<PAGE>
 
================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington DC   20549
                       ---------------------------------
                                        

                                   FORM 10-Q

   (MARK ONE)

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

                 For the quarterly period ended March 28, 1998

                                       OR

             [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from ___ to ___

                        Commission File Number  0-19640
                   -----------------------------------------
                                        
                                        
                               VERTEL CORPORATION
             (Exact name of Registrant as specified in its charter)


                CALIFORNIA                       95-3948704
        (State or other jurisdiction of      ( I.R.S. Employer 
        incorporation or organization)     Identification Number)

                      21300 VICTORY BOULEVARD, SUITE 1200
                            WOODLAND HILLS, CA 91367
                   (Address of principal executive offices)

      Registrant's telephone number, including area code: (818) 227-1400

   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 as the
   Registrant was required to file such reports), and (2) has been subject to
   such filing requirements for the past ninety days.

                                   YES  X    NO ____
                                      -----          

   As of April 6, 1998 there were 24,146,518 shares of common stock outstanding.

   Total number of sequential pages: 12

===============================================================================
<PAGE>
 
                        PART I.  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                              VERTEL CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                                (in thousands)
                                    ASSETS

<TABLE>
<CAPTION>
                                                                                    MARCH 31,    DECEMBER 31,   
                                                                                      1998          1997             
                                                                                     -------       -------           
                                                                                   (unaudited)               
<S>                                                                                 <C>          <C>                 
Current assets:                                                                                                      
    Cash and short-term investments (Note 2).................................         $6,124        $6,252           
    Trade accounts receivable (net of allowances of $485 as of                                                       
       March 31, 1998 and $452 as of December 31, 1997)......................          3,968         4,941           
    Trade accounts receivable, related party.................................            412            --           
    Prepaid expenses and other current assets................................          1,430           925           
                                                                                     -------       -------           
Total current assets.........................................................         11,934        12,118           
                                                                                                                     
Property and equipment, net..................................................            880           766           
Investment (Note 3)..........................................................          3,382            --           
Other assets.................................................................            502           566           
                                                                                     -------       -------            
                                                                                     $16,698       $13,450           
                                                                                     =======       =======           
                      LIABILITIES AND SHAREHOLDERS' EQUITY                                                           
Current liabilities:                                                                                                 
    Accounts payable.........................................................         $  686        $  733           
    Accrued wages and related liabilities....................................            884           660           
    Accrued restructuring expenses...........................................            557         1,487           
    Other accrued liabilities................................................          2,459         2,100           
    Deferred revenue.........................................................            670           531           
    Net liabilities of discontinued operations...............................             --           196           
                                                                                     -------       -------           
Total current liabilities....................................................          5,256         5,707           
                                                                                                                     
Deferred rent................................................................             --            10           
                                                                                      ------        ------           
       Total liabilities.....................................................          5,256         5,717           
                                                                                      ------        ------            
Shareholders' equity:                                                                                                
  Preferred stock, par value $.01, 2,000,000 shares authorized;                                                      
   none issued and outstanding                                                                                       
  Common stock, par value $.01, 50,000,000 shares authorized;                                                        
   shares issued and outstanding 1998, 24,146,518;                                                                   
      1997, 24,146,518.......................................................            227           227           
    Additional paid-in capital (Note 3)......................................         77,230        78,661           
    Accumulated deficit......................................................        (64,420)      (64,760)           
    Equity in investment (Note 3)............................................          3,400            --           
    Accumulated comprehensive deficit........................................           (603)       (2,003)           
                                                                                     -------       -------            
       Total.................................................................         15,834        12,125           
    Less notes receivable from issuance of common stock......................         (4,392)       (4,392)           
                                                                                     -------       -------            
       Total shareholders' equity............................................         11,442         7,733           
                                                                                     -------       -------            
                                                                                     $16,698       $13,450           
                                                                                     =======       =======            
</TABLE> 
          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
 
                               VERTEL CORPORATION
                                        
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EXPENSE
                   (in thousands, except per share amounts)
                                 (unaudited)
<TABLE>
<CAPTION>

