million,  or 45.7% of net sales, in
the first quarter of 1996. Gross margin decreased slightly compared to the first
quarter of 1996,  but was higher  than the year ended  December  31,  1996 gross
margin.  The  different  sales mix of products and  services,  and sales through
different  distribution  channels  each impact the Company's  gross margin.  The
Company  received  higher  margins  from sales of AXXESS  digital  communication
platforms,  call processing 
                                       7
<PAGE>
software and voice  processing  software,  which were offset by lower margins on
sales through dealer channels and sales of long distance calling services.

         Research  and  development  expenses  for  the  first  quarter  of 1997
increased 8.3% to $1.8 million, or 3.7% of net sales, from $1.7 million, or 4.0%
of net  sales,  for the first  quarter  of 1996.  This  increase  was  primarily
attributable to expenses relating to the continued development of the AXXESS and
Inter-Tel  Axxent software and systems,  unified  messaging and voice processing
software,  Inter-Tel.Net and Vocal'Net server, and CTI applications. The Company
expects that  research and  development  expenses  will  continue to increase in
absolute  dollars as the Company  continues to develop and enhance  existing and
new technologies and products. These expenses may vary, however, as a percentage
of net sales.

         Selling,  general and  administrative  expenses in the first quarter of
1997 increased to $16.1 million,  or 31.9% of net sales, from $13.2 million,  or
31.3% of net sales,  in the first  quarter  of 1996.  This  reflected  increased
selling,  incentive,  training and other  compensation costs attributable to the
increased sales through the Company's direct sales offices, additional personnel
to support the direct dealer network and expanded long distance operations,  and
expenses associated with the expansion of international operations. In addition,
the Company  increased  its sales and  technical  training  staff,  expanded its
credit management group and made appropriate  increases in reserves for accounts
receivable.  The  Company  expects  that  selling,  general  and  administrative
expenses will increase in absolute dollars,  but may vary as a percentage of net
sales.

         Other income in both periods consisted primarily of interest income and
foreign  exchange  rate gains and losses and  decreased in the first  quarter of
1997 primarily due to differences in net foreign exchange rate gains and losses.

         Net income for the first  quarter  of 1997 was $2.7  million  ($.20 per
share),  compared to net income of $2.9  million  ($.22 per share) for the first
quarter of 1996, a decrease of 7.9%.

Inflation/Currency Fluctuation

         Inflation and currency  fluctuations have not previously had a material
impact on Inter-Tel's  operations.  International  procurement  agreements  have
traditionally been denominated in U.S. currency.  Moreover, a significant amount
of contract  manufacturing has been moved to domestic sources.  The expansion of
international  operations  in the United  Kingdom  and  Europe  and  anticipated
increased  sales  in Japan  and  Asia  and  elsewhere  could  result  in  higher
international  sales  as a  percentage  of  total  revenues,  but  international
revenues are currently not significant.

Liquidity and Capital Resources

         The Company  continues  to expand its direct  sales  offices and dealer
network,  which has  required  and is expected  to  continue to require  working
capital for increased  accounts  receivable  and  inventories.  During the first
three months of 1997,  despite the  expansion of the Company's  sales  channels,
including the  integration  of NTL  Corporation,  dba ComNet of Ohio,  which was
acquired  in  November  1996,  accounts  receivable  and  inventories  decreased
approximately  $650,000.  This decrease  reflects the Company's moves to tighten
credit on its customers and to place stricter  controls on inventory  purchases.
In addition,  the  Company's  capital  expenditures  totaled $1.7 million in the
first  quarter of 1997.  The Company  intends to  continue  to make  significant
capital  expenditures  during 1997,  principally  relating to improvement of the
Company's management
                                       8
<PAGE>
information  systems.  At March 31, 1997,  the Company had $41.8 million in cash
and equivalents, which represents an increase of approximately $2.9 million from
December 31, 1996.

