SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K /A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
MAY 6, 1998 (FEBRUARY 20, 1998)
---------------------------------------
Date of Report (Date of earliest event reported)
USN COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 333-16265 36-3947804
-------------- --------------------- ------------------
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
10 SOUTH RIVERSIDE PLAZA, SUITE 401, CHICAGO, ILLINOIS 60606
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(312) 906-3600
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 20, 1998, pursuant to a Stock Purchase Agreement
(the "Stock Purchase Agreement") dated January 7, 1998, among Mr. Mark
Hatten, Triumph-Connecticut Limited Partnership, FSC Corp., Solomon
Schechter Day School of Greater Hartford, Inc. (collectively, "Sellers"),
Hatten Communications Holding Company, Inc. ("HCHC") and the Registrant,
the Registrant acquired all of the issued and outstanding capital stock of
HCHC in exchange for total consideration of $68.0 million in cash,
including the repayment of approximately $14.1 million of outstanding
indebtedness of HCHC. The amount of such consideration was determined by
negotiations among the parties and, from the standpoint of the Registrant,
involved consideration of a number of factors, including the financial
condition, earnings and prospects of HCHC and the nature of HCHC's
business. The funds used to finance the transaction were part of the
proceeds from the Registrant's initial public offering of its common stock,
which was consummated on February 9, 1998.
Prior to the transaction, there were no material relationships
between the Sellers and the Registrant or any of the Registrant's
affiliates, directors or officers or any associates of such directors and
officers.
Upon the closing of the transactions contemplated by the Stock
Purchase Agreement, HCHC became a wholly-owned subsidiary of the
Registrant. HCHC resells cellular, paging, long distance, local and
Internet services in Connecticut and has been expanding throughout the
Northeast.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
The audited consolidated financial statements of HCHC for each
of the years ended April 30, 1996 and 1997 are incorporated herein by
reference to the Registrant's Registration Statement on Form S-1
(File No. 333-38381) dated February 3, 1998.
The unaudited condensed consolidated financial statements of
HCHC for the period ending December 31, 1997 are included herewith on
pages F-1 to F-5.
(b) Pro Forma Financial Information
The pro forma financial information required by Item 7(b) of
Form 8-K is included herewith on pages F-6 to F-10.
Exhibits
Exhibit 10.41 Stock Purchase Agreement, dated January 7, 1998,
among Mr. Mark Hatten, Triumph-Capital Limited
Partnership, FSC Corp., Solomon Schechter Day School
of Greater Hartford, Inc., Hatten Communications
Holding Company, Inc. and the Registrant
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-1 (File No.
333-38381) dated February 3, 1998).
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
USN COMMUNICATIONS, INC.
May 6, 1998 By: /s/ Thomas A. Monson
---------------------
Thomas A. Monson
Vice President, General Counsel
and Secretary
HATTEN COMMUNICATIONS HOLDING COMPANY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
ASSETS 1997
Current assets
Cash and cash equivalents $ 356,096
Accounts receivable 6,301,597
Inventory 1,261,116
Other current assets 1,044,778
--------------
Total current assets 8,963,587
Property and equipment, net 1,273,468
Cellular lines, net of accumulated amortization $787,302 3,124,203
Investment in and advances to Smartlink 2,896,537
Financing fees, net of accumulated amortization of $637,619 302,454
Other assets 24,705
--------------
$ 16,584,954
==============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Notes payable -current $ 37,561
Accounts payable:
Trade 1,885,944
Springwich Cellular Limited Partnership 1,784,856
Bell Atlantic Nynex Mobile 2,193,089
Accrued expenses 1,482,336
Deferred revenue 763,795
Customer deposits 168,542
--------------
Total current liabilities 8,316,123
--------------
Subordinated note payable 1,500,000
Long-term debt 12,009,968
--------------
Total liabilities 21,826,091
--------------
Preferred stock 5,100,551
Stock warrant 5,907,163
Common stockholder's deficit
Common stock 717
Accumulated deficit (16,249,568)
------------
Total common stockholder's deficit (16,248,851)
---------------
$ 16,584,954
==============
See accompanying notes to condensed consolidated financial statements.
