UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 Three Months Ended June 30, 1996.
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 0-19998
WORLD ACCESS, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 65-0044209
(State of Incorporation) (I.R.S. Employer Identification No.)
4501 Vineland Road, Orlando, Florida 32811
(Address of principal executive offices) (Zip Code)
(407) 843-7031
(Registrant's telephone number)
RESTOR INDUSTRIES, INC.
(Former Name of Registrant)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, Par Value $.01 Per Share
Indicate by check mark 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 report(s), and (2) has been subject to such
filing requirements for the past 90 days.
YES (X) NO
The number of shares outstanding of the Registrant's common stock, par
value $.01 per share, at August 16, 1996 was 12,620,419.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
June 30 December 31
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 1,392,545 $ 1,886,819
Accounts receivable 7,518,374 9,648,817
Inventories 8,224,837 4,549,721
Notes receivable from stockholders --- 3,879,728
Other current assets 904,566 688,367
------------- -------------
Total Current Assets 18,040,322 20,653,452
Property and equipment 2,411,058 2,062,749
Notes receivable from customer 570,495 ---
Technology license 562,458 ---
Intangible assets 8,032,752 5,084,184
Other assets 965,402 714,848
------------- -------------
Total Assets $ 30,582,487 $ 28,515,233
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 550,000 $ 5,385,220
Accounts payable 3,768,014 3,648,734
Accrued payroll and benefits 1,168,435 731,659
Other accrued liabilities 622,790 665,585
------------- -------------
Total Current Liabilities 6,109,239 10,431,198
Long-term debt 3,450,000 3,750,000
------------- -------------
Total Liabilities 9,559,239 14,181,198
------------- -------------
Stockholders' Equity
Common stock 132,870 125,583
Capital in excess of par value 31,256,899 27,641,543
Note receivable from affiliate (481,337) (919,836)
Accumulated deficit (9,885,184) (12,513,255)
------------- -------------
Total Stockholders' Equity 21,023,248 14,334,035
------------- -------------
Total Liabilities
and Stockholders' Equity $ 30,582,487 $ 28,515,233
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales of products $ 7,681,988 $ 1,913,728 $ 16,036,298 $ 3,469,538
Service revenues 3,880,930 2,844,554 7,919,865 5,908,399
------------ ------------ ------------ ------------
Total Sales 11,562,918 4,758,282 23,956,163 9,377,937
Cost of products sold 4,596,917 1,239,190 10,811,761 2,313,101
Cost of services 3,541,134 2,519,086 6,944,275 5,230,221
------------ ------------ ------------ ------------
Total Cost of Sales 8,138,051 3,758,276 17,756,036 7,543,322
------------ ------------ ------------ ------------
Gross Profit 3,424,867 1,000,006 6,200,127 1,834,615
Engineering and development 193,403 144,170 369,898 286,504
Selling, general and admin. 1,429,506 610,915 2,706,567 1,167,846
Amortization of goodwill 111,172 17,912 222,344 22,724
Special charge -- 980,000 -- 980,000
------------ ------------ ------------ ------------
Operating Income (Loss) 1,690,786 (752,991) 2,901,318 (622,459)
Interest expense 104,227 120,296 207,232 246,600
Interest and other income (55,294) (5,604) (158,085) (12,142)
------------ ------------ ------------ ------------
Income (Loss) Before
Income Taxes 1,641,853 (867,683) 2,852,171 (856,917)
Income taxes 224,100 -- 224,100 --
------------ ------------ ------------ ------------
Net Income (Loss) $ 1,417,753 $ (867,683) $ 2,628,071 $ (856,917)
============ ============ ============ ============
Net Income (Loss)
Per Common Share:
Primary $ .10 $ (.13) $ .19 $ (.13)
============ ============ ============ ============
Assuming Full Dilution $ .10 $ (.13) $ .19 $ (.13)
============ ============ ============ ============
Weighted Average
Shares Outstanding:
Primary 13,691,237 6,663,899 13,656,064 6,471,710
============ ============ ============ ============
Assuming Full Dilution 13,768,455 6,663,899 13,733,282 6,471,710
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<CAPTION>
Capital In Note
Common Excess of Receivable Accumulated
Stock Par Value from Affiliate Deficit Total
----------- ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 125,583 $ 27,641,543 $ (919,836) $ (12,513,255) $ 14,334,035
Net income 2,628,071 2,628,071
Issuance of 597,246 shares for
Comtech acquisition 5,972 2,289,757 2,295,729
Release of 159,327 shares from
escrow for AIT acquisition 1,108,318 1,108,318
Repayment of loans by affiliate, net 438,499 438,499
Issuance of 129,395 shares for
stock options and warrants 1,294 199,053 200,347
Issuance of 2,058 shares for
matching contribution to 401K Plan 21 18,228 18,249
----------- ------------ -------------- ------------- ------------
Balance at June 30, 1996 $ 132,870 $ 31,256,899 $ (481,337) $ (9,885,184) $ 21,023,248
=========== ============ ============== ============= ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended June 30
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 2,628,071 $ (856,917)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 623,710 462,598
Provision for inventory reserves 84,400 55,125
Provision for bad debts 39,300 12,000
Stock contributed to employee benefit plan 16,975 8,240
Special charges --- 980,000
Changes in operating assets and
liabilities, from businesses acquired:
Accounts receivable 2,003,655 (6,671)
Inventories (3,442,801) 40,033
Notes receivable from customer (570,495) ---
Accounts payable (35,377) (280,471)
Other assets and liabilities (465,711) (410,328)
------------ ------------
Net Cash From Operating Activities 881,727 3,609
------------ ------------
Cash Flows From Investing Activities:
Acquisition of businesses 86,947 53,483
Repayment of loans by affiliate, net 438,499 ---
Expenditures for property and equipment (473,124) (79,265)
Prepaid rent on equipment lease 3,907 (262,166)
Technology license (320,539) ---
------------ ------------
Net Cash Used By Investing Activities (264,310) (287,948)
------------ ------------
Cash Flows From Financing Activities:
Short-term debt repayments (4,935,220) (257,700)
Long-term debt repayments (200,000) (30,000)
Debt issue costs (56,546) ---
Net proceeds from private placement --- 766,000
Proceeds from exercise of stock warrants
and options 4,080,075 112,312
------------ ------------
Net Cash From (Used By)
Financing Activities (1,111,691) 590,612
------------ ------------
Increase (Decrease) in Cash
and Equivalents (494,274) 306,273
Cash and Equivalents at
Beginning of Period 1,886,819 753,264
------------ ------------
Cash and Equivalents at End of Period $ 1,392,545 $ 1,059,537
============ ============
Supplemental Schedule of Noncash
Financing and Investing Activities:
Issuance of common stock
for businesses acquired $ 3,404,047 $ 1,701,645
Reduction in note receivable from
affiliate to recognize contingent
purchase price earned 582,500 ---
Conversion of accounts receivable to
investment in technology license 241,919 ---
The accompanying notes are an integral part of these financial statements.
