<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 September 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 No.)
Incorporation or organization)

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                                      No X
                ---                                      ---

The number of shares of stock of the registrant, par value .0001, outstanding 
as of November 12, 1997, was 15,309,658  shares of common stock; 1,686,000 
Series B Preferred Shares; 605,000 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 September 30, 1997
          (Unaudited) ................................................   1

          Consolidated Statements of Operations for the three 
          months and nine months ended September 30, 1997 and 1996
          (Unaudited) ................................................   2

          Consolidated Statement of Stockholders' Equity for the nine
          months ended September 30, 1997 (Unaudited).................   3

          Consolidated Statements of Cash Flows for the nine months 
          ended September 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 - 14

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings............................................   15

Item 2.  Changes In Securities........................................   15

Item 3.  Defaults Upon Senior Securities..............................   15

Item 5.  Other Information............................................   15


-----------------------
     (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 SEPTEMBER 30, 1997
                                      (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS             

CURRENT ASSETS
  Cash (Note E)                                                   $ 2,583,272
  Accounts receivable                                               1,053,790
  Other receivables                                                    14,602
  Investments, available-for-sale                                     110,013
                                                                  -----------
    TOTAL CURRENT ASSETS                                            3,761,677

PROPERTY AND EQUIPMENT, net (Note B)                               24,096,504
INTANGIBLE ASSETS, net (Note A)                                        63,982
DEFERRED FINANCING COSTS net (Note G)                               1,220,162
OTHER ASSETS                                                          131,055
                                                                  -----------
                                                                  $29,273,380
                                                                  -----------
                                                                  -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
  Accounts payable                                                $   705,813
  Accrued liabilities                                               1,387,270
  Related party debt  -- current portion (Note D)                   1,060,000
  Capital lease obligations -- current portion (Note E)             3,356,833
                                                                  -----------
    TOTAL CURRENT LIABILITIES                                       6,509,916

CONTINGENT LIABILITY (Note E)                                         700,000
CAPITAL LEASE OBLIGATIONS, net of current portion (Note E)         28,182,000
MINORITY INTEREST (Note A)                                            356,598
                                                                  -----------
    TOTAL LIABILITIES                                              35,748,514

COMMITMENTS AND CONTINGENCIES (Note E)                                     --

SHAREHOLDERS' EQUITY (DEFICIT)
  Preferred stock, $0.0001 par value, 50,000,000 shares
    authorized, 2,441,016  shares issued and outstanding 
    September 30, 1997                                                    244
  Common stock, $0.0001 par value, 100,000,000 shares     
    authorized, 15,159,658  shares issued and outstanding 
    September  30, 1997                                                 1,516
  Additional paid in capital                                        4,387,183
  Unrealized loss on investments, available-for-sale                  (90,000)
  Retained deficit                                                (10,774,077)
                                                                  -----------
    TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                           (6,475,134)
                                                                  -----------
                                                                  $29,273,380
                                                                  -----------
                                                                  -----------
                                           
                   (See Notes to Consolidated Financial Statements)
                                           
                                         -1-
<PAGE>

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

                                1997            1996         1997           1996
                                ----            ----         ----           ----
<S>                          <C>             <C>         <C>             <C>
NET SALES                    $2,019,133      $ 799,464   $4,962,263      $3,631,180

COST OF SALES                 1,382,508        810,539    3,526,765       3,152,636
                             ----------      ---------   ----------      ----------
  Gross Profit                  636,625        (11,075)   1,435,498         478,544

OPERATING EXPENSES
  Selling, general and 
    administrative expenses   1,277,498        795,251    2,120,508       2,000,403
  Depreciation and 
    amortization                386,244        208,712    1,601.138         516,679
                             ----------      ---------   ----------      ----------
    TOTAL OPERATING EXPENSES  1,663,742      1,003,963    3,721,646       2,517,082
                             ----------      ---------   ----------      ----------
LOSS FROM OPERATIONS         (1,027,117)    (1,015,038)  (2,286,148)     (2,038,538)

