Digital Brand Media & Marketing Grp Inc (OTCMKTS:DBMM) Strangled by Dilution

Several months ago, Digital Brand Media & Marketing Grp Inc (OTCMKTS:DBMM) effected a 1 for 1,000 reverse stock split which, it must be said, made the share structure look a whole lot better. The number of issued and outstanding shares dropped from over 4 billion all the way to around 4 million and the A/S count was reduced by the same exact proportion (from 10 billion to 10 million). The latter is a particularly rare event in Pennyland.

Unfortunately, while it did boost DBMM‘s appearance, the split didn’t really solve all of the problems. A few days after it, the management team announced that they won’t be able to publish the 10-Q for the period ended May 31 on time, and without going into too much details, they said that the reason for the delay lies with the company’s “limited resources”.

About two months after its due date, the 10-Q did come out, but unfortunately, it wasn’t very pretty:

  • cash: $34 thousand
  • current assets: $116 thousand
  • current liabilities: $2.6 million
  • quarterly revenues: $111 thousand
  • quarterly net loss: $197 thousand

Indeed, there’s a 39% year-over-year revenue jump and the management team appear to be convinced that the positive trend can be sustained. Apart from that, however, the 10-Q is not much to write home about. The balance sheet, with the huge working capital deficit, is particularly ugly and it, as we’re sure our more regular readers have guessed already, has led to some other problems.

The company was having troubles paying off its debt which is why, last year, the management team decided to include conversion terms in a few notes and debenture agreements that have a principal amount of over $450 thousand. Later, DBMM was forced to borrow some more money under similar contracts which means that at the end of May, there was a grand total of $515 thousand worth of fully matured debentures that can be turned into stock at discounts ranging from 45% to 50%.

By the looks of things, some of the debenture holders have taken advantage of the favorable (for them, at least) conversion terms. As we mentioned already, immediately after the split, there were around 4 million shares issued and outstanding and 10 million shares authorized. In October, without telling anyone about it, the management team raised the authorized cap to 200 million and while we can’t be sure what the O/S count is at the moment, we can be fairly certain that it’s much higher than 4 million because on Wednesday, in a matter of just six and a half hours, investors traded more than 60 million shares.

Thanks to all this, the stock is hurtling towards the ground. When it emerged from the reverse split, DBMM hovered around $0.03. It made a few unsuccessful attempts to go higher, but it became apparent rather quickly that it won’t be able to do it and soon, it started sliding. Despite Wednesday’s massive volume DBMM lost about a fifth of its value and it stopped at $0.0014.

Of course, some random people of the internet will tell you that the chart is now technically primed for a bounce, but no matter how big a fan of technical analysis you are, you still have to agree that with dilution as horrific as this, nothing can be certain.

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