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EXCEL - IDEA: XBRL DOCUMENT - Dewmar International BMC, Inc.Financial_Report.xls

 

U.S. Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Three Months ended: March. 31, 2013

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to _________

 

Commission File No. 001-32032

 

Dewmar International BMC, Inc.

(Name of Registrant in its Charter )

 

NEVADA

 

26-4465583

State or other jurisdiction of

 

(I.R.S. Employer I.D. No.)

incorporation or organization)

 

 

 

132 E. Northside Dr. Suite C Clinton, MS 39056

(Address of principal executive offices)

 

(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):

 

Large Accelerated Filer

[  ]

Accelerated Filer

[  ]

Non-Accelerated Filer

[  ]

Smaller reporting company

[X]

 

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 May 15, 2013 the registrant had 144,218,960 issued and outstanding shares of common stock.

 



 




Dewmar International BMC, Inc.  

TABLE OF CONTENTS

 

 

Page

 

 

PART I - FINANCIAL INFORMATION

3

   Item 1. Financial Statements:

 

     Balance Sheets (unaudited)

F-1

     Statements of Operations (unaudited)

F-2

     Statements of Cash Flows (unaudited)

F-3

     Consolidated Statements of Stockholders' Deficit (unaudited)

F-4

     Notes to Financial Statements (unaudited)

F-5

   Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

4

   Item 3. Quantitative and Qualitative Disclosure About Market Risk

6

   Item 4. Controls and Procedures

6

PART II - OTHER INFORMATION

7

   Item 1. Legal Proceedings.

7

   Item 1A. Risk Factors.

 

   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

7

   Item 3. Defaults Upon Senior Securities

7

   Item 4. Mine Safety Disclosures

7

   Item 5. Other Information.

7

   Item 6. Exhibits

7

SIGNATURES

8

 

  




















2




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:

 

·

the timing of the development of future products;

·

projections of costs, revenue, earnings, capital structure and other financial items;

·

statements of our plans and objectives;

·

statements regarding the capabilities of our business operations;

·

statements of expected future economic performance;

·

statements regarding competition in our market; and

·

assumptions underlying statements regarding us or our business.

 

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 for the year ended December 31, 2012. 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.

 

  












3




Item 1. Financial Statements

 

DEWMAR INTERNATIONAL BMC, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31, 2013

 

 

December 31, 2012

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,628

 

 

$

38,388

 

Account receivables, net

 

 

47,216

 

 

 

32,714

 

Related party receivable

 

 

3,675

 

 

 

13,501

 

Advances to related party

 

 

9,332

 

 

 

9,332

 

Inventory

 

 

41,478

 

 

 

27,095

 

Prepaid expenses and other current assets

 

 

11,710

 

 

 

11,710

 

Total Current Assets

 

 

135,039

 

 

 

132,740

 

 

 

 

 

 

 

 

 

 

Property & equipment, net

 

 

11,692

 

 

 

12,585

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

146,731

 

 

$

145,325

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

527,894

 

 

$

492,326

 

Accrued interest

 

 

4,071

 

 

 

3,282

 

Common stock payable

 

 

558,093

 

 

 

199,193

 

Notes payable, net of unamortized discount of $36,304 and $36,028, respectively

 

 

376,318

 

 

 

166,992

 

Derivative liability

 

 

67,739

 

 

 

39,028

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

1,534,115

 

 

 

900,821

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 10)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred stock; $0.001 par value; 50,000,000 shares authorized; 50,000,000 issued and outstanding

 

 

50,000

 

 

 

50,000

 

Common stock; $0.001 par value; 2,500,000,000 shares authorized, 119,040,256 and 66,182,000 shares issued and outstanding, respectively

 

 

119,040

 

 

 

66,182

 

Additional paid-in capital

 

 

3,757,922

 

 

 

3,525,708

 

Accumulated deficit

 

 

(5,314,346)

 

 

 

(4,397,386)

 

Total Stockholders’ Deficit

 

 

(1,387,384)

 

 

 

(755,496)

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$

146,731

 

 

$

145,325

 



The accompanying notes are an integral part of these unaudited financial statements.

