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 September 30, 1997.
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.)
945 E. Paces Ferry Road,
Suite 2240, Atlanta Georgia 30326
(Address of principal executive offices) (Zip Code)
(404) 231-2025
(Registrant's telephone number)
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 reports), 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 November 13, 1997 was 19,257,862.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Pro Forma
September 30 September 30 December 31
1997 1997 1996
------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 127,356,525 $ 15,806,525 $ 22,480,082
Accounts receivable 22,446,050 22,446,050 9,651,884
Inventories 18,899,308 18,899,308 10,657,412
Other current assets 7,050,102 7,050,102 3,533,615
------------- ------------- --------------
Total Current Assets 175,751,985 64,201,985 46,322,993
Property and equipment 4,287,107 4,287,107 2,657,661
Intangible assets 29,370,323 29,370,323 9,526,140
Technology licenses 903,787 903,787 907,489
Debt issuance costs 4,090,667 640,667 109,569
Other assets 2,035,152 2,035,152 1,212,114
------------- ------------- --------------
Total Assets $ 216,439,021 $ 101,439,021 $ 60,735,966
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 65,308 $ 65,308 $ ---
Accounts payable 6,902,041 6,902,041 3,756,722
Accrued payroll and benefits 3,073,261 3,073,261 1,605,840
CIS purchase price payable 3,500,000 3,500,000 ---
Other accrued liabilities 1,550,021 1,550,021 2,999,187
------------- ------------- --------------
Total Current Liabilities 15,090,631 15,090,631 8,361,749
Long-term debt 115,301,263 301,263 ---
------------- ------------- --------------
Total Liabilities 130,391,894 15,391,894 8,361,749
------------- ------------- --------------
Stockholders' Equity
Common stock 191,857 191,857 163,285
Capital in excess of par value 81,178,442 81,178,442 58,517,279
Note receivable from affiliate --- --- (571,634)
Retained earnings (deficit) 4,676,828 4,676,828 (5,734,713)
------------- ------------- --------------
Total Stockholders' Equity 86,047,127 86,047,127 52,374,217
------------- ------------- --------------
Total Liabilities and
Stockholders' Equity $ 216,439,021 $ 101,439,021 $ 60,735,966
============= ============= ==============
The accompanying notes are an integral part of these consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of products $ 21,184,617 $ 8,125,467 $ 56,098,923 $ 24,161,765
Service revenues 6,268,516 4,293,899 15,621,712 12,213,764
------------- ------------- ------------- -------------
Total Sales 27,453,133 12,419,366 71,720,635 36,375,529
Cost of products sold 12,315,911 4,810,170 33,810,721 15,621,931
Cost of services 4,742,527 3,591,677 12,831,790 10,547,681
------------- ------------- ------------- -------------
Total Cost of Sales 17,058,438 8,401,847 46,642,511 26,169,612
------------- ------------- ------------- -------------
Gross Profit 10,394,695 4,017,519 25,078,124 10,205,917
Engineering and development 605,220 242,983 1,350,225 618,001
Selling, general
and administrative 2,507,714 1,678,647 6,860,228 4,368,365
Amortization of goodwill 545,632 141,962 1,210,167 364,306
------------- ------------- ------------- -------------
Operating Income 6,736,129 1,953,927 15,657,504 4,855,245
Interest and other income 246,049 24,700 834,595 182,785
Interest and other expense (45,315) (101,360) (94,558) (308,592)
------------- ------------- ------------- -------------
Income Before Income Taxes 6,936,863 1,877,267 16,397,541 4,729,438
Income taxes 2,566,000 233,930 5,986,000 458,030
------------- ------------- ------------- -------------
Net Income $ 4,370,863 $ 1,643,337 $ 10,411,541 $ 4,271,408
============= ============= ============= =============
Net Income Per Common Share:
Primary $ .22 $ .12 $ .56 $ .31
============= ============= ============= =============
Assuming Full Dilution $ .22 $ .12 $ .55 $ .31
============= ============= ============= =============
Weighted Average Shares Outstanding:
Primary 19,599,538 13,835,374 18,561,230 13,694,591
============= ============= ============= =============
Assuming Full Dilution 20,224,016 13,835,374 19,075,743 13,694,591
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<CAPTION>
Capital in Note
Common Excess of Receivable Retained
Stock Par Value from Affiliate Earnings Total
------------ ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 163,285 $ 58,517,279 $ (571,634) $ (5,734,713) $ 52,374,217
Net income 10,411,541 10,411,541
Issuance of 1,285,884 shares for
CIS acquisition 12,859 2,580,215 2,593,074
Release of 304,615 shares from
escrow for CIS acquisition 3,021,345 3,021,345
Issuance of 393,304 shares for
Galaxy acquisition 3,933 4,494,159 4,498,092
Release of 159,327 shares from
escrow for AIT acquisition 892,231 892,231
Issuance of 121,182 shares for
AIT acquisition 1,212 2,168,788 2,170,000
Repayment of loan by affiliate 571,634 571,634
Issuance of 1,051,113 shares for
stock options and warrants 10,511 3,967,469 3,977,980
Tax benefit from exercises of stock
options and warrants 5,468,000 5,468,000
Issuance of 5,681 shares for matching
contribution to 401K plan 57 68,956 69,013
------------ ------------- -------------- -------------- -------------
Balance at September 30, 1997 $ 191,857 $ 81,178,442 $ --- $ 4,676,828 $ 86,047,127
============ ============= ============== ============== =============
The accompanying notes are an integral part of these consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended September 30
1997 1996
------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 10,411,541 $ 4,271,408
