<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 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 of (IRS Employer
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)
SA Holdings, Inc.
(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 [ ]
There were 11,568,590 shares of the registrant's common stock
outstanding as of August 15, 1995.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
-1-
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page
Item 1 - Financial Statements F-1
Consolidated Balance Sheets F-1-2
Consolidated Statements of Operations F-3
Consolidated Statements of F-4
Shareholders' Equity
Consolidated Statements of Cash Flows F-5
Notes to Consolidated F-6-10
Financial Statements
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results
of Operations F-11-15
Part II. Other Information F-16
Item 1. - Legal Proceedings F-16
Item 2. - Changes in Securities F-16
Item 3. - Defaults Upon Senior Securities F-16
Item 4. - Submission of Matters to a Vote
of Security Holders F-16
Item 5. - Other Information F-16
Item 6. - Exhibits and Reports on Form 8-K F-16
-2-
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<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.
-F-1-
<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.
-F-2-
<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>
-F-3-
<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>
-F-4-
<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>
-F-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)
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.
-F-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.
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.
-F-7-
<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.
-F-8-
<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.
-F-9-
<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.
-F-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 six 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 six months
ended June 30, 1995. In 1994, USC was profitable on revenues of
$16 million. USC had revenues of $1.7 million for the month
ended June 30, 1995.
USC will be integrated into the core telecommunications
operations comprised of LDN, NATC and the Company. This
integrated organization will provide the infrastructure for
operations and future telecommunications acquisitions and
expansion.
Since the end of the third quarter of 1994, due to the
Company's strategic emphasis on domestic operations, most
notably through the acquisition of LDN and USC in 1994 and
1995, respectively, the Company has suspended the expansion of
its international sales organization through new office openings.
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.
As part of an overall plan of disposition, on December 28, 1994,
the Board of Directors approved a spinoff of from 55% to 60% of
its title plant services subsidiary, SATC, in the form of a
dividend to shareholders. The Form 10-SB registration statement
required for SATC to become a public company prior to the
distribution to shareholders was filed June 30, 1995, but is not
yet effective.
-F-11-
<PAGE>
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 six month periods ended June
30, 1995 and 1994.
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
------------- ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue 100% 100% 100% 100%
Cost of revenue 70 87 73 86
General and administrative 35 24 31 26
Depreciation and amortization 6 3 6 3
--- --- --- ---
Loss from continuing
operations before other (11) (14) (10) (15)
Other income (expense) ( 3) - ( 2) -
--- --- --- ---
Loss from continuing (14) (14) (12) (15)
operations
Discontinued operations ( 6) ( 4) ( 4) ( 5)
--- --- --- ---
Net loss (20)% (18)% (16)% (20)%
=== === === ===
</TABLE>
Three months ended June 30, 1995, compared to three months ended
June 30, 1994
The Company had revenues from continuing operations of $4,004,348
for the three months ended June 30, 1995 as compared to
$2,862,105 for the same quarter last year. This represents an
overall 40% increase over the like period of last year. Of the
total increase, $1,738,117 is attributable to the increase in
domestic telecommunications revenue from the USC acquisition
effective June 1, 1995. International telecommunications revenue
decreased by $167,498 because of the moratorium on expansion, the
phasing out of agent-run offices in favor of Company-owned
offices, and the termination of a wholesaling arrangement with a
reseller in Brazil which lacked adequate profit margins and
experienced high costs of administration. In addition, revenues
from operator services decreased by $428,376 due to accelerated
competition and reductions in retail prices.
The Company incurred a loss from continuing operations before
other income (expense) of $444,626 for the three months ended
June 30, 1995 versus a $411,822 loss in the second quarter 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.
Cost of revenue (transmission costs, switching costs, and
commissions) increased to $2,818,043 for the three months ended
June 30, 1995 from $2,494,398 in the same quarter of 1994,
principally due to the increased revenue base from the USC
acquisition. However, the gross profit margin increased to 30%
in 1995 from 13% 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.
-F-12-
<PAGE>
General and administrative expense increased to $1,387,361 for
the three months ended June 30, 1995 from $686,812 in the second
quarter of 1994, and as a percentage of revenue, increased
between the periods to 35% in 1995, as compared to 24% 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 a privately owned, family
run company such as USC prior to the acquisition. The Company
will immediately focus on bringing this percentage in line with
that of the Company.
Depreciation and amortization increased to $243,570 in 1995 from
$92,717 in 1994 and as a percentage of revenue increased to 6% in
1995 from 3% in 1994. The increase resulted from amortization of
intangible assets arising from the acquisition of USC and
increased depreciation from switching equipment acquired in
December, 1994.
