10-K/A

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                                 UNITED STATES
                            SECURITIES AND EXCHANGE
                                   COMMISSION
                             WASHINGTON, D.C. 20549

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                                  FORM 10-K/A

                                AMENDMENT NO. 3


               
   (MARK ONE)
      [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
                                               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 0-29782

                               WORLD ACCESS, INC.
             (Exact Name of Registrant as Specified in its Charter)

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



                                    
      945 EAST PACES FERRY ROAD
             SUITE 2200
             ATLANTA, GA                               30326
   (Address of Principal Executive                  (Zip Code)
               Offices)

                               (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 [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.  [ ]

     As of March 24, 2000 there were 59,675,996 shares of our common stock
outstanding. The aggregate market value of common stock held by non-affiliates
of the registrant as of March 24, 2000, as based on the average closing bid and
ask prices, was approximately $1,251,286,000.
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                               WORLD ACCESS, INC.
                            FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS



                                                                         PAGE
                                                                        NUMBER
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                                    PART I
Item 1    Business....................................................     1
Item 2    Properties..................................................    29
Item 3    Legal Proceedings...........................................    30
Item 4    Submission of Matters to a Vote of Security Holders.........    31
Item 4.5  Executive Officers of the Registrant........................    31

                                   PART II
Item 5    Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................    33
Item 6    Selected Financial Data.....................................    35
Item 7    Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................    37
Item 7A   Quantitative and Qualitative Disclosures about Market
          Risks.......................................................    49
Item 8    Financial Statements and Supplementary Information..........    50
Item 9    Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................    92

                                   PART III
Item 10   Directors and Executive Officers of the Registrant..........    92
Item 11   Executive Compensation......................................    94
Item 12   Security Ownership of Certain Beneficial Owners and
          Management..................................................   104
Item 13   Certain Relationships and Related Transactions..............   106

                                   PART IV
Item 14   Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................   107


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FORWARD-LOOKING STATEMENTS

     This Form 10-K report contains certain information regarding our
strategies, plans and future expectations that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1934. When used in this report, the words
"may," "could," "should," "would," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar terms and/or expressions are intended to
identify forward-looking statements. These statements reflect our assessment of
a number of risks and uncertainties and our actual results could differ
materially from the results anticipated in these forward-looking statements. In
light of the risks and uncertainties inherent in all such projected operational
matters, you should not regard forward-looking statements in this report as a
representation by World Access or any other person that the plans of World
Access will be achieved or that any of our future expectations will be realized.

     Factors that could cause our actual results to differ from the results
discussed in the forward-looking statements include, but are not limited to (i)
our ability to successfully integrate new acquisitions; (ii) our ability to
acquire and develop our international telecommunications network; (iii) our
ability to manage effectively our rapid growth; (iv) changes in customer rates
per minute; (v) termination of certain service agreements or inability to enter
into additional service agreements; (vi) changes in or developments under
domestic or foreign laws, regulations, licensing requirements or
telecommunications standards; (vii) changes in the availability of transmission
facilities; (viii) loss of the services of key officers; (ix) loss of a customer
which provides significant revenues to us; (x) highly competitive market
conditions in the industry; and (xi) concentration of credit risk. Any forward
looking statement speaks only as of the date of this report, and we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

     We transport international long distance voice and data traffic for post
telephone and telegraph operators, regional Bell operating companies,
competitive local exchange carriers, long distance companies, private network
providers and other global carriers. We provide our services through a
combination of our own international network facilities, various international
termination relationships and resale arrangements with other international long
distance service providers. Through the acquisition of FaciliCom International,
Inc. in December 1999 and NETnet International S.A. in February 2000, we plan to
expand our service offerings to include the sale of bundled voice, data and
Internet services directly to small and medium size businesses located
throughout Europe.

     We provide international communications services over an advanced
asynchronous transfer mode internal backbone. The advanced global network
utilizes Nortel DMS-GSP international gateway switches and other
state-of-the-art platforms to provide end-to-end connectivity to carriers and
business users around the world. Our network is comprised of facilities
coast-to-coast in the United States and in 13 countries throughout Europe. Our
network is linked by ownership and leased lines over 19 separate cable systems,
including FCI One, our wholly owned cable linking Denmark and Sweden. We also
own and operate the Swedish International Teleport, which provides satellite
services.

     Prior to the acquisition of Resurgens Communication Group in December 1998,
we were exclusively a manufacturer and reseller of telecommunications network
equipment, including digital switches, billing and network telemanagement
systems, cellular base stations, fixed wireless local loop systems, intelligent
multiplexers and digital microwave radio systems. In December 1999, in
connection with the acquisition of FaciliCom, we adopted a plan to divest all of
our equipment businesses. As a result, the operating results of our equipment
businesses are reported under discontinued operations in the accompanying
financial statements (see "Discontinued Operations").

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     With the acquisition of Resurgens and FaciliCom, we have positioned
ourselves to become a leader in the rapidly growing global market for
international long distance voice, Internet access, data and other services. We
enjoy competitive advantages which we believe serve as a model for our continued
successful growth as a diversified telecommunications company, including:


     Extensive Facilities-Based International Telecommunications Network.  We
have acquired a carrier-grade network in 14 countries, including the United
States and the top ten Western European international long distance markets
based on our belief that this acquisition would allow us to obtain a platform
from which we could expand our revenues. Thus, we believe this acquisition would
give us the ability to more quickly enter markets than other entrants.
FaciliCom's early entrant approach, implemented through our local management and
operations, has allowed us to enter into interconnection agreements more readily
than companies without these resources and provides us with a lower cost
structure than many of our competitors serving these regions who do not have
these agreements. Due to the recent liberalization of regulations regarding
interconnection and licensing it has become easier for new entrants to compete
in the telecommunications market in Europe. Non-discriminatory access to the
infrastructure of dominant carriers has been mandated throughout Europe, while
licensing requirements have been drastically reduced. Our network has been
designed and built to allow us to offer high-quality services, control our
termination and network costs and cost-effectively expand our service offerings.
By adding relatively inexpensive routers to our asynchronous transfer mode
network, we intend to further expand our dial-up Internet access services with
little additional investment. We believe that this network gives us an early
entrant advantage and positions us to increase our revenue and improve gross
margins in future periods.


     Strong European Presence.  Our European focus enables us to capitalize on
the higher prices associated with traffic originating in Europe as compared to
the United States. Because our network is concentrated in the leading European
markets, we are able to take advantage of increasing opportunities to carry
cross-border European traffic on our network, realize greater economies of scale
in network management and sales and marketing, and capitalize on strategic
opportunities to build fiber systems such as FCI One. In addition, we believe
this geographic concentration favorably positions us for entry into other
deregulating European markets, such as Poland, Portugal and the Czech Republic,
on a more cost-effective basis by adding a new source of traffic which can be
terminated throughout our network and by reducing termination costs of network
traffic entering these newly-deregulated markets.


     Established Wholesale Customer Base.  We have established a wholesale
customer base of over 200 carriers in the United States and 13 European
countries, including a majority of the first-tier and emerging carriers,
European wireless carriers and seven of the ten largest global international
carriers. This significant customer base enables us to rapidly and
cost-effectively build traffic volumes as we expand our network. Because many of
our customers are also high-quality carriers, we are able to use their
facilities on favorable terms to carry traffic on routes where we have no
facilities, thereby lowering our network costs. However, the nature of the
wholesale telecommunications market is that carriers execute non-exclusive
agreements with several carriers, such as World Access, and there are no
long-term contracts. Month-to-month traffic volumes by customer vary
considerably and are unpredictable in the short-term.


     Successful European Retail Operations.  Since its initial investment in a
Swedish subsidiary in 1995, FaciliCom has increased its retail customer base
from fewer than 2,000 to approximately 52,000 small-to medium-sized business and
residential retail customers in Sweden, Denmark, Norway and Finland. Our
acquisition of NETnet provided us an additional 20,000 business customers
throughout Europe.

     Strong Management Team.  We have a highly experienced senior management
team with, on average, over 20 years of experience in the telecommunications
industry, including experience with such industry leaders as MCI WorldCom, Bell
Atlantic, British Telecom, Cable & Wireless, Global One, Sprint, GTE, Viag
Interkom and Nortel Networks. Additionally, in each country in which we operate,
we employ a local management team that is familiar with local legal and
regulatory issues, business practices, and cultural norms that affect our
business. The members of our management team have proven their ability to obtain
licenses, recruit experienced staff, negotiate for interconnection agreements
with national carriers, construct and operate a high-quality network and provide
superior customer service. We believe that experience gained from

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operating in Europe over the last four years provides us with a distinct
advantage over newer entrants to these markets.

RECENT DEVELOPMENTS

     NETnet Acquisition.  In February 2000, we acquired substantially all of the
assets and assumed certain liabilities of Long Distance International, Inc.,
known as LDI, including its wholly owned subsidiary NETnet International.
Operating under the NETnet(TM) name throughout Europe, we now offer an array of
retail telecommunications services concentrating on the needs of business
customers in Austria, France, Germany, Italy, Norway, Spain, Sweden,
Switzerland, and the United Kingdom. NETnet currently operates at an annual
revenue run rate approaching $100.0 million.

     The acquisition of NETnet provides us with approximately 20,000 business
customers in nine European countries, and serves as a first step towards our
becoming a premier provider of bundled voice, data and Internet services to
small and medium enterprise markets throughout Europe. Through direct and
indirect sales forces, NETnet has successfully targeted, acquired and retained
business customers by providing innovative bundled service offerings, customer
service and customizable billing capabilities. We intend to utilize NETnet's
retail customer development and retention programs as a basis for further retail
account growth in Europe.

     NETnet corporate customers include: Levi Strauss, Marriott Hotels, Mercedes
Benz, Italy, the Swedish government, and ABB. In addition to its wireline
services, NETnet operates a GSM resale unit in the United Kingdom. Of the 20,000
corporate customers, approximately 4,000 business accounts utilize NETnet's
wireless plan, with approximately 12,000 handsets in use in the United Kingdom.
NETnet recently announced that it is the first competitive telecommunications
provider to be approved for SIM card appliances for its wireless handsets.
Through the use of its cards, NETnet will be able to build customer loyalty and
start to replace the network operator as a key relationship, thus improving its
ability to build a relationship with customers. We anticipate that wireless
services will become an integral part of our enhanced retail services throughout
Europe.

     Star Merger.  In February 2000, we executed a definitive agreement with
Star Telecommunications, Inc. pursuant to which Star will merge with and into
World Access. Star is a publicly held provider of international voice, data and
Internet services, primarily to long distance carriers, multinational
corporations and Internet service providers in the U.S. and Europe. For the year
ended December 31, 1999, Star reported revenue in excess of $1.0 billion. We
expect the transaction to close in mid-2000.

     The Star merger is subject to, among other things, certain regulatory
approvals, the approval of our stockholders, the approval of Star's stockholders
and the divestiture by Star of certain business segments for specified minimum
net cash proceeds. Any net proceeds in excess of the specified minimum proceeds
will serve to directly increase the merger consideration. We have agreed to
provide bridge financing to Star in an amount up to $35.0 million.


     Our merger with Star is expected to further strengthen our position in the
European long distance market. Our pan-European network will be greatly enhanced
with Star's network assets and licenses in Germany, the largest
telecommunications market in Europe, which we believe will allow us to expand
our revenues to both new and existing customers. In addition to 24 international
gateway switches and ownership on 17 transoceanic cable systems, Star also has
interconnections between 23 German cities. Star's wholesale business will
provide us with further scale and network economies as we attempt to expand our
retail presence. We believe that the combined traffic of World Access and Star
will reduce our overall termination costs throughout the world.


     WorldxChange Merger.  In February 2000, we executed a definitive merger
agreement with Communication TeleSystems International d/b/a WorldxChange
Communications, a privately held multinational telecommunications service
provider. WorldxChange generated pro-forma revenues in 1999 of approximately
$600.0 million. We expect the transaction to close in mid-2000.

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     WorldxChange is a global telecommunications company that specializes in
providing high-quality, low-cost services to retail and wholesale customers in
ten countries, including the United Kingdom, Germany, the United States, France
and Australia. It operates 43 switches which are connected with an extensive
network of owned and leased undersea and land-based fiber optic cables,
providing more than 550,000 customers each month with communications services
worldwide.

     The WorldxChange merger is subject to, among other things, certain
regulatory approvals, the approval of our stockholders and the approval of
WorldxChange stockholders. We have agreed to provide bridge financing to
WorldxChange in an amount up to $30.0 million.


     Our acquisition of WorldxChange represents a major step forward in our
plans to become a leader in enhanced retail telecommunications services
throughout Europe. WorldxChange has a significant presence in key European
markets such as the United Kingdom, Germany and the Benelux, principally serving
small- to-medium sized business customers. In addition, WorldxChange has
developed state-of-the-art, Internet-based information management systems,
incorporating all key aspects of retail telecom services, including
provisioning, billing, fraud protection and customer care. We expect these
capabilities to serve as the foundation for our retail management systems and
future revenue growth throughout Europe.


TELECOMMUNICATIONS INDUSTRY

     A long distance telephone call consists of three parts; origination,
transport and termination. Generally, a national long distance call originates
on a local exchange network or a leased line and is transported to the network
of a long distance carrier. The call is then carried along the long distance
network to another local exchange network where the call is terminated. An
international long distance call is similar to a national long distance call,
but typically involves at least two traditional long distance carriers: the
first carrier transports the call from the country of origination and the second
carrier terminates the call in the country of termination. The two companies may
be operating companies within a group or under common ownership.

     The international long distance telecommunications services industry
consists of all transmissions of voice and data that originate in one country
and terminate in another. This industry is undergoing a period of fundamental
change which has resulted in substantial growth in international
telecommunications traffic. According to industry sources, providers of
international telephone service will generate $73.0 billion in revenue and
transport 146 billion minutes of traffic by the year 2002. The volume of
international traffic on the public telephone network is projected to grow by
12% per year through 2002, with an estimated 75% of all international long
distance traffic originating in the United States or Europe.

     The strong growth experienced in the international telecommunications
market is expected to continue into the foreseeable future, driven principally
by the following factors:

          - dramatic increases in the availability of telephones and the number
     of access lines in service around the world, stimulated by economic growth
     and technological advancements;

          - opening of overseas telecommunications markets due to deregulation
     and the privatization of government-owned monopoly carriers, permitting the
     emergence of new carriers;

          - rapid globalization of commerce, trade and travel, which is creating
     increased communications needs;

          - reduction of international long distance rates, driven by
     competition and technological advancements, which is making international
     calling available to a much larger customer base and stimulating increasing
     traffic volumes;

          - increased availability and quality of digital undersea fiber optic
     cable, which have enabled long distance carriers to improve the quality of
     their service while reducing customer access cost;

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          - worldwide proliferation of new communications services such as
     cellular telephones, facsimile machines, the Internet and other forms of
     data communications services; and

          - rapidly increasing demand for bandwidth-intensive data transmission
     services, including the Internet.

     Bilateral operating agreements between international long distance carriers
in different countries are key components of the international long distance
telecommunications market. Under an operating agreement, each carrier agrees to
terminate traffic in its country and provide proportional return traffic to its
partner carrier. The implementation of a high quality international network,
including the acquisition and utilization of digital undersea fiber optic cable
and adherence to the technical recommendations of the International Telegraph
and Telephone Consultative Committee of the International Telephone Union for
signaling, protocol and transmission, is an important element in enabling a
carrier to compete effectively in the international long distance
telecommunications market.

     In February 1997, over 60 countries signed a global agreement on
telecommunications under the auspices of the World Trade Organization, which
became effective February 5, 1998. The agreement seeks to open markets to
competition in telecommunications services, improve foreign investment
opportunities in the telecommunications industry and to adopt pro-competitive
regulatory principles. The Federal Communications Commission, or FCC, has
adopted various rules designed to implement the principles of the World Trade
Organization agreement.

NETWORK

     General.  We have an extensive facilities-based international network
comprised of gateway switches, additional points of presence, an asynchronous
transfer mode transmission backbone, owned and leased fiber capacity and a
satellite earth station. Our facilities-based network permits us to terminate an
increasing percentage of traffic on our network, allowing us to better control
both the quality and cost of telecommunications services that we provide to our
customers. To provide high-quality telecommunications services, our network
employs digital switching and fiber technologies, uses advanced signaling
protocols and is supported by comprehensive monitoring and technical services.

     Our gateway switches and European points of presence allow us to terminate
traffic within European countries, ensuring quality and lowering termination
costs. We have also established interconnection and operating agreements with
national carriers in the markets where we have facilities.

     Gateway Switches.  We currently operate 15 Nortel and two Ericsson gateway
switches in the United States (New York, New Jersey, Los Angeles and Miami) and
in Europe (Austria, Belgium, Denmark, Finland, France, Germany, Italy, The
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom).

     Asynchronous Transfer Mode Transmission Backbone.  We currently operate a
high-capacity asynchronous transfer mode transmission backbone between certain
of our U.S. and European gateway switch locations. Our asynchronous transfer
mode backbone enables us to combine switched voice, private line and data
traffic, including frame relay and Internet Protocol, on the same international
circuits. We believe that our existing asynchronous transfer mode backbone
provides a competitive networking advantage because it is able to combine these
forms of traffic onto the same network, thereby eliminating the need to purchase
capacity and related equipment for different types of traffic. In addition, the
switching technology used in an asynchronous transfer mode system is more
efficient than traditional circuit-switched technology because an asynchronous
transfer mode network, unlike a circuit-based network, does not require a fixed
amount of bandwidth to be reserved for each telephone call or data transmission.
This allows voice and data calls to be pooled, which enables our network to
carry more calls with the same amount of bandwidth. This greater efficiency
creates network cost savings that can be passed on to our customers in the form
of lower rates, and provides an immediate cost advantage for connection from our
nearest point of presence to the chosen Internet backbone interconnect point.

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     Fiber.  We seek to obtain ownership interests in fiber systems where we
believe that our customers' demand will justify the investment in those fixed
assets. We can generally earn a higher gross margin on traffic routed through
our network's owned fiber rather than traffic routed through our network's
leased fiber. However, when it is more cost effective to do so, we will lease
fiber capacity on a short term basis on specific routes.

     We currently have acquired fiber capacity on an indefeasible rights of use
or minimum assignable membership units basis in 18 fiber cable systems,
including Hermes, CIRCE, Flag, Qwest, CANTAT, ODIN and Southern Cross.

     We believe that no single agreement that we have relating to indefeasible
rights of use or to minimum assignable ownership units is material to our
financial condition or our business operations. With the passage of time, an
increasing amount of fiber capacity is becoming available and the cost of this
capacity is expected to decline. As a result, we believe that, when one or more
of these agreements expires, we would be able to replace, at similar costs and
within reasonable time periods, similar capacity on alternative competing fiber
systems through purchases of minimum assignable ownership units or indefeasible
rights of use.

     Ownership and Operation of Fiber Capacity/FCI One.  We purchase fiber
capacity on existing cable systems as demand for our services justifies this
investment. When fiber capacity is not available at reasonable prices, we may
instead install and operate our own fiber cables. Our initial effort in this
area consisted of FCI One, a 24-pair fiber submarine cable that we own and
operate between Copenhagen, Denmark and Malmo, Sweden. Currently, we are only
using one such fiber pair.

     Before Denmark granted licenses to additional facilities-based carriers,
Tele Denmark, the incumbent dominant carrier, possessed the exclusive right to
build international cables into Denmark, and fiber capacity into Denmark was
generally available only at high prices. When we became licensed to operate in
Denmark as a facilities-based carrier, we also obtained the right to build
international cables. Given our current and forecasted capacity requirements, we
determined it was more cost effective to build FCI One than lease capacity from
Tele Denmark at high rates. FCI One became operational in May 1999. In addition
to cost savings on capacity that we use, we can sell or lease excess capacity or
swap capacity on FCI One for capacity we require on other routes.

     Points of Presence.  In addition to our switch centers, we have installed a
number of transmission points of presence in our network that provide additional
geographic locations for our customers and the local public switched telephone
network to interconnect with our network. In the United States, we operate
points of presence in Washington, D.C., Tampa, Florida and New York, New York,
and in Germany we operate points of presence in Stuttgart, Hamburg, Dusseldorf
and seven other cities. We also operate points of presence in London, England,
Helsinki, Finland, and in Stockholm and two other cities in Sweden. These points
of presence allow us to reduce our costs for delivering traffic to public
networks and make it easier for customers with local networks to deliver traffic
to our network.

     Interconnection and Operating Agreements.  We enter into interconnection
agreements with the national carrier in each of the countries where we have
operating facilities so that we can originate and terminate traffic in that
country. Interconnection agreements enable us to terminate traffic in a country
by connecting the local network of that country with our network.
Interconnection agreements typically allow us to terminate traffic in the
countries in which we have these agreements at the lowest available access cost,
and to originate traffic from these countries when a customer dials our carrier
access code.

     We have entered into 12 interconnection agreements, including agreements
with the dominant national carrier in Austria, Denmark, Finland, Germany, Italy,
The Netherlands, Norway, Sweden, Switzerland and the United Kingdom. We are
currently negotiating for additional interconnection agreements with the
dominant national carriers in other European countries.

     We also have operating agreements with 16 national carriers and five
emerging carriers. An operating agreement provides for the exchange of
international long distance traffic between correspondent international long
distance providers that own facilities in different countries.

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     Satellite Facilities.  We own and operate the Swedish International
Teleport, a 13-meter satellite earth station in Malmo, Sweden, that transmits to
an INTELSAT satellite over the Indian Ocean. Our status as a member of INTELSAT
enables us to easily expand our geographic coverage worldwide through the
acquisition of additional satellite transmission capacity on a preferential
basis. The earth station and INTELSAT satellite, which provide coverage to
Africa and most of Asia, currently connect customers on the Indian subcontinent
with locations in Europe and North America on a private line basis. We use this
facility to provide connectivity with carriers in developing countries before
international cable capacity becomes available there, and on low-volume
international routes. We are also negotiating agreements with several Asian
carriers to interconnect with Sweden to transmit public switched-voice traffic
through our earth station.

     Signaling Network.  Modern carrier networks use standard protocols of the
International Telecommunications Union to signal between switches in order to
set up connections and monitor call status. Most small carriers use one channel
of each to signal other carriers on what is designated as an F Link. This F Link
signaling is adequate for call setup but is subject to failure because it does
not provide for any redundancy. If the F Link fails the entire trunk group
cannot be used. F Link signaling also does not provide many network management
features because its signal capability is limited to one link between two
switches. To overcome the drawbacks of F Link signaling, more advanced network
operators install modern and sophisticated packet signaling switches called
signal transfer points that enable their switches to communicate with other
switches in their network and with customer and carrier networks. These
signaling networks include redundant links to paired switch transfer points and
are virtually failsafe. We have installed a pair of redundant switch transfer
points in Frankfurt and London and another pair of switch transfer points in New
Jersey and New York. As a result, our network is more robust, and it is able to
provide signaling services to other carriers.

     Network Reliability.  Our resilient network has diverse switching and
routing capabilities. For example, on the high-volume North America to Europe
routes, we split customer traffic between our U.S.-based gateway switches, over
three transatlantic cable routes and over each of our European-based gateway
switches. All of our gateway switches have backup power systems, and each fiber
cable has built-in redundancies that reroute traffic in the event of an
interruption in cable service. Our paired switch transfer points network with
redundant signal paths also provides an additional level of network integrity.

     Network Monitoring and Technical Support.  We have technical staff located
in the United States and throughout our markets in Europe who provide support
for our network. Our technical staff located in Europe provides network
management and operations support for our gateway switches. In addition, to
support our Nortel switches, we have implemented GTE's support system. This
system provides us with integrated proactive network operations, network message
management and a customer contact system. We fully support all network
management and operations and functions 24 hours a day, seven days a week from a
central location in Washington, D.C.

     Our network operations center in Washington, D.C. monitors all of the
switches and transmission links in our network and receives immediate signals
alerting it to any abnormal network condition. Through this facility, we have
the capability to reroute traffic if there is a cable cut or an equipment
failure. This center also monitors the quality of any carriers we use to route
off-net traffic and removes any of them from our routing if they fall below our
performance standards.

SERVICES

     We offer high-quality international telecommunications services over our
own international network and by interconnecting our network with the networks
of other carriers. We provide primarily wholesale international
telecommunications voice services and Internet access, data and other services
in select European markets. We recently expanded our retail services in
Scandinavia, and we are offering dial around or casual dialing service in
Finland and in Sweden under the brand name Call One.

     Wholesale Services.  We provide wholesale international long distance voice
services to carrier customers located in the 14 countries in which we operate.
Other carriers interconnect with our network by direct circuit connections from
their networks to one of our gateway switches. We also provide service to
switchless resellers by enabling their customers to access our network from the
national public switched telephone
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network by dialed access through carrier access codes. We provide wholesale
termination to over 200 countries using a mix of owned and leased facilities,
and interconnection, operating and resale agreements. We also offer to certain
customers Internet Protocol and frame relay services over our asynchronous
transfer mode backbone.

     Retail Services.  FaciliCom has traditionally provided international and
domestic long distance voice services to retail customers in Scandinavia. With
the acquisition of NETnet in February 2000, we now provide retail services
throughout most of Western Europe. Retail customers either subscribe to our
services or access the services on a call by call basis by dialing our carrier
access code. In addition, we offer Internet access and international private
line service to business and residential customers.

     Voice.  Our retail customers may access our long distance voice services in
the following ways:

          Direct Access.  The telephone equipment used by subscribers is
     directly connected to our switches through a private line and, unless bill
     payments are overdue, the subscriber is allowed to make calls up to a
     predetermined credit limit. Subscribers to this service do not have to dial
     our access code in order to connect to our network. The private line
     connections for our direct access services may be leased from the public
     switched telephone network. In addition, these connections may be radio
     links or digital subscriber lines. Direct access customers are primarily
     small-to medium-sized businesses.

          Casual Dialing.  Any telephone in our markets which is connected to
     the public switched telephone network can be used to dial our access code
     and place domestic long distance or international calls. The telephone user
     does not have to apply in advance to be recognized as a customer. Our
     gateway switch receives the calling number from the public network and
     screens it in order to determine whether it should be denied service for
     any reason, such as a failure to make payments in the past. Casual dialing
     customers are primarily residential users.

          Indirect Access.  To utilize this service, the telephone number of a
     customer who satisfies our credit requirements is added to a list in our
     switches. Unless the customer's payments are overdue, the customer may
     place calls that have a cost up to a predetermined credit limit. Users of
     this method of access must dial our access code to connect to our network
     through the public switched telephone network. If the customer is a heavy
     user, such as a small business, we may equip our telephones with an
     automatic dialer that will insert our access code whenever the customer
     seeks to make a long distance or international call. This service is
     available in countries that do not require equal access to carriers.

          Equal Access.  This method of access resembles the service that we
     provide to customers with indirect access. However, customers can choose to
     subscribe to our network for all of their long distance services and do not
     have to dial our access code in order to connect to our network through the
     public switched telephone network. Instead, the local operator will
     automatically route the customer's calls to our network. The 13 European
     countries in which we operate are all scheduled to require equal access
     service within the next three years.

     Data.  The retail data services that we presently offer are as follows:

          Internet Access.  We offer Internet access service to our retail
     customers in Finland. We use our own facilities to connect customers to an
     Internet backbone interconnect point. We bundle these services with our
     long distance and international voice services to provide a single
     communications package for some of our customers.

          Unlike in the United States, where most local calls are free, dominant
     national carriers in Europe charge retail local calling rates of as much as
     $0.10 per minute for a dial-up connection to an Internet service provider.
     We believe that this situation has inhibited the growth of the use of the
     Internet in Europe. We believe that companies like us will stimulate
     Internet usage by offering Internet access services at lower costs. Our
     interconnection agreements allow any telephone line where we have these
     agreements to dial our access code and be connected with our network. We
     pay the operator of the public switched telephone network very low
     wholesale transport charges to connect these calls to our network. Once the
     call is connected to our network, we can connect it to the Internet through
     our own data routers

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     and our own asynchronous transfer mode backbone. This enables us to provide
     high-quality and low-cost dial-up Internet access to any home or business.

          Private Data Lines.  Another data service that we provide is private
     line connectivity for business customers, other data providers and for
     video conferencing. These services are targeted to businesses that have
     offices or operations in more than one country, and that require voice and
     data connections between their locations. We provide frame relay, Internet
     Protocol and bandwidth connectivity between points on our backbone network.
     Customers pay for the effective amount of bandwidth that they purchase.

          Voice Over Internet Protocol.  Technology has been developed that
     enables origination and termination of voice traffic over Internet Protocol
     networks. This is commonly referred to as VOIP. The initial concept was to
     use the Internet to transport this traffic for free. In actual practice,
     the quality of voice transported over the Internet varies from acceptable
     to poor because of packet delays during high traffic periods. It is
     possible to improve the voice quality of Internet Protocol by routing the
     traffic over a dedicated intranet that utilizes private data lines instead
     of the Internet. We provide VOIP intranet service on our network. We
     believe that business customers and residential early technology adopters
     that have invested in technology based upon Internet Protocol will be
     attracted to this service. No uniform approach to VOIP's regulatory
     treatment has been developed, and we cannot predict the manner in which
     VOIP may be regulated in the future or the impact of such regulation on our
     operations.

CUSTOMERS

     Wholesale Customers.  Our target wholesale customer base consists primarily
of dominant national carriers, other first-tier carriers, emerging carriers and
wireless carriers with international traffic. National carriers and other
first-tier carriers generally have their own international networks, but use
carriers such as us for overflow traffic and in order to route traffic at lower
rates. Emerging and wireless carriers are rapidly growing industry segments that
generally rely on national carriers and wholesale carriers like us to provide
international connectivity. We provide service to over 200 carriers, including
seven of the ten largest global international carriers, and 40 multinational
carriers that originate traffic in more than one of our existing markets,
together with five wireless carriers.

     Wholesale services are sold at substantially lower margins than our retail
services. However, because wholesale customers purchase transmission capacity in
bulk, these services will allow us to increase the amount of transmission
capacity that we purchase, enabling us to obtain volume discounts on
transmission capacity from vendors and, therefore, realize lower unit costs. In
addition, the sale of transmission capacity on our leased lines allows us to
generate additional revenues on transmission lines operating at less than full
capacity without incurring significant marginal costs. Wholesale customers
frequently change vendors based on small differences in price, and certain
wholesale customers could subject us to credit risks.

     We use a comprehensive credit screening process when identifying new
wholesale customers. We rate our potential customers' creditworthiness based on
several factors, including:

     - traditional bank and trade reports, such as Dun & Bradstreet reports;

     - internal assessments of our exposure based on the costs of terminating
       international traffic in various countries and the capacity requested by
       the proposed carrier; and

     - references provided by potential customers.

     Depending on the results of our credit analysis, a customer's payment terms
and/or billing cycle may be adjusted to shorten the length of time that our
receivables are outstanding. In addition, we may require a customer to post
collateral in the form of a security deposit or an irrevocable letter of credit.

     In mid-1998, we entered into a Carrier Service Agreement with a
wholly-owned subsidiary of MCI WorldCom, Inc., pursuant to which MCI WorldCom
purchases international long distance services from us on a wholesale basis. MCI
WorldCom is obligated to purchase from us at least $25.0 million a month of such
services, provided the services are of acceptable quality and the rates quoted
are at least equal to the rates MCI WorldCom is obtaining from other third party
providers. The Service Agreement has a rolling 12-month evergreen term, subject
to a one year prior notice of termination. Our revenue attributable to the
Service

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Agreement comprised approximately 53% of our total revenue for the year ended
December 31, 1999. There can be no assurance that MCI WorldCom will purchase
future services under the Service Agreement. Termination of the Service
Agreement, or any reduction in services provided thereunder, could have a
material adverse affect on our business, financial condition or results of
operations.

     Retail Customers.  We target small and medium-sized businesses that
originate in excess of $500 in international telephone calls per month. We
believe that this market segment offers significant opportunities because it has
traditionally been underserved by the major global telecommunications carriers
and the PTTs, which offer their lowest rates and best services primarily to
higher volume multinational business customers.

     Our residential services are marketed primarily to residential customers
with significant international calling needs such as expatriate and ethnic
communities. In Europe, we target and plan to target the various large ethnic
communities, such as the Indian, Pakistani, Caribbean and African communities in
the United Kingdom and the Turkish and eastern European communities in Germany.

SALES AND MARKETING

     Wholesale.  Our approach to marketing and selling wholesale services
consists of local sales staff, who are responsible for day-to-day relationships
with local carrier representatives and who have experience in the industry and
long standing relationships with such carriers. Additionally, because we have
several international carrier customers which use us to transport traffic from
multiple locations, we have a multinational global account group, which
coordinates sales to major international accounts in multiple locations and is
responsible for client relationships at the senior management level. We focus on
hiring and retaining experienced marketing and sales people with extensive
knowledge of the telecommunications industry and who have existing relationships
with decision makers at carrier customers.

     Retail.  We market our services to residential and business customers with
significant long distance calling needs. We rely on a combination of direct
sales, direct response marketing, indirect sales, outbound telemarketing and
affinity programs in marketing our services to customers. Affinity programs are
programs whereby two or more companies market their respective products or
services by promoting a co-branded product or service to the affinity group
members. Residential customers will be solicited through direct mail and
telemarketing and business customers through direct and agent sales. In certain
metropolitan areas in Europe, we hire a dealer manager to manage relationships
with local agents.

MANAGEMENT INFORMATION SYSTEMS

     Wholesale.  The need to bill customers timely and accurately, and to
monitor and manage network traffic profitability, requires the accurate
operation of management information systems. To meet these needs in our
wholesale business, we contract with Armstrong Holdings, Inc. for our billing
and other management information services. Armstrong Holdings, through its
subsidiary Armstrong International Telecommunications, Inc., owns 16.6% of our
voting common stock.

     Subsidiaries of Armstrong Holdings provide billing and specialized
information technology services to its subsidiary companies, and to us, from its
data processing center located in Butler, Pennsylvania. Armstrong Holdings'
subsidiaries include independent telecommunications companies and international
telecommunications companies. Based on its knowledge of billing in the
telecommunications industry, Armstrong Holdings has developed customized systems
to provide call detail record collection, processing, rating, reporting and bill
rendering. These systems enable us to:

     - analyze accurately our traffic, revenues and margins by customer and by
       route on a daily basis;

     - validate carrier settlements; and

     - monitor least cost routing of customer traffic.

     We believe that contracting with Armstrong Holdings for these customized
systems gives us a strategic advantage over many emerging carriers because we
receive timely and accurate reporting of our customer traffic, revenues and
margins without incurring the significant costs associated with developing and
maintain-

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ing our own data center. The Armstrong Holdings data center utilizes IBM
mainframe systems with full disaster recovery and back-up facilities and
provides 24 hours per day, seven days per week data center support. Armstrong
Holdings provides us with experienced professionals and programmers to further
customize and support our growing and changing needs for management information
services. To date, we have not experienced any significant delays in billing our
wholesale customers. We attempt to bill our customers within five business days
after a billing cycle has been completed. We believe that our arrangement with
Armstrong Holdings enables us to effectively and efficiently manage our growing
requirements relating to information technologies.

     Armstrong Holdings has agreed to provide billing and management information
systems support for us and our subsidiaries on terms that we believe are
competitive with similar services offered in the industry. This contract extends
through December 2001.

     In addition, all of our administrative and technical locations are
connected by a corporate-wide area network that runs over the backbone network
we have constructed to handle customer traffic. An authorized user with a
personal computer at any of our offices can access all of our corporate systems
and databases. We control access to this network through the use of firewalls,
password protection and other customary security measures.

     We have also installed mediation devices and software that were part of a
network monitoring system designed by GTE. These devices are located in each of
our switch centers and interface with major network components, such as our
gateway switches. These devices gather data from the network in real time and
transport it over our corporate-wide access network to our network operations
center and to Armstrong Holdings' data center.

     Retail.  In Europe, NETnet uses three billing platform concepts. The
operations in France, Italy, Spain and the U.K. rely on in-house personal
computer-based billing systems developed primarily for each individual country.
NETnet collects data from switches and carriers, rates the call records and
bills its carrier customers directly. The German operation has traditionally
outsourced the billing procedure to a third party, while the operations in
Austria, Norway, Sweden and Switzerland use a billing system developed in
cooperation with DIAL Inc. on a 4D/NT platform.

     In 1999, NETnet purchased an Oracle-based billing and rating engine that
supports billing in local currencies (GENEVA), from Generic Technology in
Cambridge, England. The German operation is in the process of converting to this
new billing system. The software will handle retail business and residential
billing, as well as wholesale requirements. The GENEVA software is currently
being used by other European telecommunications providers.

     NETnet employs its own programming staff to meet ongoing country and
product development/ marketing requirements. Outsourcing is used for
non-recurring programming in Oracle and Helpdesk applications.

COMPETITION

     The international telecommunications industry is intensely competitive and
is significantly affected by regulatory changes, marketing and pricing decisions
of the larger industry participants and the introduction of new services made
possible by technological advances. We compete in the international
telecommunications market on the basis of price, customer service, transmission
quality and breadth of service offerings, and our carrier customers are
especially price sensitive. Our competitors include:

     - large, facilities-based, multinational carriers, and smaller
       facilities-based long distance service providers that have emerged as a
       result of deregulation;

     - switch-based resellers of international long distance services; and

     - global alliances among some of the world's largest telecommunications
       carriers.

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     Competition in the U.S.  The U.S.-based international telecommunications
services market is dominated by AT&T, MCI WorldCom, Qwest and Sprint. We also
compete in the United States with second-tier international carriers, including
IDT Corporation, Pacific Gateway Exchange, Inc., Primus Telecommunications
Group, Inc. and Star Telecommunications, Inc. We have entered into a definitive
agreement with Star pursuant to which Star will merge with and into World
Access. Several of these companies have considerably greater financial and other
resources and more extensive domestic and international communications networks
than we do. In addition, the FCC's order implementing the United States' open
market commitments to the World Trade Organization may make it easier for some
foreign carriers to enter the U.S. market, which would increase our competition.

     Competition in Europe.  In many international markets, a single carrier,
which is often a government-owned or a former monopoly carrier, controls access
to the local networks, enjoys better brand name recognition and customer loyalty
and possesses significant operational economies. These advantages include a
larger backbone network and operating agreements with other dominant national
carriers. These carriers generally have competitive advantages over us because
of their close ties with the national regulatory authorities of their home
countries that may be reluctant to act in a way that fosters increased
competition for the local dominant provider. As a result, our ability to
increase our market share in these countries may be extremely limited.

     Competition has begun to increase in the European Union telecommunications
markets in connection with the deregulation of the telecommunications industry
in most European Union countries, which began in January 1998. This increase in
competition could adversely affect revenue per minute and gross margins as a
percentage of revenues.

     We compete in 13 European markets by offering competitively priced
wholesale services, and we intend to offer competitively priced stand-alone and
bundled telecommunications services to retail customers. The principal
competitor in each of these markets is the dominant national carrier, such as
British Telecom, Deutsche Telekom, France Telecom, KPN (The Netherlands),
Swisscom, Tele Denmark and Telia (Sweden). Other competitors include: Cable and
Wireless, Cellnet Group, Colt, Energis, Esprit Telecom Group, RSL Communications
and Volaphone in the United Kingdom; O.tel.o Communications, Mannesmann ARCOR,
VIAG Interkom, MCI WorldCom in Germany; Enertel, MCI WorldCom and Telfort in The
Netherlands; diAx and Sunrise in Switzerland; and Mobilix and Telia in Denmark.
Additionally, we may face competition from other licensed public telephone
operators that are constructing their own facilities-based networks, cable
companies and switch-based resellers.

     Competition from Global Alliances and Consolidation in the
Telecommunications Industry.  We anticipate that we will face additional
competition from global alliances among large long distance telecommunications
providers. In addition, consolidation in the telecommunications industry may
create even larger competitors with greater financial and other resources. The
effect of these proposed mergers and alliances could create increased
competition in the telecommunications services market and reduce the number of
customers that purchase wholesale international long distance services from us.

GOVERNMENT REGULATION IN THE UNITED STATES

     We provide domestic and international services that are subject to varying
degrees of U.S. federal, state and local regulations. In the United States, the
provision of telecommunications services is subject to the 1934 Communications
Act, as amended, including amendments pursuant to the 1996 Telecommunications
Act and related regulations promulgated by the FCC, as well as the applicable
laws and regulations of the various states and state regulatory commissions. The
FCC exercises jurisdiction under Title II of the 1934 Communications Act over
all facilities of, and services offered by, telecommunications common carriers
to the extent their services involve interstate communications, including
international communications, while state regulatory authorities retain
jurisdiction over intrastate communications. Local governments sometimes impose
franchise or licensing requirements on local service competitors and facilities
companies. The telecommunications laws and regulations of other countries govern
services provided in those countries.

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     We are subject to the authority of the FCC and the state regulatory
agencies to enforce applicable regulatory requirements. The FCC and the state
regulatory agencies may address regulatory non-compliance with a variety of
enforcement mechanisms, including monetary forfeitures, refund orders,
injunctive relief, license conditions and license revocation.

     The regulation of the telecommunications industry is changing rapidly, and
the regulatory environment varies substantially from state to state. Moreover,
as deregulation at the federal level occurs, some states are reassessing the
level and scope of regulation that may be applicable to carriers. We cannot
assure you that future regulatory, judicial or legislative activities will not
have a material adverse effect on our financial condition, results of operations
or cash flow or that domestic or international regulators or third parties will
not raise material issues with regard to compliance or non-compliance with
applicable regulations.

  U.S. Federal Regulation

     Local Service Regulation Under the 1996 Telecommunications Act.   The 1934
Communications Act was substantially amended by the 1996 Telecommunications Act,
which provides for comprehensive reform of the United States' telecommunications
laws. The 1996 Telecommunications Act may have potentially significant effects
on our financial condition, results of operations or cash flow. The 1996
Telecommunications Act is designed to enhance competition in the local
telecommunications marketplace by (i) removing state and local entry barriers,
(ii) requiring incumbent local exchange carriers to provide interconnection to
their facilities, (iii) facilitating the end users' choice to switch service
providers from incumbent local exchange carriers to competitive local exchange
carriers, and (iv) requiring access to rights-of-way. The legislation also is
designed to increase local competition by newer competitors such as long
distance carriers, cable companies and public utility companies. Under the 1996
Telecommunications Act, regional Bell operating companies have the opportunity
to provide out-of-region long distance services immediately and in-region long
distance services if certain conditions are met, and are no longer prohibited,
in most instances, from providing cable television services. Entry of such
companies into the domestic and international long distance business and the
emergence of other new local competitors could result in substantial competition
to us and may have a material adverse effect on our financial condition, results
of operations or cash flow.

