<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549
--------------------------------------------------------------------------------

                                   FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the quarterly period ended June 30, 2000

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from __________ to _______________

                       Commission file number:  000-28113

                                TELEMONDE, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                             62-1795931
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

 230 Park Avenue, 10th Floor, New York, New York                    10169
    (Address of Principal Executive Offices)                     (Zip Code)

      Registrant's telephone number, including area code:   (646) 435-5645


     Indicate by check whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

     Yes   X   No
         -----    -----

     As of August 3, 2000, Telemonde, Inc. had outstanding 85,793,701 shares of
common stock, $.001 par value per share.

================================================================================
<PAGE>

                                TELEMONDE, INC.
                                --------------

                                     INDEX

                                                                     Page Number
                                                                     -----------

                         PART I - FINANCIAL INFORMATION

Item 1.    Independent Accountant's Report                                3

           Consolidated Financial Statements:
           Consolidated Balance Sheets -
           June 30, 2000 and December 31, 1999                            4

           Consolidated Statements of Income -
           Three and Six Months ended June 30, 2000 and 1999              5

           Consolidated Statements of Cash Flow -
           Six Months ended June 30, 2000 and 1999                        6

           Notes to Consolidated Financial Statements                     7

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                            9

Item 3.    Quantitative and Qualitative Disclosures About Market
           Risk                                                          20

                          PART II - OTHER INFORMATION

Item 1.    Legal Proceedings                                             21

Item 2.    Changes in Securities and Use of Proceeds                     21

Item 6.    Exhibits and Reports on Form 8-K                              22

Signatures                                                               23

                                       2
<PAGE>

INDEPENDENT ACCOUNTANT'S  REPORT

To the Stockholders of
Telemonde Inc


We have reviewed the accompanying condensed consolidated balance sheet of
Telemonde, Inc. and subsidiaries as of June 30, 2000, and the related
consolidated statements of income for the three and six-month periods ended June
30, 2000 and June 30, 1999 and the related statements of cash flows for the six
months ended June 30, 2000 and June 30, 1999. These financial statements are the
responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet as of December 31,
1999 and the related consolidated statements of income, and cash flows for the
year then ended, not presented herein, and in our report dated February 7, 2000,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion the information set forth in the accompanying consolidated
balance sheet as of December 31, 1999 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.

                                                           MOORE STEPHENS
                                                           Chartered Accountants

St. Paul's House
London EC4P 4BN
August 10, 2000

                                       3
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                                TELEMONDE, INC.
                          Consolidated Balance Sheets
                      (US Dollars expressed in thousands)
<TABLE>
<CAPTION>

                                                              at June 30, 2000  at December 31, 1999
                                                              ----------------  --------------------
Assets                                                            (unaudited)       (audited)
<S>                                                               <C>        <C>

Cash and Cash Equivalents (Pledged $1,700 and $0,                 $  2,879             $     62
   respectively)
Trade accounts receivable, net of allowance
   for doubtful debts of $0 and $923, respectively                  10,929                4,852
Inventories                                                         21,465               21,465
Prepaid expenses                                                    21,414                1,605
                                                                  --------             --------
Total current assets                                                56,687               27,984
                                                                  --------             --------
Property, plant and equipment                                       19,061               19,439
Intangible assets                                                   28,375               31,051
                                                                  --------             --------
Total assets                                                      $104,123             $ 78,474
                                                                  --------             --------
Liabilities and stockholders' equity

Accounts payable                                                    88,302               84,578
Accrued expenses                                                    17,318                5,720
Deferred income                                                      2,789                2,657
Short term notes                                                    11,653                9,141
                                                                  --------             --------
Total current liabilities                                          120,062              102,096
                                                                  --------             --------
Stockholders' equity

Capital stock                                                           90                   73
Retained deficit                                                   (73,520)             (72,849)
Additional paid in capital                                          57,452               49,154
Minority interests                                                      39                    0
                                                                  --------             --------
Total stockholders' deficit                                        (15,939)             (23,622)
                                                                  --------             --------
Total liabilities and stockholders' equity                        $104,123             $ 78,474
                                                                  --------             --------
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

                                       4
<PAGE>

                                TELEMONDE, INC.
                       Consolidated Statements of Income
           (US Dollars expressed in thousands, except per share data)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                           For the Three Months Ended            For the Six Months Ended
                                                          -----------------------------        ----------------------------
                                                          June 30, 2000   June 30, 1999        June 30, 2000  June 30, 1999
                                                          -------------   -------------        -------------  -------------
<S>                                                       <C>             <C>                  <C>            <C>
Sales                                                        $20,342         $   398              $38,030       $ 5,245

Cost of goods sold                                             8,144           1,201               20,886         4,598
                                                             -------         -------              -------       -------
Gross margin                                                  12,198            (803)              17,144           647
                                                             -------         -------              -------       -------

Operating Expenses:
Selling, general & admin. exp.                                 5,750           1,362                8,361         2,656
Research and Development                                         574             135                1,077           169
Amortization of goodwill                                       3,171               0                4,080             0
Financing Costs                                                2,074           5,133                2,074         5,133
Reserve for doubtful accounts                                      0             223                    0           923
                                                             -------         -------              -------       -------
Operating expenses                                            11,569           6,853               15,592         8,881
                                                             -------         -------              -------       -------
Operating profit (loss)                                          629          (7,656)               1,552        (8,234)
                                                             -------         -------              -------       -------

Other income (expense):
Interest income                                                  229             155                  487           312
Interest expense                                              (2,232)            (44)              (2,734)          (44)
Share of losses of associate                                    (145)              0                 (400)            0
Exchange gains                                                   362               0                  447             0
                                                             -------         -------              -------       -------
Other income (expense)                                        (1,786)            111               (2,200)          268
                                                             -------         -------              -------       -------
Net loss before minority interests                           $(1,157)        $(7,545)             $  (648)      $(7,966)
                                                             -------         -------              -------       -------
Minority interests                                               (23)              0                  (23)            0
                                                             -------         -------              -------       -------
Net loss                                                     $(1,180)        $(7,545)             $  (671)      $(7,966)
                                                             -------         -------              -------       -------
  Net loss per share
   - basic                                                   $ (0.01)        $ (0.16)             $ (0.01)      $ (0.19)
   - fully diluted                                           $ (0.01)        $ (0.16)             $ (0.01)      $ (0.19)
                                                             -------         -------              -------       -------
  </TABLE>
  The accompanying notes are an integral part of these consolidated statements
  of income


                                       5
<PAGE>

                                  TELEMONDE, INC.
                      Consolidated Statements of Cash Flow
                      (US Dollars expressed in thousands)
                                    (unaudited)
  <TABLE>
  <CAPTION>
                                                                          For the Six Months Ended
                                                                      ------------------------------
                                                                      June 30, 2000    June 30, 1999
                                                                      -------------    -------------
<S>                                                                   <C>              <C>
Operating Activities
  Net loss                                                               $   (671)        $ (7,966)
  Adjustments to reconcile net loss to net
    cash provided by (used in) operating activities:
    Amortization of goodwill                                                4,080               0
    Depreciation of property, plant and equipment                           1,276               0
    Reserve for doubtful accounts                                               0             923
    Expenses satisfied by issuance of stock                                 8,312               0
    Goodwill of acquired subsidiary                                        (1,404)              0
    Net assets of acquired subsidiary                                         (34)              0
    (Increase) decrease in accounts receivable                             (5,757)          1,973
    (Increase) decrease in inventories                                          0         (10,365)
    (Increase) decrease in prepaid expenses                               (19,514)         (2,855)
    Increase (decrease) in accounts payable                                 2,623           9,041
    Increase (decrease) in accrued expenses                                11,598          (9,905)
    Increase (decrease) in deferred income                                    132          (2,785)
    Increase in minority interests                                             39               0
                                                                         --------        --------
Net cash provided by (used in) operating activities                           680         (21,939)
                                                                         --------        --------
Investing activities
Purchase of property, plant & equipment                                      (548)            (40)
Cash acquired on acquisition of subsidiary                                    170               0
                                                                         --------        --------
Net cash used in investing activities                                        (378)            (40)
                                                                         --------        --------
Financing activities
Proceeds from short term notes                                              2,512          12,792
Issuance of stock                                                               3           6,605
                                                                         --------        --------
Net cash provided by financing activities                                   2,515          19,397
                                                                         --------        --------
Net increase (decrease) in cash and
  cash equivalents                                                          2,817          (2,582)
Cash and cash equivalents at start of period                                   62           2,655
                                                                         --------        --------
Cash and cash equivalents at end of period                               $  2,879        $     73
                                                                         --------        --------

Supplemental disclosure of cash flow information:
Interest paid                                                            $    807        $      0
Income taxes paid                                                              19               0
</TABLE>

The accompanying notes are an integral part of these consolidated statements of
cash flow.

