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 June 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 August 11, 2000: 20,400,765
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000
AND DECEMBER 31, 1999
December 31, June 30,
1999 2000
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,219,684 $ 23,930,328
Restricted cash 542,913 184,000
Accounts receivable, net 3,639,378 16,306,030
Notes receivable, net 2,270,750 828,632
Inventory, net 1,742,543 4,636,570
Prepaid expenses and other 629,787 4,405,277
-------------- -------------
Total current assets 30,045,055 50,290,837
-------------- -------------
PROPERTY AND EQUIPMENT, at cost:
Equipment and machinery 23,090,486 45,463,335
Earth station facility 1,471,822 10,839,580
Software 2,176,944 7,132,656
Furniture and fixtures 1,257,666 3,399,928
Other 1,695,861 9,569,853
Construction in progress 1,452,303 41,843,242
-------------- -------------
31,145,082 118,248,594
Accumulated depreciation and amortization (6,827,740) (17,486,379)
-------------- -------------
Property and equipment, net 24,317,342 100,762,215
-------------- -------------
OTHER ASSETS:
Goodwill, net 17,237,653 119,730,786
Acquired customer bases, net 890,271 17,311,824
Licences and other intangibles, net 1,723,225 52,413,930
Other 2,676,217 6,034,589
-------------- -------------
Total other assets 22,527,366 195,491,129
-------------- -------------
TOTAL ASSETS $ 76,889,763 $346,544,181
============== =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Balance Sheets.
<PAGE>
<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000
AND DECEMBER 31, 1999
December 31, June 30,
1999 2000
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable 2,795,256 $ 10,920,671
Current portion of lease obligations 3,242,776 3,023,546
Accounts payable 6,233,914 44,501,369
Accrued liabilities 6,132,570 17,372,405
Unearned revenue 1,514,328 6,470,272
-------------- --------------
Total current liabilities 19,918,844 82,288,263
-------------- --------------
LONG-TERM LIABILITIES:
Capital and financing lease obligations 10,367,260 7,523,571
Convertible debentures 900,000 -
Notes payable and other long-term obligations 866,974 41,306,172
-------------- --------------
Total long-term liabilities 12,134,234 48,829,743
-------------- --------------
MINORITY INTEREST 2,014,959 -
-------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000 shares 181 31,575,187
Common stock 517 12,858
Additional paid-in-capital 136,370,654 315,513,957
Accumulated deficit (93,549,626) (131,675,827)
-------------- --------------
Total stockholders' equity 42,821,726 215,426,175
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 76,889,763 $ 346,544,181
============== ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Balance Sheets.
<PAGE>
<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
AND 1999
(UNAUDITED)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 2000 June 30, 1999 June 30, 2000
--------------- --------------- --------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Communications services and products $ 12,579,256 $ 21,112,598 $ 23,513,143 $ 34,874,068
Internet connection services 574,810 449,603 1,194,449 921,205
--------------- --------------- --------------- ---------------
Total revenues 13,154,066 21,562,201 24,707,592 35,795,273
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Cost of services and products 12,134,132 18,979,067 22,381,160 32,532,919
Selling, general, and administrative expenses 3,874,280 8,235,145 6,707,432 13,992,984
Depreciation and amortization 1,065,447 3,672,220 2,111,395 4,826,061
--------------- --------------- --------------- ---------------
Total costs and expenses 17,073,859 30,886,432 31,199,987 51,351,964
--------------- --------------- --------------- ---------------
OPERATING LOSS (3,919,793) (9,324,231) (6,492,395) (15,556,691)
INTEREST EXPENSE, net (1,537,618) (505,477) (2,624,056) (442,691)
OTHER (EXPENSE)INCOME - 555,658 - 557,159
--------------- --------------- --------------- ---------------
NET LOSS BEFORE INCOME TAXES (5,457,411) (9,274,050) (9,116,451) (15,442,223)
INCOME TAX BENEFIT - - - -
--------------- --------------- --------------- ---------------
NET LOSS $ (5,457,411) $ (9,274,050) $ (9,116,451) $ (15,442,223)
=============== =============== =============== ===============
NET LOSS PER SHARE -
BASIC AND DILUTED $ (2.77) $ (2.07) $ (3.13) $ (2.91)
=============== =============== =============== ===============
SHARES USED IN COMPUTING
NET LOSS PER SHARE 10,148,325 14,636,884 10,141,624 13,111,655
=============== =============== =============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Statements.
