<PAGE>

                                     FORM 10-QSB

                          SECURITIES AND EXCHANGE COMMISSION

                               WASHINGTON, D.C.  20549


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

For the quarterly period ended June 30, 1997
                                          OR

(  )     TRANSACTION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transaction period from                    to 
                               --------------------   --------------------------

For Quarter Ended                     Commission File Number      0-27706
                 ---------------------                      --------------------

                                   XECOM CORP
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

                 Nevada                                   33-0664567
    -------------------------------------       ----------------------------

    (State or other Jurisdiction of             (I.R.S. Employer Identification 
    Incorporation or organization)              No.)


  69-730 Highway 111, Suite 101, Rancho Mirage, California          92270
  ----------------------------------------------------------------------------
        (Address of Principal Executive Offices)                  (Zip Code)

    Registrant's telephone number, including area code            (619) 202-1555
                                                            --------------------

--------------------------------------------------------------------------------
(Former Name, former address and former fiscal year, if changed since last
report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
     Yes     X                                    No 
        ------------                                ----------

The number of shares of stock of the registrant, par value .0001, outstanding as
of August 12, 1997, was 14,668,658  shares of common stock; 0 Series A Preferred
Shares; 1,736,000 Series B Preferred Shares; 830,000 Series C Preferred Shares
outstanding and 16 Series D Preferred Shares.

<PAGE>

                               FORM 10-QSB REPORT INDEX
                              -------------------------

                                                                            Page
                                                                            ----
Form 10-QSB and Item No.
------------------------

PART I    FINANCIAL INFORMATION(1)


ITEM 1.   Financial Statements  

         Consolidated Balance Sheet as of June 30, 1997 
         (Unaudited)..........................................................1

         Consolidated Statements of Operations for the three months and six
         months ended June 30, 1997 and 1996 (Unaudited)......................2
                  
         Consolidated Statement of Stockholders' Equity for the six months 
         ended June 30, 1997 (Unaudited) .....................................3

         Consolidated Statements of Cash Flows for the six  months 
         ended June 30, 1997 and 1996 (Unaudited) ........................4 - 5

         Notes to Consolidated Financial Statements (Unaudited)..........6 - 11

ITEM 2.  Managements' Discussion and Analysis of the Financial
         Condition and Results of Operations............................12 - 13

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings...................................................14

Item 2. Changes In Securities................................................14

Item 3.  Defaults Upon Senior Securities.....................................14

Item 5.  Other Information...................................................14

-------------------

    (1) The accompanying financial statements are not covered by an independent
Certified Public Accountants Report.


<PAGE>

                           PART I   - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                             XECOM CORP. AND SUBSIDIARIES
                              CONSOLIDATED BALANCE SHEET
                                 AS OF JUNE 30, 1997
                                     (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS

CURRENT ASSETS
    Cash                                                         $    136,355
    Accounts receivable                                             1,050,738
    Other receivables                                                  39,147
    Investments, available-for-sale                                   110,013
                                                                 ------------
              TOTAL CURRENT ASSETS                                  1,336,253

PROPERTY AND EQUIPMENT, net (Note B)                               24,455,367
INTANGIBLE ASSETS, net (Note A)                                        68,301
OTHER ASSETS                                                          130,728
                                                                 ------------
                                                                 $ 25,990,649
                                                                 ------------
                                                                 ------------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
    Accounts payable                                             $  2,241,740
    Accrued liabilities                                             2,738,356

    Payroll taxes payable                                              91,652
    Note Payable                                                      400,000
    Related party debt -- current portion (Note D)                  1,060,000
    Capital lease obligations -- current portion (Note E)           4,642,586
                                                                 ------------
              TOTAL CURRENT LIABILITIES                            11,174,334

CONTINGENT LIABILITY (Note E)                                         700,000
CAPITAL LEASE OBLIGATIONS, net of current portion (Note E)         18,448,283
MINORITY INTEREST (Note A)                                            364,947
                                                                 ------------
              TOTAL LIABILITIES                                    30,687,564

