U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

      [X] Quarterly report under to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

                  For the quarterly period ended June 30, 1999

      [ ] Transition report under to Section 13 or 15(d) of the
          Securities Exchange Act of 1934

                       For the transitional period from to

                         Commission File Number 0-24622


                          TELSCAPE INTERNATIONAL, INC.
        (Exact name of Small Business Issuer as specified in its charter)


                     TEXAS                                75-2433637
       (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)                identification number)


  2700 POST OAK BLVD., SUITE 1000, HOUSTON, TEXAS            77056
     (Address of principal executive offices)             (Zip Code)

          Issuer's telephone number including area code -- 713/968-0968


        ----------------------------------------------------------------
      (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 preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

                                 Yes [X] No [ ]


7,002,458 shares of Registrant's common stock ($.001 Par Value) were outstanding
as of August 12, 1999.

<PAGE>
                          Telscape International, Inc.
                                Table of Contents
                                    Form 10-Q
                                  June 30, 1999


                                                                            PAGE

PART I.  FINANCIAL INFORMATION

     Item 1. Financial Statements

             Condensed Consolidated Balance Sheets -
             As of December 31, 1998 and June 30, 1999 (unaudited) .........  1

             Unaudited Condensed Consolidated Statements of Operations -
             Three Months and Six Months Ended June 30, 1998 and 1999 ......  2

             Unaudited Condensed Consolidated Statements of Cash Flows -
             Six Months Ended June 30, 1998 and 1999 .......................  3

             Notes to Unaudited Condensed Consolidated Financial Statements.  5

     Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations ................. 11


PART II.  OTHER INFORMATION

     Item 6. Exhibits and Reports on Form 8-K .............................. 25

             (a)  Exhibits .................................................

             (b)  Reports on Form 8-K ......................................

     Signatures ............................................................ 26

<PAGE>
                  TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,       JUNE 30,
                                                                           1998             1999
                                                                       ------------     ------------
                                                                                         (unaudited)
<S>                                                                    <C>              <C>
CURRENT ASSETS:
  Cash and cash equivalents .......................................    $  9,631,000     $  5,044,000
  Accounts receivable, less allowance for doubtful
    accounts of $275,000 and $425,000 (unaudited), respectively ...      14,387,000       14,741,000
  Inventories .....................................................       4,581,000        4,534,000
  Prepaid expenses and other ......................................       3,519,000        5,796,000
  Deferred income taxes ...........................................         628,000          571,000
                                                                       ------------     ------------
      Total current assets ........................................      32,746,000       30,686,000

PROPERTY AND EQUIPMENT, net of accumulated depreciation ...........      14,576,000       20,585,000

GOODWILL AND OTHER INTANGIBLES, net of accumulated amortization ...      31,416,000       30,221,000

OTHER ASSETS ......................................................       1,593,000        3,117,000
                                                                       ------------     ------------
              Total assets ........................................    $ 80,331,000     $ 84,609,000
                                                                       ============     ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable ................................................    $ 22,090,000     $ 19,737,000
  Accrued expenses ................................................      10,182,000       10,729,000
  Current portion of notes payable and capital lease obligations ..       2,714,000       10,544,000
  Convertible debentures ..........................................       4,996,000             --
                                                                       ------------     ------------

      Total current liabilities ...................................      39,982,000       41,010,000

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS, net of current portion       1,488,000        8,647,000

CONVERTIBLE SUBORDINATED DEBENTURES ...............................       3,935,000        1,394,000

MINORITY INTERESTS ................................................            --               --

COMMITMENTS AND CONTINGENCIES .....................................            --               --

STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value, 5,000,000 shares
    authorized; without defined preference rights .................            --               --
  Series A preferred stock, $.001 par value, 1,000,000
    shares authorized .............................................            --               --
  Common stock, $.001 par value, 25,000,000 shares authorized;
    6,048,909 and 6,802,811 issued, respectively ..................           6,000            7,000
  Additional paid-in capital ......................................      39,398,000       44,146,000
  Accumulated deficit .............................................      (3,881,000)      (9,823,000)
  Treasury stock ..................................................        (480,000)        (480,000)
  Capital subscriptions receivable ................................        (117,000)        (292,000)
                                                                       ------------     ------------
              Total stockholders' equity ..........................      34,926,000       33,558,000
                                                                       ------------     ------------
              Total liabilities and stockholders' equity ..........    $ 80,331,000     $ 84,609,000
                                                                       ============     ============
</TABLE>

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


                                       1
<PAGE>
                TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                                              JUNE 30,                          JUNE 30,
                                                                 ------------------------------      ------------------------------
                                                                    1998               1999              1998               1999
                                                                 ------------      ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>               <C>
REVENUES ...................................................     $ 32,378,000      $ 29,709,000      $ 65,777,000      $ 56,728,000
COST OF REVENUES ...........................................       28,598,000        25,155,000        57,056,000        49,259,000
                                                                 ------------      ------------      ------------      ------------
GROSS PROFIT ...............................................        3,780,000         4,554,000         8,721,000         7,469,000

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ...............        3,552,000         5,166,000         5,705,000         9,388,000
                                                                 ------------      ------------      ------------      ------------
OPERATING INCOME (LOSS) BEFORE DEPRECIATION AND
   AMORTIZATION ............................................          228,000          (612,000)        3,016,000        (1,919,000)
DEPRECIATION AND AMORTIZATION ..............................          689,000         1,659,000         1,258,000         3,037,000
                                                                 ------------      ------------      ------------      ------------
OPERATING INCOME (LOSS) ....................................         (461,000)       (2,271,000)        1,758,000        (4,956,000)

OTHER INCOME (EXPENSE):
  Interest income ..........................................           54,000            51,000            91,000           122,000

  Interest expense and amortization of deferred costs ......         (248,000)       (1,835,000)         (342,000)       (2,787,000)
  Foreign exchange loss ....................................          (65,000)          (45,000)         (187,000)         (105,000)
  Other, net ...............................................           48,000          (253,000)           96,000          (467,000)
                                                                 ------------      ------------      ------------      ------------
           Total other expense, net ........................         (211,000)       (2,082,000)         (342,000)       (3,237,000)
                                                                 ------------      ------------      ------------      ------------

INCOME (LOSS) BEFORE INCOME TAXES AND
   MINORITY INTERESTS ......................................         (672,000)       (4,353,000)        1,416,000        (8,193,000)
INCOME TAX BENEFIT (EXPENSE) ...............................           68,000         1,275,000          (895,000)        2,251,000
                                                                 ------------      ------------      ------------      ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS ....................         (604,000)       (3,078,000)          521,000        (5,942,000)
MINORITY INTERESTS IN SUBSIDIARIES .........................          (18,000)             --             (29,000)             --
                                                                 ============      ============      ============      ============
NET INCOME (LOSS) ..........................................     $   (622,000)     $ (3,078,000)     $    492,000      $ (5,942,000)
                                                                 ============      ============      ============      ============

EARNINGS (LOSS) PER SHARE:
  Basic ....................................................     $      (0.13)     $      (0.47)     $       0.11      $      (0.93)
  Diluted (1) ..............................................            $ n/a               n/a      $       0.06             $ n/a

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic ....................................................        4,692,984         6,568,848         4,534,568         6,370,975
  Diluted(1) ...............................................              n/a               n/a         7,778,072               n/a
</TABLE>

(1)  Inclusion of additional shares under a diluted analysis for the three
     months ended June 30, 1998 and June 30, 1999 and the six months ended June
     30, 1999 is inappropriate due to the anti-dilutive effect.


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


                                       2
<PAGE>
                TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       SIX MONTHS ENDED JUNE 30,
                                                                    ------------------------------
                                                                        1998              1999
                                                                    ------------      ------------
<S>                                                                 <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) ...........................................     $    492,000      $ (5,942,000)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
  Provision for doubtful accounts .............................          556,000           150,000
  Depreciation and amortization ...............................        1,258,000         3,037,000
  Interest accrued on non-interest bearing notes payable
    and amortization of debt offering costs ...................          142,000           467,000
  Charges incurred on refinancing of operating lease ..........             --             327,000
  Expenses incurred related to warrants issued to third parties             --              72,000
  Deferred income taxes .......................................          422,000        (1,501,000)
  Minority interest in subsidiaries' income (loss) ............           29,000              --
  Equity in income from unconsolidated subsidiary .............           49,000            67,000
  Changes in assets and liabilities:
    Accounts receivable .......................................       (4,957,000)         (504,000)
    Inventories ...............................................        1,292,000            47,000
    Prepaid and other assets ..................................       (3,210,000)       (1,890,000)
    Accounts payable ..........................................        4,007,000         2,353,000
    Accrued expenses ..........................................          361,000           547,000
                                                                    ------------      ------------
Net cash provided by (used in) operating activities ...........          441,000        (2,770,000)
                                                                    ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment .........................       (5,696,000)       (5,089,000)
  Acquisition of MSN, net of cash acquired ....................       (2,325,000)             --
  Acquisition of INTERLINK, net of cash acquired ..............       (8,250,000)             --
                                                                    ------------      ------------
Net cash used in investing activities .........................      (16,271,000)       (5,089,000)
                                                                    ============      ============

