Dewmar International BMC Inc (DEWM)

[Det_Robert_Thorne]

Here's something else: Were Authorized Share increases legal?

There is something else I've noticed in the filings on EDGAR, and it puts the increases in Authorized Shares, as well as the issuance of shares beyond 500 million in question, but it's complicated and the description will be long, so bear with me:

First, let me say that for what I am going to write about the Nevada Revised Statutes (NV State Law) with regards to corporations is the same in many states.

The number of Authorized Shares in specified in a company's Articles of Incorporation, and per the Nevada Revised Statutes -- where DEWM is incorporated -- in order to change the number of authorized shares, the Articles must be amended.

Under the N.R.S., amending the Articles requires a vote of the shareholders. Usually, this means a vote at either the annual meeting or at a special meeting, but in either case these meetings are called by filing Schedule 14 forms with the SEC (for a stock registered with the SEC, as DEWM's stock is). However, if a large majority of shares are closely held by insiders or major holders, there is usually a provision for a "Action without meeting" where the vote can be taken and then the rest of the minority shareholders will be informed.

Since November, 2012, DEWM has increased the AS three times.

The first one in November, 2012 raised the AS from 100 million to 500 million, but starting in October, 2012 DEWM began issuing a series of Form 14s, with the first specifying an increase in the AS from 100M to 500M and a 1 for 100 reverse split. The second filing was an amended version of the first which deleted the 1:100 reverse but kept the AS increase, while the third filing was the "Definitive" Schedule 14 (DEF 14) that made the increase to 500M "final".

All of the forms indicated that they were not calling for a vote of the shareholders because the company had enough votes to make the changes without calling for a special meeting. IOW, they were using that "Action without Meeting" clause because just a few shareholders held most of the stock. That's perfectly okay.

The DEF 14 was filed with the SEC on Nov 6, 2012, and three weeks later, on Nov 27, 2012, the Amendment to the Articles of Incorporation was filed with the Nevada Secretary of State. See the Entity Action for that date at the following link:

https://nvsos.gov/sosentitysearch/corpActions.aspx?lx8nvq=f%252fK8CwY35Rn1xnfb92i4Ig%253d%253d&CorpName=DEWMAR+INTERNATIONAL+BMC%2c+INC.

Here's where it gets weird.

Subsequently, DEWM filed two more amendments to the Articles that increased the number of Authorized Shares (note them on the NV SoS web page).

The first, filed on March 18, 2013, raised the AS from 500M to 2.5 billion, while the second one, filed Dec 27, 2013, raised it by another 2 billion, to 4.5B, where it currently stands.

Yet for neither of these increased did DEWM file Schedule 14s asking for a shareholder vote or telling shareholders that no vote was needed.

In a way, with DEWM's silence since the 3Q/13 10-Q was filed in November, 2013, I can understand them not filing a Schedule 14 covering the final (Dec/2013) increase, but they were still regularly filing in March, 2013, when they increased the AS to 2.5B.

It's possible that in March, 2013 that with only 114M outstanding shares (per the FY2012 10-K,) that a few shareholders still controlled enough shares that they could raise the AS via an Action without Meeting, but they still had to tell shareholders about it via a Schedule 14 filing.

By the time the third AS increase occurred in December, 2013, there were at least 1 billion outstanding shares (as of mid-November,) so the question as to whether a Action without Meeting could have taken place would depend upon how many shares had moved into the free trading float.

I suppose it would be possible for Dewmar to give a pile of shares to someone like Asher (or group of Asher-like companies) in a conversion, then before these converted shares were sold, take a vote. Then, of course, they should have filed a Schedule 14 indicating the change and that no special meeting of the shareholders was required.

Otherwise, DEWM would have had to file a Schedule 14 calling for a special meeting of shareholders, with the agenda to include a vote on amending the Articles of Incorporation to increase the AS from 2.5B to 4.5B.

They did neither of these things, which makes me wonder if the December, 2013 increase in the AS was legal, and if not, is that another reason for the delay.

Finally, if the December authorized share increase wasn't legal, then since the number of Outstanding Shares, at 2.3B is okay, but Moran can't issue many more.

But what if the March, 2013 increase from 500M to 2.5B wasn't done legally? DEWM likely exceeded the 500M share limit in 3Q/13, and have issued 1.8B more shares since then.

What if those 1,800,000,000 shares were illegally issued?

See, I told you it was long and complicated.