                                       6
<PAGE>

                                TELEMONDE, INC.
                   Notes to Consolidated Financial Statements
                                 June 30, 2000
           (US Dollars expressed in thousands, except per share data)

1. Reference is made to the Notes to Consolidated Financial Statements contained
in the Company's December 31, 1999 audited consolidated financial statements
included in the Company's 1999 Annual Report and the Company's 1999 Annual
Report on Form 10-K filed with the SEC on March 30, 2000. In the opinion of
Management, the interim unaudited financial statements included herein reflect
all adjustments necessary, consisting of normal recurring adjustments, for a
fair presentation of such data on a basis consistent with that of the audited
data presented therein. The consolidated results of operations for interim
periods are not necessarily indicative of the results to be expected for a full
year.

2. At June 30, 2000, Telemonde had 85,793,701 shares issued and 3,897,180 shares
to be issued, totaling 89,690,881 shares. At December 31, 1999, Telemonde had
65,211,584 shares issued and 7,892,858 shares to be issued, totaling 73,104,442
shares.

3. The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standard ("SFAS") No. 128, "Basic and Diluted EPS." Basic
earnings per share are computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding for the
period. The weighted number of common shares outstanding totaled 83,949,411 and
41,529,044 for the six months ended June 30, 2000 and June 30, 1999,
respectively. On May 14, 1999, the corporation issued 35,297,000 shares of
common stock in exchange for the 35,297 ordinary shares of Telemonde Investments
Limited. For purposes of calculating earnings per share, the increase in nominal
share capital was deemed to take effect on January 1, 1999. Diluted earnings per
share reflect the potential dilution that could occur if options and warrants
were exercised. The dilutive effect of the assumed exercise of stock options and
warrants was 16,775,576 for the six months ended June 30, 2000 and zero for the
six months ended June 30, 1999.

4. The Corporation follows the provisions of SFAS 131 "Disclosures about
Segments of an Enterprise and related Information". Reportable operating
segments are determined based on the Corporation's management approach. The
management approach, as defined by SFAS 131, is based on the way that the chief
operating decision maker organizes the segments within an enterprise for making
operating decisions and assessing performance. While the Corporation's results
of operations are primarily reviewed on a consolidated basis, the chief
operating decision maker also manages the enterprise in two segments: (i)
Bandwidth and related services and (ii) The international telecommunications
traffic and card services business of EquiTel Communications Limited ("EquiTel")
which was acquired by the Corporation in November 1999. The following represents
selected consolidated financial information for the Corporation's segments for
the three and six months ended June 30, 2000 and 1999:

<TABLE>
<CAPTION>

Three months ended June                          Bandwidth                       Equitel                         Total
30, 2000
<S>                                              <C>                             <C>                           <C>
Sales                                            $ 19,028                        $1,314                        $ 20,342
Gross margin                                       12,060                           138                          12,198
Net loss                                             (500)                         (680)                         (1,180)
Total Assets                                     $101,448                         2,675                         104,123

Three months ended June                          Bandwidth                       Equitel                         Total
30, 1999
Sales                                             $   398                              -                        $   398
Gross margin                                         (803)                             -                           (803)
Net loss                                           (7,545)                             -                         (7,545)
Total Assets                                       97,467                              -                         97,467
</TABLE>

                                       7
<PAGE>

<TABLE>
<CAPTION>

Six months ended June 30,                        Bandwidth                        Equitel                         Total
2000
<S>                                              <C>                            <C>                            <C>
Sales                                            $ 36,501                       $ 1,529                        $ 38,030
Gross Margin                                       16,942                           202                          17,144
Net loss                                              967                        (1,638)                           (671)
Total Assets                                     $101,448                         2,675                         104,123

Six months ended June 30,                        Bandwidth                       Equitel                         Total
1999
Sales                                             $ 5,245                              -                       $ 5,245
Gross margin                                          647                              -                           647
Net loss                                           (7,966)                             -                        (7,966)
Total Assets                                       97,467                              -                        97,467
</TABLE>

5. The FASB has issued SFAS No. 130, "Comprehensive Income Reporting." In the
six months ended June 30, 2000 and June 30, 1999, there were no components of
comprehensive income for the Company other than net income.

6. The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognizes all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and how it is designated. For example, gains or losses related to
changes in the fair value of a derivative, not designated as a hedging
instrument, are recognized in earnings in the period of the change, while
certain types of hedges may be initially reported as a component of other
comprehensive income until the consummation of the underlying transaction.

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter. On that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company believes that the adoption of this standard will not have a material
effect on the Company's consolidated results of operations or financial
position. The FASB has delayed the effective date of SFAS No. 133 by one year to
years beginning after June 15, 2000 by the issuance of SFAS No. 137.

7. In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs, and requires that such costs be expensed as
incurred. SOP 98-5 applies to all non-governmental entities and is generally
effective for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial statements
previously have not been issued. The adoption of SOP 98-5 is not expected to
have a material impact on results of operations, financial position, or cash
flows of the Company as the Company's current policy is substantially in
accordance with SOP 98-5.

8. In June 1999 the Financial Accounting Standards Board issued Interpretation
No. 43 ("FIN43") which states that SFAS 66 applies to all sales of real estate,
including real estate with property improvements or integral equipment.

The corporation adopted FIN 43 on July 1, 1999. As a result, capacity sales
agreements entered into subsequent to June 30, 1999 are bifurcated into an
equipment portion and a real estate portion. The real estate portion is
classified as an operating lease. Revenues are recognized on a straight line
basis over the life of the agreement. The equipment portion of a capacity sales
agreement is classified as a direct financing sub lease. The difference between
the gross investment in the capacity sales agreement and the cost of the
capacity is initially recorded as deferred interest income. Deferred interest
income is amortized to interest income so as to produce a constant periodic rate
of

                                       8
<PAGE>

return on the net investment in the capacity sales agreement. Under the terms of
substantially all capacity sales agreements, the purchase price is due in full
when the capacity is ready for service. In such cases, revenue is recognized
when the capacity is ready for service.

Capacity purchase agreements entered into subsequent to June 30, 1999 are
bifurcated into an equipment portion and a real estate portion. The real estate
portion is classified as an operating lease. Leasing costs are recognized on a
straight line basis over the life of the agreement. The equipment portion of a
capacity purchase agreement is classified as a capital lease. Capacity acquired
under capital leases is initially recorded as an obligation at an amount equal
to the present value at the beginning of the lease term of minimum lease
payments during the lease term. Thereafter it is stated at the lower of carrying
value and fair value.

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

You should read the following discussion and analysis together with Telemonde's
financial statements, including the notes, appearing elsewhere in this Quarterly
Report.

Forward-Looking Statements

Certain information contained in this Quarterly Report on Form 10-Q, including,
without limitation, information appearing under Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors set
forth in the Company's 1999 Annual Report on Form 10-K, filed March 30, 2000
(and any subsequent amendments to the Form 10-K), under Item 1, "Business - Risk
Factors," together with other factors that appear with the forward-looking
statements, or in the Company's other Securities and Exchange Commission
filings, including its Registration Statement on Form 10 dated November 15, 1999
(and any subsequent amendments to the Form 10), could affect the Company's
actual results and could cause the Company's actual results to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company in this Quarterly Report on Form 10-Q.

Overview

We are an international communications company that is creating an international
network, which will connect countries in the developed world with regional
centers in emerging markets.

Telemonde Investments Limited, a British Virgin Islands company and the holding
company for the Telemonde business, was formed in March 1998. Telemonde, Inc.
(formerly Pac-Rim Consulting, Inc.) acquired Telemonde Investments Limited on
May 14, 1999. In exchange for all of the issued and outstanding shares of
Telemonde Investments Limited, Telemonde, Inc. issued 35,297,000 restricted
shares of Telemonde, Inc.'s common stock. Pac-Rim Consulting, Inc. was a dormant
shell company with no operating history but was listed on the NASD Over-the-
Counter Bulletin Board.

The issuance of common stock by Pac-Rim was accounted for as a reverse purchase
acquisition of Pac-Rim by Telemonde Investments Limited. Although Pac-Rim was
the surviving legal entity in the reverse, Telemonde Investments Limited is
considered to be the acquirer in the transaction because:

        .  the sole shareholder of Telemonde Investments Limited prior to the
           acquisition became the majority shareholder of Pac-Rim following the
           acquisition;

        .  Telemonde management became Pac-Rim management following the
           acquisition; and

        .  Pac-Rim was simply a shell company rather than an operating business.

                                       9
<PAGE>

Following the acquisition by Telemonde Investments Limited, Pac-Rim Consulting,
Inc.'s name was changed to Telemonde, Inc. On November 9, 1999, Telemonde, Inc.
became a Delaware corporation by merging into a newly formed Delaware
subsidiary.