<PAGE>
<TABLE>
<CAPTION>
TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
AND 1999
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 2000
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,116,451) $ (15,442,223)
--------------- ---------------
Adjustments to reconcile net loss to net cash
used in operating activities (excluding effects of purchase acquisition):
Depreciation and amortization 2,111,395 4,826,061
Bad debt expense 116,826 186,185
Amortization of discounts on debt and lease 1,444,708 147,465
obligations
Non-cash stock compensation - 106,794
Changes in operating assets and liabilities:
Accounts receivable, net (747,535) (398,518)
Notes receivable (574,050) (57,882)
Inventory (754,620) (441,693)
Prepaid expenses (227,422) (1,081,402)
Other assets (942,351) 728,007
Accounts payable, accrued, and other liabilities 62,355 (2,041,996)
Unearned revenue (755,951) (138,946)
--------------- ---------------
Total adjustments (266,644) 1,834,075
--------------- ---------------
Net cash used in operating activities (9,383,095) (13,608,148)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,179,792) (19,005,465)
Restricted cash (163,900) 358,913
Proceeds of cash from acquisition 3,125,122
Repayment of intercompany debt by deconsolidated subsidiary 1,909,596
Reduction in cash due to deconsolidation of subsidiary, net (350,295)
--------------- ---------------
Net cash used in investing activities (2,343,692) (13,962,129)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants and options 3,525,658
Proceeds from issuance of preferred stock 28,081,903 27,775,000
(Repayment of)/Proceeds from leases and notes payable, net 2,096,381 (1,019,737)
--------------- ---------------
Net cash provided by financing activities 30,178,284 30,280,921
(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS 18,451,497 2,710,644
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,255,199 21,219,684
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER 19,706,696 23,930,328
=============== ===============
Supplemental disclosure of cashflow information:
------------------------------------------------
Interest paid $ 493,674 $ 824,106
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Consolidated Statements.
<PAGE>
TELSCAPE INTERNATIONAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 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 in the past recent years
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 are based upon Pointe
Communications Corporation due to the purchase accounting method used to record
the merger (see Note 5 for further discussion). Certain amounts in the prior
period financial statements have been reclassified to conform to the current
year presentation.
<PAGE>
3. EARNINGS PER SHARE
--------------------
Basic net loss per share is computed using the weighted average number of
shares outstanding. Diluted net loss per share is computed using the weighted
average number of shares outstanding, adjusted for common stock equivalents,
when dilutive. For the periods presented, the effect of common stock
equivalents was antidilutive, as a result, basic and diluted net loss per share
are the same. The following table has been added to reconcile Net income/(loss)
to Net income/(loss) available to common stockholders. The difference
represents the beneficial conversion charge incurred with respect to the
issuance of Class F and Class D (formerly Pointe Class A) Senior Convertible
Preferred Stock ("Preferred Stock") during the second quarter of 2000 and 1999,
respectively (see Note 9). The difference also includes the payment of
dividends issued on Class D, E (Formerly Pointe Class B) and F Preferred Stock
during the quarter and six months ended June 30, 2000 and 1999. The dividends
were paid with additional shares of Preferred Stock.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income/(loss) (9,274,050) (5,457,411) (15,442,223) (9,116,451)
Beneficial conversion charge (19,059,218) (22,174,075) (19,059,218) (22,174,075)
Preferred stock dividend (2,002,763) (447,386) (3,624,755) (447,386)
--------------- --------------- --------------- ---------------
Net income/(loss) available
for common stockholders (30,336,031) (28,078,872) (38,126,196) (31,737,912)
=============== =============== =============== ===============
Basic and diluted
net loss per share $ (2.07) $ (2.77) $ (2.91) $ (3.13)
=============== =============== =============== ===============
Shares used in computing
net loss per share 14,636,884 10,148,325 13,111,655 10,141,624
=============== =============== =============== ===============
</TABLE>
4. INCOME TAXES
-------------
There was no provision for or cash payment of income taxes for the three
months or six months ended June 30, 2000 and 1999, respectively, as the Company
had net taxable losses for 1999 and anticipates a net taxable loss for the year
ended December 31, 2000.
5. 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 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-Scholles 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
June 30, 2000 are included in the consolidated results of operations.
<PAGE>
In conjunction with the merger, the Company recorded intangible assets of
approximately $172,017,000 due to the purchase prices 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
---------- ------ ---------------
Acquired Customer Base $ 17,202,000 2 Years
License and other $ 51,605,000 5-30 Years
Goodwill $ 103,210,000 20 Years
The following table presents the condensed unaudited consolidated balance
sheet of Telscape on the merger date:
Current Assets 24,111,135
Property and Equipment 63,897,290
Long Term Assets 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 Equity 128,906,522
The following table presents the unaudited pro forma consolidated results
of operations of the Company as though the merger took place on January 1, 1999:
Six Months Ended Six Months Ended
June 30, 1999 June 30, 2000
Revenues $ 81,435,592 $ 71,628,141
Net loss $ (18,933,100) $ (27,129,217)
Net loss per share, basic and diluted $ (6.17) $ (2.51)
The pro forma financial information does not purport to represent what the
consolidated results of operations would have been if the Acquisitions 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.
6. 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, no income/loss has been recognized
during the first or second quarter of 2000.
