<PAGE>
__________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 31, 1995
Date of Report (Date of earliest event reported)
SA TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-18048 75-2258519
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1912 Avenue K, Suite 100
Plano, Texas 75074
(Address of Principal Executive Offices) (Zip Code)
(214) 516-0662
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
__________________________________________________________________
-1-
<PAGE>
ITEM 2. Acquisition or Disposition of Assets.
On July 31, 1995, SA Holdings, Inc., a Delaware corporation
("STEL") consummated the acquisition of 100% of the outstanding
capital stock (the "USC Stock") of U.S. Communications, Inc., a
Texas corporation ("USC"), pursuant to the terms of that amended
Stock Purchase Agreement (the "Stock Purchase Agreement") by and
among STEL, USC, Howard Maddera, Bill L. Johnson, Marianne Reed and
NTS Communications, Inc., the shareholders of USC (collectively,
the "Shareholders"). USC is an interexchange long distance carrier
headquartered in Levelland, Texas.
The aggregate purchase price paid by STEL for the USC Stock
(the "Purchase Price") was $9.6 million paid (i) $4.1 million in
cash, (ii) $2.75 million in notes bearing 11% interest per annum
(the "Purchase Notes"), (iii) $1.5 million in a separate group of
notes also bearing interest at 11% per annum (the "Offset Notes")
and (iv) 125,000 shares of the Series B Cumulative Convertible
Preferred Stock of STEL (the "Series B Preferred Stock"). Certain
of the Shareholders were also issued a warrant, granting the
holders thereof, the right to acquire up to an aggregate of
1,050,000 shares of the Registrant's Common Stock for an exercise
price of $1.25 per share. A form of the Note, Preferred Stock &
Warrant Purchase Agreement dated July 31, 1995 between the
Registrant and the purchasers thereof is attached as an exhibit
hereto and incorporated herein by reference. The Shareholders also
received an aggregate of $2.4 million in nonsolicitation and
noncompetition fees in connection with the terms of the Stock
Purchase Agreement. The terms of the Stock Purchase Agreement were
determined by arms length negotiations between the parties.
In order to satisfy claims by STEL of any breach or
nonperformance of representation, warranty, covenant or other
obligation of the Shareholders contained in the Stock Purchase
Agreement, the parties placed $300,000 of the cash portion of the
Purchase Price in escrow with American State Bank. Additionally,
STEL has the right to offset the amounts payable under the Offset
Notes for any event which it is entitled to indemnification under
the Stock Purchase Agreement.
In order to fund the cash portion of the Purchase Price, STEL
borrowed an aggregate of $7.0 million from Norwest Bank Minnesota,
N.A. ("Norwest") pursuant to that Term Credit Agreement dated July
31, 1995 between Norwest and the Registrant. Additionally, the
Registrant privately placed 166,667 shares of its Series A
Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock") with Jesup & Lamont Capital Markets, Inc. ("Jesup &
Lamont") for $1.5 million, pursuant to that Share Purchase
Agreement, dated July 31, 1995 between the Registrant and Jesup &
Lamont (the "Share Purchase Agreement"). In connection with the
placement of the Series A Preferred Stock, Jesup & Lamont was also
granted a warrant to purchase up to 500,000 shares of the
Registrant's Common Stock for an exercise price of $1.125 per
share, pursuant to that Warrant Purchase Agreement dated July 31,
1995 between the Registrant and Jesup & Lamont (the "Warrant
Purchase Agreement"). The Share Purchase Agreement and the Warrant
Purchase Agreement are each attached as exhibits hereto and are
incorporated individually herein by reference.
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<PAGE>
The preferences and relative, participating, optional and
other rights of the Series A Preferred Stock and the Series B
Preferred Stock and the qualifications, limitations and
restrictions appertaining thereto are set forth in the respective
Certificate of Designations, Preferences and Rights attached as
exhibits hereto and incorporated herein by reference.
On September 21, 1995, STEL prepaid an aggregate of $1,100,000
on the Purchase Notes and, in connection therewith, the holders of
such Purchase Notes agreed, among other things, to waive the
convertibility feature of the Series B Preferred Stock.
Prior to the consummation of the transactions contemplated by
the Stock Purchase Agreement, no material relationship existed
between STEL, any officer, director or affiliate of STEL or any
associate of any such officer or director and USC or the
Shareholders. Pursuant to the terms of an Employment Agreement
dated July 31, 1995, Bill L. Johnson has been retained by USC to
act as Vice President for an initial term expiring July 31, 1997.
ITEM 5. Other Events.
On July 24, 1995, the Shareholders of STEL approved an
amendment to the Certificate of Incorporation of STEL changing the
name thereof to SA Telecommunications, Inc. The Certificate of
Amendment to the Certificate of Incorporation affecting this change
was filed with the Secretary of State of the State of Delaware on
August 3, 1995.
ITEM 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Business Acquired.
Audited Balance Sheets of U.S. Communications, Inc. as of
December 31, 1994 and 1993 and the related Statements of
Operations, Changes in Retained Earnings and Cash Flows for
the years then ended.
Unaudited Condensed Balance Sheet as of March 31, 1995 and
the related Statements of Operations, Changes in Stockholders'
Equity and Cash Flows for the three months then ended.
(b) Pro Forma Financial Information
Unaudited Consolidated Balance Sheets of SA
Telecommunications, Inc. and Subsidiaries as of June 30, 1995
and the related Unaudited Consolidated Statements of
Operations, Shareholders' Equity and Cash Flows for the three
month and six month periods ended June 30, 1995 and 1994.
Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1994 and three months ended
March 31, 1995
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<PAGE>
(c) Exhibits.
Exhibit No. Document Description
2.1* Stock Purchase Agreement,
dated as of June 30, 1995,
between SA Holdings, Inc.,
U.S. Communications, Inc. and
the Shareholders thereof (the
"Stock Purchase Agreement")
2.2* Supplemental Agreement to the
Stock Purchase Agreement, dated
July 31, 1995
4.1* Certificate of Designations,
Preferences and Rights of
Series A Cumulative Convertible
Preferred Stock
4.2** Share Purchase Agreement,
dated July 31, 1995, between
SA Holdings, Inc. and Jesup &
Lamont Capital Markets, Inc.
4.3* Form of Series A Preferred
Stock Certificate
4.4* Warrant Purchase Agreement,
dated July 31, 1995, between SA
Holdings, Inc. and Jesup &
Lamont Capital Markets, Inc.
