<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(X) Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
    Act of 1934

For the fiscal year ended December 31, 1996 or

( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

For the transition period __________

Commission file Number 1-10346

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

                  Delaware                                  77-0226211
4290 E. Brickell Street, Ontario, California 91761       (909) 391-4321
   (Address of principal executive offices)            (Registrant's telephone
                                                        number, including area
                                                                 code)

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 [ ]

Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10- K or any
amendment to this Form 10-K. [ ].

The aggregate market value of the voting stock at March 31, 1997 held by
nonaffiliates was approximately $13,042,190.

As of March 31, 1997 there were 9,305,127 shares of Common Stock, Par Value
$.0033, outstanding.

When used in this Form 10-K, the words "may," "will," "expect," "anticipate,"
"continue," "estimate,""project," "intend" 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.

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement in respect of the 1997 Annual Meeting of
Shareholders of the Company is incorporated by reference into Part III of this
Form 10-K.

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Item 1. Business

                                  INTRODUCTION

             CXR Telcom Corporation ("CXR Telcom") was incorporated in l984
under the laws of the State of Delaware. In 1989, the stockholders adopted a
plan creating CXR Corporation as a holding company for the stock of CXR Telcom
Corporation and CXR S.A., its European subsidiary. CXR Corporation is also
incorporated under the laws of the State of Delaware. At the annual meeting of
shareholders on February 28, 1995, the majority of shareholders voted to change
CXR Corporation's name to MicroTel International, Inc. ("MicroTel" or the
"Company"). On March 26, 1997, MicroTel consummated a merger transaction (the
"Merger") pursuant to which XIT Corporation ("XIT"), a New Jersey corporation,
became a wholly owned subsidiary of MicroTel. In connection with the Merger, the
principal executive offices of MicroTel have been relocated to 4290 E. Brickell
Street, Ontario, California 91761. A description of the business of CXR Telcom
and CXR S.A. is set forth immediately below and is followed by a description of
the business of XIT.

CXR TELCOM AND CXR S.A.

             CXR Telcom and CXR S.A. (collectively, "CXR") design, manufacture
and market electronic telecommunications test equipment and data communications
equipment, and perform network integration services. Their customers include
AT&T, the Regional Bell Operating Companies ("RBOCS"), interconnect carriers,
independent telephone operating companies, private communications networks,
banks, brokerage firms and Government agencies. See Note 4 to the Consolidated
Financial Statements for financial information regarding foreign versus
domestic operations for CXR.


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PRODUCTS

Test Instruments

             TELECOM TEST INSTRUMENTS. The CXR telecommunications test
instruments are part of the Information Superhighway and offer various options
for the measurement of the transmission characteristics of telephone circuits.
Most of these instruments are offered in portable versions; some have rack
mounting options for permanent installation. Some are offered with either
Bell-compatible (U.S.) or CCITT (European) measurement standards.

             The Model 100 Series Responders allow the RBOCS, interexchange
carriers, such as AT&T, MCI, U.S. Sprint, etc., or end users to remotely and
automatically monitor, and actively test the quality of their transmission
facilities. These products are compatible with the AT&T Centralized Automatic
Reporting on Trunk (CAROT) testing system and are used by common carriers and
private network operators to test their circuit interfaces to the AT&T toll
network.

             As a result of the AT&T divestiture of its operating companies and
the trend towards user ownership of equipment, local telephone operating
companies have been forced to develop their internal capacity to identify and
isolate troubles in the network transmission facilities in both telephone
company owned or subscriber owned equipment.

             The basic components of these network testing systems are a Near
End responder (NER), a Far End responder (FER) and an access Switch. An NER is a
device that acts as the master in a master slave concept. An NER initiates a
test by transmitting a test message to the FER at the other end of the circuit.
A series of tests are coordinated through a routine sequence controlled by a PC
based "Autoroutining System" software program usually located at the master site
or the control center. The system program generates reports for all the test
data, exception reports, trouble tickets, and marginal performance lines.

             The 700 Series of Transmission test sets are used principally by
the telephone companies to perform analog measurements on voice grade and wide
band circuits applications involving Digital Data Service (DDS) and High
capacity Digital Subscriber Loops (HDSL). The primary use of this product line
is in metallic telephone loop qualification testing.

             The LEA 8000 Transmission Test Set is a product designed for
qualifying, commissioning and maintaining digital baseband leased lines, mono
and stereo radio channels and basic and primary rate voice and digital (ISDN)
subscriber loops. It is capable of making at very high transmission speeds all
of the necessary measurements according to the international CCITT
recommendations.

             CXR is now completing development of a comprehensive new family of
test sets incorporating powerful and cost-effective Digital Signal Processing
(DSP) measurement technology. These designs are incorporated into a new series
of general purpose instruments being sold as the model 5200 Universal
Transmission Analyzer. This product combines into one instrument the
capabilities of a Data Transmission Impairment Analyzer, a DS1 BERT Tester,

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a VF Signaling Network Access Unit, a T-1 Channel access Test Unit and a DDS
private line and switched digital service test product.

             CXR has developed an exceptional understanding of the telephone
market and computer systems applications, including not only the market demand
for testing and termination devices, but also, the competitive element factors
as well. As a result, CXR is positioning itself to provide a family of products
which satisfy the requirements of reasonable cost, high degree of reliability,
ease of operation and a clear migration path for future enhancement upgrades.

             CXR's product line, based on its model 5200, consists of a highly
modular device, encompassing a full gamut of testing functions, which works
considerably better than competitive equipment costing much more. Sales are
confined to small specialized areas within the maintenance organization of the
telephone companies. The product is multi-processor based using the highly
successful Intel X86 family, supported by a dual 32 bit Digital Signal
Processor. The product operates through a customized, internally developed
real-time operating system.

             The 5200 product line covers the specialized installation and
maintenance of all circuits involving voice, signalling transmission, data
64Kb/s data, 1.5Mb/s data as well as the new emerging ISDN qualification
testing. The 5200 is the first product of its kind to offer all these testing
capabilities within one package. Its success is based on its simple operational
format with a large easy-to-read LCD screen. The product is also powered by
internal batteries, in order to accommodate special hard-to-reach environments.

             DATACOM TEST INSTRUMENTS. Datacom test instruments are used to test
and monitor the performance of computers and communications equipment to insure
proper function in receiving or transmitting data over wide area or local area
networks. These Datacom instruments monitor, emulate and perform digital tests
on protocol, code and transmission functions of computers, terminals, modems,
multiplexers, front-end processors and other computer and communications
equipment.

             The Datacom instruments manufactured and sold by CXR for testing
wide area networks include the CXR Telcom 840A and 841A Network Signalling
Analyzers. The 840A is a hand-held field service instrument having limited
emulation capability and full monitor capability. The 841A is an easy-to-use
field service tool used primarily by telecommunications carriers for
installation and maintenance of the new Integrated Services for the Digital
Network (ISDN). Additional software features include the capabilities to test
and monitor the Common Channel Signalling System 7 (CCSS7) which is a worldwide
standard protocol developed for the purpose of transmitting information between
digital central office switches. It establishes which path the long distance
call will take in routing the call. The 841A is ideal for central office use as
well.

             Test instruments represented 35% of CXR sales for the year ended
December 31, 1996, 28% of CXR sales for the year ended December 31, 1995, 31% of
CXR sales for the six months ended December 31, 1994, and 41% of CXR sales for
the year ended June 30, 1994.


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Transmission Products

             CXR develops, manufactures, and sells a broad line of Anderson
Jacobson ("AJ") modem products. These include modem models operating at data
rates from 2400 bits per second (bps) through 33,600 bps. These are sold as
rackmount modems for use at central communication/computer sites or as
stand-alone modems at central communication/computer sites or as stand-alone
modems for use at remote sites. All of the AJ models are "feature rich" modems
that generally offer more capabilities and flexibility than competing products.

             The ability to transmit digital data to and from computers is an
important element in the computer industry. Communications and data interconnect
capabilities are fundamental requirements for maximization of computer systems
uses. The large volume of information to be exchanged between computer networks
in geographically disperse locations require rapid, accurate and economical
communications capabilities and the AJ product line is designed to meet and
satisfy such needs.

             The market for V.34 bis dialup 33,600 bps products is believed to
be a major growth area and much of CXR's modem development effort is being
concentrated on the V.34 bis, V.32ter and V.34 protocol, which include a 33,600
bps product line of modems with integral time division channels multiplexer
ports.

             The AJ 14,400/19,200 series is a true V.32 bis/V.32ter compatible
product line, with full duplex operation on standard dial-up lines or on 2- or
4-wire leased lines. The series features trellis coded modulation and local and
remote echo cancellation, with capabilities to cope with satellite delay of
multiple hops in long distance transmission. Also, the series is equipped with
multiple number storage capacity via a V.25 bis synchronous dialer for computer
controlled application. In leased line operation the series features unattended
automatic dial backup using the dial-up network in the event of lease line
failures. The series is also available in either stand alone desktop
applications or as a card for chassis rackmount configuration.

             The AJ Smart Rack is a modem management enclosure that accommodates
16 modular card modems that allows the data center managers to keep track of
configurations, diagnostics, alarms and system status at all times through a
menu driven user interface. The main advantage of the Smart Rack is simplicity
of keeping track with real time monitoring and reporting of all activities using
simple easy to read display screens. Also an on-board modem allows access from
remote locations and the ability to dial a predefined sequence of numbers for
alarm reporting.

             The AJ 5900 series offers intelligent T-1 Channel Service Units
which provide access to D4 and Extended Super Frame (ESF) on High Capacity
Digital Service (HCDS), in either a single line or rack mount configuration. The
AJ 5900 series offers a single termination interface to the Data Terminal
Equipment (DTE), providing continuous monitoring for bipolar violations and
multiple error events. The user can select thresholds for error rates, with
separate levels for the network and the equipment. The series provide complete
access to both the network side and the user side, along with the appropriate
diagnostic tests in order to maintain network integrity.


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             CXR is also introducing a new product line, the AJ 6900 series for
T1 and fractional T1 CSU-DSU application. These newly introduced products will
provide for the direct interface between the customer's equipment and the T1
facilities. The AJ 6900 series will operate at any multiple 56K or 64K b/s,
including current Frame Relay data rates. Built-in multiplexer ports allow
simultaneous connections to a PBX or channel bank, which share the same T1
facility. The AJ 6900 series have an integrated Simple Network Management
Protocol (SNMP) and therefore can easily be managed by any network management
system using SNMP.

             Transmission products represented 44% of CXR sales for the year
ended December 31, 1996, 62% of CXR sales for the year ended December 31, 1995,
61% of CXR sales for the six months ended December 31, 1994, and 38% of CXR
sales for the year ended June 30, 1994.

             At the end of fiscal 1994 CXR sold its network management (NAMS),
local area network testing (LAN) and protocol analyzer product line (Digilog
Division) to Numerex Corporation. (See Note 3 to the 1996 Consolidated Financial
Statements included elsewhere herein).

Networking Systems

             In 1996, CXR S.A. formed a new business unit to market several
lines of products used to build data and voice networks. All of these products
are sourced from third-party vendors under distributorship or OEM arrangements.
The "product" marketed to its customers is a turnkey solution using these
products and includes network design, installation and maintenance.

             The product lines marketed consist of four primary types as
follows: a) multiplexing equipment used to transport data, voice and local area
network traffic over point-to-point leased lines and frame relay networks; b)
statistical multiplexers, terminal servers and routers for local area network
interconnections; c) data compression equipment used to compress and encrypt
data streams prior to network access to maximize transmission speed and secure
the transmission and to decompress and decipher upon transmission receipt; and
d) ISDN routers used to link remote offices to corporate office local area
networks.

             Networking system revenues for its first year were $2,807,000 or
17% of CXR sales for year-ended December 31, 1996.

PRODUCT DEVELOPMENT AND ENGINEERING

             CXR's product development and engineering is critical in view of
rapid technological innovation in the telecommunications industry. Currently 25
engineers and technicians are engaged in CXR's research and development efforts.

             During the year ended December 31, 1996 and the year ended December
31, 1995, engineering and product development costs were $2,612,000 and
$2,373,000, respectively, of which $795,000 and $699,000, respectively, were
capitalized. Amortization is calculated using the greater of the straight line
method over three years or the ratio of the product's current revenues divided
by its total anticipated revenues. For the six months ended December 31, 1994

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and fiscal year ended June 30, 1994 CXR's engineering and product development
costs were $659,000 and $2,960,000, respectively. These product development
costs were related primarily to development of new telecommunications test
equipment, trunk testing system products and data communications equipment.
Current research expenditures are directed principally towards enhancements to
the current test instrument product line and development of increased band width
(faster speed) transmission products. These expenditures are intended to improve
market share and gross margins, although no assurances may be given that such
improvements will be achieved.

             CXR also makes use of the latest CAD (Computer Aided Design)
equipment to design and package its products. This puts CXR in the position to
take full advantage of the latest CAE (Computer Aided Engineering), and EDA
workstation tools (Engineering Design Automation) to design, simulate and test
its advanced product features or product enhancements for custom circuits and
miniaturization purposes. With the above mentioned tools, product developments
are turned around very quickly, keeping the highest quality and reliability
integrated as part of the overall development process. This kind of capability
also allows CXR to offer custom featured designs for the potentially expanding
Original Equipment Manufacturers (OEM) customers, whose needs require the
integration of CXR's products with their own.

CUSTOMERS AND MARKETING

             Customers for CXR's products include AT&T, the RBOCS, international
telephone companies and private communications networks. Data communications
test equipment and modem equipment are purchased by telecommunications equipment
manufacturers and used in the design, manufacture, installation and maintenance
of the electronic equipment they provide. Network test equipment is purchased by
the major long distance carriers.

             CXR sells its products through its own direct sales and marketing
force and independent representative firms and distributors in the United
States. It direct sells in the European Community through CXR S.A. Other
international sales are made through independent representatives in various
parts of the world.

             During the year ended December 31, 1996 and the year ended December
31, l995 no one customer accounted for 10% or more of net revenue. Net revenues
for the six months ended December 31, 1994 included sales of 10% to one
customer. Net revenues for the year ended June 30, 1994 included sales of 11%
to one customer.

COMPETITION

             CXR has numerous competitors in all of its product areas. In each
product area there are competitors with greater technological, financial and
marketing resources than those possessed by CXR. The ability of CXR to compete
is dependent on several factors including price, technology, product
performance, service and its ability to attract and retain qualified management
and technical personnel. CXR's business is subject to rapid technological
changes and the introduction of new products incorporating technological
advances is vital to CXR's success.


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BACKLOG

             CXR's business is not seasonal and its production capacity is
sufficient to meet current customer demand. Backlog of firm, unshipped orders
was approximately $1,268,000 at December 31, 1996, as compared to $682,000 at
December 31, l995, $1,858,000 at December 31, 1994 and $1,598,000 at June 30,
1994. Backlog is not deemed a significant measure of CXR's business, as
it has transitioned itself to become a Just-In-Time (JIT) provider, in order
to be more responsive to its customer base. Market pressures and quick delivery
requirements in the transmission product business area have necessitated the
implementation of a forecasting system coupled with a material requirement
planning process to accomplish this transition. The above change produced
quicker deliveries, which resulted in better customer satisfaction and a
smaller backlog as well.

MANUFACTURING

             CXR purchases the electronic components required for the
manufacture of its products from a number of vendors and has experienced no
significant difficulties in obtaining timely delivery of components. At present,
CXR Telcom's main manufacturing facility is located in San Jose, California and
CXR S.A.'s main facility is located in Abondant, France. CXR has a vertically
integrated strategy. Since manufacturing labor costs are less than 10% of total
production costs, and there is ample facility space, there is very little to be
saved by using outside contractors. Considering the overall scale volume of
manufacturing for all the different products, the pursuit of offshore
manufacturing is not at all practical. Because the production process involves a
fairly straightforward electronic assembly, CXR achieves an incremental cost
advantage through the use of limited automation.

             However, CXR spends considerable time on manufacturability in
product design and therefore harvests the benefits associated with the lower
costs and flexibility during the manufacturing process. An additional benefit of
in-house manufacturing is the ability to support normal production with all the
current design improvements as well as keeping track of the overall quality. CXR
is certified by both AT&T and Bellcore organizations as a quality vendor and
supplier of products and has obtained its full certification as an ISO 9001
member.

EMPLOYEES

             As of December 31, 1996, CXR employed 121 persons, of which 69 are
employed in the United States and 52 in France, as follows:

<TABLE>
<CAPTION>
                                     United States          France
                                     -------------          ------
<S>                                        <C>                <C>
Manufacturing                              27                 12
Marketing & Customer Service               19                 18
Research & Development                     13                 12
Administration                             10                 10
</TABLE>


             None of CXR's employees are represented by labor unions, and CXR
has had no work stoppages. Management believes that its employee relations are
good.

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PATENTS AND TRADEMARKS

             CXR owns several patents and possesses certain trademarks and
proprietary information, such as know-how and trade secrets it considers
important to its business and which it intends to protect through all
appropriate means, including legal action. CXR's business, however, is subject
to rapid technology changes and it believes that its success is dependent upon
skills in engineering, manufacturing and marketing rather than its patent
position. CXR has, nonetheless, followed a policy of filing applications for
patents on inventions which it considers significant.

REGULATION

             The Federal Communication Commission ("FCC") has adopted
regulations with respect to the interconnection of communications equipment with
telephone lines and radiation emanations of certain equipment. CXR has complied
with these regulations and received all necessary FCC approvals for its line of
trunk testing equipment. As additional products require certification, CXR
believes it will be able to satisfy all such future requirements. CXR believes
it complies with environmental regulations since it assembles, rather than
manufactures, electronic components and therefore discharges into the
environment are believed to be negligible.

XIT CORPORATION

             XIT is an international diversified electronics designer and
manufacturer of custom interconnect products (assembled printed circuit boards,
including chassis enclosures and front panels), digital switches, keypad and
keyboard input products, cathode ray tube and flat panel display products, bare
printed circuit boards, hybrid microelectronic circuits and electronic
subsystems incorporating custom input and display products. Its sales and
services are principally directed towards OEMs in the electronics industry,
including manufacturers of communications equipment, industrial and business
computers, automatic teller machines ("ATMs"), medical devices, industrial
instruments and test equipment and aerospace and military products.

