<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 June 27, 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 Identification Number)
 incorporation or organization)


                      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 July 21, 1998 there were 24,417,268 shares of common stock outstanding.



   Total number of sequential pages:__11_____
                                   
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<PAGE>
 
                        PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              VERTEL CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                   (In thousands, except per share amounts)
                                    ASSETS
<TABLE> 
<CAPTION> 
                                                                                               June 30,  December 31,
                                                                                                 1998        1997
                                                                                               --------    --------
                                                                                              (unaudited)
<S>                                                                                            <C>        <C> 
Current assets:
  Cash and short-term investments (Note 2).....................................               $  6,431    $  6,252
  Trade accounts receivable (net of allowances of $540 as of
      June 30, 1998 and $452 as of December 31, 1997)..........................                  4,909       4,941
  Trade accounts receivable, related party.....................................                     33          --
  Prepaid expenses and other current assets....................................                    893         925
                                                                                              --------    --------
 
Total current assets...........................................................                 12,266      12,118
 
Property and equipment, net....................................................                    849         766
Investment (Note 3)............................................................                  3,382          --
Other assets...................................................................                    387         566
                                                                                              --------    --------
 
                                                                                              $ 16,884    $ 13,450
                                                                                              ========    ========
 
                                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable.............................................................               $    488    $    733
  Accrued wages and related liabilities........................................                    622         660
  Accrued restructuring expenses...............................................                    375       1,487
  Other accrued liabilities....................................................                  3,066       2,100
  Deferred revenue.............................................................                    803         531
  Net liabilities of discontinued operations...................................                     --         196
                                                                                              --------    --------
 
Total current liabilities......................................................                  5,354       5,707
 
Deferred rent..................................................................                      1          10
                                                                                              --------    --------
 
    Total liabilities..........................................................                  5,355       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, 24,396,601;
    1997, 24,146,518...........................................................                    229         227
  Additional paid-in capital (Note 3)..........................................                 80,877      78,661
  Accumulated deficit..........................................................                (64,592)    (64,760)
  Accumulated comprehensive deficit............................................                   (593)     (2,003)
                                                                                              --------    --------
     Total.....................................................................                 15,921      12,125
  Less notes receivable from issuance of common stock..........................                 (4,392)     (4,392)
                                                                                              --------    --------
 
     Total shareholders' equity................................................                 11,529       7,733
                                                                                              --------    --------
 
                                                                                              $ 16,884    $ 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 JUNE 30,        SIX MONTHS ENDED JUNE 30,
                                                                       ---------------------------        -------------------------
                                                                             1998       1997                   1998       1997
                                                                           --------   --------               --------   ---------
<S>                                                                        <C>        <C>                    <C>        <C>
Revenues:
  License............................................................       $ 3,670    $ 4,506                $ 6,648     $ 7,012
  License - related party............................................            33         --                    737          --
  Service and other..................................................         1,300      1,364                  2,536       2,632
                                                                            -------    -------                -------     -------
   Net revenues......................................................         5,003      5,870                  9,921       9,644

Cost of revenues:
  License............................................................           330        240                    530         524
  Service and other..................................................         1,004        746                  1,894       1,564
                                                                            -------    -------                -------     -------
   Total cost of revenues............................................         1,334        986                  2,424       2,088
                                                                            -------    -------                -------     -------

Gross margin.........................................................         3,669      4,884                  7,497       7,556

Operating expenses:
   Research and development..........................................         1,612      1,450                  3,047       3,196
   Sales and marketing...............................................         1,690      2,056                  3,415       4,476
   General and administrative........................................           677      1,052                  1,334       2,188
                                                                            -------    -------                -------     -------
    Total............................................................         3,979      4,558                  7,796       9,860
                                                                            -------    -------                -------     -------
Operating (loss) income from continuing operations...................          (310)       326                   (299)     (2,304)

Other income, net....................................................           202         73                    663          36
                                                                            -------    -------                -------     -------
(Loss) income from continuing operations before
   provision for income taxes........................................          (108)       399                    364      (2,268)
Provision for income taxes...........................................            64         --                    196          --
                                                                            -------    -------                -------     -------
(Loss) income from continuing operations.............................          (172)       399                    168      (2,268)
Loss from discontinued operations....................................            --     (1,672)                    --      (3,060)
                                                                            -------    -------                -------     -------
Net (loss) income....................................................          (172)    (1,273)                   168      (5,328)

