<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 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 29, 2002


                                       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: 0-27482


                                XETEL CORPORATION
             (Exact Name of Registrant as Specified in its Charter)


            DELAWARE                                      74-2310781
    (State of Incorporation)                     (I.R.S. Employer ID Number)


                              2105 GRACY FARMS LANE
                               AUSTIN, TEXAS 78758
          (Address of principal executive offices, including zip code)


                                 (512) 435-1000
              (Registrant's telephone number, including area code)


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 other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [x] No [ ]

As of the close of business on August 7, 2002, 10,153,570 shares of the
registrant's common stock, par value $.0001 per share, were outstanding.



<PAGE>



                                XETEL CORPORATION
                                      INDEX

<Table>
<S>                                                                                                        <C>
PART I. FINANCIAL INFORMATION

ITEM 1.  Condensed Financial Statements (unaudited)

         Balance Sheets as of June 29, 2002 and March 30, 2002                                              3

         Statements of Operations for the three months ended
             June 29, 2002 and June 30, 2001                                                                4

         Statements of Cash Flows for the three months ended
             June 29, 2002 and June 30, 2001                                                                5

         Notes to Financial Statements                                                                      6

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations             10

ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk                                         15


PART II.  OTHER INFORMATION


ITEM 6.  Exhibits and Reports on Form 8-K                                                                  16

SIGNATURES                                                                                                 16
</Table>



<PAGE>



PART I FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

                                XETEL CORPORATION
                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<Table>
<Caption>
                                                                             June 29,        March 30,
                                                                              2002             2002
                                                                          -------------    -------------
<S>                                                                       <C>              <C>
ASSETS                                                                     (unaudited)

Current assets:
     Cash and cash equivalents                                            $         363    $       1,064
     Trade accounts receivable, net                                              15,160           11,835
     Inventories, net                                                            13,778           19,337
     Federal income tax receivable                                                1,633            1,633
     Prepaid expenses and other                                                     574              949
                                                                          -------------    -------------
         Total current assets                                                    31,508           34,818

Property and equipment, net                                                       6,225            6,775
                                                                          -------------    -------------
         TOTAL ASSETS                                                     $      37,733    $      41,593
                                                                          =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Trade accounts payable                                               $      21,905    $      22,074
     Notes payable and other debt                                                 7,609            5,607
     Accrued expenses and other liabilities                                       4,757            6,200
                                                                          -------------    -------------
         Total current liabilities                                               34,271           33,881

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $0.0001 par value, 4,000,000 shares authorized,
        none issued and outstanding                                                  --               --
     Common stock, $0.0001 par value, 25,000,000 shares authorized,
        10,159,566 and 10,073,945 shares issued and 10,153,570 and
        10,067,949 shares outstanding, respectively                                   1                1
     Additional paid in capital                                                  23,310           23,203
     Accumulated deficit                                                        (19,849)         (15,492)
                                                                          -------------    -------------
         Total stockholders' equity                                               3,462            7,712
                                                                          -------------    -------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $      37,733    $      41,593
                                                                          =============    =============
</Table>



   The accompanying notes are an integral part of these financial statements.
                                                                               3


<PAGE>


                                XETEL CORPORATION
                            STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                       Three Months Ended
                                                ------------------------------
                                                   June 29,         June 30,
                                                    2002              2001
                                                -------------    -------------
<S>                                             <C>              <C>
Net sales                                       $      19,841    $      39,400
Cost of sales                                          21,385           36,379
                                                -------------    -------------
     GROSS PROFIT (LOSS)                               (1,544)           3,021

Selling, general and administrative
   expenses                                             2,404            2,377
                                                -------------    -------------
     INCOME (LOSS) FROM OPERATIONS                     (3,948)             644
Other expense, net                                       (409)            (507)
                                                -------------    -------------
                                                       (4,357)             137

    INCOME (LOSS) BEFORE INCOME TAXES

Provision (benefit) for income taxes                       --               56
                                                -------------    -------------
     NET INCOME (LOSS)                          $      (4,357)   $          81
                                                =============    =============

     Basic earnings (loss) per share            $       (0.43)   $        0.01
                                                =============    =============

     Basic weighted average shares
       outstanding                                     10,130            9,965
                                                =============    =============

     Diluted earnings (loss) per share          $       (0.43)   $        0.01
                                                =============    =============

     Diluted weighted average
          shares outstanding                           10,130           10,174
                                                =============    =============
</Table>


   The accompanying notes are an integral part of these financial statements.
                                                                               4
<PAGE>