HATTEN COMMUNICATIONS HOLDING COMPANY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues $ 29,933,975 $ 21,537,447
Cost of revenues 18,778,528 13,777,691
------------- ----------
Gross profit 11,155,447 7,759,756
------------- ------------
New subscriber acquisition costs 3,831,464 2,969,859
General and administrative expenses 5,925,048 3,838,819
------------- ------------
9,756,512 6,808,678
------------- ------------
Operating profit 1,398,935 951,078
Other income (expense):
Equity in loss of Smartlink (287,479) (290,028)
Interest income 25,258 39,167
Interest expense (886,698) (1,531,033)
Amortization of financing fees (1,033,553) (59,879)
Other, net (3,053) (13,141)
------------- ------------
Loss before income taxes & extraordinary loss (786,590) (903,836)
Income tax expense 287 16,951
------------- ------------
Net loss before extraordinary loss $ (786,877) (920,787)
-------------- ------------
Extraordinary loss 1,583,558 --
------------- ------------
Net loss $ (2,370,435) $ (920,787)
============= =============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
HATTEN COMMUNICATIONS HOLDING COMPANY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the eight months ended December 31, 1997 and 1996
1997 1996
---- ----
Cash flow from operating activities
<S> <C> <C>
Net loss $ (2,370,435) $ (920,787)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in loss of Smartlink 287,479 290,028
Depreciation and amortization 1,266,090 165,077
Accretion of original issue discount - 773,415
Provision for doubtful accounts 795,113 11,003
Increase in accounts receivable (1,688,060) (1,100,384)
Increase in inventory (333,714) (248,243)
Increase in other current assets (212,767) (73,313)
Increase in other assets (2,591) (1,998)
Increase in accounts payable 1,677,894 865,493
Increase in accrued expenses 708,400 206,894
Increase in deferred revenue 87,952 66,314
Increase (decrease) in customer deposits 97,689 (11,549)
------ --------
Net cash provided by operating activities 313,050 21,950
------- --------
Cash flows from investing activities;
Investment in and advances to Smartlink (543,942) (537,557)
Capital expenditures (409,232) (277,381)
Related party receivables 59,241 (11,004)
------ ---------
Net cash used in investing activities (893,933) (825,942)
------- --------
Cash flows from financing activities
Proceeds provided by long-term debt 9,549,953 250,000
Repayment of long-term debt (11,229,136) -
Repayment of subordinated note (500,000) -
Repayment of note payable (294,564) -
Proceeds of term note payable 37,561 22,150
Repayment of capital lease obligations - (16,625)
Issuance of stock warrants 2,739,130 250,000
Issuance of preferred stock 4,260,870 -
Dividends paid (3,529,771) -
Payments of financing fees (384,824) (26,000)
--------- --------
Net cash provided by financing activities 649,219 479,525
--------- -------
Increase (decrease) in cash and cash equivalents 68,336 (324,467)
Cash and cash equivalents
Beginning of year 287,760 1,205,778
------- ------------
End of year $356,096 $ 881,311
-------- ------------
Supplement disclosure of cash flow information
Cash paid during the year for $886,698 $ 757,618
-------- -------------
Interest $ 0 $ 0
------------- --------------
Income taxes
See accompanying notes to condensed consolidated financial statements.
</TABLE>
HATTEN COMMUNICATIONS HOLDING COMPANY, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements of
Hatten Communications Holding Company, Inc. (the "Company")
included herein have been prepared in accordance with generally
accepted accounting principals. The interim financial
statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results
for the interim periods presented. The condensed consolidated
financial statements should be read in conjunction with the
Company's latest audited consolidated financial statements and
notes thereto for the twelve month period ending April 30,
1997. The results of operations for the interim periods should
not be considered indicative of results to be expected for the
full year.
