<PAGE>

                          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 quarter ended JUNE 30, 1998 or

( )     Transition report pursuant to Section l3 or l5(d) of the Securities
        Exchange Act of l934 

For the transition period N/A

Commission file Number 1-10346

            MICROTEL INTERNATIONAL, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

          Delaware                                              77-0226211   
-------------------------------                            -------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)


4290 E. Brickell  Street, Ontario California 91761
---------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number                                   (909) 456-4321

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class                               Name of each exchange
---------------------------------                        on which registered
                                                       ----------------------
Common Stock $.0033 par value                                  None
-----------------------------------------------------------------------------

Securities registered pursuant to Section 12 (g) of the Act:

                                         None
-----------------------------------------------------------------------------
                                    Title of Class

     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 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
                                                     -----          -----

As of July 31, 1998, there were 11,930,444 shares of common stock outstanding.

<PAGE>

                            MICROTEL INTERNATIONAL, INC.

                                  INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

                                                                                PAGE
<S>                                                                           <C>
PART I -  FINANCIAL INFORMATION

     Item l.   Financial Statements

     Consolidated Condensed Balance Sheets
     June 30, 1998 and December 31, 1997                                            3

     Consolidated Condensed Statements of Operations
     Three and Six Months Ended June 30, 1998 and l997                              4

     Consolidated Condensed Statements of Cash Flows
     Six Months Ended June 30, 1998 and l997                                        5

     Notes to Consolidated Condensed Financial Statements                        6-11

     Item 2.  Management's Discussion and Analysis of
     Financial Condition and Results of Operations                              12-18

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk           18

Part II - OTHER INFORMATION

     Item 1.  Legal Proceedings                                                    18

     Item 2.  Changes in Securities                                                18

     Item 3.  Defaults upon Senior Securities                                      19

     Item 4.  Submission of Matters to a Vote of Security Holders                  19

     Item 5.  Other Information                                                    19

     Item 6.  Exhibits and Reports on Form 8-K                                     20

Signatures                                                                         21
</TABLE>
                                       -2-

<PAGE>

                   MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                       CONSOLIDATED CONDENSED BALANCE SHEETS
                                    (UNAUDITED)
                                  (in thousands)


<TABLE>
<CAPTION>
                                                                                   PROFORMA

                                                                                  (SEE NOTE 7)

                                                                JUNE 30,            JUNE 30,             DEC. 31,
                                                                  1998                1998                 1997
                                                             -------------         -----------          -----------
ASSETS                                                      
<S>                                                         <C>                    <C>                  <C>
  Cash and cash equivalents                                   $       923             $ 2,311              $ 1,921
  Accounts receivable                                               6,849               6,849                6,749
  Inventories                                                       6,288               6,288                7,087

  Other current assets                                                715                 715                  869
                                                             -------------         -----------          -----------
     Total current assets                                          14,775              16,163               16,626

Property, plant and equipment-net                                   2,032               2,032                4,968
Goodwill-net                                                        1,809               1,809                1,906
Other assets                                                        2,490               2,602                1,940
                                                             -------------         -----------          -----------
                                                              $    21,106         $    22,606          $    25,440
                                                             -------------         -----------          -----------
                                                             -------------         -----------          -----------
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Notes payable                                                 $     4,320         $     4,320          $     3,630
Current portion of long-term debt                                     880                 880                1,216
Accounts payable                                                    4,540               4,540                6,621
Accrued expenses                                                    3,542               3,542                3,837
                                                             -------------         -----------          -----------
     Total current liabilities                                     13,282              13,282               15,304

Long-term debt, less current portion                                1,664               1,664                2,530

Other liabilities                                                     720                 720                  789
Minority interest                                                      94                  94                   88
                                                             -------------         -----------          -----------
     Total liabilities                                             15,760              15,760               18,711


Redeemable preferred stock                                            459               1,836                  714

Stockholders' equity:

  Common stock                                                         39                  39                   39
  Additional paid-in capital                                       20,005              20,128               19,960
  Accumulated deficit                                             (15,056)            (15,056)             (13,877)

  Foreign currency translation adjustment                            (101)               (101)                (107)
                                                             -------------         -----------          -----------
     Total stockholders' equity                                     4,887               5,010                6,015
                                                             -------------         -----------          -----------
                                                              $    21,106         $    22,606     $         25,440
                                                             -------------         -----------          -----------
                                                             -------------         -----------          -----------
</TABLE>

See accompanying notes to consolidated condensed financial statements.

                                       -3-

<PAGE>

                   MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                  CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                      SIX MONTHS ENDED
                                                                      JUNE 30,                               JUNE 30,
                                                            1998               1997                 1998                1997
                                                        ------------       ------------         ------------        ------------
                                                                          (in thousands, except per share amounts)
<S>                                                     <C>                <C>                  <C>                 <C>
Net sales                                               $      8,971       $     12,029         $     18,713        $     19,736
Cost of sales                                                  5,555              8,875               13,061              14,972
                                                        ------------       ------------         ------------        ------------
Gross profit                                                   3,416              3,154                5,652               4,764

Operating expenses:
      Selling, general and administrative                      2,796              3,643                5,914               5,555
      Engineering and product development                        574                694                1,145                 792
                                                        ------------       ------------         ------------        ------------
Income (loss) from operations                                     46             (1,183)              (1,407)             (1,583)
Other expense (income)
      Interest expense                                           177                262                  344                 460
      Gain on sale of subsidiary                                  90                 --                 (580)                 --
      Other                                                      (25)                (8)                 (43)                 (7)
                                                        ------------       ------------         ------------        ------------
Loss before income taxes                                        (196)            (1,437)              (1,128)             (2,036)
Income taxes expense (benefit)                                    22                 (2)                  37                   2
                                                        ------------       ------------         ------------        ------------
Net loss                                                $       (218)       $    (1,435)         $    (1,165)        $    (2,038)
                                                        ------------       ------------         ------------        ------------
Basic and diluted loss per share                        $      (0.02)       $     (0.13)         $     (0.10)        $     (0.24)
                                                        ------------       ------------         ------------        ------------
Weighted average number of shares used in calculating         11,929             11,005               11,928               8,638
                                                        ------------       ------------         ------------        ------------
                                                        ------------       ------------         ------------        ------------
</TABLE>

See accompanying notes to consolidated condensed financial statements.