                                XETEL CORPORATION
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                    Three Months Ended
                                                                              ------------------------------
                                                                                June 29,          June 30,
                                                                                  2002              2001
                                                                              -------------    -------------
<S>                                                                           <C>              <C>
Cash flows from operating activities:
   Net income (loss)                                                          $      (4,357)   $          81
   Adjustments to reconcile net income
       to net cash (used in) provided
     by operating activities:
        Non-cash interest expense                                                        63               --
        Depreciation and amortization                                                   550              514
        Loss on disposal of equipment                                                    --               26
   Changes in assets and liabilities:
        Trade accounts receivable                                                    (3,325)           8,505
        Inventories                                                                   5,559            5,558
        Prepaid expenses and other                                                      375               52
        Trade accounts payable                                                         (169)          (4,511)
        Accrued expenses and other liabilities                                       (1,443)          (1,513)
                                                                              -------------    -------------
CASH PROVIDED BY (USED IN)                                                           (2,747)           8,712
     OPERATING ACTIVITIES Cash flows from investing activities:
       Purchases of property and equipment                                               --           (1,066)
       Proceeds from sale of equipment                                                   --               36
                                                                              -------------    -------------
CASH USED IN INVESTING ACTIVITIES                                                        --           (1,030)
Cash flows from financing activities:
      Net borrowings (repayments) under debt
             agreements                                                               3,508           (8,804)
      Repayment of trade notes                                                       (1,469)              --
      Repayment of capital leases                                                       (37)              --
      Proceeds from stock options exercised                                              --               33
      Proceeds from stock issued under
              employee stock purchase plan                                               44               88
                                                                              -------------    -------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                       2,046           (8,683)
Decrease in cash and cash equivalents                                                  (701)          (1,001)
Cash and cash equivalents, beginning of period                                        1,064            1,744
                                                                              -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                      $         363    $         743
                                                                              =============    =============
</Table>



    The accompanying notes are an integral part of these financial statements
                                                                               5
<PAGE>



                                XETEL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1. THE COMPANY AND DESCRIPTION OF BUSINESS ACTIVITIES

     XeTel Corporation (the "Company") provides comprehensive and customized
electronics manufacturing solutions to original equipment manufacturers
primarily in the defense, networking, telecommunications and computer industries
in the United States of America. The Company incorporates advanced prototype
services and complex electronics manufacturing assembly capabilities together
with materials and supply base management, advanced testing, systems integration
services and order fulfillment, to provide manufacturing solutions for its
customers.

NOTE 2. GOING CONCERN UNCERTAINTIES

     Due to a significant reduction in customer demand for its services, the
Company suffered substantial operating losses and a significant reduction in its
liquidity during fiscal 2002 and the quarter ended June 29, 2002. While the
Company continues to reduce its costs, operating losses are likely to continue
and may increase due to a significant decline in production volume subsequent to
June 29, 2002.

     The Company is making payments to creditors as cash flow allows; however,
as discussed in Note 8, several lawsuits have been filed against the Company
related to non-payment of amounts due to creditors. In addition, as discussed in
Note 8, the Company is in default of its real property and equipment lease
agreements. Due to these defaults, the lessors have the right to take possession
of the equipment and premises leased under such agreements. The Company's
manufacturing facilities, corporate offices and most of its production equipment
are leased.

     As discussed in Note 7, the Company's $4.0 million credit facility expires
on August 22, 2002. There is no assurance that the Company will be able to
obtain a new source of financing prior to August 22, 2002, or extend the
maturity of the credit facility beyond August 22, 2002.

     In recognition of the Company's potential inability to meet its future
liquidity requirements, it has retained an investment banking firm to help the
Company review its strategic alternatives, including the sale or merger of the
Company, in whole or in part. If its efforts are not successful, the Company
will likely seek protection from its creditors under the U.S. bankruptcy code.
However, the Company may also be required to seek protection under the U.S.
bankruptcy code as a condition of the sale of XeTel.

     The Company's ability to continue as a going concern, of which there is
substantial doubt, depends upon the sale of the Company, in whole or in part, or
the ability of the Company to obtain new sources of financing to pay its
obligations as they become due. The accompanying financial statements have been
prepared on a going concern basis which assumes continuity of operations and
realization of assets and liabilities in the ordinary course of business. The
financial statements do not include any adjustments that would likely result if
the Company discontinued operations.

NOTE 3. BASIS OF PRESENTATION

     These interim financial statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). All adjustments have been made to the accompanying
interim financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's operating results
and include all adjustments of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is recommended that these
interim financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended March 30, 2002. The results of operations for any
interim period are not necessarily indicative of the results of operations for
the entire year.

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

     In May 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections as of April 2002." The Statement rescinds SFAS No. 4 and
requires that only unusual or infrequent gains and losses from extinguishment of
debt should be classified as extraordinary items, consistent with APB Opinion
30. This Statement amends SFAS No. 13 to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease


                                                                               6
<PAGE>



                                XETEL CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends certain existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
Statement related to the rescission of Statement 4 are effective for fiscal
years beginning after May 15, 2002. The remaining provisions of this Statement
are effective May 15, 2002. SFAS No. 145 did not have a material effect on the
Company's financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred as opposed to on the date
of an entity's commitment to an exit plan, which was the practice employed under
EITF Issue 94-3. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. SFAS 146 is not expected to have a material effect on
the Company's financial position or results of operations.