     The 1996 Telecommunications Act specifically requires all local exchange
carriers, including incumbent local exchange carriers and competitive local
exchange carriers: (i) not to prohibit or unduly restrict resale of their
services; (ii) to provide dialing parity, number portability and
nondiscriminatory access to telephone numbers, operator services, directory
assistance and directory listings; (iii) to afford access to poles, ducts,
conduits and rights-of-way; and (iv) to establish reciprocal compensation
arrangements for the transport and termination of telecommunications. Incumbent
local exchange carriers are specifically required to provide (i) interconnection
on specified terms and conditions, (ii) unbundled network elements, (iii) resold
local services at wholesale rates, (iv) reasonable public notice of any changes
in the information needed for transmission and routing services over their
communications facilities and (v) physical collocation of equipment necessary
for interconnection and access to unbundle network elements at the local
exchange carriers' premises. A regional Bell operating company can enter the
market for in-region long distance services within the area where it provides
local exchange service upon FCC approval based on a showing that facilities-
based competition is present and that interconnection agreements meeting a
14-point checklist are in place in the states to be entered. Regional Bell
operating companies are permitted to enter the out of region long distance
market immediately upon enactment. The provision of inter-LATA services by
regional Bell operating companies is expected to reduce the market share of
major inter-exchange carriers and consequently may have an adverse effect on the
ability of competitive local exchange carriers to generate access revenues from
the inter-exchange carriers.

     On August 8, 1996, the FCC released the Interconnection Decision, which
established a framework of minimum, national rules enabling state commissions
and the FCC to begin implementing many of the local competition provisions of
the 1996 Telecommunications Act. Among other things, the Interconnection
Decision prescribed certain minimum points of interconnection, adopted a minimum
list of unbundled network elements that incumbent local exchange carriers must
make available to competitors, and adopted a methodology for states to use when
setting wholesale prices for retail services. The U.S. Court of Appeals for
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the Eighth Circuit issued a decision vacating certain portions of the
Interconnection Decision, and the United States Supreme Court has agreed to
consider the challenges to the Eighth Circuit Court's decision filed by the FCC
and interested carriers. We cannot predict whether the Eighth Circuit decision
will stand, or what further actions the FCC may or may not take in response to
these appellate decisions.

     In a separate case, on December 31, 1997, the U.S. District Court for the
Northern District of Texas ruled that Sections 271 to 275 of the 1996
Telecommunications Act, which established the conditions the regional Bell
operating companies must satisfy before they may provide in-region long distance
telecommunications services, are unconstitutional. This decision, known as the
SBC Decision, has been stayed and is being reviewed by higher courts. We cannot
predict the outcome of that review. If, however, the SBC Decision were upheld on
appeal it would likely have an unfavorable effect on the ability of new entrants
to compete because the SBC Decision removes the incentive for regional Bell
operating companies to open their local markets to competition.

     Domestic Interstate Services.  Domestic interstate common carriers without
market power, such as us, are deemed nondominant and are subject to minimal FCC
regulation. Interstate carriers offering services to the public must comply with
the federal statutory and regulatory requirements of common carriage under the
1934 Communications Act. Among other things, interstate common carriers must
offer service on a non-discriminatory basis at just and reasonable rates.
Nondominant carriers are exempt from the requirement to obtain specific prior
FCC approval to initiate or expand domestic interstate services, although they
are required to file a tariff at the FCC and remain subject to the FCC's
complaint jurisdiction. The FCC has issued an order eliminating the requirement
that nondominant carriers maintain tariffs for their domestic interstate
services on file at the FCC. The FCC order has been appealed to the U.S. Court
of Appeals for the District of Columbia and stayed pending resolution of the
appeal. If the FCC order becomes effective, nondominant interexchange carriers
will need to find new means of providing notice to customers of prices, terms
and conditions on which they offer their interstate services. Elimination of
tariffs will require us to secure with each of our customers contractual
agreements containing the terms of the services offered. To the extent that
disputes arise over such contacts, carriers such as us may no longer resort to
the legal doctrine that the terms of a filed tariff supersede individual
contract language.

     Access Charges.  The cost of providing long distance and local exchange
services will be affected by changes in the access charge rates imposed by
incumbent local exchange carriers on long-distance carriers for origination and
termination of calls over local facilities. On May 8, 1997, the FCC released an
order intended to reform its system of interstate access charges to make that
regime compatible with the pro-competitive deregulatory framework of the 1996
Telecommunications Act. Access service is the use of local exchange facilities
for the origination and termination of interexchange communications. The FCC's
recent access reform order adopts various changes to its policies governing
interstate access service pricing designed to move access charges, over time, to
more economically efficient levels and rate structures. Among other things, the
FCC modified rate structures for certain non-traffic sensitive access rate
elements, moving some costs from a per-minute-of-use basis to flat-rate
recovery; changed its structure for interstate transport services; and affirmed
that Internet service providers may not be assessed interstate access charges.
In response to claims that existing access charge levels are excessive, the FCC
stated that it would rely on market forces first to drive prices for interstate
access to levels that would be achieved through competition but that a
prescriptive approach, specifying the nature and timing of changes to existing
access rate levels, might be adopted in the absence of competition. The FCC has
indicated that it will promulgate additional rules that may grant increased
pricing flexibility to price cap local exchange carriers, such as the regional
Bell operating companies, GTE and some independents, that are permitted
flexibility to establish rates at or below a regional Bell operating company's
rates upon demonstration of increased competition, or potential competition, in
relevant markets.

     Universal Service Charges.  In 1997, the FCC released an order establishing
a significantly expanded federal universal service subsidy regime to be funded
by interstate carriers and certain other entities. The FCC established new
universal service funds to support telecommunications and information services
provided to qualifying schools, libraries and rural health care providers, and
expanded the federal subsidies for local telephone services provided to
low-income consumers. In accordance with the 1996 Telecommunications Act,
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the FCC adopted plans to implement the recommendations of a Federal-State Joint
Board to preserve universal service, including a definition of services to be
supported, and defining carriers eligible for contributing to and receiving from
universal service subsidies. The FCC plans to revise its rules for subsidizing
service provided to consumers in high cost areas, which may result in further
substantial increases in the overall cost of the subsidy program. The FCC issued
a public notice in April 1998 seeking comment on proposals to revise the
methodology for determining universal service support. In a recent report to
Congress, the FCC clarified that transmission services supplied to Internet
service providers are revenue subject to the contribution. The FCC plans to
address in the future the contribution obligations, if any, of Internet service
providers using their own facilities and Internet service providers providing
phone-to-phone Internet Protocol telephony. We cannot predict the outcome of
these proceedings or their effect on the companies. Several parties have
appealed the FCC's order, and those appeals are pending before the Fifth Circuit
Court of Appeals. We cannot predict the outcome of the further FCC proceedings
or of the pending judicial appeals or petitions for FCC reconsideration.

     International Services.  International common carriers, such as us, are
required to obtain authority under Section 214 of the Communications Act and
file a tariff containing the rates, terms and conditions applicable to their
services prior to initiating their international telecommunications services. We
have obtained a "global" Section 214 authority from the FCC to use, on a
facilities and resale basis, various transmission media for the provision of
international switched and private line services.

     We must conduct our international business in compliance with the FCC's
international settlements policy. The international settlements policy
establishes the permissible boundaries for U.S.-based carriers and their foreign
correspondents to exchange traffic and settle the cost of terminating each
other's traffic over their respective networks. The precise terms of settlement
are established in a correspondent agreement, also referred to as an operating
agreement. Among other terms, the operating agreement establishes the types of
service covered by the agreement, the division of revenues between the carrier
that bills for the call and the carrier that terminates the call at the other
end, the frequency of settlements, the currency in which payments will be made,
the formula for calculating traffic flows between countries, technical
standards, procedures for the settlement of disputes, the effective date of the
agreement and the term of the agreement. We may provide services over
international private lines without complying with the international settlements
policy, but only between the United States and countries specifically approved
by the FCC for this activity.

     To promote competition in the international telecommunications market, in
November 1996 the FCC issued a new international settlement order, which
provided international carriers more flexibility in negotiating operating
agreements. Under the FCC's new international settlement order, U.S.-based
carriers can apply for waivers of the international settlements policy. Such
waivers, if granted, would allow carriers to negotiate more flexible operating
agreements that, for example, allow them to accept greater than a proportionate
share of return traffic. When it implemented the World Trade Organization
Agreement discussed below, the FCC adopted a rebuttable presumption that
flexibility is permitted for World Trade Organization member countries. Although
we are unable to predict exactly how it will affect our international business,
the new international settlements policy may reduce international access costs
and facilitate our international business.

     International telecommunications service providers are required to file
copies of their contracts with other carriers, including operating agreements,
with the FCC within 30 days of execution and to obtain approval of certain of
these contracts. The FCC's rules also require us to file a variety of reports
regarding our international traffic flows and use of international facilities.
In addition, the FCC requires carriers to notify them 60 days prior to becoming
affiliated with a foreign carrier or 30 days after acquiring a 25% or greater
noncontrolling interest in a foreign carrier. The FCC can impose dominant
carrier treatment on affiliates of World Trade Organization carriers with market
power or restrict service of affiliates of non-World Trade Organization
carriers.

     In February 1997, the United States entered into the World Trade
Organization Agreement, which seeks to open markets to competition in
telecommunications services, improve foreign investment opportunities in the
telecommunications industry and promote pro-competitive regulatory principles.
In June 1997, the FCC

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proposed to implement new rules in order to comply with the World Trade
Organization Agreement. These new rules were adopted by the FCC in November 1997
and became effective in February 1998.

     The new rules facilitate the entry of foreign carriers operating in
countries that signed the World Trade Organization Agreement into the United
States telecommunications market. The rules replace the effective competitive
opportunities test for entry of World Trade Organization carriers with
streamlined procedures that presume entry is pro-competitive. The rules
similarly relax the equivalency test for World Trade Organization carriers that
seek to provide switched services over private lines between the United States
and certain World Trade Organization members countries. In addition, the rules
revise competitive safeguards to eliminate or reduce various operating
conditions and replace them with more targeted safeguards that enhance the FCC's
ability to monitor and detect anti-competitive behavior in the United States
market. The FCC has retained the right to issue fines, require additional
conditions on a grant of authority and, if necessary, deny or rescind a grant of
authority.

     The FCC also narrowed the "No Special Concessions" rule, which generally
provides that United States carriers cannot accept benefits from foreign
carriers to which other United States carriers are not entitled. This rule
continues to apply to non-World Trade Organization carriers. The new rule
applicable to World Trade Organization carriers simply prohibits United States
carriers from entering into exclusive arrangements with World Trade Organization
carriers that have sufficient market power to affect competition adversely in
the United States market. To provide more certainty in the market, the FCC
adopted a rebuttable presumption that World Trade Organization carriers with
less than 50% market share in a foreign market lack such market power. As a
result, United States carriers may enter into exclusive dealings with such World
Trade Organization carriers involving a variety of matters, including operating
agreements and interconnection arrangements.

     In addition, in 1997 the FCC revised the safeguards that apply to United
States carriers classified as dominant due to an affiliation with a foreign
carrier that has market power on the foreign end of an international route. The
rules rely on reporting requirements, rather than restrictions on carriers'
provision of service, to prevent affiliated carriers from restricting
competition in the United States. In particular, the rules replace the 14-day
advance notice tariff filing requirement with a one-day advance notice
requirement and accord these tariff filings a presumption of lawfulness. The
rules also remove the prior approval requirement of circuit additions or
discontinuances on the dominant route. The rules require quarterly reports on
traffic and revenue, provisioning and maintenance, and circuit status for the
dominant carrier in order to monitor and detect anti-competitive behavior. The
rules also require a limited form of structural separation between United States
carriers and their foreign affiliates with market power. The FCC adopted a
rebuttable presumption that a foreign carrier with less than 50% market share in
the foreign market lacks market power, and, therefore, its United States
affiliate should be presumptively treated as non-dominant.

     In August 1997, the FCC adopted mandatory settlement rate benchmarks for
carriers receiving traffic from or sending traffic to the United States. These
benchmarks are intended to reduce the rates that United States carriers pay
foreign carriers to terminate traffic in their home countries. The FCC prohibits
a United States carrier affiliated with a foreign carrier from providing
facilities-based service to the foreign carrier's home market until and unless
the foreign carrier has implemented a settlement rate within the benchmark. In
connection with these rules, the FCC also adopted rules that liberalize the
provision of switched services over private lines to World Trade Organization
member countries by allowing such services on routes where 50% or more of United
States billed traffic is being terminated in the foreign country at or below the
applicable settlement rate benchmark, or where the foreign country's rules
concerning the provision of international switched services over private lines
are deemed equivalent to United States rules.

     We are unable to predict the full effect on the international
telecommunications market resulting from the World Trade Organization Agreement
or the rules enacted to implement its provisions or the establishment of
mandatory settlement rate benchmarks. We expect these changes to increase
competition in the telecommunications market. These changes may result in lower
costs to us, but the revenues that we receive from inbound international traffic
may decrease to a greater degree as a result of increased competition. World
Trade Organization carriers with market power in their home markets may be able
to more easily offer United

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States and foreign customers services to the disadvantage of United States
carriers, which may continue to face substantial obstacles in obtaining from
foreign governments and foreign carriers the authority and facilities to provide
such services. In addition, many foreign carriers are currently challenging the
enforceability against such carriers of the FCC's order adopting mandatory
settlement rate benchmarks. A finding that this order was unenforceable against
such carriers could accelerate the entry of foreign carriers into the United
States market by making it easier for foreign carriers to route international
traffic to the United States at low, cost-based termination rates, while United
States carriers would continue to have to route international traffic into most
foreign countries at much higher settlement rates. There can be no assurance
that these events would not have a material adverse effect on our business,
financial condition or results of operations.

     Foreign Ownership.  Under the Communications Act of 1934, no common carrier
radio license may be held by non-U.S. citizens, foreign governments or
corporations organized under the laws of a foreign country, or their
representatives. For companies from World Trade Organization countries, the FCC
has established an open entry standard, meaning that the FCC presumptively will
approve greater than 25% indirect ownership by a World Trade Organization
carrier of a U.S. common carrier radio licensee subject to certain competitive
safeguards. The FCC has reserved the right in certain cases to attach additional
conditions to a grant of authority, and to deny the application in the
exceptional case in which an application poses a very high risk to competition.
For carriers from countries that are not signatories to the World Trade
Organization Agreement, the FCC will continue to apply the effective competitive
opportunities test in deciding whether to approve greater than 25% ownership of
a radio licensee.

  State Regulation

     Most states require a certification or other authorization to offer local
exchange and long distance intrastate services. These certifications generally
require a showing that the carrier has adequate financial, managerial and
technical resources to offer the proposed services in a manner consistent with
the public interest. In addition to tariff requirements, most states require
that common carriers charge just and reasonable rates and not discriminate among
similarly situated customers. Some states also require the filing of periodic
reports, the payment of various regulatory fees and surcharges and compliance
with service standards and consumer protection rules. States also often require
prior approvals or notifications for some transfers of assets, customers or
ownership. States generally retain the right to sanction a carrier or to revoke
certifications if a carrier violates relevant laws or regulations. If any state
regulatory agency were to conclude that we are or were providing intrastate
service without the appropriate authority, the agency could initiate enforcement
actions, which could include the imposition of fines, the disgorging of revenues
or the refusal to grant the regulatory authority necessary for the future
provision of intrastate telecommunications services.

     In addition, carriers are subject to the outcome of proceedings held by
state utility commissions to determine state regulatory policies with respect to
incumbent local exchange carrier and competitive local exchange carrier
competition, geographic build-out, mandatory de-tariffing and other matters.
Some states have adopted specific universal service funding obligations.
Proceedings to adopt state universal service funding obligations rules are also
pending or contemplated in numerous other states. State commissions generally
have authority to impose sanctions on carriers ranging from fines to license
revocation to address non-compliance with the states' particular regulatory
policies and requirements.

     State regulatory agencies also regulate access charges and other pricing
for telecommunications services within each state. The regional Bell operating
companies and other local exchange carriers have been seeking reduction of state
regulatory requirements, including greater pricing flexibility. If regulations
are changed to allow variable pricing of access charges based on volume, we
could be placed at a competitive disadvantage over larger long distance
carriers. We also could face increased price competition from the regional Bell
operating companies and other local exchange carriers for local and long
distance services, which competition may be increased by the removal of former
restrictions on long distance service offerings by the regional Bell operating
companies as a result of the 1996 Telecommunications Act. We cannot predict the
impact of such rule changes on us.

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GOVERNMENT REGULATION IN NON-U.S. COUNTRIES

     Our operations are subject to regulation in Austria, Belgium, Canada,
Denmark, El Salvador, Finland, France, Germany, Guatemala, Italy, Mexico, The
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United
Kingdom. The majority of our business outside the United States is conducted in
Europe. Below is a discussion of the markets and regulatory environments in the
European countries where we conduct business.

     Overview of Europe.  The European telecommunications services market,
including voice telephony, mobile, network and data services, generated
approximately $154.8 billion in 1999, according to the European Information
Technology Observatory. After full liberalization of the telecommunications
services market in the European Union, competition has grown significantly in
the EU-Member States. There are more than 240 operators actually providing long
distance and international calls and more than 220 providing local calls, as
well as more than 189 operators offering national and international network
services and 375 offering local network services.

     In the European Union, each country has its own telecommunications
regulation. The European Union has created a legal framework with Directives
which every European Union Member State (Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom) is obliged to implement. The goal of this
legal framework is to create a harmonized, fully-liberalized European
telecommunications market. The most important Directives in this sector include
the Voice Telephony Directive, the Licensing Directive, the Interconnection
Directive, the Leased Lines Directive, the Open Network Provision Directive, the
Numbering Directive and the Data Protection Directive.

     The origins of the fully-liberalized telecommunications market, which had
to be established by January 1998, are in the European Commission's 1990
Services Directive (Directive 90/388/EEC), requiring the progressive abolition
of the monopoly or quasi-monopoly rights for the provision of telecommunications
services, with a temporary exception for public voice telephony and the
operation of the basic telecommunications network.

     In March 1996, the European Union adopted the Full Competition Directive
containing provisions which required Member States to allow the creation of
alternative telecommunications infrastructures by July 1, 1996 and the abolition
of national carriers' monopolies in voice telephony by January 1, 1998. The
European Commission allowed certain Member States to delay the abolition of the
voice telephony monopoly based on exemptions established in the Full Competition
Directive. At present, Greece is the only country which has not fully
liberalized its telecommunications market.

     Austria.  With a population of approximately 8.1 million, Austria has a
telecommunications services market that generated approximately $3.4 billion in
total revenue in 1999. The Austrian government had completed by 1997 a ten-year
privatization program. Since the liberalization of the telecommunications
market, competition in the sector is increasing successfully. The Federal
Telecommunications Act of August 1, 1997 set up the telecommunications
regulatory framework in Austria as well as the establishment of the Austrian
regulatory authority, the Telekom-Kontrol.

     According to the Federal Telecommunications Act, licenses are required for
(i) the provision of mobile public voice telephony and other public mobile
services through the provider's own network, (ii) the provision of public voice
telephony through the provider's own fixed network and (iii) public offering of
leased lines through the provider's own fixed network. For other
telecommunications services a simple notification is required. Applicants must
have the necessary technical capacity and must meet the requirements with
respect to quality of service and mandatory contracting. We hold a license for
the provision of public voice and data services and a license for the public
offering of leased lines nationwide in Austria.

     According to the Federal Telecommunications Act, each operator of a public
telecommunications network is obliged to make an interconnection offer upon
another provider's request, and dominant providers have to allow open access to
their networks. A total of 36 interconnection agreements were in place in
Austria

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at the end of July 1999. At present, there is no interconnection at the local
level. We have an Interconnect Switch Agreement in Austria with Telekom Austria
AG.

     Belgium.  Belgium has, together with Luxembourg, a population of
approximately 10.6 million. The Belgium/Luxembourg telecommunications market
generated in 1999 approximately $5.1 billion. Competition in the
telecommunications market has increased over the past year, and there are now 25
licensed market players operating public networks and 23 licensed to offer
public services. Even though Belgium fully liberalized its telecommunication
services on January 1, 1998, important elements of legislation are still
outstanding. The Act of March 21, 1991, modified by the Act of December 19,
1997, on the reform of certain public companies, and the Radio-Communications
Act of July 30, 1979, set up the regulatory framework for telecommunications and
the legal basis for the establishment of the governmental agency in charge of
telecommunications affairs and frequency management, the BIPT.

     The establishment and running of public telecommunication networks is
subject to an individual license, granted on proposal of the BIPT. A license is
also required for the provision of voice telephony service. The applicants have
to be natural or legal persons established in one of the Member States of the
European Union or the European Free Trade Association. By September 1999 there
were 23 voice telephony licensees and 25 public network operators present in the
market. The Belgian regulatory system establishes the obligation for all
operators of public telecommunications networks, or of telecommunications
services provided to the public who control the access to the end-user, to
negotiate interconnection on request of other operators of telecommunications
services offered to the public. We are licensed in Belgium as a provider of
non-reserved services, including voice services for closed user groups and
value-added services.

     Denmark.  With a population of approximately 5.3 million, Denmark has a
telecommunications services market that generated approximately $3.2 billion in
1999. The Danish telecommunications market operates within a lightly regulated
environment and it is subject to increasing competition. The international
telecommunications market was historically dominated by the national incumbent
Tele Danmark, whose market share decreased from 82% in 1997 to 64.1% at the end
of 1998. The Danish mobile penetration rate is 46%, one of the highest in the
European Union. The National Telecom Agency is the national regulatory authority
in charge of supervising and enforcing compliance with the telecommunications
legislation in Denmark.

     Denmark has a very light licensing regime. All telecommunications services
including voice telephony, as well as the related infrastructure, were
liberalized as of July 1, 1996, and all telecommunications networks and services
may be provided under the conditions set up under a general class license.
According to this license, anyone is allowed to provide networks and services on
the conditions defined by an executive order. Since the legislative changes in
July 1998, the interconnection obligation in Denmark covers switched
interconnections, lease of infrastructure, including leased lines and unbundled
access to the local loop and other infrastructure elements, and access by
telecommunications service providers. We have an Interconnection Agreement with
TeleDanmark A/S that allows us to use TeleDanmark's fixed and mobile network.

     Finland.  With a population of approximately 5.1 million, Finland's
telecommunications services market has generated approximately $2.4 billion in
1999. The Finnish telecommunications market is characterized by its high mobile
penetration rate, which at over 60% is the highest in the European Union. Due to
the historical structure of the market, the sector operates within a
comparatively deregulated legal framework. The Telecommunications Market Act of
June 1, 1997 set up the legal framework for telecommunications and the legal
basis for the Communications and Telecommunications Administration Centre.

     According to the Finnish licensing regime, licences are only required for
the construction of public mobile telephony networks. For other
telecommunications services a notification must be made to the Ministry of
Transport and Communications. The Telecommunications Market Act requires that
public telecommunications network operators complying with essential
requirements shall be interconnected. We have been granted operator prefixes for
domestic long distance traffic and international traffic by Finland's
Telecommunications Administration Centre.

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     France.  With a population of approximately 58.5 million, France's
telecommunications services market generated approximately $25.4 billion in
1999. The French telecommunications services and infrastructure market has
expanded steadily and progressively since its liberalization on January 1, 1998.
Seventy-four licenses have been issued for the establishment of public networks
and/or provision of voice telephony, including eight licenses for satellites.
France is the second largest market for ISDN, after Germany. The
Telecommunications Act of July 26, 1996 set up the regulatory framework for
telecommunications and the legal basis for the establishment of two agencies,
ART and ANFR, in charge of the regulatory affairs and frequency management,
respectively.

     The French licensing regime, in accordance with the European Union
Licensing Directive, requires an individual licence for public network provision
and/or voice telephony, for mobile telephony and for independent networks that
require frequencies. All other services can be provided under a general
authorization. We hold a license for the construction of network infrastructure
and the provision of public and private voice telephony services by facilities
or resale and a license for the provision of nationwide voice telephony services
to the public in France.

     Public network operators must satisfy requests for interconnection from
operators licensed, in an objective, transparent and non-discriminatory manner.
Interconnection may not be refused if the request is reasonable. We have an
Interconnection Agreement with France Telecom SA.

     Germany.  With a population of approximately 82.2 million, the German
telecommunications services market generated approximately $36.6 billion in
1999. The opening of the German telecommunications market to full competition
was completed in January 1998. The new entrants have created a strong
competitive pressure which has brought down prices in almost all market
segments. Even though Deutsche Telekom is still the dominant public phone
company in Germany, it is steadily losing market share. Germany is the largest
telecommunications market in Europe. The Telecommunications Act of July 25, 1996
set up the regulatory framework for telecommunications and the legal basis for
the establishment of the Regulatory Authority for Telecommunications and Posts,
or RegTP, in charge of the telecommunications regulatory affairs and frequency
management.

     The German licensing regime has established four different classes of
licenses for the operation of transmission lines: (i) for the provision of
mobile radio services to the public, (ii) for the operation of transmission
lines for the provision of satellite services to the public, (iii) for the
operation of transmission lines for the provision of telecommunications services
to the public and (iv) for the provision of voice telephony on the basis of
self-operated telecommunications networks. Telecommunications services not
requiring a license can be provided freely, subject to a written notification to
the RegTP. We have a nationwide license for the provision of voice telephony in
Germany.

     In accordance with the Telecommunications Act, telecommunications carriers
providing telecommunications services for the public and having a dominant
position are required to allow other users to access their telecommunications
networks. We have an Interconnection Agreement with Deutsche Telecom AG.

     Italy.  Italy has a population of approximately 57.4 million. In 1999, the
telecommunications services market in Italy generated approximately $24.3
billion. Since the liberalization of the market in January 1998, about 60
licenses have been granted. The mobile market has reported exceptionally high
growth and is the largest in Europe in subscribers and value. The Act of
September 17, 1997 established the legal framework for telecommunications. The
Communications Commission is the body responsible of the supervision and
administration of telecommunication activities.

     Individual licences are required for the provision of voice telephony
service, for the installation and provision of public telecommunications
networks, for the provision of personal and mobile communication services, and
for the assignment of radio frequencies. A general authorization must be issued
for the provision of all public telecommunications services, other than voice
telephony, and the establishment and the provision of public telecommunications
networks. The Italian interconnection regime is not restrictive, and
interconnecting operators are free to set interconnection points independently
from the network architecture of the incumbent. No minimum requirements are
requested in relation to the number of interconnection points, nor

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on the basis of the license coverage. We have licenses for the installation and
provision of telecommunications networks and the provision of voice telephony
services in Italy.

     The Netherlands.  With a population of approximately 15.7 million, the
Dutch telecommunications services market generated approximately $8.4 billion in
1999. The Dutch telecommunications infrastructure, public switched voice
telephony and telex markets were liberalized in July 1997. About 82 operators
and service providers are registered in The Netherlands and authorized to offer
public fixed networks and/or public telecommunications services. Competition is
highly developed, particularly in the mobile market. The Telecommunications Act
of December 15, 1998 set up the regulatory framework for telecommunications. The
Onafhankelijke Post en Telecom Autoriteit, or OPTA, is the independent agency in
charge of the telecommunications regulatory affairs.

     The Telecommunications Act provides that a license is only needed when
scarce resources are involved. Registration is sufficient for the provision of
telecommunications services. The Dutch regime establishes that any provider of
public telecommunication networks and/or services that control access to
end-users has a legal right to interconnect and must register with the OPTA. The
interconnection rates in The Netherlands have decreased significantly. We have
an Interconnection Agreement in The Netherlands with KPN Telecom BV.

     Portugal.  With a population of approximately 9.9 million, the Portuguese
telecommunications services market generated approximately $2.9 billion in 1999.
The telecommunications market was fully liberalized in January 2000. The
national regulatory authority had granted seven voice licenses for telephony
service as of October 1999. The Telecommunications Act established the legal
framework for telecommunications and the legal basis for the Portuguese
Communications Institute to be considered as the regulatory authority of the
sector. As of January 1, 2000 the telecommunications market has been fully
liberalized.

     The Portuguese licensing regime requires individual licenses for the
provision of fixed telephone services, the establishment of public
telecommunication networks, the granting of frequencies and the imposition of
duties relating to the provision of universal service. The provision of other
telecommunications services is subject to registration. The Portuguese regime
provides operators the ability to obtain interconnection through the basic
network and through networks of those other operators holding significant market
power.

     Spain.  With a population of approximately 39.3 million, the Spanish
telecommunications services market generated approximately $11.0 billion in
1999. Since the liberalization of the telecommunications market in December
1998, the Spanish market has expanded rapidly. About 60 licenses have been
granted by the national regulatory authority for voice telephony service and for
telecommunications infrastructure. The mobile market is set to continue to grow
steadily, reaching more than 15 million subscribers in 2002. The
Telecommunications Act of 1998 established the legal framework for
telecommunications in Spain. The tasks of the regulatory authority are divided
between the Ministry and the Comision del Mercado de las Telecomunicaciones,
which implements the legislation, supervises operators and competition issues
and deals with disputes.

     The Spanish licensing regime establishes three different types of licenses:
(i) for the provision of voice telephony not including the establishment of
infrastructure, (ii) for the provision of voice telephony including
establishment of the necessary infrastructure and (iii) for the provision of
services other than voice telephony. All operators of telecommunications
networks available to the public are subject to interconnection obligations. In
addition, all service providers have the right to interconnect. We have a
general authorization for originating and terminating voice and data traffic and
a license for providing voice telephony in Spain.

     Sweden.  With a population of approximately 8.9 million, the Swedish
telecommunications services market generated approximately $4.9 billion in 1999.
The Swedish market has developed rapidly, and the number of operators present on
the market has also increased. There are 51 notified operators and eight
licenses for public networks, 50 notified operators and 13 licenses for voice
telephony and four mobile operators in the market. The Telecommunications Act of
June 17, 1993 and the Radio-Communications Act of June 10, 1993 set up the
regulatory framework for telecommunications and the legal basis for the
establishment of the National Post and Telecom Agency, or NPTA, in charge of the
telecommunications regulatory affairs and frequency management.

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     According to the Swedish licensing regime, licenses are required for the
provision of telephony services to a fixed termination point, mobile
telecommunications services, network capacity and other telecommunications
services requiring allocation of capacity of the numbering plan. We have a
license for the provision of public telephone services in Sweden. According to
the Telecommunications Act, providers of telecommunications services who are
obliged to notify the NPTA have the same rights of interconnection as license
holders. We have an Interconnection Agreement in Sweden with Telia AB.

     United Kingdom.  With a population of approximately 58.9 million, the
United Kingdom has a telecommunications services market that generated
approximately $28.0 billion in 1999. The market is intensely competitive.
British Telecom has decreased its market share in all telephony markets except
for the mobile market. A large number of operators are present in the United
Kingdom, with three major cable television network operators also offering local
telephony. The Telecommunications Act of 1984 set up the regulatory framework
for telecommunications and the legal basis for the establishment of OFTEL, the
office in charge of the detailed regulation of the telecommunications sector.

     The Telecommunications Act provides for two main categories of licenses to
be granted: (i) class global licenses or general authorizations and (ii)
individual licenses. The main class licenses are the Telecommunications Services
Class License, the Private Mobile Radio Class License, the Satellite Services
Class License and the Cordless Class License. The UK regime establishes that all
categories of operators fulfilling some criteria have the right as well as the
obligation to interconnect with each other. We hold an International Simple
Voice Resale License and a Public Telecommunications Operator license in the
United Kingdom.

DISCONTINUED OPERATIONS

     In December 1999, we adopted a plan to divest, spin-off or otherwise
monetize our remaining equipment businesses, consisting of the following:

     - Telco Systems Division (acquired November 1998), a provider of next
       generation transport and access solutions for service providers
       throughout the world. Telco Systems products include intelligent
       integrated access devices and multiplexers.

     - NACT Switching Division (acquired February 1998), a provider of advanced
       switching platforms with integrated proprietary applications software as
       well as billing and telemanagement systems.

     - Wireless Local Loop Division, a research and development group designing
       a next generation, fixed wireless local loop system.

     - Cellular Infrastructure Supply Division (acquired March 1997), a
       value-added supplier of new and re-furbished cellular base stations and
       related equipment.

     - Galaxy Engineering Division (acquired August 1997), a provider of system
       design, optimization and other value-added radio engineering and
       consulting services.

     We sold Galaxy in December 1999 for approximately $15.0 million in cash. We
have engaged two investment banking firms to sell the remaining businesses. In
February 2000, we signed a definitive agreement to sell Telco Systems for $326.0
million, and we expect to sell all of these businesses during 2000. We expect to
close the Telco Systems sale in April 2000.

     Telco Systems.  Telco Systems, headquartered in Norwood, Massachusetts, is
a leading developer of next generation transport and access solutions for
service providers throughout the world. Telco Systems' mission is to develop
superior transport and access solutions that transition existing service
provider networks from legacy circuit-switched and TDM-based equipment to
emerging cell and packet technologies. Telco Systems has recently introduced the
EdgeLink(TM) product line, which allows service providers to deploy scalable,
cost-effective solutions that efficiently link customers to the edges of service
providers' networks as well as circuit-switched and TDM infrastructure to
packet-based Internet Protocol, frame relay and asynchronous transfer mode
technology. The EdgeLink products are located at the customer's premises, co-
located at the central office, located between two telephone company switching
offices (inter-office locations) and located at the service providers' core
networks.
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     Telco Systems, with its existing EdgeLink product line and strong pipeline
of new products, believes that it is well-positioned to capitalize on the
unbundling of the local loop and the requirement for domestic and international
service providers to rapidly modernize their networks to provide higher
bandwidth at the edge of the network. Telco Systems' primary markets are: (i)
the multi-service access market, including T1/E1 voice and date integrators,
which is expected to increase from $17.8 million in 1998 to $363.8 million in
2001; (ii) the multi-service broadband transport and access concentration
markets for DS3, asynchronous transfer mode, digital subscriber line and frame
relay access technologies, which are expected to increase at growth rates
ranging from 15% to 79% from 1998 to 2001; and (iii) the integrated access
market, including the low-speed segment (under 2Mb) that is expected to grow by
15% per year from 1998 to 2001. In total, Telco Systems' target markets are
expected to generate revenues in excess of $6.2 billion in 2000.

     Telco Systems' core products by target market include:

     Multi-Service Access Market

     - EdgeLink300.  The EdgeLink300, introduced in November 1998, is the
       smallest, highest-density multi-service access solution available on the
       market today. It offers competitive local exchange carriers, Internet
       service providers, incumbent local exchange carriers, inter-exchange
       carriers and wireless providers a unique cost-effective integration of
       voice, data and Internet/intranet access on a single, high-speed link.
       The EdgeLink300 is an ideal single box solution for small- to medium-size
       businesses.

     - EdgeLink-T1/E1-E/O.  The EdgeLink-T1/E1-E/O Fiber Transport Terminal,
       introduced in September 1999, is a complete fiber transport and
       multi-service access device that provides an ideal solution for extending
       EdgeLink300 integrated voice and data services over fiber. The unit
       provides a transparent fiber optic link extension for T1 or E1 signals
       and enables multiple applications, including extending T1/E1 for video
       conferencing, private branch exchange extension or integrated services
       for networks installed with fiber.

     - EdgeLink500 Frame Relay Access Devices.  The EdgeLink500, introduced in
       December 1998 after Telco Systems' acquisition of Jupiter Technologies,
       represents a family of low-cost, feature-rich, multi-service frame relay
       access devices that enable service providers to provide branch office
       users with access to Internet Protocol, Internet packet exchange, polled
       async, bisync and business-critical systems network architecture/advanced
       peer-to-peer networking applications across public and private frame
       relay networks. They combine the benefits of traditional routers with
       frame relay access devices and safeguard the end-to-end delivery of
       mission-critical data.

     Multi-Service Broadband Transport and Access Concentration Market

     - EdgeLink100.  The EdgeLink100, introduced with carrier-class capabilities
       in early 1999, is a compact and economical multi-service DS3 multiplexer
       with a revolutionary plug and play design that makes installation,
       provisioning and maintenance hassle-free. the EdgeLink100 is ideal for
       high bandwidth applications with budget and space constraints such as
       co-location solutions for competitive local exchange carrier deployment,
       inter-office transport solutions for incumbent local exchange carriers
       and T1 delivery at the customer premises edge.

     - EdgeLink-T3-E/O.  The EdgeLink-T3-E/O Fiber Transport Terminal,
       introduced in September 1999, is a cost-effective compact solution that
       enables service providers to extend T3 signals from the EdgeLink100 over
       single-mode or multi-mode fiber optic cable. The device is ideal for
       lighting dark fiber and delivering high-speed applications such as
       extending T3 point of presence from service providers' demarcation point
       or linking T3 multiplexers, such as EdgeLink100, over fiber optic cable
       in a campus network. Telco Systems believes that this technology may be
       extended for use in metro wave division multiplexing.

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     Integrated Access Market

     - Access60/45.  The Access60(R) and Access45(TM), both introduced in 1997,
       are highly reliable, high-capacity T1/E1 multiplexers that provide
       digital access to public, private and hybrid networks. The Access60 and
       Access45 are ideal for integrating multiple business applications and
       cost-effectively connecting them with dedicated switched and packet
       network services.

     Since its founding in 1972, Telco Systems has sold over $1.3 billion of
carrier-class equipment to service providers. Telco Systems designs and
manufactures its products to be durable and defect-free and always strives to
deliver products to customers on time. In recognition of Telco Systems'
excellence in product design, development, manufacturing, testing and service,
the International Standards Organization awarded Telco Systems an ISO 9001
certification, which is the most stringent of the five ISO standards and vital
to competing in the global marketplace. Many of Telco Systems' products also
comply with the network equipment building standards as well as the important
standards including those developed by Bellcore, Underwriter's Laboratories, the
Federal Communications Commission and the British Approvals Board for
Telecommunications. Telco Systems believes its reputation and track record for
providing quality products is a major competitive advantage.

     Telco Systems' research and development team is focused on the
multi-service access and multi-service broadband transport and access
concentration markets. Telco Systems' research and development team, which
consists of approximately 70 engineering, product management and planning
professionals and ten to 12 contractors, has developed a detailed product road
map for the entire EdgeLink product line. The road map calls for the
introduction of multiple new products and product enhancements in 2000, as well
as the rapid incorporation of SONET, digital subscriber line, packet/cell
asynchronous transfer mode and legacy async voice and data technology.
Top-priority projects include the EdgeLink-STS, two new releases of the
EdgeLink300-MSIA, and the EdgeLink 700-MSAC. In addition, Telco Systems is
working closely with leading original equipment manufacturers to develop new
network convergence solutions.

     Telco Systems has long-standing relationships with a diverse group of
service providers including competitive local exchange carriers, regional Bell
operating companies, local exchange carriers, inter-exchange carriers, PTTs,
Internet service providers, wireless providers and electrical utilities. Major
service provider customers include Bell Atlantic, AT&T, Sprint, MCI WorldCom,
British Telecom, Ameritech, BellSouth, Nextlink and Concert. Telco Systems also
has a growing number of strategic partnerships with leading equipment
manufacturers such as PairGain, Nortel, Lucent / Ascend and Cisco. Telco Systems
services its clients through its own direct sales force and more than 50 leading
third-party telecommunications equipment distributors such as Walker &
Associates, Sprint North Supply, Alltel Supply and GTE Supply. Approximately 65%
of Telco Systems' sales are through its direct sales force, and the remaining
35% of sales are through its distributors.

     Telco Systems has an experienced sales force that targets predefined
customers in select markets and conducts nearly all of Telco Systems' product
selling efforts. The sales force focuses primarily on selling product selection
rather than order fulfillment. The sales force and internal product development
personnel also work closely with customers to identify new product and product
enhancement opportunities and to ensure correct product positioning.

     In addition, Telco Systems uses leading telecommunications equipment
distributors to provide order fulfillment and other value-added logistics
support services. Telco Systems believes that using distributors for order
fulfillment and logistics support, particularly in certain remote geographic
areas and with smaller and niche customers, improves product delivery
timeliness, reduces inventory carrying costs and enables the in-house sales
force to focus on contacting potential Telco Systems customers. Telco Systems
has been conducting business with most of its large distributors for more than
ten years, and its sales force has well-established personal relationships with
individuals at all of the distributors. Telco Systems believes that it accounts
for a meaningful portion of the business of each of its main distributors and
that, accordingly, the distributors refer business when possible to Telco
Systems as a preferred manufacturer. Telco Systems considers its relationships
with its distributors as a competitive advantage in the markets it serves.

                                       24
   27

     Telco Systems uses major contract manufacturers to supply final products,
including U.S. Assemblies, Inc. and SCI Technologies, Inc. Its contract
manufacturing process primarily involves the assembly of electronic components
onto custom-designed printed circuit boards, incorporating these boards into
larger system packages, and testing the finished products to assure their proper
functioning in accordance with product specifications. Most components used in
the process are standard electrical, electronic and mechanical parts available
from many suppliers. Telco Systems presently maintains a favorable relationship
with its contract manufacturers and its other suppliers and does not presently
anticipate any difficulties that would prevent timely procurement of scheduled
products.

     Telco Systems' competitors in the broadband transmission market are
predominantly large, full-line, integrated manufacturers of telecommunications
equipment, such as Lucent Technologies, Fujitsu, Northern Telecom Limited,
Alcatel, NEC and ADC Telecommunications. Many of these competitors have
introduced newer SONET transmission products which the telephone operating
companies are deploying in public networks. The availability of such SONET
products by competitors provides a distinct product advantage for them in
certain customer applications. However, the higher cost of the SONET products,
typically 20-50% more expensive than the asynchronous transmission products, is
providing a continued strong demand for Telco Systems' asynchronous transmission
products in certain customer applications. Telco Systems' principal competitors
with respect to the network access product market include Premisys
Communications, Verilink Corp., Newbridge Networks, Tellabs and Carrier Access
Corp. Telco Systems believes that it has substantially strengthened its
competitive position in this market with the availability of new features for
the Access60 product, introduction of the new EdgeLink 100 and Access45 products
and new products from the Jupiter and Synaptyx acquisitions, as well as with a
stronger network of distributors. Telco Systems also believes that the
redundancy, high-density application and the fail-safe nature of the Access60
architecture makes the product more suitable for the service providers market.

     NACT Switching.  NACT, headquartered in Provo, Utah, is a rapidly growing
provider of advanced telecommunications switching platforms with integrated
proprietary applications software and billing and telemanagement capabilities.
NACT believes that it is the only provider of a switching solution that
integrates all the required hardware and software elements into one
comprehensive package, which includes a broad range of applications, competitive
pricing, interoperability and scalable port capacity. NACT's ability to offer
its customers an integrated solution provides NACT with certain competitive
advantages within its marketplace because its integrated solutions result in
lower costs, faster installation, greater reliability and superior functionality
relative to multi-vendor alternatives.