COMMITMENTS AND CONTINGENCIES (Note E)                                 ------

SHAREHOLDERS' EQUITY (DEFICIT)
    Preferred stock, $0.0001 par value, 50,000,000 shares
    authorized, 2,566,016  shares issued and outstanding                  257
    June 30,1997 Common stock, $0.0001 par value, 100,000,000 
    shares authorized, 14,668,658  shares issued and
    outstanding June 30, 1997                                            1466
    Additional paid in capital                                      4,303,220
    Unrealized loss on investments, available-for-sale                (90,000)
    Retained deficit                                               (8,911,858)
                                                                 ------------

    TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                           (4,696,915)
                                                                 ------------
                                                                 $ 25,990,649
                                                                 ------------
                                                                 ------------

                (See Notes to Consolidated Financial Statements)


                                      -1-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                     JUNE 30                       JUNE 30

                                                              1997           1996           1997           1996   
                                                          -----------     ----------    -----------    -----------
<S>                                                        <C>             <C>           <C>            <C>
NET SALES                                                 $ 1,681,758     $1,379,064    $ 2,943,130    $ 2,831,716

COST OF SALES                                               1,172,293      1,171,529      2,144,257      2,342,097
                                                          -----------     ----------    -----------    -----------
    Gross Profit                                              509,465        207,535        798,873        489,619

OPERATING EXPENSES
    Selling, general and administrative expenses              429,850        648,301        843,010      1,205,152
    Depreciation and amortization                             715,466        214,609      1,214,894        307,967
                                                          -----------     ----------    -----------    -----------

    TOTAL OPERATING EXPENSES                                1,145,316        862,910      2,057,904      1,513,119
                                                          -----------     ----------    -----------    -----------

LOSS FROM OPERATIONS                                         (635,851)      (655,375)    (1,259,031)    (1,023,500)

OTHER INCOME (EXPENSES)
    Minority interests in consolidated subsidiaries              2790          5,112          1,686         13,545
    Interest expense                                         (755,454)      (199,073)    (1,137,058)      (289,042)
    Other expenses                                           ( 17,477)        (2,675)       (17,919)        (3,338)
                                                          -----------     ----------    -----------    -----------

         TOTAL OTHER EXPENSES, NET                           (770,141)      (196,636)    (1,153,291)      (278,835)
                                                          -----------     ----------    -----------    -----------

LOSS BEFORE INCOME TAXES                                   (1,405,992)      (852,011)    (2,412,322)    (1,302,335)

    Income taxes                                                  ---            ---            ---            ---

NET LOSS                                                  $(1,405,992)    $( 852,011)   $(2,412,322)   $(1,302,335)
                                                          -----------     ----------    -----------    -----------
                                                          -----------     ----------    -----------    -----------

NET LOSS PER COMMON SHARE                                 $      (.13)   $      (.10)   $      (.23)   $      (.16)
                                                          -----------     ----------    -----------    -----------
                                                          -----------     ----------    -----------    -----------

AVERAGE COMMON SHARES OUTSTANDING                          10,964,504      8,328,958     10,621,377      8,253,518
                                                          -----------     ----------    -----------    -----------
                                                          -----------     ----------    -----------    -----------
</TABLE>

                 (See Notes to Consolidated Financial Statements)


                                       2.
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                  (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                        Common Stock              Preferred Stock
-----------------------------------------------------------------------------------------------------------------------------------
                                    Shares       Amounts        Shares       Amounts        Additional     Unrealized Loss on 
                                                                                               Paid            Investments
                                                                                            in Capital         Available-
                                                                                                                For-Sale 
<S>                                <C>           <C>            <C>          <C>          <C>              <C>        
Balance December 31, 1996         10,074,892     $ 1,007        5,756,020      $ 576       $ 5,949,968         $ (90,000) 
                                                                                                              