4.5* Common Stock Purchase Warrant
Certificate issued to Jesup &
Lamont Capital Markets, Inc.
4.6* Certificate of Designations,
Preferences and Rights of
Series B Cumulative Convertible
Preferred Stock
4.7* Form of Purchase Note, issued
by SA Holdings, Inc. and
schedule of differences thereto
pursuant to General Instruction
2 to Item 601
4.8* Form of Offset Note, issued by
SA Holdings, Inc. and schedule
of differences thereto pursuant
to General Instruction 2 to
Item 601
4.9** Form of Note, Preferred Stock
& Warrant Purchase Agreement,
dated as of July 31, 1995
between SA Holdings, Inc. and
the purchasers thereof
4.10* Form of Series B Preferred
Stock Certificate
4.11* Form of Common Stock Purchase
Warrant Certificate issued to
purchasers thereof
4.12** Term Credit Agreement dated
July 31, 1995 between SA
Holdings, Inc. and Norwest
Bank-Minnesota, N.A. and
related Security Agreement and
Promissory Note
20.1* SA Holdings, Inc. press
release dated August 1, 1995
23.1*** Consent of Price Waterhouse LLP
23.2*** Consent of Duff and Anderson
_______________
* Previously filed as Exhibit number indicated with the original
filing of this Form 8-K and incorporated herein by reference.
** Previously filed as Exhibit number indicated with the first
amendment to this Form 8-K and incorporated herein by reference.
*** Filed herewith.
-4-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
SA TELECOMMUNICATIONS, INC.
Date: December 8, 1995 By: /s/ J. David Darnell
--------------------------
J. David Darnell
Vice President-Finance and
Chief Financial Officer
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<PAGE>
INDEX TO FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA FINANCIAL
INFORMATION
Audited Financial Statements:
U.S. Communications, Inc.
Report of Independent Accountants
Balance Sheets as of December 31,
1994 and 1993
Statements of Operations for the years
ended December 31, 1994 and 1993
Statements of Changes in Retained
Earnings for the years ended
December 31, 1994 and 1993
Statements of Cash Flows 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 March 31, 1995
Unaudited Condensed Statement of
Operations for the three months
ended March 31, 1995 and 1994
-6-
<PAGE>
Unaudited Condensed Statement of
Cash Flows for the three months
ended March 31, 1995 and 1994
Unaudited Condensed Statement of
Changes in Stockholders' Equity
for the three months ended
March 31, 1995 and 1994
Notes to Unaudited Condensed
Financial Statements
Unaudited Financial Information
SA Telecommunications, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheet
as of June 30, 1995 and
December 31, 1994
Unaudited Consolidated Statements of
Operations for the three and
six month periods ended June 30, 1995
Unaudited Consolidated Statements of Shareholders' Equity
for the six month periods ended
June 30, 1995 and 1994
Unaudited Consolidated Statements of Cash Flows
for the six month periods ended
June 30, 1995 and 1994
Notes to Unaudited Consolidated
Financial Statements
Pro Forma Financial Information
SA Telecommunications, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statement
of Operations for the year ended
December 31, 1994
Unaudited Pro Forma Consolidated Statement
of Operations for the three months
ended March 31, 1995
-7-
<PAGE>
Duff and Anderson, P.C.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
U. S. Communications, Inc.
We have audited the accompanying balance sheets of U.S.
Communications, Inc., DBA: NTS Communications Western Division, as
of December 31, 1994 and 1993 and the related statements of
operations, changes in retained earnings and cash flows for the
years then ended. These financial statements are the
responsibility of U. S. Communications, Inc., DBA: NTS
Communications Western Division. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. 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 audit
provides a reasonable basis for our opinion.
As described in Note 14 to these financial statements, the Company
changed its method of accounting for income taxes in 1993 as
required by the provisions of Statement of Financial Accounting
Standards No. 109.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of U. S.
Communications, Inc., DBA: NTS Communications Western Division as
of December 31, 1994 and 1993, and the results of its operations
and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Respectfully submitted,
Duff and Anderson, P.C.
Certified Public Accountants
Levelland, TX 79336
April 21, 1995
-8-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current Assets:
Cash $ 48,554.55 $ 392,143.52
Certificates of Deposit (Note 7) 1,185.72 1,160.89
Accounts Receivable-Trade, net
of allowance for doubtful
accounts of $132,700.00 and
$177,100.00, respectively 2,273,923.58 1,663,506.23
Accounts Receivable-Employees 6,228.20 440.00
Inventories 116,626.27 72,171.89
Prepaid Expenses and Other 53,853.05 46,263.40
Prepaid Income Taxes 128,150.00 .00
------------- -------------
Total Current Assets 2,628,521.37 2,175,685.93
------------- -------------
Property, Plant and Equipment: (Note 2)
Land 22,000.00 15,000.00
Buildings 463,219.60 400,592.65
Furniture and Equipment 2,542,489.30 2,264,454.28
Automobiles 229,110.06 308,697.20
------------- -------------
Total Property, Plant and
Equipment 3,256,818.96 2,988,744.13
Less: Accumulated Depreciation 2,103,010.48 1,733,404.57
------------- -------------
Net Property, Plant and
Equipment 1,153,808.48 1,255,339.56
------------- -------------
Other Non-Current Asset:
Cash Surrender Value of Life
Insurance Policies (Note 9) 18,448.39 16,639.58
------------- -------------
TOTAL ASSETS $3,800,778.24 $3,447,665.07
============= =============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-9-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
BALANCE SHEETS (Continued)
DECEMBER 31, 1994 AND 1993
LIABILITIES
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $1,008,025.72 $ 762,727.72
Accrued Telecommunications
Expense 748,379.84 677,215.50
Accrued Payroll and Related
Expense (Note 6) 177,487.55 153,047.27
Notes Payable (Note 3) 69,395.34 331,823.66
Notes Payable, Current Maturities
of Long-Term Obligations (Note 3) 277,646.17 140,966.46
State Sales Tax Payable 64,465.44 156,419.11
Federal Excise Tax Payable 119,276.60 100,110.78
Income Tax Payable: Current 245,000.00 136,416.00
------------- -------------
Total Current Liabilities 2,659,676.66 2,458,726.50
------------- -------------
Long-Term Liabilities:
Deferred Income Tax Payable
(Note 14) 43,026.00 56,910.00
Notes Payable, Less Current
Maturities (Note 3 & 4) 386,168.67 683,961.87
Capital Lease Payable, Less
Current Maturities (Note 12) 39,149.05 .00
------------- -------------
Total Long-Term Liabilities 468,343.72 740,871.87
------------- -------------