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on capital lease obligations .......................          (46,000)          (88,000)
  Payments on notes payable ...................................         (444,000)       (1,134,000)
  Purchase of treasury shares .................................         (332,000)             --
  Payments/borrowings on line of credit, net ..................        1,948,000          (688,000)
  Proceeds from exercise of options and warrants ..............        4,909,000           358,000
  Proceeds from sales of common stock .........................             --           1,974,000
  Payments on convertible debt ................................             --          (6,000,000)
  Proceeds from bridge loans ..................................             --           8,850,000
  Proceeds from issuance of convertible debt ..................       10,000,000              --
                                                                    ------------      ------------
Net cash provided by financing activities .....................       16,035,000         3,272,000
                                                                    ------------      ------------

Net increase (decrease) in cash and cash equivalents ..........          205,000        (4,587,000)
                                                                    ------------      ------------
Cash and cash equivalents at beginning of period ..............        4,734,000         9,631,000
                                                                    ------------      ------------
Cash and cash equivalents at end of period ....................     $  4,939,000      $  5,044,000
                                                                    ============      ============
</TABLE>

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


                                       3
<PAGE>
                TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                          SIX MONTHS ENDED JUNE 30,
                                                          -------------------------
                                                              1998          1999
                                                           ----------    ----------
<S>                                                        <C>           <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid .......................................    $  105,000    $1,841,000
  Income taxes paid ...................................       600,000       506,000

NON-CASH TRANSACTIONS:
  Issuance of common stock and promissory notes in
    connection with acquisition of MSN:
      Promissory Notes ................................       672,000          --
      Common Stock ....................................       880,000          --


  Issuance of warrants in connection with financings
    and to other third parties ........................       537,000       658,000

 Issuance of common stock in connection with conversion
   of convertible debentures ..........................          --       1,584,000

 Financing of equipment purchased through notes payable          --       5,081,000

  Refinancing of operating lease ......................          --       2,554,000

</TABLE>

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


                                       4
<PAGE>
                  TELSCAPE INTERNATIONAL, INC. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1 - FINANCIAL STATEMENTS

   The accompanying unaudited condensed consolidated financial statements
include the accounts of Telscape International, Inc. and its subsidiaries
(collectively, the "Company"). The unaudited condensed consolidated financial
statements of the Company for the three and six months ended June 30, 1998 and
June 30, 1999 have been prepared without an audit pursuant to the rules and
regulations of the Securities and Exchange Commission. They do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, which consist of normal recurring adjustments, considered necessary
to present fairly the financial position, results of operations and cash flows
for all periods presented have been made. Operating results for the three and
six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.

MANAGEMENT'S ESTIMATES AND ASSUMPTIONS

   The accompanying financial statements are prepared in conformity with
generally accepted accounting principles 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

   The 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 downturns in the Mexican economy could result in an adverse effect on
the Company's operations. The Company also has a significant amount of its
payables denominated in pesos, which exposes the Company to exchange rate risk.
During the first six months of 1999, the peso exchange rate to the U.S. dollar
strengthened, resulting in the Company incurring higher costs in its
international long distance segment.


                                       5
<PAGE>
NEW ACCOUNTING STANDARDS

   SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,"
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.

   Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. The Company does not expect
adoption of the new standard to have a material effect on its financial
statements.

   SOP 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES," requires all
start-up and organizational costs to be expensed as incurred. It also requires
all remaining historically capitalized amounts of these costs existing at the
date of adoption to be expensed and reported as the cumulative effect of a
change in accounting principles. SOP 98-5 is effective for all fiscal years
beginning after December 31, 1998. The adoption of SOP 98-5 did not have a
material effect on its financial statements.

   SFAS No. 135,  "RESCISSION OF FINANCIAL  ACCOUNTING  STANDARDS BOARD NO. 75
("SFAS NO. 75") AND  TECHNICAL  CORRECTIONS,"  rescinds SFAS No. 75 and amends
Statement of Financial  Accounting  Standards  Board No. 35. SFAS No. 135 also
amends other  existing  authoritative  literature  to make  various  technical
corrections,   clarify  meanings,  or  describe  applicability  under  changed
conditions.  SFAS No. 135 is effective  for  financial  statements  issued for
fiscal years ending after  February 15, 1999.  The Company  believes  that the
adoption  of SFAS No.  135 will not have a  material  effect on its  financial
statements.

NOTE 2 - EARNINGS (LOSS) PER SHARE

   Earnings (loss) per share is calculated as follows:


<TABLE>
<CAPTION>
                                                            FOR THE THREE MONTHS            FOR THE SIX MONTHS
                                                                ENDED JUNE 30,                 ENDED JUNE 30,
                                                         ---------------------------     --------------------------
                                                             1998           1999            1998           1999
                                                         -----------     -----------     -----------    -----------
<S>                                                      <C>             <C>             <C>            <C>
BASIC
  Net income (loss) as reported .....................    $  (622,000)    ($3,078,000)    $   492,000    ($5,942,000)

  Weighted average common shares outstanding ........      4,692,984       6,568,848       4,534,568      6,370,975
  Basic earnings (loss) per share ...................    $     (0.13)    $     (0.47)    $      0.11       $(.0.93)

DILUTED
  Net income (loss) as reported .....................    $  (622,000)    ($3,078,000)    $   492,000    ($5,942,000)

  Weighted average common shares outstanding ........      4,692,984       6,568,848       4,534,568      6,370,975
  Weighted average diluted potential common shares
     outstanding ....................................      3,220,768       2,022,462       3,243,504      2,031,111
  Weight average common and dilutive potential common
     shares outstanding .............................      7,913,752       8,591,310       7,778,072      8,402,086
  Diluted earnings (loss) per share .................    $     (0.08)    $     (0.36)    $      0.06    $     (0.70)

</TABLE>

                                       6
<PAGE>
   Diluted EPS for the three months ended June 30, 1998 and June 30, 1999 and
the six months ended June 30, 1999 was not disclosed on the Unaudited Condensed
Consolidated Statement of Operations as the effect is anti-dilutive. Certain
performance based warrants issued in connection with the Company's acquisitions
vested upon the achievement of certain operating performance measures. In
accordance with SFAS 128, these contingently issuable shares were included in
the calculation of diluted EPS when all the necessary conditions were met. If
all the necessary conditions have not been satisfied by the end of the period,
the number of contingently issuable shares that would have been issued if the
reporting period was the end of the contingency period are included in the
calculation as if those shares were issued at the beginning of that period. For
year-to-date calculations, contingent shares are weighted for the interim
periods in which they are included in the computation of diluted EPS. At June
30, 1998 and 1999, there were 500,000 and 0 performance based warrants,
respectively, which had not vested which were not included in the calculation of
diluted EPS. Additionally, for purposes of the diluted EPS calculations for the
three and six months ended June 30, 1999, there were 1,166,730 and 1,117,551
options and warrants outstanding, respectively, which were not included in the
calculation of diluted EPS as their exercise prices were greater than the
average market price of the Company's common stock during the period and
inclusion of these securities in the calculation would result in an
anti-dilutive effect.

NOTE 3 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

   The Company's notes payable and capital lease obligations consist of the
following:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,      JUNE 30,
                                                                         1998            1999
                                                                   ---------------   -------------
<S>                                                                   <C>             <C>
Deere Park Convertible Subordinated Debentures, bearing
interest at 8%, unamortized discount of $65,000 and
$ 22,000, respectively, convertible into Common Stock,
maturing three years from closing ...............................     $ 3,935,000     $ 1,394,000


Gordon Brothers Convertible Debentures, bearing interest
at 8%, unamortized discount of $4,000 and $0, respectively,
convertible into Common Stock, maturing on May 29, 1999,
secured by substantially all assets of Interlink
Communications, Inc. and stock of Telereunion, Inc.,
repaid in May of 1999 ...........................................       4,996,000            --


Non-interest bearing promissory notes, imputed interest
at 10%, unamortized discount of $228,000 and $185,000,
respectively, issued in connection with Integracion
acquisition, maturing at various dates through January 1, 2001 ..       1,713,000       1,270,000


Promissory note issued to repurchase common stock,
payable in six semi-annual installments through May 20, 2000,
and bearing interest at 6% , secured by common shares repurchased         150,000         100,000


Capital lease obligation payable in monthly installments
of $5,413 including principal and interest, maturing
June 30, 2002, secured by equipment .............................         177,000         157,000

Capital lease obligation payable in monthly installments
of $867 including principal and interest maturing
December 1, 2003, secured by furniture ..........................          44,000          40,000

Capital lease obligation payable in monthly installments
of $6,065 including principal and interest, maturing
April 1, 2003, secured by equipment .............................            --           234,000