Adjustments to reconcile net income to net cash from
(used by) operating activities:
Depreciation and amortization 1,977,681 996,495
Income tax benefit from stock options exercised 5,468,000 ---
Provision for inventory reserves 353,002 148,150
Provision for bad debts 142,755 117,356
Common stock contributed to 401k plan 69,013 25,261
Changes in operating assets and liabilities,
net of effects from businesses acquired:
Accounts receivable (10,950,072) 1,158,614
Inventories (8,427,898) (6,394,590)
Accounts payable 1,875,824 491,569
Other assets and liabilities (5,040,398) 674,865
------------- ------------
Net Cash From (Used By) Operating Activities (4,120,552) 1,489,128
------------- ------------
Cash Flows From Investing Activities:
Acquisitions of businesses (5,294,398) (583,621)
Repayments of loan by affiliate 1,165,000 833,022
Expenditures for property and equipment (1,856,681) (848,832)
Technology licenses (21,898) (531,733)
------------- ------------
Net Cash Used By Investing Activities (6,007,977) (1,131,164)
------------- ------------
Cash Flows From Financing Activities:
Repayments of short-term borrowings (567,867) (4,935,220)
Proceeds from exercise of stock warrants and options 3,977,981 4,113,398
Issuance of long-term debt for capital leases 359,015 ---
Long-term debt repayments --- (325,000)
Debt issuance costs (314,157) ---
Equity offering costs --- (313,025)
------------- ------------
Net Cash From (Used By) Financing Activities 3,454,972 (1,459,847)
------------- ------------
Decrease in Cash and Equivalents (6,673,557) (1,101,883)
Cash and Equivalents at Beginning of Period 22,480,082 1,886,819
------------- ------------
Cash and Equivalents at End of Period $ 15,806,525 $ 784,936
============= ============
Supplemental Schedule of Noncash Financing and
Investing Activities:
Issuance of common stock for businesses acquired $ 13,174,742 $ 4,332,130
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 consolidated financial statements.
4
</TABLE>
<PAGE>
World Access, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997
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, 1996.
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 sales and expenses during the reporting
period. Actual results could differ from those estimates.
The results of operations for the three and nine months ended September 30,
1997 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 1997.
NOTE 2. PRO FORMA ADJUSTMENTS
On October 1, 1997, the Company received $97.0 million from the sale of
$100.0 million convertible subordinated notes, after the application of the
initial purchasers' discount fees. In addition to these notes, the Company
granted the initial purchasers an option to purchase up to an additional $15.0
million in notes to cover over-allotments. On October 28, 1997, the initial
purchasers exercised the over-allotment option in full and the Company received
an additional $14,550,000, after the application of the initial purchasers'
discount fees (see "Note 5"). The total discount fees of $3,450,000, along with
$550,000 of legal, accounting, printing and other expenses related to the notes
offering, are included in Debt issue costs on the September 30, 1997 pro forma
balance sheet.
Since the initial notes issued began trading in the public markets
prior to September 30, 1997 and proceeds were received by the Company shortly
after September 30, 1997 and prior to the filing of this Report, the pro forma
balance sheet as of September 30, 1997 has been presented to assist the readers
in understanding the impact of such transaction on the Company's financial
position as if the transaction had occurred as of September 30, 1997.
<PAGE>
NOTE 3. ACQUISITIONS
Galaxy Acquisition
On July 29, 1997, the Company entered into a letter of intent to
acquire Galaxy Personal Communications Services, Inc. ("Galaxy") for a
combination of cash and Company common stock. Galaxy, based in Norcross, Georgia
provides system design, implementation, optimization and other value-added radio
engineering and consulting services to PCS, cellular and other wireless
telecommunications service providers. On August 26,1997, the transaction was
completed in its final form whereby Galaxy was merged with and into Galaxy
Acquisition Corp., a wholly-owned subsidiary of the Company (the "Galaxy
Merger"). Galaxy Acquisition Corp. subsequently changed its name to Galaxy
Personal Communications Services, Inc. In connection with the Galaxy Merger, the
former stockholders of Galaxy received approximately $1.2 million in cash and
262,203 restricted shares of the Company's common stock. These shares had an
initial fair value of approximately $4.5 million.
In addition to the 262,203 shares noted above, the former Galaxy
stockholders were issued 131,101 restricted shares of the Company's common
stock. These shares were immediately placed into escrow, and along with $3.5
million in additional consideration, will be released and paid to the former
stockholders of Galaxy contingent upon the realization of predefined levels of
pre-tax income from Galaxy's operations during four measurement periods between
July 1, 1997 and December 31, 2000.
The shares placed in escrow were valued by the Company at par value
only, or $1,311. 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 Galaxy has been accounted for using the purchase
method of accounting. Accordingly, the results of Galaxy's operations have been
included in the accompanying consolidated financial statements from July 1,
1997, 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 $4.8 million, has been recorded
as goodwill and is being amortized over a 15 year period.