We have a limited operating history. Our financial information relates
principally to a period in which we were obtaining trans-Atlantic capacity and
were establishing our business and market presence. While we incurred operating
losses and negative cash flow from our inception through December 1999, the
first half of 2000 evidenced a reversal of that trend. The Company recognized
$38.0 million in revenue in the period from January 1, 2000 through June 30,
2000, which contributed to a $1.6 million operating profit and a modest
operating cash flow of $0.7 million.

While we are encouraged by these first half 2000 results, we are continuing to
establish our networks and expand our services. The continuation of this
expansion could give rise to operating losses and negative cash flows in the
future. The magnitude of these operating losses and especially negative cash
flows will be affected by a variety of factors, which include:

        .  The ability to put in place working capital facilities and to
           increase our capital base.
        .  The rate at which we add new customers and the prices those customers
           pay for our bandwidth and Internet services.
        .  The mix of our business, including, among other factors, the
           proportion of capacity sales compared to leases and short term
           rentals we sell to our customers.
        .  The ability and cost to obtain transatlantic and other bandwidth
           capacity; in particular the cost of bandwidth under the major
           supplier agreements currently under re-negotiation.
        .  Customer payment terms where customers require a deferred payment
           plan for their purchase of capacity from us.
        .  The speed and extent to which we add networking and other related
           services, including but not limited to our telehousing facilities, to
           our portfolio of products and services.
        .  The ability to predict demand for our networking and other related
           services, including but not limited to our telehousing facilities.
        .  The ability of our local relationships in emerging markets to support
           our customers and meet our obligations.
        .  The completion of our planned networks and infrastructure and the
           expansion of our networks generally, with completion being achieved
           by currently expected completion dates.
        .  General economic, financial, competitive, legislative, regulatory,
           licensing, and other factors that are beyond our control.

We have financed, and expect to continue to finance, our net losses, debt
service, capital expenditures and other cash needs through flexible supplier
payments, the issuance of debt and the proceeds from sales of shares of common
stock.

While the Company is progressing, it still considers itself an early stage
company and, as such, we have not yet fully completed our transition to an
operating company. It is anticipated that our network and operations center will
be established by the end of fiscal year 2000. Although our senior management
team has substantial industry knowledge and experience, this team has been built
up during the course of 1999 and has only recently been completed. EquiTel was
formed in late 1998, signed its initial customer contracts in 1999 and still
needs to be fully integrated into Telemonde.

The transition from a progressing early stage company to an operating company
places significant demands on our management and operations. We are in the
process of expanding the management and operational capabilities necessary for
this transition. Our ability to manage this transition successfully will depend
on, among other things:

 .  expanding, training and managing our employee base, including attracting,
   retaining and motivating highly skilled personnel;

                                       10
<PAGE>

 .  creating customer interface and operations, administrative and maintenance
   systems;
 .  procuring terrestrial capacity to provide connectivity to inland cities.

There can be no assurance that we will succeed in developing all or any of these
capabilities, and any failure to do so could have a material adverse effect on
our results of operations.

Industry Trends

The Company believes that bandwidth demand is expected to more than double in
the next two years. This future growth of bandwidth demand will be met by the
building of new cable infrastructure. This will be particularly visible in
Western Europe and in the United States, where a significant number of cable
systems will be brought into service within the next two years (including TAT-
14, Flag-Atlantic, Level 3's Yellow System, Hibernia, Southern Cross). As Asia
progresses with liberalization, we would expect to see the same broad pattern
develop during the next five years.

We believe that following the sharp decline in market price in 1999, existing
supply and demand are now better matched. Current prices are cost based to
ensure that existing inventories are run down prior to new cable systems
becoming operational. The future market pricing of bandwidth will be affected by
any future imbalances between supply of capacity and demand of bandwidth and
therefore by the timing of new generation cable systems.

These developments have impacted buyer behavior by shifting some purchase
decisions away from outright capacity ownership (IRUs) to short-term leases
(typically less than 1 year in duration), in anticipation of lower prices in the
near future. Buyers are balancing the cost of purchasing short-term bandwidth to
meet user driven demand for bandwidth and service quality in a competitive
market against a forward view of prices for IRUs on the new cable systems and
delivery date expectations. We believe that the demand for bandwidth will be
driven primarily from Internet Protocol (IP) based services and the growing
availability of broad band capacity on the wireline and wireless access
networks. This, coupled with the radically reduced cost of international
bandwidth, will increase the demand for new high-speed data and Internet
services over the next 18 months due to an abundance of high-quality, cost-
effective bandwidth, particularly on transatlantic and intra-European routes.
Services such as high capacity streaming video and content via the Internet,
previously thought to be uneconomical, will develop rapidly as prices for the
underlying bandwidth steps down to the next, technology driven, level.

As the Internet user market continues to be redefined into smaller and more
focused user groups, a key dynamic of this market will be the large number of
smaller service providers using the Internet as a distribution channel for their
content. This presents a major opportunity for wholesale operators to provide a
range of bandwidth, telehousing, commodity content and support services to these
service providers, enabling them to concentrate on their core capabilities. Our
subsidiary, telemonde.net, is ideally placed to exploit these increases in
demand for bundled support services.

The Internet service provider market is new and rapidly evolving. Whether, and
the manner in which, the market for our products and services to Internet
service providers will continue to grow is uncertain. Any decline in the
Internet service provider market will adversely affect our business.

Our business would be damaged if Internet usage does not continue to grow.
Internet usage may be inhibited for a number of reasons, including:

        .  access costs;
        .  inadequate network infrastructure;
        .  security concerns;
        .  uncertainty of legal and regulatory issues concerning the use of the
           Internet;
        .  inconsistent quality of service; and
        .  lack of availability of cost-effective, high-speed service.

                                       11
<PAGE>

If Internet usage grows, the Internet infrastructure may not be able to support
the demands placed on it or the Internet's performance and reliability may
decline. Similarly, Web sites have experienced interruptions in their services
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays occur frequently, use of the
Internet as a commercial or business medium could, in the future, grow more
slowly or decline. This could adversely affect our business.

We have recently begun offering terrestrial network platforms and high-speed
Internet connectivity, based upon the supply of fiber optic bandwidth between
New York, London and other European cities. We intend to expand our services
worldwide and we anticipate offering a full-range of global connectivity
solutions for European Internet and Multimedia Service Providers over our
existing global network infrastructure, as well as specialist and geographic
Internet packages for our customer base in emerging markets. We have limited
experience in the Internet business and there can be no assurances that we will
successfully establish or expand the business. Currently, we only provide
capacity to two European Internet service providers.

The market for network platforms and value-added Internet services is extremely
competitive. Our primary competitors include other telecommunications businesses
that have a significant national or international presence. Many of these
carriers have substantially greater resources, capital and operational
experience than we do. We also expect we will experience increased competition
from traditional telecommunications carriers that expand into the market for
Internet services. In addition, we will require substantial additional capital
to make investments in our Internet operations, and we may not be able to obtain
that capital on favorable terms or at all.

Revenues

Sales for the three months ended June 30, 2000 totaled $20.3 million compared
with $0.4 million for the three months ended June 30, 1999. The principal reason
for the rise in revenues for the three months ended June 30, 2000 has been the
normalization of prices in the transatlantic bandwidth capacity industry after
its rapid decline in 1999. Customers were reluctant to purchase capacity while
prices were falling (and we were unable to sell capacity profitably until we had
renegotiated terms with our suppliers) but have now gone ahead and procured
bandwidth in an environment whereby supply and demand are more equalized.

A relatively small number of customers currently account for a significant
amount of our total revenues. In our bandwidth business three customers
accounted for over 90% of our revenues in 1999. In the first six months of 2000,
seven customers accounted for nearly 90% of our revenues. Although we intend to
expand our customer base as our business grows and through acquisitions, this
dependence on a relatively small number of customers may continue for the
foreseeable future. Most of our arrangements with large customers do not provide
any guarantees that they will continue using our services at current levels. In
addition, if (1) our customers build their own facilities, (2) our competitors
build additional facilities, or (3) our customers are involved in further
consolidations in the telecommunications industry, we could experience a
reduction in the use of our services, which could have a material adverse effect
on our business.

Our medium-term contracts for the supply of transatlantic bandwidth were
contracted for in 1998 and early 1999 at fixed prices and before the
unexpectedly severe fall in market prices during the remainder of 1999. The
details of our Capacity Purchase Agreements with suppliers are described in
detail in the section on "Liquidity and Capital Resources" below. In order to
address this bandwidth price compression, we either are in discussions or have
reached agreements in principle but have yet to sign definitive agreements with
our principal suppliers to replace old capacity with new capacity on higher-
value networks that encompass the Atlantic, Pacific, Europe and South American
regions. The Company believes that the final agreements will be executed within
a reasonable time on the terms already agreed upon in principle.

