TELSCAPE INTERNATIONAL, INC.
FILING TYPE: 10-Q
DESCRIPTION: QUARTERLY REPORT
FILING DATE: NOV 20, 2000
PERIOD END: SEP 30, 2000
PRIMARY EXCHANGE: NASDAQ - NATIONAL MARKET
SYSTEM
TICKER: TSCP
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _____________
Commission file number 0-24622
TELSCAPE INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 75-2433637
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1325 NORTHMEADOW PARKWAY, SUITE 110
ROSWELL, GEORGIA 30076
(Address of Principal Executive Offices)
(770) 432-6800
(Issuer's Telephone Number, Including Area Code)
________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common stock, as of November 10, 2000: 20,819,444
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
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<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
September 30, December 31,
2000 1999
-------------- -------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 10,028,219 $ 21,219,684
Restricted cash 284,000 542,913
Accounts receivable, net of allowance
for doubtful accounts of $4,244,180 and $1,508,458 17,239,939 3,639,378
Notes receivable, net 594,899 2,270,750
Inventory, net 4,705,717 1,742,543
Prepaid expenses and other 6,038,359 629,787
-------------- -------------
Total current assets 38,891,133 30,045,055
-------------- -------------
PROPERTY AND EQUIPMENT, at cost: 131,213,985 31,145,082
Accumulated depreciation and amortization (19,973,369) (6,827,740)
-------------- -------------
Property and equipment, net 111,240,616 24,317,342
-------------- -------------
OTHER ASSETS:
Goodwill, net 119,029,121 17,237,653
Acquired customer bases, net 15,286,918 890,271
Licenses and other intangibles, net 51,191,831 1,723,225
Other 7,380,222 2,676,217
-------------- -------------
Total other assets 192,888,092 22,527,366
-------------- -------------
TOTAL ASSETS $ 343,019,841 $ 76,889,763
============== =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Balance Sheets.
2
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<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
September 30, December 31,
2000 1999
-------------- --------------
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of notes payable and lease obligations $ 81,198,835 $ 6,038,032
Accounts payable 35,527,839 6,233,914
Accrued liabilities 21,607,957 6,132,570
Unearned revenue 6,047,646 1,514,328
-------------- --------------
Total current liabilities 144,382,277 19,918,844
-------------- --------------
LONG-TERM LIABILITIES:
Capital and financing lease obligations, notes payable
and other long term obligations 7,383,659 12,134,234
-------------- --------------
MINORITY INTEREST - 2,014,959
-------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares
authorized, 348,385 outstanding 348 181
Common stock, $0.001 par value; 100,000,000 shares
authorized, 20,819,444 outstanding 20,819 517
Additional paid-in-capital 350,765,160 136,370,654
Accumulated deficit (159,532,422) (93,549,626)
-------------- --------------
Total stockholders' equity 191,253,905 42,821,726
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 343,019,841 $ 76,889,763
============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Balance Sheets.
3
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<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ $35,579,528 $ 12,965,450 $ 71,438,099 $ 37,673,042
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Cost of services and products 31,327,746 12,504,624 63,923,967 34,885,784
Selling, general, and administrative expenses 15,548,891 4,869,379 29,541,866 11,576,811
Restructuring 2,600,591 - 2,600,591 -
Depreciation and amortization 8,299,989 1,109,634 13,126,050 3,221,028
--------------- --------------- --------------- ---------------
Total costs and expenses 57,777,217 18,483,637 109,192,474 49,683,623
--------------- --------------- --------------- ---------------
OPERATING LOSS (22,197,689) (5,518,187) (37,754,375) (12,010,581)
INTEREST EXPENSE, net (3,409,206) (1,033,467) (3,851,897) (3,657,523)
OTHER INCOME, net 451,880 15,532 1,009,034 15,532
--------------- --------------- --------------- ---------------
NET LOSS BEFORE INCOME TAXES (25,155,015) (6,536,122) (40,597,238) (15,652,572)
INCOME TAX BENEFIT - - - -
--------------- --------------- --------------- ---------------
NET LOSS (25,155,015) (6,536,122) (40,597,238) (15,652,572)
Beneficial conversion charge - - (19,059,218) (22,174,075)
Preferred stock dividend (2,701,580) (928,188) (6,326,335) (1,375,574)
--------------- --------------- --------------- ---------------
Net loss available
to common stockholders $(27,856,595) $(7,464,310) $(65,982,791) $(39,202,221)
=============== =============== =============== ===============
Basic and diluted
net loss per share $(1.34) $(0.73) $(4.21) $(3.86)
=============== =============== =============== ===============
Shares used in computing
net loss per share 20,725,570 10,191,160 15,658,894 10,158,694
=============== =============== =============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Statements.
4
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<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Nine Months Ended September 30,
2000 1999
--------------- ---------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (40,597,238) $ (15,652,572)
--------------- ---------------
Adjustments to reconcile net loss to net cash
used in operating activities (excluding effects of purchase acquisition):
Depreciation and amortization 13,126,050 3,221,028
Bad debt expense 411,054 203,413
Amortization of discounts on debt and lease
obligations 1,052,452 2,302,531
Non-cash stock compensation 106,794 -
Non-cash restructuring charge 526,504 -
Other - (64,550)
Changes in operating assets and liabilities:
Accounts receivable, net (1,557,296) (1,196,874)
Accounts receivable - affiliate, net - (155,866)
Notes receivable, net 175,851 (690,030)
Inventory, net (510,840) (800,888)
Other prepaid expenses and other (521,333) (1,755,746)
Accounts payable, accrued and other liabilities 4,558,900 587,265
Accounts payable - affiliate - (68,000)
Unearned revenue (561,572) (719,823)
--------------- ---------------
Total adjustments 16,806,564 862,460
--------------- ---------------
Net cash used in operating activities (23,790,674) (14,790,112)
--------------- ---------------
INVESTING ACTIVITIES:
Purchase of property and equipment (28,100,101) (3,647,733)
Restricted cash 258,913 (557,028)
Cash received (paid) from acquisition 3,125,122 (137,140)
Cash paid for intangibles (860,084) -
Repayment of intercompany debt by deconsolidated subsidiary 1,909,596 -
Reduction in cash due to deconsolidation of subsidiary, net (350,295) -
Other 1,103,207 -
--------------- ---------------
Net cash used in investing activities (22,913,642) (4,341,901)
--------------- ---------------
FINANCING ACTIVITIES:
Proceeds from exercise of warrants and options 3,525,658 -
Proceeds from issuance of preferred stock, net 27,733,965 28,068,784
Proceeds from leases and notes payable 7,973,306 22,640,481
Repayments of leases and notes payable (3,720,078) (1,627,563)
--------------- ---------------
Net cash provided by financing activities 35,512,851 49,081,702
--------------- ---------------
CHANGE IN CASH AND CASH EQUIVALENTS (11,191,465) 29,949,689
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF PERIOD 21,219,684 1,255,199
--------------- ---------------
END OF PERIOD $ 10,028,219 $ 31,204,888
=============== ===============
Supplemental disclosure of cash flow information:
------------------------------------------------
Cash paid for:
Interest $ 1,265,707 $ 740,511
Taxes 793,521 -
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Statements.
5
<PAGE>
TELSCAPE INTERNATIONAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
1. FINANCIAL STATEMENTS
---------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to Rule 10-01 of
Regulation S-X of the Securities and Exchange Commission ("SEC"). These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS
The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States which require
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 the reported amounts of revenues and
expenses during the reported period. The Company reviews all significant
estimates affecting the financial statements on a recurring basis and records
the effect of any necessary adjustments prior to their issuance. The actual
results could differ from those estimates.
CONCENTRATION OF RISK - MEXICO
Mexico has experienced periodic economic crises resulting from sudden,
significant devaluations of the Mexican peso. The last such devaluation of the
Mexican peso in late 1994 caused Mexico to experience an economic crisis
characterized by exchange rate instability, increased inflation, high domestic
interest rates, reduced consumer purchasing power and high unemployment.
Consequently, the Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Accordingly, Mexican
governmental actions could have a significant effect on Mexican companies,
including the Company's customers, and overall market conditions.
The Company's foreign currency risk is mitigated in Mexico due to the fact
that many of the Company's customers are multinational firms that pay in U.S.
dollars. In addition, most of the customers that do pay in pesos pay at the spot
exchange rate in effect at the time of payment as opposed to the exchange rate
at the time the receivable is created. Nevertheless, significant adverse effects
from any devaluation in the Mexican peso could result in an adverse effect on
the Company's operations. In addition, the Company anticipates an increasing
number of peso denominated receivables from customers in Mexico as its network
in Mexico becomes operational.
2. PRIOR YEAR PRESENTATION
-------------------------
Prior year Balance Sheets and Statements of Operations are based upon
Pointe Communications Corporation due to the purchase accounting method used to
record the merger (see Note 6 for further discussion). Certain amounts in the
prior period financial statements have been reclassified to conform to the
current year presentation.
3. RESTRUCTURING CHARGE
--------------------
In the third quarter of 2000, the Company recorded a charge of
approximately $2.6 million to restructure its call center and prepaid calling
card operations in Mexico and Houston, Texas as well as administrative functions
at both locations. The restructuring included facilities closures and certain
employee terminations. Severance benefits have been provided for 216 employees
terminated at the following locations and functions:
6
<PAGE>
Number
Location / Function of Employees
--------------------- -------------
MEXICO
Prepaid Calling Card 26
Enterprise 34
Call Center 37
Administrative and other 64
U.S.
Network Operations 12
Administrative 12
Prepaid Calling Card 21
Call Center 10
---
Total 216
===
All 216 employees were terminated as of September 30, 2000. The Company
recorded lease terminating costs of approximately $204,000 principally related
to redundant administrative and call center facilities in Texas. Lease
terminating costs of approximately $198,000 were expensed related to
administrative operations in Mexico.