CIS Acquisition
On March 11, 1997, the Company entered into an agreement to acquire
Cellular Infrastructure Supply, Inc. ("CIS"), a Burr Ridge, Illinois based
provider of new and/or upgraded equipment and related design, installation and
technical support services to cellular, PCS and other wireless service
providers. On March 27, 1997, the transaction was completed in its final form
whereby CIS was merged with and into CIS Acquisition Corp., a wholly-owned
subsidiary of the Company (the "CIS Merger"). CIS Acquisition Corp. subsequently
changed its name to Cellular Infrastructure Supply, Inc. In connection with the
CIS Merger, the three stockholders of CIS received $3.5 million in cash and
440,874 restricted shares of the Company's common stock. These shares had an
initial fair value of approximately $2.6 million.
<PAGE>
In addition to the 440,874 shares noted above, the stockholders of CIS were
issued 845,010 restricted shares of the Company's common stock. These shares
were immediately placed into escrow, and along with $6.5 million in additional
consideration, will be released and paid to the stockholders of CIS contingent
upon the realization of predefined levels of pre-tax income from CIS's
operations during three one-year periods beginning January 1, 1997.
The shares placed in escrow were valued by the Company at par value only,
or $8,450. 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 first measurement period for purposes of releasing escrowed shares and
paying contingent cash consideration is January 1, 1997 to December 31, 1997. In
reviewing CIS's pre-tax income performance as of April 30, 1997, the Company
determined that it was highly probable that the conditions for release and
payment for this first period would be met. Accordingly, 304,615 escrowed shares
were accounted for as if released and $3.5 million in contingent cash payments
were accounted for as if paid as of April 30, 1997. The net effect of this
accounting was to increase goodwill and stockholders' equity by approximately
$6.5 million at April 30, 1997. These shares will be released and payment will
be made to the former stockholders of CIS on February 15, 1998.
The acquisition of CIS has been accounted for using the purchase method of
accounting. Accordingly, the results of CIS's operations have been included in
the accompanying consolidated financial statements from January 1, 1997, 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 $12.5 million, has been recorded as goodwill and is
being amortized over a 15 year period.
AIT Contingent Purchase Price Earned
In May 1995, the Company acquired AIT, Inc. ("AIT"), a provider of new and
used Northern Telecom switching systems, add-on frames and related circuit
boards to the telecommunications industry. As part of the total consideration
paid by the Company, the sole stockholder of AIT was issued 637,308 restricted
shares of the Company's common stock. These shares were immediately placed into
escrow, and along with $2,330,000 in potential cash payments, were to be
released to the sole stockholder over a two year period ending June 30, 1997
contingent upon the realization of predefined levels of gross profit from AIT's
operations during this same period. To the extent cash consideration is paid,
the sole stockholder will immediately be required to repay the equivalent amount
of borrowings outstanding under a promissory note entered into with the Company
in connection with the acquisition. In addition, the sole stockholder of AIT was
eligible to receive an additional $3.1 million in purchase price if AIT achieved
predefined levels of pre-tax income during the periods of May 17, 1995 to June
30, 1996 and July 1, 1996 to June 30, 1997.
<PAGE>
As of September 30, 1997, the Company had released all 637,308 shares from
escrow and paid additional cash consideration of $2,330,000 based on AIT's gross
profit performance. Based on AIT's pre-tax income performance, an additional
$3.1 million in purchase price was paid to the sole stockholder in August 1997
in the form of 121,182 restricted shares of the Company's common stock. The net
effect of the above has been to increase goodwill and stockholders' equity by
approximately $8.0 million as of September 30, 1997.
As part of a final purchase price settlement agreement entered into in
August 1997, the sole stockholder of AIT has pledged 280,509 shares of the
Company common stock to the Company to effectively guarantee the collectibility
of certain AIT accounts receivables, the utilization of certain AIT inventories
and compliance with the sole stockholder's existing non-compete agreement.
Pro Forma Results of Operations
On a pro forma, unaudited basis, as if the acquisition of CIS had occurred
as of January 1, 1996, total sales, operating income, net income and net income
per common share for the nine months ended September 30, 1996 would have been
approximately $44,058,000, $6,737,000, $5,181,000 and $.36, respectively.
These unaudited pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the results of operations
which would actually have occurred had the CIS acquisition been in effect on the
date indicated.
NOTE 4. INVENTORIES
Inventories consist of the following:
September 30 December 31
1997 1996
------------- -------------
Telecom systems, frames and circuit boards $ 11,796,000 $ 6,903,000
Electronic components 4,307,000 2,539,000
Pay telephone parts 898,000 494,000
Work in progress 1,000,000 438,000
Other finished goods 898,000 283,000
------------- -------------
$ 18,899,000 $ 10,657,000
============= =============
NOTE 5. DEBT
On October 1, 1997, the Company sold $100.0 million in aggregate principal
amount of convertible subordinated notes (the "Notes") under Rule 144A of the
Securities Act of 1933. The Notes bear interest at the rate of 4.5% per annum,
are convertible into Company common stock at an initial price of $37.03 per
share and mature on October 1, 2002. The Notes are not redeemable by the Company
prior to October 1, 2000. Interest on the Notes is payable on April 1 and
October 1 of each year, commencing on April 1, 1998. The Notes are general
unsecured obligations of the Company and are subordinate in right of payment to
all existing and future senior indebtedness. The Company received $97.0 million
from the sale of the Notes, after the application of the initial purchasers'
discount fees. Additional expenses incurred by the Company in connection with
this offering were estimated at $550,000 and are included in Debt issuance costs
on the September 30, 1997 balance sheet.