                                                                   THREE MONTHS ENDED MARCH 31,
                                                                          1998      1997
                                                                         ------    ------
<S>                                                                      <C>       <C>
Revenues:
 License..............................................................  $ 2,953    $ 2,506
 License - related party..............................................      704         --
 Service and other....................................................    1,261      1,268
                                                                        -------    -------
  Net revenues........................................................    4,918      3,774
                                                                                          
Cost of revenues:                                                                         
 License..............................................................      200        284
 Service and other....................................................      890        818
                                                                         ------     ------
  Total cost of revenues..............................................    1,090      1,102
                                                                         ------     ------
Gross profit..........................................................    3,828      2,672 

Operating expenses:
  Research and development............................................    1,435      1,746
  Sales and marketing.................................................    1,725      2,420
  General and administrative..........................................      657      1,136
                                                                        -------    -------
  Total...............................................................    3,817      5,302
                                                                        -------    -------
Operating income (loss) from continuing operations....................       11     (2,630)

Other income (expense), net...........................................      461        (37)
                                                                        -------    -------
Income (loss) from continuing operations before
   provision for income taxes.........................................      472     (2,667)
Provision for income taxes............................................      132         --
                                                                        -------    -------
Income (loss) from continuing operations..............................      340     (2,667)
Loss from discontinued  operations....................................       --     (1,388)
                                                                        -------    -------
Net income (loss).....................................................  $   340    $(4,055)

Other comprehensive expense, before tax...............................       31         10
Income tax expense related to items of other
   comprehensive expense .............................................       --         --
                                                                        -------    -------
Comprehensive income (loss)...........................................  $   309    $(4,065)
                                                                        -------    -------
Basic earnings (loss) per common share: (Note 5)
Income (loss) from continuing operations..............................  $  0.02     ($0.13)
Loss from discontinued operations.....................................      ---     ($0.06)
Net income (loss).....................................................  $  0.02     ($0.19)

Fully diluted earnings (loss) per common share: (Note 5)
Income (loss) from continuing operations..............................  $  0.01     ($0.13)
Loss from discontinued operations.....................................      ---     ($0.06)
Net income (loss).....................................................  $  0.01     ($0.19)

Weighted average shares outstanding used in
   income (loss) per common share calculations:
Basic.................................................................   22,548     20,809
Fully diluted.........................................................   23,289     20,809

</TABLE>
         See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
 
                                 VERTEL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                 (unaudited)

<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED MARCH 31,
                                                                                     1998         1997
                                                                                   --------     -------
<S>                                                                               <C>           <C>
Cash flows from operating activities:
   Income (loss) from continuing operations.................................         $ 340    $(2,667)
   Adjustments to reconcile net income (loss) to net cash provided by
      (used for) operating activities:
        Depreciation and amortization.......................................           268        205
        Reserve for returns and bad debts...................................            33        (39)
        Changes in operating assets and liabilities (Note 4)................          (242)     1,028
                                                                                    ------    -------
     Net cash provided by (used for) operating activities...................           399     (1,473)
                                                                                    ------    -------
Cash flows from investing activities:
   Net sales (purchases) of short-term investments..........................           482        (58)
   Additions to property and equipment......................................          (299)       (98)
   Change in other assets...................................................           (19)       271
                                                                                    ------    -------
     Net cash provided by investing activities..............................           164        115
                                                                                    ------    -------
Cash flows from financing activities:
     Proceeds from issuance of common stock.................................            --         76
                                                                                    ------    -------
     Net cash provided by financing activities..............................            --         76
                                                                                    ------    -------
     Net cash used for discontinued operations..............................          (178)    (1,289)
                                                                                    ------    -------
Effect of exchange rate changes on cash.....................................           (31)       (10)
                                                                                    ------    -------
Net increase (decrease) in cash and cash equivalents........................           354     (2,581)

Cash and cash equivalents, beginning of period..............................         2,253      8,219
                                                                                    ------    -------
Cash and cash equivalents, end of period....................................        $2,607    $ 5,638
                                                                                    ======    =======
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
 
                              VERTEL CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1. GENERAL

   The consolidated financial statements include the accounts of Vertel
Corporation (formerly Retix) and its majority-owned subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.  The interim consolidated financial statements are
unaudited.  As discussed more thoroughly in Note 3, the Company's former
broadband access equipment subsidiary, Sonoma Systems, Inc. ("Sonoma"), is
presented as a discontinued operation for 1997. In the opinion of management,
the interim financial statements include all adjustments, consisting of only
normal, recurring adjustments, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows.  The
Company's fiscal year ends on the Saturday nearest to December 31. For
simplicity of presentation, the Company has described the fiscal year ended
December 27, 1997 as December 31, 1997 and has described the thirteen weeks
ended March 28, 1998 and March 29, 1997 as the three months ended March 31, 1998
and 1997, respectively.

