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WORLD ACCESS INC /NEW/
8-K/A, 2001-01-17
COMMUNICATIONS EQUIPMENT, NEC

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SECURITIES AND EXCHANGE COMMISSION

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FORM 8-K/A

Pursuant to Section 13 or 15(d) of the

Date of Report (Date of earliest event reported): January 16, 2001

WORLD ACCESS, INC.

DELAWARE		0-29782		58-2398004
(State of		(Commission File No.)		(I.R.S. Employer
Incorporation				Identification No.)

945 E. PACES FERRY ROAD, SUITE 2200

(404) 231-2025

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Item  2.     Acquisition or Disposition of Assets

      On December 18, 2000, World Access completed its merger with Communication Telesystems International d/b/a WorldxChange Communications, a global telecommunications company that specializes in providing high-quality, low-cost services to customers in the United States, Australia, Belgium, Canada, France, Germany, Guatemala, The Netherlands, New Zealand and the United Kingdom.

      Pursuant to the terms of the Agreement and Plan of Merger among World Access, WorldxChange Communications, Inc. f/k/a CTI Merger Co. and WorldxChange, each outstanding share of WorldxChange common stock, including shares of preferred stock deemed to be automatically converted into shares of common stock immediately before the completion of the merger, was converted into the right to receive 0.6583 shares of World Access common stock. World Access issued an aggregate of approximately 29.9 million shares of common stock in the merger. The consideration paid by World Access in connection with the merger was determined by arms’ length negotiations between the parties.

Item  7.     Financial Statements and Exhibits

      (a)  Financial Statements.

      In accordance with Item 7(a)(4) of Form 8-K, the following historical financial statements of WorldxChange prepared in accordance with Regulation S-X are included in this report.

	•	Report of Ernst & Young LLP, Independent Auditors.
	•	Consolidated Balance Sheets at September 30, 2000 and 1999.
	•	Consolidated Statements of Operations for the three years ended September 30, 2000.
	•	Consolidated Statements of Shareholders’ Deficit and Comprehensive Loss for the three years ended September 30, 2000.
	•	Consolidated Statements of Cash Flows for the three years ended September 30, 2000.
	•	Notes to Consolidated Financial Statements.

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The Board of Directors

      We have audited the consolidated balance sheets of Communications Telesystems International d.b.a. WorldxChange Communications as of September 30, 2000 and 1999, and the related consolidated statements of operations, shareholders’ deficit, and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Communications Telesystems International d.b.a. WorldxChange Communications at September 30, 2000 and 1999 and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States.

      As discussed in Note 2 to the financial statements, the Company’s recurring losses and deficiency in working capital and shareholders’ equity raise substantial doubt about its ability to continue as a going concern. The fiscal 2000 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

	/s/  ERNST & YOUNG LLP

San Diego, California

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COMMUNICATIONS TELESYSTEMS INTERNATIONAL

Consolidated Balance Sheets

					September 30,
					2000				1999
ASSETS
Current assets:
	Cash and cash equivalents				$	12,123			$	38,030
	Accounts receivable, net of allowance of $29,871 at September 30, 2000 and $9,590 at September 30, 1999					121,399				54,991
	Prepaid expenses and other current assets					11,331				8,224
			Total current assets			144,853				101,245
Equipment and leasehold improvements, net						193,257				114,765
Intangible assets, net						78,449				12,194
Other assets						3,464				6,798
			Total assets		$	420,023			$	235,002
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
	Accrued network costs				$	162,736			$	83,993
	Accounts payable					103,989				13,770
	Accrued taxes					12,871				3,734
	Accrued interest					8,511				634
	Other accrued liabilities					17,761				11,965
	Payable to related parties					2,696				—
	Deferred revenue					4,309				3,941
	Current portion of long-term debt					190,394				9,799
	Current portion of capital lease obligations					13,825				10,582
			Total current liabilities			517,092				138,418
Long-term debt						34,427				100,324
Capital lease obligations						28,655				29,395
Other long-term liabilities						3,162				1,918
			Total liabilities			583,336				270,055
Shareholders’ deficit:
	Preferred Stock, no par value; Authorized shares — 10,000,000:
		Series A Cumulative Preferred Stock; Issued and outstanding 30,000 at September 30, 2000 and September 30, 1999; liquidation preference of $30,000				30,000				30,000
	Common Stock, no par value; Authorized shares — 100,000,000, Issued and outstanding 42,613,954 at September 30, 2000 and 36,965,911 at September 30, 1999					148,056				99,047
	Notes receivable from shareholders					(1,988	)			(1,474	)
	Accumulated deficit					(325,138	)			(160,221	)
	Accumulated other comprehensive loss					(14,243	)			(2,405	)
			Total shareholders’ deficit			(163,313	)			(35,053	)
			Total liabilities and shareholders’ deficit		$	420,023			$	235,002

See accompanying notes.

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COMMUNICATIONS TELESYSTEMS INTERNATIONAL

Consolidated Statements of Operations

				Years Ended September 30,
				2000				1999				1998
Revenues				$	515,951			$	421,580			$	398,867
Operating expenses:
	Cost of services (exclusive of depreciation and amortization shown separately below)				433,773				328,334				287,312
	Selling, general and administrative				181,621				124,112				114,897
	Restructuring charge				4,160				—				—
	Depreciation and amortization				48,200				17,705				12,332
		Total operating expenses			667,754				470,151				414,541
Operating loss					(151,803	)			(48,571	)			(15,674	)
Reimbursement from World Access of net losses under Management Agreement					(22,688	)			—				—
Interest expense					31,418				16,883				11,947
Other expense, net					1,702				648				1,378
Loss before minority interest					(162,235	)			(66,102	)			(28,999	)
Minority interest					—				2,251				1,546
Net loss					(162,235	)			(63,851	)			(27,453	)
	Preferred stock dividends				2,682				2				7
Net loss applicable to common shareholders				$	(164,917	)		$	(63,853	)		$	(27,460	)

See accompanying notes.

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COMMUNICATIONS TELESYSTEMS INTERNATIONAL

Consolidated Statements of Shareholders’ Deficit and

				Series A								Series B
				Cumulative								Cumulative
				Preferred Stock								Preferred Stock								Common Stock								Notes Receivable
																												from
				Shares				Amount				Shares				Amount				Shares				Amount				Shareholders
Balance at October 1, 1997					23			$	7				—			$	—				27,734,000			$	258			$	—
Dividends on Series A
Preferred Stock					—				—				—				—				—				—				—
Issuance of Common Stock					—				—				—				—				788,127				10,000				—
Exercise of options/warrants					—				—				—				—				54,425				39				—
Comprehensive loss:
Net loss					—				—				—				—				—				—				—
Foreign currency translation adjustment					—				—				—				—				—				—				—
		Total comprehensive loss
Balance at September 30, 1998					23				7				—				—				28,576,552				10,297				—
Repurchase of Series A
	Cumulative Preferred Stock				(23	)			(7	)			—				—				—				—				—
Dividends on Series A
	Preferred Stock				—				—				—				—				—				—				—
Issuance of Series A
	Cumulative Preferred Stock				30,000				30,000				—				—				—				—				—
Issuance of Common Stock					—				—				—				—				8,153,120				87,102				—
Exercise of options/warrants					—				—				—				—				236,239				1,648				—
Notes receivable for sales of common stock					—				—				—				—				—				—				(1,474	)
Comprehensive loss:
Net loss					—				—				—				—				—				—				—
Foreign currency translation adjustment					—				—				—				—				—				—				—
		Total comprehensive loss
Balance at September 30, 1999					30,000				30,000				—				—				36,965,911				99,047				(1,474	)
Dividends on Preferred Stock					—				—				—				—				—				—				—
Issuance of Series B Cumulative Preferred Stock
	net of issuance cost of $1,342				—				—				50,000				48,658				—				—				—
Conversion of Series B Cumulative Preferred Stock into Common Stock					—				—				(50,000	)			(48,658	)			5,555,550				48,658				—
Exercise of options/warrants					—				—				—				—				92,493				351				—
Notes receivable for sales of common stock					—				—				—				—				—				—				(514	)
Comprehensive loss:
Net loss					—				—				—				—				—				—				—
Foreign currency translation adjustment					—				—				—				—				—				—				—
		Total comprehensive loss
Balance at September 30, 2000					30,000			$	30,000				—			$	—				42,613,954			$	148,056			$	(1,988	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

