Dewmar International BMC Inc (DEWM)

[Det_Robert_Thorne]

Possibility of significant differences in 10-K v. 8-K

I've been looking over the November 8-K and the associated financial tables, and I think that there could be significant changes in how some of the numbers are shown in the 2014 10-K when it's filed.

First, it should be noted that in the 8-K itself, DEWM states that the financials were "compiled by a third party accounting firm" and that they are unaudited. This means that the third-party would have received numbers from DEWM and Moran, but didn't check them against DEWM's records of sales and services, so they're trusting that Moran put them in the correct categories.

Revenue versus Operating Income

If DEWM has indeed reclassified itself as more of a business services company (as opposed to brand management) and the COGS was only $156K, then assuming that the gross margin on the sale of Lean was 50% (Kush cakes weren't out in 2014,) then revenues from product sales were only about $320K. Therefore, services revenues were likely about $3.81M.

After expenses, the operating income was $2.35M, which would be a fantastic profit margin, but IMO, it's too high to be legitimate.

Instead, I think that much of the $3.8M is either one of two things, stock received as payment for services that appreciated by the end of the year and that value is being recorded as revenue, or a large payment in advance for services.

If it's the former, then it should have been recorded as revenue on the day it was received, and then any subsequent appreciation or decline in the value should be recorded as a change on the balance sheet.

If it's the latter, then that's fine, because a lot of companies receive payment in advance of services, but it's how you record the cash received afterwards that matters. In addition, as you perform those services, you will incur costs, so the actual profit will be smaller.

That's when we come to:

The Balance Sheet, equities and Deferred Revenue

If the payment was in stock, then the stock received isn't a cash or cash equivalent, but something like "equities held for sale" especially if they are restricted shares that must be held for one year. If the company plans to sell them within a year, then they would be a current asset, but if the plan is to hold longer, then they would be a non-current asset.

If a company receives service revenue in advance of providing a service, then that cash has been received but not yet earned. Therefore, it shouldn't be recorded on the balance sheet as a cash asset, but as Deferred Revenue in the liabilities section (it's a liability because you owe that much in services to the client).


Then there's the question of the convertible notes. I had thought that the Asher and Magna conversions in early 2014 were supposed to take care of the convertibles, yet at the end of the year, the value of the convertible notes was higher than at the end of 2013 ($127.9K vs $122.8K) and the derivative liability had more than doubled, to $318K.


Finally (at least for this post,) though the 8-K filed on Sept 25, 2015 says that the OS is 2.426 B shares as of that date and is unchanged from June 30, 2014, the 2013 10-K states that as of August 7, 2015, the OS was 2.698B, about 272M higher. Is this some kind of error, or does that number include some options or share conversions that haven't officially happened, but will soon?


So for these reasons, I expect to see some significant changes and reclassifications of various revenues, assets and liabilities when the audited 10-K for 2014 is filed.