             XIT's various product lines are divided into two sectors. XIT's
Components and Subsystem Assemblies Sector includes data input and display
components and outsourced input and display subsystems (Subsystem Engineering
and Manufacturing or SEM). The Circuits Sector includes electronic OEM circuits
(printed circuit boards, hybrid micro-electronic circuits). XIT manufacturers
and markets its products through its headquarters office in Ontario, California
and its subsidiaries and divisions - XCEL Arnold Circuits, Inc. (printed circuit
boards), XCEL Circuits Division (printed circuit boards), XCEL Etch Tek (printed
circuit boards), Digitran Division (keypads, keyboards, digital switches and
electronic subsystems), and HyComp, Inc. (thin film hybrid circuits and resistor
networks). In addition, XIT has three wholly-owned foreign subsidiaries which
assemble and market its products: XCEL Corporation Ltd., located in the United
Kingdom (components and subsystem assemblies), XCEL Abbott Ltd., located in the
United Kingdom (power supplies), and XCEL Japan Ltd., located in Japan
(reselling XIT and third party sourced components and providing purchasing
services to XIT).


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             XIT was incorporated in the State of New Jersey in 1972 and, after
a period of time operating an unrelated business under a different name, changed
its name to XCEL Computron Corporation in 1983 (and later to XCEL Corporation in
1986). In November of 1996, the Company changed its name from XCEL Corporation
to XIT Corporation and qualified to do business under the tradename "XCEL
Information Technologies Corporation" to better reflect the current nature of
the Company's business operations.

             In August of 1981, XIT began developing video display products.
Shipments of these products began in June 1983. In 1985, XIT expanded
significantly through the acquisition of its Digitran Division from Becton
Dickinson & Co. ("BD").

                  In 1991, XIT began a fundamental transition of its business
operations by divesting $1.5 million in unprofitable bare printed circuit board
volume for outside customers and $3.5 million in low margin standard keyboards.
During that year, XIT relocated its corporate headquarters, its Digitran
Division's input and display component business and its circuit division to
California and focused its manufacturing on low volume, high margin double-sided
and multi-layer boards. Commencing in that year, XIT has invested heavily in
research and development in order to diversify its product line and reduce its
dependence on military sales.

                  Commencing in 1994, XIT began actively seeking acquisition
candidates with complementary product lines. In July 1994, XIT acquired 84% of
HyComp, Inc. ("HyComp") through an exchange of its shares of Common Stock.
HyComp, formed in 1969, designs and manufacture hybrid circuits, resistor
networks, and thin film components. These products have a variety of uses in
military, aerospace, medical, computer, industrial control and communications
electronics. HyComp's products are for high-reliability applications where they
must withstand extremes of temperature, humidity, or environment. In December
1995 and January 1996, XIT acquired an additional 5% of HyComp Common Stock
through an exchange of XIT Common Stock for HyComp common shares and XIT Common
Stock for 100% of the HyComp Preferred Stock.

                  In May 1995, XIT established a printed circuit board contract
assembly operation, XCMD, in Philadelphia, Pennsylvania. This operation was part
of Janbridge, Inc., that filed for bankruptcy in April 1995. XIT purchased
certain work-in-process from Janbridge's bankruptcy trustee and retained a
certain number of Janbridge's former employees. This operation is now being run
at the Ontario, California facility as part of the SEM activity.

                  In July 1995, XCEL sold its Computron Display Systems Division
("Computron"), based in Forest Park, Illinois, a manufacturer of higher cost
custom color and monochrome displays, for $1.8 million. Computron was sold
because XIT management perceived that the demand for its product lines would be
declining, and because XIT's growth in this product area was expected to be
derived from its low cost standard color cathode ray tube ("CRT") product line,
branded XCEL-Lite, as well as a full range of flat panel products manufactured
at its Digitran Division, rather than the existing Computron products.

                  In September 1995, though a newly established wholly-owned
subsidiary XCEL Arnold Circuits, Inc. ("XCEL Arnold"), XIT completed the
acquisition of the assets of Arnold


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Circuits, Inc., a LaHabra, California manufacturer of complex multi-layer,
surface mount circuit boards used in sophisticated electronic equipment for the
computer, communications, instrumentation and industrial controls industries.
XCEL Arnold's circuit boards are currently used principally in cellular
telephone infrastructure, but can also be used in workstations, desktop and
notebook computers, computer networking products, storage devices and medical
equipment.

                  In April 1996, XCEL Arnold completed the acquisition of
Etch-Tek, Inc., a manufacturer of quick turn and prototype quantities of double
sided and high layer count multilayer printed circuit boards. Etch-Tek has been
established as a division of XCEL Arnold, and operates as XCEL Etch Tek. XCEL
Etch Tek is located in Concord, California and maintains a direct sales office
in San Jose, California.

                  In September 1996, XCEL Corporation, Ltd. ("XCEL UK"), XCEL's
wholly owned British subsidiary, acquired Abbott Electronics, Ltd. ("Abbott")
from a large international British corporation, Adwest Ltd. XCEL UK operates
Abbott as a wholly-owned subsidiary of XCEL UK. Abbott specializes in the design
and manufacture of high and low voltage, high specification, compact and
micro-electronic power supplies to meet rugged environmental and high tolerance
electrical requirements. Abbott's power supplies are AC or DC, and are packaged
to meet the most demanding custom space and electrical requirements. The power
supplies use the latest hybrid circuit technology which can be sourced
internally from HyComp, rather than purchased from outside manufacturers. Also,
the non-hybrid circuits which are built on printed circuit boards are sourced
internally from XIT's Circuit Group's various circuit board manufacturing units.

                  XIT's business plan is to integrate its input, display and
printed circuit board components into subsystem assemblies for a select number
of OEMs in a diverse range of industries, including communications, industrial,
medical, aerospace and the military. In recent years, through the process of
outsourcing (utilizing contract assemblers for manufacturing), OEMs have been
able to reduce their investment in the facilities, equipment, personnel and
technological and manufacturing know-how necessary to assemble systems.
Outsourcing allows them to focus their efforts and resources on other areas such
as product research and development and marketing. Through the Digitran
Division, XCEL U.K. and XCEL Etch Tek, XIT offers complete manufacturing
solutions, including concurrent engineering, assembly of printed circuit boards
incorporating its input and display components, assembly of subsystems, test
engineering, software development and accessory packaging. XIT believes that its
ability to manufacture various electronic components, combined with its
engineering integration capability, provides it with a number of competitive
advantages in providing subsystem assemblies that can enable it to capture a
significant portion of this burgeoning market.

                  XIT's business strategy is to: (i) continue to capitalize on
the benefits of operating as a vertically integrated electronics company; (ii)
increase sales to existing customers; (iii) add new customers, products and
services through technology implementation; (iv) leverage its customer base to
generate increased subsystem assembly business; and (v) expand the sales of both
component and subsystem assemblies by acquiring companies or establishing
operations in new markets.



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PRODUCT LINES

                  XIT, through its various divisions and subsidiaries, designs
and manufactures printed circuit boards, hybrid circuits, resistor networks and
thin film components, data input and display devices and incorporates these
devices into fully integrated front panels, control panels, and other electronic
subsystems. A description of these products and subsystems follows:

                  - Printed Circuit Boards. Circuit boards, also called printed
             circuit boards or printed wiring boards, are essential components
             in virtually all sophisticated electronic products. The circuit
             board is the basic platform used to interconnect and mount
             electronic components such as microprocessors, resistor networks
             and capacitors. Circuit boards consist of copper traces on an
             insulating (dielectric) base, which provide electrical
             interconnections for electronic components. The development of more
             sophisticated electronic equipment by OEMs combining higher
             performance and reliability with reduced size and cost has created
             a demand for increased complexity, miniaturization and density in
             the circuit traces. In response to this demand, multi-layer boards
             have been developed in which several layers of circuitry are
             laminated together to form a single board with both horizontal and
             vertical electrical interconnections. Further circuit board
             sophistication is currently being achieved by decreasing the width
             and separation of the traces, drilling smaller holes to connect the
             internal trace layers and precisely situating the traces and pads
             on the board surface to accommodate surface mount components.

                           XCEL Arnold, XCEL Etch Tek and XCEL Circuits
             manufacture a full range of custom double-sided and multi-layer
             printed boards. XIT is MIL 55110 E, 94V-O, UL796 and ISO 9001
             qualified. Boards can be produced as large panels, with deep gold
             plating, in small and large lot sizes and in a multitude of forms.
             XCEL Arnold specializes in high density, multi-layer printed
             circuit boards of up to 12 layers, produced using a variety of
             materials. The majority of the XCEL Arnold's multi-layer rigid
             circuit boards are manufactured on a standard base laminate
             material having broad functionality. XCEL Etch Tek produces
             commercial and military multi-layer boards up to 24 layers. XIT
             Circuits Division also produces high performance circuit boards
             constructed from specialty materials.

                          High performance circuit boards are used in electronic
             products requiring high speed and high frequency interconnect
             solutions, such as cellular phone base stations and other
             communications, computing and instrumentation products. High
             performance circuits are manufactured using specialty materials
             with properties that address the need for faster speed, higher
             operating temperatures and higher frequencies. XCEL Arnold, XCEL
             Etch Tek and the XIT Circuits division have developed the expertise
             and specialized engineering processes required to manufacture high
             performance circuit boards using a broad range of materials,
             including Duroid(R), Cyanate Ester, GETEK(R) and Poly-Imed. XIT
             believes that it is one of the few merchant suppliers capable of
             producing high performance circuits using a combination of high
             performance base materials at acceptable quality and yield levels.


                                       12

<PAGE>   13
                          - Digital Switches. XIT's Digitran Division
             manufactures and sells a full line of military, industrial, and
             commercial switches. These products are thumb wheel, push button
             and lever modules or assemblies. The switches come in a variety of
             dial positions, assembly spacers, message units, markings and
             characters. Furthermore, the switches offer replaceable lighting,
             wire wrap terminals, RFI shielding and printed circuit board
             mounting.

                          - Displays. XCEL UK's color and monochrome CRT and
             XCEL-Lite monitors, manufactured by the Digitran Division, come in
             a variety of screen sizes, from five to twenty-one inches. Each
             monitor is customized to meet the needs of OEMs or sold "off the
             shelf" as lower cost color standard XCEL-Lite models. The monitors
             also come with a range of options, including: a wide range of
             phosphors, customer headers, video to all standard formats or
             customized, front access controls for brightness, contrast, and
             power, ruggedized exteriors, EMI/RFI shielding, low energy power
             and universal power supplies. The predominant market segments for
             these displays are medical, test instruments and rugged continuous
             use ATMs.

                          - Keypads & Keyboards. Beginning with the input of
             information, XIT offers a wide variety of custom keypads and
             keyboards. Its keypads, produced by the Digitran Division, are
             available in standard arrays of six (two rows of three), twelve
             (four rows of three), sixteen (four rows of four), or twenty (five
             rows of four or four rows of five) keys. In addition, these keypads
             can be especially designed in an almost unlimited variety of highly
             custom formats. XIT's keyboards produced by the Digitran Division
             are available with up to 123 keys and two LCD display options with
             touch screen user interfaces. The keyboards offer fully
             programmable LCD displays and menus with PC AT, RS-232, RS-422 or
             RS-423 system interfaces, along with two level adjustable audible
             feedback. XIT's patented capacitance keyboard switch design
             provides 100 million life cycles.

                          - Subsystem Engineering and Manufacturing ("SEM"). By
             integrating the above described printed circuit boards and input
             and display components, XIT's Digitran Division and XCEL are able
             to engineer and manufacture a wide variety of communications
             equipment, medical testing equipment, industrial machine
             controllers, and military weapons subsystems. Various medical
             equipment and gasoline service point of sales terminals and machine
             tools use Digitran's proprietary PF-Shield, a thin, tough PolyFilm
             which provides environmental protection from dust, most fuels,
             solvents and petroleum based products, yet does not detract from
             its cosmetic appearance or function performance. Furthermore, the
             shield is highly resistant to puncture, remarkably flexible,
             stabilized, flame retardant and remains flexible from -75 degrees
             Celsius to 150 degrees Celsius. XIT's industrial machine controller
             products eliminate interference and cross-talk between adjacent
             monitors, utilize high grade plastics (Digidome) that will not
             deteriorate when exposed to petrochemicals, and offer custom panels
             and keycaps that withstand the abusive industrial environment.
             XIT's military products utilize the highest quality materials to
             withstand nuclear, biological, and chemical contamination and
             extreme environmental conditions encountered in worldwide military
             deployment including rigorous shock and vibration.


                                       13

<PAGE>   14
                          - Microelectronic Circuits. HyComp's hybrid circuits
             combine components, such as resistors, capacitors, and integrated
             circuit chips, into one functional unit in a single sealed package.
             Hybrid circuits have advantages in size, weight, performance
             ruggedness, and reliability over separate individual components.
             HyComp's resistor networks are interconnected groups of resistors
             with extremely accurately matched resistance values, connected in a
             single sealed package and used in high-precision analog circuits.

                           HyComp's thin-film components include chip resistors,
             patterned substrates, and metalized wafers. They are sold to OEM
             manufacturers and other hybrid manufacturers who need the accuracy
             and small size of thin-film components, but do not have HyComp's
             experience or expertise in this technology. The predominant market
             segments for these circuits are communications, medical, aerospace
             and military.

                          - Power Supplies. Abbott specializes in the design and
             manufacture of high and low voltage, high specification, compact
             and micro-electronic power supplies to meet rugged environmental
             and high tolerance electrical requirements.

MANUFACTURING AND OPERATIONS

                  XIT is a vertically integrated diversified international
electronics manufacturer specializing in the following sectors: (1) bare printed
circuit boards and high performance hybrid custom micro-electronic circuits; and
(2) discrete data input and display components and custom integrated data input
and display subsystems. An overview of the operations and manufacturing
capability of its two market sectors follows:

Circuits Sector

             XIT's printed circuit board operations (XCEL Circuits Group), are
conducted by XCEL Arnold, XCEL Etch Tek, XCEL Circuits and HyComp. XCEL Arnold
carries out its operations in a 45,000 square foot facility in La Habra, CA,
XCEL Etch Tek is located in a 20,000 square foot facility in Concord, CA and XIT
Circuits carries out its operations at a 10,000 square foot facility in
Monrovia, CA. XCEL Arnold specializes in high density, multi-layer printed
circuit boards of up to 12 layers, produced using a variety of materials. The
majority of the XCEL Arnold's multi-layer rigid circuit boards are manufactured
on a standard base laminate material. It also produces high performance circuit
boards constructed from speciality materials.

             XCEL Arnold embraces Total Quality Management ("TQM") to meet the
highest industry standards for product quality. XCEL Arnold gained ISO 9002
certification in 1995, when it was among the first independent circuit board
operations in the United States to be certified to this level of international
quality standards.

             XCEL Arnold has developed proprietary techniques and manufacturing
expertise, particularly in the area of complex multi-layer, surface mount
circuit boards. XCEL


                                       14

<PAGE>   15
Arnold has not patented these proprietary techniques and instead relies on trade
secret protection. XCEL Arnold believes that although such techniques and
expertise are subject to misappropriation or obsolescence, development of
improved methods and processes and new techniques by XCEL Arnold will continue
on an ongoing basis as dictated by the technological needs of the business.

                  XCEL Etch Tek has been established as a division of XCEL
Arnold, and trades as XCEL Etch Tek. XCEL Etch Tek is a manufacturer of
sophisticated high multi-layer and quick turn and prototype printed circuit
boards, and is located in a modern, well-equipped 20,000 square foot facility in
Concord, California.

                  HyComp manufactures products for high-reliability applications
where they must withstand extremes of temperature, humidity, or environment.
HyComp's hybrid circuits combine components, such as resistors, capacitors and
integrated circuit chips, into one functional unit in a single sealed package.

                  HyComp's engineering activities include design and process
engineering, simulation, layout, CAD/CAE, and test software and hardware
development. Production takes place in class 10,000 and class 100,000 clean
rooms, with critical areas maintained at class 1,000. Production operations
include photo lithography, deposition, laser trim, wafer sawing, substrate
mount, wire bonding, assembly, trim, test, and environmental screening. HyComp's
thick film hybrids are manufactured by HyComp's strategic partner SIMESA in its
automated cassette to cassette production facility located in Vitoria, Spain.
This facility is ISO 9001 certified, as well as meeting many other European
quality standards. HyComp's US facility is certified and qualified to
MIL-STD-1772, and manufactures to MIL-H-38534 and MIL-STD-883. Quality programs
incorporate TQM and Statistical Process Control ("SPC").

Components Subsystem Assemblies Sector

                  XIT's components operations are conducted by the Digitran
Division, XCEL UK, Abbott and XCEL Japan, and subsystems engineering and
manufacturing for outsourced Input and Display Subsystem assemblies (SEM) and
other build-to-print assemblies are produced by the Digitran Division, XCEL UK
and Abbott.

                  XIT's Digitran Division manufactures and sells digital switch
products serving principally the aerospace market, but also for communications,
industrial and commercial applications. Thumbwheel, push button, lever modules,
together with assemblies are manufactured in 16 different model families.

                  XIT integrates its switch, data input and display devices with
an extensive vertically integrated manufacturing capability. Its state of the
art manufacturing and testing expertise provide quality and reliability.

                  For the XCEL-Lite display monitor product, XIT designed,
equipped and procedurized a color monitor production line. XIT increased
production volume by 30% and improved product quality and reliability. UL, CUL
and TUV certifications were awarded to the product. Overhead support functions
were integrated into an XCEL-Lite production line.


                                       15

<PAGE>   16
Customer returns were reduced by increasing quality and incorporated production
efficiencies by initiating Just-in-Time ("JIT") SPC and build-to-box assembly
methods.