<FN>
<PAGE>
</FN>
</TABLE>
World Access, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
June 30, 1996
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q. Accordingly, the financial
information does not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results of the
interim periods covered have been included. For further information, refer to
the audited consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
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.
The results of operations for the three and six months ended June 30, 1996 are
not necessarily indicative of the results of the full year.
Certain reclassifications have been made to the prior period's financial
information to conform with the presentations used in 1996.
NOTE 2. ACQUISITIONS
Comtech Acquisition
On February 21, 1996, the Company entered into an agreement to acquire Comtech
Sunrise, Inc. ("Comtech"), a Livermore, California based manufacturer of
multiplexers, digital loop carriers and other intelligent transmission and
access products. On June 18, 1996, after a mandatory registration process was
completed in the State of California, the transaction was completed in its final
form whereby Comtech was merged with and into Restor-Comtech, Inc., a wholly
owned subsidiary of the Company (the "Comtech Merger"). In connection with the
Comtech Merger, the stockholders of Comtech received approximately $100,000 in
cash and 385,481 restricted shares of the Company's common stock. These shares
had an initial fair value of approximately $6.00 a share or $2.3 million.
In addition to the shares noted above, the stockholders of Comtech were issued
211,765 restricted shares of the Company's common stock. These shares were
immediately placed into escrow, and along with $1.8 million in additional
purchase price (the "Additional Consideration"), will be released and paid to
the stockholders of Comtech contingent upon the realization of predefined levels
of pre-tax income from Comtech's operations during three one-year periods
beginning January 1, 1996. This Additional Consideration may be paid, at the
option of the Company, in the form of cash or restricted shares of the Company's
common stock valued at the then current market prices.
<PAGE>
The shares placed in escrow were valued by the Company at par value only, or
$2,118 in the aggregate. Once conditions for release from escrow have been met,
the fair market value of the shares as measured at that time, along with any
Additional Consideration earned, will be recorded as additional goodwill and
stockholders' equity, respectively.
The acquisition of Comtech has been accounted for using the purchase method of
accounting. Accordingly, the results of Comtech's operations have been included
in the accompanying consolidated financial statements from January 1, 1996, the
effective date of acquisition as defined in the definitive agreement and plan of
merger. The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as of the date of acquisition. The
excess of purchase price over the fair value of net assets acquired, currently
estimated at approximately $1.5 million, has been recorded as goodwill and is
being amortized over a 15 year period.
Pro Forma Results of Operations
In May 1995, the Company acquired AIT, Inc. ("AIT"), a provider of Northern
Telecom switching systems, add-on frames and related circuit boards to the
telecommunications industry. In October 1995, the Company acquired Westec
Communications, Inc. ("Westec"), a provider of wireless systems and repair
services to the cable television and telecommunications industries. The results
of operations for both AIT and Westec have been included in the Company's
consolidated financial statements from their respective dates of acquisition. A
detailed discussion of the terms and conditions of these two acquisitions is
presented in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
On a pro forma, unaudited basis, as if the acquisitions of AIT, Westec and
Comtech had occurred as of January 1, 1995, total sales, net loss and net loss
per common share for the six months ended June 30, 1995 would have been
$14,531,000, $(588,000) and $ (.08), respectively. These pro forma results have
been prepared for comparative purposes only and do not purport to indicate the
results of operations which would actually have occurred had the acquisitions
been in effect on the date indicated, or which may occur in the future.
NOTE 3. SPECIAL CHARGE
In the second quarter of 1995, the Company recorded a one-time special charge of
$980,000 for the following items:
Write-down of test equipment and related tooling $ 675,000
Consolidation of repair operations 95,000
Retirement benefits, search and relocation costs
for Chief Executive Officer 150,000
Other 60,000
----------
$ 980,000
==========
<PAGE>
As a result of the significant decline in circuit board repair revenues
experienced by the Company in recent years, the shift in strategic focus to new
digital repair services and programs offered by the Company in 1995, the
acquisition of AIT and other market considerations, the Company elected to
significantly write-down the net book value of certain assets related to repair
operations by $675,000. These assets primarily represent test equipment,
tooling, dies and diagnostic programs for the repair of analog
telecommunications equipment. All of these assets were capitalized in 1988 to
1990 in connection with acquisitions made by the Company.