NOTE 5. TRADE ACCOUNTS RECEIVABLE, NET

     Trade accounts receivable, net consist of the following (in thousands):

<Table>
<Caption>
                                                            JUNE 29,          MARCH 30,
                                                              2002              2002
                                                          -------------    -------------
                                                           (UNAUDITED)
<S>                                                       <C>              <C>
    Accounts receivable ...............................          16,270           13,188
    Less: allowance for doubtful accounts .............          (1,110)          (1,353)
                                                          -------------    -------------
                                                          $      15,160    $      11,835
                                                          =============    =============
</Table>


NOTE 6. INVENTORIES, NET

     Inventories, net consist of the following (in thousands):

<Table>
<Caption>
                                                             JUNE 29,        MARCH 30,
                                                              2002             2002
                                                          -------------    -------------
                                                           (UNAUDITED)
<S>                                                       <C>              <C>
    Raw materials .....................................   $      17,307    $      21,515
    Work in progress ..................................           1,710            3,088
    Finished goods ....................................           1,648            1,832
    Less: allowance for obsolete inventory ............          (6,887)          (7,098)
                                                          -------------    -------------
                                                          $      13,778    $      19,337
                                                          =============    =============
</Table>

NOTE 7. NOTES PAYABLE AND LONG-TERM DEBT

     In July 2001, the Company issued approximately $1.7 million of trade drafts
to a financial company. The proceeds from this transaction were used to pay a
product supplier. The Company was unable to pay these trade drafts when due;
therefore, the Company entered into several amendments to extend the maturity of
the trade drafts in exchange for the repayment of $0.7 million of the trade
drafts, the payment of certain fees and granting the financial company a
security interest in certain of the Company's fixed assets and the income tax
receivable. The outstanding balance of $1.0 million was paid subsequent to June
29, 2002 with the receipt of the income tax refund of approximately $1.6
million.

     The Company's total capital lease obligations of $0.8 million as of June
29, 2002. The Company has violated certain financial covenants, and is
delinquent in payments due, under both the capital and operating lease
agreements for equipment. Based on the events of default, the lessor has the
contractual right to enter take possession of the leased equipment, which could
significantly impact the Company's results of operations. Accordingly, the full
amount of the capital lease obligation has been classified as current.


                                                                               7
<PAGE>



                                XETEL CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


     In April 2002, the Company entered into a short-term credit facility with a
financial institution. The credit facility had a borrowing limit of $5.0
million. Borrowings under the agreement were collateralized by certain of the
Company's assets. However, during May 2002, the Company defaulted under the
agreement. On May 29, 2002, the Company entered into a forbearance agreement,
which modified, among other terms, the borrowing base calculation, reduced the
borrowing limit to $4.3 million and established the maturity of the agreement as
July 22, 2002. In July 2002, the Company amended the agreement which reduced the
borrowing limit to $4.0 million and extended the maturity date to August 22,
2002.

     In connection with the short-term credit facility, the Company issued a
warrant to purchase 141,304 shares of common stock at an exercise price of $0.46
per share. The warrants expire in April 2007 and were valued at $63,000 using
the Black-Scholes valuation model with the following assumptions: volatility of
137%, a risk-free rate of 4.7%, an expected life of five years and a dividend
rate of zero. These warrants were recorded as a discount to debt and were fully
amortized to interest expense during the quarter ended June 29, 2002.

NOTE 8. COMMITMENTS AND CONTINGENCIES

     Due to its financial condition, the Company has violated certain financial
covenants, and is delinquent in payments due, under lease agreements for
equipment used primarily in the production of finished goods. Based on the
events of default, the lessor has the contractual right to take possession of
the leased equipment, which could significantly impact the Company's results of
operations. Further, the Company has received a lawsuit related to one equipment
lease which has a quarterly payment of approximately $12,000; the lawsuit
asserts a claim of $126,000.

     In July and August, the Company owed two real property lessors a total of
$197,000 per month under the real property lease agreements. The Company made
payments totaling $128,000 ineach of those two months. The Company has received
letters from the lessors which notified the Company of its default under the
lease agreements. There can be no assurance that any or all of the lessors will
not elect to pursue their rights and remedies under the real property lease
agreements in the future.

     The Company also has approximately seventeen lawsuits pending with claims
totaling approximately $650,000 which are related to non-payment of amounts due
to creditors.

     During November 2001, a patent infringement lawsuit was filed by the
Lemelson Foundation against the Company and alleges violations of patents used
in the manufacturing of integrated circuits. The Company is currently
investigating the claims filed against it. No estimate of potential loss, if
any, is currently possible and, accordingly, no accrual associated with the
litigation has been recognized in the results of operations for fiscal 2002 or
2003.

NOTE 9. INCOME TAXES

     Due to the uncertainty of generating future taxable income to utilize
deferred tax assets associated with the Company's loss from operations during
the quarter ended June 29, 2002, the Company established a valuation allowance
equal to such future tax benefits.