7. 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
<PAGE>
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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
QUARTER ENDED
6/30/99 6/30/00 6/30/99 6/30/00
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
---------
CLEC/DLEC $ 1,254,883 $ 1,584,680 $ 2,507,529 $ 2,997,189
INTERNATIONAL LONG DISTANCE 11,899,183 16,526,072 22,200,063 29,346,635
ADVANCED SERVICES
NETWORK SOLUTIONS - 1,606,942 - 1,606,942
CUSTOMER RELATIONSHIP MGT. - 1,275,459 - 1,275,459
BROADBAND SERVICES - 569,048 - 569,048
------------ ------------ ------------ -------------
TOTAL REVENUES 13,154,066 21,562,201 24,707,592 35,795,273
COST OF SERVICES:
-----------------
CLEC/DLEC 914,221 1,495,057 1,807,798 2,719,944
INTERNATIONAL LONG DISTANCE 11,219,911 15,719,416 20,573,362 28,048,381
ADVANCED SERVICES
NETWORK SOLUTIONS - 776,672 - 776,672
CUSTOMER RELATIONSHIP MGT. - 482,729 - 482,729
BROADBAND SERVICES - 505,193 - 505,193
------------ ------------ ------------ -------------
TOTAL COST OF SERVICES 12,134,132 18,979,067 22,381,160 32,532,919
GROSS MARGIN
------------
CLEC/DLEC 340,661 89,623 699,731 277,245
INTERNATIONAL LONG DISTANCE 679,273 806,656 1,626,700 1,298,254
ADVANCED SERVICES
NETWORK SOLUTIONS - 830,270 - 830,270
CUSTOMER RELATIONSHIP MGT. - 792,730 - 792,730
BROADBAND SERVICES - 63,855 - 63,855
------------ ------------ ------------ -------------
TOTAL GROSS MARGIN 1,019,934 2,583,134 2,326,431 3,262,354
SELLING GENERAL & ADMINISTRATIVE
--------------------------------
CLEC/DLEC 409,515 3,095,075 770,499 4,798,229
INTERNATIONAL LONG DISTANCE 2,303,165 1,733,229 4,123,714 3,609,572
ADVANCED SERVICES
NETWORK SOLUTIONS - 1,568,308 - 1,568,308
CUSTOMER RELATIONSHIP MGT. - 350,874 - 350,874
BROADBAND SERVICES - 192,971 - 192,971
CORPORATE & NETWORK 1,161,600 1,294,688 1,813,219 3,473,030
------------ ------------ ------------ -------------
TOTAL SG&A 3,874,280 8,235,145 6,707,432 13,992,984
DEPRECIATION & AMORTIZATION 1,065,447 3,672,220 2,111,395 4,826,061
------------ ------------ ------------ -------------
TOTAL COSTS AND EXPENSES 4,939,727 11,907,365 8,818,827 18,819,045
OPERATING LOSS (3,919,793) (9,324,231) (6,492,395) (15,556,691)
------------ ------------ ------------ -------------
</TABLE>
<PAGE>
8. NOTES PAYABLE
--------------
On January 11, 1999, the Company entered into a financing arrangement with
a finance company, which provides for funding of equipment purchases of up to
$7.0 million through December 31, 1999. The financing is structured as
long-term loans maturing January 1, 2005. The Company is not in compliance with
certain financial covenants under this loan facility and has requested a waiver
from the finance company of their rights under the agreement to enforce default
provisions due to non-compliance with these financial covenants for the second
quarter of 2000. The amounts outstanding under this facility of $5.6 million
have been classified as current in the financial statements as of June 30, 2000.
The Company may have to request additional waivers from the finance company due
to non-compliance with financial covenants in future quarters. The Company
cannot guarantee that the finance company will provide us with the waiver for
results ended June 30, 2000 nor can it guarantee that they would provide us with
additional waivers in which case they could enforce the default provisions and
accelerate the maturity date. Should that be the case, there is no guarantee
that the Company would be able to obtain a replacement facility. A default
under this agreement would trigger cross defaults under the Lucent Credit
Agreement.
On August 27, 1999, 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
Lucent Technologies, Inc. (the "Lucent Credit Agreement"). The Lucent Credit
Agreement provides for up to $40 million in financing under long-term repayment
terms. In March 2000, Lucent extended its commitment, subject to certain
conditions precedent, by an additional $20 million. The Company borrowed $23.9
million under the Lucent Credit Agreement on August 27, 1999. The Company
funded an additional $16.1 million under the Lucent facility on April 20, 2000,
$14.6 million of which was applied to payables outstanding and $1.5 million of
which was for interest and fees due under the facility. The Company has
incurred unfunded obligations in the construction of the network in Mexico
totaling $15.5 million at June 30, 2000. As of June 30, 2000, the Company is in
default of certain financial covenants of the Lucent Credit Agreement and has
received a waiver from Lucent for its default on said covenants. The waiver has
been extended through August 30, 2000. The Company intends to fund the balance
of its Mexico network obligations and capitalize some of the initial interest
payments due on amounts outstanding under this facility, with proceeds from the
facility, upon closing of the additional $20 million commitment.