Although we believe that transatlantic market prices have begun to stabilize, we
can give no assurance that prices will not fall further. We have made in the
past, and may make in the future, commitments to suppliers to obtain bandwidth
capacity. Market price reductions reduce and can eliminate the expected margin
on bandwidth sales over the purchase price from the supplier. In addition, we
would need to seek further price reductions from our suppliers

                                       12
<PAGE>

for future bandwidth capacity purchases in order to restore margins and the
outcome of such negotiations are inevitably uncertain. Therefore, our business,
financial condition and operating results could be materially and adversely
affected by market price declines.

A number of companies are constructing or have plans to construct new submarine
and terrestrial fiber optic systems. The additional capacity may create over-
capacity in the market and cause future prices to drop which could have an
adverse impact on our revenues and operational results. In the European
terrestrial market, lead times are short and there is significant competition
from new or upgraded systems. Therefore, it is possible that there will be over-
capacity in the European market and that prices may fall.

To further offset the possible impact of future bandwidth capacity market
fluctuations, we have diversified our revenue streams through the acquisition of
EquiTel and the formation of telemonde.net S.A. We believe that these businesses
will contribute to our revenue stream and initially contribute start-up losses
towards the Company's bottom line during the later part of 2000.

Although we expect EquiTel's switched services to contribute to our revenue
stream and initially contribute start-up losses towards the Company's bottom
line in the future, our operations relating to the pre-paid card business face a
number of risks, which include:

        .  the increased entry into the market by pre-paid card vendors,
           including vendors that are larger than us;
        .  our reliance on a small number of independent distributors to place
           pre-paid cards in retail outlets;
        .  our inability to create exclusive pre-paid phone card distribution
           arrangements in certain markets;
        .  the availability of alternative telephony methods;
        .  the cost sensitive nature of consumer demand; and
        .  the lack of customer loyalty to any particular pre-paid card company.

Many of these risks may cause prices to drop throughout the pre-paid card
industry. Because we depend on informal relationships with independent
distributors to market and sell our products, increased competition and lower
prices could force us to further lower our prices to continue to sell pre-paid
cards to these distributors. We cannot guarantee that we will be able to
continue to provide competitively priced pre-paid cards to our distributors or
that lower prices in the pre-paid card marketplace will not have a negative
effect on the results of our operations.

We will derive substantial revenues from international operations and a key
element of our business strategy is to expand our operations in international
markets. Accordingly, our business is subject to certain risks inherent in
international operations. These risks include:

        .  unexpected changes in regulatory requirements, tariffs, customs,
           duties and other trade barriers;
        .  difficulties in staffing and managing overseas operations;
        .  problems in collecting accounts receivable;
        .  political risks;
        .  fluctuations in currency exchange rates;
        .  foreign exchange controls which restrict or prohibit repatriation of
           funds;
        .  technology export and import restrictions or prohibitions;
        .  delays from customs brokers or government agencies; and
        .  potentially adverse tax consequences resulting from operating in
           multiple jurisdictions with different tax laws.

During our limited operating history we have not experienced any material
adverse effects with respect to our overseas operations arising from such
factors. However, problems associated with such risks could arise in the future.
Finally, managing operations in multiple jurisdictions will place further strain
on our ability to manage our overall growth.

                                       13
<PAGE>

In addition, EquiTel's targeted markets are in emerging markets, including
Africa, the Middle East, most of the Asia Pacific region, the Indian sub-
continent, Southern and Central America, and parts of Eastern Europe. Political
and social instability is widespread in many such areas and EquiTel is subject
to greater risks and potential losses due to unexpected changes in political
regimes.

We rely on local relationships in these emerging markets to support our
customers. Failure on the part of our local contacts to fulfill their
obligations may harm our reputation, business and operations. We, and in
particular our switched services business, utilize local persons to market our
services and provide local training and support. The quality of the local
training and support may be inconsistent and may not reach our "benchmark" of
quality service levels. In this event, customer relations, and possible future
business, may be jeopardized. In addition, our senior management may be diverted
to remedy the failure of our local relationships and this diversion may impede
other projects.

Results of Operations

For the three months ended June 30, 2000 compared with the three months ended
June 30, 1999

Sales increased $19.9 million from $0.4 million for the three months ended June
30, 1999 to $20.3 million for the three months ended June 30, 2000. Bandwidth
capacity and leasing sales increased $10.2 million from $0.1 million in the
three months ended June 30, 1999 to $10.3 million in the three months ended June
30, 2000. The increase in bandwidth capacity and leasing sales can be attributed
to accelerated customer purchases in an environment whereby bandwidth supply and
demand has begun to normalize. Backhaul, maintenance, recharge and traffic
revenues increased $3.9 million from $0.3 million in the three months ended June
30, 1999 to $4.2 million in the three months ended June 30, 2000. The increase
in backhaul, maintenance, recharge and traffic revenues reflects the fact that
the Company earned traffic revenue on its newly established circuits during the
second quarter of 2000. Advisory services and other sales increased to $5.8
million in the three months ended June 30, 2000 from $0.0 million in the three
months ended June 30, 1999. The increase in advisory services and other revenue
is due to services rendered regarding the sale of a switching co-location
business, the establishment of a third party co-location facility and the
Desertel joint venture. Revenues for both periods are overwhelmingly
attributable to the subsidiaries of Telemonde Investments Limited.

Cost of goods sold increased $6.9 million or 578% from $1.2 million in the three
months ended June 30, 1999 to $8.1 million in the three months ended June 30,
2000. The increase in cost of goods sold reflects an increase in capacity and
leasing sales, an increase in backhaul, maintenance, recharge and traffic
revenue and higher network and depreciation expenses partially offset by
stronger gross profit margins on the advisory services revenue. Cost of goods
sold are primarily attributable to the subsidiaries of Telemonde Investments
Limited.

Selling, general and administrative expenses increased $4.4 million or 322% from
$1.4 million in the three months ended June 30, 1999 to $5.8 million in the
three months ended June 30, 2000. Staff costs increased from $0.2 million in the
three months ended June 30, 1999 to $2.1 million in the three months ended June
30, 2000. The increase in staff costs are attributable to the fact that
Telemonde Networks Limited was incorporated on February 16, 1999 to perform the
sales and marketing functions previously undertaken outside the Company by
Telemonde Limited (now known as Iaxis Limited), to build infrastructure and
staff and to a non-qualified stock option, non-cash compensation expense. Other
selling, general and administrative expenses increased from $1.2 million in the
three months ended June 30, 1999 to $3.7 million in the three months ended June
30, 2000, primarily as a result of an increase in legal, travel, sales
commissions and public company expenses as well as a stock issuance expense for
Telemonde's non-delivery of a DS-3.

Research and development expenses increased $0.4 million or 325% from $0.1
million in the three months ended June 30, 1999 to $0.6 million in the three
months ended June 30, 2000. The increase results from a continued build-up of
the Company's technological capabilities commensurate with the expansion of
Telemonde's customer's worldwide network build out. In the first quarter of
1999, the Company's engineering staff was just beginning to be

                                       14
<PAGE>

assembled and by the second quarter of 2000, it continues to grow predominately
in London but also in New York and Geneva as well.

Amortization of goodwill increased to $3.2 million in the three months ended
June 30, 2000 from a non-existent level in the three months ended June 30, 1999.
Telemonde's goodwill is mostly attributable to the purchase of EquiTel late in
1999 and, to a much lesser extent, the acquisition of TGA. The current quarter's
expense also includes a downward revaluation of an abandoned EquiTel joint
venture in South Africa.

Financing costs decreased $3.1 million or 60% from $5.1 million in the three
months ended June 30, 1999 to $2.1 million in the three months ended June 30,
2000. The decrease predominately results from the expense (approximately $4.9
million) associated with the warrant issuance involving Communications
Collateral Limited debt in the second quarter of 1999 versus a lower level of
investment advisory services and funding facilitation fees in the second quarter
of 2000.

Provision for doubtful debts decreased from $0.2 million in the three months
ended June 30, 1999 to $0.0 million in the three months ended June 30, 2000. The
provision in the second quarter of 1999 related to a capacity sale made by
Telemonde International Bandwidth (Bermuda) Limited.

Interest income increased $0.07 million or 48% from $0.16 million in the three
months ended June 30, 1999 to $0.23 million in the three months ended June 30,
2000. The increase is primarily attributable to an increase in income from sales
interest on capacity sold on deferred payment terms and income earned on a
temporary increased level of pledged cash and cash equivalents.