                                       -4-

<PAGE>

                     MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED JUNE 30,
                                                                                      1998                         1997
                                                                                  ------------                  ----------
                                                                                               (in thousands)
<S>                                                                               <C>                           <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:                                         
         Net loss                                                                  $    (1,165)                 $   (2,038)
         Adjustments to reconcile net loss to 
           cash used in operating activities:
                Depreciation and amortization                                              312                         356
                Amortization of intangibles                                                 97                         287
                Gain on sale of subsidiary                                                (580)                         --
                Other noncash items                                                        (64)                         46
                Changes in operating assets and liabilities:
                      Accounts receivable                                                 (515)                     (1,177)
                      Inventories                                                            6                       1,265
                      Other assets                                                         (56)                        (62)
                      Accounts payable and accrued expenses                               (295)                     (1,443)
                                                                                  ------------                  ----------
Cash used in operating activities                                                       (2,260)                     (2,766)


CASH FLOWS FROM INVESTING ACTIVITIES:                                         
         Net purchases of property, plant and equipment                                   (178)                        (23)
         Proceeds from sale of subsidiary                                                1,350                          --
         Cash acquired in reverse acquisition                                               --                         264
                                                                                  ------------                  ----------
Cash provided by investing activities                                                    1,172                         241

CASH FLOWS FROM FINANCING ACTIVITIES:                                         

         Net borrowings from notes payable                                                 640                        (699)
         Net repayments of long-term debt                                               (1,015)                       (476)
         Preferred stock dividends paid                                                     --                        (140)
         Private placement of convertible preferred stock                                  459                          --

         Private placement of common stock                                                  --                       4,258
                                                                                  ------------                  ----------
Cash provided by financing activities                                                       84                       2,943
                                                                              
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                      6                          --
                                                                                  ------------                  ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (998)                        418
                                                                                  ------------                  ----------

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                         1,921                         886
                                                                                  ------------                  ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         $       923                 $     1,304
                                                                                  ------------                  ----------
</TABLE>


See accompanying notes to consolidated condensed financial statements.

                                       -5-

<PAGE>

                   MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

WHEN USED IN THESE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, THE 
WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE," "CONTINUE," "ESTIMATE," 
"PROJECT," "INTEND," "SHOULD," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED 
TO IDENTIFY 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 REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE 
COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY, OPERATING COSTS AND 
FINANCIAL POSITION. SPECIFICALLY, FORWARD-LOOKING STATEMENTS ARE INCLUDED IN 
NOTES 6 AND 8 HEREOF. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY 
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE 
SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY DIFFER 
MATERIALLY THAN THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS AS A 
RESULT OF VARIOUS FACTORS.

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION AND BUSINESS

          MicroTel International, Inc. (the "Company") is a holding company 
     for its three wholly-owned subsidiaries- CXR Telcom Corporation, CXR 
     S.A. and, effective March 26, 1997, XIT Corporation ("XIT").  CXR Telcom 
     Corporation and CXR S.A. design, manufacture and market electronic 
     telecommunication test instruments and data transmission and networking 
     equipment. XIT designs, manufactures, and markets information technology 
     products, including displays and input components, subsystem assemblies 
     power supplies, hybrid microelectronic and other circuits.  The Company 
     conducts its operations out of various facilities in the U.S., France, 
     England, and Japan and organizes itself in three product line sectors - 
     Instrumentation and Test Equipment, Components and Subsystem Assemblies, 
     and Circuits.
     
     BASIS OF PRESENTATION
     
          The accompanying unaudited consolidated condensed financial statements
     have been prepared in accordance with the rules and regulations of the
     Securities and Exchange Commission and therefore do not include all
     information and footnotes necessary for a complete presentation of
     financial position, results of operations and cash flows in conformity with
     generally accepted accounting principles.  The unaudited consolidated
     condensed financial statements do, however, reflect all adjustments,
     consisting of only normal recurring adjustments, which are, in the opinion
     of management, necessary to state fairly the financial position as of June
     30, 1998 and December 31, 1997 and the results of operations and cash flows
     for the related interim periods ended June 30, 1998 and 1997.  However,
     these results are not necessarily indicative of results for any other
     interim period or for the year.  It is suggested that the accompanying
     consolidated condensed financial statements be read in conjunction with the
     Company's Consolidated Financial Statements included in its 1997 Annual
     Report on Form 10-K.

                                       -6-

<PAGE>

                   MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                                          
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                          
                                          
 (2) LOSS PER SHARE
     
          The following table illustrates the computation of basic and diluted
     loss per share (in thousands, except per share amounts):


<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED        SIX MONTHS ENDED
                                          JUNE 30,                 JUNE 30,
                                     1998         1997        1998        1997
                                   -------       ------      ------      ------
<S>                                <C>          <C>         <C>         <C>
NUMERATOR:
Net loss                             $(218)     $(1,435)    $(1,165)    $(2,038)

Less: accretion of the
excess of the redemption value
over the carrying value of
redeemable preferred stock              --           17          13          34
                                   -------       ------      ------      ------
Loss attributable to common
stockholders                          (218)      (1,452)     (1,178)     (2,072)

DENOMINATOR:
Weighted average number of
common shares outstanding                                                 
during the period                   11,929       11,005      11,928       8,638
                                   -------       ------      ------      ------
Basic and diluted loss per 
share                                $(.02)       $(.13) $     (.10)      $(.24)
                                   -------       ------      ------      ------
                                   -------       ------      ------      ------
</TABLE>

          The computation of diluted loss per share excludes the effect of
     incremental common shares attributable to the exercise of outstanding
     common stock options and warrants because their effect was antidilutive due
     to losses incurred by the Company or such instruments had exercise prices
     greater than the average market price of the common shares during the
     periods presented.
     
