U.S. Securities and Exchange Commission
Washington,
D.C. 20549
Form 10-Q
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[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: September 30, 2012
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to _________
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Commission File No. 001-32032
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Dewmar International
BMC, Inc.
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(Name of Registrant in its Charter
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NEVADA
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26-4465583
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State or other jurisdiction of
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(I.R.S. Employer I.D. No.)
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incorporation or organization)
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132 E. Northside Dr. Suite C Clinton, MS 39056
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(Address of principal executive offices)
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(601) 488-4360
(Registrant’s telephone number,
including area code)
Indicate by check mark whether the Issuer
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of the “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer
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[ ]
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Accelerated Filer
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[ ]
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Non-Accelerated Filer
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[ ]
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Smaller reporting company
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[X]
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 14, 2012 the registrant had 59,233,000
issued and outstanding shares of common stock .
Dewmar International BMC, Inc.
TABLE OF CONTENTS
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Page
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PART I – FINANCIAL INFORMATION
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3
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Item 1.
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Financial Statements:.
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Consolidated Balance Sheets (unaudited)
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F-1
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Consolidated Statements of Operations (unaudited)
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F-2
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Consolidated Statements of Cash Flows (unaudited)
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F-3
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Notes to Consolidated Financial Statements (unaudited)
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F-4
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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5
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Item 3.
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Quantitative and Qualitative Disclosure About Market Risk
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8
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Item 4.
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Controls and Procedures
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8
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PART II – OTHER INFORMATION
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Item 1.
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Legal Proceedings.
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9
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Item 1A.
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Risk Factors.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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11
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Item 3.
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Defaults Upon Senior Securities
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11
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Item 4.
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Mine Safety Disclosures
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11
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Item 5.
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Other Information.
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11
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Item 6.
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Exhibits
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11
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SIGNATURES
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12
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PART I - FINANCIAL INFORMATION
Forward-Looking Information
This
report on Form 10-Q contains forward-looking statements.
Forward-looking statements involve risks and
uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you
can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “we believe,” “we
intend,” “may,” “should,” “will,” “could” and similar expressions denoting
uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions,
known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future
results, performances or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking statements
include:
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the timing of the development of future products;
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●
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projections of costs, revenue, earnings, capital structure and other financial items;
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●
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statements of our plans and objectives;
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●
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statements regarding the capabilities of our business operations;
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●
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statements of expected future economic performance;
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●
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statements regarding competition in our market; and
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●
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assumptions underlying statements regarding us or our business.
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The
ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss
our known material risks under
Item 1.A “Risk Factors contained in the Company’s Annual Report on Form 10K/A
for the year ended December 31, 2011
. Many factors could cause our actual results to differ materially
from the forward-looking statements. In addition, we cannot assess the impact of each factor on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements.
The
forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation
to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.
Item 1. Financial Statements
DEWMAR INTERNATIONAL BMC, INC. (fka
CONVENIENTCAST, INC.)
INDEX TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
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Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011
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F-1
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Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)
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F-2
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Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (unaudited)
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F-3
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Notes to unaudited Consolidated Financial
Statements
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F-4
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DEWMAR INTERNATIONAL BMC, INC. (fka
CONVENIENTCAST, INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2012 (unaudited) and
DECEMBER 31, 2011
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September 30, 2012
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December 31, 2011
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ASSETS
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Current Assets
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Cash and cash equivalents
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$
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4,629
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$
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91,506
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Accounts receivable, net of allowance for doubtful account of $0 and $34,634
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53,159
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113,327
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Related party receivable
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3,913
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5,603
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Advances to related party
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9,332
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9,332
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Prepaid expenses and other current assets
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14,087
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11,463
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Inventory
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78,144
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58,162
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Total current assets
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163,264
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289,393
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Property, Plant and Equipment, net of accumulated depreciation of $7,678 and $5,000, respectively
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13,477
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16,155
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TOTAL ASSETS
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$
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176,741
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$
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305,548
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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LIABILITIES
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Current Liabilities
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Accounts Payable
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$
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30,219
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$
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73,420
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Accrued liabilities
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510,018
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389,551
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Advances from related party
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-
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38,800
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Notes payable net of unamortized discount of $19,670 and $0, respectively
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77,440
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-
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Derivative liability
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5,887
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-
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Common stock payable
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315,026
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-
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Total current liabilities
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938,590
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501,771
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TOTAL LIABILITIES
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938,590
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501,771
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COMMITMENTS AND CONTINGENCIES (Note 5)
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STOCKHOLDERS’ DEFICIT
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Preferred stock, par $0.001, 50,000,000 shares authorized and 0 shares issued and outstanding, respectively
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-
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-
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Common stock, par $0.001, 450,000,000 shares authorized and 59,233,000 and 58,495,000 shares issued and outstanding, respectively
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59,233
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58,495
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Additional paid in capital
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107,840
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22,097
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Accumulated deficit
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(928,922
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)
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(276,815
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)
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TOTAL STOCKHOLDERS’ DEFICIT
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(761,849
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)
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(196,223
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)
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
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$
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176,741
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$
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305,548
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The accompanying notes to the unaudited
consolidated financial statements are an integral part of these statements.
DEWMAR INTERNATIONAL BMC, INC. (fka
CONVENIENTCAST, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2012 and 2011
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2012
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2011
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2012
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2011
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Revenue, net
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$
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110,653
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$
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320,539
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$
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405,745
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$
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1,069,781
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Cost of goods sold
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26,134
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159,088
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149,508
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454,528
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Gross profit
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84,519
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161,451
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256,237
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615,253
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OPERATING EXPENSES:
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Occupancy and related expenses
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10,210
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7,550
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25,094
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22,362
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General and administrative
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118,061
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128,806
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756,050
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369,936
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Contract labor
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32,762
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59,618
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103,308
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212,247
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Marketing and advertising
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14,553
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48,227
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30,950
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101,991
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Total operating expenses
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175,586
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244,201
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915,402
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706,536
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NET OPERATING LOSS
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(91,067
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)
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(82,750)
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(659,165
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)
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(91,283
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)
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OTHER INCOME (EXPENSE)
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Interest expense
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(3,549)
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(12,204)
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(3,563)
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(42,928
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)
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Interest income
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|
-
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|
14
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8
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|
132
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Gain on derivative liability
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15,613
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-
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15,613
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-
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Loss on extinguishment of debt
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-
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-
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(5,000)
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-
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Total other income (expense)
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12,064
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(12,190)
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7,058
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|
(42,796
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)
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NET LOSS BEFORE INCOME TAXES
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(79,003
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)
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(94,940
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)
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(652,107
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)
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|
(134,079
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)
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PROVISION FOR INCOME TAXES
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-
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-
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-
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-
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NET LOSS
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$
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(79,003
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)
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$
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(94,940
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)
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|
$
|
(652,107
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)
|
|
$
|
(134,079
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)
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|
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|
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Net loss per share, basic and diluted
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$
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(0.00
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)
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$
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(0.00
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)
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$
|
(0.01
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)
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$
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(0.00
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)
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|
Weighted-average common shares outstanding, basic and diluted
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59,233,000
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40,000,000
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|
|
|
59,041,396
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|
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|
40,000,000
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|
The accompanying notes to the unaudited
consolidated financial statements are an integral part of these statements.
