<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 MARCH 31, 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 May 14, 1998, there were 11,927,793 shares of common stock outstanding.

                                       1

<PAGE>

                             MICROTEL INTERNATIONAL, INC.

                                  INDEX TO FORM 10-Q


                                                                           PAGE
                                                                           ----

PART I -  FINANCIAL INFORMATION

     Item l. Financial Statements

     Consolidated Condensed Balance Sheets
     March 31, 1998 and December 31, 1997                                      3

     Consolidated Condensed Statements of Operations
     Three Months Ended March 31, 1998 and l997                                4

     Consolidated Condensed Statements of Cash Flows
     Three Months Ended March 31, 1998 and l997                                5

     Notes to Consolidated Condensed Financial Statements                   6-10

     Item 2.  Management's Discussion and Analysis of Financial Condition 
     and Results of Operations                                             11-16

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk        

Part II - OTHER INFORMATION

     Item 1.  Legal Proceedings                                               17

     Item 2.  Changes in Securities                                           17

     Item 3.  Defaults upon Senior Securities                                 17

     Item 4.  Submission of Matters to a Vote of Security Holders             17

     Item 5.  Other Information                                               17

     Item 6.  Exhibits and Reports on Form 8-K                                17

Signatures                                                                    18

                                       2

<PAGE>

                          MICROTEL INTERNATIONAL, INC.
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (UNAUDITED)


                                               MARCH 31,      DEC. 31,
                                                 1998           1997
                                              ----------     ----------
                                                    (in thousands)
ASSETS
  Cash and cash equivalents                   $      516     $    1,921 
  Accounts receivable                              6,241          6,749 
  Receivable from sale of subsidiary               1,350              -
  Inventories                                      6,042          7,087
  Other current assets                               454            869
                                              ----------     ----------
  Total current assets                            14,603         16,626

  Property, plant and equipment-net                2,092          4,968
  Goodwill-net                                     1,858          1,906
  Other assets                                     2,460          1,940
                                              ----------     ----------
                                              $   21,013     $   25,440
                                              ----------     ----------
                                              ----------     ----------

LIABILITIES, REDEEMABLE PREFERRED STOCK
  AND STOCKHOLDERS' EQUITY
  Notes payable                               $    3,982     $    3,630
  Current portion of long-term debt                1,087          1,216
  Accounts payable                                 4,478          6,621
  Accrued expenses                                 3,298          3,837
                                              ----------     ----------
  Total current liabilities                       12,845         15,304

Long-term debt, less current portion               2,167          2,530
Other liabilities                                    792            789
Minority interest                                     94             88
                                              ----------     ----------
  Total liabilities                               15,898         18,711

Redeemable preferred stock                             -            714

Stockholders' equity:
  Common stock                                        39             39
  Additional paid-in capital                      19,961         19,960
  Accumulated deficit                            (14,838)       (13,877)
  Foreign currency translation adjustment            (47)          (107)
                                              ----------     ----------
  Total stockholders' equity                       5,115          6,015
                                              ----------     ----------
                                              $   21,013     $   25,440
                                              ----------     ----------
                                              ----------     ----------

See accompanying notes to consolidated condensed financial statements.

                                       3

<PAGE>

                             MicroTel International, Inc.
                   Consolidated Condensed Statements of Cash Flows
                                     (Unaudited)

<TABLE>
<CAPTION>
                                                                                Three months ended
                                                                                     March 31,
                                                                            1998                   1997
                                                                         ---------              ---------
                                                                        (in thousands, except per share amounts)
<S>                                                                       <C>                           <C>

Net sales                                                                 $9,742                        $7,707
Cost of sales                                                              7,506                         6,234
                                                                          ------                        ------
Gross profit                                                               2,236                         1,473

Operating expenses:
  Selling, general and administrative                                      3,119                         1,775
  Engineering and product development                                        571                            98
                                                                          ------                        ------
Loss from operations                                                      (1,454)                         (400)

Other income (expense)
  Interest expense                                                          (167)                         (198)
  Gain on sale of subsidiary                                                 670                           -  
  Other                                                                       18                            (1)
                                                                          ------                        ------
Loss before income taxes                                                    (933)                         (599)

Income taxes                                                                  15                             4
                                                                          ------                        ------
Net loss                                                                   $(948)                        $(603)
                                                                          ------                        ------
                                                                          ------                        ------
Basic and diluted loss per share                                          $(0.08)                       $(0.10)
                                                                          ------                        ------
                                                                          ------                        ------

Weighted average number of shares used in calculating
  basic and diluted loss per share                                        11,927                         6,244
                                                                          ------                        ------
                                                                          ------                        ------
</TABLE>

        See accompanying notes to consolidated condensed financial statements.

