U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

Commission File No. 001-32032

Dewmar International BMC, Inc.

(Name of Registrant in its Charter )

(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):

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, 2013 the registrant had 1,010,858,175 issued and outstanding shares of common stock.

1

Dewmar International BMC, Inc.

TABLE OF CONTENTS

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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:

·

 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/A 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.

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Item 1. Financial Statements

DEWMAR INTERNATIONAL BMC, INC. (fka CONVENIENTCAST, INC.)

INDEX TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

4

Dewmar International BMC, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

F-1

Dewmar International BMC,Inc

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

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

F-2

Dewmar International BMC, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

F-3

DEWMAR INTERNATIONAL BMC, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 nine month period ended September 30, 2013 are not necessarily indicative of the results for the full year. 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 period 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.

Fair value of Financial Instruments

Generally accepted accounting principles in the United States (“US GAAP”) define 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.

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.

F-4

Our derivative liabilities have been valued as Level 3 instruments.

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 $6,303,694. 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

During the period ended September 30, 2013, the Company reclassified certain accounts payable balances into notes payable based on agreements with various vendors with balances of $334,661. The notes payable are due on demand and bear no interest. At September 30, 2013 and December 31, 2012, the Company has presented $251,160, and $56,500 in Notes Payable related to these reclassifications on the balance sheet.

NOTE 5. CONVERTIBLE 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 became 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. 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. 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 as of June 30, 2013 to be $21,297 and $21,297 was recorded as loss on derivative. At September 30, 2013, the Company revalued the derivative liability and determined that its fair market value was $9,466.  As such the company recorded a gain on derivative liability of $11,831.  This amount was determined by management using a weighted-average Black-Scholes Merton option pricing model.

During the nine months ended September 30, 2013, the Company entered into two 10% Contingently Convertible Promissory Notes with Birr Marketing Group, Inc. for $28,000 and $22,820 with a due date of June 4, 2014 and June 26, 2014. After the due date, the note becomes convertible at a fixed price of $0.001 into the Company’s common shares at the Holder’s option.

F-5

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 was 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 June 30, 2013, $0 remained in the derivative liability.

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 was 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, 2013, the Company re-valued the remaining derivative liability and recorded a loss of $14,684 resulting in a balance of $45,191.

F-6

·

On April 15, 2013, the holder converted $15,000 of the note into 7,894,737 shares of common stock at a price of $0.0019. On the day of the conversion, the Company re-valued the derivative liability and recorded a gain of $14,588. After conversion, the Company reduced the pro-rated portion of the derivative liability by $15,051 into Additional paid in capital.

·

On April 22, 2013, the holder converted $15,500 of the note into 10,117,647 shares of common stock at a price of $0.0017. On the day of the conversion, the Company re-valued the derivative liability and recorded a loss of $4,582. After conversion, the Company reduced the pro-rated portion of the derivative liability by $20,135 into Additional paid in capital. At June 30, 2013, $0 remained in the derivative liability.

On August 30, 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 was due on August 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 25, 2013, a derivative liability of $17,013 remained. On March 31, 2013, the Company re-valued the remaining derivative liability and recorded a loss of $5,535 resulting in a balance of $22,548.

·

On April 3, 2013, Continental converted an additional $5,000 of its outstanding notes payable into 2,631,578 shares of common stock at a conversion price of $0.0019. After conversion, a principal balance of $6,500 remained. On the day of conversion, the Company revalued the derivative liability and recorded a gain on the derivative liability of $11,205; and reduced the pro-rated portion of the derivative liability by $4,932 into Additional paid in capital. At April 3, 2013, a derivative liability of $6,412 remained.

·

On April 11, 2013, Continental converted an additional $4,000 of its outstanding notes payable into 2,222,222 shares of common stock at a conversion price of $0.0018. After conversion, a principal balance of $2,500 remained. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $763; and reduced the pro-rated portion of the derivative liability by $4,415 into Additional paid in capital. At April 11, 2013, a derivative liability of $2,760 remained.

·

On April 24, 2013, Continental converted the remaining $2,500 of its outstanding notes payable entered into on September 6, 2012 together with unpaid interest of $969 into 2,312,520 shares of common stock at a conversion price of $0.0015. After conversion, a principal balance of $0 remained. On the day of conversion, the Company accelerated the amortization of the discount of $2,500 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $1,959; and reduced the pro-rated portion of the derivative liability by $4,719 into Additional paid in capital. At June 30, 2013, $0 remained in the derivative liability.