OTHER INCOME (EXPENSES)
  Minority interests in 
    consolidated subsidiaries     8,926         10,801       10,612          24,346
  Interest expense             (843,452)      (316,400)  (1,980,510)       (605,442)
  Other expenses                   (576)        10,518      (18,495)          7,180
  Loss on write down of 
    investment                       --       (237,600)          --        (237,600)
  Gain on sale of subsidiary         --        537,076           --         537,076
                             ----------      ---------   ----------      ----------
    TOTAL OTHER EXPENSES, NET  (835,102)         4,395   (1,988,393)       (274,440)
                             ----------      ---------   ----------      ----------
LOSS BEFORE INCOME TAXES     (1,862,219)    (1,010,643)  (4,274,541)     (2,312,978)

  Income taxes                       --             --           --              --

NET LOSS                    $(1,862,219)   $(1,010,643) $(4,274,541)    $(2,312,978)
                            -----------    -----------  -----------     -----------
                            -----------    -----------  -----------     -----------
NET LOSS PER COMMON SHARE   $      (.12)   $      (.11) $      (.35)    $      (.27)
                            -----------    -----------  -----------     -----------
                            -----------    -----------  -----------     -----------
AVERAGE COMMON SHARES 
  OUTSTANDING                14,919,343      8,800,436   12,069,776       8,437,155
                            -----------    -----------  -----------     -----------
                            -----------    -----------  -----------     -----------
</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    Retained        Total
                                                                              Paid      on Investments     Deficit     Shareholders
                                                                           in Capital     Available-                       Equity
                                                                                           For-Sale                      (Deficit)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>        <C>         <C>       <C>         <C>              <C>            <C>
Balance December 31, 1996   10,074,892    $ 1,007    5,756,020    $ 576    $ 5,949,968   $ (90,000)     $(6,499,536)    $ (637,985)
-----------------------------------------------------------------------------------------------------------------------------------
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)         --               --       (400,000)
-----------------------------------------------------------------------------------------------------------------------------------
Preferred B Converted to 
  Common                       700,000        70      (350,000)     (35)           (35)         --               --             --
-----------------------------------------------------------------------------------------------------------------------------------
Preferred C Converted to 
  Common                        75,000         8       (75,000)      (8)            --          --               --             --
-----------------------------------------------------------------------------------------------------------------------------------
Per Settlement Agreement            --        --    (1,690,000)    (169)    (1,246,439)                                 (1,246,608)
-----------------------------------------------------------------------------------------------------------------------------------
Preferred C Dividends          166,000        17            --       --            (17)         --               --             --
-----------------------------------------------------------------------------------------------------------------------------------
Common Stocks Issued for 
  Services                     150,000        15            --       --         83,985          --               --         84,000
-----------------------------------------------------------------------------------------------------------------------------------
Net Loss                            --        --            --       --             --          --       (4,274,541)    (4,274,541)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 15,159,658   $ 1,516     2,441,016     $244     $4,387,183   $ (90,000)    $(10,774,077)   $(6,475,134)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                     (See Notes to Consolidated Financial Statements)
                                             -3-

<PAGE>

                             XECOM CORP. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENT OF CASH FLOWS
                                     (UNAUDITED)
--------------------------------------------------------------------------------
                                                             FOR THE
                                                        NINE MONTHS ENDED
                                                            SEPTEMBER 30
                                                            ------------
                                                     1997              1996
                                                     ----              ----
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Loss                                       $(4,274,541)      $(2,312,978)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization                  1,601,136           503,687
    Compensation expense                             (36,636)          179,435
    Minority interest in subsidiary earnings         (10,612)          (24,346)
    Loss on sale of contract                         (16,331)               --
  Changes in operating assets and liabilities:
    Accounts receivable                             (637,405)         (532,423)
    Other receivables                                 20,321            26,338
    Financing costs                               (1,234,862)               --
    Other assets                                     146,390           (98,563)
    Accounts payable                                 614,516          (435,292)
    Accrued liabilities                            3,163,267           352,088
    Customer advances                                     --           120,495
    Due from affiliates                                   --          (166,259)
                                                 -----------       -----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES         (664,757)       (2,387,818)
                                                 -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                     --          (262,910)
  Proceeds from sale of subsidiary                        --           318,000
  Payments on notes receivable                            --            12,500
                                                 -----------       -----------
NET CASH USED IN INVESTING ACTIVITIES                     --            67,590