  



F-1




DEWMAR INTERNATIONAL BMC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

 

March 31, 2012

 

 

 

 

 

 

 

 

Revenue, net

 

$

79,451

 

 

$

193,216

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

46,605

 

 

 

75,693

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

32,846

 

 

 

117,523

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Occupancy and related expenses

 

 

16,579

 

 

 

6,336

 

Marketing and advertising

 

 

14,719

 

 

 

9,498

 

General and administrative expenses

 

 

722,833

 

 

 

153,843

 

Contract labor

 

 

64,178

 

 

 

37,312

 

Total operating expenses

 

 

818,309

 

 

 

206,989

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(785,463)

 

 

 

(89,466)

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest expense

 

 

(39,911)

 

 

 

-

 

Interest income

 

 

-

 

 

 

-

 

Gain (loss) on derivative liability

 

 

(91,586)

 

 

 

-

 

Loss on extinguishment of debt

 

 

-

 

 

 

(5,000)

 

Total other income (expenses)

 

 

(131,497)

 

 

 

(5,000)

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(916,960)

 

 

$

(94,446)

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and fully diluted

 

$

(0.01)

 

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

102,556,395

 

 

 

59,233,000

 




The accompanying notes are an integral part of these unaudited financial statements




F-2




DEWMAR INTERNATIONAL BMC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

 

March 31, 2013

 

 

March 31, 2012

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(916,960)

 

 

$

(94,446)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

893

 

 

 

893

 

Stock-based compensation

 

 

489,200

 

 

 

3,000

 

Amortization of debt discount

 

 

37,100

 

 

 

-

 

Loss on extinguishment of debt

 

 

-

 

 

 

5,000

 

     Noncash legal expense

 

 

5,500

 

 

 

-

 

     Loss on derivative liability

 

 

91,586

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(14,502)

 

 

 

42,065

 

Related party receivables and payables

 

 

9,826

 

 

 

(8,324)

 

Inventory

 

 

(14,383)

 

 

 

40,533

 

Prepaid expenses and other current assets

 

 

-

 

 

 

5,147

 

Accounts payable and accrued liabilities

 

 

214,980

 

 

 

(18,042)

 

Net cash used in operating activities

 

 

(96,760)

 

 

 

(24,194)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 Proceeds from notes payable

 

 

80,000

 

 

 

-

 

Net cash provided from financing activities

 

 

80,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(16,760)

 

 

 

(24,194)

 

Cash and cash equivalents, at beginning of period

 

 

38,388

 

 

 

91,506

 

Cash and cash equivalents, at end of period

 

$

21,628

 

 

$

67,312

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Supplemental noncash investing and financing activities:

 

 

 

 

 

 

 

 

Extinguishment of debt for common stock

 

$

-

 

 

 

43,800

 

Issuance of common stock for services

 

$

-

 

 

 

3,000

 

Issuance of common stock for conversions of notes payable

 

$

54,500

 

 

 

-

 

Reclassification of accounts payable to notes payable

 

$

178,623

 

 

 

-

 

Creation of debt discount

 

$

37,397

 

 

 

-

 

Reduction in derivative liability

 

$

100,272

 

 

 

-

 

Reduction in common stock payable for issuance of common stock

 

$

37,500

 

 

 

-

 




The accompanying notes are an integral part of these unaudited financial statements



F-3




DEWMAR INTERNATIONAL BMC, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)


 

Preferred Stock

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

Shares

 

Amount

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2011

 -

 

-

 

 

58,495,000

 

 

$

58,495

 

 

$

22,097

 

 

$

(276,815)

 

 

$

(196,223)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

-

 

-

 

 

2,300,000

 

 

 

2,300

 

 

 

336,700

 

 

 

-

 

 

 

339,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

50,000,000

 

50,000

 

 

-

 

 

 

-

 

 

 

3,100,000

 

 

 

-

 

 

 

3,150,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to settle advances

-

 

-

 

 

438,000

 

 

 

438

 

 

 

43,362

 

 

 

-

 