DEWMAR INTERNATIONAL BMC, INC. (fka
CONVENIENTCAST, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2012
|
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September 30, 2012
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September 30, 2011
|
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|
|
|
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|
|
|
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Cash flows from operating activities:
|
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|
|
|
|
|
|
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Net loss
|
|
$
|
(652,107
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)
|
|
$
|
(134,079
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)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
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Depreciation expense
|
|
|
2,678
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|
|
|
(2,827
|
)
|
|
Stock-based compensation
|
|
|
354,026
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|
|
-
|
|
|
Amortization of non-cash debt discount
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|
|
1,830
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|
|
|
|
|
|
Non-cash legal fees
|
|
|
6,500
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|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
5,000
|
|
|
|
-
|
|
|
Gain on derivative liability
|
|
|
(15,613
|
)
|
|
|
-
|
|
|
Changes in operating assets and liabilities :
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
60,168
|
|
|
|
60,408
|
|
|
Inventory
|
|
|
(19,982
|
)
|
|
|
(22,304
|
)
|
|
Prepaid expenses and other current assets
|
|
|
(2,624
|
)
|
|
|
(4,015
|
)
|
|
Accounts receivable – related party
|
|
|
1,690
|
|
|
|
(21,291
|
)
|
|
Accrued liabilities – related party
|
|
|
-
|
|
|
|
(6,500
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
81,557
|
|
|
|
99,071
|
|
|
Net cash used in operating activities
|
|
|
(176,877
|
)
|
|
|
(31,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Advances from related party
|
|
|
-
|
|
|
|
-
|
|
|
Payments on advances from related party
|
|
|
|
|
|
|
(32,436)
|
|
|
Cash proceeds from borrowings
|
|
|
90,000
|
|
|
|
42,994
|
|
|
Cash used for repayment of notes payable
|
|
|
-
|
|
|
|
(72,831)
|
|
|
Cash proceeds from issuance of common stock
|
|
|
-
|
|
|
|
25,800
|
|
|
Net cash provided by/ (used in) financing
activities
|
|
|
90,000
|
|
|
|
(36,473)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(86,877
|
)
|
|
|
(68,010
|
)
|
|
Cash and cash equivalents, at beginning of period
|
|
|
91,506
|
|
|
|
208,726
|
|
|
Cash and cash equivalents, at end of period
|
|
$
|
4,629
|
|
|
$
|
140,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Extinguishment of debt and accounts payable for common stock
|
|
$
|
47,481
|
|
|
$
|
43,800
|
|
|
Increase in common stock payable
|
|
$
|
315,026
|
|
|
$
|
-
|
|
|
Creation of debt discount associated with derivative liability
|
|
$
|
21,500
|
|
|
|
|
|
The accompanying notes to the unaudited
consolidated financial statements are an integral part of these statements.
DEWMAR
INTERNATIONAL BMC, INC. (fka CONVENIENTCAST, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2012
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
On
October 28, 2011, pursuant to an Exchange Agreement (“Agreement”), Dewmar International BMC, Inc. (fkaConvenientcast,
Inc.) (“Dewmar International BMC, Inc. or the “Company”), a publicly reporting Nevada corporation, acquired
DSD Network of America, Inc. (“DSD”), a Nevada corporation, in exchange for the issuance of 40,000,000 shares of common
stock of Dewmar International BMC, Inc. (the “Exchange Shares”), a majority of the common stock, to the former owners
of DSD. In conjunction with the Merger, DSD became a wholly-owned subsidiary of the Company.
For
financial accounting purposes, this acquisition (referred to as the “Merger”) was a reverse acquisition of Dewmar
International BMC, Inc. by DSD and was treated as a recapitalization. Accordingly, the financial statements were prepared to give
retroactive effect of the reverse acquisition completed on October 28, 2011, and represent the operations of DSD prior to the
Merger.
As
of the time of the Merger, Dewmar International BMC, Inc. held minimal assets and was a developmental stage company. Following
the Merger, the Company, through DSD, is a manufacturer of its Lean Slow Motion Potion™ brand relaxation beverage, which
was launched by DSD in September of 2009. After the Merger, the Company operates through one operating segment.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The Company prepares its
financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying
interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim
financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete financial statements. In the Company’s opinion,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 2012 are not necessarily indicative of the results for the full years. While
management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial
statements should be read in conjunction with the audited combined financial statements and the footnotes thereto for the periods
ended December 31, 2011 filed in our Annual Report on Form 10K/A filed on August 3, 2012.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and DSD, its only subsidiary. All material intercompany
accounts and transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents consist primarily of cash on deposit and money market accounts, which are readily convertible into cash and
purchased with original maturities of three months or less. These investments are carried at cost, which approximates fair value.
The
Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”).
Beginning December 31, 2011 through September 30, 2012, all noninterest-bearing transaction accounts are fully insured,
regardless of the balance of the account, at all FDIC-insured institutions. This unlimited insurance coverage is separate
from, and in addition to, the insurance coverage provided to the depositor’s other accounts held by a FDIC-insured
institution, which are insured for balances up to $250,000 per depositor until December 31, 2013. At September 30, 2012 and
December 31, 2011, the amounts held in banks did not exceed the insured limits.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company’s accounts receivable were composed of receivables from customers for sales of products. The Company performs credit
evaluations prior to selling products or granting credit to its customers and generally does not require collateral.
The
Company’s trade accounts receivable are typically collected within 60 days from the date of sale. The Company monitors its
exposure to losses on trade accounts receivable and maintains an allowance for potential losses and adjustments. The Company determines
its allowance for doubtful accounts based on the evaluation of the aging of accounts receivable and detailed analysis of high-risk
customers’ accounts, and the overall market and economic conditions of its customers. Past due trade accounts receivable
balances are written off when the Company’s collection efforts have been unsuccessful in collecting the amount due. At September
30, 2012 and December 31, 2011, the allowance for doubtful accounts was$0 and $34,634. During the nine months ended September
30, 2012, the company wrote off
$36,578 in accounts receivable.
Inventory
Held by Third Party
Inventory
costs are determined principally by the use of the first-in, first-out (FIFO) costing method and are stated at the lower of cost
or market, including provisions for spoilage commensurate with known or estimated exposures which are recorded as a charge to
cost of goods sold during the period spoilage is incurred.
Fixed
Assets
Leasehold
improvements, property and equipment are stated at cost less accumulated depreciation and amortization. Expenditures for property
acquisitions, development, construction, improvements and major renewals are capitalized. The cost of repairs and maintenance
is expensed as incurred. Depreciation is provided principally on the straight-line method over the estimated useful lives of the
assets, which are generally 3 to 10 years. Leasehold improvements are amortized over the shorter of the lease term, which generally
includes reasonably assured option periods, or the estimated useful lives of the assets. Upon sale or other disposition of a depreciable
asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in “Gain or Loss
from Operations”.
The
estimated useful lives are:
|
Furniture
and fixtures
|
|
3-10
years
|
|
Equipment
|
|
3-7
years
|
|
Vehicles
|
|
3-7
years
|
Convertible
Notes
The
Company analyzes its convertible notes in accordance with FASB Accounting Standards Codification (“ASC”) Topic 470-20
and Topic 815 Derivatives and Hedging. If it is determined that the conversion feature is convertible to a variable number of
shares, then the Company determines whether it is subject to the Derivatives and hedging guidance in ASC Topic 815-20. Upon conclusion
that it is within the guidance in Topic 815-20, the conversion feature is separated from the host contract and estimates its fair
value and accounts for it as a derivative instrument.
Revenue
Recognition Policy
The
Company recognizes revenue when the product is received by and title passes to the customer. The Company’s standard terms
are ‘FOB’ receiving point. If a customer receives any product that they consider damaged or unacceptable, the customer
must document any such damages or reasons for it not to be accepted on the original invoice upon delivery and then inform the
Company within 72 hours of receipt of the product. The Company does not accept returns of product for reasons other than damage.
