UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities exchange Act of 1934
Date of Report (Date of Earliest event reported): December 1, 1998
CIRCUIT SYSTEMS, INC.
Exact name of registrant as specified in its charter
Illinois 0-15047 36-2663010
(State or other jurisdiction (Commission File (IRS Employer
Of incorporation) Number) Identification Number)
2400 East Lunt Avenue
Elk Grove Village, Illinois 60007
(Address of principal executive offices)
847-439-1999
Registrant's telephone number, including area code
N/A
(Former name or address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
Effective December 1, 1998, the Company, through its newly formed
subsidiary, SVPC Circuit Systems, Inc., completed the acquisition of
assets and assumption of certain liabilities of Silicon Valley Printed
Circuits (ASV@) of Santa Clara, California. SV specializes in quick
turnaround production for both prototype and low to medium volume orders.
The purchase price was $7,000,000 plus the assumption of certain
liabilities of approximately $5,000,000. The purchase price was funded
utilizing $3,000,000 of collateralized bank borrowings (paid to SV on
January 5, 1999) plus $4,000,000 in subordinated notes, payable over 60
months. The acquisition is accounted for as a purchase. The purchase
price, including direct costs of acquisition, has been allocated to the
assets acquired and liabilities assumed based upon their estimated fair
values. The excess of the purchase price over the net assets acquired of
approximately $6,656,000, is being amortized to operations over 10 years.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
(b) Pro forma financial information.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: March 30, 1999
Circuit Systems, Inc.
(Registrant)
/s/ James E. Robbs
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
(a) Financial statements of business acquired.
INDEX TO FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........ F-2
FINANCIAL STATEMENTS
BALANCE SHEET
ASSETS ................................................ F-3
LIABILITIES AND SHAREHOLDERS' DEFICIT ................. F-4
STATEMENT OF OPERATIONS ................................. F-5
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) ............. F-6
STATEMENT OF CASH FLOWS ................................. F-7
NOTES TO FINANCIAL STATEMENTS ........................... F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
We have audited the accompanying balance sheet of H.O.T.L.R.T., Inc. dba
Silicon Valley Printed Circuits (a California Corporation) as of November
30, 1998, and the related statements of operations, shareholders' equity
(deficit), and cash flows for the period from January 1, 1998, through
November 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of H.O.T.L.R.T.,
Inc. dba Silicon Valley Printed Circuits as of November 30, 1998, and
the results of its operations and its cash flows for the period from
January 1, 1998, through November 30, 1998, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
January 15, 1999
F-2
<PAGE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
BALANCE SHEET
November 30, 1998
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents ............................ $ 248,044
Receivables
Trade .............................................. 1,292,705
Shareholders ....................................... 30,179
---------
1,322,884
Less allowance for doubtful receivables ............ 25,000
---------
1,297,884
Inventories
Raw material ....................................... 285,248
Work in process .................................... 183,888
---------
469,136
Prepaid expenses ..................................... 27,330
---------
Total current assets ............................ 2,042,394
PROPERTY, PLANT, AND EQUIPMENT - AT COST
Buildings and improvements ........................... 905,563
Machinery and equipment .............................. 5,724,767
Automotive equipment ................................. 299,835
---------
6,930,165
Less accumulated depreciation and amortization ....... 4,052,710
---------
2,877,455
Land ................................................. 195,312
---------
3,072,767
OTHER ASSETS........................................... 38,210
---------
$5,153,371
=========
F-3
</TABLE>
<PAGE>
<TABLE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
BALANCE SHEET - CONTINUED
November 30, 1998
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S> <C>
CURRENT LIABILITIES
Note payable to bank .................................$1,072,081
Current maturities of long-term obligations .......... 694,692
Accounts payable ..................................... 1,288,682
Accrued expenses ..................................... 335,963
---------
Total current liabilities......................... 3,391,418
LONG-TERM OBLIGATIONS.................................. 1,289,112
SUBORDINATED NOTES PAYABLE TO SHAREHOLDERS............. 493,465
COMMITMENTS AND CONTINGENCIES.......................... -
SHAREHOLDERS' DEFICIT
Common stock - authorized, 100,000 shares without par
value; issued and outstanding, 15,000 shares ....... 15,000
Accumulated deficit .................................. (35,624)
---------
Total shareholders' deficit....................... (20,624)
---------
$5,153,371
=========
The accompanying notes are an integral part of this statement.
