EGHT has its Chairman Trading Stocks for Revenue. Appears he went upside down and paid it back to be flat now. However I don't understand how they are accounting for the $802,000 invested. It shows as negative but don't believe that it a loss. Maybe I don't understand how they account for holding stock in Balance sheets.
5. SHORT-TERM INVESTMENTS
The Company's short-term investments primarily comprise publicly traded corporate equity securities. All short-term investments are held in the Company's name and are custodied with major financial institutions. The specific identification method is used to compute the gains and losses on equity securities. At September 30, 2003, all of the Company's short-term investments were classified as trading securities. Unrealized gains and losses on these investments are included in Other Income, net, in the condensed consolidated statements of operations.
In March 2002, 8x8's board of directors (the Board) authorized the Company to open securities trading accounts with two brokerage firms and make investments of up to $1.0 million on behalf of 8x8, Inc. as directed by our Chairman, Joe Parkinson, Chief Executive Officer, or Chief Financial Officer. Mr. Parkinson has agreed to personally reimburse 8x8 on a quarterly basis for any losses resulting from his trading activities in order to maintain a minimum investment account balance of $1.0 million. The Board has been assured of Mr. Parkinson's ability to cover any such losses; however, should he be unable to do so it could have a material impact on our cash flows and results of operations. Since the formation of these accounts in 2002, neither the Company's Chief Executive Officer nor Chief Financial Officers have made any trades in the investment accounts as these officers had not agreed to reimburse us for any losses incurred as a result of their trading activity. Mr. Parkinson did not have use of any of the investment account funds for his personal benefit. The funds have always been held in investment accounts in the Company's name and all benefits belong to 8x8. The Company invests in mutual funds, money market funds, and equity and debt securities and options of publicly traded corporations. The investment accounts are not used to trade in the Company's own stock. As part of the arrangement, the Board has expressed its intent, but not obligation, to pay Mr. Parkinson a quarterly bonus in an amount equal to 25% of the profits attributable to investments made on the Company's behalf by Mr. Parkinson to the extent such a bonus exceeds his salary for the corresponding period. The Company or Mr. Parkinson can terminate this arrangement at any time, subject to the terms of an agreement between 8x8 and Mr. Parkinson. Under the arrangement, the Company is required to return to Mr. Parkinson the amount representing the increase in value of the investment account over $1.0 million to the extent required to restore replenishment payments made by Mr. Parkinson in prior quarters. Through March 31, 2003, Mr. Parkinson had made cumulative replenishment payments of approximately $137,000 to offset losses incurred. As of September 30, 2003, 8x8 had made replenishment payments to Mr. Parkinson of approximately $126,000 and had a payable of approximately $9,800 to Mr. Parkinson , which was paid in October 2003. After the Company made the $9,800 payment in October, all of the replenishment payments made by Mr. Parkinson during fiscal 2003 had been returned to him .
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Other Income, Net
Other income, net was $858,000 and $511,000 for the three month periods ended September 30, 2003 and 2002, respectively. The $347,000 increase in other income was primarily due to the recognition of a $790,000 gain on the sale of Centile Europe and a $23,000 unrealized gain on trading securities. These increases were offset by a $496,000 decrease in other income attributable to our former Canadian operations, primarily related to the collection of refundable tax credits in fiscal 2003, and decreases in interest income due to our lower average cash balances.
For the six month periods ended September 30, 2003 and 2002, other income, net was $799,000 and $554,000, respectively. The increase of $245,000 was primarily attributable to the reasons discussed above, offset by an increase in foreign exchange losses related to our international subsidiaries.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Six Months Ended
September 30,
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2003 2002
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Cash flows from operating activities:
Net loss ........................................................ $ (753) $ (4,084)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of business ................................. (790) --
Depreciation and amortization ............................ 469 959
Other .................................................... (45) 98
Changes in assets and liabilities, net of business sold.... (55) (949)
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Net cash used in operating activities ..................... (1,174) (3,976)
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Cash flows from investing activities:
Purchases of property and equipment .......................... (13) (84)
Proceeds from sale of equipment .............................. 20 31
Short term investments -- trading activity, net............... (802) (77)
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Net cash used in investing activities ..................... (795) (130)
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Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs 978 89
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Net cash provided by financing activities ................ 978 89
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Net decrease in cash and cash equivalents ....................... (991) (4,017)
Cash and cash equivalents at the beginning of the period ........ 3,371 12,422
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Cash and cash equivalents at the end of the period .............. $ 2,380 $ 8,405
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Liquidity and Capital Resources
As of September 30, 2003, we had cash and cash equivalents and short-term investments approximating $3.4 million, representing a decrease of approximately $200,000 from March 31, 2003, the end of our last fiscal year. We currently have no bank borrowing arrangements.
Cash used in operations of approximately $1.2 million for the first six months of fiscal 2004 was primarily attributable to the net loss of $753,000, adjusted for the $790,000 gain on the sale of Centile Europe and $469,000 of depreciation and amortization, and net cash used in changes in operating assets and liabilities of $55,000. Cash used in operations of approximately $4 million for the first six months of fiscal 2003 was primarily attributable to the net loss of $ 4.1 million, adjusted for $ 959,000 of depreciation and amortization and net cash used in changes in operating assets and liabilities of $ 949,000. Our negative operating cash flows primarily reflect our net losses resulting from the same factors affecting our revenues and expenses as described above. Cash used in investing activities in the six months ended September 30, 2003 was primarily attributable to net purchases of marketable equity securities and mutual funds of $802,000 and purchases of fixed assets of $13,000, offset by $20,000 of proceeds from the sale of fixed assets. Cash used in investing activities for the six months ended September 30, 2002 was attributable to net purchases of marketable equity securities of $77,000 and capital expenditures of $84,000, partially offset by proceeds from the sale of equipment of $31,000. |