								Accumulated
								Other				Total
				Accumulated				Comprehensive				Shareholders’
				Deficit				Loss				Deficit
Balance at October 1, 1997				$	(68,908	)		$	(237	)		$	(68,880	)
Dividends on Series A
Preferred Stock					(7	)			—				(7	)
Issuance of Common Stock					—				—				10,000
Exercise of options/warrants					—				—				39
Comprehensive loss:
Net loss					(27,453	)			—				(27,453	)
Foreign currency translation adjustment					—				(3,292	)			(3,292	)
		Total comprehensive loss											(30,745	)
Balance at September 30, 1998					(96,368	)			(3,529	)			(89,593	)
Repurchase of Series A
	Cumulative Preferred Stock				—				—				(7	)
Dividends on Series A
	Preferred Stock				(2	)			—				(2	)
Issuance of Series A
	Cumulative Preferred Stock				—				—				30,000
Issuance of Common Stock					—				—				87,102
Exercise of options/warrants					—				—				1,648
Notes receivable for sales of common stock					—				—				(1,474	)
Comprehensive loss:
Net loss					(63,851	)			—				(63,851	)
Foreign currency translation adjustment					—				1,124				1,124
		Total comprehensive loss											(62,727	)
Balance at September 30, 1999					(160,221	)			(2,405	)			(35,053	)
Dividends on Preferred Stock					(2,682	)			—				(2,682	)
Issuance of Series B Cumulative Preferred Stock
	net of issuance cost of $1,342				—				—				48,658
Conversion of Series B Cumulative Preferred Stock into Common Stock					—				—				—
Exercise of options/warrants					—				—				351
Notes receivable for sales of common stock					—				—				(514	)
Comprehensive loss:
Net loss					(162,235	)			—				(162,235	)
Foreign currency translation adjustment					—				(11,838	)			(11,838	)
		Total comprehensive loss											(174,073	)
Balance at September 30, 2000				$	(325,138	)		$	(14,243	)		$	(163,313	)

See accompanying notes.

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COMMUNICATIONS TELESYSTEMS INTERNATIONAL

Consolidated Statements of Cash Flows

					Years Ended September 30,
					2000				1999				1998
Operating activities
Net loss					$	(162,235	)		$	(63,851	)		$	(27,453	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Provision for bad debts					30,288				15,202				15,170
	Depreciation and amortization					48,200				17,705				12,332
	Deferred revenue					(1,838	)			3,255				(2,275	)
	Minority interest					–				(2,251	)			(1,546	)
	Changes in operating assets and liabilities:
		Accounts receivable				(58,988	)			(31,227	)			(391	)
		Receivables from related parties				–				(1,448	)			(1,864	)
		Prepaid expenses and other assets				14,633				(4,740	)			(5,551	)
		Accrued network costs				56,218				34,629				(12,255	)
		Accounts payable				80,230				(1,031	)			(1,584	)
		Other accrued liabilities				(21,373	)			2,208				(6,318	)
			Net cash used in operating activities			(14,865	)			(31,549	)			(31,735	)
Investing activities
Acquisition of equipment and leasehold improvements						(12,746	)			(27,633	)			(11,990	)
Acquisition of ACC Europe, net of cash acquired						(55,745	)			–				–
			Net cash used in investing activities			(68,491	)			(27,633	)			(11,990	)
Financing activities
Proceeds from revolving credit agreement						303,695				283,485				256,535
Repayments on revolving credit agreement						(296,727	)			(278,407	)			(255,885	)
Proceeds from issuance of long–term debt						35,725				–				55,152
Repayment of long–term debt, subordinated debentures, loans payable and capital leases						(33,221	)			(30,433	)			(5,299	)
Payment of dividends on preferred stock						–				(2	)			(7	)
Proceeds from the issuance of preferred stock						48,658				30,000				–
Proceeds from issuance of common stock						20				71,648				10,039
Repurchase of preferred stock						–				(7	)			–
			Net cash provided by financing activities			58,150				76,284				60,535
Effect of exchange rate changes on cash						(701	)			11				(219	)
			Net increase (decrease) in cash and cash equivalents			(25,907	)			17,113				16,591
Cash and cash equivalents at beginning of year						38,030				20,917				4,326
Cash and cash equivalents at end of year					$	12,123			$	38,030			$	20,917
Supplemental disclosure of cash flow information
Cash paid during the year for:
	Interest				$	21,341			$	9,248			$	6,686
	Income taxes					–				2				8
Non–cash investing and financing activities
Assets acquired by incurring capital lease obligations or long–term debt						31,549				53,391				10,421
Common stock issued in exchange for the acquisition of certain minority interest						–				17,102				–
Debt issued in conjunction with acquisition of ACC						53,000				–				–

See accompanying notes.

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COMMUNICATIONS TELESYSTEMS INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Business Activity

      Communications TeleSystems International d/b/a WorldxChange Communications (“WorldxChange”), a California corporation, is a facilities–based telecommunications carrier that provides international and domestic long–distance service to retail and carrier customers. Our retail base is comprised of residential and commercial customers. Our wholesale base is comprised of other U.S. and foreign telecommunications carriers and resellers. We have established retail and carrier operations in the United States, the Pacific Rim, Canada, Europe and Latin America. WorldxChange also provides operator, debit/calling card service, toll free, private line and other enhanced services.

      WorldxChange has established operations in the United Kingdom, France, Germany, Belgium, The Netherlands, Australia, New Zealand and Canada through wholly-owned subsidiaries. WorldxChange has additional subsidiaries domiciled in various other countries; however, the activity of these subsidiaries to date has not been significant.

      The revenue from WorldxChange’s international operations continues to increase as a percentage of total revenue. For the years ended September 30, 1998, 1999 and 2000 international revenue, including Canada, represented approximately 20%, 22% and 47% of WorldxChange’s total revenue, respectively.

2.  Basis of Presentation and Summary of Significant Accounting Policies

  Basis of Presentation

      The accompanying financial statements have been prepared assuming that WorldxChange will continue as a going concern. WorldxChange has experienced recurring losses and has a deficiency in working capital and shareholders’ equity. WorldxChange plans to complete its merger transaction with World Access, Inc. (“World Access”). WorldxChange’s ability to continue as a going concern will be dependent on World Access continuing to provide working capital to fund WorldxChange’s future operating and capital requirements. While there can be no assurances, management believes that World Access will provide the necessary funding to support WorldxChange’s operations at least through September 30, 2001. (See Note 14)

  Consolidation

      The accompanying consolidated financial statements include the accounts of WorldxChange and its wholly and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

  Cash Equivalents

      Cash equivalents are highly liquid investments purchased with maturities of three months or less when purchased.