     NACT's customers include national and international inter-exchange
carriers, competitive local exchange carriers, prepaid calling card and prepaid
wireless operators, international call back/reorigination providers, payphone
network operators, operators of large institutional networks and other specialty
telecommunications service providers. NACT is one of the leading providers of
switching solutions to independent calling card providers.

     NACT's existing products and services include:

          STX(TM).  The STX (Specialty Telecommunications Exchange) is a Class 4
     integrated digital tandem switching system that provides a complete package
     for switching and specialty application needs, including 1+ long distance,
     prepaid calling card, prepaid equal-access, automated operator and
     international call back. It also includes features such as multiple
     currency support for prepaid cards, voice prompts in 24 languages, fraud
     control and least-cost routing. The most recent enhancement of the STX
     increases the call capacity to 1,920 ports (80 T1s), or 2,048 time slots
     per switching bay, and can be combined with up to three additional STXs to
     provide a total capacity of 7,680 ports, or 8,192 time slots per system.
     The STX includes proprietary software that enables a broad range of
     specialty applications to run simultaneously. The STX also offers Redundant
     Array of Independent Disks (RAID) level 5 redundancy. The STX is targeted
     at a wide range of customers that desire a turnkey solution with superior
     functionality at an attractive price.

                                       25
   28

          Micro STX.  The Micro STX is a smaller and more affordable tandem
     switch that is typically used by start-up prepaid calling card operators
     and other specialty service companies. The Micro STX is scalable from 24 to
     384 ports and supports all STX features and optional software packages.

          Master Control Unit.  The Master Control Unit allows interconnectivity
     of up to four STX platforms to provide a total capacity of 8,192 time slots
     (7,680 ports) per system with a single common database for activities
     including fraud control, prepaid calling card management, central billing
     system connectivity and system maintenance.

          The NTS 2000 Billing(TM) System.  The NTS 2000 is a call rating,
     accounting, switch management, invoicing and traffic engineering system
     designed to process the day-to-day operations of small-to medium-sized
     service providers. The NTS 2000 offers, among other features, real-time
     data processing, an intuitive graphical user interface, custom reports,
     custom invoicing and open system connectivity that allows integration with
     other information systems. The NTS 2000 is capable of handling 40 million
     call detail recordings per month, 25 million prepaid debit cards and more
     than 60 million debit transactions. The NTS 2000 may also be used as a
     billing system in conjunction with third-party switches.

          Facilities Management Services.  NACT operates and maintains switches
     and billing systems for its customers. These services allow customers to
     focus on marketing to their end users and substantially reduces the
     customers' investment in the physical space and the technical staff
     required to maintain and operate the switches. All of the switches that
     NACT manages are located in secure rooms within NACT's owned or leased
     premises.

     NACT sells its products through a direct sales force located in Provo, Utah
as well as through satellite offices located in New York and Florida. To service
its international customers, NACT maintains an international sales and technical
support office in London and also utilizes international distributors and
agents.

     NACT has traditionally focused its sales and marketing efforts on small,
entrepreneurial telecommunications service providers. With the introduction of
the STX and its products and services, NACT now targets larger service
providers. NACT's strategy is to further penetrate certain segments of the
telecommunications industry that offer significant growth opportunities,
including international markets and Internet service providers.

     NACT's target customers primarily consist of growth-oriented, small and
medium-sized telecommunications providers. This market has experienced
significant growth in recent years and is expected to continue to expand as new
telecommunications providers emerge as a result of the worldwide deregulation of
the telecommunications industry. More that 70% of the world's population does
not currently have telephone services. Therefore, NACT believes that emerging
telecommunication companies, such as its customers, are well-positioned to take
advantage of this opportunity. Many of NACT's customers already have an
established customer base in many countries through the use of international
re-origination. Therefore, NACT's customers are positioned to build their own
international networks to provide direct dial tone to their existing customers.

     NACT currently services more than 180 customers, which increased almost 10%
from 165 customers at the end of 1998. NACT believes that its integrated
products and services are an attractive solution for emerging, growth-oriented
providers that demand a low-cost, quick and easy entry into the
telecommunications market, flexibility to add new services and additional
capacity and reliability. NACT's current customer base includes customers in the
United States, Puerto Rico, Mexico, France, Japan, Argentina, Italy, England and
the Dominican Republic.

     NACT's research and development team works very closely with its sales and
marketing teams to solicit customer feedback and ideas for the development of
both new products and the addition of new features and capabilities to its
existing suite of products. Since January 1999, NACT has successfully launched
several new products and product enhancements, including the STX ethernet board,
the NTS 2000 billing system, the Turbo STX/MCU board, the MicroSTX and the 4x4
Dual RAID. Strong market acceptance by customers has propelled unit shipments of
these products.
                                       26
   29

     NACT is scheduled to introduce a number of product enhancements to its
current products, including E1 compatibility and the integration of primary rate
Integrated Services Digital Network, Signaling System 7 and C7 protocols within
the STX. NACT is also in the process of developing its suite of products that
will support new technologies, including packet-switching, asynchronous transfer
mode, voice over Internet Protocol and digital subscriber line access. NACT
believes that these product enhancements and next generation products, scheduled
to be launched during 2000 and 2001, are well-positioned to exploit the
increasing demand of telecommunications providers for advanced voice and data
capabilities.

     The market for switching equipment and network management and billing
systems is highly competitive, and NACT expects competition to increase in the
future. The market is subject to rapid technological change, regulatory
developments in the telecommunications industry and emerging industry standards.
NACT believes that the primary competitive factors in the market for switching
equipment and network telemanagement and billing systems are the development and
rapid introduction of new product features, price/performance, reliability and
quality of customer support.

     As NACT's business develops and it seeks to market its switches to a
broader customer base, NACTs competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Harris Corporation, Siemens AG, Alcatel Alsthom Compagnie, Generale
D'Electricite, Telefonaktiebolaget, L.M. Ericsson and Northern Telecom Ltd. Many
of NACT's current and potential competitors have substantially greater
technical, financial, manufacturing and marketing resources than NACT.

     Wireless Local Loop.  Our Wireless Local Loop Division, or WLLD, has
developed a next generation, CDMA-based, fixed wireless local loop system known
as Velocity-2000(TM). The system provides toll-quality voice service and
provides network operators an innovative way of providing bandwidth-on-demand
data services through a patent-pending virtual LAN technology. Through this
unique virtual LAN technology, data calls are routed outside of Class 5 switch
facilities, thus minimizing the need for additional capital expense to service
the growing demand for Internet services.

     Velocity-2000 is intended to provide competitive and rapid telephony
service deployment for international telecommunications markets that have
limited or no telephony deployment. It is also designed to target the emerging
competitive local exchange markets in the United States that will be served by
competitive local exchange carriers and other alternative access providers.
Industry projections suggest that fixed wireless local loop technology will be
one of the largest growth sectors in the telecommunications industry over the
next five to seven years. WLLD believes that the Velocity-2000 is
well-positioned to capitalize on this market opportunity.

     We started the development of a fixed wireless local loop product in late
1997 to capitalize on the emerging wireless local loop market. To date, we have
invested in excess of $13.0 million in the development stages of the
Velocity-2000 system. The Velocity-2000 product is currently in alpha testing at
the WLLD's Plano, Texas engineering facility. A field trial began at a local
competitive local exchange carrier in the fourth quarter of 1999.

     The superior services offered by the Velocity-2000 Product combined with
the flexibility of the Velocity-2000 Platform, which supports a smooth network
evolution from wireless to wireline networks, position the Velocity-2000 system
as an attractive alternative solution for emerging telecom providers to quickly
enter the telephone access market with high-quality services, low front-end
investment and reduced business risk.

     The Velocity-2000 product is targeted to provide competitive and rapid
telephony service deployment for domestic and international competitive local
exchange carriers, Internet service providers, incumbent local exchange
carriers, cable television operators and long distance carriers providing
services in the emerging international and telecommunications markets as well as
domestic providers that are looking to bypass local loop access fees.

     There has been a recent proliferation of international and domestic
competitive local exchange carriers operating in international regions. The
Velocity-2000 is specifically targeted to address this rapidly growing customer
base; thus, it offers significant growth opportunities for WLLD. Many of these
customers require a
                                       27
   30

cost-effective method to quickly enter the telephony services market because
they typically do not have facilities in place to service end users. Utilizing
wireless technology is a cost-effective alternative to leasing lines from the
incumbent local exchange carriers.

     Cellular Infrastructure Supply.  Cellular Infrastructure Supply offers its
customers cellular base stations and related mobile network equipment. Although
substantially all of the equipment sold by Cellular Infrastructure Supply is
manufactured by other telecommunications equipment companies, Cellular
Infrastructure Supply provides a full range of highly technical, value-added
services such as deinstallation, system design, equipment tuning and
installation.

     Equipment Markets.  The markets for our equipment products are generally
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions that can render existing products
and services obsolete or unmarketable. The future success of our equipment
businesses will depend to a substantial degree upon their ability to develop and
introduce in a timely fashion enhancements to their existing products and
services and new products and services that meet changing customer requirements
and emerging industry standards. Our failure to introduce new products and
services and respond to industry changes on a timely and cost effective basis
could have a material adverse affect on our business, financial condition and
results of operations.

     The development of new, technologically advanced products and services is a
complex and uncertain process requiring high levels of innovation and capital,
as well as the accurate anticipation of technological and market trends.
Furthermore, the introduction and marketing of new or enhanced products and
services require us to manage the transition from existing products and services
in order to minimize disruption in customer purchasing patterns. There can be no
assurance that we will be successful in developing and marketing, on a timely
and cost-effective basis, new products and services or product enhancements,
that our new products and services will adequately address the changing needs of
the marketplace, or that we will successfully manage the transition to new or
enhanced products and services. There also can be no assurance that we will be
able to identify, develop, manufacture or support new products and services
successfully, that such new products and services will gain market acceptance or
that we will be able to respond effectively to technological changes, emerging
industry standards or product announcements by competitors. In addition, we have
on occasion experienced delays in the introduction of product enhancements and
new products and services. There can be no assurance that in the future we will
be able to introduce product enhancements or new products and services on a
timely and cost effective basis. The rapid development of new technologies also
increases the risk that current or new competitors could develop products and
services that would reduce the competitiveness of our products and services.
There can be no assurance that products, services or technologies developed by
others will not render our products, services or technologies noncompetitive or
obsolete.

     Products as complex as ours may contain undetected errors or failures when
first introduced or as new versions are released, and errors have occurred in
these products in the past. There can be no assurance that, despite testing by
us and by current and potential customers, errors will not be found in new
products after commencement of commercial shipments. The occurrence of such
errors could result in the loss of or delay in market acceptance of our
products, diversion of development resources, damage to our reputation or
increased service or warranty costs, any of which could have a material adverse
effect upon our business, financial condition or results of operations.

     Furthermore, from time to time, we may announce new products, services,
capabilities or technologies that have the potential to replace or shorten the
life cycle of their existing product and service offerings. There can be no
assurance that announcements of product enhancements or new product or service
offerings will not cause customers to defer purchasing our existing products and
services or cause resellers to return products to us. Failure to introduce new
products and services or product or service enhancements effectively and on a
timely basis, customer delays in purchasing products and services in
anticipation of new product or service introductions and any inability on our
part to respond effectively to technological changes, emerging industry
standards or product and service announcements by competitors could have a
material adverse effect on our business, financial condition or results of
operations.

                                       28
   31

     Patents and Trademarks.  We own, license or have applied for various
patents with respect to our technology and products. While these patents are of
value, we do not believe that we are dependent to any material extent upon
patent protection. We further believe that timely implementation of
technological advances, responsiveness to market requirements, depth of
technical expertise and a high level of customer service and support are more
important to our success than patent rights.

     We have various trademarks, trade names and service marks used in
connection with our business and for private label marketing of our products,
including: Access45(TM), Access60(R), EdgeLink 100(TM), EdgeLink 300(TM),
EdgeLink 500(TM) and WLL-2000(TM). Although we consider these trademarks, trade
names and service marks to be readily identifiable with, and valuable to, our
business, we do not believe the loss of any of the foregoing rights for
intellectual property would have a material adverse effect on our business,
financial condition or results of operations.

EMPLOYEES

     As of March 24, 2000, we had 748 full-time employees, including 330 in
continuing operations and 418 in discontinued operations. The continuing
operations consist of 204 employees based in the United States and 126 employees
based in Europe. From time to time, we also use part-time employees and
contractors in our operations, primarily to accommodate temporary changes in
operating levels and facilitate certain projects. None of our employees is
represented by any collective bargaining agreements, and we have never
experienced a work stoppage. We consider our employee relations to be good.

ITEM 2.  PROPERTIES

     Our executive offices are located in Atlanta, Georgia, where we occupy
approximately 12,300 square feet under a lease expiring in October 2003. We
lease all our other facilities under operating leases which expire at various
dates. The following provides a summary of the significant facilities we
currently utilize to conduct our operations. We believe these facilities are
adequate for our current operations and that suitable additional space will be
available at commercially reasonable rates in all the locations in which we
operate or plan to operate should the need arise.



                                                SQUARE FOOTAGE                LEASE EXPIRES
                                                --------------                -------------
                                                           
CONTINUING OPERATIONS
Washington, D.C. .............................      49,600       March 2008
New York, New York............................      10,700       January 2009
Dallas, Texas.................................       8,300       October 2004
Chicago, Illinois.............................       7,100       March 2001
Los Angeles, California.......................       5,400       November 2002
Miami, Florida................................       4,400       November 2007
Other switch sites and offices................       7,800       Various
                                                   -------
          Total United States.................      93,300
                                                   =======

Sweden........................................      57,000       November 2003; September 2005
Germany.......................................      39,700       January 2002
United Kingdom................................      26,500       December 2001; January 2003
Austria.......................................      18,600       January 2008; July 2008
Spain.........................................      18,400       August 2003
Switzerland...................................      16,700       October 2003; June 2008
Belgium.......................................      15,100       March 2005
France........................................      10,900       April 2000; July 2007
Italy.........................................      10,500       June 2004


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                                                SQUARE FOOTAGE                LEASE EXPIRES
                                                --------------                -------------
                                                           
Norway........................................       9,200       February 2001
Finland.......................................       8,200       October 2001
Other switch sites and offices................       6,200       Various
                                                   -------
          Total Europe........................     237,000
                                                   -------
          Total Continuing Operations.........     330,300
                                                   =======


     We lease several switch sites, service centers and administrative offices
in each of the European countries listed above, primarily for our FaciliCom and
NETnet operations. The lease expiration dates indicated relate to the most
significant leases in each of the countries.

                                                           

DISCONTINUED OPERATIONS
Norwood, Massachusetts (Telco Systems)........      80,000       January 2004
Provo, Utah (NACT)............................      39,600       December 2009
Savannah, Georgia (C.I.S.)....................      33,500       October 2001
Alpharetta, Georgia...........................      17,800       March 2002
Plano, Texas..................................       6,000       February 2001
Other offices.................................      17,200       Various
                                                   -------
                                                   194,100
                                                   =======



     Telco Systems leases a 216,000 square foot manufacturing, research and
administration facility in Norwood, Massachusetts, that is owned by a limited
partnership in which Telco Systems has a 50% partnership interest. Approximately
80,000 square feet of this facility is currently utilized by Telco Systems.
Excess costs associated with the idle portion of the facility through January
2004, the lease termination date, have been reserved for in Telco Systems'
balance sheet.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of our business. Other than as discussed
below, neither we nor any of our subsidiaries is party to any legal proceeding,
the outcome of which we expect to have a material adverse effect on our
financial condition or results of operations.

     Plaintiffs have filed 23 class action shareholder suits against us and some
of our current and former officers alleging violations of the federal securities
laws. These suits arise from alleged misstatements of material information in
and alleged omissions of material information from some of our securities
filings and other public disclosures, principally related to product
development, inventory and sales activities during the fourth quarter of 1998.
Plaintiffs have requested damages in an unspecified amount in their complaints.
These class action suits were consolidated into a single action for all pretrial
proceedings in the United District Court for the Northern District of Georgia
under the caption In re: World Access, Inc. Securities Litigation (File No.
1:99-CV-43-ODE). The plaintiffs filed an amended consolidated complaint for this
action on or about May 28, 1999. We filed a motion to dismiss the amended
consolidated complaint on June 28, 1999. The court denied this motion to dismiss
in an order dated March 28, 2000. Although we deny that we have violated any of
the requirements or obligations of the federal securities laws, we cannot assure
you that we will not sustain material liability as a result of or related to
these suits.

     On February 14, 2000 and March 1, 2000 identical class action complaints
were filed against Star Telecommunications and certain of its directors and
executive officers. The complaints allege, in conclusory terms, causes of action
for breach of fiduciary duty arising from approval of our proposed merger with
Star on the ground that the consideration to be received is unfair,
unconscionable and grossly inadequate. The complaints seek both injunctive
relief and damages. Although Star believes that the complaints have no merit and
the defendants are prepared to defend them vigorously, we cannot assure you that
the complaints will not interfere with our proposed merger with Star or subject
us to material liability if our proposed merger with Star is consummated.

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     A special meeting of stockholders was held on December 7, 1999 at our
headquarters in Atlanta, Georgia. There were 45,205,424 shares of common stock
issued, outstanding and entitled to one vote each at the special meeting; 50,000
shares of Convertible Preferred Stock, Series A issued, outstanding and entitled
to 4,347,826 votes at the special meeting; and 23,174 shares of Convertible
Preferred Stock, Series B issued, outstanding and entitled to 1,448,375 votes at
the special meeting. The special meeting did not involve the election of
directors. At the special meeting, the following matter was voted on:



                                                                  FOR        AGAINST    ABSTAIN
                                                               ----------    -------    -------
                                                                               

Approval and adoption of the Agreement and Plan of Merger,     31,724,504    109,189    65,882
dated as of August 17, 1999, among World Access, Inc.,
FaciliCom International, Inc., Armstrong
Telecommunications, Inc., Epic Interests, Inc. and BFV
Associates, Inc., pursuant to which FaciliCom was merged
with and into World Access


ITEM 4.5  EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below is certain information, as of March 24, 2000 concerning our
executive officers.



NAME                           AGE                          POSITION
- ----                           ---                          --------
                               
John D. Phillips.............  57    Chairman and Chief Executive Officer
Walter J. Burmeister.........  60    President
W. Tod Chmar.................  46    Executive Vice President and Secretary
Mark A. Gergel...............  42    Executive Vice President and Chief Financial Officer
A. Lindsay Wallace...........  50    President, World Access Equipment Group
Michael F. Mies..............  37    Senior Vice President of Finance and Treasurer


     John D. Phillips.  Mr. Phillips has served as one of our directors since
December 1994, as our Chief Executive Officer since December 1998 and as
Chairman of our Board of Directors since May 1999. Mr. Phillips was Chairman of
the Board and Chief Executive Officer of Cherry Communications and Cherry U.K.
(d/b/a Resurgens Communication Group) from October 1997 until December 1998,
when we acquired both companies. He was President, Chief Executive Officer and a
director of Metromedia International Group, Inc., a global media, entertainment
and communications company, from November 1995 until December 1996. Metromedia
International was formed in November 1995 through the merger of The Actava
Group, Inc., Orion Pictures Corporation, MCEG Sterling Incorporated and
Metromedia International Telecommunications, Inc. He served as President, Chief
Executive Officer and a director of Actava from April 1994 until November 1995.
In May 1989, Mr. Phillips became Chief Executive Officer of Resurgens
Communications Group, Inc. and served in this capacity until September 1993 when
Resurgens merged with Metromedia Communications Corporation and WorldCom.

     Walter J. Burmeister.  Mr. Burmeister has served as our President and one
of our directors since December 1999. Mr. Burmeister was one of FaciliCom's
co-founders and served as its Chief Executive Officer, President and one of its
directors from 1995 until it merged with us in December 1999. Prior to co-
founding FaciliCom, Mr. Burmeister founded TMG, a telecommunications consulting
firm, and he has served as its Chairman from 1992 to the present. Mr. Burmeister
was Vice President and Chief Financial Officer of Bell Atlantic International
from 1989 to 1992. In this position, Mr. Burmeister was responsible for
overseeing business development in Central and South America, the Middle East
and Africa, as well as managing that company's financial affairs. During his 31
years with Bell Atlantic, Mr. Burmeister was Vice President of Bell of
Pennsylvania's and Diamond State Telephone's sales organization and headed the
C&P Telephone Operations Staff. Mr. Burmeister has served as a director of
Skysat Communications Network since 1992.

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     W. Tod Chmar.  Mr. Chmar has served as our Executive Vice President and
Secretary since December 1998. He was an Executive Vice President and director
of Cherry Communications and Cherry U.K. from October 1997 to December 1998,
when we acquired both companies. Mr. Chmar served as Senior Vice President of
Metromedia International Group from November 1995 until December 1996 and of The
Actava Group from 1994 until November 1995. From January 1985 until September
1993, Mr. Chmar was a partner in the law firm of Long Aldridge & Norman LLP,
specializing in mergers and acquisitions and corporate finance.

     Mark A. Gergel.  Mr. Gergel has served as our Vice President and Chief
Financial Officer since April 1992. In December 1996, he was named an Executive
Vice President. He also served as one of our directors from December 1998 to
December 1999. From 1983 until March 1992, Mr. Gergel held five positions of
increasing responsibility with Federal-Mogul Corporation, a publicly-held
manufacturer and distributor of vehicular parts, including International
Accounting Manager, Assistant Corporate Controller, Manager of Corporate
Development and Director of Internal Audit. Prior to joining Federal-Mogul, Mr.
Gergel spent four years with the international accounting firm of Ernst & Young.
Mr. Gergel is a Certified Public Accountant.

     A. Lindsay Wallace.  Mr. Wallace joined us in February 1998 in connection
with our acquisition of a majority interest in NACT Telecommunications, Inc. He
served as President of our Switching Division from February 1998 until December
1998, when he was appointed Executive Vice President and Chief Operating Officer
of our Equipment Group. In January 1999, he was named President of our Equipment
Group. From January 1996 until October 1998, when NACT merged with and into
World Access, Mr. Wallace was President, Chief Executive Officer and a director
of NACT. From January 1994 until January 1996, he was NACT's Director of Sales
and Marketing. In October 1995 he was named an Executive Vice President of NACT.
Prior to joining NACT, Mr. Wallace worked for Sprint Corporation for five years
where he held several positions including National Account Manager.

     Michael F. Mies.  Mr. Mies has served as our Vice President of Finance and
Treasurer since December 1997. In July 1999, he was named a Senior Vice
President. Prior to joining World Access, Mr. Mies spent 14 years with
Federal-Mogul Corporation in positions of increasing responsibility, most
recently as Director of European Operations from 1995 to 1997.

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                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

     Our common stock is traded on The Nasdaq Stock Market under the symbol
"WAXS". The quarterly price ranges for our common stock as reported by Nasdaq
are as follows:



                                                              HIGH     LOW     CLOSE
                                                              ----     ---     -----
                                                                      
YEAR ENDED DECEMBER 31, 1999
  First Quarter.............................................  $22 3/4  $ 6 3/8  $ 8 1/4
  Second Quarter............................................   14 3/8    7 1/2   14 1/4
  Third Quarter.............................................   16 3/16  10 5/16  11 3/16
  Fourth Quarter............................................   22 1/4   10 5/16  19 1/4
YEAR ENDED DECEMBER 31, 1998
  First Quarter.............................................   33 1/2   21 5/8   32 1/2
  Second Quarter............................................   40       25 3/8   30
  Third Quarter.............................................   30 15/16 18 3/4   20 1/4
  Fourth Quarter............................................   24 3/4   12       21 3/8


     As of March 24, 2000 there were 730 holders of record of our common stock.
This number does not include beneficial owners of our common stock whose shares
are held in the names of various dealers, clearing agencies, banks, brokers and
other fiduciaries.

SALES OF UNREGISTERED SECURITIES

          1. In September 1999 we issued warrants to purchase 100,000 shares of
     our common stock at a price of $18.00 per share to principals of The
     Breckenridge Group in payment of professional fees.

          2. In October and December 1999 we issued an aggregate of 58,215
     shares of our common stock to Long Aldridge & Norman LLP in payment of an
     aggregate of $880,207 in legal fees.

          3. In December 1999 we issued 369,901 shares of our Convertible
     Preferred Stock, Series C in connection with our acquisition of FaciliCom
     International, Inc. The preferred stock is convertible into shares of our
     common stock at a conversion rate of $20.38 per common share, subject to
     standard anti-dilution adjustments. If the closing trading price of our
     common stock as quoted by the Nasdaq Stock Market exceeds $20.38 per share
     for 60 consecutive trading days, the preferred stock will automatically
     convert into shares of our common stock. In December 1999 we issued 963,722
     shares of our common stock upon conversion of 19,641 shares of preferred
     stock held by two individuals.

          4. In December 1999 we issued 4,713,128 shares of our common stock for
     an aggregate of $75.0 million in a private placement to the following
     institutional and sophisticated investors:

                                                           
Erie Indemnity Company......................................    125,683
Erie Insurance Exchange.....................................    502,734
Geocapital V, L.P...........................................  1,211,982
Geocapital Advisors, L.P....................................     36,900
Geocapital Investors V, L.P.................................      7,952
Gilbert Global Equity Partners, L.P.........................  1,443,887
Gilbert Global Equity Partners (Bermuda), L.P...............    441,364
Zilkha Capital Partners, L.P................................    816,942
Cecile E. Zilkha............................................     31,421
Ezra K. Zilkha..............................................     94,263
                                                              ---------
                                                              4,713,128
                                                              =========



     Brown Brothers Harriman & Co. acted as an advisor to us in connection with
this transaction.

                                       33
   36

          5. In December 1999 we issued 15,000 shares of our common stock to R.
     Darby Boland in settlement of litigation.

          6. In December 1999 we issued 47,259 shares of our common stock
     pursuant to the earnout provisions of our August 1997 acquisition of Galaxy
     Engineering Services, Inc.

     No underwriters were involved in the issuances of these securities. The
issuances of these securities were deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in these transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of the securities and appropriate legends were affixed to
the stock certificates and warrants issued in these transactions. All recipients
had adequate access, through their relationships with us, to information about
us.

DIVIDEND POLICY

     We have not paid or declared any cash dividends on our common stock, and we
currently intend to retain all future earnings to fund operations and the
continued development of our business. In addition, our credit facility contains
restrictions limiting our ability to pay cash dividends. Any future
determination to declare and pay cash dividends will be at the discretion of our
board of directors and will be dependent on our financial condition, results of
operations, contractual restrictions, capital requirements, business prospects
and other factors that our board of directors deems relevant.

     The holders of our Series A Preferred Stock, in preference to the holders
of shares of our common stock, are entitled to receive, when, as and if declared
by our board of directors, cash dividends at an annual rate on the liquidation
preference equal to 4.25%. Dividends payable on the Series A Preferred Stock are
cumulative and accrue, whether or not declared, on a daily basis from the date
of issuance. We are currently required to make annual dividend payments of
approximately $2.1 million on outstanding Series A Preferred Stock.

     The indenture governing our senior notes could limit our ability to pay
cash dividends to our stockholders. Restrictions on our ability to pay cash
dividends to our stockholders apply if, at the time or after giving effect to
the proposed cash dividend, we are or would be in default under the terms of the
indenture, our indebtedness exceeds specified levels or restricted payments
exceed specified levels.

                                       34
   37

ITEM 6.  SELECTED FINANCIAL DATA

     The selected financial information for each of the five years in the period
ended December 31, 1999 set forth below has been derived from and should be read
in conjunction with the audited consolidated financial statements and other
financial information presented elsewhere herein.



                                                             YEAR ENDED DECEMBER 31,
                                               ----------------------------------------------------
                                                  1999        1998       1997      1996      1995
                                               ----------   --------   --------   -------   -------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                             
STATEMENT OF CONTINUING OPERATIONS DATA(1):
Carrier service revenue......................  $  501,081   $ 10,787   $     --   $    --   $    --
Cost of carrier services (exclusive of
  depreciation and amortization shown
  separately below)..........................     448,305     10,137         --        --        --
Depreciation and amortization................      13,541        416        115        71        30
Restructuring charge.........................      37,800         --         --        --        --
Operating loss...............................     (26,998)    (4,383)    (1,550)   (1,011)     (880)
Loss from continuing operations..............     (27,098)    (5,437)      (460)     (588)   (1,292)
Loss from continuing operations per
  share(2)...................................  $    (0.78)  $  (0.25)  $  (0.03)  $ (0.05)  $ (0.14)
Weighted average shares outstanding(2).......      37,423     22,073     17,242    13,044     9,083
BALANCE SHEET DATA:
Cash and equivalents.........................  $  147,432   $ 55,176   $118,065   $22,480   $ 1,887
Restricted cash..............................      47,201         --         --        --        --
Working capital..............................     289,844    350,816    206,769    52,149    17,884
Total assets.................................   1,629,804    544,649    207,294    52,512    23,604
Long-term debt...............................     408,338    137,523    115,264        --     3,750
Total liabilities............................     732,505    184,066    115,539       138     9,270
Stockholders' equity.........................     897,299    360,583     91,755    52,374    14,334
OTHER FINANCIAL DATA:
EBITDA from continuing operations before
  restructuring charge(3)....................  $   24,343   $ (3,967)  $ (1,435)  $  (940)  $  (850)
Capital expenditures.........................       7,198     12,216      3,591     1,176       280
Cash flows from (used by) operating
  activities.................................      18,515    (13,038)     1,602     1,995    (6,445)
Cash flows used by investing activities......     (32,186)   (66,527)   (18,240)   (1,792)   (2,432)
Cash flows from financing activities.........     105,927     16,676    115,427    20,391    10,010


- ---------------

(1) Includes the results of operations for the following businesses from their
    respective dates of acquisition: Cherry U.S. and Cherry U.K. -- December
    1998; Comm/Net -- May 1999; and FaciliCom -- December 1999.
(2) Loss per share and weighted average shares outstanding are presented on a
    diluted basis.
(3) EBITDA from continuing operations as used in this Annual Report is earnings
    (loss) before net interest expense (income), income taxes, foreign exchange
    gains or losses, depreciation and amortization and is presented because
    World Access believes that such information is commonly used in the
    telecommunications industry as one measure of a company's operating
    performance and historical ability to service debt. EBITDA from continuing
    operations is not determined in accordance with generally accepted
    accounting principles, is not indicative of cash provided by operating
    activities, should not be used as a measure of operating income and cash
    flows from operations as determined under generally accepted accounting
    principles and should not be considered in isolation or as an alternative
    to, or to be more meaningful than, measures of performance determined in
    accordance with generally accepted accounting principles. EBITDA, as
    calculated by World Access, may not be comparable to similarly titled
    measures reported by

                                       35
   38

    other companies and could be misleading unless all companies and analysts
    calculate EBITDA in the same manner.



                                                       YEAR ENDED DECEMBER 31,
                                            ----------------------------------------------
                                              1999      1998      1997     1996     1995
                                            --------   -------   -------   -----   -------
                                                                    
Loss from continuing operations...........  $(27,098)  $(5,437)  $  (460)  $(588)  $(1,292)
Net interest expense (income).............     9,606     4,355      (838)    (85)      412
Income taxes benefit......................   (10,126)   (3,301)     (252)   (338)       --
Foreign exchange loss.....................       620        --        --      --        --
Depreciation and amortization.............    13,541       416       115      71        30
                                            --------   -------   -------   -----   -------
EBITDA from continuing operations.........   (13,457)   (3,967)   (1,435)   (940)     (850)
Restructuring charge......................    37,800        --        --      --        --
                                            --------   -------   -------   -----   -------
EBITDA from continuing operations
  before restructuring charge.............  $ 24,343   $(3,967)  $(1,435)  $(940)  $  (850)
                                            ========   =======   =======   =====   =======


                                       36
   39

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     Prior to December 1998, the Company was a manufacturer and reseller of
telecommunications network equipment. In December 1998, in connection with the
acquisition of Resurgens Communication Group ("Resurgens"), and the appointment
of a new Chief Executive Officer, the Company reorganized into two separate
operating groups. The Telecommunications Group provided wholesale international
long distance service through a combination of its own international network
facilities, various international termination relationships and resale
arrangements with other international long distance service providers. The
Equipment Group provided digital switches, billing and network telemanagement
systems, fixed wireless local loop systems, intelligent multiplexers, digital
microwave radio systems, cellular base stations and other telecommunications
network products. As discussed further below, in December 1999 the Company
adopted a plan to divest the businesses comprising the Equipment Group.

     In December 1998, the Company acquired Resurgens, a facilities based
provider of wholesale international long distance services. In connection
therewith, a wholly owned subsidiary of MCI WorldCom, Inc., a major customer and
vendor of Resurgens, became a significant stockholder of the Company. WorldCom
currently owns approximately 6.9% of the voting common stock of the Company. In
December 1998, John D. Phillips was appointed the Company's new President and
Chief Executive Officer. Mr. Phillips was formerly the President and Chief
Executive Officer of Resurgens.

     In early 1999, management adopted a strategy designed to build on the
Company's base wholesale service business and position the Company to become a
leading provider of bundled voice, data and Internet services to retail and
carrier customers throughout Europe. Management believes that the European
telecommunications market has become extremely fragmented in recent years due to
the significant deregulation initiatives undertaken and the significant growth
projected for this market. Management also believes that this market is ripe for
a consolidation of carriers, not unlike that which occurred in the United States
during the late 1980's and 1990's. At the time, management also believed that
being able to provide certain of the Company's customers both services and
equipment represented a competitive advantage.

                                       37
   40

     During 1999 and early 2000, the Company completed three acquisitions and
executed definitive agreements to acquire two other companies in an effort to
pursue its strategy. As a result of these transactions and related initiatives,
the Company has evolved from a $501.1 million carrier of U.S. originated
wholesale traffic in 1999 to a projected multi-billion dollar carrier of U.S.
and European originated retail and wholesale traffic in 2000 (on a pro forma
basis). These acquisitions include:

                                            
Comm/Net                                       Privately-held facilities based provider of
  (May 1999)                                   wholesale international long distance
                                               primarily to Mexico. It is expected to serve
                                               as a foundation for facilities and bandwidth
                                               into other Latin American countries.
FaciliCom International                        Privately-held facilities based provider of
  (December 1999)                              European and U.S. originated international
                                               long distance, voice, data and Internet
                                               services. FaciliCom has invested in excess of
                                               $200.0 million during the past few years to
                                               establish an extensive, high quality switching
                                               and transport network in 13 European
                                               countries.
NETnet International                           Acquired all the assets of Long Distance
  (February 2000)                              International, Inc. ("LDI") including NETnet
                                               International S.A. ("NETnet"), its wholly
                                               owned subsidiary. NETnet provides an array of
                                               telecommunication services to over 20,000
                                               retail customers in nine European countries.
Star Telecommunications                        Publicly held international telecommunications
  (Pending)                                    service provider with 24 international gateway
                                               switches in the U.S. and Europe, ownership on
                                               17 transoceanic cable systems and
                                               interconnections between 23 German cities.
WorldxChange Communications                    Privately held international telecommunication
  (Pending)                                    service provider operating in 13 countries,
                                               including the U.S., U.K., Germany and
                                               Australia. Operates 45 switches and undersea
                                               and land-based fiber optic cables in providing
                                               communications services to more than 750,000
                                               customers.



     The Company expects to complete its acquisitions of Star and WorldxChange
in mid-2000. The combination of World Access, FaciliCom, Star and WorldxChange
will create one of the largest independent telecommunications service companies
focused on the European market. The combined network, retail customer base,
sales organization and traffic is expected to significantly accelerate the
implementation of the Company's strategy as outlined above. Management expects
to aggressively pursue additional acquisitions in the next few years to further
pursue growth opportunities projected for Europe and selected other deregulating
markets throughout the world.

     The Company has used its common stock and new series of its preferred stock
as the primary consideration paid for the companies acquired in 1999 and 2000.
This form of consideration will also be used in the pending acquisitions of Star
and WorldxChange.

     In December 1999, the Company adopted a plan to divest its Equipment Group
in order to focus all its resources on its international long distance
businesses (see "Discontinued Operations -- 1999 Plan"). As a result of this
plan, the Company's Equipment Group has been accounted for as discontinued
operations and, accordingly, the results of the Equipment Group's operations
have been excluded from continuing operations in the Consolidated Statements of
Operations for all periods presented. One of the businesses was sold in December
1999 for approximately $15.0 million. The Company has engaged two investment
banking firms to sell the remaining businesses.
                                       38
   41

     In February 2000, the Company executed a definitive agreement with BATM
Advanced Communications Limited ("BATM"), an Israel-based technology company,
pursuant to which Telco Systems, the Company's largest equipment business, will
be sold to BATM for $260.8 million of cash and 960,000 restricted shares of BATM
common stock. The shares of BATM common stock, which had an initial value of
$65.2 million, trade on the London Stock Exchange. Under the terms of the
definitive agreement, the Company may not sell, transfer or otherwise monetize
these shares for a period of one year without the consent of BATM. The Company
expects to complete this transaction in April 2000 and record a significant
gain.

     During 1999 and 2000, the Company has significantly increased its cash
balances through two private placements of common stock for a total of $158.1
million, a private placement of Series A preferred stock for $50.0 million and
proceeds from the sale or liquidation of certain Equipment Group assets.
Management believes that with existing cash balances, proceeds from the pending
sale of Telco Systems and available borrowings under the Company's $100.0
million revolving line of credit, the Company will have sufficient capital to
support the working capital and other cash requirements associated with the
integration of recent and pending acquisitions.

1999 CONTINUING OPERATIONS COMPARED TO 1998 CONTINUING OPERATIONS

     Prior to the December 1998 Resurgens acquisition, the Company was a
manufacturer and reseller of telecommunications network equipment. In connection
with the Company's December 1999 plan to divest its Equipment Group, the
Company's continuing operations are now comprised of its Telecommunications
Group and its corporate office. These operations include Resurgens, Comm/Net and
FaciliCom from their respective dates of acquisition (December 15, 1998, May 1,
1999 and December 7, 1999), general and administrative expenses associated with
the Company's corporate office functions, interest income associated with the
Company's invested cash balances and interest expense associated with the
Company's debt balances.

     Carrier Service Revenue.  Total carrier service revenue increased $490.3
million to $501.1 million in 1999 from $10.8 million in 1998. The 1998 carrier
service revenue related to Resurgens' revenue subsequent to its acquisition in
mid-December. Pursuant to a Carrier Service Agreement with MCI WorldCom, Inc.
(See "Business -- Customers"), the Company recorded approximately $267.0 million
of revenue and related gross profit of $35.0 million during 1999. This
represented approximately 53% and 66% of the Company's total revenue and gross
profit from continuing operations, respectively. The Company expects the
percentage of its total revenue and gross profit contributed by WorldCom to
decrease in 2000 due to its recent acquisitions.

     Cost of Services (Exclusive of Depreciation and Amortization).  Cost of
services (exclusive of depreciation and amortization) increased to $448.3
million for the year ended December 31, 1999 from $10.8 million for the year
ended December 31, 1998. This increase is primarily due to the acquisition of
Resurgens, Comm/Net and FaciliCom. As a percentage of revenues, cost of services
decreased to 89.5% of revenues for the year ended December 31, 1999 as compared
to 94.0% for the year ended December 31, 1998. This decrease was primarily as a
result of enhancements in routing efficiencies and WorldCom traffic. The routing
efficiencies resulted from access to larger carrier vendors and lower purchasing
rates due to increases in minute traffic volumes over the year. The increased
WorldCom traffic was to countries which are delivered over lower cost routes and
thus with lower cost as a percentage of revenues. The Company expects that
pricing pressures due to increased competition may adversely affect its cost of
services in the future, particularly to those countries which currently
represent lower cost of service rates. Minute growth is expected to partially
offset the effect of the increased cost of service rates on the Company's total
cost of services.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses increased $19.0 million, or 411.8%, to $23.6 million in
1999 from $4.6 million in 1998. The increase primarily related to only one half
month of Resurgens operating results in 1998, expenses associated with the
operations of Comm/Net, which was acquired in early 1999, and expenses related
to the operations of FaciliCom, which was acquired in December 1999. As a
percentage of total sales, selling, general and administrative expenses
decreased to 4.7% in 1999 from 42.8% in 1998. The decrease is due primarily to
the increase in revenue from the carrier service businesses acquired in 1999 and
1998. As a percentage of total sales, we expect selling, general and
administrative expenses to decrease in the future.

                                       39
   42

     Depreciation and Amortization.  Depreciation and amortization increased
$13.1 million to $13.5 million in 1999 from $416,000 in 1998, primarily as a
result of the fixed assets and goodwill acquired in connection with the
Resurgens, Comm/Net and FaciliCom acquisitions.

     Operating Loss.  Operating loss increased $22.6 million to $27.0 million in
1999 as compared to $4.4 million in 1998. The increase in operating loss was due
primarily to including a full year of Resurgens operations and the acquisitions
of Comm/Net and FaciliCom during 1999. Included in the operating loss for 1999
is a $37.8 million restructuring charge.

     Interest and Other Income.  Interest and other income increased $804,000,
or 32.1%, to $3.3 million in 1999 from $2.5 million in 1998 due primarily to
increased invested cash balances of the Company. The increase related primarily
to proceeds received from a $50.0 million issuance of Series A preferred stock
in April 1999.

     Interest Expense.  Interest expense increased $6.0 million to $12.9 million
in 1999 from $6.9 million in 1998. The increase is primarily related to
obligations under Resurgens capital leases and the issuance of $300.0 million of
13.25% Senior Notes in December 1999.

1998 CONTINUING OPERATIONS COMPARED TO 1997 CONTINUING OPERATIONS

     During 1997, only general and administrative costs associated with the
Company's corporate office function, interest income associated with the
Company's invested cash balances and interest expense associated with the
Company's debt balances is presented in the Consolidated Statement of
Operations. As a result of this presentation, it is not meaningful to compare
1998 continuing operations, which includes the results of Resurgens from its
December 1998 acquisition date, to 1997 continuing operations. The remaining
income and expense of the Company has been presented as discontinued operations.
(See "Discontinued Operations").

RESTRUCTURING CHARGE

     In December 1999, the Company recorded a one-time restructuring charge of
$37.8 million in connection with its acquisition of FaciliCom. The restructuring
charge includes the estimated costs of (i) consolidating certain of the
Company's United States gateway switching centers and related technical support
functions into existing FaciliCom operations; (ii) consolidating the Company's
United Kingdom operations into existing FaciliCom operations; (iii)
consolidating certain of the Company's administrative functions into FaciliCom's
operations; and (iv) eliminating other redundant operations and assets as a
result of combining the two entities.

     FaciliCom is a multi-national long distance service carrier focused on
providing international wholesale telecommunications services to other carriers
worldwide. FaciliCom provides these services over its carrier-grade
international network, which consists of 17 gateway switches as well as a
satellite earth station. Given the duplication of network assets between the two
entities, including switching and transmission equipment, the Company decided in
late 1999 to shut down and dispose of its six gateway switches located in
Chicago, Los Angeles, Newark, Dallas, San Francisco and London. The Company
intends to dispose of these six switches and related network assets through sale
in the secondary switching and transmission equipment market during 2000. The
restructuring charge also provides for the write-off of leasehold improvements
at the six switch sites and lease commitments remaining on certain facilities
and equipment taken out of service.