 

 

43,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution to capital due to accounts payable settled in reverse merger

-

 

-

 

 

-

 

 

 

-

 

 

 

3,681

 

 

 

-

 

 

 

3,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution to capital for expenses paid by shareholder

-

 

-

 

 

-

 

 

 

-

 

 

 

4,375

 

 

 

-

 

 

 

4,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for conversions of note payable

-

 

-

 

 

4,949,382

 

 

 

4,949

 

 

 

1,632

 

 

 

-

 

 

 

6,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reduction in derivative liability due to debt conversion

-

 

-

 

 

-

 

 

 

-

 

 

 

13,861

 

 

 

-

 

 

 

13,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,120,571)

 

 

 

(4,120,571)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

50,000,000

 

$50,000

 

 

66,182,382

 

 

 

$66,182

 

 

 

$3,525,708

 

 

 

$(4,397,386)

 

 

 

$(755,496)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

-

 

-

 

 

31,500,000

 

 

 

31,500

 

 

 

98,800

 

 

 

-

 

 

 

130,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for conversion of notes payable

-

 

-

 

 

21,357,874

 

 

 

21,358

 

 

 

33,142

 

 

 

-

 

 

 

54,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reduction in derivative liability

-

 

-

 

 

-

 

 

 

-

 

 

 

100,272

 

 

 

-

 

 

 

100,272

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

-

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(916,960)

 

 

 

(916,960)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2013

50,000,000

 

$50,000

 

 

119,040,256

 

 

 

$119,040

 

 

 

$3,757,922

 

 

 

$(5,314,346)

 

 

 

$(1,387,384)



The accompanying notes are an integral part of these unaudited financial statements



F-4





DEWMAR INTERNATIONAL BMC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

 

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

On October 28, 2011, pursuant to an Exchange Agreement (“Agreement”), Dewmar International BMC, Inc. (fka Convenientcast, 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.


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 three month period ended March 31, 2013 are not necessarily indicative of the results for the full years. While management of the Company believes that the disclosures presented herein and 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, 2012 filed in our Annual Report on Form 10K.

 

Certain amounts in prior periods have been reclassified to conform to current period presentation.

 

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.

 




F-5




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.

 

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 March 31, 2013 and December 31, 2012, the allowance for doubtful accounts was $0.

 

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 it is accounted for as a derivative instrument with its fair value estimated at every balance sheet date.  Any change in the fair market value of the derivative, results in a gain or loss on derivative liability in the Company’s statement of operations.  If any conversions of the original note occur prior to the settlement of the obligation, the pro-rata portion of the derivative liability is relieved in additional paid in capital after marking to market on the day prior to the conversion date.   




F-6




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’ destination. 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 generally 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 with extended payment terms not to exceed 120 days. 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, cans, sugar, bottling labor, labels, caps and packaging materials. Additionally, costs incurred for shipping and handling 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 third party freight company.

 

Advertising Expense

 

The Company recognizes advertising expense as incurred. The Company recognized advertising expense of $14,719 and $9,498 for the three months ended March 31, 2013 and 2012, 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 through 2012 are open to examination. As of March 31, 2013, 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

 

Generally accepted accounting principles in the United States (“US GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are as follows:


Level 1 - Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.


Level 2 - Other inputs that are observable, directly or indirectly, such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.




F-7




 Level 3 - Unobservable inputs for which there is little or no market data and which we make our own assumptions about how market participants would price the assets and liabilities.


Our derivative liabilities have been valued as Level 3 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 three months ending March 31, 2013and 2012, 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.

 

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.

 


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 an accumulated deficit totaling $5,314,346. 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.




F-8




NOTE 4. NOTES PAYABLE


In October, 2012, the Company entered into a 10% Contingently Convertible Promissory Note with Birr Marketing Group, Inc. for $20,000 with a due date of April 1, 2013. After the due date of April 1, 2013, the note becomes convertible at a fixed price of $0.001 into the Company’s common shares at the Holder’s option.  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.