2. Recapitalization Agreement
On May 23, 1997, the Company executed a Recapitalization
Agreement and entered into the Second Amended and Restated
Master Credit Agreement with its bank. The following
transactions were consummated as part of the agreements:
The maximum borrowings available under the Master Credit
Agreement were increased to $17,000,000 and all rights under
the Master Credit Agreement were assigned from the Company to
its subsidiary, Connecticut Telephone and Communications
Systems Inc. ("CTEL"), as the principal borrower. The revolving
loans made under the agreement bear interest at the bank's base
rate plus 1.25%. CTEL immediately obtained a revolving loan in
the approximate amount of $11,100,000 and advanced the money to
the Company. The Company used the proceeds to repay existing
indebtedness as described below.
The Company repaid, in full, a revolving credit note, term
loan, and acquisition loan note of $8,647,759 in total, all of
which were outstanding at April 30, 1997.
The Company repaid $500,000 of a subordinated note payable to a
former owner which was outstanding at April 30, 1997.
The Company paid a dividend of $1,529,771 and a bonus payment
of $470,229 to its executive officers.
Pursuant to the Recapitalization Agreement, the Company
authorized the following classes of stock: (i) 71,650 shares of
Class A Common Stock, $.01 par value, of which 71,650 shares
were issued to the sole stockholder in exchange for all of his
shares of the Company: (ii) 33,350 shares of Class B Common
Stock, $.01 par value, of which no shares were issued: and
(iii) 7,000 shares of Series A Cumulative Redeemable Preferred
Stock $.01 par value, of which 7,000 shares were issued to
third-party investors.
The Company exchanged its notes payable to the limited
partnership, which were outstanding at April 30, 1997, for
6,000 shares of Series A Cumulative Preferred Stock, a cash
payment of $500,000, and a warrant to purchase up to 12,300
shares of Class B Common Stock. In lieu of issuing to the
limited partnership an additional warrant certificate to
purchase these shares, the limited partnership surrendered its
warrant to purchase 14,000 shares which it held at April 30,
1997 in exchange for a consolidating warrant to purchase an
aggregate of 26,300 shares of the Company's Class B Common
Stock. Hatten also issued 1,000 shares of Series A Cumulative
Preferred Stock and a warrant to purchase up to 2,050 shares of
Class B Common Stock to a third-party investor in exchange for
$1,000,000.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma consolidated statement of operations for the year
ended December 31, 1997, gives effect to the following transactions as if
they had been completed on January 1, 1997: (i) the conversion of all the
outstanding shares of preferred stock into common stock concurrently with
the closing of the initial public offering of the Company's common stock
(the "Initial Public Offering"); (ii) the consummation of the Initial
Public Offering; and (iii) the acquisition of Hatten Communications Holding
Company, Inc. ("HCHC") (the "Acquisition"). The pro forma consolidated
balance sheet gives effect to items (i) through (iii) above and the
issuance of the Company's 9% Consent Convertible Subordinated Notes due
2006 (the "Consent Notes") as if each had been completed as of December 31,
1997.
Due to the difference in fiscal year ends between the Company
and HCHC, the following periods were combined for pro forma purposes. For
the twelve months ended December 31, 1997, audited statements of HCHC as of
April 30, 1997, were adjusted by subtracting unaudited results for the
eight months ended December 31, 1996, and adding unaudited results for the
eight months ended December 31, 1997.
The Company believes that the assumptions used in the pro forma
consolidated financial statements provide a reasonable basis on which to
present such statements. The pro forma consolidated financial statements
are provided for information purposes only and should not be construed to
be indicative of the Company's results of operations or financial position
had the events described above been consummated on or as of the date
assumed, and are not intended to project the Company's results of
operations or its financial position for any future period or as of any
future date. The pro forma consolidated financial statements and
accompanying notes should be read in conjunction with the audited
consolidated financial statements of the Company and HCHC and the related
notes thereto appearing in the Company's Annual Report on Form 10- K and
Registration Statement on Form S-1 (File No. 333-83831).
