Patrick: You are correct. There are many more interesting ways to spend one's time than paying attention to some company's accounting. For most of my career I ignored accounting as much as possible, focusing instead on the big picture--where is the company heading, what are its fundamental strengths and weaknesses, etc. Over time, however, I found that when stocks didn't work out the way I hoped, a lot of what went wrong might have been predicted had I looked at the company's books a little closer. Very often the warning signs were right there, well ahead of the bad news.
You are also correct that tax planning is something all companies should do, and there is nothing wrong with it. Who wants to pay taxes if there are legitimate ways of avoiding them? The fact that DHMG might be doing something to reduce or eliminate its tax bill, by itself does not indicate any wrongdoing.
This case is somewhat different because DHMG has no choice. Based on its limited financial resources, I doubt whether DHMG could pay its tax bill. It certainly looks like it wasn't making the quarterly payments along the way. The reason for this is that its "profits" are phony; they exist only because it "sells" things to related entities at prices designed to make DHMG look profitable, and then gets paid in stock of those entities which it values at much more than they are really worth. If you recast the income statement to only include sales made to unrelated customers, in which they paid their bills in US money, then the company's sales would be a fraction of what they reported, and the company would probably be in the red. So in real life, there are no earnings to speak of, and that is why there is no cash to pay the tax bill.
Given what DHMG has done with the company's financial statements, I have no reason to believe that the insider filings are honest. About half of DHMG's stock, much more than the total of reported insider holdings, is listed as restricted shares. I have no direct knowledge of this, but I predict that when the post-mortem is done on this company, it may well turn out that insiders control much more than they have been letting on, and it is those shares that are being sold along the way, in addition to the reported sales.
Finally, no disrespect intended to Mother Theresa's memory; it was just a figure of speech. |