<PAGE>
In addition to the Notes sold on October 1, 1997, the Company granted the
initial purchasers an option to purchase up to an additional $15.0 million in
Notes to cover over-allotments. On October 28, 1997, the initial purchasers
exercised the over-allotment option in full.
The Company has a $10 million revolving line of credit with a large
European bank. As of September 30, 1997, the Company had no borrowings
outstanding under the line. The bank agreement, which expires in March 2001,
contains standard lending covenants including financial ratios, restrictions on
dividends and limitations on additional debt and the disposition of Company
assets. Interest is paid at the rate of prime plus 1 1/4% or LIBOR plus
2 1/2 %, at the option of the Company.
NOTE 6. EARNINGS PER SHARE
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 approximately 1,073,000 common shares held in escrow
from certain acquisitions and a license agreement have been excluded from the
earnings per share calculations for the three and nine months ended September
30, 1997 because the conditions for release of shares from escrow have not been
satisfied.
Effective December 27, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share." At that time, the Company
will be required to change the method currently used to calculate earnings per
share and to restate all prior periods. The new requirements will include a
calculation of basic earnings per share, from which the dilutive effect of stock
options and warrants will be excluded. The basic earnings per share are expected
to reflect increases of $.03 and $.01 per share for the three month periods
ended September 30, 1997 and 1996, respectively, and $.06 and $.04 per share for
the nine month periods ended September 30, 1997 and 1996, respectively.
Common stock issued and outstanding at September 30, 1997 and December 31,
1996 was 19,185,677 and 16,328,513 shares, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company develops, manufactures, and markets wireline and wireless
switching, transport 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 other telecommunications equipment manufacturers. To
support and complement its product sales, the Company also provides its
customers with a broad range of design, engineering, manufacturing, testing,
installation, repair and other value-added services.
During 1995 and 1996, the Company completed strategic and financial
restructuring programs to strengthen its management team, reposition the Company
as a provider of telecommunications products, improve its financial position,
reduce its operating costs and position the Company for future growth. These
programs were undertaken following the significant losses incurred by the
Company in the early 1990s, primarily due to a discontinued smart pay phone
business, and to take advantage of the significant growth opportunities within
the Company's existing customer base and related markets. In November 1994, the
Company started to rebuild its management team and change its strategic focus.
The Company strengthened its management team by appointing a new Chief Executive
Officer and by recruiting and hiring a new President and Chief Operating
Officer, Executive Vice President of Business Development and experienced
product development and manufacturing professionals. These individuals, together
with other key managers recruited into the Company, brought significant
experience in manufacturing and marketing telecommunications equipment to the
Company.
The Company acquired three businesses in an effort to broaden its line of
switching, transport 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 Communications Inc., ("Westec") a provider of wireless products
and services primarily to the cable television industry; and effective January
1996, the Company acquired Sunrise Sierra, Inc., ("Sunrise") a manufacturer of
intelligent transport and access products.
In January 1997, the Company acquired CIS, a provider of equipment and
related design, installation and technical support services to cellular, PCS and
other wireless service providers. In August 1997, the Company acquired Galaxy, a
firm of approximately 30 RF engineers that provide system design,
implementation, optimization and other value-added radio engineering and
consulting services to the same wireless service markets. The markets served by
CIS and Galaxy complement the Company's traditional telephone service provider
and private network operator markets. These two acquisitions, which are expected
to provide the Company with new cross-selling opportunities, also strengthened
the Company's ability to provide complete telecommunications network solutions
to its customers.
<PAGE>
The Company realized significant improvements in its sales and operating
results since 1994 as a result of the acquisitions and internal growth
initiatives. The Company's total sales increased by 97.2% in 1995 and 69.2% in
1996. Total sales for the first nine months of 1997 increased by 85.8% over the
last nine months of 1996. As the Company increased its product sales from 18.2%
of total sales in 1994 to 78.2% in the first nine months of 1997, its gross
profit margin increased from 12.9% in 1994 to 21.1% in 1995, 29.4% in 1996 and
35.0% in the first nine months of 1997. As a percentage of total sales, the
Company's operating income (loss) increased from (8.5%) in 1994 to 5.0% in 1995,
14.4% in 1996 and 21.8% in the first nine months of 1997. Management will
continue to seek further improvements in gross profit margin over time as the
Company's product offerings include more internally developed, acquired and
licensed products containing proprietary technology.
Since January 1, 1995, the Company has significantly strengthened its
balance sheet through improved operating results, a $26.2 million secondary
public equity offering, a private equity offering and stock warrant exercises
that generated approximately $10 million in new capital, and a five-year $10
million credit facility. In September and October 1997, the Company sold $115
million in aggregate amount of convertible subordinated notes which netted the
Company approximately $111.6 in cash proceeds.
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 $160.7 million and $86.0
million, respectively, on a pro forma basis as if the sale of the convertible
subordinated notes was completed at September 30, 1997.