         The Company has a loan  agreement  with Bank One,  Arizona,  NA.  which
provides for a $7.0  million,  unsecured  revolving  line of credit.  The credit
facility is annually renewable and is available through July 31, 1997. Under the
credit  facility,  the  Company  has the  option to  borrow  at a prime  rate or
adjusted LIBOR  interest  rate.  The credit  facility is being used primarily to
support international letters of credit to suppliers.

         During the third  quarter of 1995,  the  Company  completed a secondary
stock offering. A portion of the net proceeds from that offering have been used,
and may  continue to be used,  to finance  strategic  acquisitions  or corporate
alliances.  In April,  1997,  the Company  announced a plan to  repurchase up to
1,450,000 shares of its common stock, which may require  significant  outlays of
available cash.

         The Company offers to its customers lease financing and other services,
including its Totalease program,  through its Inter-Tel Leasing subsidiary.  The
Company  funds its  Totalease  program  in part  through  the sale to  financial
institutions of rental income streams under the leases. Resold Totalease rentals
totaling $75.8 million and $66.0 million  remain  unbilled at March 31, 1997 and
December 31, 1996,  respectively.  The Company is obligated to  repurchase  such
income  streams in the event of defaults by lease  customers  and,  accordingly,
maintains  reserves based upon loss  experience and past due accounts.  Although
the Company to date has been able to resell the rental streams from leases under
the Totalease  program  profitably and on a  substantially  current  basis,  the
timing and  profitability  of lease resales could impact the Company's  business
and operating  results,  particularly in an environment of fluctuating  interest
rates.  If the  Company is  required to  repurchase  rental  streams and realize
losses thereon in amounts exceeding its reserves,  its operating results will be
adversely affected.

         The Company  believes  that its working  capital and credit  facilities
will be  sufficient  to fund  purchases  of capital  equipment,  to finance cash
acquisitions,  and to repurchase  shares of the Company's common stock which the
Company may consider and to provide adequate working capital for the foreseeable
future.  However, to the extent that additional funds are required in the future
to  address   working   capital  needs  and  to  provide   funding  for  capital
expenditures,  expansion of the business or additional acquisitions, the Company
will seek  additional  financing.  There  can be no  assurance  that  additional
financing will be available when required or on acceptable terms.

Factors That May Affect Results of Future Operations

In evaluating the Company's business, shareholders should carefully consider the
following  factors in addition to the other  information  presented in this Form
10-Q.

Rapid Technological Change and Dependence on New and Timely Product
Introductions

         The  market  for the  Company's  software,  products  and  services  is
characterized  by rapid  technological  change  and  continuing  demand  for new
products, features and applications.  Current competitors or new market entrants
may develop new products or product  features  that could  adversely  affect the
competitive  position  of  the  Company's  products.   Accordingly,  the  timely
introduction   of  new   products   and  product   features,   as  well  as  new
telecommunications  applications,  will be a key factor in the Company's  future
success.  Occasionally,  new products 
                                       9
<PAGE>
contain  undetected  errors or "bugs" when  released.  Such bugs may result from
defects  contained in software  products  offered by the Company's  suppliers or
other third  parties  that are  intended  to be  compatible  with the  Company's
products, over which the Company has little or no control.  Although the Company
seeks to minimize the number of bugs in its products by its test  procedures and
strict quality control,  there can be no assurance that its new products will be
error free when introduced. Any significant delay in the commercial introduction
of the  Company's  products due to bugs,  any design  modifications  required to
correct  bugs or any  impairment  of customer  satisfaction  as a result of bugs
could have a material  adverse  effect on the  Company's  business and operating
results.  In addition,  new  products  often take  several  months  before their
manufacturing costs stabilize,  which may adversely affect operating results for
a period of time following introduction.