In addition to the write-down of selected repair assets, a $95,000 charge was
recorded to provide for the estimated costs of further consolidating the
Company's Beaverton, Oregon repair operations into its Orlando, Florida
facility. This charge consists of severance benefits, equipment relocation,
lease termination and other costs related to the consolidated plan.
In June 1995, the Company's President and Chief Executive Officer elected to
retire. In connection with his retirement, the Company's Board of Directors
elected to award approximately $100,000 in retirement benefits consisting
primarily of salary and health care insurance through February 1996. An
additional provision of $50,000 was also charged to operations for the estimated
search and relocation costs expected to be incurred in hiring a replacement.
NOTE 4. INVENTORIES
Inventories consist of the following:
June 30 December 31
1996 1995
------------- ------------
Switching systems, frames and related
circuit boards $ 2,127,653 $ 5,233,719
Electronic components 2,077,527 1,595,281
Pay telephone parts 357,934 346,978
Work in progress 272,826 307,438
Other finished goods 282,831 172,371
------------- ------------
$ 8,224,837 $ 4,549,721
============= ============
NOTE 5. NOTES RECEIVABLE FROM CUSTOMER
In the second quarter of 1996, the Company sold approximately $965,000 of
switching products to a customer under a special financing program. The customer
agreed to pay 30% of the purchase price upon shipment and installation of the
products and the remaining 70% through the execution of five year notes payable
to the Company. The notes bear interest at a rate of 7 1/2% per annum, require
monthly payments of principal and interest and are secured by a first lien on
the products sold.
<PAGE>
NOTE 6. TECHNOLOGY LICENSE
In March 1996, the Company entered into a memorandum of understanding with
International Communication Technologies, Inc. ("ICT") and Eagle Telephonics,
Inc. ("Eagle") to manufacture, market and sell a new modular, digital central
office switch recently developed by Eagle. In July 1996, a long-term technology
licensing agreement was executed by all three parties. As consideration for this
license, the Company agreed to pay Eagle $250,000 and provide them $450,000 of
manufacturing services. In addition, the Company agreed to pay ICT certain
royalties based on future sales of the switch by the Company.
In connection with this licensing and the up-front consideration paid, the
Company will also receive 1.2 million restricted shares of Eagle common stock.
The fair value of these shares was not material as of June 30, 1996.
NOTE 7. DEBT
Debt outstanding consists of the following:
June 30 December 31
1996 1995
------------ -------------
Revolving credit loans payable to bank $ --- $ 4,926,142
Term loan payable to bank 4,000,000 4,200,500
Other notes payable --- 8,578
------------ -------------
Total debt 4,000,000 9,135,220
Amount due within one year (550,000) (5,385,220)
------------ -------------
Long-term debt $ 3,450,000 $ 3,750,000
============ =============
In March 1996, the Company and its primary lender amended their existing bank
credit facility to increase the revolving line of credit to $6 million, reduce
the interest rate by one percent and extend the bank's commitment until March
2001. The existing $4 million term loan, originally scheduled to mature in
November 1997, was replaced with a new $4 million term loan requiring escalating
quarterly payments through March 2001.
Aggregate maturities of long-term debt are as follows: 1997 -- $300,000;
1998 -- $800,000; 1999 - $1,000,000; 2000 -- $1,000,000; 2001 -- $350,000.
Interest on the new bank facility is set at prime plus 1 1/4% or Libor plus
2 1/2%, at the option of the Company. As of June 30, 1996, the interest rate on
all bank debt was 8%.
Interest paid was $232,807 and $122,866 for the six months ended June 30, 1996
and 1995, respectively.
<PAGE>
NOTE 8. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY
The computation of earnings per share is based on the weighted average number of
outstanding common shares during the period plus, when their effect is dilutive,
common stock equivalents consisting of shares subject to stock options and
warrants. A total of 1,107,509 common shares held in escrow from the Company's
initial public offering and from certain acquisitions have been excluded from
the earnings per share calculations because the conditions for release of shares
from escrow have not been satisfied.
Common stock issued and outstanding at June 30, 1996 and December 31, 1995 was
13,286,978 and 12,558,279 shares, respectively.
NOTE 9. SUBSEQUENT EVENT
On August 12, 1996, an Escrow Agreement entered into by certain shareholders of
the Company in connection with the Company's initial public offering in August
1991 expired. Since conditions for release during this five year term were not
met, 672,419 escrowed shares of Company common stock were cancelled and returned
to the Company's capital.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company develops, manufacturers, and markets wireline and wireless
switching, transmission and access products primarily for the United States,
Caribbean Basin and Latin American telecommunications markets. The products
offered by the Company include those manufactured by the Company as well as
those manufactured by OEMs. To support and complement its product sales, the
Company also provides its customers with a broad range of design, manufacturing,
testing, installation, repair and other value-added services.
The Company has recently completed strategic and financial
restructuring programs designed to strengthen its management team, reposition
the Company as a provider of telecommunications products, improve its financial
condition, reduce its operating costs and position the Company for future
growth. These programs were undertaken following the losses incurred by the
Company in the early 1990s, primarily due to a discontinued smart pay telephone
business, and to take advantage of the significant growth opportunities present
within the Company's existing customer base and related markets.