                  In its SEM manufacturing, XIT uses a variety of advanced
technologies and processes and offers complete manufacturing solutions,
including concurrent engineering assembly of complex printed circuit boards and
other electronic assemblies, test engineering, software design, accessory
packaging and post manufacturing services. As electronic products evolve to meet
customer demands for increased functionality and performance in smaller, more
complex packages, XIT's manufacturing technologies and processes are evolving
from surface mount technology to include tape automated binding, full grid
arrays, chip on board chip in flux and emerging technologies such as flip chip
and multi-chip modules.

                  Abbott brings in-house all high voltage and low voltage power
supply requirements for XIT's telecommunications, aerospace, military, medical
and industrial displays and other information-based products. Approximately 75%
of Abbott's total sales are for aerospace and military customers. The remaining
25% is almost exclusively for communications information systems applications.
Thus, Abbott's product applications fit neatly with XIT's goal to expand its
information technology business.

                  Abbott currently sells its products and services throughout
Europe and to a lesser extent in the U.S. XIT intends to expand Abbott's U.S.
presence through support for Abbott by XIT's U.S. based sales and marketing
staff.

Summary

                  As part of XIT's commitment to continuous improvement, XIT has
instituted a corporate-wide quality assessment program in all departments
throughout its manufacturing operations. To date, XIT has received ISO 9000
certification for XCEL Arnold and is in the final phase of certification for
XCEL UK. Preparatory work is underway to certify the Digitran Division for
switch and other input devices along with the XIT-Lite display product line. XIT
believes that its proactive corporate-wide mandate to continually analyze and
improve all processes will enhance XIT's ability to build quality into all of
its component products and subsystem assemblies.

                  XIT integrates the diversity of its manufacturing facilities
to produce high quality products at a price OEMs can afford. XIT has
administrative, design and development and manufacturing facilities on both the
East and West Coasts. For worldwide support, XIT can offer services from its
European and Japanese sales and manufacturing facilities. XIT's design team acts
as an extension of its customer's development teams to shorten their design and
manufacturing time, reduce their vendor coordination and minimize their capital
equipment requirements. From concept through design, from prototypes to full
production, XIT's goal is to offer the complete solution: an integrated, fully
tested, reliable product built from the bare printed circuit board on up.


                                       16

<PAGE>   17
MARKETING AND SALES

                  XIT's marketing and sales program is designed to ensure
continuous working relationships with its customers early in the design phase of
the customer's product development. XIT uses a technical sales approach in which
each salesperson has back-up from an engineer to provide technical support to
the customer. This approach also creates a basis for upgrading equipment,
developing processes and maintaining a position of technological leadership.

Circuits Sector

                  In its circuits sector, XIT's customers include a diversified
base of leading OEMs in the communications, industrial instrumentation and
computer market segments of electronics. These customers often employ leading
edge technologies and their product requirements generally drive the advancement
of electronic interconnect manufacturing technology. Currently, XCEL Arnold's
largest customer is the Cellular Infrastructure Group of Motorola, accounting
for approximately 55% of XCEL Arnold's sales (and 41% of XIT's overall sales)
for the fiscal year ended September 30, 1996, XIT's first full year of
ownership. The Cellular Infrastructure Group manufacturers the equipment that
goes into a cellular base station including towers, mobile telephone switching
offices, cell site equipment and microwave equipment.

                  XIT recognizes that its Circuit Group must decrease its
dependence on Motorola and rapidly expand XCEL Arnold's customer base. XIT
intends to accomplish this through the acquisition of other printed circuit
board companies and by directing its sales and marketing efforts to other OEMs.
In addition, XIT's direct sales force from its other operations are now selling
XCEL Arnold's bare printed boards. By this activity, XIT expects to reduce the
Motorola concentration.

Components and Subsystem Assemblies Sector

                  XIT's components sector is accelerating its discrete digital
switch sales growth by providing value-added integrated SEM assembly of the
entire switch panel assembly and by providing other components attached behind
the switch. In the keyboard and keypad product areas, the Digitran Division has
developed specialized ruggedized and sealed high margin keyboards capitalizing
on Digitran's existing patented keyboard innovations.

                  XIT's growing line of color XCEL-Lite CRT and flat panel
display products include color displays for the banking and industrial equipment
markets. This product line has been evolving in conjunction with this industry
trend. U.S. and foreign financial institutions such as banks have been steadily
replacing old ATM machines with newer, more advanced models as banks strive to
replace costly tellers and back-office personnel. In addition, ATMs are evolving
beyond their original role as mere cash dispensers and deposit takers and in the
future will do such things as issue theater tickets and travelers checks and
dispense medications.

                  Capitalizing on its existing people and product strengths, XIT
has created an SEM capability that serves the data input and display integration
requirements specified by its customers. XIT's expertise in the design
engineering and manufacturing of stand-alone discrete



                                       17

<PAGE>   18
data input and displays is the foundation for a new market for integrated fully
assembled data input and display subsystem assemblies. It is a market where XIT
believes it has proven the need and believes there are few commercial domestic
competitors positioned to participate. Those who do participate tend to be
high-cost speciality military-oriented competitors. To serve the market, XIT
integrates for its customers discrete components for which its divisions already
have individual name recognition and proven specialty products.

                  XIT's products and subsystems are marketed through a sales
engineering staff that provides technical support, product training and pricing
services by various direct salespersons, sales representatives and distributors.
The digital switch and other input devices are sold through a direct sales
engineering staff and four distributors. CRT and flat panel displays and SEM are
sold through direct sales engineers. Printed circuit boards are sold through
XIT's direct sales force and several independent sales representatives, while
HyComp products use twelve representative firms. In Europe, sales are generated
by ten sales representatives and a direct sales engineering staff. In Japan, XIT
uses a direct sales engineering staff as well as five distributors.

                  Along with its various marketing and sales programs, XIT has
recently established a World Wide Web site (address: http://www.XITcorp.com),
promoting Digitran digital input devices, XCEL-Lite displays, and SEM
subsystems. Additionally, HyComp has established a Web site in support of its
hybrid microelectronic circuits and eventually will have a site for its new
technology, epoxy flip-chip multichip modules and assemblies. XCL and XCEL Japan
are also on the Internet.

RESEARCH AND DEVELOPMENT

                  The research and development efforts of XIT are focused on
internal and customer designs and requirements. XCEL Arnold, XCEL Etch Tek, the
Digitran Division, HyComp and XCEL UK offer value-added engineering design
services that range from concurrent engineering to total product assembly.

                  To meet customer demands for reduced cycle time in the
development process, XIT has continued to invest in electronic design automation
and synthesis tools. This equipment allows XIT's engineers to work at a more
conceptual level. As a result, XIT's project teams can quickly try out
alternative design approaches once and thereafter synthesize the design into the
selected technology automatically. The automation provided by these tools
significantly shortens the development cycle while improving cost and quality.
These tools allow XIT to pursue designs which could not be attempted with less
sophisticated tools and methods.

                  In 1993 and 1994, XIT invested approximately $1.5 million in
research and development to accelerate the introduction of new non-military
products. With this investment, XIT has been able to capture new industrial
business to more than offset the drop in military volume experienced since 1992.

                  In 1992, HyComp began investigating a lower cost alternative
flip chip assembly process than that developed by IBM in the 1980s. The HyComp
process called "adhesive flip chip" uses conductive adhesives as
interconnections, instead of deposited metals. The adhesive



                                       18

<PAGE>   19
flip chip process promises all the benefits of flip chip, but with substantially
lower capital investment and manufacturing costs.

                  In 1995, HyComp received a $750,000 contract from the Advanced
Research Projects Agency of the Department of Defense ("ARPA") to set up and
operate an adhesive flip chip assembly line. In microelectronic applications,
packaging has become a primary focus. As chips approach the limits of on-chip
densities, packaging, which space chips closely, becomes key to increasing
performance while decreasing size. Flip chip technology gives the highest chip
density of any packaging method. Instead of placing chips in space wasting
individual packages, they are assembled face down onto matching connections on a
substrate or board. Since the connections are under the chip, no additional
space is required for bonded wires or leads.

                  XIT's and HyComp's management believe that adhesive flip-chip
has significant potential size, performance and cost advantages for hybrid
circuit manufacture. It is expected that the two year ARPA program will make
HyComp the only hybrid company experienced in adhesive flip chip assembly, a
significant market advantage. HyComp's management expects that over the next
five years, flip chip will be the microelectronic packaging of choice for high
performance circuits. A prototype production process and initial samples are
expected by June, 1997 with production orders to follow in three months from
that time.

PATENTS AND TRADEMARKS

                  XIT regards its software and hardware as proprietary and
relies primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions, including
employee and third-party nondisclosure agreements, to protect its proprietary
rights. XIT seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford some limited
protection. The laws of some foreign counties do not protect XIT's proprietary
rights to the same extent as do the laws of the United States. XIT requires that
its employees enter into confidentiality agreements.

COMPETITION

                  The electronic product and systems market is intensely
competitive and characterized by rapid technological changes and frequent
introductions of new systems and products. A whole myriad of companies currently
offer systems and products that compete directly or indirectly with one or more
of XIT's products or subsystems. XIT's ability to be competitive depends on such
factors as price, quality of service, technological support and service, product
development capability, marketing, distribution channels and the quality and
expertise of its personnel.

                  The market for printed circuit boards in the United States is
fragmented and very competitive. There are over 700 companies producing circuit
boards in the United States. XIT competes primarily against other merchant
manufacturers. There are no dominant manufacturers in the segment of the
industry served by XIT and XIT believes that relatively few producers in the
United States have the technological competence, manufacturing processes, and
facilities to produce complex multi-layer surface mount circuit boards in
commercial volumes. The primary


                                       19

<PAGE>   20
competitor of XCEL Arnold is Hadco Corporation of Salem, New Hampshire, a
leading supplier of electronic interconnect products and services. XIT also
faces competition from certain captive circuit board manufacturers such as IBM.
These manufacturers may seek orders in the open market to fill excess capacity,
thereby increasing price competition. A number of XIT's competitors are larger
than XIT and have greater financial, marketing and other resources.

                  The market for printed circuit boards as well as HyComp's
microcircuits is characterized by competitive factors such as product quality,
technological capability, responsiveness to customers in delivery and service,
and price. XIT believes that competition in the market segments served by XIT is
based on product quality, delivery and price. XIT competes on the basis of the
customer's total cost of acquisition, which includes tangibles such as unit cost
and quality and intangibles, such as flexibility, capacity forecasting,
responsiveness and dedication to customer satisfaction.

                  XIT's SEM manufacturing competes in a highly fragmented market
composed of a diverse group of U.S.-based manufacturers. XIT believes that the
primary bases of competition in its markets are capability, price, manufacturing
quality, advanced manufacturing technology, and reliable delivery. XIT's
principal competitor is IEE Electronics, Inc. Many of the largest contract
manufacturers such as Solectron and SCI operate high-volume facilities and focus
on target markets, such as the computer industry, that XIT does not serve. XIT
believes that by focusing on low to medium-volume production, and by
manufacturing subsystems using its inhouse manufactured components, XIT can
compete effectively. Additionally, by taking on a wider range of systems than
its larger competitors and by having access to a diversified customer base, XIT
believes it is able to diversify its workload and is not as dependent as some of
its competitors on individual contracts, customers or industries.

EMPLOYEES

             As of December 31, 1996, XIT employed approximately 390 persons,
broken down between corporate and its subsidiaries and divisions as follows:

                  XIT Corporate              52

                  XCEL Arnold Subsidiary    110

                  XIT Circuits Division      15

                  Digitran Division         110

                  HyComp Subsidiary          32

                  XCEL UK                    16

                  XCEL Abbott                46

                  XCEL Japan                  9
                                            ---

                  TOTAL                     390

                                       20

<PAGE>   21

                  XIT has no collective bargaining agreements covering any of
its employees, has never experienced any material labor disruption and is
unaware of any current efforts or plans to organize its employees. XIT considers
relations with its employees to be excellent.

GOVERNMENT REGULATION, SAFETY, ENVIRONMENTAL COMPLIANCE

                  XIT's business is not regulated in the jurisdictions in which
it does business except for general business regulation and taxation applicable
to businesses.

                  XIT's business is subject to certain federal and state
statutes governing safety and environmental protection. XIT believes that it is
in substantial compliance with all such regulations and XIT is not aware of any
proposed or pending safety or environmental rule or regulation which, if
adopted, would have a material impact on its business or financial condition.

Item 2. Properties

PROPERTIES

             CXR Telcom's executive offices and CXR Telcom's manufacturing
facilities are located in a leased building containing approximately 40,000
square feet of floor space in San Jose, California. This lease expires July 1997
and it is anticipated that it will be renewed.

             CXR S.A. leases an aggregate of approximately 12,000 square feet in
France. This lease expires May 1998.

             All leased facilities are leased from unaffiliated third parties.

             CXR owns a 13,000 square foot facility in Abondant, France which is
used for manufacturing and engineering of all of its European products.

             XIT operates in the following facilities which are all leased,
other than the Melbourne facility which is owned by XCL, and the Ontario
facility which is owned by Capital Source Partners, a California partnership in
which XIT holds a 50% interest:

<TABLE>
<S>                              <C>                           <C>
Headquarters Office              10,000 sq. ft.                Ontario, CA
Digitran Division                53,000 sq. ft.                Ontario, CA
Office/Factory

XCEL Circuit                     10,000 sq. ft.                Monrovia, CA
Division
Office/Factory

XCEL Corp. Ltd.                  10,000 sq. ft.                Melbourne, Royal
Office/Factory                                                 Herts, UK
</TABLE>


                                       21

<PAGE>   22
<TABLE>
<S>                              <C>                           <C>
Headquarters Office              10,000 sq. ft.                Ontario, CA
XCEL Abbott Ltd.                 25,000 sq. ft.                Ashford, Kent
Office/Factory                                                 UK

XCEL Japan, Ltd.                  6,000 sq. ft.                Higashi-Gotanda,
Office/Assembly                                                Tokyo

XCEL Arnold, Inc.                45,000 sq. ft.                La Habra, CA
Office/Factory

HyComp, Inc.                     20,000 sq. ft.                Marlborough, MA
Office/Factory                  _______________

      Total                     179,000 sq. ft.
                                ===============
</TABLE>


             The Company believes its facilities provide adequate capacity for
its manufacturing, engineering and related marketing and administrative
activity at present and for the anticipated future.
             

Item 3.      Legal Proceedings

             In September, 1994 Raymond Jacobson, a former director of MicroTel,
brought an action against MicroTel in the California Superior Court, Santa Clara
County, alleging that MicroTel has breached its contract to pay Mr. Jacobson
$3,495 bi-weekly for life under a deferred compensation agreement dated May 11,
1993 (the "1993 Agreement"), by discontinuing payment in August 1994. The 1993
Agreement superseded a previous deferred compensation agreement dated April 1,
1977 (the "1977 Agreement") which had provided for twice the level of payments.
Mr. Jacobson was claiming damages of approximately $1,200,000 which he purported
to be the present value of all payments to be made under the 1993 Agreement. In
June 1995 MicroTel paid Mr. Jacobson all amounts past due under the contract
plus interest and reinstated the bi-weekly payments.

             On May 20, 1996, Daniel Dror & Co., Inc. ("DDC"), instituted a suit
against Raymond Jacobson in the District Court for Galveston County, Texas
alleging damages arising from DDC's investment of more than $2,000,000 for the
purchase of 1,072,000 shares of the Company's common stock. On February 11,
1997, Raymond Jacobson, through his attorney, demanded that the Company
indemnify him, hold him harmless and pay for the cost of defense, including
reasonable attorney's fees and costs in connection with the litigation
instituted against him by DDC. The Company believes that it has a reasonable
basis to deny Mr. Jacobson's claim for indemnification in part or in whole.

             On February 14, 1997, Mr. Jacobson, through his attorney, gave
notice to the Company that he believed that the litigation instituted against
him by DDC provided a basis for him to rescind the 1993 Agreement and assert his
rights to full payment under the 1977 Agreement. The Company's litigation
counsel believes that while Mr. Jacobson's allegations may be sufficient to
withstand a summary motion for dismissal of the claim, no conclusion can be
drawn as to his likelihood of success on the merits of the claim.

             Notwithstanding the above, Company management and Mr. Jacobson have
conducted settlement discussions since June 1996, and the Company believes that
an enforceable settlement was reached on January 22, 1997. Mr. Jacobson
apparently disclaims this agreement based on the actions noted above. On
February 28, 1997, the Company filed a motion for continuance to


                                       22

<PAGE>   23
file a counterclaim that the January 22, 1997 agreement supersedes all previous
agreements with Mr. Jacobson.

             A court supervised settlement conference with Mr. Jacobson was held
on March 26, 1997. Although a tentative settlement was reached, the settlement
was subject to fulfillment of a number of conditions subsequent. If one or more
of these conditions subsequent are not satisfied, the settlement will not be
binding on the parties. A trial in the matter has been scheduled for August 25,
1997. The Company does not believe that the value of any settlement in the
matter will be materially in excess of amounts already recorded by the Company
for the deferred compensation arrangement.

             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 MicroTel, 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 David Scheinfeld that in order to settle his claims, the Company would have
to issue him unrestricted shares of common stock. Since the Company can not
issue unrestricted shares (absent registration), the Company has answered Mr.
Scheinfeld's motion and is seeking to compel him to serve a complaint upon the
defendants.

             The Company and its subsidiaries are subject to other legal
proceedings and claims which have arisen in the ordinary course of business.
Although the ultimate outcome of these as well as the matters noted above cannot
be predicted with certainty pending actual resolution, in the opinion of
management, the disposition of these matters will not have a material adverse
effect on the consolidated financial statements.

Item 4. Submission of Matters to Vote of Security Holders

There were no matters submitted to a vote of security holders during the quarter
ended December 31, 1996.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

(a)  Market Information:

Since September 11, 1996, the Company's Common Stock has been trading on the
NASDAQ SmallCap Market under the symbol MCTL. Prior to that date, the shares of
the Company's Common Stock had been listed on the American Stock Exchange under
the symbol MOL. Accordingly, the tables below reflect the high and low sales
prices for a share of the Company's Common Stock during the period they were
listed on the AMEX, and the high and low bid information for the period during
which they were listed on the NASDAQ SmallCap Market. The quotations below for
dates commencing September 11, 1996 reflect inter-dealer prices, without
retail mark-ups, mark-downs or commissions, and may not represent actual
transactions.