(3)  COMPREHENSIVE INCOME
     
          In the first quarter of 1998, the Company adopted Statement of
     Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
     ("SFAS 130").  Comprehensive income (loss) is comprised of net income
     (loss) and all changes to stockholders' equity except those due to
     investment by owners (changes in paid-in capital) and distributions to
     owners (dividends).  For interim reporting purposes, SFAS 130 requires
     disclosure of total comprehensive income (loss).  Comprehensive loss,
     consisting of net loss, foreign currency translation effects and accretion
     of preferred stock, was $272,000 and $1,452,000 for the three months ended
     June 30, 1998 and 1997, respectively and $1,184,000 and $2,072,000 for the
     six months ended June 30, 1998 and 1997, respectively.

                                       -7-

<PAGE>

                      MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                                          
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                          
                                          
(4)  INVENTORIES
          Inventories consist of the following.

<TABLE>
<CAPTION>
                                      June 30, 1998         December 31, 1997
                                      --------------        -----------------
 <S>                                  <C>                     <C>
 Raw materials                        $    2,475,000          $    3,044,000
 Work-in-process                           2,172,000               2,333,000 
 Finished goods                            1,641,000               1,710,000 
                                      --------------          --------------
                                      $    6,288,000          $    7,087,000 
                                      --------------          --------------
                                      --------------          --------------
</TABLE>

(5)  BANKING ARRANGEMENTS

          The Company's XIT subsidiary had a line of credit with a bank (the
     "XIT Debt") which provided for maximum borrowings of $3,500,000
     collateralized by substantially all assets of XIT and its domestic
     subsidiaries with interest at the bank's prime rate (8.5% at
     June 30, 1998) plus 1%.  The XIT Debt agreement required maintenance of
     certain financial ratios and contained other restrictive covenants.  XIT
     was not in compliance with certain covenants of the XIT Debt agreement at
     December 31, 1997 and at June 30, 1998.  Although the bank did not waive
     compliance with such debt covenants, it entered into a forbearance
     agreement with the Company in which it agreed to forbear from exercising
     its rights under the terms of the XIT Debt agreement provided the Company
     obtain a replacement credit facility. Outstanding borrowings under this 
     line of credit were $2,831,000 and $2,377,000 at June 30, 1998 and 
     December 31, 1997, respectively.
     
          On July 8, 1998, the Company finalized a $10.5 million credit 
     facility with a commercial finance company which provided a term loan of 
     approximately $1.5 million and a revolving line of credit of up to $8 
     million based upon assets available from either existing or 
     future-acquired operations of which the Company has utilized 
     approximately $4 million, and a capital equipment expenditure credit 
     line of up to $1 million.  This credit facility replaced the existing 
     credit facilities of the Company's domestic operating companies, which 
     included the XIT Debt and CXR Telcom Corporation's line of credit, both 
     of which were paid in full at the closing and provides expanded 
     borrowing capability based upon available assets.

(6)  LITIGATION
          
          The Company and its subsidiaries are, from time to time, involved in
     legal proceedings, claims and litigation arising in the ordinary course of
     business.  While the amounts claimed may be substantial, the ultimate
     liability cannot presently be determined because of considerable
     uncertainties that exist.  Therefore, it is possible the outcome of such
     legal proceedings, claims and litigation could have a material effect on
     quarterly or annual operating results or cash flows when resolved in a
     future period.  However, based on facts currently available, management
     believes such matters will not have a material adverse affect on the
     Company's consolidated financial position, results of operations or cash
     flows.

                                       -8-

<PAGE>

                   MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                                          
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                          
                                          
(6)  LITIGATION (CONTINUED)
     
     FRANCIS JOHN GORRY V. MICROTEL INTERNATIONAL, INC.
          
          In 1994, Francis John Gorry, a former officer of the Company, alleged
     that the Company breached a consulting agreement between he and the
     Company.  Subsequently, the Company and Mr. Gorry entered into an agreement
     which called for certain cash payments to Mr. Gorry and for the issuance to
     Mr. Gorry and subsequent registration of shares of the Company's common
     stock by April 30, 1996.  The Company failed to timely issue the stock and
     on May 21, 1996, Mr. Gorry filed suit against the Company (the "1996
     Suit").  Shortly thereafter, the Company and Mr. Gorry entered into a
     Settlement Agreement which was thereafter amended twice.  Based upon the
     execution of the Settlement Agreement, the court dismissed Mr. Gorry's suit
     without prejudice.  The cash payments specified under the terms of the
     Settlement Agreement, as amended, were timely made and the shares of the
     Company's common stock were issued to Mr. Gorry and subsequently registered
     pursuant to the terms of the Settlement Agreement, as amended.  On
     June 18, 1998, Mr. Gorry made a motion to the court for an order vacating
     the dismissal of the 1996 Suit for the purpose of entering judgment against
     the Company, claiming the common shares delivered to him did not conform to
     the terms of the Settlement Agreement, as amended.  On July 17, 1998, the
     court granted Mr. Gorry's motion.  The Company will appeal the court's
     decision as it believes the claim which forms the basis for Mr. Gorry's
     motion is without merit.
          
     SCHEINFELD V. MICROTEL INTERNATIONAL, INC.
          
          In October 1996, David Scheinfeld brought an action in the Supreme
     Court of the State of New York, County of New York, to recover monetary
     damages in the amount of $300,000 allegedly sustained by the failure of the
     Company, its stock transfer agent and its counsel to timely deliver and
     register 30,000 shares of Common Stock for which payment had been made. 
     The Company was informed by Mr. Scheinfeld that in order to settle his
     claims, the Company would have to issue him unrestricted shares of common
     stock.  Since the Company cannot issue unrestricted shares (absent
     registration), the Company answered Mr. Scheinfeld's motion and sought to
     compel him to serve a complaint upon the defendants.  On June 30, 1997, the
     complaint was served, and the Company has subsequently answered, denying
     the material allegations of the complaint.  In August 1997, the Company
     served discovery requests on Mr. Scheinfeld, who was initially obligated to
     respond by September 12, 1997.  On March 2, 1998, Mr. Scheinfeld responded
     to such discovery requests which response is currently under review by
     counsel to the Company.  Currently, the parties are actively engaged in
     settlement discussions.

                                       -9-

<PAGE>

                   MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                                          
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                          
                                          
     LITIGATION (CONTINUED)

     DANIEL DROR V. MICROTEL INTERNATIONAL, INC.
          