Interest expense increased to $2.23 million in the three months ended June 30,
2000 from $0.04 million in the three months ended June 30, 1999 due to a third
party financing of a particular customer's accounts receivable and since
borrowings for working capital purposes have materialized over the past few
quarters.

Share of losses of associate increased from $0.0 million in the three months
ended June 30, 1999 to $0.1 million in the three months ended June 30, 2000. The
losses relate to the balance of the start up costs attributable to Desert
Telecommunication Services LLC, a joint venture of EquiTel established in the
Sultanate of Oman.

Net loss decreased to $1.2 million in the three months ended June 30, 2000 from
a net loss of $7.5 million in the three months ended June 30, 1999. The decrease
of $6.3 million of net loss arises principally from the greatly increased sales
and gross margins partially offset by an increase in operating and other
expenses.

For the six months ended June 30, 2000 compared with the six months ended June
30, 1999

Sales increased $32.8 million or 625% from $5.2 million for the six months ended
June 30, 1999 to $38.0 million for the six months ended June 30, 2000. Bandwidth
capacity and leasing sales increased $22.0 million or 620% from $3.6 million in
the six months ended June 30, 1999 to $25.6 million in the six months ended June
30, 2000. The increase in bandwidth capacity and leasing sales can be attributed
to accelerated customer purchases in an environment whereby bandwidth supply and
demand has begun to normalize. Backhaul, maintenance, recharge and traffic
revenues increased $4.9 million or 287% from $1.7 million in the six months
ended June 30, 1999 to $6.6 million in the six months ended June 30, 2000. The
increase in backhaul, maintenance, recharge and traffic revenues reflects the
fact that the Company earned traffic revenue on its newly established circuits
during the second quarter of 2000. Advisory services and other sales increased
to $5.8 million in the six months ended June 30, 2000 from $0.0 million in the
six months ended June 30, 1999. The increase in advisory services and other
revenue is due to services rendered regarding the sale of a switching co-
location business, the establishment of a third party co-location facility and
the Desertel joint venture. Revenues for both periods are overwhelmingly
attributable to the subsidiaries of Telemonde Investments Limited.

Cost of goods sold increased $16.3 million or 354% from $4.6 million in the six
months ended June 30, 1999 to $20.9 million in the six months ended June 30,
2000. The increase in cost of goods sold reflects an increase in

                                       15
<PAGE>

capacity and leasing sales, an increase in backhaul, maintenance, recharge and
traffic revenue and higher network and depreciation expenses partially offset by
stronger gross profit margins on the advisory services revenue. Cost of goods
sold are primarily attributable to the subsidiaries of Telemonde Investments
Limited.

Selling, general and administrative expenses increased $5.7 million or 215% from
$2.7 million in the six months ended June 30, 1999 to $8.4 million in the six
months ended June 30, 2000. Staff costs increased from $0.3 million in the six
months ended June 30, 1999 to $3.4 million in the six months ended June 30,
2000. The increase in staff costs are attributable to the fact that Telemonde
Networks Limited was incorporated on February 16, 1999 to perform the sales and
marketing functions previously undertaken outside the Company by Telemonde
Limited (now known as Iaxis Limited), to build infrastructure and staff and
to a non-qualified stock option, non-cash compensation expenses. Other selling,
general and administrative expenses increased from $2.4 million in the six
months ended June 30, 1999 to $5.0 million in the six months ended June 30,
2000, primarily as a result of an increase in legal, travel, sales commissions
and public company expenses as well as a stock issuance expense for Telemonde's
non-delivery of a DS-3 partially offset by EquiTel support expenses incurred in
the first half of 1999.

Research and development expenses increased $0.9 million or 537% from $0.2
million in the six months ended June 30, 1999 to $1.1 million in the six months
ended June 30, 2000. The increase results from a continued build-up of the
Company's technological capabilities commensurate with the expansion of
Telemonde's customer's worldwide network build out. In the first quarter of
1999, the Company's engineering staff was just beginning to be assembled and by
the first second of 2000, it continues to grow predominately in London but also
in New York and Geneva as well.

Amortization of goodwill increased to $4.1 million in the six months ended June
30, 2000 from a non-existent level in the six months ended June 30, 1999.
Telemonde's goodwill is mostly attributable to the purchase of EquiTel late in
1999 and, to a much lesser extent, the acquisition of TGA. The current half's
expense also includes a downward revaluation of an abandoned EquiTel joint
venture in South Africa.

Financing costs decreased $3.1 million or 60% from $5.1 million in the six
months ended June 30, 1999 to $2.1 million in the six months ended June 30,
2000. The decrease predominately results from the expense (approximately $4.9
million) associated with the warrant issuance involving Communications
Collateral Limited debt in the second quarter of 1999 versus a lower level of
investment advisory services and funding facilitation fees in the second quarter
of 2000.

Provision for doubtful debts decreased from $0.9 million in the six months ended
June 30, 1999 to $0.0 million in the six months ended June 30, 2000. The
provision in early 1999 related to a capacity sale made by Telemonde
International Bandwidth (Bermuda) Limited.

Interest income increased $0.18 million or 56% from $0.31 million in the six
months ended June 30, 1999 to $0.49 million in the six months ended June 30,
2000. The increase is primarily attributable to an increase in income from sales
interest on capacity sold on deferred payment terms and income earned on a
temporary increased level of pledged cash and cash equivalents.

Interest expense increased to $2.73 million in the six months ended June 30,
2000 from $0.04 million in the six months ended June 30, 1999 due to third party
financing of a particular customer's accounts receivable and since borrowings
for working capital purposes have materialized over the past few quarters.

Share of losses of associate increased from $0.0 million in the six months ended
June 30, 1999 to $0.4 million in the six months ended June 30, 2000. The losses
relate to start up costs attributable to Desert Telecommunication Services LLC,
a joint venture of EquiTel established in the Sultanate of Oman.

Net loss decreased to $0.7 million in the six months ended June 30, 2000 from
a net loss of $8.0 million in the six months ended June 30, 1999. The decrease
of $7.3 million of net loss arises principally from the greatly increased
sales and gross margins partially offset by an increase in operating and other
expenses.

                                       16
<PAGE>

Liquidity and Capital Resources

Telemonde's liquidity requirements arise from:

        .  purchases and maintenance of bandwidth capacity and network
           equipment;
        .  development of intelligent network platforms, which includes pre-paid
           calling cards and other value-added telephony services;
        .  interest and principal payments on outstanding indebtedness;
        .  net cash used in operating activities; and
        .  acquisitions of, and strategic investments in, businesses.

Telemonde has satisfied its liquidity requirements to date through operating
cash flows, vendor finance, short-term bridge financing, shareholder loans and
equity subscriptions.

Net cash provided by operating activities was $0.7 million in the six months
ended June 30, 2000, compared to net cash used in operating activities of $21.9
million in the six months ended June 30, 1999. The increase in net cash provided
by operating activities was primarily due to an increase in accrued expenses for
uninvoiced bandwidth and content, an increase in expenses satisfied by issuance
of stock, higher earnings before depreciation/amortization and an increase in
trade accounts payable partially offset by an increase in prepaid expenses
relating to customer sales contracts.

Net cash provided by financing activities was $2.5 million in the six months
ended June 30, 2000 compared with $19.4 million in the six months ended June 30,
1999. The increase in short term notes for the current half relate to higher
borrowings with Home Run Limited partially offset by repayments to
Communications Collateral Limited, Kingsfame Investments Limited, The Atlas
Corporation Limited and other investors.

Telemonde's ability to meet its liquidity requirements is dependent on its
ability to generate cash from operations and raise short term or permanent
finance. While the Company incurred operating losses and negative operating cash
flow from its inception through December 31, 1999, the first half of 2000
evidenced a reversal of that trend. However, Telemonde incurred a net loss of
$11.7 million from its inception through December 31, 1998 and a substantial net
loss of $61.1 million in the fiscal year ended December 31, 1999. On a pro forma
basis, after giving effect to the acquisition of EquiTel, Telemonde would have
had a net loss of $13.6 million in the inception period ended December 31, 1998
and $72.6 million in the fiscal year ended December 31, 1999.

We also expect to make capital expenditures over the next few quarters building
our infrastructure and in organizing our bandwidth and switched services
businesses. This includes the purchase of bandwidth capacity for our own
networks, for planned leasing and rental business, and to meet our customers'
requirements. We hope to fund these expenditures from short-term bridge
financing, vendor financing and from planned equity funding, as well as from
proceeds of future sales.

Beyond the initial amount, we will incur additional capital expenditures to
support our projected growth of the bandwidth business. In particular, we aim to
significantly grow our bandwidth leasing and rental business by purchasing
additional bandwidth capacity to be leased to our customers. We expect to meet
the cash requirements of our capital expenditures from:

        .  cash flow from fiber sales and operations;
        .  income from route management operations;
        .  income from our intelligent network services;
        .  additional equity and/or debt financing; and
        .  supplier financing, if available.