                                                                               8
<PAGE>



                                XETEL CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


NOTE 10. EARNINGS PER COMMON SHARE

     Basic earnings per share ("EPS") is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the related period. Diluted EPS is similar to basic EPS except
that the weighted average number of common shares outstanding is increased to
include the number of common share equivalents, when inclusion is dilutive.
Common share equivalents are comprised of stock options. The number of common
share equivalents outstanding relating to stock options is computed using the
treasury stock method.

     The following table sets forth the computation of basic and diluted
earnings per share (unaudited):

<Table>
<Caption>
                                                               THREE MONTHS
                                                                  ENDED
                                                     --------------------------------
                                                        JUNE 29,         JUNE 30,
                                                         2002              2001
                                                     --------------    --------------
<S>                                                  <C>               <C>
    Basic earnings per share:
      Weighted average shares outstanding                    10,130             9,965
                                                     ==============    ==============
      Net income (loss) ..........................   $       (4,357)   $           81
                                                     ==============    ==============
      Basic earnings (loss) per share ............   $        (0.43)   $         0.01
                                                     ==============    ==============

    Diluted earnings per share:
      Weighted average shares outstanding                    10,130             9,965
    Common stock equivalents:
      Stock options ..............................               --               209
                                                     --------------    --------------
                                                             10,130            10,174
                                                     ==============    ==============
      Net income (loss) ..........................   $       (4,357)   $           81
                                                     ==============    ==============
      Diluted earnings (loss) per share ..........   $        (0.43)   $         0.01
                                                     ==============    ==============
</Table>


     Options to purchase 1,694,915 and 1,148,365 shares of common stock at June
29, 2002 and June 30, 2001, respectively, but were not included in the
computation of diluted EPS because the exercise of such options would be
anti-dilutive.



                                                                               9
<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our financial statements and
related notes included elsewhere in this filing. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including the risks discussed in
"Risk Factors that May Affect Future Results, Financial Condition and Market
Price of Securities" set forth elsewhere in this Quarterly Report on Form 10-Q.

     All percentage amounts and ratios were calculated using the underlying data
in thousands. Operating results for the three month period ended June 29, 2002,
are not necessarily indicative of the results that may be expected for the full
fiscal year.

OVERVIEW

     XeTel Corporation was founded in 1984 and, since our inception, we have
manufactured surface mount assemblies and performed other manufacturing services
for original equipment manufacturers, or OEMs, in the electronics industry. The
development and growth of our business have generally followed the trend by OEMs
in the electronics industry to outsource all or a portion of their manufacturing
requirements. In view of this trend, we have developed a range of electronics
manufacturing services including product development support and advanced
prototyping, materials procurement and supply base management, complex surface
mount assembly, total system assembly and integration, manufacturing in various
production volumes, advanced test engineering and testing, and after-market
support. We have sought to forge long-term relationships with our customers to
serve as a single-source provider of comprehensive electronics manufacturing
services.

     We received notification dated February 14, 2002, from the Nasdaq National
Market that our common stock would be delisted if we did not meet specific
listing requirements. On August 14, 2002, we notified The Nasdaq Stock Market
that we were withdrawing our application to transfer the listing of our common
stock from The Nasdaq National Market to The Nasdaq Small Cap Market. As of
August 15, 2002, we have not received any communication from The Nasdaq Stock
Market that it is delisting our common stock; however, we expect that our common
stock will be delisted from The Nasdaq National Market. We intend to take all
necessary steps to maintain a public market for our common stock either through
the over-the-counter bulletin board or pink sheets.

     Our results of operations are affected by the level of capacity utilization
of our manufacturing facilities, direct and indirect labor costs, and selling,
general and administrative expenses. Accordingly, gross margins and operating
income margins have generally improved during periods of high volume and high
capacity utilization and declined in periods of low volume and low capacity
utilization. Margins also vary based on the type of services we provide.

     Due to a significant reduction in customer demand for our services, we have
experienced decreases in our net sales and have generated operating losses in
recent quarters. The downturn in our business was fueled in large part by the
cancellation of orders by current customers and the reduction of demand with
networking and telecommunications OEMs. Due to our financial condition,
described in "Liquidity and Capital Resources," we have retained an investment
banking firm to help us review our strategic alternatives, including the sale or
merger of XeTel, in whole or in part. If our efforts are not successful, we will
likely seek protection from our creditors under the U.S. bankruptcy code.
However, we may also be required to seek protection under the U.S. bankruptcy
code as a condition to a sale of XeTel.

     In the quarter ended June 29, 2002, we derived approximately 27% of our net
sales from telecommunications OEMs, 20% of our net sales from defense OEMs, 33%
of our net sales from computer OEMs and 20% of our net sales from OEMs in other
industry sectors. The percentage of net sales derived from our largest customer
was 24% and 25% of net sales, respectively, in the first quarter of fiscal 2003
and the fourth quarter of fiscal 2002.



                                                                              10
<PAGE>



RESULTS OF OPERATIONS

     The following table sets forth, as a percentage of net sales, historical
statements of operations data for the three month period ended June 29, 2002 and
June 30, 2001.