Charges for restructuring for the three months ended September 30, 2000,
and accrued restructuring at September 30, 2000, are as follows (in thousands):
<TABLE>
<CAPTION>
Expensed
Three Months Ended Accrued Costs
September 30, 2000 Incurred September 30, 2000
------------------ -------- ------------------
<S> <C> <C> <C>
Severance for terminated
employees $ 1,347 $ (396) $ 951
Facilities closures 403 - 403
Dedicated lines discontinued 268 - 268
Termination of public relations
Agreement 583 (527) 56
------------------ ------------------
$ 2,601 $ 1,678
================== ==================
</TABLE>
4. EARNINGS PER SHARE
--------------------
Basic net earnings per share is computed using the weighted average number
of shares outstanding. Diluted net earnings per share is computed using the
weighted average number of shares outstanding, adjusted for potential common
shares, when dilutive. For the periods presented, the effect of potential common
shares was antidilutive; as a result, basic and diluted net loss per share are
the same. The differences between net loss and net loss available to common
stockholders are 1) the beneficial conversion charge incurred with respect to
the issuance of Class F and Class D (formerly Pointe Class A) Senior Convertible
Preferred Stock during the second quarter of 2000 and 1999, respectively (see
Note 10), and 2) the payment of dividends issued on Class D, E (Formerly Pointe
Class A and B) and F Preferred Stock during the periods presented. The Company
paid the dividends in additional shares of Preferred Stock.
7
<PAGE>
5. INCOME TAXES
-------------
There was no provision for income taxes for the three or nine months
ended September 30, 2000 and 1999, respectively, as the Company had net losses
for 1999 and anticipates a net loss for the year ended December 31, 2000.
One of the Company's foreign subsidiaries has prepaid certain taxes related to
its Mexico operations.
6. MERGERS & ACQUISITIONS
------------------------
On June 2, 2000, Telscape International, Inc. completed a merger with
Pointe Communications Corporation ("Pointe") in accordance with the December
31, 1999 Agreement and Plan of Merger ("Merger Agreement"). The merger was an
all stock transaction in which each share of Pointe was exchanged for 0.223514
shares of Telscape common stock. The purchase method of accounting has been
used to record the transaction under which Pointe is viewed as the acquirer for
accounting purposes because its former shareholders own a majority of the
combined company's shares. Therefore, the value of the Telscape common shares,
options and warrants outstanding on the date of merger is treated as the
consideration given in the merger. The value applied to the shares was based
upon the market price on the date of the Merger Agreement. The Company is
deemed to have issued 8,187,358 common shares at a value of $12.51 per
share and 7,301,239 common stock equivalents valued under the Black-Scholes
model at a weighted average price of $7.44. Due to the reverse merger
accounting treatment, Pointe's balance sheet and results of operations have
been used as the basis of these Balance Sheets and Statements. Telscape's
operations from June 2, 2000 through September 30, 2000 are included in
the consolidated results of operations.
In conjunction with the merger, the Company recorded intangible assets of
approximately $172,017,000 due to the purchase price exceeding the values of
the tangible net assets acquired. After identifying the tangible assets and
liabilities, the Company allocated the excess to identifiable intangible assets
and the remainder to goodwill. Allocation of the purchase price among tangible
and intangible assets was performed based upon information available at the time
of acquisition and is subject to adjustment for up to one year after acquisition
in accordance with Accounting Principles Board ("APB") Opinion No. 16.
Amortization of these costs is included in depreciation and amortization in
the accompanying statements of operations. The allocation of intangible assets
and their respective amortization periods are as follows:
INTANGIBLE AMOUNT ESTIMATED LIFE (YEARS)
---------- ------------- -----------------------
Acquired Customer Base $ 17,202,000 2
License and other 51,605,000 5-30
Goodwill 103,210,000 20
The following table presents the condensed unaudited consolidated balance
sheet of Telscape on the merger date:
Current Assets $ 24,111,135
Property and Equipment, net 63,897,290
Other Long Term Assets, net 40,898,097
------------
Total Assets $128,906,522
============
Current Liabilities $ 65,858,530
Long Term Liabilities 43,142,527
Stockholders' Equity 19,905,465
------------
Total Liabilities and
Stcokholders'Equity $128,906,522
============
8
<PAGE>
The following table presents the unaudited pro forma consolidated results
of operations of the Company as though the merger took place as of the beginning
of each of the periods presented:
Nine Months Ended
Three Months Ended September 30,
September 30, 1999 2000 1999
-------------------- --------------- ---------------
Revenues $ 39,578,451 $ 107,911,263 $ 121,014,042
Net loss (15,206,122) (53,185,292) (39,889,572)
Net loss per share,
basic and diluted $ (1.49) $ (3.40) $ (3.93)
The pro forma financial information does not purport to represent what the
consolidated results of operations would have been if the purchase
acquisition had in fact occurred on these dates, nor does it purport to
indicate our future consolidated financial position or future consolidated
results of operations. The pro forma adjustments are based on currently
available information and certain assumptions that management believes to
be reasonable.
7. TELECOMMUTE SOLUTIONS
----------------------
During the quarter ended March 31, 2000, the Company's subsidiary
Telecommute Solutions Inc. ("TCS"), completed a private placement of its Series
B Convertible Preferred Stock for gross proceeds totaling approximately $19
million. The preferred stock is convertible into shares of TCS common stock and
votes with common stockholders on an as-converted basis. Upon issuance of the
Series B Preferred Stock, the TCS Series A convertible non-voting preferred
stockholders converted their stock into TCS common stock. As a result of these
transactions the Company's ownership of TCS was reduced from 100% to
approximately 23%. Therefore, TCS is no longer a consolidated subsidiary and
the Company will account for its ownership using the equity method. As of the
date of deconsolidation, TCS's cumulative losses exceeded the Company's
investment. Therefore, the investment account was a credit balance of
approximately $3.5 million, which has been reclassed to additional paid in
capital along with the minority interest related to the Class A preferred stock
of approximately $2.0 million, in accordance with Staff Accounting Bulletin No.
51. TCS is in a net loss position and after the entries above, the Company's
basis in the TCS investment is $0; therefore, the Company has recognized no
income/loss during the first nine months of 2000.
8. BUSINESS SEGMENT REPORTING
----------------------------
Effective January 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which established
revised standards for the reporting of financial and descriptive information
about operating segments in financial statements. The Company has three
reportable segments: CLEC/DLEC, International Long Distance (ILD) and Advanced
Services. Revenues in CLEC Services are generated through subscription of
Hispanic consumer and small to medium size business customers for the provision
of local, long distance and Internet services in certain target markets in the
United States. Revenues in the ILD Services segment are generated on a retail
basis through the sale of pre-paid cards and on a wholesale basis through sales
to other carriers. Revenues in the Advanced Services segment are generated from
network solutions services, customer relationship management and broadband
services and products. The Company provides CLEC Services to customers in the
United States and ILD Services to customers in the United States and in Mexico.
Advanced Services are provided to customers in the United States, Mexico and
other parts of Latin America. Operating results by business segment are as
follows:
9
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
9/30/00 9/30/99 9/30/00 9/30/99
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
---------
CLEC/DLEC $ 2,470,160 $ 1,304,425 $ 4,958,035 $ 3,798,819
INTERNATIONAL LONG DISTANCE 25,199,618 11,661,025 54,926,297 33,874,223
ADVANCED SERVICES
NETWORK SOLUTIONS 3,028,086 - 4,635,028 -
CUSTOMER RELATIONSHIP MGT. 3,194,084 - 4,469,543 -
BROADBAND SERVICES 1,687,580 - 2,319,928 -
TELECOMMUTE - - 129,268 -
------------ ------------ ------------ -------------
TOTAL REVENUES 35,579,528 12,965,450 71,438,099 37,673,042
------------ ------------ ------------ -------------
COST OF SERVICES:
-----------------
CLEC/DLEC 2,689,963 1,087,475 5,182,322 2,874,140
INTERNATIONAL LONG DISTANCE 25,009,512 11,417,149 53,216,928 32,011,644
ADVANCED SERVICES
NETWORK SOLUTIONS 1,435,773 - 2,212,445 -
CUSTOMER RELATIONSHIP MGT. 1,185,427 - 1,668,156 -
BROADBAND SERVICES 1,007,071 - 1,512,264 -
TELECOMMUTE - - 131,852 -
------------ ------------ ------------ -------------
TOTAL COST OF SERVICES 31,327,746 12,504,624 63,923,967 34,885,784
------------ ------------ ------------ -------------
GROSS MARGIN
------------
CLEC/DLEC (219,803) 216,950 (224,287) 924,679
INTERNATIONAL LONG DISTANCE 190,106 246,876 1,709,369 1,862,579
ADVANCED SERVICES
NETWORK SOLUTIONS 1,592,313 - 2,422,583 -
CUSTOMER RELATIONSHIP MGT. 2,008,657 - 2,801,387 -
BROADBAND SERVICES 680,509 - 807,664 -
TELECOMMUTE - - (2,584) -
------------ ------------ ------------ -------------
TOTAL GROSS MARGIN 4,251,782 460,826 7,514,132 2,787,258
------------ ------------ ------------ -------------
SELLING GENERAL & ADMINISTRATIVE
--------------------------------
CLEC/DLEC 4,965,062 850,779 9,763,292 1,694,558
INTERNATIONAL LONG DISTANCE 2,608,523 1,753,693 6,013,842 4,635,611
ADVANCED SERVICES
NETWORK SOLUTIONS 1,379,894 - 2,033,894 -
CUSTOMER RELATIONSHIP MGT. 1,314,000 - 1,786,000 -
BROADBAND SERVICES 746,135 - 939,106 -
ENABLE COMMERCE 451,000 - 565,000 -
TELECOMMUTE - 888,464 395,484 3,189,662
CORPORATE & NETWORK 4,084,277 1,376,443 8,045,248 2,056,980
------------ ------------ ------------ -------------
TOTAL SG&A 15,548,891 4,869,379 29,541,866 11,576,811
------------ ------------ ------------ -------------
RESTRUCTURING 2,600,591 - 2,600,591 -
------------ ------------ ------------ -------------
DEPRECIATION & AMORTIZATION 8,299,989 1,109,634 13,126,050 3,221,028
------------ ------------ ------------ -------------
TOTAL COSTS AND EXPENSES 57,777,217 18,483,637 109,192,474 49,683,623
------------ ------------ ------------ -------------
OPERATING LOSS $(22,197,689) $(5,518,187) $(37,754,375) $(12,010,581)
============ ============ ============ =============
</TABLE>
10
<PAGE>
9. NOTES PAYABLE
--------------
On September 29, 2000, the Company, along with its subsidiaries,
Telereunion S.A. de C.V., Telereunion International, S.A. de C.V.,
Telereunion, Inc., Telscape USA, Inc., MSN Communications, Inc., Interlink
Communications, Inc., TSCP International, Inc., Vextro De Mexico S.A. de
C.V., and its wholly owned subsidiary, Servicios Corporativos Vextro, S.A.