          In November 1996, the Company entered into an agreement (the
     "Agreement") with the former Chairman of the Company, which involved
     certain mutual obligations.  In December 1997, the former Chairman
     defaulted on the repayment of the first installment of a debt obligation
     which was an obligation set forth in the Agreement.  Also in December 1997,
     the former Chairman of the Company, filed suit in the District Court for
     Galveston County, Texas alleging the Company has breached an alleged oral
     modification of the Agreement.  In January 1998, the Company answered the
     complaint denying the allegation and the matter is currently being
     litigated in Texas.  The Company believes that the former Chairman's claim
     is without merit and intends to vigorously defend itself.  Subsequently,
     the Company brought an action in California against the former Chairman for
     breach of the Agreement and which seeks recovery of all stock, warrants and
     debt due the Company. The parties are currently conducting settlement 
     discussions in an attempt to resolve both this litigation and the 
     following matter ("Other litigation").
          
     OTHER LITIGATION
          
          In December 1997, Elk International Corporation Limited, a stockholder
     of the Company, brought an action in Texas against the Company's current
     Chairman and an unrelated party, alleging certain misrepresentations during
     the merger discussions between XIT and the Company.
          
(7)  PRIVATE PLACEMENT
     
          In June 1998 the Company sold 50 shares of Series A convertible
     preferred stock (the "Preferred Shares") at $10,000 per share to one
     institutional investor.  On July 8, 1998, the Company sold an additional
     150 Preferred Shares at the same per share price to two other institutional
     investors.  Included with the sale of such Preferred Shares were a total of
     one million warrants to purchase the Company's common stock exercisable at
     $1.25 per share and expiring May 22, 2001.  The unaudited proforma June 30,
     1998 balance sheet information presented elsewhere herein has been prepared
     to reflect the Company's financial position assuming the transactions which
     were completed in July 1998 had occurred as of June 30, 1998.

                                       -10-

<PAGE>

          
                   MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
                                          
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                          
                                          
(7)  PRIVATE PLACEMENT (CONTINUED)
     
          The Company received net proceeds totaling approximately $1,847,000
     after deduction of commissions and transaction-related expenses, and
     utilized such proceeds for working capital.  The Preferred Shares are
     convertible into the common stock of the Company at the option of the
     holder thereof at any time after the ninetieth (90th) day of issuance
     thereof at the conversion price per share of Preferred Share equal to
     $10,000 divided by the lesser of (x) $1.25 and (y) One Hundred Percent
     (100%) of the arithmetic average of the three lowest closing bid prices
     over the forty (40) trading days prior to the exercise date of any such
     conversion.  No more than 20% of the aggregate number of Preferred Shares
     originally purchased and owned by any single entity may be converted in any
     thirty (30) day period after the ninetieth (90th) day of issuance.  In the
     event of any liquidation, dissolution or winding up of the Company, the
     holders of shares of Preferred Shares are entitled to receive, prior and in
     preference to any distribution of any of the assets of the Company to the
     holders of the Company's common stock, an amount per share equal to $10,000
     for each outstanding Preferred Share.  Any unconverted Preferred Shares may
     be redeemed at the option of the Company for cash at a per share price
     equal to $11,500 per Preferred Share and any Preferred Shares which remain
     outstanding as of May 22, 2003 are subject to mandatory redemption by the
     Company at the same per-share redemption price.
     
(8)  NEW ACCOUNTING PRONOUNCEMENTS

          Statement of Financial Accounting Standards No. 131, "Disclosures
     about Segments of an Enterprise and Related Information" ("SFAS 131")
     issued by the FASB is effective for financial statements with fiscal years
     beginning after December 15, 1997.  The new standard requires that public
     business enterprises report certain information about operating segments in
     complete sets of financial statements of the enterprise and in condensed
     financial statements of interim periods issued to shareholders.  It also
     requires that public business enterprises report certain information about
     their products and services, the geographic areas in which they operate and
     their major customers.  The Company does not expect adoption of SFAS 131 to
     have a material effect on its financial position or results of operations.
          
          Statement of Financial Accounting Standards No. 132, "Employers'
     Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132")
     issued by the FASB is effective for financial statements with fiscal years
     beginning after December 15, 1997 and will require restatement of
     disclosures for earlier periods provided for comparative purposes.  SFAS
     132 standardizes the disclosure requirements for pensions and other
     postretirement benefits to the extent practicable, requires additional
     information on changes in the benefit obligations and fair values of plan
     assets that will facilitate financial analysis, and eliminates certain
     disclosures that are no longer considered useful.  The Company has not
     determined the effect, if any, of adoption of SFAS 132 on its financial
     position or results of operations.

                                       -11-

<PAGE>

                            MICROTEL INTERNATIONAL, INC.

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION AND RESULTS OF OPERATIONS


WHEN USED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, THE WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"CONTINUE," "ESTIMATE," "PROJECT," "INTEND", "SHOULD," "BELIEVE" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY 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 REGARDING EVENTS, CONDITIONS AND FINANCIAL
TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS
STRATEGY, OPERATING COSTS AND FINANCIAL POSITION.  PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS
MAY DIFFER MATERIALLY THAN THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF VARIOUS FACTORS.

     As discussed in Note 1 to the consolidated condensed financial statements,
the financial statements presented are those of XIT Corporation ("XIT")
resulting from the reverse acquisition by XIT of MicroTel International, Inc.
(the "Company") and its subsidiaries in a merger on March 26, 1997 (the
"Merger").  The pre-merger Company and "accounting acquiree" is described as CXR
in the discussion below.  The Company's Components and Subsystem Assemblies, and
Instrumentation and Test Equipment Sectors are referred to as "the Components
Sector" and "the Test Equipment Sector", respectively, in the discussion below
for brevity.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 VERSUS THREE MONTHS ENDED JUNE 30, 1997

     Net sales for the second quarter of 1998 decreased by $3,058,000 or 25% 
from those in the same period of the prior year.  This decrease resulted 
primarily from the inclusion of the operating results of the Company's XCEL 
Arnold Circuits, Inc. subsidiary ("XACI") in the second quarter of 1997.  The 
XACI operating results are not included in the same period in 1998 because 
the Company sold XACI effective as of March 31, 1998.  XACI represented 
approximately $2,680,000 of the decrease and the remainder resulted from 
decreases in net sales at the Company's other Circuits sector operations. 
Although net sales for the Company's Components sector increased 
approximately 7% for the second quarter of 1998 over that of the same period 
in 1997 as a result of a combination of both volume and price increases, this 
increase was offset by a corresponding decline in net sales of the Test 
Equipment sector resulting principally from declines in the sale of 
transmission products in the second quarter of 1998 compared with the second 
quarter of 1997.
     