<PAGE>
Results of Operations
The following table sets forth items in the Company's Consolidated
Statements of Operations as a percentage of total revenues:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- --------
Sales of products 77.2% 65.4% 78.2% 66.4%
Service revenues 22.8 34.6 21.8 33.6
------- ------- ------- --------
Total sales 100.0 100.0 100.0 100.0
Cost of products sold 44.9 38.7 47.1 42.9
Cost of services 17.2 29.0 17.9 29.0
------- ------- ------- --------
Total cost of sales 62.1 67.7 65.0 71.9
------- ------- ------- --------
Gross profit 37.9 32.3 35.0 28.1
Engineering and development 2.2 2.0 1.9 1.7
Selling, general and administrative 9.2 13.5 9.6 12.0
Amortization of goodwill 2.0 1.1 1.7 1.1
------- ------- ------- --------
Operating income 24.5 15.7 21.8 13.3
Interest and other income 0.9 0.2 1.2 0.5
Interest and other expense (0.1) (0.8) (0.1) (0.8)
------- ------- ------- --------
Income before income taxes 25.3 15.1 22.9 13.0
Income taxes 9.4 1.9 8.4 1.3
------- ------- ------- --------
Net income 15.9% 13.2% 14.5% 11.7%
======= ======= ======= ========
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Sales. Total sales increased $15.1 million, or 121.1%, to $27.5 million
in the third quarter of 1997 from $12.4 million in the third quarter of 1996.
The percentage of product sales to total sales increased to 77.2% in the third
quarter of 1997 from 65.4% in the third quarter of 1996.
Product sales increased $13.1 million, or 160.7%, to $21.2 million in
the third quarter of 1997 from $8.1 in the third quarter of 1996. The increase
related to $7.6 million of cellular equipment sold by CIS, which was acquired
effective January 1, 1997, an additional $3.6 million of switching products sold
by AIT and approximately $1.8 in sales of the Company's new international
product, the Compact Digital Exchange (TM) switch ("CDX").
<PAGE>
Service revenues increased $2.0 million, or 46.0%, to $6.3 million in
the third quarter of 1997 from $4.3 in the third quarter of 1996. The increase
related to an additional $1.5 million in pay telephone refurbishment revenues
and $1.1 million of revenues from Galaxy, which was acquired effective July 1,
1997. The increase was offset by a decline in electronic manufacturing revenues
resulting from a strategic decision to begin utilizing the Company's
manufacturing capacity for new World Access products rather than service outside
contract manufacturing customers.
Gross Profit. Gross profit increased $6.4 million, or 158.7%, to $10.4
million in the third quarter of 1997 from $4.0 million in the third quarter of
1996. Gross profit margin increased to 37.9% in the third quarter of 1997 from
32.3% in the third quarter of 1996. The improved performance resulted from the
121.1% 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 41.9 % in the third
quarter of 1997 from 40.8% in the third quarter of 1996. The improved margin
performance relates to the $7.6 million of cellular and PCS products sold by
CIS, the $3.6 million increase in switching products sold by AIT and the sale of
the new international CDX.
Gross profit margin on service revenues increased to 24.3% in the third
quarter of 1997 from 16.4% in the third quarter of 1996. The increase is due to
$1.1 million of revenues from Galaxy, which was acquired effective July 1, 1997.
Gross margins related to the services provided by Galaxy are approximately two
times those of the Company's other service businesses.
Engineering and Development. Engineering and development expenses
increased $362,000, or 149.1%, to $605,000 in the third quarter of 1997 from
$243,000 in the third quarter of 1996. The increase in expenses was attributable
to the formation of a corporate product development function during the third
quarter of 1996. Despite the increase in total engineering and development
expenses, engineering and development expenses increased to only 2.2% of total
sales in the third quarter of 1997 from 2.0% of total sales in the third quarter
of 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $829,000, or 49.4%, to $2.5 million in the
third quarter of 1997 from $1.7 million in the third quarter of 1996. The
increase primarily related to expenses associated with the operations of CIS and
Galaxy, which were acquired effective January 1, 1997 and July 1, 1997,
respectively, the Company's continued expansion of a dedicated international
sales and marketing group and corporate business development function and
additional incentive compensation expense recorded in 1997 as compared to 1996.
As a percentage of total sales, selling, general and administrative expenses
decreased to 9.2% in the third quarter of 1997 from 13.5% in the third quarter
of 1996.
<PAGE>
Amortization of Goodwill. Amortization of goodwill increased $404,000
to $546,000 in the third quarter of 1997 from $142,000 in the third quarter of
1996, as a result of the goodwill acquired in connection with the CIS and Galaxy
acquisitions and contingent purchase price earned by CIS and AIT.
Operating Income. Operating income increased $4.7 million, or 244.7%,
to $6.7 million in the third quarter of 1997 from $2.0 million in the third
quarter of 1996. Operating income margin increased to 24.5% in the third quarter
of 1997 from 15.7% in the third quarter of 1996.
Interest and Other Income. Interest and other income increased
$221,000, or 896.1%, in the third quarter of 1997 from $25,000 in the third
quarter of 1996 due to increased invested cash balances of the Company,
resulting primarily from proceeds received from a $26.2 million secondary public
equity offering completed in October 1996.
Interest and Other Expense. Interest and other expense decreased
$56,000, or 55.3%, to $45,000 in the third quarter of 1997 from $101,000 in the
third quarter of 1996. The decrease is due to the reduction in average debt
outstanding during the third quarter of 1997 resulting from the October 1996
repayment of a $3.9 million bank term loan.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Sales. Total sales increased $35.3 million, or 97.2%, to $71.7 million
in the first nine months of 1997 from $36.4 million in the first nine months of
1996. The percentage of product sales to total sales increased to 78.2% in the
first nine months of 1997 from 66.4% in the first nine months of 1996.