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Adjustments
-------------------------------
Twelve Hatten
months As Hatten Communications
ended Offering Adjusted Communications Acquisition Pro Forma
Dec. 31, 1997 Adjustments(1) Total Acquisition(2) Adjustments(3) Subtotal(4)
------------- -------------- -------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net service revenue ..... $ 47,200,433 $ 47,200,433 $ 41,108,594 $ 88,309,027
Cost of services ........ 41,272,598 -- 41,272,598 25,603,866 -- 66,876,464
------------- ----------- ------------- ------------- ------------- -------------
Gross margin .......... 5,927,835 5,927,835 15,504,728 21,432,563
Expenses:
Sales and marketing ... 62,375,506 62,375,506 5,652,580 68,028,086
General and
administrative ...... 41,537,671 -- 41,537,671 9,468,728 $ 8,465,490(a) 59,471,889
------------- ----------- ------------- ------------- ------------- -------------
Operating income (loss).. (97,985,342) -- (97,985,342) 383,420 (8,465,490) (106,067,412)
Other income (expense):
Interest and other
income (expense)... 3,426,214 3,426,214 (419,457) 371,073(b) 3,377,830(a)
Interest expense .... (15,332,561) -- (15,332,561) (1,604,240) 298,456(c) (16,638,345)
------------- ----------- ------------- ------------- ------------- -------------
Other income
(expense)--net ..... (11,906,347) -- (11,906,347) (2,023,697) 669,529 (13,260,515)
------------- ----------- ------------- ------------- ------------- -------------
Net loss ................ $(109,891,689) $ -- $(109,891,689) $ (1,640,277) $ (7,795,961) $(119,327,927)
============= =========== ============= ============= ============= =============
Accumulated preferred
dividends ............. $ (2,211,605) $ 2,211,605(a) $ -- $ 751,884 $ (751,884)(d) $ --
============= =========== ============= ============= ============= =============
Net loss to common
shareholders .......... $(112,103,294) $ 2,211,605 $(109,891,689) $ (2,392,161) $ (7,044,077) $(119,327,927)
============= =========== ============= ============= ============= =============
Net loss per common share
basic and diluted ..... $ (15.56) $ (5.02) $ (5.45)
============= ============= =============
Weighted average common
and common equivalent
shares outstanding .... 7,206,886 21,905,298 21,905,298
============= ============= =============
</TABLE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Offering As
USN Adjustments(1) Adjusted Total
------ -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ..... $ 87,454,418 $ 136,997,452(a) $ 224,451,870
Marketable equity securities .. 8,180,824 -- 8,180,824
Accounts receivable, net ...... 23,917,093 -- 23,917,093
Prepaid expenses .............. 967,470 -- 967,470
Inventory ..................... -- -- --
Other current assets .......... 476,105 -- 476,105
------------- ------------- -------------
Total current assets ....... 120,995,910 136,997,452 257,993,362
Property and equipment, net ..... 16,802,065 -- 16,802,065
Other assets .................... 33,402,271 -- 33,402,271
------------- ------------- -------------
Total Assets .............. $ 171,200,246 $ 136,997,452 $ 308,197,698
============= ============= =============
LIABILITIES, REDEEMABLE
PREFERRED STOCK, AND
COMMON STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities
Accounts payable .............. $ 20,485,168 -- $ 20,485,168
Accrued expenses and
other liabilities ........... 7,178,373 -- 7,178,373
Capital lease obligations
--current .................. 551,398 -- 551,398
Current maturities on
notes payable .............. 7,825 -- 7,825
------------- ------------- -------------
Total current liabilities.. 28,222,764 -- 28,222,764
145/8% Senior Discount
Notes, net of Original
Issue Discount ............... 105,486,381 -- 105,486,381
14% Senior Discount Notes,
net of Original Issue
Discount ..................... 35,790,140 -- 35,790,140
9% Convertible Subordinated
Discount Notes, net of
Original Discount ............ 30,867,615 -- 30,867,615
9% Consent Convertible
Subordinated Discount
Notes, net of Original
Discount ..................... -- $ 10,000,000(a) 10,000,000
Capital Lease Obligations--