Total Liabilities $3,128,020.38 $3,199,598.37
------------- -------------
STOCKHOLDERS' EQUITY
Contributed Capital:
Common Stock, authorized 100,000
shares of $10 par value, 9,750
shares issued 97,500.00 97,500.00
------------- -------------
Retained Earnings 590,257.86 165,566.70
------------- -------------
Less: Treasury Common Stock,
at cost 1,500 shares (15,000.00) (15,000.00)
------------- -------------
Total Stockholders' Equity 672,757.86 248,066.70
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,800,778.24 $3,447,665.07
============= =============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-10-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Telecommunications Revenues $16,418,088.39 $13,994,691.90
Cost of Revenues 9,145,840.34 8,306,222.95
-------------- --------------
Gross Profit 7,272,248.05 5,688,468.95
-------------- --------------
Operating Expenses:
General and Administrative 6,184,013.36 5,032,065.15
Depreciation 429,432.27 469,182.67
-------------- --------------
Total Operating Expenses 6,613,445.63 5,501,247.82
-------------- --------------
Income From Operations 658,802.42 187,221.13
-------------- --------------
Other Income (Expense):
Interest Expense (100,454.25) (160,300.22)
Interest Income 99,207.40 148,302.32
Gain (Loss) on Disposal
of Fixed Assets (7,135.52) 56,065.61
Miscellaneous 5,271.11 60.00
-------------- --------------
Total Other Income (Expense) (3,111.26) 44,127.71
-------------- --------------
Income Before Taxes 655,691.16 231,348.84
Provision for Income Taxes (Note 14) (231,000.00) (92,000.00)
-------------- --------------
Income Before Cumulative Effect of
Change in Accounting Principle 424,691.16 139,348.84
Cumulative Effect of Accounting
Change .00 (103,000.00)
-------------- --------------
NET INCOME $ 424,691.16 36,348.84
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-11-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF OPERATIONS (Continued)
FOR YEARS ENDED DECEMBER 31, 1994 AND 1993
<S> <C> <C>
Earnings Per Common Share:
Income Before Cumulative Effect
of Accounting Change $ 51.48 $ 16.89
Cumulative Effect of Change in
Accounting Principle .00 (12.48)
--------- ---------
Net Income $ 51.48 $ 4.41
========= =========
Weighted Average Number of
Common Shares Outstanding 8,250 8,250
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-12-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF CHANGES IN RETAINED EARNINGS
FOR YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Retained Earnings at Beginning of Year $165,566.70 $129,217.86
Net Income 424,691.16 36,348.84
----------- -----------
Retained Earnings at End of Year $590,257.86 $165,566.70
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-13-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cash Flow from Operating Activities:
Net Income $424,691.16 $ 36,348.84
Adjustments to Reconcile Net Income
to Net Cash:
(Increase) Decrease in Accounts
Receivable (616,205.55) (157,786.63)
(Increase) Decrease in Inventories (44,454.38) (10,247.33)
(Increase) Decrease in Notes
Receivable 13,390.55 213,999.11
Depreciation 429,432.27 469,182.67
(Increase) Decrease in Prepaid
Expenses (149,130.20) 25,538.72
Increase (Decrease) in Accounts
Payable 289,510.57 (56,103.42)
Increase (Decrease) in Accrued
Telecommunication Expense 71,164.34 239,998.05
Increase (Decrease) in Taxes
Payable 2,139.86 125,089.14
(Gain) Loss on Disposition of
Assets 7,135.52 (56,065.61)
----------- -----------
Total Adjustments 2,982.98 793,604.70
----------- -----------
Net Cash Flow from Operating
Activities 427,674.14 829,953.54
----------- -----------
Cash Flow from Investing Activities:
Purchase of Equipment (408,730.27) (270,731.20)
Proceeds from Sale of Equipment 73,693.56 95,465.79
Increase in Certificates of Deposit (24.83) (25.05)
Cash Surrender Value of Life
Insurance Policies (1,808.81) (3,509.22)
----------- -----------
Net Cash Flow from Investing
Activities (336,870.35) (178,799.68)
Cash Flow from Financing Activities:
Payments on Notes Payable (262,429.12) (171,024.04)
Borrowings 156,685.09 267,881.16
Principal Payment on Long-Term
Borrowings (328,648.73) (381,899.91)
----------- -----------
Net Cash Flow from Financing
Activities (434,392.76) (285,042.79)
----------- -----------
Net Increase (Decrease) in Cash (343,588.97) 366,111.07
Cash at the Beginning of the Year 392,143.52 26,032.45
----------- -----------
Cash at the End of the Year $ 48,554.55 $392,143.52
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Income Taxes $254,566.00 $ .00
Interest 100,454.25 160,300.22
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-14-
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
BACKGROUND:
U.S. Communications, Inc. (the "Company") is a Texas
corporation which was chartered May 7, 1985. Its purpose is
to provide long distance telecommunication services to the
southwestern region of the United States, with the primary
emphasis on the West Texas area. At the present time the
Company does business as NTS Communications Western Division
and Southwest Long Distance Network, Inc. with offices in
Levelland (home), Brownfield, Dallas, El Paso, Lamesa, Big
Spring, Odessa and Snyder, Texas. Additional office locations
include Oklahoma City, Oklahoma, Hobbs, Roswell, Las Cruces
and Albuquerque, New Mexico, Fort Smith and Springdale,
Arkansas, and Phoenix, Arizona.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company maintains cash and short term certificates of
deposit. For financial reporting purposes any certificate of
deposit with a maturity of more than 90 days is not considered
a cash equivalent.
ACCOUNTS RECEIVABLE
Accounts Receivable are stated based on billed and unbilled
long distance services less the current month's discounts
earned for early payment. Interest is assessed on past due
amounts receivable and is recorded in the month earned.
Allowances for doubtbul accounts are provided at a rate of
fifty percent of ninety day past due accounts.
INVENTORIES
Inventories are stated at the lower of cost (determined on the
last in, first out basis) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at acquisition cost.
Depreciation of such property and equipment is based on a
straight-line method over the estimated useful lives of the
respective assets for financial reporting purposes and on
methods acceptable and approved by the Internal Revenue
Service for federal income tax reporting.
-15-
<PAGE>
CASH SURRENDER OF LIFE INSURANCE POLICIES
The Company has provided life insurance coverage on key
management personnel within the organization. As time passes
these policies accumulated cash value which can be applied to
future premiums, loans or cashed. The Company holds a lien
against such policies and records cash accumulations as a non-
current asset redeemable at some point in the future.