de C.V., Telscape de Mexico S.A. de C.V., N.S.I. S.A. de C.V., Lan and
Wan S.A. de C.V. and M.S. Noticias y Telecomunicaciones, S.A. de C.V.
signed a credit agreement with GE Capital Corp. (the "GECC Credit Agreement").
The GECC Credit Agreement provides for up to $60 million in financing under
long-term repayment terms. In September 2000, the Company borrowed approximately
$56 million. We used $1.3 million to repay a note payable to a bank, $3.5
million and $40 million to repay in full accrued interest and principal,
respectively, on the 1999 Lucent Credit Agreement, $10.6 million to pay
outstanding payables, and $1.6 million for debt costs associated with the GECC
borrowing. The Company received no net cash proceeds from this initial
borrowing.
In conjunction with the repayment of the 1999 Lucent Credit Agreement, the
Company wrote off approximately $656,000 of deferred loan costs that related to
this debt.
The GECC Credit Agreement requires no payments for the first year and
interest-only payments for the second year. Beginning October 2002, the
agreement requires nine semiannual principal payments, including prior accrued
interest of approximately $5.2 million, plus current interest. The agreement
bears interest at a per annum rate of LIBOR plus a margin of 5.8% initially
which increases to 7.3 % by the fifth year (12.3 % at September 30, 2000). In
conjunction with the extension, the Company issued additional warrants to
purchase 710,314 shares of common stock for a period of six years at a strike
price of $2.53. The warrants were valued at approximately $1.0 million and were
recorded as a discount on the notes to be amortized over the 6.5 year term.
In September 2000, the Company signed a financing agreement with NTFC
Capital Corporation ("NTFC"), a financing arm of GECC, for new funding of up to
$16 million. The Company used part of the initial proceeds of $13.5 million to
repay $13.2 million of accounts payable related to equipment for the U.S. CLEC
/ DLEC operations and to pay $0.3 million of loan costs. The agreement bears
interest at Libor plus a margin of 5.0% (11.5% at September 30, 2000)and
requires no payments the first year, then interest only payments until September
30, 2002, then 20 quarterly principal and interest payments until September 30,
2007. Interest accrued during the no payment period is added to the principal
balance.
On January 11, 1999, the Company signed a financing arrangement with NTFC
which provided for funding of equipment purchases of up to $7.0 million. The
Company borrowed $5.6 million pursuant to this agreement. As of the end of the
second quarter 2000, the Company was not in compliance with certain financial
covenants under this loan facility. In September 2000, the Company reset the
financial covenants included in the note to mirror the GECC and NTFC credit
agreements discussed above. This note bears interest at 10.8% per annum and is
due in four interest only payments through January 1, 2000, then quarterly
principal payments of $350,000 plus interest until January 2005.
On October 22, 1999, the Company signed a loan agreement with Lennox Invest
Ltd. ("Lennox"), a BVI Corporation, which provided for funding of up to $10.0
million. A total of $1.5 million has been funded on this facility, which bears
interest at 10% per annum. Interest on each note is to be paid at maturation of
the respective note, which occurs six months after the date of each note. Of
the $1.5 million funded under the facility, $1.0 million matured on April 19,
2000, and $0.5 million matured on April 26, 2000. Lennox and the Company agreed
to extend the notes an additional six months from the original maturity dates
and again until November 30, 2000. In conjunction with the extension, the
Company issued additional warrants to purchase 178,288 shares of common stock
for a period of three years at a strike price of $7.00. The warrants were
valued at $72,049 and were recorded as a discount on the note amortized to
interest expense over the six month extended maturity. The notes matured on
October 22, 2000, and the Company is currently negotiating an extension.
However the Company has not reached terms and is currently in default
additionally the Company's debt obligation for $500,000 to Scott Christ also
matured on November 8, 2000. The Company is currently in negotiations with both
Lennox and Mr. Christ to extend the term. These defaults create a cross
default on the GECC facilities which if not cured make the GECC loans current.
As of September 30, 2000, the Company was not in compliance with the
revenue covenants contained in the GECC and NTFC credit facilities discussed
above. The Company was granted waivers of the covenant defaults by GECC.
Additionally, the Company was obligated to obtain certain waivers and consents
from third parties (including landlords, carriers, vendors, banks, etc.) by
October 31, 2000. As of October 31, 2000, not all of the required consents had
been obtained, and GECC extended the required date to November 30, 2000.
Certain of the consents remain open, and the Company is working in good faith to
obtain them; however there can be no assurance that we will obtain them on time
and, if not, the Company will need to request an additional extension from GECC.
11
<PAGE>
10. EQUITY
------
In conjunction with the merger with Pointe, Telscape issued 11,404.84
shares of Class D Preferred Stock with a face value of approximately $34.2
million and 7,630.23 shares of Class E Preferred Stock with a face value
of approximately 22.9 million ("Class D Preferred Stock" and "Class E Preferred
Stock"), to the former holders of Pointe Communications Corporation Class A and
B Senior Convertible Preferred Stock, respectively. The terms of the Class D
and E Preferred Stock are the same as the former Pointe Communications
Corp. Class A and B Senior Convertible Preferred Stock in all material respects
except that the conversion price has been adjusted for the exchange ratio of
0.223514 shares of underlying Pointe common stock for each share of
underlying Telscape common stock.
Also in conjunction with the merger with Pointe, Telscape raised
$29,575,000 and exchanged an additional $2,000,000 of debt (the senior notes
described in footnote 9) for equity in a private offering of its newly
designated Class F Convertible Senior Preferred Stock ("Class F Preferred
Stock"). The Class F Preferred Stock has a stated value (and also a liquidation
value) of $100.00 per share and was exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"). In connection
with this offering, the Company authorized the issuance of 315,750 shares of the
Class F Preferred Stock which are potentially convertible into an aggregate of
3,850,610 shares of Telscape's common stock. Additionally, in connection with
the private placement, the Company authorized the issuance of warrants to
purchase 1,925,305 shares of Telscape's common stock. The Class F Preferred
Stock earns dividends at a rate of 12% per annum, which are cumulative and
payable in either cash or shares of Class F Preferred Stock at the Company's
discretion. Each share of Class F Preferred Stock is convertible at the option
of the holder into common stock at a conversion price of $8.20 per share
(subject to adjustment for certain diluting issues) at any time while the Class
F Preferred Stock remains outstanding. The Company has reserved the right to
cause the holders of Class F Preferred Stock to convert their shares if Telscape
enters into a public offering of Telscape's common stock or if after one year
from issuing the Class F Preferred Stock, (1) Telscape's common stock is trading
on the New York Stock Exchange, the Nasdaq National Market or the American Stock
Exchange, (2) the common stock shall have traded for a period of 20 consecutive
trading days at a price of $15.00 (or the adjusted figure after any stock split,
stock dividend, reverse stock split or similar recapitalization event), and (3)
the cumulative average daily trading volume in that period is at least
$3,000,000. Telscape shall be required to exchange all of the Class F Preferred
Stock for shares of Common Stock on the seventh anniversary of the issue date of
the Class F Preferred Stock; provided that the shares of common stock to be
issued have been registered and listed on each securities exchange,
over-the-counter market or on the Nasdaq National Market on which similar
securities issued by Telscape are then listed.
The warrants issued give the holders the right to purchase 1,925,306 shares
of Telscape's common stock. The warrants terminate on the fifth anniversary of
the date of issuance. The exercise price of the warrants is $10.00 per share,
subject to adjustment in the same manner as the Class F Preferred Stock for any
event that changes the number of outstanding shares of Telscape's common stock.
A cashless exercise option is also available to warrant-holders. If the market
price of the common stock is equal to at least $15.00 per share (as adjusted for
stock splits, recapitalizations, mergers, consolidations and other similar
events) for 20 consecutive trading days, Telscape has the right to cause the
warrant holders to exercise the warrants. The Company is obligated to file a
registration statement to register the shares underlying the Class F Preferred
Stock within 150 days of the closing date.
In conjunction with the issuance of the Class F Preferred Stock, the
Company evaluated whether a beneficial conversion feature existed on the date of
issuance, as defined in the Emerging Issues Task Force ("EITF") 98-5. The
proceeds received in conjunction with the issuance were first allocated to the
$11.1 million fair value of the warrants, as calculated using the Black-Scholes
model. The remaining proceeds of $20.5 million were allocated to the Class F
Preferred Stock. This amount was then compared to the fair market value of the
shares underlying the Class F Preferred Stock of $39.5 million, determined by
multiplying the number of shares by the market price on the date of issuance of
$10.25. The difference of $19.0 million has been recognized as a beneficial
conversion feature on the Preferred Stock and recorded as a non-operating
non-cash charge directly to accumulated deficit and an increase in additional
paid in capital.