                                       17
<PAGE>

Our failure to accomplish any of the foregoing sources may significantly delay
or prevent capital expenditures. If we are unable to make our capital
expenditures as planned, our business may grow slower than expected with a
material adverse effect on our business, financial condition, results of
operations, and the value of our securities.

We currently do not have the full capital base or working capital facilities to
meet our current and projected commitments. If we fail to successfully obtain
necessary capital, or to obtain an insufficient amount of capital, we would harm
our prospects and could jeopardize our existence. We have benefited from the
willingness of suppliers to reschedule commitments and payments and may continue
to require and take advantage of such flexibility in the future. However, this
reliance on supplier flexibility for short term funding inevitably leads to
pressure from suppliers, which weakens our commercial position. In addition, it
could result and has resulted in formal events of default, which could endanger
us, especially if this supplier flexibility ceased to be available. It is for
this reason that we plan to seek substantial external equity and debt funding.

The independent auditors reported that the financial statements for the fiscal
year ended December 31, 1999 were prepared assuming that the Company will
continue as a going concern. As discussed in note 1 to the fiscal year 1999
financial statements as reported in the Company's Annual Report on Form 10-K (as
amended), Telemonde has incurred a net loss of $61.1 million. In addition, at
June 30, 2000, total current liabilities exceeded total current assets by $63.4
million. These factors, and the others discussed in note 1 identified above,
raise substantial doubt about the ability of the Company to continue as a going
concern if it fails to raise additional debt and equity financing. The financial
statements do not include any adjustments relating to the recoverability of
recorded assets, or the amounts of liabilities that might be necessary in the
event the Company fails to raise additional financing and cannot continue in
existence.

We have incurred a high level of debt. As of June 30, 2000, Telemonde had $120.1
million in total liabilities, including:

        .  $78.2 million to capacity suppliers relating to undrawn bandwidth.
           Undrawn bandwidth comprises transatlantic bandwidth capacity, which
           we have not yet drawn-down and taken delivery of, but to which we are
           committed to draw down at scheduled dates under the terms of Capacity
           Purchase Agreements with our suppliers.
        .  $10.1 million to all other suppliers.
        .  $2.8 million owed to Communications Collateral Limited under a
           Capacity Option Agreement.

The amount of our debt could have important consequences for our future,
including, among other things:

        .  cash from operations may be insufficient to meet the principal and
           interest on our indebtedness as it becomes due;
        .  payments of principal and interest on borrowings may leave us with
           insufficient cash resources for our operations; and
        .  restrictive debt covenants may impair our ability to obtain
           additional financing.

We are in discussions with investment bankers for the potential provisioning of
short-term debt and equity financing. The amount of financing which is required
to meet our commitments is significant. We cannot assure you that our current
negotiations and discussions will be successful. Failure to successfully
complete our current negotiations and discussions will not only impair our
ability to develop our business but may also result in the termination of our
operations.

Due to our lack of liquidity resulting from a decline in the market for
wholesale fiber optic bandwidth, we have been unable to generate sufficient cash
flow to meet certain of our debt service requirements and have triggered events
of default under our monetary obligations on a number of our material contracts.
We are, however, renegotiating our capacity purchase agreements with our two
major suppliers, MCI WorldCom and Atlantic Crossing.

                                       18
<PAGE>

MCI WorldCom Capacity Purchase Agreements. In December of 1998 and on March 31,
1999, Telemonde, through its now wholly owned subsidiary Telemonde International
Bandwidth Limited, entered into agreements for the purchase of five units (STM-
1's) of bandwidth capacity on the Gemini network. Specifically, Telemonde
acquired the IRUs in three units of capacity under the December 1998 agreement,
and acquired the right for two additional units of capacity under the March 1999
agreement. Under these agreements, Telemonde is also required to pay annual
maintenance charges. As a result of the Company's liquidity problems detailed
above, Telemonde was unable to fulfill its obligations under these agreements,
including being delinquent on its annual maintenance charges, resulting in an
overall default to MCI WorldCom in the amount of approximately $26 million.

In light of these circumstances, Telemonde executed a Standstill Letter from MCI
WorldCom on December 31, 1999 in which MCI WorldCom has agreed to refrain from
(a) taking any action to enforce payment of the sums owed to MCI WorldCom under
the capacity purchase agreements; (b) taking any action to enforce or make a
demand under any guarantee, indemnity or security related to the capacity
purchase agreements; and (c) commencing any insolvency proceedings against
Telemonde or any of its subsidiaries. The Standstill Letter was to expire upon
the earlier of (i) the full payment of the sums owed under the capacity purchase
agreements; (ii) June 8, 2000; or (iii) Telemonde's failure to comply with a
number of terms and conditions, which includes the prohibition against the sale
of assets, dividends and the borrowing of any additional funds without the
signed written consent of MCI WorldCom's agent other than permitted borrowings.

Telemonde has also executed a letter of intent dated December 31, 1999 termed a
"Capacity Swap Letter" in which MCI WorldCom has agreed to enter into a binding
agreement with Telemonde to permit Telemonde to swap the bandwidth purchased
under the above capacity purchase agreements for bandwidth on MCI WorldCom's
European Ulysses network. The Capacity Swap Letter is conditional on
satisfaction by Telemonde of its obligations under the Standstill Letter.

On May 11, 2000, Telemonde entered into Amendment No. 1 to the Standstill
Letter. Under this amendment, MCI WorldCom, in part, extended the expiration
date of the Standstill Letter and, under a heads of terms, agreed to accept
shares of Telemonde common stock in satisfaction of $9 million of the existing
debt. Telemonde agreed to repay all of its existing non-equity debt to MCI
WorldCom, with (i) $2 million due on September 15, 2000, (ii) $2 million due on
November 15, 2000, and (iii) the balance of the existing debt plus all accrued
interest due on December 31, 2000. In the event Telemonde fails to discharge or
repay the outstanding debt by December 31, 2000, then Telemonde must issue to
MCI WorldCom $2 million of shares of Telemonde common stock and must provide to
MCI WorldCom a pledge of shares of Telemonde common stock valued at 150% of the
then outstanding balance of the debt.

In addition to the foregoing, as partial inducement to MCI WorldCom to defer
from demanding immediate payment of the existing debt, Fastfirm Limited, an
affiliate of Telemonde, pledged 9,917,356 shares of Telemonde common stock to
MCI WorldCom as security for Telemonde's obligations to MCI WorldCom. Telemonde
issued the 9,917,356 shares to Fastfirm on February 2, 2000.

We are currently behind with our payments based upon the existing contracts and
therefore have had to rely on the suppliers' flexibility in rescheduling payment
terms. The events of default under the existing contracts could endanger our
existence.

Atlantic Crossing Limited Capacity Purchase Agreement. Telemonde, through its
now wholly owned subsidiary Telemonde Bandwidth (Bermuda) Limited, agreed to
acquire an aggregate of 16 STM-1(s) on Segment S-1 from Atlantic Crossing
Limited, under a Capacity Purchase Agreement dated June 10, 1998. Since the
summer of 1999, we have not drawn down any capacity from Atlantic Crossing and
have not made any payments under this agreement and are in default under the
payment terms in the amount of approximately $52 million, in addition to
interest and outstanding maintenance payments. Management is in discussions with
Global Crossing, the parent company of Atlantic Crossing, to renegotiate the
terms of the contract, including the extension of capacity drawdowns to include
the entire Global Crossing system, rather than just transatlantic capacity. This
will allow Telemonde to expand according to its overall business strategy.

                                       19
<PAGE>

Despite the defaults with MCI WorldCom and Global Crossing detailed above,
Telemonde has been in extensive negotiations with senior management in both
organizations from the end of 1999 and continuing into August 2000. It should
also be noted that while these discussions have been held, Telemonde has made
payments to both suppliers for services. It is the opinion of Telemonde's
management that the ongoing negotiations with both suppliers will lead to a
successful conclusion of the outstanding defaults and provide Telemonde with
much more flexible supply contracts. If we remain in default, our capacity
suppliers could foreclose on our capacity and other assets of our capacity
owning subsidiaries up to the value of the amount owed to them.