Noncurrent ................... 533,437 -- 533,437
Notes Payable ................... 22,523 -- 22,523
------------- ------------- -------------
Total liabilities ......... 200,922,860 10,000,000 210,922,860
Redeemable preferred stock ...... 57,277,345 (57,277,345)(a)(b) --
Put Warrants .................... -- -- --
Common Stockholders'
Equity (Deficit):
Common stock .................. 72,826 146,984(a)(c) 219,610
Additional paid-in capital .... 74,642,145 184,127,813(a)(c) 258,769,958
Accumulated deficit ........... (169,894,677) -- (169,894,677)
Unrealized gain on
available-for-sale
security .................... 8,180,824 -- 8,180,824
Common stock held in Treasury:
1997-10,000 shares ......... (1,077) -- (1,077)
------------- ------------- -------------
Total common stockholders'
equity (deficit) ....... (86,999,959) 184,274,797 97,274,838
------------- ------------- -------------
Total Liabilities,
Redeemable Preferred Stock,
and Common Stockholders'
Equity (Deficit) .............. $ 171,200,246 $ 136,997,452 $ 308,197,698
============= ============= =============
</TABLE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Adjustments
--------------------------------
Hatten
Hatten Communications
Communications Acquisition Pro Forma
Acquisition Adjustments(2) Balance
-------------- -------------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ..... $ 356,096 $ (68,600,000)(a) $ 156,207,966
Marketable equity securities .. -- -- 8,180,824
Accounts receivable, net ...... 6,301,597 -- 30,218,690
Prepaid expenses .............. 744,789 -- 1,712,259
Inventory ..................... 1,261,116 -- 1,261,116
Other current assets .......... 439,056 (325,726)(b) 589,435
------------- ------------- -------------
Total current assets ....... 9,102,654 (68,925,726) 198,170,290
Property and equipment, net ..... 1,273,468 -- 18,075,533
Other assets .................... 6,208,832 60,676,431 (c) 100,287,534
------------- ------------- -------------
Total Assets .............. $ 16,584,954 $ (8,249,295) $ 316,533,357
============= ============= =============
LIABILITIES, REDEEMABLE
PREFERRED STOCK, AND
COMMON STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities
Accounts payable .............. $ 5,863,886 -- $ 26,349,054
Accrued expenses and
other liabilities ........... 2,414,674 -- 9,593,047
Capital lease obligations
--current .................. -- -- 551,398
Current maturities on
notes payable .............. 57,099 -- 64,924
------------- ------------- -------------
Total current liabilities.. 8,335,659 -- 36,558,423
145/8% Senior Discount
Notes, net of Original
Issue Discount ............... -- -- 105,486,381
14% Senior Discount Notes,
net of Original Issue
Discount ..................... -- -- 35,790,140
9% Convertible Subordinated
Discount Notes, net of
Original Discount ............ -- -- 30,867,615
9% Consent Convertible
Subordinated Discount
Notes, net of Original
Discount ..................... -- -- 10,000,000
Capital Lease Obligations--
Noncurrent ................... -- -- 533,437
Notes Payable ................... 13,490,430 $ (13,490,430)(d) 22,823
------------- ------------- -------------
Total liabilities ......... 21,826,089 (13,490,430) 219,258,519
Redeemable preferred stock ...... 5,100,553 (5,100,553)(e) --
Put Warrants .................... 5,907,163 (5,907,163)(e) --
Common Stockholders'
Equity (Deficit):
Common stock .................. 717 (717)(e) 219,810
Additional paid-in capital .... -- -- 258,769,958
Accumulated deficit ........... (16,249,568) 16,249,568(e) (169,894,677)
Unrealized gain on
available-for-sale
security .................... -- -- 8,180,824
Common stock held in Treasury:
1997-10,000 shares ......... -- -- (1,077)
------------- ------------- -------------
Total common stockholders'
equity (deficit) ....... 16,248,851 16,248,851 97,274,838
------------- ------------- -------------
Total Liabilities,
Redeemable Preferred Stock,
and Common Stockholders'
Equity (Deficit) .............. $ 16,584,954 $ (8,249,295) $ 316,533,357
============= ============= =============
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Adjustments to reflect the Initial Public Offering.