Preferred D Converted to Common      204,080          20               (4)        --               (20)               --  
                                                                                                              
Preferred A Converted to Common -                                                                             
 Per Agreement                     3,789,686         379       (1,200,000)      (120)         (400,259)               --  
                                                                                                              
Preferred B Converted to Common      600,000          60         (300,000)       (30)              (30)               --  
                                                                                                              
Per Settlement Agreement                  --          --       (1,690,000)      (169)       (1,246,439)                   
                                                                                                              
Net Loss                                  --          --               --         --                --                --  
                                                                                                              
Balance, June 30, 1997            14,668,658     $ 1,466        2,566,016       $257        $4,303,220         $ (90,000) 


--------------------------------------------------------------------
                                      Retained           Total
                                       Deficit        Shareholders
                                                         Equity     
                                                        (Deficit)   
<S>                                <C>                <C>
Balance December 31, 1996          $(6,499,536)       $  (637,985)
                                                                    
Preferred D Converted to Common            --                  --   
                                                                    
Preferred A Converted to Common -                                   
 Per Agreement                             --            (400,000)  
                                                                    
Preferred B Converted to Common            --                  --   
                                                                    
Per Settlement Agreement                               (1,246,608)  
                                                                    
Net Loss                            (2,412,322)        (2,412,322)  
                                                                   
Balance, June 30, 1997             $(8,911,858)       $(4,696,915)
</TABLE>


            (See Notes to Consolidated Financial Statements)


                                      -3-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
--------------------------------------------------------------------------------
                                                             FOR THE  
                                                         SIX  MONTHS ENDED
                                                              JUNE 30
                                                      -------------------------
                                                        1997           1996
                                                      -----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES
    Net Loss                                         $(2,412,322)  $(1,302,335)
    Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization                      1,214,894       306,652
    Compensation expense                                (120,636)       58,878
    Minority interest in subsidiary earnings              (1,686)      (13,545)
    Loss on sale of contract                             (16,331)
    Changes in operating assets and liabilities:
    Accounts receivable                                 (684,353)      (92,691)
    Other receivables                                     45,776      (141,581)
    Other assets                                         146,717      (107,016)
    Accounts payable                                     541,564      (363,190)
    Accrued liabilities                                1,472,814       326,330
    Customer advances                                         --       (32,722)
    Due from affiliates                                       --      (129,159)
                                                     -----------   -----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES              186,437    (1,490,379)
                                                     -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                      ---      (115,440)
                                                     -----------   -----------

NET CASH USED IN INVESTING ACTIVITIES                        ---      (115,440)
CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from related party debt                         ---       255,000
    Payments on related party debt                                     ( 3,000)
 -- Proceeds from stock subscription                         ---       400,000
    Payments under capital lease obligations            (102,677)     (111,944)
    Proceeds from issuance of preferred stock                ---       594,000
    Proceeds from issuance of common stock                   ---       582,480
    Non Participating Shareholders Interest                  ---       (26,426)
                                                     -----------   -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES        (105,677)    1,693,110
                                                     -----------   -----------
NET INCREASE (DECREASE) IN CASH                           80,760        87,291

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          55,595       141,209

CASH AND CASH EQUIVALENTS AT END OF PERIOD           $   136,355   $   228,500
                                                     -----------   -----------
                                                     -----------   -----------


               See Notes to Consolidated Financial Statements


                                     -4-
<PAGE>

                         XECOM CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (UNAUDITED)

SUPPLEMENTAL CASH FLOW INFORMATION


    Supplemental disclosures of cash flow information for the three months
    ended June 30, 1997 and 1996, are summarized as follows:


                                                         1997         1996
                                                      ----------   -----------
    Cash paid for interest and income taxes
       Interest                                      $   90,310   $   101,366
       Income Taxes                                          --            --
    Noncash investing and financing activities:
       Assets acquired by capital lease              $3,468,751   $11,359,990


                                      -5-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    BASIS OF PRESENTATION AND NATURE OF OPERATIONS

    The consolidated financial statements include the accounts of Xecom Corp.
    (a Nevada corporation incorporated on May 2, 1985), its wholly owned
    subsidiary, Select Switch Systems, Inc. (Select) including its 80%
    partnership interest in Select Switch Systems #1 Ltd., (together "the
    Company"). All significant intercompany transactions and amounts have been
    eliminated in the consolidating process.