In November 1994, the Company began to rebuild its management team and
change its strategic focus by appointing a new Chairman of the Board. In
December 1994, three experienced telecommunications executives agreed to serve
on the Company's Board of Directors. Throughout 1995 and early 1996, as the
Company was changing from providing principally services to providing
telecommunications products and related services, the Company further
strengthened its management team by recruiting and hiring a new President and
Chief Operating Officer, Vice President of Business Development and Vice
President of Operations. These individuals, along with other key managers
recruited into the Company during this time frame, bring to the Company
significant experience in manufacturing and marketing telecommunications
equipment.
During 1995 and early 1996, the company acquired three businesses in an
effort to broaden its line of switching, transmission and access products,
enhance its product development capabilities and strengthen its technical base.
Effective May 1995, the Company acquired AIT, a full service provider of
Northern Telecom switching systems, add-on frames and related circuit boards.
Effective October 1995, the Company acquired Westec, a provider of wireless
products and services primarily to the cable television industry. Effective
January 1996, the Company acquired Comtech, a manufacturer of intelligent
transmission and access products.
The Company realized significant improvements in its sales and other
results during 1995 and the six months ended June 30, 1996, primarily as a
result of the three acquisitions and the sale of DSC Communications Corporation
("DSC") access products under a distribution agreement entered into in September
1995. The Company's total sales increased by 97.2% in 1995 and 155.5% in the
first six months of 1996 when compared to 1994 and the first six months of 1995,
respectively. As the Company's sales mix shifted from a majority of service
revenues in 1994 (81.8% of total sales) to a majority of product sales in 1995
and the first six months of 1996 (57.7% and 66.9% of total sales, respectively),
the Company's gross profit margin increased from 12.9% in 1994 to 21.1% in 1995
and 25.9% in the first six months of 1996. As a percentage of total sales, the
Company's operating income (loss) before special charges increased from (8.5%)
in 1994 to 8.3% in 1995 and 12.1% in the first six months of 1996. Management
will continue to seek further improvements in gross profit margin over time as
the Company's product offerings include more internally developed and acquired
products containing proprietary technology.
<PAGE>
Since January 1, 1995, the Company has significantly strengthened its
balance sheet through improved operating results, the addition of approximately
$10 million in new capital and a new five-year $10 million credit facility. The
Company has used this capital for acquisitions and to support the working
capital requirements associated with the Company's growth. The Company's working
capital and stockholders' equity have increased from $2.3 million and $1.2
million, respectively, at December 31, 1994 to $11.9 million and $21.0 million,
respectively, at June 30, 1996.
Results of Operations.
The following table sets forth items in the Company's Consolidated
Statements of Operations as a percentage of total revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- ---------------------
1996 1995 1996 1995
------------- ----------- ------------ -------
<S> <C> <C> <C> <C>
Sales of products 66.4% 40.2% 66.9% 37.0%
Service revenues 33.6 59.8 33.1 63.0
------------- ----------- ------------ --------
Total sales 100.0 100.0 100.0 100.0
Cost of products sold 39.8 26.1 45.1 24.6
Cost of services 30.6 52.9 29.0 55.8
------------- ----------- ------------- --------
Total cost of sales 70.4 79.0 74.1 80.4
------------- ----------- ------------- --------
Gross profit 29.6 21.0 25.9 19.6
Engineering and development 1.7 3.0 1.6 3.1
Selling, general and administrative 12.3 12.8 11.3 12.4
Amortization of goodwill 1.0 0.4 0.9 0.2
Special charge --- 20.6 --- 10.5
------------- ----------- ------------ --------
Operating income (loss) 14.6 (15.8) 12.1 (6.6)
Interest expense 0.9 2.5 0.9 2.6
Interest and other income (0.5) (0.1) (0.7) (0.1)
------------- ----------- ------------- ---------
Income (loss) before income taxes 14.2 (18.2) 11.9 (9.1)
Income taxes 1.9 --- 0.9 ---
------------- ----------- ------------- -------
Net income (loss) 12.3% (18.2)% 11.0% (9.1)%
============= =========== ============= ==========
</TABLE>
<PAGE>
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Sales. Total sales increased $6,805,000, or 143.0%, to $11,563,000 in
the second quarter of 1996 from $4,758,000 in the second quarter of 1995. The
percentage of product sales to total sales increased to 66.4% in the second
quarter of 1996 from 40.2% in the second quarter of 1995.
Product sales increased $5,768,000, or 301.4% , to $7,682,000 in the
second quarter of 1996 from $1,914,000 in the second quarter of 1995. The
increase related primarily to an additional $4.1 million of switching products
sold by AIT and $1.0 million of transmission and access products sold by Westec
and Comtech, both of which were acquired subsequent to June 30, 1995. Sales in
the second quarter of 1996 also included $1.1 million of DSC access products
pursuant to a distribution agreement entered into in the third quarter of 1995.
Service revenues increased $1,036,000, or 36.4%, to $3,881,000 in the
second quarter of 1996 from $2,845,000 in the second quarter of 1995. The
increase related to approximately $325,000 of Westec repair revenues following
its acquisition and $510,000 of increased circuit board repair revenues,
primarily from a new repair agent contract executed with Century Telephone in
July 1995.
Gross Profit. Gross profit increased $2,425,000, or 242.5%, to
$3,425,000 in the second quarter of 1996 from $1,000,000 in the second quarter
of 1995. Gross profit margin increased to 29.6% in the second quarter of 1996
from 21.0% in the second quarter of 1995. The improved performance resulted from
the 143.0% increase in total sales and the change in sales mix to products,
which generally carry a higher gross profit margin than service revenues.
Gross profit margin on products sold increased to 40.2% in the second
quarter of 1996 from 35.2% in the second quarter of 1995 primarily due to the
$4.1 million or 476.8% increase in switching products sold by AIT.