<Table>
<Caption>
                                                                  THREE MONTHS
                                                                      ENDED
                                                          -------------------------------
                                                            JUNE 29,            JUNE 30,
                                                              2002                2001
                                                          -------------     -------------
<S>                                                       <C>               <C>
Net sales .............................................           100.0%            100.0%
Cost of sales .........................................           107.8              92.3
                                                          -------------     -------------
Gross profit (loss) ...................................            (7.8)              7.7
Selling, general and administrative expenses ..........            12.1               6.1
                                                          -------------     -------------
Income (loss) from operations .........................           (19.9)              1.6
Other expense, net ....................................            (2.1)             (1.3)
                                                          -------------     -------------
Income (loss) before income taxes .....................           (22.0)              0.3
Provision for income taxes ............................             0.0               0.1
                                                          -------------     -------------
Net income (loss) .....................................           (22.0)%             0.2%
                                                          =============     =============
</Table>

NET SALES

     Net sales for the quarter ended June 29, 2002 were $19.8 million,
reflecting a decrease of 49.6% from our net sales in the comparable quarter
period of fiscal 2002 of $39.4 million. Sales to our three largest customers
during the quarter ended June 29, 2002 represented 24%, 19% and 17% of total net
sales, with no other customer accounting for more than 5% of net sales during
the recent quarter. Sales to our three largest customers during the quarter
ended June 30, 2001 represented 33%, 12% and 7% of total net sales, with no
other customer accounting for more than 5% of net sales during the quarter.

     The lower sales levels for the three month period ended June 29, 2002, as
compared to the first quarter of fiscal 2002, reflected reduced customer demand
in our primary telecommunications and networking markets.

COST OF SALES AND GROSS PROFIT

     Cost of sales consists of material costs, direct labor, direct material and
manufacturing overhead (which includes manufacturing and process engineering
expenses). Gross profit is affected by, among other factors, the level of sales,
mix of services, component costs and the level of capacity utilization at our
facilities.

     Gross profit (loss) for the quarter ended June 29, 2002 was $(1.5) million
versus $3.0 million for the quarter ended June 30, 2001. Our gross margin
percentage, which represents our gross profit (loss) as a percentage of net
sales, decreased to (7.8)% in the first quarter of fiscal 2003, versus 7.7% in
the first quarter of fiscal 2002.

     The decrease in gross margin percentage in the first quarter of fiscal 2003
from the comparable period in the prior year was due primarily to lower sales
volume resulting from decreased demand for our services and increased fixed
facility, equipment and capacity costs that were added during the last fiscal
year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative, or SG&A, expenses consist primarily of
salaries and related expenses, marketing and promotional expenses, outside
services, travel and entertainment, provision for bad debts and sales
commissions paid to direct sales personnel and independent sales representative
organizations.

     SG&A expenses were $2.4 million, or 12.1% of net sales, in the quarter
ended June 29, 2002 versus $2.4 million, or 6.1% of net sales, in the first
quarter of fiscal 2002. The slight increase in SG&A expense was attributable to
an increase in bad debt expense of $0.5 million, partially offset by a reduction
in our work force and other cost reduction measures that we implemented in view
of the continuing decrease in demand for our manufactured services.


                                                                              11
<PAGE>


OTHER EXPENSE, NET

     Other expense, net for the quarter ended June 29, 2002, decreased to $0.4
million compared to $0.5 million for the quarter ended June 30, 2001. The
decline in the first quarter of fiscal 2003 was due to decreased interest
expense incurred on lower average daily borrowings in the recent quarter.

INCOME TAXES

     Due to the uncertainty of generating future taxable income to utilize
deferred tax assets associated with our loss from operations during the quarter
ended June 29, 2002, we established a valuation allowance equal to such future
tax benefits.


LIQUIDITY AND CAPITAL RESOURCES

     Due to a significant reduction in customer demand for our services, we
suffered substantial operating losses and a significant reduction in our
liquidity during fiscal 2002 and the quarter ended June 29, 2002. While we
continue to reduce our costs, operating losses are likely to continue and may
increase due to a significant decline in production volume subsequent to June
29, 2002.

     We are making payments to creditors as cash flow allows; however, several
lawsuits have been filed against us related to non-payment of amounts due to
creditors. In addition, we are in default of our real property and equipment
lease agreements. Due to these defaults, the lessors have the right to take
possession of the equipment and premises leased under such agreements. Our
manufacturing facilities, corporate offices and most of our production equipment
are leased (See Note 8 of "Notes to the Financial Statements").

     Our $4.0 million credit facility expires on August 22, 2002. There is no
assurance that we be able to obtain a new source of financing prior to August
22, 2002, or extend the maturity of the credit facility beyond August 22, 2002.

     Due to our financial condition, we have retained an investment banking firm
to help us review our strategic alternatives, including the sale or merger of
XeTel, in whole or in part. If our efforts are not successful, we will likely
seek protection from our creditors under the U.S. bankruptcy code. However, we
may also be required to seek protection under the U.S. bankruptcy code as a
condition of sale of XeTel.

