Meru Networks, Inc. (MERU) - Tax Assets Start The Party

From MERU's most recent 10-K

Just look at those NOLs! MERU has a (net) NOL carry-forward of ~$60 million, which is completely negated by their $93mln valuation allowance...this is their way of saying that they don't expect to profit enough in the near future to realize this huge tax benefit. The GAAP accounting rules have minimal consideration for fluctuations in a corporate balance sheet that can swing a company to a profit.  

By my understanding of "The IRS Section 382 Limitation", an owner who takes over 50% control of MERU within the next 36 months would (at a minimum) be entitled to the gross NOL carry forward times the tax exempt rate. The tax exempt rate may be at a paltry ~2.5% these days, but that still equivocates to $1.5mln in immediate tax savings for a big corporate acquirer.   

In the next post, I will discuss MERU's gross NOLs and their debt structure with respect to said tax credits.

Thank You

Frank Vigilante