ACCRUED EXPENSES
Amounts shown as accrued telecommunications expense include
accruals for line costs on long distance services which have
been recognized as income and recorded in accounts receivable.
INCOME TAXES
As addressed in Note 14, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), effective January 1, 1993. The impact of
adoption was not significant. Deferred income
taxes are calculated using an asset and liability approach
wherein deferred taxes are provided for basis differences for
assets and liabilities arising from differing treatments for
financial and income tax reporting.
NOTE 2. SUMMARY OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Balance Balance
CATEGORY 12-31-94 12-31-93
- -------- ------------- -------------
<S> <C> <C>
Land $ 22,000.00 $ 15,000.00
Buildings 463,219.60 400,592.65
Furniture and Equip. 2,542,489.30 2,264,454.28
Automobiles 229,110.06 308,697.20
------------- -------------
$3,256,818.96 $2,988,744.13
============= =============
ACCUMULATED DEPRECIATION
Balance Balance
CATEGORY 12-31-94 12-31-93
- -------- ------------- -------------
Land $ .00 $ .00
Buildings 47,909.34 33,020.16
Furniture and Equip. 1,888,177.19 1,525,823.04
Automobiles 166,923.95 174,561.37
------------- -------------
$2,103,010.48 $1,733,404.57
============= =============
</TABLE>
-16-
<PAGE>
U. S. COMMUNICATIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 3. Notes Payable
The Company's debt consists of several short and long-term notes
with various lenders. The notes were issued in connection with the
purchase of equipment and automobiles, and for working capital
purposes.
Notes issued relating to equipment and automobiles are
collateralized by such assets. The note issued for the building
and additional equipment is secured by such assets. Furthermore,
the building and equipment loan is personally guaranteed by the
stockholders as required by the Small Business Administration.
The largest of the equipment notes is secured by the equipment and
the stockholders have assigned life insurance policies to the
parties participating in the loan origination in accordance with
loan requirements.
All working capital notes are unsecured.
Interest rates vary from a low of 5 percent to a high of 14.728
percent. The majority of notes contain clauses for a "variable"
rate of interest which are adjusted periodically according to
market rates.
Long-term obligations at December 31, consist of:
<TABLE>
<CAPTION>
1994 1993
___________ ___________
<S> <C> <C>
Note payable to a bank (collateralized
by land, building, and equipment) due
in monthly installments of $8,338.00
including interest at 11% (Variable
Rate) with the balance due in 1998 $250,003.70 $322,631.87
Note payable to a bank (collateralized
by land and building) due in monthly
installments of $750.62 including
interest at 11% (Variable Rate) with
the balance due in 1999 53,544.73 .00
Note payable to a bank (collateralized
by equipment) due in monthly
installments of $2,170.55 including
interest at 11% (Variable Rate) with
the balance due in 1996 36,926.06 .00
Note payable to a bank (collateralized
by automobile) due in monthly
installments of $706.16 including
interest at 10.50% (Variable Rate)
with the balance due in 1996 15,147.68 22,409.99
Note payable to a bank (collateralized
by truck) due in monthly installments
of $405.62 including interest at 10%
(Variable Rate) with the balance due
in 1996 5,482.65 9,971.68
-17-
<PAGE>
Note payable to finance company
(collateralized by equipment) due
in monthly installments of $596.86
including interest at 14.728% (Fixed)
with the balance due in 1995 .00 10,035.13
Note payable to finance company
(collateralized by equipment) due
in monthly installments of $6,557.00
including interest of 12.50% (Fixed)
with the balance due in 1995 .00 117,515.93
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $317.65 including interest at 8.25%
(Variable Rate) with the balance due
in 1995 .00 5,006.05
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $355.93 including interest at 6.25%
(Variable Rate) with the balance due
in 1995 .00 7,381.41
Note payable to a bank (collateralized
by an automobile) due in monthly
installments of $469.90 including
interest at 6.25% (Variable Rate) with
the balance due in 1995 .00 5,436.44
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $395.31 including interest at 6.25%
(Variable Rate) with the balance due
in 1995 .00 8,897.16
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $421.22 including interest at 10%
(Fixed) with the balance due in 1995 .00 8,444.81
Note payable to a municipality
(collateralized by life insurance policies)
due in monthly installments of $4,915.04
including interest at 5% (Fixed) with
the balance due in 1997 186,265.24 247,524.26
-18-
<PAGE>
Note payable to stockholder (unsecured)
due in monthly installments of $590.82
including interest at 8.50% (Variable
Rate) with the balance due in 1996 15,895.56 17,473.92
Note payable to stockholder (unsecured)
due in monthly installments of $636.27
including interest at 8% (Fixed) with
the balance due in 1996 11,877.88 .00
Note payable to individual (unsecured)
due in monthly installments of $620.72
including interest at 8.50% (Variable
Rate) with the balance due in 1996 15,710.81 21,087.25
Note payable to stockholder (unsecured)
due in monthly installments of $471.54
including interest at 8.50% (Variable
Rate) with the balance due in 1996 13,149.38 21,112.43
Capital lease obligation (Note 12) 48,960.20 .00
___________ ___________
652,963.89 824,928.33
Less current maturities:
Long-term debt (217,835.02) (140,966.46)
Capital lease obligations (9,811.15) .00
___________ ___________
Long-term Portion $425,317.72 $683,961.87
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994 1993
___________ ___________
<S> <C> <C>
The Company had short-term notes
due in 1994 and 1993 collateralized
by equipment and trucks, and
unsecured short-term notes for
operating purposes due in monthly
installments of $10,028.53 (including
interest rates ranging from 8.50%
Variable to 14.728% Fixed) and
$18,099.75 (including interest rates
ranging from 8.25% Variable to
13.50% Fixed) $ 69,395.34 $331,823.66
</TABLE>
Cash Requirements for Long-Term Notes and Leases Payable by Year
<TABLE>
<CAPTION>
1994
Principle
Year Due
____ _________
<S> <C>
1995 $227,646.17
1996 225,388.34
1997 141,007.29
1998 18,363.60
Remaining 40,558.49
___________
$652,963.89
</TABLE>
-19-
<PAGE>
Note 4. Line of Credit
The Company has a line of credit with a bank in the amount of
$350,000. The note was dated August 22, 1994 with a maturity date
of April 15, 1995. Interest is to be charged at a rate of 10.25%
on a 365 day basis As of December 31, 1994 the Company had
outstanding advances of $500 under this agreement leaving an amount
available for advance of $349,500.