Product sales increased $31.9 million, or 132.2%, to $56.1 million in
the first nine months of 1997 from $24.2 million in the first nine months of
1996. The increase related to $23.9 million of cellular equipment sold by CIS,
which was acquired effective January 1, 1997, an additional $10.9 million of
switching products sold by AIT and approximately $2.3 million in sales of the
Company's new international products, the CDX and Wireless Local Loop-2000(TM)
system ("WLL-2000"). Product sales for the first nine months of 1996 included
approximately $4.7 million in special one-time sales of a distributed product.
Service revenues increased $3.4 million, or 27.9%, to $15.6 million in
the first nine months of 1997 from $12.2 million in the first nine months of
1996. The increase related to an additional $4.5 million in pay telephone
refurbishment revenues and $1.1 million of revenues from Galaxy, which was
acquired effective July 1, 1997. This increase was offset by a decline in
electronic manufacturing revenues resulting from a strategic decision to begin
utilizing the Company's manufacturing capacity for new World Access products
rather than service outside contract manufacturing customers.
Gross Profit. Gross profit increased $14.9 million, or 145.7%, to $25.1
million in the first nine months of 1997 from $10.2 million in the first nine
months of 1996. Gross profit margin increased to 35.0% in the first nine months
of 1997 from 28.1% in the first nine months of 1996. The improved performance
resulted from the 97.2% increase in total sales and the change in sales mix to
products, which generally carry a higher gross profit margin than service
revenues.
<PAGE>
Gross profit margin on products sold increased to 39.7% in the first
nine months of 1997 from 35.3% in the first nine months of 1996. The improved
margin performance relates to the $23.9 million of cellular and PCS products
sold by CIS, the $10.9 million increase in switching products sold by AIT and
the sale of the new international CDX and WLL-2000. In addition, the first nine
months of 1996 included $4.7 million of distributed product sales which carry
margins substantially lower than the Company's other products.
Gross profit margin on service revenues increased to 17.9% in the first
nine months of 1997 from 13.6% in the first nine months of 1996. The increase is
due to $1.1 million of revenues from Galaxy, which was acquired effective July
1, 1997. Gross margins related to the services provided by Galaxy are
approximately two times those of the Company's other service businesses.
Engineering and Development. Engineering and development expenses
increased $732,000, or 118.5%, to $1.4 million in the first nine months of 1997
from $618,000 in the first nine months of 1996. The increase in expenses was
attributable to the formation of a corporate product development function during
the third quarter of 1996. Despite the increase in total engineering and
development expenses, engineering and development expenses increased to only
1.9% of total sales in the first nine months of 1997 from 1.7% of total sales in
the first nine months of 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2,492,000, or 57.0%, in the first nine months
of 1997 to $6,860,000 in the first nine months of 1997 from $4,368,000 in the
first nine months of 1996. The increase primarily related to expenses associated
with the operations of CIS and Galaxy, which were acquired effective January 1,
1997 and July 1, 1997, respectively, and the Company's expansion of a dedicated
international sales and marketing group and corporate business development
function formed in early 1996. In addition, the Company has recorded
approximately $900,000 of incentive compensation expense in the first nine
months of 1997 as compared to $200,000 in the first nine months of 1996. As a
percentage of total sales, selling, general and administrative expenses
decreased to 9.6% in the first nine months of 1997 from 12.0 in the first nine
months of 1996.
Amortization of Goodwill. Amortization of goodwill increased $846,000
to $1.2 million in the first nine months of 1997 from $364,000 in the first nine
months of 1996, as a result of the goodwill acquired in connection with the CIS
and Galaxy acquisitions and contingent purchase price earned by CIS and AIT.
Operating Income. Operating income increased $10.8 million, or 222.5%,
to $15.7 million in the first nine months of 1997 from $4.9 million in the first
nine months of 1996. Operating income margin increased to 21.8% in the first
nine months of 1997 from 13.3% in the first nine months of 1996.
<PAGE>
Interest and Other Income. Interest and other income increased
$652,000, or 356.6%, to $835,000 in the first nine months of 1997 from $183,000
in the first nine months of 1996 due to increased invested cash balances of the
Company, resulting primarily from proceeds received from a $26.2 million
secondary public equity offering completed in October 1996.
Interest and Other Expense. Interest and other expense decreased
$214,000, or 69.4%, to $95,000 in the first nine months of 1997 from $309,000 in
the first nine months of 1996. The decrease is due to the reduction in average
debt outstanding during the second quarter of 1997 resulting from the October
1996 repayment of a $3.9 million bank term loan.
Liquidity and Capital Resources
Overview
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 1997 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. In October 1997, the Company received net cash proceeds of
approximately $111.6 million from the sale of convertible subordinated notes. As
of the date of this Report, the Company has approximately $123.0 million of cash
and equivalents and $10.0 million available under its credit line to support its
working capital requirements and strategic growth initiatives.
Operating Activities
Cash used by operating activities was $4.1 million in the first nine months
of 1997 as compared to cash provided from operations of $1.5 million in the
first nine months of 1996. The increase use of cash in 1997 resulted from the
Company's need to finance increased accounts receivable and inventories to
support its growth.
Accounts receivable increased $12.7 million, or 132.6%, to $22.4 at
September 30, 1997 from $9.7 million at December 31, 1996. This was due to the
acquisitions of CIS and Galaxy and increased sales activity at the Company, ie.
third quarter 1997 sales of $27.5 million as compared to fourth quarter 1996
sales of $14.6 million. Average days sales outstanding at September 30, 1997
were approximately 74 days as compared to 50 days at December 31, 1996. The
increased days is primarily due to extended terms granted certain switching
products customers.