    The Company is primarily engaged in installing, maintaining and operating
    turnkey residential barracks telecommunications services, through a 10-year
    subcontract agreement with Sprint Communications Company L.P., to the
    nations Army and Air Force installations. The services can include local
    and long distance, call waiting, call forwarding, call conferencing,
    re-dial, speed dial, voice mail and Internet Access which provides a total
    spectrum of communication products and services. The Company has proceeded
    with filings to obtain Local Exchange Carrier (LEC) status in the States
    where it maintains switching services to the military, to provide both
    Local Exchange (Dial Tone) and Internet Services as well as the
    aforementioned services to an expanded population of the military and
    extending to the civilian households and business customers which surround
    these military bases.

    BASIS OF ACCOUNTING

    The Company's policy is to use the accrual method of accounting and to
    prepare and present financial statements which conform to generally
    accepted accounting principles. The preparation of financial statements in
    conformity with generally accepted accounting principles requires
    management to make estimates and assumptions that affect the reported
    amounts of assets and liabilities and disclosure of contingent assets and
    liabilities at the date of the financial statements and reported amounts of
    revenues and expenses during the reporting periods. Actual results could
    differ from those estimates.

    PROPERTY AND EQUIPMENT

    Property and equipment is stated at cost and depreciated using the
    straight-line method over the estimated useful lives of assets, which range
    from five to ten years. Assets under capital leases are depreciated by the
    straight-line method over the shorter of the lease term or the useful lives
    of the assets. Maintenance, repairs and minor renewals are charged to
    operations as incurred. Major replacements or betterments are capitalized.
    When properties are retired or otherwise disposed, the related costs and
    accumulated depreciation are eliminated from the respective accounts and
    any gain or loss on disposition is reflected as income or expense.

    INTANGIBLE ASSETS

    Intangible assets of $68,301 at June 30, 1997, consist of
    telecommunications agreements the Company's wholly owned subsidiary,
    Select, had with certain colleges and universities. In 1994, Select
    contributed telecommunications equipment and the related agreements for
    four colleges as consideration for a 80% interest in a Limited Partnership.
    The limited partnership which has been consolidated with Select, recorded
    intangible assets representing the value of Select's 80% partner interest
    in the excess of the book value of the telecommunications equipment
    transferred to the partnership. Intangible assets are amortized using the
    straight-line method over 10 years. Accumulated amortization was $56,250 as
    of June 30, 1997.

    MINORITY INTEREST

    Minority interest represents the 20% limited partners interest in the net
    assets of the limited partnership, Select Switch Systems #1 Ltd.


                                      -6-

<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    REVENUE RECOGNITION

    Revenue derived from telephone services and usage fees is billed and
    recorded monthly as the services are provided.

    NET LOSS PER SHARE

    The net loss per share is computed by dividing the net loss by the weighted
    average number of shares outstanding during the period. Preferred stock
    Series A, B, and C were determined to be non-common stock equivalents.
    Series D preferred stock is a common stock equivalent. The effect of
    convertible securities is excluded from the computation because the effect
    of the net loss per common share would be anti-dilutive.

    INCOME TAXES

    Income taxes are provided for using the liability method of accounting in
    accordance with Statement of Financial Accounting Standards No. 109 (SFAS
    109), "Accounting for Income Taxes." A deferred tax asset or liability is
    recorded for all temporary differences between financial and tax reporting.
    Deferred tax expense (benefit) results from the net change during the year
    of deferred tax assets and liabilities.

    ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS

    Effective January 1, 1996 the Company adopted a method of accounting for
    stock-based compensation plans as required by Statement of Financial
    Accounting Standard No. 123 (FAS 123). FAS 123 allows for two methods of
    valuing stock-based compensation. The first method allows for the
    continuing application of APB 25 in measuring stock-based compensation,
    while complying with the disclosure requirements of FAS 123. The second
    method uses an option pricing model to value stock compensation and record
    as such within the financial statements. The Company will continue to apply
    APB 25, while complying with FAS 123 disclosure requirements.

    INTERIM INFORMATION

    The accompanying unaudited condensed consolidated financial statements
    include the accounts of the Company and its wholly owned subsidiaries. All
    intercompany accounts and transactions have been eliminated in
    consolidation.

    The accompanying consolidated financial statements have been prepared in
    accordance with generally accepted accounting principles for interim
    financial information and with the instructions to Form 10-QSB and Rule
    10-01 of Regulation S-X promulgated by the Securities and Exchange
    Commission. Such financial statements do not include all disclosures
    required by generally accepted accounting principles for annual financial
    statement reporting purposes.  However, there has been no material change
    in the information disclosed  in the consolidated financial statements
    included in the Company's Form 10-KSB for the year ended December 31, 1996,
    except as disclosed herein. Accordingly, the information contained herein
    should be read in conjunction with the consolidated financial statements
    and related disclosures contained in the Company's Form 10-KSB for the year
    ended December 31, 1996. The accompanying financial statements reflect, in
    the opinion of management, all adjustments (consisting of normal recurring
    adjustments) necessary for a fair presentation of the interim periods
    presented.


                                      -7-

<PAGE>
                          XECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


    The periods presented are the six months ended June 30, 1997 and 1996,
    respectively. Certain reclassifications have been made to the prior year
    financial statements to conform to the current year presentation.

B.   PROPERTY AND EQUIPMENT: 

    Property and equipment at June 30, 1997 is summarized as follows:  

                                                                        1997
                                                                    -----------
    Machinery and equipment                                        $26,045,377
    Furniture and fixtures                                             145,429
    Leasehold - inside/out plant                                       140,750
    Materials and supplies                                             139,548
                                                                   -----------
                                                                    26,471,104
    Less accumulated depreciation                                   (2,015,737)
                                                                   -----------

         Property and equipment, net                               $24,455,367
                                                                   -----------
                                                                   -----------


    Depreciation expense for the quarter  ended June 30, 1997 and 1996 was
    $1,206,256 and respectively $307,967.

C.   PREPAID CONSULTING FEE:

    The Company entered into a three year consulting agreement, subsequently
    amended to a five year term, commencing January 1, 1996 and expiring
    December 31, 2000, with an "IBC" which is a shareholder of the Company. The
    investment banking company was issued 1,620,000 shares of Series B
    preferred stock as consideration in lieu of monthly payments totaling
    $1,620,000 for services to be rendered to the Company over the five year
    period. The Company recorded a prepaid consulting fee based on the present
    value of the monthly payment stream over the life of the agreement,
    discounted at 10%.

    On June 23, 1997, the Company entered into an agreement with the IBC for
    the return of all the remaining shares of stock issued pursuant to the
    Consulting Agreement.  As a result, shareholders equity was reduced by
    approximately $1.2 million.  The Investment Banking Company still has the
    right on a month to month basis to receive its fee in either cash or
    Preferred B stock pursuant to the Agreement.