  Foreign Currency

      Assets and liabilities of operations outside the United States, for which the functional currency is not U.S. dollars, are translated into U.S. dollars using the exchange rate in effect at each period end. Revenues and expenses are translated at the average exchange rate prevailing during the period. Cumulative translation adjustments are included as a separate component of shareholders’ deficit. Exchange gains and losses from foreign currency transactions are included in “Other (income) expense,” in the accompanying Consolidated Statements of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

  Concentration of Credit Risk

      WorldxChange’s customer base is comprised of carrier customers and residential and commercial users of its direct dial long distance telephone services, as well as hotels and other users of its operator–assisted long distance telephone services. These customers are located principally throughout the United States (U.S.) and Europe, and to a much lesser extent in the Pacific Rim, Latin America, and Canada. WorldxChange’s U.S. revenues from residential and smaller commercial users are billed and collected by local exchange carriers (LECs). These LECs pass through to WorldxChange their collection experience with customers billed under these billing agreements. WorldxChange direct bills carrier and certain commercial customers in the U.S. and direct bills all customers in its international markets. WorldxChange performs credit evaluations of the financial condition of these direct bill customers, and may require a deposit in certain circumstances. Revenue is reported net of estimated customer credits which are provided for in the financial statements at the same time the corresponding revenue is recognized. The Company periodically estimates its reserve requirements for uncollectible accounts, and the bad debt expense is included in selling, general and administrative expense. No one customer accounted for more than 10% of revenues for any period during fiscal 2000, 1999, and 1998.

  Equipment and Leasehold Improvements

      Equipment and leasehold improvements are recorded at cost and are depreciated or amortized using the straight–line method over the estimated useful lives of the assets (generally two to seven years). Equipment under capital leases are recorded at the net present value of the minimum lease payments and are amortized over the shorter of the useful life of the asset or the lease term (ranging from three to seven years). Interests in international undersea and on–land fiber–optic cable systems are amortized over their estimated useful lives, typically 20 years. Total depreciation expense for the fiscal years ended September 30, 2000, 1999 and 1998 was $38,873,000, $17,705,000 and $12,332,000, respectively.

  Installation Costs

      Installation costs consists of costs incurred by WorldxChange for the expansion of its switching capacity and related network. These costs also include dialer installation costs incurred upon establishing network services with certain operator services customers. These costs are amortized using the straight–line method over three years.

  Impairment of Long-Lived Assets

      The Company evaluates impairment of long-lived assets pursuant to SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” which requires impairment losses to be recorded on long-lived assets used in operations when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management periodically evaluates property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate the assets may be impaired. This evaluation consists of comparing estimated future cash flows (undiscounted and without interest charges) over the remaining life of the asset to its carrying value. When such evaluation results in a deficiency, the asset is written down to its estimated fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

  Accrued Network Costs

      Accrued network costs represent an estimate for cost of network services received from third party telecommunications companies for which WorldxChange has not been invoiced. The estimates are based upon vendor contract rates and actual minutes utilized per WorldxChange’s records.

  Minority Interest

      Certain of WorldxChange’s subsidiaries have sold stock to outside investors. Income or losses from these operations are allocated to minority shareholders based on ownership percentages. Losses in excess of the amounts invested by the minority shareholders are reflected in the operations of WorldxChange. In September 1999, WorldxChange issued 1,554,763 shares of its common stock in exchange for the shares held by certain minority shareholders of its Australian subsidiary and a related holding company (Note 9). At September 30, 1999 and 2000 a 2.2% minority interest remains in a WorldxChange subsidiary.

  Stock-Based Compensation

      As permitted by SFAS No. 123, Accounting for Stock–Based Compensation, WorldxChange accounts for compensation expense under its stock–based compensation plans in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Pro forma disclosure of net loss, as if the fair value–based method had been applied in measuring compensation expense, is presented in Note 9.

  Revenue Recognition

      Revenue is recognized as long distance telecommunications services are provided. Prepaid calling card revenue is reported net of selling discounts and recorded when minutes are used. Deferred revenue relates to amounts received from or billed to customers prior to WorldxChange providing telecommunications services.

  Cost of Services

      Cost of services is exclusive of depreciation and amortization related to the services network which is included in “Depreciation and amortization” presented separately on the consolidated statements of operations.

  Advertising

      WorldxChange charges advertising costs to expense as the costs are incurred. Total advertising expense was $14,117,000, $19,118,000 and $17,129,000 for the years ended September 30, 1998, 1999 and 2000, respectively.

  Use of Estimates

      The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

  Fair Values of Financial Instruments

      WorldxChange believes that the carrying amounts of its cash, cash equivalents, accounts receivable, accounts payable, accrued liabilities, long-term debt and capital lease obligations approximate their fair values due to their short-term nature or variable interest rates.

  New Accounting Standards

      In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In May 1999, the FASB voted to delay the effective date of SFAS No. 133 by one year. The Company will be required to adopt FAS 133 for fiscal year 2001. This statement establishes a new model for accounting for derivatives and hedging activities. Under SFAS No. 133, all derivatives must be recognized as assets and liabilities and measured at fair value. WorldxChange does not expect the adoption of SFAS No. 133 to have a material impact on its consolidated financial position or results of operations.

  Reclassifications

      Certain prior period amounts have been reclassified to conform with the current period presentation.

3.  Acquisitions

      In December 1998, WorldxChange completed a business combination with CTS Telcom, Inc. and WorldxChange Limited, affiliates under common ownership and management control, both of which have been accounted for in a manner similar to a pooling-of-interests. WorldxChange issued 278,000 shares in connection with the acquisition of WorldxChange Limited, and no consideration was paid for the acquisition of CTS Telcom. The accompanying pooled consolidated financial statements are derived from the combined historical financial statements of CTS Telcom, WorldxChange Limited and WorldxChange. All significant intercompany accounts and transactions have been eliminated.

      Net revenues and net loss for fiscal 1998 preceding the merger by entity are as follows (in thousands):

		Net				Net
		Revenues				Loss
WxC		$	394,232			$	(24,932	)
CTS Telcom			16,343				(2,099	)
WxL New Zealand			21,204				(422	)
Eliminations			(32,912	)			—
Combined		$	398,867			$	(27,453	)

      On November 4, 1999, WorldxChange acquired the outstanding shares of certain European subsidiaries of ACC Corp, a subsidiary of AT&T. The operations of these subsidiaries are located in the United Kingdom, Germany, France and Italy. As part of this transaction, WorldxChange also acquired from ACC Corp a switch located in the United States and certain indefeasible rights of use of a transatlantic telecommunications cable system. The $113 million purchase price for this transaction was comprised of $60 million cash and a $53 million, 12% per annum interest rate note due on or before

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 28, 2000. The acquisition has been accounted for as a purchase, and accordingly, the excess purchase price over the fair value of the net assets acquired of approximately $75.2 million has been allocated to goodwill and customer base based on management’s estimates. Goodwill is being amortized on a straight-line basis over twenty years and the customer base is being amortized over five years.