On October 22, 1999, the Company signed a loan agreement with Lennox Invest
Ltd., 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. In December 1999, the Company
informed Lennox that it would not be drawing any further funding under this
facility due to a breach of contract on the part of Lennox. The Company is
currently in a dispute with Lennox concerning the $1.5 million loan. In
addition to the issues associated with the breach mentioned above, certain
parties associated with Lennox have claimed entitlement to the repayment of the
$1.5 million. On May 10, 2000, the Company informed Lennox that it was prepared
to resolve the disputes provided that all parties agree to a resolution. The
parties have agreed in principal to a settlement and are currently negotiating
the final terms, which will likely include repayment of a portion of the
outstanding $1.5 million, conversion of the remainder into a debenture and
issuance of additional warrants.
<PAGE>
9. EQUITY
------
In conjunction with the merger with Pointe, Telscape issued 11,404.84
shares of Class D 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 Telscape share of underlying 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. 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 Preferred Stock earns dividends at a rate of 12% per annum, which
are cumulative and payable in either cash or shares of Preferred Stock at the
Company's discretion. Each share of Preferred Stock is convertible at the
holders option into common stock at a conversion price of $8.20 per share
(subject to adjustment for certain diluting issues) at any time while the
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 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 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 warrantholders
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-scholles 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.
<PAGE>
Also during the second quarter of 2000, the Company issued 167,635 shares
of common stock in conjunction with the conversion of $900,000 principal value
convertible debentures; issued 98,091 shares of common stock in conjunction with
the exercise of employee stock options for proceeds totaling $490,000; and
issued 566,196 shares of common stock in conjunction with the exercise of
warrants for proceeds totaling $2,658,160. Finally, the Company reversed
compensation expense totaling $410,148 previously recognized with regard to
variable options. This reduction in expense was required as a result of a
reduction in the market price below the prior quarter's price which had been
used to measure compensation expense as a result of an appreciation over the
strike price on certain variable options as required by APB 25.
10. NEW ACCOUNTING STANDARDS
--------------------------
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. In June 1999, the
FASB issued Statement No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB No. 133", which
amends statement No. 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The statement establishes accounting and
reporting standards for derivative instruments and transactions involving hedge
accounting. The Company does not expect it to have a material impact on its
financial statements.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The Company is required to adopt this accounting guidance no later
than June 30, 2000. 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.
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 was exchanged
for 0.223514 shares of Telscape common stock. Telscape issued 12,159,767 shares
in the Merger registered on Form S-4 declared effective May 12, 2000. 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. The surviving company trades under the ticker
symbol "TSCP" on the NASDAQ National Market System. 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:
- 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 by Telscape in Mexico.
- Greater critical mass and compelling 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.
<PAGE>
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 7 to the Company's unaudited consolidated financial statements for
business segment financial information). Reporting to Peter C. Alexander,
President and COO, are Manual Landa - President, Advanced Services, Ruben Garcia
- President, CLEC/DLEC Services, and Jesse E. Morris - President, International
Long Distance Services. The Advanced Services business unit will build upon the
Mexican network asset 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 and Miami, and expects to open
San Diego, 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. In the second quarter, the Company
successfully launched its CLEC/DLEC operations in Los Angeles and Miami.
Expansion is under way in San Diego and Houston, which will be ready to begin
providing service during the third and fourth quarters, respectively.
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
---------------------------
The Company signed an Interconnection Agreement with Telmex and capacity
exchange swap agreements during the second quarter with Avantel and Alestra.
These Agreements will allow Telscape to interconnect between 22 cities on its
Mexican fiber network. Once fully interconnected, Telscape will have a fiber
network with approximately 4100 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 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
-------------------------------------
Management is fully committed to maximizing shareholder value and
realization of its corporate objective of being the preeminent provider of
traditional, value add and next generation telecommunication services to both
consumers and businesses in Hispanic communities in the United States and
Mexico. 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
<PAGE>
to future growth or margin sustainability. In addition management policies and
procedures have been implemented throughout the Company with the intention of
immediately reducing expenses and improving margins. Management believes that
the majority of these initiatives will be announced and implemented within the
next 60 days. Certain restructuring charges will be associated with these
initiatives during the third quarter of 2000.