Other comprehensive expense, before tax..............................            52         32                     21          10
                                                                            -------    -------                -------     -------
Comprehensive (loss) income .........................................       $  (224)   $(1,305)               $   147     $(5,338)
                                                                            -------    -------                -------     -------

Basic net income (loss) per common share: (Note 5)
(Loss) Income from continuing operations.............................        ($0.01)   $  0.02                  $0.01      ($0.11)
Loss from discontinued operations....................................           ---      (0.08)                   ---       (0.15)
Net (loss) income ...................................................         (0.01)     (0.06)                  0.01       (0.26)

Fully diluted net income (loss) per common share: (Note 5)
(Loss) Income from continuing operations.............................         (0.01)      0.02                   0.01       (0.11)
Loss from discontinued operations....................................           ---      (0.07)                   ---       (0.15)
Net (loss) income ...................................................         (0.01)     (0.05)                  0.01       (0.26)

Weighted average shares outstanding used in net
   income (loss) per common share calculations:
Basic................................................................        22,923     20,856                 22,736      20,832
Fully diluted........................................................        22,923     22,885                 24,602      20,832
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
 
                              VERTEL CORPORATION 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                Six Months Ended June 30,
                                                                                   1998           1997
                                                                               ------------   ------------
<S>                                                                            <C>            <C>
 
Cash flows from operating activities:
   Income (loss) from continuing operations.................................       $   168        $(2,268)
   Adjustments to reconcile net income (loss) to net cash provided by
      (used for) operating activities:
       Depreciation and amortization........................................           501            441
       Reserve for returns and bad debts....................................            88             (4)
       Changes in operating assets and liabilities  (Note 4)................          (223)           117
                                                                                   -------        -------
   Net cash provided by (used for) operating activities.....................           534         (1,714)
                                                                                   -------        -------
 
Cash flows from investing activities:
   Net sales (purchases) of short-term investments..........................          (692)          (140)
   Additions to property and equipment......................................          (445)          (235)
   Change in other assets...................................................            40            259
                                                                                   -------        -------
     Net cash (used for) provided by investing activities...................        (1,097)          (116)
                                                                                   -------        -------
 
Cash flows from financing activities:
     Proceeds from issuance of common stock.................................           249            206
                                                                                   -------        -------
     Net cash provided by financing activities..............................           249            206
                                                                                   -------        -------
     Net cash used for discontinued operations..............................          (178)        (2,367)
                                                                                   -------        -------
 
Effect of exchange rate changes on cash.....................................           (21)           (10)
                                                                                   -------        -------
 
Net decrease in cash and cash equivalents...................................          (513)        (4,001)
 
Cash and cash equivalents, beginning of period..............................         2,253          8,219
                                                                                   -------        -------
 
Cash and cash equivalents, end of period....................................       $ 1,740        $ 4,218
                                                                                   =======        =======
</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 twenty six weeks
ended June 27, 1998 and June 28, 1997 as the six months ended June 30, 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 and six month periods ended June 30, 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>
                                                    June 30,    December 31,
                                                      1998          1997
                                                  -----------   ------------
                                                  (unaudited)
<S>                                               <C>           <C>

Cash and cash equivalents....................         $1,740          $2,253
Short-term investments.......................          4,691           3,999
                                                      ------          ------
                                                      $6,431          $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 and a
corresponding credit to additional paid- in capital.  In addition, the $1.4
million cumulative translation loss related to a foreign subsidiary of Sonoma
was charged to 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 for 1997  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 June 30,
                                                                                          1998            1997
                                                                                     --------------   ------------
<S>                                                                                  <C>               <C>

   Trade accounts receivable.............................................                   $   (89)         $ 847
   Prepaid expenses and other current assets.............................                        32           (167)
   Accounts payable......................................................                      (245)           201
   Accrued wages and related liabilities.................................                       (38)           (94)
   Cash payments for restructuring expenses..............................                    (1,112)          (311)
   Other accrued liabilities.............................................                       966              8
   Deferred rent.........................................................                        (9)           (31)
   Deferred revenue......................................................                       272           (336)
                                                                                            -------          -----
      (Decrease) increase in operating assets and liabilities............                   $  (223)         $ 117
                                                                                            =======          =====
</TABLE>