Gemini Capacity Purchase Agreement. On April 3, 1998, Telemonde, through its now
wholly owned subsidiary Telemonde International Bandwidth (Bermuda) Limited,
purchased Indefeasible Rights of Use relating to transatlantic capacity from
Gemini Submarine Cable System Limited. Specifically, Telemonde agreed to acquire
up to a maximum of STM-16. Due to a subsequent and rapid decline in the market
for wholesale telecommunications bandwidth, the capacity sale agreement was
amended by five letter agreements dated January 27, April 16, April 22 and
November 5, 1999 and April 30, 2000. These amendments provided that an IRU for
only one (1) STM-1 would be acquired, and a second STM-1 would be leased for a
lump sum payment plus monthly payments for a three-month period ending July 16,
1999. Further negotiations between the parties provided that the lump sum
payment would fall due on October 7, 1999 in the form of two promissory notes.
Telemonde has paid Gemini the full balance owing for the IRU relating to the
first STM-1. However, Telemonde has not fulfilled its obligations under two
promissory notes in the amount of $2.7 million. Although this default gives
Gemini the right to immediately terminate the Indefeasible Rights of Use, Gemini
has not done so as of the date of this filing. Furthermore, such a termination
would not substantially effect Telemonde's bandwidth sales contracts, as it only
has one customer operating on the Gemini network under this particular capacity
purchase agreement, and this customer is protected under the agreement with
Gemini.

On July 6, 2000, in exchange for Gemini's agreement not to exercise its rights
of termination before September 30, 2000, Telemonde agreed that it would pay
Gemini $0.1 million per month in July, August and September 2000 towards an
outstanding principal and interest balance of $2.6 million. Telemonde has made
the July 2000 payment, intends to comply with its future obligations and further
intends to renegotiate mutually acceptable continued payment terms with Gemini
by the end of September 2000.

Current Obligations to Communications Collateral Limited. On April 15, 1999,
Telemonde, through its now wholly owned subsidiary Telemonde Investments
Limited, entered into a series of agreements with Communications Collateral
Limited, including, among others, agreements for: (1) the sale of an IRU for
bandwidth to Communications Collateral Limited; (2) the grant of an option to
Communications Collateral Limited which, among other things, required Telemonde
to repurchase the bandwidth upon Communications Collateral Limited's request;
and (3) a $1 million loan by Communications Collateral Limited to Telemonde due
and repaid on August 12, 1999. In connection with these principle agreements,
the three subsidiaries of Telemonde Investments Limited guaranteed the
obligations of Telemonde Investments Limited under those agreements, including
its obligation to pay back the loan and to repurchase the bandwidth in the event
that Communications Collateral Limited exercised its option.

On August 14, 1999, Communications Collateral Limited exercised its option to
require Telemonde to repurchase the capacity. Telemonde was unable to complete
this repurchase. As of June 30, 2000, $2.8 million is owed to Communications
Collateral Limited. As a result, Communications Collateral Limited has the right
to foreclose on essentially all of the assets of Telemonde Investments Limited,
including its ownership interests in the three subsidiaries of Telemonde
Investments Limited, all of the assets in any of the foregoing subsidiaries,
including their rights under Telemonde's bandwidth sale contracts; and any
ownership interest the foregoing subsidiaries might have in any other Telemonde
entities until the default is cured. The amount of the foreclosure, however,
would not have exceeded the amount of the indebtedness.

Liabilities at June 30, 2000. As of June 30, 2000, Telemonde had $120.1 million
of total liabilities. This included $78.2 million owed to capacity suppliers
relating to undrawn bandwidth and $2.8 million owed to Communications

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<PAGE>

Collateral Limited. As of June 30, 2000, we therefore had incurred events of
default in respect of $81.0 million of the total liabilities.

We also had the following obligations, included in the total liabilities of
$120.1 million at June 30, 2000:

 .  $7.6 million in loans to Telemonde from Home Run Limited; and
 .  $1.0 million in loans to EquiTel from Rhone Financial Indemnity Re Limited,
   repayable when EquiTel's resources permit.

At June 30, 2000 we had no material capital commitments. We intend to establish
our own operations center, as described in the Network Section of Item 1 of the
Company's 1999 Annual Report on Form 10-K. This will involve capital
expenditures in respect of network equipment and connectivity. The intended
sources of funds for these types of expenditures are described below.

Fund Raising Plans. We currently do not have the full capital base or working
capital facilities to meet our projected commitments. We are currently seeking
short-term debt finance, primarily to repay the obligations to Communications
Collateral Limited. In addition, we plan to raise additional equity in order to
provide us with an increased capital base for the future.

We can give no assurance that our plans to raise additional equity will be
successful. If we fail to obtain the necessary capital, or if we obtain an
insufficient amount of capital, this would harm our prospects and could
jeopardize our existence. We have benefited in the past from the willingness of
suppliers to reschedule commitments and payments and may continue to require and
take advantage of such flexibility in the future. However, this reliance on
supplier flexibility for short term funding inevitably leads to pressure from
suppliers. In addition, it has resulted in the past and could result in the
future in formal events of default, which could endanger us, especially if this
supplier flexibility ceased to be available. It is for this reason that we plan
to seek substantial external funding.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Telemonde's primary market risk exposure relates to changes in foreign currency
rates. Telemonde is exposed to the risk of fluctuations in foreign currency
exchange rates due to the international nature and scope of its operations. In
the future, Telemonde expects to continue to derive a significant portion of its
net revenue and incur a significant portion of its operating costs outside the
United States, and changes in foreign currency exchange rates may have a
significant effect on Telemonde's results of operations. Telemonde historically
has not engaged in hedging transactions to mitigate foreign exchange risk.

Telemonde's main exchange risk currently arises from fluctuations between the US
dollar and pounds sterling. Its revenue from bandwidth sales is in US dollars.
Although capacity purchases are also made in dollars, Telemonde's sales, general
and administrative costs are mostly incurred in pounds sterling because most of
its employees are based in its executive and administrative offices in London,
England.

EquiTel's revenues will be mainly received in the local currency of the country
of operations (for example, in Omani rigals in the case of the current contract
in Oman). As EquiTel's contracts are mainly contracted through local joint
ventures and partnerships, much of the costs of the contract are also incurred
in the same local currency. However, there will be an exchange risk on the
profit or loss of the local operations or joint venture arising from the
fluctuation of the local currency, against the pounds sterling (in which
currency EquiTel's central sales, general and administrative costs in London are
mainly incurred).

                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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<PAGE>

From time to time, the Company is party to litigation or other legal proceedings
that each company considers to be a part of the ordinary course of its business.
The Company is not involved in any legal proceedings nor is it party to any
pending or threatening claims that could reasonably be expected to have a
material adverse effect on its financial condition or results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

No securities of Telemonde which were not registered under the Securities Act of
1933, as amended (the "Securities Act"), have been sold by Telemonde during the
second quarter of 2000, except as follows:

(a)  On April 3, 2000, Telemonde issued 946,429 shares of its common stock to
     Mark Hollo (71,429 shares) in partial consideration for his service as a
     non-executive director of Telemonde and to Black Trust (875,000 shares) in
     partial (50%) consideration towards investment advisory services and the
     facilitation of funding for the Company as part of an agreement between the
     companies (Telemonde and Sands Brothers). An exemption from registration is
     claimed under Section 4(2) of the Securities Act.
(b)  On April 5, 2000, Telemonde issued 816,000 shares of its common stock to
     Trans Global as full and final payment for Telemonde's non-delivery of a
     DS-3 for their customer. An exemption from registration is claimed under
     Section 4(2) of the Securities Act.
(c)  On June 6, 2000, Telemonde issued 1,600,000 shares of its common stock to
     Gestibroker Consulting & Financial Management SA as initial consideration
     towards investment advisory services and the facilitation of funding for
     the Company. An exemption from registration is claimed under Section 4(2)
     of the Securities Act.
(d)  On June 6, 2000, Telemonde issued 9,250 shares of its common stock to
     Growth Integration for consultancy worked performed on the Company's
     behalf. An exemption from registration is claimed under Section 4(2) of the
     Securities Act.
(e)  On June 6, 2000, Telemonde issued 60,000 shares of its common stock to IC
     Capital LLC in partial consideration for their investor relation and media
     support services for the Company as part of an agreement between the
     companies. An exemption from registration is claimed under Section 4(2) of
     the Securities Act.
(f)  On June 6, 2000, Telemonde issued 16,667 shares of its common stock to
     Barry Nathanson as part of the final compensation for services rendered
     relating to the identification and subsequent placement of a Chief
     Financial Officer with the Company. An exemption from registration is
     claimed under Section 4(2) of the Securities Act.
(g)  On June 6, 2000, Telemonde issued 800,000 shares of its common stock to
     Olympic Corporate Holdings as consideration towards investment advisory
     services and the facilitation of funding for the Company. Exemption from
     registration is claimed under Section 4(2) of the Securities Act.
(h)  On June 6, 2000, Telemonde issued 20,000 shares of its common stock to
     Stock Exposure Inc. in partial consideration for their internet based stock
     coverage on the Company as part of an agreement between the companies. An
     exemption from registration is claimed under Section 4(2) of the Securities
     Act.
(i)  On June 6, 2000, Telemonde issued 350,000 shares of its common stock to
     Dunloe Investments Limited in a full debt to equity conversion of a short
     term working capital loan plus interest. An exemption from registration is
     claimed under Section 4(2) of the Securities Act.
(j)  On June 6, 2000, Telemonde issued 400,000 shares of its common stock to
     Radioactive Limited as reimbursement for the same number of shares given
     to, and sold by, Communications Collateral Limited as a partial debt
     reduction vehicle. An exemption from registration is claimed under Section
     4(2) of the Securities Act.
(k)  On June 6, 2000, Telemonde issued 112,000 shares of its common stock to
     Lonsdale Travel in a partial debt to equity conversion of prior travel
     services rendered to the Company. An exemption from registration is claimed
     under Section 4(2) of the Securities Act.
(l)  On June 29, 2000, Telemonde issued 50,000 shares of its common stock to
     Brown Shipley & Co. in order to satisfy the remaining balance owed for
     valuation services rendered relating to the EquiTel acquisition by the
     Company. An exemption from registration is claimed under Section 4(2) of
     the Securities Act.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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<PAGE>

(a)  Exhibits required by Item 601 of Regulation S-K are incorporated herein by
     reference and are listed on the attached Exhibit list.

