SunWorks Inc (SUNWQ)

[Intotheblack]

I've got a new (kind of) idea for some people to chew on...

I was reading about the SCTY/TSLA merger, which seems to be as scandalous as the Brexit right now, but something I read on SA about the "why" on the "Musk/Musk Merger" took me right back here and I wanted throw this out to the group and see who thinks what about this in regards to speculation as to where Nelson is going next and why.

The sunworks model seems to be gaining traction, direct sales is clearly the future. In this model, every little bit of margin improvement helps, and in this respect, a little racking solution, enterprise software, and office opening in Oregon goes a long way. It's a well orchestrated symphony of getting the numbers just right, while continuing to grow the business in a way few have done before.

As we know Nelson has said the company will run out of carry forward losses this year, and we haven't really heard him say plainly "we will be paying taxes this year".... I wonder..."again" (I know...), if RGS Energy could be our next acquisition target.

I know... I know... everyone hates when I bring this up from time to time. I haven't had a position in that company for a long time, so I gain nothing by throwing this idea out there.

The rationale... simple, carry forward tax losses... (why the article I read gathered TSLA could be acquiring SCTY)

The market cap over there is so small now, some would say, "SUNW could write them a check"... However the toxic financing death spiral RGSE is in would make a simple transaction out of the question, all the debts would need to be paid off etc... But lets just ballpark a 5-7mil purchase price. The business over there has gone virtually silent, their quarterly revenue is around 5 mil now and they are still incurring losses. However the carry forward losses would save us money on taxes for a couple more years at least, and that alone could cover the cost of the purchase.

After that, we trim the company to the bones in management, and gain the market share they have left in the locations that they operate in. The company had made significant improvements in efficiency, and has already switched to the sales model, mimicking SUNW.

Also the locations in which RGSE still operates all fall in new geographies, fulfilling the criteria Nelson mentioned that acquisitions being discussed "had", specifically the East coast and Hawaii would simply be a Bonus.

The margins are bad at RGSE, but not horrifying. It's what prevents them from growing and being competitive, and now that the company is on the life support from the toxic financing, it's only a matter of "how long before they give in" to the lowest possible price that Nelson would be pitching them. Keeping in mind, this is all basically like getting the company (and expansion into its existing footprint) for free, because the money spent on them would be received back over the next few years worth of carry forward losses. Meanwhile sunworks turns the operations profitable, allowing for even more continued expansion and growth.

The B-Riley meeting could be to finance such a complex transaction involving paying off the RGSE toxic debts, and using as little equity as possible this time around in the purchase agreement.

Thoughts?

Here is a link to article showing that:
Tax loss carry-forwards can motivate mergers and acquisitions

(Search the page for that phrase)

Tax loss carry-forwards can motivate mergers and acquisitions. A company that has earned profits may find value in the tax losses of a target corporation that can be used to offset the income it plans to earn. A merger may not, however, be structured solely for tax purposes. In addition, the acquirer must continue to operate the preacquisition business of the company in a net loss position. The tax benefits may be less than their "face value," not only because of the time value of money, but also because the tax loss carry-forwards might expire without being fully utilized.

Tax advantages can also arise in an acquisition when a target firm carries assets on its books with basis, for tax purposes, below their market value. These assets could be more valuable, for tax purposes, if they were owned by another corporation that could increase their tax basis following the acquisition. The acquirer would then depreciate the assets based on the higher market values, in turn, gaining additional depreciation benefits.

I added the bold above, because this seems to be exactly how things would work... operations would continue while benefiting from the SUNW advantages, and this is the type of complex transaction B-Riley could be assisting with. This rule simply prevents a company from buying any old "going out of business" company to prevent paying taxes.