     Our ability to continue as a going concern, of which there is substantial
doubt, depends upon the sale of XeTel, in whole or in part, or our ability to
obtain new sources of financing to pay our obligations as they become due. The
accompanying financial statements have been prepared on a going concern basis
which assumes continuity of operations and realization of assets and liabilities
in the ordinary course of business. The financial statements do not include any
adjustments that would likely result if we discontinued operations.

     Our working capital was $(2.8) million at June 29, 2002, compared to $0.9
million at March 30, 2002, and included cash and cash equivalents of $0.4
million. Net cash used by operating activities was $2.7 million for the three
months ended June 29, 2002. Cash flows used in operating activities during the
three months ended June 29, 2002 primarily resulted from the net operating loss
and an increase in accounts receivable and were partially offset by reduction in
inventories. Accounts receivable have increased by approximately $3.3 million
since March 30, 2002 due to an increase in revenue in the first quarter of
fiscal 2003 as compared to the fourth quarter of fiscal 2002. The number of days
sales outstanding decreased from 88 days at March 30, 2002 to 61 days at June
29, 2002 (using the count-back method).

     We did not have any capital expenditures during the quarter ended June 29,
2002. Management anticipates that capital expenditures in fiscal 2003 will
decrease from the level of capital expenditures made in fiscal 2002.

     In July 2001, we issued approximately $1.7 million of trade drafts to a
financial company. The outstanding balance of $1.0 million was paid subsequent
to June 29, 2002 with the receipt of a federal income tax refund of
approximately $1.6 million.



                                                                              12
<PAGE>



     During November 2001, a patent infringement lawsuit was filed by the
Lemelson Foundation against us that alleges violations of patents used in the
manufacturing of integrated circuits. We are currently investigating the claims
filed against us. No estimate of potential loss, if any, is currently possible
and, accordingly, no accrual associated with the litigation has been recognized
in the results of operations for fiscal 2002 or 2003.

     At June 29, 2002 and March 30, 2002, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. As such, we are not
materially exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, management evaluates these estimates,
including those related to revenue recognition, product returns, bad debts,
inventories, income taxes, warranty obligations, and contingencies and
litigation. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

     We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements. We recognize revenue and profit when the earnings process is
complete, title and risk of loss is transferred and collectability of the
resulting receivable is reasonably assured. We make provision for estimated
sales returns and discounts based upon historical experience. We maintain
allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. If the financial condition
of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. We provide for
the estimated cost of product warranties at the time revenue is recognized.
While we engage in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of component suppliers, our
warranty obligation is affected by product failure rates, material usage and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage or service delivery costs differ from our
estimates, revisions to the estimated warranty liability would be required. We
write down our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less or more favorable than those projected by
management, additional inventory write-downs or recoveries may occur. We record
a valuation allowance to reduce our deferred tax assets to the amount that is
more likely than not to be realized. In the event we were to determine that we
would be able to realize our deferred tax assets in the future in excess of our
net recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made.

NEW ACCOUNTING PRONOUNCEMENTS

     In May 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections as of April 2002." The Statement rescinds SFAS No. 4 and
requires that only unusual or infrequent gains and losses from extinguishment of
debt should be classified as extraordinary items, consistent with APB Opinion
30. This Statement amends SFAS No. 13 to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends certain existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 are
effective for fiscal years beginning after May 15, 2002. The remaining
provisions of this Statement are effective May 15, 2002. SFAS No. 145 did not
have a material effect on our financial position or results of operations.



                                                                              13
<PAGE>



     In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred as opposed to on the date
of an entity's commitment to an exit plan, which was the practice employed under
EITF Issue 94-3. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. SFAS 146 is not expected to have a material effect on
our financial position or results of operations.

BACKLOG

     Our backlog at June 29, 2002 was approximately $24 million as compared to
approximately $30 million at March 30, 2002, $29 million at December 29, 2001
and approximately $30 million at September 29, 2001. Backlog consists of
purchase orders we receive and customer commitments under scheduled releases
that generally provide for the delivery of our product within twelve months.
Variations in the size and delivery schedules of purchase orders we receive, as
well as changes in customers' delivery requirements or the rescheduling or
cancellation of orders and commitments, have resulted in the past and may result
in the future in substantial fluctuation in backlog from period to period.
Accordingly, backlog may not be a meaningful indicator of our future net sales.

