Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2014
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 333-174557
Blue Water Global Group, Inc.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 45-0611648 (I.R.S. Employer Identification Number) |
202 Osmanthus Way, Canton, GA 30114
(Address of principal executive offices)
Tel: (949) 264-1475, Fax: (949) 607-4052
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or Section 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 Regulations 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).
Yes x 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 large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ¨ Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ¨ No x
The number of shares outstanding of the Registrant's common stock, $0.001 par value, as of May 8, 2014, was 243,206,213.
1
TABLE OF CONTENTS
Item |
| Page | ||
|
|
| ||
PART I FINANCIAL INFORMATION |
| 4 | ||
| Item 1 | Financial Statements |
| 4 |
| Item 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
| 24 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk |
| 42 |
| Item 4 | Controls and Procedures |
| 42 |
|
|
| ||
PART II OTHER INFORMATION |
| 43 | ||
| Item 1 | Legal Proceedings |
| 43 |
| Item 1A | Risk Factors |
| 44 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
| 44 |
| Item 3 | Defaults Upon Senior Securities |
| 44 |
| Item 4 | Mine Safety Disclosures |
| 44 |
| Item 5 | Other Information |
| 44 |
| Item 6 | Exhibits |
| 44 |
Signatures |
| 44 |
2
Forward-Looking Statements
Certain statements made in this Quarterly Report on Form 10-Q are forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the Registrant to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Registrants plans and objectives are based, in part, on assumptions involving it continuing as a going concern and executing on its stated business plan and objectives. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Registrant. Although the Registrant believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Registrant or any other person that the objectives and plans of the Registrant will be achieved.
As used in this Quarterly Report, the terms "we", "us", "our", "Blue Water", Registrant, and Issuer refers to Blue Water Global Group, Inc. unless the context clearly requires otherwise.
3
PART I FINANICAL INFORMATION
Item 1. Financial Statements
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(unaudited)
ASSETS
|
| 3/31/14 |
| 12/31/13 | |
Current assets: |
|
|
|
| |
| Cash and equivalents | $ | 100,024 | $ | 7,357 |
|
|
| 100,024 |
| 7,357 |
|
|
|
|
| |
Total assets: | $ | 100,024 | $ | 7,357 |
LIABILITIES AND STOCKHOLDERS (DEFICIT)
Current liabilities: |
|
|
|
| ||
| Accounts payable (related party) | $ | 348,827 | $ | 192,907 | |
| Accounts payable (non-related) |
| 18,000 |
| 33,000 | |
| Convertible notes payable, net of unamortized debt discounts of $198,591 and $77,442, respectively |
| 40,492 |
| 27,558 | |
| Accrued interest |
| 3,535 |
| 1,973 | |
| Total current liabilities |
| 410,854 |
| 255,438 | |
|
|
|
|
|
| |
| Total liabilities | $ | 410,854 | $ | 255,438 | |
|
|
|
|
| ||
Commitments and contingencies |
| - |
| - | ||
|
|
|
|
|
| |
Stockholders (deficit): |
|
|
|
| ||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding |
| - |
| - | |
| Common stock, $0.001 par value, 700,000,000 shares authorized; 233,206,213 and 229,331,250 shares issued and outstanding, respectively |
| 233,206 |
| 229,331 | |
| Additional paid-in capital |
| 686,280 |
| 486,852 | |
| Accumulated other comprehensive income (loss) |
| - |
| - | |
| (Deficit) accumulated during the development stage |
| (1,230,316) |
| (964,264) | |
|
|
|
|
|
| |
| Total stockholders (deficit) | $ | (310,830) | $ | (248,081) | |
|
|
|
|
| ||
Total liabilities and stockholders (deficit) | $ | 100,024 | $ | 7,357 |
The accompanying notes to the financial statements are an integral part of these statements.
4
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(unaudited)
|
|
| For the three months ended March 31, |
| Cumulative from March 3, 2011 (inception) to 3/31/14 | ||
|
|
| 2014 | | 2013 |
| |
|
|
|
|
|
|
|
|
Revenues, net | $ | - | $ | 10,000 | $ | 50,000 | |
|
|
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|
|
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|
Cost of revenues |
| - |
| - |
| - | |
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|
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|
|
Gross profit |
| - |
| 10,000 |
| 50,000 | |
|
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|
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|
|
Expenses: |
|
|
|
|
|
| |
| General and administrative |
| 5,594 |
| 1,042 |
| 11,416 |
| Accounting fees |
| 3,000 |
| 3,500 |
| 21,750 |
| Advertising and marketing fees |
| 7,218 |
| - |
| 64,282 |
| Consulting fees |
| 178,250 |
| 9,000 |
| 322,940 |
| Legal fees |
| 22,900 |
| 51,635 |
| 338,808 |
| Transfer agent fees |
| 1,082 |
| 872 |
| 8,048 |
| Total expenses |
| 218,044 |
| 66,049 |
| 767,244 |
|
|
|
|
|
|
|
|
(Loss) from operations |
| (218,044) |
| (56,049) |
| (717,244) | |
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
| |
| Amortization of convertible notes |
| (48,008) |
| - |
| (73,072) |
| Bad Debt Charge |
| - |
| - |
| (420,000) |
| Realized loss on investment |
| - |
| - |
| (20,000) |
| Total other income (expense) |
| (48,008) |
| - |
| (513,072) |
|
|
|
|
|
|
|
|
Provision for income taxes |
| - |
| - |
| - | |
|
|
|
|
|
|
|
|
Net (loss) | $ | (266,052) | $ | (56,049) | $ | (1,230,316) | |
|
|
|
|
|
|
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|
(Loss) per common share, basic and diluted | $ | (0.00) | $ | (0.00) | |||
|
|
|
|
|
|
|
|
Weighted average number of basic and diluted |
| 232,382,976 |
| 180,000,000 |
|
The accompanying notes to the financial statements are an integral part of these statements.
5
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS (DEFICIT)
For the period from March 3, 2011 (inception) to March 31, 2014
(unaudited)
Description |
| Common Stock |
| Additional Paid-In Capital |
| Common Stock |
| (Deficit) Accumulated During the Development Stage |
| Total | ||
| Shares |
| Amount |
|
| Subscribed |
|
| ||||
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Balance, March 3, 2011 (inception) |
| - | $ | - | $ | - | $ | - | $ | - | $ | - |
|
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|
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|
|
|
|
|
|
Issuance of common shares to directors (founders shares) |
| 110,000,000 |
| 110,000 |
| (110,000) |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares to consultants |
| 100,000,000 |
| 100,000 |
| - |
| - |
| - |
| 100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for restricted securities |
| 20,000,000 |
| 20,000 |
| - |
| - |
| - |
| 20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) for the period |
| - |
| - |
| - |
| - |
| (147,015) |
| (147,015) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011 |
| 230,000,000 | $ | 230,000 | $ | (110,000) | $ | - | $ | (147,015) | $ | (27,015) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rescinding of consulting agreement |
| (50,000,000) |
| (50,000) |
| 50,000 |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) for the period |
| - |
| - |
| - |
| - |
| (76,551) |
| (76,551) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 |
| 180,000,000 | $ | 180,000 | $ | (60,000) | $ | - | $ | (223,566) | $ | (103,566) |
The accompanying notes to the financial statements are an integral part of these statements.
6
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS (DEFICIT)
For the period from March 3, 2011 (inception) to March 31, 2014
(continued)
(unaudited)
Balance, December 31, 2012 |
| 180,000,000 | $ | 180,000 | $ | (60,000) | $ | - | $ | (223,566) | $ | (103,566) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash |
| 47,300,000 |
| 47,300 |
| 424,460 |
| (470,000) |
| - |
| 1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of payment for common shares subscribed |
|
|
|
|
|
|
| 50,000 |
|
|
| 50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of common shares subscribed |
|
|
|
|
|
|
| 420,000 |
|
|
| 420,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares to consultants |
| 2,750,000 |
| 2,750 |
| 26,000 |
| - |
| - |
| 28,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rescinding of consulting agreement |
| (718,750) |
| (719) |
| (17,250) |
| - |
| - |
| (17,969) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on convertible notes with a Beneficial Conversion Feature (BCF) |
| - |
| - |
| 100,533 |
| - |
| - |
| 100,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants to consultants |
| - |
| - |
| 13,109 |
| - |
| - |
| 13,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) for the period |
| - |
| - |
| - |
| - |
| (740,698) |
| (740,698) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
| 229,331,250 | $ | 229,331 | $ | 486,852 | $ | - | $ | (964,264) | $ | (248,081) |
The accompanying notes to the financial statements are an integral part of these statements.
7
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS (DEFICIT)
For the period from March 3, 2011 (inception) to March 31, 2014
(continued)
(unaudited)
Balance, December 31, 2013 |
| 229,331,250 | $ | 229,331 | $ | 486,852 | $ | - | $ | (964,264) | $ | (248,081) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash |
| 3,874,963 |
| 3,875 |
| 36,928 |
|
| - |
| 40,803 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on convertible notes with a Beneficial Conversion Feature (BCF) |
| - |
| - |
| 162,500 |
| - |
| - |
| 162,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) for the period |
| - |
| - |
| - |
| - |
| (266,052) |
| (266,052) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2014 |
| 233,206,213 | $ | 233,206 | $ | 686,280 | $ | - | $ | (1,230,316) | $ | (310,830) |
The accompanying notes to the financial statements are an integral part of these statements.
8
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
| For the three months ended March 31, |
| Cumulative from 3/3/11 (inception) to 3/31/14 | |||
|
|
| 2014 |
| 2013 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
| Net income (loss) | $ | (266,052) | $ | (56,049) | $ | (1,230,316) | |
| Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities |
|
|
|
|
|
| |
|
| Realized loss on investment |
| - |
| - |
| 20,000 |
|
| Common stock issued in connection with services provided by consultants |
| - |
| - |
| 110,781 |
|
| Warrants issued in connection with services provided by consultants |
| - |
| - |
| 13,109 |
|
| Impairment of subscribed common stock |
| - |
| - |
| 420,000 |
|
| Common stock issued in connection with services associated with subscription receivable |
| - |
| - |
| 50,000 |
|
| Amortization of discount on convertible debt |
| 45,434 |
| - |
| 68,525 |
| Changes in operating assets and liabilities: |
|
|
|
|
|
| |
|
| Increase (decrease) in accounts payable (related party) |
| 155,920 |
| 37,520 |
| 333,828 |
|
| (Increase) decrease in accounts receivable |
| - |
| (10,000) |
| - |
|
| Increase (decrease) in accounts payable (non-related) |
| (15,000) |
| - |
| 33,000 |
|
| Increase (decrease) in accrued interest |
| 1,562 |
| - |
| 3,535 |
|
|
|
|
|
|
|
|
|
| Net cash provided (used) by operating activities |
| (78,136) |
| (28,529) |
| (177,540) | |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
| ||
| Net proceeds from convertible promissory notes | $ | 162,500 | $ | - | $ | 267,500 | |
| Net proceeds from sale of common stock |
| 40,804 |
|
|
| 42,564 | |
| Repayment of convertible promissory notes |
| (32,500) |
| - |
| (32,500) | |
|
|
|
|
|
|
|
| |
| Net cash provided (used) by financing activities |
| 170,803 |
| - |
| 277,564 | |
|
|
|
|
|
|
| ||
Net increase (decrease) in cash |
| 92,667 |
| (28,529) |
| 100,024 | ||
|
|
|
|
|
|
|
|
|
Cash beginning of period |
| 7,357 |
| 30,299 |
| - | ||
|
|
|
|
|
|
|
|
|
Cash end of period | $ | 100,024 | $ | 1,770 | $ | 100,024 |
The accompanying notes to the financial statements are an integral part of these statements.