     Approximately 25 personnel whose job functions included accounting and
administrative support as well as network operations were terminated as part of
the overall restructuring. The termination benefits associated with these
personnel are included in the restructuring charge.

                                       40
   43

     The following table summarizes the amount in each component of the
restructuring charge (in thousands):



                                                             RESTRUCTURING     1999     RESERVE BALANCE
                                                                CHARGE       ACTIVITY     AT 12/31/99
                                                             -------------   --------   ---------------
                                                                               
Write-down of leasehold improvements.......................     $ 1,506      $ 1,506        $   --
Write-down of network equipment............................      25,372       25,372            --
Write-down of redundant software and general equipment.....       1,256        1,256            --
Accrual for lease and circuit cost commitments.............       8,078        1,216         6,862
Accrual for termination benefits...........................       1,588          270         1,318
                                                                -------      -------        ------
                                                                $37,800      $29,620        $8,180
                                                                =======      =======        ======


     The restructuring accrual is recorded in "Other accrued liabilities" on the
Company's December 31, 1999 balance sheet. The restructuring program is expected
to be completed in 2000.

DISCONTINUED OPERATIONS

     In December 1998, the Company adopted a plan to offer for sale its
non-proprietary equipment businesses (see "1998 Plan"). In December 1999, in
connection with its acquisition of FaciliCom, the Company adopted a plan to
divest all of its remaining equipment businesses in order to focus on its
international long distance businesses (see "1999 Plan"). As a result of these
plans, all of the Company's equipment businesses have been accounted for as
discontinued operations and, accordingly, the results of their operations have
been excluded from continuing operations in the Consolidated Statements of
Operations for all periods presented. Results of discontinued operations were as
follows (in thousands):



                                                           1999       1998       1997
                                                         --------   ---------   -------
                                                                       
Total sales............................................  $265,718   $ 199,903   $92,984
Cost of equipment sold.................................   162,638     121,789    60,072
Write-down of inventories..............................     2,332      17,110       773
                                                         --------   ---------   -------
          Gross profit.................................   100,748      61,004    32,139
Research and development...............................    17,511       6,966     1,862
Selling, general and administrative....................    36,599      17,632     7,393
Provision for doubtful accounts........................    10,266      13,741       172
Amortization of goodwill...............................     8,585       4,905     1,640
Restructuring and other charges........................        --      19,890        --
In-process research and development....................        --     100,300        --
                                                         --------   ---------   -------
          Operating income (loss)......................    27,787    (102,430)   21,072
Gain on exchange of securities.........................     9,590          --        --
Net interest income (expense)..........................      (786)        996       310
                                                         --------   ---------   -------
          Income (loss) before income taxes and
            minority interests.........................    36,591    (101,434)   21,382
Income taxes...........................................    17,522       1,134     7,788
Minority interests in earnings of subsidiary...........        --       2,497        --
                                                         --------   ---------   -------
          Income (loss) before write-down of
            discontinued operations to net realizable
            value......................................    19,069    (105,065)   13,594
Write-down of discontinued operations to net realizable
  value................................................   (44,994)     (9,700)       --
                                                         --------   ---------   -------
          Net income (loss)............................  $(25,925)  $(114,765)  $13,594
                                                         ========   =========   =======


     1999 Compared to 1998.  Sales increased $65.8 million, or 32.9%, to $265.7
million in 1999 from $199.9 million in 1998. This increase was primarily due to
including an entire year of Telco Systems' operations, which was acquired in
November 1998. Gross profit before a write-down of inventories increased $25.0
million, or 32.0%, to $103.1 million in 1999 from $78.1 million in 1998. Gross
profit margin before write-down of inventories decreased to 38.8% in 1999 from
39.1% in 1998.

                                       41
   44

     1998 Compared to 1997.  Sales increased $106.9 million, or 115.0% to $199.9
million in 1998 from $93.0 million in 1997. The increase was due primarily to
the acquisition of NACT which was completed in 1998. Gross profit before
write-down of inventories increased to $78.1 million in 1998 from $32.9 million
in 1997. Gross profit margin increased to 39.1% in 1998 before a write-down of
inventories from 35.4% in 1997.

     1998 Plan.  In December 1998, the Company formalized its plan to offer for
sale two businesses, (i) the resale and repair of Nortel and other original
equipment manufacturers' wireline switching equipment, and (ii) pay telephone
refurbishment. In connection, therewith, the Company recorded a $9.7 million
charge in the fourth quarter of 1998 for the estimated loss to dispose of these
discontinued operations. This loss, which was recorded as partial impairment of
existing goodwill, was determined by comparing the book value of the net assets
of the discontinued operations to their net realizable value. The net realizable
value was estimated based on preliminary valuation work performed by an
investment banking firm engaged by the Company to assist in the sale of these
businesses and a preliminary non-committal offer from a prospective buyer.

     During the first six months of 1999, the Company and its investment bankers
formally solicited offers for the two businesses. The preliminary offer referred
to above was eventually withdrawn by the potential suitor and the formal selling
process generated only one serious offer for the business. The Company
eventually refused this offer due to its low price and substantial credit risk.

     During this selling process, the Company's Nortel resale business
significantly deteriorated and its pay telephone refurbishment business began
showing signs of weakness. In mid-1999, faced with an unsuccessful selling
process and future operating losses, management elected to begin liquidating the
Nortel resale and repair business. A formal liquidation plan designed to
eliminate future quarterly losses, maximize net cash proceeds and realize
significant deferred tax credits, was adopted by management and communicated to
all affected employees.

     As a result of this revised plan, the Company recorded an additional charge
of $12.3 million in the second quarter of 1999 to reflect the additional loss
expected to be realized on the liquidation of the Nortel resale and repair
business. Significant elements of this charge consisted of $5.6 million to
write-off all remaining goodwill, $4.3 million to write-down inventories to
estimated realizable value, $600,000 to write-down leasehold improvements, test
equipment and other assets to estimated realizable value, $300,000 for severance
benefits, and $300,000 for the estimated loss on the disposal of facility
leases. The charge also included approximately $200,000 for net operating losses
expected to be incurred by the Company during this liquidation process.

     In the fourth quarter of 1999, the Company completed the liquidation of its
Nortel resale and repair business in accordance with the above plan and sold its
pay telephone refurbishment business for approximately $2.0 million in cash. The
actual loss on disposition of these businesses approximated the estimated loss
recorded in the second quarter of 1999.

     1999 Plan.  In December 1999, the Company adopted a plan to divest,
spin-off or otherwise monetize its remaining equipment businesses, consisting of
the following:

     - Telco Systems Division (acquired November 1998), a provider of next
       generation transport and access solutions for service providers
       throughout the world. Its products include intelligent integrated access
       devices, multiplexers and digital microwave radios.

     - NACT Switching Division (acquired February 1998), a provider of advanced
       switching platforms with integrated proprietary applications software as
       well as billing and telemanagement systems.

     - Wireless Local Loop Division, a research and development group designing
       a next generation, fixed wireless local loop system.

     - Cellular Infrastructure Supply Division (acquired March 1997), a
       value-added supplier of new and re-furbished cellular base stations and
       related equipment.

     - Galaxy Engineering Division (acquired August 1997), a provider of system
       design, optimization and other value-added radio engineering and
       consulting services.

                                       42
   45

     The Company sold Galaxy in December 1999 for approximately $15.0 million in
cash. The remaining businesses are being offered for sale by two investment
banking firms engaged by the Company. The Company has signed a definitive
agreement to sell Telco Systems (see "Overview") and expects to sell all of
these businesses during 2000.

     Restructuring and Other Charges.  During 1998, the Company approved and
began implementing two restructuring programs designed to reduce operating
costs, outsource manufacturing requirements and focus Company resources on
recently acquired business units containing proprietary technology or services.
A summary of restructuring and related charges recorded in connection with these
programs follows (in thousands):

                                                           
Severance and termination benefits..........................  $ 2,600
Idle facility costs.........................................    2,540
Asset write-downs...........................................   13,113
Other exit costs............................................    1,637
                                                              -------
       Total restructuring charges                             19,890
Write-down of inventories...................................   17,110
Provision for doubtful accounts.............................   12,600
                                                              -------
       Total charges........................................  $49,600
                                                              =======



     In January 1998, the Company approved and began implementing a
restructuring program to consolidate several operations and exit the contract
manufacturing business. The Company's wireline telecom equipment resale business
("AIT") in Lakeland, Florida and its circuit board repair operations were
consolidated into a new facility in Orlando, Florida; the Company's
manufacturing operations were moved from an old facility in Orlando to a new
facility in Alpharetta, Georgia; and the Company's Scottsdale, Arizona
operations were integrated into the Company's radio facility in Wilmington,
Massachusetts. This restructuring program was completed in June 1998. No costs
were included in the restructuring charges that were expected to derive future
economic benefit to the Company. See Note C to the "Financial
Statements" -- "Restructuring and Other Charges."

     Gain on Exchange of Securities.  In connection with the acquisition of
Telco Systems, the Company acquired an investment in the common stock of Omnia
Communications, Inc. ("Omnia") and warrants to purchase additional common stock
of Omnia. The fair value of the investment in Omnia at the time of the
acquisition of Telco Systems was approximately $3.0 million and was accounted
for by the Company under the cost method.

     In March 1999, Omnia announced that it had entered into an agreement to be
acquired by Ciena Corp. ("Ciena"). In June 1999, the Company exercised the
outstanding warrants to purchase additional common stock in Omnia. In July 1999,
Ciena's acquisition of Omnia was completed and the Company received
approximately 445,000 shares of Ciena common stock in exchange for its holdings
of Omnia common stock, of which approximately 45,000 shares or 10% are being
held in escrow for a period of one year related to certain representations and
warranties made by Omnia. In accordance with EITF No. 91-5, "Nonmonetary
Exchange of Cost-Method Investments, the Company recognized a one-time gain, net
of taxes, during 1999 of approximately $7.9 million on the exchange of the Omnia
common stock.

     Purchased In-Process Research and Development.  In connection with the
Advanced TechCom, NACT and Telco Systems acquisitions in 1998, the Company wrote
off purchased in-process R&D totaling $5.4 million, $44.6 million and $50.3
million, respectively. These amounts were expensed as non-recurring charges on
the respective acquisition dates. These write-offs were necessary because the
acquired technology had not yet reached technological feasibility and had no
future alternate use.

     The value of the purchased in-process technology from NACT and Telco
Systems was determined by estimating the projected net cash flows related to
in-process research and development projects, excluding costs to complete the
development of the technology. These cash flows were discounted back to their
net present value. The projected net cash flows from such projects were based on
management's estimates of

                                       43
   46

revenues and operating profits related to such projects. These estimates were
based on several assumptions for each of the respective acquisitions. The
resultant net present value amount was then reduced by a stage of completion
factor. This factor more specifically captures the development risk of an
in-process technology (i.e., market risk is still incorporated in the estimated
rate of return).

     The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification, and test
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features, and technical
performance requirements.

     If these projects to develop commercially viable products based on the
purchased in-process technology are not successfully completed, the sales and
profitability of NACT and Telco Systems may be adversely affected in future
periods. Additionally, the value of other intangible assets may become impaired.

     For a detailed discussion of specific projects in progress at the dates of
the NACT and Telco Systems acquisitions, their current status, rate of return
assumptions and other relevant data regarding the purchased in-process research
and development charges in 1998, see Note C to the "Financial Statements".

LIQUIDITY AND CAPITAL RESOURCES

     Overview.  Cash management is a key element of the Company's operating
philosophy and 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 network capacity,
marketing programs and working capital requirements normally associated with
acquired businesses. As of December 31, 1999, the Company had $147.4 million of
cash and equivalents and $73.8 million in borrowings available under its credit
line to support its current working capital requirements and strategic growth
initiatives.

     Operating Activities.  Cash from (used by) operating activities was $18.5
million in 1999 and $(13.0) million in 1998.

     Accounts receivable increased $159.0 million to $164.8 million at December
31, 1999 from $5.8 million at December 31, 1998. Average days sales outstanding
at December 31, 1999 were approximately 59 days as compared to 17 days at
December 31, 1998. In 1999 Resurgens was included for the entire year and the
acquisitions of Comm/Net and FaciliCom have been included from May 1, 1999 and
December 7, 1999, respectively. The primary reason for the increase in average
days sales outstanding relates to a reduced dependence on WorldCom revenue
during the course of 1999. In the fourth quarter of 1998, WorldCom revenue
represented approximately 65% of Resurgens' revenue, while in the fourth quarter
of 1999 WorldCom revenue represented approximately 30% of total Company revenue.
WorldCom has traditionally prepaid for services provided by the Company under a
Carrier Service Agreement entered into in mid-1998.

     Investing Activities.  Cash used by investing activities, primarily for the
acquisitions of businesses, was $32.2 million and $66.5 million for 1999 and
1998, respectively.

     In May 1999, the Company acquired substantially all the assets and assumed
certain liabilities of Comm/Net Holding Corporation and its wholly owned
subsidiaries, Enhanced Communications Corporation, Comm/Net Services Corporation
and Long Distance Exchange Corporation (Comm/Net Holdings and its wholly owned
subsidiaries are collectively referred to herein as "Comm/Net"). Comm/Net,
headquartered in Plano, Texas, is a facilities-based provider of wholesale
international long distance and wholesale prepaid calling card services,
primarily to the Mexican telecommunications markets. In connection with the
acquisition, the Company paid off $3.5 million of Comm/Net debt.

     In August 1999 the Company entered into a definitive merger agreement with
FaciliCom International, Inc. ("FaciliCom"), a privately owned company that is a
facilities-based provider of European and U.S. originated international
long-distance voice, data and Internet services. On December 7, 1999, the
transaction was completed in its final form whereby FaciliCom merged into the
Company (the "FaciliCom Merger").

     In connection with the FaciliCom Merger, the stockholders of FaciliCom
received approximately $56.0 million in cash, 369,901 shares of Convertible
Preferred Stock, Series C (the "Series C Preferred Stock")
                                       44
   47

valued at $265.5 million, and 495,557 vested options that each may be exercised
to acquire one share of the Company's common stock at an average exercise price
of $2.63 per share. In addition, the Company issued non-qualified options to
purchase 1,912,500 shares of Company common stock at an exercise price of $15.00
per share in exchange for substantially all the non-vested options held by
FaciliCom's employees. The aggregate value assigned to these options was $24.8
million.

     In the fourth quarter of 1997, the Company began its three phase
acquisition of NACT. During November and December 1997, the Company purchased
355,000 shares of NACT common stock in the open market for approximately $5.0
million.

     On December 31, 1997, the Company entered into a stock purchase agreement
with GST Telecommunications, Inc. ("GST") and GST USA, Inc. ("GST USA") to
acquire 5,113,712 shares of NACT common stock owned by GST USA, representing
approximately 63% of the outstanding shares of NACT common stock (the "NACT
Acquisition"). On February 27, 1998 the NACT Acquisition was completed with GST
USA receiving $59.7 million in cash and 1,429,907 restricted shares of the
Company's common stock valued at approximately $26.9 million.

     During 1999 and 1998, the Company invested $7.2 million and $12.2 million,
respectively, in capital expenditures. These expenditures in 1999 were primarily
for telecommunications network equipment for the Telecommunications Group,
enhancing and standardizing the Company's research and development platforms,
new test equipment relating to newly introduced products, computer network and
related communications equipment designed to facilitate the integration of the
1999 and 1998 acquisitions and facility improvements required in connection with
the Company's growth. The Company invested approximately $5.0 million during
1998 related to the establishment of the new manufacturing facility in
Alpharetta, Georgia. The remaining 1998 expenditures were primarily for 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 the
Company's growth.

     The Company began capitalizing software development costs in the fourth
quarter of 1997 in connection with its increased focus on developing proprietary
technology and products. Software development costs are capitalized upon the
establishment of technological feasibility of the product. During 1999 and 1998,
the Company capitalized approximately $6.0 million and $5.2 million,
respectively, of software development costs.

     During 1999, the Company loaned $2.0 million to Long Distance
International, Inc. ("LDI"). In February 2000, the Company acquired LDI and
forgave the loan accounting for the loan forgiveness as additional investment in
LDI. In November 1998, a $5.0 million loan was made to Telegroup, Inc., a
publicly held provider of international long distance services. In early 1999,
this loan was repaid in full.

     Financing Activities.  Cash provided from financing activities was $105.9
million and $16.7 million for 1999 and 1998, respectively.

     In December 1998, the Company entered into a $75.0 million revolving line
of credit facility (the "Facility"), with a banking syndicate group led by Bank
of America, Fleet National Bank and Bank Austria Creditanstalt. The Facility
consists of a 364-day revolving line of credit which may be extended under
certain conditions and provides the Company the option to convert existing
borrowings to a three year term loan. In December 1999, the Company amended the
Facility to increase the line of credit to $100.0 million and extend the credit
for another 364-day term. Borrowings under the line are secured by a first lien
on substantially all the assets of the Company.

     The Facility, which expires in December 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 1/4%, at the option of the
Company. As of December 31, 1999, borrowings of $25.0 million and letters of
credit of $1.2 million were outstanding under the Facility. The Facility
restricts distributions from the Company's consolidated subsidiaries.
Accordingly, the assets and cash flows of such subsidiaries, including WA Telcom
Products Co., Inc., ("WA Telcom"), the primary obligor on the Company's
Convertible Notes, may not be used to pay any dividends to World Access, Inc.
                                       45
   48

     In September 1998, the Company entered into a loan agreement with the
Public Development Authority of Forsyth County, Georgia (the "Issuer"), in the
principal amount of $7,365,000. The Issuer issued its tax exempt industrial
revenue bonds (the "Bonds"), for the sole purpose of financing a portion of the
cost of the acquisition, construction and installation of the Company's
Alpharetta, Georgia telecommunications equipment and printed circuit boards
manufacturing plant. In March 1999, the Company sold the Alpharetta, Georgia
based manufacturing operation. Pursuant to terms and conditions of the Bonds,
the Company is required to pay off the Bonds upon the sale of these assets and
accordingly, the Bonds were repaid in April 1999.

     In October 1997, WA Telcom 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. Interest on the Notes is payable on April 1
and October 1 of each year. The Notes are general unsecured obligations of the
Company and are subordinate in right of payment to all existing and senior
indebtedness. The Company received $111.5 million from the sale of the Notes,
after the initial purchasers' discount fees of $3.5 million.

     In April 1999, the Company issued 50,000 shares of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A (the "Series A Preferred Stock")
to The 1818 Fund III, L.P. ("The 1818 Fund III") for an aggregate amount of
$50.0 million. The Company allocated approximately $44.8 million of the gross
proceeds to the 50,000 shares of Series A Preferred Stock sold and $5.2 million
to the option granted to purchase additional shares of Series A Preferred Stock.
As part of the above sale, The 1818 Fund III also received an option to purchase
an additional $20.0 million in Series A Preferred Stock from the Company prior
to June 30, 2000 at the original purchase price per share.

     In December 1999, the Company sold 4,713,128 shares of restricted common
stock for $75.0 million, or $15.913 per share, in a private transaction with a
small group of institutional and sophisticated investors. The Company used the
majority of the proceeds from this private placement to fund the cash
requirements of the FaciliCom Merger. The share price was based on the average
closing price of the Company's common stock during the five trading days prior
to the transaction date. Funds managed by three directors of the Company
purchased $63.0 million of this private placement.

     In February 2000, the Company sold 3,822,552 shares of restricted common
stock for approximately $83.1 million, or $21.75 per share, in a private
transaction with a group of institutional and sophisticated investors.

     During 1999 and 1998, the Company received approximately $2.5 million and
$23.2 million in cash, respectively, including related federal income tax
benefits of approximately $650,000 and $12.8 million, respectively, from the
exercises of incentive and non-qualified stock options and warrants by the
Company's directors and employees.

     Income Taxes.  As a result of the exercises of non-qualified stock options
and warrants by the Company's directors and employees, the Company realized
federal income tax benefits during 1999 and 1998 of approximately $650,000 and
$12.8 million, respectively. Although these tax benefits do not have any effect
on the Company's provision for income tax expense in 1999 and 1998, they
represent 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. Due to the Company's net operating losses during
1998, approximately $10.5 million of these tax benefits have not yet been
utilized and are available to reduce future taxable income of the Company. These
benefits are included in Deferred income taxes on the Company's balance sheet at
December 31, 1999 and 1998.

                                       46
   49

     Summary.  The Company believes that existing cash balances, available
borrowings under the Company's line of credit and cash projected to be generated
from the sale of Telco Systems and other equipment businesses will provide the
Company with sufficient capital resources to support its current working capital
requirements and business plans for at least the next 12 months.

QUARTERLY OPERATING RESULTS

     The Company's quarterly operating results are difficult to forecast with
any degree of accuracy because a number of factors subject these results to
significant fluctuations. As a result, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.

     Carrier service revenue, costs and related expenses have fluctuated
significantly in the past and are likely to continue to fluctuate significantly
in the future as a result of numerous factors. The Company's revenue in any
given period can vary due to factors such as call volume fluctuations,
particularly in regions with relatively high per-minute rates; the addition or
loss of major customers, whether through competition, merger, consolidation or
otherwise; the loss of economically beneficial routing options for the
termination of the Company's traffic; financial difficulties of major customers;
pricing pressure resulting from increased competition; and technical
difficulties with or failures of portions of the Company's network that impact
the Company's ability to provide service to or bill its customers. The Company's
operating expenses in any given period can vary due to factors such as
fluctuations in rates charged by carriers to terminate traffic; increases in bad
debt expense and reserves; the timing of capital expenditures, and other costs
associated with acquiring or obtaining other rights to switching and other
transmission facilities; and costs associated with changes in staffing levels of
sales, marketing, technical support and administrative personnel. In addition,
the Company's operating results can vary due to factors such as changes in
routing due to variations in the quality of vendor transmission capability; loss
of favorable routing options; the amount of, and the accounting policy for,
return traffic under operating agreements; actions by domestic or foreign
regulatory entities; the level, timing and pace of the Company's expansion in
international and commercial markets; and general domestic and international
economic and political conditions. Further, a substantial portion of
transmission capacity used by the Company is obtained on a variable, per minute
and short-term basis, subjecting the Company to the possibility of unanticipated
price increases and service cancellations. Since the Company does not generally
have long-term arrangements for the purchase or resale of long distance
services, and since rates fluctuate significantly over short periods of time,
the Company's operating results may vary significantly.

     The following table presents unaudited quarterly operating results for
continuing operations for each of the Company's last eight quarters. This
information has been prepared on a basis consistent with the Company's audited
consolidated financial statements and includes all adjustments, consisting only
of normal recurring accruals, that the Company considers necessary for a fair
presentation in accordance with generally accepted accounting principles. Such
quarterly results are not necessarily indicative of future operating results.
This information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Report.

                                       47
   50

     The following, as it relates to continuing operations, includes the results
of operations for the following businesses acquired from their respective dates
of acquisition: Resurgens -- December 1998; Comm/Net -- May 1999; and
FaciliCom -- December 1999.



                                                                    QUARTER ENDED
                              -----------------------------------------------------------------------------------------
                              MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,   SEPT. 30,   DEC. 31,
                                1998        1998       1998        1998       1999        1999       1999        1999
                              ---------   --------   ---------   --------   ---------   --------   ---------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                       
Carrier service revenue.....  $     --    $    --     $    --    $ 10,787    $85,098    $112,916   $130,210    $172,857
Operating expenses:
  Cost of carrier services
    (exclusive of
    depreciation and
    amortization shown
    separately below).......        --         --          --      10,137     80,154     102,650    115,973     149,528
  Selling, general and
    administrative..........       534        974       1,262       1,847      3,769       4,905      5,667      14,092
  Depreciation and
    amortization............        27         27          23         339      2,237       2,360      2,448       6,496
  Restructuring charge......        --         --          --          --         --          --         --      37,800
                              --------    -------     -------    --------    -------    --------   --------    --------
    Total Operating
      Expenses..............       561      1,001       1,285      12,323     86,160     109,915    124,088     207,916
                              --------    -------     -------    --------    -------    --------   --------    --------
    Operating Income
      (Loss)................      (561)    (1,001)     (1,285)     (1,536)    (1,062)      3,001      6,122     (35,059)
Interest and other income...     1,240        433         381         450        183         689        913       1,523
Interest expense............    (1,497)    (1,514)     (1,619)     (2,229)    (2,339)     (1,976)    (2,418)     (6,181)
Foreign exchange loss.......        --         --          --          --         --          --         --        (620)
                              --------    -------     -------    --------    -------    --------   --------    --------
    Income (Loss) From
      Continuing Operations
      Before Income Taxes...      (818)    (2,082)     (2,523)     (3,315)    (3,218)      1,714      4,617     (40,337)
Income taxes (benefit)......      (315)      (802)       (971)     (1,213)      (762)        986      1,990     (12,340)
                              --------    -------     -------    --------    -------    --------   --------    --------
    Income (Loss) From
      Continuing
      Operations............      (503)    (1,280)     (1,552)     (2,102)    (2,456)        728      2,627     (27,997)
Net income (loss) from
  discontinued operations...   (33,698)     7,751       8,582     (87,700)     4,609       3,539     11,578        (657)
Write-down of discontinued
  operations to net
  realizable value..........        --         --          --      (9,700)        --     (12,342)        --     (32,652)
                              --------    -------     -------    --------    -------    --------   --------    --------
    Net Income (Loss).......   (34,201)     6,471       7,030     (99,502)     2,153      (8,075)    14,205     (61,306)
Preferred stock dividends...        --         --          --          --         --        (413)      (784)       (771)
                              --------    -------     -------    --------    -------    --------   --------    --------
    Net Income (Loss)
      Available to Common
      Stockholders..........  $(34,201)   $ 6,471     $ 7,030    $(99,502)   $ 2,153    $ (8,488)  $ 13,421    $(62,077)
                              ========    =======     =======    ========    =======    ========   ========    ========
Income (Loss) Per Common
  Share:
  Basic:
    Continuing Operations...  $  (0.03)   $ (0.06)    $ (0.07)   $  (0.08)   $ (0.07)   $   0.01   $   0.05    $  (0.71)
    Discontinued
      Operations............     (1.74)      0.37        0.40       (3.59)      0.13       (0.24)      0.32       (0.82)
                              --------    -------     -------    --------    -------    --------   --------    --------
    Net Income (Loss).......  $  (1.77)   $  0.31     $  0.33    $  (3.67)   $  0.06    $  (0.23)  $   0.37    $  (1.53)
                              ========    =======     =======    ========    =======    ========   ========    ========


RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, SFAS No. 133 was amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of SFAS 133. As a result of this amendment, SFAS No. 133 shall be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. In
accordance with SFAS No. 133, an entity is required to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The Company

                                       48
   51

does not expect the adoption of this standard to have a material effect on its
consolidated financial position or results of operations.

     On December 3, 1999, the Securities and Exchange Commission staff issued
SAB No. 101, Revenue Recognition in Financial Statements. The SAB spells out
four basic criteria that must be met before companies can record revenue. These
are: (a) persuasive evidence that an arrangement exists; (b) delivery has
occurred or services have been rendered; (c) the seller's price to the buyer is
fixed or determinable; and (d) collectibility is reasonably assured.

     Many of the examples in the SAB address situations that give rise to the
potential for recording revenue prematurely. They include transactions subject
to uncertainties regarding customer acceptance, including rights to refunds and
extended payment terms, and require continuing involvement by the seller.


     In March 2000, the SEC issued SAB 101A -- Amendment: Revenue Recognition in
Financial Statements, that delays the implementation date of certain provisions
of SAB 101. Under the amendment, the Company is not required to restate its
prior financial statements provided that the Company reports a change in
accounting principle no later than the second fiscal quarter (ending June 30,
2000) in accordance with FASB Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements. In accordance with FAS 3, for companies that adopt
SAB 101 in the second quarter, financial information for the first quarter would
be restated by including a cumulative effect adjustment in that quarter (i.e.,
the first quarter). The Company does not believe the adoption of SAB 101 will
have a material effect on its consolidated financial position or results of
operations.


YEAR 2000 ISSUE

     In late 1999, the Company completed remediation and testing of its computer
systems. As a result of those planning and implementation efforts, the Company
experienced no significant disruptions in its information technology and
non-information technology systems to date and believe those systems
successfully responded to the Year 2000 date change. The Company is not aware of
any material problems resulting from Year 2000 issues and will continue to
monitor its mission critical computer systems and the appropriate systems of its
suppliers and vendors throughout 2000 to ensure that any latent Year 2000
matters which may arise are addressed promptly. To date, the Company is not
aware of any Year 2000 disruptions in the computer systems of its significant
vendors or service providers.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     Although our reporting currency is the U.S. dollar, an increasing
percentage of our revenues will be generated from international operations.
Accordingly, changes in currency exchange rates may have a significant effect on
our future results of operations. For example, the accounting rate under
operating agreements is often defined in monetary units other than U.S. dollars,
such as "special drawing rights" or "SDRs." To the extent that the U.S. dollar
declines relative to units such as SDRs, the dollar equivalent accounting rate
would increase. In addition, as we expand into foreign markets, our exposure to
foreign currency rate fluctuations is expected to increase. Although we do not
currently engage in exchange rate hedging strategies, we may choose to limit our
exposure by purchasing forward foreign exchange contracts or other similar
hedging strategies. Specific hedging contracts, if any, will be subject to
approval by specified officers acting within our board of directors' overall
policies and limits. We intend to limit our hedging activities to the extent of
our foreign currency exposure. There can be no assurance that any currency
hedging strategy will be successful in avoiding currency exchange-related
losses.

     We invest cash balances in excess of operating requirements in short-term
securities, generally with maturities of 90 days or less, in accordance with our
internal investment policies. These investments are limited primarily to U.S.
Treasury securities, certain time deposits, and high quality repurchase
agreements and commercial paper (with restrictions on the rating of the
companies issuing these instruments). We do not invest in any derivative or
commodity type instruments. In addition, the restricted cash balance available
to

                                       49
   52

fund the next three scheduled interest payments on our 13.25% Senior Notes is
invested in U.S. Treasury securities. Accordingly, we are subject to minimal
market risk on any of our investments.

     The majority of our debt, which consists of $300.0 million of 13.25% Senior
Notes and $115.0 million of 4.5% Convertible Notes, bears interest at a fixed
rate. Although the actual service requirements of this debt are fixed, changes
in interest rates generally could put us in a position of paying interest that
differs from then existing rates. Our revolving line of credit agreements with a
banking syndicate group and Nortel Networks, Inc. provide for borrowings which
bear interest at variable rates based on either the prime rate or the London
Interbank Offered Rates. We had approximately $46.7 million outstanding pursuant
to our revolving line of credit agreements at December 31, 1999. We believe that
the effect, if any, of reasonably possible near-term changes in interest rates
on our financial position, results of operations and cash flows should not be
material.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

          INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION



                                                               PAGE
                                                              NUMBER
                                                              ------
                                                           
Reports of Independent Auditors.............................    51
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................    52
Consolidated Statements of Operations for the years ended
  December 31, 1999, 1998 and 1997..........................    53
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1999, 1998 and 1997..............    54
Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997..........................    55
Notes to Consolidated Financial Statements..................    56


                                       50
   53

                        REPORTS OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of World Access, Inc.,

     We have audited the accompanying consolidated balance sheets of World
Access, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of World Access,
Inc. and subsidiaries at December 31, 1999 and 1998 and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

                                                     Ernst & Young LLP

Atlanta, Georgia
March 20, 2000

To the Board of Directors and Stockholders of World Access, Inc.,

     In our opinion, the accompanying consolidated statements of operations and
changes in stockholders' equity and of cash flows present fairly, in all
material respects, the results of World Access, Inc. and its subsidiaries'
operations and their cash flows for the years ended December 31, 1997 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP

Atlanta, Georgia
March 5, 1998, except for the discontinued operations reclassifications in the
Consolidated Statements of Operations and Note C, which are as of March 14, 2000

                                       51
   54

                      WORLD ACCESS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS



                                                                   DECEMBER 31,
                                                              ----------------------
                                                                 1999        1998
                                                              ----------   ---------
                                                                  (IN THOUSANDS)
                                                                     
                                       ASSETS
Current Assets
  Cash and equivalents......................................  $  147,432   $  55,176
  Restricted cash...........................................      32,243          --
  Accounts receivable.......................................     164,768       5,783
  Other current assets......................................      24,547       8,472
  Net assets held for sale..................................     244,388     327,928
                                                              ----------   ---------
          Total Current Assets..............................     613,378     397,359
Property and equipment......................................     136,033      41,441
Goodwill....................................................     830,234      78,462
Restricted cash.............................................      14,958          --
Other assets................................................      35,201      27,387
                                                              ----------   ---------
          Total Assets......................................  $1,629,804   $ 544,649
                                                              ==========   =========

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Short-term debt...........................................  $   83,837   $  13,500
  Accounts payable..........................................     182,107      15,857
  Other accrued liabilities.................................      57,590      17,186
                                                              ----------   ---------
          Total Current Liabilities.........................     323,534      46,543
Long-term debt..............................................     408,338     137,523
Other liabilities...........................................         633          --
                                                              ----------   ---------
          Total Liabilities.................................     732,505     184,066
                                                              ----------   ---------
Stockholders' Equity
  Preferred stock, Series A, B, C, $.01 par value,
     10,000,000 shares authorized; 423,434 shares issued and
     outstanding at December 31, 1999; $1,000 per share
     liquidation preference.................................           4          --
  Common stock, $.01 par value, 150,000,000 shares
     authorized; 52,333,832 and 44,136,349 issued and
     outstanding at December 31, 1999 and 1998,
     respectively...........................................         523         441
  Capital in excess of par value............................   1,062,939     472,945
  Accumulated other comprehensive loss......................        (341)         --
  Accumulated deficit.......................................    (165,826)   (112,803)
                                                              ----------   ---------
          Total Stockholders' Equity........................     897,299     360,583
                                                              ----------   ---------
          Total Liabilities and Stockholders' Equity........  $1,629,804   $ 544,649
                                                              ==========   =========


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

                                       52
   55

                      WORLD ACCESS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                    YEAR ENDED DECEMBER 31,
                                                             --------------------------------------
                                                                1999          1998          1997
                                                             ----------    -----------    ---------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                 
Carrier service revenue....................................   $501,081      $  10,787      $    --
Operating expenses:
Cost of carrier services (exclusive of depreciation and
  amortization shown separately below).....................    448,305         10,137           --
Selling, general and administrative........................     23,628          4,617        1,435
Depreciation and amortization..............................     13,541            416          115
Provision for doubtful accounts............................      4,805             --           --
Restructuring charge.......................................     37,800             --           --
                                                              --------      ---------      -------
          Total Operating Expenses.........................    528,079         15,170        1,550
                                                              --------      ---------      -------
          Operating Loss...................................    (26,998)        (4,383)      (1,550)
Interest and other income..................................      3,308          2,504        2,386
Interest expense...........................................     12,914          6,859        1,548
Foreign exchange loss......................................        620             --           --
                                                              --------      ---------      -------
          Loss From Continuing Operations Before Income
            Taxes..........................................    (37,224)        (8,738)        (712)
Income taxes benefit.......................................     10,126          3,301          252
                                                              --------      ---------      -------
          Loss From Continuing Operations..................    (27,098)        (5,437)        (460)
Net income (loss) from discontinued operations.............     19,069       (105,065)      13,594
Write-down of discontinued operations to net realizable
  value....................................................    (44,994)        (9,700)          --
                                                              --------      ---------      -------
          Net Loss.........................................    (53,023)      (120,202)      13,134
Preferred stock dividends..................................      1,968             --           --
                                                              --------      ---------      -------
          Net Loss Available to Common Stockholders........   $(54,991)     $(120,202)     $13,134
                                                              ========      =========      =======
Loss Per Common Share:
  Basic:
     Continuing Operations.................................   $  (0.78)     $   (0.25)     $ (0.03)
     Discontinued Operations...............................      (0.69)         (5.20)        0.79
                                                              --------      ---------      -------
     Net Loss..............................................   $  (1.47)     $   (5.45)     $  0.76
                                                              ========      =========      =======
  Diluted:
     Continuing Operations.................................   $  (0.78)     $   (0.25)     $ (0.03)
     Discontinued Operations...............................      (0.69)         (5.20)        0.79
                                                              --------      ---------      -------
     Net Loss..............................................   $  (1.47)     $   (5.45)     $  0.76
                                                              ========      =========      =======
Weighted Average Shares Outstanding:
  Basic....................................................     37,423         22,073       17,242
                                                              ========      =========      =======
  Diluted..................................................     37,423         22,073       17,242
                                                              ========      =========      =======


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

                                       53
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                                                                                   ACCUMULATED
                                                      CAPITAL IN        NOTE                          OTHER
                                 PREFERRED   COMMON   EXCESS OF      RECEIVABLE     ACCUMULATED   COMPREHENSIVE
                                   STOCK     STOCK    PAR VALUE    FROM AFFILIATE     DEFICIT         LOSS          TOTAL
                                 ---------   ------   ----------   --------------   -----------   -------------   ---------
                                                                       (IN THOUSANDS)
                                                                                             
Balance at January 1, 1997.....               $163    $   58,518     $     (572)     $  (5,735)     $      --     $  52,374
Net and comprehensive net
  income.......................                                                         13,134                       13,134
Issuance of shares for
  acquisitions of businesses...                 18        12,539                                                     12,557
Release of escrowed shares for
  acquisitions.................                            1,728                                                      1,728
Repayment of loan by
  affiliate....................                                             572                                         572
Issuance of shares for options
  and warrants.................                 12         4,594                                                      4,606
Tax benefit from option and
  warrant exercises............                            6,675                                                      6,675
Other issuances of shares......                              109                                                        109
                                   ----       ----    ----------     ----------      ---------      ---------     ---------
  Balance at December 31,
    1997.......................      --        193        84,163             --          7,399                       91,755
Net and comprehensive net
  loss.........................                                                       (120,202)                    (120,202)
Issuance of shares and options
  for acquisitions of
  businesses...................                232       358,843                                                    359,075
Release of escrowed shares for
  acquisitions.................                            6,592                                                      6,592
Issuance of shares for options
  and warrants.................                 16        10,394                                                     10,410
Tax benefit from option and
  warrant exercises............                           12,759                                                     12,759
Other issuances of shares......                              194                                                        194
                                   ----       ----    ----------     ----------      ---------      ---------     ---------
  Balance at December 31,
    1998.......................      --        441       472,945             --       (112,803)                     360,583
Net loss.......................                                                        (53,023)                     (53,023)
Foreign currency translation
  adjustment...................                                                                          (341)         (341)
                                                                                                                  ---------
Total comprehensive loss.......                                                                                     (53,364)
Issuance of preferred shares
  and option in private
  offering.....................       1                   47,749                                                     47,750
Issuance of common shares in
  private offering.............                 51        81,125                                                     81,176
Issuance of shares, options and
  warrants for acquisitions of
  businesses...................       3         20       325,117                                                    325,140
Dividends on preferred stock...                           (1,968)                                                    (1,968)
Release of escrowed shares for
  acquisitions of businesses...                  1       130,249                                                    130,250
Issuance of shares for licenses
  and other agreements.........                  5         3,193                                                      3,198
Issuance of shares for option
  and warrant exercises........                  4         1,823                                                      1,827
Tax benefit from option and
  warrant exercises............                              650                                                        650
Other issuances of shares......                  1         2,056                                                      2,057
                                   ----       ----    ----------     ----------      ---------      ---------     ---------
  Balance at December 31,
    1999.......................    $  4       $523    $1,062,939     $       --      $(165,826)     $    (341)    $ 897,299
                                   ====       ====    ==========     ==========      =========      =========     =========


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

                                       54
   57

                      WORLD ACCESS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                                1999       1998        1997
                                                              --------   ---------   --------
                                                                      (IN THOUSANDS)
                                                                            
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...........................................  $(53,023)  $(120,202)  $ 13,134
Adjustments to reconcile net income (loss) to net cash from
  (used by) operating activities:
  Depreciation and amortization.............................    34,761       9,200      3,096
  Deferred income tax provision (benefit)...................    (8,626)     (7,566)     1,561
  Income tax benefit from stock option and warrant
     exercises..............................................       650      12,759      6,675
  Provision for inventory reserves..........................       491      17,193        773
  Provision for bad debts...................................     4,805      13,741        172
  In-process research and development.......................        --     100,300         --
  Restructuring and other charges...........................    36,401      18,063         --
  Write-down of discontinued operations to net realizable
     value..................................................    44,994       9,700         --
  Net gain on sale of assets held for sale..................    (8,384)         --         --
  Minority interests in earnings of subsidiary..............        --       2,497         --
  Changes in operating assets and liabilities, net of
     effects from businesses acquired:
     Accounts receivable....................................   (39,090)    (31,883)    (8,797)
     Inventories............................................       578     (24,761)   (12,147)
     Accounts payable.......................................     7,397       6,743      4,313
     Other assets and liabilities...........................    (2,439)    (18,822)   (10,382)
                                                              --------   ---------   --------
          Net Cash From (Used By) Operating Activities......    18,515     (13,038)    (1,602)
                                                              --------   ---------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired............   (50,894)    (40,280)   (14,840)
Proceeds on sales of assets held for sale...................    29,158          --         --
Expenditures for property and equipment.....................    (7,198)    (12,216)    (3,591)
Software development costs..................................    (5,967)     (5,226)      (360)
Repayments of (loans to) business partners..................     3,000      (7,917)        --
Other.......................................................      (285)       (888)       551
                                                              --------   ---------   --------
          Net Cash Used By Investing Activities.............   (32,186)    (66,527)   (18,240)
                                                              --------   ---------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of common and preferred stock.......   121,984          --         --
Payment of preferred stock dividends........................    (1,184)         --         --
Principal payments under capital lease obligations..........    (5,581)         --         --
Issuance of long-term debt..................................     1,654       4,116    111,909
Proceeds from exercise of stock warrants and options........     1,827      10,410      4,606
Short-term debt borrowings (repayments).....................    (4,500)      4,268       (588)
Long-term debt repayments...................................    (7,677)     (1,261)        --
Debt issuance costs.........................................      (596)       (857)      (500)
                                                              --------   ---------   --------
          Net Cash From Financing Activities................   105,927      16,676    115,427
                                                              --------   ---------   --------
          Increase (Decrease) in Cash and Equivalents.......    92,256     (62,889)    95,585
          Cash and Equivalents at Beginning of Period.......    55,176     118,065     22,480
                                                              --------   ---------   --------
          Cash and Equivalents at End of Period.............  $147,432   $  55,176   $118,065
                                                              ========   =========   ========
Supplemental Schedule of Noncash Financing and Investing
  Activities:
Issuance of equity for businesses acquired..................  $455,390   $ 365,159   $ 14,285
Exchange of Senior Notes for FaciliCom Series B Senior
  Notes.....................................................   300,000          --         --
Issuance of common stock for technology license and other
  agreements................................................     3,198         508         --
Conversion of accounts payable to common stock..............     7,000          --         --


  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       55
   58

                      WORLD ACCESS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A:  GENERAL

NATURE OF BUSINESS

     World Access, Inc. and its subsidiaries (the "Company") transport
international long distance voice and data traffic for PTT's, regional Bell
operating companies, competitive local exchange carriers, long distance
companies, private network providers and other global carriers. The Company
provides its services through a combination of its own international network
facilities, various international termination relationships and resale
arrangements with other international long distance service providers. Through
the acquisition of FaciliCom International in December 1999 (see "Note B") and
NETnet International in February 2000 (see "Note O"), the Company plans to
expand its service offerings to include the sale of bundled voice, data and
Internet services direct to small- and medium-sized businesses located
throughout Europe.

