Aisystems, Inc. (fka ASYI)

[Bman1]

I know I am holding a lottery ticket here, but the writing is on the wall. Why would anyone leave more money on the table?:


1. Code Section 382 and Ownership Changes
More specifically, if as a result of a stock transfer or a reorganization, a corporation undergoes an “ownership change,” Code Section 382 limits the corporation’s right to use its NOLs each year thereafter to an annual percentage (for May 2009, the federal long-term tax-exempt rate is 4.61%) of the fair market value of the corporation at the time of the ownership change (the “Section 382 Limitation”). For example, if a corporation with current NOLs of $20 million underwent an ownership change this month, and assuming that the value of the stock of the corporation is worth only $5 million, the corporation’s annual Section 382 Limitation is $230,500 ($5,000,000 x 4.61%). Over twenty years, the maximum amount of NOLs that the corporation will be able to use is now $4,610,000 ($230,500 x 20 years), effectively losing a NOL tax asset of $15,090,000.

In addition, if an ownership change under Code Section 382 is triggered, a corporation’s “built-in losses,” which include certain built-in deductions, that are recognized during a five-year recognition period after the ownership change, are treated as pre-change losses subject to the Section 382 Limitation. The combination of these rules means that a buyer of a corporation with sizeable NOLs and other tax attributes, such as built-in losses, may find that the tax attributes actually possess a relatively low cash value as a result of a change of control.

A corporation is considered to undergo “an ownership change” if, as a result of changes in the stock ownership by “5-percent shareholders” or as a result of certain reorganizations, the percentage of the corporation’s stock owned by those 5-percent shareholders increases by more than 50 percentage points over the lowest percentage of stock owned by those shareholders at any time during the prior three-year testing period. Code Section 382 only counts ownership increases; to consider decreases would amount to double-counting. Five-percent shareholders are persons who hold 5% or more of the stock of a corporation at any time during the testing period as well as certain groups of shareholders (based typically on whether they acquired their shares in a single offering or exchange transaction) who are not individually 5-percent shareholders.

Importantly, the Section 382 Limitation is zero for any post-change year if during the 2-year period beginning on the change date the new corporation does not either (i) continue the old corporation’s historic business or (ii) use a significant portion of the old corporation’s historic business assets in a business at all times during that 2-year period.