   It is suggested that these consolidated financial statements and the
accompanying notes be read in conjunction with the audited consolidated
financial statements and the accompanying notes for the year ended December 31,
1997 included in the Company's Annual Report.  The results of operations for the
three month period ended March 31, 1998 are not necessarily indicative of
results that may be expected for the full year.

2.  CASH AND SHORT-TERM INVESTMENTS

Cash and short term investments consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                   March 31,   December 31,
                                                     1998         1997
                                                  ----------   ----------
                                                  (unaudited)
<S>                                              <C>           <C>
Cash and cash equivalents........................    $2,607       $2,253
Short-term investments...........................     3,517        3,999
                                                     ------       ------
                                                     $6,124       $6,252
                                                     ======       ======
</TABLE>

Cash equivalents consist of short term investments with original maturities of
three months or less.

3.  INVESTMENT

    In December 1997, in order to focus exclusively on the telecommunications
network management software business, the Company's Board of Directors adopted a
formal plan to reduce the Company's investment in Sonoma through direct
investment in that entity by independent venture capital firms.  The plan, as
adopted by the Board of Directors, called for the Company to reduce its
ownership interest in Sonoma to that of a passive investor with no significant
influence over the former subsidiary's operations.  Sonoma raised an aggregate
of approximately $9 million by issuing preferred stock at two closings, which
occurred in January and March of 1998, thereby reducing the Company's voting
ownership in Sonoma to 19.9%.  In connection with this transaction, the Company
recorded a $3.4 million increase in its net investment in Sonoma to reflect the
Company's proportionate share of Sonoma's post transaction equity.  The
corresponding credit is reflected in shareholders' equity in the accompanying
consolidated balance sheet under the caption "Equity in investment".  In
addition, the $1.4 million cumulative translation gain related to a foreign
subsidiary of Sonoma was reclassified as additional paid-in capital.  Subsequent
to the transaction the Company is accounting for its investment in Sonoma using
the cost method.

    As a result of the foregoing, the Company's consolidated financial
statements and related notes to financial statements reflect the results of
operations and net liabilities of Sonoma as a discontinued operation.

                                       5
<PAGE>
 
                              VERTEL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


4. STATEMENTS OF CASH FLOWS

Increases (decreases) in operating cash flows arising from changes in operating
assets and liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                               Three Months Ended March 31,
                                                                                    1998         1997
                                                                                  -------      -------
<S>                                                                                  <C>       <C>
   Trade accounts receivable......................................................    $ 528     $1,506
   Prepaid expenses and other current assets......................................     (505)      (304)
   Accounts payable...............................................................      (47)       553
   Accrued wages and related liabilities..........................................      158         58
   Cash payments for restructuring expenses.......................................     (930)      (307)
   Other accrued liabilities......................................................      425       (160)
   Deferred rent..................................................................      (10)       (42)
   Deferred revenue...............................................................      139       (276)
                                                                                      -----     ------
      (Decrease) increase in operating assets and liabilities.....................    $(242)    $1,028
                                                                                      =====     ======
</TABLE>

  In January 1998, the Company recorded an increase in its net investment in
Sonoma of $3.4 million as result of the financing transaction completed (See
Note 3).  In addition, $1,431,000 in related cumulative translation gain was
reclassified as additional paid-in capital.  Other financing and investing
activities during the three months ended March 31, 1998 which affected
recognized assets or liabilities but that did not result in cash receipts or
cash payments were not significant.

5. PER SHARE INFORMATION

  In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share.  The
Company has reflected the provisions of SFAS 128 in the accompanying financial
statements for all periods presented.  SFAS 128 replaces the presentation of
primary Earnings Per Share ("EPS") with a presentation of basic EPS, which
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period.  The Statement also requires the dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures.