         During the past  twelve  months,  the  Company  introduced  ISDN on its
AXXESS  digital  communication  platform,  expanded  the size of the  AXXESS and
Inter-Tel  Axxent  platforms,  introduced  a number of upgrades to its  existing
AXXESSORY  Talk  and  IVX-500  voice  processing  platforms  and  announced  the
introduction of the Vocal'Net Server product. In the event that the Company were
to fail to successfully introduce new software, products or services or upgrades
to its existing  systems or products on a regular and timely  basis,  demand for
the Company's  existing  software,  products and services could  decline,  which
could have a material  adverse  effect on the  Company's  business and operating
results.   Additionally,   there  can  be  no  guaranty  that  future  costs  of
accessibility,  lack of capacity or voice  transmission  quality of the Internet
will not  adversely  affect the ability of the  Company to deliver all  Internet
products and services on a cost effective basis.  There can be no assurance that
the  Company  will be able  to  successfully  develop  new  software,  products,
services,  technologies  and  applications  on a  timely  basis as  required  by
changing market needs or that new software or products or enhancements  thereto,
including its recently announced  products and upgrades,  when introduced by the
Company, will achieve market acceptance.

         The Company has recently  developed and  continues to develop  products
designed to address the emerging  market for the  convergence  of voice and data
applications,  or computer  telephony  integration.  If the  computer  telephony
integration  ("CTI")  market  fails to  develop or grows  more  slowly  than the
Company anticipates, or if the Company is unable for any reason to capitalize on
this emerging market  opportunity,  the Company's business and operating results
could be materially adversely affected.

Dependence Upon Contract Manufacturers and Component Suppliers

         Certain   components  used  in  the  Company's  digital   communication
platforms,   including  certain  microprocessors,   integrated  circuits,  power
supplies and voice processing  interface  cards, are currently  available from a
single source or limited sources of supply,  and product  availability  could be
limited. In addition,  the Company currently manufactures its products through a
limited  number of  contract  manufacturers  located in the United  States,  the
Philippines and the People's Republic of China. Foreign manufacturing facilities
are  subject to changes in  governmental  policies,  imposition  of tariffs  and
import  restrictions  and other  factors  beyond the Company's  control.  Varian
Associates,  Inc. ("Varian") currently manufactures a significant portion of the
Company's products at Varian's Tempe, Arizona facility,  including substantially
all of the  printed  circuit  boards  used in the  AXXESS and  Inter-Tel  Axxent
digital communications platforms. From time to time, the Company has experienced
delays in the  supply of  components  and  finished  goods,  and there can be no
assurance  that the Company will not experience  such delays in the future.  The
Company's reliance on third party manufacturers  involves a number of additional
                                       10
<PAGE>
risks, including reduced control over delivery schedules,  quality assurance and
costs.  Any delay in delivery or  shortage of supply of  components  or finished
goods from Varian or any other supplier,  or the Company's  inability to develop
in a timely manner alternative or additional sources if and when required, could
damage the Company's  relationships  with current and prospective  customers and
could  materially  and  adversely  affect the  Company's  business and operating
results. The Company has no long term agreements with its suppliers that require
the suppliers to provide fixed quantities of components or finished goods at set
prices.  There can be no assurance  that the Company will be able to continue to
obtain  components or finished  goods in sufficient  quantities or quality or on
favorable pricing and delivery terms in the future.

Competition

         The market for the Company's digital communications platforms is highly
competitive and in recent periods has been  characterized  by pricing  pressures
and  business   consolidations.   The  Company's   competitors   include  Lucent
Technologies  and  Northern  Telecom  Limited  ("NorTel"),  as well  as  Comdial
Corporation  ("Comdial"),  EXECUTONE  Information Systems,  Inc.  ("Executone"),
Mitel  Corporation  ("Mitel"),   Panasonic,  Siemens  ROLM  Communications  Inc.
("ROLM"),  Toshiba and others.  The Company also  competes  against the regional
Bell operating companies ("RBOCS"),  which offer systems produced by one or more
of the  aforementioned  competitors and also offer Centrex systems in which call
processing  facilities are provided through  equipment  located in the telephone
company's central office. Competition by the RBOCs may increase significantly in
the future,  as the RBOCs have been granted the right to  manufacture  telephone
systems and  equipment  themselves  and/or to bundle the sale of equipment  with
telephone calling services.