CASH FLOWS FROM FINANCING ACTIVITIES
  Net Proceeds from debt refinance                 3,719,385                --
  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          (123,951)         (285,860)
  Payment on notes payable                          (400,000)               --
  Proceeds from issuance of preferred stock               --         1,299,000
  Proceeds from issuance of common stock                  --           582,480
  Non Participating Shareholders Interest                 --           (51,777)
                                                 -----------       -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES   3,192,434         2,198,843
                                                 -----------       -----------
NET INCREASE (DECREASE) IN CASH                    2,527,677          (121,385)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD      55,595           141,209
                                                 -----------       -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD       $ 2,583,272       $    19,824
                                                 -----------       -----------
                                                 -----------       -----------

                  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 nine months ended
September 30, 1997 and 1996, are summarized as follows:


                                                       1997       1996
                                                       ----       ----

    Cash paid for interest and income taxes
         Interest                                  $ 2,382,486  $   320,950
         Income Taxes                                       --           --

    Noncash investing and financing activities:
         Assets acquired by capital lease          $ 3,477,111  $15,298,466
         Payables included in Equipment Refinance  $ 5,973,140           --
         Refinance of Capital Leases and Debt      $27,120,914           --


                                         -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 $63,982 at September 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 $58,322 as of September 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)
                                           
                                           
A. 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)

                                           
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   The periods presented are the nine months ended September 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 September 30, 1997 is summarized as follows:
   
   
                                            1997
                                            ----

   Machinery and equipment               $26,045,956
   Furniture and fixtures                    153,210
   Leasehold - inside/out plant              140,750
   Materials and supplies                    139,548
                                         -----------
                                          26,479,464
   Less accumulated depreciation          (2,382,960)
                                         -----------
     Property and equipment, net         $24,096,504
                                         -----------
                                         -----------

   Depreciation expense for the quarter  ended September 30, 1997 and 
   1996 was $1,573,479 and respectively $493,883.

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 Indian Wells Investment Company ("IWIC"), an 
   affiliate of the Company. IWIC 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 IWIC 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.  IWIC still has the right on a month to month 
   basis to receive its fee in either cash, in the amount of $25,000 per 
   month, 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 September 30, 1997 is summarized as follows:


                                                       September 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 $127,821 and $107,142 for the nine months ended September 30, 
   1997 and 1996, respectively. Future minimum lease payments due under 
   noncancelable operating leases are as follows:

                  1997                           $ 34,957
                  1998                            142,115
                  1999                            144,403
                  2000                             76,035
                  2001                              7,668
                  Thereafter
                                                 --------
                                                 $405,178
                                                 --------
                                                 --------

   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)
                                           

E. COMMITMENTS AND CONTINGENCIES (CONTINUED)

   CAPITAL LEASES

   The Company finances substantially all of its telecommunication 
   equipment purchases under capital lease agreements with First 
   Continental Capital Corporation.  The leases require monthly payments 
   over an eighty-four month period. The following is an analysis of the 
   book value of the leased assets included in property and equipment as of 
   September 30, 1997.