F-4
</TABLE>
<PAGE>
<TABLE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
STATEMENT OF OPERATIONS
For the period from January 1, 1998, through November 30, 1998
<S> <C>
Net sales............................................ $12,192,022
Cost of goods sold................................... 10,267,194
----------
Gross profit.................................... 1,924,828
Sales and marketing expenses......................... 1,142,960
Administrative expenses.............................. 1,242,821
----------
2,385,781
----------
Operating loss.................................. (460,953)
Other deductions (income)
Interest expense ................................... 323,296
Interest income .................................... (433)
Sundry ............................................. (19,370)
----------
303,493
----------
Loss before income taxes........................ (764,446)
Income tax expense................................... 10,997
----------
NET LOSS........................................ $ (775,443)
==========
The accompanying notes are an integral part of this statement.
F-5
</TABLE>
<PAGE>
<TABLE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the period from January 1, 1998, through November 30, 1998
Retained
earnings
Common (accumulated
stock deficit) Total
------ -------- -------
<S> <C> <C> <C>
Balance at January 1, 1998.. $15,000 $ 861,859 $876,859
Subchapter S distributions.. - (122,040) (122,040)
Net loss for the period..... - (775,443) (775,443)
------ -------- -------
Balance at November 30, 1998 $15,000 $(35,624) $(20,624)
====== ======= =======
The accompanying notes are an integral part of this statement.
F-6
</TABLE>
<PAGE>
<TABLE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
STATEMENT OF CASH FLOWS
For the period from January 1, 1998, through November 30, 1998
<S> <C>
Cash flows from operating activities
Net loss ........................................... $ (775,443)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization................... 548,608
Net loss on disposition of equipment............ 14,370
Changes in assets and liabilities
Receivables ................................... 511,727
Inventories ................................... (83,526)
Prepaid expenses and other assets ............. 6,859
Accounts payable, accrued expenses, and income
taxes payable 289,554
---------
Total adjustments ........................... 1,287,592
---------
Net cash provided by operating activities ... 512,149
Cash flows from investing activities
Capital expenditures ............................... (83,685)
---------
Net cash used in investing activities ....... (83,685)
Cash flows from financing activities
Net borrowings under line of credit ................ 232,500
Payments on long-term obligations .................. (708,377)
Subchapter S distributions paid .................... (122,040)
---------
Net cash used in financing activities ....... (597,917)
---------
DECREASE IN CASH AND CASH EQUIVALENTS ....... (169,453)
Cash and cash equivalents at beginning of period..... 417,497
---------
Cash and cash equivalents at end of period........... $ 248,044
=========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest ......................................... $ 314,928
Income taxes ..................................... 15,797
Supplemental schedule of non-cash financing activities
In 1998, capital lease obligations of $778,214 were
incurred when the Company entered into leases for
new equipment.
The accompanying notes are an integral part of this statement.
F-7
</TABLE>
<PAGE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nature of Business/Industry
H.O.T.L.R.T., Inc. dba Silicon Valley Printed Circuits (the "Company")
operates in a single industry, electronics, which includes the
manufacture and sale of printed circuit boards in a quick turn
environment. The Company has the ability to provide quick turn, fine
line, impedance-controlled circuit boards.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reported period. Actual results could differ from the
estimates.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost and are depreciated on either
the straight-line or double declining balance method over their estimated
useful lives. Equipment capitalized under capital leases are depreciated
using the same methods as purchased equipment.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. As a result of this election, Company
earnings are taxable to the shareholders, and no corporate income tax is
provided in the financial statements, except for state income taxes.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.
F-8
<PAGE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
NOTES TO FINANCIAL STATEMENTS - CONTINUED
November 30, 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Concentration of Credit Risk
The Company has a broad customer base representing many types of
businesses within the electronics industry primarily throughout North
America. Consequently, in management's opinion, no significant
concentration of credit risk exists for the Company.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents and
long-term debt. The carrying value of the cash and cash equivalents and
long-term obligations approximates their estimated fair values based upon
quoted market prices.
Revenue Recognition
The Company recognizes revenue when products are shipped.