9
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
|
|
| For the three months ended March 31, |
| Cumulative from 3/3/11 (inception) to 3/31/14 | |||
|
|
| 2014 |
| 2013 |
| ||
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
| ||
| Issuance of common shares to directors (founders stock) | $ | - | $ | - | $ | 11,000 | |
| Issuance of common shares to Island Radio, Inc. (share exchange) |
| - | - |
| 20,000 | ||
| Beneficial Conversion Feature (BCF) of convertible notes |
| 162,500 |
| - |
| 267,500 | |
| Rescinding of shares |
| - |
| - |
| 5,000 | |
| Issuance of common shares for common stock subscribed |
| - |
| - |
| 420,000 | |
|
|
| $ | 162,500 | $ | - | $ | 550,000 |
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
| Interest | $ | - | $ | - | $ | - | |
| Income taxes | $ | - | $ | - | $ | - |
The accompanying notes to the financial statements are an integral part of these statements.
10
BLUE WATER GLOBAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
NOTE 1 Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying Balance Sheets as of March 31, 2014 and December 31, 2013, Statements of Operations for the three months ended March 31, 2014 and 2013, and cumulative from March 3, 2011 (Inception) to March 31, 2014, Statement of Stockholders (Deficit) for the cumulative period from March 3, 2011 (Inception) to March 31, 2014, and the Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and cumulative from March 3, 2011 (Inception) to March 31, 2014, are unaudited. These unaudited interim financial statements have been prepared in accordance with accounting principles accepted in the United States of America (GAAP). In the opinion of the Companys management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and included all adjustments necessary for the fair presentation of the Companys statement of financial position at March 31, 2014 and its results of operations and its cash flows for the period ended March 31, 2014 and cumulative from March 3, 2011 (inception) to March 31, 2014. The results for the period ended March 31, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014.
Organization
Blue Water Global Group, Inc. (Company or Blue Water) is a development stage company that was incorporated under the laws of the State of Nevada on March 3, 2011 under the name Blue Water Restaurant Group, Inc. Blue Water amended its Articles of Incorporation on June 13, 2013 to change its name to Blue Water Global Group, Inc. The Company is currently developing a chain of casual dining restaurants in popular tourist destinations throughout the Caribbean region under the Blue Water Bar & Grill brand and is preparing to launch a line of premium rums which include its flagship rum Blue Water Ultra Premium Rum. Additionally, Blue Water is engaged in making strategic equity investments in promising businesses that are in the early stages of obtaining their own listing on the OTC Bulletin Board (OTCBB).
Basis of Presentation
The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange Commissions (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of the Companys management, necessary for a fair presentation of the financial position and operating results as of March 31, 2014, for the three months ended March 31, 2014 and 2013, and for the period March 3, 2011 (inception) to March 31, 2014.
Use of Estimates
The accompanying financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. Actual results may vary from these estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of March 31, 2014 and December 31, 2013, the Company had no cash equivalents.
11
Revenue Recognition
The Company follows the guidance of FASB ASC Topic 605 for revenue recognition. In general, the Company recognizes revenue when (1) the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) the service has been provided, and (4) collectability is reasonably assured.
The Company anticipates generating future revenue from two sources: (i) food, beverage and souvenir sales from its Blue Water Bar & Grill restaurant concept presently under development and (ii) sales of its of distilled spirits, which includes its Blue Water Ultra Premium Rum. Revenue from both sources will be recognized at the time of the sale.
Accounts Receivable
Accounts receivable are stated at net invoice amount. An allowance for doubtful accounts is based on managements best estimate of uncollectible receivable balances based on the creditworthiness of the customer and prior collection history. As of March 31, 2014 and December 31, 2013 the allowance for doubtful accounts was $-0-.
Short-Term Investments
The Company accounts for its short-term investments, which are classified as trading securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that trading securities be carried at fair value. Unrealized gains and losses due to changes in fair value as well as realized gains and losses resulting from sales of securities are reported as Other Income/Expenses in the statement of operations. Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses is determined on a specific identification basis. As of March 31, 2014 and December 31, 2013, the Company had no short-term investments.
Long-Term Investments
The Company accounts for its long-term investments, which are designated as available-for-sale securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that available-for-sale securities be carried at fair value with unrealized gains and losses, net of tax, included in stockholders' equity under accumulated other comprehensive income (loss). Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. As of March 31, 2014 and December 31, 2013, the Company had long-term investments consisting of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0-.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level |
| Description |
|
|
|
Level 1 |
| Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. |
Level 2 |
| Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. |
Level 3 |
| Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
12
The estimated fair values of the Companys financial instruments are as follows:
| Fair Value Measurement at March 31, 2014 Using: | |||||||||
|
|
|
|
|
|
|
|
| ||
Description |
| 3/31/14 |
| Quoted Prices In Active Markets For Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) | ||
Assets |
|
|
|
|
|
|
|
| ||
| Short-term |
|
|
|
|
|
|
|
| |
|
| Cash and equivalents | $ | 100,024 | $ | 100,024 | $ | - | $ | - |
Total assets measured at fair value | $ | 100,024 | $ | 100,024 | $ | - | $ | - | ||
|
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
|
|
| ||
| Accounts payable (related party) | $ | 348,827 | $ | 348,827 | $ | - | $ | - | |
| Accounts payable (non-related) |
| 18,000 |
| 18,000 |
|
|
|
| |
| Convertible notes payable, net of unamortized debt discount of $198,591 |
| 40,492 |
| |
|
|
| 40,492 | |
| Accrued Interest |
| 3,535 |
| 3,535 |
|
|
|
| |
Total liabilities measured at fair value | $ | 412,854 | $ | 381,736 | $ | - | $ | 40,492 |
| Fair Value Measurement at December 31, 2013 Using: | |||||||||
|
|
|
|
|
|
|
|
| ||
Description |
| 12/31/13 |
| Quoted Prices In Active Markets For Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) | ||
Assets |
|
|
|
|
|
|
|
| ||
| Short-term |
|
|
|
|
|
|
|
| |
|
| Cash and equivalents | $ | 7,357 | $ | 7,357 | $ | - | $ | - |
Total assets measured at fair value | $ | 7,357 | $ | 7,357 | $ | - | $ | - | ||
|
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
|
|
| ||
| Accounts payable (related party) | $ | 192,907 | $ | 192,907 | $ | - | $ | - | |
| Accounts payable (non-related) |
| 33,000 |
| 33,000 |
|
|
|
| |
| Convertible notes payable, net of unamortized debt discount of $77,442 |
| 27,558 |
| |
|
|
| 27,558 | |
| Accrued Interest |
| 1,973 |
| 1,973 |
|
|
|
| |
Total liabilities measured at fair value | $ | 255,438 | $ | 227,880 | $ | - | $ | 27,558 |
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. During the three months ended March 31, 2013 the Company had no dilutive financial instruments issued or outstanding. However, as of December 15, 2013, and including the three months ended March 31, 2014 and cumulative from March 3, 2011 (inception) to March 31, 2014 the Company had dilutive financial instruments consisting of an aggregate of 3,000,000 share
13
purchase warrants which enable the holder to purchase 1,000,000 shares of the Companys common stock at $.005 a share, $0.01 a share, and $0.015 a share, respectively.
Beneficial Conversion Feature
From time to time, the Company may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using either the straight line method or the effective interest method.
Income Taxes
The Company accounts for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. Blue Water establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Companys financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Fiscal Year
The Company elected December 31st for its fiscal year end.
NOTE 2 Development Stage Activities and Going Concern
The Company is a development stage business currently developing a chain of casual dining restaurants in popular tourist destinations throughout the Caribbean region under the Blue Water Bar & Grill brand and is preparing to launch a line of premium rums which include its flagship rum Blue Water Ultra Premium Rum. Additionally, Blue Water is engaged in making strategic equity investments in promising businesses that are in the early stages of obtaining their own listing on the OTC Bulletin Board (OTCBB)
While management of the Company believes that it will be successful with its business plan and capital formation activities, there can be no assurance that it will be able to successfully execute on either of these or that it will be able to generate adequate revenues to earn a profit or sustain its operations.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United State of America, which contemplate continuation of the Company as a going concern. The Company has not established a source of revenues sufficient to cover its operating costs, and as such, has incurred an operating loss since its inception. Further, as of March 31, 2014, the Company had an accumulated net loss of ($1,230,316). These and other factors raise substantial doubt about the Companys ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.
14
NOTE 3 Convertible Promissory Notes
Asher Note 1
On September 16, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Asher Note 1) in the principal amount $32,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (Asher), a Delaware corporation, and Blue Water. The Asher Note 1 closed on September 18, 2013 and matures on June 18, 2014. The Asher Note 1 is convertible at 58% of the average of the lowest three trading prices of Blue Waters common stock during the ten trading day period prior to the conversion date after 180 days.
The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $32,500 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.
This note was redeemed and paid in full on February 7, 2014. No shares were issued in connection with the redemption of this note.
Asher Note 2
On November 8, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Asher Note 2) in the principal amount $37,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (Asher), a Delaware corporation, and Blue Water. The Asher Note 2 closed on November 12, 2013 and matures on May 7, 2014. The Asher Note 2 is convertible at 58% of the average of the lowest three trading prices of Blue Waters common stock during the ten trading day period prior to the conversion date after 180 days.
The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The fair value of the embedded beneficial conversion feature resulted in a partial discount of $33,033 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.
As of March 31, 2014, the outstanding balance due on the Asher Note 2 was $38,675, which includes $1,175 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $20,036.
Asher Note 3
On December 23, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Asher Note 3) in the principal amount $27,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (Asher), a Delaware corporation, and Blue Water. The Asher Note 2 closed on January 7, 2014 and matures on September 26, 2014. The Asher Note 3 is convertible at 58% of the average of the lowest three trading prices of Blue Waters common stock during the ten trading day period prior to the conversion date after 180 days.
The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $27,500 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.
15
As of March 31, 2014, the outstanding balance due on the Asher Note 3 was $28,091 which includes $591 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $17,771.
Mermaid Enterprises, N.V.
On October 9, 2013 we entered into a Purchase Agreement and issued a Convertible Promissory Note (Mermaid Note) as payment for the acquisition of three (3) separate business licenses in the country of St. Maarten, Dutch West Indies consisting of one (1) General Business License and two (2) Managing Directors Licenses. The value of this transaction was $35,000.
The Mermaid Note carries a principal amount of $35,000 and an interest rate of 10% per annum. The Mermaid Note is convertible into shares of our common stock at a fixed price of $0.0005 per share beginning no earlier than April 7, 2014. The Mermaid Note matures on October 9, 2015.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $35,000 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the effective interest method.