Note 5. Defined Contribution
The Company has available to its employees a Defined Profit Sharing
Plan and Trust (401K). The plan is a "salary reduction plan".
Employees may elect to reduce their compensation and contribute to
this plan provided they are a full-time employee having worked more
than 1,000 hours in that six (6) month period and have attained the
age of twenty (20). Each employee may defer up to ten (10) percent
of their salary not to exceed the limit allowable by law in any one
year. Vesting is twenty (20) percent per year of employment and
the employee must be employed December 31, to receive the last year
of vesting. The Company may at its option contribute matching
contributions not to exceed a maximum of five (5) percent.
Distributions from the plan are not permitted before age fifty-nine
and one-half (59 1/2) except in the event of death, disability,
termination of employment or reasons of proven financial hardship.
The Company contributed $24,000.00 in 1994 and 1993, respectively.
Note 6. Accrued Vacation and Sick Leave Benefits
On termination, retirement or death of employees the Company will
pay any accrued vacation and sick leave allowances in a lump sum
payment to such employee or his/her estate. Vacation pay and sick
leave pay require a minimum of three months continuous employment.
Full-time employees receive allowances at the rate of eight
vacation and four sick leave hours per month. Permanent part-time
employees receive allowances at the rate of four vacation and two
sick leave hours per month. Maximum amounts for payment at
termination are ninety-six vacation hours and forty-eight sick
leave hours. The amount of estimated liability recorded as of
December 31, 1994 was $91,717.
Note 7. Certificates of Deposit
The Company has pledged a certificate in the amount of $1,000 to
the Oklahoma Tax Commission for Sales Tax Reporting purposes.
-20-
<PAGE>
Note 8. Contracts
The Company has entered into a contract with Zero Plus Dialing,
Inc., a Delaware corporation, to provide person-to-person, third
party, collect and calling card billing and collection services for
use by the Company in connection with its provisions of operator
services. The contract is renewable annually with settlements of
accounts on a monthly basis.
Note 9. Subsequent Events
During April 1995, the Board of Directors voted and approved the
distribution of key-man insurance cash value on Split-Dollar life
insurance policies to the owners of the policies. As a result, the
$18,448 shown as Cash Surrender Value of Life Insurance Policies
and the policies were distributed to the owners.
Note 10. Pending Sale
The Company's directors approved and entered into a sales contract
with S.A. Holdings, Inc. of Plano, Texas for all of the stock owned
by U.S. Communications, Inc. shareholders as of October 6, 1994.
Note 11. Related Party Transactions
The Company had the following related party transactions during
1994:
Howard M. Maddera, Chairman of the Board of Directors and a
shareholder, has personally loaned the Company money for operating
purposes and was owed $15,895 as of December 31, 1994.
During 1994, Mr. Maddera purchased and assumed the note of a 1992
Buick automobile from the Company. The transaction was for $8,747.
William L. (Bill) Johnson, President of the Company and a
shareholder, has personally loaned the Company money for operating
purposes and was owed $13,149 as of December 1994.
James T. (Jim) Reed, a former officer and shareholder of the
Company during the first six months of the year, had personally
loaned the Company money for operating purposes and was owed
$15,710 as of December 31, 1994.
Marianne Maddera Reed, a stockholder employed by the Company, sold
her interest in four life insurance policies owned on lives of the
other shareholders to the Company. As a result, the Company has a
note payable to Ms. Reed in the amount of $11,877 as of December
31, 1994.
-21-
<PAGE>
Note 12. Capital Leases
During 1994, the Company entered into a capital lease with a bank
for two Duplex Laser Printers. The lease was for 60 months with
monthly payments of $1,269. The original lease was for $57,941
with an interest rate of 12.21%.
Cash requirements for the lease over the next five years is as
follows:
<TABLE>
<CAPTION>
Year Principal Interest Total
____ _________ ________ _____
<S> <C> <C> <C>
1995 $ 9,811.15 $ 5,419.97 $15,231.12
1996 11,076.28 4,154.84 15,231.12
1997 12,508.36 2,722.76 15,231.12
1998 14,123.39 1,107.73 15,231.12
1999 1,441.02 13.39 1,454.41
__________ __________ __________
$48,960.20 $13,418.69 $62,378.89
========== ========== ==========
</TABLE>
Note 13. Operating Leases
The Company has entered into several equipment and building
operating leases. As of December 31, 1994, equipment leases
numbered 18 and totaled $9,355 per month. Building leases
outstanding at December 31, 1994 totaled 16 with monthly lease
payments of $10,588. The total rent expense incurred during
the years ended December 31, 1994 and 1993 was $186,513 and
$167,459, respectively.
Note 14. Income Taxes
Effective January 1, 1993, the Company adopted SFAS 109.