NOTE B - SALE OF BUSINESS
On December 7, 1998, with an effective date of December 1, 1998, Circuit
Systems, Inc. ("CSI"), through its wholly-owned affiliate, SVPC Circuit
Systems, Inc., acquired substantially all of the assets and assumed
certain liabilities of the Company. The total purchase price, including
direct costs of acquisition, was approximately $7,200,000.
NOTE C - NOTE PAYABLE TO BANK
The Company has established a $1,250,000 line of credit with a bank, with
a borrowing base equal to 75% of eligible accounts receivable, secured by
receivables and inventory. Interest is at prime (7.75% at November 30,
1998) plus .75%, payable monthly. The note is to remain in effect until
terminated with 30 days written notice.
The line of credit agreement carries financial loan covenants as follows:
current ratio of not less than .70 to 1.0, tangible net worth (including
subordinated debt) of $1,000,000, annual profitability and debt to equity
(including subordinated debt) of not more than 4.0 to 1.0, and a minimum
cash flow coverage of 1.5 to 1.0. The Company was in violation of
certain covenants at November 30, 1998.
In conjunction with the sale of the business referred to in note B, the
outstanding balance on the note was paid and the line of credit agreement
was terminated subsequent to November 30, 1998.
F-9
<PAGE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
NOTES TO FINANCIAL STATEMENTS - CONTINUED
November 30, 1998
NOTE D - LONG-TERM OBLIGATIONS
Long-term obligations at November 30, 1998, consist of the following:
Notes payable in monthly principal installments of $9,361
plus interest at prime (7.75% at November 30, 1998) plus
1%. Final payment due September 2000. Guaranteed by the
shareholders. Outstanding balance paid subsequent to
November 30, 1998. ............................... $ 215,285
Various capital leases expiring at various times through
September 2002, payable in monthly installments of
$56,777, including interest, collateralized by certain
machinery and equipment. Interest rates range from 8.5%
to13.5% .......................................... 1,450,101
Mortgage and SBA note payable, secured by building, and
personal guarantees, payable in monthly installments
totaling $5,054, including interest at 10% and prime plus
2%, respectively. Due in June 2002
and June 2016, respectively. Outstanding balance paid
subsequent to November 30, 1998. ................. 316,374
Other installment notes............................ 2,044
---------
1,983,804
Less current maturities............................ 694,692
---------
$1,289,112
=========
Scheduled annual maturities of total long-term obligations as of November
30, 1998, are as follows:
Years ending December 31,
1999 ............................................ $ 694,692
2000 ............................................ 554,042
2001 ............................................ 368,091
2002 ............................................ 161,712
2003 ............................................ 11,807
2004 and thereafter ............................. 193,460
---------
$1,983,804
=========
F-10
<PAGE>
H.O.T.L.R.T., Inc.
dba Silicon Valley Printed Circuits
NOTES TO FINANCIAL STATEMENTS - CONTINUED
November 30, 1998
NOTE E - SUBORDINATED NOTES PAYABLE TO SHAREHOLDERS
The subordinated notes to two shareholders bear interest at 10%, have no
specified due dates, and are subordinate to the Company's obligation to
the Small Business Administration.
NOTE F - COMMITMENTS
The Company leases various office and manufacturing facilities under
noncancellable operating leases, which expire at various times through
July 2000. Rental expense for the period from January 1, 1998, to
November 30, 1998, was approximately $185,000. Future lease commitments
are as follows:
Years ending December 31,
-------------------------
1999 ................................................ $175,016
2000 ................................................ 86,933
NOTE G - EMPLOYEE BENEFIT PLAN
The Company has a qualified profit sharing plan covering substantially
all employees. The plan provides for discretionary contributions
approved by the Board of Directors. No contribution was made for the
period from January 1, 1998, to November 30, 1998.
F-11
<PAGE>
(b) Pro forma financial information.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET AND STATEMENT OF OPERATIONS
The following unaudited pro forma condensed combined balance sheet and
statement of operations reflect the effect of the acquisition of
substantially all of the operating assets and assumption of certain
liabilities of H.O.T.L.R.T., Inc., dba Silicon Valley Printed Circuits
("SV").