                                       23

<PAGE>   24
On August 15, 1996, the shareholders of the Company ratified a one for five
reverse stock split effective for holders of record on August 29, 1996. The
sales prices below have been restated to give effect to the reverse split.

<TABLE>
<CAPTION>
                        Year Ended                       Year Ended
                     December 31, 1996                December 31, 1995
Quarter           High                Low            High           Low
-------           ---------------------------    ------------------------
<S>               <C>               <C>              <C>          <C>
1st               $9.375            $5.3125          $4.375       $3.125
2nd                8.750             4.6875           6.25         3.75
3rd                5.625             3.125            7.50         5.3125
4th                3.25              1.0625           6.5625       4.0625
</TABLE>

(b)  Shareholders:

As of March 31, 1997, the Company had approximately 3700 shareholders of
record.

(c)  Dividends:

The Company has not declared or paid any cash dividend since its inception. It
has been the general policy of the Board of Directors to retain all earnings in
the Company to support the expansion and development of new products.

(d)  Recent Sales of Unregistered Securities:

On April 14, 1997, the Company sold $5.0 million of investment units consisting
of one share of Common Stock and one-quarter of a warrant to purchase one share
of Common Stock. The number of investment units sold was 2,000,000 and the
Company realized net proceeds of $4,400,000 from the sale. No underwriter was
used. The securities were sold to non-U.S. investors who were primarily European
institutional investors.

The investment units were sold pursuant to Rule 903 of Regulation S and
qualified for such exemption based upon the following: (i) the investment unit
purchasers were represented to the Company in the Subscription Agreements that
they were non-U.S. Persons; (ii) the Company is a Reporting Issuer (as defined
in Rule 902(l) of Regulation S); (iii) the Company has not made any Directed
Selling Efforts (as defined in Rule 902(b) of Regulations S); (iv) the Company
has implemented Offering restrictions (as defined in Rule 902(h) of Regulation
S); (v) the Company has not made any offer of sale to any U.S. person or the
account or benefit of any U.S. person; (vi) the offer and sale of the investment
units were made in Offshore Transactions (as defined in Rule 902(i) of
Regulation S).

The Company did not sell any unregistered securities during the fiscal year
ended December 31, 1996.


                                       24

<PAGE>   25
Item 6.  Selected Financial Data


                  MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES

                  FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA



              (In Thousands Except Per Share Amounts and Employees)

<TABLE>
<CAPTION>
                                         Six Months
                     Year Ended Dec. 31      Dec 31   Fiscal Year Ended June 30

                      1996        1995        l994       1994        l993
---------------------------------------------------------------------------
<S>                 <C>         <C>         <C>        <C>         <C>
Sales               $ 16,303    $ 18,352    $  9,931   $ 21,648    $ 25,123

Net Income (Loss)   $ (4,597)   $   (667)   $    298   $   (639)   $ (6,909)

Net Income (Loss)
Per Share           $  (1.65)   $   (.25)   $    .15   $   (.39)   $  (4.47)

Total Assets        $  9,319    $ 11,325    $ 11,806   $ 11,322    $ 11,539

Long-term
Obligations         $    543    $  1,075    $  2,022   $  1,327    $  1,872

Stockholders'
Equity              $  2,776    $  4,956    $  4,978   $  4,614    $  4,341

Shares
Outstanding at
Year End               2,940       2,751       2,608      1,939       1,546


Employees at
Year End                 121         131         l40        l48         170
</TABLE>




No cash dividends were declared during any of the periods presented. On August
15, 1996, the shareholders of the Company ratified a one-for-five reverse split
effective for holders of record on August 29, 1996. Share and per share data
above and in the Management Discussion and Analysis of Condition and Results of
Operations following have been restated to give effect to the reverse split.



                                       25

<PAGE>   26
Item 7.  Management's Discussion and Analysis of
         Financial Conditions and Results of Operations

On March 26, 1997, XIT Corporation ("XIT") of Ontario, California merged with a
wholly-owned, newly formed subsidiary of the Company, with XIT as the surviving
subsidiary. Pursuant to the transaction, the former shareholders of XIT were
issued approximately 6,199,215 shares of common stock of the Company, or
approximately 65.8% of the issued and outstanding common stock. In addition,
holders of XIT stock options and warrants collectively have the right to acquire
an additional 2,153,240 shares of MicroTel Common Stock. Collectively, then, the
former XIT shareholders own, or have the right to acquire, approximately 65% of
the Common Stock of the Company on a fully-diluted basis as of the date of the
transaction.

The merger will be accounted for as a purchase of the Company by XIT in a
"reverse acquisition" because the existing shareholders of the Company prior to
the merger will not have voting control of the combined entity. In a reverse
acquisition, the accounting treatment differs from the legal form of the
transaction, as the continuing legal parent company, the Company, is not assumed
to be the acquiror and the financial statements of the combined entity are those
of the accounting acquiror (XIT), including any comparative prior year financial
statements presented by the combined entity after the business combination.
Therefore, the Consolidated Financial Statements herein and the following
discussion thereof will not appear in future Annual Reports of the Company.
Rather, the separate financial statements of XIT for periods prior to the merger
will be included in future financial reports of the Company.

Presented in Note 13 to the Consolidated Financial Statements are unaudited
proforma results of operations as if the companies combined at the beginning of
each of the last two years. This information is for illustrative purposes only
and does not purport to be indicative of the results that would have occurred
had the merger taken place at those dates or of results which may occur in the
future. A summary of XIT's separate results of operations used in the pro forma
data and summary balance sheet data for XIT as of its fiscal year ended
September 30, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                           Fiscal Year Ended September 30,
                                              1996                1995
--------------------------------------------------------------------------------
<S>                                        <C>                 <C>
Net sales                                  $31,248             $19,602
Net income                                   1,142                 396
Total assets                                20,524
Long term obligations                        3,723
Stockholders' equity                         6,550
</TABLE>


                                       26

<PAGE>   27
RESULTS OF OPERATIONS
FISCAL YEAR CHANGES

Effective December 31, 1994, the Company changed its year end from June 30 to
December 31 to better align its financial reporting cycle with the business
cycle of its products. Accordingly, the audited financial statements included in
the 1996 annual report comprise the two years ended December 31, 1996 and 1995,
the six months ended December 31, l994 and the year ended June 30, l994.

Management believes that a comparison of the consolidated statements of
operations for the twelve month period ended December 31, 1995 and the six month
period ended December l994 is not meaningful because of the length of the
reporting periods. Accordingly condensed consolidated statements of operations
for the three years ended December 31, 1996, l995 and l994 are presented below
for comparative purposes (in thousands except per share data).

The condensed statement of operations for the twelve months ended December 31,
l994 presented below has been derived from the unaudited financial records of
the Company. This condensed consolidated statement of operations reflects all
adjustments, consisting only of normal recurring items, which in the opinion of
management are necessary to fairly state the Company's results of operations for
the period presented.

Consolidated statements of operations data:

<TABLE>
<CAPTION>
                                       Twelve Months Ended December 3l,
                                         1996        1995        l994
                                                            (unaudited)
-----------------------------------------------------------------------
<S>                                    <C>         <C>         <C>
Sales                                  $ 16,303    $ 18,352    $ l9,938
                                       --------    --------    --------

Cost of Sales                            10,819      11,322      11,932
Engineering and Product
  Development                             1,817       1,674       2,157
Marketing and Selling                     3,715       3,928       3,695
Administration                            3,115       2,211       2,328
Severance & Related Settlement Costs      1,567
Other  (Income) Expense - Net               (48)         35          29
                                       --------    --------    --------
                                         20,985      19,170      20,141
                                       --------    --------    --------
Loss before
 Income Tax
  Benefit                                (4,682)       (818)       (203)
Income Tax Benefit                          (85)       (151)       --
                                       --------    --------    --------
Net Loss                               $ (4,597)   $   (667)   $   (203)
                                       =========   ========    ========
Net Loss per Share                     $  (1.65)   $   (.25)   $   (.11)
                                       ========    ========    ========
Weighted Average Number of
   Shares Outstanding                     2,783       2,678       1,910
                                       ========    ========    ========
</TABLE>


                                       27

<PAGE>   28
Overview

The company incurred a net loss of $4,597,000 in 1996 versus a net loss of
$667,000 in 1995 and a net loss of $203,000 in 1994. Net sales declined by 11%
in 1996 from those in 1995, and 1995 sales were 8% lower than those in 1994. The
loss in 1996 included significant fourth quarter charges totaling $3,048,000 as
described below.

Significant Fourth Quarter 1996 Adjustments

In the fourth quarter of 1996, the Company incurred severance and related
settlement costs totaling $1,567,000 related to the resignation of its Chairman
and settlement with its principal shareholder in anticipation of the merger with
XIT (see Note 2 to the Consolidated Financial Statements).

The Company also reduced the carrying value of certain inventory and capitalized
software development costs by $376,000 and $630,000, respectively, to their net
realizable value. These write-downs charged to cost of sales resulted from the
Company's reassessment of the anticipated continuing near-term impact of
industry and economic factors which affected the Company's 1996 operations. CXR
Telcom's sales have been negatively impacted by delays in buying by its
principal customers, as a result of the consolidation and/or restructuring of
these companies in the wake of the passage of the Telecommunications Bill of
1996; and CXR SA's sales have been impacted by a decline in sales to France
Telecom during its pre-privatization reorganization and a generally weak French
economy. Additionally, sales for both operating subsidiaries have been
negatively impacted by the rapid obsolescence of the analog-based components of
their product lines, particularly older transmission products; and further, both
sales and margins have been impacted by extreme price competition for
transmission products in general. Although the Company believes based on its
current assessment that the write-downs are adequate, no assurance can be given
should actual business conditions deteriorate.

Additionally, the Company recorded estimated litigation settlement costs
totaling $475,000, comprised of expected incremental costs of $344,000 to settle
a dispute regarding a former officer's deferred compensation agreement and
$131,000 for a contingent payment related to a price guarantee in a stock based
settlement of another dispute reached in the fourth quarter of 1996. These
estimated costs are included in administrative expenses in the accompanying
Consolidated Financial Statements.

Sales

Consolidated sales for the three years ended December 31, 1996, l995 and 1994
were comprised of the following for the Company's U.S. operating subsidiary, CXR
Telcom, and its French operating subsidiary, CXR S.A.(in thousands):

<TABLE>
<CAPTION>
                           1996     l995      1994
                         -------   -------   -------
<S>                      <C>       <C>       <C>
CXR Telcom               $ 6,825   $ 8,255   $ 8,045
CXR S.A                    9,478    10,097    10,565
Operation Sold 6/30/94      --        --       1,328
                         -------   -------   -------
                         $16,303   $18,352   $19,938
                         =======   =======   =======
</TABLE>

                                       28

<PAGE>   29
Sales of $l9,938,000 during the twelve months ended December 31, l994 include
$1,328,000 in sales of NAMS and LAN products. These product lines were sold to
Numerex (see Note 3 to the Consolidated Financial Statements) at the end of
fiscal l994.

Consolidated sales for 1996 declined by $2,049,000 or 11% from those in 1995,
comprised of declines for CXR Telcom and CXR S.A. of $1,430,000 or 17% and
$619,000 or 6%, respectively. These overall declines were caused by the factors
discussed above under Significant Fourth Quarter 1996 Adjustments. Lower
transmission product sales accounted for all of CXR Telcom's decline, while a
decline in transmission product sales of $2,658,000 for CXR S.A. was
substantially mitigated by increased revenues from its new network systems
business unit.

Although consolidated sales in l995 were approximately the same as l994, given
the effect of the sale of product lines discussed above, revenues were affected
by several factors. Firstly, although CXR Telcom sales were up modestly by 3%,
the U.S. Government shutdown caused the delay of processing of several major
orders of communications test equipment from several Government agencies.
Secondly, sales for CXR S.A. were down by 4% due to a slowdown in business
activity which occurred in France as a result of the national strikes and the
work stoppages against the French government's services which took place in the
latter part of l995. Thirdly, a general decline in demand for analog hand-held
test equipment and increased competition in the modem market in Europe further
pressured CXR S.A. revenues.

Gross Profit

Consolidated gross profit and its percentage of sales for the three years ended
December 31, 1996, 1995 and 1994 was $5,484,000 or 34%, $7,030,000 or 38%, and
$8,006,000 or 40%, respectively. Gross profit for 1996 was impacted by the
write-downs described above under Significant Fourth Quarter 1996 Adjustments.
Excluding the effects of the write-downs totaling $1,006,000, the gross profit
percentage for 1996 would have been 40%. The improvement of this adjusted margin
percentage over that of 1995 was due to improved margins on upgraded test
instrument product offerings by CXR Telcom more than compensating for the
decline in margins on transmission product sales and the relatively lower
margins achieved on CXR S.A.'s new network systems sales than those historically
achieved from transmission product sales that they have replaced. The decline in
gross profit percentage in 1995 from that of 1994 was due to lower margins
achieved on aging versions of test instruments sold during the year prior to new
test instrument product introductions in the fourth quarter of 1995.

Expenses

Engineering and product development costs for the three years ended December 31,
1996, 1995 and 1994 presented are as follows (in thousands):

<TABLE>
<CAPTION>
Period         Total Cost    Capitalized Software    Net Expense
------         ----------    --------------------    -----------
<S>              <C>                 <C>               <C>
1996             $2,612              $795              $1,817

1995              2,373               699               1,674

1994              2,647               490               2,157
</TABLE>


                                       29

<PAGE>   30
Engineering and product development costs relate to both the development and
maintenance of the Company's product lines. Current development efforts are
directed primarily toward enhancements to the current test instrument product
line and development of increased bandwidth (faster speed) transmission
products. The level of engineering and product development expenditures has
remained relatively constant over the three year period ended December 31, 1996,
with the capitalization of software development costs varying by year depending
on the mix of product development versus product maintenance efforts.

Marketing and selling costs in relation to sales increased to 23% in 1996 from
21% in 1995 and from 19% in 1994. The increase in 1996 over 1995 is due
principally to the decline in sales levels, with approximately the same level of
fixed departmental expenses. The increase in 1995 over 1994 is due to planned
marketing initiatives by CXR S.A.

Administrative expenses increased by $904,000 in 1996 over 1995. In addition to
the estimated litigation settlement costs of $475,000 discussed above under
Significant Fourth Quarter 1996 Adjustments, 1996 costs reflect increased legal
fees related to litigations and general corporate matters, increased business
development efforts, and increased personnel costs. Administrative expenses were
comparable between 1995 and 1994.

Other Income and Expense

Other (income) expense is comprised of the following for the three years ended
December 31, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                1996     1995     1994
                                               -----    -----    -----
<S>                                            <C>      <C>      <C>
Interest income                                $(371)   $(117)
Interest expense                                 319      164    $ 239
Other                                              4      (12)    (210)
                                               -----    -----    -----
                                               $ (48)   $  35    $  29
                                               =====    =====    =====
</TABLE>

Interest income in 1996 and 1995 was comprised principally of interest and/or
extension fees of $350,000 and $107,000, respectively, on the promissory note
taken in payment of the stock subscription from Elk International Corporation
Ltd. (see Note 2 to the Consolidated Financial Statements). Interest expense is
comprised principally of interest related to deferred compensation liabilities
and the Company's short-term borrowings. Fluctuations between the periods is
related primarily to the level of borrowings during the respective periods.
Other income was $210,000 in 1994 versus nominal amounts in 1996 and 1995 due
principally to foreign currency exchange gains and a gain on termination of a
facility lease in that year.

Income Taxes

The income tax benefits for 1996 and 1995 are due to recovery of prior year
taxes in France resulting from research tax credits.

The Company has gross deferred tax assets of $9,841,000, $8,017,000 and
$7,890,000 at December 31, 1996, 1995 and 1994 respectively. The most
substantial portion of the gross deferred tax assets represent the future
benefits of net operating loss carryforwards which expire

                                       30

<PAGE>   31
as detailed in Note 7 to the Consolidated Financial Statements. A valuation
allowance has been provided to reduce recorded total possible future tax
benefits to zero as the Company's recent history of operating losses does not
support a judgment that the deferred tax assets are more likely than not to be
realized in the future. Consequently, no tax benefits were recognized for the
Company's domestic and foreign operating losses during the periods presented.
Tax benefits will be recognized the earlier of when realized in future periods
or when future profitability of the Company appears sufficiently probable that
it appears more likely than not that the benefits will be realized. Further, the
gross deferred tax assets will decline significantly in 1997 as a result of
restrictions on the use of the Company's net operating loss carryforwards
arising from the ownership change for tax purposes accompanying the merger with
XIT.

Effects of Inflation

The impact of inflation and changing prices on Company's financial condition and
results of operations has not been significant.

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operations for 1996 was $201,000 compared to cash provided by
operations of $145,000 for 1995, $820,000 cash used in operations for the six
months ended December 31, l994, and cash provided by operations of $166,000 for
the year ended June 30, l994. Fluctuations between periods relate principally to
changes in working capital elements arising from business levels immediately
preceding the respective period ends. The Company had $519,000, $540,000,
$216,000, and $669,000 in depreciation and amortization expense which did not
require cash outlay for the years ended December 31, l996 and 1995, for the six
months ended December 31, l994, and for the year ended June 30, l994,
respectively. In addition, in 1996 the Company incurred non-cash charges
totaling $2,760,000 including $2,573,000 related to stock based costs of
severance and related settlements and certain asset write-downs as discussed
above, as well as certain other stock-based payments of expenses.

During the six months ended December 31, l994, the Company received $1,025,000
in cash from Numerex Corp. to satisfy the purchase price for the Digilog assets.
The proceeds were applied to reduce accounts payable and purchase a certificate
of deposit, which was subsequently used for cash needs in 1995.

MicroTel's cash uses during 1996 have been financed through short-term bank
borrowings, the proceeds from the exercise of warrants and options on the
Company's common stock, and the collection of approximately $380,000 of the
stock subscription by Elk International Corporation Limited. At December 31,
1996, the Company had no significant commitments for future capital
expenditures.