We record estimates for reductions to
revenue for customer programs and incentives, including price discounts, volume-based incentives, and promotions and advertising
allowances. Products are sold on consignment periodically. Revenue is shown net of sales allowances on the accompanying statements
of operations.
Cost
of Goods Sold
The Company’s cost of goods sold
includes all costs of beverage production, which primarily consist of raw materials such as concentrate, aluminum cans, trays,
shrink wrap, can ends, labels and packaging materials. Additionally, costs incurred for shipping, handlingand warehousing charges
are included in cost of goods sold. The Company does not bill customers for cost of shipping unless the Company incurs additional
charges such as refusing initial shipment or not being able to receive shipment at their prescheduled time with the freight company.
Advertising
Expense
The
Company recognizes advertising expense as incurred. The Company recognized advertising expense of $8,624 and $50,308 for the nine
months ended September 30, 2012 and 2011, respectively.
Income
Taxes
The
Company accounts for its income taxes using the liability method, whereby deferred tax assets and liabilities are established
for the future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities
and their tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to reverse. A valuation allowance is provided for certain deferred
tax assets if it is more likely than not that the Company will not realize the tax assets through future operations.
The
Company’s federal and state income tax returns for the years ended 2009, 2010 and 2011 are open to examination. As of
September 30, 2012, the Company evaluated its open tax years in all known jurisdictions. Based on this evaluation, the
Company did not identify any uncertain tax positions. We will account for interest and penalties relating to uncertain tax
positions in the current period statement of operations as necessary.
Fair
value of Financial Instruments
U.S.
GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value.
These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level
3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own
assumptions.
The
Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivables and payables, accrued
liabilities and notes payable. The carrying values of these financial instruments approximate their respective fair values as
they are either short-term in nature or carry interest rates that approximate market rates. The Company evaluates its embedded
conversion features contained within their convertible notes for derivative treatment. The Company’s derivative liabilities
at September 30, 2012 are considered Level 2 financial instruments.
Share-Based
Compensation
The
Company recognizes all share-based payments to employees, including grants of Company stock options to Company employees, as well
as other equity-based compensation arrangements, in the financial statements based on the grant date fair value of the awards.
Compensation expense is generally recognized over the vesting period. During the nine months ending September 30, 2012 and 2011,
the Company issued no stock options or other share-based payments to employees.
Income
(Loss) per Share
Basic
net income (loss) per common share is computed by dividing net loss by the weighted-average number of common shares outstanding
during the period. Diluted net income (loss) per common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported
the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
At September 30, 2012 there were no such common stock equivalents outstanding.
Concentration
of Risks
The
Company’s operations and future business model are dependent in a large part on the Company’s ability to execute its
business model. The Company’s inability to meet its sales objectives may have a material adverse effect on the Company’s
financial condition.
Most
of the Company’s sales are derived from beverage distributors located in the Southern region of the United States. This
concentration of sales may have a negative impact on total sales in the event of a decline in the local economies.
New
Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flow.
Reclassifications
Certain
amounts in prior years have been reclassified to conform to the current years’ presentation.
NOTE
3. GOING CONCERN
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America, which contemplates continuation of the Company as a going concern. The Company has incurred net losses and
has a significant accumulated deficit. The Company also had negative working capital. The Company’s operating results are
subject to numerous factors, including fluctuation in the cost of raw materials, changes in consumer preference for beverage products
and competitive pricing in the marketplace. These conditions give rise to substantial doubt about the Company’s ability
to continue as a going concern. These financial statements do not include adjustments relating to the recoverability and classification
of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain additional
financing or sale of its common stock as may be required and ultimately to attain profitability.
Management’s
plan, in this regard, is to raise financing through equity financing to augment the cash flow it receives from product sales and
finance the continuing development for the next twelve months.
NOTE
4. NOTES PAYABLE
On
June 27, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”) a Delaware
Corporation for an 8% convertible promissory note with an aggregate principal amount of $32,500 which together with any unpaid
accrued interest due on March 29, 2013. This convertible note together with any unpaid accrued interest is convertible into shares
of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 55% of the market
price which means the average
of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion
date with no floor stated in the conversion feature. In July 2012, this convertible promissory note was funded in the amount of
$30,000. The Company will analyze whether the variable conversion price results in need of bifurcation of the conversion feature
into a separate derivative liability valued at fair market value on the date of the contingency of the conversion feature is settled
which is 180 days from inception of the note.
On September 6, 2012, the Company entered
into a Convertible Promissory Note with Continental Equities, LLC, a New York limited liability corporation for an 8% convertible
promissory note in the aggregate principal amount of $21,500, which together with any unpaid accrued interest is due on June 15,
2013. $20,000 of the proceeds were funded directly to the company while $1,500 was recorded as legal expense for funds held by
the note holder. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at
the holder’s option beginning on the date of the note at a variable conversion price calculated as 55% of the market price
which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete trading
day prior to the conversion date with the only mention of a “share cap” is that the number of shares of common stock
issuable upon the conversion would not exceed 4.99% of the outstanding shares of the company at the time of conversion. Since the
number of shares outstanding at any future date is undetermined by the Company, the Company determined that the conversion feature
in this note qualified as an “embedded derivative,” and therefore separated the conversion feature from the host contract
and estimated the fair market value at inception to be $34,119. As a result, the Company recorded a discount on the original note
of $21,500 and recorded an immediate loss of $12,619. At September 30, 2012, the Company amortized into interest expense $1,830
leaving an unamortized discount associated with the convertible note of $19,670. At September 30, 2012, the fair market value of
the derivative liability was determined to be $5,887 which resulted in a net gain on derivative liability of $15,613. The Company
estimated the fair market value of the derivative liability using Black Scholes with the following main assumptions: (1) conversion
price at inception and September 30, 2012 of $0.0165 and $0.0037, respectively; (2) volatility at inception and September 30, 2012
of 246.74% and 257.33%, respectively; (3) Discount rates of 0.18% and (4) $0 in assumed dividends.
On August 30, 2012, the Company entered
a second Convertible Promissory Note with Asher for an 8%convertible promissory note with an aggregate principal amount of $42,500
which together with any unpaid accrued interest due on June 4, 2013. $40,000 was funded on September 13, 2012. This convertible
note together with any unpaid accrued interest is convertible into shares of common stock at the holder’s option 180 days
from inception at the greater of (1) a variable conversion price calculated as 55% of the market price which means the average
of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion
date with no floor stated in the conversion feature; or (2) a fixed price of $0.00009 . The Company will analyze whether the variable
conversion price results in need of bifurcation of the conversion feature into a separate derivative liability valued at fair market
value on the date of the contingency of the conversion feature is settled which 180 days from inception of the note.
NOTE
5. INCOME TAXES
No
provision for federal income taxes has been recognized for the six months ended September 30, 2012 and the years ended December
30, 2011 as the Company incurred a net operating loss for income tax purposes in each year and has no carryback potential.
Significant
components of the Company’s deferred tax liabilities and assets as of September 30, 2012 and December 31, 2011 were as
follows:
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
113,249
|
|
|
$
|
23,938
|
|
|
|
|
|
113,249
|
|
|
|
23,938
|
|
|
Less valuation allowance
|
|
|
(113,249
|
)
|
|
|
(23,938
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company has provided a full valuation allowance for net deferred tax assets as it is more likely than not that these assets will
not be realized.
At
September, 2012, the Company had net operating loss carryforwards of approximately $333,000 for federal income tax purposes. These
net operating loss carryforwards begin to expire in 2024.