Effective December 1, 1998, Circuit Systems, Inc. (the "Company"),
through its newly formed subsidiary, SVPC Circuit Systems, Inc.,
completed the acquisition of assets and assumption of certain liabilities
of SV of Santa Clara, California. SV specializes in quick turnaround
production for both prototype and low- to medium-volume orders. The
purchase price was $7,000,000 plus the assumption of certain liabilities
of approximately $5,000,000. The purchase price was funded utilizing
$3,000,000 of collateralized bank borrowings (paid to SV on January 5,
1999) plus $4,000,000 in subordinated notes, payable over 60 months. The
acquisition is accounted for as a purchase. The purchase price,
including direct costs of acquisition, will be allocated to the assets
acquired and liabilities assumed based upon their estimated fair values.
The excess of the purchase price over the net assets acquired of
approximately $6,656,000 will be amortized to operations over ten years.
This pro forma information has been prepared utilizing historical
financial statements of the Company and SV. The unaudited pro forma
condensed combined statement of operations gives effect to the
acquisition as if the transaction were consummated as of the beginning of
the period reported, utilizing the results of operations of the Company
for the twelve months ended October 31, 1998, and the eleven months ended
November 30, 1998, and a one-month average of the eleven-month period to
constitute a twelve-month period for SV. The prior operating results of
SV were maintained on a cash basis, and it is therefore impracticable for
the Company and SV to furnish pro forma results of operations of SV for
the Company's year ended April 30, 1998, and six months ended October 31,
1998. This information should be read in conjunction with the historical
financial statements and notes thereto, as of and for the eleven months
ended November 30, 1998. The pro forma financial data have been included
as required by the rules and regulations of the Securities and Exchange
Commission and are provided for comparative purposes only. The pro forma
financial data do not purport to be indicative of the results which
actually would have been obtained if the acquisition had occurred on the
date indicated or of those results which may be obtained in the future.
<PAGE>
Circuit Systems, Inc. and H.O.T.L.R.T., Inc., dba Silicon Valley Printed
Circuits ("SV")
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
October 31, November 30,
1998 1998
Circuit Pro forma Pro forma
ASSETS Systems, Inc. SV adjustments (A) combined
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 368,193 $ 248,044 $ - $ 616,237
Accounts receivable ..... 14,417,943 1,297,884 - 15,715,827
Inventories ............. 8,902,715 469,136 - 9,371,851
Prepaid expense and other
current assets............ 1,655,199 27,330 (789) 1,681,740
Deferred income taxes ... 330,000 - - 330,000
----------- ---------- --------- ----------
Total current assets .. 25,674,050 2,042,394 (789) 27,715,655
INVESTMENT IN AFFILIATE... 3,005,592 - - 3,005,592
PROPERTY, PLANT, AND EQUIPMENT
At cost ................. 61,268,516 7,125,477 (3,253,677) 65,140,316
Less accumulated depreciation 25,237,568 4,052,710 (4,052,710) 25,237,568
----------- ---------- --------- ----------
36,030,948 3,072,767 799,033 39,902,748
OTHER ASSETS
Goodwill ................ - - 6,656,030 6,656,030
Sundry .................. 1,042,207 38,210 - 1,080,417
----------- ---------- --------- ----------
Total assets .......... $ 65,752,797 $ 5,153,371 $7,454,274 $78,360,442
=========== ========== ========= ==========
<PAGE>
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-
term obligations ...... $ 5,555,492 $ 1,766,773 $3,450,000 $10,772,265
Accounts payable ........ 8,979,474 1,288,682 194,205 10,462,361
Accrued liabilities and
income taxes........... 3,317,685 335,963 239,444 3,893,092
----------- ---------- --------- ----------
17,852,651 3,391,418 3,883,649 25,127,718
LONG-TERM OBLIGATIONS..... 27,861,974 1,289,112 493,466 29,644,552
DEFERRED INCOME TAXES..... 2,283,000 - - 2,283,000
SUBORDINATED DEBT......... - 493,465 3,056,535 3,550,000
SHAREHOLDERS' EQUITY
Common stock ............ 2,301,468 15,000 (15,000) 2,301,468
Retained earnings
(accumulated deficit)... 15,453,704 (35,624) 35,624 15,453,704
----------- ---------- --------- ----------
Total shareholders'