As of March 31, 2014, the outstanding balance due on the Mermaid Note was $36,659, which includes $1,659 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $26,442.
JMJ Financial Note
On January 31, 2014 (Effective Date) we sold to JMJ Financial (JMJ Financial) a $335,000 Convertible Promissory Note (JMJ Note). The JMJ Note provides up to an aggregate of $300,000 in gross proceeds after taking into consideration an Original Issue Discount (OID) of $35,000.
A key feature of the JMJ Note is that should Blue Water, at its sole discretion, repay all consideration received pursuant to the JMJ Note within 90 days of the Effective Date, there will be zero percent interest charged under the JMJ Note. Otherwise, there will be a one-time interest charge of 12% for all consideration received by Blue Water pursuant to the JMJ Note.
At any time after 180 days of the Effective Date, the Investor may convert all or part of the JMJ Note into shares of Blue Waters common stock at the lesser of $0.0185 a share or 60% of the lowest trade price in the 25 trading days prior to the conversion.
The JMJ Financial has agreed to restrict its ability to convert the JMJ Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The JMJ Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of Blue Water. The JMJ Note also provides for penalties and rescission rights if Blue Water does not deliver shares of its common stock upon conversion within the required timeframes.
As of March 31, 2014, the outstanding balance due on the JMJ Note was $39,083, which includes $-0- in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $39,083.
Prim Note
On October 9, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Prim Note) to an accredited investor in the principal amount of $100,000 with an interest rate of 10% per annum. The Prim Note is convertible into shares of our common stock at a fixed price of $0.005 per share beginning no earlier than 180 days from the date of issue. The Prim Note matures on March 26, 2016.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $100,000 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the effective interest method.
As of March 31, 2014, the outstanding balance due on the Prim Note was $100,110, which includes $110 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $99,314.
16
The table below provides a summary of the convertible promissory notes as of March 31, 2014:
Description- |
| Amount ($) | |
|
|
| |
Asher Note 2 | $ | 37,500 | |
Asher Note 3 |
| 27,500 | |
Mermaid Note |
| 35,000 | |
JMJ Note |
| 39,083 | |
Prim Note |
| 100,000 | |
| Less unamortized debt discount |
| (198,591) |
Net | $ | 40,492 |
NOTE 4 Investment Agreement with Dutchess Opportunity Fund II, LP
On September 16, 2013, the Company entered into an Investment Agreement (Investment Agreement) with Dutchess Opportunity Fund, II, LP, a Delaware limited partnership (Dutchess). Pursuant to the terms of the Investment Agreement, Dutchess committed to purchase, in a series of purchase transactions (Puts), up to five million ($5,000,000) dollars of the Companys common stock over a period of up to thirty-six (36) months.
The amount that the Company is entitled to request with each Put delivered to Dutchess is equal to, at its option, either (i) two hundred (200%) percent of the average daily volume (U.S. market only) of its common stock for three (3) trading days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date or (ii) one-hundred thousand ($100,000) dollars. The purchase price to be paid by Dutchess for the shares of the Companys common stock covered by each Put will be equal to ninety-five (95%) percent of the lowest daily volume weighted average price (VWAP) of the Companys common stock during the period beginning on the Put Notice Date and ending on and including the date that is five (5) trading days after such Put Notice Date (Pricing Period). The Put Notice Date is the trading day immediately following the day on which Dutchess receives a Put Notice from the Company.
In conjunction with the Investment Agreement, the Company also entered into a registration rights agreement (Registration Rights Agreement) with Dutchess. Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission (SEC) on October 10, 2013 covering 20,000,000 shares of the Companys common stock underlying a portion of the Investment Agreement. In addition, during the term of the Registration Rights Agreement, the Company is obligated to maintain the effectiveness of this registration statement, as well as any subsequent registration statements that may be associated with the Investment Agreement and/or Registration Rights Agreement.
As of March 31, 2014 we have received aggregate net proceeds of $42,064, or approximately $0.01 a share, from the sale of 4,174,963 registered shares of our common stock under the Dutchess Investment Agreement.
NOTE 5 Common Stock
On September 9, 2013, the Company filed a Certificate of Change to effect a forward stock split on the basis of 10 new shares for each one old share. This corporate action resulted in the total number of authorized shares of common stock to increase from 70,000,000 to 700,000,000 (shares of preferred stock were not affected by this corporate action) and the total number of issued and outstanding shares of common stock increased from 22,703,125 to 227,031,250; par value for the Companys shares of common stock remained unchanged at $0.001 par value. The weighted average shares outstanding in the Statements of Operations have been adjusted for all periods to take this forward stock split into consideration.
During the period March 3, 2011 (inception) to March 31, 2014 the Company issued an aggregate of 284,224,963 split adjusted shares of its common stock as follows (note: all share and per share amounts in the following table are adjusted for the 10-for-1 forward stock split):
17
Date of Issue |
| Description of Issuance |
| Shares Issued |
|
|
|
|
|
3/3/11 |
| Issuance of Founders Shares to original officers and directors |
| 110,000,000 |
3/3/11 |
| Taurus Financial Partners, LLC for assisting with the creation and early development of our business, including incorporation and formation assistance, preparation of an offering prospectus and related registration statement on Form S-1, and continued EDGAR filing support and services. These shares were valued at $50,000, or $0.01 per share, based on the value of the services provided |
| 50,000,000 |
3/3/11 |
| Arctic Eyes, LLC for assisting with the initial development and future hosting of our website (www.bluewaterbar.com) and marketing efforts aimed at building the Blue Water brand on various Caribbean travel websites and local radio stations. These shares were valued at $50,000, or $0.01 per share, based on the previously established value |
| 50,000,000 |
3/29/11 |
| Island Radio, Inc. (OTCBB: ISLD) in a stock exchange where the Company received 2,000,000 restricted shares of Island Radios common stock. These shares were valued at $20,000, or $0.001 per share, based on the previously established value |
| 20,000,000 |
4/30/13 |
| Subscribed to by five investors in a registered offering of the Companys common shares. These shares were priced at $0.01 per share, or an aggregate of $470,000. |
| 47,000,000 |
7/15/13 |
| Aeson Ventures, LLC for assisting creating an Internet Landing Page and drafting corporate awareness articles for dissemination via the Internet. These shares were valued at $18,750, or $0.025 per share, based on the then market closing price of our common stock. |
| 750,000 |
12/6/13 |
| The Company sold registered shares to Dutchess Opportunity Fund, II, LP for cash pursuant to an Investment Agreement dated September 16, 2013. These shares were valued at $1,760, or approximately $0.0059 a share. |
| 300,000 |
12/15/13 |
| Vitello Capital, Ltd. for investor relations consulting services. These shares were issued valued at $10,000, or $0.005 a share, based on the then market closing price of our common stock. |
| 2,000,000 |
1/17/14 |
| The Company sold registered shares to Dutchess Opportunity Fund, II, LP for cash pursuant to an Investment Agreement dated September 16, 2013. These shares were valued at $35,565, or approximately $0.0099 a share. |
| 3,581,500 |
2/18/14 |
| The Company sold registered shares to Dutchess Opportunity Fund, II, LP for cash pursuant to an Investment Agreement dated September 16, 2013. These shares were valued at $4,739, or approximately $0.016 a share. |
| 293,463 |
|
| Aggregate shares issued |
| 284,224,963 |
During the period March 3, 2011 (inception) to March 31, 2014 the Company cancelled an aggregate of 50,718,750 split adjusted shares of its common stock as follows (note: all share and per share amounts in the following table are adjusted for the 10-for-1 forward stock split):
Date of Cancellation |
| Description of Cancellation |
| Shares Cancelled |
|
|
|
|
|
2/17/12 |
| The Company and Arctic Eyes, LLC mutually agreed to rescind their March 3, 2011 Consulting Agreement. Arctic Eyes returned the shares it was holding which were subsequently cancelled by the Company. |
| 50,000,000 |
7/23/13 |
| The Company and Aeson Ventures, LLC mutually agreed to rescind their September 15, 2013 Consulting Agreement. Aeson Ventures returned a pro-rated amount of shares it was holding which were subsequently cancelled by the Company. |
| 718,750 |
|
| Aggregate shares cancelled |
| 50,718,750 |
As of March 31, 2014, the total number of common shares authorized that may be issued by the Company was 700,000,000 shares, $0.001 per share, and it had 233,206,213 shares of its common stock issued and outstanding.
18
NOTE 6 Preferred Stock
The total number of preferred shares authorized that may be issued by the Company is 5,000,000 shares with a par value of $0.001 per share.
As of March 31, 2014, the Company had no shares of its preferred stock issued and outstanding.
NOTE 7 Share Purchase Warrants
In conjunction with retaining a consultant, Vitello Capital, Ltd., the Company issued an aggregate of 3,000,000 share purchase warrants enabling the consultant to purchase 1,000,000 shares of the Companys common stock at a price of $0.005 a share, $0.01 a share, and $0.015 a share, respectively. The fair value of the warrants was estimated to be $13,109 on the date of the grant using the Black-Scholes option-pricing model. Expected volatility was determined through the average of a peer group of public companies. The risk-free rate for periods within the contractual life of the warrants is based on the U.S. Treasury yield in effect at the time of the grant. The Company has never declared or paid cash dividends and has no plans to do so in the foreseeable future. The following weighted-average assumptions were utilized for the calculations:
Expected life (in years) |
| 1.0 |
Weighted average volatility |
| 167.82% |
Weighted average risk-free interest rate |
| 0.13% |
Expected dividend rate |
| -0- |
The following table summarizes the number of warrants, weighted average exercise price, and weighted average life (in years) by price for both total outstanding warrants and total exercisable warrants as of March 31, 2014:
|
| Total Outstanding Warrants | ||||
Exercise Price |
| Warrants |
| Weighted Average Exercise Price |
| Life (in years) |
|
|
|
|
|
|
|
$0.005 |
| 1,000,000 |
| $0.005 |
| 1.0 |
$0.01 |
| 1,000,000 |
| $0.01 |
| 1.0 |
$0.015 |
| 1,000,000 |
| $0.015 |
| 1.0 |
NOTE 8 Income Taxes
The provision (benefit) for income taxes for the period from March 3, 2011 (inception) to March 31, 2014 was as follows, assuming a 35 percent effective tax rate:
|
| For the three months ended 3/31/14 |
| For the period from March 3, 2011 (inception) to 3/31/14 | ||
Current tax provision: |
|
|
|
| ||
| Federal |
|
|
|
| |
| Taxable income | $ | - | $ |
| |
|
|
|
|
|
| |
| Total current tax provision | $ | - | $ |
| |
|
|
|
|
| ||
Deferred tax provision: |
|
|
|
| ||
| Federal |
|
|
|
| |
| Loss carryforwards | $ | 93,118 | $ | 380,249 | |
| Change in valuation allowance |
| (93,118) |
| (380,249) | |
|
|
|
|
|
| |
| Total deferred tax provision | $ | - | $ | - |
As of March 31, 2014, the Company had approximately $1,086,426 in tax carryforwards that can be utilized in future periods to reduce taxable income through 2032.