F-7

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 analyzed the note on the date on which the contingent conversion feature was settled on May 26, 2013.  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. 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 $11,648. The Company recorded an original discount of $11,648. 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 June 4, 2013, Asher converted $12,000 of its outstanding notes payable into 10,000,000 shares of common stock at a conversion price of $0.0012. After conversion, a principal balance of $18,000 remained. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $592; and reduced the pro-rated portion of the derivative liability by $4,896 into Additional paid in capital. At June 4, 2013, a derivative liability of $7,344 remained.

·

On June13, 2013, Asher converted an additional $13,000 of its outstanding notes payable into 14,130,435 shares of common stock at a conversion price of $0.00092. After conversion, a principal balance of $5,000 remained. On the day of conversion, the Company revalued the derivative liability and recorded a gain on the derivative liability of $191; and reduced the pro-rated portion of the derivative liability by $5,961 into Additional paid in capital. At June13, 2013, a derivative liability of $1,192 remained.

·

On June 27, 2013, Asher converted the remaining $5,000 of its outstanding notes payable entered into on November 27, 2012 together with unpaid interest of $1,200 into 8,266,667 shares of common stock at a conversion price of $0.00075. After conversion, a principal balance of $0 remained. On the day of conversion, the Company accelerated the amortization of the discount of $5,000 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $2,413; and reduced the pro-rated portion of the derivative liability by $3,605 into Additional paid in capital. At June 30, 2013, $0 remained in the derivative liability.

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 is 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. The Company analyzed the note on the date on which the contingent conversion feature was settled on July 14, 2013. 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 July 14, 2013, the Company estimated the fair market value of the derivative liability associated with the bifurcated conversion feature to be $39,542. The Company recorded an original discount of $39,542.

·

On July 24, 2013, Asher converted $6,000 of its outstanding notes payable entered into on January 15, 2013 into 14,285,714 shares of common stock at a conversion price of $0.00042. After conversion, a principal balance of $47,000 remained. revalued the derivative liability and recorded a gain on the derivative liability of $10,086; and reduced the pro-rated portion of the derivative liability by $3,335 into Additional paid in capital.

·

On August 1, 2013, Asher converted an additional $5,000 of its outstanding notes payable entered into on January 15, 2013 into 14,285,714 shares of common stock at a conversion price of $0.00035. After conversion, a principal balance of $42,000 remained. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $1,485; and reduced the pro-rated portion of the derivative liability by $5,730 into Additional paid in capital.

F-8

·

On August 21, 2013, Asher converted $10,400 of its outstanding notes payable entered into on January 15, 2013 into 30,588,235 shares of common stock at a conversion price of $0.00034. After conversion, a principal balance of $31,600remained on the January 15, 2013 notes payable. On the day of conversion, the Company accelerated the amortization of the discount of $7,942 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $4,858; and reduced the pro-rated portion of the derivative liability by $10,795 into Additional paid in capital.

·

On August 27, 2013, Asher converted $1,100 of its outstanding notes payable entered into on January 15, 2013 into 3,235,294 shares of common stock at a conversion price of $0.00034. After conversion, a principal balance of $30,500 remained on the January 15, 2013 notes payable. On the day of conversion, the Company accelerated the amortization of the discount of $1,100 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $17,401; and reduced the pro-rated portion of the derivative liability by $14,154 into Additional paid in capital.

·

On August 29, 2013, Asher converted $10,800 of its outstanding notes payable entered into on January 15, 2013 into 31,764,706 shares of common stock at a conversion price of $0.00034. After conversion, a principal balance of $19,700 remained on the January 15, 2013 notes payable. On the day of conversion, the Company accelerated the amortization of the discount of $10,800 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $990; and reduced the pro-rated portion of the derivative liability by $12,677 into Additional paid in capital.

·

On September 9, 2013, Asher converted $10,400 of its outstanding notes payable entered into on January 15, 2013 into 38,518,519 shares of common stock at a conversion price of $0.00027. After conversion, a principal balance of $9,300 remained on the January 15, 2013 notes payable. On the day of conversion, the Company accelerated the amortization of the discount of $10,400 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $6,390; and reduced the pro-rated portion of the derivative liability by $11,452 into Additional paid in capital.   