     Prior to the acquisition of Resurgens Communication Group in December 1998,
the Company was exclusively a manufacturer and reseller of telecommunications
network equipment, including digital switches, billing and network
telemanagement systems, cellular base stations, fixed wireless local loop
systems, intelligent multiplexers and digital microwave radio systems. In
December 1999, in connection with the acquisition of FaciliCom International,
the Company adopted a plan to divest all of its equipment businesses. As a
result, the operating results of all equipment businesses are reported under
discontinued operations in the accompanying financial statements (see "Note C").

BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of World Access,
Inc. and its majority owned and wholly owned subsidiaries from their effective
dates of acquisition (see "Note B"). All material intercompany accounts and
transactions are eliminated in consolidation.

     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 estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented in the
balance sheets herein are based on pertinent information available to management
as of the respective balance sheet dates. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date and current estimates of fair value may
differ significantly from the amounts presented herein.

     The fair values of cash equivalents, accounts receivable, accounts payable
and accrued expenses approximate the carrying values due to their short-term
nature. The fair values of the Senior Notes, lines of credit, and capital lease
obligations are estimated based on current market rates and instruments with the
same risk and maturities and approximate the carrying value. The market value of
the Convertible Subordinated Notes based on current market rates and instruments
with the same risks and maturities is approximately $106 million.

REVENUE RECOGNITION

     The Company records revenues from the sale of telecommunications services
at the time of customer usage based upon minutes of traffic processed at
contractual fees. The Company has entered into, and
                                       56
   59
                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

continues to enter into, operating agreements with telecommunications carriers
in several foreign countries under which international long distance traffic is
both delivered and received. Under these agreements, the foreign carriers are
contractually obligated to adhere to the policy of the FCC, whereby traffic from
the foreign country is routed to U.S.-based international carriers, such as the
Company, in the same proportion as traffic carried into the country. Mutually
exchanged traffic between the Company and foreign carriers is settled through a
formal settlement policy at an agreed upon rate which allows for the offsetting
of receivables and payables with the same carrier (settlement on a net basis).
Although the Company can reasonably estimate the revenue it will receive under
the FCC's proportional share policy, there is no guarantee that the Company will
receive return traffic, and the Company is unable to determine what impact
changes in future settlement rates will have on net payments made and revenue
received. Accordingly, the Company does not record this revenue until the
service is provided.

COMPREHENSIVE LOSS

     As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. The Company's
comprehensive loss for 1999 is comprised of a $341,000 foreign currency
translation adjustment. Comprehensive loss is shown on the Statement of
Stockholders' Equity.

COST OF CARRIER SERVICES

     Cost of carrier services includes network costs which consist of access,
transport and termination costs. Such costs are recognized when incurred in
connection with the provision of telecommunication services, including costs
incurred under operating agreements. Cost of carrier services is exclusive of
depreciation and amortization related to the services network which is included
in "Depreciation and amortization" presented separately on the consolidated
statements of operations.

FIBER OPTIC CABLE ARRANGEMENTS

     The Company obtains capacity on certain fiber optic cables under three
types of arrangements. The Indefeasible Right of Use ("IRU") basis provides the
Company the right to use a fiber optic cable, with most of the rights and duties
of ownership, but without the right to control or manage the facility and
without any right to salvage or duty to dispose of the cable at the end of its
useful life. Because of this lack of control and the fact an IRU term typically
approximates the estimated economic life of the underlying asset, the Company
accounts for such leases as leased transmission and communications equipment and
as capital leases. The Minimum Assignable Ownership Units ("MAOU") basis
provides the Company an ownership interest in the fiber optic cable with certain
rights to control and to manage the facility. Because of the ownership features,
the Company records these fiber optic cables as owned transmission and
communications equipment and as long-term debt. The Carrier Lease Agreement
basis involves a shorter term agreement which provides the Company the right to
use capacity on a cable but without any rights and duties of ownership. The
Company accounts for such leases as operating leases.

FOREIGN CURRENCY TRANSLATION

     For non-U.S. subsidiaries, the functional currency is the local currency.
Assets and liabilities of those operations are translated into U.S. dollars
using year-end exchange rates. Income and expenses are translated using the
average exchange rates for the reporting period. Translation adjustments are
reported as a separate component of comprehensive loss. Exchange losses and
gains resulting from foreign currency transactions are included in the results
of operations based upon the provisions of SFAS No. 52, "Foreign Currency
Translation."

                                       57
   60
                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SIGNIFICANT CUSTOMERS

     During 1999 and 1998, one customer individually accounted for 53.4% and
73.2%, respectively, of the Company's total revenue from continuing operations.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. Total advertising expenses for
continuing operations for 1999 and 1998 were approximately $100,000 and $49,000,
respectively.

CASH AND EQUIVALENTS

     The Company considers its investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are stated at cost plus
accrued interest and consist of highly liquid time deposits, commercial paper,
U.S. Treasury bills and U.S. Treasury notes.

RESTRICTED CASH

     Restricted cash consists primarily of U.S. Government obligations pledged
as security for certain interest payments due on the Company's 13.25% Senior
Notes in 2000 and 2001 (see "Note G").

ACCOUNTS RECEIVABLE

     Accounts receivable are presented net of an allowance for doubtful accounts
of $18.5 million and $300,000 at December 31, 1999 and 1998, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

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

OTHER ACCRUED LIABILITIES

     Other accrued liabilities includes interest payable of $19.0 million and
$1.4 million and customer deposits of $8.7 million and $6.5 million as of
December 31, 1999 and 1998, respectively.

LOSS PER COMMON SHARE

     The Company computes loss per common share pursuant to SFAS No. 128,
"Earnings per Share". The computation of basic loss per share is based on the
weighted average number of common shares outstanding during the period,
excluding shares held in escrow of 794,000, 8,307,000 and 995,000 for 1999, 1998
and 1997, respectively. The computation of diluted loss per share is based on
the weighted average number of common shares outstanding plus, when their effect
is dilutive, potential common stock consisting of shares subject to stock
options, stock warrants, convertible notes and convertible preferred stock.
There was no potential common stock included in the calculation of diluted loss
per share for 1999, 1998 and 1997 as their effect would be anti-dilutive for all
periods presented.

                                       58
   61
                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, SFAS No. 133 was amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS 133". As a result of this amendment, SFAS No. 133 shall
be effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. In accordance with SFAS No. 133, an entity is required to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. The Company does not expect the adoption of this
standard to have a material effect on its consolidated financial position or
results of operations.

     On December 3, 1999, the Securities and Exchange Commission staff issued
SAB No. 101, "Revenue Recognition in Financial Statements." The SAB spells out
four basic criteria that must be met before companies can record revenue. These
are (a) persuasive evidence that an arrangement exists; (b) delivery has
occurred or services have been rendered; (c) the seller's price to the buyer is
fixed or determinable; and (d) collectibility is reasonably assured.

     Many of the examples in the SAB address situations that give rise to the
potential for recording revenue prematurely. They include transactions subject
to uncertainties regarding customer acceptance, including rights to refunds and
extended payment terms, and require continuing involvement by the seller.


     In March 2000, the SEC issued SAB 101A -- "Amendment: Revenue Recognition
in Financial Statements", that delays the implementation date of certain
provision of SAB 101. Under the amendment, the Company is not required to
restate its prior financial statements provided that the Company reports a
change in accounting principle no later than the second fiscal quarter (ending
June 30, 2000) in accordance with FASB Statement No. 3, "Reporting Accounting
Changes in Interim Financial Statements". In accordance with FAS 3, for
companies that adopt SAB 101 in the second quarter, financial information for
the first quarter would be restated by including a cumulative effect adjustment
in that quarter (i.e., the first quarter). The Company does not believe the
adoption of SAB 101 will have a material effect on its consolidated financial
position or results of operations.


RECLASSIFICATIONS

     Certain items in the prior year consolidated financial statements have been
reclassified to conform to the current presentation.

NOTE B:  ACQUISITIONS

RESURGENS MERGER

     On February 12, 1998, the Company executed a letter of intent to acquire
Cherry Communications Incorporated, d/b/a Resurgens Communications Group
("RCG"), and Cherry Communications U.K. Limited ("Cherry U.K.", and together
with RCG, "Resurgens"), providers of wholesale international long distance
services. On May 12, 1998, the Company signed definitive agreements to acquire
Resurgens. On December 14, 1998, the transaction was completed in its final form
whereby RCG and Cherry U.K. became wholly-owned subsidiaries of the Company (the
"Resurgens Merger").

                                       59
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In connection with the Resurgens Merger, the creditors of RCG and the sole
stockholder of Cherry U.K. received 3,687,500 restricted shares of the Company's
common stock valued at approximately $92.9 million or $25.17 per share. The
shares could not be sold or otherwise transferred until December 15, 1999. The
Company's policy is to value restricted stock issued in acquisitions at the
average market price of its common stock for the three trading days prior and
the three trading days subsequent to the date economic terms of the acquisition
are announced (the "Stock Valuation Date"), less a discount to reflect the lack
of marketability caused by trading restrictions, size of the share issuances and
other relevant factors. A discount factor of 30% was used to value the 3,687,500
restricted shares, which was based on previous sales of restricted Company
common stock, an independent review by an investment banking firm and
independent studies regarding discount attributable to lack of marketability.
Management believes the discount rate used to value these restricted shares was
appropriate and reasonable.

     In addition to the shares noted above, the RCG creditors and Cherry U.K.
stockholder were issued 7.5 million restricted shares of Company common stock.
These shares were immediately placed into escrow and were originally valued at
par value only, or $75,000. The shares were eligible to be released from escrow
if (i) Resurgens earnings before interest, taxes, depreciation and amortization
("EBITDA") for 2000 and 2001 exceeded targeted levels; or (ii) the Company's
common stock traded above certain predefined levels during 2000 or 2001; or
(iii) a change of control occurred at the Company (as defined in the Resurgens
Merger agreements).

     The Company's acquisition of FaciliCom (see below) constituted a change of
control for purposes of the Resurgens Merger and accordingly, the 7.5 million
shares were released from escrow in December 1999. These shares were valued at
approximately $127.4 million based on the price of the Company's common stock on
December 7, 1999, the date the FaciliCom merger closed. The net effect of the
above has been to increase goodwill and stockholders' equity by $127.4 million
as of December 31, 1999.

     The acquisition of Resurgens has been accounted for using the purchase
method of accounting. Accordingly, the results of Resurgen's operations have
been included in the accompanying consolidated financial statements from
December 14, 1998. The excess of purchase price over the fair value of net
assets acquired has been recorded as goodwill and is being amortized over a
20-year period. The following summarizes the allocation of the purchase price
(in thousands):

                                                           
Purchase price:
  Common stock issued at merger.............................  $ 92,871
  Common stock released from escrow.........................   127,425
  Forgiveness of short-term loan............................     8,260
  Cash......................................................     2,000
  Fees and expenses.........................................     1,715
                                                              --------
          Total purchase price..............................   232,271
Allocation to fair value of net assets:
  Current assets............................................    (8,650)
  Property and equipment....................................   (39,666)
  Other assets..............................................   (23,727)
  Current liabilities.......................................    40,317
  Other liabilities.........................................    22,523
                                                              --------
          Goodwill..........................................  $223,068
                                                              ========



COMM/NET ACQUISITION

     In May 1999, the Company acquired substantially all the assets and assumed
certain liabilities of Comm/Net Holding Corporation and its wholly owned
subsidiaries, Enhanced Communications Corporation,

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Comm/Net Services Corporation and Long Distance Exchange Corporation (Comm/Net
Holdings and its wholly owned subsidiaries are collectively referred to herein
as "Comm/Net"). Comm/Net, headquartered in Plano, Texas, is a facilities-based
provider of wholesale international long distance and wholesale prepaid calling
card services, primarily to the Mexican telecommunications markets.

     In connection with the acquisition, the Company issued 23,174 shares of
4.25% Cumulative Junior Convertible Preferred Stock, Series B (the "Series B
Preferred Stock"), valued at approximately $18.5 million with a $23.2 million
liquidation preference, and paid approximately $3.5 million to retire certain
Comm/Net notes payable outstanding at the time of acquisition. The Series B
Preferred Stock is convertible into shares of the Company's common stock at a
conversion rate of $16.00 per common share, subject to standard anti-dilution
adjustments. If the closing trading price of the Company's common stock exceeds
$16.00 per share for 45 consecutive trading days, the Series B Preferred Stock
will automatically convert into common stock. Preferred dividends began accruing
July 1, 1999 and are payable quarterly. In March 2000, the Series B Preferred
Stock was converted into 1,448,373 shares of the Company's common stock.

     The acquisition of Comm/Net has been accounted for under the purchase
method of accounting. Accordingly, the results of Comm/Net's operations have
been included in the accompanying consolidated financial statements from May 1,
1999. The excess of purchase price over the fair value of net assets acquired
has been recorded as goodwill and is being amortized over a 20 year period. The
following summarizes the allocation of the purchase price (in thousands):

                                                           
Purchase price:
  Preferred stock issued....................................  $18,539
  Debt paid.................................................    3,502
  Fees and expenses.........................................      800
                                                              -------
          Total purchase price..............................   22,841
Allocation to fair values of net assets:
  Current assets............................................   (7,754)
  Property and equipment....................................   (3,351)
  Current liabilities.......................................    9,609
  Other assets and liabilities, net.........................    1,368
                                                              -------
          Goodwill..........................................  $22,713
                                                              =======



FACILICOM MERGER

     On August 17, 1999 the Company entered into a definitive merger agreement
with FaciliCom International, Inc. ("FaciliCom"), a privately owned company that
is a facilities-based provider of European and U.S. originated international
long-distance voice, data and Internet services. On December 7, 1999, the
transaction was completed in its final form whereby FaciliCom merged into the
Company (the "FaciliCom Merger").


     In connection with the FaciliCom Merger, the stockholders of FaciliCom
received approximately $56.0 million in cash, 369,901 shares of Convertible
Preferred Stock, Series C (the "Series C Preferred Stock"), and 495,557 vested
options that each may be exercised to acquire one share of the Company's common
stock at an average exercise price of $2.63 per share. In addition, the Company
issued 1,912,500 non-qualified options to purchase Company common stock at an
exercise price of $15.00 per share in exchange for substantially all the options
held by FaciliCom's employees. The Series C Preferred Stock which has a $369.9
million liquidation preference was valued at $265.5 million based on the fair
value of the assets received as of the date of acquisition. The stock options
were valued at $24.8 million based on the Black-Scholes option valuation model.
Included in other liabilities in the table below, is $300.0 million 10 1/2%
FaciliCom Series B


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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Senior Notes due 2008 which were exchanged for the Company's 13.25% Senior Notes
due 2008 having an aggregate principal amount of $300.0 million. As
consideration for this exchange the Company issued 942,627 shares of its common
stock valued at $15.0 million to FaciliCom noteholders.

     The Series C Preferred Stock bears no dividend and is convertible into
shares of the Company's common stock at a conversion rate of $20.38 per common
share, subject to adjustment in the event of below market issuances of common
stock, stock dividends, subdivisions, combinations, reclassifications and other
distributions with respect to common stock. If the closing trading price of the
Company's common stock exceeds $20.38 per share for 60 consecutive trading days,
the Series C Preferred Stock will automatically convert into common stock.
Initially, the holders of the Series C Preferred Stock were entitled to elect
four new directors to the Company's board of directors. Except for the election
of directors, the holders of the Series C Preferred Stock vote on an
as-converted basis with the holders of the Company's common stock.

     The acquisition of FaciliCom has been accounted for using the purchase
method of accounting. Accordingly, the results of FaciliCom's operations have
been included in the accompanying consolidated financial statements from
December 7, 1999. The excess of purchase price over the fair value of net assets
acquired has been recorded as goodwill and is being amortized over a 20 year
period. The following summarizes the allocation of the purchase price (in
thousands):

                                                           
Purchase price:
  Cash......................................................  $  56,000
  Preferred stock issued....................................    265,515
  Common stock issued.......................................     15,000
  Stock options issued......................................     24,785
  Fees and expenses.........................................     14,250
                                                              ---------
          Total purchase price..............................    375,550
Allocation to fair value of net assets:
  Current assets............................................   (183,934)
  Property and equipment....................................   (116,479)
  Other assets..............................................     (1,362)
  Current liabilities.......................................    205,230
  Other liabilities.........................................    313,148
                                                              ---------
          Goodwill..........................................  $ 592,153
                                                              =========



PRO FORMA RESULTS OF OPERATIONS

     On a pro forma, unaudited basis, as if the acquisitions of Resurgens,
Comm/Net and FaciliCom had occurred as of January 1, 1998, total revenue,
operating loss, loss from continuing operations and net loss from continuing
operations per diluted common share for the years ended December 31, 1999 and
1998 would have been approximately $902.3 million and $365.0 million; $98.6
million and $139.9 million; $130.5 million and $167.8 million; and $2.64 and
$4.25, 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 acquisitions been in
effect on the dates indicated.

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C:  DISCONTINUED OPERATIONS

  OVERVIEW

     In December 1998, the Company adopted a plan to offer for sale its
non-proprietary equipment businesses (see "1998 Plan"). In December 1999, in
connection with the FaciliCom Merger, the Company adopted a plan to divest all
of its remaining equipment businesses in order to focus on its international
long distance businesses (see "1999 Plan"). As a result of these plans, all of
the Company's equipment businesses have been accounted for as discontinued
operations and, accordingly, the results of their operations have been excluded
from continuing operations in the Consolidated Statements of Operations for all
periods presented. Results of discontinued operations were as follows (in
thousands):



                                                           1999       1998       1997
                                                         --------   ---------   -------
                                                                       
Total sales............................................  $264,848   $ 199,903   $92,984
Cost of equipment sold.................................   161,768     121,789    60,072
Write-down of inventories..............................     2,332      17,110       773
                                                         --------   ---------   -------
          Gross profit.................................   100,748      61,004    32,139
Research and development...............................    17,511       6,966     1,862
Selling, general and administrative....................    36,599      17,632     7,393
Provision for doubtful accounts........................    10,266      13,741       172
Amortization of goodwill...............................     8,585       4,905     1,640
Restructuring and other charges........................        --      19,890        --
In-process research and development....................        --     100,300        --
                                                         --------   ---------   -------
          Operating income (loss)......................    27,787    (102,430)   21,072
Gain on exchange of securities.........................     9,590          --        --
Net interest income (expense)..........................      (786)        996       310
                                                         --------   ---------   -------
          Income (loss) before income taxes and
            minority interests.........................    36,591    (101,434)   21,382
Income taxes...........................................    17,522       1,134     7,788
Minority interests in earnings of subsidiary...........        --       2,497        --
                                                         --------   ---------   -------
          Income (loss) before write-down of
            discontinued operations to net realizable
            value......................................    19,069    (105,065)   13,594
Write-down of discontinued operations to net realizable
  value................................................   (44,994)     (9,700)       --
                                                         --------   ---------   -------
          Net income (loss)............................  $(25,925)  $(114,765)  $13,594
                                                         ========   =========   =======


     Sales are recognized when the Company's products are shipped, the customer
has accepted the product, and collection of the related receivable is probable.
Appropriate reserves are maintained to address products that may be exchanged on
an annual basis by certain of Telco System's customers under distribution
agreements.

     Sales of software products, which have not been material to date, are
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable and collectibility is probable in
accordance with Statement of Position 97-2, "Software Revenue Recognition", as
amended.

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The assets and liabilities of the discontinued operations are reflected as
"Net assets held for sale" in the Consolidated Balance Sheets and consisted of
the following at December 31 (in thousands):



                                                                1999       1998
                                                              --------   --------
                                                                   
Accounts receivable.........................................  $ 58,080   $ 64,702
Inventories.................................................    26,716     48,591
Other current assets........................................    40,369     50,094
                                                              --------   --------
          Total current assets..............................   125,165    163,387
Property and equipment......................................    13,198     22,161
Goodwill and other intangibles..............................   167,295    213,659
Other assets................................................    17,891      4,572
                                                              --------   --------
          Total assets......................................   323,549    403,779
Accounts payable............................................    22,771     23,100
Other current liabilities...................................    40,840     37,589
Long-term debt..............................................       169        341
Other liabilities...........................................    15,381     14,821
                                                              --------   --------
          Net assets held for sale..........................  $244,388   $327,928
                                                              ========   ========


     In the normal course of business, the Company enters into certain
sales-type lease arrangements with equipment customers. These leases are
generally sold to third-party financing institutions. A portion of these
arrangements contains certain recourse provisions under which the Company
remains liable. The Company's maximum exposure under the recourse provisions,
net of related reserves, was approximately $21.9 million at December 31, 1999. A
portion of this contingent obligation is collateralized by security interests in
the related equipment. The fair value of the recourse obligation at December 31,
1999 was not determinable as no market exists for these obligations.

RESEARCH AND DEVELOPMENT

     Research, engineering and product development costs are expensed as
incurred. Costs incurred in the research and development of new software
products and certain enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional development costs are
capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Such costs are
amortized commencing with product introduction utilizing the straight-line
method over the remaining economic life of the product, not to exceed four
years. The unamortized capitalized costs by product are reduced to an amount not
to exceed their future net realizable value at each balance sheet date. Future
net realizable value is determined based on sales forecasts. Capitalized
software costs, net of accumulated amortization, are included in Goodwill and
other intangibles.

     The amount of development costs capitalized in accordance with SFAS No. 86
for 1999, 1998 and 1997 was $6.0 million, $5.2 million and $360,000,
respectively. Amortization of software development costs charged to expense for
1999 and 1998 was $576,000 and $106,000, respectively. There was no amount
charged to expense in 1997.

  1998 PLAN

     In December 1998, the Company formalized its plan to offer for sale two
businesses, (i) the resale and repair of Nortel and other original equipment
manufacturers' wireline switching equipment, and (ii) pay telephone
refurbishment. In connection therewith, the Company recorded a $9.7 million
charge in the fourth quarter of 1998, for the estimated loss to dispose of these
discontinued operations. This loss, which was

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recorded as partial impairment of existing goodwill, was determined by comparing
the book value of the net assets of the discontinued operations to their net
realizable value. The net realizable value was estimated based on preliminary
valuation work performed by an investment banking firm engaged by the Company to
assist in the sale of these businesses and a preliminary non-committal offer
from a prospective buyer.

     During the first six months of 1999, the Company and its investment bankers
formally solicited offers for the two businesses. The preliminary offer referred
to above was eventually withdrawn by the potential suitor and the formal selling
process generated only one serious offer for the businesses. The Company
eventually refused this offer due to its low price and substantial credit risk.

     During this selling process, the Company's Nortel resale business
significantly deteriorated, and its pay telephone refurbishment business began
showing signs of weakness. In mid 1999, faced with an unsuccessful selling
process and future operating losses, management elected to begin liquidating the
Nortel resale and repair business. A formal liquidation plan designed to
eliminate future quarterly losses, maximize net cash proceeds and realize
significant deferred tax credits, was adopted by management and communicated to
all affected employees.

     As a result of this revised plan, the Company recorded an additional charge
of $12.3 million in the second quarter of 1999 to reflect the additional loss
expected to be realized on the liquidation of the Nortel resale and repair
business. Significant elements of this charge consisted of $5.6 million to
write-off all remaining goodwill, $4.3 million to write-down inventories to
estimated realizable value, $600,000 to write-down leasehold improvements, test
equipment and other assets to estimated realizable value, $300,000 for severance
benefits, and $300,000 for the estimated loss on the disposal of facility
leases. The charge also included approximately $200,000 for net operating losses
expected to be incurred by the Company during this liquidation process.

     In the fourth quarter of 1999, the Company completed the liquidation of its
Nortel resale and repair business in accordance with the above plan and sold its
pay telephone refurbishment business for approximately $2.0 million in cash.

  1999 PLAN

     In December 1999, the Company adopted a plan to divest, spin-off or
otherwise monetize its remaining equipment businesses, consisting of the
following:

     - Telco Systems Division (acquired November 1998), a provider of next
       generation transport and access solutions for service providers
       throughout the world. Its products include intelligent integrated access
       devices, multiplexers and digital microwave radios.

     - NACT Switching Division (acquired February 1998), a provider of advanced
       switching platforms with integrated proprietary applications software as
       well as billing and telemanagement systems.

     - Wireless Local Loop Division, a research and development group designing
       a next generation, fixed wireless local loop system.

     - Cellular Infrastructure Supply Division (acquired March 1997), a
       value-added supplier of new and re-furbished cellular base stations and
       related equipment.

     - Galaxy Engineering Division (acquired August 1997), a provider of system
       design, optimization and other value-added radio engineering and
       consulting services.

     The Company sold Galaxy in December 1999 for approximately $15.0 million in
cash. There were no other proceeds from disposal of any of the other remaining
businesses. Telco Systems, NACT and Wireless Local Loop are being offered for
sale by two investment banking firms engaged by the Company. Cellular
Infrastructure Supply will be liquidated. The Company has signed a definitive
agreement to sell Telco Systems
                                       65
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(see "Note O") and expects to dispose of NACT, Cellular Infrastructure Supply
and Wireless Local Loop during 2000.

     At December 31, 1999, the remaining assets and liabilities of the equipment
businesses consisted of the following:

     - Telco Systems Division and NACT Switching Division -- accounts
       receivable, inventory, property and equipment, capitalized software and
       accounts payable.

     - Wireless Local Loop Division -- inventory, property and equipment,
       capitalized software and accounts payable.

     - Cellular Infrastructure Supply Division -- accounts receivable,
       inventory, property and equipment and accounts payable.

     Although the Company expects to realize a significant net gain from the
sale of all these businesses, certain of these businesses are expected to be
sold or liquidated at a loss. Accordingly, in the fourth quarter of 1999, the
Company recorded a $32.7 million charge to write-down certain of these
businesses to their estimated net realizable value. The $32.7 million loss on
disposal of discontinued operations consisted of estimated loss on disposal and
estimated future loss from discontinued operations. Loss on disposal was
estimated to be $31.1 million, net of tax benefits of $6.0 million. Estimated
future loss from discontinued operations during the phase-out period was $1.6
million, net of tax benefits of $800,000. As the measurement date was mid
December, the income or loss from operations during the period from the
measurement date to the date of the balance sheet is not material.

RESTRUCTURING AND OTHER CHARGES

     During 1998, the Company approved and began implementing two restructuring
programs designed to reduce operating costs, outsource manufacturing
requirements and focus Company resources on recently acquired business units
containing proprietary technology or services. A summary of restructuring and
related charges recorded in connection with these programs follows (in
thousands):



                                                             JANUARY   DECEMBER
                                                              1998       1998      TOTAL
                                                             -------   --------   -------
                                                                         
Severance and termination benefits.........................  $  550    $ 2,050    $ 2,600
Idle facility costs........................................   1,340      1,200      2,540
Asset write-downs..........................................   1,350     11,763     13,113
Other exit costs...........................................      --      1,637      1,637
                                                             ------    -------    -------
       Total restructuring charges.........................   3,240     16,650     19,890
Write-down of inventories..................................   3,360     13,750     17,110
Provision for doubtful accounts............................      --     12,600     12,600
                                                             ------    -------    -------
       Total charges.......................................  $6,600    $43,000    $49,600
                                                             ======    =======    =======


     In January 1998, the Company approved and began implementing a
restructuring program to consolidate several operations and exit the contract
manufacturing business. The Company's wireline telecom equipment resale business
("AIT") in Lakeland, Florida and its circuit board repair operations were
consolidated into a new facility in Orlando, Florida; the Company's
manufacturing operations were moved from an old facility in Orlando to a new
facility in Alpharetta, Georgia; and the Company's Scottsdale, Arizona
operations were integrated into the Company's Radio facility in Wilmington,
Massachusetts.

     The special charges included approximately $3.4 million to cost of sales
for obsolete contract manufacturing inventories and other inventories deemed
obsolete or redundant as a result of the consolidation activities.

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Severance and termination benefits of approximately $550,000 were paid to the
approximately 60 employees who lost their jobs as a direct result of the
restructuring program. The idle facility and equipment portion of the charge,
collectively representing $2.7 million, included the write-off of Orlando,
Lakeland and Scottsdale leasehold improvements, provisions for the estimated
costs to terminate idle facility and equipment leases, the write-off of Orlando
manufacturing equipment not relocated to the Company's Alpharetta facility and
certain phase-down expenses associated with the six facilities closed down. No
costs were included in the restructuring charges that were expected to derive
future economic benefit to the Company.

     This restructuring program began in the first quarter of 1998 and was
completed as of June 30, 1998. As of December 31, 1998, approximately $325,000
of these charges, which consisted primarily of costs associated with carrying
vacated warehouse space and certain idle equipment until lease expiration dates,
were included in Other accrued liabilities on the Company's balance sheet.
During 1999, the remaining costs were incurred by the Company and charged to the
reserve.

     In December 1998, in connection with the (i) recently completed acquisition
of NACT, Telco Systems and Resurgens; (ii) election of several new outside
directors to the Company's board; and (iii) appointment of a new Chief Executive
Officer, the Company approved and began implementing a major restructuring
program to reorganize its operating structure, consolidate several facilities,
outsource its manufacturing requirements, rationalize its product offerings and
related development efforts, and pursue other potential synergies expected to be
realized as a result of the integration of recently acquired businesses. The
fourth quarter restructuring and related charges amounted to $43.0 million. The
Company completed the restructuring program in 1999.

     Details of the restructuring charges related to this program are as follows
(in thousands):



                                       RESTRUCTURING     1998     RESERVE BALANCE     1999     RESERVE BALANCE
                                          CHARGE       ACTIVITY     AT 12/31/98     ACTIVITY     AT 12/31/99
                                       -------------   --------   ---------------   --------   ---------------
                                                                                
Reorganize Operating Structure
  Employee termination benefits......     $   449      $    --        $  449        $   449        $    --
  Idle facility costs................         258           --           258            258             --
  Other..............................         437          133           304            304             --
                                          -------      -------        ------        -------        -------
                                            1,144          133         1,011          1,011             --
Consolidation of ATI and Telco
  Employee termination benefits......       1,175           --         1,175          1,175             --
  Idle facility costs................         577           --           577            492             85
  Write-down production equipment....         700          700            --             --             --
  Other..............................         300           --           300            300             --
                                          -------      -------        ------        -------        -------
                                            2,752          700         2,052          1,967             85
Outsource Manufacturing
  Employee termination benefits......         426          116           310            310             --
  Idle facility costs................         365           --           365            365             --
  Write-down production equipment....       1,662        1,662            --             --             --
  Write-down other assets............         731          731            --             --             --
  Other..............................         332           --           332            332             --
                                          -------      -------        ------        -------        -------
                                            3,516        2,509         1,007          1,007             --


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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



                                       RESTRUCTURING     1998     RESERVE BALANCE     1999     RESERVE BALANCE
                                          CHARGE       ACTIVITY     AT 12/31/98     ACTIVITY     AT 12/31/99
                                       -------------   --------   ---------------   --------   ---------------
                                                                                
Product Line Rationalization
  Write-down of CDX assets...........       4,707        4,707            --             --             --
  Write-down of international
     investments.....................       3,542        3,542            --             --             --
  Write-down of capitalized
     software........................         421          421            --             --             --
  Other..............................         568           --           568            568             --
                                          -------      -------        ------        -------        -------
                                            9,238        8,670           568            568             --
                                          -------      -------        ------        -------        -------
          Total......................     $16,650      $12,012        $4,638        $ 4,553        $    85
                                          =======      =======        ======        =======        =======


     The activity consisted of either cash payments or asset write-downs; there
were no reclassifications or other adjustments. Fair value of assets are based
on market prices less costs to sell.

     Costs associated with the reorganized operating structure consisted
primarily of termination benefits payable to the Company's former President,
which were paid throughout 1999, and remaining lease obligations on the
Company's Equipment Group headquarters facility in Alpharetta, Georgia. Group
personnel relocated to the Company's headquarters in Atlanta in February 1999
and the facility was closed.

     Restructuring charges also included costs associated with the consolidation
of the Company's Radio operations in Wilmington, Massachusetts into Telco
Systems' facility in Norwood, Massachusetts. Manufacturing of wireless radios
was out-sourced to a contact manufacturer and all other aspects of the Company's
Radio operations were integrated into Telco Systems' existing operating
infrastructure. Severance and other termination benefits of approximately $1.2
million were paid to approximately 60 Radio employees as the consolidation
program was completed during the first half of 1999. A provision of $577,000 was
recorded for the costs associated with the idle portion of the Wilmington
facility, the lease of which was terminated in December 1999. Production
equipment was written-down by $700,000 to reflect its estimated net realizable
value upon disposal.

     An integral part of the restructuring program was the Company's decision to
outsource all its electrical manufacturing requirements and sell its Alpharetta,
Georgia manufacturing operations to an established contract manufacturer.
Severance and other termination benefits of $426,000 were provided for in
December 1998, the majority of which was paid in January 1999 to approximately
25 personnel. Restructuring charges also included the write-off of $365,000 in
leasehold improvements related to the manufacturing portion of the Alpharetta
facility, and $2.4 million to write-down production equipment and other
manufacturing assets to their estimated net realizable values. The Company
completed the sale of its manufacturing operations in March 1999. The actual
loss incurred in connection with the sale did not differ materially from the
amounts recorded in the restructuring charges.

     The most significant component of the restructuring charges related to a
change in the Company's long-term focus for its switching products, primarily
its Compact Digital Exchange ("CDX") switch. In January 1999, the Company
elected to reallocate development resources targeted for the CDX switch as a
stand-alone product to the integration of the central office functionally of the
CDX switch and the long-distance functionality of NACT's switch into a common,
next generation technology platform. This strategic decision, performance
difficulties experienced by certain customers' applications of the CDX switch in
1998, and dramatically reduced internal estimates for CDX switch revenues in
1999 caused the Company to significantly write-down all CDX related assets as of
December 31, 1998. Costs incurred in 1999 related primarily to engineering
efforts related to 1998 and prior CDX contracts.

     Other charges recorded in the fourth quarter of 1998 were provisions for
potential inventory obsolescence and doubtful accounts of $8.8 million and $10.7
million, respectively. The inventory charge consisted primarily of $4.7 million
to write-down CDX inventories to estimated net realizable value and $3.8 million
to reflect

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated losses to be incurred in connection with the sale of Radio and
manufacturing inventories to contract manufacturers. The provision for doubtful
accounts was recorded primarily to reduce the carrying value of accounts
receivable resulting from previous CDX sales to estimated minimum realizable
values in light of the issues noted above.

GAIN ON EXCHANGE OF SECURITIES

     In connection with the acquisition of Telco Systems, the Company acquired
an investment in the common stock of Omnia Communications, Inc. ("Omnia") and
warrants to purchase additional common stock of Omnia. The fair value of the
investment in Omnia at the time of the acquisition of Telco Systems was
approximately $3.0 million and, thereafter, it was accounted for by the Company
under the cost method.

     In March 1999, Omnia announced that it had entered into an agreement to be
acquired by Ciena Corp. ("Ciena"), a publicly traded company. In June 1999, the
Company exercised the outstanding warrants to purchase additional common stock
in Omnia. In July 1999, Ciena's acquisition of Omnia was completed, and the
Company received approximately 445,000 shares of Ciena common stock in exchange
for its holdings of Omnia common stock, of which approximately 45,000 shares or
10% are being held in escrow for a period of one year related to certain
representations and warranties made by Omnia. In accordance with EITF No. 91-5,
Nonmonetary Exchange of Cost-Method Investments, the Company recognized a
one-time gain, net of taxes, during 1999 of approximately $7.9 million on the
exchange of the Omnia common stock.

SIGNIFICANT ACQUISITIONS

     NACT.  In the fourth quarter of 1997, the Company began a three-phase
acquisition of NACT Telecommunications, Inc., ("NACT") a Provo, Utah based
single-source provider of advanced telecommunications switching platforms with
integrated telephony software applications and network telemanagement
capabilities. During November and December 1997, the Company purchased 355,000
shares of NACT common stock in the open market for approximately $5.0 million.

     On December 31, 1997, the Company entered into a stock purchase agreement
with GST Telecommunications, Inc. ("GST") and GST USA, Inc. ("GST USA") to
acquire 5,113,712 shares of NACT common stock owned by GST USA, representing
approximately 67.3% of the outstanding shares of NACT (the "NACT Acquisition").
On February 27, 1998, the NACT Acquisition was completed with GST USA receiving
$59.7 million in cash and 1,429,907 restricted shares of the Company's common
stock valued at approximately $26.9 million. These shares were valued at $18.80
per share, a 20% discount to the closing market price of Company common stock on
February 26, 1998. Management believes this valuation was appropriate and
reasonable based on the fact that GST USA sold all 1,429,907 restricted shares
at $18.80 per share to an independent third party in a private transaction
completed on February 27, 1998.

     In addition, the Company issued 740,543 non-qualified options to purchase
Company common stock at $11.15 per share and 106,586 non-qualified options to
purchase Company common stock at $16.25 per share in exchange for substantially
all the options held by NACT employees, which became immediately vested in
connection with the NACT Acquisition. These options had an initial fair value of
approximately $8.4 million based on the Black-Scholes option valuation model.

     Under the terms of the Company's stock purchase agreement with GST, the
Company and GST agreed to share evenly the costs of any judgement against NACT
as a result of a patent dispute claim filed by Aerotel, Ltd. and Aerotel U.S.A.,
Inc. (collectively "Aerotel") in 1996. Subsequent to the NACT Acquisition, the
Company actively engaged in settlement negotiations. On October 26, 1998, the
Company, GST and Aerotel settled the Aerotel litigation. The Company's portion
of the total settlement costs, including NACT legal fees, was approximately $3.4
million. The payment made to Aerotel was satisfied through the issuance of
137,334

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares of Company common stock. The settlement costs incurred by the Company as
a result of the Aerotel litigation were accounted for as additional NACT
purchase price.

     On February 24, 1998, the Company entered into a merger agreement with NACT
pursuant to which the Company agreed to acquire all of the shares of NACT common
stock not already owned by the Company or GST USA (the "NACT Merger"). On
October 28, 1998, the NACT Merger was completed whereby the Company issued
2,790,182 shares of the Company's common stock valued at approximately $67.8
million for the remaining minority interest of NACT.

     The acquisition of NACT has been accounted for using the purchase method of
accounting. Accordingly, the results of NACT's operations have been included in
the accompanying consolidated financial statements from February 27, 1998, the
date the majority interest was acquired. The purchase price was allocated to the
net assets acquired, including $44.6 million of purchased in-process research
and development ("R&D"). The excess of purchase price over the fair value of net
assets acquired, approximately $92.7 million, has been recorded as goodwill and
is being amortized over a 20 year period.

     During the first quarter of 1998, $44.6 million of purchased in-process R&D
was expensed, which consisted of 67.3% of the value of NACT products in the
development stage that were not considered to have reached technological
feasibility as of the date of the NACT Acquisition. In connection with the NACT
Merger, the Company revalued purchased in-process R&D to reflect the current
status of in-process NACT technology and related business forecasts and to
ensure compliance with the additional guidance provided by the Securities and
Exchange Commission in its September 15, 1998 letter to the American Institute
of Certified Public Accountants. The revalued amount approximated the $44.6
million expensed in connection with the NACT Acquisition, therefore no
additional charge was recorded for purchased in-process R&D. However, the effect
of the revaluation required the Company to reduce the first quarter charge
related to the purchased in-process R&D by $14.6 million and record an
additional charge of $14.6 million in the fourth quarter as of the date of the
NACT Merger.

     The value of the purchased in-process technology from NACT and Telco
Systems (see below) was determined by estimating the projected net cash flows
related to in-process research and development projects, excluding costs to
complete the development of the technology. These cash flows were discounted
back to their net present value. The projected net cash flows from such projects
were based on management's estimates of revenues and operating profits related
to such projects. These estimates were based on several assumptions, including
those summarized below for each respective acquisition. The resultant net
present value amount was then reduced by a stage of completion factor. This
factor more specifically captures the development risk of an in-process
technology (i.e., market risk is still incorporated in the estimated rate of
return).

     The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification, and test
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features, and technical
performance requirements. If these projects to develop commercially viable
products based on the purchased in-process technology are not successfully
completed, the sales and profitability of the Company may be adversely affected
in future periods. Additionally, the value of other intangible assets may become
impaired.

     NACT provides advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. NACT
designs, develops, and manufacturers all hardware and software elements
necessary for a fully integrated, turnkey telecommunications switching solution.
The nature of the in-process research and development was such that
technological feasibility had not been attained. Failure to attain technological
feasibility, especially given the high degree of customization required for
complete integration into the NACT solution, would have rendered partially
designed hardware and software

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

useless for other applications. Incomplete design of hardware and software
coding would create a non-connective, inoperable product that would have no
alternative use.

     NACT's business plan called for a shift in market focus to large customers,
both domestic and international; therefore, NACT had numerous projects in
development at the time of the acquisition. Additionally, the pending completion
of a major release of NACT's billing system required significant development
efforts to ensure continued integration with NACT's product suite. The projects
also include the creation of products for new product suites. The research and
development projects were at various stages of development. None of the
in-process projects considered in the write-off had attained technological
feasibility. The in-process projects do not build on existing core technology;
such existing technologies were valued as a separate asset.

     NACT had 13 projects in development at the time of acquisition. These
projects were at multiple stages along NACT's development timeline. Some
projects were beginning testing in NACT labs; others were at earlier stages of
planning and designing. These projects were scheduled for release between
December 1998 and December 2000. Revenue projections for the in-process
technologies reflected the anticipated release dates of each project.

     Revenue attributable to in-process technology was assumed to increase in
the first five years of the 12-year projection at annual rates ranging from
61.4% to 2.81%, decreasing over the remaining years at annual rates ranging from
16.0% to 48.5% as other products are released in the marketplace. Projected
annual revenue attributable to in-process technology ranged from approximately a
low of $8.0 million to a high of $101.1 million within the term of the
projections. These projections were based on assumed penetration of the existing
customer base and movement into new markets. Projected revenues from in-process
technology were assumed to peak in 2003 and decline from 2004 through 2009 as
other new products are expected to enter the market.