12
<PAGE>
In September 2000, for consideration of Lucent Technologies, Inc. ("Lucent")
facilitating the GECC agreement, the Company issued to Lucent 710,314 warrants
to purchase shares of the Company's common stock at an exercise price of $2.53
per share. These warrants have a fair value of approximately $1 million, and we
will amortize the expense over six years, the term of the GECC Credit Agreement.
Also in September, for consideration with extension of the Lennox loan, the
Company issued 178,288 warrants to purchase shares of common stock at an
exercise price of $7.00 per share.
11. COMMITMENTS
-----------
The Company has signed agreements in which it will swap some of the
capacity available on its Mexican network with capacity available on other
carriers networks. Some of these swap agreements require that the Company pay
some additional monies in addition to the actual facilities exchange. The
Company has committed to approximate payments of $2,140,000 in the fourth
quarter of 2000 and $4,279,000 in fiscal year 2001 under such swap agreements.
12. ACCOUNTING STANDARDS
---------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, FASB issued Statement of
Financial Accounting Standards No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement No.
133." These statements require all derivatives to be recorded on the balance
sheet at fair value and establishes new accounting rules for hedging instruments
and are effective for fiscal years beginning after June 15, 2000. We
believe that these statements will not have a material financial impact upon
our annual consolidated financial results.
The FASB issued Interpretation ("Interpretation") No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an Interpretation of APB
Opinion No. 25" which is effective July 1, 2000. Interpretation No. 44
clarifies (a) the definition of employee for purposes of applying Opinion No.
25, (b) the criteria for determining whether a stock compensation plan qualifies
as a non- compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. Adoption of the provisions of the Interpretation is not expected
to have a significant impact on our financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements." SAB 101 provides
additional guidance on revenue recognition as well as criteria for when
revenue is generally realized and earned. The Company believes the adoption of
SAB No. 101 will not have a material impact on future operating results.
12. SUBSEQUENT EVENT
----------------
On November 1, 2000, the Company agreed to transfer its Network Integration
business in Mexico to REDES Empresariales, S.A. DE C.V. ("REDES"), a privately
held company, for consideration of a 40% equity interest in REDES.
Additionally, the Company has agreed to fund the future operations of REDES up
to $500,000. This transaction will result in the transfer of the Network
Integration operations and staff to REDES. However, the Company maintains the
receivables and payables outstanding at the date of transfer and the inventory
existing at the time of sale. The closing of this transaction is scheduled to
occur November 30, 2000 and is subject to the approval of GECC as part of our
loan requirements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE MERGER
-----------
On June 2, 2000, the merger between Telscape International, Inc.
("Telscape") and Pointe Communications Corporation ("Pointe") (the "Merger")
was completed. In an all-stock transaction each share of Pointe common stock
was exchanged for 0.223514 shares of Telscape common stock. Telscape issued
12,159,767 shares in the Merger. The issuance of shares resulted in a
change of control of Telscape with the former Pointe shareholders receiving
approximately 60% of Telscape's issued and outstanding shares in the
Merger. We believe that the merger of the combined companies creates one
of the leading providers of bundled communications services in the U.S.
Hispanic and paired-Latin American markets. Some of the benefits of the
combined companies are:
13
<PAGE>
- An experienced management team with a significant Latin component.
- Creates an integrated communications provider catering to Hispanics in
both the US and Latin America.
- Infrastructure-based strategy utilizing a "Smart Build" approach including
a fiber optic network under construction in Mexico.
- Greater critical mass,synergies and cost savings.
- One of the few companies that can compete in the U.S. and Latin America as
one company.
- Combined company strategy addresses rapidly growing and deregulating
markets with significant competitive opportunities.
BUSINESS UNIT ALIGNMENT:
--------------------------
The combined Company has restructured into three distinctive business units
including Advanced Services, CLEC/DLEC and International Long Distance ("ILD"),
allowing crisper focus, metric management and orderly go to market
initiatives(see Note 8 to the Company's unaudited consolidated financial
statements for business segment financial information). The Advanced Services
business unit will build upon the Mexican network assets to grow its technical
outsourcing and network management services business in the US and Mexico.
Equally important, with the fiber network in place, Telscape will have a
competitive advantage offering ISP backbone services providing eCommerce
transport and voice, data and Internet services via its own fiber and its
satellite communication network, where certain geographic limitations prevent
the installation of wire or cable. The Company's CLEC/DLEC Services unit
provides local, long distance, and Internet services to targeted U.S. Hispanic
markets. By positioning itself as a one stop offering with full Spanish and
English support, Telscape believes it is exclusively aiming at a largely under
served US market segment. The CLEC/DLEC unit has opened operations to date in
Los Angeles, Miami, and San Diego and expects to open, Houston, San Francisco,
New York, Chicago, Dallas and San Juan over the next six quarters, covering just
over 19 million Hispanics in the United States. Telscape's International Long
Distance ("ILD") Services unit offers a broad array of traditional telecom
services, including wholesale services, prepaid services and other interconnect
services in the United States and Mexico.
CLEC/DLEC DEPLOYMENT
---------------------
One of Telscape's key strategic elements is the implementation of its
CLEC/DLEC operations in the major niche Hispanic markets across the United
States. Telscape offers consumers and commercial customers a comprehensive
one-stop shop solution to the Hispanic community for basic and enhanced
telecommunication needs, including local, domestic and international long
distance, and Internet services. Supporting this effort is an aggressive
marketing strategy, including direct marketing, telemarketing, print and
broadcast advertising and retail Telemercardos. Initial results indicate
positive acceptance within the Hispanic community and significant potential for
future sales.
MEXICO NETWORK DEPLOYMENT
---------------------------
Telscape's Mexican subsidiary Telereunion, S.A. de C.V., has completed the
construction of its state-of-the-art Fiber Optic network in Mexico and is
currently interconnected with Telmex and serving 12 cities. We expect to
interconnect the remaining 10 cities on the network with Telmex to bring the
total to 22 by end of fiscal year 2000. Once fully established, Telscape will
have a fiber network with approximately 4,100 kilometers across Mexico,
covering most major cities including Mexico City, Monterrey and Puebla,
representing more than 25 million people and about one-third of the total
telephone lines in Mexico, which we anticipate will occur by the end of
2000. This network will allow the Company to transition its business in
Mexico from provisioning of network equipment to bundling of
14
<PAGE>
telecommunications services, including voice and data, focused primarily on
small and medium size businesses as well as wholesaling fixed and variable
network capacity to other telecommunication providers. Additionally, the
most immediate effect the network is expected to have is to reduce the cost
of its ILD traffic terminating in Mexico, which is the terminating point
of the majority of this segment's traffic. This will serve to improve the
Company's overall margin as revenue shifts to higher margin Advanced Services
products and margins improve on its lower margin ILD business.
CORPORATE RESTRUCTURING INITIATIVES
-------------------------------------
In order to eliminate certain redundant operations and to maximize the
synergies arising out of the Merger, the Company is aggressively assessing the
possible sale or disposal of certain non-core assets, which may not be strategic
to future growth or margin sustainability.
We are currently in discussions with interested parties regarding the sale
of our satellite and prepaid phone card businesses. Selling these operations
will generate cash proceeds to invest in and allow management to concentrate
more energy on our Mexican network operations and the U.S. CLEC / DLEC
operations. While there can be no assurances, we anticipate that these measures
will result in reducing overall negative EBITDA not only from the elimination of
the businesses but also from the reduction of the corporate overhead needed to
support these operations. While we have no firm commitments for the sale of the
satellite and prepaid businesses, we expect to consumate these sales during the
fourth quarter of 2000 but there can be no assurance that they will close timely
or at all.
In the third quarter of 2000, the Company recorded a charge of
approximately $2.6 million to restructure its call center and prepaid calling
card operations in Mexico and Houston, Texas as well as administrative functions
at both locations. The restructuring included facilities closures and certain
employee terminations. Severance benefits have been provided for 216 terminated
employees. The Company recorded lease terminating costs of approximately
$204,000, principally related to redundant administrative and call center
facilities in Texas. Lease terminating costs of approximately $198,000 were
expensed related to administrative facilities in Mexico.
In addition, management continues to implement policies and procedures
throughout the Company with the intention of continuing to reduce expenses and
improve margins.
