<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________.
Commission File Number 0-18048
-----------------
SA TELECOMMUNICATIONS, INC.
(Exact Name of small business issuer as specified in its charter)
DELAWARE 75-2258519
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1912 AVENUE K, SUITE 100, PLANO, TEXAS 75074
(Address of principal executive offices) (Zip Code)
(214) 516-0662
(Issuer's telephone number)
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the test practicable date: Common Stock outstanding at
November 10, 1995 - 13,351,264.
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information PAGE
----
Item 1. Financial Statements 1
Consolidated Balance Sheets 1-2
Consolidated Statements of Operations 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Part II. Other Information 17
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18-20
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 271,075 $ 331,431
Accounts and notes receivable
Trade, net of allowance for doubtful
accounts of $411,133 and $178,368
respectively 4,041,762 985,174
Other, net of allowance for doubtful
accounts of $46,122 and $48,825
respectively 430,636 142,301
Inventory 244,660 123,790
Prepaid expenses and other 416,446 341,290
----------- -----------
Total current assets 5,404,579 1,923,986
----------- -----------
NET ASSETS OF DISCONTINUED TITLE PLANT
SERVICES OPERATIONS 3,288,937 3,537,386
----------- -----------
PROPERTY AND EQUIPMENT (Note D) 5,036,016 979,022
Less accumulated depreciation (2,624,296) (187,169)
----------- -----------
Net property and equipment 2,411,720 791,853
----------- -----------
EXCESS OF COST OVER NET ASSETS
ACQUIRED, net of accumulated amortization 18,355,686 4,943,494
----------- -----------
OTHER ASSETS
Employee note receivable - 195,904
Other 339,776 384,211
----------- -----------
Total other assets 339,776 580,115
----------- -----------
TOTAL ASSETS $29,800,698 $11,776,834
=========== ===========
</TABLE>
- Continued -
The accompanying notes are an integral part
of these consolidated financial statements.
1
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 253,689 $ 223,362
Accrued telecommunications expenses 2,433,833 755,669
Other accrued expenses 1,276,375 163,195
Notes payable 154,030 129,610
Current maturities of long-term obligations 999,331 90,248
----------- -----------
Total current liabilities 5,117,258 1,362,084
----------- -----------
LONG-TERM OBLIGATIONS,
less current maturities 9,638,048 430,393
----------- -----------
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE PREFERRED STOCK, $.00001
par value, 250,000 shares authorized;
166,667 shares issued in 1995 1,238,750 -
----------- -----------
SHAREHOLDERS' EQUITY
Series B Preferred stock, $.00001 par value,
250,000 shares authorized; 125,000 shares
issued in 1995 637,874 -
Common stock, $.0001 par value, 50,000,000
shares authorized; 12,987,103 and 10,566,139
issued, respectively 1,299 1,057
Additional paid-in capital 21,278,547 15,629,114
Retained deficit (7,654,477) (5,404,864)
Treasury stock (240,072 shares and 136,516
respectively) at cost (456,601) (240,950)
----------- -----------
Total shareholders' equity 13,806,642 9,984,357
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $29,800,698 $11,776,834
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS REVENUES $ 7,459,367 $ 2,769,182 $ 13,772,942 $ 7,095,949
----------- ----------- ------------ -----------
OPERATING EXPENSES
Cost of revenues 4,944,734 2,375,440 9,574,931 6,106,421
General and administrative 2,547,565 1,037,698 4,528,945 2,156,456
Depreciation and amortization 533,213 112,911 909,014 261,040
Nonrecurring Russian Venture charges 143,558 - 143,558 -
----------- ----------- ------------ -----------
Total operating expenses 8,169,070 3,526,049 15,156,448 8,523,917
----------- ----------- ------------ -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE OTHER INCOME (EXPENSE) (709,703) (756,867) (1,383,506) (1,427,968)
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSE)
Interest expense (253,727) (4,441) (364,260) (7,878)
Other 12,465 1,851 9,820 20,748
----------- ----------- ------------ -----------
Total other income (expense) (241,262) (2,590) (354,440) 12,870
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
LOSS FROM CONTINUING OPERATIONS (950,965) (759,457) (1,737,946) (1,415,098)
----------- ----------- ------------ -----------
DISCONTINUED OPERATIONS
Loss from title plant services operations - (106,371) - (329,495)
Provision for operating losses during phase-out period (225,000) - (475,000) -
----------- ----------- ------------ -----------
NET LOSS (1,175,965) (865,828) (2,212,946) (1,744,593)
Preferred dividend requirements (36,667) - (36,667) -
----------- ----------- ------------ -----------
Net loss applicable to common shareholders $(1,212,632) $ (865,828) $ (2,249,613) $(1,744,593)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Loss per weighted average common share outstanding
Continuing operations $(.08) $(.08) $(.16) $(.16)
Discontinued operations (.02) (.01) (.04) (.04)
----------- ----------- ------------ -----------
Net loss per share $(.10) $(.09) $(.20) $(.20)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Net loss per share applicable to common shareholders $(.10) $(.09) $(.20) $(.20)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Weighted average number of common shares outstanding 11,778,005 9,579,459 11,129,177 8,917,561
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Series B Additional
Preferred Stock Common Stock Paid-in Retained Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
------ ------ ------ ------ ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 7,372,661 $ 737 $ 8,572,764 $(2,957,878) $ (20,000) $ 5,595,623
Private placements of common stock 534,317 54 1,277,814 1,277,868
Issuance of common stock for:
Exercise of options 683,553 68 737,959 738,027
Acquisition of LDN 1,302,086 130 3,749,870 3,750,000
Net loss for the period (1,744,593) (1,744,593)
---------- ----- ----------- ----------- --------- -----------
Balances at September 30, 1994 9,892,617 $ 989 $14,338,407 $(4,702,471) $ (20,000) $ 9,616,925
---------- ----- ----------- ----------- --------- -----------