  Diluted EPS is computed similarly to fully diluted EPS pursuant to Accounting
Principles Board Opinion No. 15.  Due to the losses reported by the Company in
fiscal 1997, any potential common shares to be included in diluted earnings per
share as a result of common stock options and warrants are anti-dilutive and
thus diluted earnings per share and basic earnings per share are equal.
Potentially dilutive securities included in the computation of fully diluted
earnings per share, for the quarter ended March 31, 1998, consisted of stock
options outstanding as of March 31, 1998.

6. NEWLY ADOPTED ACCOUNTING STANDARD

   In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income
which is effective for fiscal years beginning after December 15, 1997.  SFAS 130
defines comprehensive income as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements.  SFAS 130 requires that
an enterprise (i) classify items of other comprehensive income by their nature
in a financial statement and (ii) display the accumulated balance of other
comprehensive income separately form retained earnings and additional paid-in
capital in the equity section of the balance sheet.  The Company has reflected
the provisions of  SFAS 130 in the accompanying financial statements for all
periods presented.  The accumulated comprehensive deficit and other
comprehensive expense and as reflected on the accompanying consolidated balance
sheets and statements of operations and comprehensive expense consist of foreign
currency translation adjustments.

                                       6
<PAGE>
 
                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
                                        

7.  TERMINATION OF NON-US PENSION PLAN

    During the period ended March 31, 1998 the Company terminated its non-US
pension plan, which previously covered the Company's Irish employees.  This
action resulted in a return of excess Plan assets to the Company.  The Company
recorded $400,000 in other income during the period to reflect this refund.

8.  SUBSEQUENT EVENTS

    On April 3, 1998, the Company exchanged options to purchase Common Stock
previously issued by its Vertel subsidiary under the subsidiary's stock option
plan for options to purchase Common Stock of the Company at an exchange ratio of
1.26 shares of the Company's Common Stock per share of the subsidiary's Common
Stock.  As a result of the transaction, 4,243,927 options to purchase shares of
the Company's Common Stock were issued in exchange for options to purchase
3,368,196 shares of the subsidiary's Common Stock.  The exchange ratio was based
upon an independent valuation of the subsidiary's shares.  The exchange was
structured in accordance with Emerging Issues Task Force 90-9, "Changes To Fixed
Employee Option Plans as a Result of Equity Restructurings."  Consequently, the
exchange did not result in the recognition of compensation expense.

    The calculation of weighted average shares outstanding used in the
presentation of fully diluted income or loss per common share, as presented
herein, excluded the effect of the exchange of options issued under the former
subsidiary stock option plan as described in the paragraph above.  Had the
exchanged options been considered, the number of weighted average shares
outstanding at March 31, 1998, used for purposes of calculating fully diluted
earnings would have increased from approximately 23,289,000 shares to
approximately 25,593,690 shares.  Income per common share as reported on a fully
diluted basis would have remained unchanged.

    In conjunction with its annual shareholders' meeting held March 31, 1998,
the Company changed its name from Retix to Vertel Corporation. Effective April
9, 1998, the stock began trading on the NASDAQ Stock Market under its new
symbol, VRTL, which replaces the former RETX symbol.
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS

  "Safe Harbor" Statements under the Private Securities Litigation Reform Act of
1995:  Except for the historical information presented, the matters discussed in
this Quarterly Report on Form 10-Q are forward looking statements that involve
risks and uncertainties, including timely deployment and success of new and
enhanced TMN products, loss of key customer relationships, the impact of
competitive products and the dependence on key partners and alliances, the
length of the Company's sales cycle, size and timing of license fees closed
during the quarter, the likely continued significant percentage of quarterly
revenues recorded in the last month of the quarter which makes forecasting
difficult and subject to a financial risk of variance with actual results, a
likely decline in the Company's ownership position in Sonoma Systems if
additional funding is required and the Company is unable or unwilling to
participate, and the other risks detailed from time to time in the Company's
public disclosure filings with the U.S. Securities and Exchange Commission
(SEC).  Copies of the most recent Forms 10K and 10Q are available upon request
from Vertel's Investor Relations Department.