EMPLOYEES

     As of June 29, 2002, we had approximately 288 full-time employees,
supplemented from time to time by part-time employees. Our employees are not
subject to a collective bargaining agreement and we believe our employee
relations to be satisfactory.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION AND
MARKET PRICE OF SECURITIES

     Factors that could materially and adversely affect our results and the
trading price of our common stock include, but are not limited to the following:
1) our current liquidity crisis, which is reflected by the inclusion of a "going
concern" exception in the report from our auditors issued in conjunction with
the Form 10-K filed for the fiscal year ended March 30, 2002 and included as a
footnote to the financial statements accompanying this Form 10-Q; 2) significant
customers canceling their orders, changing production quantities or failing to
pay us for our services; 3) our potential inability to secure additional
financing when needed, including upon the maturity of our existing short term
credit facility on August 22, 2002; 4) increased costs associated with the
numerous lawsuits currently pending against us and the risk of adverse
judgments being entered against us; 5) our dependence on a limited number of
suppliers and the ability to obtain sufficient components on a timely basis; 6)
the loss of any of our major customers; 7) our ability to manufacture products
for our customers on a cost-effective basis; 8) risk of price increases
associated with shortages in the availability of electronics components; 9)
working capital constraints due to customer inventory requirements or materials
shortages; 10) variability in the volume and timing of our sales; 11) any future
acquisitions to which we may be a party, including the risk that a potential
acquiror will condition any purchase upon our filing for protection under the
U.S. bankruptcy code; 12) increased competition that may result in decreased
demand or reductions in prices for our services; 13) our dependence on certain
key personnel; 14) our dependence on the continuing trend by original equipment
manufacturers to outsource their electronics manufacturing services needs; 15)
design or manufacturing defects in products we manufacture for our customers;
and 16) provisions in our charter documents, stockholder rights plan and
agreements with executives, as well as provisions of Delaware law, that could
prevent or delay a change in control of us and may reduce the market price of
our stock.

FORWARD-LOOKING STATEMENTS

     The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that represent our expectations or beliefs
concerning future events, including, but not limited to, statements regarding
trends in sales, profit margins and the sufficiency of our cash flow for our
future liquidity and capital resource needs. These forward-looking statements
are further qualified by important factors that could cause actual results to
differ materially from those in the forward looking statements (for these
factors, see the preceding paragraph marked "Risk Factors That May Affect Future
Results, Financial Condition and Market Price of Securities". Results actually
achieved may differ materially from expected results included in these
statements as a result of these or other factors.



                                                                              14
<PAGE>



ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     We invest our cash in money market funds or other instruments that meet
high credit quality standards specified by our investment policy. We do not use
financial instruments for trading or other speculative purposes. Our financing
facilities are subject to market risk by way of interest rate fluctuations. The
carrying amount of our long-term debt approximates fair value due to the
periodic adjustments of our interest rate on the debt to current market rates.

     During the fiscal quarter ended June 29, 2002, some of our notes payable
and short-term debt bore interest at variable rates, generally tied to a
reference rate such as LIBOR or prime rate of interest of certain lending
institutions. Accordingly, our earnings and after tax cash flow are affected by
changes in interest rates. In the event of an adverse change in interest rates,
we would seek to take actions to mitigate our risk exposure.



                                                                              15
<PAGE>



PART II OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


(a)  Exhibits.

          The exhibits listed in the accompanying Index to Exhibits are filed as
          part of this Quarterly Report on Form 10-Q.

(b)  Reports on Form 8-K

          The Company did not file any report on Form 8-K during the three month
          period ended June 29, 2002.


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.


XETEL CORPORATION

          Date: August 16, 2002         By:  /s/ Angelo A. DeCaro, Jr.
                                        ------------------------------
                                        Angelo A. DeCaro, Jr.
                                        President, Chief Executive Officer and
                                        Director (Principal Executive, Financial
                                        and Accounting Officer)



                                                                              16
<PAGE>



                                  EXHIBIT INDEX


<Table>
<Caption>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<S>            <C>
3.1            -- Second Restated Certificate of Incorporation (Incorporated by
               reference to Exhibit 3.2 to our Registration Statement on Form
               S-1 (File No. 33-99632))

3.2            -- Restated Bylaws of the Registrant, as amended (Incorporated by
               reference to Exhibit 3.3 to our Registration Statement on Form
               S-1 (File No. 33-99632))

3.3            -- Registration Rights Agreement, dated June 18, 1986 Among the
               Registrant, Rohm Corporation, Julian C. Hart, David W. Gault and
               Emory C. Garth (Incorporated by Reference to Exhibit 3.4 to our
               Registration Statement on Form S-1 (File No. 33-99632))

4.1            -- Reference is made to Exhibits 3.1, 3.2 and 3.3

4.2            -- Specimen Common Stock certificate (Incorporated by Reference
               to Exhibit 4.2 to our Registration Statement on Form S-1 (File
               No. 33-99632))

10.1           -- Form of Indemnification Agreement between the Registrant and
               each of its directors and certain executive officers
               (Incorporated by reference to Exhibit 10.2 to our Registration
               Statement on Form S-1 (File No. 33-99632))

10.2           -- Manufacturing Services Agreement, dated February 22, 1989
               between Motorola, Inc., MOS Memory Products Division and the
               Registrant, and letter from Motorola, Inc., Fast Static RAM
               Module Division related thereto (Incorporated by Reference to
               Exhibit 10.20 to our Registration Statement on Form S-1 (File No.
               33-99632))

10.3           -- Master Lease Agreement between the Registrant and General
               Electric Capital Corporation (Incorporated by Reference to
               Exhibit 10.22 to our Annual Report on Form 10-K for fiscal year
               1996)