      WorldxChange financed $50 million of the cash payment through the issuance in November 1999 of 50,000 shares of Series B Convertible Preferred Stock to two existing shareholders for $50 million. The Series B Convertible Preferred Stock has a liquidation preference of $1,000 per share. In May 2000, the Series B Convertible Preferred Stock was converted into 5,555,550 shares of common stock.

      Assuming that the acquisition of ACC Corp. had occurred on the first day of WorldxChange’s fiscal year ended September 30, 1998, pro forma condensed consolidated results of operations would have been as follows (in thousands):

		Years ended
		September 30,
		1999				1998
		(Unaudited)
Revenues		$	581,826			$	517,670
Net loss			(128,654	)			(47,765	)

      In connection with the purchase of ACC Corp., WorldxChange accrued certain costs associated with the integration of ACC Corp’s operations and for future unfavorable contractual commitments. Such amounts and their subsequent disposition are as follows (in thousands):

		Recorded								Balance
		at Purchase				Activity				at September 30, 2000
Employee severance		$	3,198			$	3,010			$	188
Facility lease commitments			1,945				937				1,008
Unfavorable vendor contract commitments			9,211				6,869				2,342
		$	14,354			$	10,816			$	3,538

4.  Restructuring Charges

      During fiscal 2000, WorldxChange approved and began implementing a restructuring program designed to reduce operating costs and focus WorldxChange resources on a recently acquired business unit. A summary of restructuring charges recorded in connection with this program follows (in thousands):

			Restructuring				2000				Balance
			Charge				Activity				at 9/30/00
Reorganize Operating Structure
	Redundant network costs		$	1,763			$	1,763			$	0
	Severance and termination benefits			1,312				1,312				0
	Redundant facility costs			506				385				122
	Write down of capitalized equipment			700				700				0
			$	4,281			$	4,160			$	122

      The special charges included approximately $1.8 million in cost of sales for redundant capacity relating to a recently acquired business unit. Severance and termination benefits of approximately $1.3 million were paid to existing WorldxChange employees who lost their jobs as a direct result of the acquisition of the business unit and the resulting reduction of the workforce. The acquisition of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

business unit resulted in redundant facilities with costs associated with closing these facilities of approximately $0.7 million. No costs were included in the restructuring charges that were expected to provide future economic benefit to WorldxChange.

5.  Balance Sheet Information

  Sale of Accounts Receivable with Recourse

      WorldxChange sells certain receivables, subject to full recourse provisions, to Zero Plus Dialing Incorporated (ZPDI), one of WorldxChange’s providers of billing and collection services. At September 30, 1999 the outstanding balance of such accounts for which WorldxChange is contingently liable was approximately $1,962,000. No amounts were outstanding under this arrangement at September 30, 2000.

  Equipment and Leasehold Improvements

      Equipment and leasehold improvements consist of the following (in thousands):

		September 30,
		2000				1999
Telecommunications equipment and cables		$	220,743			$	125,190
Computer equipment and software			33,856				15,365
Office furniture, equipment and vehicles			12,912				9,745
Leasehold improvements			11,404				3,147
Equipment in progress			—				10,266
			278,915				163,713
Accumulated depreciation and amortization			(85,658	)			(48,948	)
		$	193,257			$	114,765

      Telecommunications equipment and cables include eight indefeasible rights of use in cable systems amounting to $41,892,000 and eleven ownership interests in international cables amounting to $15,605,000 at September 30, 1999. As of September 30, 2000, WorldxChange had indefeasible rights of use in cable systems amounting to $60,891,000 and ownership interests in international cables amounting to $17,140,000. These assets are amortized over the life of the agreements of 15 to 20 years.

  Intangible Assets

      Intangible assets, including goodwill from acquisitions, representing the excess of purchase price paid over the value of net assets acquired, consisted of the following (in thousands):

		September 30,
		2000				1999
Goodwill		$	72,660			$	12,194
Customer base			15,116				—
			87,776				12,194
Accumulated amortization			(9,327	)			—
		$	78,449			$	12,194

      The Company amortizes goodwill and customer base to expense on a straight-line basis over 20 years and 5 years, respectively. The Company reviews the net carrying value of intangibles, including goodwill, on a regular basis, and if deemed necessary, charges are recorded against current operations for any

13

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

impairment in the value of these assets. Such reviews include an analysis of current results and take into consideration the undiscounted value of projected operating cash flows. Intangibles are removed from the books when fully amortized. Amortization expense for fiscal 2000, 1999 and 1998 was $9,327,000, $0 and $0, respectively.

6.  Debt

      Debt consists of the following (in thousands):

		September 30,
		2000				1999
Loan and security agreement payable upon collections of accounts receivable with interest payable monthly at prime rate plus 1.75% (11.25% at September 30, 2000) and prime plus 2.75% (11.00% at September 30, 1999)		$	30,000			$	24,362
Unsecured subordinated note balance due December 2000 with interest payable at maturity of 12%			53,000				—
Secured subordinated note, balance due November 2000 with interest payable quarterly at 12.5%			45,200				45,200
Unsecured note due February 2002 with varying monthly principal payments from $300,000 to $1,250,000. The unpaid principal bears interest at 13.0%, which is payable at maturity.			15,101				—
Term loan due October 2000, with principal reductions of $300,000 due monthly and interest payable monthly at prime plus 5.00% (14.5% at September 30, 2000) and prime plus 6.75% (15.00% at September 30, 1999)			2,900				4,600
Term loan due February 2001 with interest payable at a per annum rate equal to 11.0%			35,732				—
Note payable due March 2004, with principal and interest payments payable in monthly installments of $184,000 at 12.00%			6,148				7,521
Notes payable due June 2004 to March 2005, with aggregate monthly principal and interest payments at 12% due in monthly installments of $355,000 at September 30, 2000 and $197,000 at September 30, 1999			16,932				8,693
Note payable due May 2004, with principal and interest payments payable in monthly installments of $323,000 at 11.5%			11,326				13,742
Note payable due August 2004, with principal and interest payments payable in monthly installments of $73,000 at 11.5%			2,714				3,247
Note payable due June 2004, with principal and interest payments payable in monthly installments of $57,000 at 10%			2,084				2,568
Note Payable due June 2002 with quarterly payments of $67,000			499				—
Note payable due May 2004 with principal and interest payments made payable in monthly installments of $93,000 at 11%			3,104				—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		September 30,
		2000				1999
Secured and unsecured notes, with principal and interest payments payable in quarterly installments, maturing at various dates through June 2002. Interest rates ranging from 10% to 14.25%			81				190
			224,821				110,123
Less current portion			(190,394	)			(9,799	)
		$	34,427			$	100,324

      In March 1997, WorldxChange entered into a credit facility, which consists of an accounts receivable-based revolving credit facility and a term loan. In February and May 2000, the credit facility was amended to increase the maximum borrowing capacity, add a bridge loan, extend the maturity date of the revolving credit agreement and term loan and reduce the interest rate charge. The amended credit facility allows WorldxChange to borrow up to a maximum of $80.0 million, subject to certain restrictions and borrowing base limitations. The maximum available borrowing base under the revolving credit agreement is $30.0 million and is determined as a specified percentage of eligible accounts receivable. The balance outstanding on the revolving credit agreement is reduced by the application of payments received on collections of accounts receivable. The accounts receivable revolving credit facility had an outstanding balance of approximately $30.0 million at September 30, 2000. This facility bears interest at the prime rate plus 1.75% and is repaid through collections of accounts receivable. The term loan was issued in the amount of $5.0 million, which at September 30, 2000 had an outstanding balance of approximately $2.9 million, bears interest at the prime rate plus 5.00% and requires monthly reductions of principal of $300,000 plus interest. The bridge loan has a maximum borrowing availability of $45.0 million, bears interest at 11% and matures on February 11, 2001. The maturity date may be extended until October 1, 2003 by the bridge loan participant. As part of the amended agreement and the WorldxChange merger agreement, World Access agreed to participate in the bridge loan and agreed to fund the $45.0 million under the agreement. As of September 30, 2000, the outstanding balance on the bridge loan was $35.7 million and $9.3 million was available for borrowing. In total, as of September 30, 2000, WorldxChange had $68.6 million borrowed under the credit facility and $9.3 million available for borrowing. In November 2000, all outstanding amounts owed under this arrangement were paid off by World Access and the borrowing agreement was terminated. This transaction increased the amount WorldxChange owes to World Access.