Gross profit margin on service revenues decreased to 8.8% in the second
quarter of 1996 from 11.4% in the second quarter of 1995, primarily due to
losses experienced by the Company on outsourced repair business. The vast
majority of the $510,000 increase in circuit board repair revenues during the
second quarter of 1996 related to the repair of equipment outside the Company's
catalog of services in connection with "one-stop" repair programs performed for
selected customers, including Century Telephone. The Company has recently
implemented selected pricing increases and streamlined operating systems and
procedures designed to improve its margins on outsourced repair revenues.
Engineering and Development. Engineering and development expenses
increased $49,000, or 34.1%, to $193,000 in the second quarter of 1996 from
$144,000 in the second quarter of 1995. The increase in expenses was
attributable to the research and product development activities acquired in
connection with the acquisition of Comtech. As a result of the 143.0% increase
in total sales, engineering and development expenses decreased to 1.7% of total
sales in the second quarter of 1996 from 3.0% of total sales in the second
quarter of 1995.
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $819,000, or 134.0%, to $1,430,000 in the
second quarter of 1996 from $611,000 in the second quarter of 1995. The increase
primarily related to expenses associated with the operations of the
Acquisitions, additional salary and related costs for the Company's Chairman
(who took no salary during 1995) and its new President, and the Company's
establishment of a dedicated international sales and marketing group and
corporate business development function in the first quarter of 1996. As a
percentage of total sales, selling, general and administrative expenses
decreased to 12.3% in the second quarter of 1996 from 12.8% in the second
quarter of 1995.
Amortization of Goodwill. Amortization of goodwill increased $93,000 to
$111,000 in the second quarter of 1996 from $18,000 in the second quarter of
1995, as a result of the goodwill acquired in connection with the Acquisitions.
Special Charge. In the second quarter of 1995, the Company recorded a
one-time charge of $980,000, primarily for the write-down of test equipment and
related tooling used in certain repair operations. As a result of a decline in
analog circuit board repair revenues, the shift in strategic focus to product
sales, new digital repair services and programs offered by the Company, the
acquisition of AIT and other market considerations, management elected to
significantly write-down the net book value of certain test equipment, tooling,
dies and diagnostic programs used to repair analog telecommunications equipment.
Operating Income (Loss). Operating income increased $2,444,000, or
324.5%, to $1,691,000 in the second quarter of 1996 from ($753,000) in the
second quarter of 1995. Operating income margin increased to 14.6% in the second
quarter of 1996 from (15.8%) in the second quarter of 1995.
Interest Expense. Interest expense decreased $16,000, or 13.4%, to
$104,000 in the second quarter of 1996 from $120,000 in the second quarter of
1995. The decrease resulted from a reduction in the interest rate on the
Company's bank debt due to the lender's reinstatement of a Libor-based interest
rate option in July 1995.
Interest and Other Income. Interest and other income increased $49,000
to $55,000 in the second quarter of 1996 from $6,000 in the second quarter of
1995 due to interest earned on the notes receivable from the former owner of AIT
and the Company's invested cash balances.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Sales. Total sales increased $14,578,000, or 155.5%, to $23,956,000 in
the first six months of 1996 from $9,378,000 in the first six months of 1995.
The percentage of product sales to total sales increased to 66.9% in the first
six months of 1996 from 37.0% in the first six months of 1995.
Product sales increased $12,567,000, or 362.2%, to $16,036,000 in the
first six months of 1996 from $3,470,000 in the first six months of 1995. The
increase related primarily to an additional $7.3 million of switching products
sold by AIT, which was acquired in May 1995, and $1,940,000 million of
transmission and access products sold by Westec and Comtech, both of which were
acquired subsequent to June 30, 1995. Sales in the first six months of 1996 also
included $4.6 million of DSC access products sold pursuant to a distribution
agreement entered into in the third quarter of 1995.
<PAGE>
Service revenues increased $2,011,000, or 34.0%, to $7,920,000 in the
first six months of 1996 from $5,908,000 in the first six months of 1995. The
increase related to approximately $715,000 of Westec repair revenues following
its acquisition and $840,000 of increased circuit board repair revenues
generated by the introduction of new repair services and a new repair agent
contract executed with Century Telephone in July 1995.
Gross Profit. Gross profit increased $4,366,000, or 238.0%, to
$6,200,000 in the first six months of 1996 from $1,835,000 in the first six
months of 1995. Gross profit margin increased to 25.9% in the first six months
of 1996 from 19.6% in the first six months of 1995. The improved performance
resulted from the 155.5% increase in total sales and the change in sales mix to
products, which generally carry a higher gross profit margin than service
revenues.
Gross profit margin on products sold decreased to 32.6% in the first
six months of 1996 from 33.3% in the first six months of 1995 as a result of the
sale of DSC access products. Excluding the sale of these distributed DSC
products, gross profit margin for products sold was 41.8%. The improved margin
performance or non-distributed products related primarily to the $7.3 million or
844.7% increase in switching products sold by AIT.
Gross profit margin on service revenues increased to 12.3% in the first
six months of 1996 from 11.5% in the first six months of 1995. This improvement
related primarily to the economies of scale associated with the 34.0% increase
in service revenues and reduced depreciation expense of approximately $150,000
resulting from the special charge taken in the second quarter of 1995 to write
down the net book value of certain fixed assets of the Company's repair
operations.
