The biggest financial problems (so far) appear to involve the massive write-downs that FMCN has made.
However, for individual investors, as far as CLARITY is concerned, there are several, quick tests of management and financial reliability: With the LCD and theater counts, the company has shown themselves without a doubt capable of big lies. If they were pulling in the cash, as you said they were, why would they need to inflate the LCD and theater counts?
If you are a success, clarity is your friend. If you are not a success but are trying to get others to believe that you are, you employ confusion and misinformation.
Why would I trust someone who has already lied to me?
This is what I quoted from their December 10th filing of their 2009 20-F: "As of December 31, 2009, we had rights to lease advertising time on screens in 269 movie theaters in cities across China. " You can go and search for yourself.
Why do you want to fixiate your look at 2007 and 2008. To me, these are irrelant as long as their 2009 2010 and 2011 numbers are correct. Their 2009 20-F is correct. They do not intend to defraud anyone.
My thought is that it is not a fraud, but their accounting is messy and not very organized. And they did want to enrich themselves by inflating things a little bit, because they like to gain in the capital markets. As quoted from CEO of FMCN: "Now that I realize capital market gain should not be our ultimate goal, making the business more profit should be our goal. But I rebut the allegations by MW, as our business is very profitable and promising. And we will prove that to our shareholders going down the road."
A false story is necessarily inconsistent with reality. This is why dishonesty is necessarily incompetent. There are too many variables and time shifts onlookers' perceptions over time, so a historical discipline will reveal what is true and what is false, given enough time. This is why the records kept by the SEC and made available to the public are so important.
Thinking up "good excuses" for an investment are instances of self-deception. And in any event, "messy financials and claims" are not good excuses; they are red flags. An investor should never choose between incompetence and dishonesty. One shorts either one or walks away.
Also in the 2009 20-F, which you did not include: "... increased leasing costs associated with time we rent on movie theatre screens as a result of an increase in the number of theaters we leased in our network from 10,930 in 2007 to 27,164 in 2008."
The 27,000 theaters refers to 2008 and this 2008 number was indeed claimed in the 2009 20-F. It was even included in a 2009 20-F filed as late as Dec. 2010. This flies in the face of FMCN's claim that they "changed" their counting system Pre-2009.
Also, look at the theater count and revenue for the year 2007 as claimed in the 2008 20-F. Then go to the 2007 20-F and look for them. Try it. This flies in the face of FMCN's claim that the theater revenue for these years was not very significant. It was very significant.
Once you determine that the source of your information is unreliable, why would you continue to rely on that source?
FMCN has always reinvented itself from year to year and what you cite here is no exception: "Now that I realize capital market gain should not be our ultimate goal, making the business more profit should be our goal. But I rebut the allegations by MW, as our business is very profitable and promising. And we will prove that to our shareholders going down the road."
Translation: Back then, we didn't really understand what "business" was all about and we have a bad track record. So what? We have a new plan for the future. Let's flip a coin on next year.