Capital lease obligation payable in monthly installments
of $913 including principal and interest, maturing
September 24, 2001 ..............................................            --            20,000

</TABLE>

                                        7
<PAGE>

<TABLE>
<S>                                                                       <C>           <C>
Non-interest bearing promissory note, imputed interest
at 10%, unamortized discount of $49,000 and $0, respectively,
issued in connection with MSN acquisition, remaining amount
due paid in full on June 17, 1999 ...............................         430,000            --

Revolving credit facility maturing July 31, 1999 bearing
interest at prime plus 1%, secured by accounts receivable .......       1,688,000       1,000,000

Promissory note, interest at 10.62%, payable in 36 equal
monthly installments of $52,234 including principal and
interest, maturing April 1, 2002, secured by equipment ..........            --         1,489,000

Promissory note, interest at 10.93%, payable in 36 equal
monthly installments of $14,700 including principal and
interest, maturing June 1, 2002, secured by equipment ...........            --           449,000

Promissory note, interest and payment terms described
below, maturing January 1, 2005, secured by equipment ...........            --         4,463,000

Promissory note, interest and payment terms described
below, maturing January 1, 2005, secured by equipment ...........            --         1,119,000

Senior notes, interest at 8%, maturing May 6, 2000 ..............            --         6,850,000

$2.0 million Senior notes, interest at 8%, maturing June 17, 2000            --         2,000,000
                                                                      -----------     -----------

Total notes payable and capital leases ..........................      13,133,000      20,585,000

Current portion .................................................       7,710,000      10,544,000
                                                                      -----------     -----------

Long term portion ...............................................     $ 5,423,000     $10,041,000
                                                                      ===========     ===========
</TABLE>

   The annual maturity of the debt indicated above for the five years following
June 30, 1999 are $1,422,000 in 1999, $11,278,000 in 2000, $4,172,000 in 2001,
$1,447,000 in 2002 and 2,266,000 in 2003 and following.

   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 loans maturing
January 1, 2005. The loans provide for payments of interest only through January
1, 2000. Thereafter, payments of principal and interest are due quarterly.
Interest is calculated on available basis during the interest only period at 425
basis points above the 90 day commercial paper rate. Interest thereafter is
calculated at 500 basis points above the five year Federal Reserve Treasury
Constant Maturity Rate. The Company has drawn approximately $5.6 million under
this facility through August 15, 1999, of which $2.5 million resulted in
refinancing equipment which was previously financed through an operating lease.

   The Company has selected Lucent Technologies, Inc. ("Lucent") to engineer,
furnish and install the Mexican Network. In addition, the Company is currently
negotiating definitive loan documentation with Lucent. Upon execution, Lucent
will provide the Company with up to $40 million of long term financing, which
includes $34 million towards the purchase of Lucent products and services
(including construction of the Mexican Network) and $6 million for repayment of
the Company's current obligations (the "Lucent Facility). The Company will incur
commissions, commitment fees and other costs in connection with this facility.

   In July 1999, the Company received a bridge loan of $3.0 million from Lucent.
The bridge loan is to be repaid upon the funding of the Lucent Facility. In
connection therewith, the Company issued to Lucent warrants to purchase an
aggregate of 85,000 shares of Common Stock at an exercise price of $8.50 per
share. The warrants have a term of three years.


                                       8
<PAGE>
   On May 7, 1999, the Company issued $6,850,000 in Senior Notes (the "Senior
Notes") maturing in May 2000. E. Scott Crist, CEO of the Company, is a holder of
$1.0 million of the Senior Notes. The Senior Notes are subject to optional
prepayment provisions allowing the Company to prepay a portion or all of the
outstanding principal amount without premium or penalty. The Senior Notes bear
interest at 8% from May through November 6, 1999. Thereafter, the interest rate
increases by 1 percent for each month after November 6, 1999. The Company also
issued to the holders of the Senior Notes a total of 256,315 warrants with an
exercise price of $6.68 per share and a term of three years. In the event that
the Senior Notes are not paid by August 30, 1999, then the holders will be
issued an additional 256,315 warrants. In the event that the Senior Notes are
not paid by February 5, 2000, then the holders will be issued an additional
256,315 warrants in which case the maturity date is extended to August 5, 2000.
The proceeds from the Senior Notes were utilized to repay the entire principal
amount of the Gordon Brothers Convertible Debentures plus $1.1 million in exit
fees. The Company estimated the fair value of the warrants by utilizing the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0%, expected volatility of 53.91%, risk free interest rate of 5% and
expected life of 3 months. The resulting cost of approximately $398,000 will be
amortized as interest expense over three months.

   In May 1999, the Company also repaid $1.0 million of the Deere Park
Convertible Subordinated Debentures. In connection therewith, the Company paid
an exit fee of $120,000.

   On June 18, 1999, the Company issued $2,000,000 in Senior Notes (the "$2
Million Senior Notes") maturing in June 2000. The $2 Million Senior Notes are
subject to optional prepayment provisions allowing the Company to prepay a
portion or all of the outstanding principal amount without premium or penalty.
The $2 Million Senior Notes bear interest at 8% from June through December 17,
1999. Thereafter, the interest rate increases by 1 percent for each month after
December 17, 1999. The Company also issued to the holders of the $2 Million
Senior Notes a total of 62,501 warrants with an exercise price of $8.00 per
share and a term of three years. In the event that the $2 Million Senior Notes
are not paid by December 18, 1999, then the holders will be issued an additional
62,501 warrants. In the event that the $2 Million Senior Notes are not paid by
June 18, 2000, then the holders will be issued an additional 62,501 warrants in
which case the maturity date is extended to December 18, 2000. The Company
estimated the fair value of the warrants by utilizing the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%, expected
volatility of 53.91%, risk free interest rate of 5% and expected life of 2
months. The resulting cost of approximately $116,000 will be amortized as
interest expense over two months.

   In July 1999, the Company's Revolving Credit Facility expired and the Company
repaid all amounts outstanding at that time.


NOTE 4 - SEGMENT INFORMATION

   The Company has two reportable segments: international long distance and
advanced services. Revenues in the international long distance segment are
generated on a retail and wholesale basis. Revenues in the advanced services
segment are generated from network solution services, customer relationship
management and broadband services and products. The Company provides
international long distance services to customers in the United States. Advanced
services are provided to customers in the United States, Mexico and Latin
America. The Company measures segment profit as earnings before interest,
depreciation, amortization of intangibles, other income and taxes (EBITDA).


                                       9
<PAGE>
   Revenues, operating information and identifiable assets by business segment
are as follows:


<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                               JUNE 30,                          JUNE 30,
                                                                    -----------------------------     -----------------------------
                                                                        1998             1999            1998              1999
                                                                    ------------     ------------     ------------     ------------
<S>                                                                 <C>              <C>              <C>              <C>
Revenues
     International long distance:
        Retail .................................................    $ 14,289,000     $ 17,857,000     $ 32,427,000     $ 34,672,000
        Wholesale ..............................................       9,221,000        3,345,000       16,802,000        7,739,000
     Advanced services:
        Network solutions ......................................       6,939,000        4,689,000       14,398,000        7,299,000
        Customer relationship management .......................         723,000        1,726,000          944,000        3,026,000
        Broadband services and products ........................       1,206,000        2,092,000        1,206,000        3,992,000
                                                                    ------------     ------------     ------------     ------------
Total revenues .................................................    $ 32,378,000     $ 29,709,000     $ 65,777,000     $ 56,728,000

Operating income (loss) before interest, depreciation
  and amortization
     International long distance ...............................    $    199,000     $   (122,000)    $  2,574,000     $   (136,000)
     Advanced services .........................................         402,000          390,000        1,131,000         (243,000)
     Corporate and other .......................................        (373,000)        (880,000)        (689,000)      (1,540,000)
                                                                    ------------     ------------     ------------     ------------
Total operating income (loss) before interest,
  depreciation and amortization ................................    $    228,000     $   (612,000)    $  3,016,000     $ (1,919,000)
     Depreciation ..............................................         230,000        1,033,000          381,000        1,785,000
     Amortization of intangibles ...............................         459,000          626,000          877,000        1,252,000
                                                                    ------------     ------------     ------------     ------------
Operating income (loss) as reported on the Statements of
  Operations ...................................................    $   (461,000)    $ (2,271,000)    $  1,758,000     $ (4,956,000)

Capital Expenditures
     International long distance ...............................    $  1,781,000     $  1,364,000     $  5,291,000     $  4,331,000
     Advanced services .........................................         272,000          463,000          404,000          723,000
     Corporate and other .......................................           1,000           12,000            1,000           35,000
                                                                    ------------     ------------     ------------     ------------
                Total capital expenditures .....................    $  2,054,000     $  1,839,000     $  5,696,000     $  5,089,000
                                                                    ------------     ------------     ------------     ------------
</TABLE>