Engineering and Development. Engineering and development expenses
increased $83,000, or 29.1%, to $370,000 in the first six months of 1996 from
$287,000 in the first six months of 1995. The increase in expenses was
attributable to the research and product development activities acquired in
connection with the acquisition of Comtech. As a result of the 155.5% increase
in total sales, engineering and development expenses decreased to 1.6% of total
sales in the first six months of 1996 from 3.1% of total sales in the first six
months of 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1,539,000, or 131.8%, to $2,707,000 in the
first six months of 1996 from $1,168,000 in the first six months of 1995. The
increase primarily related to expenses associated with the operations of the
Acquisitions, additional salary and related costs for the Company's Chairman
(who took no salary during 1995) and its new President, and the Company's
establishment of a dedicated international sales and marketing group and
corporate business development function in the first quarter of 1996. As a
percentage of total sales, selling, general and administrative expenses
decreased to 11.3% in the first six months of 1996 from 12.4% in the first six
months of 1995.
Amortization of Goodwill. Amortization of goodwill increased $199,000
to $222,000 in the first six months of 1996 from $23,000 in the first six months
of 1995 as a result of the goodwill acquired in connection with the
Acquisitions.
<PAGE>
Operating Income (Loss). Operating income increased $3,524,000, or
566.1%, to $2,901,000 in the first six months of 1996 from (622,000) in the
first six months of 1995. Operating income margin increased to 12.1% in the
first six months of 1996 from (6.6%) in the first six months of 1995.
Interest Expense. Interest expense decreased $40,000, or 9.6%, to
$207,000 in the first six months of 1996 from $247,000 in the first six months
of 1995. The decrease resulted from a reduction in the interest rate on the
Company's bank debt due to the lender's reinstatement of a Libor-based interest
rate option in July 1995 and an additional one percentage point reduction
obtained with the Company's new bank agreement in March 1996.
Interest and Other Income. Interest and other income increased $146,000
to $158,000 in the first six months of 1996 from $12,000 in the first six months
of 1995 due to interest earned on notes receivable from stockholders, the note
receivable from the former owner of AIT and the Company's invested cash
balances. As of March 31, 1996, the notes receivable from stockholders were paid
in full.
Liquidity and Capital Resources
Overview. The Company has traditionally financed its operations and
growth through private placements of equity, the exercise of stock warrants and
options and bank loans from its primary lender. With the significant increase in
total sales and net income in 1995 and the first six months of 1996, cash flows
from operations are also becoming a primary cash resource for the Company.
Cash management is a key element of the Company's operating philosophy
and future strategic plans. Acquisitions to date have been structured to
minimize the cash element of the purchase price and ensure that appropriate
levels of cash are available to support the increased product development,
marketing programs and working capital normally associated with the growth
initiatives of acquired businesses. The 1996 Salary Incentive Program discussed
below is another example of the Company's efforts to effectively manage its cash
position as cash payments related to certain salary costs are not made until
sufficient pre-tax profits and accompanying cash flow are generated by the
Company.
Operating Activities. Cash generated by operating activities increased
$878,000 to $882,000 in the first six months of 1996 from $4,000 in the first
six months of 1995 primarily as a result of the improved net income performance
of the Company.
Accounts receivable decreased $2,130,000, or 22.1%, to $7,518,000 at
June 30, 1996 from $9,649,000 at December 31, 1995. Average day sales
outstanding at June 30, 1996 were 59 days as compared to 49 days at December 31,
1995. Average days sales outstanding at December 31, 1995 was favorably impacted
by the sale of $5.7 million of DSC distributed products to one customer in late
December.
<PAGE>
Inventories at June 30, 1996 increased $3,675,000, or 80.8%, over
December 31, 1995 levels to $8,225,000. This increase was due primarily to a
planned $3.1 million build-up of AIT inventories to support the increased demand
for its switching products. The remaining increase related primarily to
inventories from the acquisition of Comtech.
In the second quarter of 1996, the Company sold approximately $965,000
of switching products to a customer under a special financing program. The
customer agreed to pay 30% of the purchase price upon shipment and installation
of the products and the remaining 70% through the execution of five year notes
payable to the Company. The notes bear interest at a rate of 7 1/2% per annum,
require monthly payments of principal and interest and are secured by a first
lien on the products sold. The Company expects to sell additional products to
this customer in the second half of 1996 under the same financing terms.
Negotiations are currently in progress with several third party financing
companies that have expressed an interest in purchasing these notes payable from
the company.
Investing Activities. In the first six months of 1996, the Company
invested $473,000 in capital expenditures, primarily for new test equipment and
computer network and related communications equipment designed to upgrade the
Company's management information systems and facilitate the integration of new
acquisitions.
In March 1995, the Company entered into a four year agreement to lease
approximately $1 million of new surface mount manufacturing and automated
testing equipment. As part of the lease agreement, the Company paid
approximately $220,000 as a first payment and $24,000 for a security deposit.
Other Assets on the June 30, 1996 balance sheet includes approximately $250,000
in prepaid rent relating to this lease.
From May 1995 to January 1996, the Company completed the Acquisitions,
which were designed to bring new wireline and wireless switching, transmission
and access products and technology into the Company. All of the Acquisitions
were relatively similar in structure in that the former owner(s) received
initial consideration consisting of a combination of Company common stock and
cash, as well as contingent consideration tied to the future profitability of
the ongoing business. The majority of the contingent consideration may be paid,
at the option of the Company, in the form of common stock valued at its
then-current market price. At the time it becomes highly probable that
contingent consideration will be earned, it will be measured and recorded on the
Company's balance sheet as additional goodwill and stockholders' equity.
To date, the Company has paid approximately $1.4 million in cash
consideration in connection with the Acquisitions, including $582,000 in
contingent consideration paid to the previous owner of AIT in February 1996 as a
result of AIT's gross profit performance during May 17 to December 31, 1995. The
impact of these payments on the Company's cash position has been partially
offset by the addition of $805,000 in cash owned by Comtech on the effective
date of its acquisition.