The Company had other expenses of $100,792 for the three months
ended June 30, 1995 as compared to other income of $5,247 in the
same quarter of 1994. This is primarily due to an increase in
interest expense related to the increased debt load from the USC
acquisition.
The provision for operating losses of the discontinued operation
during the phase-out period was increased by $250,000 during the
three months ended June 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.
The Company incurred a consolidated net loss of $795,418 for the
three months ended June 30, 1995 as compared to $515,344 in the
second quarter of 1994. This increased consolidated net loss is
principally attributable to the increased general and
administrative expense, depreciation and amortization expense,
and provision for discontinued operating losses, offset by
improved gross profit margins. Management expects to bring the
general and administrative expenses at USC under control within
120 to 150 days. The depreciation and amortization expenses and
provision for discontinued operating losses are non-cash charges.
Six months ended June 30, 1995, compared to six months June 30,
1994
The Company had revenues from continuing operations of $6,313,575
for the six months ended June 30, 1995 as compared to $4,326,767
for the same six months last year. This represents an overall
46% increase over the like period of last year. Of the total
increase, $1,738,117 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 six months of 1994 only include four months
of LDN revenue since that acquisition was effective March 1,
1994.
-F-13-
<PAGE>
The Company incurred a loss from continuing operations before
other income (expense) of $673,805 for the six months ended June
30, 1995 versus a $671,102 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.
Cost of revenue (transmission costs, switching costs, and
commissions) increased to $4,630,197 for the six months ended
June 30, 1995 from $3,730,982 in the same period of 1994,
principally due to the increased revenue base from the USC
acquisition. However, the gross profit margin increased to 27%
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.
General and administrative expense increased to $1,981,381 for
the six months ended June 30, 1995 from $1,118,758 in the first
six months of 1994, and as a percentage of revenue, increased
between the periods to 31% in 1995, as compared to 26% 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 lack of cost
containment being experienced at USC. The Company will
immediately focus on bringing this percentage in line with
revenue levels.
Depreciation and amortization increased to $375,802 in 1995 from
$148,129 in 1994 and as a percentage of revenue increased to 6%
in 1995 from 3% in 1994. The increase resulted from amortization
of intangible assets from the acquisition of USC and increased
depreciation from switching equipment acquired in December, 1994.
The Company had other expenses of $113,177 for the six months
ended June 30, 1995 as compared to other income of $15,461 in the
first six months of 1994. This is primarily due to an increase
in interest expense related to the increased debt load from the
USC acquisition.
The provision for operating losses of the discontinued operation
during the phase-out period was increased by $250,000 during the
six months ended June 30, 1995. The $150,000 reserve established
at December 31, 1994 became inadequate due to unforeseen delays
in obtaining Securities and Exchange Commission approval of the
Form 10-SB registration filed by SATC to become a public company
prior to the distribution of the stock dividend to shareholders.
The Company incurred a consolidated net loss of $1,036,982 for
the six months ended June 30, 1995 as compared to $878,765 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,
and provision for discontinued operating losses, offset by
improved gross profit margins. Management expects to bring the
general and administrative expenses at USC under control within
120 to 150 days. The depreciation and amortization expenses and
provision for discontinued operating losses are non-cash charges.
-F-14-
<PAGE>
Liquidity and Capital Resources
For the six months ended June 30, 1995, the Company experienced
negative cash flow from operations of $1,020,763 as compared to $866,908
for the like period of 1994. The negative cash flow is principally
attributable to the overall increase in accounts receivable from
volume increases. The Company will continue to experience an
expansion of accounts receivable from growth in revenues without a
proportionate increase in accounts payable/accrued expenses which
will cause working capital to be expended. Foreign accounts receivable
are generally collected in approximately sixty-five (65) days and
domestic accounts receivable are generally collected in approximately
forty-five (45) days. However, accounts payable for contracts with
transmission carriers and switched service providers must generally be
paid in thirty (30) days or less.
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 will be used for working
capital purposes.
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 acquisition and integration of
USC into the Company.
At June 30, 1995, continuing operations had cash balances of
$87,101 as compared to $331,431 at December 31, 1994. As of June
30, 1995, continuing operations had working capital of $1,446,118
and a current ratio of 1.34 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 accounts receivable as a percentage
of trade accounts receivable decreased from 15% at December 31,
1994 to 7% at June 30, 1995. This large decrease is due to the
types of accounts comprising the balances at the respective dates.