During the period ended March 31, 2013, the Company reclassified certain accounts payable balances into notes payable based on agreements with various vendors with balances of $178,623.  The notes payable are due on demand and bear no interest.  At March 31, 2013 and December 31, 2012, the Company has presented $56,500 and $235,123 in Notes Payable related to these reclassifications on the balance sheet.



NOTE 5.  CONVERTIBLE 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, with $2,500 being recorded as legal fees for amounts held by note holder. The Company analyzed the note on the date on which the contingent conversion feature was settled on December 24, 2012.  The Company determined that the variable conversion price results in need of bifurcation of the conversion feature into a separate derivative liability valued at fair market value.  On December 24, 2012, the Company estimated the fair market value of the derivative liability associated with the bifurcated conversion feature to be $25,209.  The Company recorded an original discount of $25,209.  


·

On January 11, 2013, Asher converted $12,000 of its outstanding notes payable entered into on June 27, 2012 into 3,750,000 shares of common stock at a conversion price of $0.0032.  After conversion, a principal balance of $20,500 remained.   On the day of conversion, the Company accelerated the amortization of the discount of $2,851 into interest expense; revalued the derivative liability and recorded a gain on the derivative liability of $2,283; and reduced the pro-rated portion of the derivative liability by $6,325 into Additional paid in capital.

·

On February 1, 2013, Asher converted an additional $12,100 of its outstanding notes payable entered into on June 27, 2012 into 5,761,905 shares of common stock at a conversion price of $0.0021.  After conversion, a principal balance of $8,400 remained. On the day of conversion, the Company accelerated the amortization of the discount of $12,100 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $31,181; and reduced the pro-rated portion of the derivative liability by $15,632 into Additional paid in capital.

·

On February 14, 2013, Asher converted the remaining $8,400 of its outstanding notes payable entered into on June 27, 2012 together with unpaid interest of $1,300 into 4,850,000 shares of common stock at a conversion price of $0.0020.  After conversion, a principal balance of $0 remained on the June 27, 2012 notes payable. On the day of conversion, the Company accelerated the amortization of the discount of $8,400 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $25,722; and reduced the pro-rated portion of the derivative liability by $52,076 into Additional paid in capital.   At March 31, 2013, $0 remained in the derivative liability.




F-9




On August 30, 2012, the Company entered a second Contingently 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 with $2,500 being recorded as legal fees 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 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. Because of the outstanding Continental note described below, this convertible note is considered to be “tainted” by the indeterminate amount of shares to be issued under that note.  The note contains an anti-dilution provision which causes the conversion price to decrease if the company issues any common stock at a lower price or with no consideration.


·

On February 26, 2013, the Company analyzed the conversion feature and determined that it met the criteria as an embedded derivative and therefore bifurcated the conversion feature from the host contract and recorded a separate derivative liability at fair market value.  At February 26, 2012, the fair market value of the derivative liability was estimated to be $37,397 and resulted in an immediate discount to the notes payable.  This discount will be amortized over the maturity of the note or conversion whichever is sooner.  

·

On March 14, 2013, the holder converted $12,000 of the note into 3,428,571 shares of common stock at a price of $0.0035.  On the day of the conversion, the Company re-valued the derivative liability and recorded a loss of $5,113.  After conversion, the Company reduced the derivative liability by its prorated portion of the original note value.   On March 31, 2014, the Company re-valued the remaining derivative liability and recorded a loss of $14,684 resulting in a balance of $45,191.  


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 was 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.


·

On March 6, 2013, Continental converted $5,000 of its outstanding notes payable into 1,567,398 shares of common stock at a conversion price of $0.0032.  After conversion, a principal balance of $16,500 remained.   On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $9,893; and reduced the pro-rated portion of the derivative liability by $6,839 into Additional paid in capital.

·

On March 25, 2013, Continental converted an additional $5,000 of its outstanding notes payable into 2,000,000 shares of common stock at a conversion price of $0.0025.  After conversion, a principal balance of $11,500 remained.   On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $1,842; and reduced the pro-rated portion of the derivative liability by $7,397 into Additional paid in capital.   At March 31, 2013, a derivative liability of $17,013 remained.  