The Company's provision for income taxes was comprised of the
following:
<TABLE>
<CAPTION>
December 31
1994 1993
___________ ___________
<S> <C> <C>
Current
Federal $228,000.00 $128,000.00
State 17,000.00 10,000.00
Deferred
Federal (14,000.00) $46,000.00
___________ ___________
$231,000.00 $ 92,000.00
=========== ===========
</TABLE>
-22-
<PAGE>
Note 14. Income Taxes (Continued)
The following is a reconciliation of the provision for income taxes
reflected in the consolidated statements of income:
<TABLE>
<CAPTION>
December 31
1994 1993
___________ ___________
<S> <C> <C>
Income Tax Expense at the
Federal Statutory Rate $206,000.00 $ 79,000.00
State Taxes, net of
Federal Benefit 10,000.00 9,000.00
Other, net 15,000.00 4,000.00
____________ ___________
$231,000.00 $ 92,000.00
=========== ===========
The components of the net deferred tax liability at December 31
were as follows:
December 31
1994 1993
___________ ___________
Deferred Tax Asset
Allowance for Doubtful
Accounts $(47,879.00) $(60,958.00)
Deferred Tax Liability
Property and Equipment 90,905.00 117,868.00
____________ ___________
Net Deferred Tax
Liability $ 43,026.00 $ 56,910.00
=========== ===========
</TABLE>
-23-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED BALANCE SHEET
March 31, 1995
<S> <C>
ASSETS
Cash $ 310,244
Accounts Receivable - Trade, net of
allowance for doubtful accounts of $169,700 2,486,264
Other current assets 339,652
----------
Total current assets 3,136,160
Property and equipment, net 1,138,100
Other assets 30,708
----------
Total assets $4,304,968
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $2,579,428
Current portion of long-term obligations 462,587
----------
Total current liabilities 3,042,015
Long-term obligations 376,918
Stockholders' equity 886,035
----------
Total liabilities and stockholders' equity $4,304,968
==========
See notes to unaudited condensed financial statements
</TABLE>
-24-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Telecommunications revenues $4,791,479 $3,591,262
---------- ----------
Operating expenses
Cost of revenues 2,635,087 2,137,585
General and administrative 1,825,544 1,180,088
Depreciation and amortization 89,426 95,589
---------- ----------
4,550,057 3,413,262
---------- ----------
Operating income 241,422 178,000
Interest expense (23,040) (18,189)
Income tax expense (81,800) (51,833)
---------- ----------
Net income $ 136,582 $ 107,978
========== ==========
See notes to unaudited condensed financial statements
</TABLE>
-25-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $136,582 $ 107,978
Depreciation and amortization 89,426 95,589
Net change in working capital and other (7,017) (531,227)
-------- ---------
Net cash flow from (used in) operating activities $218,991 $(367,660)
Net cash flow from (used in) investing activities
Purchase of equipment (122,968) (59,244)
-------- ---------
Cash flow from financing activities
Changes in long-term obligations 166,106 (172,730)
Cash overdraft - 166,330
-------- ---------
Net cash flow from (used in) financing activities 166,105 (6,400)
-------- ---------
Net increase (decrease) in cash 262,129 (393,304)
Cash at the beginning of the period 48,115 393,304
-------- ---------
Cash at the end of the period $310,244 $ -0-
======== =========
See notes to unaudited condensed financial statements
</TABLE>
-26-
<PAGE>
<TABLE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Stockholders' equity at beginning of period $749,453 $641,475
Net income 136,582 107,978
-------- --------
Stockholders' equity at end of period $886,035 $749,453
======== ========
See notes to unaudited financial statements
</TABLE>
-27-
<PAGE>
U.S. COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
These unaudited condensed financial statements at March 31,
1995 and for the three months ended March 31, 1995 and 1994 were
derived from the books and records of the Company, but do not include
all disclosures required by generally accepted accounting principles.
In the opinion of management, these unaudited condensed financial
statements reflect all adjustments of a normal recurring nature
necessary for a fair presentation of the financial condition and
results of operations for interim periods. These results of
operations are not necessarily indicative of the results which
ultimately will be reported for the full fiscal year ending
December 31, 1995.
NOTE B - CHANGE OF OWNERSHIP
Effective June 1, 1995, SA Telecommunications, Inc. a publicly
held global telecommunications carrier, acquired all of the
outstanding common stock of the Company. These unaudited condensed
financial statements do not reflect any adjustments arising from
the acquisition.
-28-
<PAGE>
<TABLE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 87,101 $ 331,431
Accounts and notes receivable
Trade, net of allowance for
doubtful accounts of $279,793
and $178,368, respectively 3,674,018 985,174
Other, net of allowance for
doubtful accounts of $46,122
and $48,825, respectively 367,228 142,301
Acquisition financing receivable 1,004,486 -
Inventory 242,863 123,790
Prepaid expenses and other 300,991 341,290
----------- -----------
Total current assets 5,676,687 1,923,986
----------- -----------
NET ASSETS OF DISCONTINUED TITLE
PLANT SERVICES OPERATIONS 3,444,670 3,537,386
----------- -----------
PROPERTY AND EQUIPMENT 5,591,214 979,022
Less accumulated amortization (2,570,140) (187,169)
----------- -----------
Net property and equipment 3,021,074 791,853
----------- -----------
EXCESS OF COST OVER NET ASSETS
ACQUIRED, net of accumulated
amortization 18,078,932 4,943,494
----------- -----------
OTHER ASSETS
Employee note receivable - 195,904
Other 548,227 384,211
----------- -----------
Total other assets 548,227 580,115
----------- -----------
TOTAL ASSETS $30,769,590 $11,776,834
=========== ===========
</TABLE>
- Continued -
The accompanying notes are an integral part of these consolidated
financial statements.
-29-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 217,211 $ 223,362
Accrued telecommunications expenses 2,162,089 755,669
Other accrued expenses 1,142,593 163,195
Notes payable 619,846 129,610
Current maturities of long-term debt 88,830 90,248
----------- -----------
Total current liabilities 4,230,569 1,362,084
----------- -----------
LONG-TERM OBLIGATIONS,
less current maturities 421,961 430,393
ACQUISITION OBLIGATIONS 16,303,300 -
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.0001 par value,
50,000,000 shares authorized;
11,751,162 and 10,566,139
issued, respectively 1,175 1,057
Additional paid-in capital 16,661,350 15,629,114
Retained deficit (6,441,846) (5,404,864)
Treasury stock (217,572 shares
and 136,516 shares respectively)
at cost (406,919) (240,950)
----------- -----------
Total shareholders' equity 9,813,760 9,984,357
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $30,769,590 $11,776,834
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-30-
<PAGE>
<TABLE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
---------------------- ------------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
----------- ----------- ----------- -----------
TELECOMMUNICATIONS REVENUES $ 4,004,348 $ 2,862,105 $ 6,313,575 $ 4,326,767
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of revenues 2,818,043 2,494,398 4,630,197 3,730,982
General and administrative 1,387,361 686,812 1,981,381 1,118,758
Depreciation and amortization 243,570 92,717 375,802 148,129
----------- ----------- ----------- -----------
Total operating expenses 4,448,974 3,273,927 6,987,380 4,997,869
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
OTHER INCOME (EXPENSE) (444,626) (411,822) (673,805) (671,102)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (103,377) (1,000) (118,306) (3,438)