                                       4
<PAGE>

                               MICROTEL INTERNATIONAL, INC.
                      CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                      (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                            MARCH 31,
                                                                               1998                          1997
                                                                            ----------                    ----------
                                                                                          (in thousands)
<S>                                                                        <C>                          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                   $  (948)                      $  (603)
  Adjustments to reconcile net loss to cash (used in) operating activities:
     Depreciation and amortization                                              206                           162
     Amortization of intangibles                                                 48                            48
     Gain on sale of subsidiary                                                (670)                            -
     Minority interest and other noncash items                                    8                             2
     Changes in operating assets and liabilities:
       Accounts receivable                                                       93                          (157)
       Inventories                                                              279                           440
       Other assets                                                             190                           (43)
       Accounts payable and accrued expenses                                   (537)                           93
                                                                            ----------                    ----------
Cash used in operating activities                                            (1,331)                          (58)
                                                                            ----------                    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net purchases of property, plant and equipment                               (132)                           13
  Cash acquired in reverse acquisition                                          -                             264
                                                                            ----------                    ----------
Cash provided by (used in) investing activities                                (132)                          277
                                                                            ----------                    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (repayments) of notes payable                                  303                           290
  Net borrowings (repayments) of long-term debt                                (305)                         (281)
                                                                            ----------                    ----------
Cash provided by (used in) financing activities                                  (2)                            9
                                                                            ----------                    ----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                          60                          (116)
                                                                            ----------                    ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         (1,405)                          112

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   $  516                          $998
                                                                            ----------                    ----------
                                                                            ----------                    ----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.


                                      5
<PAGE>

                             MICROTEL INTERNATIONAL, INC.

                 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 communications equipment. XIT designs, manufactures, and
  markets information technology products, including displays and input
  components, subsystem assemblies, 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- Circuits, Components and Subsystem Assemblies, and Instrumentation
  and Test Equipment.
  
  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 March 31, 1998 and December 31,
  1997 and the results of operations and cash flows for the related interim
  periods ended March 31, 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>

(2)  LOSS PER SHARE
  
     The following table illustrates the computation of basic and diluted
  earnings (loss) per share: 

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED         THREE MONTHS ENDED
                                                                   MARCH 31, 1998             MARCH 31, 1997
                                                                ------------------         ------------------
  <S>                                                            <C>                       <C>
   NUMERATOR:
   Net loss                                                          $ (948,000)                $ (603,000)

   Less: accretion of the excess of the redemption value over 
   the carrying value of redeemable preferred stock                      13,000                     17,000
                                                                     ----------                 ----------
   Loss attributable to common stockholders                            (961,000)                  (620,000)

   DENOMINATOR:
   Weighted average number of common shares outstanding 
   during the period                                                 11,927,000                  6,244,000
                                                                     ----------                 ----------
   Basic and diluted loss per share                                  $     (.08)                $     (.10)
                                                                     ----------                 ----------
                                                                     ----------                 ----------
</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 $961,000 and $616,000 for the three 
     months ended March 31, 1998 and 1997, respectively.

                                      7
<PAGE>

(4)  INVENTORIES
          Inventories consist of the following:

<TABLE>
<CAPTION>
                                            March 31, 1998     December 31, 1997
                                            --------------     -----------------
    <S>                                     <C>                <C>
     Raw materials                            $2,215,000          $3,044,000
     Work-in-process                           2,192,000           2,333,000
     Finished goods                            1,635,000           1,710,000
                                              ----------          ----------
                                              $6,042,000          $7,087,000
                                              ----------          ----------
                                              ----------          ----------
</TABLE>

(5)  BANKING ARRANGEMENTS
     
          The Company's XIT subsidiary has a line of credit with a bank (the 
     "XIT Debt") which provides for maximum borrowings of $3,500,000.  The 
     line of credit was renewed on July 22, 1997 and expires on June 25, 
     1998.  The credit line is collateralized by substantially all assets of 
     XIT and its domestic subsidiaries, bears interest at the bank's prime 
     rate (8.5% at March 31, 1998) plus 1% and is payable on demand.

