8000 Incorporated (EIGH)

[Crazy Money]

I thought they magically got $40 million in cash?

chart guy Member Level Share Tuesday, September 28, 2010 4:19:54 PM
Re: thats_my_wave_dude post# 64365 Post # of 64464
EIGH now $40 million in debt, borrowing does not equal earnings

It appears EIGH has simply placed restricted shares that insiders allready own in escrow as collateral for a $40 million dollar loan from seemingly themselves. (This part does not make sense, unless a related party allready had the cash) There are only 66 million restricted shares out there, meaning that at a minimum the creditor has loaned EIGH $0.60 (or 1.5x current market price) for every restricted share in escrow. Now they may decide to use the loan proceeds to pay a cash dividend, however that would be very anti-productive, and basially amounts to a return of capital payment to existing shareholders. In other words, they are simply giving a portion of shareholders existing investment back to them in cash (similar to a mutual fund which cannot fund its distribution from investment returns) Though they very well may decide to do this, it adds nothing to company earnings, and reduces the available capital the company would otherwise have at its disposal to invest in new ventures, or develop existing projects. The company simply wants to inflate their stock price as high as possible because it will result in the highest possible loan proceeds, which then they can forgo a 14 million chunk of to pay the "dividend" which in reality is not a dividend at all, simply a redistribution of company capital. A true dividend is paid out of company EARNINGS, not BORROWINGS.

Also a point to consider, if EIGH shares were to decline in price, and therefore make their collateral worth less, if they ever had to repay the $40 million loan, it would have to be derived from cash generated from operations, otherwise EIGH would have to significantly dilute their stock in order to issue enough shares to make the creditor whole again.