                                      -8-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


D.   RELATED PARTY-DEBT:


    Notes payable at June 30, 1997 is summarized as follows:
                                                                   June 30, 1997
                                                                   -------------

    Notes payable to various investors, collateralized by security
    interests in the Company's fixed assets, accounts receivable 
    and telecommunication agreements, interest payable at 12%, all
    unpaid principal and accrued interest are past due.               $789,000

    Notes payable to various investors, interest payable ranging 
    from 10% to 15%, personally guaranteed by shareholders, all 
    unpaid principal and accrued interest are past due.                255,000

    Notes payable to various investors, unsecured, interest payable
    ranging from 12% to 18%, all unpaid principal and accrued 
    interest are past due                                               16,000
                                                                    ------------
                                                                     1,060,000

    Less current portion                                             1,060,000
                                                                    ------------
                                                                    $
                                                                    ------------
                                                                    ------------

E.   COMMITMENTS AND CONTINGENCIES:

    OPERATING LEASES

    The Company leases office facilities and equipment under operating leases
    which expire at various dates through the year 2001. The accompanying
    statements of operations include expenses from operating leases of $92,864
    and $87,290 for the six months ended June 30, 1997 and 1996, respectively.
    Future minimum lease payments due under noncancelable operating leases are
    as follows:

                   1997                          $  69,914
                   1998                            142,115
                   1999                            144,403
                   2000                             76,035
                   2001                              7,668
                   Thereafter
                                                  ---------
                                                  $440,135
                                                  ---------
                                                  ---------

The noncancelable operating leases provide that the Company pays for taxes,
licenses, insurance, and certain other operating expenses applicable to the
leased items.


                                      -9-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


COMMITMENTS AND CONTINGENCIES (CONTINUED)

CAPITAL LEASES

The Company finances substantially all of its telecommunication equipment
purchases under capital lease agreements with The CIT Group and Fujitsu Business
Communication Systems, Inc. The leases require monthly payments over a sixty to
eighty-four month period. The following is an analysis of the book value of the
leased assets included in property and equipment as of June 30, 1997.

                                                              1997
                                                          -----------
         Cost                                             $23,009,942
         Accumulated depreciation                          (1,820,225)
                                                          ------------
                                                          $21,189,717
                                                          ------------
                                                          ------------

The future minimum lease payments under capitalized leases and the present value
of the net minimum lease payments are as follows:

    1997                                                  $ 7,020,780
    1998                                                    7,807,210
    1999                                                    3,447,929
    2000                                                    3,428,686
    2001                                                    3,375,940
    Thereafter                                              5,581,533
                                                           -----------
    Total Payments                                         30,662,078
    Less amount representing interest                       7,571,209
                                                           -----------
                                                           23,090,869
    Less current portion of capital leases                  4,642,586
                                                           -----------
                                                          $18,448,283
                                                           -----------
                                                           -----------


                                      -10-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


    COMMITMENTS AND CONTINGENCIES (CONTINUED)

    TAX MATTERS

    As of June 30, 1997 the Company's wholly owned subsidiary  had outstanding
    payroll tax liabilities for 1994 and 1995, $101,000  due to the Internal
    Revenue Service. The Company has entered into an installment payment
    agreement which calls for monthly payments of $21,000. The Internal Revenue
    Service has filed liens against the Company's assets and will remove the
    liens when the tax liabilities have been paid. The Company is in compliance
    with regards to the payment agreement.

F.   STOCK TRANSACTIONS

    On June 20, 1997, the Company entered into a settlement agreement whereby
    the Class A Preferred Shareholders would forego $396,000 in accrued
    dividends, as well as any future dividends, and by which they would also
    convert its entire portion or 1,043,750 of their Xecom Class A Preferred
    Shares into 3.2 million shares of common stock as opposed to 3939113 common
    shares which they were  entitled to convert.

    On June 23, 1997, the Company entered into an agreement for the return of
    700,000 shares of Class B Preferred Stock.

    On June 23, 1997, the Company entered into an agreement with the Investing
    Banking Company whereby the IBC returned the remaining 990,000 Class
    B Preferred Shares which were issued pursuant to a Consulting Agreement
    (See Footnote C.)


                                      -11-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                         PART I.  FINANCIAL INFORMATION


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

The following discussion of the Company's financial condition as of June 30,
1997 and results of operations for the six months ended June 30, 1997 and 1996,
should be read in conjunction with the consolidated financial statements and
notes appearing elsewhere in this 10-QSB.  Accordingly, the information
contained herein should also be read in conjunction with the consolidated
financial statements and related disclosures contained in the Company's Form
10KSB for the year ended December 31, 1996 as well as other filings with the
Securities and Exchange Commission.