  In January 1998, the Company recorded an increase in its net investment in
Sonoma of $3.4 million as a result of the financing transaction completed (See
Note 3).  In addition, $1,431,000 in related cumulative translation loss was
charged to additional paid-in capital.  Other financing and investing activities
during the six months ended June 30, 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 from continuing operations
reported by the Company in the three months ended June 30, 1998 and the six
months ended June 30, 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 six months ended June 30, 1998, consisted of
stock options outstanding and shares represented by notes receivable as of June
30, 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 as reflected on the accompanying consolidated balance
sheets and statements of operations and comprehensive expense, respectively,
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 three months ended June 30, 1998 the Company finalized the
termination of a 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 as other income $400,000 in the first quarter of
1998 and an additional $263,000 in the second quarter of 1998 upon final
determination of the amount of excess plan assets.  The Company recorded income
taxes related to the return of the pension assets of $132,000 and $64,000 in the
first and second quarter, respectively.



 
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,
economic uncertainties in Asian economies, the Company's ability to control
expenditures at a level consistent with revenues, 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 decreased 14.8% to $5,003,000 for the three months
  ------------                                                                  
ended June 30, 1998 as compared to $5,870,000 for the three month period ended
June 30, 1997 and increased 2.9% to $9,921,000 for the six months ended June 30,
1998 as compared to $9,644,000 for the six months ended June 30, 1997.  The
decrease in revenues for the three month period in 1998 was primarily due to a
one time final billing of $1.9 million related to the discontinuance of the
pACT-based two way paging messaging products in the corresponding period in
1997. Other than the one time billing of $1.9 million, net revenue for the three
months ended June 30, 1998 increased by $1,013,000 or 25.4% as compared to the
three months ended June 30, 1997. This increase was a result of a $1,000,000
licensing fee arising out of a semi-exclusive licensing contract with a customer
for Vertel's Aeronautical Telecommunications Network (ATN) Router as well as
nonexclusive licenses for various other TMN software products.  Services and
other revenues for the three and six month periods in 1998 were essentially
unchanged compared to the corresponding periods 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 service projects, software
maintenance, and custom software engineering.

  Sales to customers outside of North America comprised approximately 58.2% and
51.6%, respectively, of net revenues for the three and six months ended June 30,
1998 as compared to 28.5% and 33.8%, respectively, for the same periods 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.  Continued economic turmoil in Asia could impact future
sales in the region.

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

          Gross margin. Cost of revenues consists primarily of professional
          ------------                                                     
engineering services and royalties paid under software licensing agreements and
warranty costs.  Gross margin decreased to 73.3% and 75.6% of net revenues for
the three and six months ended June 30, 1998, respectively, as compared to 83.2%
and 78.3% for the same periods in 1997.  The decrease in gross margin for 1998
was due primarily to the increase in cost of revenues relating to the HP
contract on which a royalty is paid to HP for all sales of the jointly developed
products. In conjunction, HP pays Vertel a royalty on HP's sales of the jointly
developed products. There were no sales of such products by HP in the second
quarter of 1998. Sales of the HP products in the first quarter of 1998 were
insignificant. In addition, during the three and six months ended June 30, 1998,
service costs increased due to a single service contract on which expenses were
higher than initially anticipated.

          Research and development. The Company has invested heavily in research
          ------------------------                                              
and development to expand its expertise in TMN-based software solutions and
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 increased by 11.2% to $1,612,000 for the
three months ended June 30, 1998 as compared to $1,450,000 for the same period
in 1997. As a percentage of revenue, research and development expenses increased
to 32.2% for the three months ended June 30, 1998, as compared to 24.7% for the
same period in 1997.  Research and development expense increased in the three
months ended June 30, 1998 as compared to the same period in 1997 because of
additional emphasis on research and development by management, the result of
which was an increase in headcount and in the average compensation level. The
decrease in research and development expense in the six months ended June 30, of
1998, as compared to the corresponding period in 1997, 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 17.8% to $1,690,000 for the
three months ended June 30, 1998 as compared to $2,056,000 for the same period
in 1997.  Sales and marketing as a percentage of revenues were comparable to the
three months ended June 30, 1997. Sales and marketing expenses for the six
months ended June 30, 1998 decreased 23.7% to $3,415,000 for the six months
ended June 30, 1998 as compared to the same period in 1997 and as a percentage
of revenue decreased to 34.4 % as compared to 46.4.% for the comparable period
in 1997.  The overall decrease in sales and marketing expenses both in absolute
spending and as a percentage of revenues for the six months ended June 30 1998
as compared to the same period in 1997 was due to approximately $297,000 in one-
time redeployment and consolidation expenses, approximately $170,000 in higher
net promotional expenses in the 1997 period, primarily associated with the first
annual TMN Summit, and lower expenses in the 1998 six 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 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.