  The following discussion should be read in conjunction with the unaudited
consolidated financial statements and accompanying notes, included in Part I -
Item 1 of this Quarterly Report, and the audited consolidated financial
statements and accompanying notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 27,
1997 contained in the Company's Annual Report.

RESULTS OF OPERATIONS

  Net revenues.  Net revenues increased 30.3% to $4,918,000 for the three months
  ------------                                                                  
ended March 31, 1998 as compared to $3,774,000 for the three month period ended
March 31, 1997.  The increase in revenues for the three month period in 1998 was
primarily due to a $1.2 million, or 45.9%, increase in license revenue, which
included $704,000 in related party sales of licensed product to Sonoma.
Services and other revenues for the three month period in 1998 were

                                       7
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

essentially unchanged compared to the three month period in 1997. License
revenues consist primarily of license fees and royalties derived from the
Company's TMN-based software solutions and development platforms. Services and
other revenues consist primarily of fees from professional services projects,
software maintenance, and custom software engineering.

          Sales to customers outside of North America comprised approximately
32.2% of net revenues for the three months ended March 31, 1998 as compared to
55.9% for the same period in 1997. The Company has historically reported a high
percentage of sales to customers outside of the United States which the Company
believes is suggestive of a high degree of investment by non-US companies in new
infrastructure, compared to their US counterparts.  The Company believes the
decline in the percentage of non-US sales in the three months ended March 31,
1998 as compared to the three month period ended March 31, 1997 was due to
delayed decisions by customers and potential customers in Europe and Asia and
the economic turmoil experienced in Asia.  Continued economic turmoil in Asia
could impact future sales in the region.

          Gross margin. Cost of revenues consists primarily of professional
          ------------                                                     
engineering services and royalties paid under software licensing agreements and
warranty costs.  Gross margin increased to 77.8% of net revenues for the three
months ended March 31, 1998, as compared to 70.8% for the same period in 1997.
The increase in gross margin for 1998 was due primarily to the shift in revenue
mix toward license revenue versus services from the same period in 1997.

          Research and development. The Company has invested heavily in research
          ------------------------                                              
and development to expand its expertise in TMN-based software solutions
applications technologies and to continue sustaining support of its product
offerings. The major components of research and development expenses are
engineering salaries, employee benefits and associated overhead, fees to outside
contractors, and the cost of facilities and depreciation of capital equipment.
Costs related to research and development in certain cases are offset by
customer reimbursement of non-recurring engineering efforts.

          Total research and development expenses decreased 17.8% to $1,435,000
for the three months ended March 31, 1998 as compared to $1,746,000 for the same
period in 1997. As a percentage of revenue, research and development expenses
decreased to 29.2% for the three months ended March 31, 1998, as compared to
46.3% for the same period in 1997.  The decrease in research and development
expense in the first quarter of 1998 as compared to the prior year was primarily
due to large software technology purchases of approximately $350,000 that
occurred in the first quarter of 1997 in support of the Company's decision to
focus primarily on integrated management solutions.

          The Company expects to continue to make significant investments in the
development of new products and feature enhancements to existing product lines,
although such expenses may fluctuate from quarter to quarter both in absolute
dollars and as a percentage of revenue, depending on the status of various
development projects and the level of non-recurring engineering services.

          Sales and marketing. Sales and marketing expenses consist primarily of
          -------------------                                                   
personnel and associated costs related to selling, support and marketing
activities, including marketing programs such as trade shows and other
promotional costs. The Company expects these expenses will continue to comprise
a significant percentage of the Company's total expenses because of costs
associated with supporting the worldwide sales and service functions necessary
to meet the needs of the Company's customer base and respond to the
opportunities in the TMN marketplace.

          Sales and marketing expenses decreased 28.7% to $1,725,000 for the
three months ended March 31, 1998 as compared to $2,420,000 for the same period
in 1997.  Sales and marketing expenses as a percentage of revenues decreased in
the three months ended March 31, 1998 to 35.1% as compared to 64.1% for the
comparable period in 1997.  The overall decrease in sales and marketing both in
absolute spending and as a percentage of revenues was due to approximately
$297,000 in one-time redeployment and consolidation expenses incurred in the
1997 three month period, approximately $170,000 in higher net promotional
expenses in that period, primarily associated with the first annual TMN Summit,
and lower expenses in the 1998 three month period that were associated with
certain staff and facilities reductions that took place in conjunction with
redeployment and consolidation efforts during the same period in 1997.