---------- ----- ----------- ----------- --------- -----------
Balances at December 31, 1994 10,566,139 $1,057 $15,629,114 $(5,404,864) $(240,950) $ 9,984,357
Private placements of common stock 1,591,459 159 1,934,337 1,934,496
Issuance of common stock for
exercise of options 829,505 83 538,420 (215,651) 322,852
Issuance of Series A Redeemable
Preferred stock for acquisition of USC 261,250 261,250
Issuance of Series B Preferred Stock for
acquisition of USC 125,000 637,874 612,126 1,250,000
Issuance of Common Stock Purchase
Warrants for acquisition of USC 2,303,300 2,303,300
Net loss for the period (2,249,613) (2,249,613)
------- -------- ---------- ----- ----------- ----------- --------- -----------
Balances at September 30, 1995 125,000 $637,874 12,987,103 $1,299 $21,278,547 $(7,654,477) $(456,601) $13,806,642
------- -------- ---------- ------ ----------- ----------- --------- -----------
------- -------- ---------- ------ ----------- ----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
----------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(2,249,613) $(1,744,593)
Adjustments to reconcile net loss
to net cash used by operating activities
Loss from discontinued operations 475,000 329,495
Depreciation and amortization 909,014 261,040
Provision for losses on accounts receivable 312,522 266,545
Provision for Russian Venture Losses 143,558 --
Cash used for discontinued SATC business (227,482) (293,913)
Other -- 29,705
(Increase) decrease
Accounts and notes receivable (1,042,748) (6,067)
Prepaid expenses and other 114,555 66,422
Other assets 41,244 (34,731)
Increase (decrease) in:
Accounts payable and accrued expenses 18,773 (384,032)
------------ ------------
Net cash used by operating activities (1,505,177) (1,510,129)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (65,792) (203,345)
Purchase of USC, net of cash acquired (6,854,247) --
Purchase of LDN, net of cash acquired -- (1,330,397)
Cash used for discontinued SATC business (23,319) (180,086)
Other (30,573) (6,700)
------------ ------------
Net cash used in investing activities (6,973,931) (1,720,528)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net changes in short-term loans (468,028) 185,610
Increase in long term debt 7,000,000 120,000
Proceeds from private placement of common stock 1,682,503 1,241,868
Proceeds from Series A Preferred Stock 1,000,000 --
Proceeds from exercise of options 375,459 738,027
Principal payments on long-term obligations (1,171,182) (2,372)
------------ ------------
Net cash provided by financing activities 8,418,752 2,283,133
------------ ------------
DECREASE IN CASH (60,356) (947,524)
Cash at beginning of period 331,431 1,198,392
------------ ------------
Cash at end of period $271,075 $ 250,868
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
These interim consolidated financial statements are
those of SA Telecommunications, Inc. and subsidiaries (the
Company), formerly SA Holdings, Inc. These interim
consolidated financial statements are prepared pursuant to
the requirements for reporting on Form 10-QSB. The
December 31, 1994 consolidated balance sheet data was derived
from audited consolidated financial statements but does not
include all disclosures required by generally accepted
accounting principles. The interim consolidated financial
statements and notes thereto should be read in
conjunction with the consolidated financial statements and
notes included in the Company's latest annual report on Form
10-KSB. In the opinion of management, the interim
consolidated financial statements reflect all adjustments of
a normal recurring nature necessary for a fair statement
of the consolidated results of operations for interim
periods. The current period consolidated results of
operations are not necessarily indicative of results
which ultimately will be reported for the full fiscal year
ending December 31, 1995.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries (unless
otherwise indicated) listed below.
U. S. Communications, Inc. (USC) - acquired effective June 1, 1995
Long Distance Network, Inc. (LDN) - acquired effective March 1, 1994
North American Telecommunications Corporation (NATC)
Baltic States and CIS Ventures, Inc. (BS/CIS)
CIS Intelligence Information Services, Inc. (CIS)
Western Siberia Telecommunications (USA), Inc. (WST) 47.5%
Intertex Trading Corporation (ITC) 50%
Strategic Abstract and Title Corporation (SATC) (discontinued
operation)
All significant intercompany accounts and transactions have been
eliminated. Certain prior period amounts have been reclassified for
comparative purposes.
NOTE B - ACQUISITION OF U. S. COMMUNICATIONS, INC.
Effective June 1, 1995, the Company acquired all of the
outstanding common stock of U.S. Communications, Inc. (USC),
a domestic interexchange long distance carrier located
in Levelland, Texas. The stated purchase price of $12 million
for the USC common stock and the covenants not to
compete was paid (i) $6.5 million in cash, (ii) $2.75
million in notes bearing 11% interest per annum, (iii) $1.5
million in a separate group of notes also bearing
interest at 11% per annum, (iv) 125,000 shares of Series B
Preferred Stock of the Company, and (v) 1,050,000 common
stock purchase warrants at $1.25 per common share. The
parties placed $300,000 of the cash portion of the purchase
price into escrow at a bank in order to satisfy claims
of the Company of any breach or nonperformance of
representation, warranty, covenant or other obligation
of the sellers. Additionally, the Company has the right to
offset the amounts payable under the $1.5 million notes for
any event which it is entitled to indemnification. The
Company has valued the Series B Preferred Stock and common
stock purchase warrants at their fair value as of the
date of issuance.
6
<PAGE>
In order to fund the cash portion of the purchase price, the Company borrowed
an aggregate of $7.0 million from Norwest Bank Minnesota, N.A. and privately
placed 166,667 shares of its Series A Preferred Stock along with 500,000
common stock purchase warrants at $1.125 per common share with Jesup & Lamont
Capital Markets, Inc. for $1.5 million. The Company has valued the Series A
Preferred Stock and common stock purchase warrants at their fair value as of
the date of issuance.