equity (deficit)..... 17,755,172 (20,624) 20,624 17,755,172
----------- ---------- --------- ----------
$ 65,752,797 $ 5,153,371 $7,454,274 $78,360,442
=========== ========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
Circuit Systems, Inc. and H.O.T.L.R.T., Inc., dba Silicon Valley Printed Circuits ("SV")
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Circuit
Systems, Inc. SV
---------------- ---------------------------------------------------------------------------
Twelve months Eleven months
ended ended Average Pro forma Pro forma
October 31, 1998 November 30, 1998 month (1) Twelve months adjustments combined
---------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $89,232,638 $12,192,022 $1,108,000 $13,300,022 $ - $102,532,660
Cost of goods sold............ 78,973,333 10,267,194 933,000 11,200,194 - 90,173,527
---------- ---------- --------- ----------- --------- -----------
Gross profit .............. 10,259,305 1,924,828 175,000 2,099,828 - 12,359,133
Sales and marketing expenses.. 3,294,997 1,142,960 104,000 1,246,960 - 4,541,957
Administrative expenses....... 3,143,416 1,242,821 113,000 1,355,821 665,600 (B) 5,164,837
Restructuring charge.......... 1,520,000 - - - - 1,520,000
---------- ---------- --------- ----------- --------- -----------
7,958,413 2,385,781 217,000 2,602,781 665,600 11,226,794
Operating profit (loss) ... 2,300,892 (460,953) (42,000) (502,953) (665,600) 1,132,339
Other deductions (income)
Interest expense ............ 2,929,835 323,296 29,000 352,296 570,000 (C) 3,852,131
Interest income ............. (10,933) (433) - (433) - (11,366)
Equity in earnings of
unconsolidated affiliate... (85,911) - - - - (85,911)
Minority interest ........... (12,531) - - - - (12,531)
Rental income ............... (403,440) - - - - (403,440)
Sundry ...................... (79,244) (19,370) (2,000) (21,370) - (100,614)
---------- ---------- --------- ----------- --------- -----------
2,337,776 303,493 27,000 330,493 570,000 3,238,269
---------- ---------- --------- ----------- --------- -----------
Loss before income taxes .. (36,884) (764,446) (69,000) (833,446) (1,235,600) (2,105,930)
Income tax (benefit) expense.. (80,000) 10,997 - 10,997 (700,000)(D) (769,003)
---------- ---------- --------- ----------- --------- -----------
NET EARNINGS (LOSS) ....... $ 43,116 $ (775,443) $ (69,000) $ (844,443) $ (535,600) $ (1,336,927)
========== ========== ========= =========== =========
Per share data
Net earnings (loss) per
common share
Basic ................... $ .01 $ (.29)
========== ===========
Diluted ................. $ .01 $ (.29)
========== ===========
Average number of common
shares outstanding
Basic .................... 4,561,502 4,561,502
Diluted .................. 4,563,723 4,561,502
(1) For purposes of pro forma financial statements, an average of the eleven months ended November 30, 1998, was utilized to
incorporate a twelve-month period.
</TABLE>
<PAGE>
Circuit Systems, Inc. and H.O.T.L.R.T., Inc., dba Silicon Valley Printed
Circuits ("SV")
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET AND STATEMENT OF OPERATIONS
The unaudited pro forma condensed combined balance sheet and statement of
operations reflect the effect of the acquisition of substantially all of
the operating assets and assumption of certain liabilities of SV, which
is accounted for as a purchase. The unaudited pro forma condensed
combined statement of operations gives effect to the acquisition as if
the transaction were consummated at the beginning of the period
presented.
The pro forma condensed combined financial statements do not purport to
be indicative of the results which could actually have been obtained if
the acquisition had been consummated on the dates indicated or which may
be obtained in the future.
The pro forma condensed combined financial statements reflect the
following pro forma adjustments:
(A) Direct costs of acquisition and debt incurred by the Company to
finance the purchase and to allocate the total purchase price to the
assets acquired and liabilities assumed based upon their estimated
fair values
(B) Amortization of goodwill over an estimated ten-year life
(C) To record interest expense on additional debt incurred in
acquisition
(D) The tax effect of SV's net operating loss (SV was previously a
Subchapter S Corporation) and the pro forma adjustments using the
applicable effective tax rates