Since December 31, 1996, the Company has supplemented cash flows from
operations, which continue to be depressed for CXR Telecom in the U.S., with a
$500,000 loan from an officer. On February 20, 1997, the Company accepted a
commitment from Yorkton Securities Inc. ("Yorkton"), pursuant to which Yorkton
would use its best efforts to raise a minimum of $5,000,000 and a maximum of
$10,000,000 through a private placement of investment units consisting of one
share of restricted common stock and one quarter of a warrant to purchase one


                                       31

<PAGE>   32
share of restricted common stock. On April 14, 1997, a first closing occurred on
2,000,000 investment units, for gross proceeds of $5,000,000. Net proceeds to
the Company were $4,400,000. The Units were issued primarily to European
institutional investors pursuant to the exemption afforded by Regulation S
under the Securities Act of 1933, as amended. The offering, which is
structured to accommodate multiple closings, would terminate on the earlier of
i) the date the maximum offering of $10,000,000 is contracted or ii) April 18,
1997, unless extended by the mutual agreement of the Company and Yorkton.
Management believes that cash flows from operations and proceeds from the
offering will be adequate to support its working capital and business
development needs in 1997.

There are two significant legal proceedings pending against the Company (see
"Legal Proceedings" and Note 10 to the Consolidated Financial Statements).
Management believes that the outcome of these pending litigations will not have
a material adverse effect on the Company.

Outlook

In the U.S. the negative impact of the reorganizations of CXR Telcom's customers
in response to the signing of the Telecommunications Bill of 1996 continues, but
is believed to be a temporary phenomenon. The industry repositioning is expected
to result in growth as the changed entities emerge and the long distance
carriers vie for the local loop business of the RBOC's and the RBOC's compete
for long distance services. Final implementation guidance on the deregulation
provided for in the Telecommunications Bill of 1996 was released in late August
1996 by the federal government. CXR Telcom has been working with its customers
to prepare for their future needs in the expansion of their markets.

To overcome the negative factors impacting the Company's French operation, CXR
S.A. has implemented various changes to its business strategy. It has introduced
a new line of ISDN Terminal Adapters to its transmission product line, has begun
a new business unit which provides networking solutions to the business user
utilizing OEM products, and has refocused its marketing to expand its markets
outside of France. Revenue improvements have begun to be realized as a result of
these efforts.

With respect to XIT's business, beginning in the fourth quarter of its fiscal
year ended September 30, 1996, its gross margins began to decline significantly
as a result of lower gross margins in its XCEL Arnold Circuits, Inc. subsidiary
when Motorola, its largest customer, increased its demand for newer, digital
products to replace the higher gross margin analog products previously purchased
by Motorola. The Company does not anticipate the gross margins for the Circuits
Sector of XIT to improve until the latter part of the second quarter of calendar
1997, when it expects yield improvements, reductions in overtime and
outsourcing, improved cost control, and higher pricing for digital products sold
to Motorola will begin to show an effect.

New Accounting Pronouncements

Financial Accounting Standards Board Statement No 121, "Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of"
(FAS 121), became effective for the Company in l996. The new accounting
pronouncement requires, among other things, that


                                       32

<PAGE>   33
impairment losses on assets to be held, and gains or losses from assets that are
expected to be disposed of, be included as a component of income from continuing
operations. Addition of FAS 121 in 1996 had no material effect on the
consolidated financial statements as the Company's existing accounting policies
were consistent with its provisions.

Financial Accounting Standards Board Statement No. 123, "Accounting for Stock
Based Compensation" (FAS 123), also became effective for the Company in l996.
The new accounting pronouncement provides an alternative "fair value" method of
accounting for stock options and other stock based compensation and also
provides for expanded disclosures. The Company has elected not to apply the
alternative accounting method for stock based compensation to employees, but was
required to apply the new method to stock based transactions with non-employees
and to expand its disclosures in l996 to comply with FAS 123, including
providing proforma effects as if it had elected the alternative accounting
method for stock based compensation. (See Note 11 to Consolidated Financial
Statements for expanded disclosures).

On March 3, 1997 the Financial Accounting Standards Board issued FAS No. 128
"Earnings per Share". (FAS 128), which will become effective for the Company for
its year end December 31, 1997. This pronouncement provides a different method
of calculating earnings per share than is currently used in accordance with APB
No. 15, "Earnings per Share". FAS No. 128 provides for the calculation of Basic
and Diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share
of APB No. 15. Potentially dilutive securities have an antidilutive effect in
loss periods and are excluded from FAS 128 computations similar to current
practice. Therefore, the required restatements of prior period information upon
adoption will have no effect on earnings per share presented in the accompanying
Consolidated Financial Statements. However, as discussed previously, comparative
historical financial information of the Company presented after the reverse
acquisition by XIT Corporation on March 26, 1997 will be those of XIT
Corporation, and the effects of FAS 128 on such financial statements have yet to
be determined.


                                       33

<PAGE>   34
Item 8. Financial Statements and Supplementary Data


          This information appears in a separate section of this Report
following Part IV.



Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosures.

          None.

                                    PART III

Items 10-13.

          The information required by items 10-13 will either be set forth in
the definitive proxy statement in respect of the 1997 Annual Meeting of
Stockholders of the Company to be filed within 120 days of December 31, 1996,
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the 1997
Proxy Statement), which is incorporated herein by reference, or the required
information will be included as an amendment to this form 10-K Annual Report
on or before April 30, 1997.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) and (2) Reference is made to the "Index to Consolidated Financial
               Statements and Financial Statement Schedules" appearing in a
               separate section of this Report following this Part IV.

(a)(3)         Exhibits.  See attached Exhibit Index.

(b)            None.

(c)            The exhibits required by this portion of Item 14 are submitted
               as a separate section of this report.

(d)            None.


                                       34

<PAGE>   35
                                   SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: 4/15/97                       MicroTel International, Inc.
                                     (Registrant)



                                     By: /s/ Carmine T. Oliva
                                        ----------------------------------------
                                             Carmine T. Oliva
                                             Chief Executive Officer



                                       35

<PAGE>   36
          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature                           Capacity                                   Date
---------                           --------                                   ----



<S>                           <C>                                            <C>
/s/  Carmine T. Oliva         Chairman of the Board                           4/15/97
---------------------------   of Directors
Carmine T. Oliva


/s/ David A. Barrett          Director                                        4/15/97
---------------------------
David A. Barrett


/s/ Robert B. Runyon          Director                                        4/15/97
---------------------------
Robert A. Runyon


/s/ Barry E. Reifler          Chief Financial Officer
---------------------------   (Principal Accounting and
Barry E. Reifler              Financial Officer)                              4/15/97



/s/ Laurence P. Finnegan, Jr. Director                                        4/15/97
---------------------------
Laurence P. Finnegan, Jr.
</TABLE>





                                       36

<PAGE>   37
Index to Exhibits
<TABLE>
<S>                 <C>
      2.            Merger Agreement dated December 31, 1996 between
                    XIT Corporation, XIT Acquisition, Inc. and MicroTel
                    International, Inc.(1)

      3.1           Certificate of Incorporation of MicroTel International, Inc.
                    as amended to date.(2)

      3.2           Bylaws of MicroTel International, Inc.(3)

      3.3           Certificate of Amendment of Certificate of Incorporation
                    of MicroTel International, Inc.#

     10.1           Lease for 2040 Fortune Dr., San Jose, CA 95131.(4)

     10.2           1986 Incentive Stock Option Plan.(5)

     10.3           Form of Officers Deferred Compensation Agreement by
                    and between Raymond E. Jacobson and CXR
                    Corporation.(6)

     10.4           Agreement from San Jose National Bank for CXR Telcom
                    Corporation dated May 19, 1995.(7)

     10.5           Qualified Employee Stock Purchase Plan.(8)

     10.6           1993 Incentive Stock Option Plan.(9)

     10.7           Stock Purchase Agreement with DDC.(10)

     10.8           First Amendment to Stock Purchase Agreement with
                    DDC.(11)

     10.9           Second Amendment to Stock Purchase Agreement with
                    DDC.(12)

     10.10          Warrant to Purchase Common Stock of MicroTel
                    International, Inc. Issued to DDC.(13)

     10.11          Form of Warrant to Purchase Common Stock of MicroTel
                    International, Inc. issued to Yorkton Securities, Inc.#

     10.12          Form of Warrant to Purchase Common Stock of MicroTel
                    International, Inc. issued to entrenet Group, L.L.C.#

     10.13          Form of Warrant to Purchase Common Stock of MicroTel
                    International, Inc. issued to various subscribers.#
</TABLE>


                                       37
<PAGE>   38
<TABLE>
<S>                   <C> 
       10.14          Agreement between MicroTel International, Inc. and Elk
                      International Corporation, Ltd. dated November 15, 1996
                      (without Exhibits).*

       10.15          Settlement Agreement between MicroTel International, Inc.
                      and Daniel Dror dated December 3, 1996 (without
                      Exhibits).*

       10.16          Agency Agreement between MicroTel International, Inc.
                      and Yorkton Securities, Inc.#

       10.17          Form of Subscription Agreement between MicroTel
                      International, Inc. and various subscribers.#

       10.18          Employment Arrangement between Henry Mourad and
                      Registrant. (without Exhibits)#

       10.19          Employment Arrangement between Barry Reifler and
                      Registrant. (without Exhibits)#

       10.20          Employment Agreement between Registrant and Jacques
                      Moisset dated July 1, 1995.*

       10.21          Employment Agreement dated January 1, 1996 between
                      XIT and Carmine T. Oliva.*

       10.22          XIT Corporation Note and Credit Agreement re: Imperial
                      Bank Revolver Loan #0070000702700003.*

       10.23          XIT Corporation Note and Credit Agreement re: Imperial
                      Bank Term Loan #0070000702700004.*

       10.24          XCEL Arnold Circuits, Inc. Note and Credit Agreement re:
                      Imperial Bank Revolver Loan #0070000702600003.*

       10.25          XCEL Arnold Circuits, Inc. Note and Credit Agreement re:
                      Imperial Bank Term Loan #0070000702600004.*

       10.26          XCEL Arnold Circuits, Inc. Note and Credit Agreement re:
                      Imperial Bank Term Loan #0070000702600005.*

       10.27          Lease Agreement between XIT Corporation and P&S
                      Development.*

       10.28          Lease Agreement between XIT Corporation and Don
                      Mosco.*

       10.29          General Partnership Agreement between XIT Corporation
                      and P&S Development.*

       10.30          Lease Agreement between XIT Arnold Circuits, Inc. and
                      Frances I. Peters.*

</TABLE>


                                       38
<PAGE>   39
<TABLE>
<S>                   <C>                       
       10.31          Lease Agreement between XCEL Arnold Circuits, Inc. and
                      Don Wilson and Zenna N. Wilson.*

       10.32          Lease Agreement between XCEL Arnold Circuits, Inc. and
                      Ellis Wesson.*

       10.33          Lease Agreement between XCEL Arnold Circuits, Inc. and
                      Roland E. Hay and Doris L. Hay.*

       10.34          Lease Agreement between XCEL Arnold Circuits, Inc. and
                      RKR Associates.*

       10.35          Option Agreement between MicroTel International, Inc. and
                      Elk International Corporation dated November 15, 1996.* 

       10.36          Amendment to Option Agreement between MicroTel
                      International, Inc. and Daniel Drorr dated November 15,
                      1996.*

       10.37          Option Agreement between MicroTel International, Inc. and
                      Elk International Corporation dated December 3, 1996.*

       10.38          Warrant to Purchase Common Stock of MicroTel
                      International, Inc. issued to Elk International
                      Corporation.*

       10.39          Agreement of Settlement and Mutual Release between 
                      MicroTel International, Inc. and Francis John Gorry dated
                      June 28, 1996.*

       10.40          Amended Agreement of Settlement and Mutual Release between
                      MicroTel International, Inc. and Francis John Gorry
                      dated November 30, 1996.*

       10.41          Promissory Note between MicroTel International, Inc. and
                      Jack Talan dated February, 1997.*

       21.1           List of Subsidiaries of MicroTel International, Inc.#

       23.1           Consent of BDO Seidman, LLP.#

       23.2           Consent of Deloitte & Touche LLP.#

       27.            Financial Data Schedule.#

       99.1           Undertakings to be Incorporated by Reference to Forms S-8
                      33-27454 and 33-77926.(14)

       99.2           Undertakings to be Incorporated by Reference to Form S-8
                      333-12567.
</TABLE>

---------------------
#        Filed herewith.

*        To be filed by amendment.

(1)      Incorporated by reference to MicroTel International, Inc. report on
         Form 8K filed as Exhibit 1 to Item 2 of the Report on January 21,
         1997 (File No. 1-10346).

(2)      Incorporated by reference to MicroTel International, Inc. annual
         report on Form 10-K for the year ended December 31, 1995 (File No.
         1-10346).

(3)      Incorporated by reference to CXR Corporation Registration
         Statement on Form S-4 No. 33-30818.

                                       39

<PAGE>   40
(4)      Incorporated by reference to CXR Corporation annual report on Form
         10-K for the year ended June 30, 1994 (File No. 1-10346).

(5)      Incorporated by reference to CXR Corporation Registration
         Statement on Form S-4 No. 33-30818.

(6)      Incorporated by reference to CXR Telecom Corporation annual
         report on Form 10-K for the year ended June 30, 1993 (File No. 1-
         10346).

(7)      Incorporated by reference to MicroTel International, Inc. annual
         report on Form 10-K for the year ended December 31, 1995 (File No.
         1-10346).

(8)      Incorporated by reference to CXR Corporation Registration
         Statement on Form S-4 No. 33-30818.

(9)      Incorporated by reference to CXR Corporation Registration
         Statement on Form S-8 No. 33-77926.

(10)     Incorporated by reference to CXR Corporation annual report on Form
         10-K for the year ended June 30, 1994 (File No. 1-10346).

(11)     Incorporated by reference to CXR Corporation annual report on Form
         10-K for the year ended June 30, 1994 (File No. 1-10346).

(12)     Incorporated by reference to CXR Corporation annual report on Form
         10-K for the year ended June 30, 1994 (File No. 1-10346).

(13)     Incorporated by reference to CXR Corporation annual report on Form
         10-K for the year ended June 30, 1994 (File No. 1-10346).

(14)     Incorporated by reference to CXR Corporation annual report on Form
         10-K for the year ended June 30, 1994 (File No. 1-10346).





                                       40

<PAGE>   41
                           MICROTEL INTERNATIONAL INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                       AND FINANCIAL STATEMENT SCHEDULES


<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                <C>
Report of Independent Certified Public Accountants                                                            F-2

Independent Auditors' Report                                                                                  F-3

Consolidated Financial Statements:

          Consolidated Balance Sheets at December 31, 1996 and 1995                                           F-4

          Consolidated Statements of  Operations for the Years
            Ended December 31, 1996 and 1995, the six months ended
            December 31, 1994 and the year ended June 30, 1994                                                F-5

          Consolidated Statements of Stockholders' Equity for the Years Ended
            December 31, 1996 and 1995, the six months ended December 31, 1994
            and the year ended June 30, 1994                                                                  F-6

          Consolidated Statements of Cash Flows for the Years Ended December 31,
            1996 and 1995, six months ended December 31, 1994 and the year ended June 30, 1994                F-7

          Notes to Consolidated Financial Statements                                                F-8   to F-27

          Consolidated Financial Statement Schedules:
            Schedule II-
              Valuation and Qualifying Accounts                                                              F-28
</TABLE>

 All other schedules have been omitted since the required information is
contained in the Consolidated Financial Statements or because such schedules
are not required.



                                      F-1
<PAGE>   42
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



MicroTel International, Inc.
San Jose, California


We have audited the accompanying consolidated balance sheets of MicroTel
International, Inc. (formerly CXR Corporation) as of December 31, 1996 and 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1996 and 1995, and the six months
ended December 31, 1994. We have also audited the schedule listed on the
accompanying Index at Item 8. These financial statements and the schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used as
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MicroTel
International, Inc. at December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995,
and the six months ended December 31, 1994, in conformity with generally
accepted accounting principles.

Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.




                                        BDO Seidman, LLP

San Francisco, California
April 14, 1997

                                      F-2
<PAGE>   43

INDEPENDENT AUDITORS' REPORT


MicroTel International, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of MicroTel International, Inc. (formerly
CXR Corporation) and its subsidiaries for the year ended June 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of the operations and the cash flows of MicroTel
International, Inc. (formerly CXR Corporation) and its subsidiaries for the year
ended June 30, 1994 in conformity with generally accepted accounting.

The accompanying fiscal 1994 financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the 1994
financial statements included in the June 30, 1994 Annual Report to the
Securities and Exchange Commission on Form 10-K, the Company's declining
revenues and recurring losses from operations raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters were also described in Note 1 to such 1994 financial statements. The
fiscal 1994 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Subsequent to June 30, 1994, the Company agreed to amendments to the Common
Stock Purchase Agreement (the Agreement) with Daniel Dror & Co. ("DDC") or
designee, approved by the stockholders in April 1994. In September 1994, as
consideration under the first amendment to the Agreement, the Company was
assigned a promissory note and received title to a securities brokerage account
consisting of cash and common stock and the Company assumed the liability for
certain financial derivative instruments which were secured by the cash and
common stock investments in the securities brokerage account. Subsequent to the
acceptance of this consideration on behalf of the Company by Daniel Dror in his
capacity as Chairman of the Company's investment committee, the Board of
Directors reviewed the consideration received and determined that it would be in
the best interests of the Company to accept payment with securities which are
less likely to experience significant fluctuations in value. On November 8, 1994
the Company executed a second amendment to the Agreement dated October 16, 1994
whereby the transactions under the previous amended Agreement were effectively
rescinded, the Company agreed to sell a reduced number of shares to the designee
of DDC and the Company agreed to accept, subject to completion of its due
diligence on or before December 31, 1994, assignment of a promissory note
(payable on December 31, 1995 and secured by common stock of another public
company) as consideration under such second amendment to the Agreement. These
transactions are described more fully in Note 2 to the financial statements.