      From May through August 1998, WorldxChange issued and sold subordinated promissory notes in the aggregate principal amount of $55.0 million. These notes bear interest at 12.5% per annum, provide for quarterly payments of interest only and mature on November 30, 2000. These notes provide the lender the right to require WorldxChange to use a portion of the net proceeds from any private placement or public offering of WorldxChange’s common stock to repay the notes. As of September 30, 1999 and 2000 the outstanding balance was $45,200,000.

      In addition, WorldxChange also issued a promissory note in August 1998 in the amount of $1.2 million representing accrued interest on the subordinated promissory notes. This note bears interest at the rate of 10.0% per annum, provides for quarterly payments of interest only and matures on November 30, 2000. In accordance with the terms of the note, this balance was repaid out of the proceeds of the private placement equity offerings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In July 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a transatlantic telecommunications cable system for $4,000,000. At September 30, 2000 the outstanding balance related to this agreement was $3,104,000.

      In October 1998, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a transatlantic telecommunications cable system for $8,250,000. The purchase was vendor financed with a note that bears interest at 12.0% per annum and provides for monthly payments of principal and interest. WorldxChange’s obligations under this agreement are secured by a first-priority security interest in the leased capacity. At September 30, 2000 and 1999, the outstanding balances related to this agreement were $6,148,000 and $7,521,000, respectively.

      In February 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a nationwide fiber optic communications system. The initial fee for each capacity segment is calculated based on mileage between cities, as defined per the agreement. This purchase was vendor financed with notes that bear interest at 12.0% per annum and provide for payments in equal monthly installments of principal and interest. At September 30, 2000 and 1999, the outstanding balances related to this agreement were $16,932,000 and $8,693,000 respectively.

      In March 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a nationwide telecommunications network. Pursuant to this agreement, WorldxChange signed notes payable to the vendor for the purchase price. These notes bear interest at 11.5% per annum and provide for monthly payments of principal and interest. WorldxChange’s obligations under this agreement are secured by a security interest in the leased capacity. At September 30, 2000 and 1999, the aggregate outstanding balances were approximately $14,040,000 and $16,989,000, respectively, which were comprised of two separate notes with balances outstanding of $11,326,000 and $2,714,000 at September 30, 2000.

      In June 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a fiber optic communications system for $2,969,000. The purchase was vendor financed with a note that bears interest at 10.0% per annum and provides for payments in equal monthly installments of principal and interest, which are inclusive of all operation and maintenance fees. At September 30, 2000 and 1999, the outstanding balances related to this agreement were $2,084,000 and $2,568,000 respectively.

      In January 2000, WorldxChange secured a loan, which allows for borrowing of up to $15 million from a shareholder. The loan bears interest at 15% and becomes payable on December 31, 2000. At September 30, 2000, no amount is outstanding under this loan.

      In January 2000, WorldxChange negotiated payment terms with a network provider to finance outstanding invoices payable to the carrier. Under the terms of the agreement, the Company agreed to pay to the carrier a total of $24.1 million for services through August 31, 1999. Payments in the aggregate of $4.3 million were due and payable in monthly installments through September 30, 2000 and the remainder is payable in monthly installments of $1.25 million beginning October 2000. At September 30, 2000, $15.1 million remains outstanding and bears interest at 13% per annum.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Maturities of long-term debt as of September 30, 2000 are as follows (in thousands):

Year Ending September 30,
2001			$	190,394
2002				12,315
2003				12,010
2004				9,135
2005				967
	Total		$	224,821

7.  Commitments and Contingencies

  Leases

      WorldxChange leases its primary operating facilities under noncancellable operating leases which expire at various dates through March 2015. Certain of these leases contain escalation clauses based on inflation or fixed amounts and the leases generally require WorldxChange to pay utilities, insurance, taxes and other operating expenses. Rental expense under such leases was $8,618,000, $4,783,000, and $3,129,000, respectively, for the years ended September 30, 2000, 1999 and 1998.

      WorldxChange leases its switches and certain other telecommunication and computer equipment under capital leases, most of which contain bargain or fair market value purchase options. At September 30, 2000 and 1999 assets acquired under these leases have an original cost of $52,142,000 and $42,958,000, respectively, and accumulated amortization of $33,010,000 and $24,375,000, respectively. The amortization of these assets is included with depreciation and amortization expense presented in the Consolidated Statements of Operations.

      Future minimum payments for capital leases and noncancellable operating leases with initial or remaining terms of one year or more as of September 30, 2000 are as follows (in thousands):

		Capital				Operating
Year Ending September 30,		Leases				Leases
2001		$	17,386			$	4,047
2002			15,906				3,333
2003			10,070				2,343
2004			5,020				1,873
2005			7				1,803
Thereafter			—				1,383
Total minimum lease payments			48,389			$	14,782
Less amount representing interest			5,909
Present value of minimum lease payments			42,480
Less current portion			(13,825	)
Amounts due after one year		$	28,655

  Commitments for Undersea Cable and Land-based Fiber Optic Cable Systems

      WorldxChange has entered into three agreements to increase its ownership of undersea cables. These commitments will continue WorldxChange’s further expansion in international markets, and are expected to require incremental capital expenditures of approximately $18.0 million. Of this balance, $4.0 million

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

will be vendor financed at 11% interest, with monthly principal and interest payments over a four year amortization period. The remaining $14.0 million will be paid in installments of $6.8 million upon service delivery date and payments of $3.0 million and $4.2 million on the 1st and 2nd anniversaries of the service delivery dates, respectively. As of September 30, 1999 and 2000 these obligations remain outstanding.

      WorldxChange entered into an agreement during the year ended September 30, 1999 to acquire $25.0 million of capacity in land-based fiber optic cable systems. The vendor has agreed to finance 90% of the commitment at 12% interest, with monthly principal and interest payments over a five year amortization period. At September 30, 2000, a commitment of $3.2 million remained under this obligation. Also, as of this date, total outstanding indebtedness totaled $16.9 million.

8.  Income Taxes

      Income taxes are provided for in accordance with the provisions of FASB Statement No. 109, Accounting for Income Taxes. Under this method, WorldxChange recognizes deferred tax assets and liabilities for the expected future tax effects of temporary differences between the carrying amounts and the tax bases of assets and liabilities, as well as operating loss carryforwards.

      The significant components of WorldxChange’s deferred tax assets and liabilities as of September 30, 2000 and 1999 are shown below (in thousands). At September 30, 2000, a valuation allowance of $108,956,000 has been recorded as realization of such net deferred assets is uncertain.