     In-process technology's contribution to the operating profit of NACT
(earnings before interest, taxes and depreciation and amortization) was
projected to grow within the projection period at annual rates ranging from a
high of 67.2% to a low of 2.8% during the first five years, decreasing during
the remaining years of the projection period similar to the revenue growth
projections described above. Projected in-process technology's annual
contribution to operating profit ranged from approximately $2.1 million to $29.3
million within the term of the projections.

     The discount rate used to value the existing technology of NACT was 14.0%.
This discount rate was estimated relative to the overall business discount rate
of 15.0% based on (1) the completed status of the products utilizing existing
technology (i.e., the lack of development risk), and (2) the potential for
obsolescence of current products in the marketplace.

     The discount rate used to value the in-process technology of NACT was
15.0%. This discount rate was estimated relative to the overall business
discount rate of 15.0% based on (1) the incomplete status of the products
expected to utilize the in-process technology (i.e., development risk), (2) the
expected market risk of the planned products relative to the existing products,
(3) the emphasis on targeting larger customers for the planned products, (4) the
expected demand for the products from current and prospective NACT customers,
(5) the anticipated increase in NACT's sales force, and (6) the nature of
remaining development tasks relative to previous development efforts.

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Set forth in the table below are details relating to the significant NACT
in-process research and development projects (dollar amounts in thousands):



                                                                        PERCENTAGE OF
                                                                          COMPLETION           ESTIMATED COST TO
                                                                            AS OF                 COMPLETION
                                PERCENTAGE OF                       ----------------------   AS OF THE ACQUISITION
                                    NACT         COSTS INCURRED                                    DATE FOR
                                    IPR&D       AS OF ACQUISITION   ACQUISITION              ---------------------
DEVELOPMENT PROJECT                CHARGE             DATE             DATE       12/31/99   1998    1999    2000
- -------------------             -------------   -----------------   -----------   --------   -----   -----   -----
                                                                                        
STX Application Switching
  Platform....................       43%             $1,347             80%         100%      $56    $285
TCPIP.........................        7                 227             90          100         8      17
SS7/C7........................       14               1,280             72           92        54     324    $116
NTS Telemanagement and Billing
  System......................       26               1,425             91          100        54      82
E1/T1 CONVERSION..............        6                 125             48           95        20     117
MCU...........................        1                 123             24           90        66     334
68060.........................        2                 218             48          100        60     178


     Telco Systems.  On June 4, 1998, the Company entered into a definitive
agreement to acquire Telco Systems, Inc. ("Telco Systems") a Norwood,
Massachusetts-based manufacturer of broadband transmission, network access and
bandwidth optimization products. On October 13, 1998 the Company and Telco
Systems agreed to amend the agreement to provide Telco Systems stockholders a
minimum per share value. On November 30, 1998, the transaction was completed in
its final form whereby Telco Systems was merged with and into a wholly-owned
subsidiary of the Company (the "Telco Systems Merger").

     In connection with the Telco Systems Merger, the stockholders of Telco
Systems received 7,041,773 shares of the Company's common stock valued at
approximately $143.0 million. In addition, the Company issued 1,028,670
non-qualified options to purchase Company common stock at an average exercise
price of $15.78 per share in exchange for substantially all the options held by
Telco Systems employees, which became immediately vested in connection with the
Telco Systems Merger. These options had an initial fair value of approximately
$10.8 million based on the Black-Scholes option valuation model.

     The acquisition of Telco Systems has been accounted for using the purchase
method of accounting. Accordingly, the results of Telco Systems' operations have
been included in the accompanying consolidated financial statements from
November 30, 1998. The purchase price was allocated to net assets acquired,
including $50.3 million of purchased in-process R&D. The excess of purchase
price over the fair value of net assets acquired, approximately $39.4 million,
has been recorded as goodwill and is being amortized over a 20 year period.
Purchased in-process R&D, which consisted of the value of Telco Systems products
in the development stage that were not considered to have reached technological
feasibility as of the date of the Telco Systems Merger, was expensed in the
fourth quarter of 1998 in accordance with applicable accounting rules.

     Telco Systems develops and manufactures products focused on providing
integrated access for network services. Telco Systems' products can be separated
into three categories: (1) broadband transmission products, (2) network access
products, and (3) bandwidth optimization products. Telco Systems' products are
deployed at the edge of the service provider's networks to provide organizations
with a flexible, cost-effective means of transmitting voice, data, video and
image traffic over public or private networks.

     At the time of acquisition, Telco Systems had several primary projects in
development relating to next-generation telecommunication and data network
hardware. These projects were at various stages in the development process. Some
were about to enter the testing phase of the initial hardware prototype, while
others were still in the early concept and design specification stages. These
projects were scheduled for commercial release at various points in time from
December 1998 through early 2000.

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Telco Systems' in-process research and development projects are being
developed to run on new communications protocols and technologies not employed
in its current products. These include HDSL, SONET, Voice over IP and ATM
inverse multiplexing. Additionally, the products to be commercialized from Telco
Systems' in-process research and development are expected to include interface
support not in Telco Systems' current product line, including E1, DS3 and OC3.

     Revenue attributable to Telco Systems' aggregate in-process technology was
assumed to increase over the first six years of the projection period at annual
rates ranging from a high of 103.6% to a low of 3.8%, reflecting both the
displacement of Telco Systems' old products by these new products as well as the
expected growth in the overall market in which Telco Systems' products compete.
Thereafter, revenues are projected to decline over the remaining projection
period at annual rates ranging from 15.2% to 42.6%, as the acquired in process
technologies become obsolete and are replaced by newer technologies.

     Management's projected annual revenues attributable to the aggregate
acquired in-process technologies, which assume that all such technologies
achieve technological feasibility, ranged from a low of approximately $39.0
million to a high of approximately $276 million. Projected revenues were
projected to peak in 2004 and decline thereafter through 2009 as other new
products enter the market.

     The acquired in-process technology's contribution to the operating income
was projected to grow over the first five years of the projection period at
annual rates ranging from a high of 240.9% to a low of 22.2% with one
intermediate year of marginally declining operating income. Thereafter, the
contribution to operating income was projected to decline through the projection
period. The acquired in-process technology's contribution to operating income
ranged from a low of approximately $4.4 million to a high of approximately $70.5
million.

     The discount rate used to value the existing technology was 20.0%. This
discount rate was selected because of the asset's intangible characteristics,
the risk associated with the economic life expectations of the technology and
potential obsolescence of legacy products, and the risk associated with the
financial assumptions with respect to the projections used in the analysis.

     The discount rate used to value the in-process technologies was 25%. This
discount rate was selected due to several incremental inherent risks. First the
actual useful economic life of such technologies may differ from the estimates
used in the analysis. Second, risks associated with the financial projections on
the specific products that comprise the acquired in-process research and
development. The third factor is the incomplete and unproven nature of the
technologies. Finally, future technological advances that are currently unknown
may negatively impact the economic and functional viability of the in-process
R&D.

     Set forth in the table below are details relating to the significant Telco
Systems in-process research and development projects (dollar amounts in
thousands):



                                                                          PERCENTAGE OF
                             PERCENTAGE OF                              COMPLETION AS OF
                                 TELCO                               -----------------------       ESTIMATED COSTS TO COMPLETION
                                SYSTEMS          COSTS INCURRED                                   AS OF THE ACQUISITION DATE FOR
                                 IPR&D          AS OF ACQUISITION    ACQUISITION                  -------------------------------
DEVELOPMENT PROJECT             CHARGE                DATE              DATE        12/31/99      1998        1999         2000
- -------------------          -------------      -----------------    -----------    --------      -----      -------      -------
                                                                                                     
Access 45/60 Release I.....        1%                $2,610              72%          100%        $ 77       $  923
EdgeLink 100 E1(1).........        4                    880              47           N/A           76          914
Voice over Packet MSIA(2)..       11                  1,730              45            70          162        1,948
EdgeLink 300...............       48                  2,200              90           100          100          200
EdgeLink 600 MSAC(3).......       34                  6,220              60            70          619        5,461       $1,000
Hyperspan SMUG(1)..........        2                    760              77           N/A           38          192


- ---------------

(1) During the first quarter of 2000, Telco Systems management decided to
    discontinue development of Edgelink 100 E1 and Hyperspan SMUG due to
    inability to meet cost and feature targets.

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) The original Voice over Packet project has been re-defined to incorporate
    additional features, and is now referred to as Voice over Packet MSIA.
(3) During the first quarter of 2000, Telco Systems management consolidated
    several development projects, including the Edgelink 600 and Edgelink
    650/IMA/Sonet IAD, into a new project, Edgelink 600 MSAC, incorporating a
    redefined feature set.

     Management expects that the cost to complete the development of the
acquired in-process technologies and to commercialize the resulting products
will aggregate approximately $11.7 million through 2001. Over the projection
period, management expects to spend an additional aggregate $48.2 million on
sustaining development efforts relating to the acquired in-process technologies.
These sustaining efforts include bug fixing, form-factor changes and identified
upgrades.

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D:  RESTRUCTURING CHARGE

     In December 1999, the Company recorded a one-time restructuring charge of
$37.8 million in connection with the FaciliCom Merger. The restructuring charge
includes the estimated costs of (i) consolidating certain of the Company's
United States gateway switching centers and related technical support functions
into existing FaciliCom operations; (ii) consolidating the Company's United
Kingdom operations into existing FaciliCom operations; (iii) consolidating
certain of the Company's administrative functions into FaciliCom's operations;
and (iv) eliminating other redundant operations and assets as a result of
combining the two entities.

     FaciliCom is a multi-national long distance service carrier focused on
providing international wholesale telecommunications services to other carriers
worldwide. FaciliCom provides these services over its carrier-grade
international network, which consists of 17 gateway switches as well as a
satellite earth station. Given the duplication of network assets between the two
entities, including switching and transmission equipment, the Company made the
decision in late 1999 to shut down and dispose of its six gateway switches
located in Chicago, Los Angeles, Newark, Dallas, San Francisco and London. The
Company intends to dispose of these six switches and related network assets
through sale in the secondary switching and transmission equipment market during
2000. At December 31, 1999, all of the switches, except the London switch, had
been taken out of service. Although the Company has utilized this switch, it had
and continues to have the current ability to remove the asset from operations.
The Company has an active program to find a buyer for the London switch.
Included in the restructuring charge is a $25.4 million charge for the
write-down of network equipment to the lower of the carrying amount or fair
value less cost to sell. The restructuring charge also provides for the write-
off of leasehold improvements at the six switch sites and lease commitments
remaining on certain facilities and equipment taken out of service.

     Approximately 25 personnel whose job functions included accounting and
administrative support as well as network operations were terminated as part of
the overall restructuring. The termination benefits associated with these
personnel are included in the restructuring charge.

     The following table summarizes the amounts included in each component of
the restructuring charge (in thousands):



                                                             RESTRUCTURING     1999     RESERVE BALANCE
                                                                CHARGE       ACTIVITY     AT 12/31/99
                                                             -------------   --------   ---------------
                                                                               
Write-down of leasehold improvements.......................     $ 1,506      $ 1,506        $   --
Write-down of network equipment............................      25,372       25,372            --
Write-down of redundant software and general equipment.....       1,256        1,256            --
Accrual for lease and circuit cost commitments.............       8,078        1,216         6,862
Accrual for termination benefits...........................       1,588          270         1,318
                                                                -------      -------        ------
                                                                $37,800      $29,620        $8,180
                                                                =======      =======        ======


     The restructuring accrual is recorded in "Other accrued liabilities" on the
Company's December 31, 1999 balance sheet. The restructuring program is expected
to be completed in 2000.

NOTE E:  PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives (from three to eight
years) of the related assets. Included in property and equipment are network
assets leased under certain IRU and MAOU agreements and other equipment lease
agreements. Assets recorded under capital leases are recorded at the present
value of the future minimum lease payments and depreciated over the lesser of
the related lease term or useful life of the related assets. Total depreciation
expense for 1999, 1998 and 1997 was $5.8 million, $253,000 and $115,000,
respectively.

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Property and equipment consisted of the following at December 31 (in
thousands):



                                                                1999      1998
                                                              --------   -------
                                                                   
Leasehold improvements......................................  $  4,667   $ 2,028
Network equipment...........................................    67,208    26,326
IRU and MRU assets..........................................    56,015     9,675
Computer equipment..........................................    11,830     3,088
Other.......................................................     2,803       992
                                                              --------   -------
                                                               142,523    42,109
Accumulated depreciation....................................    (6,490)     (668)
                                                              --------   -------
                                                              $136,033   $41,441
                                                              ========   =======


     The Company capitalizes the costs of software and software upgrades for use
in its network. Replacements and betterments are also capitalized. Maintenance
and repairs are expensed as incurred.

     The Company leases various facilities and equipment under operating leases.
As of December 31, 1999, future minimum payments under noncancelable operating
leases with initial or remaining terms of more than one year were approximately
$23.9 million, payable over the next five years as follows: 2000 -- $5.6
million; 2001 -- $5.1 million; 2002 -- $4.9 million; 2003 -- $4.4 million; and
2004 -- $3.9 million.

     Total rental expense under operating leases for 1999 and 1998 was
approximately $3.9 million and $280,000, respectively, exclusive of property
taxes, insurance and other occupancy costs generally payable by the Company.

NOTE F:  GOODWILL

     Goodwill from acquisitions, representing the excess of purchase price paid
over the value of net assets acquired, consisted of the following at December 31
(in thousands):



                                                                1999      1998
                                                              --------   -------
                                                                   
Resurgens...................................................  $223,068   $78,626
Comm/Net....................................................    22,713        --
FaciliCom...................................................   592,153        --
                                                              --------   -------
                                                               837,934    78,626
Accumulated amortization....................................     7,700       164
                                                              --------   -------
                                                              $830,234   $78,462
                                                              ========   =======


     The Company amortizes goodwill to expense on a straight-line basis over a
20-year period. The Company reviews the net carrying value of goodwill on a
regular basis, and if deemed necessary, charges are recorded against current
operations for any impairment in the value of these assets. The Company
currently evaluates enterprise level goodwill for impairment by comparing
estimated future discounted cash flows over the remaining life of the goodwill
to the carrying value of goodwill. If an impairment exists, enterprise level
goodwill is written down to its fair value based on estimated future cash flows
of the Company discounted at risk adjusted interest rates. To date, the Company
has made no impairment adjustments to the carrying value of its goodwill.
Goodwill is removed from the books when fully amortized. Amortization expense
for 1999 and 1998 was $7.5 million and $164,000, respectively.

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           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G:  DEBT

SUMMARY

     Debt consisted of the following at December 31 (in thousands):



                                                                1999       1998
                                                              --------   --------
                                                                   
13.25% Senior Notes due 2008................................  $285,078   $     --
4.5% Convertible Subordinated Notes due 2002................   115,000    115,000
Bank line of credit.........................................    25,000      4,500
IRU and other capital lease obligations.....................    45,380     29,934
Nortel line of credit.......................................    21,717         --
Other debt..................................................        --      1,589
                                                              --------   --------
          Total debt........................................   492,175    151,023
Amount due within one year..................................    83,837     13,500
                                                              --------   --------
          Long-term debt....................................  $408,338   $137,523
                                                              ========   ========


     Interest paid during 1999, 1998 and 1997 was $8.1 million, $5.7 million and
$24,000, respectively.

SENIOR NOTES

     In December 1999, as an integral part of the FaciliCom Merger, the Company
issued $300.0 million in aggregate principal amount of 13.25% Senior Notes due
2008 ("Senior Notes") in exchange for all outstanding 10 1/2% FaciliCom Series B
Senior Notes due 2008 having an aggregate principal amount of $300.0 million. To
facilitate the exchange, the Company also paid holders of FaciliCom's Senior
Notes $3.0 million of cash and issued them 942,627 shares of Company common
stock having an aggregate market value of $15.0 million (the "Stock
Consideration"). The $18.0 million in total exchange consideration was accounted
for as additional FaciliCom purchase price (see "Note B").

     Other than the pledged assets discussed below, the Senior Notes are general
unsecured obligation of the Company. The Senior Notes rank senior in right of
payment to any of the Company's existing and future obligations expressly
subordinated in right of payment and will be pari passu in right of payment with
all of the Company's other existing and future unsecured and unsubordinated
obligations, including trade payables. The Company's subsidiaries are not
guarantors of the Senior Notes.

     The Senior Notes bear interest at the rate of 13.25% per annum, payable in
arrears on January 15 and July 15 of each year, and mature on January 15, 2008.
The Senior Notes are not redeemable by the Company prior to January 15, 2003. At
any time after that date, the Company has the option to redeem the Senior Notes
at the following redemption prices plus accrued and unpaid interest (based on
January 15 fiscal year): 2003 -- 106.625%; 2004 -- 104.417%; 2005 -- 102.208%;
and 2006 to maturity -- 100.0%. In the event of a change in control of ownership
of the Company, each holder of the Senior Notes has the right to require the
Company to purchase all or any of such holder's Senior Notes at a purchase price
in cash equal to 101% of the aggregate principal amount.

     The Senior Notes require the Company to maintain certain financial and
nonfinancial covenants, including limitations on additional indebtedness,
restricted payments including dividends, transactions with affiliates, liens and
asset sales. Upon the sale of certain of its equipment businesses (see "Note
C"), the Company will be obligated to tender for all or a portion of the Senior
Notes at a purchase price equal to 100% of principal, plus accrued and unpaid
interest, less the current market value of the Stock Consideration at the date
the tender offer is commenced. The tender offer must be made within 270 days of
the qualified asset sale(s).

                                       77
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Upon issuance, the Company recorded the Senior Notes at $285.0 million,
total principal less a $15.0 million original issuance discount. The discount
was based on the estimated fair market value of the Senior Notes on the date of
issuance. The estimated fair value was determined based on the quoted market
price of debt with similar characteristics. The discount will be amortized to
interest expense over the term of the Senior Notes.

     At the time of the FaciliCom Merger, FaciliCom had approximately $47.0
million invested in U.S. Government obligations that served as collateral for
its Series B Senior Notes. In connection with the exchange transaction, the
FaciliCom note holders released this collateral and the Company was required to
pledge these assets as collateral for its Senior Notes. The pledged assets,
recorded as "Restricted cash" on the Company's December 31, 1999 balance sheet,
will be released to the Company to partially fund interest payments due on the
Senior Notes in 2000 and 2001.

CONVERTIBLE SUBORDINATED NOTES

     In October 1997, the Company sold $115.0 million in aggregate principal
amount of convertible subordinated notes (the "Convertible Notes") under Rule
144A of the Securities Act of 1933. The Convertible 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. Interest on the
Convertible Notes is payable on April 1 and October 1 of each year. The
Convertible Notes are general unsecured obligations of the Company and are
subordinate in right of payment to all existing and senior indebtedness. The
Company received $111.5 million from the sale of the Notes, after the
application of the initial purchasers' discount fees of $3.5 million.

     The discount fees and legal, accounting, printing and other expenses (the
"Debt issuance costs") related to the Convertible Notes amounted to
approximately $4.0 million, and are being amortized to expense over the
five-year term of the Convertible Notes. During 1999, 1998 and 1997, the Company
recognized amortization expense of approximately $1.1 million, $800,000 and
$200,000, respectively. Debt issuance costs of approximately $3.2 million are
included in "Other assets" on the Company's December 31, 1999 balance sheet.

SUMMARIZED FINANCIAL INFORMATION OF WA TELCOM PRODUCTS CO., INC.

     On October 28, 1998, World Access, Inc. reorganized its operations into a
holding company structure and changed its name to WA Telcom Products Co., Inc.
("WA Telcom"). As a result of the reorganization, WA Telcom became a
wholly-owned subsidiary of WAXS INC., which changed its name to World Access,
Inc. and is the company filing this Report. Pursuant to the reorganization, the
Company exchanged each outstanding share of common stock of WA Telcom for one
share of common stock of the Company, converted each option and warrant to
purchase shares of common stock of WA Telcom into options and warrants to
purchase a like number of shares of common stock of the Company, and fully and
unconditionally guaranteed the payment of the $115.0 million aggregate principal
amount 4.5% convertible subordinated notes dated October 1, 1997 (due 2002)
previously issued by WA Telcom.

     Set forth below is summarized financial information of WA Telcom presented
for the information of its debtholders. The summarized financial information
presented below includes the results of operations for the following businesses
from their respective dates of acquisitions: Discontinued operations: Cellular
Infrastructure Supply, Inc. -- January 1997; Galaxy Personal Communications
Services, Inc. -- July 1997; Advanced TechCom, Inc. -- January 1998; NACT
Telecommunications, Inc. -- February 1998; Continuing operations: Cherry
Communications Incorporated and Cherry Communications U.K. Limited -- December
1998; and Comm/Net Holdings -- May 1999. Separate financial statements of WA
Telcom are not presented because management has determined that they would not
be material to investors. In addition, summarized financial information for 1997
is not presented as there is no difference between this information and the 1997
                                       78
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

consolidated financial statements included herein. The only difference between
the summarized financial information of WA Telcom and the 1998 consolidated
financial statements is that WA Telcom does not include the transactions
incurred by the new parent holding company from October 28, 1998 to December 31,
1998, including the acquisition of Telco Systems on November 30, 1998. The only
difference between the summarized financial information of WA Telcom and the
1999 consolidated financial statements is that WA Telcom does not include the
transactions incurred by the parent holding company, Telco Systems and
FaciliCom.

                           BALANCE SHEET INFORMATION



                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                (IN THOUSANDS)
                                                                   
Current assets..............................................  $108,264   $162,554
Non-current assets..........................................   448,311    300,139
Total assets................................................   556,575    462,693
Current liabilities.........................................   112,020     70,976
Non-current liabilities.....................................   131,009    145,839
Stockholders equity.........................................   313,546    245,878
Total liabilities and stockholders equity...................   556,575    462,693


                        OPERATING STATEMENT INFORMATION



                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
                                                                  (IN THOUSANDS)
                                                                     
Total sales from continuing operations......................  $ 444,463    $  10,787
Gross profit from continuing operations.....................     44,906          650
Loss from continuing operations.............................    (19,034)      (4,602)
Income (loss) from discontinued operations(1)...............        298      (68,411)
Net loss....................................................    (42,931)     (73,848)


- ---------------

(1) Income (loss) from discontinued operations in 1998 includes special charges
    relating to: $50.0 million of in-process research and development; $6.2
    million of goodwill impairment; and $17.2 million of restructuring and other
    charges.

BANK LINE OF CREDIT

     In December 1998, the Company entered into a $75.0 million revolving line
of credit facility (the "Facility"), with a banking syndicate group led by Bank
of America, The Facility consists of a 364-day revolving line of credit which
may be extended under certain conditions and provides the Company the option to
convert existing borrowings to a three year term loan. In December 1999, the
Company amended the facility to increase the line of credit to $100.0 million
and extend the credit for another 364-day term.

     Borrowings under the facility are secured by a first lien on substantially
all the assets of the Company. The Facility, which expires in December 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 1/4%,
at the option of the Company. As of December 31, 1999, borrowings of $25.0
million were outstanding under the Facility at an interest rate of 8.7%.

     The Facility restricts distributions from the Company's consolidated
subsidiaries. Accordingly, the assets and cash flows of such subsidiaries,
including WA Telcom Products Co., Inc., the primary obligor on the Convertible
Notes, may not be used to pay any dividends to World Access, Inc. As a result,
restricted net

                                       79
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets of consolidated subsidiaries of the Company amounted to approximately
$313.5 million at December 31, 1999.

IRU AND OTHER CAPITAL LEASE OBLIGATIONS

     The Company leases certain fiber optic cables under IRU and MAOU agreements
permitting the use of the cables over periods up to 25 years with payment
requirements typically over periods not exceeding five years.

     In May 1998, FaciliCom entered into a Memorandum of Understanding ("MOU")
with Qwest Communications International Inc. ("Qwest"). The MOU incorporates
agreements to provide Qwest with international direct dial termination service
to various destinations and provides the Company a 25 year IRU for domestic and
international fiber optic capacity. The total purchase price for the IRU was
$24.0 million, of which approximately $11.0 million remained outstanding as of
December 31, 1999. Delivery of the capacity segments was completed during 1999.

     The Company also leases telecommunications network and related equipment
through various capitalized lease agreements. Future minimum lease payments on
capitalized lease obligations at December 31, 1999 are as follows (in
thousands):

                                                           
2000........................................................  $ 31,788
2001........................................................    11,628
2002........................................................     6,006
2003........................................................       630
2004........................................................       415
Future......................................................     1,408
                                                              --------
  Net minimum lease payments................................    51,875
Less amount representing interest...........................    (6,495)
                                                              --------
  Present value of minimum lease payments...................    45,380
Less current portion of capitalized lease obligations.......   (31,788)
                                                              --------
  Long-term portion of capitalized lease obligations........  $ 13,592
                                                              ========



     The net carrying value of assets under capital leases was approximately
$52.9 million at December 31, 1999, and is included in "Property and equipment"
on the Company's balance sheet. Amortization of these assets is included in
depreciation expense.

NORTEL LINE OF CREDIT

     In October 1999, FaciliCom entered into a Credit Agreement with Nortel
Networks, Inc. ("Nortel Facility") to refinance a promissory note and to provide
a $40.0 million revolving loan facility to finance equipment purchases from
Nortel. The Nortel Facility is scheduled to terminate on December 29, 2000 and
contains interest rate options based on Prime or Eurodollar rates. Loans under
the Nortel Facility are secured by the related equipment and are subject to
certain restrictive covenants. As of December 31, 1999, the Company had
borrowings under the Nortel Facility of approximately $21.7 million at an
interest rate of 11 1/4%.

                                       80
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H:  STOCKHOLDERS' EQUITY

COMMON STOCK

     In December 1999, the Company sold 4,713,128 shares of restricted common
stock for $75.0 million, or $15.913 per share, in a private transaction with a
small group of institutional and sophisticated investors. The Company used the
majority of the proceeds from this private placement to fund the cash
requirements of the FaciliCom Merger. The share price was based on the average
closing price of the Company's common stock during the five trading days prior
to the transaction date. Funds managed by three directors of the Company
purchased $63.0 million of this private offering.

     A total of approximately 24.7 million shares of the Company's common stock
are reserved for issuance upon conversion of the Series A, B and C Preferred
Stock, including those shares of Series A Preferred Stock subject to option.

SERIES A PREFERRED STOCK

     In April 1999, the Company issued 50,000 shares of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A (the "Series A Preferred Stock")
to The 1818 Fund III, L.P. ("The 1818 Fund III") for an aggregate amount of
$50.0 million. As part of the above sale, The 1818 Fund III also received an
option to purchase an additional $20.0 million in Series A Preferred Stock from
the Company prior to June 30, 2000 at the original purchase price per share. The
Company allocated approximately $44.8 million of the gross proceeds to the
50,000 shares of Series A Preferred Stock sold and $5.2 million to the option
granted to purchase additional shares of Series A Preferred Stock. One of our
directors is a co-manager of The 1818 Fund III.

     Dividends.  The holders of the Series A preferred stock are entitled to
receive, when, as and if declared by the World Access board of directors,
quarterly cash dividends at an annual rate on the liquidation preference of the
Series A preferred stock (i.e., $1,000) equal to 4.25%. Dividends payable on the
Series A preferred stock are cumulative and accrue, whether or not declared, on
a daily basis from April 19, 1999.

     Ranking.  The Series A preferred stock ranks, as to dividend and
liquidation rights, senior to World Access common stock and the Series C
preferred stock.

     Voting rights.  In addition to any voting rights provided by law, the
holders of the Series A preferred stock are entitled to vote on all matters
voted on by holders of World Access common stock voting together as a single
class with the holders of World Access common stock and Series C preferred
stock, and other shares entitled to vote thereon. Each holder of the Series A
preferred stock is entitled to cast the number of votes per share as is equal to
the number of votes that such holder would be entitled to cast had such holder
converted its shares into World Access common stock on the record date for
determining the stockholders entitled to vote on any such matters.

     Redemption.  On or after April 21, 2003, World Access has the right to
redeem the Series A preferred stock for a price per share equal to $1,000 plus
an amount per share equal to all accrued and unpaid dividends through the
redemption date. If a change of control of World Access occurs on or before
April 21, 2001, World Access has the right to redeem the Series A preferred
stock for a price per share equal to $1,250 plus an amount per share equal to
all accrued and unpaid dividends through the redemption date.

     Conversion price.  The Series A preferred stock is convertible, at any time
by the holder thereof, into shares of World Access common stock for a conversion
price equal to $11.50 per share. The conversion price is subject to adjustment
in the event of below market issuances of World Access common stock, stock
dividends, subdivisions, combinations, reclassifications and other distributions
with respect to World Access common stock and certain other instances described
in the World Access certificate of incorporation.

                                       81
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Mandatory exchange.  If at any time on or after April 19, 2004 until April
19, 2009, the holders of at least 50% of the Series A preferred stock demand
that World Access exchange the Series A preferred stock, then World Access must
exchange all such shares for, at World Access' option, either shares of World
Access common stock or subordinated nonconvertible notes of World Access. The
exchange must occur at a per share price equal to $1,000 per share plus an
amount per share equal to all accrued and unpaid dividends to the exchange date.
The exchange date must occur at any time, or from time to time, during the
period from the 40th day following the date a stockholder demands the exchange
to the third anniversary of such date. Any shares of common stock issued in the
exchange will be valued at 95% of the average market price of World Access
common stock for the ten trading days preceding the applicable exchange date,
but in no event greater than the conversion price then in effect.

     Mandatory conversion.  If for 45 consecutive trading days the market price
of World Access common stock exceeds 261% of the conversion price in effect on
each such trading day, all shares of Series A preferred stock will be
automatically converted into such number of shares of World Access common stock
as equals the number of shares subject to conversion multiplied by the quotient
of $1,000 divided by the conversion price in effect on the last trading day of
such 45-day period.

SERIES B PREFERRED STOCK

     As part of the consideration paid by the Company in May 1999 to acquire
Comm/Net, the Company issued 23,174 shares of 4.25% Cumulative Junior
Convertible Preferred Stock, Series B (the "Series B Preferred Stock") for an
aggregate amount of approximately $23.2 million. Each share of the Series B
Preferred Stock is convertible at the option of the holder into the Company's
common stock in accordance with a conversion formula equal to the $1,000
liquidation preference per share divided by a conversion price of $16.00 per
common share, subject to standard anti-dilution adjustments. If the closing
trading price of the Company's common stock exceeds $16.00 per share for 45
consecutive trading days, the Series B Preferred Stock will automatically
convert into common stock. Preferred dividends began accruing July 1, 1999 and
are payable quarterly. In March 2000, the Series B Preferred Stock was converted
into 1,448,373 shares of the Company's common stock.

                                       82
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SERIES C PREFERRED STOCK

     As part of the consideration paid by the Company in connection with the
FaciliCom Merger in December 1999, the Company issued 369,901 shares of
Convertible Preferred Stock, Series C (the "Series C Preferred Stock") for an
aggregate amount of approximately $369.9 million. In December 1999, holders of
19,641 shares of Series C Preferred Stock converted their shares into 963,722
shares of the Company's common stock.

     Dividends.  The Series C Preferred Stock bears no dividend.

     Ranking.  The Series C preferred stock ranks, as to dividends, on par with
the World Access common stock and junior to the Series A preferred stock. With
respect to liquidation preference, the Series C preferred stock ranks senior to
the World Access common stock and junior to the Series A preferred stock.

     Voting rights.  In addition to any voting rights provided by law, except
with respect to the election of directors, the holders of the Series C preferred
stock are entitled to vote on all matters voted on by holders of World Access
common stock voting together as a single class with the holders of World Access
common stock and Series A preferred stock, and other shares entitled to vote
thereon. Each holder of the Series C preferred stock is entitled to cast the
number of votes per share as is equal to the number of votes that such holder
would be entitled to cast had such holder converted its shares into World Access
common stock on the record date for determining the stockholders entitled to
vote on any such matters.

     Board of directors representation.  The holders of the Series C preferred
stock have the right, voting as a separate series, to nominate and elect four
directors to the World Access board of directors (and are not entitled to vote
with respect to the election of any other directors), provided that on the
record date for determining the stockholders eligible to vote for directors, at
least 15% of the originally issued Series C preferred stock is outstanding.

     Conversion price.  The Series C preferred stock is convertible, at any time
by the holder thereof, into shares of World Access common stock for a conversion
price equal to $20.38 per share. The conversion price is subject to adjustment
in the event of below market issuances of World Access common stock, stock
dividends, subdivisions, combinations, reclassifications and other distributions
with respect to World Access common stock and other instances described in the
World Access certificate of incorporation.

     Mandatory conversion.  If for 60 consecutive trading days the market price
of World Access common stock exceeds the conversion price in effect on each such
trading day, all shares of Series C preferred stock will be automatically
converted into such number of shares of World Access common stock as equals the
number of shares subject to conversion multiplied by the quotient of $1,000
divided by the conversion price in effect on the last trading day of such 60-day
period.

     In addition, any outstanding shares of Series C preferred stock that have
not been converted into World Access common stock by December 7, 2002 will be
automatically converted into such number of shares of World Access common stock
as is equal to the number of shares of Series C preferred stock subject to
conversion, multiplied by the quotient of (i) $1,000 divided by (ii) the average
market price for the 20 consecutive days ending on December 7, 2002.
Notwithstanding the foregoing, the average market price for the 20 consecutive
days ending on December 7, 2002 may not be less that $11.50 or greater than the
conversion price, and is subject to increase based on a specific decline in the
Nasdaq Composite Index between December 7, 1999 and December 7, 2002.

                                       83
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE I:  STOCK WARRANTS AND OPTIONS

DIRECTOR WARRANT PLANS

     In December 1994, in an effort to attract and retain experienced executives
to serve as outside directors for the Company, the Company's board of directors
adopted an Outside Directors' Warrant Plan (the "Plan"). The Plan, as amended,
provides for the granting of up to 2.4 million warrants. Warrants granted are
priced at or above market value on the date of grant, typically vest within a
one year period and must be exercised prior to the fifth anniversary from the
date of grant. As of December 31, 1999, there were 799,000 warrants available
for future grant under the Plan.

     In December 1994, the board also adopted the Directors Warrant Incentive
Plan (the "Incentive Plan"), pursuant to which the board, beginning in 1997, may
grant to each director on an annual basis warrants to purchase up to 50,000
shares of Company common stock at an exercise price per share equal to no less
than 110% of the fair market value of the common stock at the date of grant.
Warrants may only be issued under the Incentive Plan if the Company's common
stock has appreciated by a compounded average annual growth rate equal to or in
excess of 35% for the four years preceding the year of grant. The Incentive Plan
provides for the granting of up to 600,000 warrants. As of December 31, 1999,
there were 150,000 warrants available for future grant under the Incentive Plan.
In March 2000, the Company's board of directors increased the authorized number
of warrants underlying the Incentive Plan to 1.2 million, subject to approval by
the Company's stockholders.

     The following table summarizes the activity relating to the Plan and the
Incentive Plan:



                                                                NUMBER      AVERAGE
                                                              OF WARRANTS    PRICE
                                                              -----------   -------
                                                                      
Balance at January 1, 1997..................................   1,026,000    $ 2.61
Warrants granted............................................     200,000      9.21
Warrants exercised..........................................    (358,660)     2.02
Warrants lapsed or canceled.................................          --
                                                               ---------
Balance at December 31, 1997................................     867,340      4.37
Warrants granted............................................     400,000     22.87
Warrants exercised..........................................    (700,000)     3.76
Warrants lapsed or canceled.................................    (100,000)    25.85
                                                               ---------
Balance at December 31, 1998................................     467,340     16.52
Warrants granted............................................     551,000     12.90
Warrants exercised..........................................     (67,340)     3.55
Warrants lapsed or cancelled................................     (26,000)    19.88
                                                               ---------
Balance at December 31, 1999................................     925,000    $15.22
                                                               =========
Exercisable at December 31, 1999............................     925,000    $15.22
                                                               =========


     The vesting of all warrants awarded pursuant to the plans above typically
will be subject to the board's discretion, provided that the director to whom
such warrants have been granted has attended at least 75% of the meetings of the
board of directors for the year in which such warrants are scheduled to vest.
Notwithstanding this limitation, the warrants to be awarded pursuant to the
plans will become immediately exercisable (i) if the Company is to be
consolidated with or acquired by another entity in a merger, (ii) upon the sale
of substantially all of the Company's assets or the sale of at least 90% of the
outstanding common stock of the Company to a third party, (iii) upon the merger
or consolidation of the Company with or into any other corporation or the merger
or consolidation of any corporation with or into the Company (in which
consolidation or merger the shareholders of the Company receive distributions of
cash or securities as a result thereof), or (iv) upon the liquidation or
dissolution of the Company.

                                       84
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTION PLANS

     In 1991, the Company's stockholders adopted the 1991 Stock Option Plan (the
"1991 Plan"). The 1991 Plan, as amended, provided for the granting of up to 3.5
million options. As of December 31, 1999, no options were available for future
grant under the 1991 Plan.

     In December 1997, the Company's board of directors authorized the adoption
of the 1998 Incentive Equity Plan (the "1998 Plan"). The 1998 Plan provides for
the granting of up to 7.5 million options. As of December 31, 1999, there were
1.9 million options available for future grant under the 1998 Plan.

     These plans allow the board of directors to grant non-qualified and
incentive stock options to purchase the Company's common stock at an exercise
price not less than fair market value as of the grant date. Options issued under
these plans typically vest over a four year period. Options awarded under the
1991 Plan and the 1998 Plan are subject to the same accelerated vesting
provisions described above under the director warrant plans.

     The following table summarizes the activity relating to the 1991 Plan and
the 1998 Plan:



                                                                NUMBER     AVERAGE
                                                              OF OPTIONS    PRICE
                                                              ----------   -------
                                                                     
Balance at January 1, 1997..................................   2,327,128   $ 6.08
Options granted.............................................   1,955,500    16.95
Options exercised...........................................    (647,700)    5.77
Options lapsed or canceled..................................     (80,440)    7.23
                                                              ----------
Balance at December 31, 1997................................   3,554,488    12.14
Options granted.............................................   1,713,500    21.69
Options exercised...........................................    (793,761)    6.37
Options lapsed or canceled..................................    (144,375)   15.25
                                                              ----------
Balance at December 31, 1998................................   4,329,852    17.15
Options granted.............................................   4,683,150    11.92
Options exercised...........................................    (163,188)    6.70
Options lapsed or cancelled.................................  (1,746,019)   14.83
                                                              ----------
Balance at December 31, 1999................................   7,103,795   $14.51
                                                              ==========
Exercisable at December 31, 1999............................   1,605,945   $14.84
                                                              ==========


     In February 1998, the Company issued 740,543 non-qualified options to
purchase Company common stock at $11.15 per share and 106,586 non-qualified
options to purchase Company common stock at $16.25 per share in exchange for
substantially all the options held by NACT employees, which became immediately
vested in connection with the NACT Merger. As of December 31, 1999, there were
500,792 of these options outstanding at an average exercise price of $12.24 per
share.

     In November 1998, the Company issued 1,028,670 non-qualified options to
purchase Company common stock at prices ranging from $.01 to $32.41 per share in
exchange for substantially all the options held by Telco Systems employees,
which became immediately vested in connection with the Telco Systems Merger. As
of December 31, 1999, there were 604,449 of these options outstanding at an
average exercise price of $16.53 per share.

     In December 1999, the Company issued 495,557 non-qualified options to
purchase Company common stock at prices ranging from $.0001 to $11.06 per share
in exchange for all the options held by FaciliCom employees under the FaciliCom
1998 Stock Option Plan, which became immediately vested in connection with the
FaciliCom Merger. As of December 31, 1999, all 495,557 options were outstanding
at an average exercise price of $2.63 per share.

                                       85
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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In December 1999, the Company issued 1,912,500 options to purchase Company
common stock at $15.00 per share in exchange for all the options held by
FaciliCom employees under the FaciliCom 1999 Stock Option Plan. Other than
approximately 75,000 options that vested in connection the FaciliCom Merger, the
options vest over a four year period. As of December 31, 1999, 1,912,500 options
were outstanding at an exercise price of $15.00 per share.

     All stock options outstanding at December 31, 1999 have been segregated
into six price ranges for additional disclosure as follows:



                                                OPTIONS     WEIGHTED-AVERAGE   WEIGHTED-AVERAGE
RANGE OF                                      OUTSTANDING      REMAINING           EXERCISE
EXERCISE PRICES                               AT 12/31/99   CONTRACTUAL LIFE        PRICES
- ---------------                               -----------   ----------------   ----------------
                                                                      
$  .01 - $ 3.97.............................     662,406          4.36              $ 1.53
  5.44 -   9.75.............................   1,477,660          3.06                8.17
 10.00 -  14.71.............................   3,058,783          3.89               12.00
 15.00 -  19.88.............................   2,923,478          4.89               15.73
 20.31 -  24.74.............................   2,361,159          3.66               21.12
 25.25 -  32.41.............................     133,607          3.94               25.91
                                              ----------
                                              10,617,093
                                              ==========


     A total of approximately 13.5 million shares of the Company's common stock
are reserved for issuance upon the exercise of stock warrants and options.

PRO FORMA RESULTS OF OPERATIONS

     The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for its employee
stock options. Therefore, no compensation cost has been recognized related to
stock options. If the Company had elected to account for its stock options under
the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss and net loss per common share from
continuing operations would have been reduced to the pro forma amounts indicated
below (in thousands):



                                                             1999       1998      1997
                                                           ---------   -------   ------
                                                                        
Loss from continuing operations
  As reported............................................  $ (27,098)  $(5,437)  $ (460)
  Pro forma..............................................    (34,958)   (9,484)  (2,214)
Loss per common share from continuing operations
  As reported............................................      (0.78)    (0.25)   (0.03)
  Pro forma..............................................      (0.99)    (0.43)   (0.02)


     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Since the Company's employee stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of the Company's employee stock options.

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The fair value of each option has been estimated on the date of grant using
a Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998, and 1997, respectively:



                                                              1999   1998   1997
                                                              ----   ----   ----
                                                                       
Dividend yield..............................................  n/a    n/a    n/a
Expected volatility.........................................   70     72     44
Risk-free interest rate.....................................  5.3    5.0    5.5
Expected life of stock options (in years)...................  3.0    5.0    4.5


NOTE J:  RETIREMENT SAVINGS PLAN

     The Company has a retirement savings 401(k) plan that covers substantially
all employees. The plan provides for the employees to voluntarily contribute a
portion of their compensation on a tax deferred basis and allows for the Company
to make discretionary matching contributions as determined by the board of
directors. For 1999, 1998, and 1997, the Company contributed approximately
$357,000, $194,000, and $109,000, respectively, in the form of Company common
stock to the Plan. Company contributions have been based on a 50% match to
employee contributions, up to the first six percent contributed.