                                                       1997
                                                       ----
         Cost                                       $25,482,462
         Accumulated depreciation                    (2,173,391)
                                                    -----------
                                                    $23,309,071
                                                    -----------
                                                    -----------

   In August 1997, the Company entered into a series of agreements to 
   refinance all of the Company's AAFES related debt obligations.  The 
   Equipment Refinancing Agreements consist of the sale and leaseback of 
   all of the Company's switching equipment already installed.  
   Specifically, the Company sold all of its switching and central office 
   equipment to First Continental Capital Corporation ("Lessor") for 
   approximately $29,000,000; (b) the Lessor leased back all of the 
   Equipment to the Company pursuant to a seven-year lease, with an 
   effective interest rate, fully amortized, of 10.25% PER ANNUM, with a 
   moratorium on lease payments until June 30, 1998; and (c) the proceeds 
   of the sale were used to pay off all existing obligations to Fujitsu and 
   CIT (approximately $19,708,000) and to Sprint ($7,413,000) and to escrow 
   a total of approximately $2,370,000 for payment of certain outstanding 
   obligations and an estimated reserve for any state sales taxes on the 
   sale that may arise, if any.

   The future minimum lease payments under capitalized leases and the 
   present value of the net minimum lease payments are as follows:
   
       1997                                              $    52,657
       1998                                                3,962,041
       1999                                                6,715,062
       2000                                                6,695,819
       2001                                                6,643,073
       Thereafter                                         21,096,481
                                                         -----------
       Total Payments                                     45,165,133
       Less amount representing interest                  13,626,300
                                                         -----------
                                                          31,538,833
       Less current portion of capital leases              3,356,833
                                                         -----------
                                                         $28,182,000
                                                         -----------
                                                         -----------

                                         -10-
<PAGE>
                                           
                             XECOM CORP. AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     (CONTINUED)
                                           
                                           
E. COMMITMENTS AND CONTINGENCIES (CONTINUED)

F. STOCK TRANSACTIONS

   On June 20, 1997, the Company entered into a settlement agreement whereby 
   the Class A Preferred Shareholder, Top-Net Inc., a Nevada corporation, 
   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 3,939,113 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.)
   
   On July 1997, the Company issued 166,000 shares of common stock to the 
   Preferred C Shareholders in lieu of cash dividends.

G. DEFERRED FINANCING COSTS

   Pursuant to an agreement with First Continental Capital Corp., the 
   Company paid a 4% fee to obtain the equipment refinance.  As a result, 
   the Company recorded a deferred charge of $1,234,862, which it plans to 
   amortize over the life of the lease, or 84 months.  Accordingly, the 
   Company recorded $14,700 as an expense for the period ending September 30,
   1997.
                                           
                                         -11-
<PAGE>

                             XECOM CORP. AND SUBSIDIARIES
                                           
                            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 September
30, 1997 and results of operations for the nine months ended September 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.

This Report, including the disclosures below, contains forward-looking
statements that involve substantial risks and uncertainties.  When used herein,
the terms "anticipates," "expects," "estimates," "believes" and similar
expressions, as they relate to the Company or its management, are intended to
identify such forward-looking statements.  The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements.

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 November 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 approximately
$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
                         MANAGEMENT'S DISCUSSION AND ANALYSIS
                                     (CONTINUED)
                                           

In August 1997, the Company refinanced all of the Company's AAFES related debt
obligations.  Specifically, the Company sold all of its switching and central
office equipment for approximately $29,000,000; the lessor leased back all of
the equipment to the Company pursuant to a seven-year lease, with an effective
interest rate of 10.25% with a 10-month moratorium on lease payments until June
30, 1998.  The proceeds of the sale were used to pay off all existing
obligations to Fujitsu and CIT (approximately $19,708,000) and to Sprint
($7,413,000) and to escrow a total of approximately $2,370,000 for payment of
certain outstanding obligations and an estimated reserve for any state sales tax
on the sale that may arise, if any.

RESULTS OF OPERATION

The Company's net sales revenues increased from $3,631,180 for the nine  months
ended September 30, 1997, to $4,962,263, an increase of 37% for the same period
in 1997.