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 six
months ended June 30, 2000 and 1999. Operating results for any period are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
6/30/99 6/30/00 6/30/99 6/30/00
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
---------
CLEC $ 1,254,883 $ 1,584,680 $ 2,507,529 $ 2,997,189
INTERNATIONAL LONG DISTANCE 11,899,183 16,526,072 22,200,063 29,346,635
ADVANCED SERVICES
NETWORK SOLUTIONS - 1,606,942 - 1,606,942
CUSTOMER RELATIONSHIP MGT. - 1,275,459 - 1,275,459
BROADBAND SERVICES - 569,048 - 569,048
------------- ------------- ------------- -------------
TOTAL REVENUES 13,154,066 21,562,201 24,707,592 35,795,273
COST OF SERVICES:
-----------------
CLEC 914,221 1,495,057 1,807,798 2,719,944
INTERNATIONAL LONG DISTANCE 11,219,911 15,719,416 20,573,362 28,048,381
ADVANCED SERVICES
NETWORK SOLUTIONS - 776,672 - 776,672
CUSTOMER RELATIONSHIP MGT. - 482,729 - 482,729
BROADBAND SERVICES - 505,193 - 505,193
------------- ------------- ------------- -------------
TOTAL COST OF SERVICES 12,134,132 18,979,067 22,381,160 32,532,919
GROSS MARGIN
------------
CLEC 340,661 89,623 699,731 277,245
INTERNATIONAL LONG DISTANCE 679,273 806,656 1,626,700 1,298,254
ADVANCED SERVICES
NETWORK SOLUTIONS - 830,270 - 830,270
CUSTOMER RELATIONSHIP MGT. - 792,730 - 792,730
BROADBAND SERVICES - 63,855 - 63,855
------------- ------------- ------------- -------------
TOTAL GROSS MARGIN 1,019,934 2,583,134 2,326,431 3,262,354
SELLING GENERAL & ADMINISTRATIVE
--------------------------------
CLEC 409,515 3,095,075 770,499 4,798,229
INTERNATIONAL LONG DISTANCE 2,303,165 1,733,229 4,123,714 3,609,572
ADVANCED SERVICES
NETWORK SOLUTIONS - 1,568,308 - 1,568,308
CUSTOMER RELATIONSHIP MGT. - 350,874 - 350,874
BROADBAND SERVICES - 192,971 - 192,971
CORPORATE & NETWORK 1,161,600 1,294,688 1,813,219 3,473,030
------------- ------------- ------------- -------------
TOTAL SG&A 3,874,280 8,235,145 6,707,432 13,992,984
<PAGE>
DEPRECIATION & AMORTIZATION 1,065,447 3,672,220 2,111,395 4,826,061
------------- ------------- ------------- -------------
TOTAL COSTS AND EXPENSES 4,939,727 11,907,365 8,818,827 18,819,045
OPERATING LOSS (3,919,793) (9,324,231) (6,492,395) (15,556,691)
------------- ------------- ------------- -------------
INTEREST EXPENSE, NET (1,537,618) (505,477) (2,624,056) (442,691)
OTHER INCOME - 555,658 - 557,159
------------- ------------- ------------- -------------
NET LOSS $ (5,457,411) $ (9,274,050) $ (9,116,451) $(15,442,223)
============= ============= ============= =============
BENEFICIAL CONVERSION FEATURE (22,174,075) (19,059,218) (22,174,075) (19,059,218)
PREFERRED DIVIDENDS (447,386) (2,002,763) (447,386) (3,624,755)
NET LOSS AVAILABLE TO
COMMON SHAREHOLDERS $(28,078,872) $(30,336,031) $(31,737,912) $(38,126,196)
============= ============= ============= =============
NET LOSS PER SHARE $ (2.77) $ (2.07) $ (3.13) $ (2.91)
============= ============= ============= =============
SHARES USED IN COMPUTING
NET LOSS PER SHARE 10,148,325 14,636,884 10,141,624 13,111,655
============= ============= ============= =============
</TABLE>
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 June 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 June 30, 2000 and 1999 were $21,562,201 and $13,154,066
respectively, an increase of 8,408,135 or 63.9%. Gross Margin totaled
$2,583,134 million or 12.0% for the quarter ended June 30, 2000 versus
$1,019,934 or 7.8% for the same quarter in 1999. SG&A expenses for the quarters
ended June 30, 2000 and 1999 were $8,235,145 and $3,874,280 or 38.2% and 29.5%
as percentages of revenues, respectively. Operating Loss for the quarter ended
June 30, 2000 was $9,324,231 compared to $3,919,793 for the same quarter in
1999.
During the six months ended June 30, 2000 revenues were $35,795,273, an
increase of $11,087,681 or 44.9%, from the same period in 1999. Gross Margin
totaled $3,262,354 million or 9.1% for the six months ended June 30, 2000 versus
$2,326,432 or 9.4% for the six months ended June 30, 1999. Year to date SG&A
expenses for the periods ended June 30, 2000 and 1999 were $13,992,984 and
$6,707,432 or 39.1% and 27.1% as percentages of revenues, respectively.
Operating Loss for the six months ended June 30, 2000 was $15,556,690 compared
to $6,492,395 for the same period in 1999. Net Loss for the six months ended
June 30, 2000 totaled $15,442,223 or ($2.91) per share, on a basic and fully
diluted basis, as compared to a Net Loss of $9,116,451, or ($3.13) per share,
for the similar period ended June 30, 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. 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
<PAGE>
agreement was signed during the second quarter and the first of the total 22
cities are expected to be physically interconnected during the third quarter
with the remainder expected to be completed by the end of 2000. SG&A expenses
increased as a result of the Merger and as a result of the CLEC business segment
ramping up its selling and administrative costs in advance of rolling out its
bundled product offering. Sales began in Los Angeles during the second quarter
and are expected to begin in Miami and San Diego during the third quarter.