          The XIT Debt agreement requires maintenance of certain financial 
     ratios and contains other restrictive covenants. XIT was not in 
     compliance with certain debt covenants at December 31, 1997 and at March 
     31, 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 through May 31, 1998 from exercising its 
     rights under the terms of the XIT Debt agreement provided certain events 
     occur, principally the consummation of the sale of the Company's XCEL 
     Arnold Circuits, Inc. subsidiary (see Note 7) and the Company obtaining 
     a replacement credit facility.  Outstanding borrowings under this line 
     of credit were $2,947,000 and $2,377,000 at March 31, 1998 and December 
     31, 1997, respectively.

(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.
          
     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


                                       8
<PAGE>

     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.
          
     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.  More recently, the Company has brought an action in California 
     against the former Chairman for breach of the Agreement and seeks 
     recovery of all stock, warrants and debt due the Company.
          
     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.  The Company has moved
     to dismiss this suit on jurisdictional grounds and will vigorously defend
     the current Chairman on the merits should the matter not be dismissed.
          
(7)  DISPOSITION OF BUSINESS
     
          On January 9, 1998, the Company entered into a definitive agreement 
     to sell certain of the assets and liabilities of its XCEL Arnold 
     Circuits, Inc. subsidiary ("XACI"), a manufacturer of multi-layer bare 
     printed circuit boards, effective as of March 31, 1998.  The Company 
     completed the sale and received $1,350,000 in cash and a note receivable 
     aggregating $650,000, which is payable over the three years commencing 
     May 1, 1998.  The proceeds from this sale were received in April and were 
     used to partially repay amounts due under certain notes payable and other 
     current debt.  The sale resulted in a gain of approximately $670,000 
     which is included in the results of operations for the three months ended 
     March 31, 1998.  Summarized below are unaudited pro forma financial 
     results of operations of the Company as though the assets and liabilities 
     had been sold at the beginning of 1998.
          
            Net sales                             $8,554,000
            Net loss                              $ (927,000)
            Basic and diluted loss per share      $     (.08)


                                       9
<PAGE>

(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. 


                                      10
<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 
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

Net sales for the first quarter of 1998 increased by approximately $2,035,000 
or 26.4% from those in the same period of the prior year.  This increase was 
comprised of increased sales of CXR of $3,690,000 resulting from the 
inclusion of CXR's operating results for the entire first quarter in 1998 
versus five (5) days in the first quarter of 1997 subsequent to its 
acquisition on March 26, 1997 which were partially offset by lower net sales 
for the Company's Circuits Sector of approximately $666,000 and lower net 
sales for the Components Sector of $989,000.  The decrease in the Circuits 
Sector resulted primarily from lower demand from the major customer of the 
group, Motorola, and limited working capital which constrained the ability of 
the group to accept certain "quick turn" orders.  The net decrease in the 
Components Sector was due to delays in the receipt of orders from existing 
customers, which orders were received in the first quarter for delivery 
thereafter, as well as a general decline in demand for sector products due to 
the aging of related customer programs.

Gross profit, as a percentage of net sales, increased from 19.1% in the first
quarter of 1997 to 23.0% in the first quarter of 1998.  This increase was due
primarily to the inclusion of CXR for the entire first quarter of 1998 (versus
five days in the same period in 1997) as the average gross profit as a
percentage of net sales for CXR generally exceeds that of the other sectors. 
This increase would have been greater but was minimized by the decrease in gross
profit for the Circuits and Components Sectors whose gross profit as a
percentage of net sales decreased in the first quarter of 1998 versus 1997 due
to the decrease in net sales noted above and the consequential decline in
absorption of fixed manufacturing costs.