         The  Telecommunication  Act of 1996 and AT&T's  announcement  to divide
itself  into  three  enterprises  has  had  an  impact  on  competition  in  the
communication  industry. The Telecommunication Act of 1996 opened the market for
telephone and cable television  services,  forcing  telephone  companies to open
their  networks  to  competitors  and giving  consumers  a choice of local phone
carriers.  Conversely, local phone companies are now able to offer long distance
services.  In addition,  cable  companies can now offer  telephone  services and
Internet access.  These changes will increase  competition in the  communication
industry and will create  additional  competition and  opportunities in customer
premise equipment as these new services and interfaces become available.  As the
Company enters the markets for local telephone  service and Internet access,  it
will face  additional  competition  from RBOCs and other  providers,  which have
larger marketing and sales  organizations,  significantly  greater financial and
technical  resources  and a larger and more  established  customer base than the
Company.  In addition,  RBOCs and other providers have greater name recognition,
more established  positions in the market and long standing  relationships  with
customers.  Therefore,  there can be no assurance  that the Company will compete
successfully in these markets.

         In the market for voice processing applications,  including voice mail,
the Company competes against Centigram Communications Corporation ("Centigram"),
Octel Communications  Corporation  ("Octel"),  Active Voice Corporation ("Active
Voice"), Applied Voice Technology, Inc. ("AVT") and other competitors, including
telephone systems  manufacturers such as Lucent  Technologies,  NorTel and ROLM,
which offer integrated voice processing systems under their own label as well as
through  various OEM  arrangements.  Certain of the  Company's  competitors  may
achieve marketing  advantages by bundling their voice processing  equipment with
sales of telephone systems, or by designing their telephone systems so that they
do not readily  integrate with independent voice processing  systems.  Inter-Tel
expects that the  development  of industry  
                                       11
<PAGE>
standards  and  the  acceptance  of  open  systems  architectures  in the  voice
processing  market will reduce  technical  barriers to market  entry and lead to
increased competition.

         In the market for long distance services,  the Company competes against
AT&T Corp., MCI  Telecommunications  Corporation,  Sprint  Corporation and other
suppliers,  certain of which also supply the long  distance  calling and network
services that the Company  resells.  Although the Company  acquires a variety of
long  distance  calling  services in bulk from certain long  distance  carriers,
there  can be no  assurance  that  the  Company  will be able to  purchase  long
distance  calling services on favorable terms from one or more of such providers
in the future.  In addition,  a  substantial  majority of  prospective  new long
distance  customers for the Company  currently  purchase  long distance  calling
services from the Company's competitors.  The Company believes that it is likely
to face increased  competition in the long distance calling services market as a
result of  telecommunications  deregulation,  which enables RBOCs to supply long
distance  calling and network  services,  and enables RBOCs and others to bundle
long distance,  local  telephone and wireless  services.  Moreover,  the Company
expects to face  increased  competition  in the  future  because  low  technical
barriers to entry will allow new market entrants.

         As Inter-Tel  develops  more  server-based  and CTI  telecommunications
products, Inter-Tel's competition will be the large computer software companies,
such as IBM (Lotus),  and Microsoft.  In addition,  the server-based  telephony,
internet telephony and CTI markets have shown increasing  competition from small
start-up software companies.

         Many of the Company's  competitors are substantially  larger,  and have
significantly  greater financial and technical  resources,  name recognition and
marketing and distribution  capabilities,  than the Company. The Company expects
that  competition  will  continue to be intense in the markets  addressed by its
products and  services,  and there can be no assurance  that the Company will be
able to compete successfully in the future.

Management of Growth; Implementation of New Management Information Systems

         The growth in the  Company's  business  has placed,  and is expected to
continue to place, a significant strain on the Company's  personnel,  management
and  other  resources.  The  Company's  ability  to  manage  any  future  growth
effectively will require it to attract, train, motivate and manage new employees
successfully,  to integrate new  employees  into its overall  operations  and to
continue  to improve  its  operational,  financial  and  management  information
systems.