			September 30,
			2000				1999
Deferred tax assets:
	U.S. net operating loss carryforward		$	66,422			$	28,541
	Foreign net operating loss carryforwards			37,093				19,263
	Accrued liabilities and reserves			6,358				4,263
				109,873				52,067
Deferred tax liabilities:
	Depreciation and amortization			(913	)			(1,153	)
	Other			(4	)			199
Net deferred tax assets				108,956				51,113
Deferred tax assets valuation allowance				(108,956	)			(51,113	)
			$	—			$	—

      At September 30, 2000, WorldxChange had net operating loss carryforwards available for federal, state and foreign tax purposes of approximately $176,000,000, 88,000,000 and $106,000,000 respectively. The federal tax loss carryforwards will begin expiring in 2007, unless previously utilized. The state tax loss carryforwards continue expiring in 2000 and will continue to expire through 2003, unless previously utilized. The Netherlands net operating loss carryforward in the amount of $9,480,000 will begin expiring in 2003. Other foreign loss carryforwards may be carried forward indefinitely. The realization of future domestic benefits from net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code if certain cumulative changes occur in WorldxChange’s ownership.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.  Shareholders’ Deficit

  Common Stock

      In September 1998, WorldxChange completed a private placement for the issuance of 1,659,214 shares of common stock. WorldxChange issued 788,127 shares of common stock in September 1998 for $10,000,000. The remaining 871,087 shares of common stock were issued in December 1998 for another $10,000,000. During fiscal 1999, WorldxChange issued 5,727,000 shares of common stock for proceeds of $60,000,000.

      In September 1999, WorldxChange issued 1,554,763 shares of its common stock in exchange for minority interests held in certain of its subsidiaries. The acquisition was accounted for under the purchase method of accounting at a value of $17,102,000, or $11.00 per share. The excess value of the stock issued over the minority interest balance at September 30, 1999 was recorded as goodwill of $12,194,000. This intangible asset is being amortized on a straight-line basis over 20 years.

  Preferred Stock

      As of September 30, 1998, WorldxChange had 23 shares of Series A Cumulative Preferred Stock outstanding. The shares were non-voting and entitled the holders to certain annual cumulative dividends. During fiscal 1999, all 23 shares were repurchased by WorldxChange.

      In August 1999, WorldxChange issued 30,000 shares of Series A Convertible Preferred Stock for $30,000,000. The holders of the Series A Convertible Preferred Stock are entitled to receive an annual cash dividend of $40 per share (an aggregate of $1,300,000 and $100,000 at September 30, 2000 and 1999, respectively). The holders of the Series A Convertible Preferred Stock are entitled to certain antidilution rights and have liquidation rights senior to those of common shareholders.

      Each share of Series A Convertible Preferred Stock is convertible into 90.9091 shares of common stock. The stock is convertible at the option of the holder six months after issuance provided WorldxChange has not completed a public offering and no such offering is pending. The stock is automatically convertible: (i) six months from a completed registered public offering, provided there has been no other registered public offering during the course of the six months and no registered public offering is pending, or (ii) in the event there is no registered public offering, two years from the date of issuance, provided there is no registered public offering pending.

      In connection with the ACC acquisition, WorldxChange financed $50 million of the cash payment through the issuance in November 1999 of 50,000 shares of Series B Convertible Preferred Stock to two existing shareholders for $50 million. In May 2000 the Series B stock converted into 5,555,550 shares of common stock.

  Stock Options

      WorldxChange’s 1996 Stock Option Plan provides for the granting of stock options to purchase, and the issuance of, up to 3 million shares to employees, non-exempt directors and consultants. Generally, options are granted at prices at least equal to the fair value of WorldxChange’s common stock on the date of grant as determined by WorldxChange’s Board of Directors. In addition, certain officers and directors have been granted stock options outside the Plan.

      Pro forma information regarding net loss is required by SFAS No. 123, and has been determined as if WorldxChange had accounted for its employee stock options under the fair value method of that statement. The fair value of these options was estimated at the date of grant using the minimum value

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

method and the following weighted average assumptions for fiscal year 1998, 1999 and 2000, respectively: risk free interest rate of 5.25%, 5.75% and 6.43%; expected option life of seven years; and no annual dividends.

      For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of such options. The effects of applying SFAS 123 for pro forma disclosure purposes are not likely to be representative of the effects on pro forma net income or loss in future years because they do not take into consideration pro forma compensation expenses related to grants made prior to fiscal 1996. WorldxChange’s pro forma information follows:

		2000				1999				1998
		(in thousands)
Pro forma net loss		$	(163,781	)		$	(65,016	)		$	(28,176	)

      A summary of WorldxChange’s stock option activity, including those issued outside of the plans and related information are as follows:

			Shares												Weighted-
			Available				Number				Price				Average
			for Grant				of Shares				per Share				Exercise Price
Balance as of October 1, 1997				712,566				2,197,434			$	0.42-$7.00			$	2.84
	Additional shares reserved			1,008,166				—				—				—
	Grants			(1,377,453	)			1,377,453			$	7.00-$10.00				9.67
	Exercises			—				(54,425	)		$	0.67-$7.00				0.72
	Cancellations			320,162				(320,162	)		$	4.33-$5.00				5.00
Balance as of September 30, 1998				663,441				3,200,300			$	0.42-$10.00				5.73
	Additional shares reserved			4,000,000				—				—				—
	Grants			(1,273,752	)			1,273,752			$	10.00-$11.00				10.34
	Exercises			—				(236,239	)		$	0.67-$11.00				6.98
	Cancellations			495,391				(495,391	)		$	5.00-$10.00				9.06
Balance as of September 30, 1999				3,885,080				3,742,422			$	0.42-$11.00				6.85
	Grants			(1,574,081	)			1,574,081			$	3.52-$13.00				7.43
	Exercises			—				(92,486	)		$	0.42-$10.00				3.80
	Cancellations			1,163,158				(1,163,158	)		$	5.00-$13.00				9.79
Balance as of September 30, 2000				3,474,157				4,060,859			$	0.42-$13.00			$	6.29

      The following table summarizes significant ranges of outstanding and exercisable options at September 30, 2000:

				Outstanding Options
																Options Exercisable
								Weighted
								Average				Weighted								Weighted
Range of								Remaining Life				Average								Average
Exercise Prices				Shares				in Years				Exercise Price				Shares				Exercise Price
	$0.42-$3.52				1,131,575				3.96			$	1.16				950,975			$	0.71
	$3.62-$6.80				1,162,833				8.04				5.45				502,317				5.14
	$7.00-$10.00				1,221,572				8.10				9.66				604,905				9.47
	$11.00-$13.00				544,880				8.98				11.22				117,117				11.20
					4,060,859				7.05			$	6.29				2,175,314			$	4.73

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The weighted average fair value at date of grant for options granted during fiscal 1998, 1999 and 2000 were $1.88, $2.52 and $3.65 per share, respectively.

10.  Related Party Transactions

  Affiliated Long Distance Companies

      In fiscal 1996, WorldxChange began utilizing long distance services from four affiliated companies owned by a relative of WorldxChange’s officers/shareholders. Billings by the four affiliates for long distance services provided to WorldxChange were approximately $5,409,000 and $1,705,000 for the years ended September 30, 1998 and 1999, respectively. Effective January 1999, WorldxChange terminated the agreements with these affiliates.

