The fact is though, most US Listed China companies have this exact same problem... Which is why I hate Warrants. As long as this GAAP rule exists, people should *not* be using GAAP numbers as a measure of company performance for this sector.
This is exactly why GAAP is not used by smart money. With all the talk on CCME and the warrants maybe everybody should trash that also. After all they have these warrants at $5.50 and last I knew their earnings were negative Q3 with a $12 stock. When this washes out these adjustments are absolutely non-cash and have no effect other than the dilution from the warrants, options, and preferred shares or interst charges. If CKGT.OB went to .50 next Q everything would change and all these non-cash charges would be added back in and they wold have earn .40 Q4.
Read the terms of convertibles, warrants, and options. Remember once they are in the money it changes the reporting but has NO effect on this business. Once they are converted or deemed worthless it only effects the o/s. In the mean time accounting games thus use GAAP.
Almost ALL of these chinese microcaps have either preferred, options, or/ and warrants. For this board to continue to be as successful as a chinese Microcap Board we must understand FASB/LIFO/FIFO/ Preferred/ options/ warrants/ dilution etc. Dilution on warrants, options, and convertibles don't play apart in the earnings computation until they are in the moeny.
For example if their is 2 Mil warrants excersizable at $1 and the price is $3 enf of Q3 the company is actually reporting under this method a $4 mil loss. Without the warrants the thinking is the company could have sold these shares at $3(closing date of the Q) thus a $4 mil hit towards the company. Now say the next Q the stock goes back to $1 now they have an additional $4 mil gain. This is an accounting function and as Fernando says in the top paragraph this is why GAAP should not be used. Most Chinese companies have yet for these options, warrants, or convertibles in the money thus no impact per GAAP. AS I have stated before regardless of what has been said CKGT.OB is by far head and shoulders above 90% of all companies mentioned here.
Fernando your last statement " Makes for some fun trading opportunities from all the silly people who only look at the GAAP numbers." My guess is expect the same from CCME!