NOTE
6. STOCKHOLDERS’ DEFICIT
Shares
Issued for Services
On
November 7, 2011, the Company entered into an Advisory Services Agreement (“Advisory Agreement”) with an unrelated
investment advisory company (the “Advisor”), whereas the Advisor agreed to perform certain advisory services in exchange
for 50,000 shares, valued at $4,500 ($0.09 per share), of the Company’s common stock, to be delivered within 10 days after
execution of the Advisory Agreement, in addition to reimbursement by the Company for the $4,500 DTC Application fee. The shares
issued pursuant to the Advisory Agreement are restricted shares. The term of the Advisory Agreement commenced on November 7, 2011
and was set to expire upon the Company’s receipt of either an approval or a denial of their DTC Eligibility Request by DTC.
On March 14, 2012, the Company completed the final approved DTC opinion and became DTC eligible on April 26, 2012. .
During
the nine months ended September 30, 2012, the Company exchanged 300,000 shares of restricted common stock for consulting services.
The value was determined using the market value of the shares issued which was $39,000 resulting in an Additional Paid in Capital
amount of $38,700.
During
the nine months ended September 30, 2012, the Company entered into three consulting agreements with the commitment to issue
a total of 2,110,000 shares at the signing of the agreement in April 2012 and September 30, 2012. As of September 30, 2012,
the shares had not been issued, but the Company recorded a common stock payable with a corresponding increase in stock
based compensation in the amount of $315,026, which is the market value of the shares to be issued under the
consulting arrangements.
On
September 18, 2012, the Company increased the authorized number of shares to 500,000,000, with 450,000,000 being common shares
and 50,000,000 being preferred shares.
Accounts
payable not assumed in reverse merger
During
the nine-months ended September 30, 2012, the Company determined that $3,681 in accounts payable were related to the former shareholders
and therefore were written off with an increase in additional paid in capital.
NOTE
7. RELATED PARTY TRANSACTIONS
Sales
to Related Party Distributor
The
Company is engaged with a distributor that is wholly-owned by the Company’s CEO (the “Distributor”). The Distributor
is responsible for shipping out product samples, transferring small quantities of product to local distributors at the request
of the Company, sales of product to local retailers or small wholesalers and for the fulfillment of online sales orders. The Company
may withdraw cases of product from the Distributor at the Company’s will for Company use, for which the Company will provide
the Distributor with a credit memo based on a per-case price equal to the price paid by the Distributor to the Company.
The
Distributor pays the Company on a per case basis which is consistent with terms between the Company and third party distributors.
Since the Company uses a substantial amount of the Distributor’s inventory as samples and promotions, the Company offers
the Distributor credit terms of “on consignment.” During the ninemonths ended September30, 2012 and 2011, the Company
recognized revenue from product sales to the Distributor of $8,500
and $33,456, respectively, which represented 2% and 3%, respectively, of total product revenue recognized by the Company. At September
30, 2012 and December 31, 2011, receivable from the Distributor was $1,310 and $3,000 respectively.
Shipping
Reimbursements from Related Party
At
September 30, 2012 and December 31, 2011, the Company had outstanding accounts receivable of $2,603, respectively, from a
company owned by the CEO’s wife. These receivables represent shipping reimbursements erroneously billed by logistics
and shipping companies. The Company paid these invoices and then in turn generated invoices to the company owned by the
CEO’s wife for reimbursement.
Advances
to Related Party
During
the period beginning February 2011 through April 2011, the Company advanced $49,484 to a company owned by the CEO’s
wife. As of September 30, 2012 and December 31, 2011, that company had repaid $0 and $40,516 of these advances resulting in
outstanding advances due of $9,332 as of September 30, 2012 and December 31, 2011.
Acquisition
of Fixed Assets from Related Party
During the period ended December 31,
2011, the Company purchased two used vehicles from companies owned by the CEO for a total of $7,850. There were no such purchases
from related parties for the period ended September 30, 2012.
Advances
from Related Party
During
2011, the Company received related party advances from a company majority owned by the CEO and of which the CEO was the sole officer
and director in the aggregate amount of $38,800. On March 7, 2012, the Company issued 438,000 restricted shares of common stock
to settle the $38,800 advances from third parties that were outstanding at December 31, 2011. The 438,000 restricted shares were
valued at $43,800 ($0.10 per share) with a par value of $438 resulting in a loss on extinguishment of debt of $5,000.
NOTE
8. LEGAL PROCEEDINGS
The
Company is aggressively defending itself in all of the below proceedings. The Company’s management believes the
likelihood of future liability to the Company for these contingencies is remote, and the Company has not recorded any
liability for these legal proceedings at September 30, 2012 and December 31, 2011. While the results of these matters cannot
be predicted with certainty, the Company’s management believes that losses, if any, resulting from the ultimate
resolution of these proceedings will not have a material adverse effect on the Company’s financial position, results of
operations, or cash flows.
During
January 2011, a claim was filed against DSD by Corey Powell, in Ascension Parish, LA 23rd Judicial District Court. Corey Powell
was a former distributor of LEAN, a relaxation beverage marketed by DSD. Powell filed suit to recover allegedly unpaid commissions,
“invasion fees” and “finder’s fees.” The commissions related to payments allegedly owed for Powell’s
direct sale of LEAN product to wholesalers and retailers. The invasion fees relate to payments allegedly owed to Powell when the
LEAN product was sold by other wholesalers in his geographic territory. The finders’ fees relate to payments allegedly owed
to Powell for introducing investors to the DSD management. Discovery is ongoing. Written discovery has been propounded and depositions
have been taken to better understand the nature and basis for the plaintiff’s claims and to build DSD’s defenses.
DSD has vigorously contested each and every one of the plaintiff’s allegations and has instructed counsel to proceed to
trial on the merits. There have been negotiations between the counsels for the parties regarding dropping approximately half of
the original claims. However no trial date has been set.
On
February 14, 2011, a claim was filed against DSD by Charles Moody, in Caddo Parish, LA First Judicial Court seeking in excess
of $100,000 in damages. Charles Moody loaned DSD approximately $63,000 in June 2009. In exchange, Moody received a Promissory
Note containing the terms and conditions of the repayment of the loan. Based upon the understanding of the parties, DSD began
making monthly payments to Moody in January 2010 in satisfaction of the loan. In December 2010, final payment of the remaining
balance of the loan was paid to Moody in full and final satisfaction of the Promissory Note. Moody filed suit to recover “late
fees” allegedly owed under the Promissory Note. DSD contends the Promissory Note was satisfied with the final payment in
December 2010; Moody contends that repayment should have begun in November 2009, and that because it did not, late fees are owed.
This matter was settled for a payment of $8,000 by DSD on July 27, 2012 with no admission of guilt or liability by either party.
On
November 9, 2011, Charles Moody and DeWayne McKoy filed a claim against DSD and Marco Moran, CEO, in Bossier Parish, LA 26th Judicial
Court. Charles Moody and Dewayne McKoy, allegedly both shareholders of DSD, brought an action against Dr. Moran alleging that
he engaged in various acts of misconduct and breaches of his fiduciary duties to the corporation which damaged them as minority
shareholders. Moody and McKoy also seek damages from Dr. Moran for dilution and/or loss of value of their shareholder interest
in DSD as a result of his alleged misconduct. DSD is a nominal defendant in this derivative action, as required by Louisiana law.
Initial pleadings have been filed and exceptions to the plaintiff’s claims have been asserted. Discovery has not yet commenced.
DSD vigorously denies that its officers or directors engaged in any conduct which may have harmed minority shareholders.