See "Liquidity and Capital Resources" for a discussion of the Company's
ability to meet the capital requirements associated with its expansion plans.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the three and
nine months ended September 30, 2000 and 1999. Operating results for any period
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
9/30/00 9/30/99 9/30/00 9/30/99
------------ ------------ ------------ -------------
REVENUES:
---------
<S> <C> <C> <C> <C>
CLEC/DLEC $ 2,470,160 $ 1,304,425 $ 4,958,035 $ 3,798,819
INTERNATIONAL LONG DISTANCE 25,199,618 11,661,025 54,926,297 33,874,223
ADVANCED SERVICES
NETWORK SOLUTIONS 3,028,086 - 4,635,028 -
CUSTOMER RELATIONSHIP MGT. 3,194,084 - 4,469,543 -
BROADBAND SERVICES 1,687,580 - 2,319,928 -
TELECOMMUTE - - 129,268 -
------------ ------------ ------------ -------------
TOTAL REVENUES 35,579,528 12,965,450 71,438,099 37,673,042
------------ ------------ ------------ -------------
15
<PAGE>
COST OF SERVICES:
-----------------
CLEC/DLEC 2,689,963 1,087,475 5,182,322 2,874,140
INTERNATIONAL LONG DISTANCE 25,009,512 11,417,149 53,216,928 32,011,644
ADVANCED SERVICES
NETWORK SOLUTIONS 1,435,773 - 2,212,445 -
CUSTOMER RELATIONSHIP MGT. 1,185,427 - 1,668,156 -
BROADBAND SERVICES 1,007,071 - 1,512,264 -
TELECOMMUTE - - 131,852 -
------------ ------------ ------------ -------------
TOTAL COST OF SERVICES 31,327,746 12,504,624 63,923,967 34,885,784
------------ ------------ ------------ -------------
GROSS MARGIN
------------
CLEC/DLEC (219,803) 216,950 (224,287) 924,679
INTERNATIONAL LONG DISTANCE 190,106 246,876 1,709,369 1,862,579
ADVANCED SERVICES
NETWORK SOLUTIONS 1,592,313 - 2,422,583 -
CUSTOMER RELATIONSHIP MGT. 2,008,657 - 2,801,387 -
BROADBAND SERVICES 680,509 - 807,664 -
TELECOMMUTE - - (2,584) -
------------ ------------ ------------ -------------
TOTAL GROSS MARGIN 4,251,782 460,826 7,514,132 2,787,258
------------ ------------ ------------ -------------
SELLING, GENERAL & ADMINISTRATIVE
---------------------------------
CLEC/DLEC 4,965,062 850,779 9,763,292 1,694,558
INTERNATIONAL LONG DISTANCE 2,608,523 1,753,693 6,013,842 4,635,611
ADVANCED SERVICES
NETWORK SOLUTIONS 1,379,894 - 2,033,894 -
CUSTOMER RELATIONSHIP MGT. 1,314,000 - 1,786,000 -
BROADBAND SERVICES 746,135 - 939,106 -
ENABLE COMMERCE 451,000 - 565,000 -
TELECOMMUTE - 888,464 395,484 3,189,662
CORPORATE & NETWORK 4,084,277 1,376,443 8,045,248 2,056,980
------------ ------------ ------------ -------------
TOTAL SG&A 15,548,891 4,869,379 29,541,866 11,576,811
------------ ------------ ------------ -------------
RESTRUCTURING 2,600,591 - 2,600,591 -
------------ ------------ ------------ -------------
DEPRECIATION & AMORTIZATION 8,299,989 1,109,634 13,126,050 3,221,028
------------ ------------ ------------ -------------
TOTAL COSTS AND EXPENSES 57,777,217 18,483,637 109,192,474 49,683,623
------------ ------------ ------------ -------------
OPERATING LOSS (22,197,689) (5,518,187) (37,754,375) (12,010,581)
INTEREST EXPENSE, NET (3,409,206) (1,033,467) (3,851,897) (3,657,523)
OTHER INCOME 451,880 15,532 1,009,034 15,532
------------ ------------ ------------ -------------
NET LOSS (25,155,015) (6,536,122) (40,597,238) (15,652,572)
BENEFICIAL CONVERSION FEATURE - - (19,059,218) (22,174,075)
PREFERRED DIVIDENDS (2,701,580) (928,188) (6,326,335) (1,375,574)
------------- ------------ ------------ -------------
NET LOSS AVAILABLE TO
COMMON SHAREHOLDERS $(27,856,595) $(7,464,310) $(65,982,791) $(39,202,221)
============= ============ ============= =============
NET LOSS PER SHARE -
BASIC AND DILUTED $ (1.34) $ (0.73) $ (4.21) $ (3.86)
============= ============ ============= =============
SHARES USED IN COMPUTING
NET LOSS PER SHARE 20,725,570 10,191,160 15,658,894 10,158,694
============== ============ ============= =============
</TABLE>
16
<PAGE>
The results of operations presented above are not comparable to the prior
results of Telscape. Results set forth in this filing for the quarter and year
to date present the results of operations of Pointe, which merged with Telscape
on June 2, 2000. This purchase accounting treatment is mandated by accounting
principals generally accepted in the United States because the majority of the
equity of the combined companies is held by former Pointe shareholders.
Accordingly, the results reflect the full quarter and year to date results of
Pointe and the results of Telscape from the Merger date through September 30,
2000 only. The 1999 results are Pointe's only and do not reflect any
Telscape results.
Consolidated revenues for the combined lines of business for the three
months ended September 30, 2000 and 1999 were $35,579,528 and $12,965,450
respectively, an increase of 22,614,078 or 174%. Gross margin totaled
$4,251,782 or 12% for the quarter ended September 30, 2000 versus $460,826 or 4%
for the same quarter in 1999. SG&A expenses for the quarters ended September
30, 2000 and 1999 were $15,548,891 and $4,869,379 or 44% and 38% as percentages
of revenues, respectively. Operating loss for the quarter ended September 30,
2000, was $22,197,689 compared to $5,518,187 for the same quarter in 1999.
During the nine months ended September 30, 2000, revenues were $71,438,099,
an increase of $33,765,057 or 90%, from the same period in 1999. Gross Margin
totaled $7,514,132 million or 11% for the nine months ended September 30, 2000
versus $2,787,258 or 7% for the nine months ended September 30, 1999. Year to
date SG&A expenses for the periods ended September 30, 2000 and 1999 were
$29,541,866 and $11,576,811 or 41% and 31% as percentages of revenues,
respectively. Operating loss for the nine months ended September 30, 2000 was
$37,754,375 compared to $12,010,581 for the same period in 1999.
The increase in revenues came mainly in the International Long Distance and
Advanced Services business segments principally as a result of the Merger. The
CLEC business unit began selling a bundled package of local, long distance and
Internet services to the Hispanic community in Los Angeles during the second
quarter, Miami at the beginning of the third quarter and San Diego at the
beginning of the fourth quarter. Prior to that, CLEC revenues were the result
of prepaid local service in the Atlanta market and Internet access services
primarily in the Houston market. Gross margin increased during the quarter as a
result of increased revenue and also increased as a percentage of revenue
primarily due to the change in product mix making higher margin Advanced
Services a greater proportion of overall revenue. Overall margins and
International Long Distance margins in particular are expected to improve as the
Company completes the interconnection with Telmex of the Mexican Fiber Network.
The interconnect agreement was signed during the second quarter 2000 and the
last of the total 22 cities are expected to be physically interconnected during
the fourth quarter 2000. CLEC margins were negative during the third quarter as
a result of fixed start up costs incurred in advance of significant revenues and
are expected to turn positive as additional customers are provisioned. SG&A
expenses increased as a result of the Merger and as a result of the CLEC
business segment increasing its selling and administrative costs in advance of
introducing its bundled product offering. We began sales in Los Angeles during
the second quarter and in Miami during the third quarter. We expect to open San
Diego, Houston, San Francisco, New York, Chicago, Dallas and San Juan over the
next six quarters.
Basic and diluted net loss per share available to common shareholders
includes non-operating, non-cash charges of $2,701,580, or $0.13 per share, and
$928,188, or $0.09 per share, for the three months ended September 30, 2000 and
1999, and $25,385,553, or $1.62 per share, and $23,549,649, or $2.32 per share,
for both the nine months ended September 30, 2000 and 1999. The charges relate
to paid in kind dividends on the Class D, E, and F Senior Convertible Preferred
Stock and beneficial conversion charges related to the issuance of Class D and F
Senior Convertible Preferred Stock issued during the second quarter of 1999 and
2000 respectively. The beneficial conversion charge is a non-recurring,
non-cash charge required under Emerging Issues Task Force ("EITF") Issue
No. 98-5. The proceeds received in conjunction with the issuances were first
allocated to the warrants attached to the Preferred Stock. The remainder of the
proceeds were allocated to the Preferred Stock and compared to the theoretical
value (based upon the quoted market price) of the common shares underlying the
Preferred Stock. The excess of the market value of the underlying shares over
the proceeds was taken as a one-time charge to retained earnings during each of
the respective quarters.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net cash outflow from operating activities of $23.8
million and $14.8 million for the nine months ended September 30, 2000 and 1999,
respectively. The increase from 1999 to 2000 is primarily the result of
increases in operating losses.
The Company used net $22.9 million in investing activities, principally to
acquire $28.1 million of property and equipment for use mainly in the US CLEC
operations in Los Angeles, Miami and San Diego and to build the Mexico network.
This was offset by $3.1 million of cash acquired in the Merger between Pointe
and Telscape. Additionally, we received $1.9 million in repayment of a loan to
Telecommute Solutions, Inc., which was formerly a consolidated subsidiary but
was deconsolidated during the first quarter of 2000 as a result of a private
investment directly into Telecommute, which reduced the Company's ownership
below fifty percent.
The Company's financing activities for the year to date through September
30, 2000, generated a net $35.5 million mainly as a result of the issuance of
Class F Senior Convertible Preferred Stock (see Note 10), which generated net
proceeds of approximately $27.7 million. Additionally, the Company received
$3.5 million in conjunction with the exercise of warrants and options and $4.3
million of net proceeds from leases and notes payable.
As of September 30, 2000, the Company had unrestricted cash on hand of
$10.0 million with a negative working capital balance of $105.5 million. During
the third quarter 2000, we signed agreements to increase amounts available under
our borrowing facilities.
On September 29, 2000, the Company, along with its subsidiaries, Telereunion
S.A. de C.V., Telereunion International, S.A. de C.V., Telereunion, Inc.,
Telscape USA, Inc., MSN Communications, Inc., Interlink Communications, Inc.,
TSCP International, Inc., Vextro De Mexico S.A. de C.V., and its wholly owned
subsidiary, Servicios Corporativos Vextro, S.A. de C.V., Telscape de Mexico
S.A. de C.V., N.S.I. S.A. de C.V., Lan and Wan S.A. de C.V. and M.S.
Noticias y Telecomunicaciones, S.A. de C.V. signed a credit agreement with
GE Capital Corp. (the "GECC Credit Agreement"). The GECC Credit Agreement
provides for up to $60 million in financing under long-term repayment terms. In
September 2000, the Company borrowed approximately $56 million. We used $1.3
million to repay a note payable to a bank, $3.5 million and $40 million to repay
in full accrued interest and principal, respectively, on the 1999 Lucent Credit
Agreement, $10.6 million to pay outstanding payables, and $1.6 million for debt
costs associated with the GECC borrowing. The Company received no net cash
proceeds from this initial borrowing.