     Gross profit, as a percentage of net sales, increased from 26% in the
second quarter of 1997 to 38% in the second quarter of 1998.  This increase
resulted primarily from the absence in the second quarter of 1998 of the
negative operating results experienced by XACI in the same period in 1997. 
Consequently, the Company's Circuits sector's gross profit rose to 22% of net
sales for the second quarter of 1998 from 7% for the same period in 1997. 
Additionally, the Company's Components sector realized an increase in gross
profit as a percentage of net sales to 37% in the second quarter of 1998 versus
28% for the same period in the prior year.  This increase resulted from both the
increase in 

                                       -12-

<PAGE>

sales noted above, certain price increases instituted by the sector in the 
fourth quarter of 1997 and implementation of a marketing strategy designed to 
increase sales of higher margin products while concurrently decreasing sales 
of products with lower gross profit margins. Gross profit margin as a 
percentage of net sales in the Test Equipment sector rose slightly to 45% in
the second quarter of 1998 from 43% in the same period of 1997 as higher margins
from the domestic operation's sale of newer test instruments more than offset 
the small decline in gross margin percentage from foreign operations which 
experienced an increase in the sale of third-party versus in-house products.
     
     Operating expenses (selling, general and administrative, and engineering 
and product development) decreased approximately $970,000 from $4,337,000 in 
the second quarter of 1997 to $3,370,000 in the second quarter of 1998.  The 
principal elements of this decline were: (i) a decrease in 1998 of such 
expenses for the Circuits sector of approximately $420,000 resulting from the 
absence of such expenses associated with XACI in 1998; (ii) a decrease in 
such expenses for the Components sector of approximately $220,000 resulting 
from reductions in general and administrative costs across the entire sector 
but most significantly in the United Kingdom operations; and (iii) a decrease 
in the Test Equipment sector of approximately $330,000 resulting from 
reductions in general and administrative costs associated with the relocation 
of the Company's CXR Telcom subsidiary to a smaller, more efficient facility 
in the fourth quarter of 1997 as well as reduced engineering and product 
development expenses.
     
     Selling expenses in all sectors as a percentage of sales were 
substantially the same in the second quarter of 1998 compared to the second 
quarter of 1997. Total general and administrative expenses decreased by 
approximately $540,000 or 26% in the second quarter of 1998 over the same 
period in 1997 as a result of cost reductions in the Components sector and 
the absence of such expenses for XACI for the second quarter of 1998.  
Excluding XACI, general and administrative expenses for the Circuits sector 
increased only $20,000 but increased as a percentage of net sales from 10% in 
the second quarter of 1997 to 14% in the same period in 1998 as a direct 
result of the decline in net sales for the sector.  In the Components Sector, 
general and administrative expenses decreased by approximately $320,000 and 
also decreased as a percentage of net sales from 20% in the second quarter of 
1997 to 9% for the same period in 1998 as the sector's operating companies in 
the United Kingdom and Japan decreased staffing and facility costs as noted 
above. General and administrative expenses for the Test Equipment sector 
remained constant at approximately 8.5% of net sales while engineering and 
product development expenses declined slightly as a percent of net sales from 
14% in the second quarter of 1997 to 12% in the second quarter of 1998 due to 
smaller expenditures required by the sector's European operations. Overall 
corporate administrative costs were substantially the same in the second 
quarter of 1998 compared with the same period in 1997.
     
     Interest expense decreased by $85,000 in the second quarter of 1998 
versus the second quarter of 1997 reflecting lower average borrowings during 
the 1998 period.  Other income (expense) is principally comprised of foreign 
currency exchange gains and losses incurred during the respective periods.
     
     As a result of the merger with XIT, the Company experienced a more than 
50% ownership change for federal income tax purposes.  As a result, an annual 
limitation will be placed upon the Company's ability to realize the benefit 
of its net operating loss and credit carryforwards.  The amount of this 
annual limitation, as well as the impact of the application of other possible 
limitations under the consolidated return regulations, has not been 
definitively determined at this time.  Management believes sufficient 
uncertainty exists regarding the realizability of the deferred tax asset 
items and that a valuation allowance, equal to the net deferred tax asset 
amount, is required.

                                       -13-

<PAGE>

SIX MONTHS ENDED JUNE 30, 1998 VERSUS JUNE 30, 1997
     
     Net sales for the first six months of 1998 decreased by approximately 
$1,020,000 or 5% from those in the same period of the prior year and was 
comprised of: (i) a decline in net sales of the Company's Circuits sector of 
approximately $3,630,000, of which approximately $3,180,000 resulted from the 
inclusion of the operating results of XACI for the entire period in 1997 
versus only the first three months of the first half of 1998 as a result of 
the sale of XACI which was effective as of March 31, 1998; (ii) a decrease in 
net sales of the Company's Components sector of approximately $760,000; and 
(iii) an increase in net sales for the Company's Test Equipment sector of 
$3,370,000 resulting from the inclusion of CXR for the entire six month 
period of 1998 versus only three months and five days during the first half 
of 1997 as a result of the Merger.  For the first six months of 1998, CXR 
experienced an increase in net sales of approximately $375,000 over the same 
period in 1997.
     
     Gross profit, as a percentage of net sales, increased from 24% in the 
first six months of 1997 to 30% in the same period in 1998.  This increase 
resulted primarily from the inclusion of the operating results of CXR for the 
entire six month period in 1998 versus three months and five days during the 
first six months of 1997.  In the first half of 1998, CXR contributed 
approximately $3,590,000 or 64% of the Company's total gross profit compared 
with $2,220,000 or 47% in the first half of 1997.  Gross profit, as a 
percentage of net sales, in the Company's Circuits and Components sectors 
remained essentially constant from the first half of 1997 to 1998 but 
decreased by approximately $480,000 resulting from the decrease in net sales 
in both sectors as noted above.
     