Basic and diluted Net Loss per share includes non-operating, non-cash
charges of $21,061,981 or ($1.44) per share and $22,683,973 or ($1.73) per share
for the three and six months ended June 30, 2000 and $22,621,461 or ($2.23) per
share for both the three and six months ended June 30, 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") 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $13.6 million and $9.4 million
for the six months ended June 30, 2000 and 1999, respectively. The increase
from 1999 to 2000 is primarily the result of increases in operating losses.
The Company used $13.9 million in investing activities, principally to
acquire $19.0 million of property and equipment for use mainly in the US CLEC
operations in Los Angeles, Miami and San Diego. This was offset by $3.1 million
of cash acquired in the Merger between Pointe and Telscape. Additionally, $1.9
million was received 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 drove the Company's ownership below fifty percent.
The Company's financing activities for the year to date through June 30,
2000 generated a net $30.3 million mainly as a result of the issuance of Class F
Senior Convertible Preferred Stock (see Note 9), which generated net proceeds of
approximately $27.8 million. Additionally, the Company received $3.5 million in
conjunction with the exercise of warrants and options and repaid $1.0 million of
principal on leases and notes payable.
As of June 30, 2000, the Company had cash on hand of $23.9 million with a
negative working capital balance of $33.3 million. Of this $33.3 million, $15.6
million represents accounts payable to Lucent incurred in connection with the
construction of the Mexican network. We plan to finance these network
construction accounts payable under the Lucent credit agreement subject to
availability as discussed below. Additionally, we have classified as current
$5.6 million in notes payable due to non-compliance of certain financial
covenants under a loan facility as discussed below.
On January 11, 1999, the Company signed a financing arrangement with a
finance company, which provides for funding of equipment purchases of up to $7.0
million through December 31, 1999. The financing is structured as long-term
loans maturing January 1, 2005. The Company is not in compliance with certain
financial covenants under this loan facility and has requested a waiver from the
finance company of their rights under the agreement to enforce default
provisions due to non-compliance with these financial covenants for the second
quarter of 2000. The amounts outstanding under this facility of $5.6 million
have been classified as current in the financial statements as of June 30, 2000.
The Company may have to request additional waivers from the finance company due
to non-compliance with financial covenants
<PAGE>
in future quarters. The Company cannot guarantee that the finance company will
provide us with the waiver for results ended June 30, 2000 nor can it guarantee
that they would provide us with additional waivers in which case they could
enforce the default provisions and accelerate the maturity date. Should that be
the case, there is no guarantee that the Company would be able to obtain a
replacement facility. A default under this agreement would trigger cross
defaults under the Lucent Credit Agreement.
On August 27, 1999, 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
Lucent Technologies, Inc. (the "Lucent Credit Agreement"). The Lucent Credit
Agreement provides for up to $40 million in financing under long-term repayment
terms. In March 2000, Lucent extended its commitment, subject to certain
conditions precedent, by an additional $20 million. The Company borrowed $23.9
million under the Lucent Credit Agreement on August 27, 1999. The Company
funded an additional $16.1 million under the Lucent facility on April 20, 2000,
$14.6 million of which was applied to payables outstanding and $1.5 million of
which was for interest and fees due under the facility. The Company has
incurred unfunded obligations in the construction of the network in Mexico
totaling $15.5 million at June 30, 2000. As of June 30, 2000, the Company is in
default of certain financial covenants of the Lucent Credit Agreement and,
has received a waiver from Lucent for its default on said covenants. The
waiver has been extended through August 30, 2000. The Company intends to
fund the balance of its Mexico network obligations and capitalize some of the
initial interest payments due on amounts outstanding under this facility, with
proceeds from the facility, upon closing of the additional $20 million
commitment.
The Company has not generated net cash from operations for any period
presented. We do not expect that cash flow from operations will be sufficient
to meet anticipated capital expenditures and debt repayments 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 and the sale of debt or equity securities (or a
combination of both). There can be no assurance 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued Statement No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB No. 133", which amends
statement No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The statement establishes accounting and
reporting standards for derivative instruments and transactions involving hedge
accounting. The Company does not expect it to have a material impact on its
financial statements.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The Company is required to adopt this accounting guidance no later
than June 30, 2000. 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.
<PAGE>
YEAR 2000
To date, year 2000 problems have had a minimal effect on our business.
However, we may not have identified and remediated all significant year 2000
problems. Further remediation efforts may involve significant time and expense,
and unremediated problems may have a material adverse effect on our business.