The acquisition was accounted for as a purchase whereby the excess purchase
price over net assets acquired has been recorded based upon the fair
value of assets acquired and liabilities assumed. The initial purchase price
allocations are based on current estimates and may be subject to change
based on final determination of fair value. As a result, the final purchase
price allocations may differ from the presented estimates.
A summary of the USC excess of cost for financial reporting purposes over net
assets acquired is as follows:
September 30,
1995 Life
------------ ----
Goodwill $10,242,628 25
Covenants not to compete 2,400,000 5
Customer acquisition costs 1,138,070 10
-----------
13,780,698
Accumulated amortization (334,504)
------------
$13,446,194
============
The following unaudited pro forma combined results of operations for the
Company assume that the acquisition of USC was completed at the
beginning of 1994. These proforma amounts represent the historical operating
results of USC combined with those of the Company with appropriate
adjustments which give effect for interest expense and amortization. These
proforma amounts are not necessarily indicative of consolidated
operating results which would have occurred had USC been included in the
operations of the Company during the periods presented, or which may
result in the future, because these amounts do not reflect full transmission
and switched service cost optimization, and the synergistic effect on
operating, selling, general and administrative expenses.
For the nine months
ended September 30,
---------------------
1995 1994
---- ----
Revenues $21,719,604 $19,152,219
Net loss applicable to common
shareholders (3,415,818) (3,402,573)
Loss per share applicable to
common shareholders (.29) (.38)
7
<PAGE>
NOTE C - DISCONTINUED OPERATIONS
During the first nine months of 1995, the Company's
discontinued title plant services subsidiary, SATC,
incurred a net loss of $328,592. At December 31,
1994, a $150,000 reserve for operating losses during the
phase-out period was established. This reserve
became inadequate due to unforeseen delays in filing
the Form 10-SB registration statement necessary for
SATC to become a publicly traded company prior to the
distribution of the stock dividend to shareholders and
the subsequent decision to cancel the spinoff and sell
the subsidiary after the SATC President's death. As a
result, an additional $475,000 reserve was established
for SATC losses until the date of disposal.
Revenues of SATC for the nine months ended September
30, 1995 and 1994 were $256,124 and $92,544,
respectively, and for the three months ended September
30, 1995 and 1994 were $94,528 and $32,681, respectively.
NOTE D - NOTES PAYABLE
Six members of the Board of Directors have individually
made loans to the Company aggregating $210,610 of which
$160,000 was repaid prior to September 30, 1995. The
loans bear interest at 12% per annum. In connection with
these loans, each director was granted an option to
purchase one share of common stock for each $1.75 of
principal amount loaned to the Company at a price of $1.75
per share (market value at date of grant) or an
aggregate of 82,857 shares. The options are exercisable for
six months from June 17, 1995.
The notes payable assumed in the USC acquisition aggregating
approximately $103,000 at September 30, 1995 bear interest at rates
ranging from 8% to 12 1/2 % per annum.
NOTE E - LONG TERM OBLIGATIONS
Long term obligations consists of:
September 30, December 31,
1995 1994
-------------- ------------
Senior note payable to a bank $7,000,000 $ -
Subordinated notes payable to
former USC shareholders due
on October 1, 1996 with interest
payable quarterly at 11% per annum 1,650,000 -
Subordinated notes payable to
former USC shareholders due $750,000
each on January 31, 1996 and July 31,
1996 with interest payable on
July 31, 1996 at 11% per annum 1,500,000 -
8
<PAGE>
Note payable to a trust (collateral-
ized by land and building) due in
monthly installments of $1,586
including interest at 10% with the
balance due in 2004 110,018 115,796
Note payable to a finance company
(unsecured) due in monthly installments
of $752, including interest at 7.5%
with the balance due in June, 2000 34,637 -
Capital lease obligation 342,724 404,845
----------- ----------
10,637,379 520,641
Less current maturities
Long term debt (915,063) (7,801)
Capital lease obligation (84,268) (82,447)
----------- ----------
Long term portion $ 9,638,048 $430,393
=========== =========
The Company obtained a $10 million senior credit facility from a bank to
facilitate the acquisition of USC of which $7 million was outstanding at
September 30, 1995. Additional advances under the credit facility are
dependent upon the Company meeting certain predetermined levels of operating
cash flow. The borrowings are secured by principally all of the assets of
the Company. Principal payments will be due in quarterly installments
commencing on December 31, 1996 with the balance due on June 30, 2000.
The borrowings bear interest at a floating rate of from 1% to 2% above
the bank's prime rate depending on the ratio of senior debt to operating cash
flow. At the Company's option, the interest rate may be fixed at a floating
rate of from 3% to 4% above the London Interbank Offered Rate (LIBOR) also
dependant on the ratio of senior debt to operating cash flow. Interest is
payable quarterly.
The credit facility agreement contains covenants which, among other
matters (i) limit the Company's ability to incur indebtedness, merge,
consolidate and acquire or sell assets, (ii) require the Company to satisfy
certain ratios related to operating cash flow and senior debt service
coverage, and (iii) limits the payment of interest and principal on
subordinated debt.
At September 30, 1995, the Company was not in compliance with the senior
leverage ratio and operating cash flow maintenance requirements contained in
the senior credit agreement. On November 10, 1995, the Company entered into
an amendment with the bank to waive these events of default and reset the
ratio and maintenance requirements for periods subsequent to the default
after the actual USC results of operations were determined. The Company
expects to be in compliance with the covenant requirements at all future
measurement dates. Under this amendment, the Company was required to pay a
one-time waiver fee to the bank of $10,000 and to pay down the principal by
$150,000 no later than November 30, 1995.