At September 30, 2013, the Company revalued the outstanding derivative liability and estimated its fair market value to be $16,406 and as a result recorded an additional loss on derivative liability of $13,968.

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 is 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. The Company analyzed the note on the date on which the contingent conversion feature was settled on August 18, 2013. 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 August 18, 2013, the Company estimated the fair market value of the derivative liability associated with the bifurcated conversion feature to be $54,674. The Company recorded an original discount of $32,500 and an immediate loss on derivative liability of $22,174.  At September 30, 2013, the Company revalued the derivative liability and determined that is fair market value was $23,555 resulting in a gain on derivative liability of $31,119.  The Company amortized $14,711 of the original discount into interest expense for the period ending September 30, 2013.

On April 16, 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 is 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.

F-9

On April 7, 2013, the Company entered into a convertible promissory note with a vendor to satisfy outstanding debt invoices in the amount of $68,000.  The note bears no interest and was convertible into shares of common stock 6 months from the inception at the greater of (1) stock price of the conversion date; or (2) stock price on the execution date of the promissory note.

On April 10, 2013, the Company entered into a convertible promissory note with a vendor to satisfy outstanding debt invoices in the amount of $6,000.  The note bears no interest and was convertible into shares of common stock at the holder’s option beginning on the date of the note at a variable conversion price calculated by the average 10 day trading price of the Company’s common stock prior to the date 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”.  On April 10, 2013, the Company estimated the fair market value of the derivative liability associated with the bifurcated conversion feature to be $10,155.  The Company recorded an original discount of $6,000.

·

On April 24, 2013, the vendor converted $6,000 of its outstanding note payable into 2,000,000 shares of common stock.  After conversion, a principal balance of $0 remained.  On the day of the conversion, the Company accelerated the amortization of the discount of $6,000 into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $3,882; and reduced the pro-rated portion of the derivative liability by $14,037 into Additional paid in capital.  At June 30, 2013, $0 remained in the derivative liability.

On April 30, 2013, the Company converted a 0% promissory note reclassified from certain accounts payable during the period ended March 31, 2013, into an 8% contingently convertible promissory note with Continental Equities, LLC, a New York limited liability corporation.  The note has an aggregate principal amount of $34,000 which together with any unpaid accrued interest is due on April 30, 2014.  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 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 $19,798. As a result, the Company recorded a discount on the original note of $19,798.  As of June 30, 2013, the Company recorded the amortization of the discount of $3,300 into interest expense; revalued the derivative liability and recorded a gain on the derivative liability of $4,106. At June 30, 2013, $15,693 remained in the derivative liability.

·

On August 12, 2013, Continental converted $5,460 of its outstanding notes payable entered into on April 30, 2013 into 14,000,000 shares of common stock at a conversion price of $0.00039. After conversion, a principal balance of $28,540 remained on the April 30, 2013 notes payable. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $5,524; and reduced the pro-rated portion of the derivative liability by $3,407 into Additional paid in capital.

·

On August 27, 2013, Continental converted $5,460 of its outstanding notes payable entered into on April 30, 2013 into 13,650,000 shares of common stock at a conversion price of $0.0004. After conversion, a principal balance of $23,080 remained on the April 30, 2013 notes payable. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $5,777; and reduced the pro-rated portion of the derivative liability by $7,575 into Additional paid in capital.

·

On September 10 2013, Continental converted $6,090 of its outstanding notes payable entered into on April 30, 2013 into 21,000,000 shares of common stock at a conversion price of $0.00029. After conversion, a principal balance of $16,990 remained on the April 30, 2013 notes payable. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $250; and reduced the pro-rated portion of the derivative liability by $7,885 into Additional paid in capital.

F-10

·

On September 18, 2013, Continental converted $5,720 of its outstanding notes payable entered into on April 30, 2013 into 22,000,000 shares of common stock at a conversion price of $0.00026. After conversion, a principal balance of $11,270 remained on the April 30, 2013 notes payable. On the day of conversion, the Company accelerated $5,720 of the amortization of discount into interest expense;  revalued the derivative liability and recorded a loss on the derivative liability of $2,891; and reduced the pro-rated portion of the derivative liability by $7,198 into Additional paid in capital.