         The Company  implemented a new MIS system late in 1995.  The MIS system
significantly  affected  many aspects of the Company's  business,  including its
accounting,  operations,  purchasing,  sales and marketing functions.  Since the
date of implementation,  the Company has experienced difficulty with the new MIS
system  software,  which increased the Company's costs, had an adverse effect on
the  Company's  ability to provide  products and services to its  customers on a
timely basis and caused delays in coordinating accounting and financial results.
During the fourth quarter of 1996, the Company  determined  that the limitations
of the existing  system  software would prevent  Inter-Tel from  establishing an
integrated and centralized dispatch and telemarketing center.

         As a result,  during the fourth quarter of 1996, the Company decided to
replace  its  MIS  system  software  with  an  integrated  solution  from a more
established  vendor and  accordingly  has written off the  software  license and
implementation  costs relating to the system software being replaced.  Inter-Tel
has signed an agreement with a large,  established  software and database 
                                       12
<PAGE>
vendor to implement,  maintain and support  alternate MIS system  software to be
utilized  throughout  the  Company.  Inter-Tel  believes  that such  action  was
necessary to allow for the stability and growth of Inter-Tel.

    The actions to replace the MIS system  software  could result in  additional
costs and delays in obtaining a fully  functional MIS system,  including but not
limited to  additional  or alternate  hardware and  software  required,  but not
available in the current system configuration,  and additional personnel,  which
could have a material  adverse  effect on the  company's  business and operating
results. In addition,  implementation of this system software and the transition
from the current system  software to the new  information  system  software will
require substantial financial resources and personnel.

         The Company has made strategic  acquisitions in the past and expects to
continue to do so in the future.  Acquisitions  require a significant  amount of
the Company's management attention and financial and operational resources,  all
of which are limited.  The  integration of acquired  entities may also result in
unexpected  costs and disruptions,  and significant  fluctuations in, or reduced
predictability  of,  operating  results  from period to period.  There can be no
assurance   that  an  acquisition   will  not  adversely   affect  the  business
relationships  of the  Company or the  acquired  entity  with  their  respective
suppliers or customers. Further, there can be no assurance that the Company will
successfully  integrate  the acquired  operations or achieve any of the intended
benefits  of  an  acquisition.  The  Company's  failure  to  manage  its  growth
effectively  could have a material  adverse effect on its business and operating
results.

Product Protection and Infringement

         The Company's  future success is dependent in part upon its proprietary
technology. The Company relies principally on copyright and trade secret law and
contractual  provisions to protect its  intellectual  property.  There can be no
assurance  that any  copyright  owned by the  Company  will not be  invalidated,
circumvented  or challenged or that the rights granted  thereunder  will provide
competitive  advantages to the Company.  Further, there can be no assurance that
others  will not  develop  technologies  that are  similar  or  superior  to the
Company's technology or that duplicate the Company's technology.

         As  the  Company  expands  its  international   operations,   effective
intellectual  property  protection  may be  unavailable  or  limited  in certain
foreign countries. There can be no assurance that the steps taken by the Company
will prevent misappropriation of its technology.  Litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets,  to determine the validity and scope of the proprietary
rights of others,  or to defend  against claims of  infringement  or invalidity.
Such litigation or delays in product  introductions  or decisions to discontinue
development,  manufacture or sale of such products,  could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business and operating results.

Reliance on Dealer Network

         A  substantial  portion of the Company's net sales are made through its
network of independent dealers. The company faces intense competition from other
telephone system and voice  processing  system  manufacturers  for such dealers'
business, as most of the Company's dealers carry products which compete with the
Company's  products.  The Company has no  exclusive  agreements  with any of its
dealers. The loss of any significant dealer or group of 
                                       13
<PAGE>
dealers,  or any event or condition  adversely  affecting the  Company's  dealer
network,  could have a material  adverse  effect on the  Company's  business and
operating results.