9
<PAGE>
NOTE F - CAPITAL STOCK
Each share of Series A Cumulative Convertible Preferred Stock entitles
its holder to receive an annual dividend of $.72 per share, payable at the
option of the Company in either cash or shares of Series A Preferred Stock;
to convert it into 8 shares of Common Stock as adjusted in the event of
future dilution from stock dividends and recapitalizations; to receive up to
$9.00 per share plus accrued and unpaid dividends in the event of involuntary
or voluntary liquidation; and, subject to certain conditions in loan
agreements, may be redeemed at the option of the Company on or after July 31,
1997, but must mandatorily be redeemed no later than July 31, 2000 at a price
of $9.00 per share plus accrued and unpaid dividends.
Each share of Series B Cumulative Convertible Preferred Stock entitles
its holder to receive an annual dividend of $.80 per share payable at the
option of the Company in either cash or shares of Series B Preferred Stock;
to convert it into 8 shares of Common Stock, as adjusted in the event of
future distribution from stock dividends and recapitalizations; to receive up
to $10.00 per share plus accrued and unpaid dividends in the event of
involuntary or voluntary liquidation; and, subject to certain conditions in
loan agreements, may be redeemed at the option of the Company on or after
July 31, 1997 at a price of $10.00 per share plus accrued and unpaid
dividends. Present holders of the Series B Cumulative Convertible Preferred
Stock have waived their conversion rights.
In September 1995, the Company sold 1,100,000 shares of unregistered,
restricted Common Stock in a private placement transaction. In conjunction
with this transaction, the purchasers received 1,100,000 common stock
purchase warrants at $1.25 per share.
NOTE G - STOCK OPTIONS
On January 17, 1995 and May 12, 1995, the Board of Directors granted
options under the 1994 Employee Stock Option Plan to purchase up to 426,500
shares and 390,250 shares, respectively, of the Company's common stock to
employees at a price of $1.75 per share (market value of the Company's common
stock on the date of grant). After a six month waiting period from the date
of grant, the shares acquired upon exercise may only be sold over eighteen
months for directors, twenty-four months for officers, and thirty months for
employees.
10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The most significant event which impacted the first nine months of 1995 and
will continue to impact the Company was the acquisition of U.S.
Communications, Inc. (USC) effective June 1, 1995. USC is a ten-year-old
domestic interexchange long-distance carrier located in Levelland, Texas. In
addition to providing intrastate, interstate, and international service, USC
provides a variety of operator and other services throughout the Southwest.
The Company acquired all of the outstanding capital stock of USC for an
aggregate purchase price consisting of (i) $6.5 million in cash, (ii) $2.75
million in notes bearing 11% interest per annum, (iii) $1.5 million in a
separate group of notes also bearing interest at 11% per annum, (iv) 125,000
shares of Series B Preferred Stock of the Company, and (v) 1,050,000 Common
Stock purchase warrants at $1.25 per common share. The parties placed
$300,000 of the cash portion of the purchase price into escrow at a bank in
order to satisfy claims of the Company of any breach or nonperformance of
representation, warranty, covenant, or other obligation of the sellers.
Additionally, the Company has the right to offset the amounts payable under
the $1.5 million notes for any event to which it is entitled indemnification.
In order to fund the cash portion of the purchase price, the Company borrowed
an aggregate of $7 million from Norwest Bank Minnesota, N.A. and privately
placed 166,667 shares of its Series A Preferred Stock along with 500,000
Common Stock purchase warrants at $1.125 per common share with Jesup & Lamont
Capital Markets, Inc. for $1.5 million.
This acquisition was accounted for under the purchase method of accounting
for business combinations and, accordingly, is so reflected since June 1,
1995 in the Company's consolidated statements of operations for the three
months and nine months ended September 30, 1995. In 1994, USC had net income
of $425,000 on revenues of $16 million. USC had revenues of $6.8 million for
the four months ended September 30, 1995.
USC will be integrated into the core telecommunications operations comprised
of LDN, NATC and the Company. Management believes this integrated
organization will provide the infrastructure for operations and future
telecommunications acquisitions and expansion.
Since the end of the third quarter of 1994, the Company has suspended the
expansion of its international sales organization through new office openings
to focus on domestic operations. Because of the time commitments required
for the integration of USC and emphasis on domestic revenue growth, this
suspension is expected to stay in effect indefinitely and all growth is
expected to be internally generated through the efforts of established
foreign sales offices.
On October 6, 1995, the Company announced the cancellation of its proposed
spinoff of approximately 57% of the common stock of its wholly-owned
subsidiary, Strategic Abstract & Title Corporation (SATC), in the form of a
dividend to its shareholders. This cancellation of the proposed stock
dividend resulted from the death of the subsidiary's President, Mr. Harold A.
Wilson, who was key to the successful transition of SATC to a public company.
The Board of Directors believes it is in the best interest of the Company's
shareholders to sell the information data base subsidiary rather than
conclude the proposed spinoff via stock dividend distribution. Management is
actively marketing SATC and it is expected that a sale will be
consummated no later than the end of the first quarter of 1996.
11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's Consolidated
Statements of Operations as a percentage of its operating revenues for the
three and nine month periods ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue 100% 100% 100% 100%
Cost of revenue 66 86 70 86
General and administrative 34 37 33 30
Depreciation and amortization 7 4 6 4
Nonrecurring Russian Venture Charge 2 - 1 -
--- --- --- ---
Loss from continuing operations
before other (9) (27) (10) (20)
Other income (expense) (3) - (3) -
--- --- --- ---
Loss from continuing operations (12) (27) (13) (20)
Discontinued operations (3) (4) (3) (5)
--- --- --- ---
Net loss (15)% (31)% (16)% (25)%
=== === === ===
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1995, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1994
The Company had revenues from continuing operations of $7,459,367 for the
three months ended September 30, 1995 as compared to $2,769,182 for the same
quarter last year. This represents an overall 169% increase over the like
period of last year. Of the total increase, $5,075,224 is attributable to
the increase in domestic telecommunications revenue from the USC acquisition
effective June 1, 1995. Operator services revenues decreased by $378,329 due
to reductions in retail prices and the Company's de-emphasis of this less
profitable product line, while international telecommunications revenues
stayed approximately at the same level.