F-10




In November, 2012, the Company entered into a third 8% Contingently Convertible Promissory Note with Asher for $30,000 which is due together with any unpaid accrued interest on August 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 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.  The note contains an anti-dilution provision which causes the conversion price to decrease if the company issues any common stock at a lower price or with no consideration.


On January 15, 2013, the Company entered into a fourth Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”) a Delaware Corporation for an 8% contingently convertible promissory note with an aggregate principal amount of $53,000 which together with any unpaid accrued interest due on September 17, 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 the greater of (i) the variable conversion price of 48% of the market price calculated as the average of the lowest three trading prices for the common stock during the 10 trading day period prior to the conversion date or (ii) the fixed price of $0.0009. This convertible promissory note was funded in the amount of $50,000, with $3,000 being recorded as legal fees for amounts held by note holder. The note contains an anti-dilution provision which causes the conversion price to decrease if the Company issues any common stock at a lower price or with no consideration.


On February 19, 2013, the Company entered into a fifth Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”) a Delaware Corporation for an 8% contingently convertible promissory note with an aggregate principal amount of $32,500 which together with any unpaid accrued interest due on November 21, 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 the greater of (i) the variable conversion price of 55% of the market price calculated as the average of the lowest three trading prices for the common stock during the 10 trading day period prior to the conversion date or (ii) the fixed price of $0.0009. This convertible promissory note was funded in the amount of $30,000, with $2,500 being recorded as legal fees for amounts held by note holder. The note contains an anti-dilution provision which causes the conversion price to decrease if the Company issues any common stock at a lower price or with no consideration.



NOTE 6. INCOME TAXES

 

No provision for federal income taxes has been recognized for the three months ended March 31, 2013 and 2012 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 March 31, 2013 and December 31, 2012 were as follows:

 

 

 

March 31, 2013

 

 

December 31, 2012

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss

 

$

333,489

 

 

$

188,051

 

 

 

 

333,489

 

 

 

188,051

 

Less valuation allowance

 

 

(333,489)

 

 

 

(188,051)

 

 

 

$

-

 

 

$

-

 

 

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.




F-11




At March 31, 2013, the Company had net operating loss carry forwards of approximately $980,850 for federal income tax purposes. These net operating loss carry forwards begin to expire in 2024.



NOTE 7. STOCKHOLDERS’ DEFICIT

 

Shares Issued for Services

 

During the period ending March 31, 2013, the Company issued 16,500,000 shares to consultants for services rendered.  The Company estimated the fair market value of the shares issued to be $92,800 and recorded this as stock based compensation.  


During the period ending March 31, 2013, the Company issued 15,000,000 shares previously recorded as common stock payable in the amount of $37,500.


At March 31, 2013, the Company recorded an additional $396,400 as stock based compensation with a corresponding obligation in common stock payable for obligations entered into in various consulting arrangements to issue 61,000,000 shares of common stock for each of the three months during the period ending March 31, 2013.  


Shares Issued for Conversion of Notes Payable


During the period ending March 31, 2013, the Company issued 21,357,874 shares of common stock related to conversions of various notes payable.  See Note 5 for further discussion.


 

NOTE 8. 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 three months ended March 31, 2013 and 2011, the Company recognized revenue from product sales to the Distributor of $0 and $10,080, respectively, which represented 0% and 5%, respectively, of total product revenue recognized by the Company. At March 31, 2013 and December 31, 2011, receivable from the Distributor was $1,072 and $6,329, respectively.

 

Shipping Reimbursements from Related Party

 

At March 31, 2013, and December 31, 2012, the Company had outstanding accounts receivable of $2,603 and $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 2011, the Company advanced $49,484 to a company owned by the CEO’s wife. As of March 31, 2013 and December 31, 2012, that company had repaid $40,152 of these advances resulting in outstanding advances due of $9,332 as of these dates.

 

 



F-12




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 during the period ending March 31, 2012.


Other


During 2011, the Company paid consulting and research related fees on behalf of High Margins, Inc. another company owned by the CEO. Amounts receivable at March 31, 2013 and December 31, 2012 was $4,569.