19
The Company provided a valuation allowance equal to the deferred income tax assets for the period from March 3, 2011 (inception) to March 31, 2014 because it is not presently known whether future taxable income will be sufficient to utilize the tax loss carryforwards.
The Company has no uncertain tax positions.
NOTE 9 Investments
Long-Term Investments; Available-For-Sale Securities
The following table summarizes the Companys long-term Available-For-Sale (AFS) Securities as of March 31, 2014:
| As of March 31, 2014 | |||||||
|
| Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Estimated Fair Value |
|
|
|
|
|
|
|
|
|
Equity securities | $ | - | $ | - | $ | - | $ | - |
|
|
|
|
|
|
|
|
|
Total | $ | - | $ | - | $ | - | $ | - |
The following table summarizes the Companys long-term Available-For-Sale (AFS) Securities as of December 31, 2013:
| As of December 31, 2013 | |||||||
|
| Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Estimated Fair Value |
|
|
|
|
|
|
|
|
|
Equity securities | $ | - | $ | - | $ | - | $ | - |
|
|
|
|
|
|
|
|
|
Total | $ | - | $ | - | $ | - | $ | - |
As of March 31, 2014 and December 31, 2013, the Companys long-term AFS securities consisted solely of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0-. More details in Note 12.
All of our investments, excluding trading securities, are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have significant adverse effect on the future value of the investment. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
NOTE 10 Strategic Alliance Agreement with Taurus Financial Partners, LLC
On June 21, 2013 the Company entered into a Strategic Alliance Agreement with Taurus Financial Partners, LLC (Taurus). Under this Strategic Alliance Agreement the Company was granted the exclusive right to participate in Tauruss future Registered Spin-Off transactions.
In a typical Registered Spin-Off transaction, the Company will acquire between 10 15% of an operating business that is in the process of going public on the OTC Bulletin Board. Taurus will then register these shares with the Securities and Exchange Commission (SEC). Once Taurus has registered these shares with the SEC, the Company will spin-off approximately one-third of them to its then stockholders in the form of a special stock dividend.
NOTE 11 Stream Flow Media, Inc.
On December 2, 2013 the Company entered into its first Registered Spin-Off transaction pursuant to the Strategic Alliance Agreement described in Note 11 with Stream Flow Media, Inc., a Colorado corporation (Stream Flow). As per the terms
20
of this transaction, Stream Flow issued 20,000,000 shares of its common stock, $0.001 par value, to Blue Water, which represents approximately 20% of Stream Flows issued and outstanding shares of common stock as of May 1, 2014 in return for the Company agreeing to pay all of Stream Flows expenses related to obtaining a listing on the OTCBB.
Stream Flow is presently in the process of filing its initial Registration Statement on Form S-1 with the SEC, the first step in obtaining a listing on the OTCBB. Once Stream Flow obtains its listing on the OTCBB, and upon approval by both the SEC and FINRA, the Company will issue a special one-time stock dividend of approximately 25%, or 5,000,000, of its Stream Flow shares to its shareholders. The remaining Stream Flow shares will be sold by the Company over an 18-24 month period with the net proceeds going towards financing new units of its Blue Water Bar & Grill restaurant concept.
The Company accounts for its Stream Flow asset as Available-For-Sale (AFS) securities that are carried in the financial statements at fair value. Changes in fair value are recorded in the financial statements as an unrealized gain (loss) in Other Comprehensive Income (OCI).
As of March 31, 2014 and December 31, 2013, the Company had accumulated $-0- in costs related to the Stream Flow shares and there were no observable inputs for a fair valuation. Accordingly, the Company carried the Stream Flow shares at a $-0- valuation on the balance sheet for the periods.
NOTE 12 Subsidiaries
As of March 31, 2014, the Company had the following wholly-owned subsidiaries:
Name of Subsidiary |
| Place of Incorporation |
|
|
|
Blue Water Bar & Grill, N.V. (1) |
| St. Maarten, Dutch West Indies |
Blue Water Beverage Brands, Ltd. (2) |
| British Virgin Islands |
(1)
As of March 31, 2014, Blue Water Bar & Grill, N.V. (i) was in good standing with the government of St. Maarten, (ii) had no assets or liabilities, (iii) maintained an operating Business License, and (iv) maintained two Managing Directors Licenses.
(2)
As of March 31, 2014, Blue Water Beverage Brands, Ltd. (i) was in good standing with the government of the British Virgin Islands, (ii) had no assets or liabilities, and (iii) maintained an operating Business License enabling it to conduct operations both inside and outside of the BVI.
NOTE 13 Related Party Transactions
As of March 31, 2014, the Company operated out of office space that is being provided to us by our Vice President, Michael Hume, free of charge. There is no written agreement or other material terms relating to this arrangement.
Additionally, for the period of March 3, 2011 (inception) to March 31, 2014 the majority of the Companys expenses were paid by Taurus Financial Partners, LLC (Taurus), an independent service provider that currently provides SEC EDGAR compliance and filing services to the Company, and have been accounted for under the accounts payable to a related party line item. As of March 31, 2014, the Companys accounts payable to Taurus aggregated $360,201, of which $167,294 was accrued during the three months ended March 31, 2014.
As of March 31, 2014, Taurus owned 71.2% of the Companys issued and outstanding common stock. Further, on March 21, 2014 Taurus voluntarily entered into a Stock Lock-Up Agreement whereby none of its holdings could be sold until March 31, 2015 at the earliest. It is important to note that our President and Chief Executive Officer, J. Scott Sitra, is concurrently the President and Chief Executive Officer at Taurus and has voting disposition over the controlling block of Taurus shares once the stock lock-up agreement expires.
NOTE 14 Recent Accounting Pronouncements
In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with
21
Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 has not had a material impact on the Companys financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update) in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 has not had a material impact on the Companys financial position or results of operations.
In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, Technical Corrections and Improvements in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 has not had a material impact on the Companys financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 has not had a material impact on the Companys financial position or results of operations.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
·
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
·
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 has not had a material impact on the Companys financial position or results of operations.
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In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial statements.
NOTE 15 Subsequent Events
On April 2, 2014, the Company repaid the Asher Note 2 described in Note 3 in full with no conversion. Per the terms of the agreement, the Company repaid the Asher Note 2 at $51,775.68. No shares were issued in connection with the redemption of this note.
On April 10, 2014, the Company issued 10,000,000 shares of its common stock valued at $5,000, or $0.0005 a share, as a partial redemption of the Mermaid Note described in Note 3. As of May 1, 2014, there was a $30,000 principal balance (not including any accrued interest) remaining on this note.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
We are a development stage corporation with only limited early stage operations. Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 27, 2014, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 27, 2014. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. We do not anticipate generating significant revenues until we are able to open our first restaurant and have our distilled spirits widely accepted by consumers. Accordingly, we must raise additional cash from sources other than operations.
To meet our need for cash we are continually exploring new sources of financing, including raising funds through a secondary public offering, a private placement of securities and/or loans. If we are unable to secure additional financing, we will either have to suspend operations until we do raise the cash or cease operations entirely.
The following discussion should be read in conjunction with our financial statements and the notes thereto and the other information included in this Quarterly Report as filed with the SEC on Form 10-Q.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We are in the early stages of developing operations. We cannot guarantee that we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns, such as increases in marketing costs, increases in administration expenditures associated with daily operations, increases in accounting and audit fees, and increases in legal fees related to filings and regulatory compliance.
To become profitable and competitive, we have to successfully open operating restaurant properties and have our distilled spirits accepted by consumers. We anticipate relying on equity sales of our common stock in order to continue to fund our business operations until we are able to generate sufficient revenues to cover our operating expenses, which may never happen. Issuances of additional shares will result in dilution to our then existing stockholders. There is no assurance that we will be able to make any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities. We may also rely on loans from our management or other significant shareholders. However, there are no assurances that management or any of our significant shareholders will provide us with any additional funds.
We are continually exploring new sources of financing to meet our need for additional cash, including raising funds through a secondary public offering, a private placement of securities and/or loans. We cannot provide any assurances that our efforts to secure additional financing will be successful. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Further, future equity financing could result in additional and substantial dilution to existing shareholders.
Plan of Operation
We were incorporated on March 3, 2011 in the State of Nevada. We are developer of casual dining restaurant properties and premium distilled spirits. Blue Water is currently developing a chain of casual dining restaurants in popular tourist destinations throughout the Caribbean region under the Blue Water Bar & Grill brand and a line of premium rums which include its flagship rum Blue Water Ultra Premium Rum. Additionally, Blue Water is engaged in making strategic equity investments in promising businesses that are in the early stages of obtaining their own listing on the OTC Bulletin Board.
It is important to note that we remain a development stage business in early stage operations. As of March 31, 2014, we had nominal assets, early stage business operating activities, did not operate any restaurant properties, did not have any ownership or leaseholds in any restaurant properties, had not sold any distilled spirits, and did not have any distribution agreements in place to sell distilled spirits. No assurances can be given that we will ever be able to implement our business plan or, if implemented, it will be successful.
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The projected costs and other related expenses are estimates made by our management and our actual costs related to opening our proposed restaurant may differ significantly.
In addition to the foregoing, and unless otherwise noted, all of the cost estimates and forecasts throughout our business plan are mere estimates made by our management. Our actual costs related to opening and operating the proposed restaurants may differ significantly from our estimates, which could have a negative impact on our overall business, cause our business to fail, and result in you losing all of your investment.
Blue Water Structure and Areas of Operation
Blue Water Bar & Grill
The Blue Water Bar & Grill restaurant concept features a casual, open air Caribbean themed restaurant designed to offer customers a distinctive and relaxing island dining experience. Central to each restaurant will be a large covered outside patio area where customers can enjoy their drinks and food while overlooking a beautiful water view. The patio area will feature an inviting island styled walk up (and in some cases, swim up) bar and a small stage area for live musical performances by local musicians and dancing. Each restaurant will have an open aired kitchen so customers can see their food being prepared.
Each restaurant will begin serving breakfast at 7am. On weekends the restaurant will promote an American styled breakfast buffet and feature a do-it-yourself Bloody Mary station. Lunch service will commence at 11am and will feature handmade burgers, gourmet sandwiches and salads, and Caribbean jerk styled dishes. Dinner service will start at 5pm and will feature hand-cut aged Certified Angus steaks and prime rib, fresh seafood caught by local fishermen, slow cooked ribs, and specialty homemade desserts. The restaurant will close at 11pm nightly and the bar will close later at the managers discretion.
During weekdays the bar will host a daily happy hour (4pm 6pm) that will offer reduced priced drinks and appetizer specials. When the sun sets the patio will be outlined by tiki torches, which will promote a fun nighttime island atmosphere while helping ward off unwanted insects such as mosquitoes.
In addition, each restaurant will offer its customers specialty drinks in souvenir glasses, mugs, and shot glasses that come with the drink. These items, along with fun and unique t-shirts and other souvenirs, will be available for retail purchase in a separate souvenir hut, which will be a wooden structure approximately 5 x 5 in size and covered with an attractive thatched roof. These souvenir items will be primarily marketed to the tourist customers. Based on our preliminary discussions with an importer of these types of souvenir items, we estimate selling this merchandise at a 300% - 600% retail markup, depending on the particular item. Construction of the souvenir hut should take no more than three days and cost us between $1,200 and $1,500.