The Company incurred a loss from continuing operations before other income
(expense) of $709,703 for the three months ended September 30, 1995 versus a
$756,867 loss in the third quarter of 1994. Gross profit margins and
general and administrative expense as a percentage of revenue improved
substantially while depreciation and amortization expense as a percentage of
revenue increased.
Cost of revenue (transmission costs, switching costs, and commissions)
increased to $4,944,734 for the three months ended September 30, 1995 from
$2,375,440 in the same quarter of 1994, principally due to the increased
revenue base from the USC acquisition. However, the gross profit margin
increased to 34% in 1995 from 14%
12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
in 1994. This increase is principally due to the improved mix of call
traffic afforded by the USC revenue. The percentage of direct dial long
distance calls, which have a higher gross profit margin, has increased as
compared to the lower-margin operator service calls. Management is
de-emphasizing operator services because it is a less profitable product line.
General and administrative expense increased to $2,547,565 for the three
months ended September 30, 1995 from $1,037,698 in the third quarter of
1994, and as a percentage of revenue, decreased between the periods to 34% in
1995, as compared to 37% in 1994. The increase in total general and
administrative expense is attributable to the USC acquisition. The decrease
as a percentage of revenue reflects management's continued focus on cost
containment and head count to bring these costs in line with revenue levels.
Depreciation and amortization increased to $533,213 in 1995 from $112,911 in
1994 and as a percentage of revenue increased to 7% in 1995 from 4% in 1994.
The increase resulted from amortization of intangible assets arising from the
acquisition of USC, increased depreciation in the USC assets acquired, and
increased depreciation from switching equipment acquired in December, 1994.
During the third quarter of 1995, the Company incurred a $143,558
nonrecurring charge to operations relating to the discontinuation of its
non-telecommunications Russian Ventures. This charge represents management's
estimate of the costs associated with winding down the affairs of these
ventures including termination costs, collectibility of receivables, and
write-downs of certain assets.
The Company had other expenses of $241,262 for the three months ended
September 30, 1995 as compared to other expense of $2,590 in the same quarter
of 1994. This is primarily due to an increase in interest expense related to
the increased debt load incurred to consummate the USC acquisition.
The provision for operating losses of the discontinued operation during the
phase-out period was increased by $225,000 during the three months ended
September 30, 1995. The $400,000 of reserves previously established became
inadequate due to unforeseen delays in filing the Form 10-SB registration
necessary for SATC to become a public company prior to the distribution of
the stock dividend to shareholders and the subsequent decision to cancel the
spinoff and sell the subsidiary after the SATC President's death.
The Company incurred a consolidated net loss of $1,175,965 for the three
months ended September 30, 1995 as compared to $865,828 in the third quarter
of 1994. This increased consolidated net loss is principally attributable to
the increased depreciation and amortization expense, the nonrecurring
Russian Venture charge, and the provision for discontinued operating
losses, offset by improved gross profit margins. The depreciation and
amortization expenses, nonrecurring Russian Venture charges, and provision
for discontinued operating losses are non-cash charges.
The preferred stock dividend requirements relate to the securities issued in
conjunction with the USC acquisition.
NINE MONTHS ENDED SEPTEMBER 30, 1995, COMPARED TO NINE MONTHS SEPTEMBER 30,
1994
The Company had revenues from continuing operations of $13,772,942 for the
nine months ended September 30, 1995 as compared to $7,095,949 for the same
nine months last year. This represents an overall 94% increase over
13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
the like period of last year. Of the total increase, $6,813,341 is
attributable to the increase in domestic telecommunications revenue from the
USC acquisition effective June 1, 1995. International telecommunications
revenue decreased by $343,503 because of the moratorium on expansion, the
phasing out of agent-run offices, and the termination a wholesaling
arrangement with a reseller in Brazil which lacked adequate profit margins
and experienced high costs of administration. In addition, the first nine
months of 1994 only include seven months of LDN revenue since that
acquisition was effective March 1, 1994.
The Company incurred a loss from continuing operations before other income
(expense) of $1,383,506 for the nine months ended September 30, 1995 versus a
$1,427,968 loss in the same period of 1994. Although the losses are
comparable, gross profit margins as a percentage of revenue improved
substantially while general and administrative expense and depreciation and
amortization expense as a percentage of revenue increased. There was also a
nonrecurring Russian Ventures charge in 1995.
Cost of revenue (transmission costs, switching costs, and commissions)
increased to $9,574,931 for the nine months ended September 30, 1995 from
$6,106,421 in the same period of 1994, principally due to the increased
revenue base from the USC acquisition. However, the gross profit margin
increased to 30% in 1995 from 14% in 1994. This increase is principally due
to the improved mix of call traffic afforded by the USC revenue. The
percentage of direct dial long distance calls, which have a higher gross
profit margin, has increased as compared to the lower margin operator service
calls. Management is de-emphasizing operator services because it is a less
profitable product line.
General and administrative expense increased to $4,528,945 for the nine
months ended September 30, 1995 from $2,156,456 in the first nine months of
1994, and as a percentage of revenue, increased between the periods to 33% in
1995, as compared to 30% in 1994. The increase in total general and
administrative expense is attributable to the USC acquisition. The increase
as a percentage of revenue is indicative of the higher than expected costs
being experienced when USC was first acquired. The Company immediately
focused on bringing this percentage in line with revenue levels as indicated
in the third quarter comparisons. Management believes that the success of its
cost containment measures will be apparent in the Company's fourth quarter of
1995 results of operations.
Depreciation and amortization increased to $909,014 in 1995 from $261,040 in
1994 and as a percentage of revenue increased to 6% in 1995 from 4% in 1994.
The increase resulted from amortization of intangible assets from the
acquisition of USC, increased depreciation on the USC assets acquired, and
increased depreciation from switching equipment acquired in December, 1994.
