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Technology Stocks : Zitel-ZITL What's Happening
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To: Karl Radke who wrote (13455)12/22/1997 11:25:00 AM
From: Marconi  Read Replies (4) of 18263
 
Mr. Radke:

I was expecting to see a qualified opinion about Zitel viability from Coopers & Lybrand. I was wrong in my view on that. The 10-K did not stump M/D--toned down that theme to nearly nothing. No strong promotion of 'promise' either.

One thing struck me though and I do not have the experience to judge it -- was this 10-K crafted to make Zitel (effectively its higher liquidation valuation) of value as a tax-loss entity. It is one asset they have in big time form. If I understand M & A correctly, a profitable entity buying Zitel (but not at this price level) would be able to apply the tax losses against their income -- and maybe going back the something like 3-7 year refiguring (that was possible in the 70's) of carrybacks and carryforwards?

I have not accounted in my valuation of Zitel a possibility like this. If they quickly enough lose the company within the timeframe of allowed carrybacks through massive annual losses, aren't those losses worth the marginal tax rate to a merging entity (effectively converting Zitel from business assets to their tax-loss, marginal tax rate worth less some reasonable discount to an operating company with profits)?

I wonder if I should value Zitel on their massive losses at a higher marginal corporate tax rate less some discount, and not on their hemorrhaging operating margins (they do not appear to be a going concern in present form)[effectively a way to convert the firm to an exit form, rather than an viable operating enitity]. Is there really much choice in the matter if the tax angle is valid?

Merry Christmas and warmest hopes for a blessed New Year!
mdr
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