Other 2,585 6,247 5,129 18,899
----------- ----------- ----------- -----------
Total other income (expense) (100,792) 5,247 (113,177) 15,461
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (545,418) (406,578) (786,982) (655,641)
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS
Loss from title plant services operations - (108,769) - (223,124)
Provision for operating losses during phase-out period (250,000) - (250,000) -
----------- ----------- ----------- -----------
NET LOSS $ (795,418) $ (515,344) $(1,036,982) $ (878,765)
----------- ----------- ----------- -----------
Loss per weighted average
common share outstanding
Continuing operations $ (.05) $ (.04) $ (.07) $ (.08)
Discontinued operations (.02) (.01) (.02) (.02)
----------- ----------- ----------- -----------
Net loss per share $ (.07) $ (.05) $ (.09) $ (.10)
============ =========== =========== ===========
Weighted average number of common shares outstanding 11,098,947 9,223,613 10,801,218 8,581,202
============ =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-31-
<PAGE>
<TABLE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Deficit Stock Total
--------- ------ ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at 7,372,661 $ 737 $ 8,572,764 $(2,957,878) $ (20,000) $ 5,595,623
December 31, 1993
Private placements of 322,317 32 940,436 - - 940,468
common stock
Issuance of common
stock for:
Exercise of options 243,175 25 272,575 - - 272,600
Acquisition of LDN 1,302,086 130 3,749,870 - - 3,750,000
Net loss for the period - - - (668,857) - (668,857)
---------- ------ ----------- ----------- --------- ----------
Balances at June 30, 1994 9,240,239 $ 924 $13,535,645 $(3,626,735) $ (20,000) $9,889,834
========== ====== =========== =========== ========= ==========
Balances at December 10,566,139 $1,057 $15,629,114 $(5,404,864) $(240,950) $9,984,357
31, 1994
Private placements of 274,792 27 316,025 - - 316,052
common stock
Issuance of common stock for 829,175 91 716,211 - (165,969) 550,333
exercise of options
Net loss for the period - - - (1,036,982) - (1,036,982)
---------- ------ ----------- ----------- --------- ----------
Balances at 11,670,106 $1,175 $16,661,350 $(6,441,846) $(406,919) $9,813,760
June 30, 1995
========== ====== =========== =========== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-32-
<PAGE>
<TABLE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months
ended June 30,
--------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,036,982) $ (878,765)
Adjustments to reconcile net loss
to net cash used by operating activities
Loss from discontinued operations 250,000 223,124
Depreciation and amortization 375,801 148,129
Provision for losses on accounts receivable 61,894 14,720
Cash used for discontinued SATC business (91,623) (205,142)
Other 20,774 (6,608)
(Increase) decrease in
Accounts and notes receivable (363,961) 4,253
Prepaid expenses and other 102,136 39,665
Other assets (152,290) (54,556)
Increase (decrease) in
Accounts payable and accrued expenses (186,512) (151,728)
----------- ----------
Net cash used in operating activities (1,020,763) (866,908)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (45,083) (203,070)
Purchase of LDN, net of cash acquired - (1,330,397)
Cash used for discontinued SATC business (89,911) (120,152)
Other (26,108) (1,825)
----------- ----------
Net cash used in investing activities (161,102) (1,655,444)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net changes in short-term loans 117,225 150,000
Increase in long term debt - 120,000
Proceeds from private placement of common stock 316,052 940,468
Proceeds from exercise of options 550,333 272,600
Principal payments on long-term obligations (46,075) (586)
----------- ----------
Net cash provided by financing activities 937,535 1,482,482
----------- ----------
DECREASE IN CASH (244,330) (1,039,870)
Cash at beginning of period 331,431 1,198,392
----------- ----------
Cash at end of period $ 87,101 $ 158,522
=========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-33-
<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)
WST and ITC assets, liabilities and operations are consolidated
with those of the Company as a result of common management.
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 transaction was closed on July 31, 1995.
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.
-34-
<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.
A summary of the acquisition financing obligations and
instruments (collectively the "acquisition obligations") which
were subject to issuance at June 30, 1995, but not issued until
July 31, 1995 is as follows:
<TABLE>
<S> <C>
Senior note payable to a bank $ 7,000,000
Subordinated notes payable to USC shareholders,
due on October 1, 1996 with interest payable
quarterly at 11% per annum 2,750,000
Subordinated notes payable to USC shareholders,
due $750,000 each on January 31, 1996 and July
31, 1996 with interest payable on January 31
and July 31, 1996 at 11% per annum 1,500,000
Face amount of Series A Redeemable Preferred
Stock, $.00001 par value, 250,000 shares
authorized, 166,667 shares issuable 1,500,000
Face amount of Series B Preferred Stock,
$.00001 par value, 250,000 shares authorized,
125,000 shares isssuable 1,250,000
Common stock purchase warrants 2,303,300
-----------
Total $16,303,300
===========
</TABLE>
The Company obtained a $10 million senior credit facility from
a bank to facilitate the acquisition of USC of which $7 million was
initially borrowed at July 31, 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.
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 Cummulative 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 dilution 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.
-35-
<PAGE>
The net acquisition financing receivable at June 30, 1995 is
comprised of the following components:
<TABLE>
<S> <C>
Proceeds from senior note payable to a bank $7,000,000
Proceeds from issuance of Series A Redeemable
Preferred Stock 1,000,000
----------
8,000,000
Cash payable to USC stockholders (6,500,000)
Fees and expenses (495,514)
----------
Net acquisition financing receivable $1,004,486
==========
</TABLE>
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:
<TABLE>
<CAPTION>
June 30,
1995 Life
-------- ----
<S> <C> <C>
Goodwill $ 10,080,699 25
Covenants not to compete 2,400,000 5
Customer acquisition costs 864,155 10
------------
13,344,854
Accumulated amortization ( 93,126)
------------
$ 13,251,728
============
</TABLE>
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, amortization and federal income tax
expense. 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.
-36-
<PAGE>
<TABLE>
<CAPTION>
For the six months
ended June 30,
------------------
1995 1994
---- ----
<S> <C> <C>
Revenues $14,185,399 $11,886,967
Net loss (1,378,312) (1,331,781)
Loss per share (.13) (.16)
</TABLE>
NOTE C - DISCONTINUED OPERATIONS
During the first six months of 1995, the Company's
discontinued title plant services subsidiary, SATC, incurred a
net loss of $218,466. At December 31, 1994, a $150,000 reserve
for operating losses during the phase-out period was established.
This reserve has become 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. As a result, an additional
$250,000 reserve was established for SATC losses until the date
of spinoff.
Revenues of SATC for the six months ended June 30, 1995 and
1994 were $161,596 and $59,863, respectively, and for the three
months ended June 30, 1995 and 1994 were $92,481 and $34,830,
respectively.
NOTE D - NOTES PAYABLE
Six members of the Board of Directors have individually made
loans to the Company aggregating $210,610. 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 $365,500 bear interest at rates ranging from 8% to
12 1/2 % per annum.