During the third quarter of 1995, the Company incurred a $143,558
nonrecurring charge to operations relating to the discontinuation of the
non-telecommunications Russian Ventures. This charge represents management's
estimate of the costs associated with winding down the affairs of these
ventures including termination costs, collectibility of receivables, and
write-downs of certain assets.
The Company had other expenses of $354,440 for the nine months ended
September 30, 1995 as compared to other income of $12,870 in the first nine
months of 1994. This is primarily due to an increase in interest expense
related to the increased debt load from the USC acquisition.
14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The provision for operating losses of the discontinued operation during the
phase-out period was increased by $475,000 during the nine months ended
September 30, 1995. The $150,000 reserve established at December 31, 1994
became inadequate due to unforeseen delays in filing the Form 10-SB
registration necessary for SATC to become a public company prior to the
distribution of the stock dividend to shareholders and the subsequent
decision to cancel the spinoff and sell the subsidiary after the SATC
President's death.
The Company incurred a consolidated net loss of $2,212,946 for the nine
months ended September 30, 1995 as compared to $1,744,593 in the same period
of 1994. This increased consolidated net loss is principally attributable to
the increased general and administrative expense, depreciation and
amortization expense, nonrecurring Russian Venture charges, and provision
for discontinued operating losses, offset by improved gross profit margins.
The depreciation and amortization expenses, nonrecurring Russian Ventures
charge, and provision for discontinued operating losses are non-cash charges.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1995, the Company experienced
negative cash flow from operations of $1,505,177 as compared to $1,510,129
for the like period of 1994. With the acquisition of USC and subsequent
optimizing of the combined operations, the Company expects improvements in
cash flow from operations in the fourth quarter of 1995 which will continue
into 1996.
The acquisition of USC was funded from a combination of bank indebtedness and
the issuance of preferred stock. Management believes that future
acquisitions can be financed in a similar manner or, alternatively, by use of
private placements of common stock. A portion of the USC financing was used
for working capital purposes.
The Company is highly leveraged as a result of the substantial indebtedness
it has incurred to finance the USC acquisition. At July 31, 1995, the Company
obtained a $10,000,000 senior credit facility, $7,000,000 of which was used
to fund a majority of the cash portion of the consideration for the USC
acquisition. Additional advances of the $3,000,000 unused portion of the
senior credit facilities are dependent upon the Company meeting certain
predetermined levels of operating cash flow. At September 30, 1995, the
Company had $9,638,048 of long term debt (including capital leases and
excluding current maturities). In addition, principal amounts of subordinated
notes issued by the Company to former shareholders of USC in connection with
the USC financing will be due as follows: $750,000 on January 31, 1996,
$750,000 on July 31, 1996, and $1,650,000 on October 1, 1996. The Company
expects that, in light of the amount of its existing indebtedness, it will
continue to have substantial leverage for the foreseeable future. On November
10, 1995, the Company entered into an amendment to its senior credit
agreement with the bank, which, among other things: (i) amended certain
definitions, agreements and covenants relating to operating cash flow, senior
debt service coverage, prepayments on subordinated debt and modifications
with respect to the cancellation of the spin-off of SATC to the Company's
stockholders, and (ii) waived any breach by the Company of financial
covenants with respect to senior debt service coverage and with respect to
operating cash flow as of September 30, 1995 and with respect to the failure
to obtain the prior consent of the bank to the purchase of certain switching
equipment. As part of such amendment, the Company paid a default fee of
$10,000 and agreed to make an additional mandatory prepayment of
indebtedness of $150,000 under such credit agreement by November 30, 1995.
The bank has agreed to waive an additional default fee of $25,000 payable on
January 31, 1996 if the Company proves to have been in compliance with
financial covenants with respect to senior debt service coverage and with
respect to operating cash flow as of December 31, 1995. Management of the
Company anticipates that the Company will be in compliance with such
covenants at all future measurement dates.
The Company has been successful in financing its operations and expansion
needs from proceeds from private placements of common stock and the exercise
of stock options. Although there are no assurances that such sources of
funds will continue to be available, management believes that it can continue
to raise funds with this type of financing as the need dictates.
Additionally, management believes that cash flow generated from operations
will improve with the integration of USC into the Company.
At September 30, 1995, continuing operations had cash balances of $271,075 as
compared to $331,431 at December 31, 1994. As of September 30, 1995,
continuing operations had working capital of $287,321 and a current ratio of
1.06 to 1, as compared to working capital of $561,902 and a current ratio of
1.41 to 1 at December 31, 1994. The decline in cash is attributable to
payments made to reduce current liabilities.
The allowance for doubtful trade accounts receivable as a percentage of trade
accounts receivable decreased to 10% at September 30, 1995 from 18% at
December 31, 1994. This decrease is attributable to the higher percentage of
domestic trade accounts receivable at September 30, 1995 from the USC
acquisition which experienced substantially less bad debt than the
international trade accounts receivable.
15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
CAPITAL EXPENDITURES
There were no significant capital expenditures, other than the USC
acquisition, made in the first nine months of 1995. Additional switching
equipment will be acquired in the fourth quarter for network expansion. The
additional switching equipment is estimated to cost approximately $1,200,000,
and will be financed with a capital lease transaction.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 20, 1995, a suit was filed in the 101st Judicial District Court
in Dallas, Texas, Cause No. 95-07136-E, against the Company and its
wholly-owned subsidiary North American Telecommunications Corporation
("NATC") by Silvio Avyam alleging claims of breach of contract, breach of
fiduciary duty, conspiracy and fraud arising out of the termination of the
consultant agreement between NATC and plaintiff and alleging damages in
excess of $1,500,000. In addition, Mr. Avyam is seeking an accounting with
respect to his relationship with NATC, the issuance of shares of the
Company's Common Stock allegedly owed to him and exemplary damages and
attorney's fees. On August 11, 1995, the Company and NATC filed a general
denial in such suit and the parties are in the early stages of discovery.