At December 31, 1994 and June 30, 1995, international accounts
receivable (versus domestic) comprised 37% and 8% respectively,
of total accounts receivable. The international accounts receivable
experience a substantially larger amount of bad debts then the
domestic accounts receivable. Thus, because of the USC acquisition,
effective June 1, 1995, the percentage of domestic accounts
receivable increased dramatically.
Capital Expenditures
There were no significant capital expenditures, other than the
USC acquisition, made in the first six months of 1995.
Additional switching equipment will be required in the next six
months to a year as the network expands. The additional switching
equipment is estimated to cost from $500,000 to $1,000,000,
according to sizing, and is expected to be financed with a
capital lease transaction or bank debt.
-F-15-
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Pursuant to the Certificate of Incorporation of the Company,
the Board of Directors has the authority, without further
shareholder approval, to provide for the issuance of up to
12,500,000 shares of Preferred Stock in one or more series and to
determine the dividend rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preferences, number
of shares constituting any such series and the designation of
such series. The Board of Directors of the Company has created
and issued on July 31, 1995 166,667 shares of the Series A
Cumulative Convertible Preferred Stock and 125,000 shares of the
Series B Cumulative Convertible Preferred Stock. Certain rights
afforded the holders of the Series A Preferred Stock and the
Series B Preferred Stock are in preference to the rights afforded
the holders of the Common Stock. The Board of Directors has the
power to establish preferences and rights of additional series of
Preferred Stock, and, accordingly, it may afford the holders of
any such series of Preferred Stock preferences, powers and rights
(including voting rights) senior to the rights of the holders of
the Common Stock and/or the existing series of Preferred Stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company,
as amended (filed as Exhibit 3.1 to the original
filing of this Quarterly Report on Form 10-QSB
and incorporated herein by reference)
3.2 Amended and Restated Bylaws of the Company
(filed as Exhibit 3.2 to the original
filing of this Quarterly Report on Form 10-QSB
and incorporated herein by reference)
4.1 Certificate of Designations, Preferences and
Rights of Series A Cumulative Convertible
Preferred Stock (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated
July 31, 1995 (the "Form 8-K") and
incorporated herein by reference)
4.2 Share Purchase Agreement, dated July 31,
1995, between SA Holdings, Inc. and Jesup &
Lamont Securities Corporation (filed as
Exhibit 4.2 to the Form 8-K and incorporated
herein by reference)
4.3 Form of Series A Preferred Stock Certificate
(filed as Exhibit 4.3 to the Form 8-K and
incorporated herein by reference)
4.4 Warrant Purchase Agreement, dated July 31,
1995, between SA Holdings, Inc. and Jesup &
Lamont Securities Corporation (filed as
Exhibit 4.4 to the Form 8-K and incorporated
herein by reference)
4.5 Common Stock Purchase Warrant Certificate
issued to Jesup & Lamont Securities
Corporation (filed as Exhibit 4.5 to the Form
8-K and incorporated herein by reference)
4.6 Certificate of Designations, Preferences and
Rights of Series B Cumulative Convertible
Preferred Stock (filed as Exhibit 4.6 to the
Form 8-K and incorporated herein by
reference)
4.7 Form of Purchase Note, issued by SA Holdings,
Inc. and schedule of differences thereto
pursuant to General instruction 2 to Item 601
(filed as Exhibit 4.7 to the Form 8-K and
incorporated herein by reference)
4.8 Form of Offset Note, issued by SA Holdings,
Inc. and schedule of differences thereto
pursuant to General Instruction 2 to Item 601
(filed as Exhibit 4.8 to the Form 8-K and
incorporated herein by reference)
-F-16-
<PAGE>
4.9 Form of Note, Preferred Stock & Warrant
Purchase Agreement, dated as of July 31, 1995
between SA Holdings, Inc. and the purchasers
thereof (filed as Exhibit 4.9 to the Form 8-K
and incorporated herein by reference)
4.10 Form of Series B Preferred Stock Certificate
(filed as Exhibit 4.10 to the Form 8-K and
incorporated herein by reference)
4.11 Form of Common Stock Purchase Warrant
Certificate issued to purchasers thereof
(filed as Exhibit 4.11 to the Form 8-K and
incorporated herein by reference)
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 (filed as
Exhibit 4.12 to the Form 8-K and incorporated
herein by reference)
10.1 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")
(filed as Exhibit 2.1 to the Form 8-K and
incorporated herein by reference)
10.2 Supplemental Agreement to the Stock Purchase
Agreement, dated July 31, 1995 (filed as
Exhibit 2.2 to the Form 8-K and incorporated
herein by reference)
27.1 Financial Data Schedule (filed herewith)
Item 6. Reports on Form 8-K
None.