<page)
NOTE E - LONG TERM OBLIGATIONS
Long term obligations consist of:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
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 $111,992 $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 36,225 -
Capital lease obligation 362,574 404,845
-------- --------
510,791 520,641
Less current maturities
Long term debt (6,533) (7,801)
Capital lease obligation (82,297) (82,447)
-------- --------
Long term portion $421,961 $430,393
======== ========
</TABLE>
NOTE F - STOCK OPTIONS AND TREASURY STOCK
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.
During the first nine months of 1995, employees utilized
81,056 shares of the Company's common stock, which they owned, as
consideration to exercise options for 234,044 shares of common
stock under the Company's Employee Stock Option Plan. The Company
valued the 81,056 shares at $165,969 (the market value at the date
of exercise) and recorded the shares as treasury stock.
-37-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Year Ended December 31, 1994
Pro Forma Combined Statement of Operations (Unaudited)
The unaudited pro forma consolidated statements of operations
for the year ended December 31, 1994, includes the historical
results of operations of the Company and USC as if the acquisition
had been effected on January 1, 1994. The statement is not
necessarily indicative of the results that would have been achieved
had the transaction been consummated as of the date indicated
or which may be achieved in the future.
<TABLE>
<CAPTION>
SA
Telecommunications, U.S. Pro Forma
Inc. and Subsidiaries Communications, Inc. Adjustments Combined
--------------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Telecommunications Revenues $ 9,755,343 $16,418,088 $26,173,431
Operating Expenses $ 969,644(A)
11,565,984 15,759,286 240,000(B) 28,534,914
----------- ----------- ----------- -----------
Income (Loss) From Continuing
Operations Before Other
Income (Expense) (1,810,641) 658,802 (1,209,644) (2,361,483)
Other Income (Expense) 231,000(E)
(8,429) (234,111) (1,220,000)(C) (1,231,540)
----------- ----------- ----------- -----------
Income (Loss) From Continuing
Operations (1,819,070) 424,691 (2,198,644) (3,593,023)
Discontinued Operations (627,916) - - (627,916)
----------- ----------- ----------- -----------
Net Income (Loss) (2,446,986) 424,691 (2,198,644) (4,220,939)
Preferred Dividend Requirements - - (300,000)(D) (300,000)
----------- ----------- ----------- -----------
Net Income (Loss) Applicable
to Common Shareholders $(2,446,986) $ 424,691 $(2,498,644) $(4,520,939)
=========== =========== =========== ===========
Pro Forma Combined Loss
Per Share $ (0.49)
===========
Weighted Average Number of
Common Shares Outstanding 9,199,720
===========
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following describes the assumptions used in determining
the pro forma adjustments necessary to give effect on a pro forma
basis to the transaction described above:
(A) Adjustment to amortization of intangible assets from the
USC acquisition.
(B) Adjustment to depreciation expense of property and
equipment assets whose values were adjusted to their fair values
in conjunction with the USC acquisition.
(C) Interest expense related to obligations incurred in
connection with the acquisition totaling $11,250,000 with imputed
interest at 10.8%.
(D) Preferred dividends related to preferred stock issued in
connection with the acquisition with a total face amount of $2,750,000
and a dividend rate of 8%, plus a portion of the accretion of the
Series A preferred stock from its fair value at issuance.
(E) Adjustment from utilization of parent company losses to
offset federal income taxes.
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
Three Months Ended March 31, 1995
Pro Forma Combined Statement of Operations (Unaudited)
The unaudited pro forma consolidated statements of operations for
the three months ended March 31, 1995, includes the
historical results of operations of the Company and USC as if the
acquisition had been effected on January 1, 1995. The
statement is not necessarily indicative of the results that would have
been achieved had the transaction been consummated
as of the date indicated or which may be achieved in the future.
<TABLE>
<CAPTION>
SA
Telecommunications, U.S. Pro Forma
Inc. & Subsidiaries Communications, Inc. Adjustments Combined
------------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Telecommunications Revenues $ 2,309,227 $ 4,791,477 $ 7,100,706
Operating Expenses $ 242,409(A)
2,538,404 4,550,057 60,000(B) 7,390,870
----------- ----------- ----------- -----------
Income (Loss) From
Operations Before Other
Income (Expense) (229,177) 241,422 (302,409) (290,164)
Other Income (Expense) 81,800(E)
(12,385) (104,840) (304,998)(C) (340,423)
----------- ----------- ----------- -----------
Net Income (Loss) (241,562) 136,582 (525,607) (630,587)
Preferred Dividend Requirements - - (75,000)(D) (75,000)
----------- ----------- ----------- -----------
Net Income (Loss) Applicable
to Common Shareholders $ (241,562) $ 136,582 $ (600,607) $ (705,587)
=========== =========== =========== ===========
Pro Forma Combined Loss
Per Share $ (0.07)
===========
Weighted Average Number of
Common Shares Outstanding 10,500,271
===========
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following describes the assumptions used in determining
the pro forma adjustments necessary to give effect on a pro forma
basis to the transaction described above:
(A) Adjustment to amortization of intangible assets from the
USC acquisition.
(B) Adjustment to depreciation expense of property and
equipment assets whose values were adjusted to their fair values
in conjunction with the USC acquisition.
(C) Interest expense related to obligations incurred in
connection with the acquisition totaling $11,250,000 with imputed
interest at 10.8%.
(D) Preferred dividends related to preferred stock issued in
connection with the acquisition with a total face amount of $2,750,000
and a dividend rate of 8%, plus a portion of the accretion of the
Series A preferred stock from its fair value at issuance.
(E) Adjustment from utilization of parent company losses to
offset federal income taxes.
-38-
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 dated February 21, 1992
(No. 33-45911), December 3, 1992 (No. 33-55308), January 27, 1993
(No. 33-57712), June 10, 1993 (No. 33-64102) and September 22, 1993
(No. 33-69196) of SA Holdings, Inc. of our report dated April 12,
1995 appearing on Page F-3 of the Company's Annual Report on Form
10-KSB, which is incorporated by reference in the Company's Form
8-K/A-2 dated December 11, 1995.
PRICE WATERHOUSE LLP
Dallas, Texas
December 11, 1995
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 dated February 21, 1992 (No.
33-45911), December 3, 1992 (No. 33-55308), January 27, 1993 (No.
33-57712), June 10, 1993 (No. 33-64102) and September 22, 1993 (No.
33-69196) of SA Holdings, Inc. of our report on U.S.
Communications, Inc. dated April 21, 1995, appearing in the
Company's Form 8-K/A-2 dated December 11, 1995.
DUFF AND ANDERSON, P.C.
Levelland, Texas
December 11, 1995