In August, 1996, the Company sold its SelecTel subsidiary.  For the nine months
ended September 30, 1997, the operations reflects that of the Company and its
wholly owned subsidiary, Select Switch.  The September 30, 1996 operations
includes the Company, Select Switch and SelecTel Corp.  SelecTel Corp. accounted
for approximately $2.75 in revenues for 1996.

For the nine months ended September 30, 1997, the Company's gross profit was
$1,435,498, or 29% of net sales revenue as compared to $478,544, or 13% of net
sales revenue  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.  

Selling, general and administrative expenses for 1997 amounted to $2,120,508, or
42% of net sales, as compared to $2,000,403, or   55% of net sales in 1996.  The
net loss of $4,274,541 was predominantly the result of depreciation and
amortization expense of $1,601,138 and interest expense of $1,980,510 for a
total of $3,581,648.  These expenses directly relate to the telecommunication
systems and equipment and related debt as they relate to the AAFES project.

LIQUIDITY AND CAPITAL RESOURCES

Both the intended increase of the Company's Military Business and the entry into
the CLEC Business will require substantial additional capital investment, in
particular for communication lines and central office switching equipment. 
Notwithstanding the Equipment Refinancing Agreements, which relate only with the
Company's debt on equipment already in place, the Company will have to expend
significant amounts of capital for the acquisition and maintenance of equipment
on new bases.  Management estimates that, during the next 18 to 24 months, the
cost for such expansion will be approximately $15 million, and that the cost of
the initial entry into the CLEC Business will be approximately $5 million.  The
Company believes that the vast majority, if not all of such funds, will have to
come from sources outside the Company.  There can be no assurances that the
Company will be able to obtain the needed financing on terms acceptable to the
Company, if at all.  The failure of the Company to obtain such financing or to
meet its financial commitments could have a material adverse effect on the
Company's business operations or could cause the Company to reduce operations.

As of September 30, 1997, the Company's aggregate cash and cash equivalent
totaled $2,583,272.  The Company financed its operations in 1997 primarily from
credit extended by Fujitsu and Sprint.  The Company generated little or no cash
flow from operations, and no assurance can be given when, or whether, the
Company will be able to earn significant cash flow therefrom.  Until such time,
the Company must rely on outside sources of financing to enable it to carry out
its business plan during the next 18 to 24 months.

                                         -13-
<PAGE>

                             XECOM CORP. AND SUBSIDIARIES
                         MANAGEMENT'S DISCUSSION AND ANALYSIS
                                     (CONTINUED)
                                           

As of August 22, 1997, the Company refinanced its existing debt to Fujitsu and
Sprint by entering into the Refinancing Agreement.  The proceeds from the
Refinancing Agreement are sufficient to retire the debt to Sprint and Fujitsu,
but not to contribute toward the cost of the Company's continuing operations
during the next 18 to 24 months.  Consequently, the Company is now current in
its obligations to Sprint, its Principal Business Partner; and the Company has
until July 1, 1998 (before lease payments commence) to build up revenues from
operations and to obtain additional outside financing.  Accordingly, just in
order to continue its business operations under the Sprint Agreement, the
Company must obtain significant outside financing.  There can be no assurances
that such external sources of financing will be available on terms acceptable to
the Company or at all.  In the event the Company does not receive such
financing, the Company will be forced to reduce operations to a level which can
be sustained by internally generating funds.

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.

NEW ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires additional disclosures
related to stock based compensation plans.  The Company adopted this statement
effective January 1, 1996, which did not have a material effect on the Company's
results of operations or financial position.  The Company also adopted the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets," which did not have a material effect on the Company's results of
operations or financial position.

                                         -14-
<PAGE>

                             XECOM CORP. AND SUBSIDIARIES
                             PART II  - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

The Company is party to various legal proceedings which have been disclosed 
in prior quarterly reports.

ITEM 2. CHANGES IN SECURITIES

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 September 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



                                         -15-
<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

November 11, 1997