                                               DECEMBER 31,          JUNE 30,
                                                   1998               1999
                                              -------------        ------------
Identifiable assets ---
     International long ................       $21,819,000         $29,183,000
     Advanced services .................        37,043,000          34,763,000
     Corporate and other ...............        21,469,000          20,663,000
                                               -----------         -----------
                Total ..................       $80,331,000         $84,609,000
                                               -----------         -----------

      Information concerning principal geographic areas is as follows:

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                     JUNE 30,                             JUNE 30,
                                           ----------------------------        -----------------------------
                                              1998             1999               1998               1999
                                           -----------      -----------        -----------       -----------
<S>                                        <C>              <C>                <C>               <C>
Revenues
     United States .................       $24,626,000      $22,668,000        $50,345,000       $45,274,000
     Mexico ........................         7,662,000        6,415,000         15,342,000        10,325,000
     Latin America .................            90,000          626,000             90,000         1,129,000
                                           -----------      -----------        -----------       -----------
Total revenues .....................       $32,378,000      $29,709,000        $65,777,000       $56,728,000
                                           -----------      -----------        -----------       -----------
</TABLE>


                                       10
<PAGE>

                                           December 31,        June 30,
                                               1998              1999
                                          --------------    --------------
Fixed assets, net of accumulated
  depreciation
     United States .................       $ 7,297,000        $12,230,000
     Mexico ........................         5,174,000          6,311,000
     Latin America .................         2,105,000          1,954,000
                                           -----------        -----------
Total fixed assets .................       $14,576,000        $20,585,000
                                           -----------        -----------

                                       11

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


   The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are "forward-looking statements" (as such term is defined in
the Private Securities Litigation Reform Act of 1995), which can be identified
by the use of forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy. Such statements include, but are not limited to, statements under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q as to
the Company's plans to implement its growth strategy, improve its financial
performance, expand its infrastructure, develop new products and services,
expand its sales force, expand its customer base and enter international
markets. In addition, from time to time, the Company or its representatives have
made or may make forward-looking statements, orally or in writing. Furthermore,
such forward-looking statements may be included in, but are not limited to,
various filings made by the Company with the Securities and Exchange Commission
(the "Commission"), or press releases or oral statements made by or with the
approval of an authorized executive officer of the Company.

   Management wishes to caution the reader that the forward-looking statements
referred to above and contained in this Quarterly Report on Form 10-Q regarding
matters that are not historical facts involve and are based on numerous
assumptions and predictions about future conditions that could prove not to be
accurate. No assurance can be given that the future results will be achieved;
actual events, transactions or results may differ materially as a result of
risks facing the Company. Such risks include, but are not limited to, the
effectiveness of management's strategies and decisions, the ability to raise the
necessary capital to effectuate the Company's business plan, changes in business
conditions, changes in the telecommunications industry and the general economy,
competition, changes in service offerings and risks associated with the
Company's limited operating history, entry into developing markets, managing
rapid growth, international operations, dependence on effective information
systems, ability to consummate acquisitions or enter into joint ventures with
companies on terms acceptable to the Company and development of its network, as
well as regulatory developments any of which could cause actual results to vary
materially from the future results indicated, expressed or implied, in such
forward-looking statements. No assurance can be given that these are all of the
factors that could cause actual results to vary materially from the
forward-looking statements. Statements with respect to acquisitions and
continued trends are forward-looking and involve risks and uncertainties.
Furthermore, the Company has significant operations in Mexico, subjecting the
Company to certain political, economy and commercial risk. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect future events or circumstances.


                                       12

<PAGE>
                                   OUTLOOK

      The Company operates in mainly two business segments:  International
Long Distance and Advanced Services.

      Following is a summary of revenues in each segment by types of services
provided.

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                             JUNE 30,                              JUNE 30,
                                                   ------------------------------        -----------------------------
                                                      1998               1999               1998               1999
                                                   -----------        -----------        -----------       -----------
<S>                                                <C>                <C>                <C>               <C>
INTERNATIONAL LONG DISTANCE:
   Retail ..................................       $14,289,000        $17,857,000        $32,427,000       $34,672,000
   Wholesale ...............................         9,221,000          3,345,000         16,802,000         7,739,000
ADVANCED SERVICES:
   Network solutions .......................         6,939,000          4,689,000         14,398,000         7,299,000
   Customer relationship
       management ..........................           723,000          1,726,000            944,000         3,026,000
   Broadband services and
       products ............................         1,206,000          2,092,000          1,206,000         3,992,000
                                                   -----------        -----------        -----------       -----------
            Total revenues .................       $32,378,000        $29,709,000        $65,777,000       $56,728,000
                                                   ===========        ===========        ===========       ===========
</TABLE>

      In the International Long Distance Segment, the Company derives its
revenues from the sale of U.S. outbound international long distance services to
Latin America, principally Mexico. The Company provides these services on a
wholesale basis to other carriers and on a retail basis through the sale of
prepaid phone cards. The Company has been focusing on the expansion of its
retail prepaid calling card brand, TELEFIESTA(R), as the long distance business
has come under increasing competitive pressure and contracting margins. As
pricing pressures have affected the international long distance revenues,
management has elected to dedicate its network assets to supporting its retail
business due to management's belief that the retail business has greater long
term value. The Company intends to expand its retail offerings in the future as
it expands it network facilities. The Company believes that owning a long
distance network in Mexico will increase the percentage of minutes of traffic it
carries on-net, enable it to increase revenues, margins and profitability and
ensure quality of service on both international and domestic long distance
traffic.

      In the Advanced Services Segment, the Company derives its revenues
principally from three areas: Network Solutions, Customer Relationship
Management and Broadband Services and Products.

      The Company provides Network Solution services to private and public
sector customers in Mexico. Revenues from these services are expected to soften
due to the Company's efforts to restructure its product and services offerings
to concentrate on higher margin value-added services and away from lower margin
equipment-only sales and may soften as a result of weakening economic conditions
in Mexico. As traditional telecommunications services become more of a
commodity, the Company believes that Network Solution services will become an
increasingly important component of the Company's service offerings. The Company
has leveraged its systems integration expertise to provide outsourced network
management services to local and multi-national business customers in Mexico.
The Company believes that the buildout of the Mexican Network will enhance its
ability to provide these services by allowing it to provide a complete package
of network solutions and data, voice and video services under one umbrella to
its customers.

      The Company provides Customer Relationship Management services through its
customer management call center in Mexico. This call center was established in
late 1997 with the signing of the


                                       13

<PAGE>
contract with the U.S. Embassy. Revenues from these services have increased
significantly with the expansion of the facility and the addition of other
customers including the Mexican Ministry of Foreign Affairs. The Company expects
revenues from these services to continue to grow in the future.

      The Company provides Broadband Services and Products through its INTERLINK
subsidiary. INTERLINK operates a satellite teleport facility in Mountain View,
California and provides voice, video and data transport services including
fractional and full T-1 data broadcast, dedicated circuits and private line
up-link and down-link services in the U.S., Latin America and other parts of the
world. INTERLINK has expanded its product offering to include
Bandwidth-on-Demand, Integrated Services Digital Network ("ISDN") video
conferencing and Internet-through-satellite services. INTERLINK serves as an
Internet backbone provider to Internet service providers ("ISPs") and
universities in remote areas where access to high speed fiber optics is limited,
such as the case in many Latin American countries.

      In the second quarter of 1999, the Company began the construction of the
Mexican Network, a combined fiber-optic and microwave long distance network,
connecting the Gulf region of Mexico and with certain key Mexican cities. The
first stage of the Mexican Network consists of 650 km of fiber optic cable and
microwave, circuit switched type of transmission and switching facilities, in
the Gulf region of Mexico from Mexico City to Puebla, Puebla to Veracruz and
Veracruz to Poza Rica. The Company intends to lease and swap capacity from other
long distance providers to connect with the central (Mexico City, Guanajuato and
Guadalajara) and northeast (Monterrey) regions of Mexico, and to install
switching facilities in Mexico City and Monterrey. In May 1999, the Company
signed an agreement with Avantel S.A., which owns the second largest network in
Mexico, to exchange strands of fiber along 1100 kilometers of Avantel's network
from Poza Rica to Reynosa (providing the Company with a border crossing) to
Monterrey for strands of fiber along 650 kilometers of the Company's network.
The agreement is subject to regulatory approval. The Company believes that more
than half of the domestic long distance traffic and nearly half of the domestic
residential long distance traffic originates in the region that will be serviced
by the Mexican Network. The Company is currently negotiating interconnection
agreements with other concessionaires. The Company believes that the Mexican
Network, when complete, will link 47 cities and towns and cover, including
interconnection agreements, an estimated 90% of the population in Mexico.

GROSS PROFIT.

   The Company has been experiencing pricing pressure on its international long
distance services resulting in lowering of gross profit percentage and
contribution. The Company has not been able to reduce its termination costs as
quickly as prices have declined in the international long distance business and
has relied partially on certain lower margin outsourcing arrangements to support
its prepaid calling cards. Upon the completion of its own long distance network
in Mexico, expected in early 2000, the Company believes that the percentage of
minutes of traffic it carries on-net will increase, effectively lowering
termination costs and increasing margins and profitability.