DELOITTE & TOUCHE LLP

San Jose, California
August 31, 1994
(November 18, 1994 as to paragraphs two through four in Note 2)



                                       F-3



<PAGE>   44
MICROTEL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 1996 and December 1995
(in thousands)

<TABLE>
<CAPTION>
                                                             Dec. 31,    Dec. 31,
                                                               1996        1995
                                                             --------    --------
<S>                                                          <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents                                 $    271    $    432
   Investments in marketable securities                                       152
   Accounts receivable, less allowance
      for doubtful accounts of $186 and $425, respectively      2,936       3,582
   Inventories                                                  3,004       4,148
   Other current assets                                           487         283
                                                             --------    --------
Total current assets                                            6,698       8,597
                                                             --------    --------
Plant and equipment-net                                           526         709
Software development costs-net                                  1,027       1,209
Foreign tax receivable                                            830         790
Other assets                                                      238          20
                                                             --------    --------
                                                             $  9,319    $ 11,325
                                                             ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable to banks                                    $  1,142    $    759
   Current portion long term debt                                  44         170
   Accounts payable                                             2,580       2,184
   Accrued payroll and related expenses                           748         922
   Other accrued liabilities                                      749         748
   Current portion-deferred compensation                          737         161
   Deferred income                                                            350
                                                             --------    --------
Total current liabilities                                       6,000       5,294
                                                             --------    --------
Long term debt                                                     36          54
Deferred compensation liability                                   507         803
Other long-term liabilities                                                   218
                                                             --------    --------
Total liabilities                                               6,543       6,369
                                                             --------    --------
Commitments and contingencies

Stockholders' equity:
   Common stock                                                    10          45
   Additional paid-in capital                                  23,560      22,293
   Accumulated deficit                                        (21,371)    (16,774)
   Stockholder's note receivable                                           (1,337)
   Deferred compensation                                          (40)        (88)
   Cumulative translation adjustments                             617         817
                                                             --------    --------
Stockholders' equity                                            2,776       4,956
                                                             --------    --------
                                                             $  9,319    $ 11,325
                                                             ========    ========
</TABLE>

See notes to consolidated financial statements.



                                      F-4
<PAGE>   45
MICROTEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)





<TABLE>
<CAPTION>
                                                                     SIX MONTHS      FOR THE
                                            FOR THE YEARS ENDED        ENDED        YEAR ENDED
                                             DEC 31,    DEC 31,       DEC 31,       June 30,
                                              1996        1995          1994          1994
                                            --------    --------      --------      --------
<S>                                         <C>         <C>           <C>           <C>
Sales                                       $ 16,303    $ 18,352      $  9,931      $ 21,648
                                            --------    --------      --------      --------
Costs and expenses:
   Cost of sales                              10,819      11,322         6,174        12,647
   Engineering and product
      development                              1,817       1,674           659         2,960
   Marketing and selling                       3,715       3,928         1,654         3,975
   Administration                              3,115       2,211         1,049         2,571
   Severance and related settlement costs      1,567
                                            --------    --------      --------      --------
                                              21,033      19,135         9,536        22,153
                                            --------    --------      --------      --------
Income (loss) from operations                 (4,730)       (783)          395          (505)

Other income (expense):
   Interest income                               371         117             9             9
   Interest expense                             (319)       (164)         (121)         (258)
   Other                                          (4)         12            15           115
                                            --------    --------      --------      --------
Income (loss) before
    income tax benefit                        (4,682)       (818)          298          (639)

Income tax benefit                               (85)       (151)
                                            --------    --------      --------      --------
Net income (loss)                            ($4,597)      ($667)     $    298         ($639)
                                            ========    ========      ========      ========
Net income (loss) per share                   ($1.65)     ($0.25)     $   0.15        ($0.39)
                                            ========    ========      ========      ========
Weighted average number of
   shares used in calculating
   net income (loss) per share                 2,783       2,678         1,998         1,636
                                            ========    ========      ========      ========
</TABLE>


See notes to consolidated financial statements.

                                      F-5

<PAGE>   46
MICROTEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)


<TABLE>
<CAPTION>
                                  (A) Common Stock  Additional              Stockholder's                 Cumulative     Total
                                                     Paid-in   Accumulated      Note       Deferred      Translation  Stockholders'
                                   Shares   Amount    Capital    Deficit     Receivable   Compensation   Adjustments     Equity
                                   ------   ------    -------    -------     ----------   ------------   -----------     ------
<S>                              <C>        <C>      <C>        <C>           <C>          <C>               <C>       <C>
BALANCE JUNE 30, 1993               7,730     26       19,824    (15,766)                                      257        4,341
Issuance of common stock
  for cash net of issuance
  cost of $94 thousand              1,965      6          710                                                               716
Translation adjustments                                                                                        196          196
Net loss                                                            (639)                                                  (639)
                                   ------     --       ------    -------       -------      -------           ----       ------
BALANCE JUNE 30, 1994               9,695     32       20,534    (16,405)                                      453        4,614
Issuance of common stock
  for cash                              1
Issuance of common stock
  for notes receivable              3,343     11        1,326                  (1,337)
Translation adjustments                                                                                         66           66
Net income                                                           298                                                    298
                                   ------     --       ------    -------       -------      -------           ----       ------
BALANCE DECEMBER 31, 1994          13,039     43       21,860    (16,107)      (1,337)                         519        4,978
Issuance of common stock
  for cash net of issuance
  cost of $15 thousand                368      1          220                                                               221
Issuance of common stock
  in settlement of debt               130      1           79                                                                80
Issuance of incentive stock
  awards                              215                 134                                  (134)
Amortization                                                                                     46                          46
Translation adjustments                                                                                        298          298
Net loss                                                            (667)                                                  (667)
                                   ------     --       ------    -------       -------      -------           ----       ------
BALANCE DECEMBER 31, 1995          13,752     45       22,293    (16,774)      (1,337)          (88)           817        4,956
Issuance of common stock for
  cash                                214      1          128                                                               129
Issuance of common stock in
   payment of expenses                 80                  69                                                                69
Issuance of compensation awards        90      1           57                                   (31)                         27
Five for one reverse split net
  of costs of $43 thousand        (11,309)   (37)          (6)                                                              (43)
Payments on shareholders' note
   receivable                                                                     380                                       380
Recission of remaining stock
  subscription                       (478)    (2)        (955)                    957
Issuance of common stock for
  cash                                 21                  46                                                                46
Issuance of common stock in
   payment of expenses                 59                 182                                                               182
Employee and officer awards and
   option exercises, including
   $1.45 million in non-cash
   compensation                       511      2        1,746                                                             1,748
Amortization                                                                                     79                          79
Translation adjustments                                                                                       (200)        (200)
Net loss                                                          (4,597)                                                (4,597)
                                    -----    ---      -------   --------           --          ----           ----       ------
BALANCE DECEMBER 31, 1996           2,940    $10      $23,560   ($21,371)          $0          ($40)          $617       $2,776
                                    =====    ===      =======   ========           ==          ====           ====       ======
</TABLE>



(A) $.0033 par value; 25,000 shares authorized (B) $.01 par value; 10,000
preferred shares authorized none issued

See notes to consolidated financial statements.





                                      F-6

<PAGE>   47
MICROTEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
                                                                              FOR THE       FOR THE
                                                                             SIX MONTHS    SIX MONTHS
                                                   FOR THE YEARS ENDED         ENDED         ENDED
                                                  Dec. 31,      Dec. 31,      Dec. 31,      June 30,
                                                    1996          1996          1994          1994
                                                  -------       -------       -------       -------
<S>                                               <C>           <C>           <C>           <C>     
Cash flows from operating activities:
 Net income (loss)                                ($4,597)      ($  667)      $   298       ($  639)
 Reconciliation to net cash provided
 by (used in) operations:
  Depreciation                                        221           274           153           387
  Amortization of intangible assets                   298           266            63           282
  Deferred compensation                               358            46
  Stock-based compensation and expense              1,754
  Write-down of assets                              1,006
  Changes in assets and liabilities net of
   sale of NAMS and LAN product lines:
  Investments in marketable securities                             (152)
  Accounts receivable                                 646         1,316        (1,084)       (1,061)
  Inventories                                         768          (412)          463           766
  Other current assets                                (52)            4            31            97
  Other non-current assets                           (218)
  Accounts payable                                    396          (361)         (701)        1,097
  Other current liabilities                          (523)         (262)          (74)         (252)
  Foreign taxes receivable                            (40)         (144)                          2
  Other noncurrent liabilities                       (218)          237            31          (513)
                                                  -------       -------       -------       -------
Net cash provided by (used in) operations            (201)          145          (820)          166
                                                  -------       -------       -------       -------
Cash flows from investing activities:
  Certificate of deposit                                            650          (650)
  Additions to plant and equipment                    (71)         (148)          (43)         (171)
  Capitalized software                               (795)         (879)         (490)
  Collection of other receivables                                               1,025
                                                  -------       -------       -------       -------
Net cash used in investing activities                (866)         (377)         (158)         (171)
                                                  -------       -------       -------       -------
Cash flows from financing activities:
 Notes payable-net                                    383          (184)          943          (737)
 Term debt
  Additions                                                                                      91
  Repayments                                         (135)          (95)          (63)         (174)
 Fee for note receivable extension                                  250
 Proceeds from common stock transactions              827           221                         716
 Costs relating to stock split                        (43)
                                                  -------       -------       -------       -------
Net cash provided by (used in) financing
activities                                          1,032           192           880          (104)
                                                  -------       -------       -------       -------
Effect of exchange rate changes on cash              (126)          175            49           114
                                                  -------       -------       -------       -------
Net increase (decrease) in cash
 and cash equivalents                                (161)          135           (49)            5
Cash and cash equivalents
 at beginning of period                               432           297           346           341
                                                  -------       -------       -------       -------
Cash and cash equivalents
 at end of period                                 $   271       $   432       $   297       $   346
                                                  =======       =======       =======       =======
Non cash Investing and financing activities:
Issuance of equity securities for
 compensation and expenses                        $ 1,754
                                                  =======
Cancellation of stock subscription                $   957
                                                  =======
Issuance of common stock for debt settlement                    $    80
                                                                =======
Sale of common stock for note receivable                                      $ 1,337
                                                                              =======
Sale of NAMS and LAN product lines for a
 note receivable                                                                            $ 1,025
                                                                                            =======
</TABLE>

See notes to consolidated financial statements.


                                      F-7
<PAGE>   48
MICROTEL INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


ORGANIZATION AND BUSINESS

MicroTel International, Inc. (the Company) is a holding company for its
wholly-owned subsidiaries CXR Telcom Corporation, a U.S. corporation, and CXR
S.A., its French subsidiary. The company designs, manufactures and markets
electronic telecommunication test equipment and data communications equipment at
its facilities in San Jose, California and in Abondant, France.

BASIS OF PRESENTATION
Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, CXR Telcom Corporation and CXR S.A. Intercompany
balances and transactions are eliminated in consolidation. The French Franc is
considered to be the functional currency of the French subsidiary. Foreign
exchange transaction gains and (losses) were as follows:

Year ended December 31, 1996        $(4,000)
Year ended December 31, 1995         16,000
Six months ended Dec. 31, l994      423,000
Year ended June 30, 1994             75,000

Fiscal Year end Change

Effective December 31, 1994, the Company changed its fiscal year end from June
30 to December 31 to better align its financial reporting cycle with the
business cycle of its products. Accordingly, the audited financial statements
included in the annual report comprise the years ended December 31,1996 and
1995, the six months ended December 31, l994 and the year ended June 30, l994

The condensed statement of operations for the twelve months ended December 31,
l994 presented below for comparative purposes has been derived from the
unaudited financial records of the Company. This condensed consolidated
statement of operations reflects all adjustments, consisting only of normal
recurring items, which in the opinion of management are necessary to fairly
state the Company's results of operations for the period presented.



                                       F-8

<PAGE>   49
Consolidated statements of Operations data for the twelve months ended December
31, 1994 (unaudited):

<TABLE>
<CAPTION>
                                              (in thousands except for
                                                   per share data)
<S>                                                   <C>
                Sales                                 $ 19,938
                                                      --------
                Cost of Sales                           11,932
                Engineering and Product Development      2,157
                Marketing and Selling                    3,695
                Administration                           2,328
                Other Expense - Net                         29
                                                      --------
                                                        20,141
                                                      --------
                Net Loss                              $   (203)
                                                      ========
                Net Loss per Share                    $   (.11)
                                                      ========
                Weighted Average Number of
                   Shares Outstanding                    1,910
                                                      ========
</TABLE>

New Accounting Pronouncements

Financial Accounting Standards Board Statement No 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(FAS 121), became effective for the Company in l996. The new accounting
pronouncement requires, among other things, that impairment losses on assets to
be held, and gains or losses from assets that are expected to be disposed of, be
included as a component of income from continuing operations. Adoption of FAS
121 in 1996 had no material effect on the consolidated financial statements as
the Company's existing accounting policies were consistent with its provisions.

Financial Accounting Standards Board Statement No. 123, "Accounting for Stock
Based Compensation" (FAS 123), also became effective for the Company in l996.
The new accounting pronouncement provides an alternative "fair value" method of
accounting for stock options and other stock based compensation and also
provides for expanded disclosures. The Company has elected not to apply the
alternative accounting method for stock based compensation to employees, but was
required to apply the new method to stock based transactions with non-employees
and to expand its disclosures in l996 to comply with FAS 123, including
providing proforma effects as if it had elected the alternative accounting
method for stock based compensation. (See Note 11 to Consolidated Financial
Statements for expanded disclosures).

On March 3, 1997 the Financial Accounting Standards Board issued FAS No. 128
"Earnings per Share". (FAS 128), which will become effective for the Company for
its year end December 31, 1997. This pronouncement provides a different method
of calculating earnings per share than is currently used in accordance with APB
No. 15 "Earnings per Share". FAS No. 128 provides for the calculation of Basic
and Diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share
of APB No. 15. Potentially dilutive securities have


                                       F-9

<PAGE>   50
an antidilutive effect in loss periods and are excluded from FAS 128
computations similar to current practice. Therefore, the required restatements
of prior period information upon adoption will have no effect on earnings per
share presented in the accompanying Consolidated Financial Statements. However,
as discussed in Note 13, comparative historical financial information of the
Company presented after the reverse acquisition by XIT Corporation on March 26,
1997 will be those of XIT Corporation, and the effects of FAS 128 on such
financial statements have yet to be determined.

Reverse Stock Split

On August 15, 1996 the shareholders of the Company ratified a one-for-five
reverse stock split effective for holders of record on August 29, 1996. Share
and per share amounts in the Consolidated Financial Statements and Notes thereto
have been restated to give effect to the reverse split.

Reclassifications

Certain 1995 amounts have been reclassified to conform to the 1996 presentation
with no impact on the net loss for that year.

CASH EQUIVALENTS

All highly liquid instruments purchased with an initial maturity of three months
or less are considered cash equivalents.

INVESTMENTS

The Company classifies its investments in common stock of publicly-traded
companies as trading securities and records the investments at market. Realized
or unrealized gains and losses are included in the statement of operations and
were minimal for all periods presented.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out cost) or
market.

PLANT AND EQUIPMENT

Plant and equipment are stated at cost. Depreciation and amortization are
computed principally on the straight-line method for financial reporting
purposes and by accelerated methods for income tax purposes over the estimated
useful lives of the assets as follows:

Building                         20 years
Machinery, Equipment,
Furniture and Fixtures           3-5 years
Leasehold Improvements           Lesser of lease term or estimated useful life


                                       F-10

<PAGE>   51
SOFTWARE DEVELOPMENT COSTS

Software development costs, which include purchased technology, are capitalized
beginning when technological feasibility has been established or when purchased
from third parties and continuing through the date of commercial release.
Amortization commences upon commercial release of the product and is calculated
using the greater of the straight line method over three years or the ratio of
the products' current revenues divided by the anticipated total product
revenues. During the year ended December 31, 1996, $795,000 of developed
software was capitalized, $298,000 was amortized and charged to cost of goods
sold, and the carrying value of certain capitalized software was reduced by
$630,000 to reflect revisions in estimated future net realizable value (See Note
12). During the year ended December 31, l995, $699,000 of developed software was
capitalized, $180,000 of software was purchased, and $188,000 of amortization
was charged to cost of goods sold. During the six months ended December 31,
1994, $490,000 of developed software was capitalized and no amortization was
recognized. At June 30, l994 all prior capitalized software costs were fully
amortized and written off. Writedowns of carrying value are charged to cost of
goods sold.

GOODWILL

Goodwill is amortized on a straight-line basis over its estimated useful life.
In 1993, the Company adjusted the expected life of the goodwill related to its
acquired LEA product line from ten years to five years to reflect the decline in
demand for analog instruments. The remaining goodwill was fully amortized in
l995. Related goodwill amortization for the year ended December 31, 1995, the
six months ended December 31, 1994 and the year ended June 30, 1994 was $78,000,
$63,000 and $124,000, respectively.

REVENUE RECOGNITION

The Company recognizes product revenues and related estimated warranty costs
upon shipment. License, maintenance and lease revenues are recognized when
earned.

INCOME TAXES

Deferred income taxes result from temporary differences between the financial
statement and income tax basis of assets and liabilities (See Note 7). The
Company adjusts the deferred tax asset valuation allowance based on judgments as
to future realization of the deferred benefits supported by demonstrated trends
in the Company's operating results.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Common stock equivalents were
antidilutive and therefore not part of the shares used in calculating net loss
per share in l996 and l995 and fiscal l994. Common stock equivalent shares
(shares covered by the stock option and warrant plans) were 295,000 for the six
months ended December 3l, l994 and were considered as outstanding for net income
per share computations.

                                      F-11

<PAGE>   52
MAJOR CUSTOMERS

No one customer accounted for 10% or more of sales during 1996 or l995. One
customer accounted for l0% and 11% of sales during the six months ended December
3l, l994 and for the fiscal year l994, respectively.

SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid interest of approximately $261,000 in 1996, $164,000 in 1995,
$121,000 in the six months ended December 31, l994, and $258,000 in the fiscal
year ended June 30, l994. The Company paid income taxes of $9,000 in 1996,
$2,000 in l995, $7,000 in the six months ended December 31, l994, and $28,000,
in the fiscal year ended June 30, l994.