Management of the Company believes such claims are without merit and intends
to vigorously defend such lawsuit. However, if the Company were required to
pay the alleged damages in such lawsuit, it could have a material adverse
effect on the Company's financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company on July 24, 1995,
at which the holders of 7,376,278 shares of the Company's Common Stock were
present in person or by proxy, constituting a quorum. The proposals
described below were voted on by such stockholders of the Company as follows:
(1) A proposal to elect twelve (12) directors as follows: (a) Igor
I. Mamantov, Harold A. Wilson, Thomas L. Cunningham and John
Nugent to serve for a one-year term, Barry J. Williams,
Terry R. Houston, Dean A. Thomas and John Q. Ebert to serve
for a two-year term, and Jack W. Matz, Jr., Paul R. Miller, J.
David Darnell and Pete W. Smith to serve for a three-year term,
or (b) if such proposal was not approved, such twelve (12)
directors to serve until the 1996 Annual Meeting of
Stockholders or until their respective successors are elected
and qualified. Such proposal 1(a) was approved as follows:
Nominee For Against Abstain
Jack W. Matz, Jr. 7,295,367 0 0
Harold A. Wilson 7,295,367 0 0
Igor I. Mamantov 7,295,367 0 0
John Q. Ebert 7,295,367 0 0
Barry J. Williams 7,295,367 0 0
Dean A. Thomas 7,275,367 20,000 0
Pete W. Smith 7,295,367 0 0
J. David Darnell 7,295,367 0 0
Terry R. Houston 7,295,367 0 0
17
<PAGE>
Thomas L.
Cunningham 7,295,367 0 0
John H. Nugent 7,275,267 20,100 0
Paul R. Miller 7,275,367 20,000 0
(2) A proposal to approve and adopt an amendment to the Company's
Certificate of Incorporation which would change the name of
the Company to "SA Telecommunications, Inc." Such proposal
was approved as follows:
For Against Abstain
7,346,282 25,705 4,291
(3) A proposal to approve and adopt an amendment to the Company's
Certificate of Incorporation which would affect the classification
of the Board of Directors as described above. Such proposal
was approved as follows:
For Against Abstain
6,997,984 366,259 12,035
(4) A proposal to ratify the Board of Director's appointment of
Price Waterhouse LLP as independent public accountants for the
Company for the fiscal year ending December 31, 1995. Such
proposal was approved as follows:
For Against Abstain
6,519,748 670,627 185,903
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Agreement dated as of September 21, 1995 by and among the
Company, Howard Maderra, Bill L. Johnson and Marianne
Reed with respect to the waiver of conversion privileges
on Series B Preferred Stock (filed herewith)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
The Company filed on August 15, 1995 a Current Report on Form 8-K dated
July 31, 1995 announcing the consummation of the acquisition of 100% of the
outstanding capital stock of U.S. Communications, Inc., a Texas corporation
and related transactions. The following financial statements required for
this report were filed on October 13, 1995 in the amended Form 8-KA dated
July 31, 1995:
Audited Financial Statements:
18
<PAGE>
U.S. Communications, Inc.
Report of Independent Accountants
Balance Sheets as of December 31, 1994 and 1993
Statement of Operations for the years ended December 31, 1994
and 1993
Statement of Changes in Retained Earnings for the years ended
December 31, 1994 and 1993
Notes to Financial Statements
Unaudited Condensed Financial Statements:
U.S. Communications, Inc.
Unaudited Condensed Balance Sheet as of June 30, 1995
Unaudited Condensed Statement of Operations for the six months
ended June 30, 1995
Unaudited Condensed Statement of Cash Flows for the six months
ended June 30, 1995
Unaudited Condensed Statement of Changes in Stockholders'
Equity
Notes to Unaudited Condensed Financial Statements
Pro Forma Financial Information
SA Telecommunications, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheet as of June 30, 1995
Unaudited Consolidated Statements of Operations for the three
and six month periods ended June 30, 1995
Unaudited Consolidated Statements of Shareholders' Equity for
the three and six month periods ended June 30, 1995
Unaudited Consolidated Statements of Cash Flows for the three
and six month periods ended June 30, 1995
Notes to Unaudited Consolidated Financial Statements
In addition, the Company filed on October 11, 1995 a Current Report on
Form 8-K dated
19
<PAGE>
October 6, 1995 announcing (1) the cancellation of the proposed spin off of
57% of the common stock of its wholly-owned subsidiary, Strategic Abstract &
Title Corporation ("SATC"), to the stockholders of the Company as a result of
the death of SATC's President, Harold A. Wilson, and (2) the proposed sale of
the information data base subsidiary.
20
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, Registrant has duly caused this report to be signed by
the undersigned thereunto duly authorized.
Date: November 14, 1995 SA Telecommunications, Inc.
By: /s/ Jack W. Matz, Jr.
---------------------------------
Jack W. Matz, Jr.