(a) Represents the elimination of accumulated preferred
dividends as a result of the conversion of
preferred stock to Common Stock.
(2) Excludes extraordinary loss on early extinguishment of debt of
approximately $1.6 million, pursuant to the recapitalization of
HCHC in May 1997.
(3) Adjustments to reflect the Acquisition.
(a) Represents the amortization of goodwill. The
Company will account for the Acquisition using the
purchase method of accounting and will allocate the
purchase price to assets acquired and liabilities
assumed based on their estimated fair values.
Management is in the process of reviewing the
allocation of the purchase price among certain
assets. As such, the excess purchase price over
historical assets has been allocated to goodwill
which is being amortized over seven years. These
amounts may be adjusted upon completion of these
analyses.
(b) Represents the elimination of losses of a
subsidiary and losses from an equity investment of
HCHC not acquired by the Company.
(c) Represents the reduction of interest expense on
certain debt and other financial instruments not
assumed by the Company as part of the Acquisition.
(d) Represents the elimination of accumulated preferred
dividends, accretion on the redeemable preferred
stock and accretion on the common stock put
warrants due to the Acquisition.
(4) Pro Forma Adjusted Balances.
(a) Excludes interest that would have been earned on
the net proceeds of the Initial Public Offering,
net of the acquisition costs of HCHC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Adjustments to reflect (i) the conversion of all of the
outstanding shares of preferred stock into common stock, (ii)
the issuance of the Consent Notes and (iii) the Initial Public
Offering.
(a) Represents the net proceeds of the Initial Public
Offering and issuance of the Consent Notes as
follows:
Proceeds of Initial Public Offering............$138,061,776
Fees and expenses of Initial Public Offering....(11,064,324)
Issuance of the Consent Notes (net of
original issue discount)...................... 10,000,000
-------------
$136,997,452
=============
(b) Represents the exchange of preferred stock into Common Stock.
(c) Represents the net increase in Common Stock and additional
paid-in capital as follows:
<TABLE>
<CAPTION>
Common
Stock Additional
Par Value Paid-in Capital
<S> <C> <C>
Common Stock issued in the Initial Public Offering
(8,628,861 shares; par value $.01).................. $ 86,289 $ 126,911,163
Common Stock exchanged for preferred stock
(6,069,551 shares; par value $.01)................... 60,695 57,216,640
---------- -------------
Total increase.................................... $ 146,984 $ 184,127,813
========== =============
</TABLE>
(2) Adjustments to reflect the Acquisition.
(a) Represents the cash purchase price of HCHC and costs
associated with the Acquisition.
(b) Represents the dividend of notes receivable from an
equity investment of HCHC not acquired by the Company to
a former owner.
(c) Represents the net increase in Other Assets as follows:
<TABLE>
<S> <C> <C>
Goodwill in connection with the Acquisition................... $ 63,449,114
Elimination of notes receivable from an equity investment
of HCHC not acquired by the Company........................ (464,828)
Dividend of investment in Smartlink Development, L.P. to a
former owner of HCHC........................................ (2,307,885)
---------------
Net increase in other assets.................................. $ 60,676,431
==============
</TABLE>
(d) Represents the repayment of a subordinated note payable
to a former owner.
(e) Represents the elimination of the redeemable preferred
stock. put warrants, common stock and accumulated deficit
of HCHC.