Operating expenses (selling, general and administrative, and engineering and
product development) increased $1,817,000 from $1,873,000 in the first quarter
of

                                       11

<PAGE>

1997 to $3,690,000 in the first quarter of 1998.  The primary component of 
this increase was a net increase of approximately $1,718,000 due to the 
inclusion of such expenses for CXR for the entire first quarter of 1998 
versus five days in the same period in 1997.  Selling expenses as a 
percentage of sales rose from 7.9% in the first quarter of 1997 to 15.2% in 
1998 for the same reason as well as the fact that such expenses as a 
percentage of net sales for CXR have a higher average than the other sectors. 
Selling expenses in the Circuits Sector as a percentage of sales increased 
from 9.5% in the first quarter of 1997 to 11.5% in the first quarter of 1998 
as the result of a change in sales mix toward those products with higher 
commissions.  The increase was due to a higher mix of house account to 
manufacturer's representative sales in 1997 and the effects on the percentage 
in 1998 of spreading fixed departmental costs over the lower sales volume.  
Selling expenses in the Components Sector as a percentage of sales increased 
from 5.3% in the first quarter of 1997 to 8.0% in the same period in 1998 
also as a result of the effect on the percentage in 1998 of spreading 
relatively fixed departmental costs over the lower sales volume. General and 
administrative expenses increased by $361,000 or 20.3% in the first quarter 
of 1998 over the same period in 1997 as a result of the inclusion of such 
expenses for CXR for the entire first quarter of 1998 versus five days in the 
same period in 1997.  In the Circuits Sector, general and administrative 
expenses declined slightly but increased as a percentage of net sales as a 
direct result of the decrease in net sales for the sector.  In the Components 
Sector, general and administrative expenses decreased by approximately 
$267,000 and also decreased as a percentage of net sales from 15.1% in the 
first quarter of 1997 to 10.4% for the same period in 1998 as the sector's 
operating companies in the United Kingdom and Japan decreased headcount and 
facility costs.  This decline in general and administrative expenses was more 
than outweighed by higher corporate administrative costs which increases 
relate principally to incremental accounting and legal fees associated with 
public reporting requirements and the change in 1997 of the Company's fiscal 
year end.

Engineering and product development expenses increased by $473,000 from the 
first quarter of 1997 to the same period in 1998 again due principally to the 
inclusion of such expenses for CXR for the entire first quarter of 1998 
versus five days in the same period in 1997 for which such expenses have been 
historically substantially higher than for the other two sectors.

The Company recorded a gain on the sale of its XCEL Arnold Circuits, Inc. 
subsidiary ("XACI") of approximately $670,000 which was sold as of March 31, 
1998.  Had XACI been sold as of January 1, 1998 and its results of operations 
not included with those of the Company for the first quarter of 1998, the net 
loss for the Company would have been approximately $927,000 (see Note 7 to 
the Consolidated Condensed Financial Statements included elsewhere in this 
report).

Interest expense decreased by $31,000 in the first quarter of 1998 versus the 
first 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.

                                       12

<PAGE>

As noted above, the consolidated results of operations for the three months 
ended March 31, 1998 and 1997 include the results of operations of CXR since 
its acquisition on March 26, 1997.  The table below sets forth the results of 
CXR for the three months ended March 31, 1998 and 1997 and the following 
discussion relates to such results of operations.

<TABLE>
<CAPTION>

                                             CXR
                                        (in thousands)
                                      THREE MONTHS ENDED
                                          MARCH 31,
                                    1998             1997
                                 ---------       ----------
   <S>                           <C>             <C>
   Net sales                     $ 4,190         $  3,496
   Cost of sales                   2,542            2,454
                                 ---------       ----------
   Gross profit                    1,648            1,042
   Selling expense                   933              896
   General & administrative          391            1,424
   Engineering & product
     development                     504              552
   Interest expense                   16               16
   Other expense (income)             (6)              58
                                 ---------       ----------
   Net loss                      $  (190)        $ (1,904)
                                 ---------       ----------
                                 ---------       ----------

</TABLE>


For the three months ended March 31, 1998, net sales increased $694,000 as a 
result of sales of a new product line of test instruments acquired in October 
1997 for sale in the U. S. and an increase in the sale of test instruments at 
CXR's French subsidiary.  Gross profit increased in both absolute dollars as 
a result of the increase in sales and also as a percentage of net sales as 
gross profit for the new domestic test instrument products average higher 
than those of preexisting product lines.  Selling expenses increased slightly 
but fell from 25.6% of net sales in the first quarter of 1997 to 22.3% in the 
same period in 1998 as the result of spreading relatively fixed selling 
expenses over the higher sales volume, principally at CXR's domestic 
operation.