Chief Executive Officer
By: /s/ J. David Darnell
---------------------------------
J. David Darnell
Vice President, Finance and
Chief Financial Officer
21
<PAGE>
INDEX TO EXHIBITS
Exh. No. Description
- -------- -----------
4.1 Agreement dated as of September 21, 1995 by and among the
Company, Howard Maderra, Bill L. Johnson and Marianne
Reed with respect to the waiver of conversion privileges
on Series B Preferred Stock (filed herewith)
27.1 Financial Data Schedule (filed herewith)
<PAGE>
AGREEMENT
AGREEMENT dated as of September 21, 1995 by and among SA
Telecommunications, Inc., f/k/a/ SA Holdings, Inc., a Delaware corporation
(the "Company"), and Howard Maddera, Bill L. Johnson and Marianne Reed
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company and Purchasers have entered into that certain Note,
Preferred Stock & Warrant Purchase Agreement dated as of July 31, 1995 (the
"Purchase Agreement"), pursuant to which the Company issued and the
Purchasers purchased an aggregate of $2,750,000 principal amount of the
Company's Subordinated Notes Due October 1, 1996 (the "Bridge Notes") and an
aggregate of 125,000 shares of Series B Cumulative Convertible Preferred
Stock, $.00001 par value (the "Series B Preferred Stock");
WHEREAS, the Company desires to prepay an aggregate principal amount of
$1,100,000 of the Bridge Notes in exchange for waiver of the conversion
feature of the Series B Preferred Stock and a proxy exercisable in the event
the Company, in its sole discretion, desires to seek an amendment to the
Certificate of Designations, Preferences and Rights of Series B Cumulative
Convertible Preferred Stock ("Series B Designation") deleting all provisions
relating to conversion and adjusting any provisions dependant upon conversion
rights, and Purchasers desire to accept such prepayment and grant such waiver
and proxy;
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. PREPAYMENT OF BRIDGE NOTES. Pursuant to Section 6 of the Purchase
Agreement, the Company hereby delivers to Purchasers as an aggregate
prepayment of principal of $1,100,000 plus $17,813.83 accrued and unpaid
interest on principal to the date hereof on the Bridge Notes, for a total of
$1,117,813.83 by checks payable to the order of (a) Howard Maderra in the
amount of $447,125.53, (b) Bill L. Johnson in the amount of $447,125.53, and
(c) Marianne Reed in the amount of $223,562.77, and each of Purchasers hereby
accepts such prepayment and waives all notice to which such Purchaser may be
entitled under Section 6 or any other provision of the Purchase Agreement.
2. WAIVER OF CONVERSION FEATURE.
(a) Each of the Purchasers, being all the holders of the Series B
Preferred Stock, and the Company hereby waive all provisions giving the
holder of such Series B Preferred Stock the right to convert into the
Company's Common Stock. Accordingly, each of the Purchasers hereby
expressly acknowledges and agrees that the Series B Preferred Stock will
not now, nor ever be, convertible into shares of Common Stock of the
Company, and that any transfer of such Series B Preferred Stock will not
convey conversion rights.
<PAGE>
(b) In the event that the Company, in its sole discretion, desires
to amend the Series B Designation to delete all provisions relating to
conversion and adjust any provisions dependent upon conversion rights, in
order to effectuate the covenant set forth in Section 2(a) above, each of
the Purchasers hereby irrevocably appoints Jack W. Matz, Jr. and J. David
Darnell, and both or either of them, as proxies, each with the power to
appoint his substitute, and hereby authorizes each of them to vote all
shares of capital stock of the Company held by such Purchasers in favor of
such an amendment at any stockholder's meeting at which such amendment
shall be presented for approval.
(c) Each of the Purchasers agrees that such Purchaser will immediately
deliver all stock certificates representing shares of Series B Preferred
Stock held by such Purchaser to the Company in order that the Company can
place a legend on the reverse side thereof indicating that the holder
thereof has agreed to the waiver of the conversion feature previously
existing with respect to such Series B Preferred Stock.
3. AMENDMENT OF PURCHASE AGREEMENT. The Purchasers and the Company
hereby agree that the Purchase Agreement is hereby amended as follows:
(a) Section 1(c) of the Purchase Agreement is hereby amended to delete
the second sentence of Section 1(c).
(b) The definition of "Share" in Section 3(a) of the Purchase
Agreement is hereby amended to delete the reference to conversion of Series
B Preferred Stock and is amended and restated as follows:
"Share" or "Shares" means shares of the Company's Common Stock, or
other securities which can be obtained or have been obtained by
exercise in whole or in part of any Warrant or are obtained upon an
exchange of Shares pursuant to the terms of a Warrant or are obtained
upon an exchange of Shares pursuant to the terms of the Company's
articles of incorporation.
(c) Section 7.1 of the Purchase Agreement is hereby amended to delete
reference to the Series B Preferred Stock and restated as follows:
7.1 RESERVATION OF SHARES. There has been reserved, and the Company
shall at all times keep reserved, free from preemptive rights, out of
its authorized Common Stock, $.0001 par value per share, a number of
shares of Common Stock, $.0001 par value per share, sufficient to
provide for the exercise of the Warrants.
(d) Sections 15.2, 15.3, 15.4, 15.5 and 15.6 of the Purchase
Agreement are hereby amended to delete all references to "Series B
Preferred Stock" and "conversion of Series B Preferred Stock."
<PAGE>
4. COUNTERPARTS; BINDING EFFECT. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument, and all signatures need not appear on
any one counterpart. The terms of this Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors and
permitted assigns whether so expressed or not.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
SA TELECOMMUNICATIONS, INC.
-------------------------------------
Howard Maddera
By:
--------------------------------- -------------------------------------
Jack W. Matz, Jr. Bill L. Johnson
Chairman and Chief Executive
Officer
-------------------------------------
Marianne Reed
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 271,075
<SECURITIES> 0
<RECEIVABLES> 4,929,653
<ALLOWANCES> 457,255
<INVENTORY> 244,660
<CURRENT-ASSETS> 5,404,579
<PP&E> 5,036,016
<DEPRECIATION> 2,624,296
<TOTAL-ASSETS> 29,800,698
<CURRENT-LIABILITIES> 5,117,258
<BONDS> 0
<COMMON> 1,299
1,238,750
637,874
<OTHER-SE> 13,167,469
<TOTAL-LIABILITY-AND-EQUITY> 29,800,698
<SALES> 13,772,942
<TOTAL-REVENUES> 13,772,942
<CGS> 9,574,931
<TOTAL-COSTS> 15,156,448
<OTHER-EXPENSES> (9,820)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364,260
<INCOME-PRETAX> (2,249,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,737,946)
<DISCONTINUED> (475,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,249,613)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