·

On September 25, 2013, Continental converted $4,950 of its outstanding notes payable entered into on April 30, 2013 into 22,500,000 shares of common stock at a conversion price of $0.00022. After conversion, a principal balance of $6,320 remained on the April 30, 2013 notes payable. On the day of conversion, the Company accelerated $4,950 of the amortization of discount into interest expense;  revalued the derivative liability and recorded a loss on the derivative liability of $10,553; and reduced the pro-rated portion of the derivative liability by $11,497 into Additional paid in capital.

On September 30, 2013, the Company revalued the derivative liability and determined that the fair market value was $13,248 and as such recorded an additional loss on derivative liability of $10,623.

On April 30, 2013, the Company converted a second 0% promissory note reclassified from certain accounts payable during the period ended March 31, 2013, into an 8% contingently convertible promissory note with Continental Equities, LLC, a New York limited liability corporation.  The note has an aggregate principal amount of $22,500 which together with any unpaid accrued interest is due on April 30, 2014.  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 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 $19,798. As a result, the Company recorded a discount on the original note of $19,798.

·

On May 28, 2013, Continental converted $5,500 of its outstanding notes payable into 5,000,000 shares of common stock at a conversion price of $0.0011.  After conversion, a principal balance of $17,000 remained. On the day of conversion, the Company revalued the derivative liability and recorded a gain on the derivative liability of $1,024; and reduced the pro-rated portion of the derivative liability by $4,589 into Additional paid in capital. At May 28, 2013, a derivative liability of $14,185 remained.

·

On June 17, 2013, Continental converted $3,900 of its outstanding notes payable into 5,000,000 shares of common stock at a conversion price of $0.00078.  After conversion, a principal balance of $13,100 remained. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $72; and reduced the pro-rated portion of the derivative liability by $3,271 into Additional paid in capital. At June 17, 2013, a derivative liability of $10,986 remained.

·

On June 24, 2013, Continental converted $5,090 of its outstanding notes payable into 7,485,000 shares of common stock at a conversion price of $0.00068.  After conversion, a principal balance of $8,010 remained. On the day of conversion, the Company revalued the derivative liability and recorded a loss on the derivative liability of $4,550; and reduced the pro-rated portion of the derivative liability by $6,036 into Additional paid in capital. At June 24, 2013, a derivative liability of $9,499 remained. On June 30, 2013, the Company re-valued the remaining derivative liability and recorded a loss of $2,417 resulting in a balance of $11,916.

·

On July 9, 2013, Continental converted $4,079 of its outstanding notes payable into 7,485,000 shares of common stock at a conversion price of $0.00054.  After conversion, a principal balance of $3,931 remained. On the day of conversion, the Company accelerated the amortization of $5,308 of the discount into interest expense; revalued the derivative liability and recorded a loss on the derivative liability of $3,128; and reduced the pro-rated portion of the derivative liability by $7,661 into Additional paid in capital.

F-11

·

On July 24 2013, Continental converted the final $3,931 of its outstanding notes payable into 7,963,400 shares of common stock at a conversion price of $0.00049.  After conversion, a principal balance of $0 remained. On the day of conversion, the Company revalued the derivative liability and recorded a gain on the derivative liability of $625; and reduced the pro-rated portion of the derivative liability by $6,759 into Additional paid in capital.  At September 30, 2013, there is $0 remaining in the derivative liability.

On May 21, 2013, the Company entered into a second 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 $30,000, which together with any unpaid accrued interest is due on May 20, 2014. $28,500 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 $16,112. As a result, the Company recorded a discount on the original note of $17,613.  On June 30, 2013, the Company re-valued the remaining derivative liability and recorded a gain of $475 resulting in a balance of $15,637.  At September 30, 2013, the Company recorded $3,964 of interest expense associated with the amortization of the discount associated with the bifurcation of the conversion feature and revalued the derivative liability and recorded a gain of $1,277 resulting in an ending balance of $14,360 in the derivative liability.