General and administrative expense decreased $1,033,000 from the first 
quarter of 1997 compared to the same period in 1998 as CXR incurred certain 
significant charges in 1997 including approximately $462,000 of compensation 
expense related to certain officers and directors whose corporate capacities 
terminated or changed upon the merger with XIT Corporation and $287,000 of 
asset write-downs and severance costs related to the reassessment of the 
impact on asset realizable values and certain reductions in personnel, 
respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash of $1,331,000 was used in operations in the first three months of 1998 
versus cash of $58,000 used in operations in the first three months of 1997. 
The increase in cash use was caused by the decline in results of operations, 
coupled with changes in working capital management during the respective 
periods.  Significant cash used in operations was consumed by XACI to fund 
continued operating losses until its sale at the end of the quarter.  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.  
Additionally, the Company experienced somewhat improved collections of 
accounts receivable and reduced inventories by

                                       13

<PAGE>

$279,000, primarily at XACI in response to reduced net sales.

Effective as of March 31, 1998, the Company sold XACI, its principal 
circuits subsidiary, and 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 has a line of credit with a bank (the "XIT 
Debt") which was renewed on July 22, 1997 and expires on June 25, 1998.  The 
credit line is collateralized by substantially all assets of XIT and its 
domestic subsidiaries.  The XIT Debt agreement requires maintenance of 
certain financial ratios and contains other restrictive covenants.  XIT was 
not in compliance with certain debt covenants at December 31, 1997 and at 
March 31, 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 through May 31, 1998 from exercising its rights under 
the terms of the XIT Debt agreement provided certain events occur, 
principally the consummation of the sale of the XACI (see Note 7 to the 
Consolidated Condensed Financial Statements included elsewhere in this 
report) and the Company obtaining a replacement credit facility.  As noted 
above , XACI was sold and the Company has obtained a proposal from a 
commercial asset-based lender for the purpose of replacing the existing bank 
credit facility.  Management anticipates that the requirements necessary to 
finalize such replacement credit facility will be substantially completed 
during May 1998.  Additionally, management is actively seeking additional 
funds through a private placement of equity securities.  There can be no 
assurance, however, that such financing will be available, or if available, 
that it will be on terms favorable to the Company.

There are two 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

CIRCUITS SECTOR

As a result of substantial losses incurred by XACI in 1997 and despite the 
expectation of ultimately improved operating performance, the Company sold 
XACI effective as of March 31, 1998.  The net loss for XACI represented 
approximately 68% of the total net loss for the Company, excluding the 
write-down of goodwill of $5.7 million, for the year ended December 31, 1997 
and approximately 43% of the net loss for the Company, excluding the gain on 
its sale, for the first quarter of 1998.  Although the sale closed in early 
April, the sale was effective as of March 31, 1998 and therefore the 
operating results of XACI will have no impact on the results of operations of 
the Company in the second quarter of 1998 or thereafter.  The sale of XACI 
resulted in a gain of $670,000 which was recorded in the first quarter.  
Unfortunately the losses sustained by XACI diverted working capital from the 
Company's XCEL Etch-Tek division, which reported a net loss of $348,000 in 
the first quarter due to the lack of working capital, which severely 
constrained shipments and resulted in other operating inefficiencies.  
Acquired in 1996, Etch-Tek first became profitable in mid-1997 and remained 
so for the last six months of 1997 until constrained by the lack of working 
capital.  Despite EtchTek's 1998 first quarter loss, the Company expects 
Etch-Tek to return to profitability during the third quarter if additional 
working

                                       14

<PAGE>

capital becomes available as a result of management's efforts to obtain an 
expanded credit facility and to obtain additional funds through the sale of 
equity (see "Liquidity and Capital Resources" above).  Also, following the 
sale of XACI and in order to reduce costs and increase management efficiency, 
the Company consolidated the sales, marketing and overall management 
functions of its XCEL Circuits Division operation in Monrovia, California 
with that of Etch-Tek.

