GDT Tek Inc. (fka GDTK)

[seattletechguy]

SubPenny: Do you understand where the profit came from?

It's all on paper. They issued convertible debt. They have to treat the conversion feature like options and value them on the books. There's a complex formula for doing that (called the Black-Scholes pricing model), and it gives different answers over time.

The $725,994 'Other Income' item that allows them to record a profit comes from the changes in a non-cash balance sheet item, 'Convertible Debt-Conversion Feature Liability'. It doesn't represent progress on the part of the company at all. It doesn't provide cash for jobs or other positive developments.

Essentially it means that they borrowed money, the lender got the right to convert the debt into stock, and the value of that right went down (because of the passage of time).

Look at the cash flow statement. The only positive cash flow item is the money they got for 'Loans payable and convertible notes'.

(note this is a cut-and-paste of a message I posted on the Yahoo board)