(b)  On May 4, 2000 Telemonde filed a Current Report on Form 8-K reporting under
     Item 5 that Telemonde's acquisitions of Global Communications (Holdings)
     Ltd. and ITS Europe would not proceed.

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<PAGE>

                                   SIGNATURES
                                TELEMONDE, INC.

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

                                  TELEMONDE, INC.



Date: 8/14/00                     By: /s/ Paul E. Donofrio
     -----------------------         -------------------------------------------
                                      Paul E. Donofrio, Executive Vice President
                                      and Chief Financial Officer

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<PAGE>

                                 EXHIBIT INDEX
                                 -------------

Exhibit No.    Description
-----------    -----------

    2.1*       Stock Purchase Agreement among Pac-Rim Consulting, Inc., Thomas
               Gelfand, Telemonde Investments Limited, and Rhone Financial
               Indemnity Re Limited, dated as of May 14, 1999.

    2.2*       Agreement Relating to the Sale and Purchase of Shares in the
               Capital of EquiTel Communications Limited among (1) Telcoworld
               Limited and Others, (2) Telemonde, Inc., and (3) Harry Pomeroy
               and Larry Trachtenberg, dated November 8, 1999.

    2.3*       Agreement and Plan of Merger of Telemonde, Inc., a Nevada
               corporation, into Telemonde, Inc., a Delaware corporation, dated
               October 29, 1999.

    2.4*       Share Purchase Agreement for the Sale and Purchase of all the
               issued share capital of TGA (UK) Limited, between the
               shareholders of TGA (UK) and Telemonde, Inc., dated August 9,
               1999.

    2.5(a)*    Share Purchase Agreement for the sale and purchase of all the
               issued capital shares of Carnival Enterprises Limited and 10% of
               the issued share capital of ITS Europe, S.L. among (1) Market
               Consultant Limited, (2) Volim Holding B.V., (3) Callaway
               Continental Limited and (4) EquiTel Communications, dated October
               22, 1999.

    2.5(b)*    Share Purchase Agreement for the sale and purchase of 400,000
               shares of common stock of Telemonde, Inc. between Market
               Consultant Limited and Callaway Continental Limited, dated
               October 22, 1999.

    3.1(a)*    Certificate of Incorporation of Telemonde, Inc., filed June 29,
               1999.

    3.1(b)*    Certificate of Merger between Telemonde, Inc., a Nevada
               corporation, and Telemonde, a Delaware corporation.

    3.2*       By-Laws of Telemonde, Inc.

    4.1*       Form of Common Stock Certificate.

    4.2*       Registration Rights Agreement between Telemonde, Inc. and
               Communications  Collateral Limited, dated September 1, 1999.

    4.3*       Registration Rights Agreement between Telemonde, Inc. and
               Atlantic Crossing, Ltd. dated August 25, 1999.

    10.1*      Warrant from Telemonde, Inc. to Communications Collateral
               Limited, dated September 1, 1999.

    10.2*      Warrant from Telemonde, Inc. to Atlantic Crossing, Ltd., dated
               August 25, 1999.

    10.3*      Consulting Agreement between Telemonde, Inc. and Gottfried von
               Bismarck, dated November 2, 1999 and effective as of July 1,
               1999.

    10.4*      Form of Employment Agreement between Executive Officers and
               Telemonde.

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<PAGE>

    10.4(a)*   Schedule of Employees covered by Form of Employment Agreement.

    10.5*      Capacity Sales Agreement between Gemini Submarine Cable System
               Limited and Telemonde International Bandwidth (Bermuda) Limited,
               April 3, 1998.

    10.5(a)*   Promissory Note from Telemonde, Inc. to Gemini Submarine Cable
               System Limited, dated August 27, 1999 for $1,300,000.

    10.5(b)*   Promissory Note from Telemonde, Inc. to Gemini Submarine Cable
               System Limited, dated August 27, 1999 for $1,400,000.

    10.6*      Capacity Purchase Agreement between Atlantic Crossing Ltd. and
               Telemonde Bandwidth (Bermuda) Limited, dated June 10, 1998.

    10.7*      Transmission Capacity Agreement among MCI WorldCom Global
               Networks U.S., Inc., and MFS Cableco (Bermuda) Limited, and,
               EquiTel Bandwidth Limited, dated December 1998.

    10.8*      Transmission Capacity Agreement among MCI WorldCom Global
               Networks U.S., Inc., and MCI WorldCom Global Networks Limited,
               and Telemonde International Bandwidth Limited, dated March 31,
               1999.

    10.8(a)**  MCI WorldCom Global Networks U.S., Inc. Standstill Letter to and
               accepted by Telemonde, Inc., Telemonde International Bandwidth
               Limited, Telemonde Networks Limited, Kevin Maxwell and Adam
               Bishop, dated 31 December 1999.

    10.8(b)**  MCI WorldCom Global Networks U.S., Inc. Capacity Swap Letter to
               and accepted by Telemonde International Bandwidth Limited, dated
               31 December 1999.

    10.8(c)    Amendment No. 1 to MCI WorldCom Global Networks U.S., Inc.
               Standstill Letter, dated May 11, 2000, to and accepted by
               Telemonde, Inc., Telemonde Networks Limited and Telemonde
               International Bandwith Limited.

    10.8(d)    Pledge Agreement, dated May 2, 2000, by and between Fastfirm
               Limited and MCI WorldCom Global Networks U.S., Inc. on behalf of
               itself and MCI WorldCom Global Networks Limited.

    10.9*      Transmission Capacity Agreement between Telemonde International
               Bandwidth Limited and Communications Collateral Limited and
               Capacity Option Agreement between Telemonde Investments Limited
               and Communications Collateral Limited, both dated April 15, 1999.

    10.10*     Composite Guarantee and Debenture, among (1) Telemonde
               Investments Limited, (2) Telemonde International Bandwidth
               (Bermuda) Limited, Telemonde Bandwidth (Bermuda) Limited,
               Telemonde International Bandwidth Limited, and (3) Communications
               Collateral Limited, dated April 12, 1999.

    10.11*     Loan Facility Agreement between Telemonde Investments Limited and
               Communications Collateral Limited, dated April 15, 1999.

    10.12**    Forbearance Agreement, dated 12 January 2000, entered into by and
               among Communications Collateral Limited, Telemonde Investments
               Limited, Telemonde International Bandwidth Limited, Telemonde,
               Inc. and Kevin Maxwell.

    10.13**    Advisor Agreement between Sand Brothers & Co., Ltd. and
               Telemonde, Inc., dated October 27, 1999, and Amendment No. 1 to
               Advisor Agreement, dated November 10, 1999.

    10.14***   Executive Services Agreement by and between Telemonde, Inc. and
               Paul E. Donofrio, dated February 22, 2000.

                                       26
<PAGE>

    21*        Subsidiaries of Registrant.

    27         Financial Data Schedule.

    99.1*      Heads of Agreement between Telemonde, Inc. and the shareholders
               of Global Communications Holdings (Limited) and Telemonde, Inc.,
               dated November 5, 1999.

    99.2*      Agreement relating to a Lease and Services Agreement between
               Global Switch (London) Limited and Telemonde Networks Limited,
               dated November 8, 1999.

    99.3*      Term Sheet for the purchase of 16% to 51% of DeserTel, dated
               November 8, 1999.

*Previously filed as an exhibit to the Registration Statement on Form 10, as
filed with the SEC on November 15, 1999.

**Previously filed as an exhibit to the Registration Statement on Form 10/A-1,
as filed with the SEC on March 3, 2000.

***Previously filed as an exhibit to the Annual Report on Form 10-K, as filed
with the SEC on March 30, 2000.

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