   In its Advanced Services segment, the Company has been successful in
increasing the overall percentage of revenues derived from enhanced, value-added
services and as a result has seen a significant increase in gross profits as a
percentage of revenues from these services.

   OPERATING  EXPENSES.  With the  selection of Lucent  Technologies,  Inc. to
engineer,  furnish and install the Company's long distance  network in Mexico,
the Company is moving into a period of  significant  investment  in facilities
and human resources.  As a result,  the Company expects operating  expenses to
continue to increase.


                                       14

<PAGE>
                            RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

   REVENUES decreased from $32,378,000 in 1998 to $29,709,000 in 1999. This
decrease of $2,669,000, or 8.2%, was due principally to the weakened economic
conditions in Mexico, the Company's decision to reduce sales to distributors of
low margin equipment in Mexico and a decline in the Company's international long
distance revenues. These declines were offset by an increase in revenues from
the Company's Customer Relationship Management services and the incremental
sales of the Company's INTERLINK subsidiary, which was acquired in May 1998.
Network Solutions services revenues in Mexico decreased $2,250,000 from
$6,939,000 in 1998 to $4,689,000 in 1999. Wholesale international long distance
revenues decreased $5,876,000 from $9,221,000 in 1998 to $3,345,000 in 1999.
Retail international long distance revenues increased $3,568,000 from
$14,289,000 in 1998 to $17,857,000 in 1999. Customer Relationship Management
services revenues increased $1,003,000 from $723,000 in 1998 to $1,726,000 in
1999. Broadband Services and Products revenues increased $886,000 from
$1,206,000 in 1998 to $2,092,000 in 1999.

   COST OF REVENUES decreased from $28,598,000 in 1998 to $25,155,000 in 1999,
or $3,443,000. The 12.0% decrease in cost of revenues was due principally to the
decrease of revenues offset by the increased costs associated with the
international long distance services. This decrease in cost of revenues was also
offset by the incremental cost of revenues associated with the acquisition of
INTERLINK. The cost of revenues as a percentage of revenues decreased from 88.3%
to 84.7%, or 3.6%, due principally to the decrease in cost of revenues as a
percentage of revenues associated with the Advanced Services revenues, offset by
an increase in costs of revenues as a percentage of revenues associated with
international long distance revenues..

   SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") increased from
$3,552,000 in 1998 to $5,166,000 in 1999, or $1,614,000. The 45.4% increase in
SG&A was due to the incremental SG&A related to the acquisition of INTERLINK,
the overhead necessary to support the growth in the Company's Customer
Relationship Management operations, increased staffing at existing operations to
meet the additional resource requirements associated with these operations and
the increased staffing associated with the Mexican network build out.

   Overall SG&A as a percentage of revenues increased from 11.0% to 17.4%, or
6.4%, due to the factors stated above.

   DEPRECIATION AND AMORTIZATION increased from $689,000 in 1998 to $1,659,000
in 1999, or $970,000. This increase is due to an increase in goodwill
amortization associated with the acquisitions of Telereunion and INTERLINK. In
addition, depreciation increased as a result of the Company's continuing
expansion of its communications network, which includes purchases of switches
and other telecommunications equipment and facilities. The Company expects
depreciation expense to increase as it continues to expand its
telecommunications network.

   INTEREST INCOME (EXPENSE), NET increased from ($194,000) in 1998 to
($1,784,000) in 1999, or ($1,590,000). This increase was mainly due to an
increase in the Company's level of borrowings, including the Deere Park
Convertible Debentures and Gordon Brothers Convertible Debentures issued in
connection with the INTERLINK acquisition, the Senior Notes and the $2
million Senior Notes.

   The Gordon Brothers Convertible Debentures provide for an "exit fee" which
was paid at the time of the repayment of the Gordon Brothers Convertible
Debentures in May 1999. The Company paid an "exit fee" of $1.1 million of which
$181,000 was accrued during the three months ended June 30, 1999. In addition,
the Company repaid $1.0 million of the Deere Park Convertible Subordinated
Debentures in May 1999. The Company paid an "exit fee" of $120,000 of which
$30,000 was accrued during the three months ended June 30, 1999.



                                       15
<PAGE>
   In addition, the Company issued warrants to the holders of the Deere Park
Convertible Debentures, Gordon Brothers Convertible Debentures, the Senior Notes
and the $2 million Senior Notes. These warrants were valued utilizing the
Black-Scholes pricing model and the resulting amount is amortized as
interest expense over the life of the notes.

   OTHER INCOME (EXPENSE) increased from ($17,000) in 1998 to ($298,000) in
1999, or ($281,000). The Company recognized a foreign exchange loss of $45,000
in the second quarter of 1999 as compared to a foreign exchange loss of $65,000
in the second quarter of 1998.

   INCOME TAX BENEFIT (EXPENSE) increased from $68,000 in 1998 to $1,275,000 in
1999. The Company's overall effective tax benefit for the three months ended
June 30, 1999, was 29% which reflect the tax benefits recognized on the losses
realized offset by permanent items, the most significant of which is the non
deductible nature of goodwill amortization.

   NET INCOME (LOSS). The Company experienced a net loss of ($622,000) in 1998
as compared to ($3,078,000) in 1999 due to a combination of the factors
discussed above.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

   REVENUES decreased from $65,777,000 in 1998 to $56,728,000 in 1999. This
decrease of $9,049,000, or 13.8%, was due principally to the weakened economic
conditions in Mexico, the Company's decision to reduce sales to distributors of
low margin equipment in Mexico and a decline in the Company's international long
distance revenues. These declines were offset by an increase in revenues from
the Company's Customer Relationship Management services and the incremental
sales of the Company's INTERLINK subsidiary, which was acquired in May 1998. As
a result, Network Solutions services revenues in Mexico decreased $7,099,000
from $14,398,000 in 1998 to $7,299,000 in 1999. Wholesale international long
distance revenues decreased $9,063,000 from $16,802,000 in 1998 to $7,739,000 in
1999. Retail international long distance revenues increased $2,245,000 from
$32,427,000 in 1998 to $34,672,000 in 1999. Customer Relationship Management
services revenues increased $2,082,000 from $944,000 in 1998 to $3,992,000 in
1999. Broadband Services and Products revenues $2,786,000 from $1,206,000 in
1998 to $3,992,000 in 1999.

   COST OF REVENUES decreased from $57,056,000 in 1998 to $49,259,000 in 1999,
or $7,797,000. The 13.7% decrease in cost of revenues was due principally to the
decrease of revenues offset by the increased costs associated with the
international long distance services. This decrease in cost of revenues was also
offset by the incremental cost of revenues associated with the acquisition of
INTERLINK. The cost of revenues as a percentage of revenues increased from 86.7%
to 86.8%, or 0.1%, due principally to the higher cost of revenues as a
percentage of revenues associated with the Company's international long distance
services. This increase was offset partially by the decrease in cost of revenues
as a percentage of revenues associated with the Advanced Services revenues.

   SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") increased from
$5,705,000 in 1998 to $9,388,000 in 1999, or $3,683,000. The 64.5% increase in
SG&A was due to the incremental SG&A related to the acquisition of INTERLINK,
the overhead necessary to support the growth in the Company's Customer
Relationship Management operations, increased staffing at existing operations to
meet the additional resource requirements associated with these operations and
the increased staffing associated with the Mexican network build out.

   Overall SG&A as a percentage of revenues increased from 8.7% to 16.5%, or
7.8%, due to the factors stated above.

   DEPRECIATION AND AMORTIZATION increased from $1,258,000 in 1998 to $3,037,000
in 1999, or $1,779,000. This increase is due to an increase in goodwill
amortization associated with the acquisitions of Telereunion and


                                       16
<PAGE>
INTERLINK. In addition, depreciation increased as a result of the Company's
continuing expansion of its communications network, which includes purchases of
switches and other telecommunications equipment and facilities. The Company
expects depreciation expense to increase as it continues to expand its
telecommunications network.

   INTEREST INCOME (EXPENSE), NET increased from ($251,000) in 1998 to
($2,665,000) in 1999, or ($2,916,000). This increase was mainly due to an
increase in the Company's level of borrowings, including the Deere Park
Convertible Debentures and Gordon Brothers Convertible Debentures issued in
connection with the INTERLINK acquisition, the Senior Notes and the $2
Million Senior Notes.

   The Gordon Brothers Convertible Debentures provide for an "exit fee" which
was paid at the time of the repayment of the Gordon Brothers Convertible
Debentures in May 1999. The Company paid an "exit fee" of $1.1 million of which
$648,000 was accrued during the six months ended June 30, 1999. In addition, the
Company repaid $1.0 million of the Deere Park Convertible Subordinated
Debentures in May 1999. The Company paid an "exit fee" of $120,000 which was
accrued during the six months ended June 30, 1999.