The GECC Credit Agreement requires no payments for the first year and
interest-only payments for the second year. Beginning October 2002, the
agreement requires nine semiannual principal payments, including prior accrued
interest of approximately $5.2 million, plus current interest. The agreement
bears interest at a per annum rate of LIBOR plus a margin of 5.8% initially
which increases to 7.3 % by the fifth year (12.3 % at September 30, 2000). In
conjunction with the extension, the Company issued an additional warrants to
purchase 710,314 shares of common stock for a period of six years at a strike
price of $2.53. The warrants were valued at approximately $1.0 million and were
recorded as a discount on the notes to be amortized over the 6.5 year term.
Approximately $4 million is remaining under the facility to be used for future
equipment acquisitions or to capitalize interest.
In September 2000, the Company signed a financing agreement with NTFC
Capital Corporation ("NTFC"), a financing arm of GECC, for new funding of up to
$16 million. The Company used part of the initial proceeds of $13.5 million to
repay $13.2 million of accounts payable related to equipment for the U.S. CLEC
/ DLEC operations and to pay $0.3 million of loan costs. The agreement bears
interest at Libor plus a margin of 5.0% (11.5% at September 30, 2000)and
requires no payments the first year, then interest only payments until September
30, 2002, then 20 quarterly principal and interest payments until September 30,
2007. Interest accrued during the no payment period is added to the principal
balance. Approximately $2.5 million is remaining under the facility to be used
for future equipment acquisitions or to capitalize interest.
On January 11, 1999, the Company signed a financing arrangement with NTFC
which provided for funding of equipment purchases of up to $7.0 million. The
Company borrowed $5.6 million pursuant to this agreement. As of the end of the
second quarter 2000, the Company was not in compliance with certain financial
covenants under this loan facility. In September 2000, the Company reset the
financial covenants included in the note to mirror the GECC and NTFC credit
agreements discussed above. This note bears interest at 10.8% per annum and is
due in four interest only payments through January 1, 2000, then quarterly
principal payments of $350,000 plus interest until January 2005.
As of September 30, 2000, the Company was not in compliance with the
revenue covenants contained in the GECC and NTFC credit facilities discussed
above. The Company was granted waivers of the covenant defaults by GECC.
Additionally, the Company was obligated to obtain certain waivers and consents
from third parties (including landlords, carriers, vendors, banks, etc.) by
October 31, 2000. As of October 31, 2000, not all of the required consents had
been obtained, and GECC extended the required date to November 30, 2000.
Certain of the consents remain open, and the Company is working in good faith to
obtain them; however, there can be no assurance that we will obtain them on time
and, if not, the Company will need to request an additional extension from GECC.
The notes matured on October 22, 2000, and the Company is currently negotiating
an extension. However the Company has not reached terms and is currently in
default additionally the Company's debt obligation for $500,000 to Scott Christ
also matured on November 8, 2000. The Company is currently in negotiations with
both Lennox and Mr. Christ to extend the term. These defaults create a cross
default on the GECC facilities which if not cured make the GECC loans current.
18
<PAGE>
Additionally, the Company received a second round commitment from a group
of existing Telscape investors totaling $14 million. Final documentation is
anicipacted during November 2000 with funding to occur prior to year end. The
group includes TSG Capital, Sandler Capital, Oger Pensat, EGL Holdings, Fermor
Investments and Cordova Capital. The Company also expects to consumate the
proposed sales of its prepaid calling card and satellite divisions by year end,
which is expected to generate cash proceeds for the Company's on-going
operations.
The Company has not generated net cash from operations for any period
presented. We do not expect that cash flows from operations will be sufficient
to meet anticipated capital expenditures and debt repayment requirements when
they are due without additional financing. We intend to finance our growth,
principal and interest obligations under existing debt obligations and
additional capital investments required for our planned facilities expansion
through vendor financing, the consumation of the equity financing and sale of
business units discussed above and the sale of additional debt or equity
securities. There can be no assurance that the above mentioned equity financing
or asset sales will close as anticipated or at all or that we will be able to
obtain additional financing on commercially reasonable terms, if at all, to fund
losses generated from operations, to fund capital expenditures, to fund debt
service obligations as they become due, or to fund strategic investment
alternatives.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, FASB issued Statement of
Financial Accounting Standards No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement No.
133." These statements require all derivatives to be recorded on the balance
sheet at fair value and establishes new accounting rules for hedging instruments
and are effective for fiscal years beginning after June 15, 2000. We
believe that these statements will not have a material financial impact upon
our annual consolidated financial results.
The FASB issued Interpretation ("Interpretation") No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an Interpretation of APB
Opinion No. 25" which is effective July 1, 2000. Interpretation No. 44
clarifies (a) the definition of employee for purposes of applying Opinion No.
25, (b) the criteria for determining whether a stock compensation plan qualifies
as a non- compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. Adoption of the provisions of the Interpretation is not expected
to have a significant impact on our financial statements.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides additional guidance on revenue recognition as
well as criteria for when revenue is generally realized and earned. The
Company believes the adoption of SAB No. 101 will not have a material impact on
future operating results.
UNCERTAINTIES
We continue to face many risks and uncertainties, including general
and specific market economic risks. Exploitation of opportunities presented by
the United States CLEC and Mexican market are expected to require substantial
capital. To the extent our Mexican subsidiaries do not have a positive net cash
flow from operations for the remainder of 2000 or 2001, it can be expected that
we would have to fund any shortfalls from our working capital or other
external financing sources. In addition, any capital expenditures needed to
expand operations of the Mexican subsidiaries would likely be funded out of
the working capital of the parent corporation or through additional financing
to the extent we can secure these. Any such funding would reduce the funds
available to finance and expand our strategy to compete in the voice and
advanced services businesses. Also, any economic crises in Mexico could
result in the need to fund any cash flow shortfalls of our Mexican
subsidiaries.
As in any recently deregulated market, drastic changes and adjustments of
regulations or changes in government policies may occur from time to time that
will directly affect us. Our competitive position in the voice and advanced
services markets depends heavily on the license granted by the Mexican
government. Should this permit be revoked for whatever reason, we would be
severely impaired in our ability to, or unable to, provide many of our
telecommunications services.
19
<PAGE>
The international long distance market, although large and rapidly growing,
is also very competitive. We compete in this market with companies that have
greater experience and substantially greater resources, both financial and
otherwise. Recently, competition in the industry has resulted in decreased
prices that have impacted our revenues, margins andcash flow. In addition, we
face certain additional risks in competing in thismarket, including changes
in U.S. and foreign government regulations and telecommunications standards,
dependence on strategic partners, tariffs, taxes and other trade barriers, the
potential for nationalization and economic downturns and political instability
in foreign countries. In addition, we could be adversely affected by a reversal
in the trend toward deregulation of telecommunication markets. We will be
increasingly exposed to these risks as we expand our presence in this market.
Our growth in this business is dependent on our ability to expand our capacity
through investments in additional facilities or entering into termination
arrangements with other carriers. There can be no assurance that we will be
successful in raising the capital required to fund the additional facilities or
to enter into such arrangements with other carriers, in which case our
operations, the future growth in our business and our ability to compete
effectively against competitors with significantly more resources could be
materially adversely affected.
FOREIGN CURRENCY RISK
The general economic conditions of Mexico are greatly affected by the
fluctuations in exchange rates and inflation. The Company's foreign currency
risk is mitigated in Mexico due to the fact that many of the Company's customers
are multinational firms that transact and pay in U.S. dollars. In addition, most
of the customers that do pay in pesos pay at the spot exchange rate in effect at
the time of payment as opposed to the exchange rate at the time the receivable
is created. The Company's functional currency in Mexico is the U.S. dollar
because the majority of its transactions are in such currency. However, from
time to time the Company transacts in the local currency and thus faces foreign
currency risk with respect to these transactions. U.S.-originated calls will be
paid in U.S. dollars; however, the Company also expects to derive a certain
portion of its revenues from calls originated outside of the U.S. thus exposing
the Company to additional exchange rate risk. In addition, the Company pays its
termination partners in Latin America in their respective local currencies,
exposing the Company to additional exchange rate risk. The Company may choose to
limit its exposure to foreign currency risk through the purchase of forward
foreign exchange contracts or similar hedging strategies. There can be no
assurance that any foreign currency hedging strategy would be successful in
avoiding exchange-related losses.
The Company does not currently hedge against the risk of foreign exchange
rate fluctuations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to financial market risks, including interest rate
risk and foreign currency exchange risk. During the first nine months of 2000,
there were no material changes in financial market risks except for the changes
in the Mexican peso exchange rate to the U.S. dollar as described below.
FOREIGN CURRENCY EXCHANGE RISK
The Company conducts a significant amount of its operations in countries
other than the United States. Its foreign currency exchange risk includes
the following:
20
<PAGE>
In past years, the Mexico economy has had periods of exchange rate
instability and peso devaluation. We conduct two of the three advanced
services businesses in Mexico. Historically, a majority of its revenues in
advanced services business are contracted in dollars or in pesos indexed to
the dollar at the time of settlement. The products and services sold in the
network solutions business lines are generally imported from the U.S. or other
countries and are payable in dollars. The remaining operating costs in this
segment are generally paid in pesos. The Company's major outsourcing
contracts with the U.S. Embassy and the Ministry of Foreign Affairs generate
revenues , which are collected in pesos, and costs, which are paid in pesos. In
the broadband services, the Company generally collects its revenues in U.S.
dollars and pays for its costs to provide these services in U.S.
dollars.