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


   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 35.6% to $677,000 for the three months ended June 30, 1998 as compared
to $1,052,000 for the same  period in 1997.  In the six months ended June 30,
1998, general and administrative expenses decreased 39% to $1,334,000 as
compared to $2,188,000 for the same period in 1997. General and administrative
expenses as a percentage of net revenues decreased to 13.5% and 13.4% for the
three and six months ended June 30, 1998 as compared to 17.9% and 22.7% for the
corresponding periods 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
six months ended June 30, 1997 in support of its focus on the development of
integrated network management solutions and lower expenses in the 1998 six and
three month periods that were associated with certain staff and facilities
reductions that took place in conjunction with redeployment and consolidation
efforts in 1997.

   Operating (loss) income from continuing operations.  The Company generated a
   --------------------------------------------------                          
loss from continuing operations of $310,000 in the three months ending June 30,
1998 as compared to income from continuing operations of $326,000 in the same
period of 1997.  Loss from continuing operations for the six months ended June
30, 1998 was $299,000 as compared to a loss of $2,304,000 for the corresponding
period in 1997. The loss for the three months ended June 30, 1998 was in part
due to increased cost of revenue related to the HP joint product sales on which
the Company pays a royalty. In addition, as discussed above, the Company
experienced cost overruns on one service contract. Revenues were lower as
compared to the same period in 1997 because of a one time final billing of $1.9
million in 1997 related to the discontinuance of the pACT-based two-way paging
messaging products.

   Other income (expense), net   Other income for the three months ending June
   ----------------------------                                               
30, 1998 was $202,000 as compared to other expense of $73,000 in the same period
of 1997. Other income for the six months ended June 30, 1998 comprised $663,000
resulting from the curtailment of a non-US pension plan which previously covered
the Company's Irish employees, approximately $130,000 of interest income, net of
bank charges, and $7,000 of income associated with foreign currency exchange
gains.

   Provision for income taxes.  The Company recorded a provision for taxes in
   ---------------------------                                               
the amount of $64,000 and $196,000 for the three and six months ended June 30,
1998, which primarily represented an estimate for non-US taxes associated with
the surplus assets refunded 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 six months ended June 30, 1998.

   The Company has a net deferred tax asset approximating $25 million, primarily
as a result of cumulative losses, which has been fully offset by a valuation
allowance.  No benefit from these deferred tax assets has been provided as of
June 30, 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 June 30, 1998 the Company's principal sources of liquidity consisted of
$6,431,000 in cash and short-term investments.

  Cash and short-term investments increased $179,000, or 2.9%, during the six
months ended June 30, 1998. Cash payments of $1,112,000 for restructuring
liabilities were made during the period.  Also, $445,000 of additional capital
assets were acquired.  Excluding payments for restructuring liabilities, net
cash provided by continuing operations activities was approximately $1.6
million.  Also,  accrued liabilities primarily associated with royalties,
commissions and wages increased $966,000 on a combined basis, contributing
positively to cash flows from operating activities in the period.

  The Company believes that cash generated from operations and the Company's
ability to generate cash from other sources 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.

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<PAGE>
 
  Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. New releases of the
Company's software have been designed to address processing for the year 2000 to
the extent it has been required, and it is the Company's intent to have all
actively supported software on release versions which are ready for year 2000 by
the end of 1998. However, to the extent that others such as system integrators
make use of the Company's software in developing solutions for third parties,
the Company may have no knowledge as to the year 2000 readiness of those third
party products. In addition it is possible that third parties could assert
claims against the Company or its customers concerning year 2000 issues and
regardless of their merits or lack thereof, such claims could be material.

As with other organizations, the Company's internal computer systems and
programs were originally designed to recognize calendar years by their last two
digits. The Company has initiated efforts to remedy this situation and expects
all systems to be replaced and tested prior to the year 2000.  The incremental
costs of this project have not yet been quantified by the Company and could be
material.

                          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
 
       None
 
ITEM 5.  OTHER INFORMATION

       None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)    EXHIBITS
 
 
       27.1   Financial Data Schedule

(b)    REPORTS ON FORM 8-K
 
       None

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<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: August 6, 1998             /S/  James L. Brill
                                 ---------------------------------------
                                 James L. Brill
                                 Vice President of Finance and Administration
                                 and Chief Financial Officer
                                 (Principal Financial and Accounting Officer)
 
 

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