     Operating expenses (selling, general and administrative, and engineering 
and product development) increased $712,000 from $6,347,000 in the first six 
months of 1997 to $7,059,000 in the same period of 1998.  The principal 
element of this increase was the inclusion of the operating results of CXR 
for the entire six month period in 1998 versus three months and five days 
during the first six months of 1997 partially offset by the absence of such 
expenses in the second quarter of 1998 relating to XACI, subsequent to its 
sale.  Specifically, selling expenses experienced a net increase of 
approximately $560,000 in the first half of 1998 over 1997, primarily as the 
result of an increase of approximately $890,000 attributable to the inclusion 
of CXR and a decrease of approximately $310,000 resulting from the absence 
due to the sale of XACI.  The increase in general and administrative expense 
attributable to the inclusion of CXR for the entire six month period in 1998 
was substantially offset by the reduction in such expenses resulting from the 
sale of XACI.  Engineering and product development expenses increased 
approximately $350,000 in 1998 from 1997, substantially all of which was 
attributable to the inclusion of CXR for the full six month period in 1998.
     
     Selling expenses as a percentage of sales for the Circuits sector were 
substantially the same in the first six month of 1998 compared to the same 
period in 1997 while such expenses increased from 4.8% to 7.6% of net sales 
from 1997 to 1998 for the Components sector and from 18% to 21% for the Test 
Equipment sector as a result of spreading relatively fixed selling costs over 
lower net sales.  General and administrative expenses decreased approximately 
$200,000 in the first six months of 1998 compared with the same period in 
1997 principally as a result of a decrease in such expenses for the 
Components sector resulting from reductions in such costs across the entire 
sector, but most significantly in the United Kingdom operations which reduced 
staffing and facilities expenses during the second half of 1997.  Excluding 
XACI, general and administrative expenses for the Circuits sector increased 
only $23,000 but increased as a percentage of net sales from 7% in the first 
six months of 1997 to 10% in the same period in 1998 as a direct result of 
the decline in net sales for the sector.  In the Components Sector, general 
and administrative expenses decreased by approximately $590,000 and also 
decreased as a percentage of net sales from 18% in the first six months of 
1997 compared to 10% for the 

                                       -14-

<PAGE>

same period in 1998 as the sector's operating companies in the United Kingdom 
and Japan decreased personnel and facility costs as noted above.  Corporate 
administrative costs increased for the first six months of 1998 increased by 
approximately $130,000 over the same period in 1997 resulting principally 
from audit and tax return preparation expenses associated with the change in 
the Company's fiscal year-end.
     
     Interest expense decreased by $116,000 in the first six months of 1998 
versus the same period in 1997 reflecting lower average borrowings during the 
1998 period.  Other income (expense) is principally comprised of foreign 
currency exchange gains and losses incurred during the respective periods.

LIQUIDITY AND CAPITAL RESOURCES

     Cash of $2,260,000 was used in operations in the first six months of 
1998 versus cash of $2,766,000 used in operations in the first six months of 
1997. The decrease in cash used resulted from improved operating results in 
the 1998 period coupled with changes in working capital management during the 
respective periods.  Significant cash was consumed by XACI to fund continued 
operating losses until its sale at the end of the first quarter of 1998.  
During the first quarter of 1998, the Company also paid down approximately 
$660,000 in accrued expenses and accounts payable in connection with a $2.2 
million order received from AT&T in 1997, $1.4 million of which was shipped 
in the fourth quarter of 1997.  Although collection of accounts receivable 
remained stable during the first six months of 1998, at the end of the second 
quarter, the Company's accounts receivable rose sharply due to significant 
shipments by the Test Equipment sector at quarter-end.  Effective as of March 
31, 1998, the Company sold XACI, its principal circuits subsidiary, and in 
early April, received $1,350,000 in cash and a note for $650,000 upon the 
closing of the sale in early April.  The cash received was utilized to reduce 
certain long and short-term bank borrowings and other current debt.

     The Company's XIT subsidiary had a line of credit with a bank (the "XIT 
Debt") which provided for maximum borrowings of $3,500,000 collateralized by 
substantially all assets of XIT and its domestic subsidiaries with interest 
at the bank's prime rate (8.5% at June 30, 1998) plus 1%.  The XIT Debt 
agreement required maintenance of certain financial ratios and contained 
other restrictive covenants.  XIT was not in compliance with certain 
covenants of the XIT Debt agreement at December 31, 1997 and at June 30, 
1998.  Although the bank did not waive compliance with such debt covenants, 
it entered into a forbearance agreement with the Company in which it agreed 
to forbear from exercising its rights under the terms of the XIT Debt 
agreement provided the Company obtain a replacement credit facility.

     On July 8, 1998, the Company finalized a $10.5 million credit facility 
with a commercial finance company which provided a term loan of approximately 
$1.5 million and a revolving line of credit of up to $8 million based upon 
assets available from either existing or future-acquired operations, of which 
the Company has utilized approximately $4 million, and a capital equipment 
expenditure credit line of up to $1 million.  This credit facility replaced 
the existing credit facilities of the Company's domestic operating companies, 
which included the XIT Debt and CXR Telcom Corporation's line of credit, both 
of which were paid in full at the closing, and provides expanded borrowing 
capability based upon available assets.

                                       -15-

<PAGE>

     In June 1998, the Company sold 50 shares of Series A convertible 
preferred stock (the "Preferred Shares") at $10,000 per share to one 
institutional investor.  On July 8, 1998, the Company sold an additional 150 
Preferred Shares at the same per share price to two other institutional 
investors.  Included with the sale of such Preferred Shares were a total of 
one million warrants to purchase the Company's common stock exercisable at 
$1.25 per share and expiring May 22, 2001.  The unaudited proforma June 30, 
1998 balance sheet information presented elsewhere herein has been prepared 
to reflect the Company's financial position assuming the transactions which 
were completed in July 1998 had occurred as of June 30, 1998.  In total, the 
Company received net proceeds of approximately $1,847,000 after deduction of 
commissions and transaction-related expenses and utilized such proceeds for 
working capital.  The Preferred Shares are convertible into the common stock 
of the Company (see Note 7 to the Consolidated Condensed Financial Statements 
included elsewhere in this report).