While the required level of inventory may vary from location to location, we estimate that our initial location in St. Maarten, Dutch West Indies will require an initial inventory of $17,000. This will be comprised of $10,000 in food and perishables, $4,000 in liquor, and $3,000 in merchandise. Food and liquor inventory will be replenished once or twice a week, depending on sales volumes, and merchandise every two months due to the longer lead time because it will be imported from China.
We intend to open our first Blue Water Bar & Grill in the Simpson Bay area, sometimes referred to as restaurant row, in St. Maarten, Dutch West Indies. We believe the Simpson Bay area is the ideal location for our restaurant concept. Within walking distance there are six timeshare resorts (Royal Palm, Atrium, Simpson Bay Suites, Simpson Bay Resort, Flamingo and La Vista) and several of the islands more popular restaurants (Skip Jacks, Toppers, Pineapple Pete, Lees Roadside
25
Grill, Pizza Galley, and Simpson Bay Yacht Club). Plus, there is the attraction of the draw bridge which attracts a lot of tourists during season (November through April) who wish to watch the megayachts come and go.
Keys for Success
To better achieve our business objectives and successfully compete with other restaurants, we have developed the following focal points and strategies we anticipate implementing in all of our future restaurants:
Create a Fun, Energetic, Destination Drinking and Dining Experience. We wish to create and promote a fun and socially open atmosphere whereby our customers can, if they choose to do so, openly interact with one another. Topics of discussion and frequent interest will often center around where each other is from, what activities have they done while on the island, and giving and receiving recommendations for future activities while on the island; sometimes the floor and bar staff will participate in these discussions and offer their own words of advice. We intend to accomplish this by utilizing sectional floor and foot traffic planning, whereby the bar area will promote social interaction among customers, a stage area will feature local live entertainment performers to create a lively and festive atmosphere, and more intimate dining tables will be located further in the back to provide separation for those who just wish to dine alone and enjoy the island atmosphere. We believe that if we are successful at achieving this goal, new customers tourists, local ex-patriots and native locals alike will become repeat, or regular, customers and subsequently promote the restaurant by word-of-mouth to their friends and family.
Distinctive Concept. In each restaurant we wish to create a fun and consistent experience for our customers centered around our full bar service, dining offerings, and daily entertainment. The restaurants concept will be carried throughout our customers entire visit and will involve all aspects of the experience, including the exterior design of the building, interior layout and decorum, employee greetings and uniforms, specialty drinks and menu items, and fun and creative souvenirs such as interestingly shaped drink glasses and bright and flamboyant t-shirts that can remind the customer of their vacation or make an excellent gift for someone back home.
Comfortable Adult Atmosphere. Our restaurants will be primarily adult orientated. While children will be welcomed during daytime hours as long as they are accompanied by a responsible adult at all times during their visit, no one under 21 years of age (or the minimum legal drinking age as established by statute) will be allowed into our restaurants after 10pm. We believe that this policy will help maintain a fun and relaxed atmosphere that appeals to adult customers, and will help attract groups such as private parties and business organizations.
High Standard of Customer Service. Because service is one the key areas restaurants differentiate themselves from one another and a constant source of either compliments or complaints from customers we intend to foster a high level of customer service among our employees, ranging from the general manager to the greeters, through intense training (cross training for all manager level employees and a one-week training course, complete with required testing on all food and drink offerings, operational procedures, and computer checkout for all other employees), constant monitoring (from the on-duty manager and surprise visits from secret shoppers), and emphasizing consideration of our customers first and foremost in all decisions. From the moment a customer walks into the front door, we want them to experience a high level of guest service provided by a knowledgeable, energetic staff. Bar tenders will be required to be able to free pour simultaneously from multiple liquor bottles and perform flare techniques (flipping, tossing, and twirling of liquor bottles) for our customers entertainment; greeters and servers will be required to introduce customers to the concept, explain the drink and entree menus and daily specials, and generally set the stage for a fun and memorable experience for them.
Provide Dining Value. We believe that our restaurants should provide our customers with interesting, high quality, and generously portioned (covering the entire plate) menu items that are aesthetically appealing and result in the customer leaving fully satisfied. Complementing the dining aspect, we intend to offer the customer a unique variety of original drinks, each designed to perpetuate and immerse the customer in the restaurants overall concept. It is our goal to generate at least a US$28 average check per guest, inclusive of food and drinks. We estimate that our overall gross sales will be comprised of 65% food and 35% drinks. We anticipate achieving and maintaining a 30% food cost and 18% liquor cost, which relates to our actual cost of the product compared to the gross revenue the product generates. For example, if we sold a fish entree for $20 our actual cost would be $6 and our gross profit would be $14. Prices for entrees will start at around $12 for a hamburger and rise to $42 for a prime rib steak dinner; prices for drinks will start at $3 for beer, $6 for basic well mixed drinks, and $8 for specialty drinks. These price points are competitive with the existing restaurants our management team has scouted in the Simpson Bay area of St. Maarten, Dutch West Indies, where we intend to open our first Blue Water Bar & Grill that will cater to the tourist and local ex-patriot alike.
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It is important to note that although we aspire to operate at or below the above food and liquor costs, we cannot guarantee that we will ever achieve such food or liquor costs or, if achieved, will be able to maintain them.
Operations and Management
Our ability to effectively manage an operation including high volume restaurants (annual gross sales of US$1,000,000 or more) with live entertainment offerings is critical to our overall success. In order to maintain quality and consistency at each of our future restaurants we must carefully train and properly supervise our personnel and the establishment of, and adherence to, high standards relating to personnel performance, food and beverage preparation, entertainment productions and equipment, and maintenance of the restaurant facilities. We believe our current management is capable of overseeing our planned growth over the next two years. While staffing levels will vary from restaurant to restaurant depending on actual sales volumes, we anticipate our typical restaurant management staff to be comprised of a general manager, a kitchen manager (who also serves as the head chef) and a bar manager (who also serves as the head bartender); the kitchen manager and bar manager will also act as assistant general managers when the general manager is off-duty and will receive a slightly higher base salary compared to our other chefs and bartenders to compensate for their added responsibilities.
Recruiting. We will actively recruit and select individuals who share our passion for customer service. Our selection process includes testing and multiple interviews to aid in the selection of new employees, regardless of their prospective position. We will offer a competitive compensation plan to our managers that includes a base salary, bonuses for achieving performance objectives, and possibly incentive stock options once they have worked for us for at least one full year. For example, the general manager in our initial Blue Water Bar & Grill restaurant will most likely be offered a base salary of $1,500 a month, plus up to $1,000 a month in additional performance incentives for achieving minimum gross sales and exceeding the minimum targeted food, liquor, and labor costs, as determined by our executive management team. In addition, all employees are entitled to discount meals at any of our future restaurants.
Training. We believe that proper training is the key to exceptional customer service. Each new management hire will go through an extensive training program, which will include cross-training in all management duties. All non-management new hires will go through a standard training program where they will learn and be tested on all of our food and drink offerings, operational procedures, and our point-of-sale (POS) computer system.
Management Information Systems (MIS). All of our future restaurants will be equipped with a variety of integrated management information systems. These systems will include an easy-to-use point-of-sale (POS) computer system which facilitates the movement of customer food and drink orders between the customer areas and kitchen and bar operations, controls cash, handles credit card authorizations, keeps track of sales on a per employee basis for incentive awards purposes, and provides on-site and executive level management with real-time sales and inventory data. Additionally, we intend to implement a centralized accounting system that will include a food cost program and a labor scheduling and tracking program. Physical inventories of food and drink items will be performed on a weekly basis. Further, daily, weekly, and monthly financial information will be provided to executive level management for analysis and comparison to our budget and to comparable restaurants. By closely monitoring each restaurants gross sales, cost of sales, labor, and other cost trends we will be better able to control our costs, inventory levels, and identify problems with individual operations, if any, early on.
Secret Shopper. Because we believe exceptional customer service is paramount to our success, we intend to implement a secret shopper program to monitor the quality control at all of our future restaurants. Secret shoppers are independent persons who test the quality of our food, drink, and service as paying customers without the knowledge of the restaurants management or employees. Secret shoppers then report their unbiased experiences to our executive level management.
Blue Water Premium Rums
Blue Water is developing a line of privately labeled premium rums with a family owned distillery located on the Caribbean island of Dominica, West Indies.
The initial rum resulting from this collaboration with the distillery is the Blue Water Ultra Premium Rum. Blue Water will officially launch its Blue Water Ultra Premium Rum and commence sales to the public in Summer 2014 in St. Maarten.
Blue Water will be expanding its line of premium rums and is presently working with the distillery to develop a smooth spiced rum and a seasonal holiday spiced rum.
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Below is the bottle and label design for the Blue Water Ultra Premium Rum:
On March 24, 2014 Blue Water incorporated a new wholly-owned subsidiary in the British Virgin Islands for the international sale and distribution of its distilled spirits. The subsidiary was named Blue Water Beverage Brands, Ltd.
Strategic Alliances and Investment Holdings
On June 21, 2013 Blue Water entered into a Strategic Alliance Agreement with Taurus Financial Partners, LLC (Taurus). Under this Strategic Alliance Agreement Blue Water was granted the exclusive right to participate in Tauruss future Registered Spin-Off transactions.
In a typical Registered Spin-Off transaction, Blue Water will acquire between 15 20% of an operating business that is in the process of going public on the OTC Bulletin Board (OTCBB). Taurus will then register these shares with the Securities and Exchange Commission (SEC). Once Taurus has registered these shares with the SEC, Blue Water will spin-off a portion of them to its then stockholders in the form of a special stock dividend.
Blue Water anticipates participating in one or two of these transactions each fiscal year. It is important to note that Blue Waters President and Chief Executive Officer, J. Scott Sitra, is concurrently the President and Chief Executive Officer of Taurus.
Stream Flow Media, Inc.
On December 2, 2013 Blue Water entered into the first of these types of transactions under this Strategic Alliance Agreement with Stream Flow Media, Inc., a Colorado corporation (Stream Flow). As per the terms of this transaction, Stream Flow
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issued 20,000,000 shares of its common stock, $0.001 par value, to Blue Water, which represents approximately 20% of Stream Flows issued and outstanding shares of common stock as of May 8, 2014 in return for Blue Water agreeing to pay all of Stream Flows expenses related to obtaining a listing on the OTCBB.
Stream Flow is presently in the process of filing its initial Registration Statement on Form S-1 with the SEC, the first step in obtaining a listing on the OTCBB. Once Stream Flow obtains its listing on the OTCBB, and upon approval by both the SEC and FINRA, Blue Water will issue a special one-time stock dividend of approximately 25%, or 5,000,000, of its Stream Flow shares to its then shareholders. The remaining Stream Flow shares will be sold by Blue Water over an 18-24 month period with the net proceeds going towards financing new units of its Blue Water Bar & Grill restaurant concept.