          The Company has developed a strategy to capitalize on the emerging TMN
market through the establishment and growth of offices and sales personnel
around the world.  In conjunction with this strategy, the Company intends to
expand its sales and marketing functions further to support anticipated broader
market adoption of TMN.  The Company anticipates

                                       8
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

that sales and marketing expenses will increase in absolute dollars, although
such expenses may fluctuate from quarter to quarter both in absolute dollars and
as a percentage of revenue.

   General and administrative. General and administrative expenses consist
   --------------------------                                             
primarily of salaries, rent and other related expenses of administrative,
executive and financial personnel as well as professional fees, investor
relations costs and insurance premiums.  General and administrative expenses
decreased 42.2% to $657,000 for the three months ended March 31, 1998 as
compared to $1,136,000 for the same period in 1997.  General and administrative
expenses as a percentage of net revenues decreased to 13.4% for the three months
ended March 31, 1998 as compared to 30.1% for the same period in 1997.  The
decrease in general and administrative costs both in absolute spending and as a
percentage of revenues was attributable to approximately $220,000 in
redeployment and consolidated charges at Vertel in the first quarter of 1997 in
support of its focus on development of integrated network management solutions
and lower expenses in the 1998 three month period that were associated with
certain staff and facilities reductions that took place in conjunction with
redeployment and consolidation efforts in 1997.

   Operating income (loss) from continuing operations.  The Company generated
   --------------------------------------------------                        
income from continuing operations of $11,000 in the first three months ending
March 31, 1998 as compared to a loss from continuing operations of $2,630,000 in
the same period of 1997.  The improved results primarily reflected a 30.3%
increase in net revenues and an overall 28.0% decrease in operating expenses.

   Other income (expense), net.  Other income for the first three months ending
   ------------------------------                                              
March 31, 1998 was $461,000 as compared to other expense of $37,000 in the same
period of 1997. Other income in 1998 was comprised of $400,000 to reflect
curtailment of a non-US pension plan, which previously covered the Company's
Irish Employees, approximately $68,000 of interest income, net of bank charges,
and $8,000 of income associated with foreign currency exchange gains.
Approximately $15,000 in other miscellaneous expenses were recorded as an
offset.  Foreign tax withholdings and other items combined to offset any net
interest income in the first three months of 1997, resulting in net expense that
year.

   Provision for income taxes.  The Company recorded a provision for taxes in
   ---------------------------                                               
the amount of $132,000 for the three months ended March 31, 1998, which
primarily represented an estimate for non-US taxes associated with the surplus
assets refund upon curtailment of a non-US pension plan.  The Company
anticipates utilizing net operating losses to offset the balance of pre-tax
income in the first quarter of 1998.  As a result, no further provision for
income taxes has been provided.

   The Company established a net deferred tax asset approximating $25 million in
prior years, primarily as a result of cumulative losses, which has been fully
offset by a valuation allowance, also from prior years.  No benefit from these
deferred tax assets has been provided as of March 31, 1998.  Benefit from the
net deferred tax assets will be realized to the extent that the Company operates
profitably in the future.

LIQUIDITY AND CAPITAL RESOURCES

  At March 31, 1998 the Company's principal sources of liquidity consisted of
$6,124,000 in cash and short-term investments.

  Cash and short-term investments decreased $128,000, or 2.1%, during the three
months ended March 31, 1998 reflecting payments of $930,000 for restructuring
liabilities and an additional $178,000 used for discontinued operations during
the period.  Also, $299,000 in additional capital assets were acquired.
Excluding payments for restructuring liabilities, net cash provided by
continuing operations activities was approximately $1.3 million.  Collections
related to sales in the fourth quarter of 1997 and receipt of approximately
$400,000 upon shipment of product to Sonoma contributed to increased cash flow
from operating activities in the period ended March 31, 1998.  Also, accrued
liabilities primarily associated with royalties, commissions and wages increased
$583,000 on a combined basis, contributing positively to cash flows from
operating activities in the period.  This increase reflected higher sales
activity as compared to the same period in 1997.  Cash outlays incurred during
the buildout of new office space in Woodland Hills and to secure additional
office space in Asia, as reflected in higher prepaid expenses and current
assets, contributed to lower cash provided by operating activities.