During 2013, the Company made payments of $1,550 to his wife and daughter for reimbursement of medical insurance costs for Dr. Moran.



NOTE 9. 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 December 31, 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 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.





F-13




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.  Rulings on these Motions are still pending.



NOTE 10. 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.. 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.





F-14




During the period ending March 31, 2013 and 2012, the Company incurred $30,000 base salary to Dr. Moran, respectively, which was included as a component of general and administrative expenses. The Company recorded total accrued payroll to Dr. Moran in the amounts of $418,500 and $390,000 in accounts payable and accrued liabilities on its consolidated balance sheets at March 31, 2013 and December 31, 2012, respectively. 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 loss on settlement of accrued salaries of $16,667 during the year ended December 31, 2012 for the difference in the amount of accrued salary and the fair market value of the shares issued.  The shares have not been issued as of the issuance of this report.

 

Consulting Agreements


On October 27, 2012, the Company entered into a consulting agreement with Dash Consulting, LLC to provide bookkeeping and invoicing consulting for a period of 12 months. As compensation, the Company agreed to deliver 10,000,000 shares of restricted common stock per month.  The Company has accrued the obligation on a monthly basis over the time period the service is rendered.  For the period ending March 31, 2013, the Company has accrued 30,000,000 shares at the total estimated fair market value of $163,000.  In January 2013, the Company issued 10,000,000 shares under this contract.  As of March 31, 2013, shares owed are an additional 40,000,000 shares.


In January 2013, the Company entered into a consulting agreement with Pitts Riley for  business consulting services.  The Company agreed to deliver 5,000,000 shares of restricted common stock as compensation per month. As of March 31, 2013, the Company has accrued 15,000,000 shares as common stock payable at a total estimated fair market value of $139,000.


In January 2013, the Company entered into a consulting arrangement with United General Holdings for general business services.  The Company agreed to deliver 16,000,000 shares of restricted common stock as compensation.  As of March 31, 2013, the Company has accrued 16,000,000 shares as common stock payable at a total estimated fair market value of $94,400.



NOTE 11. SUBSEQUENT EVENTS

 

In April, 2013, Continental converted the remaining balance of $11,500 of its outstanding notes payable together with accrued interest of $968.78 entered into in September 2012 into 7,166,320 shares of common stock at a conversion prices ranging from $0.0015 to $0.0019 per share.  


In April, 2013, Asher converted the remaining balance of $30,500 of its outstanding notes payable funded under the second securities purchase agreement, together with accrued interest of $1,700 entered into in August 2012 into 18,012,384 shares of common stock at a conversion prices ranging from $0.0017 to $0.0019 per share.


In April 2013, the Company entered into a sixth Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”) a Delaware Corporation for an 8% contingently convertible promissory note with an aggregate principal amount of $42,500 which together with any unpaid accrued interest due on December 21, 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 the greater of (i) the variable conversion price of 55% of the market price calculated as the average of the lowest three trading prices for the common stock during the 10 trading day period prior to the conversion date or (ii) the fixed price of $0.0009. This convertible promissory note was funded in the amount of $40,000, with $2,500 being recorded as legal fees for amounts held by note holder. The note contains an anti-dilution provision which causes the conversion price to decrease if the Company issues any common stock at a lower price or with no consideration. The note contains an anti-dilution provision which causes the conversion price to decrease if the Company issues any common stock at a lower price or with no consideration.


In April 2013, the Company entered into a consulting services agreement with THR Enterprises for 12 months for business development and public relations related services.  As compensation, the Company agreed to issue 2,000,000 shares which would be earned at the initial signing of the agreement.




F-15




In April 2103, the Company amended a consulting services agreement with Chad Tendrich to issue an additional 7,000,000 shares of restricted common stock for services rendered.  


In April 2013, the Company entered into a consulting services agreement with Tony Council for 12 months for supply chain logistics consulting.  As compensation, the Company agreed to issue 2,000,000 shares of restricted common stock to be earned at the initial signing of the agreement.