-F-16-
<PAGE>
In accordance with the requirements of the Securities Exchange
Act of 1934, as amended, Registrant has duly caused this report to be
signed by the undersigned, thereunto duly authorized.
Date: December 8, 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
-F-17-
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Company,
as amended (filed as Exhibit 3.1 to the
original filing of this Quarterly Report
on Form 10-QSB and incorporated herein by
reference)
3.2 Amended and Restated Bylaws of the Company
(filed as Exhibit 3.2 to the original
filing of this Quarterly Report on
Form 10-QSB and incorporated herein by
reference)
4.1 Certificate of Designations, Preferences and
Rights of Series A Cumulative Convertible
Preferred Stock (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated
July 31, 1995 (the "Form 8-K") and
incorporated herein by reference)
4.2 Share Purchase Agreement, dated July 31,
1995, between SA Holdings, Inc. and Jesup &
Lamont Securities Corporation (filed as
Exhibit 4.2 to the Form 8-K and incorporated
herein by reference)
4.3 Form of Series A Preferred Stock Certificate
(filed as Exhibit 4.3 to the Form 8-K and
incorporated herein by reference)
4.4 Warrant Purchase Agreement, dated July 31,
1995, between SA Holdings, Inc. and Jesup &
Lamont Securities Corporation (filed as
Exhibit 4.4 to the Form 8-K and incorporated
herein by reference)
4.5 Common Stock Purchase Warrant Certificate
issued to Jesup & Lamont Securities
Corporation (filed as Exhibit 4.5 to the Form
8-K and incorporated herein by reference)
4.6 Certificate of Designations, Preferences and
Rights of Series B Cumulative Convertible
Preferred Stock (filed as Exhibit 4.6 to the
Form 8-K and incorporated herein by
reference)
4.7 Form of Purchase Note, issued by SA Holdings,
Inc. and schedule of differences thereto
pursuant to General instruction 2 to Item 601
(filed as Exhibit 4.7 to the Form 8-K and
incorporated herein by reference)
-F-18-
<PAGE>
4.8 Form of Offset Note, issued by SA Holdings,
Inc. and schedule of differences thereto
pursuant to General Instruction 2 to Item 601
(filed as Exhibit 4.8 to the Form 8-K and
incorporated herein by reference)
4.9 Form of Note, Preferred Stock & Warrant
Purchase Agreement, dated as of July 31, 1995
between SA Holdings, Inc. and the purchasers
thereof (filed as Exhibit 4.9 to the Form 8-K
and incorporated herein by reference)
4.10 Form of Series B Preferred Stock Certificate
(filed as Exhibit 4.10 to the Form 8-K and
incorporated herein by reference)
4.11 Form of Common Stock Purchase Warrant
Certificate issued to purchasers thereof
(filed as Exhibit 4.11 to the Form 8-K and
incorporated herein by reference)
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 (filed as
Exhibit 4.12 to the Form 8-K and incorporated
herein by reference)
10.1 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")
(filed as Exhibit 2.1 to the Form 8-K and
incorporated herein by reference)
10.2 Supplemental Agreement to the Stock Purchase
Agreement, dated July 31, 1995 (filed as
Exhibit 2.2 to the Form 8-K and incorporated
herein by reference)
27.1 Financial Data Schedule (filed herewith)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SA TELECOMMUNICATIONS, INC. FOR THE QUARTER ENDED JUNE
30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 87,101
<SECURITIES> 0
<RECEIVABLES> 5,371,647
<ALLOWANCES> 325,915
<INVENTORY> 242,863
<CURRENT-ASSETS> 5,676,687
<PP&E> 5,591,214
<DEPRECIATION> 2,570,140
<TOTAL-ASSETS> 30,769,590
<CURRENT-LIABILITIES> 4,230,569
<BONDS> 0
<COMMON> 1,175
0
0
<OTHER-SE> 16,254,431
<TOTAL-LIABILITY-AND-EQUITY> 30,769,590
<SALES> 4,004,348
<TOTAL-REVENUES> 4,004,348
<CGS> 2,818,043
<TOTAL-COSTS> 4,448,974
<OTHER-EXPENSES> 444,626
<LOSS-PROVISION> (250,000)
<INTEREST-EXPENSE> 103,377
<INCOME-PRETAX> (795,418)
<INCOME-TAX> 0
<INCOME-CONTINUING> (795,418)
<DISCONTINUED> (250,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (795,418)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