During
December 2011, Innovative Beverage Group Holdings (“IBGH”) filed a claim against Dewmar International BMC, Inc., Unique
Beverage Group, and LLC. and Marco Moran, CEO of the Company, in Harris County, TX 61st Judicial District Court, whereas the plaintiff
asserted certain allegations. On February 24, 2012, the Company filed a motion for summary judgment to dismiss these frivolous
allegations due to lack of proper evidence. On April 12, 2012 Dewmar International BMC, Inc was given written notice of its non-suit
without prejudice from Innovative Beverage Group, Inc. This releases Dewmar International BMC, Inc. from any and all liability.
On June 27, 2012, Innovative Beverage Group Holdings (“IBGH”) filed the same claims against Dewmar International BMC,
Inc., DSD Network of America, Inc. and Marco Moran CEO of the Company, in Harris County, Texas 127th Judicial District Court,
whereas plaintiff asserted that the Defendants engaged in various acts of unfair business practices that caused harm to IBGH.
The company’s and Marco Moran have filed an Answer and Counterclaim in this matter on October 31, 2012. Discovery has not
yet begun in this matter. Written discovery will be propounded and depositions will have to be taken to better understand the
nature and basis for the plaintiff’s claims and to build the Company’s defenses. The Company has vigorously contested
each and every one of the plaintiff’s allegations and has instructed counsel to proceed to trial on the merits.
On
March 22, 2012 Plaintiff, DSD NETWORK OF AMERICA, INC. (hereinafter “DSD”) filed suit against Defendants DeWayne McKoy,
Charles Moody, Corey Powell and Peter Bianchi in United States District Court; District of Nevada for a combined thirteen claims
accusing this group of defendants in colluding against the Company. Answers have been received from McKoy, Moody and Powell and
Powell has filed a counterclaim. DSD vigorously denies all the claims in Powell’s counterclaim. Bianchi failed to answer
and was defaulted however Bianchi has filed a Motion to Set Aside the Default and Powell and Bianchi have filed Motions to Dismiss.
On
September 10, 2012, Plaintiff DEWMAR INTERNATIONAL BMC, INC. filed a petition for Breach of Contract, Damages and other
Relief against defendants City of Monroe, Louisiana and Mayor James E. Mayo, in his official capacity as the major of the
City of Monroe, Louisiana in the United States District Court; State of Louisiana for breach of contract related to a concert
event held in 2011 where the promotion of its product was agreed upon. At the time of executing the contract it was
understood that samples of the product were going to be a major part of the promotion. However, the Company and Mr. Moran
were unable to provide samples of the company’s product at the event held on September 10, 2011 after having already
incurred expenditures towards the provision of those.
There is no update to this filing as of November 14, 2012.
NOTE
9. COMMITMENTS AND CONTINGENCIES
Employment
Agreement
On
January 1, 2011, the Company entered into employment agreement with Dr. Moran (“Employee”) to serve as President and
Chief Executive Officer of the Company. The employment commenced on January 1, 2011 and runs for the period through January 1,
2015. The Company will pay Employee, as consideration for services rendered, a base salary of $120,000 per year.
As
additional compensation, Employee is eligible to receive one percent of the issued and outstanding shares of the Company if the
gross revenues hit specified milestones for each fiscal year under the agreement. The Company will provide additional benefits
to Employee during the employment term which include, but are not limited to, health and life insurance benefits, vacation pay,
expense reimbursement, relocation reimbursement and a Company car. The Company may also include Employee in any benefit plans
which it now maintains or establishes in the future for executives. If Employee dies, the Company will pay the designated beneficiary
an amount equal to two years’ compensation, in equal payments over the next twenty four months.
In
the event Employee’s employment is constructively terminated within five years of the commencement date, Employee shall
receive a termination payment, which will be determined according to a schedule based upon the number of years since the commencement
of the contract, within a range of $120,000 to $400,000. Additionally, Employee shall continue to receive the additional benefits
mentioned above for a period of two years from the termination date. If the constructive termination date is later than five years
after the commencement date, Employee shall receive the lesser amount of an amount equal to his aggregate base salary for five
years following the date of the termination date, or an amount equal to his aggregate base salary through the end of the term.
Additionally, Employee shall continue to receive the additional benefits mentioned above during the period he is entitled to receive
the base salary.
During
the nine months ended September 30, 2012 and 2011, the Company accrued $81,500 and $70,726 in base salary to Dr. Moran,
respectively, which were included as a component of general and administrative expenses. The Company recorded total accrued
payroll to Dr. Moran in the amounts of $414,500 and $293,000 in accounts payable and accrued liabilities on its consolidated
balance sheets at September 30, 2012 and December 31, 2011, respectively.
Leases
Operating Expenses
The
Company leased office spaces in Clinton, MS and Houston, TX under non-cancelable operating leases during 2011. Rent expense for
the nine months ended September 30, 2012 and 2011 was approximately $19,044 and $15,661, respectively.
Future
minimum lease payments through December 31, 2012 total $6,303 under non-cancelable operating leases at September 30, 2012.
Broker/Sales
Agreements
On March 1, 2012, the Company entered
into a distribution and brokerage agreement with Brand Builderz, USA, LLC (BBUSA), a Limited Liability Company organized under
the laws of the State of Maine, to sell, market, manage and assist in distributing products in its designated territory. The Company
was to pay a minimum monthly retainer fee until sales commissions reach at least a pre-determined amount for at least two consecutive
months. The company will pay commissions of a pre-determined percentage of gross sales collected, pay an invasion fee of less than
one dollar ($1.00) per physical case of product sold within the territory of BBUSA by a third party. Due to breach of contract
by BBUSA, this Agreement was discontinued on May 22, 2012. BBUSA failed to generate any sales therefore was never paid any commissions
or invasion fees.
On April 9, 2012, The Company entered
into an agreement with NA Beverages, LLC, a Nevada Limited Liability Company (the Consultant), to provide advice, analysis, sales
and recommendations. The Consultant shall be paid at an annual base salary based upon sales performance, receive a commission of
a set percentage of gross sales of all fully paid invoices received from the Consultant’s customers and provide a monthly
bonus of up to twenty-five hundred dollars ($2,500) for arranging, conducting and reporting of meetings with buyers and or similar
business related personnel. Either the Company or the Consultant may terminate the agreement with at least thirty (30) says prior
written notice with no specific reasons given. This agreement was terminated on August 1, 2012.
Distributor Agreements
On July 5, 2012, the Company entered
into a distribution agreement with Hooper Sales Co., Inc. a corporation organized under the laws of the state of Arkansas to exclusively
sell, market, manage and assist in distributing products in its designated territory in Arkansas and Mississippi. The Company will
provide an invasion fee up to $4.00 per case if products are sold within said territory by any other approved distributor or wholesaler
to which the Company chooses to directly ship product.
On July 5, 2012, the Company entered
into a distribution agreement with Mikeska Distributing Co, a corporation organized under the laws of the State of Texas to exclusively
sell, market, manage and assist in distributing products in its designated territory in Texas. The Company will provide an
invasion fee up to $4.00 per case if products are sold within said territory by any other approved distributor or wholesaler to
which the Company chooses to directly ship product.
On July 16, 2012, the Company entered
into a distribution agreement with New Age Distributing, a corporation organized under the laws of the State of Arkansas to sell
and assist in distributing products in its designated territory of Arkansas. The Company will provide an invasion fee up to
$4.00 per case if products are sold within said territory by any other approved distributor or wholesaler to which the Company
chooses to directly ship product.