10.4           -- Letter of Commitment between the Registrant and General
               Electric Capital Corporation (Incorporated by reference to
               Exhibit 10.28 to our Annual Report on Form 10-K for fiscal year
               1997)

10.5           -- Registrant's 1997 Stock Incentive Plan (Incorporated by
               reference to Exhibit 10.30 to our Schedule 14A for the 1997
               annual meeting of stockholders)

10.6           -- Registrant's Employee Stock Purchase Plan (Incorporated by
               reference to Exhibit 10.31 to our Schedule 14A for the 1997
               annual meeting of stockholders)

10.7           -- Amended Letter of Commitment between the Registrant and
               General Electric Capital Corporation (Incorporated by reference
               to Exhibit 10.35 to our Annual Report on Form 10-K for fiscal
               year 1998)

10.8           -- Amendment No. 1 to 1997 Stock Incentive Plan (Incorporated by
               reference to Exhibit 10.39 to our Quarterly Report on Form 10-Q
               for the quarter ended September 1998)

10.9           -- Stockholders Rights Agreement dated December 31, 1998
               (Incorporated by reference to Exhibit 10.40 to our Registration
               Statement on Form 8-A filed January 1999)

10.10          -- Loan and Security Agreement between the Registrant and The CIT
               Group/Business Credit, Inc, and Chase Bank as participant
               (Incorporated by reference to Exhibit 10.41 to our Annual Report
               on Form 10-K for fiscal year 2000)
</Table>



<PAGE>


<Table>
<S>            <C>
10.11          -- Form of Change of Control Agreement between the Registrant and
               certain of its executive officers (Incorporated by reference to
               Exhibit 10.15 to our Quarterly Report on Form 10-Q for the
               quarter ended December 30, 2000)

10.12          -- Manufacturing Agreement between Registrant and Intel Flash
               Products Division (Incorporated by reference to Exhibit 10.16 to
               our Quarterly Report on Form 10-Q for the quarter ended December
               30, 2000)

10.13          -- Master Manufacturing Agreement between Registrant and
               Ericsson, Inc. (Incorporated by reference to Exhibit 10.18 to our
               Quarterly Report on Form 10-Q for the quarter ended December 30,
               2000)

10.14          -- Manufacturing Services Agreement between Registrant and
               Pathlight Technology, Inc. (Incorporated by reference to Exhibit
               10.18 to our Quarterly Report on Form 10-Q for the quarter ended
               December 30, 2000)

10.15          -- Collateral Security Agreement between Registrant and Actrade,
               Inc. (Incorporated by reference to Exhibit 10.20 to our Quarterly
               Report on Form 10-Q for the quarter ended September 29, 2001)

10.16          -- Fourth Amendment to the Loan and Security Agreement between
               Registrant and The CIT Group/Business Credit, Inc. (Incorporated
               by reference to Exhibit 10.21 to our Quarterly Report on Form
               10-Q for the quarter ended September 29, 2001)

10.17          -- Waiver Extension to the Fourth Amendment to the Loan and
               Security Agreement between Registrant and the CIT Group/Business
               Credit, Inc. (Incorporated by reference to Exhibit 10.22 to our
               Quarterly Report on Form 10-Q for the quarter ended September 29,
               2001)

10.18          -- Fifth Amendment to the Loan and Security Agreement between
               Registrant and The CIT Group/Business Credit, Inc. (Incorporated
               by reference to Exhibit 10.23 to our Quarterly Report on Form
               10-Q for the quarter ended December 29, 2001)

10.19          -- Addendum to Collateral Security Agreement between Registrant
               and Actrade (Incorporated by reference to Exhibit 10.24 to our
               Quarterly Report on Form 10-Q for the quarter ended December 29,
               2001)

10.20          -- Collateral Proceeds Release Agreement between Registrant and
               The CIT Group/Business Credit, Inc. (Incorporated by reference to
               Exhibit 10.25 to our Quarterly Report on Form 10-Q for the
               quarter ended December 29, 2001)

10.21          -- Accounts Receivable Purchase Agreement between Registrant and
               Silicon Valley Bank (Incorporated by reference to Exhibit 10.21
               to our Annual Report on Form 10-k for the year ended March 30,
               2002)

10.22          -- Fifth Addendum to Collateral Security Agreement between
               Registrant and Actrade (Incorporated by reference to Exhibit
               10.22 to our Annual Report on Form 10-k for the year ended March
               30, 2002)

10.23          -- Forbearance and Amendment Number One to Accounts Receivable
               Purchase Agreement between Registrant and Silicon Valley Bank
               (Incorporated by reference to Exhibit 10.23 to our Annual Report
               on Form 10-k for the year ended March 30, 2002)

10.24          -- Sixth Addendum to Collateral Security Agreement between
               Registrant and Actrade (Incorporated by reference to Exhibit
               10.24 to our Annual Report on Form 10-k for the year ended March
               30, 2002)

10.25          -- Second Forbearance and Amendment Number Two to Accounts
               Receivable Purchase Agreement between Registrant and Silicon
               Valley Bank
</Table>