YEAR 2000 ISSUE
     
     The Company continues to assess the impact, if any, of the Year 2000 
issue on its computer applications and operating systems, products and 
interactions with third parties.  At its domestic facilities, the Company is 
currently installing accounting and operations management computer 
applications which are year 2000 compliant and which operate on computer 
operating systems which are also year 2000 compliant.  The Company estimates 
that the completion of its conversion to such computer systems will occur 
during 1999.  The Company did not initiate such changes in application and 
operating software systems in order to accommodate the year 2000 issue but 
rather to upgrade and enhance its management information systems capability.  
As a part of its selection criteria, the Company considered the impact of the 
year 2000 issue.  While the Company currently believes that the impact of the 
change to the year 2000 will not have a material effect on the Company's 
operations or financial condition, its assessment of this issue is not yet 
complete and therefore some uncertainty exists as to whether material year 
2000 issues exist.
     
LEGAL PROCEEDINGS
     
     There are four legal proceedings pending against the Company (see Note 6 
to the Consolidated Condensed Financial Statements included elsewhere in this 
report).  Management believes that the outcome of these pending proceedings 
will not have a material adverse effect on the financial position, results of 
operations or cash flows of the Company.

OUTLOOK

     From the Merger at the end of March 1997 through early July 1998, the 
Company directed its attention to stabilizing its financial condition and 
improving its operating results.  In addition, during the second half of 
1997 and the first quarter of 1998, the Company expended considerable 
management time and effort to divest itself of the XACI operation which, due 
to its substantial operating losses, severely constricted the Company's cash 
position.  The Company's failure to maintain the requisite financial position 
and consequential default on its major bank debt financing agreement, which 
was eliminated in early July by the consolidated credit facility referenced 
above, resulted principally from the operating losses incurred at XACI.  The 
time and effort to manage that situation coupled with efforts to obtain a 
replacement credit facility absorbed considerable management attention.  
Nonetheless, with one exception, all operating units attained profitability 
in the second quarter of 1998. 

                                       -16-

<PAGE>

Additionally, the Company added $1.8 million in cash from the 
private equity placement referenced above.  The Company believes these 
achievements position it to continue to improve its operating results during 
the remainder of 1998.
     
     The Company's overall strategy is to expand its Test Equipment sector 
through the acquisition and/or development of new products, product lines 
and/or separate operating companies while concurrently continuing to evaluate 
existing lower-margin or loss operations elsewhere throughout the Company 
with a view toward divestment so as to redirect capital to the higher margin 
Test Equipment sector.  In addition, the Company will continue to seek to 
maximize short to intermediate term profitability on existing maturing 
product lines in all sectors through price increases and lower operating 
costs.  Over the last nine months, the Test Equipment sector in the United 
States market has successfully acquired and integrated the products of a 
state-of-the-art, customer-premises test equipment manufacturer located in St. 
Charles, Illinois.  The acquired products have replaced existing, aged 
products and, in a short period of time, have become a significant portion of 
the net sales of the US operation.  Production of this product line has been 
transferred to and consolidated with the CXR Telcom facility in Fremont, 
California and the St. Charles facility has been repositioned as an 
engineering, R&D and customer support center. Additionally, the French Test 
Equipment subsidiary has begun to market a broader range of test, 
transmission and networking products sourced through licensing, reseller and 
other agreements.  These actions, in conjunction with the reduction of lower 
margin Circuits sector business and the restructured marketing focus in the 
Components sector on higher margin products, has resulted in the Company 
reducing its net loss in the first quarter of 1998 from approximately 
$950,000 to just over $200,000 in the second quarter of 1998.  The Company 
believes continued improvement in operating results will continue in the 
third quarter despite this traditionally weak summer period in the Test 
Equipment sector - particularly in European - as demand for product in the 
other sectors remains stable.
     
     In the US Test Equipment Sector, the recent completion of mergers of 
various Regional Bell Operating Companies is beginning to produce new 
opportunities.  The consolidation of Southwest Bell and Pacific Bell now 
appears complete and release of equipment purchases is once again beginning 
to return to traditional levels.  Although the NYNEX and Bell Atlantic merger 
had initially created some uncertainty and delayed capital equipment 
purchases, this merger now affords the Company the opportunity to provide the 
combined entity with the Company's newer test equipment products.  Domestic 
sales of transmission products are expected to improve with the introduction 
of Remote Access Server products for Internet applications as well as trial 
systems for other transmission products which are currently in place.  
Additionally, in-house efforts are being directed toward developing software 
which will allow the recently acquired test equipment products to be marketed 
in both the Pacific Rim and Latin America.
     
NEW ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards No. 131, "Disclosures about 
Segments of an Enterprise and Related Information" ("SFAS 131") issued by the 
FASB is effective for financial statements with fiscal years beginning after 
December 15, 1997.  The new standard requires that public business 
enterprises report certain information about operating segments in complete 
sets of financial statements of the enterprise and in condensed financial 
statements of interim periods issued to shareholders.  It also requires that 
public business enterprises report certain information about their products 
and services, the geographic areas in which they operate and their major 
customers.  The Company does not expect adoption of SFAS 131 to have a 
material effect on its financial position or results of operations. 

                                       -17-

<PAGE>

     Statement of Financial Accounting Standards No. 132, "Employers' 
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132") 
issued by the FASB is effective for financial statements with fiscal years 
beginning after December 15, 1997 and will require restatement of disclosures 
for earlier periods provided for comparative purposes.  SFAS 132 standardizes 
the disclosure requirements for pensions and other postretirement benefits to 
the extent practicable, requires additional information on changes in the 
benefit obligations and fair values of plan assets that will facilitate 
financial analysis, and eliminates certain disclosures that are no longer 
considered useful.  The Company has not determined the effect, if any, of 
adoption of SFAS 132 on its financial position or results of operations. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
     None

PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

     See Note 6 - Litigation in the accompanying Notes to Unaudited Consolidated
     Condensed Financial Statements; Part II, Item 1 of the Registrant's
     Quarterly Report on Form 10-Q filed on May 15, 1998; and, Legal Proceedings
     section of Item 3 of the Registrant's Annual Report on Form 10-K filed on
     April 15, 1998 for a description of previously reported proceedings.