The following management's discussion and analysis of results of operations and
financial condition include forward-looking statements with respect to the
Company's future financial performance.  These forward-looking statements are
subject to various risks and uncertainties which could cause actual results to
differ materially from historical results or those currently anticipated.

OVERVIEW AND RECENT DEVELOPMENTS

The Company is primarily engaged in installing, maintaining and operating
turnkey residential barracks telecommunications services, through a 10-year
subcontract agreement with Sprint Communications Company L.P., to the nations
Army and Air Force installations.  The services can include local and long
distance, call waiting, call forwarding, call conferencing, re-dial, speed dial,
voice mail and Internet Access which provides a total spectrum of communication
products and services.  The Company has proceeded with filings to obtain Local
Exchange Carrier (LEC) status in the States where it maintains switching
services to the military, to provide both Local Exchange (Dial Tone) and
Internet Services as well as the aforementioned services to an expanded
population of the military and extending to the civilian households and business
customers which surround these military bases.  As of  August 11, 1997, the
Company provides services to approximately 32,000 subscribers.

The Company's wholly owned subsidiary, Select Switch Systems, Inc., is
responsible for providing a variety of telecommunications systems and services
to colleges and university dormitories and United States Army installations.

Since its inception in 1990, Select Switch Systems, Inc., has primarily
concentrated on developing the small college and university segment of
residential multi-tenant development market.  At small colleges and
universities, the Company contracted with the school for the exclusive right to
provide local dial tone and long distance service at the school's dormitories
for a ten year period.  In addition, if requested, the Company will install
cabling to provide data transmission and cable television to tenants.  In June
1996, the Company sold 10 of its college communication contracts for the
assumption of $956,000 of debt.  These contracts generated aproximately $500,000
in revenues, but resulted in continuing operating losses of $170,000 a year.

Select Switch was awarded a ten-year exclusive contract by the Army and Air
Force Exchange Services ("AAFES"), through the prime contractor, Sprint
Communications Company L.P. ("Sprint"), to install, maintain and operate a
turnkey residential barracks telephone service, including, if requested, wiring
for cable television.

The Company is responsible for all costs and expenses associated with operating
and maintaining the telecommunications equipment installed at the schools and
Army bases.  The telecommunications equipment remains the property of the
Company.  The Company is currently servicing 32 of such military bases which are
comprised of approximately 60,000 residents.


                                      -12-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RESULTS OF OPERATION

For the six  months ended June 30, 1997, the Company had a loss from operations
of $1,259,031 and a net loss of $2,412,322  ($.23 per share) as compared to a
loss from operations of $1,023,500 and a net loss of $1,302,335 ($.16 per share)
for the same period in 1996.

In August, 1996, the Company sold its SelecTel subsidiary.  For the six months
ended June 30, 1997, the operations reflects that of the Company and its wholly
owned subsidiary, Select Switch, the June 30, 1996 operations includes the
Company, Select Switch and SelecTel Corp.

For the six months ended June 30, 1997, the Company's gross profit was $798,873,
or 27%, as compared to $489,619, or 17%,  in 1996.  The Company anticipates that
the gross margin in 1997 will increase as the Company signs up subscribers and
provides other enhanced services to the servicemen.  This would augment the
fixed trunking and dedicated line costs in the Army-Air Force programs.

Selling, general and administrative expenses for 1997 amounted to $843,010, or
28%, of net sales, as compared to $1,205,152, or   43%, of net sales in 1996. 
The Company believes SG & A expenses will decrease further as a total percentage
of sales, as there is no need to expand the management infrastructure to run the
operation, including any expansion to new bases.