In July 1995, the Company loaned the sole stockholder at AIT $1.3
million in cash in connection with a secured promissory note executed as an
integral part of the acquisition of AIT. An additional $1,030,000 may be loaned
to the stockholder as specific fully reserved accounts receivable, notes
receivable and inventories on AIT's May 17, 1995 balance sheet are collected or
realized by the Company. Through June 30, 1996, the Company had loaned an
aggregate of $1,646,000 to the stockholder, of which $481,000 remained
outstanding at that date.
<PAGE>
The second of four measurement periods for purposes of releasing
escrowed shares of Company common stock and paying contingent cash consideration
to the former stockholder of AIT was January 1, 1996 to June 30, 1996. In
reviewing AIT's gross profit performance for this period, the Company determined
that the conditions for release and payment for this second period were met.
Accordingly, 159,327 escrowed shares were accounted for as if released and
$582,500 in contingent cash payments were accounted for as if paid as of June
30, 1996. The net effect of this accounting was to increase goodwill and
stockholders' equity by approximately $1.7 million at June 30, 1996. These
shares were released and payment was made on August 15, 1996.
In March 1996, the Company entered into a memorandum of understanding
with International Communication Technologies, Inc. ("ICT") and Eagle
Telephonics, Inc. ("Eagle") to manufacture, market and sell a new modular,
digital central office switch recently developed by Eagle. In July 1996, a
long-term technology licensing agreement was executed by all three parties. As
consideration of this license, the Company agreed to pay Eagle $250,000 and
provide them $450,000 of manufacturing services. In addition, the Company agreed
to pay ICT certain royalties based on future sales of the switch by the Company.
The switch has been designed using advanced digital and microprocessor
based technology which permits the provision of complete telephony services
including custom features such as call waiting, call forwarding, call
conferencing, operator assistance, etc. The switch contains detailed billing
software and can also be configured as a Subscriber, Tandem or Gateway switch.
The current switch design serves applications up to 4,000 subscriber lines and
will be expandable to over 60,000 lines through future software enhancements.
Initially, the Company expects to market the switch in the International
marketplace due to its compatibility with international standards, flexible
programming, modular design, small physical size and tolerance of a wide range
of environmental conditions. The Company expects to begin selling and delivering
this switch in 1997.
Financing Activities. Since February 1993, the Company has raised
approximately $6.2 million from four placements of common stock to private
investors. During June 1995, 306,400 restricted shares of the Company's common
stock were sold in a private offering for a gross consideration of $766,000, or
$2.50 per share. Participants in the offering also received warrants to purchase
a total of 306,400 of additional shares of restricted common stock at $3.50 per
share on or prior to June 30, 2000. An additional 861,600 of shares and warrants
were sold through this offering in July 1995. Net proceeds from this private
placement was used for operational purposes and to complete the acquisition of
AIT.
Additional sources of cash flow for the Company have included bank debt
and related payment concessions. In July 1995, the Company received a new $2
million line of credit from its primary lender through November 1997. In March
1996, the Company's bank agreement was amended to increase the revolving line of
credit from $2 million to $6 million, reduce the interest rate by one point and
extend the bank's commitment until March 2001. The original $4 million term
loan, scheduled to mature in November 1997, was replaced with a new $4 million
term loan requiring graduated quarterly payments through March 2001. As of June
30, 1996, there was no debt outstanding on the Company's line of credit.
<PAGE>
In October 1995, the Company raised approximately $6.5 million through
the exercise of previously issued warrants and non-qualified options to purchase
shares of common stock. The vast majority of these securities related to
warrants issued in connection with the private offerings discussed above and
bank financing agreements. In exercising their warrants or options, investors
had the option of paying cash or executing an 8% interest bearing note made
payable to the Company. Approximately $2.4 million of the total proceeds was
paid in cash and $4.1 million through notes, which were paid in full as of March
31, 1996. There are currently no significant warrants or options outstanding to
purchase common stock except those issued under the Company's 1991 Stock Option
Plan and a Director warrant plan.
In July 1996, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission in connection with a proposed public
offering of 4,000,000 shares of its common stock (the "Offering"). Of the
4,000,000 shares, 3,000,000 shares are being offered by the Company and
1,000,000 shares are being offered by certain selling stockholders. In addition,
the Company has granted the underwriters an option to purchase up to an
additional 600,000 shares of common stock to cover over-allotments, if any.
The Company intends to use $4 million of the net proceeds from the
Offering to repay borrowings under the bank term loan discussed above. In
consideration of the repayment of the amounts borrowed under the term loan, the
Company's primary lender has committed to increase the amount available to the
Company under its revolving line of credit from $6 million to $10 million. The
Company intends to use the remaining net proceeds from the offering for the
acquisition of businesses and technology licenses and other strategic
initiatives related to the growth and development of the Company's
telecommunications products business and for general corporate purposes
including new product development, the expansion of domestic and international
sales and marketing efforts and working capital.
Net Operating Loss Carryforwards. As of December 31, 1995, the Company
had approximately $8.5 million in tax net operating loss carryforwards available
to reduce future taxable income through the year 2010. In addition, the Company
has capital loss carryforwards of approximately $1.2 million expiring in 1998.
Due to the exercise of certain stock options and warrants and the issuance of
common stock relating to the AIT and Westec acquisitions during 1995, the
Company may have undergone an ownership change under Internal Revenue Service
regulations which would limit the annual utilization of net operating loss
carryforwards. If an ownership change has occurred, the annual limitation would
currently be approximately $4.4 million. The Company began recording income tax
expense in the second quarter of 1996 under the assumption that the annual
limitation will be in effect for 1996.