11.  Savings Plan

      In January 1996, WorldxChange adopted a 401(k) Savings Plan covering substantially all employees that have been employed for at least one year and meet other age and eligibility requirements. Participants may elect to contribute up to six percent of their compensation. WorldxChange matches 25% of participant contributions. WorldxChange’s matching contribution totaled $82,000, $100,000 and $116,000 during the years ended September 30, 1998, 1999 and 2000, respectively.

12.  Litigation and Regulation

      WorldxChange is required under federal law and regulations to file tariffs showing rates, terms and conditions affecting its services. WorldxChange has filed interstate long distance tariffs with the FCC. The FCC has adopted an order that, with certain exceptions, rescinds the requirement that carriers such as WorldxChange maintain FCC tariffs and mandates that tariffs be withdrawn. The FCC stayed its order pending judicial review. If tariffs are eliminated, it will probably be necessary for WorldxChange to secure contractual agreements with its customers providing for many of the terms of its existing tariffs. Absent tariffs and contracts, WorldxChange believes that disputes could arise concerning the respective rights of WorldxChange and its customers, which could hinder WorldxChange’s ability to collect its accounts receivable, increase WorldxChange’s overall bad debt losses and collection expenses, and increase WorldxChange’s exposure to unlimited damage claims. The FCC has not proposed to change its requirements that tariffs for international services be filed, and WorldxChange continues to file such tariffs.

      The intrastate long distance operations of WorldxChange are also subject to various state laws. The majority of states require certification or registrations. WorldxChange has secured the ability to offer intra-state service in forty-one states. Many states require tariff filing as well.

      WorldxChange has been successful in obtaining all necessary regulatory approvals to date, although revision of tariffs, authorities and approvals are being made on a continuing basis and many such requests are pending at any one time.

      Some states may assess penalties on long distance service providers for traffic sold prior to tariff approval. Such states may require refunds to be made to customers. It is the opinion of management that such penalties and refunds, if any, would not have a material adverse effect on the consolidated results of operations, financial position or liquidity of WorldxChange.

      In May 1997, the California Public Utilities Commission issued an order, which became effective in October 1997, revoking WorldxChange’s Certificate of Public Convenience and Necessity in California and imposing certain other fines and penalties against WorldxChange based on the California Public Utilities

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Commission’s findings that WorldxChange violated California laws and regulations requiring WorldxChange to obtain prior consumer authorization before switching consumers’ long distance carriers. As a result of the revocation for WorldxChange’s Certificate of Public Convenience and Necessity, WorldxChange cannot provide intrastate telecommunication services in California. In addition, WorldxChange must, among other things, (i) pay a $19.6 million fine to the state of California, $2 million of which has been paid with the balance suspended so long as WorldxChange is not found to have committed any future violations of California law or California Public Utilities Commission directives; (ii) reimburse the California Public Utilities Commission for $100,000 in prosecution costs which has also been paid; and (iii) pay approximately $1.9 million in reparations to consumers, of which $1,211,000 was payable at September 30, 1999 with no remaining amounts outstanding at September 30, 2000.

      Under the California Public Utilities Commission’s order, the suspension of WorldxChange’s Certificate of Public Convenience and Necessity and the other sanctions and fines imposed on WorldxChange are binding on any successor of WorldxChange. WorldxChange may apply to the California Public Utilities Commission for reinstatement of the Certificate of Public Convenience and Necessity after October 22, 2000, although there can be no assurance that such reinstatement would be granted.

      In addition, WorldxChange is subject to certain legal, regulatory and administrative proceedings, claims and inquiries arising in the ordinary course of business, some of which involve claims for substantial amounts of damages. The ultimate outcome of such proceedings, claims or inquiries cannot be predicted at this time. It is management’s opinion, after consultation with its legal counsel, that any such liability or possible restrictions placed on WorldxChange’s operations resulting from the ultimate resolution of such proceedings, claims, and inquiries, beyond that provided, would not have a material effect on WorldxChange’s consolidated financial position or WorldxChange’s future consolidated results of operations or cash flows.

13.  Segment Information

      In 1999, WorldxChange adopted SFAS 131. The prior year’s segment information has been restated to present three reportable operating segments. WorldxChange’s segments are organized on the basis of geographic location and include North America, Pacific Rim and Europe. None of WorldxChange’s operating segments have been aggregated.

      WorldxChange evaluates performance and allocates resources based on profit or loss from operations before interest expense, other income (loss) and minority interest. The accounting policies of the reportable segments are the same as those described in the basis of presentation and summary of significant accounting policies. Intersegment sales and transfers between geographic regions are accounted for at prices that approximate arm’s length transactions. No single customer accounted for 10% or more of revenues in fiscal 2000, 1999, and 1998.

      WorldxChange’s regional segments earn revenue from direct-dial long distance services as well as operator, debit/calling card, toll free, private line and other enhanced services to residential customers, other telecommunications carriers, and small to medium-sized businesses. Each of WorldxChange’s reportable regions represents a strategic business segment that functions in an environment with common economic characteristics determined based on historical and expected future performance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company markets its products domestically and internationally, with its principal international markets being Australia and Europe. The tables below contain information about the geographical areas in which the Company operates and represent information utilized by management to evaluate its operating segments. Revenues are attributed to countries based on location in which the sale originated. Long-lived assets are based on the country of domicile.

				North				Pacific
				America				Rim				Europe				Totals
September 30, 2000, and for the year then ended (in thousands)
	Sales to unaffiliated customers			$	276,856			$	52,186			$	186,909			$	515,951
	Intersegment revenues				36,184				5,451				16,882				58,517
	Segment revenues				313,040				57,637				203,791				574,468
	Depreciation and amortization				21,379				2,862				23,959				48,200
	Segment operating loss				(94,709	)			(10,918	)			(46,176	)			(151,803	)
	Segment assets				676,698				30,738				305,210				1,012,644
	Expenditures for long-lived assets				4,523				1,237				6,936				12,746
Reconciliations:
	Net loss
	Total operating loss for reportable segments															$	(151,803	)
	Interest expense																(31,418	)
	Other expense, net																20,986
		Total consolidated net loss														$	(162,235	)
	Assets
	Total assets for reportable segments															$	1,012,644
	Elimination of intercompany receivables																(592,621	)
		Total consolidated assets														$	420,023
September 30, 1999, and for the year then ended (in thousands)
	Sales to unaffiliated customers			$	337,457			$	55,619			$	28,504			$	421,580
	Intersegment revenues				48,345				11,025				6,169				65,539
	Segment revenues				385,802				66,644				34,673				487,119
	Depreciation and amortization				13,871				1,948				1,886				17,705
	Segment operating loss				(24,619	)			(5,166	)			(18,786	)			(48,571	)
	Segment assets				444,250				18,273				111,987				574,510
	Expenditures for long-lived assets				15,731				1,842				10,060				27,633
Reconciliations:
	Net loss
	Total operating loss for reportable segments															$	(48,571	)
	Interest expense																(16,883	)
	Other expense, net																(648	)
	Minority interest																2,251
		Total consolidated net loss														$	(63,851	)
	Assets
	Total assets for reportable segments															$	574,510
	Elimination of intercompany receivables																(339,508	)
		Total consolidated assets														$	235,002