Blue Water accounts for its Stream Flow shares as Available-For-Sale (AFS) securities that are valued at fair value. Changes in fair value are recorded in the financial statements as an unrealized gain (loss) under Other Comprehensive Income (OCI).
As of March 31, 2014, Blue Water had accumulated $-0- in investment costs related to the Stream Flow shares and there were no observable inputs for a fair valuation. Accordingly, Blue Water carried the Stream Flow shares at a $-0- valuation on the balance sheet for the period.
Investment Agreement and Registration Rights Agreement with Dutchess
We entered an Investment Agreement with Dutchess Opportunity Fund, II, LP (Dutchess) on September 16, 2013 (Investment Agreement). Pursuant to the Investment Agreement, Dutchess is irrevocably committed to purchase up to $5,000,000 of our common stock over the course of 36 months (Equity Line). The aggregate number of shares issuable by us and purchasable by Dutchess under the Investment Agreement is limited by the dollar amount sold, in this instance no more than $5,000,000, and will depend upon the trading price of our shares.
We may draw on the Equity Line from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Investment Agreement. The maximum amount that we are entitled to put in any one notice is the greater of (i) 200% of the average daily volume (U.S. market only) (ADV) of the common stock for the three (3) trading days prior to the date of delivery of the applicable put notice, multiplied by the average of the closing prices for such trading days or (ii) $100,000. The purchase price shall be set at 95% of the lowest daily volume weighted average price (VWAP) of our common stock during the five (5) consecutive trading days beginning on the date of the put (Pricing Period). However, if, on any trading day during a Pricing Period, the daily volume weighted average price of the common stock is lower than the floor price specified by us in the put notice, then we must withdraw that portion of the put amount for each such trading day during the Pricing Period, with only the balance of such put amount above the minimum acceptable price being put to Dutchess. There are put restrictions applied on days between the put notice date and the closing date with respect to each particular put. During such time, we are not entitled to deliver another put notice.
Blue Water paid Dutchess a one-time document preparation fee of $15,000. There are no fees or commissions due to Dutchess at the time of any puts made under the Equity Line.
Dilutive Effect of the Equity Line
As we draw down on the Equity Line, shares of our common stock will be sold into the market by Dutchess. The sale of these additional shares could cause our stock price to decline. In turn, if the stock price declines and we issue more puts, more shares will come into the market, which could cause a further drop in the stock price. You should be aware that there is an inverse relationship between the market price of our common stock and the number of shares to be issued under the Equity Line. If our stock price declines, we will be required to issue a greater number of shares under the Equity Line. We have no obligation to utilize the full amount available under the Equity Line.
Blue Water chose this form of financing facility because of the flexibility it affords in meeting future cash requirements that are difficult to project at this stage of Blue Waters development. Blue Water believes it is likely that it will use a significant portion of the Equity Line, but intends to draw on the Equity Line only as needed to meet immediate capital requirements that are not met with other sources of capital.
As of March 31, 2014 we had received aggregate net proceeds of $42,064, or approximately $0.01 a share, from the sale of 4,174,963 registered shares of our common stock under the Dutchess Investment Agreement.
Blue Water has not been involved in any previous transactions with Dutchess.
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2014 Planned Capital Expenditures and Milestones
The following planned capital expenditures and milestones are based on estimates made by our management team. The working capital requirements and the projected milestones are approximations and are subject to adjustments. Our initial 2014 baseline budget is based on receiving financing of at least $900,000 over the course of the fiscal year ending December 31, 2014, which will enable us to undertake the following planned capital expenditures and achieve the proposed milestones.
Presently we only have the Dutchess Equity Line of financing available to us and do not have any alternative sources of financing secured. Although we believe the Dutchess Equity Line should be able to provide for our planned capital expenditures, we cannot provide any assurances that we will be able to draw a sufficient amount of funding from it to meet the following planned capital expenditures. As such, we are continuing to have discussions and explore alternative methods and sources of financing.
Planned 2014 Capital Expenditures
Based on generating a minimum of $900,000 in new financing during the fiscal year ending December 31, 2014, we anticipate allocating the capital as follows:
Planned Capital Expenditure |
| Amount ($) | |
|
|
| |
Restaurant Construction and Renovation |
| $500,000 | |
Initial Inventory and Launching of Blue Water Ultra Premium Rum |
| 200,000 | |
SEC Filing and Compliance |
| 75,000 | |
Legal and Consulting |
| 35,000 | |
Engineering and Architectural Consulting |
| 50,000 | |
Location Scouting and Surveying |
| 15,000 | |
General Operations |
| 25,000 | |
| Total |
| $900,000 |
Proposed 2014 Milestones
During the course of the fiscal year ending December 31, 2014, and provided we are successful at raising sufficient capital to meet our primary objectives, we anticipate achieving the following quarterly milestones:
First Quarter Ending March 31, 2014
o
Finalize the Blue Water Bar & Grill Restaurant Location in St. Maarten, Dutch West Indies
(Location Determined. Not Publicly Disclosed Yet Due to Non-Disclosure Agreement.)
o
Commence necessary engineering and architectural drawings and approvals for the St. Maarten restaurant
(Retained Another Ard Production on February 27, 2014)
o
File a Registration Statement on Form S-1 for Stream Flow Media, Inc. (Stream Flow) initiating the going public process
(Filed with the SEC on March 11, 2014)
Second Quarter Ending June 30, 2014
o
Conclude the necessary engineering and architectural drawings and approvals for the St. Maarten restaurant
o
Launch the Blue Water Ultra Premium Rum Website (www.bluewaterrum.com)
o
Launch the Blue Water Bar & Grill Website (www.bluewaterbar.com), Complete with Online Merchandise Store
o
File a Form 15c2-11 to Enable Stream Flows Common Stock to Trade on the OTC Bulletin Board (OTCBB)
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o
Secure second spin-off candidate (e.g. Stream Flow Media, Inc.)
Third Quarter Ending September 30, 2014
o
Officially launch the Blue Water Ultra Premium Rum brand in St. Maarten, Dutch West Indies
o
Commence construction on the flagship Blue Water Bar & Grill in St. Maarten, Dutch West Indies
o
Obtain FINRA approval for Stream Flows OTCBB listing and commence trading
Fourth Quarter Ending December 31, 2014
o
Open the flagship Blue Water Bar & Grill in St. Maarten, D.W.I.
o
Market and promote the St. Maarten Blue Water Bar & Grill brand during the 2014 high season
o
Begin scouting for a suitable Blue Water Bar & Grill location in Aruba, Dutch West Indies
Long-Term Plan (5 Years)
Blue Water Bar & Grill
Over the next five years we plan to focus on a disciplined growth strategy of opening one new Blue Water Bar & Grill restaurant each year. Presently we have identified the following Caribbean islands we intend to eventually open a Blue Water Bar & Grill restaurant:
·
Aruba, Dutch West Indies;
·
Barbados;
·
Cozumel, Mexico;
·
Grand Cayman; and
·
Nassau, Bahamas.
We estimate that we will need to raise an aggregate of between $3 - $5 million to open the proposed restaurants on each of the listed Caribbean islands. This capital will most likely be raised through the sales of additional equity securities, which will have a dilutive effect on existing shareholders.
Distilled Spirits
Following the planned launch of the Blue Water Ultra Premium Rum in St. Maarten, Dutch West Indies in Summer 2014, Blue Water intends to expand this brand in 2015 through distribution agreements into the neighboring islands, including the exclusive and influential St. Barts and Anguilla. Blue Water will continue expanding the brand throughout the Caribbean Region and, ultimately, export it into the United States as early as 2016.
In addition to the Blue Water Ultra Premium Rum brand, Blue Water will be expanding its line of premium rums and is presently working with the distillery to develop a smooth spiced rum and a seasonal holiday spiced rum. These rums, along with other similar products, will be introduced made available to consumers over the next five years.
Sales and Marketing
Our marketing strategy is aimed at attracting new customers through both traditional and creative avenues. We intend to focus on building a reputation among local customers (those living on the island) while directing our marketing efforts toward tourists staying on the island or visiting for the day on a cruise ship. We intend to accomplish this through:
·
Grand opening promotions;
·
Traditional paid advertising (e.g. radio, television, newspaper, etc.);
·
Free media exposure (e.g. hosting charity events, food reviews, etc.); and
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·
Working directly with tourism bureau representatives and transportation representatives (taxi association, bus association, day sail and charter businesses, etc.).
When opening a new Blue Water Bar & Grill restaurant we intend to host grand opening parties for local leaders, media personalities, hospitality employees such as resort and hotel staff, and tourism bureau representatives (inclusive of cruise ship industry representatives and hotel/resort industry representatives). Our goal with courting these groups is to introduce them to our concept and court them to refer new customers to our restaurants and provide us with free future media exposure.
Afterwards we will sustain awareness through more traditional marketing methods, including radio and television spots, newspaper ads, billboards and road signs, and resort and hotel concierge promotional cards and discount coupons.
If our strategy is successful it will lead to word of mouth referrals, which is our ultimate goal. This is accomplished by providing our customers with consistently excellent service and quality food and drinks.
While we do not have a fixed marketing budget, we do anticipate launching each new restaurant with a marketing blitz campaign and tapering it down to less than 5% of the restaurants annual gross sales once it is sufficiently established with regular and recurring revenue.
Financing
We estimate that we will need to generate at least $900,000 in additional financing in order to meet our planned 2014 capital expenditures and open our first Blue Water Bar & Grill. Further, in order to proceed with our long-term plans, we anticipate that we will need to generate at least between $3 and $5 million in additional long-term financing.
Dutchess Equity Line
On September 16, 2013 we entered into an Investment Agreement (Investment Agreement) and Registration Rights Agreement (Registration Rights Agreement) with Dutchess Opportunity Fund, II, LP (Dutchess). As per the terms of the Investment Agreement, Dutchess is irrevocably committed to purchase up to $5,000,000 of our common stock over the course of 36 months (Equity Line). The aggregate number of shares issuable by us and purchasable by Dutchess under the Investment Agreement is limited by the dollar amount sold, in this instance no more than $5,000,000, and will depend upon the trading price of our shares. Due to various factors relating to this type of financing, we can offer no assurances that we will receive sufficient financing, if any, from the Dutchess Equity Line. For more information see Investment Agreement and Registration Rights Agreement with Dutchess on page 10.
While we believe that we will be able to raise sufficient funds from this Dutchess Equity Line meet our projected expenditures during the fiscal year ending December 31, 2014 and to complete the development of our first Blue Water Bar & Grill restaurant in St. Maarten, Dutch West Indies, we can provide no assurances that the proceeds from the Dutchess Equity Line, if any, will be sufficient to cover even our minimal ongoing capital requirements.
Additional Sources of Long-Term Financing
Currently we are exploring various sources of additional long-term financing. However, it is important to note that other than the Dutchess Equity Line we presently do not have any material arrangements for this additional financing. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Future equity financing, if ever available, could result in additional and potentially substantial dilution to existing shareholders.