The net loss for the quarter was predominantly a result of depreciation and
amoritization expense of $1,214,894 and interest expense of $1,137,058 for a
total of $2,351,952.  These expenses directly relate to the telecommunication
systems and equipment and related debt as they relate to the AAFES project. 
Earnings before interest, taxes, depreciation and amortization (EBITDA) is 
$(44,137) for the six months ended June 30, 1997 compared to $(715,533) for the
prior year.  For the three months ended June 30, 1997 the EBITDA was $79,619, as
compared to $(123,756) for the first three months of 1997.

LIQUIDITY AND CAPITAL RESOURCES

Where the Company provides long-term telecommunications services to the colleges
and universities and to AAFES, the Company installs state of the art Fujitsu
Business Communications Systems, Inc. telecommunications equipment.  The Company
has available from 75% up to 100% lease financing from Fujitsu, through the CIT
Group and from Sprint for all installation costs and equipment at the colleges
and universities and AAFES installations.  The Company financed total turnkey
project costs of approximately $16.7 million through such capital lease
financing, in 1996, and $3,468,754 for the six months  ended June 30, 1997.

Although the Company has historically financed its operations through the sale
of equity securities and through funds provided by operating activities, the
Company continues to pursue other measures to meet its working capital
requirements.

In the Company's 10-KSB filing on May, 1997, the Company's auditors included an
explanatory paragraph in their Report of Independent Certified Public
Accountants to the effect that recovery of the Company's assets are dependent
upon future events, the outcome of which is indeterminable, and that the
successful completion of the Company's development program and its transition,
ultimately, to the attainment of profitable operations is dependent upon
obtaining adequate financing to fulfill its development activities and attain
sufficient growth to their user base to enable them to achieve future
profitability.

The Company had entered into an agreement to defer monthly capital lease
payments for a six month period until June 1, 1997, and is currently making
arrangements to extend this agreement for an additional ten months, as part of a
refinance of all existing leases,  at which time, based on current budgets and
projections of approximately 40,000 users, revenue from the bases should be in
excess of funds required to meet capital lease obligations and ongoing operating
obligations.  The Company currently has approximately 30,000 users.  The Company
has also made arrangements to borrow sufficient funds to complete base
installations.  These arrangements enable the Company to meet it's current
obligations from funds provided solely from operating activities.  For the six
months ended June 30, 1997 (unaudited) the Company  experienced positive cash
flow from operations of approximately $186,437.  The Company has historically
been successful in raising capital through the sale of equity securities and
believes that this success will continue.


                                     -13-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES
                          PART II  - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these proceedings cannot be
ascertained, management does not believe they will have a materially adverse
effect on the results of operations or financial position of the Company.


ITEM 2.  CHANGES IN SECURITIES

PREFERRED A STOCK

The Preferred A Shareholders have converted all of the 1.2 million shares
outstanding into 3,789,686 shares of common stock

PREFERRED B STOCK

Pursuant to an agreement, 990,000 Preferred B shares were returned to the
Company that related to Prepaid Consulting.

Pursuant to an agreement, 700,000 Preferred B shares were returned to the
Company as a settlement.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

The registrant is currently in default on Related Party Indebtedness (current
portion totaling $1,060,000).  This amount is currently in dispute.  Further the
registrant paid no dividends, and is not in arrears in the payment of dividends
for the quarter ended June 30, 1997.


ITEM 5.  OTHER INFORMATION

The Company has not filed its Form 10KSB for the year ended 12/31/96.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         A.  Exhibits
                Exhibit 27.  Financial Data Schedule


                                      -14-
<PAGE>

                          XECOM CORP. AND SUBSIDIARIES



                                   SIGNATURE


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this 

report on Form 10-QSB to be signed on its behalf by the undersigned thereon duly
authorized.


                                       XECOM CORP.

                                       BY: /s/ Joseph C. Vigliarolo
                                           ---------------------------
                                            JOSEPH C. VIGLIAROLO
                                            PRESIDENT

October 28, 1997


                                         -15-