MANAGEMENT ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

The Company extends unsecured credit to its customers primarily in the
telecommunications industry in the United States and Europe. Despite the
industry concentration, the Company believes credit risk is mitigated by the
large number of customers with which it does business and because these
customers are typically large well-established companies.

2. RELATED PARTY TRANSACTIONS

Daniel Dror was the Company's Chairman and Chief Executive Officer from 1994
until his resignation on November 15, 1996. Elkana Faiwuszeiwicz, the President
and control person of Elk International Corporation Ltd. ("Elk"), is the brother
of Mr. Dror. Based upon information contained in Elk's Schedule 13D filed with
the Securities and Exchange Commission dated January 25, 1994, Mr. Dror may be
deemed a "control" person of Elk and Mr. Dror, Daniel Dror & Company, Inc.
("DDC") and Elk may be deemed to constitute a "group" as those terms are defined
under the Securities Act of 1933, as amended, and Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder. Mr. Dror
and DDC each disclaim any beneficial ownership in Elk and in stock of the
Company owned by Elk.

Pursuant to an agreement dated January 5, l994, the Company issued 300,000
shares of the Company's common stock to the designees of DDC for $600,000 (or
$2.00 per share) including 210,000 shares to Elk. Additionally, pursuant to the
agreement, the Company issued to Elk warrants to purchase 100,000 shares for
$2.50 per share, exercisable at any time prior to December 25, l995. The Company
also entered into a common stock purchase agreement with DDC on March l0, l994
whereby DDC, or its designee, was to acquire 1,260,000 shares of the


                                      F-12

<PAGE>   53
Company's common stock for an aggregate of $2,520,000 (or $2.00 per share),
payable in cash, or at the option of the Company, in cash, cash equivalents, or
marketable securities or any combination thereof. The stockholders of the
Company approved the common stock purchase agreement (the Agreement) on April
16, l994. The Agreement provided for a closing by June 30, l994 contingent upon
all conditions to closing being fulfilled.

As permitted under the terms of the Agreement, the Board of Directors on July
27, l994 amended the Agreement, following claims by DDC and its designee raised
prior to June 30, l994 that certain closing conditions had not been satisfied.
The amended Agreement required the Company to issue and sell 911,484 shares to
Elk as designee of DDC, for an aggregate purchase price of $1l,882,967 (based on
the previously agreed price of $2.00 per share), in cash, cash equivalents or
marketable securities. In September l994, Elk tendered the assignment of an
interest-free promissory note in the amount of $805,555 secured by shares of
another public company and transferred a brokerage account to the Company
consisting of cash and common stock of $1,077,412 amounting to an aggregate of
$l,882,967 (the Company assumed the liability for certain financial instruments
amounting to $506,250 which were secured by the cash and common stock
investments in the brokerage account). Subsequent to this transfer, a loan of
$226,000 was made from the brokerage account to another entity controlled by DDC
which loan was payable with 15% interest on December 31, l995. Although no
formal agreements were signed, DDC indicated its intent to reimburse the Company
for any loss resulting from the settlement of the financial instruments and
indebtedness from the related party. The acceptance of the consideration
received and subsequent loan were authorized by Daniel Dror in his capacity as
Chairman of the Company's investment committee prior to formal review by the
Board of Directors.

The Board of Directors subsequently reviewed the consideration tendered under
the amended Agreement and determined that it would be in the best interests of
the Company to accept payment from Elk with securities less likely to experience
significant fluctuations in value. On November 8, l994 the Company executed a
second amendment to the Agreement dated October l6, l994 with DDC whereby the
transactions under the previous amendment were effectively rescinded and the
Company agreed to issue and sell 668,725 shares to Elk as designees of DDC, for
the aggregate purchase price of $1,337,449 (or $2.00 per share) on or before
December 3l, l994.

In payment of the purchase price under the second amendment to the Agreement,
the Company accepted assignment of a promissory note payable to Elk from a
limited partnership in the aggregate amount of $1,444,444 payable on December
3l, l995. The face amount of the promissory note includes the purchase price of
$1,337,449 plus $106,995, representing interest on the purchase price at an
interest rate of 8% per annum for the period commencing on December 3l, l994
through December 3l, l995. At a board meeting held in December 1995 the Company
agreed to accept $250,000 to extend the note to December 15, 1996 and $100,000
as prepaid interest for the extension period. The $350,000 was recognized as
income in l996 over the extension period of the note. As a result of this
agreement the Board extended the option period of the remaining 90,000 Elk
warrants for two years. Payment of the promissory note was secured by escrowed
shares of another public company and the shares issued to Elk were being held in
escrow and were to be delivered to Elk when the promissory note had been fully
satisfied.

                                      F-13

<PAGE>   54
In June 1996, Elk was given the right to make alternative cash payment to the
Company for the stock subscription through December 15, 1996 releasing shares
from escrow at the price of $2.00 per share, and to receive a corresponding
assignment of proceeds from the promissory note when collected. Elk made
payments against the stock subscription aggregating $380,000 through November
14, 1996, releasing 190,000 shares of common stock from the escrow.

On November 15, 1996, the Company and Elk entered into an agreement pursuant to
which Elk received (i) an option exercisable for a period of three years to
purchase 500,000 shares of Common Stock at an exercise price of $2.375 per
share, (ii) the extension of an outstanding warrant to purchase 90,000 shares of
Common Stock for three years, and (iii) the return to Elk of the $1,444,444
promissory note. In exchange for the foregoing, the remaining shares held in
escrow by the Company and the subscription right were canceled. The costs of
this settlement totaling $807,000, including the valuation of the option grant
of $700,000, was recorded in the fourth quarter of 1996.

Also on November 15, 1996 Mr. Dror resigned as Chairman and Chief Executive
Officer of the Company in anticipation of the pending merger with XIT. Mr. Jack
Talan, a director of the Company, was appointed interim Chairman and Chief
Executive Officer until consummation of the transaction.

Upon his resignation, Mr. Dror (or his designee) received as a severance award
for past service: (a) 350,000 shares of the Company's common stock; (b) an
extension of the exercise period to November 14, 1999 on options he currently
holds to purchase 25,000 shares of the Company's common stock; and (c) options
to purchase 250,000 shares of the Company's common stock at a price of $2.375
per share. The latter options are excercisable for a period of 5 years, but only
after Mr. Dror repays a certain indebtedness to the Company of approximately
$211,000, which amount is due in 5 annual installments and which may be repaid
by surrendering the options for value equivalent to the lesser of the future
appreciation of the Company's common stock over the exercise price or $.50 per
option. On December 3, 1996, it was mutually agreed between the Company and Mr.
Dror to substitute an option to acquire 300,000 shares of common stock at an
exercise price of $.01 per share for 300,000 shares of the previous award and on
December 23, 1996, these options were exercised. The compensation expense
associated with this grant of $560,000, as well as the value of the 50,000
shares awarded of $119,000 and other costs totaling $82,000 related to the
immediate vesting of previous stock based deferred compensation to Mr. Dror and
the settlement of certain amounts due the Company by Mr. Dror, were recognized
in the fourth quarter of 1996.

Additionally, during 1996 and 1995, the Company granted 18,000 and 43,000
shares, respectively, as incentive stock awards principally to certain directors
and officers, which vest generally over a three-year period. The total value of
these shares based on the market price of the Company's common stock on the date
of grant totaled $192,000. Compensation expense recognized by the Company for
the awards totaled $106,000 and $46,000 for 1996 and 1995, including
amortization of related deferred compensation.

In October and November of 1996, the Company granted non-qualified stock options
to acquire approximately 156,000 shares of the Company's Common Stock to certain
officers at an exercise

                                      F-14

<PAGE>   55
price equal to 80% of the market value on the date of the grant. Compensation
expense associated with these grants approximated $48,000.

On February 19, 1997, in recognition of past and future services to the Company,
Mr. Talan was granted 150,000 restricted shares of the Company's common stock
with a market value as of that date of $337,500 ($2.25 per share).

On February 25, 1997 through March 5, 1997, Mr. Talan also loaned the Company an
aggregate of $500,000. Such loans bear interest at the rate of 6% per annum and
are payable on April 25, 1997.

3. DISPOSITIONS

At the end of the fourth quarter of the year ended June 30, l994 the Company
sold the net assets of its NAMS and LAN product lines to Numerex for $1,025,000
which is included in other receivables at June 30, l994. The price represented
the book value of the net assets sold, and there was no gain or loss on the
sale. These products accounted for sales of approximately $4,657,000 in fiscal
l994.

4. OPERATIONS BY GEOGRAPHIC AREA

The Company operates principally in the telecommunications industry. It
manufactures products in the United States and France and markets in North
America, Europe and other areas of the world. A summary of operations by
geographic area follows (in thousands):


<TABLE>
<CAPTION>
                                                   Six Months  Year Ended
                                   Year Ended         Ended     June 30,
                             12/31/96    12/31/95    12/31/94     1994
                             --------    --------    --------     ----
<S>                          <C>         <C>         <C>         <C>
Sales to Unaffiliated
  Customers from:

             United States   $  6,825    $  8,255    $  4,071    $ 12,621
             France             9,478      10,097       5,860       9,027
                             --------    --------    --------    --------
                             $ 16,303    $ 18,352       9,931    $ 21,648
                             ========    ========    ========    ========

Transfers from

             United States
             to France       $     16    $    118    $           $    158
                             ========    ========    ========    ========

Net Income (Loss):

             United States     (3,599)   $   (766)       (286)   $   (698)
             France              (998)         99         584          59
                             --------    --------    --------    --------

                             $ (4,597)   $   (667)   $    298    $   (639)
                             ========    ========    ========    ========
</TABLE>

                                      F-15



<PAGE>   56
<TABLE>
<CAPTION>
                                                  Six        Year
                                                 Months     Ended
                                 Year Ended      Ended      June 30,
                             12/31/96  12/31/95 12/31/94     1994
                             ------------------ --------    --------
<S>                          <C>       <C>       <C>       <C>
Identifiable Assets at
Year End:

             United States   $ 3,794   $ 4,786   $ 5,174   $ 5,268
             France            5,525     6,539     6,632     6,054
                             -------   -------   -------   -------
                             $ 9,319   $11,325   $11,806   $11,322
                             =======   =======   =======   =======
</TABLE>


Transfer prices are established to allow a reasonable profit to the selling
entity. Identifiable assets are those assets of the Company that are identified
with the operations in each geographic area. Export sales to unaffiliated
customers from the United States were approximately $333,000 for 1996, $381,000
for l995, $149,000 for the six months ended December 31, l994, and $881,000 in
fiscal year l994.

5.  INVENTORIES

Inventories consist of the following (in thousands) at December 31:

<TABLE>
<CAPTION>
                     1996       l995
                  -------    -------
<S>              <C>       <C>
Finished Goods    $ 2,369    $ 2,620
Work-in-Process       683      1,135
Parts               1,653      1,817
Reserves           (1,701)    (1,424)
                  -------    -------
                  $ 3,004    $ 4,148
                  =======    =======
</TABLE>


6.  PLANT AND EQUIPMENT

Plant and equipment consist of the following (in thousands) at December 31:

<TABLE>
<CAPTION>
                              1996       l995
                           -------    -------
<S>                        <C>        <C>
Land and Buildings         $   374    $   403
Machinery, Equipment,        
   Furniture and       
   Fixtures                  2,413      2,431
                           -------    -------
                             2,787      2,834
Accumulated Depreciation
   and Amortization         (2,261)    (2,125)
                           -------    -------
                           $   526    $   709
                           =======    =======
</TABLE>

                                      F-16

<PAGE>   57
Plant and equipment includes assets leased under capital leases of approximately
$92,000 at December 31, 1996 and 1995, respectively. Accumulated depreciation on
these items at December 31, 1996 and 1995 was $42,000 and $36,000.

7.       INCOME TAXES

Effective July l, l993, the Company adopted Statement of Financial Accounting
Standards No. 109 ("FAS l09"), "Accounting for Income Taxes." Under FAS l09, a
deferred tax asset or liability is determined based on the differences between
the financial statement and tax basis of assets and liabilities as measured by
the enacted tax rates which will be in effect when these differences reverse.
The adoption of FAS l09 had no material effect on the Company's financial
position or results of operations for the year ended June 30, l994.

Pre-tax income (loss) from operations for the following periods was taxed under
the following jurisdictions (in thousands):

<TABLE>
<CAPTION>
                                              Six Months  Year Ended
                               Year Ended       Ended       June 30,
                          12/31/96   2/31/95   12/31/94      1994
                          --------   -------   --------    -------
<S>                       <C>        <C>        <C>        <C>
Domestic                  $(3,599)   $  (766)   $  (286)   $(1,105)
Foreign                    (1,083)       (52)       584        466
                          -------    -------    -------    -------
                          $(4,682)   $  (818)   $   298    $  (639)
                          =======    =======    =======    =======
</TABLE>


The income tax expense (benefit) differs from the amount of income tax expense
(benefit) determined by applying the statutory Federal rate to pre-tax income
(loss) as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  Six Months
                                                                    Ended     Year Ended
                                              Year Ended Dec 31,    Dec 31,    June 30,
                                               1996       1995       l994        1994
                                              -------    -------    -------    -------
<S>                                           <C>        <C>        <C>        <C>
Tax expense (benefit)
  at the Statutory  Federal Rate              $(1,563)   $  (278)   $   101    $  (217)
Net Operating Losses                                                    (75)       (68)
Change in Valuation Allowance                   1,478        127        (26)       285
                                              -------    -------    -------    -------
                                              $   (85)   $  (151)   $  --      $  --
                                              =======    =======    =======    =======
</TABLE>

The tax benefits for the year ended December 31, 1996 and l995 are a result of
research and development credits allowed in France.


                                      F-17

<PAGE>   58
During the six months ended December 31, l994, the Company utilized foreign net
operating loss carryforwards of approximately $225,000 to reduce foreign income
tax expense by approximately $75,000.

At December 3l, l996 the Company had net operating loss carryforwards for
Federal and state tax purposes totaling approximately $19,900,000 and
$4,800,000, respectively. These carryforwards are available to reduce Federal
and state taxable income through 2011 and 2001, respectively. The foreign net
operating loss carryforward for statutory tax reporting purposes at December 31,
1996 was approximately $2,200,000 and expires through 2001. In addition, the
Company has a Federal net operating loss carryforward of approximately
$4,300,000 arising from an acquired company. As discussed in Note 13, subsequent
to December 31, 1996, the Company entered into a merger transaction. This
transaction will limit the domestic net operating loss carryover to
approximately $265,000 per year.

At December 3l, l996 the Company has investment tax credits and research and
development credits totaling $682,000 and $385,000, which expire through 2005.
These tax credits are subject to certain limitations.

Deferred tax assets are comprised of the following (in thousands) at December
31:

<TABLE>
<CAPTION>
                                1996       1995
                              -------    -------
<S>                           <C>        <C>
Deferred Tax Asset:
  Net Operating Loss
    Carryforwards             $ 8,684    $ 7,116
  Capitalized Software           (175)      (187)
  Plant and Equipment              (6)        25
  Accruals and Reserves
    Recognized in Different
    Periods                     1,338      1,063

  Valuation Allowance          (9,841)    (8,017)
                              -------    -------
Total                         $  --      $  --
                              =======    =======
</TABLE>


A valuation allowance has been provided to reduce recorded total possible future
tax benefits to zero as the Company's recent history of operating losses does
not support a judgment that the deferred tax assets are more likely than not to
be realized in the future. Consequently, no tax benefits were recognized for the
Company's domestic and foreign operating losses during the periods presented.
Further, these tax benefits will be recognized the earlier of when realized in
future periods or when future profitability of the Company appears sufficiently
probable that it appears more likely than not that the benefits will be
realized. The changes in the valuation allowance for all periods presented are
due primarily to additional net operating losses incurred and expiration of
existing net operating loss carryforwards.


                                      F-18
<PAGE>   59
8. BORROWING ARRANGEMENTS

The Company's borrowing arrangements consist of the following (in thousands) at
December 31:

<TABLE>
<CAPTION>
                                     1996     1995
                                    ------   ------
<S>                                 <C>      <C>
Short-term Borrowings
Borrowing under U.S.
Factoring Line of Credit            $  589   $  759

Borrowing under Working Capital
Lines of Credit for CXR S.A            553
                                    ------   ------

Notes Payable to Banks              $1,142   $  759
                                    ======   ======

Long-term Debt

Term Loan, Interest at
10.5% Due January 1997
Secured by Land and Building            30      168

Capital lease obligations
 (see Note 9)                           50       56
                                    ------   ------
                                        80      224
Current Portion of Long-term Debt       44      170
                                    ------   ------

Long-term Debt                      $   36   $   54
                                    ======   ======
</TABLE>



During 1996, the Company's U.S. subsidiary renegotiated its bank credit
facility, which had matured in June, 1996. Under its prior revolving line of
credit, borrowings were based on eligible receivables and inventory with a
maximum borrowing limit of $1,000,000. The line of credit bore interest at prime
plus 4% (12 1/2% at December 31, 1995), was collateralized by accounts
receivable and inventories and was guaranteed by the Company.

The revolving line of credit was replaced by a factoring line of credit with the
same bank. Borrowings under the factoring line of credit are based on an advance
rate of 85% of eligible receivables with no maximum cap. The line bears interest
at prime plus 2% (10.25% at December 31, 1996) and an administrative fee of 1%
per month charged on the average factored invoiced balance for invoice
processing. At December 31, 1996, the U.S. subsidiary had additional available
borrowings of $158,000 under this line.


                                      F-19

<PAGE>   60
The Company's French subsidiary has bank lines of credit approximating
$1,145,000 at December 31, 1996, with available borrowings based on eligible
accounts receivable. Borrowings under the related agreements bear interest at
5.0 - 8.6%, and at December 31, 1996, approximately $370,000 of additional
borrowings were available under the lines.