Finally, although we have not been made a party to any litigation or arbitration
proceeding to date involving our products or services related to year 2000
compliance issues, we may in the future be required to defend our products or
services in such proceedings, or to negotiate resolutions of claims based on
year 2000 issues. The costs of defending and resolving year 2000-related
disputes, regardless of the merits of such disputes, and any liability for year
2000 related damages, including consequential damages, would negatively affect
our business, results of operations, financial condition and liquidity, perhaps
materially.
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 in 2000, 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 financings to the extent we can secure these.
Any such fundings 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 or unable to provide many of its telecommunications services.
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 seen dramatic trends which
have resulted in decreased prices which have impacted our revenues, margins and
cash flow. In addition, we face certain additional risks in competing in this
market, 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 this business and our ability to
compete effectively against competitors with significantly more resources could
be materially adversely affected.
<PAGE>
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 six 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
outside the United States. Its foreign currency exchange risk includes the
following:
In the past years, the Mexican economy has had periods of exchange rate
instability and peso devaluation. Two of three of the Company's advanced
services business is conducted 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.
<PAGE>
Over the last several years, 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 six months of
2000, the peso exchange rate remained flat. 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>
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.
As we do not have a significant amount of variable interest rate
obligations, we have not entered into derivative transactions to hedge our risk.
<PAGE>
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and 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 unforseen 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
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In conjunction with the merger with Pointe, Telscape issued 11,404.84
shares of Class D 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 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 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
Telscape share of underlying 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. 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 Preferred Stock earns dividends at a rate of 12% per annum, which
are cumulative and payable in either cash or shares of Preferred Stock at the
Company's discretion. Each share of Preferred Stock is convertible at the
holders option into common stock at a conversion price of $8.20 per share
(subject to adjustment for certain diluting issues) at any time while the
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 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 Stock for any event that
<PAGE>
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 warrantholders
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.
The issuance of Class D, E and F Preferred Stock were all exempt under
Section 4(2) of the Securities Act of 1933, as amended (the "Act").
Also during the second quarter of 2000, the Company issued 167,635 shares
of common stock in a private offering, exempt under Section 4 (2) of the Act, in
conjunction with the conversion of $900,000 principal value convertible
debentures; 98,091 shares of common stock in a private offering, exempt under
Section 4 (2) of the Act, in conjunction with the exercise of employee stock
options for proceeds totaling $490,000; and 566,196 shares of common stock in a
private offering, exempt under Section 4 (2) of the Act, in conjunction with the
exercise of warrants for proceeds totaling $2,658,160.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
As stated herein, Telscape is in default of certain financial
covenants in its credit arrangements; however, the Company is not in default of
any payment of principal or interest. Although no assurance can be given, the
Company expects to receive waivers of its technical defaults. See Note 9 to
Telscape's Unaudited Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 2, 2000, Telscape held an annual meeting primarily for the
purpose of approving the issuance of its common stock in connection with the
Merger with Pointe. The results of the meeting are set forth below.
Shareholders voted:
1. To approve a proposal concerning the issuance of shares of Telscape
International, Inc.'s common stock, par value $.001 per share, Class D
Convertible Senior Preferred Stock, par value $.001 per share, and Class
E Convertible Senior Preferred Stock, par value $.001 per share pursuant
to a Merger Agreement by and among Telscape International, Inc., Pointe
Communications Corporation and Pointe Acquisition Corp., a wholly owned
subsidiary of Telscape, under which Pointe will become a wholly owned
subsidiary of Telscape.
For 5,290,646 Against 201,025 Abstained 8,975
Approved by 96.1 % of the votes present at the meeting.
2. To elect seven Directors of Telscape. The Directors nominated were:
Manuel Landa, E. Scott Crist, Todd M. Binet, Oscar Garcia, Darrel
Kirkland, Ricardo Orea, and Jack M. Fields.
The Directors elected were:
Manuel Landa, E. Scott Crist, Todd M. Binet, Oscar Garcia, Darrel
Kirkland, Ricardo Orea, and Jack M. Fields.
It should be noted that these directors were elected to the Board of
Directors of Telscape to serve as a Board if the Merger with Pointe had
not been approved and consummated. Upon the consummation of the
Merger with Pointe, Todd M. Binet, Ricardo Orea, Oscar Garcia, and Darrel
Kirkland resigned from their positions on the Board. The remaining Board
members voted to fill the vacancies created by the resignations.
Telscape's current Board of Directors has nine members, six of which
were former Pointe Board members. Telscape's current Directors are
Manuel Landa, E. Scott Crist, Jack M. Fields, Stephen E. Raville, Gerald
F. Schmidt, David C. Lee, Darryl B. Thompson, Rafic A. Bizri, and William
P. O'Reilly.
<PAGE>
3. To approve a proposal to amend Telscape International, Inc.'s Articles of
Incorporation to increase the number of authorized shares of common
stock, par value $.001 per share, from 25,000,000 to 100,000,000 and the
number of authorized shares of preferred stock, par value $.001 per
share, from 5,000,000 to 10,000,000 and to allow the Telscape
International, Inc.'s Board of Directors to authorize preemptive rights
to shareholders.