Risks of Providing Long Distance and Network Services

         Inter-Tel depends on a reliable supply of  telecommunications  services
and  information  from several long distance  carriers.  Because it does not own
transmission  facilities,  the Company relies on long distance  carriers for the
provision  of  network  services  to the  Company's  customers  and for  billing
information.  Long  distance  services  are subject to extensive  and  uncertain
governmental  regulation  on both the federal and state  level.  There can be no
assurance that the promulgation of certain regulations will not adversely affect
the Company's business and operating  results.  Contracts with the long distance
carriers from which the Company  currently  resells  services  typically  have a
multi-year  term in which the  Company's  prices are  relatively  fixed and have
minimum use  requirements.  There can be no assurance that the Company will meet
minimum use commitments,  will be able to negotiate lower rates with carriers in
the  event of any  decrease  in end user  rates  or will be able to  extend  its
contracts with long distance  carriers at prices  favorable to the Company.  The
Company's  ability to continue to expand its long  distance  service  operations
will depend on its ability to continue to secure reliable long distance services
from a number of long distance  carriers and the willingness of such carriers to
continue to make  telecommunications  services and billing information available
to the Company on favorable terms.

Dependence on Key Personnel

         The Company is dependent on the  continued  service of, and its ability
to attract and retain,  qualified  technical,  marketing,  sales and  managerial
personnel. The competition for such personnel is intense, and the loss of any of
such  persons,  as well as the failure to recruit  additional  key technical and
sales personnel in a timely manner,  would have a material adverse effect on the
Company's  business and operating  results.  There can be no assurance  that the
Company will be able to continue to attract and retain the  qualified  personnel
necessary for the development of its business.

Possible Volatility of Stock Price

             The  Company   believes  that  factors  such  as  announcements  of
developments  relating to the Company's business,  fluctuations in the Company's
operating results, general conditions in the telecommunications  industry or the
worldwide   economy,   changes  in  legislation  or  regulation   affecting  the
telecommunications  industry, an outbreak of hostilities, a shortfall in revenue
or  earnings  from   securities   analysts'   expectations,   announcements   of
technological  innovations or new products or enhancements by the Company or its
competitors,  developments in intellectual  property rights and  developments in
the Company's  relationships  with its  customers and suppliers  could cause the
price of the Company's Common Stock to fluctuate, perhaps substantially. Many of
such factors are beyond the Company's control. In addition,  in recent years the
stock  market in  general,  and the market for  shares of  technology  stocks in
particular,  have experienced extreme price fluctuations,  which have often been
unrelated to the operating  performance of affected  companies.  There can be no
assurance  that  the  market  price  of the  Company's  Common  Stock  will  not
experience significant  fluctuations in the future,  including fluctuations that
are unrelated to the Company's performance.

                                       14
<PAGE>
Potential Fluctuations In Quarterly Results; Limited Backlog

      The  Company's  quarterly  operating  results  depend  upon a  variety  of
factors,  including the volume and timing of orders received during the quarter,
the  mix of  products  sold,  mix of  distribution  channels,  general  economic
conditions, patterns of capital spending by customers, the timing of new product
announcements and releases by the Company and its competitors, pricing pressures
and the  availability  and cost of products and  components  from the  Company's
suppliers.  The Company's  customers  typically require  immediate  shipment and
installation  of  platforms  and  software.   As  a  result,   the  Company  has
historically  operated with a relatively small backlog,  and sales and operating
results in any quarter are principally dependent on orders booked and shipped in
that quarter.  Moreover,  market demand for investment in capital equipment such
as digital  communication  platforms and  associated  call  processing and voice
processing  software  applications  is largely  dependent  on  general  economic
conditions, and can vary significantly as a result of changing conditions in the
economy  as a  whole.  The  Company's  expense  levels  are  based  in  part  on
expectations  of future  sales and,  if sales  levels do not meet  expectations,
operating  results  could  be  adversely  affected.  Because  sales  of  digital
communication  platforms  through  the  Company's  dealers  produce  lower gross
margins than sales through the Company's  direct sales  organization,  operating
results  will vary  based  upon the mix of sales  through  direct  and  indirect
channels.  Although  the  Company  to date has been  able to resell  the  rental
streams  from  leases  under  its  Totalease   program   profitably   and  on  a
substantially  current basis, the timing and profitability of lease resales from
quarter  to  quarter  could  impact  operating   results,   particularly  in  an
environment of fluctuating  interest rates.  Long distance sales have, in recent
periods,  grown at a faster rate than the  Company's  overall net sales and such
sales have lower gross margins than the Company's  core  business.  As a result,
gross  margins  could be  adversely  affected  in the event  that long  distance
calling services continue to increase as a percentage of net sales. In addition,
the Company is subject to seasonality in its operating results, as net sales for
the first and third quarters are frequently  less than those  experienced in the
fourth  and  second  quarters,  respectively.  As a result  of these  and  other
factors,  the  Company  has in the  past  and  could  in the  future  experience
fluctuations  in  sales  and  operating   results  on  a  quarterly  basis.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