   In addition, the Company issued warrants to the holders of the Deere Park
Convertible Debentures, Gordon Brothers Convertible Debentures, the Senior Notes
and the $2 Million Senior Notes. These warrants were valued utilizing the
Black-Scholes pricing model and the resulting amount is amortized as
interest expense over the life of the notes.

   OTHER INCOME (EXPENSE) increased from ($91,000) in 1998 to ($572,000) in
1999, or ($481,000). The Company recognized a foreign exchange loss of $105,000
in the first six months of 1999 as compared to a foreign exchange loss of
$187,000 in the first six months of 1998.

   INCOME TAX BENEFIT (EXPENSE) changed from an income tax expense of ($895,000)
in 1998 to an income tax benefit of $2,251,000 in 1999. The Company's overall
effective tax benefit for the six months ended June 30, 1999, was 27.5% which
reflect the tax benefits recognized on the losses realized offset by permanent
items, the most significant of which is the non deductible nature of goodwill
amortization.

   NET INCOME (LOSS).  The Company  experienced net income of $492,000 in 1998
as  compared to a net loss of  $(5,942,000)  in 1999 due to a  combination  of
the factors discussed above.

                       LIQUIDITY AND CAPITAL RESOURCES

   Net cash provided by (used in) operating activities was $441,000 and
$(2,770,000) for the six months ended June 30, 1998 and June 30, 1999,
respectively. The decrease in net cash provided by operations in 1999 as
compared to 1998 was due primarily to decreased revenues, decreased gross
profits and increased SG&A expenses.

   Net cash used in investing activities was ($16,271,000) and ($5,089,000) for
the six months ended June 30, 1998 and June 30, 1999, respectively. For the six
months ended June 30, 1998, the Company expended approximately $5.7 million on
purchases of, or deposits on, property and equipment as part of the Company's
network expansion strategy. In addition, the Company acquired MSN for $2.3
million, net of cash acquired and INTERLINK for $8.3 million, net of cash
acquired. For the six months ended June 30, 1999, the Company expended
approximately $5.1 million on purchases of property and equipment as part of the
Company's network expansion strategy.

   Net cash provided by financing activities was $16,035,000 and $3,272,000 for
the six months ended June 30, 1998 and June 30, 1999, respectively. During the
six months ended June 30, 1999, the Company realized approximately $2.3 million
(net of commissions) from sales of its common stock and exercise of options and
warrants. The Company also received $8,850,000 in bridge financing. The Company
also made payments of


                                       17
<PAGE>
$1,134,000 on its notes payable, $6,000,000 on its convertible debt and $688,000
on the Revolving Line of Credit.

   As of June 30, 1999, the Company had cash and cash equivalents of $5,044,000
and negative working capital of $10,324,000.

   In the fourth quarter of 1998, the Company signed a financing arrangement
with a finance company, which provides for funding of equipment purchases of up
to $6.0 million through May 1999. The financing is structured as loans maturing
three years from funding at interest rates 550 basis points above the Federal
Reserve Treasury Constant Maturity Rate. The Company has drawn approximately
$2.0 million in the first siz months of 1999 under this facility.

      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 loans maturing
January 1, 2005. The loans provide for payments of interest only through January
1, 2000. Thereafter, payments of principal and interest are due quarterly.
Interest is calculated on available basis during the interest only period at 425
basis points above the 90 day commercial paper rate. Interest thereafter is
calculated at 500 basis points above the five year Federal Reserve Treasury
Constant Maturity Rate. The Company has drawn approximately $5.6 million under
this facility through August 15, 1999, of which $2.5 million resulted in
refinancing equipment which was previously financed through an operating lease.

      In the fourth quarter of 1998, the Company entered into a stock purchase
agreement with third parties (the "Stock Purchase Commitment"), which allows the
Company to sell at the Company's option (subject to certain conditions
precedent), up to $5.0 million of the Company's Common Stock. The sale price of
the Common Stock is equal to the average of the previous 5 days closing prices
less a 20% discount. The Company sold 250,000 shares of Common Stock realizing
approximately $1.3 million (net commissions) in the fourth quarter of 1998.
These shares were sold on December 18, 1998, and may not be re-sold by the
purchasers for nine months from such date. In the first quarter of 1999, the
Company sold an additional 296,296 shares of Common Stock, realizing
approximately $1.9 million (net of commissions). These shares were sold on March
15, 1999, and may not be re-sold by the purchasers until July 31, 1999. In July
of 1999, the Company sold an additional 146,000 shares of Common Stock,
realizing approximately $924,000 in proceeds. In addition, the Company received
$576,000 in the form of a short term loan which is due on November 24, 1999.

   The Company has selected Lucent Technologies, Inc. ("Lucent") to engineer,
furnish and install the Mexican Network. In addition, the Company is currently
negotiating definitive loan documentation with Lucent. Upon execution, Lucent
will provide the Company with up to $40 million of long term financing, which
includes $34 million towards the purchase of Lucent products and services
(including construction of the Mexican Network) and $6 million for repayment of
the Company's current obligations (the "Lucent Facility). The Company will incur
commissions, commitment fees and other costs in connection with this facility.

   In July 1999, the Company received a bridge loan of $3.0 million from Lucent.
The bridge loan is to be repaid upon the funding of the Lucent Facility. In
connection therewith, the Company issued to Lucent warrants to purchase an
aggregate of 85,000 shares of Common Stock at an exercise price of $8.50 per
share. The warrants have a term of three years.

   On May 7, 1999, the Company issued $6,850,000 in Senior Notes (the "Senior
Notes") maturing in May 2000. E. Scott Crist, CEO of the Company, is a holder of
$1.0 million of the Senior Notes. The Senior Notes are subject to optional
prepayment provisions allowing the Company to prepay a portion or all of the
outstanding principal amount without premium or penalty. The Senior Notes bear
interest at 8% from May through November


                                       18
<PAGE>
6, 1999. Thereafter, the interest rate increases by 1 percent for each month
after November 6, 1999. The Company also issued to the holders of the Senior
Notes a total of 256,315 warrants with an exercise price of $6.68 per share and
a term of three years. In the event that the Senior Notes are not paid by August
30, 1999, then the holders will be issued an additional 256,315 warrants. In the
event that the Senior Notes are not paid by February 5, 2000, then the holders
will be issued an additional 256,315 warrants in which case the maturity date is
extended to August 5, 2000. The proceeds from the Senior Notes were utilized to
repay the entire principal amount of the Gordon Brothers Convertible Debentures
plus $1.1 million in exit fees. The Company estimated the fair value of the
warrants by utilizing the Black-Scholes option pricing model with the following
assumptions: dividend yield of 0%, expected volatility of 53.91%, risk free
interest rate of 5% and expected life of 3 months. The resulting cost of
approximately $398,000 will be amortized as interest expense over three months.

   In May 1999, the Company also repaid $1.0 million of the Deere Park
Convertible Subordinated Debentures. In connection therewith, the Company paid
an exit fee of $120,000.

   On June 18, 1999, the Company issued $2,000,000 in Senior Notes (the "$2
Million Senior Notes") maturing in June 2000. The $2 Million Senior Notes are
subject to optional prepayment provisions allowing the Company to prepay a
portion or all of the outstanding principal amount without premium or penalty.
The $2 Million Senior Notes bear interest at 8% from June through December 17,
1999. Thereafter, the interest rate increases by 1 percent for each month after
December 17, 1999. The Company also issued to the holders of the $2 Million
Senior Notes a total of 62,501 warrants with an exercise price of $8.00 per
share and a term of three years. In the event that the $2 Million Senior Notes
are not paid by December 18, 1999, then the holders will be issued an additional
62,501 warrants. In the event that the $2 Million Senior Notes are not paid by
June 18, 2000, then the holders will be issued an additional 62,501 warrants in
which case the maturity date is extended to December 18, 2000. The Company
estimated the fair value of the warrants by utilizing the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%, expected
volatility of 53.91%, risk free interest rate of 5% and expected life of 2
months. The resulting cost of approximately $116,000 will be amortized as
interest expense over two months.

   In July 1999, the Company's Revolving Credit Facility expired and the Company
repaid all amounts outstanding at that time.

   The Company's debt at June 30, 1999 totaled $20.6 million resulting in a debt
to equity ratio of 61% as compared to $13.1 million and 38%, respectively, as of
December 31, 1998 and $3.2 million and 14%, respectively, as of December 31,
1997. Upon closing, the Lucent Facility will result in long term financing
arrangements, which will significantly increase the Company's leverage. The
Company will need to generate substantial cash flow from operations to satisfy
its principal and interest obligations under these financing arrangements. If
the Company does not generate the cash flow from operations to meet its
principal and interest obligations under the financing arrangements described
above, then the Company's business and results of operations could be materially
adversely affected.

   The Company estimates that there are an additional $10-$15 million in
expenditures related to the Mexican Network and its network expansion which will
not be funded through the Lucent Facility. The Lucent Facility provides for
funding of up to $6 million for repayment of debt obligations. The Company will
incur commissions, commitment fees and other costs in connection with this
facility. The Company does not expect that cash flow from operations will be
sufficient to meet these capital expenditure and debt repayment requirements
when they are due.