Government Regulation
The restaurant industry is subject to many various laws which directly affect our organization and planned operations. Each restaurant we open must comply with various licensing requirements and regulations by a number of governmental authorities, which typically include health, safety and fire authorities in the municipality where our restaurant is located. The development and operation of a successful restaurant depends upon selecting and acquiring a suitable location, which is normally subject to zoning, land use, environmental, traffic, and other regulations. Further, our operations will also be subject to various laws governing such matters as wages, health insurance requirements, working conditions, citizenship and work permit requirements, and mandatory overtime pay, all of which will directly affect our labor costs.
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Additionally, because we anticipate a significant portion of our revenue to be generated from the sale of alcoholic beverages, we must comply with any and all regulations governing their sale. Typically this requires the proper licensing at each restaurant location (in many cases it needs to be renewed on an annual basis). Such licenses may be revoked or suspended for cause at any time. These regulations often relate to many aspects of the restaurant, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages. The failure of any of our future restaurants to obtain and retain such a license would limit its ability to generate sufficient revenues to achieve profitability at that particular location, which could subsequently impact our businesss overall revenues and ability to achieve (and if achieved, maintain) profitability.
Compliance with Environmental Laws
We have not incurred and do not anticipate incurring any expenses associated with environmental laws.
Research and Development Expenditures
We have not incurred any research or development expenditures since our inception on March 3, 2011.
Patents and Trademarks
Upon securing a leasehold in St. Maarten, Dutch West Indies for our first restaurant we intend to formally register the trademark Blue Water Bar & Grill. As of May 8, 2014, we have not initiated this process. We have been advised that such an undertaking will cost us approximately $750, inclusive of legal and filing fees.
Additionally, we will initiate the registration process for the trademark Blue Water Ultra Premium Rum during the fiscal period ending June 30, 2014.
Property and Equipment
Our principal executive offices are located at 202 Osmanthus Way, Canton, GA 30114. This office space is being provided to us by our Vice President, Michael Hume, free of charge.
We do not hold ownership or leasehold interest in any property or equipment.
Executive Offices and Telephone Number
Our executive office and main telephone number is currently:
202 Osmanthus Way
Canton, GA 30114
Tel: (949) 264-1475
Fax: (949) 607-4052
www.bluewaterglobalgroup.com
This space is provided to us free of charge by Michael Hume, our Vice President. If Mr. Hume decides to no longer allow us access to this office space in the future it would force us to seek outside office space elsewhere, potentially at a very high cost.
Results of Operations
Three Months Ended March 31, 2014 and 2013
Revenues. We did not generate any revenue during the three months ended March 31, 2014 compared to $10,000 in revenue for the same period a year ago. The reason for the lack of revenue during the current period was the consulting project responsible for generating the revenue a year ago was completed during the reporting period ended March 31, 2013. Since the completion of that project we have not generated any revenue and have focused our efforts on completing the development of the St. Maarten, Dutch West Indies based Blue Water Bar & Grill and preparing for the launch of our first distilled spirit, Blue Water Ultra Premium Rum. As such, we do not anticipate generating any new revenue until we successfully open this new restaurant and launch our premium rum.
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Operating Expenses. Our total operating expenses for the three months ended March 31, 2014 were $218,044, which is a $151,995, or 230.1%, increase compared to operating expenses of $66,049 for the same period a year ago. Our increase in operating expenses was primarily attributable to increased expenses from implementing an investor relations program. Additionally, due to expanded operating activities, we experienced higher general operating expenses and higher costs related to our ongoing SEC reporting requirements, which have consisted primarily of legal, accounting and outside consulting fees.
Other Income (Expenses). During the three months ended March 31, 2014 we incurred ($48,047) in other income (expenses) compared to $-0- for the same period a year ago. This expense was comprised of ($2,574) in accrued interest relating to outstanding convertible promissory notes, ($45,434) in amortized debt discounts resulting from Beneficial Convertible Features (BCF) relating to outstanding convertible promissory notes, and a one-time gain of $17,498 recorded for the extinguishment of outstanding debt.
Net Income (Loss). We had a net loss of ($266,051) for the three months ended March 31, 2014 compared to a net loss of ($56,049) for the same period a year ago, which represented a $210,002, or 456.0%, increase in net loss. The increase in net loss was the result of (i) generating zero revenue during the period and (ii) increased general operating expenses and higher ongoing SEC compliance and reporting requirements, which consisted primarily of legal, accounting and outside consulting fees.
Cumulative During the Development Stage March 3, 2011 (inception) through March 31, 2014
For ease of reading we refer to the period of March 3, 2011 (inception) through March 31, 2014 as the Developmental Period.
Revenues. We have generated $50,000 in revenue during the Development Period. This revenue was the result of us being retained to develop a sports themed restaurant concept, inclusive of financials, 5-year projections, feasibility studies, and floor and traffic planning. We completed work on this project during the three months ended March 31, 2013.
Operating Expenses. Our total operating expenses for the Developmental Period were $767,245. These operating expenses were primarily attributable to organizational costs related to our formation, offerings of our common stock, implementing an investor relations program, and complying with our ongoing SEC reporting requirements. These expenses have consisted primarily of legal, accounting, and outside consulting fees.
Other Income (Expenses). During the Development Period we experienced ($513,072) in other expenses consisting of ($4,547) in interest expenses, ($68,525) in amortized debt discounts resulting from Beneficial Convertible Features (BCF) relating to outstanding convertible promissory notes, a one-time ($420,000) impairment charge against subscriptions for common stock, and a realized loss of ($20,000) on our investment in 2,000,000 shares of Island Radio, Inc. (OTCBB: ISLD) common stock.
Net Loss. We have incurred a net loss of ($1,230,316) during the Developmental Period. The net loss net loss was primarily attributable to (i) organizational costs related to our formation, offerings of our common stock, (ii) implementing an investor relations program, (iii) a one-time impairment charge against subscriptions for common stock, and (iv) complying with our ongoing SEC reporting requirements, which consists primarily of legal, accounting and outside consulting fees.
Total Stockholders Deficit. Our stockholders deficit was ($310,830) as of March 31, 2014.
Liquidity and Capital Resources
As of March 31, 2014, we had total assets of $100,024, which consisted of cash and 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0- a share.
As of March 31, 2014, our total liabilities were $410,854, which consisted of $348,827 in accounts payable to a related party, Taurus Financial Partners, LLC (Taurus), $18,000 to non-related parties, $40,492 in convertible promissory notes (net of unamortized debt discounts of $198,591), and $3,535 in accrued interest. It is important to note that as of May 1, 2014 Taurus owned 71.2% of Blue Waters issued and outstanding common stock and that our President and Chief Executive Officer, J. Scott Sitra, is concurrently the President and Chief Executive Officer at Taurus. Further, we had no external credit facilities (i.e. bank loans, revolving lines of credit, etc.).
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We expect to incur continued losses over the next 12 months, probably even longer. As of March 31, 2014, we had nominal assets and anticipate that we need at least $900,000 in additional financing to open our Blue Water Bar & Grill restaurants in St. Maarten, Dutch West Indies, launch our Blue Water Ultra Premium Rum, and meet our ongoing working capital requirements over the next 12 months.
Dutchess Equity Line
On September 16, 2013 we entered into an Investment Agreement and a Registration Rights Agreement with Dutchess Opportunity Fund, II, LP requiring Dutchess to purchase up to $5,000,000 worth of our common stock over a 36 month period and for us to register 20,000,000 (after taking into consideration our recent 10-for-1 forward stock split) shares of our common stock for resale with the SEC, respectively. Due to various factors relating to this type of financing, we can offer no assurances that we will receive sufficient financing, if any, from the Dutchess Equity Line.
As of March 31, 2014 we have received aggregate net proceeds of $42,064, or approximately $0.01 a share, from the sale of 4,174,963 registered shares of our common stock under the Dutchess Investment Agreement.
Asher Enterprises Convertible Note 1
On September 16, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Asher Note 1) in the principal amount $32,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (Asher), a Delaware corporation, and Blue Water. The Asher Note 1 closed on September 18, 2013 and matures on June 18, 2014. The Asher Note 1 is convertible at 58% of the average of the lowest three trading prices of Blue Waters common stock during the ten trading day period prior to the conversion date after 180 days.
Blue Water analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $32,500 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.
On February 7, 2014, Blue Water repaid the Asher Note 1 in full with no conversion. Per the terms of the agreement, Blue Water repaid the Asher Note 1 at $44,886.51. No shares were issued in connection with the redemption of this note.
Asher Enterprises Convertible Note 2
On November 8, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Asher Note 2) in the principal amount $37,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (Asher), a Delaware corporation, and Blue Water. The Asher Note 2 closed on November 12, 2013 and matures on May 7, 2014. The Asher Note 2 is convertible at 58% of the average of the lowest three trading prices of Blue Waters common stock during the ten trading day period prior to the conversion date after 180 days.
Blue Water analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The fair value of the embedded beneficial conversion feature resulted in a partial discount of $33,033 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.
As of March 31, 2014, the outstanding balance due on the Asher Note 2 was $38,675, which includes $1,175 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $20,036.
Subsequently, on April 2, 2014, Blue Water repaid the Asher Note 2 in full with no conversion. Per the terms of the agreement, Blue Water repaid the Asher Note 2 at $51,775.68. No shares were issued in connection with the redemption of this note.
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Asher Enterprises Convertible Note 3
On December 23, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Asher Note 3) in the principal amount $27,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (Asher), a Delaware corporation, and Blue Water. The Asher Note 2 closed on January 7, 2014 and matures on September 26, 2014. The Asher Note 3 is convertible at 58% of the average of the lowest three trading prices of Blue Waters common stock during the ten trading day period prior to the conversion date after 180 days.
Blue Water analyzed the conversion option for derivative accounting consideration under ASC 815-15 Derivatives and Hedging and determined that the instrument should be classified as a liability once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $27,500 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.
As of March 31, 2014, the outstanding balance due on the Asher Note 3 was $28,091 which includes $591 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $17,771.
Mermaid Enterprises, N.V.
On October 9, 2013 we entered into a Purchase Agreement and issued a Convertible Promissory Note (Mermaid Note) as payment for the acquisition of three (3) separate business licenses in the country of St. Maarten, Dutch West Indies consisting of one (1) General Business License and two (2) Managing Directors Licenses. The value of this transaction was $35,000.
The Mermaid Note carries a principal amount of $35,000 and an interest rate of 10% per annum. The Mermaid Note is convertible into shares of our common stock at a fixed price of $0.0005 per share beginning no earlier than April 7, 2014. The Mermaid Note matures on October 9, 2015.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $35,000 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the effective interest method.
As of March 31, 2014, the outstanding balance due on the Mermaid Note was $36,659, which includes $1,659 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $26,442.
Subsequently, on April 10, 2014 Mermaid redeemed $5,000 of the Mermaid Note in exchange for 10,000,000 shares of our common stock. As of May 1, 2014, there was a $30,000 principal balance (not including any accrued interest) remaining on this note.
JMJ Financial
On January 31, 2014 (Effective Date) we sold to JMJ Financial (JMJ Financial) a $335,000 Convertible Promissory Note (JMJ Note). The JMJ Note provides up to an aggregate of $300,000 in gross proceeds after taking into consideration an Original Issue Discount (OID) of $35,000.