9.       LEASES

The Company leases certain of its facilities under non-cancelable operating
leases expiring through May 1998. Rent expense for the years ended December 31,
1996 and 1995, the six months ended December 31, l994 and the year ended June
30, 1994 was approximately $363,000, $380,000, $168,000 and $869,000,
respectively. In May l994, the Company negotiated an early termination of its
lease on its 90,000 square foot U.S. facility, and leased 40,000 square feet for
39 months. The Company had previously been accruing rent on this facility on a
straight-line basis, resulting in a deferred liability for future rent payments.
The reversal of the remaining liability, net of lease termination costs,
resulted in a $108,000 gain, which is included in other income for the year
ended June 30, l994. Future minimum lease payments required under operating
lease agreements and future minimum lease payments under capital lease
obligations together with the present value of minimum payments are as follows
(in thousands):

<TABLE>
<CAPTION>
Years Ending December 31,                   Operating                Capital
                                            Leases                   Lease
                                            ------                   -----
<S>                                           <C>                     <C>
1997                                          $297                    $14
1998                                            71                     14
1999                                             -                     14
2000                                             -                     14
2001                                             -                      7
                                              ----                    ---
Total minimum payments                        $368                     63
                                              ====
Less amount representing interest                                      13
                                                                      ---
Present value of minimum lease payments                               $50
                                                                      ===
</TABLE>


10.      COMMITMENTS AND CONTINGENT LIABILITIES

Under the terms of its acquisition of Anderson Jacobson, Inc. in fiscal 1989,
the Company assumed the liability for certain deferred compensation arrangements
(the Plan). During l993 the beneficiaries of the Plan and the Company
renegotiated the future payments required under the Plan, and the annual
payments were reduced to $173,000. Payment to the individual recipients
generally were reduced 50% and the terms of the agreements range from five years
to 14 years, with one agreement covering the remaining life of the recipient. At
December 31, 1996, recorded obligations for deferred compensation related to
these arrangements totaled $1,244,000. The amounts recorded are generally based
on the estimated present value of the future required payments, discounted at
8.5%, and assuming annual CPI increases of 3.3%, and further include estimated
costs to settle the dispute with one Plan participant as described below. Based
on

                                      F-20

<PAGE>   61
ongoing settlement discussions, the Company recorded additional costs of
$344,000 in the fourth quarter of 1996 with respect to this matter.

In September, 1994 Raymond Jacobson, a former officer and director of the
Company and one of the Plan participants, brought an action against the Company
in the California Superior Court, Santa Clara County, alleging that the Company
has breached its contract to pay Mr. Jacobson $3,495 bi-weekly for life under
his deferred compensation agreement dated May 11, 1993 (the "1993 Agreement"),
by discontinuing payment in August 1994. The 1993 Agreement superseded a
previous deferred compensation agreement dated April 1, 1997 (the "1997
Agreement") which had provided for twice the level of payments. Mr. Jacobson was
claiming damages of approximately $1,200,000, which he purported to be the
present value of all payments to be made under the 1993 Agreement. In June 1995
the Company paid Mr. Jacobson all amounts past due under the contract plus
interest and reinstated the bi-weekly payments.

On May 20, 1996, Daniel Dror & Co, Inc. ("DDC"), instituted a suit against Mr.
Jacobson in the District Court for Galveston County, Texas alleging damages
arising from DDC's investment of more than $2,000,000 for the purchase of
1,072,000 shares of the Company's common stock. On February 11, 1997, Mr.
Jacobson, through his attorney, demanded that the Company indemnify him, hold
him harmless and pay for the cost of defense, including reasonable attorney's
fees and costs in connection with the litigation instituted against him by DDC.
The Company believes that it has a reasonable basis to deny Mr. Jacobson's claim
for indemnification in part or in whole.

On February 14, 1997, Mr. Jacobson, through his attorney, gave notice to the
Company that he believed that the litigation instituted against him by DDC
provided a basis for him to rescind the 1993 Agreement and assert his rights to
full payment under the 1977 Agreement. The Company's litigation counsel believes
that while Mr. Jacobson's allegations may be sufficient to withstand a summary
motion for dismissal of the claim, no conclusion can be drawn as to his
likelihood of success on the merits of the claim.

Notwithstanding the above, the Company management and Mr. Jacobson have
conducted settlement discussions since June 1996, and the Company believes that
an enforceable settlement was reached on January 22, 1997. Mr. Jacobson
apparently disclaims this agreement based on the actions noted above. On
February 28, 1997 the Company filed a motion for continuance to file a
counterclaim that the January 22, 1997 agreement supersedes all previous
agreements with Mr. Jacobson.

A court supervised settlement conference with Mr. Jacobson was held on March 26,
1997. Although a tentative settlement was reached, the settlement was subject to
fulfillment of a number of conditions subsequent. If one or more of these
conditions subsequent are not satisfied, the settlement will not be binding on
the parties. A trial in the matter has been scheduled for August 25, 1997. The
Company does not believe that the value of a settlement in the matter will be
materially in excess of amounts already recorded by the Company for the deferred
compensation arrangement.

                                      F-21


<PAGE>   62
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 David
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 has answered Mr.
Scheinfeld's motion and is seeking to compel him to serve a complaint upon the
defendants.

The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of business. Although the ultimate outcome of these as
well as the matters noted above cannot be predicted with certainty, pending
actual resolution, in the opinion of management, the disposition of these
matters will not have a material adverse affect on the consolidated financial
statements.

11.      STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS

The Company has outstanding options on its Common Stock issued under the
following arrangements:

     o Employee Stock and Stock Option Plan, effective July 1, 1994, providing
for non-qualified stock options as well as restricted and non-restricted stock
awards to both employees and outside consultants. Up to 520,000 shares may be
granted or optioned under this plan. Terms of related grants under the plan are
at the discretion of the Board of Directors.

     o Stock Option Plan adopted in 1993, providing for the granting of up to
300,000 incentive stock options to purchase stock at not less than the current
market value on the date of grant. Options granted under this plan vest ratably
over three years and expire 10 years after date of grant.

     o A superseded Stock Option Plan adopted in 1986, under which no further
options may be granted.

In addition, during 1996 the Company granted certain non-qualified options and
restricted stock not pursuant to a formal plan (See Note 2).

The Company accounts for stock-based compensation under the "intrinsic value"
method. Under this method, no compensation expense is recorded for these plans
and arrangements for current employees whose grants provide for exercise prices
at or above the market price on the day of grant. Compensation or other expense
is recorded based on intrinsic value (excess of market price over exercise price
on date of grant) for employees, and fair value of the option awards for others.


                                      F-22

<PAGE>   63
The following table shows activity in the outstanding options.



<TABLE>
<CAPTION>
                     Year Ended December 31,
                              1996
                     ----------------------              Six Months
                                   Weighted                Ended      Year Ended
                                    Average               December     June 30,
                                   Exercise  1995         31, 1994       1994
                       Shares       Price   Shares         Shares       Shares
                     ---------     ------   -------       -------       -------
<S>                  <C>             <C>    <C>            <C>          <C>
Outstanding
at beginning
of year                401,510      $2.84   128,910        74,843       112,626

Granted              1,319,900       1.93   296,600        60,000       104,500

Exercised             (507,896)      0.87    (3,300)         --         (92,766)

Canceled               (67,142)      2.59   (20,700)       (5,933)      (49.517)
                     ---------              -------       -------       -------

Outstanding
at end of year
                     1,146,372      $2.68   401,510       128,910        74,843
                     =========              =======       =======        ======
</TABLE>




Weighted average exercise prices for 1996 are calculated at prices effective as
of December 31, 1996, including the effect of repricing of certain options in
1996. The fair value of options granted during 1996 was $1,797,000, at a
weighted average value of $1.36 per share, including $767,000 attributable to
500,000 options granted at amounts less than market. The incremental fair value
of 170,000 options repriced or extended in 1996 over their fair values
immediately before modification was $102,000. Total amounts recorded for book
purposes for less-than-market awards and non-employee awards were $1,350,000 in
1996. Exercise prices for options outstanding as of December 31, 1996 generally
ranged from $2.38 to $3.44 per share.

The following table shows information for options outstanding or exercisable as
of December 31, 1996:

<TABLE>
<CAPTION>
                                                       Options          Options
                                                      Outstanding     Exercisable
                                                      -----------     -----------
<S>                                                    <C>             <C>
Number of Shares                                       1,146,372       1,088,072


Weighted Average Remaining Contractual Life            4.7 years       4.7 years


Weighted Average Exercise Price                            $2.68           $2.65
</TABLE>

If the Company had instead elected the fair value method of accounting for
stock-based compensation, compensation cost would be accrued at the estimated
fair value of all stock option grants over the service period, regardless of
later changes in stock prices and price volatility. The fair value at date of
grant for options granted in 1996 and 1995 has been estimated based on a
modified Black-Scholes pricing model with the following assumptions: no dividend
yield


                                      F-23

<PAGE>   64
for any year; expected volatility for 1996 and 1995 grants of approximately 56%
and 61%, based on historical results; risk-free interest rates of 6.6% and 6.65%
for 1996 and 1995 grants; and average expected lives of approximately three
years for both 1996 and 1995. The following table shows net loss and loss per
share for 1995 and 1996 as if the Company had elected the fair value method of
accounting for stock options.

<TABLE>
<CAPTION>
                                                    in thousands except per-share amts
                                                         1996            1995
                                                         ----            ----
<S>                                                    <C>            <C>
Net Loss, as Reported                                  $  (4,597)     $    (667)


Additional Incremental Compensation Expense                 (557)          (336)
                                                            -----          -----

Net Loss, as Adjusted                                  $  (5,154)     $  (1,003)
                                                          =======        =======


Net Loss per Share, as Reported                        $   (1.65)     $   (0.25)


Additional Incremental Compensation Expense                (0.20)         (0.13)
                                                           ------         ------

Net Loss per Share, as Adjusted                        $   (1.85)     $   (0.38)
                                                           ======         ======
</TABLE>

Additional incremental compensation expense includes the excess of fair values
of options granted during the year over any compensation amounts recorded for
options whose exercise prices were less than the market value at date of grant,
and for any expense recorded for non-employee grants. Additional incremental
compensation expense also includes the excess of the fair value at modification
date of options repriced or extended over the value of the old options
immediately before modification. All such incremental compensation is amortized
over the related vesting period, or expensed immediately if fully vested. The
above calculations include only the effects of 1995 and 1996 grants. Because
options often vest over several years and additional awards are made each year,
the results shown above may not be representative of the effects on net earnings
or losses in future years.

In addition, at December 31, 1996, the Company has outstanding 122,000 warrants
to purchase stock at $2.50 per share, expiring in varying amounts through 2003.
During 1996, 18,000 warrants were exercised at $2.50 per share.

The Company has an Employee Stock Purchase Plan allowing eligible employees to
purchase shares of the Company's common stock at 85% of market value. At
December 31, l995, 6,180 shares had been issued pursuant to the plan with 38,820
shares reserved for future issuance.

The Company has a 401(k) tax deferred saving plan whereby eligible employees may
elect to contribute a portion of their salaries. Company contributions are made
at the discretion of the Board of Directors. The Company's contributions to the
plan were $35,000, $41,000, $20,000, and $49,000 for 1996, 1995, the six months
ended December 3l, l994 and the fiscal year ended June 30, l994, respectively.

12.      SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

For the three months ended December 31, 1996, the Company reported a net loss of
$(3,656,000) or $(1.32) per share. These results were impacted by the following
adjustments:

                                      F-24

<PAGE>   65


<TABLE>
<S>                                                                   <C>
Severance and related settlement costs                                $1,567,000
Write-down of assets                                                   1,006,000
Estimated costs of litigation settlements                                475,000
                                                                      ----------
                                                                      $3,048,000
                                                                      ==========
</TABLE>

Severance and related settlement costs represent the aggregate value of $678,000
of the stock and stock options awarded to the Company's former Chairman, Daniel
Dror, upon his resignation in November 1996, costs of $807,000 related to the
settlement of the subscription receivable from Elk, and other costs totaling
$82,000 related to the immediate vesting of previous stock based deferred
compensation to Mr. Dror and the settlement of certain amounts due the Company
by Mr. Dror (see also Note 2).

The write-down of assets consists of reductions of $376,000 and $630,000 in the
carrying value of certain inventory and capitalized software development costs,
respectively, to their net realizable value. These write-downs charged to cost
of sales resulted from the Company's reassessment of the anticipated near-term
impact of current industry and economic factors on the Company's operations. CXR
Telcom's sales continue to be negatively impacted by delays in buying by its
principal customers, as a result of the consolidation and/or restructuring of
these companies in the wake of the passage of the Telecommunications Bill of
1996; and CXR SA's sales continue to be impacted by a decline in sales to France
Telecom during its pre-privatization reorganization and a generally weak French
economy. Additionally, sales for both operating subsidiaries have been
negatively impacted by the rapid obsolescence of the analog-based components of
their product lines, particularly older transmission products; and further, both
sales and margins have been impacted by extreme price competition for
transmission products in general.

Estimated costs of litigation settlements are comprised of the expected
incremental costs of $344,000 to settle the dispute regarding Mr. Jacobson's
deferred compensation agreement (see Note 10) and $131,000 for a contingent
payment related to a price guarantee in a stock based settlement of another
dispute reached in the fourth quarter of 1996. These estimated costs are
included in administrative expenses in the accompanying Consolidated Financial
Statements.

The aggregate effect of the above adjustments was to increase the net loss per
share for the fourth quarter of 1996 by $(1.10) per share.

13.      OTHER SUBSEQUENT EVENTS

MERGER WITH XIT CORPORATION

On March 26, 1997, XIT Corporation ("XIT") of Ontario, California merged with a
wholly-owned, newly formed subsidiary of the Company, with XIT as the surviving
subsidiary. Pursuant to the transaction, the former shareholders of XIT were
issued approximately 6,199,215 shares of common stock of the Company, or
approximately 65.8% of the issued and outstanding common stock. In addition,
holders of XIT stock options and warrants collectively have the right to acquire
an additional 2,153,240 shares of MicroTel Common Stock. Collectively, then the
former XIT shareholders own, or have the right to acquire, 

                                      F-25

<PAGE>   66
approximately 65% of the Common Stock of the Company on a fully-diluted basis as
of the date of the transaction

XIT, with vertically integrated operations in the U.S., England and Japan,
designs, manufactures and markets information display and input products and
printed circuit boards for the international telecommunications, medical,
industrial and military/aerospace markets.

The merger will be accounted for as a purchase of the Company by XIT in a
"reverse acquisition" because the existing shareholders of the Company prior to
the merger will not have voting control of the combined entity. In a reverse
acquisition, the accounting treatment differs from the legal form of the
transaction, as the continuing legal parent company, the Company, is not assumed
to be the acquiror and the financial statements of the combined entity are those
of the accounting acquiror (XIT), including any comparative prior year financial
statements presented by the combined entity after the business combination.

The following represents the unaudited pro forma results of operations as if the
merger had occurred at the beginning of the periods presented and combines the
Company's results of operations for the years ended December 31, 1996 and 1995
with those of XIT's for its years ended September 30, 1996 and 1995,
respectively, with adjustments to reflect amortization of the estimated excess
cost over the fair value of the net assets acquired.

<TABLE>
<CAPTION>
                                             (in thousands, except per share amounts)
                                                       1996              1995
                                                     --------          --------
<S>                                                  <C>               <C>
Net sales                                            $ 47,551          $ 37,954

Net loss                                             $ (3,617)         $   (433)
                                                     ========          ========

Net loss per common share                            $   (.40)         $   (.05)
                                                     ========          ========
</TABLE>

The proforma results of operations above does not purport to be indicative of
the results that would have occurred had the merger taken place at the beginning
of the periods presented or of results which may occur in the future.

PRIVATE PLACEMENT OF SECURITIES

On February 20, 1997, the Company accepted a commitment from Yorkton Securities
Inc. ("Yorkton"), pursuant to which Yorkton would use its best efforts to raise
a minimum of $5,000,000 and a maximum of $10,000,000 through a private placement
of investment units consisting of one share of restricted common stock and one
quarter of a warrant to purchase one share of restricted common stock. The
pricing of the units is based on a 20% discount from the ten day average closing
bid price of the Company's common stock preceding the date of contracting with
the institutional investors (the "Average Reported Price"), with a minimum price
per unit of $2.50 and maximum price of $3.50. The investors warrants have an
exercise price of 130% of the Average Reported Price. Additionally, Yorkton and
one other intermediary earn an aggregate commission of 10% of the gross proceeds
and warrants to acquire 10% of the shares purchased in the offering at an
exercise price of the lesser of the Average Reported Price or


                                      F-26

<PAGE>   67
$3.50 per share, and Yorkton further is reimbursed for accountable expenses of
the offering up to 2% of the gross proceeds.

On April 14, 1997, a first closing occurred on 2,000,000 investment units, for
gross proceeds of $5,000,000. Net proceeds to the Company were $4,400,000. The
offering, which is structured to accommodate multiple closings, would
terminate on the earlier of i) the date the maximum offering of $10,000,000 is
contracted or ii) April 18, 1997, unless extended by the mutual agreement of
the Company and Yorkton.

The Company anticipates that the net proceeds of the offering will be utilized
for working capital purposes, including product development and marketing, and
for the acquisition of companies and intellectual property rights which will
provide extensions of the Company's product lines.




                                      F-27

<PAGE>   68
                          MICROTEL INTERNATIONAL, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                Balance at              Charged to              Deductions             
                                                Beginning               Costs and               Writeoffs of            Balance End
                                                of Period               Expenses                Accounts                of Period

<S>                                             <C>                     <C>                     <C>                     <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1996                    $  425                  ($175)                      ($64)                  186
Year ended December 31, 1995                       405                     42                        (22)                  425
Six months ended December 31, 1994                 548                   (100)                       (43)                  405
Year ended June 30, 1994                           771                    137                       (360)                  548


ALLOWANCE FOR INVENTORY OBSOLESCENCE
Year ended December 31, 1996                    $1,424                   $599                      ($322)               $1,701
Year ended December 31, 1995                     1,598                    288                       (462)                1,424
Six months ended December 31, 1994               2,243                    108                       (753)                1,598
Year ended June 30, 1994                         3,484                    560                     (1,801)                2,243
</TABLE>


                                      F-28