<PAGE>
Inventories increased $8.2 million, or 77.3%, to $18.9 million at September
30, 1997 from $10.7 million at December 31, 1996. This increase is due to the
acquisition of CIS, a planned build-up of AIT inventories to support the
increased demand for its switching products and inventories required to support
the roll out of the Company's new products, including the CDX, WLL-2000 and the
WX-5501 line card.
Investing Activities
Cash used by investing activities (primarily for the acquisitions of
businesses and technology licenses, manufacturing and test equipment and
computer networking equipment) was $6.0 million in the first nine months of 1997
as compared to $1.1 million in the first nine months of 1996.
Between May 1995 and July 1997, the Company completed five acquisitions,
which were designed to bring new wireline and wireless switching, transport and
access products and technology into the Company as well as strengthen the
Company's ability to provide complete telecommunications network solutions to
its customers. All of the acquisitions were relatively similar in structure in
that the former owners 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, the fair market value is measured and recorded on the Company's balance
sheet as additional goodwill and stockholders' equity. See Note 3 to the
Consolidated financial statements.
Through September 30, 1997, the Company has paid approximately $6.5 million
in cash consideration in connection with five acquisitions, including $500,000
(net of $700,000 held by Galaxy on its effective date of acquisition) for the
Galaxy acquisition during the third quarter of 1997, $3.5 million for the CIS
acquisition in early 1997 and $2.3 million in contingent consideration paid to
the former stockholder of AIT ($1.2 million paid in 1997). 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 Sunrise on its effective date of
acquisition.
In addition to the $1.2 million in cash and 262,203 shares of common stock
issued up front, with an initial value of approximately $4.5 million, the
stockholders of Galaxy were issued 131,101 restricted shares of the Company's
common stock. These shares were immediately placed into escrow, and together
with $3.5 million in additional consideration, will be released and paid to the
stockholders of Galaxy contingent upon the realization of predefined levels of
pre-tax income from Galaxy's operations during four periods beginning July 1,
1997.
In addition to the $3.5 million in cash and 440,874 shares of common stock
issued up front, with an initial fair value of approximately $2.5 million, the
stockholders of CIS were issued 845,010 restricted shares of the Company's
common stock. These shares were immediately placed into escrow, and along with
$6.5 million in additional purchase price, will be released and paid to the
stockholders of CIS contingent upon the realization of predefined levels of
pre-tax income from CIS's operations during three one-year periods beginning
January 1, 1997.
<PAGE>
The first measurement period for purposes of releasing escrowed shares and
paying contingent cash consideration is January 1, 1997 to December 31, 1997. In
reviewing CIS's pre-tax income performance as of April 30, 1997, the Company
determined that it was highly probable that the conditions for release and
payment for this first period would be met. Accordingly, 304,615 escrowed shares
were accounted for as if released and $3.5 million in contingent cash payments
were accounted for as if paid as of April 30, 1997. The net effect of this
accounting was to increase goodwill and stockholders' equity by approximately
$6.5 million at April 30, 1997. These shares will be released and payment will
be made to the former stockholders of CIS on February 15, 1998.
During the first nine months of 1997 and 1996, the Company invested $1.9
million and $849,000, respectively, in capital expenditures. These expenditures
were primarily used for new manufacturing and test equipment, computer network
and related communications equipment designed to upgrade the Company's
management information systems and facilitate the integration of the
acquisitions, and facility improvements required in connection with Company's
growth.
In July 1996, the Company entered into a long-term technology license
agreement with International Communications Technologies, Inc. ("ICT") and Eagle
Telephonics, Inc. ("Eagle") to manufacture, market and sell the CDX, a new
modular, digital central office switch originally developed by Eagle. As
consideration for this license, the Company paid Eagle $250,000 in cash and
agreed to provide $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.
Financing Activities
Cash provided from financing activities was $3.5 million in the first
nine months of 1997 as compared to cash used by financing activities of $1.5
million in the first nine months of 1996.
During the first nine months of 1997 and 1996, the Company has received
approximately $4.0 million and $4.1 million, respectively, in proceeds
from the exercise of previously issued stock options and warrants by the
Company's directors and employees.
During the first nine months of 1997 and 1996, the Company made
approximately $568,000 and $4.9 million, respectively, in net short-term debt
repayments. As of September 30, 1997, there were no amounts outstanding on the
Company's line of credit.
During October 1997, the Company sold $115.0 million in aggregate principal
amount of convertible subordinated notes (the "notes") under Rule 144A of the
Securities Act of 1933. The notes bear interest at the rate of 4.5% per annum,
are convertible into Company common stock at an initial price of $37.03 per
share and mature on October 1, 2002. The notes are not redeemable by the Company
prior to October 1, 2000. Interest on the notes is payable on April 1 and
October 1 of each year, commencing on April 1, 1998. The notes are general
unsecured obligations of the Company and will be subordinate in right of payment
to all existing and future senior indebtedness. The Company received $111.6
million from the sale of the notes, after the application of the initial
purchasers' discount fees. Additional expenses incurred by the Company in
connection with this offering were estimated at $550,000 and are included in
Debt issue costs on the September 30, 1997 consolidated balance sheet.
