Item 1. Business
Overview of Our Business
We were incorporated on March 3, 2011 in the State of Nevada as Blue Water Restaurant Group, Inc. On June 24, 2013 we changed our name to Blue Water Global Group, Inc.
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 selling a line of premium rums which include its flagship rum Blue Water Ultra Premium Rum™ and aged spiced Blue Water Caribbean Gold™ Premium Rum in St. Maarten, Dutch West Indie and Anguilla, British West Indies. 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.
Emerging Growth Company Status
We are an "emerging growth company", as defined in the Jumpstart our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company”, at such time are we cease being an “emerging growth company”, the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an “emerging growth company” or a “smaller reporting company”. Specifically, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
Industry Background
There are essentially five basic segments in the restaurant industry:
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Casual Dining - A restaurant that serves moderately priced food in a casual, often times “themed” environment. With the exception of buffet-style restaurants, casual dining restaurants provide table service;
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Family Style - A restaurant that normally has a fixed menu and fixed price. Customers typically sit at communal tables such as large picnic tables with bench seats;
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Fast Food, also referred to as Quick Service Restaurants (QSR) - The emphasis is on speed. Food is normally already prepared or can be prepared with little effort. This class of restaurant ranges from street vendors selling hot dogs to global operators such as McDonald’s Corporation;
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Fast Casual - A restaurant that does not provide table service, but will usually serve its food on non-disposable plates with actual silverware. The price point and quality of food are normally a little higher than most fast food restaurants; and
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Fine Dining - A restaurant that offers full table service with specific meal courses often prepared by highly trained executive chefs. As can be expected, the restaurant’s décor typically provides for a high-end atmosphere and the wait staff is usually highly trained and better able to provide for a memorable dining experience.
Our planned restaurants will all be within the casual dining category.
St. Maarten, Dutch West Indies
Our initial restaurant will be located on the island of St. Maarten, Dutch West Indies. Based on the experience and observations of our management, on the island of St. Maarten the majority of the restaurants are independently owned and operated “mom and pop” type restaurants, particularly within the casual dining and fine dining restaurant categories. Mom and pop restaurants are typically smaller in size, family or individually owned and operated, and non-franchised. From our observations most of the chain and franchised restaurants in St. Maarten are in the fast food category, which we will not be in direct competition against.
In addition to our observations, and because the St. Maarten tourism industry will contribute a significant portion of each restaurant’s overall sales volume, it is important to note that 2014 was a record year for tourism in St. Maarten over 2013, which was also a record breaking year. According to the Port of St. Maarten, St. Maarten received a record 2,000,864 cruise ship passengers, which was up from 1,785,670 cruise ship passengers in 2013. The Port of St. Maarten anticipates this trend will continue and, within a few years, St. Maarten will be receiving in excess of 2.5 million cruise ship passengers annually, especially since St. Maarten is one of the few Caribbean ports that can accommodate Royal Caribbean’s Oasis Class Vessel, of which there are currently two in service (Oasis of the Seas and Allure of the Seas) with a third one presently under construction and slated to enter service in 2016.
Competition
The restaurant industry is highly competitive and affected by external changes such as economic conditions, disposable income, consumer tastes, and changing population and demographics. The success or failure of our future restaurants will depend largely on our ability to attract new and, more importantly, repeat customers. Restaurants typically prefer repeat, or “regular”, customers because they are a known quantity and enable the restaurant’s management to better forecast sales patterns and cash flows, time inventory purchases, and schedule vacation time for employees.
To this effect our primary marketing efforts will target tourists staying on the island or visiting for the day on a cruise ship. In the personal experience of our management, many of these visitors return each year at about the same time. If we can provide them with a memorable dining and drinking experience then we believe that there is a good chance that they will seek out our restaurant again upon their return the following year.
Further, and as a byproduct to these marketing efforts, we will most likely attract some of the “local” ex-patriot community, in particular ex-patriot Americans and Canadians. It is important that we also provide them with a memorable dining and drinking experience so that they will return again and again in the weeks and months to come. This will be particularly important during the “low season” (May through October) when many restaurants in St. Maarten, Dutch West Indies typically operate at a loss or close temporarily.
Factors that are material to a restaurant’s competitive position include brand identity and loyalty, food quality, variety and price of menu items, customer service, location, the number and proximity of competitors, décor and cleanliness, and general public reputation.
Based on our management’s personal experience the Caribbean region where we intend to open our restaurants is primarily dominated by smaller independent restaurant owners. There are a few well-known brands operated by franchisees in the region, but they are mostly within the fast food restaurant category and are therefore not in direct competition with our proposed restaurants. We believe we will primarily be competing against “mom and pop” restaurants, which are typically comprised of smaller family or individually owned and operated non-franchised restaurants and some of the destination resort properties that operate on-site restaurants for their guests.
