Dewmar International BMC Inc (OTC:DEWM) Surprised us Once Again

Back in Thursday, Dewmar International BMC Inc (OTC:DEWM) climbed a staggering 305% and registered a huge volume, which in turn made us drop our coffee mugs. DEWM closed Friday’s session in the green as well so it must have been an extremely happy weekend for the management team. We, on the other hand, were even more perplexed.

We couldn’t just let Thursday’s surge pass by unnoticed so we dug deep to see if DEWM is actually a solid company. We found out that the peak was partly due to a couple of newsletters sending emails around, that this is not the first time they are pumped, and we also found out that they have some pretty terrible financials.

That made the surprise even greater when we realized that Friday was also saw another 30% being added to DEWM‘s already overpriced share. This time there was no new emails, so we decided to check what kept the hype going. We were expecting another press-release which would say that they have secured a distribution contract to sell their relaxation drink in another developing country (the last one was Trinidad & Tobago). It turns out, they haven’t. But the surge did take place and the only reasonable explanation that we can find is that people trusted the emails too much.

There was, however, some movement around DEWM and they filed an 8-K report in which they disclosed the last in a long line of promissory notes issued to famous toxic financing institution, Asher Enterprises. We’re speaking about a couple of notes, actually, for the total amount of $83 thousand. As always the note is convertible into common stock but what really caught our attention is the price at which it can be turned into shares – $0.00009. Asher, according to one of their previous filings, already owns about 10% of all the issued common shares and when they are eligible to convert the notes disclosed in the 8-K, they will have even more influence.

Some might argue that according to the note, Asher can’t get the new shares just yet and that, at least for the first 180 days after the note was issued, shareholders should be safe. However, in our previous article we mentioned that Asher is the main lender for DEWM, which means that they have a number of notes worth millions of dollars that are convertible right now. The 8-K from Friday, states that at the moment around 22 million shares are reserved for Asher in case they fancy having more influence in the company. The chances of DEWM being able to pay off the debt with money are also slim, so on the whole, we predict a massive wave of dilution.

Even if the management team somehow manage to avoid crushing the investors, will the notes worth $83 thousand really be enough to keep the company’s head above the water? Well, considering that the net loss for the first nine months of 2012 was $652 thousand, we seriously doubt it.

There is one more thing: funding the company through nothing but toxic financing companies like Asher has never really worked in the long run. Location Based Technologies Inc (OTC:LBAS) have been trying out this method for years now and the chart on the right shows LBAS‘ slow but steady decline. In addition to this, just like DEWM, LBASgot promoted recently which resulted in them losing around 30% of their value in just a couple of trading sessions.