In the voice services segment, the Company has historically sold its
services to customers in the U.S. and thus revenues are collected in U.S.
dollars. The Company's costs of providing these services are paid to vendors
both in the U.S. and in Mexico or other Latin American countries. A significant
portion of the Company's costs to provide these services are structured under
operating agreements with carriers in Mexico which provide for settlement in
U.S. dollars. As the Company's prepaid card sales and other telecommunications
services expand within the country of Mexico, an increasing portion of its
revenues and costs will be denominated in pesos.
Over the last several years prior to 1999, the peso has experienced
devaluations in the exchange rates to the U.S. dollar with 1999 being the
first year in recent history in which the peso appreciated year over year. In
the first nine months of 2000, the peso exchange rate remained virtually
unchanged. Due to limited credit availability, the Company has not
historically hedged its peso costs. In the future, as the Company's operations
in Mexico increase, its peso denominated transactions may increase causing it
to enter into hedging activities as credit availability allows.
INTEREST RATE RISK
As of December 31, 1999, we had both variable and fixed interest bearing
notes. All of our debt obligations are denominated in U.S. dollars and,
represent interest rate risk. All of our debt obligations are segregated in
fixed and variable rate instruments as shown on the table below. The table
shows the amounts of principal payments due on our various debt instruments and
the weighted average rate for the principal payments then due using the rates in
effect at December 31, 1999. The table set forth below summarizes the fair
values and payment terms of financial instruments subject to interest rate risk
maintained by us as of December 31, 1999. (The table is based upon financial
instruments outstanding on Pointe Communications Corporation as of December 31,
1999.)
<TABLE>
<CAPTION>
Fair Value
DEBT 2000 2001 2002 2003 2004 Total at 12/31/99
------------- ----------- ---------- ---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-Interest
Bearing or
Fixed Rate $4,807,204 $5,251,425 $5,972,291 $647,325 $144,020 $16,822,265 $16,822,265
Wtd. Avg.
Interest Rate 10.74% 10.80% 12.17% 12.09% 12.00% 11.33% ---
Variable $1,350,000 $ 0 $ 0 $ 0 $ 0 $ 1,350,000 $ 1,350,000
Wtd. Avg.
Interest Rate 11.06% 0.00% 0.00% 0.00% 0.00% 11.06% ---
---------------------------------------------------------------------------------
Total $6,157,204 $ 5,251,425 $5,972,291 $647,325 $144,020 $18,172,265 $18,172,265
=================================================================================
</TABLE>
21
<PAGE>
We have not entered into any derivative contracts or used any other
interest rate risk management techniques to attempt to minimize the interest
rate risk inherent in each of our debt instruments. At the time of this filing,
we have no plans in place to actively manage this risk.
As we do not have a significant amount of variable interest rate
obligations, we have not entered into derivative transactions to hedge our risk.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ from those projected in any forward-looking
statements for the reasons set forth herein and as set forth in the "Risk
Factors" as well as in other sections of the Company's report filed on Form 10-K
for the year ended December 31, 1999, or for other unforeseen reasons. The
forward-looking statements contained herein are made as of the date of this
report and the Company assumes no obligation to update such forward-looking
statements, or to update the reasons why actual results could differ from those
projected in such forward-looking statements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Telscape International, Inc., Telereunion, S.A. de C.V., Telereunion
---------------------------------------------------------------------------
International, S.A. de C.V., vs. Mastec, et.al. and Acietel Mexicaona, S.A. de
--------------------------------------------------------------------------------
C.V. in the United States District Court, Southern District of Texas, Houston
--------------------------------------------------------------------------------
Division, Case No. H-99-1468
-------------------------------
The Company filed suit against Mastec, et.al. and Acietel Mexicana, S.A.
de C.V. on May 14, 1999, alleging breach of contract, fraud, tortuous
interference with contract, and negligent misrepresentations. The company
alleges that agreements between the parties to finance and construct assets in
Mexico were not honored resulting in construction delays and damages of
additional costs and expenses resulting from alternate financing. The Company
is seeking compensatory damages in an amount to be determined at trial. A trial
date is set for January 8, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Included after signature page.
(b) REPORTS ON FORM 8-K
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELSCAPE INTERNATIONAL, INC.
Date: November 20, 2000 By: /s/ Stephen E. Raville
----------------------------------
Stephen E. Raville
Chief Executive Officer
Date: November 20, 2000 By: /s/ Peter C. Alexander
----------------------------------
Peter C. Alexander
Chief Operating Officer
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 - Amended and Restated Agreement and Plan of Merger dated as
of December 31, 1999 by and among Telscape International,
Inc., Pointe Communications Corporation and Pointe
Acquisition, Corp. (Incorporated herein by reference to
Exhibit 2.1 to the Company's Report on Form 10-K for the year
ended December 31, 1999)
3.1 - Articles of Incorporation of the Registrant, as amended (filed
as Exhibit 3.1 to the Company's Registration Statement No.
33-80542-D and incorporated herein by reference)
3.2 - Bylaws of the Registrant, as amended (filed as Exhibit
3.2 to the Company's Registration Statement No. 33-80542-D and
incorporated herein by reference)
3.5 - Contract of Limited Liability Company of DTS/ZWUT (filed
as Exhibit 3.5 to the Company's Registration Statement No.
33-80542-D and incorporated herein by reference)
3.6 - Amendment to the Company's Articles of Incorporation
as filed June 2, 2000 (filed as Exhibit 3.6 to the Company's
Report on Form 10-Q for the quarter ended June 30, 2000 and
incorporated herein by reference)
4.1 - Form of Certificate evidencing Common Stock (filed as
Exhibit 4.1 to the Company's Registration Statement No.
33-80542-D and incorporated herein by reference)
23
<PAGE>
4.2 - Form of Warrant Agreement between American Stock Transfer
& Trust Company and the Company (filed as Exhibit 4.2 to the
Company's Registration Statement No. 33-80542-D and
incorporated herein by reference)
4.3 - Form of Warrant Certificate evidencing the Warrants
(filed as Exhibit 4.3 to the Company's Registration Statement
No. 33-80542-D and incorporated herein by reference)
4.4 - Form of Statement of the establishment of the Series B
non-voting, nonparticipating Preferred Stock (filed as Exhibit
4.1 to the Company's Report on Form 10-QSB for the quarter
ended March 31, 1996 and incorporated herein by reference)
4.5 - Certificate of Designation of Preferences, Rights and
Privileges of Class D Convertible Senior Preferred Stock
(filed as Exhibit 4.1 to the Company's periodic report on Form
8-K filed on June 16, 2000 and incorporated by reference)
4.6 - Certificate of Designation of Preferences, Rights and
Privileges of Class E Convertible Senior Preferred Stock
(filed as Exhibit 4.2 to Company's periodic report on Form
8-K filed on June 16, 2000 and incorporated by reference)
4.7 - Certificate of Designation of Preferences, Rights and
Privileges of Class F Convertible Senior Preferred Stock
(filed as Exhibit 4.7 to the Company's Report on Form 10-Q for
the quarter ended June 30, 2000 and incorporated herein
by reference)
10.1 - Form of Representative's Warrants (filed as Exhibit 10.8
to the Company's Registration Statement No. 33-80542-D and
incorporated herein by reference)
10.2 - Warrant Agreement between the Company and S.P. Krishna
Murthy (filed as Exhibit 10.13 to the Company's Report on Form
10-KSB for the year ended December 31, 1995 and incorporated
herein by reference)
10.3 - Form of Series A Common Stock Warrant (filed as Exhibit
10.4 to the Company's Report on Form 10-QSB for the quarter
ended March 31, 1996 and incorporated herein by reference)
10.4 - Form of Series B Common Stock Warrant (filed as Exhibit
10.5 to the Company's Report on Form 10-QSB for the quarter
ended March 31, 1996 and incorporated herein by reference)
10.5 - Form of Employment Agreement for Manuel Landa, Ricardo
Orea Gudino and Oscar Garcia Mora (filed as Exhibit 10.6 to
the Company's Report on Form 10-QSB for the quarter ended
March 31, 1996 and incorporated herein by reference)
10.6 - Form of Non-Qualified Stock Option Certificate and
Agreement, as amended, for Manuel Landa, Ricardo Orea Gudino
and Oscar Garcia Mora (filed as Exhibit 10.7 to the Company's
Report on Form 10-QSB for the quarter ended March 31, 1996 and
incorporated herein by reference)
10.7 - Form of Series A Common Stock Warrant dated May 17, 1996
between the Company and Manuel Landa, Ricardo Orea Gudino,
Oscar Garcia Mora and Christopher Efird (filed as Exhibit 10.1
to the Company's Report on Form 8-K dated June 3, 1996 and
incorporated herein by reference)
10.14 - Stock Purchase Agreement dated January 22, 1998, by and
among the Company; MSN Communications, Inc.; Stuart Newman and
Michael Newman, together with Form of Promissory Note dated
January 23, 1998 in the principal amount of $375,000 payable
to Stuart Newman attached as Exhibit B-1 and Form of
Promissory Note dated January 23, 1998 in the principal amount
of $375,000 payable to Michael Newman attached as Exhibit B-2
(filed as Exhibit 10.1 to the Company's Current Report on Form
8-K dated February 6, 1998 and incorporated herein by
reference)
24
<PAGE>
10.15 - Stock Purchase Agreement dated May 18, 1998, by and among
Telscape International, Inc., California Microwave, Inc. and
California Microwave Services Divisions, Inc. together with a
Form of Supply Agreement between California Microwave, Inc.