Salary Incentive Program. In December 1995, the Company implemented a
voluntary salary reduction program designed to improve the Company's cash flow
during 1996, further align the objectives of the Company's management and
salaried employees with those of the Company's stockholders and potentially
provide the Company with significant future tax deductions. Under the program,
61 of the Company's 66 exempt salaried employees agreed to forego $849,254 of
their 1996 compensation in exchange for 424,627 non-qualified options to
purchase Common Stock at $7.00 per share, the then-current market value of the
Common Stock (i.e., one stock option for every $2 of compensation). These
options vest 15% for each quarter in 1996 that the Company achieves certain
levels of pre-tax profitability. The remaining vesting is tied to the Company
meeting specific operational objectives in 1996, including ISO 9002
certification, 25% internal sales growth, return to Nasdaq National Market
listing and upgraded information systems that will support accelerated growth.
<PAGE>
Under the 1996 program, employees could participate to a maximum level
of 50% of their 1996 salaries. The Company's Chairman, President and Chief
Financial Officer each elected to forego 50% of their salary under this program.
This program also provides that if certain levels of pre-tax income before
special charges is achieved for 1996 in excess of that reported for 1995, a
partial or full repayment of salaries will be made in February 1997.
Compensation expense for this program will be recorded in 1996 as it becomes
highly probable a repayment will be earned. In connection with the Company's
pre-tax income performance in the first six months of 1996, a $425,000 expense
was recorded for the pro-rata portion of the potential repayment of 1996
salaries under this program. The related liability is included in Accrued
Payroll and Benefits on the Company's June 30, 1996 balance sheet.
Summary. The Company's improved operating performance has significantly
enhanced its financial strength and improved it's liquidity. As of June 30,
1996, the Company's stockholders' equity is approximately $21.0 million,
long-term debt to equity ratio now stands at approximately 1 to 5, and the
current ratio is 3 to 1. The Company had no debt outstanding under its $6
million bank line of credit as of June 30, 1996.
Management believes that the cash generated from operations and
available borrowings under the Company's revolving line of credit will provide
the Company with sufficient financial resources to support the working capital
requirements of its current operations.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security holders
The 1996 Annual Meeting of the stockholders of World Access, Inc. was held on
May 23, 1996 at the Company's headquarters in Orlando, Florida. There were
12,682,072 shares of Common Stock issued and outstanding and entitled to vote at
the meeting, of which 7,826,112 were present in person or by proxy. At the
meeting, the following matters were voted on:
<TABLE>
<CAPTION>
Voting Results
For Against Withheld
--------- ----------- ------------
<S> <C> <C> <C>
Election of directors:
Steven A. Odom 7,824,401 1,711
Stephen J. Clearman 7,824,401 1,711
William P. O'Reilly 7,824,401 1,711
John D. Phillips 7,824,401 1,711
Stephen E. Raville 7,824,401 1,711
Hensley E. West 7,824,401 1,711
To approve an amendment to the 1991 Stock Option Plan to
increase the number of options under such plan from 7,092,815 692,297 41,000
915,000 to 2,500,000.
To approve an amendment to the Company's Restated
Certificate of Incorporation to change the corporate name 7,625,586 5,226 195,300
to World Access, Inc.
</TABLE>
Item 5. Other Information
On June 19, 1996, the Company changed its corporate name to World Access, Inc.
On June 25, 1996, the Company's common stock began trading in the Nasdaq
National Market under the symbol "WAXS".
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1-2 Certificate of Amendment to restated Certificate of Incorporation, as
amended, incorporated herein by reference to Exhibit 4.1-2 to the
Registrant's registration statement on Form S-3, Registration No.
333-07087.
27.1 Financial Data Schedule
(b) Report on Form 8-K
On June 18, 1996, the Company filed a Report on Form 8-K, disclosing that its
acquisition of Comtech-Sunrise, Inc., a Livermore, California-based company
which designs, manufactures and markets telecommunications products, was
approved by the State of California Department of Corporations and completed in
its final form.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLD ACCESS, INC.
By: /s/ Mark A. Gergel
------------------------
Mark A. Gergel
Vice President and
Chief Financial Officer
Dated: August 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1ST AND
SECOND QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000876279
<NAME> WORLD ACCESS, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 1,393 1,393
<SECURITIES> 0 0
<RECEIVABLES> 7,736 7,736
<ALLOWANCES> 218 218
<INVENTORY> 8,224 8,224
<CURRENT-ASSETS> 18,040 18,040
<PP&E> 7,869 7,869
<DEPRECIATION> 5,458 5,458
<TOTAL-ASSETS> 30,582 30,582
<CURRENT-LIABILITIES> 6,109 6,109
<BONDS> 0 0
0 0
0 0
<COMMON> 132 132
<OTHER-SE> 20,891 20,891
<TOTAL-LIABILITY-AND-EQUITY> 30,582 30,582
<SALES> 11,563 23,956
<TOTAL-REVENUES> 11,563 23,956
<CGS> 8,138 17,756
<TOTAL-COSTS> 8,138 17,756
<OTHER-EXPENSES> 1,691 2,901
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 104 207
<INCOME-PRETAX> 1,642 2,852
<INCOME-TAX> 224 224
<INCOME-CONTINUING> 1,418 2,628
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> 1,418 2,628
<EPS-PRIMARY> .10 .19
<EPS-DILUTED> .10 .19
</TABLE>