Note 6 - Derivative Liability

In June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. Under the authoritative guidance, effective January 1, 2009, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of certain of the Company’s Convertible Promissory Note (described in Note 5), does not have a fixed settlement provision because conversion of the Asher Notes and the Continental Notes will be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the holders of the Asher Notes and the Continental Note from the potential dilution associated with future financings.  In accordance with the FASB authoritative guidance, the conversion feature of the Asher Notes and the Continental Notes were separated from the host contract and recognized as a derivative instrument. The conversion feature of the Asher Notes and the Continental Notes have been characterized as a derivative liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The following table summarizes the derivative liabilities included in the consolidated balance sheet:

NOTE 7. STOCKHOLDERS’ DEFICIT

Shares Issued for Services

During the period ending September 30, 2013, the Company issued 381,805,207 shares to consultants for services rendered. The Company estimated the fair market value of the shares issued to be $932,451 and recorded this as stock based compensation.

F-12

Shares Issued for Conversion of Notes Payable

During the period ending September 30, 2013, the Company issued 339,695,262 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 nine months ended September 30, 2013 and 2012, the Company recognized revenue from product sales to the Distributor of $9,054 and $8,500, respectively, which represented 4% and 2%, respectively, of total product revenue recognized by the Company. At September 30, 2013 and December 31, 2012, receivable from the Distributor was $10,853 and $6,329 respectively.

Shipping Reimbursements from Related Party

At September 30, 2013 and December 31, 2012, the Company had outstanding accounts receivable of $0 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 September 30, 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.

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 September 30, 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.

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.

F-13

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.  As a result of a mandatory settlement conference, all claims by all parties to this action were dismissed.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Employment Agreement

On January 1, 2011, the Company entered into an 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 periods ending September 30, 2013 and 2012, the Company incurred $94,026 and $90,000 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 $467,000 and $414,500 in accounts payable and accrued liabilities on its consolidated balance sheets at September 30, 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 19,047,610 shares, previously recorded as common stock payable, were issued in 2013 .

Consulting Agreements

During 2012, the Company issued 110,000 shares according to two business agreements. The shares were previously recorded as common stock payable and were issued in 2013.

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. For the nine months ending September 30, 2013, the Company has issued 110,000,000 shares of which 20,000,000 shares were previously recorded as stock payable, at the total estimated fair market value of $355,000.

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 September 30, 2013, the Company has issued 45,000,000 shares per the agreement. The total estimated fair market value of the 30,000,000 share is $196,500.

In January 2013, the Company entered into a consulting arrangement with United General Holdings for general business services.  As of September 30, 2013, the Company issued 16,000,000 shares of restricted common stock as compensation, with a total estimated value of $94,400.   

In January 2013, the Company issued 21,500,000 shares according to three business consulting agreements entered in the beginning of 2013. The total estimated fair market value of the 21,500,000 share is $106,300.

In April 2013, the Company entered into a consulting arrangement with Origins CF for business consulting services. The Company agreed to deliver 20,000,000 shares of restricted common stock as compensation per month.  As of September 30, 2013, the Company issued 120,000,000 shares of restricted common stock as compensation, with a total estimated value of $230,000.   

In April 2013, the Company entered into a consulting arrangement with THR Enterprises for general business services. The Company agreed to deliver 2,000,000 shares of restricted common stock for 12 months service term. As of September 30, 2013, the Company recognized an expense of $7,800 for the services provided from April to June 2013.

In April 2013, the Company entered into a consulting arrangement with Tony Council for general business services. The Company agreed to deliver 2,000,000 shares of restricted common stock for 12 months service term. The stock shall be considered earned upon mutual signing of the agreement by the Consultant and the Company. As of September 30, 2013, the Company issued 2,000,000 shares of restricted common stock as compensation, with a total estimated value of $1,500.   

In April 2013, the Company entered into amendment consulting arrangement with Chad Tendrich for business consulting services. The Company agreed to deliver 7,000,000 shares of restricted common stock as additional compensation to his original agreement entered in January 2013.  As of September 30, 2013, the Company issued 7,000,000 shares of restricted common stock as compensation, with a total estimated value of $32,900.

In April 2013, the Company issued 100,000 shares to Omar Wilson according to the term of business consulting agreement. The total estimated fair market value of the 100,000 share is $75.   

F-15

During the nine months ended September 30, 2013, 39,047,618 shares were issued to Heritage for general marketing consulting services.  The total estimated fair market value of these shares was $25,476.

NOTE 11. SUBSEQUENT EVENTS

On October 1, 2013, Asher converted $7,700 of its original $53,000 (Asher Note #4) into 55,000,000 shares of common stock at a conversion price of $0.00014 per share.  