In April 2013, the Company entered into a contingently convertible note for $6,000 in outstanding vendor invoices incurred in April.  The note shall be converted into 2,000,000 shares of common stock at the request of the noteholder.


In May 2013, Dr. Moran sold a personal vehicle to the Company for $4,800.























F-16




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. (fka Convenientcast, 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 the three months ended March 31, 2013 and 2012.

 

Revenue

 

Revenue is presented net of sales allowances. Net revenue decreased $113,765, or 59%, to $79,451 from $193,216 for the three months ended March 31, 2013 and 2012, respectively. This decrease was primarily due to an overall decrease in purchase orders.

 

Cost of Goods Sold

 

Cost of goods sold decreased $29,088, or 22.6%, to $46,605 from $75,693 for the three months ended March 31, 2013 and 2012, respectively. This overall decrease was primarily the result of decreased sales.

 

Operating Expenses

 

Operating expenses increased $611,311, or 295%, to $818,309 from $206,998 for the three months ended March 31, 2013 and 2012 respectively. The overall increase in operating expenses results from increases in professional fees including legal, accounting, audit fees and stock based compensation arrangements totaling $489,200 for three months ended March 31, 2013as compared to2012, respectively.




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Marketing and advertising costs increased $8,185, or 125%, to $14,719 for the three month ended March 31, 2013, as compared to $6,534 for the three month ended March 31, 2012.


Contract labor costs increased $26,868 to $64,178 from $37,310 for the three months ended March 31, 2013 and 2012, respectively. Contract labor costs primarily included costs for administrative and marketing/sales support.

 

Interest Expense

 

For the three months ended March 31, 2013 and 2012, the Company incurred interest expense of $39,911 and $0 respectively.  The increase is due to an increased in notes payable from the prior year period.

 

Net Loss

 

Our net losses for the three months ended March 31, 2013 and 2012 were $916,960 and $94,468, respectively. The increase in net loss is attributable to the increases in expenses from the operating expenses and overall decrease in sales, which is discussed above.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2013, 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 for the year ended December 31, 2012 contains a discussion of these significant accounting policies. There have been no significant changes in our significant accounting policies since December 31, 2012. See our Note 2 in our unaudited financial statements for the three months ended March 31, 2013, as set forth herein.

 

Liquidity and Capital Resources

 

During the three months ended March 31, 2013 and 2012, the Company recognized negative cash flows from operating activities of $(96,760) and $(24,194), respectively. As of March 31, 213 and December 31 2012, the Company held cash and cash equivalents of $21,628 compared to cash of $38,388 as of March 31, 2012.

 

Cash used in investing activities totaled $0or the three months ended March 31, 2013 and 2012, respectively.


Cash provided by financing activities totaled $80,000 for the three months ended March 31, 2013, respectively, and consisted of proceeds from notes payable.  See Notes 4 and 5 for discussion of the various notes payable and convertible notes payable entered into.  

 

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.




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Management has been successful in raising sufficient funds to cover the Company’s immediate expenses including general and administrative through issuance of dilutive convertible notes or contingently convertible notes payable.

 

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 March 31, 2013.

 

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 March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 














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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is aggressively defending itself in all of the legal proceedings. See Note 9: Legal Proceedings in the footnotes for a complete listing of legal 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 March 31, 2013 and December 31, 2012. 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.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the period ending March 31, 2013, the Company issued 16,500,000 shares to consultants for services rendered.  The Company estimated the fair market value of the shares issued to be $92,800 and recorded this as stock based compensation.  


During the period ending March 31, 2013, the Company issued 15,000,000 shares previously recorded as common stock payable in the amount of $37,500.


During the period ending March 31, 2013, the Company issued 21,357,874 shares of common stock related to conversions of various notes payable.  See Note 5 for further discussion.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

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

 

 

 

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

101.PRE

 

XBRL Taxonomy Presentation Linkbase

 



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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.

 

 

Dewmar International BMC, Inc.

 

 

 

Date: May 15,2013

By:

/s/ Marco Moran

 

 

President, CEO, and Director



































 




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