and California Microwave Services Division, Inc. as Exhibit B
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated June 9, 1998)
10.16 - Securities Purchase Agreement between Deere Park Capital
Management, LLC and Telscape International, Inc. dated as of
May 1, 1998; Registration Rights Agreement dated as of May 1,
1998 between Telscape International, Inc. and Deere Park
Capital Management, LLC; Form of Convertible Debenture for
$3,000,000 dated May 1, 1998; Form of Stock Purchase Warrant
to Purchase 8,952 shares of Common Stock of Telscape
International, Inc. dated May 12, 1998 (all filed as Exhibit
4.4 to the Company's Report on Form 10Q for the quarter ended
March 31, 1998 and incorporated herein by reference)
10.17 - Form of Convertible Debenture in the principal amount of
$1,000,000 between Deere Park Capital Management, LLC and
Telscape International, Inc. dated as of May 28, 1998 and a
form of Stock Purchase Warrant to Purchase 2,427 shares of
Common Stock of Telscape International, Inc. dated May 28,
1998 (Incorporated herein by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K dated June 9, 1998)
10.18 - Securities Purchase Agreement dated May 29, 1998 by and
between Telscape International, Inc. and Gordon Brothers
Capital, LLC; together with a Form of Convertible Debenture in
the principal amount of $5,000,000 payable to Gordon Brothers
Capital, LLC attached as Exhibit A; a Form of Stock Purchase
Warrant for Gordon Brothers, LLC for 12,136 shares of Common
Stock of Telscape International, Inc. attached as Exhibit B;
and a Registration Rights Agreement by and between Gordon
Brothers Capital, LLC and Telscape International, Inc.
attached as Exhibit C (Incorporated herein by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K dated
June 9, 1998)
10.19 - Equity Purchase Agreement by and between INTERLINK
Communications Holding Co., Inc. and each of Telscape
International, Inc., E. Russell Hardy, Stephen Strohman, Monty
J. Moore, and Salvador Giblas dated as of May 19, 1998
(Incorporated herein by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K dated June 9, 1998)
10.20 - Form of Employment Agreement by and between California
Microwave Services Division, Inc. and E. Russell Hardy dated
as of May 18, 1998 (Incorporated herein by reference to
Exhibit 10.6 to the Company's Current Report on Form 8-K dated
June 9, 1998)
25
<PAGE>
10.21 - Form of Employment Agreement by and between California
Microwave Services Division, Inc. and Stephen Strohman dated
as of May 18, 1998 (Incorporated herein by reference to
Exhibit 10.7 to the Company's Current Report on Form 8-K dated
June 9, 1998)
10.22 - Form of Employment Agreement by and between California
Microwave Services Division, Inc. and Monty J. Moore dated as
of May 18, 1998 (Incorporated herein by reference to Exhibit
10.8 to the Company's Current Report on Form 8-K dated June 9,
1998)
10.23 - Form of Consulting Agreement by and between California
Microwave Services Division, Inc. and Salvador Giblas dated as
of May 18, 1998 (Incorporated herein by reference to Exhibit
10.9 to the Company's Current Report on Form 8-K dated June 9,
1998)
10.24 - Loan Agreement between Telscape USA, Inc. and MSN
Communications, Inc. and Southwest Bank of Texas dated May 19,
1998 (Incorporated herein by reference to Exhibit 10.24 to the
Company's Registration Statement No. 333-60271)
10.25 - Outside Directors Stock Option Plan of the Polish Telephones
and Microwave Corporation (Incorporated herein by reference to
Exhibit 10.24 to the Company's Registration Statement No.
333-60271)
10.26 - Form of Financing Agreement by and between the Company and
Newbridge Financial Services Networks dated as of December 7,
1998 (Incorporated herein by reference to Exhibit 10.26 to the
Company's Report on Form 10-K for the year ended December 31,
1998)
10.27 - Form of Financing Agreement by and between the Company and
NTFC Capital Corporation dated as of January 11, 1999
(Incorporated herein by reference to Exhibit 10.27 to the
Company's Report on Form 10-K for the year ended December 31,
1998)
10.28 - Form of Securities Purchase Agreement by and between the
Company and Kendu Partners and MDNH Partners, L.P. dated as of
December 18, 1998, and Exhibit B to this agreement
representing the Form of Registration Rights Agreement
(Incorporated herein by reference to Exhibit 10.28 to the
Company's Report on Form 10-K for the year ended December 31,
1998)
10.29 - Form of Securities Purchase Agreement by and between
Telscape International, Inc., INTERLINK Communications, Inc.
and Cahill, Warnock, Strategic Partners Fund, L.P. dated as of
May 5, 1999, Exhibit A representing the form of the Increasing
Rate Secured Promissory Note, Exhibit B representing the form
of Warrant, and Exhibit C representing the Security Agreement.
(Incorporated herein by reference to Exhibit 10.29 to the
Company's Report on Form 10-Q for the quarter ended March 31,
1999)
10.30 - Form of Securities Purchase Agreement by and between
Telscape International, Inc., INTERLINK Communications, Inc.
and Cahill, Warnock, Strategic Partners Fund, L.P. dated as of
June 18, 1999, Exhibit A representing the form of the
Increasing Rate Secured Promissory Note, Exhibit B
representing the form of Warrant, and Exhibit C representing
the Security Agreement and Amendment No. 1 to Securities
Purchase Agreement. (Incorporated herein by reference to
Exhibit 10.30 to the Company's Report on form 10-Q for the
quarter ended June 30, 1999)
26
<PAGE>
10.31 - Securities Purchase Agreement dated July 19, 1999 by and
between Telscape International, Inc., Telscape USA, Inc., TSCP
International, Inc., MSN Communications, Inc. and Lucent
Technologies Inc., together with a Form of Demand Note in the
principal amount of $3,000,000 payable to Lucent Technologies
Inc. attached as Exhibit A; a Form of Stock Purchase Warrant
for Lucent Technologies Inc. for 85,000 shares of Common Stock
of Telscape International, Inc. attached as Exhibit B; and a
Security Agreement by and between Telscape International,
Inc., Telscape USA, Inc., MSN Communications, Inc., TSCP
International, Inc. and State Street Bank and Trust Company
attached as Exhibit C. (Incorporated herein by reference to
Exhibit 10.31 to the Company's Report on form 10-Q for the
quarter ended June 30, 1999)
10.32 - Credit Agreement dated August 27, 1999 by and between
Telscape International, Inc., Telereunion S.A. de C.V.,
Telereunion International, S.A. de C.V., Telereunion, Inc.,
Telscape USA, Inc., MSN Communications, Inc., Interlink
Communications, Inc., TSCP International, Inc., Vextro de
Mexico S.A. de C.V., Servicios Corporativos, Telscape de
Mexico S.A. de C.V., N.S.I. S.A de C.V., Lan and Wan S.A. de
C.V., MS Noticias y Telecomunicaciones, S.A. de C.V., and
Lucent Technologies Inc. (Incorporated herein by reference to
Exhibit 10.1 to the Company's Report on Form 8-K dated
September 20, 1999)
10.33 - Loan Agreement dated October 22, 1999 by and between
Telscape International, Inc. and Lennox Invest Ltd. Promissory
Note dated October 22, 1999 in the principal amount of
$1,060,000 payable to Lennox Invest, Ltd., Stock Pledge
Agreement dated October 22, 1999, and Warrant Certificate
issued to Lennox Invest, Ltd. To purchase 35,714 shares of
Common Stock of Telscape International, Inc. dated October 22,
1999. (Incorporated herein by reference to Exhibit 10.33 to
the Company's Report on form 10-Q for the quarter ended
September 30, 1999)
10.34 - Swap Agreement ("Contrato de Compra-Venta de Fibras") dated
December 8, 1999 by and between Iusatel S.A. de C.V and
Telereunion, S.A. de C.V. (Incorporated herein by reference to
Exhibit 10.34 to the Company's Report on Form 10-K for the
year ended December 31, 1999)
10.35 - Commitment Agreement dated August 16, 1999, by and between
Telscape International, Inc. and Comercializadora Lufravic,
S.A. de C.V. (Incorporated herein by reference to Exhibit
10.35 to the Company's Report on Form 10-K for the year ended
December 31, 1999)
10.36 - Fiber Optic Telecommunications Services Exchange Agreement
dated May 14, 1999 by and between Avantel, S.A. de C.V. and
Telereunion S.A de C.V. (Incorporated herein by reference to
Exhibit 10.36 to the Company's Report on Form 10-K for the
year ended December 31, 1999)
10.37 - Telscape 2000 Executive Market Value Appreciate Stock
Option Plan (filed as Exhibit 10.37 to the Company's
registration statement No. 333-36882 and incorporated
by reference)
10.38 - Telscape 2000 Non-Employee Director Stock Option Plan
(filed as Exhibit 10.38 to the Company's registration
statement No. 333-36882 and incorporated by reference)
10.39 - Telscape 2000 pay for Performance Stock Option Plan (filed as
Exhibit 10.39 to the Company's registration statement No.
333-36882 and incorporated by reference)
27
<PAGE>
10.40 - Telscape 2000 Incentive Stock Option Plan (filed as Exhibit
10.40 to the Company's registration statement No. 333-36882
and incorporated by reference)
10.41 - Telscape 2000 Executive Long-Term Stock Option Plan (filed as
Exhibit 10.41 of the Company's registration statement No.
333-36882 and incorporated by reference)
*10.42 - CREDIT AGREEMENT among TELEREUNI"N S.A. de C.V., TELEREUNI"N
INTERNATIONAL, S.A. de C.V., TELSCAPE INTERNATIONAL, INC., and
THE OTHER BORROWERS PARTY HERETO and THE ADDITIONAL BORROWERS
FROM TIME TO TIME A PARTY HERETO collectively, as Borrowers
and THE LENDERS PARTY HERETO, and GENERAL ELECTRIC CAPITAL
CORPORATION, as Administrative Agent and Lender Dated as of
September 29, 2000
*10.43 - Loan and Security Agreement dated as of September 29, 2000, by
and between NTFC Capital Corporation and Pointe Communications
Corporation
*27.1 - Financial Data Schedule 2000
----------------
* Filed herewith
28
<PAGE>