NOTE K:  INCOME TAXES

     The Company uses the asset and liability approach for financial accounting
and reporting for income taxes. Certain expenses are reported for financial
accounting purposes in different periods than for income tax purposes. These
temporary differences arise primarily from depreciation, provisions for doubtful
accounts, inventory valuation reserves and various other accrued expenses.

     The components of the income taxes benefit attributable to loss from
continuing operations consisted of the following (in thousands):



                                                                1999      1998      1997
                                                              --------   -------   ------
                                                                          
Federal income taxes
  Current...................................................  $     --   $    --   $   --
  Deferred..................................................   (10,892)   (2,167)    (242)
                                                              --------   -------   ------
                                                               (10,892)   (2,167)    (242)
State income taxes
  Current...................................................        --        --       --
  Deferred..................................................       766    (1,134)     (10)
                                                              --------   -------   ------
                                                                   766    (1,134)     (10)
                                                              --------   -------   ------
          Total income taxes benefit........................  $(10,126)  $(3,301)  $ (252)
                                                              ========   =======   ======


     As a result of the exercises of non-qualified stock options and warrants by
the Company's directors and employees during 1999 and 1998, the Company realized
a federal income tax benefit of approximately $650,000 and $12.8 million,
respectively. These tax benefits are accounted for as a decrease in current
income taxes payable and an increase in capital in excess of par value.

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The income taxes benefit attributable to continuing operations differs from
the amount computed by applying the statutory federal income tax rate to loss
from continuing operations before income taxes as follows (in thousands):



                                                                1999      1998     1997
                                                              --------   -------   -----
                                                                          
Federal income taxes at statutory rate......................  $(13,028)  $(2,971)  $(242)
Amortization of goodwill....................................     2,610       938      --
State tax, net of federal benefit...........................       498      (730)     (6)
Other.......................................................      (206)     (538)     (4)
                                                              --------   -------   -----
Income taxes benefit........................................  $(10,126)  $(3,301)  $(252)
                                                              ========   =======   =====


     The components of deferred tax assets and liabilities at December 31 are as
follows (in thousands):



                                                                1999      1998
                                                              --------   -------
                                                                   
DEFERRED TAX ASSETS
Inventory and other reserves................................  $  9,412   $   123
Restructuring/acquisition costs.............................    15,498        --
Net operating loss carryforwards............................    90,669    51,000
Other.......................................................        --        --
Federal tax credits carryforward............................        --        --
                                                              --------   -------
                                                               115,579    51,123
Valuation reserve...........................................   (75,510)  (24,881)
                                                              --------   -------
Total deferred tax assets...................................    40,069    26,242

DEFERRED TAX LIABILITIES
Depreciation/amortization...................................    (1,508)       --
Intangible Assets...........................................        --        --
Capitalized Software........................................       (68)       --
Other.......................................................       (49)       --
                                                              --------   -------
Total deferred tax liabilities..............................    (1,625)       --
                                                              --------   -------
Net deferred tax assets.....................................  $ 38,444   $26,242
                                                              ========   =======


     SFAS No. 109, "Accounting for Income Taxes" requires that a valuation
reserve be established if it is "more likely than not" that realization of the
tax benefits will not occur. The valuation reserve increased by approximately
$50.6 million in 1999. This change is primarily due to the valuation allowance
established for the net operating loss ("NOL") acquired in connection with the
FaciliCom Merger. This NOL carryforward is subject to limitations under the
consolidated return regulations and limits for certain ownership changes.

     At December 31, 1999, the Company had NOL carryforwards acquired through
acquisitions to reduce future taxable income of these acquisitions of
approximately $78.0 million. To the extent not utilized, the U.S. federal net
operating losses will expire in 2011 through 2018. The Company also acquired
through business acquisitions unused research and development and investment tax
credit carryforwards of approximately $2.7 million at December 31, 1999, which
expire in 2000 through 2013.

     At December 31, 1999, the Company had recorded approximately $13.1 million
relating to deferred tax assets of the discontinued entities.

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE L:  REPORTABLE SEGMENT DATA

     In December 1999, the Company adopted a plan to divest all its
telecommunications equipment business. As a result, the Company's service
segment, "Continuing Operations" is the Company's only reportable business
segment.

     The following table presents revenues and other financial information by
geographic region (in thousands):



                                                               AS OF AND FOR THE YEAR ENDED DECEMBER 31
                                                  -------------------------------------------------------------------
                                                                1999                               1998
                                                  --------------------------------   --------------------------------
                                                  REVENUES(A)   LONG-LIVED ASSETS    REVENUES(A)   LONG-LIVED ASSETS
                                                  -----------   ------------------   -----------   ------------------
                                                                                       
United States...................................   $476,911          $88,695           $10,787          $32,136
Europe..........................................     24,170           47,338                --            9,305
Other foreign countries.........................         --               --                --               --
Consolidated total..............................    501,081          136,033            10,787           41,441


- ---------------

(a) Revenues are attributed to countries based on the location of customers.

NOTE M:  LITIGATION

     Following the Company's announcement in early 1999 regarding earnings
expectations for the quarter and year ended December 31, 1998 and the subsequent
decline in the price of the Company's common stock, 23 class action shareholder
suits were filed against the Company. The Company and certain of its then
current officers and directors were named as defendants. These suits arise from
alleged misstatements of material information in and alleged omissions of
material information from some of our securities filings and other public
disclosures, principally related to product development, inventory and sales
activities during the fourth quarter of 1998. Plaintiffs have requested damages
in an unspecified amount in their complaints.

     These class action suits were consolidated into a single action for all
pretrial proceedings in the United District Court for the Northern District of
Georgia. The plaintiffs filed an amended consolidated complaint for this action
on or about May 28, 1999. The Company filed a motion to dismiss the amended
consolidated complaint on June 28, 1999. The court denied this motion to dismiss
in an order dated March 28, 2000.

     Although the Company and the individuals named as defendants deny that they
have violated any of the requirements or obligations of the federal securities
laws, there can be no assurance the Company will not sustain material liability
as a result of or related to these shareholder suits. As the outcome of these
class action suits is unknown, the potential liability is not reasonably
estimable.

NOTE N:  RELATED PARTY TRANSACTIONS

     A wholly owned subsidiary of MCI WorldCom, Inc. ("WorldCom"), which owned
approximately 8.0% of the Company's voting common stock at December 31, 1999,
purchases international long distance services from the Company under a Carrier
Service Agreement (the "Service Agreement") entered into in June 1998. WorldCom
is obligated to purchase from the Company at least $25.0 million a month of such
services, provided the services are of acceptable quality and the rates quoted
are at least equal to the rates WorldCom is obtaining from other third party
providers. The Service Agreement has a rolling 12-month evergreen term, subject
to a one year prior notice of termination. The revenues attributable to this
Service Agreement comprised approximately 53.4% of the Company's carrier service
revenue for the year ended December 31, 1999.

     FaciliCom has historically relied on its majority stockholder, Armstrong
Holdings, Inc. ("AHI") for the performance of certain of its services, including
customer billing. In connection with the FaciliCom Merger,

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

an affiliate of AHI received 309,002 shares of Series C Preferred Stock, which
represented approximately 20.0% of the Company's voting common stock at December
31, 1999. In December 1999, the Company entered into a two year services
agreement with AHI. The terms of the agreement includes professional services
billed at hourly rates and data center services based on usage and disk storage
space. The Company believes that the terms of the agreements are competitive
with similar services offered in the industry.

     The Company paid Brown Brothers Harriman & Co. $750,000 for advisory
services in connection with the $75.0 million private placement of our common
stock in December 1999 and $830,000 for advisory services in connection with an
$83.1 million private placement of our common stock in February 2000.
Additionally, Brown Brothers Harriman has been engaged in connection with the
proposed sale of our Equipment Group, pursuant to which Brown Brothers Harriman
may be entitled to a payment equal to 0.5% of the sales price upon closing.
Lawrence C. Tucker, a director of the Company, is a General Partner of Brown
Brothers Harriman.

NOTE O:  SUBSEQUENT EVENTS

LDI ACQUISITION

     In February 2000, the Company acquired substantially all of the assets and
assumed certain liabilities of Long Distance International Inc. ("LDI"),
including its wholly-owned subsidiary NETnet International S.A. Operating under
the NETnet(TM) name throughout Europe, LDI offers an array of retail
telecommunications services concentrating on the needs of business customers in
Austria, France, Germany, Italy, Norway, Spain, Sweden, Switzerland, and the
United Kingdom.

     In connection with the LDI acquisition, the Company issued 185,000 shares
of Convertible Preferred Stock, Series D ("Series D Preferred Stock"), to LDI's
stockholders and the holders of LDI's senior notes, for an aggregate
consideration of $185.0 million. The Series D Preferred Stock bears no dividend
and is convertible into shares of the Company's common stock at the option of
the holder in accordance with a conversion formula equal to the $1,000
liquidation preference per share divided by a conversion price of $18.00 per
common share, subject to adjustment. If the closing trading price of the
Company's common stock exceeds $18.00 per share for 60 consecutive trading days,
the Series D Preferred Stock will automatically convert into common stock.

PRIVATE PLACEMENT OF COMMON STOCK

     In February 2000, the Company sold 3,822,552 shares of restricted common
stock for approximately $83.1 million, or $21.75 per share, in a private
transaction with a group of institutional and sophisticated investors.

PENDING SALE OF TELCO SYSTEMS

     In February 2000, the Company executed a definitive agreement with BATM
Advanced Communications Limited ("BATM"), an Israel-based technology company,
pursuant to which Telco Systems will be sold to BATM for $260.8 million of cash
and 960,000 restricted shares of BATM common stock. The shares of BATM common
stock, which had an initial value of $65.2 million, trade on the London Stock
Exchange. Under the terms of the definitive agreement, the Company may not sell,
transfer or otherwise monetize these shares for a period of one year without the
consent of BATM. The Company expects to complete this transaction in the second
quarter of 2000.

STAR MERGER

     In February 2000, the Company executed a definitive agreement with Star
Telecommunications, Inc. ("Star"), a publicly held multinational
telecommunication service provider, pursuant to which Star will be

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                      WORLD ACCESS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

merged with and into the Company. Under the terms of the agreement, each share
of Star common stock will be converted into .3905 shares of the Company's common
stock (approximately 23 million shares). The Company has the option of paying up
to 40% of the merger consideration in cash. The Company expects the transaction
to close in mid-2000.

     The Star merger is subject to, among other things, certain regulatory
approvals, the approval of the stockholders of the Company and Star, and the
divestiture by Star of certain business segments for specified minimum net cash
proceeds. Any net proceeds in excess of the specified minimum proceeds would
serve to directly increase the merger consideration. The merger is intended to
qualify as a tax-free reorganization, and will be accounted for as a purchase
transaction. The Company has agreed to provide bridge financing to Star in an
amount up to $35.0 million. Star will be entitled to elect one director to the
Company's board of directors.

WORLDXCHANGE MERGER

     In February 2000, the Company executed a definitive merger agreement with
Communication TeleSystems International, d/b/a WorldxChange Communications
("WorldxChange"), a privately held multinational telecommunications service
provider. WorldxChange generated pro-forma revenues in 1999 of approximately
$600 million, through its primary operations in North America, Germany, the
United Kingdom, France, the Netherlands, Belgium, Australia and New Zealand.
Pursuant to the terms of the agreement, stockholders of WorldxChange will
receive approximately 31 million shares of the Company's common stock, subject
to adjustment under certain circumstances. In addition, the Company will assume
approximately $225.0 million in WorldxChange debt. The Company expects the
transaction to close in mid-2000.

     The WorldxChange merger is subject to, among other things, certain
regulatory approvals and the approval of the stockholders of the Company and
WorldxChange. The merger is intended to qualify as a tax-free reorganization,
and will be accounted for as a purchase transaction. The Company has agreed to
provide bridge financing to WorldxChange in an amount up to $30.0 million.
WorldxChange will be entitled to elect one director to the Company's board of
directors.

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     On December 22, 1998, we engaged Ernst & Young LLP as the certifying
accountants and dismissed PricewaterhouseCoopers LLP. Our Board of Directors
approved this change in accountants.

     We had no disagreements with our accountants on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which disagreement(s), if not resolved to the satisfaction of the
accountants, would have caused them to make reference to the subject matter of
the disagreement(s) in connection with their reports during each of the two
years in the period ended December 31, 1999 and such accountants' report on the
financial statements for each of the past two years did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.

     We had no disagreements with our former accountant on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which disagreement(s), if not resolved to the satisfaction of
the former accountant, would have caused them to make reference to the subject
matter of the disagreement(s) in connection with their reports during each of
the two years in the period ended December 31, 1997 and from January 1, 1998 to
December 22, 1998 and such accountants' report on the financial statements for
each of the past two years did not contain an adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

     Set forth below is information regarding each of our directors as of March
24, 2000.

     Walter J. Burmeister.  Mr. Burmeister (age 60) has served as our President
and one of our directors since December 1999. Mr. Burmeister was one of
FaciliCom's co-founders and served as its Chief Executive Officer, President and
one of its directors from 1995 until it merged with us in December 1999. Prior
to co-founding FaciliCom, Mr. Burmeister founded TMG, a telecommunications
consulting firm, and he has served as its Chairman from 1992 to the present. Mr.
Burmeister was Vice President and Chief Financial Officer of Bell Atlantic
International from 1989 to 1992. In this position, Mr. Burmeister was
responsible for overseeing business development in Central and South America,
the Middle East and Africa, as well as managing that company's financial
affairs. During his 31 years with Bell Atlantic, Mr. Burmeister was Vice
President of Bell of Pennsylvania's and Diamond State Telephone's sales
organization and headed the C&P Telephone Operations Staff. Mr. Burmeister has
served as a director of Skysat Communications Network since 1992. Mr. Burmeister
serves on our board of directors as a designee of the holders of our Series C
preferred stock, and his current term is scheduled to end at our 2000 Annual
Meeting of Stockholders.

     Kirby J. Campbell.  Mr. Campbell (age 52) has served as one of our
directors since December 1999. He served as Treasurer, Vice President and as a
director of FaciliCom from its inception in 1995 until it merged with us in
December 1999. Since June 1997, Mr. Campbell has been the Chief Executive
Officer of Armstrong Holdings, Inc., FaciliCom's indirect majority stockholder,
and he was previously Executive Vice President of Armstrong Holdings. Mr.
Campbell also holds various executive and board positions with Armstrong
Holdings' affiliated companies. Mr. Campbell serves on our board of directors as
a designee of the holders of our Series C preferred stock, and his current term
is scheduled to end at our 2000 Annual Meeting of Stockholders.

     Bryan Cipoletti.  Mr. Cipoletti (age 39) has served as one of our directors
since December 1999. He served as a director of FaciliCom from September 1997
until it merged with us in December 1999. Mr. Cipoletti has been Chief Financial
Officer of Armstrong Holdings since December 1999 and was Vice President of
Finance of Armstrong Holdings from 1993 to 1999. Mr. Cipoletti also holds
various executive and board positions with Armstrong Holdings' affiliated
companies. Mr. Cipoletti serves on our board of directors

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as a designee of the holders of Series C preferred stock, and his current term
is scheduled to end at our 2000 Annual Meeting of Stockholders.

     Stephen J. Clearman.  Mr. Clearman (age 49) has served as one of our
directors since 1988. Mr. Clearman co-founded Geocapital Partners. Since 1984,
he has served as a general partner of six Geocapital venture capital
partnerships. Mr. Clearman currently serves as a director of MemberWorks
Incorporated and several private companies, all of which principally provide
computer software or information services. Mr. Clearman's current term as a
director of World Access is scheduled to end at our 2000 Annual Meeting of
Stockholders.

     John P. Imlay, Jr.  Mr. Imlay (age 63) has served as one of our directors
since December 1998. He is Chairman of Imlay Investments, Inc., a private
investment firm which manages capital and provides venture funds for small
technology companies. He also serves as Chairman of Dun & Bradstreet Software
Services, Inc., an application software company, and as a director of Metromedia
International Group, Inc., a global media, entertainment and communications
company. Mr. Imlay is the former Chairman of Management Science America, a
mainframe application software company that was acquired by Dun & Bradstreet in
1990. He is also a director of the Atlanta Falcons and The Gartner Group. Mr.
Imlay's current term as a director of World Access is scheduled to end at our
2001 Annual Meeting of Stockholders.

     John D. ("Jack") Phillips.  Mr. Phillips (age 57) has served as one of our
directors since December 1994, as our Chief Executive Officer since December
1998 and as Chairman of our Board of Directors since May 1999. Mr. Phillips was
Chairman of the Board and Chief Executive Officer of Cherry Communications and
Cherry U.K. d/b/a Resurgens Communications Group from October 1997 until
December 1998, when we acquired both companies. He was President, Chief
Executive Officer and a director of Metromedia International from November 1995
until December 1996. Metromedia International was formed in November 1995
through the merger of The Actava Group, Inc., Orion Pictures Corporation, MCEG
Sterling Incorporated and Metromedia International Telecommunications, Inc. He
served as President, Chief Executive Officer and a director of Actava from April
1994 until November 1995. In May 1989, Mr. Phillips became Chief Executive
Officer of Resurgens Communications Group, Inc. and served in this capacity
until September 1993 when Resurgens merged with Metromedia Communications
Corporation and WorldCom. Mr. Phillips' current term as a director of World
Access is scheduled to end at our 2000 Annual Meeting of Stockholders.

     Massimo Prelz Oltramonti.  Mr. Prelz (age 45) has served as one of our
directors since December 1999. He is a Managing Director of Gilbert Global
Equity Partners, L.L.C., a private equity firm with a diversified global
investment strategy. He previously served as Managing Director of Advent
International Corporation, the general partner of a series of global private
equity funds. In this capacity, he co-managed the media and telecom investment
activity of Advent International in Europe and was directly responsible for its
investments in Scandinavian Broadcasting Systems SA, Esat Telecom Group plc,
PrimaCom AG, Esaote S.p.A. and Jazztel SA. Prior to joining Advent International
in 1991, Mr. Prelz was a partner at Alta Berkeley Associates, a venture capital
group in London. He currently serves as Vice-Chairman of PrimaCom AG and is a
director of Esat Telecom Group plc, Jazztel SA and Iaxis N.V. Mr. Prelz's
current term as a director of World Access is scheduled to end at our 2002
Annual Meeting of Stockholders.

     John P. Rigas.  Mr. Rigas (age 36) has served as one of our directors since
December 1999. He is a Managing Partner of Zilkha Capital Partners L.P., a
private equity firm involved in a wide variety of venture capital and technology
investments both in the U.S. and internationally. Mr. Rigas has been a founder
of Zilkha Capital Partners and a member of its predecessor firms for twelve
years. He currently serves as the Chairman of Advanced Interactive Systems Inc.
and as a director of New Colt Holding, Inc., Omniglow, Inc. and Total Sports,
Inc. Mr. Rigas' current term as a director of World Access is scheduled to end
at our 2001 Annual Meeting of Stockholders.

     Carl E. Sanders.  Mr. Sanders (age 74) has served as one of our directors
since December 1998. He is engaged in the private practice of law as Chairman of
Troutman Sanders LLP, a law firm based in Atlanta, Georgia. He is a former
governor of the State of Georgia. Mr. Sanders is currently a director of Carmike

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Cinemas, Matria Health Care and H.I.E. Corp. Mr. Sanders' current term as a
director of World Access is scheduled to end at our 2001 Annual Meeting of
Stockholders.

     Dru A. Sedwick.  Mr. Sedwick (age 34) has served as one of our directors
since December 1999. He served as Secretary, Vice President and as a director of
FaciliCom from FaciliCom's inception in 1995 until it merged with us in December
1999. Since June 1997, Mr. Sedwick has been President of Armstrong Holdings, and
previously he was Senior Vice President of Armstrong Holdings. Mr. Sedwick also
holds various executive and board positions with Armstrong Holdings' affiliated
companies. Mr. Sedwick serves on our board of directors as a designee of the
holders of our Series C preferred stock, and his current term is scheduled to
end at our 2000 Annual Meeting of Stockholders.

     Lawrence C. Tucker.  Mr. Tucker (age 57) has served as one of our directors
since April 1999. He has been a General Partner of Brown Brothers Harriman &
Co., a private banking firm, since 1979 and he also serves on The Partners'
Steering Committee. Mr. Tucker serves as a director of MCI WorldCom, Inc., the
MCI WorldCom Venture Fund, National Healthcare Corporation, Riverwood Holdings,
Inc., VAALCO Energy Inc. and National Equipment Services, Inc. Brown Brothers
Harriman & Co. is the general partner of The 1818 Fund, L.P., The 1818 Fund II,
L.P., the 1818 Fund and The 1818 Mezzanine Fund, L.P. Mr. Tucker serves on our
board of directors as the designee of the holder of our Series A preferred
stock, and his current term as a director of World Access is scheduled to end at
our 2002 Annual Meeting of Stockholders.

EXECUTIVE OFFICERS

     The information with respect to our executive officers is set forth in Item
4.5 of Part I of this Report.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own beneficially more than ten percent of a registered
class of our equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
our securities. Directors, executive officers and greater than ten-percent
stockholders are required by Commission regulations to furnish us with copies of
all Section 16(a) reports they file.

     To the best of our knowledge, based solely on review of the copies of such
reports furnished to us and representations that no other reports were required,
all Section 16(a) filing requirements applicable to our directors, executive
officers and greater than ten-percent beneficial owners were complied with
during the 1999 fiscal year, except for Mr. Phillips, whose Annual Statement of
Changes in Beneficial Ownership on Form 5 was not filed timely. Mr. Phillips was
required to file a Form 5 to reflect shares of our common stock that he gifted
to his children in December 1999.

ITEM 11.  EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

     Our non-employee directors receive no cash compensation for their service
as directors of World Access. Their compensation is in the form of stock
warrants as discussed below. The directors are reimbursed for out-of-pocket
travel and related expenses incurred in connection with their attendance at
meetings of our board or its committees and at other World Access events to
which they are invited.

     In December 1994, in an effort to attract and retain experienced executives
to serve as outside directors, the Outside Directors' Warrant Plan was adopted.
Our stockholders approved the Warrant Plan at the 1995 Annual Meeting of
Stockholders.

     The purposes of the Warrant Plan are to attract and retain the best
available personnel for service as directors of World Access, to provide
additional incentive to the persons serving as directors, to align director and
stockholder long-term interests and to encourage continued service on the World
Access board. Warrants may be granted under the Warrant Plan only to directors
of the Company who are neither employees of World

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Access nor of any of its affiliates. The aggregate number of shares of common
stock authorized to be issued pursuant to the Warrant Plan is 2,400,000, subject
to adjustment in certain instances as described below. The Warrant Plan provides
that each eligible non-employee director elected to serve as a director of World
Access on or after October 1, 1994 may be granted, in the discretion of the
World Access board, warrants to purchase no more than 450,000 shares of common
stock in the aggregate. The initial exercise price of the warrants will be not
less than the fair market value of the common stock subject to the warrant on
the date of grant.

     In June 1999, the following directors were granted warrants to purchase a
total of 201,000 shares of our common stock at an exercise price of $11.69 per
share, the then current market price: Mr. Clearman -- 17,000 shares; Mr.
Imlay -- 42,000 shares; Mr. Sanders -- 42,000 shares; and Mr. Tucker -- 100,000
shares. These warrants, which were fully vested upon issuance, expire on June
15, 2004.

     In December 1999, Mr. Prelz and Mr. Rigas joined our Board and were each
granted warrants to purchase 100,000 shares of our common stock at an exercise
price of $17.62 per share, the then current market price. These warrants, which
were fully vested upon issuance, expire on December 9, 2004.

     In December 1994, we also adopted the Directors' Warrant Incentive Plan
pursuant to which our board may grant, beginning in February 1997, to each
non-employee director on an annual basis warrants to purchase up to 50,000
shares of common stock at an exercise price per share equal to no less than 110%
of the fair market value of the common stock at the date of grant. No warrants
may be granted under the Incentive Plan in a given year unless our common stock
has appreciated by a compounded annual average rate of return in excess of 35%
for the four-year period preceding the year of grant. The aggregate number of
shares of common stock authorized to be issued pursuant to the Incentive Plan is
600,000 subject to adjustment in certain instances as described below. Upon
stockholder approval in mid-2000, the number of authorized shares will be
increased to 1.2 million shares.

     In March 1999, pursuant to the Incentive Plan, our board granted each of
Messrs. Clearman, Imlay and Sanders warrants to purchase 50,000 shares of our
common stock at an exercise price of $8.25 per share, 110% of the then current
market price. These warrants became fully vested on December 31, 1999 and expire
on March 10, 2004.

     Notwithstanding the foregoing, the Warrant Plan and the Incentive Plan
provide that warrants awarded pursuant to these plans will become immediately
exercisable (i) if we are consolidated with or acquired by another entity in a
merger, (ii) upon the sale of substantially all of our assets or the sale of at
least 90% of outstanding common stock to a third party, (iii) upon our merger or
consolidation with or into any other corporation or the merger or consolidation
of any corporation with or into us (in which consolidation or merger our
stockholders receive distributions of cash or securities as a result thereof),
or (iv) upon our liquidation or dissolution.

                                       95
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EXECUTIVE COMPENSATION

     Summary of Compensation. The following table sets forth the cash and
non-cash compensation we awarded or paid our named executive officers,
consisting of our Chief Executive Officer and our four most highly compensated
executive officers other than our Chief Executive Officer, during 1997, 1998 and
1999.

                           SUMMARY COMPENSATION TABLE



                                                                      LONG-TERM
                                                                     COMPENSATION
                                                                        AWARDS
                                                 ANNUAL              ------------
                                              COMPENSATION            SECURITIES
                                      ----------------------------    UNDERLYING         ALL OTHER
NAME AND PRINCIPAL POSITION           YEAR    SALARY    BONUS ($)    OPTIONS (#)    COMPENSATION ($)(6)
- ---------------------------           ----   --------   ----------   ------------   -------------------
                                                                     
John D. Phillips(1).................  1999   $625,000   $1,000,000    1,267,000          $     --
  Chairman and Chief Executive        1998     26,000           --       50,000                --
  Officer                             1997         --           --       50,000                --
W. Tod Chmar(2).....................  1999    300,000      300,000      175,000                --
  Executive Vice                      1998      9,800           --           --                --
  President and Secretary             1997         --           --           --                --
Mark A. Gergel(3)...................  1999    300,000      210,000       90,000             5,000
  Executive Vice President and        1998    168,100           --           --             4,200
  Chief Financial Officer             1997     97,500      115,000      216,000            28,000
A. Lindsay Wallace(4)...............  1999    270,000           --      160,000            36,500
  President of World Access           1998    160,400       65,000       70,000             4,200
  Equipment Group                     1997         --           --           --                --
Michael F. Mies(5)..................  1999    150,000       45,000       50,000             5,000
  Senior Vice President               1998    101,000       30,000           --                --
  of Finance and Treasurer            1997         --           --       42,500            21,500


- ---------------

(1) Mr. Phillips joined our board in December 1994, was appointed our Chief
    Executive Officer in December 1998 and our Chairman in May 1999. Under the
    Directors' Warrant Incentive Plan, Mr. Phillips was granted warrants to
    purchase 50,000 shares of common stock at $9.21 per share and 50,000 shares
    of common stock at $25.85 per share in 1997 and 1998, respectively. These
    warrants were fully vested as of December 31, 1999.
(2) Mr. Chmar joined World Access as Executive Vice President and Secretary in
    December 1998.
(3) During 1997, Mr. Gergel was paid a flat sum allowance of $25,000 for the
    relocation of his household to Atlanta, Georgia.
(4) Mr. Wallace joined World Access in February 1998 in connection with our
    acquisition of a majority interest in NACT Telecommunications, Inc. During
    1999, Mr. Wallace was paid $31,500 to reimburse him for costs incurred in
    the relocation of his household to Atlanta, Georgia.
(5) During 1997, Mr. Mies was paid a flat sum allowance of $21,500 for the
    relocation of his household to Atlanta, Georgia.
(6) Except as noted above, All Other Compensation represents matching
    contributions we provide all eligible employees under our 401(k) benefit
    plan.

                                       96
   99

                       OPTION GRANTS IN LAST FISCAL YEAR

     The following table sets forth information regarding the grant of stock
options to the named executive officers during 1999.



                                                                                       POTENTIAL REALIZABLE
                                         INDIVIDUAL GRANTS                             VALUE ($) AT ASSUMED
                               --------------------------------------                    ANNUAL RATES OF
                               NUMBER OF        % OF                                       STOCK PRICE
                               SECURITIES   TOTAL OPTIONS                                APPRECIATION FOR
                               UNDERLYING    GRANTED TO     EXERCISE                      OPTION TERM(4)
                                OPTIONS     EMPLOYEES IN      PRICE     EXPIRATION   ------------------------
NAME                            GRANTED      FISCAL YEAR    PER SHARE      DATE          5%           10%
- ----                           ----------   -------------   ---------   ----------   ----------   -----------
                                                                                
John D. Phillips(1)..........    750,000        10.6%        $12.75       1/12/04    $8,077,500   $11,842,500
                                 250,000         3.5          12.75       4/16/04     2,767,500     4,127,500
                                  17,000          .2          11.69       6/16/04       209,600       307,000
                                 250,000         3.5          15.88      11/29/04     2,160,000     3,782,500
W. Tod Chmar(2)..............    100,000         1.4           8.19       2/12/04     1,543,000     2,059,000
                                  75,000         1.1          15.88      11/29/04       648,000     1,134,700
Mark A. Gergel(2)............     40,000          .6          11.69       6/16/04       493,200       722,400
                                  50,000          .7          15.88      11/29/04       432,000       756,500
A. Lindsay Wallace(3)........    130,000         1.8          12.75       1/12/04     1,400,100     2,052,700
                                  30,000          .4          11.69       6/16/04       369,900       541,800
Michael F. Mies(3)...........     37,500          .5           8.19       2/12/04       578,600       772,100
                                  12,500          .2          11.69       6/16/04       154,100       225,800


- ---------------

(1) The 750,000 and 250,000 options granted to Mr. Phillips at $12.75 per share
    were originally scheduled to vest over a four-year period. In connection
    with Mr. Phillips' execution of a letter agreement with Armstrong
    International Telecommunications, Inc. (see "Executive Employment
    Agreements"), our board elected to vest all these options in full upon the
    consummation of our merger with FaciliCom in December 1999. The 17,000
    options vested immediately upon issuance, and the other 250,000 of options
    will vest one-third on each of the first three anniversaries from date of
    grant.
(2) The first option grant indicated will vest 25% on each of the first four
    anniversaries from date of grant and the second grant will vest one-third on
    each of the first three anniversaries from date of grant.
(3) All options granted will vest 25% on each of the first four anniversaries
    from date of grant.
(4) The 5% and 10% appreciation rates are set forth in the Securities and
    Exchange Commission rules and no representation is made that common stock
    will appreciate at these assumed rates or at all.

                                       97
   100

                    AGGREGATED OPTION AND WARRANT EXERCISES
             IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

     The following table sets forth information concerning the value of director
warrants and employee options exercised by the named executive officers during
1999 and the value at December 31, 1999 of unexercised warrants and options held
by each such officer. The value of unexercised warrants and options reflects the
increase in market value of our common stock from the date of grant through
December 31, 1999.



                                                           NUMBER OF SECURITIES            VALUE OF UNEXERCISED
                                                          UNDERLYING UNEXERCISED             IN-THE-MONEY(2)
                         NUMBER OF                         WARRANTS AND OPTIONS            WARRANTS AND OPTIONS
                          SHARES                               AT 12-31-99                     AT 12-31-99
                        ACQUIRED ON       VALUE        ----------------------------    ----------------------------
NAME                     EXERCISE      REALIZED(1)     EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
- ----                    -----------    ------------    -----------    -------------    -----------    -------------
                                                                                    
John D. Phillips              --         $     --       1,117,000         250,000      $7,130,500      $  842,500
W. Tod Chmar                  --               --              --         175,000              --       1,358,700
Mark A. Gergel            10,125          107,500         237,500         156,000       1,038,400         470,900
A. Lindsay Wallace            --               --         122,380         212,500         712,700       1,071,800
Michael F. Mies               --               --          17,500          71,250          37,800         582,700


- ---------------
(1) The "value realized" represents the difference between the exercise price of
    the shares and the market price of the shares on the date the warrants and
    options were exercised. The value realized was determined without
    considering any taxes which may have been owed.

(2) "In-the-Money" warrants and options have an exercise price less than $19.25
    per share, the closing price of our common stock as of December 31, 1999.

EXECUTIVE EMPLOYMENT AGREEMENTS

     On April 16, 1999, we entered into new employment agreements with each of
John D. Phillips, our Chairman and Chief Executive Officer, W. Tod Chmar, our
Executive Vice President and Secretary, and Mark A. Gergel, our Executive Vice
President and Chief Financial Officer. Mr. Phillips' employment agreement
provides for a base salary of $625,000 per year. The agreement further provides
that Mr. Phillips may be awarded an annual bonus in the discretion of our board
pursuant to a bonus or incentive plan or otherwise. The initial term of the
agreement is three years, with an automatic one-year extension on each
anniversary of the agreement's effective date unless either party to the
agreement gives notice of termination. If, during the term of the agreement, Mr.
Phillips' employment with World Access is terminated (i) by World Access without
cause, as defined below, or (ii) by Mr. Phillips for good reason, as defined
below, Mr. Phillips will be entitled to an amount in cash equal to two times his
base annual salary, which will be paid in bi-weekly installments over a period
of 24 months, and to his then current life insurance, disability, medical,
dental and hospitalization benefits for a period of 24 months or such longer
period as may be provided by the terms of the appropriate program, all of Mr.
Phillips' stock options, warrants and stock appreciation rights granted on or
prior to the date of his employment agreement shall become fully vested and
immediately exercisable until the first anniversary of Mr. Phillips' termination
date, and all performance units granted to Mr. Phillips at any time prior to his
termination shall become fully vested.

     Mr. Chmar's employment agreement provides for a base salary of $300,000 per
year. The agreement further provides that Mr. Chmar may be awarded an annual
bonus in the discretion of our board pursuant to a bonus or incentive plan or
otherwise. The initial term of the agreement is three years, with an automatic
one-year extension on each anniversary of the agreement's effective date unless
either party to the agreement gives notice of termination. If, during the term
of the agreement, Mr. Chmar's employment with World Access is terminated (i) by
World Access without cause or (ii) by Mr. Chmar for good reason, Mr. Chmar will
be entitled to an amount in cash equal to his base annual salary, which will be
paid in bi-weekly installments over a period of 12 months, and to his then
current life insurance, disability, medical, dental and hospitalization benefits
for a period of 12 months or such longer period as may be provided by the terms
of the appropriate program, all of Mr. Chmar's stock options, warrants and stock
appreciation rights granted on or prior to the date of his employment agreement
shall become fully vested and immediately exercisable until the first

                                       98
   101

anniversary of Mr. Chmar's termination date, and all performance units granted
to Mr. Chmar at any time prior to his termination shall become fully vested.

     Mr. Gergel's employment agreement provides for a base salary of $300,000
per year. The agreement further provides that Mr. Gergel may be awarded an
annual bonus in the discretion of our board pursuant to a bonus or incentive
plan or otherwise. The initial term of the agreement is three years, with an
automatic one-year extension on each anniversary of the agreement's effective
date unless either party to the agreement gives notice of termination. If,
during the term of the agreement, Mr. Gergel's employment with World Access is
terminated (i) by World Access without cause or (ii) by Mr. Gergel for good
reason following a change of control, Mr. Gergel will be entitled to an amount
in cash equal to his base annual salary, which will be paid in bi-weekly
installments over a period of 12 months, and to his then current life insurance,
disability, medical, dental and hospitalization benefits for a period of 12
months or such longer period as may be provided by the terms of the appropriate
program, all of Mr. Gergel's stock options, warrants and stock appreciation
rights granted on or prior to the date of his employment agreement shall become
fully vested and immediately exercisable until the first anniversary of Mr.
Gergel's termination date, and all performance units granted to Mr. Gergel at
any time prior to his termination shall become fully vested. Notwithstanding
these provisions, if Mr. Gergel terminates his employment for any reason, in
addition to receiving the same treatment with respect to his options, warrants,
rights and performance units, he shall be entitled to an amount of cash equal to
one-half of his base annual salary and the benefits described above for a period
of six months.

     For the purposes of the employment agreements with each of Messrs.
Phillips, Chmar and Gergel, the following definitions apply:

     A termination of employment is for cause if the employee has been convicted
of a felony or a felony prosecution has been brought against the employee or if
the termination is evidenced by a resolution adopted in good faith by two-thirds
(2/3) of the board that the employee (i) intentionally and continually failed
substantially to perform his reasonably assigned duties, other than a failure
resulting from the employee's incapacity due to physical or mental illness or
from the employee's assignment of duties that would constitute good reason,
which failure continued for a period of at least 30 days after a written notice
of demand for substantial performance has been delivered to the employee
specifying the manner in which the employee has failed substantially to perform
or (ii) intentionally engaged in illegal conduct or gross misconduct which
results in material economic harm to World Access.

     Good reason means a good faith determination by the employee that any one
or more of the following events has occurred, without the employee's express
written consent:

          (i) the assignment to the employee of any duties inconsistent with the
     employee's position, authority, duties or responsibilities as in effect
     immediately prior to the date of his employment agreement, or any other
     action by World Access that results in a material diminution in such
     position, authority, duties or responsibilities; (ii) a reduction by World
     Access in the employee's base salary, or a change in the eligibility
     requirements or performance criteria under any bonus, incentive or
     compensation plan, program or arrangement under which the employee is
     covered immediately prior to his termination date which adversely affects
     the employee; (iii) any failure to pay the employee any compensation or
     benefits to which he is entitled within five days of the date due; (iv)
     World Access' requiring the employee to be based anywhere other than within
     50 miles of the employee's job location as of the date of his employment
     agreement, except for reasonably required travel on World Access' business
     which is not greater than such travel requirements prior to the date of his
     employment; (v) the taking of any action by World Access that would
     materially adversely affect the physical conditions existing in or under
     which the employee performs his employment duties; (vi) the insolvency or
     the filing of a petition for bankruptcy by World Access; (vii) any
     purported termination of the employee's employment for cause by World
     Access which does not comply with his terms of his employment agreement; or
     (viii) any breach by World Access of any provision of an employment
     agreement.

     A change in control shall have occurred if: (i) a majority of the directors
of World Access shall be persons other than persons: (A) for whose election
proxies shall have been solicited by the board, or (B) who are then serving as
directors appointed by the board to fill vacancies on the board caused by death
or
                                       99
   102

resignation, but not by removal, or to fill newly-created directorships; (ii) a
majority of the outstanding voting power of World Access shall have been
acquired or beneficially owned by any person (other than World Access, a
subsidiary of World Access or the employee) or any two or more persons acting as
a partnership, limited partnership, syndicate, or other group acting in concert
for the purpose of acquiring, holding or disposing of voting stock of World
Access, which group does not include the employee; or (iii) there shall have
occurred: (A) a merger or consolidation of World Access with or into another
corporation (other than (1) a merger or consolidation with a subsidiary of World
Access or (2) a merger or consolidation in which (a) the holders of voting stock
of World Access immediately prior to the merger as a class continue to hold
immediately after the merger at least a majority of all outstanding voting power
of the surviving or resulting corporation or its parent and (b) all holders of
each outstanding class or series of voting stock of World Access immediately
prior to the merger or consolidation have the right to receive substantially the
same cash, securities or other property in exchange for their voting stock of
World Access as all other holders of such class or series); (B) a statutory
exchange of shares of one or more classes or series of outstanding voting stock
of World Access for cash, securities or other property; (C) the sale or other
disposition of all or substantially all of the assets of World Access, in one
transaction or a series or transactions; or (D) the liquidation or dissolution
of World Access; unless more than 25% of the voting stock, or the voting equity
interest, of the surviving corporation or the corporation or other entity
acquiring all or substantially all of the assets of World Access (in the case of
a merger, consolidation or disposition of assets) or of World Access or its
resulting parent corporation (in the case of a statutory share exchange) is
beneficially owned by the employee or a group that includes the employee.

     John D. Phillips and Armstrong International Telecommunications, Inc. have
entered into a letter agreement, pursuant to which Mr. Phillips has agreed not
to sell or transfer, directly or indirectly, any shares of World Access common
stock held by him without the prior written consent of Armstrong International
Telecommunications for so long as Armstrong International Telecommunications or
any of its affiliates remains a stockholder of World Access. The provisions of
the letter agreement terminate upon (i) Mr. Phillips' death or disability, (ii)
any decision to remove, or to not reelect, Mr. Phillips as the Chief Executive
Officer of World Access in which at least 50% of the directors elected by the
holders of World Access Series C preferred stock (or, upon conversion into or
other acquisition of World Access common stock, by 50% of the directors
nominated, designated or elected by Armstrong International Telecommunications,
Epic Interests, Inc. and BFV Associates, Inc., or their affiliates) vote in
favor of such removal or fail to vote in favor of such reelection, (iii) the
fifth anniversary of the closing of our merger with FaciliCom in the event that
Mr. Phillips is no longer Chief Executive Officer of World Access for any
reason, and (iv) upon a change of control of World Access.

     On November 29, 1999, we entered into an agreement with A. Lindsay Wallace,
President of our Equipment Group, that provides incentive compensation for Mr.
Wallace in the event of the sale of specified divisions of our Equipment Group.
This agreement provides that World Access will pay to Mr. Wallace: (i) a cash
payment equal to 0.75% of the gross consideration received by World Access upon
the sale of the NACT Switching Division; (ii) a cash payment equal to 0.75% of
the gross consideration received by World Access upon the sale of the Wireless
Local Loop Division; and (iii) 0.5% of the gross consideration received by World
Access upon the sale of the Transport and Access Division. This agreement also
provides that all stock options granted to Mr. Wallace under our 1991 Stock
Option Plan and 1998 Incentive Equity Plan will become fully vested upon the
sale of the NACT Switching Division and the Transport and Access Division, and
those options may be exercised by Mr. Wallace at any time until the one year
anniversary of the termination of Mr. Wallace's employment with World Access.
Additionally, this agreement states that if Mr. Wallace's employment with World
Access is terminated as a direct result of the sale of one of these divisions,
World Access will continue to pay Mr. Wallace's current base salary through the
second anniversary of his termination date. World Access' obligations under this
agreement are conditioned upon Mr. Wallace remaining the President of the
Equipment Group through the closing of the sales of these divisions, his
assistance in facilitating these sales and his agreement to serve as a full-time
employee or consultant with the buyer of these divisions for a period of six
months following the closing date. This agreement may be revoked at any time by
the Chief Executive Officer of World Access, in his sole discretion.