<PAGE>
Income Taxes
As of December 31, 1996, the Company had approximately $4.0 million in tax
net operating loss carryforwards available to reduce future taxable income
through the year 2010, all of which will be utilized during 1997 to reduce
taxable income realized by the Company. In addition, the Company has capital
loss carryforwards of approximately $1.2 million expiring in 1998.
As a result of the exercises of non-qualified stock options and
warrants by the Company's directors and employees, the Company has realized a
federal income tax benefit of approximately $5.5 million for the nine months
ended September 30, 1997. Although this benefit does not have any effect on the
Company's provision for income tax expense for 1997, it represents a significant
cash benefit to the Company. This tax benefit is accounted for as a decrease in
current income taxes payable and an increase in capital in excess of par value.
Based upon the $5.5 million tax benefit derived from the exercises of
non-qualified options and warrants as of September 30, 1997 and the remaining
$4.0 million tax net operating loss carryforward available, the Company expects
to pay little or no federal income taxes for the year ended December 31, 1997.
Salary Incentive Program
In December 1996, the Company implemented a voluntary salary reduction
program designed to improve the Company's cash flow during 1997, 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, 72 exempt salaried employees agreed to
forego $826,038 of their 1997 compensation in exchange for 413,019 non-qualified
options to purchase shares of the Company's common stock at $8.00 per share, its
then-current market value (i.e., one stock option for every $2 of compensation).
The vesting is tied to the Company meeting specific operational objectives in
1997, including the Company achieving pre-defined levels of internal sales
growth, ISO 9002 certification and specific cash management objectives, as well
as the installation of certain upgraded information systems.
Under the 1997 program, employees could participate to a maximum level of
50% of their 1997 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 are achieved for 1997, a partial or full repayment of salaries
will be made. Full repayment is based on the Company realizing $23.4 million of
pre-tax income during 1997, a $15.9 million or approximately 211.0% increase
over 1996 actual pre-tax income. Compensation expense related to this program
will be recorded in 1997 when it becomes highly probable a repayment will be
earned. In connection with the Company's pre-tax income performance in the first
nine months of 1997, a $620,000 expense was recorded for the prorata portion of
the potential repayment of 1997 salaries under this program. The related
liability is included in Accrued payroll and benefits on the Company's September
30, 1997 balance sheet.
<PAGE>
Summary
The Company's improved operating performance and completion of the recent
sale convertible subordinated notes has significantly enhanced its financial
strength and improved its liquidity. As of the date of this Report, the Company
has no bank debt, approximately $123.0 million of cash and a $10 million
revolving line of credit available. Management believes that the Company has
sufficient financial resources to support its working capital requirements and
business plans for at least the next 12 months.
Item 2. Changes in Securities
On October 1, 1997, the Company completed the sale of $100,000,000
aggregate principal amount of its 4.5% convertible subordinated notes due
October 1, 2002 (the "Notes") to BT Alex. Brown Incorporated and Prudential
Securities Incorporated (collectively, the "Initial Purchasers") pursuant to
that certain Purchase Agreement by and between the Company and the Initial
Purchasers dated as of September 26, 1997 (the "Purchase Agreement"), at a
purchase price of 97% of the aggregate principal amount of the Notes,
representing an aggregate discount of $3,000,000 to the Initial Purchasers.
Under the terms of the Purchase Agreement, the Company granted the Initial
Purchasers an option exercisable for 30 days to purchase up to an aggregate of
$15,000,000 additional principal amount of Notes to cover over-allotments, if
any. The Initial Purchasers exercised this option in full, and on October 28,
1997, the Company sold an additional $15,000,000 in principal amount of the
Notes to the Initial Purchasers. The Notes are convertible into shares of Common
Stock at a conversion price of $37.03125 per share, subject to adjustment (the
"Conversion Price").
The Notes were issued pursuant to an Indenture dated as of October 1,
1997 by and between the Company and First Union National Bank, as trustee (the
"Indenture"). The Notes bear interest at the rate of 4.5% per annum and mature
on October 1, 2002. The Notes are convertible into Common Stock at any time
prior to the close of business on the maturity date, unless previously redeemed
or repurchased, at the Conversion Price. The Notes are unsecured and
subordinated in right of payment in full to all existing and future Senior
Indebtedness (as defined in the Indenture) of the Company. If a Change of
Control (as defined in the Indenture) of the Company occurs, each holder of
Notes may require the Company to repurchase all or a portion of such holder's
Notes at 100% of the principal amount thereof, together with accrued interest to
the repurchase date. The Notes are redeemable by the Company any time after
October 1, 2000.
The sale of the Notes to the Initial Purchasers was not registered
under the Securities Act of 1933, as amended (the "Securities Act"), in reliance
on the exemption provided by Section 4(2) of the Securities Act. The Initial
Purchasers resold a portion of the Notes in the United States to certain
"qualified institutional buyers" pursuant to Rule 144A under the Securities Act
and a portion of the Notes outside of the United States to "non-U.S. persons" in
reliance on Regulation S under the Securities Act.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On September 19, 1997, the Company filed a Report on Form 8-K,
announcing that it was pursuing a private placement of $100 million aggregate
principal amount of convertible subordinated notes. On October 8, 1997, the
Company filed a Report on Form 8-K, announcing that it had sold $100 million
aggregate principal amount of convertible subordinated notes.
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
Executive Vice President and
Chief Financial Officer
Dated: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH DOCUMENT.
</LEGEND>
<CIK> 0000876279
<NAME> WORLD ACCESS, INC.
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