Concentration of Ownership

As of March 31, 1997, the Company's Chairman of the Board of Directors and Chief
Executive Officer beneficially owned approximately 21% of the outstanding shares
of the Common  Stock.  As a result,  he has the ability to exercise  significant
influence over all matters  requiring  shareholder  approval.  In addition,  the
concentration  of  ownership  could have the effect of delaying or  preventing a
change in control of the Company.


INTER-TEL, INCORPORATED AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS--Not Applicable

ITEM 2.  CHANGES IN SECURITIES--Not Applicable

ITEM 3.  DEFAULTS ON SENIOR SECURITIES--Not Applicable
                                       15
<PAGE>
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES

HOLDERS

1. On April 23, 1997,  at the  Company's  annual  meeting of  shareholders,  the
shareholders of the Company elected the following directors,  each of whom was a
nominee of the Company:

Name                                               Votes For      Votes Withheld
----                                               ---------      --------------

Steven G. Mihaylo                                 10,141,397             226,028
J. Robert Anderson                                10,141,275             226,150
Gary D. Edens                                     10,141,247             226,178
Maurice H. Esperseth                              10,135,247             232,178
C. Roland Haden                                   10,141,547             225,878
Norman Stout                                      10,140,747             226,678

2. The proposal to approve the Inter-Tel,  Incorporated 1997 Long-Term Incentive
Plan received the following votes:

                                                        Votes For     Percentage
                                                        ---------     ----------

For:                                                    5,367,052        51.77%
Against:                                                2,692,039        25.97%
Abstain:                                                   43,392         0.42%
Broker Non Vote:                                        2,264,942        21.84%

3. The proposal to approve the Inter-Tel,  Incorporated  Employee Stock Purchase
Plan received the following votes:

                                                        Votes For     Percentage
                                                        ---------     ----------

For:                                                    7,484,179        72.19%
Against:                                                  549,886         5.30%
Abstain:                                                   35,218         0.34%
Broker Non Vote:                                        2,298,142        22.17%

4. The proposal to approve  adoption of an Amendment to Article IX,  Paragraph 1
of the Company's  Restated Articles of Incorporation  regarding  Indemnification
received the following votes:

                                                        Votes For     Percentage
                                                        ---------     ----------

For:                                                    10,263,812       99.00%
Against:                                                    62,621        0.60%
Abstain:                                                    40,992        0.40%
Broker Non Vote:                                                 0        0.00%

                                       16
<PAGE>
ITEM 5.  OTHER INFORMATION--Not Applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K:

              Exhibits:
                  11.1     Computation of Earnings per Share
                  27       Financial Data Schedule


              Reports on Form 8-K:
                  No reports filed during quarter




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



                                   SIGNATURES

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


                                          INTER-TEL, INCORPORATED



Date      May 13, 1997                      /s/ Steven G. Mihaylo
     --------------------               --------------------------------
                                        Steven G. Mihaylo
                                        Chairman of the Board and
                                        Chief Executive Officer


Date      May 13, 1997                      /s/ Kurt R. Kneip                 
       ------------------               --------------------------------
                                        Kurt  R. Kneip
                                        Vice President and
                                        Chief Financial Officer

                                       17