Item 2.  Changes in Securities and Use of Proceeds

     (a)  None.

     (b)  None.

     (c)  During June and July 1998, the Company, through its Placement Agent 
          Pacific Continental Securities Corporation, completed the sale to 
          three institutional investors of 200 shares of Series A convertible 
          preferred stock (the "Preferred Shares") at $10,000 per share and 
          one million warrants to purchase the Company's common stock 
          exercisable at $1.25 per share, expiring May 22, 2001.  The 
          offering was completed on July 8, 1998 and the Company received net 
          proceeds of approximately $1,847,000 after deduction of commissions 
          and transaction-related expenses and utilized such proceeds for 
          working capital.  The Preferred Shares are convertible into the 
          common stock of the Company at the option of the holder thereof at 
          any time after the ninetieth (90th) day of issuance thereof at the 
          conversion price per share of Preferred Share equal to $10,000 
          divided by the lesser of (x) $1.25 and (y) One Hundred Percent 
          (100%) of the arithmetic average of the three lowest closing bid 
          prices over the forty (40) trading days prior to the exercise date 
          of any such conversion.  No more than 20% of the aggregate number 
          of Preferred Shares originally purchased and owned by any single 
          may be converted in any thirty (30) day period after the ninetieth 
          (90th) day of issuance.  In the event of any liquidation, 
          dissolution or winding up of the Company, the holders of shares of 
          Preferred Shares are entitled to receive, prior and in preference 
          to any distribution of 

                                       -18-

<PAGE>

          any of the assets of this corporation to the holders of the 
          company's common stock by reason of their ownership, an amount per 
          share equal to $10,000 for each outstanding Preferred Share.  Any 
          unconverted Preferred Shares may be redeemed at the option of the 
          Company for cash at a per share price equal to $11,500 per 
          Preferred Share and any Preferred Shares which remain outstanding 
          as of May 22, 2003 are subject to mandatory redemption by the 
          Company at the same per-share redemption price.

     (d)  Not applicable.

Item 3.  Defaults upon Senior Securities

     None.

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

     On June 11, 1998, the Company held its Annual Meeting of Stockholders.
     Matters voted on and results of the voting were as follows:

     A.   Election of Directors:

<TABLE>
<CAPTION>
     Name                          Class       Votes Received      Votes Withheld
     ----                          -----       --------------      --------------
<S>                                <C>         <C>                 <C>
     David A. Barrett                I            7,541,152           39,515
     Laurence P. Finnegan, Jr.      II            7,541,281           39,386
     Jack Talan                     II            3,966,229        3,614,438
</TABLE>

     Carmine T. Oliva and Robert Runyon are Class III directors whose term of
     office expires at the Company's Annual Meeting of Stockholders in 1999.
     
          Adoption of the Company's 1997 Stock Incentive Plan:
<TABLE>
<CAPTION>
          For                      Against        Abstain        Not Voted
          ---                      -------        -------        ---------
<S>                                <C>            <C>            <C>
       4,264,393                   340,971        614,870        2,360,433
</TABLE>

     C.   Ratification of Selection by the Board of Directors of BDO Seidman,
          LLP as Independent Accountants:
<TABLE>
<CAPTION>
          For                      Against        Abstain
          ---                      -------        -------  
<S>                                <C>            <C>      
     7,428,243                     13,001         139,423
</TABLE>

Item 5.  Other Information

     None.

                                       -19-

<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

    (a)  Exhibits:

<TABLE>
<CAPTION>
     Exhibit   Description
     Number    -----------
     ------
<S>            <C>
     10.47     Loan and Security Agreement between Congress Financial
               Corporation (Western) and MicroTel International, Inc., XIT
               Corporation, CXR Telcom Corporation and HyComp, Inc. dated June
               23, 1998.

     10.48     Security Agreement between Congress Financial Corporation
               (Western) and XIT Corporation dated June 23, 1998.

     10.49     Subscription Agreement for the sale of Series A Convertible
               Preferred Stock of MicroTel International, Inc. to Fortune Fund
               Limited Seeker III.

     10.50     Subscription Agreement for the sale of Series A Convertible
               Preferred Stock of MicroTel International, Inc. to Rana General
               Holding, Ltd.

     10.51     Subscription Agreement for the sale of Series A Convertible
               Preferred Stock of MicroTel International, Inc. to Resonace Ltd.

     10.52     Form of Warrant to purchase the Common Stock of MicroTel
               International, Inc. issued in connection with the sale of Series
               A Convertible Preferred Stock..

     10.53     Amended Certificate of Designations, Preferences and Rights of
               Preferred Stock of MicroTel International, Inc. a Delaware
               Corporation.

     10.54     Employment Agreement between MicroTel International, Inc. and
               James P. Butler dated May 1, 1998.

     27        Unaudited Financial Data Schedule for the six months ended June 30,
               1998.
</TABLE>

    (b)  Reports on Form 8-K:

         Reports on Form 8-K were filed as follows:

         (1) Dated April 9, 1998 under Item 2. Acquisition and Disposition of 
             Assets was filed on April 4, 1997 and subsequently amended on 
             Form 8-KA filed June 3, 1998.

         (2) Dated July 8, 1998 under Item 5. Other Events was filed on July 
             30, 1998.

                                       -20-

<PAGE>

                                    SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of l934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                   MicroTel International, Inc.


August 13, 1998                    /s/ Carmine T. Oliva     
                                   -------------------------------
                                   Carmine T. Oliva
                                   Chief Executive Officer
                                   (Principal Executive Officer)




                                   /s/ James P. Butler 
                                   -------------------------------
                                   James P. Butler
                                   Chief Financial Officer
                                   (Principal Accounting and Financial Officer)

                                       -21-