   In the first six months of 1999, the Company incurred losses and had negative
cash flow from operations. The Company intends to finance its growth, principal
and interest obligations under existing debt obligations, and additional capital
investments required for its planned facility expansion through vendor financing
and the sale of debt or equity securities (or a combination of both). There can
be no assurance that the Company will be able to obtain additional financing on
commercially reasonable terms, if at all, to fund its losses generated from
operations, to fund its capital expenditures or to fund its debt service
obligations as they become due. If


                                       19
<PAGE>
necessary funds are not available, the Company's business and results of
operations and the future expansion of its business could be materially
adversely affected.

   As of June 30, 1999 and the date of this filing, the Company has an
outstanding receivable of $1.4 million dollars from a customer of its Mexican
Network Solutions services subsidiaries. This receivable has been outstanding
since December 31, 1998. The Company has been encountering difficulties in its
dealings with this customer and may be forced to utilize legal resources to
enforce collection of this amount. In the event that the Company determines that
this amount or a portion of the amount is uncollectible in the future, the
Company may be forced to incur a charge in excess of its current reserve for
uncollectibles of $425,000.

RECENT ACCOUNTING PRONOUNCEMENTS

   SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,"
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.

   Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. The Company does not expect
adoption of the new standard to have a material effect on its financial
statements.

   SOP 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES," requires all
start-up and organizational costs to be expensed as incurred. It also requires
all remaining historically capitalized amounts of these costs existing at the
date of adoption to be expensed and reported as the cumulative effect of a
change in accounting principles. SOP 98-5 is effective for all fiscal years
beginning after December 31, 1998. The adoption of SOP 98-5 did not have a
material effect on its financial statements.

   SFAS No. 135, "RESCISSION OF FINANCIAL ACCOUNTING STANDARDS BOARD NO. 75
("SFAS NO. 75") AND TECHNICAL CORRECTIONS," rescinds SFAS No. 75 and amends
Statement of Financial Accounting Standards Board No. 35. SFAS No. 135 also
amends other existing authoritative literature to make various technical
corrections, clarify meanings, or describe applicability under changed
conditions. SFAS No. 135 is effective for financial statements issued for fiscal
years ending after February 15, 1999. The Company believes that the adoption of
SFAS No. 135 will not have a material effect on its financial statements.

                                UNCERTAINTIES

   The Company continues to face many risks and uncertainties, including general
and specific market economic risks. The exploitation of the opportunities
presented by the Mexican market are expected to require substantial capital. To
the extent the Company's Mexican subsidiaries do not have a positive net cash
flow from its operations in 1998, it can be expected that the Company would have
to fund any shortfalls from its working capital. In addition, any capital
expenditures needed to expand the operations of the Mexican subsidiaries would
likely be funded out of the working capital of the parent corporation. Any such
fundings would reduce the funds available to finance and expand the Company's
strategy to compete in the international long distance services business. Also,
any economic crises in Mexico could result in the need to fund any cash flow
shortfalls of the Company's 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 the Company. The Company's competitive position in the
telecommunications services and long distance markets depends heavily on the


                                       20
<PAGE>
license granted by the Mexican government. Should this permit be revoked for
whatever reason, the Company would be severely impaired or unable to provide
many of its telecommunications services. In addition, the Company relies on
other carriers to complete the transmission of certain telecommunications
services. To the extent that any of these carriers was to no longer do business
with the Company, the Company would either have to find an alternate source or
not be able to provide those services.

   The international long distance market, although large and rapidly growing,
is also very competitive. The Company competes in this market with companies
that have greater experience and substantially greater resources, both financial
and otherwise. In addition, the Company faces 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,
the Company could be adversely affected by a reversal in the trend toward
deregulation of telecommunication markets. The Company will be increasingly
exposed to these risks as the Company expands its presence in this market. The
Company's growth in this business is dependent on its ability to expand its
capacity through investments in additional facilities or entering into
termination arrangements with other carriers. There can be no assurance that the
Company 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 the Company's operations, the future growth in this business and the
ability to compete effectively against competitors with significantly more
resources could be materially adversely affected.

   The Company will compete in this market with companies that have greater
experience and have substantially greater resources. In addition, the prepaid
phone card industry is subject to extensive U.S. federal and state regulation
including the imposition of various excise taxes and fees, including the
"Universal Service Fund". As with the wholesale international long distance
business, the Company's growth in this business is dependent on its ability to
expand its capacity through investments in additional facilities or entering in
partnering arrangements for outsourcing the telecommunications services related
to calls initiated on the prepaid phone cards it serves. There can be no
assurance that the Company will be successful in raising the capital required to
fund the additional facilities, or in obtaining such partnering arrangements, in
which case the Company's operations, the future growth in this business and the
ability to compete effectively against competitors with significantly more
resources could be materially adversely affected.

   The Company is also pursuing a strategy of growth through selective
acquisitions. However, there can be no assurance that any acquisition will be
completed, that attractive candidates will be identified in the future, that the
Company will be successful in raising the capital to fund such acquisitions, or
that, if completed, any acquisition will be beneficial to the Company.

   In June 1998, Telereunion S.A. de C.V. ("Telereunion S.A."), a subsidiary of
the Company, received a 30-year, facilities-based carrier license from the
Mexican government allowing it to construct and operate a long distance network
in Mexico (the "Concession"). Under the terms of the Concession, Telereunion
S.A. was to have begun operations on its network as of June 3, 1999. In
addition, under the terms of the Concession, Telereunion S.A. is required to
meet certain capitalization thresholds prior to beginning operations. The
Company has petitioned the Comision Federal de Telecomunicaciones (the
"COFETEL"), the equivalent of the Federal Communications Commission in the
United States, to have the Concession amended to extend the start of operations
date and waive or amend the equity and debt to equity requirements. Although
several other concessionaires have received certain waivers for defaults under
their respective concessions, there can be no assurance that these amendments
will be obtained from the COFETEL. If such amendments are not obtained, the
Company will not have the right to operate the Mexican Network which could have
a material adverse effect on the Company's ability to effectuate its business
plan and its financial condition.


                                       21
<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. See further discussion in Item 3 - Quantitative and
Qualitative Disclosures about Market Risk.

                               YEAR 2000 PLANS

   A significant percentage of the software that runs most of the computers in
the United States relies on two-digit, rather than four-digit, date codes to
define the applicable year, resulting in date-sensitive software having the
potential inability to interpret date codes properly, misreading "00" for the
year 1900 instead of the year 2000.

   This could result in a system failure or miscalculations causing disruptions
of operations, including, without limitation, a temporary inability to process
transactions, send invoices or engage in similar normal business activities,
which could have material adverse operational and financial consequences.

STATE OF READINESS

   The Company has initiated a comprehensive program to identify, evaluate and
address issues associated with the ability of its information and
non-information technology systems (collectively, "Systems") to properly
recognize the Year 2000 (the "Year 2000 Readiness Program") in order to avoid
interruption of the operation of these Systems and a material adverse effect on
the Company's business, financial position and results of operation as a result
of the century change. The Company has empowered a "Y2K Committee" to manage the
Year 2000 Readiness Program. The Y2K Committee shall also review the Year 2000
compliance efforts of the Company's key vendors and customers and shall
regularly report to and be controlled by the Board of Directors.

   Each of the information technology software programs that the Company
currently uses has either been certified by its respective vendor as Year 2000
compliant or will be replaced with software that is so certified prior to
year-end. The Company intends to conduct comprehensive tests of all of its
software programs for Year 2000 compliance as part of its Year 2000 Readiness
Program. An integral part of the Company's non-information technology systems,
its telecommunications switches, however, may not currently be Year 2000
compliant. The respective vendors of the Company's switches are in the process
of reviewing their switches for Year 2000 readiness. However, there can be no
assurance that such switches are Year 2000 compliant and that the Company will
not experience switch related problems in Year 2000. In addition to other
reasons, the production of accurate and timely customer invoices depends upon
the generation of accurate and timely underlying data by the Company's switches.
The Company does not believe that its other non-information


                                       22
<PAGE>
technology systems will be affected by the Year 2000, but will not know
definitively until the Company tests and evaluates such equipment. The Company
believes that all Year 2000 compliance initial testing and any necessary
conversions will be completed by September 30, 1999.

   The Company's computer systems interface with the computers and technology of
many different domestic and international telecommunications companies on a
daily basis. If one of these telecommunication companies should fail or suffer
an adverse effect from a Year 2000 problem, the Company's customers could
experience impairment of services. The Company considers the Year 2000 readiness
of its international customers and vendors of particular importance given the
general concern that the computer systems abroad may not be as prepared as those
in domestic operations to handle the century change. As part of its Year 2000
Readiness Program, the Company intends to contact its key vendors and customers
to ascertain whether the systems used by such third parties are Year 2000
compliant.

