Da: No, I don't believe that DHMG's auditors are corrupt. My best guess is that they are not very competent, not very thoughtful, and not very bright. Here are my reasons:
1. They do not seem to know how to do a cash flow statement properly. I believe, and this is backed up by one CPA I know, in addition to the normal use of the English language, that the phrase "change in inventories" means change in inventories, and the phrase "change in receivables" means change in receivables. DHMG's auditors seem to think they mean something else.
For example, DHMG's inventories started out the year at $496,776 and at the end of Q3 were listed as $1,117,789. That means that they went up by $621,013.
Yet the cash flow statement in the September 10-Q says that inventories went down by $4,319,598. That is impossible, of course, since that would put them way into negative territory. Where did this crazy number come from? If it is not random, what it may be is that the auditor is subtracting from the inventory figure the value of its own shares that DHMG traded for inventory.
This is improper accounting, according to my CPA friend. Inventories went up by the amount they went up. If the company paid for its purchases by issuing stock, then that number is a separate entry that goes into the financing section of the cash flow statement, not the operations section.
This is not a trivial point! The 10-Q makes clear that DHMG rarely finds anyone who will pay cash for its products and services. A properly done cash flow statement would alert investors to that incredibly important fact. One could then see that DHMG has avoided running out of cash to date only because it has managed to find suppliers (mostly insiders who have their existing shareholdings to protect) who are willing to be paid DHMG stock instead of cash. In other words, should the stock go down a whole lot or the SEC halt trading, it may be difficult or impossible for the company to pay for any inventory and continue in business. Being able to understand things like this is the main reason that the cash flow statement exists. The auditors' accounting serves to obscure this very important information.
2. The auditors should not have agreed to audit DHMG while leaving Universal Network unaudited. It puts the auditors into the goofy position of endorsing a company's financial statements, while at the same time specifically refusing to endorse the transactions that accounted for half of the company's sales, its largest asset, and most or all of its earnings. The audit of DHMG is therefore completely meaningless, and the auditors should have refused to do a job that they should know has no value.
3. There is no evidence that the auditors made any effort to examine the numerous and significant transactions between the company and insiders, large shareholders, and the entities they control to see if they were "arms length" transactions. The likelihood is EXTREMELY high that the transactions exist only to make it appear that DHMG is making a profit, so as to help hype the stock. This makes the income statement useless, except as a record of how much profit a bunch of guys wants to pretend DHMG earned. The auditors, to be generous, must be very naive to ignore this issue.
The net effect is that the whole audit is a joke, in terms of telling an investor anything about the company's real situation. Despite Hagen's prediction, I see almost no chance that the NASD will allow this can of worms to be listed on the NASDAQ Small Cap market. I also see little chance that DHMG's numbers for this year will be allowed to stand. Sooner or later I believe the SEC will make the company withdraw these numbers and replace them with honest ones, and presumably bring at least civil charges against the management. Whether that will happen tomorrow or a year from now I can't say, but it is almost certain to happen.
As to my communications with you and Patrick on SI, I do admit to slinging a nasty one liner at you some time ago, but that was my response to two things: 1) Your false implication that I worked for a market maker that DHMG thinks is short the stock, and 2) the fact that your posts were never more than one or two lines themselves, which didn't give me any reason to take you seriously. Subsequently you showed your willingness to look at DHMG's financial statements and consider some of the issues, and as a result I have, and will continue, to treat you with total respect. (Although I must say that it wasn't nice of you to run amok during the Macy's Thanksgiving parade and knock that pole down onto those people--jk)
As to Patrick, all I can say is that I pointedly addressed my recent posts here to myself rather than him, so as not to induce any more of his ignorant mudslinging. I do occasionally check to see if he is still touting DHMG on the Stock Swap thread, but I hardly stalk him in any way. The other day, when he characterized someone he didn't like as being "another Sid", I responded with one short humorous note, which you read, and that was that.
Feel free to look up my profile, read all my posts, and you will see very few notes from me to Patrick. You will find only two thread overlaps between us, on this thread and Stock Swap, and all related to DHMG, other than his occasional whining about a successful short term trade I recommended to someone else on the Stock Swap thread. I am sorry you have ended up in the middle, and I hope his emotional tantrums don't bother you.
Again, I appreciate your willingness to discuss the factual issues related to DHMG, and I will be glad to respond to any other questions or comments on that matter you may have.
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