Other
On
August 1, 2012, the Company entered into an investor relations consulting agreement with Empire Relations Group, Inc.(“Empire”),
a corporation organized
under the laws of the State of New York. Under the terms of the agreement, the Company will pay Empire a non-refundable guaranteed
consulting fee of $15,000 if Empire introduces the Company to at least $30,000 in capital either through equity investment, loans,
notes, debt settlements or any other type of financing which results in an increase in the net cash position of the Company
NOTE
10. SUBSEQUENT EVENTS
In October, 2012, the Company entered
into a 10% convertible promissory note with Birr Marketing Group, Inc. for $20,000 with a due date of April 1, 2013. The Holder
shall receive a royalty or commission of $0.50 per case of Easta Pink Lean that was produced as a result of monies allocated from
this note. At any time after the inception of this note, the holder has the option to convert any unpaid interest and principle
into common shares at a fixed conversion rate of $0.001 per share.
On November 7, 2012, the Company agreed
to convert $50,000 of accrued salary for Dr. Marco Moran into 19,047,619 shares of common stock. The number of shares issued was
calculated using a 25% discount to the trading price on the agreement date. The fair market value of the shares on the date of
the agreement was $66,667 which resulted in recognition of interest expense of $16,667 for the difference in the amount of accrued
salary and the fair market value of the shares issued.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Except
for the historical information contained in this report on Form 10-Q, the matters discussed herein are forward-looking statements.
Words such as “anticipates,” “believes,” “expects,” “future,” and “intends,”
and similar expressions are used to identify forward-looking statements. These and other statements regarding matters that are
not historical are forward-looking statements. These matters involve risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Factors that could cause or contribute to such differences in
results and outcomes include without limitation those discussed below as well as those discussed elsewhere in this report. Readers
are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only
as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes
in factors or assumptions affecting such forward-looking statements. This information should also be read in conjunction with
our audited historical financial statements which are included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2011,
Background
On
October 28, 2011, pursuant to an Exchange Agreement (“Agreement”), Dewmar International BMC, Inc. (fkaConvenientcast,
Inc.) (“Dewmar International BMC, Inc or the “Company”), a publicly reporting Nevada corporation, acquired DSD
Network of America, Inc. (“DSD”), a Nevada corporation, in exchange for the issuance of 40,000,000 shares of common
stock of Dewmar International BMC, Inc. (the “Exchange Shares”), a majority of the common stock, to the former owners
of DSD. In conjunction with the Merger, DSD became a wholly-owned subsidiary of the Company.
For
financial accounting purposes, this acquisition (referred to as the “Merger”) was a reverse acquisition of Dewmar
International BMC, Inc. by DSD and was treated as a recapitalization. Accordingly, the financial statements were be prepared to
give retroactive effect of the reverse acquisition completed on October 28, 2011, and represent the operations of DSD prior to
the Merger.
As
of the time of the Merger, Dewmar International BMC, Inc held minimal assets and was a developmental stage company. Following
the Merger, the Company, through DSD, is a manufacturer of its Lean Slow Motion Potion™ brand relaxation beverage, which
was launched by DSD in September of 2009. After the Merger, the Company operates through one operating segment.
Results
of Operations
For
three months ended September 30, 2012 as compared to the three months ended September 30, 2011.
Revenue
Revenue is presented net of sales allowances. Net revenue decreased $209,886, or 65%, to $110,653 from
$320,539 for the three months ended September 30, 2012 and 2011, respectively. This decrease was primarily due to an overall
decrease in purchase orders
by new and repeat customers due to summer months typically showing a decline in ‘function’ beverages and an
increase in water and hydration beverages. We also discontinued certain distribution relationships due to failure to meet
partnership qualifications.
Cost
of Goods Sold
Cost
of goods sold decreased $132,954, or 84%, to $26,134 from $159,088 for the three months ended September 30, 2012 and 2011,
respectively. This overall decrease was primarily the result of decreased sales.
Operating
Expenses
Operating
expenses decreased$68,615, or 28%, to $175,586 from $244,201 for the three months ended September 30, 2012 and 2011,
respectively. The overall decrease in operating expenses results primarily from a decrease in advertising and marketing of
$33,674; general and administrative costs of $10,745 and contract labor of $26,856 offset by increases in occupancy related
expenses of $2,660.
Interest
Expense
For
the three months ended September 30, 2012 and 2011, the Company incurred interest expense of $3,549 and
$12,204,respectively.
Net
Loss
Our
net loss for the three months ended September 30, 2012 and 2011 were $79,003 and $94,940, respectively. The decrease n net
loss is attributable to the decrease in sales revenue offset by decrease in operating expenses recognized.
Results
of Operations
For
nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011
.
Revenue
Revenue
is presented net of sales allowances. Net revenue decreased $664,038 from $1,069,781 to $405,745 for the nine months ended
September 30, 2012 and 2010, respectively. This decrease was primarily due to an overall decrease in purchase orders by new
and repeat customers due to summer months typically showing a decline in ‘function’ beverages and an increase in
water and hydration beverages. We also discontinued certain distribution relationships due to failure to meet partnership
qualifications.
Cost
of Goods Sold
Cost
of goods sold decreased $305,020 from $454,528 to $149,508 for the nine months ended September 30, 2012 and 2011,
respectively. This overall decrease was primarily the result of decreased sales. Gross margins rose from 58% for the nine
months ended September 30, 2011 to 63% for the nine months ended September 30, 2012 due to lower cost product used in
production.
Operating
Expenses
Operating
expenses increased $208,866 from $706,536 to $915,402 for the nine months ended September 30, 2012 and 2011, respectively.
The overall increase in operating expenses results primarily from increases in share based compensation of $354,026 ;
increases in other general and administrative expenses of $32,088 and contract labor of $2,732; offset by decreases in
marketing and advertising costs of $71,041 and decreases in contract labor costs of $108,939.
Interest
Expense
For
the nine months ended September 30, 2012 and 2011, the Company incurred interest expense of $3,563 and $42,928
respectively.
On
September 6, 2012, the Company entered into a Convertible Promissory Note with Continental Equities, LLC, a New York limited liability
corporation for an 8% convertible promissory note in the aggregate principal amount of $21,500, which together with any unpaid
accrued interest is due on June 15, 2013. This convertible note together with any unpaid accrued interest is convertible into shares
of common stock at the holder’s option beginning on the date of the note at a variable conversion price calculated as 55%
of the market price which means the average of the lowest three trading prices during the ten trading day period ending on the
latest complete trading day prior to the conversion date with the only mention of a “share cap” is that the number
of shares of common stock issuable upon the conversion would not exceed 4.99% of the outstanding shares of the company at the time
of conversion. Since the number of shares outstanding at any future date is undetermined by the Company, the Company determined
that the conversion feature in this note qualified as an “embedded derivative,” and therefore separated the conversion
feature from the host contract and estimated the fair market value at inception to be $34,119. As a result, the Company recorded
a discount on the original note of $21,500 and recorded an immediate loss of $12,619. At September 30, 2012, the Company amortized
into interest expense $1,830 leaving an unamortized discount associated with the convertible note of $19,670. At September 30,
2012, the fair market value of the derivative liability was determined to be $5,887 which resulted in a net gain on derivative
liability of $15,613. The Company estimated the fair market value of the derivative liability using Black Scholes with the following
main assumptions: (1) conversion price at inception and September 30, 2012 of $0.0165 and $0.0037, respectively; (2) volatility
at inception and September 30, 2012 of 246.74% and 257.33%, respectively; (3) Discount rates of 0.18% and (4) $0 in assumed dividends.