                                       100
   103

COMPENSATION COMMITTEE REPORT

     This report sets forth information on the compensation and benefits
provided to our Chief Executive Officer and other executive officers of the
Company during 1999 and has been prepared by the Compensation Committee of our
board of directors.

     Compensation Philosophy.  The Compensation Committee is currently comprised
of four non-employee directors. Among other things, the Compensation Committee
reviews and approves annual executive officer compensation. In general, the
compensation policies adopted by the Compensation Committee are designed to (i)
attract and retain executives capable of leading World Access to meet its
business objectives and (ii) motivate World Access executives to enhance
long-term stockholder value.

     The annual compensation of Mr. Phillips, our Chairman and Chief Executive
Officer, and our other executive officers consists of a combination of base
salary, incentive bonuses and stock options. The Compensation Committee sets
base salaries for executive officers based principally on an assessment of World
Access' short and long-term goals and the specific responsibilities of each
officer. Information on individual performance is provided to the Compensation
Committee by our Chief Executive Officer. In addition to individual performance
against goals and responsibilities, the Compensation Committee is aware of
executive compensation practices at comparable companies (i.e., companies which
are generally of the same size in related industries). The Compensation
Committee uses this information only as a general reference, however, and not to
set specific salary amounts.

     Incentive Bonuses.  Annually, the Compensation Committee establishes the
performance goals and range of bonuses under our Short-Term Incentive Plan for
Senior Executives which was approved by our stockholders in June 1999. The
performance goals for 1999 were tied to World Access achieving predefined levels
of (i) earnings per share; (ii) revenue; (iii) earnings before interest, taxes,
depreciation and amortization; and (iv) common stock price appreciation. Each
performance goal operates independently, so achieving or failing to achieve
results from one measurement does not reflect the eligible bonus amounts awarded
for others.

     Stock Options.  The stock option program is a long-term incentive plan for
executive officers and other key employees. The objectives of the program are to
align executive and stockholder long-term interests by creating a strong and
direct relationship between executive compensation and stockholder returns. The
Compensation Committee strongly believes that by providing those individuals who
have substantial responsibility for the management and growth of World Access
and the maximizing of stockholder returns with an opportunity to increase their
ownership of common stock, the best interests of stockholders and executives
will be more closely aligned. World Access stock options typically vest over
three to four years, which increases the long-term value of these awards.

     The Compensation Committee's determination of the number of options to
award to an individual executive officer is made in a manner similar to that
described above with respect to the setting of salaries. In addition, in
determining the number of options to be granted to an individual, the
Compensation Committee takes into account the number of options already granted
to that individual and the value of those options.

                                       101
   104

     Discussion of 1998 Chief Executive Officer Compensation.  Based on our
actual performance against Short-Term Incentive Plan goals in 1999, as well as
Mr. Phillips' ability to complete several key strategic initiatives during the
year, the Compensation Committee awarded Mr. Phillips an incentive bonus of $1.0
million. Key strategic initiatives completed by Mr. Phillips included: (i) $50.0
million investment by The 1818 Fund III; (ii) acquisition of Comm/Net; (iii)
FaciliCom merger; (iv) $75.0 million private placement by institutional
investors; (v) pending acquisition of Long Distance International; and (vi)
pending monetization of the Company's equipment businesses. The Compensation
Committee also considered Mr. Phillips' continued progress in establishing a
broad, experienced management team, the efficient integration of acquired
businesses and the significant increase in the Company's market capitalization
during 1999.

                                          Submitted by the Compensation
                                          Committee

                                                   Stephen J. Clearman
                                                    John P. Imlay, Jr.
                                                     Carl E. Sanders
                                                      Dru A. Sedwick

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

     Our board's Compensation Committee consists of the four persons named as
signatories to the Compensation Committee Report above. There are no
Compensation Committee interlocks.

                                       102
   105

                   WORLD ACCESS STOCK PRICE PERFORMANCE GRAPH

     The following graph compares the cumulative total stockholder return on our
common stock with the cumulative total return (including reinvested dividends)
of The Nasdaq Stock Market -- United States owned companies and Nasdaq
Telecommunications Stocks for the five years ended December 31, 1999. The Nasdaq
total returns were prepared by the Center for Research in Security Prices at the
University of Chicago.



                                                      WORLD ACCESS                NASDAQ (U.S.)              NASDAQ (TELCOM)
                                                      ------------                -------------              ---------------
                                                                                               
1994                                                     100.00                      100.00                      100.00
1995                                                     300.00                      141.33                      130.91
1996                                                     320.00                      173.89                      133.86
1997                                                     955.00                      213.07                      195.75
1998                                                     855.00                      300.25                      322.30
1999                                                     770.00                      542.43                      561.27


- ---------------

Assumes that the value of the investment in our common stock and each index was
$100 on December 31, 1994, and that all dividends were reinvested.
(1) World Access common stock
(2) Total Return Index for The Nasdaq Stock Market (U.S. Companies)
(3) Total Return Index for Nasdaq Telecommunications Stocks

     Pursuant to Securities and Exchange Commission regulations, this
performance graph is not "soliciting material," is not deemed filed with the
Commission and is not to be incorporated by reference in any of our filings
under the Securities Act or the Securities Exchange Act.

                                       103
   106

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Our only issued and outstanding classes of voting securities are common
stock, Series A preferred stock, Series C preferred stock and Series D preferred
stock. As of March 24, 2000, there were 59,675,996 shares of World Access common
stock issued and outstanding; 50,000 shares of Series A preferred stock issued
and outstanding (convertible to 4,347,826 shares of our common stock); 350,260
shares of Series C preferred stock issued and outstanding (convertible into
17,186,451 shares of our common stock) and 185,000 shares of Series D preferred
stock issued and outstanding (convertible into 10,277,777 shares of our common
stock).

     The following table sets forth information regarding the beneficial
ownership of our common stock and each individual class of our preferred stock,
as of March 24, 2000 for (i) each person we know beneficially owns more than 5%
of our common stock, (ii) each director individually, (iii) each executive
officer who would be a named executive officer under Rule 402 of Regulation S-K
and (iv) all directors and executive officers as a group.



                                                        SHARES UNDERLYING    TOTAL SHARES
                                            SHARES         DERIVATIVE        BENEFICIALLY    PERCENTAGE
NAME                                       OWNED(1)       SECURITIES(2)        OWNED(1)        OWNED
- ----                                       ---------    -----------------    ------------    ----------
                                                                                 
World Access Common Stock
Armstrong International
  Telecommunications, Inc.(3)............         --       15,162,015         15,162,015        20.3%
  One Armstrong Place
  Butler, PA 16001
WorldCom Network Services, Inc.(4).......  6,327,344               --          6,327,344        10.6
  500 Clinton Center Drive
  Clinton, MS 39056
The 1818 Fund III, L.P.(5)...............         --        6,086,956          6,086,956         9.3
  59 Wall Street
  New York, NY 10005
Morgan Stanley & Co. Incorporated(6).....         --        5,685,111          5,685,111         8.7
  1585 Broadway
  New York, NY 10036
Walter J. Burmeister+++(7)...............         --        1,135,694          1,135,694         1.9
Kirby J. Campbell+.......................         --               --                 --           *
Bryan Cipoletti+.........................         --               --                 --           *
Stephen J. Clearman+(8)..................  1,309,044          167,000          1,476,044         2.5
John P. Imlay, Jr.+......................     59,900          179,000            238,900           *
John D. Phillips+++(9)...................  1,312,500        1,117,000          2,429,500         4.0
Massimo Prelz Oltramonti+(10)............  1,885,251          100,000          1,985,251         3.3
John P. Rigas+(11).......................    816,942          100,000            916,942         1.5
Carl E. Sanders+(12).....................     62,000          179,000            241,000           *
Dru A. Sedwick+..........................         --               --                 --           *
Lawrence C. Tucker+(5)...................         --        6,186,956          6,186,956         9.4
W. Tod Chmar++...........................    312,500           25,000            337,500           *
Mark A. Gergel++(13).....................     26,791          237,500            264,291           *
Michael F. Mies++(13)....................      2,267           28,750             31,017           *
A. Lindsay Wallace++(13).................        496          172,380            172,876           *
All directors and executive officers as a
  group (15 persons).....................  5,787,691        9,628,280         15,415,971        16.1


                                       104
   107



                                                        SHARES UNDERLYING    TOTAL SHARES
                                            SHARES         DERIVATIVE        BENEFICIALLY    PERCENTAGE
NAME                                       OWNED(1)       SECURITIES(2)        OWNED(1)        OWNED
- ----                                       ---------    -----------------    ------------    ----------
                                                                                 
Series A Preferred Stock
The 1818 Fund III, L.P...................     50,000           20,000             70,000       100.0

Series C Preferred Stock
Armstrong International
  Telecommunications, Inc................    309,002               --            309,002        88.2
Walter J. Burmeister.....................     19,161               --             19,161         5.5
Juan Carlos Valls........................     19,161               --             19,161         5.5
  1530 Key Boulevard #306
  Arlington, VA 22209

Series D Preferred Stock
Morgan Stanley & Co. Incorporated........    102,332               --            102,332        55.3
AIM High Yield Fund......................     16,851               --             16,851         9.1
  11 Greenway Plaza, #1919
  Houston, TX 77046
NETnet International S.A.................     14,800               --             14,800         8.0
  Siege Social; L-1611
  41 Avenue de la Gare
  R.C. Luxemburg B49615
Kemper High Yield Series.................     11,794               --             11,794         6.4
  222 South Riverside Plaza
  Chicago, IL 60606


- ---------------
 *  Less than one percent
 +  Director
 ++  Named executive officer
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
    the Securities Exchange Act. Unless otherwise noted, we believe that all
    persons named in the table have sole voting and investment power with
    respect to all shares of common stock beneficially owned by them.
(2) Unless otherwise indicated, represents shares which may be acquired by the
    exercise of stock options and warrants on or before May 23, 2000.
(3) Represents 15,162,015 shares of common stock issuable upon the conversion of
    309,002 shares of Series C preferred stock.
(4) Includes 1,746,500 shares of common stock held in escrow pursuant to our
    acquisition of Cherry Communications Incorporated in December 1998. This
    amount currently represents our best estimate of the shares to ultimately be
    released to WorldCom Network Services, Inc., a wholly owned subsidiary of
    MCI WorldCom, Inc., upon the final resolution of all creditor claims against
    Cherry Communications in U.S. Bankruptcy Court. WorldCom Network Services
    directs the voting of these shares while they are held in escrow.
(5) Includes 4,347,826 shares of common stock issuable upon the conversion of
    50,000 shares of Series A preferred stock owned of record by The 1818 Fund
    III, a private equity partnership, and 1,739,130 shares of common stock
    reserved for issuance upon the conversion of 20,000 shares of Series A
    preferred stock which is subject to an option held by The 1818 Fund III. The
    general partner of the 1818 Fund III is Brown Brothers Harriman & Co. Mr.
    Tucker, a partner at Brown Brothers Harriman, is deemed to be the beneficial
    owner of these shares due to his role as co-manager of The 1818 Fund III.
(6) Represents 5,685,111 shares of common stock issuable upon the conversion of
    102,332 shares of Series D preferred stock.
(7) Includes 940,204 shares of common stock issuable upon the conversion of
    19,161 shares of Series C preferred stock.
(8) Includes 1,211,982 shares of common stock owned by Geocapital V, L.P.,
    36,900 shares owned by Geocapital Advisors, L.P., and 7,952 shares owned by
    Geocapital Investors V, L.P. Mr. Clearman, a general partner of these
    partnerships, is deemed to be the beneficial owner of these shares.

                                       105
   108

 (9) Includes 787,500 shares owned of record by Resurgens Partners, LLC, of
     which Mr. Phillips has the sole voting and dispositive power. Also includes
     100,000 shares held in the name of Mr. Phillips' wife as custodian for two
     of Mr. Phillips' minor children, with respect to which Mr. Phillips
     disclaims beneficial ownership.
(10) Represents 1,443,887 shares of common stock owned by Gilbert Global Equity
     Partners, L.P. and 441,364 shares owned by Gilbert Global Equity Partners
     (Bermuda), L.P. Mr. Prelz, a Managing Director of Gilbert Global Equity
     Partners, is deemed to be the beneficial owner of these shares.
(11) Represents 816,942 shares of common stock owned by Zilkha Capital Partners,
     L.P. Mr. Rigas, a Managing Partner of Zilkha Capital Partners, is deemed to
     be the beneficial owner of these shares.
(12) Includes 2,000 shares owned by Mr. Sanders' wife, with respect to which Mr.
     Sanders disclaims beneficial ownership.
(13) Includes the following shares of common stock acquired through voluntary
     employee contributions to our 401(k) Plan and contributed to the 401(k)
     Plan under a matching contribution program offered to all 401(k) Plan
     participants: Mr. Gergel -- 4,041 shares; Mr. Mies -- 517 shares and Mr.
     Wallace -- 496 shares.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During 1999, we paid aggregate fees of approximately $215,900 to JDP
Aircraft II, Inc. for charter flight services provided to World Access. John D.
Phillips, our Chairman and Chief Executive Officer, is the sole shareholder and
an officer of JDP Aircraft II.

     In April 1999, we issued 50,000 shares of Series C preferred stock to The
1818 Fund III for consideration of $50.0 million. Lawrence C. Tucker, one of our
directors, is a co-manager of The 1818 Fund III.

     We paid Brown Brothers Harriman & Co. $750,000 for advisory services in
connection with a $75.0 million private placement of our common stock in
December 1999 and $830,000 for advisory services in connection with an $83.1
million private placement of our common stock in February 2000. Additionally, we
have engaged Brown Brothers Harriman in connection with the proposed sale of our
Equipment Group, pursuant to which Brown Brothers Harriman may be entitled to a
payment equal to 0.5% of the sales price upon closing. Mr. Tucker is a General
Partner of Brown Brothers Harriman.

     FaciliCom has historically relied on its majority stockholder, Armstrong
Holdings, Inc. for the performance of services, including customer billing. In
connection with the FaciliCom merger, an affiliate of Armstrong Holdings
received 309,002 shares of our Series C preferred stock, which represented
approximately 20.0% of our voting common stock at December 31, 1999. In December
1999, we entered into a two year services agreement with Armstrong Holdings. The
terms of the agreement includes professional services billed at hourly rates and
data center services based on usage and disk storage space. We believe that the
terms of the agreements are competitive with similar services offered in the
industry.

     In December 1999, we sold 4,713,128 shares of restricted common stock for
$75.0 million, or $15.91 per share, in a private transaction with a group of
institutional and sophisticated investors. Entities affiliated with Geocapital
Partners, entities affiliated with Gilbert Global Equity Partners, and Zilkha
Capital Partners were the purchasers of $20.0 million, $30.0 million, and $13.0
million of common stock, respectively, in this transaction. Stephen J. Clearman,
a general partner of Geocapital Partners, Massimo Prelz Oltramonti, a Managing
Director of Gilbert Global Equity Partners, and John P. Rigas, a Managing
Partner of Zilkha Capital Partners, are members of our board of directors.

                                       106
   109

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) List of Documents filed as part of this report

     (1) Financial Statements

     The index to the financial statements included in this report within Item 8
(page 50) is incorporated herein by reference.

     (2) Financial Statement Schedules



  SCHEDULE                 PAGE
   NUMBER                 NUMBER
  --------                ------
                       
  I                        109
  II                       114


     (3) Exhibits -- See Item 14 (c) below

     (b) Reports on Form 8-K

     On October 5, 1999 we filed an amendment to our Report on Form 8-K filed on
July 14, 1999 announcing that WA Telco Systems Products Co., Inc., our wholly
owned subsidiary, acquired substantially all the assets and assumed certain
liabilities of Comm/Net Holding Corporation and its wholly owned subsidiaries,
Enhanced Communications Corporation, Comm/Net Services Corporation and Long
Distance Exchange Corporation. The purpose of this amendment was to clarify that
financial statements and pro forma financial information were not required to be
filed with the Commission with respect to this transaction as Comm/Net did not
represent a significant subsidiary at the 20% level as set forth in Rule 3-05 of
Regulation S-X.

     On December 14, 1999 we filed a Report on Form 8-K announcing that our
Board of Directors had adopted a plan to divest, spin-off or otherwise monetize
our Equipment Group.

     On December 22, 1999 we filed a Report on Form 8-K announcing that we had
completed our merger with FaciliCom International, Inc. We included audited
financial statements of FaciliCom in this Report.

     (c) The exhibits filed herewith and incorporated by reference herein are
set forth on the Exhibit Index beginning on page 105 hereof. Included in those
exhibits are the following executive compensation plans and arrangements:



NUMBER        DESCRIPTION
- ------        -----------
        
 10.1    --   1991 Stock Option Plan
 10.2    --   Amendment to 1991 Stock Option Plan
 10.3    --   Second Amendment to 1991 Stock Option Plan
 10.4    --   Third Amendment to 1991 Stock Option Plan
 10.5    --   Outside Directors' Warrant Plan
 10.6    --   Directors' Warrant Incentive Plan
 10.7    --   Fourth Amendment to 1991 Stock Option Plan
 10.8    --   Fifth Amendment to 1991 Stock Option Plan
 10.9    --   Amendment One to Outside Directors' Warrant Plan
10.10    --   Amendment One to Directors' Warrant Incentive Plan
10.11    --   Amendment Two to Outside Directors' Warrant Plan
10.12    --   Amendment Two to Directors' Warrant Incentive Plan
10.13    --   Sixth Amendment to 1991 Stock Option Plan
10.14    --   Severance Protection Agreement -- Mark A. Gergel
10.15    --   Amendment Three to Outside Directors' Warrant Plan
10.16    --   Executive Employment Agreement between World Access, Inc.
              and Mark A. Gergel
10.17    --   1998 Incentive Equity Plan, as amended
10.29    --   FaciliCom International, Inc. 1998 Stock Option Plan
10.32    --   First Amendment to the World Access, Inc. 1998 Incentive
              Equity Plan
10.33    --   FaciliCom International, Inc. 1999 Special Stock Option Plan
10.35    --   Agreement between World Access and A. Lindsay Wallace


                                       107
   110

                                 EXHIBIT INDEX



EXHIBIT
  NO.                             DESCRIPTION OF EXHIBIT
- -------                           ----------------------
         
 3.1      --   Certificate of Incorporation of World Access, Inc. and
               Amendments to Certificate of Incorporation (incorporated by
               reference to Exhibit 3.1 to World Access' Form S-4 filed
               October 6, 1998, Registration No. 333-65389, Amendment to
               Certificate of Incorporation incorporated by reference to
               Exhibit 3.2 of WA Telco Systems Products Co., Inc.'s Form
               8-K filed October 28, 1998).
 3.2      --   Amendment to the Certificate of Incorporation (incorporated
               by reference to Exhibit 3.2 to World Access' Form 10-K for
               the year ended December 31, 1998, filed April 9, 1999).
 3.3      --   Certificate of Designation of 4.25% Cumulative Senior
               Perpetual Convertible Preferred Stock, Series A
               (incorporated by reference to Exhibit 4 to World Access'
               Form 8-K, filed May 3, 1999).
 3.4      --   Certificate of Designation of 4.25% Cumulative Junior
               Convertible Preferred Stock, Series B (incorporated by
               reference to Exhibit 4.1 to World Access' Form 8-K, filed
               July 14, 1999).
 3.5      --   Certificate of Designation of Convertible Preferred Stock,
               Series C (incorporated by reference to Exhibit 1.7(b) to
               Appendix A to World Access' Proxy Statement dated November
               5, 1999 relating to the Special Meeting of Stockholders held
               on December 7, 1999).
 3.6      --   Certificate of Designation of Convertible Preferred Stock,
               Series D (incorporated by reference to Exhibit 4 to World
               Access' Form 8-K, filed February 28, 2000).
 3.7      --   Bylaws of the World Access (incorporated by reference to
               Exhibit 3.2 to World Access' Form S-4 filed October 6, 1998,
               No. 333-65389).
 4.1      --   Indenture dated as of October 1, 1997 by and between World
               Access, Inc. and First Union Bank, as trustee (incorporated
               by reference to Exhibit 4.1 to WA Telco Systems' Form 8-K,
               filed October 8, 1997).
 4.2      --   First Supplemental Indenture dated October 28, 1998 between
               World Access, Inc., WA Telco Systems Products Co., Inc. and
               First Union Bank, as Trustee (incorporated by reference to
               Exhibit 4.1 to the World Access' Form 8-K filed October 28,
               1998).
 4.3      --   Form of Indenture between World Access, Inc. and First Union
               Bank, as Trustee (incorporated by reference to Exhibit 4.6
               to World Access' Form S-4/A filed November 5, 1999,
               Registration No. 333-89479).
10.1      --   World Access, Inc. 1991 Stock Option Plan (incorporated by
               reference to Exhibit 10.1 to Amendment No. 1 to WA Telco
               Systems' Registration Statement on Form S-18, filed on July
               25, 1991, No. 33-41255-A).
10.2      --   Amendment to World Access, Inc. 1991 Stock Option Plan
               (incorporated by reference to Exhibit 10.2 to WA Telco
               Systems' Form 10-K for the year ended December 31, 1993,
               filed March 31, 1994).
10.3      --   Second Amendment to 1991 Stock Option Plan (incorporated by
               reference to Exhibit 10.3 to WA Telco Systems' Form 10-K for
               the year ended December 31, 1993, filed March 31, 1994).
10.4      --   Third Amendment to 1991 Stock Option Plan (incorporated by
               reference to Exhibit 10.26 to WA Telco Systems' Form S-2,
               Amendment No. 2, filed on February 14, 1995, No. 33-87026).
10.5      --   World Access, Inc. Outside Directors' Warrant Plan
               (incorporated by reference to Exhibit 10.40 to WA Telco
               Systems' Form 10-K for the year ended December 31, 1995,
               filed April 10, 1996).
10.6      --   Directors' Warrant Incentive Plan (incorporated by reference
               to Exhibit 10.41 to WA Telco Systems' Form 10-K for the year
               ended December 31, 1995, filed April 10, 1996).
10.7      --   Fourth Amendment to 1991 Stock Option Plan (incorporated by
               reference to Exhibit 10.32 to WA Telco Systems' Form 10-K
               for the year ended December 31, 1996, filed April 11, 1997).
10.8      --   Fifth Amendment to 1991 Stock Option Plan (incorporated by
               reference to Exhibit 10.33 to WA Telco Systems' Form 10-K
               for the year ended December 31, 1996, filed April 11, 1997).
10.9      --   Amendment One to Outside Directors' Warrant Plan
               (incorporated by reference to Exhibit 10.33 to WA Telco
               Systems' Form 10-K for the year ended December 31, 1996,
               filed April 11, 1997).


                                       108
   111



EXHIBIT
  NO.                             DESCRIPTION OF EXHIBIT
- -------                           ----------------------
         
10.10     --   Amendment One to Directors' Warrant Incentive Plan
               (incorporated by reference to Exhibit 10.31 to WA Telco
               Systems' Form 10-K for the year ended December 31, 1996,
               filed April 11, 1997).
10.11     --   Amendment Two to Outside Directors' Warrant Plan
               (incorporated by reference to Exhibit 10.21 to WA Telco
               Systems' Form 10-K for the year ended December 31, 1997,
               filed April 15, 1998).
10.12     --   Amendment Two to Directors' Warrant Incentive Plan
               (incorporated by reference to Exhibit 10.22 to WA Telco
               Systems' Form 10-K for the year ended December 31, 1997,
               filed April 15, 1998).
10.13     --   Sixth Amendment to 1991 Stock Option Plan (incorporated by
               reference to Exhibit 10.22 to WA Telco Systems' Form 10-K
               for the year ended December 31, 1997, filed April 15, 1998).
10.14     --   Severance Protection Agreement dated November 1, 1997 by and
               between World Access, Inc. and Mark A. Gergel (incorporated
               by reference to Exhibit 10.33 to WA Telco Systems' Form 10-K
               for the year ended December 31, 1997, filed April 15, 1998).
10.15     --   Amendment Three to Outside Directors' Warrant Plan
               (incorporated by reference to Exhibit 10.21 to World Access'
               Form 10-K for the year ended December 31, 1998, filed April
               9, 1999).
10.16     --   Executive Employment Agreement between World Access, Inc.
               and Mark A. Gergel dated as of December 14, 1998
               (incorporated by reference to Exhibit 10.23 to World Access'
               Form 10-K for the year ended December 31, 1998, filed April
               9, 1999).
10.17     --   World Access, Inc. 1998 Incentive Equity Plan, as amended
               (incorporated by reference to Exhibit 10.25 to World Access'
               Form 10-K for the year ended December 31, 1998, filed April
               9, 1999).
10.18     --   Form of Indemnification Agreement with directors and
               officers (incorporated by reference to Appendix H to the
               Registrant's Joint Proxy Statement/Prospectus dated November
               10, 1998 relating to the Special Meeting of Stockholders
               held on November 30, 1998).
10.19     --   Schedule of all officers and directors who have signed an
               Indemnification Agreement referred to in Exhibit 10.27
               (incorporated by reference to Exhibit 10.28 to World Access'
               Form 10-K for the year ended December 31, 1998, filed April
               9, 1999).
10.20*    --   First Amended and Restated Credit Agreement dated as of
               December 7, 1999 between Telco Systems, Inc., World Access
               Holdings, Inc. and Bank of America, N.A. as Administrative
               Agent and Fleet National Bank as Syndication Agent and Bank
               Austria Creditanstalt Corporate Finance, Inc. as
               Documentation Agent and Banc of America Securities LLC as
               Lead Arranger and Book Running Manager.
10.21     --   Guaranty dated as of December 30, 1998 between the
               Registrant, Telco Systems, World Access Holdings, Inc.,
               NationsBank, N.A. as Administrative Agent and the lenders
               party to the Credit Agreement referred to in Exhibit 10.20
               (incorporated by reference to Exhibit 10.30 to World Access'
               Form 10-K for the year ended December 31, 1998, filed April
               9, 1999).
10.22     --   Pledge Agreement dated as of December 31, 1998 by the
               Registrant. in favor of NationsBank, N.A. as Administrative
               Agent and the lenders party to the Credit Agreement referred
               to in Exhibit 10.20 (incorporated by reference to Exhibit
               10.31 to World Access' Form 10-K for the year ended December
               31, 1998, filed April 9, 1999).
10.23     --   Security Agreement dated as of December 31, 1998 by the
               Registrant in favor of NationsBank, N.A. as Administrative
               Agent and the lenders party to the Credit Agreement referred
               to in Exhibit 10.20 (incorporated by reference to Exhibit
               10.32 to World Access' Form 10-K for the year ended December
               31, 1998, filed April 9, 1999).
10.24*    --   Confirmation Agreement dated as of December 7, 1999 by Telco
               Systems, Inc., World Access Holdings, Inc., World Access,
               Inc., WA Telco Systems Products Co., Inc., NACT
               Telecommunications, Inc., Restor-AIT, Inc., Sunrise Sierra,
               Inc., Westec Communications, Inc., Telco Systems Security
               Corporation, World Access Capital Corp., World Access
               Telecommunications Group, Inc., Cellular Infrastructure
               Supply, Inc. and Galaxy Personal Services, Inc. for the
               benefit of the lenders party to the Credit Agreement
               referred to in Exhibit 10.20.


                                       109
   112



EXHIBIT
  NO.                             DESCRIPTION OF EXHIBIT
- -------                           ----------------------
         
10.25*    --   Pledge Agreement dated as of December 7, 1999 by World
               Access, Inc. in favor of Bank of America, N.A., in its
               capacity as Administrative Agent, and each lender a party to
               the Credit Agreement referred to in Exhibit 10.20.
10.26     --   Disbursement Agreement dated as of December 14, 1998, by and
               the Registrant, Cherry Communications Incorporated (d/b/a
               Resurgens Communications Group) and William H. Cauthen, Esq.
               (incorporated by reference to Exhibit 10.33 to World Access'
               Form 10-K for the year ended December 31, 1998, filed April
               9, 1999).
10.27     --   Agreement and Plan of Merger and Reorganization by and among
               World Access, Inc., WAXS INC., WA Merger Corp. and Cherry
               Communications Incorporated (d/b/a Resurgens Communications
               Group) dated as of May 12, 1998, as amended (incorporated by
               reference to Appendix A to the Registrant's Proxy Statement
               dated November 12, 1998 relating to the Special Meeting of
               Stockholders held on December 14, 1998).
10.28     --   Share Exchange Agreement by and among World Access, Inc.,
               WAXS INC., Cherry Communications U.K. Limited and
               Renaissance Partners II, dated as of May 12, 1998
               (incorporated by reference to Appendix B to the Registrant's
               Proxy Statement dated November 12, 1998 relating to the
               Special Meeting of Stockholders held on December 14, 1998).
10.29     --   FaciliCom International, Inc. 1998 Stock Option Plan
               (incorporated by reference to Exhibit 10.19 to FaciliCom's
               Form 10-K for the year ended September 30, 1998, filed
               December 28, 1998).
10.30     --   Form of Stock Purchase Agreements, dated as of October 13,
               1999 by and between World Access and Gilbert Global Equity
               Partners, L.P., Gilbert Global Equity Partners (Bermuda)
               L.P., GGEP/GGEC Equity Partners, L.P., Zilkha Capital
               Partners, L.P., Erie Indemnity Company, Erie Insurance
               Exchange, Geocapital V, L.P. and Ezra K. Zilkha
               (incorporated by reference to Exhibit 4.10 to World Access'
               Form S-4/A, filed November 5, 1999).
10.31     --   Form of Registration Rights Agreement between World Access
               and Armstrong International Telecommunications, Inc., BFV
               Associates, Inc., Epic Interests, Inc. and Anand Kumar
               (incorporated by reference to Exhibit 6.3 to Appendix A to
               World Access' Proxy Statement dated November 5, 1999
               relating to the Special Meeting of Stockholders held on
               December 7, 1999).
10.32*    --   First Amendment to the World Access, Inc. 1998 Incentive
               Equity Plan.
10.33*    --   FaciliCom International, Inc. 1999 Special Stock Option
               Plan.
10.34*    --   Credit Agreement dated as of November 15, 1999 by and among
               FaciliCom International, L.L.C. and Nortel Networks Inc.
10.35*    --   Agreement between World Access and A. Lindsay Wallace dated
               November 29, 1999.
16.1*     --   Letter of PricewaterhouseCoopers LLP
21.1*     --   Subsidiaries of the Registrant.
23.1      --   Consent of Ernst & Young LLP.
23.2      --   Consent of PricewaterhouseCoopers LLP.
27.1*     --   Financial Data Schedule for 1999. (For SEC use only)
27.2*     --   Financial Data Schedule for 1998 and 1997 as restated for
               discontinued operations. (For SEC use only)


- ---------------

* Previously Filed.

                                       110
   113

          SCHEDULE 1 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                               WORLD ACCESS, INC.
                                (PARENT COMPANY)

                            CONDENSED BALANCE SHEETS



                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
                                                                     (IN THOUSANDS)
                                                                        
                                          ASSETS
Current Assets:
  Cash and equivalents......................................   $  117,267      $  21,799
  Other current assets......................................        3,519            912
                                                               ----------      ---------
          Total Current Assets..............................      120,786         22,711
Property and equipment......................................          363            842
Investment in subsidiaries..................................      987,833        455,739
Intercompany receivable.....................................       79,260             --
Other assets................................................       47,289          1,000
                                                               ----------      ---------
          Total Assets......................................   $1,235,531      $ 480,292
                                                               ==========      =========

                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term debt...........................................   $   25,000      $   8,500
  Accounts payable..........................................        1,584          2,095
  Other accrued liabilities.................................       25,937          6,392
                                                               ----------      ---------
          Total Current Liabilities.........................       52,521         16,987
Intercompany payable........................................           --        102,722
Long-term Debt..............................................      285,711             --
                                                               ----------      ---------
          Total Liabilities.................................      338,232        119,709
                                                               ----------      ---------
Stockholders' Equity:
  Preferred Stock...........................................            4             --
  Common stock..............................................          523            441
  Capital in excess of par value............................    1,062,939        472,945
  Foreign currency translation adjustment...................         (341)            --
  Accumulated deficit.......................................     (165,826)      (112,803)
                                                               ----------      ---------
          Total Stockholders' Equity........................      897,299        360,583
                                                               ----------      ---------
          Total Liabilities and Stockholders' Equity........   $1,235,531      $ 480,292
                                                               ==========      =========


           See accompanying notes to condensed financial statements.

                                       111
   114

                               WORLD ACCESS, INC.
                                (PARENT COMPANY)

                       CONDENSED STATEMENT OF OPERATIONS



                                                               YEAR ENDED    TWO MONTHS ENDED
                                                              DECEMBER 31,     DECEMBER 31,
                                                                  1999             1998
                                                              ------------   ----------------
                                                                       
Sales.......................................................    $     --         $    --
Selling, general and administrative expenses................      (8,612)           (848)
Interest and other income...................................       3,047              35
Interest expense............................................        (361)            (22)
                                                                --------         -------
                                                                  (5,926)           (835)
Equity in net loss of continuing subsidiaries...............     (21,172)         (4,602)
Equity in net loss of discontinued subsidiaries.............     (25,925)         (1,059)
                                                                --------         -------
          Net Loss..........................................    $(53,023)        $(6,496)
                                                                ========         =======


           See accompanying notes to condensed financial statements.

                                       112
   115

                               WORLD ACCESS, INC.
                                (PARENT COMPANY)

                       CONDENSED STATEMENT OF CASH FLOWS



                                                                                  TWO MONTHS
                                                                 YEAR ENDED         ENDED
                                                                DECEMBER 31,     DECEMBER 31,
                                                                    1999             1998
                                                              ----------------   ------------
                                                                      (IN THOUSANDS)
                                                                           
Cash Flows From Operating Activities:.......................      $  7,238         $  1,609
Cash Flows From Investing Activities:
  Acquisitions of businesses, net of cash acquired..........       (50,894)          (1,171)
  Expenditures for property and equipment...................            --             (364)
                                                                  --------         --------
          Net Cash Used By Investing Activities.............       (50,894)          (1,535)
Cash Flows From Financing Activities:
  Net proceeds from sales of common and preferred stock.....       121,984               --
  Payment of preferred stock dividends......................        (1,184)              --
  Proceeds from short-term borrowings.......................        43,300            8,500
  Payments on short-term borrowings.........................       (26,800)              --
  Proceeds from exercise of stock warrants and options......         1,824            2,185
                                                                  --------         --------
          Net Cash Provided By Financing Activities.........       139,124           10,685
                                                                  --------         --------
Increase in Cash and Equivalents............................        95,468           10,759
Cash and Equivalents at Beginning of Period.................        21,799           11,040
                                                                  --------         --------
          Cash and Equivalents at End of Period.............      $117,267         $ 21,799
                                                                  ========         ========
Supplemental Schedule of Noncash Financing and Investing
  Activities:
Issuance of common stock and stock options for businesses
  acquired..................................................      $455,391         $314,433
                                                                  ========         ========
Issuance of common stock for technology.....................      $  3,197         $     --
                                                                  ========         ========


           See accompanying notes to condensed financial statements.

                                       113
   116

                               WORLD ACCESS, INC.
                                (PARENT COMPANY)

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION

     On October 28, 1998, World Access, Inc. reorganized its operations into a
holding company structure and changed its name to WA Telcom Products Co., Inc.
("WA Telcom"). As a result of the reorganization, WA Telcom became a
wholly-owned subsidiary of WAXS INC., which changed its name to World Access,
Inc. and is the Company filing this report. Pursuant to the reorganization, the
Company exchanged each outstanding share of common stock of WA Telcom for one
share of common stock of the Company, converted each option and warrant to
purchase shares of common stock of WA Telcom into options and warrants to
purchase a like number of shares of common stock of the Company. In the
parent-company-only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company's share of net income of
its unconsolidated subsidiaries is included in consolidated income using the
equity method. Parent-company-only financial statements should be read in
conjunction with the Company's consolidated financial statements.

NOTE 2.  GUARANTEE

     Pursuant to the reorganization, the parent-company fully and
unconditionally guaranteed the payment of the $115.0 million aggregate principal
amount 4.5% convertible subordinated notes dated October 1, 1997 (due 2002)
issued by WA Telcom, a wholly owned subsidiary.

NOTE 3.  SENIOR NOTES

     In December 1999, as an integral part of the FaciliCom Merger, the Company
issued $300.0 million in aggregate principal amount of 13.25% Senior Notes due
2008 ("Senior Notes") in exchange for all outstanding 10 1/2% FaciliCom Series B
Senior Notes due 2008 having an aggregate principal amount of $300.0 million.

     The Senior Notes are general unsecured obligation of the Company. The
Senior Notes rank senior in right of payment to any of the Company's existing
and future obligations expressly subordinated in right of payment and will be
pari passu in right of payment with all of the Company's other existing and
future unsecured and unsubordinated obligations, including trade payables. The
Company's subsidiaries are not guarantors of the Senior Notes.

     The Senior Notes bear interest at the rate of 13.25% per annum, payable in
arrears on January 15 and July 15 of each year, and mature on January 15, 2008.
The Senior Notes are not redeemable by the Company prior to January 15, 2003. At
any time after that date, the Company has the option to redeem the Senior Notes
at the following redemption prices plus accrued and unpaid interest (based on
January 15 fiscal year): 2003 -- 106.625%; 2004 -- 104.417%; 2005 -- 102.208%;
and 2006 to maturity -- 100.0%. In the event of a change in control of ownership
of the Company, each holder of the Senior Notes has the right to require the
Company to purchase all or any of such holder's Senior Notes at a purchase price
in cash equal to 101% of the aggregate principal amount.

     The Senior Notes require the Company to maintain certain financial and
nonfinancial covenants, including limitations on additional indebtedness,
restricted payments including dividends, transactions with affiliates, liens and
asset sales. Upon the sale of certain of its equipment businesses, the Company
will be obligated to tender for all or a portion of the Senior Notes at a
purchase price equal to 100% of principal, plus accrued and unpaid interest,
less the current market value of the Stock Consideration at the date the tender
offer is commenced. The tender offer must be made within 270 days of the
qualified asset sale(s).

                                       114
   117

     Upon issuance, the Company recorded the Senior Notes at $285.0 million,
total principal less a $15.0 million original issuance discount. The discount
was based on the estimated fair market value of the Senior Notes on the date of
issuance as determined by an investment banking firm. The discount will be
amortized to interest expense over the term of the Senior Notes.

     At the time of the FaciliCom Merger, FaciliCom had approximately $47.0
million invested in U.S. Government obligations that served as collateral for
its Series B Senior Notes. In connection with the exchange transaction, the
FaciliCom note holders released this collateral and the Company was required to
pledge these assets as collateral for its Senior Notes. The pledged assets,
recorded as "Other assets" on the Company's December 31, 1999 balance sheet,
will be released to the Company to partially fund interest payments due on the
Senior Notes in 2000 and 2001.

                                       115
   118

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS



                                          BALANCE AT   CHARGED TO   CHARGED TO                    BALANCE
                                          BEGINNING    COSTS AND      OTHER                       END OF
DESCRIPTION                               OF PERIOD     EXPENSES     ACCOUNTS      DEDUCTIONS     PERIOD
- -----------                               ----------   ----------   ----------     ----------     -------
                                                                  (IN THOUSANDS)
                                                                                   
Year Ended December 31, 1999:
  Deducted from asset account
     Allowance for accounts
       receivable.......................     $300        $4,805      $12,728(B)      $(295)(A)    $18,489
                                                                         965(D)        (14)(C)
Year Ended December 31, 1998:
  Deducted from asset account
     Allowance for accounts
       receivable.......................       --            --          300(B)         --            300
Year Ended December 31, 1997:
  Deducted from asset account
     Allowance for accounts
       receivable.......................       --            --           --            --             --


- ---------------

(A) Write-off of uncollectible amounts.
(B) Reserves from businesses acquired.
(C) Foreign currency translation adjustment.
(D) Charged directly to revenue.

                                       116
   119

                                   SIGNATURE

     Pursuant to the requirements of the Securities 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.

Dated October 6, 2000                                                     By: /s/ BRYAN D. YOKLEY
                                                            ----------------------------------------------------
                                                                              Bryan D. Yokley
                                                            Executive Vice President and Chief Financial Officer




                                       117

EX-23.1

   1

                                                                    EXHIBIT 23.1

                        CONSENT OF INDEPENDENT AUDITORS


We consent to the use of our report dated March 20, 2000, included in the
Annual Report on Form 10-K of World Access, Inc. and subsidiaries for the year
ended December 31, 1999, with respect to the consolidated financial statements
and schedules, as amended, included in this Form 10-K/A, Amendment No. 3.

We consent to the incorporation by reference in the Registration Statements Form
S-8 Nos. 333-33640, 333-68619, 333-68125, 333-68625, 333-66731, 333-68623 and
333-66723 and Form S-3 Nos. 333-79097 and 333-33638 pertaining to the various
stock option, warrant and other employee benefit plans of World Access, Inc. and
subsidiaries of our report dated March 20, 2000, with respect to the
consolidated financial statements and schedules of World Access, Inc. and
subsidiaries included in its Annual Report on Form 10-K/A, Amendment No. 3, for
the year ended December 31, 1999.


                                                  /s/ Ernst & Young LLP


Atlanta, Georgia
October 5, 2000

EX-23.2

   1
                                                                    EXHIBIT 23.2


                       CONSENT OF INDEPENDENT ACCOUNTANTS



         We hereby consent to the incorporation by reference of our report dated
March 5, 1998, except for the discontinued operations reclassifications in the
Consolidated Statements of Operations and Note C, which are as of March 14,
2000, relating to the financial statements of World Access, Inc. for the year
ended December 31, 1997, which appears in World Access, Inc.'s Annual Report on
Form 10-K/A Amendment No. 3 for the year ended December 31, 1999, and which
report has been incorporated by reference in each of the following:


         1.     Registration Statement on Form S-8 (Registration No. 333-33640)
                of World Access, Inc.;

         2.     Registration Statement on Form S-8 (Registration No. 333-66723)
                of World Access, Inc.;

         3.     Registration Statement on Form S-8 (Registration No. 333-66731)
                of World Access, Inc.;

         4.     Registration Statement on Form S-8 (Registration No. 333-68125)
                of World Access, Inc.;

         5.     Registration Statement on Form S-8 (Registration No. 333-68619)
                of World Access, Inc.;

         6.     Registration Statement on Form S-8 (Registration No. 333-68623)
                of World Access, Inc.;

         7.     Registration Statement on Form S-8 (Registration No. 333-68625)
                of World Access, Inc.;

         8.     Registration Statement on Form S-3 (Registration No. 333-79097)
                of World Access, Inc.; and

         9.     Registration Statement on Form S-3 (Registration No. 333-33638)
                of World Access, Inc.;


/s/ PRICEWATERHOUSECOOPERS LLP


Atlanta, Georgia
October 5, 2000