COSTS

   The Company has not incurred any costs to date to reprogram, replace and test
its Systems for Year 2000 compliance. The Company believes that the costs
associated with its Year 2000 compliance efforts will be incurred during 1999.
The Company is still estimating the costs of the efforts but doesn't expect that
these costs will be significant over the life of the project; though such
expenditures may increase materially following testing of non-information
technology systems and evaluation of the Year 2000 compliance status of integral
third party vendors and customers. Costs incurred in connection with the
Company's Year 2000 compliance efforts will be expensed as incurred, unless new
systems are purchased that should be capitalized in accordance with generally
accepted accounting principles.

   The Company currently anticipates that its Systems will be Year 2000
compliant before January 1, 2000, though no assurances can be given that the
Company's compliance testing will not detect unanticipated Year 2000 compliance
problems that prevent such Year 2000 compliance. Furthermore, a system failure
by any of the Company's significant customers or vendors could have a material
adverse effect on the Company's operations. Because the Company does not yet
know the Year 2000 compliance status of integral third parties, it is currently
unable to assess the likelihood or the risk to the Company of third party system
failures.

RISKS

   The Company believes that a disruption in the operation of its networks,
billing system and financial and accounting systems and/or an inability to
access interconnections with other telecommunications carriers, are the major
risks associated with the inability of its Systems to process Year 2000 data
correctly. The failure of the Company to correct a material Year 2000 problem
could cause an interruption or failure of certain of the Company's normal
business functions or operations and could have a material adverse effect on the
Company's business, financial position and results of operations. In addition,
there could also be a material adverse effect on the Company's business,
financial position and results of operations if the systems of other companies
on whose services the Company depends, or with whom the Company's Systems
interface, are not Year 2000 compliant.

   Based upon risk assessment work conducted thus far, the Company believes that
the most reasonably likely worst case scenario of the failure by the Company, or
any integral third party, to resolve Year 2000 issues would be an inability by
the Company (i) to provide telecommunications services to the Company's
customers, (ii) to route and deliver telephone calls originating from or
terminating with other telecommunications carriers for an indeterminable period
of time and (iii) to timely and accurately bill customers. Such worst-case
scenario could have a material adverse affect on the Company's business, results
of operations and liquidity. These failures could also result in a loss of
customers due to service interruptions and billing errors, substantial claims by
customers and increased expenses associated with Year 2000 litigation,
stabilization of operations and executing mitigation and contingency plans.
While the Company believes that it is taking appropriate measures to mitigate
these risks, there can be no assurance that such measures will be successful.


                                       23
<PAGE>
CONTINGENCY PLAN

   At this time, the Company does not have a contingency plan. The Company
intends to develop contingency plans to handle Year 2000 system failures
experienced by its Systems and to handle any necessary interactions with the
computers and technology of any integral non-complying third party. This plan is
expected to be completed by September 30, 1999.

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 second quarter of 1999,
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. The Company's foreign currency exchange risk includes
the following:

   In the past years, the Mexican economy has had periods of exchange rate
instability and peso devaluation. The Company's Network Solutions services and
Customer Relationship Management services business is conducted in Mexico. The
majority of the Company's revenues in the value-added services business are
contracted in dollars or in pesos indexed to the dollar at the time of
settlement. The products and services the Company sells in the value-added
services business line are generally imported from the U.S. or other countries
and are payable in dollars. The Company's 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 that
are collected in pesos and costs that are paid in pesos.

   The Company  generally  collects its revenues from the  Broadband  Services
and  Products  services  in U.S.  dollars  and pays for its  costs to  provide
these services in U.S. dollars

   In the International Long Distance business segment, the Company sells it
services to customers in the U.S. and thus its 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 its costs to provide these services are structured under operating
agreements with carriers in Mexico under which the costs historically have been
settled in pesos. The Company has entered into new, additional agreements with
carriers in Mexico that will provide it with additional termination capacity in
Mexico in 1999. These new arrangements provide for settlement in U.S. dollars.
In periods in which the peso devaluates, this results in a cost reduction to the
Company as it generally extends short credit terms to its customers and has
received extended credit terms from its vendors. In periods when the peso
appreciates, this results in a cost increase to the Company. Over the last
several years, the peso has experienced devaluations in the exchange rates to
the U.S. dollar. In the second quarter of 1999, the peso exchange rate
strengthened from over 10 to 1 to an average 9.5 to 1 resulting in an increase
in the Company's cost. 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, the Company's peso denominated transactions may increase
causing the Company to enter into hedging activities as credit availability
allows.

      In addition, as the Company invests in the Mexican Network and begins to
generate more revenues in Mexico, the Company's foreign currency risk will
increase. Moreover, upon completion, the Lucent Facility will be denominated in
U.S. dollars.


                                       24
<PAGE>
PART II.   OTHER INFORMATION

ITEM 3. LEGAL PROCEEDINGS

TELSCAPE INTERNATIONAL, INC., TELEREUNION S.A. DE C.V. AND TELEREUNION
INTERNATIONAL S.A. V. MASTEC, INC. AND ACIETEL MEXICANA, S.A. DE C.V.

   In May 1999, Telscape International, Inc., Telereunion S.A. de C.V. and
Telereunion International S.A. (collectively, the "Company") filed a lawsuit
against Mastec, Inc. and Acietel Mexicana, S.A. de C.V. (collectively, the
"Defendants"). The Company has filed a complaint for breach of contract,
negligent misrepresentation and promissory estoppels arising out of an
unconditional commitment letter executed by the Defendants pursuant to which the
Defendants committed to provide the Plaintiffs with financing in the amount of
$17.5 million. The Company has prayed for relief to include damages in the
amount of no less than $10.0 million plus attorney's fees and costs. The lawsuit
is pending in the U.S. District Court for the Southern District of Texas.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits. See Index to Exhibits on page 26.

      (b)  Reports on Form 8-K: NONE



                                       25
<PAGE>
                                  SIGNATURES


      In accordance with the requirements of the Exchange Act, the issuer has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        Telscape International, Inc.
                                        (Registrant)


Date: August 15, 1999           By: /s/ E. SCOTT CRIST
                                        E. Scott Crist
                                        CEO and Principal Executive Officer



Date: August 15, 1999           By: /s/ TODD M. BINET
                                        Todd M. Binet
                                        President, CFO
                                        Principal Financial Officer



Date: August 15, 1999           By: /s/ JESSE MORRIS
                                        Jesse Morris
                                        Vice President of Finance, Controller
                                        Principal Accounting Officer



                                       26

<PAGE>
                              INDEX OF EXHIBITS

EXHIBIT NO.                  DESCRIPTION

  1.1      -    Form of Underwriting Agreement between the Company, BT Alex.
                Brown Incorporated and Lehman Brother Inc. (Incorporated herein
                by reference to Exhibit 1.1 to the Company's Registration
                Statement No. 333-60271)

  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)

  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)

 10.1      -    Form of Representative's Warrants (filed as Exhibit 10.8 to
                the Company's Registration Statement No. 33-80542-D and
                incorporated herein by reference)

 10.2      -    Warrant Agreement between the Company and S.P. Krishna Murthy
                (filed as Exhibit 10.13 to the Company's Report on Form 10-KSB
                for the year ended December 31, 1995 and incorporated herein by
                reference)

 10.3      -    Form of Series A Common Stock Warrant (filed as Exhibit 10.4
                to the Company's Report on Form 10-QSB for the quarter ended
                March 31, 1996 and incorporated herein by reference)

 10.4      -    Form of Series B Common Stock Warrant (filed as Exhibit 10.5
                to the Company's Report on Form 10-QSB for the quarter ended
                March 31, 1996 and incorporated herein by reference)

  10.5     -    Form of Employment Agreement for Manuel Landa, Ricardo Orea
                Gudino and Oscar Garcia Mora (filed as Exhibit 10.6 to the
                Company's Report on Form 10-QSB for the quarter ended March 31,
                1996 and incorporated herein by reference)

 10.6      -    Form of Non-Qualified Stock Option Certificate and Agreement,
                as amended, for Manuel Landa, Ricardo Orea Gudino and Oscar
                Garcia Mora (filed as Exhibit 10.7 to the Company's Report on
                Form 10-QSB for the quarter ended March 31, 1996 and
                incorporated herein by reference)

 10.7      -    Form of Series A Common Stock Warrant dated May 17, 1996
                between the Company and Manuel Landa, Ricardo Orea Gudino, Oscar
                Garcia Mora and Christopher Efird (filed as Exhibit 10.1 to the
                Company's Report on Form 8-K dated June 3, 1996 and incorporated
                herein by reference)


                                       27
<PAGE>
 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)



                                       28

<PAGE>
 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 by reference to Exhibit 10.29 to the Company's Report on
                Form 10-Q for the quarter ended March 31, 1999)


                                       29
<PAGE>
*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.

*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.

*27.1      -    Financial Data Schedule 1999


  ----------------
 *  Filed herewith



                                       30