Net
Loss
Our
net losses for the nine months ended September 30, 2012 and 2011 were $652,107 and $134,079, respectively. The increase in net
loss is primarily attributable to the decrease in sales revenue and increased operating expenses.
Off-Balance
Sheet Arrangements
As
of September 30, 2012, we have no off-balance sheet arrangements such as guarantees, retained or contingent interest in assets
transferred, obligation under a derivative instrument and obligation arising out of or a variable interest in an unconsolidated
entity.
Critical
Accounting Policies
Our
financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare our financial statements.
Our
Annual Report on Form 10-K/A for the year ended December 31, 2011 contains a discussion of these significant accounting policies.
There have been no significant changes in our significant accounting policies since December 31, 2011. See our Note 2 in our unaudited
financial statements for the nine months ended September 30, 2012, as set forth herein.
Liquidity
and Capital Resources
During the nine months ended
September 30, 2012 and 2011, the Company recognized negative cash flows from operating activities of $176,877 and $31,537,
respectively. As of September 30, 2012, the Company held cash and cash equivalents of $4,629 as compared to cash on hand of
$91,506 as of December 30, 2011.
Cash used in investing activities
totaled $0, for the nine months ended September 30, 2012 and 2011, respectively. Cash provided by/(used in) financing
activities totaled $90,000, and $(36,473) for the nine months ended September 30, 2012 and 2011, respectively, and consisted
proceeds from borrowings during 2012 and of payments made on notes payable and proceeds from the sale of common stock during
2011.
On
June 27, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”) a Delaware
Corporation for an 8% convertible promissory note with an aggregate principal amount of $32,500 which together with any unpaid
accrued interest due on March 29, 2013. This convertible note together with any unpaid accrued interest is convertible into shares
of common stock at the holder’s option 180 days from inception at a variable conversion price calculated as 55% of the market
price which means the average of the lowest three trading prices during the ten trading day period ending on the latest complete
trading day prior to the conversion date with no floor stated in the conversion feature. In July 2012, this convertible promissory
note was funded in the amount of $30,000. The Company will analyze whether the variable conversion price results in need of bifurcation
of the conversion feature into a separate derivative liability valued at fair market value on the date of the contingency of the
conversion feature is settled which is 180 days from inception of the note.
On September 6, 2012, the Company entered into a Convertible Promissory Note with Continental Equities, LLC,
a New York limited liability corporation for an 8% convertible promissory note in the aggregate principal amount of $21,500, which
together with any unpaid accrued interest is due on June 15, 2013. $20,000 of the proceeds were funded directly to the company
while $1,500 was kept by the holder to pay for legal fees. This $1,500 was recorded as non-cash legal expense by the Company. This
convertible note together with any unpaid accrued interest is convertible into shares of common stock at the holder’s option
beginning on the date of the note at a variable conversion price calculated as 55% of the market price which means the average
of the lowest three trading prices during the ten trading day period ending on the latest complete trading day prior to the conversion
date with the only mention of a “share cap” is that the number of shares of common stock issuable upon the conversion
would not exceed 4.99% of the outstanding shares of the company at the time of conversion. Since the number of shares outstanding
at any future date is undetermined by the Company, the Company determined that the conversion feature in this note qualified as
an “embedded derivative,” and therefore separated the conversion feature from the host contract and estimated the fair
market value at inception to be $34,119. As a result, the Company recorded a discount on the original note of $21,500 and recorded
an immediate loss of $12,619. At September 30, 2012, the Company amortized into interest expense $1,830 leaving an unamortized
discount associated with the convertible note of $19,670. At September 30, 2012, the fair market value of the derivative liability
was determined to be $5,887 which resulted in a net gain on derivative liability of $15,613. The Company estimated the fair market
value of the derivative liability using Black Scholes with the following main assumptions: (1) conversion price at inception and
September 30, 2012 of $0.0165 and $0.0037, respectively; (2) volatility at inception and September 30, 2012 of 246.74% and 257.33%,
respectively; (3) Discount rates of 0.18% and (4) $0 in assumed dividends.
On
August 30, 2012, the Company entered a second Convertible Promissory Note with Asher for an 8%convertible promissory note with
an aggregate principal amount of $42,500 which together with any unpaid accrued interest due on June 4, 2013. $40,000 was funded
on September 13, 2012. This convertible note together with any unpaid accrued interest is convertible into shares of common stock
at the holder’s option 180 days from inception at the greater of (1) a variable conversion price calculated as 55% of the
market price which means the average of the lowest three trading prices during the ten trading day period ending on the latest
complete trading day prior to the conversion date with no floor stated in the conversion feature; or (2) a fixed price of $0.00009
. The Company will analyze whether the variable conversion price results in need of bifurcation of the conversion feature into
a separate derivative liability valued at fair market value on the date of the contingency of the conversion feature is settled
which 180 days from inception of the note is.
In October, 2012, the Company entered
into a 10% convertible promissory note with Birr Marketing Group, Inc. for $20,000 with a due date of April 1, 2013. The Holder
shall receive a royalty or commission of $0.50 per case of Easta Pink Lean that was produced as a result of monies allocated from
this note. At any time after the inception of this note, the holder has the option to convert any unpaid interest and principle
into common shares at a fixed conversion rate of $0.001 per share
The
Company is dependent upon obtaining adequate financing to enable it to pursue its business plan and manage its operations for
profitability. The Company has limited financial resources available, which has had an adverse impact on the Company’s liquidity,
activities and operations. These limitations have adversely affected the Company’s ability to obtain certain projects and
pursue additional business. There is no assurance that the Company will be able to raise sufficient funding to enhance the Company’s
financial resources sufficiently to generate volume for the Company, or to engage in any significant research and development,
or purchase plant or significant equipment.
Management
has been successful in raising sufficient funds to cover the Company’s immediate expenses including general and administrative.
The
Company as a whole may continue to operate at a loss for an indeterminate period thereafter, depending upon the performance of
its new businesses. In the process of carrying out its business plan, the Company will continue to identify new financial partners
and investors. However, it may determine that it cannot raise sufficient capital to support its business on acceptable terms,
or at all. Accordingly, there can be no assurance that any additional funds will be available on terms acceptable to the Company
or at all.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Not
Required
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
As
of the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of the Company’s
disclosure controls
and procedures (as defined by Rule 13-15(e) under the Securities Exchange Act of
1934) under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer.
Based on and as of the date of such evaluation, the aforementioned officers have concluded that the Company’s disclosure
controls and procedures were not effective as of September 30, 2012.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statement for external
reporting purposes in accordance with U.S generally accepted accounting principles. It should be noted, however, that because
of inherent limitation, any system of internal controls, however well-designed and operated, can provide only reasonable, but
not absolute, assurance that financial reporting objectives will be met. In addition, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
An
internal control material weakness is significant deficiency, or combination of significant deficiencies, that results in more
than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected on a timely
basis by employees in the normal course of their work. Our Chief Executive Officer, also performing the functions of the principal
financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December
31, 2011, based on the framework in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring
Organization of the Treadway Commission (the COSO criteria). Based on that evaluation under the COSO criteria, our management
concluded that the Company did not maintain effective internal control over financial reporting as of December 31 2011. Based
on our internal control over financial reporting as designed, documented and tested, we identified multiple material weaknesses
related to maintaining an adequate control environment. The material weaknesses in our internal controls related to inadequate
staffing within our accounting department and upper management, lack of controls regarding the assignment of authority and responsibility,
lack of consistent policies and procedures, inadequate monitoring of controls and inadequate disclosure controls.