Another component of  the Circuits sector, HyComp, Inc., in 1997 established 
an industry-leading position in the production and assembly of "flip chip" 
devices utilizing single semiconductor chips, rather than requiring complete 
semiconductor wafers.  Management believes that HyComp is presently the only 
company commercially producing flip chip assemblies from single chips.  Flip 
chip technology is forecasted by Prismark Partners, a recognized market 
research firm in the microelectronics industry, to be the fastest growing 
interconnection technology of the next five years.  HyComp's 6-year 
development of flip chip interconnection has been primarily funded by 
$810,000 in contracts from the Defense Advanced Research Projects Agency to 
set up a prototype production facility based on flipping single chips and was 
the only company so funded. This has brought HyComp into joint development 
programs with Hewlett Packard, Litton, Amecon, General Dynamics, Orbital 
Sciences, Raytheon, General Electric, Poly-Flex Circuits, Lawrence Berkeley 
Laboratories, and Rutherford Laboratories (UK), among others.  While these 
development programs have totaled less than $50,000 in sales to date, the 
first significant production program, approaching $500,000 in sales per year 
is scheduled for the third quarter of 1998, with others of similar or larger 
size expected to follow.

COMPONENTS SECTOR
 
While the Components Sector incurred a small loss in the first quarter of 
1998, both the order backlog and shipments increased significantly during the 
quarter and thereafter and the Company expects this situation to continue. 
Order backlog for the Component Sector's domestic operating unit increased 
55% to $2,467,000 from January 1st through the end of April 1998.  
Unfortunately, shipments and production efficiencies during this same period 
have been negatively impacted by a lack of working capital.  The Company 
expects this situation to be resolved if additional working capital becomes 
available as a result of management's efforts to obtain an expanded credit 
facility and additional funds through the sale of equity (see "Liquidity and 
Capital Resources" above).

TEST EQUIPMENT SECTOR

In the Test Equipment Sector, the negative impact of the reorganizations of 
the Sector's domestic customers has eased with the merger of Southwest Bell 
and PAC Bell, and Nynex and Mid-Atlantic Bell, as well as the final 
privatization approvals being settled for France Telecom.  As a result, in 
France, the Company's CXR, S. A. operating subsidiary was profitable for both 
the full year 1997 and the first quarter of 1998 on increasing revenues.  The 
Company expects this performance to continue to improve going forward in 1998.

The CXR Telcom subsidiary in Fremont, California was unprofitable for the 
full year 1997 and produced a loss of approximately $445,000 in the first 
quarter of 1998, reflecting a typically weak first quarter following a very 
strong fourth quarter in 1997, the quarter in which CXR's customers 
historically consume their remaining capital funds for test instruments for 
the calendar year.

Revenues for CXR Telcom for the first quarter of 1998 increased 96% over 
those of the first quarter of 1997 and orders received for the first quarter 
of 1998 increased by 56% to $1,432,000 from the corresponding period last 
year.  The increase in the order rate resulted from completion of the 
reorganizations noted above and the introduction of several new products 
following the acquisition of Critical Communications, Inc. ("Critical") in 
October 1997.  These new products are sophisticated, state-of-the-art, 
portable telephone test instruments used by both long-distance carriers and 
local telephone service providers as well as by corporate and

                                       15

<PAGE>


government telecommunications end users.  The Company has merged the 
manufacturing operations of Critical into those of CXR Telcom and is 
distributing its products through both existing CXR and Critical sales 
channels. These new products expand the existing CXR product offering to 
include additional software-driven, user-friendly and cost-competitive 
products which are broadening CXR's penetration of the Installation and 
Maintenance ("I&M") segments of the telecommunications marketplace - i.e., 
that segment in which corporate services installations and maintenance are 
provided by the various telephone companies.  While CXR's existing I&M 
products are used extensively in the Central Office testing environment 
(which necessitates the use of a multi-function, all-in-one test instrument), 
Critical's products are primarily designed to service the test instrument 
needs at outside plant service installations, where lightweight, portable 
products requiring fewer functional testing features are required.  It is 
particularly in this market segment, where CXR presently competes with only 
one, outdated product, that the Critical product line is having a significant 
impact.  Orders received for these products, which are now branded under the 
CXR name, are a major contributor to CXR Telcom's revenue and increase in 
booked orders.

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. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
     None

                                       16

<PAGE>

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     No material developments.  See Note 6 - Litigation of the accompanying
     unaudited consolidated condensed financial statements 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

     None.

Item 3.  Defaults upon Senior Securities

     None.

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

     None.

Item 5.  Other Information

     None.

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits:

     Exhibit 27 - Unaudited Financial Data Schedule for the three months ended
     March 31, 1998.

     (b)  Reports on Form 8-K:

     None

                                       17


<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.


May 14, 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)

                                       18