For 5,234,296 Against 259,500 Abstained 6,850
Approved by 64.7 % of the issued and outstanding shares of common stock.
4. To approve the Telscape International, Inc. 2000 Pay for Performance
Stock Option Plan.
For 4,668,346 Against 803,525 Abstained 28,775
Approved by 84.9 % of the votes present at the meeting.
5. To approve the Telscape International, Inc. 2000 Executive Market Value
Appreciation Stock Option Plan.
For 4,546,816 Against 922,055 Abstained 31,775
Approved by 82.7 % of the votes present at the meeting.
6. To approve the Telscape International, Inc. 2000 Incentive Stock Option
Plan.
For 5,277,111 Against 191,645 Abstained 31,890
Approved by 96 % of the votes present at the meeting.
7. To approve the Telscape International, Inc. 2000 Executive Long-Term
Plan.
For 5,146,501 Against 322,255 Abstained 31,890
Approved by 94 % of the votes present at the meeting.
8. To approve the Telscape International, Inc. 2000 Non-Employee Director
Stock Option Plan.
For 5,029,606 Against 438,550 Abstained 32,490
Approved by 91.4 % of the votes present at the meeting.
9. To approve the Telscape International, Inc. 2000 Pay for Performance
Stock Option Plan in the event the Merger with Pointe is not completed.
For 4,825,201 Against 662,625 Abstained 12,820
Approved by 87.7 % of the votes present at the meeting.
10. To approve a proposal to issue shares of Telscape International, Inc.'s
Class C preferred stock, par value $.001 per share, and warrants to
Purchase Telscape International, Inc.'s common stock in connection
with a loan from Pointe in the principal amount of $10,000,000.
For 5,280,011 Against 209,375 Abstained 11,260
Approved by 96 % of the votes present at the meeting.
<PAGE>
11. To approve a proposal to issue shares of Telscape International, Inc.'s
Class F preferred stock, par value $.001 per share, and warrants to
purchase Telscape International, Inc.'s common stock in connection with
a private placement to certain accredited investors.
For 5,247,186 Against 242,950 Abstained 10,510
Approved by 95.4 % of the votes present at the meeting.
ITEM 5. OTHER INFORMATION
None.
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
Reports on Form 8-K were filed during the quarter for which this
report is filed as follows:
* June 16, 2000 Announcement of completion of the merger between
Telscape International, Inc. and Pointe Communications
Corporation and reporting the resulting change in control.
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: August 14, 2000 By: /s/ Stephen E. Raville
----------------------------------
Stephen E. Raville
Chief Executive Officer
Date August 14, 2000 By: /s/ Peter C. Alexander
----------------------------------
Peter C. Alexander
Chief Operating Officer
Date: August 14, 2000 By: /s/ Richard P. Halevy
----------------------------------
Richard P. Halevy
Chief Financial Officer
<PAGE>
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)
3.3 - Articles of Incorporation of Polish Microwave, Inc.
(filed as Exhibit 3.3 to the Company's Registration Statement
No. 33-80542-D and incorporated herein by reference)
3.4 - Bylaws of Polish Microwave, Inc. (filed as Exhibit 3.4 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.
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)
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.
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)
25
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)
10.8 - Employment Agreement for E. Scott Crist (filed as Exhibit
10.1 to the Company's Report on Form 10-QSB for the quarter
ended September 30, 1996 and incorporated herein by reference)
10.9 - Employment agreement for Todd Binet (filed as Exhibit 10.29
to the Company's Report on Form 10-KSB for the year ended
December 31, 1996 and incorporated herein by reference)
10.10 - Form of Promissory Note dated July 1, 1997, between
Telereunion and Jose Luis Apan Wong, Raul de la Parra Zavala
and Alejandro Apan Wong (filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K dated August 5, 1997 and
incorporated herein by reference)
10.11 - Form of Common Stock Warrant dated July 1, 1997, between the
Company and Jose Luis Apan Wong, Raul de la Parra Zavala and
Alejandro Apan Wong (filed as Exhibit 10.4 to the Company's
Current Report on Form 8-K dated August 5, 1997 and
incorporated herein by reference)
10.12 - Stock Purchase Agreement dated July 1, 1997, by and among
the Company, Telscape USA, Inc., Telereunion and Jose Luis
Apan Wong, Raul de la Parra Zavala and Alejandro Apan Wong
(filed as Exhibit 10.4 to the Company's Current Report on Form
8-K dated August 5, 1997 and incorporated herein by reference)
10.13 - Stock Purchase Agreement dated October 1, 1997, by and among
Telscape USA, Inc., Telereunion, Inc. and Jose Martin Pena
Nunez, Carlos Joaquin De Lara Y Campos, Jorge Pena Nunez,
Martha Teresita Martin Del Campo Gutierrez (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated October
15, 1997 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)
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)
26
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)
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
27
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)
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)
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)
10.40 - 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)
*27.1 - Financial Data Schedule 2000
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* Filed herewith
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