On October 8, 2013, Continental converted the final $6,320 of its original note in the amount of $34,000 into 26,333,333 shares of common stock at a conversion price of $0.00024.  In addition, they converted $1,004 of interest into 4,187,416 shares of common stock at a conversion price of $0.00024.

On October 11, 2013, Asher converted the final $1,600 of its original Asher Note #4 note in the original amount of $53,000 into 37,200,000 shares of common stock at $0.0001 per share.  

On October 16, 2013, Asher converted $3,300 of its original $32,500(Asher #5) note for 30,000,000 shares of common stock at a conversion price of $0.00011 per share.  

On November 1, 2013, Asher converted an additional $7,750 of its original $32,500 (Asher Note #5) note for 70,454,545 shares of common stock at a conversion price of $0.00011 per share.  

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 three months ended September 30, 2013 as compared to the three months ended September 30, 2012.

Revenue

Revenue is presented net of sales allowances. Net revenue decreased $59,015, or 53%, to $51,638 from $110,653 for the three months ended September 30, 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 $11,725, or 45%, to $14,409 from $26,134 for the three months ended September30, 2013 and 2012, respectively. This overall decrease was primarily the result of decreased sales.

Operating Expenses

Operating expenses increased $80,542, or 46%, to $256,128 from $175,586 for the three months ended September 30, 2013 and 2012, respectively. The overall increase was due to the increase of stock based compensation.

Marketing and advertising costs increased $4,012, or 27%, to $18,565 for the three month ended September 30, 2013, as compared to $14,553 for the three month ended September 30, 2012. This overall decrease was due to reducing marketing and advertising commitments.

5

Interest Expense

For the three months ended September 30, 2013 and 2012, the Company incurred net interest expense of $70,827 and $3,549espectively primarily due to amortization of debt discounts associated with the derivative liabilities.

Net Loss

Our net losses for the three months ended September 30, 2013 and 2012 were $340,300 and $79,003, respectively. The increase in net loss is attributable to the increase of stock based compensation recognized; interest expense and losses on derivative liabilities.

Results of Operations

For nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.

Revenue

Revenue is presented net of sales allowances. Net revenue decreased $173,419 from $405,745 to $232,326 for the nine months ended September 30, 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 $60,370 from $149,508 to $89,138 for the nine months ended September 30, 2013 and 2012, respectively. This overall decrease was primarily the result of decreased sales.  

Operating Expenses

Operating expenses increased $781,613 from $915,402 to $1,697,015 for the nine months ended September 30, 2013 and 2012, respectively. The overall increase in operating expenses results primarily from increases in marketing and advertising costs of $3,577 and by increases in increases in general and administrative costs of $760,568.

Interest Expense

For the nine months ended September 30, 2013 and 2012, the Company incurred net interest expense of $195,227 and $3,555respectively.

Net Loss

Our net losses for the nine months ended September 30, 2013 and 2012 were $1,906,308 and $652,107, respectively. The increase in net loss is primarily attributable to the decrease in sales revenue recognized.

Off-Balance Sheet Arrangements

As of September 30, 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.

6

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 nine months ended September 30, 2013, as set forth herein.

Liquidity and Capital Resources

During the nine months ended September 30, 2013 and 2012, the Company recognized negative cash flows from operating activities of $ (205,859) and $(176,877), respectively. As of September 30, 2013, the Company held cash and cash equivalents of $11,949 as compared to cash on hand of $38,388 as of December 31, 2012.

Cash used in investing activities totaled $(19,900) and 0, for the nine months ended September 30, 2013 and 2012, respectively. Cash provided by financing activities totaled $199,320, and $90,000 for the nine months ended September 30, 2013 and 2012, respectively.

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, 2013.

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.  

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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, 2012, 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 2012.  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, 2012 and September 30, 2013, 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, 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 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 June 30, 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.

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.

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. As a result of a mandatory settlement conference, all claims by all parties to this action were dismissed.

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

Shares Issued for Services

During the period ending September 30, 2013, the Company issued 381,805,207 shares to consultants for services rendered. The Company estimated the fair market value of the shares issued to be $932,451 and recorded this as stock based compensation.

Shares Issued for Conversion of Notes Payable

During the period ending September 30, 2013, the Company issued 339,695,262 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:

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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.

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