  The Company believes the effects of the disposition of Sonoma and reductions
in ongoing operating expenses in the second half of 1997 will result in cash
flows in 1998 which, when combined with the Company's cash and short term
investment balances, will be sufficient to meet the Company's liquidity
requirements for the next 12 months.  From time to time, the Company may also
consider the acquisitions of, or evaluate investments in, certain products and
businesses complementary to the Company's business.  Any such acquisitions or
investments may require additional capital resources.

                                       9
<PAGE>
 
                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

           Neither the Company nor any of its subsidiaries is a party to, nor is
           their property the subject of, any material pending legal
           proceedings.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

           Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

           Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
(a)      The registrant's annual meeting of shareholders was held on March 31,
         1998.

(b)      The following Class II directors were elected at the meeting: Bruce
         Brown, Craig Johnson and Ralph Ungermann. Voting results for the
         election of all director nominees were as follows:

<TABLE> 
<CAPTION>
                                                                          Broker non- 
                                                 In Favor    Abstain      -----------
                                                 --------    -------         votes
                                                                             -----
         <S>                                  <C>           <C>          <C>          
           Bruce Brown                          22,243,584   161,527      not applicable
           Craig Johnson                        22,243,584   161,527      not applicable                         
           Ralph Ungermann                      22,243,584   161,527      not applicable
</TABLE>
 
           The current term for Class I directors, including Jeff Drazan, Joe
           Stephan and Gil Williamson, will continue until the 1999 annual
           meeting of shareholders.

(c)        The other matters voted upon at the meeting, and results of those
           votes, were as follows:
                        
           (i)   Proposal to adopt the Company's 1998 stock option plan, and the
                 reservation of 5,200,000 shares of common stock for issuance
                 thereunder.

                       In Favor    Opposed     Abstain       Broker non-votes
                       --------    -------     -------       ----------------
                       9,269,953  1,490,635    116,601         11,527,922
                                                             
                        
           (ii)  Proposal to amend the Company's articles of incorporation
                 changing the name of the Company from Retix to Vertel
                 Corporation.

                       In Favor    Opposed     Abstain       Broker non-votes
                       --------    -------     -------       ----------------   
                       22,247,856  88,531      68,724             0
                        
           (iii) Proposal to approve the appointment of Deloitte and Touche LLP
                 as the independent auditors of the Company for the fiscal year
                 ending January 2, 1999.

                       In Favor    Opposed     Abstain       Broker non-votes
                       --------    -------     -------       ----------------
                       21,918,537  218,483     40,765              227,326
                                                                

ITEM 5.  OTHER INFORMATION

           None.

                                       10
<PAGE>
 
                    PART II.  OTHER INFORMATION (CONTINUED)


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

  (a)       EXHIBITS

        3.5      Certificate of amendment to Company's articles of
                 incorporation, as filed with the California Secretary of State
                 on April 7, 1998, changing the Company's name to Vertel
                 Corporation. (1)
                      
        27.2     Financial Data Schedule

  (b)   REPORTS ON FORM 8-K
 
        On March 31, 1998, the Company's shareholders approved an amendment to
        the Company's articles of incorporation to change the Company's name
        from Retix to Vertel Corporation. This amendment was filed with the
        Securities and Exchange Commission on April 7, 1998. (1)

  (1)   Incorporated by reference from registrant's current report on Form 8-K
 as filed with the Securities and Exchange Commission on April 7, 1998.

                                       11
<PAGE>
 
                                  SIGNATURES

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

                                 VERTEL CORPORATION
                                 (Registrant)



Date: May 7, 1998                /s/  James L. Brill
                                 ---------------------------------------
                                 James L. Brill
                                 Vice President of Finance and Administration
                                 and Chief Financial Officer
                                 (Principal Financial and Accounting Officer)

                                       12