For
the period ending December 31, 2011 and September 30, 2012, the Company retained the services of a third party consulting firm
to perform its bookkeeping and financial reporting duties on an outsourced basis. When funds become available, the Company intends
to hire additional accounting and financial reporting personnel who will institute controls regarding the assignment of authority
and responsibility, consistent policies and procedures, monitoring of controls and adequate disclosure controls.
Changes
in Internal Controls over Financial Reporting
Changes
in Internal Controls Over Financial Reporting. There were no changes in our internal control over financial reporting during the
quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
The
Company is aggressively defending itself in all of the below proceedings. The Company’s management believes the likelihood
of future liability to the Company for these contingencies is remote, and the Company has not recorded any liability for these
legal proceedings at September 30, 2012 and December 31 2011. While the results of these matters cannot be predicted with certainty,
the Company’s management believes that losses, if any, resulting from the ultimate resolution of these proceedings will
not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
During
January 2011, a claim was filed against DSD by Corey Powell, in Ascension Parish, LA 23rd Judicial District Court. Corey Powell
was a former distributor of LEAN, a relaxation beverage marketed by DSD. Powell filed suit to recover allegedly unpaid commissions,
“invasion fees” and “finder’s fees.” The commissions related to payments allegedly owed for Powell’s
direct sale of LEAN product to wholesalers and retailers. The invasion fees relate to payments allegedly owed to Powell when the
LEAN product was sold by other wholesalers in his geographic territory. The finders’ fees relate to payments allegedly owed
to Powell for introducing investors to the DSD management. Discovery is ongoing. Written discovery has been propounded and depositions
have been taken to better understand the nature and basis for the plaintiff’s claims and to build DSD’s defenses.
DSD has vigorously contested each and every one of the plaintiff’s allegations and has instructed counsel to proceed to
trial on the merits. There have been negotiations between the counsels for the parties regarding dropping approximately half of
the original claims. However no trial date has been set.
On
February 14, 2011, a claim was filed against DSD by Charles Moody, in Caddo Parish, LA First Judicial Court seeking in excess
of $100,000 in damages. Charles Moody loaned DSD approximately $63,000 in June 2009. In exchange, Moody received a Promissory
Note containing the terms and conditions of the repayment of the loan. Based upon the understanding of the parties, DSD began
making monthly payments to Moody in January 2010 in satisfaction of the loan. In December 2010, final payment of the remaining
balance of the loan was paid to Moody in full and final satisfaction of the Promissory Note. Moody filed suit to recover “late
fees” allegedly owed under the Promissory Note. DSD contends the Promissory Note was satisfied with the final payment in
December 2010; Moody contends that repayment should have begun in November 2009, and that because it did not, late fees are owed.
This matter was settled for a payment of $8,000 by DSD on July 27, 2012 with no admission of guilt or liability by either party.
On
November 9, 2011, Charles Moody and DeWayne McKoy filed a claim against DSD and Marco Moran, CEO, in Bossier Parish, LA 26th Judicial
Court. Charles Moody and Dewayne McKoy, allegedly both shareholders of DSD, brought an action against Dr. Moran alleging that
he engaged in various acts of misconduct and breaches of his fiduciary duties to the corporation which damaged them as minority
shareholders. Moody and McKoy also seek damages from Dr. Moran for dilution and/or loss of value of their shareholder interest
in DSD as a result of his alleged misconduct. DSD is a nominal defendant in this derivative action, as required by Louisiana law.
Initial pleadings have been filed and exceptions to the plaintiff’s claims have been asserted. Discovery has not yet commences.
DSD vigorously denies that its officers or directors engaged in any conduct which may have harmed minority shareholders.
During
December 2011, Innovative Beverage Group Holdings (“IBGH”) filed a claim against Dewmar International BMC, Inc., Unique
Beverage Group, and LLC. and Marco Moran, CEO of the Company, in Harris County, TX 61st Judicial District Court, whereas the plaintiff
asserted certain allegations. On February 24, 2012, the Company filed a motion for summary judgment to dismiss these frivolous
allegations due to lack of proper evidence. On April 12, 2012 Dewmar International BMC, Inc was given written notice of its non-suit
without prejudice from Innovative Beverage Group, Inc. This releases Dewmar International BMC, Inc. from any and all liability.
On June 27, 2012, Innovative Beverage Group Holdings (“IBGH”) filed the same claims against Dewmar International BMC,
Inc., DSD Network of America, Inc. and Marco Moran CEO of the Company, in Harris County, Texas 127th Judicial District Court,
whereas plaintiff asserted that the Defendants engaged in various acts of unfair business practices that caused harm to IBGH.
The company’s and Marco Moran have filed an Answer and Counterclaim in this matter on October 31, 2012. Discovery has not
yet begun in this matter. Written discovery will be propounded and depositions will have to be taken to better understand the
nature and basis for the plaintiff’s claims and to build the Company’s defenses. The Company has vigorously contested
each and every one of the plaintiff’s allegations and has instructed counsel to proceed to trial on the merits.
On
March 22, 2012 whereas Plaintiff, DSD NETWORK OF AMERICA, INC. (hereinafter “DSD”) is a Nevada corporation doing
business in Clark County, Nevada filed suit against Defendants DeWayne McKoy, Charles Moody, Corey Powell and Peter Bianchi
in United States District Court; District of Nevada for a combined thirteen claims complaints accusing this group of
defendants in colluding against the Company. Answers have been received from McKoy, Moody and Powell and Powell has filed a
counterclaim. DSD vigorously denies all the claims in Powell’s counterclaim. Bianchi failed to answer and was defaulted
however Bianchi has filed a Motion to Set Aside the Default and Powell and Bianchi have filed Motions to Dismiss.
On
September 10, 2012, whereas Plaintiff DEWMAR INTERNATIONAL BMC, INC. is a Nevada corporation doing business in Clinton
Mississippi filed a petition for Breach of Contract, Damages and other Relief against defendants City of Monroe, Louisiana
and Mayor James E. Mayo, in his official capacity as the major of the City of Monroe, Louisiana in the United States District
Court; State of Louisiana for breach of contract related to a concert event held in 2011 where the promotion of its product
was agreed upon. At the time of executing the contract it was understood that samples of the product were going to be a major
part of the promotion. However, the Company and Mr. Moran were unable to provide samples of the company’s product at
the event held on September 10, 2011 after having already incurred expenditures towards the provision of those which included
thousands of dollars worth of radio advertising and expenses related to celebrity endorsement.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
During
the nine months ended September 30, 2012, the Company exchanged 300,000 shares of restricted common stock for consulting
services. The value of the services was $39,000 resulting in an Additional Paid in Capital amount of $38,700.
During
the nine months ended September 30, 2012, the company entered into three consulting agreements with the commitment to issue a
total of 2,110,000 shares at the signing of the agreement in April 2012 and September 30, 2012. As of September 30, 2012, the
shares had not been issued, but the Company recorded a common stock payable with a corresponding increase in stock based compensation
in the amount of $315,026, which is the market value of the shares to be issued under the consulting arrangements
Item
3. Defaults Upon Senior Securities
None.
Item
4. Not Used
None.
Item
5. Other Information
None.
Item
6. Exhibits
The
following exhibits are filed herewith:
|
Exhibit
Number
|
|
Exhibit
Description
|
|
|
|
|
|
31.1
|
|
Certification of the Chief Executive
Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
31.2
|
|
Certification of the Chief Financial
Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.1
|
|
Certification of the Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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Dewmar
International BMC, Inc.
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Date: November 14, 2012
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By:
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President, CEO, and Director
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Dewmar International BMC (CE) (USOTC:DEWM)
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