A key feature of the JMJ Note is that should Blue Water, at its sole discretion, repay all consideration received pursuant to the JMJ Note within 90 days of the Effective Date, there will be zero percent interest charged under the JMJ Note. Otherwise, there will be a one-time interest charge of 12% for all consideration received by Blue Water pursuant to the JMJ Note.
At any time after 180 days of the Effective Date, the Investor may convert all or part of the JMJ Note into shares of Blue Waters common stock at the lesser of $0.0185 a share or 60% of the lowest trade price in the 25 trading days prior to the conversion.
The JMJ Financial has agreed to restrict its ability to convert the JMJ Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The JMJ Note is a debt obligation arising
36
other than in the ordinary course of business, which constitutes a direct financial obligation of Blue Water. The JMJ Note also provides for penalties and rescission rights if Blue Water does not deliver shares of its common stock upon conversion within the required timeframes.
As of March 31, 2014, the outstanding balance due on the JMJ Note was $39,083, which includes $-0- in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $39,083.
Prim Note
On October 9, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (Prim Note) to an accredited investor in the principal amount of $100,000 with an interest rate of 10% per annum. The Prim Note is convertible into shares of our common stock at a fixed price of $0.005 per share beginning no earlier than 180 days from the date of issue. The Prim Note matures on March 26, 2016.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $100,000 to the note on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the effective interest method.
As of March 31, 2014, the outstanding balance due on the Prim Note was $100,110, which includes $110 in accrued interest. Further, as of March 31, 2014, the remaining unamortized debt discount was $99,314.
Additional Need and Sources of Financing
Currently we are exploring various sources of additional financing. However, it is important to note that other than the Dutchess Equity Line we presently do not have any material arrangements for additional financing. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Future equity financing, if ever available, could result in additional and potentially substantial dilution to existing shareholders.
Going Concern Consideration
Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 27, 2014, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 27, 2014. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months.
Off-Balance Sheet Transactions
We do not engage in off-balance sheet transactions.
Contractual Obligations
The following table summarizes the Companys contractual obligations as of March 31, 2014:
|
|
|
| Due Within | |||
Description |
| Total |
| 2014 |
| 2015 | |
|
|
|
|
|
|
| |
Convertible promissory notes | $ | 239,083 | $ | 65,000 | $ | 35,000 | |
| Total | $ | 239,083 | $ | 65,000 | $ | 35,000 |
CRITICAL ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange Commissions (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of Blue Waters management, necessary for a fair presentation of the financial position and operating results as of and for the three months ended March 31, 2014 and 2013, and cumulative from March 3, 2011 (inception) to March 31, 2014.
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Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, Blue Water considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of March 31, 2014 and December 31, 2013, Blue Water had no cash equivalents.
Revenue Recognition
Blue Water follows the guidance of FASB ASC Topic 605 for revenue recognition. In general, Blue Water recognizes revenue when (1) the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) the service has been provided, and (4) collectability is reasonably assured.
Blue Water anticipates generating future revenue from two sources: (i) food, beverage and souvenir sales from its Blue Water Bar & Grill restaurant concept presently under development and (ii) sales of its of distilled spirits, which includes its Blue Water Ultra Premium Rum. Revenue from both sources will be recognized at the time of the sale.
Accounts Receivable
Accounts receivable are stated at net invoice amount. An allowance for doubtful accounts is based on managements best estimate of uncollectible receivable balances based on the creditworthiness of the customer and prior collection history. As of March 31, 2014 and December 31, 2013 the allowance for doubtful accounts was $-0-.
Short-Term Investments
Blue Water accounts for its short-term investments, which are classified as trading securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that trading securities be carried at fair value. Unrealized gains and losses due to changes in fair value as well as realized gains and losses resulting from sales of securities are reported as Other Income/Expenses in the statement of operations. Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses is determined on a specific identification basis. As of March 31, 2014 and December 31, 2013, Blue Water had no short-term investments.
Long-Term Investments
Blue Water accounts for its long-term investments, which are designated as available-for-sale securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that available-for-sale securities be carried at fair value with unrealized gains and losses, net of tax, included in stockholders' equity under accumulated other comprehensive income (loss). Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. As of March 31, 2014 and December 31, 2013, Blue Water had long-term investments consisting of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0- a share
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
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Level |
| Description |
|
|
|
Level 1 |
| Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. |
Level 2 |
| Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. |
Level 3 |
| Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
The estimated fair values of the Companys financial instruments are as follows:
| Fair Value Measurement at March 31, 2014 Using: | |||||||||
|
|
|
|
|
|
|
|
| ||
Description |
| 3/31/14 |
| Quoted Prices In Active Markets For Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) | ||
Assets |
|
|
|
|
|
|
|
| ||
| Short-term |
|
|
|
|
|
|
|
| |
|
| Cash and equivalents | $ | 100,024 | $ | 100,024 | $ | - | $ | - |
Total assets measured at fair value | $ | 100,024 | $ | 100,024 | $ | - | $ | - | ||
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|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
|
|
| ||
| Accounts payable (related party) | $ | 348,827 | $ | 348,827 | $ | - | $ | - | |
| Accounts payable (non-related) |
| 18,000 |
| 18,000 |
|
|
|
| |
| Convertible notes payable, net of unamortized debt discount of $198,591 |
| 40,492 |
| |
|
|
| 40,492 | |
| Accrued Interest |
| 3,535 |
| 3,535 |
|
|
|
| |
Total liabilities measured at fair value | $ | 412,854 | $ | 381,736 | $ | - | $ | 40,492 |
[This space intentionally left blank]
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| Fair Value Measurement at December 31, 2013 Using: | |||||||||
|
|
|
|
|
|
|
|
| ||
Description |
| 12/31/13 |
| Quoted Prices In Active Markets For Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) | ||
Assets |
|
|
|
|
|
|
|
| ||
| Short-term |
|
|
|
|
|
|
|
| |
|
| Cash and equivalents | $ | 7,357 | $ | 7,357 | $ | - | $ | - |
Total assets measured at fair value | $ | 7,357 | $ | 7,357 | $ | - | $ | - | ||
|
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
|
|
| ||
| Accounts payable (related party) | $ | 192,907 | $ | 192,907 | $ | - | $ | - | |
| Accounts payable (non-related) |
| 33,000 |
| 33,000 |
|
|
|
| |
| Convertible notes payable, net of unamortized debt discount of $77,442 |
| 27,558 |
| |
|
|
| 27,558 | |
| Accrued Interest |
| 1,973 |
| 1,973 |
|
|
|
| |
Total liabilities measured at fair value | $ | 255,438 | $ | 227,880 | $ | - | $ | 27,558 |
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. During the three months ended March 31, 2013 Blue Water had no dilutive financial instruments issued or outstanding. However, as of December 15, 2013, and including the three months ended March 31, 2014 and cumulative from March 3, 2011 (inception) to March 31, 2014 Blue Water had dilutive financial instruments consisting of an aggregate of 3,000,000 share purchase warrants which enable the holder to purchase 1,000,000 shares of the Companys common stock at $.005 a share, $0.01 a share, and $0.015 a share, respectively.
Beneficial Conversion Feature
From time to time, Blue Water may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using either the straight line method or the effective interest method.
Income Taxes
We account for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
We maintain a valuation allowance with respect to deferred tax assets. Blue Water establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration Blue Waters financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
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Changes in circumstances, such as Blue Water generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Recently Issued Accounting Pronouncements
In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 has not had a material impact on Blue Waters financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update) in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 has not had a material impact on Blue Waters financial position or results of operations.
In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, Technical Corrections and Improvements in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 has not had a material impact on Blue Waters financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 has not had a material impact on Blue Waters financial position or results of operations.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
·
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
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·
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 has not had a material impact on Blue Waters financial position or results of operations.
In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on Blue Water's Consolidated Financial Statements.
Blue Water has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial statements.
Contractual Obligations
The following table summarizes the Companys contractual obligations as of March 31, 2014:
|
|
|
| Due Within | |||
Description |
| Total |
| 2014 |
| 2015 | |
|
|
|
|
|
|
| |
Convertible promissory notes | $ | 239,083 | $ | 65,000 | $ | 35,000 | |
| Total | $ | 239,083 | $ | 65,000 | $ | 35,000 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable since we are a smaller reporting company.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of principal executive officer and sole director, J. Scott Sitra, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be presented or detected on a timely basis.
Based on managements assessment, we have concluded that, as of March 31, 2014, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us required to be included in our annual and interim filings with the SEC.
Management has concluded that our disclosure controls and procedures had the following material weaknesses:
·
We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency has not resulted in any audit adjustments to our interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties;
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·
Blue Water lacks sufficient resources to perform the internal audit function and does not have an Audit Committee;
·
We do not have an independent Board of Directors, nor do we have a board member designated as an independent financial expert to Blue Water. The Board of Directors is comprised of one (1) member who also serves as Blue Waters principal executive officer. As a result, there is a lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by Blue Water; and
·
Documentation of all proper accounting procedures is not yet complete.
These weaknesses have existed since our inception on March 3, 2011 and, as of March 31, 2014, have not been remedied.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned material weaknesses, including, but not limited to, the following:
·
Considering the engagement of consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;
·
Hiring additional qualified financial personnel, including a Chief Financial Officer, on a full-time basis;
·
Expanding our current board of directors to include additional independent individuals willing to perform directorial functions; and
·
Increasing our workforce in preparation for exiting the development stage and commencing revenue producing operations.
Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses may not be overcome in the near-term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the limited advice of outside professionals and consultants.
Changes in Controls and Procedures
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings
No officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management. We are not aware of any pending or threatened legal proceedings involving Blue Water Global Group, Inc.
During the past ten (10) years, J. Scott Sitra and Michael Hume have not been the subject of the following events:
1)
Any bankruptcy petition filed by or against any business of which either Mr. Sitra or Mr. Hume were a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time;
2)
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding;
3)
An order, judgment, or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting Mr. Sitras or Mr. Humes involvement in any type of business, securities or banking activities; and
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4)
Found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Item 1A. Risk Factors
Not applicable since we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit Number |
| Description of Exhibit |
|
|
|
3.1 (1) |
| Articles of Incorporation |
3.2 (1) |
| Bylaws |
3.3 (2) |
| Amendment to Articles of Incorporation dated June 13, 2013 |
3.4 (3) |
| Certificate of Change dated September 9, 2013 |
31.1 |
| Section 302 Certifications under Sarbanes-Oxley Act of 2002 |
32.1 |
| Section 906 Certification under Sarbanes Oxley Act of 2002 |
(1)
Incorporated by reference to our Registration Statement on Form S-1 filed May 27, 2011.
(2)
Incorporated by reference to our Current Report on Form 8-K filed July 11, 2013.
(3)
Incorporated by reference to current report on Form 8-K filed on September 23, 2013.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereto duly authorized on this 12th day of May, 2014.
BLUE WATER GLOBAL GROUP, INC.
By:
/s/ J. Scott Sitra
J. Scott Sitra
President, Chief Executive Officer,
Principal Executive Officer, Secretary, Treasurer,
Principal Accounting Officer and Director
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