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

				North				Pacific
				America				Rim				Europe				Totals
September 30, 1998, and for the year then ended (in thousands)
	Sales to unaffiliated customers			$	321,763			$	58,382			$	18,722			$	398,867
	Intersegment revenues				44,650				22,605				7,576				74,831
	Segment revenues				366,413				80,987				26,298				473,698
	Depreciation and amortization				9,988				1,484				860				12,332
	Segment operating loss				(5,547	)			(3,041	)			(7,086	)			(15,674	)
	Segment assets				176,678				19,883				28,705				225,266
	Expenditures for long-lived assets				11,790				200				—				11,990
Reconciliations:
	Net loss
Total operating loss for reportable segments																$	(15,674	)
	Interest expense																11,947
	Other expense, net																1,378
	Minority interest																1,546
		Total consolidated net loss														$	(27,453	)
	Assets
	Total assets for reportable segments															$	225,266
	Elimination of intercompany receivables																(105,137	)
		Total consolidated assets														$	120,129

      The following table summarizes revenue by region and by type of customer for the years ended September 30, 2000 and 1999:

			Years ended
			September 30,
			2000				1999
			(In millions)
Revenue by regions:
United States			$	267.1			$	330.0
North America (other)				9.8				7.5
North America total				276.6				337.5
Pacific Rim				52.2				55.6
Europe				186.9				28.5
	Total		$	516.0			$	421.6
Revenue by customers:
Carrier			$	195.5			$	186.9
Residential				220.4				185.3
Operator Services				7.8				22.9
Commercial				92.3				26.5
	Total		$	516.0			$	421.6

14.     Merger and Management Services Agreements with World Access

      In February 2000, WorldxChange executed a definitive merger agreement with World Access, Inc. (“World Access”). On August 1, 2000, WorldxChange entered into an Executive Management Services

24

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Agreement (“Management Agreement”) with World Access. Under this agreement, World Access serves as the exclusive agent for WorldxChange to provide all management services required for the operation and management of WorldxChange. World Access has the authority, to the fullest extent permitted by law, to take all actions and make all decisions on behalf of WorldxChange in the operation and management of WorldxChange’s assets and the power to select, terminate and determine the compensation of the management and employees of WorldxChange. Under this agreement, World Access has also assumed all financial responsibility related to the operations of WorldxChange subsequent to August 1, 2000.

      As of September 30, 2000, WorldxChange has net advances due to World Access of $91.0 million. The amounts comprising this balance and the classification on the September 30, 2000 Consolidated Balance Sheet are as follows (in thousands):

Reimbursement from World Access of Net Loss under Management Agreement (Accounts payable)		$	(22,688	)
Secured term loan (Current portion of long-term debt)			35,732
Working capital advances (Accounts payable)			77,957
		$	91,001

      As a result of World Access assuming all financial responsibility for WorldxChange, WorldxChange has recorded the reimbursement of the net loss incurred by WorldxChange since August 1, 2000 as a single line item, “Reimbursement from World Access of Net Losses Under Management Agreement,” in its Consolidated Statement of Operations.

      As of September 30, 2000, World Access and WorldxChange have consolidated their sales forces, billing systems and network operations centers, as well as decommissioned certain switches as traffic has migrated from one network to the other.

      The Consolidated Statement of Operations for WorldxChange for the two months ended September 30, 2000 while operating under the Management Agreement consisted of the following (in thousands):

Revenue			$	74,031
Cost of services				55,920
Selling, general and administrative				25,842
Depreciation and network amortization				6,808
Amortization of intangibles				1,889
	Total operating expense			90,459
Operating loss				(16,428	)
Interest and other income				280
Interest expense				6,511
Loss before income taxes				(22,659	)
Income taxes				29
Net loss			$	(22,688	)

      If WorldxChange had not entered into this Management Agreement its net loss for the year ended September 30, 2000 would have been $184,923,000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In February 2000, World Access entered into a participation agreement with a lender under which WorldxChange can borrow money. In this participation agreement, the lender is the lead lender and acts as agent for World Access in dispersing the funds and in administering and collecting the loan. The participation agreement allows World Access to advance up to $45.0 million to WorldxChange. The terms of the loan are governed by the terms of an existing loan agreement between the lender and WorldxChange.

      Advances by World Access under the participation agreement are structured as a term loan which bears interest at a rate of 11% per annum and matures on February 11, 2001. Both the term loan and the existing indebtedness under the loan arrangement are secured by a security interest in all personal property of WorldxChange. Subsequent to September 30, 2000, the borrowings under this loan were repaid by World Access.

      As of September 30, 2000, WorldxChange owed $68.6 million under the loan, including $35.7 million advanced by World Access. These funds are being used to finance operating losses expected to be incurred by WorldxChange prior to the merger date as well as to make permanent investments in working capital that are required to support WorldxChange’s international expansion.

      During December 2000, the acquisition of WorldxChange by World Access was completed.

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      (b)  Pro Forma Financial Information.

      In accordance with Item 7(b)(2) of Form 8-K, any pro forma financial information required to be filed with the Commission will be filed as an amendment to this report under cover of Form 8-K/A on or before March 5, 2001.

      (c)  Exhibits.

Exhibit
Number						Description
	2.1	*		—		Agreement and Plan of Merger, dated as of February 11, 2000 among World Access, Inc., WorldxChange Communications, Inc. f/k/a CTI Merger Co. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Exhibit 2.2 to World Access’ Form 10-Q for the quarter ended March 31, 2000, filed May  22, 2000).
	2.2	*		—		First Amendment to Agreement and Plan of Merger dated May  23, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications incorporated by reference to Annex B to World Access’ joint proxy statement/prospectus contained in its Form S-4 Registration Statement (Registration No. 333-37750)).
	2.3	*		—		Second Amendment to Agreement and Plan of Merger dated August 1, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Annex B to World Access’ joint proxy statement/prospectus contained in its Form S-4 Registration Statement (Registration No. 333-37750)).
	2.4	*		—		Third Amendment to Agreement and Plan of Merger dated October 23, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Annex B to World Access’ joint proxy statement/prospectus contained in its Form S-4 Registration Statement (Registration No. 333-37750)).
	23.1			—		Consent of Ernst & Young LLP, Independent Auditors.
	99.1	*		—		Press Release, issued December 18, 2000.

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*  Previously filed

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SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf of the undersigned hereunto duly authorized.

	WORLD ACCESS, INC.

	By:	/s/ BRYAN D. YOKLEY

	Bryan D. Yokley
	Executive Vice President and Chief Financial Officer

Date: January 16, 2001

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EXHIBIT INDEX

Exhibit
Number						Description
	2.1*			—		Agreement and Plan of Merger, dated as of February 11, 2000 among World Access, Inc., WorldxChange Communications, Inc. f/k/a CTI Merger Co. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Exhibit 2.2 to World Access’ Form 10-Q for the quarter ended March 31, 2000, filed May  22, 2000).
	2.2*			—		First Amendment to Agreement and Plan of Merger dated May  23, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Annex B to World Access’ joint proxy statement/ prospectus contained in its Form S-4 Registration Statement (Registration No. 333-37750)).
	2.3*			—		Second Amendment to Agreement and Plan of Merger dated August 1, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Annex B to World Access’ joint proxy statement/ prospectus contained in its Form S-4 Registration Statement (Registration No. 333-37750)).
	2.4*			—		Third Amendment to Agreement and Plan of Merger dated October 23, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Annex B to World Access’ joint proxy statement/ prospectus contained in its Form S-4 Registration Statement (Registration No. 333-37750)).
	23.1			—		Consent of Ernst & Young LLP, Independent Auditors.
	99.1*			—		Press Release, issued December 18, 2000.

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*  Previously filed.