We believe our business plan is highly competitive in this marketplace and, assuming we can secure the necessary financing, will allow us to open one new restaurant per year over the next five years while utilizing our current management’s knowledge and experience within the restaurant industry.
Plan of Operations
Blue Water was 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 selling a line of premium rums which include its flagship rum Blue Water Ultra Premium Rum™ and aged spiced Blue Water Caribbean Gold™ Premium Rum in St. Maarten, Dutch West Indies and Anguilla, British West Indies. 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.
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 is the Perfectly CaribbeanSM experience featuring 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, hand tossed pizzas, and specialty homemade desserts. The restaurant will close at 11pm nightly and the bar will close later at the manager’s 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 that will be approximately 130 square feet in size. 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.
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.
St. Maarten Blue Water Bar & Grill™
In February 2015 Blue Water broke ground on its first Blue Water Bar & Grill™ in St. Maarten, Dutch West Indies. The beachfront building site is located in the pristine eco-friendly Indigo Bay development and is the second restaurant approved for beachfront construction. The first Indigo Bay restaurant, Kokomo, opened in December 2013 and has been a tremendous success to date. For more information visit their respective websites at www.indigo-bay.com and www.kokomo-sxm.com.
Key elements to the design and site location include:
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Blue Water's building site (Lot #L04) measures approximately 1,552 square meters (16,706 square feet) and is located on a picturesque white sand beach.
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This Blue Water Bar & Grill™ location will feature a large, open-aired tiki roof, swimming pool with swim up bar stools, two fire pits, and beach and pool lounge chairs with full drink and food service.
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The restaurant's foot print measures approximately 415 square meters (4,467 square feet) and seats up to 203 people:
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98 under the main tiki roof, 64 under tropical cover, 26 at the bar, and 15 at the swim up bar.
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Indigo Bay is an eco-friendly commercial and residential development encompassing approximately 150 acres of lush tropical and beachfront land.
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Indigo Bay is St. Maarten's newest and closest attraction to the Port of St. Maarten and is just a quick ride by water taxi for cruise ship passengers.
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Approximate GPS coordinates: 18⁰01'17.5 North and 63⁰04'33 West.
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 restaurant’s 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 restaurant’s 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.
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 restaurant’s 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 restaurant’s management or employees. Secret shoppers then report their unbiased experiences to our executive level management.
Blue Water Premium Rums
Through its wholly-owned subsidiary, Blue Water Beverage Brands, Ltd., Blue Water has developed a line of premium rums that are produced and bottled in the Dominican Republic. These rums are currently sold in St. Maarten, Dutch West Indies and Anguilla, British West Indies. Blue Water intends to expand these brands in 2015 through distribution channels in this Caribbean region, including the exclusive and influential St. Barths, French West Indies. Blue Water will continue expanding these brands throughout the Caribbean and, ultimately, export them into the United States in early 2016.
Blue Water Ultra Premium Rum™
Made in the Dominican Republic and steeped in time honored elite Caribbean rum making tradition dating back to the eighteenth century, Blue Water Ultra Premium Rum™ is distilled from pure sugarcane harvested at the pinnacle of freshness and carefully crafted by a maestro ronero (master rum-maker). Through our dedication to tradition and our commitment to exceptional quality comes an ultra premium rum of unparalleled smoothness and distinctive taste that can be experienced neat, on the rocks, or in your favorite cocktail.
Blue Water Ultra Premium Rum™ is 40% alcohol/volume (80 proof).
Blue Water Caribbean Gold™ Premium Rum
Crafted in the Dominican Republic - claimed by Christopher Columbus in 1492 and the birthplace of Europe’s quest for Caribbean treasure and riches - comes a gold spiced rum able to satisfy even the most ruthless pirate and noble conquistador. Carefully blended using centuries old rum making techniques, Blue Water Caribbean Gold Rum™ obtains its pure color and sweet undertones from aging three years in oak barrels before being delicately infused with natural spices making it a true Caribbean spiced rum of unforgettable taste that can be enjoyed neat, on the rocks, or in your favorite cocktail.
Blue Water Caribbean Gold™ Premium Rum is 35% alcohol/volume (70 proof).
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 Taurus’s 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 three or four of these transactions each fiscal year. It is important to note that Blue Water’s 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 issued 20,000,000 shares of its common stock, $0.001 par value, to Blue Water, which represents approximately 20% of Stream Flow’s issued and outstanding shares of common stock as of April 6, 2014 in return for Blue Water agreeing to pay all of Stream Flow’s expenses related to obtaining a listing on the OTCBB.
Stream Flow is presently in the process of preparing and filing its Form 15c2-11 with FINRA, the second 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 additions (subtractions) to equity.
As of December 31, 2014 and 2013, Blue Water had accumulated $11,437 and $-0-, respectively, in costs related to the Stream Flow shares and there were no observable inputs for a fair valuation. During the year ended December 31, 2014, Blue Water recorded a net unrealized gain of $188,563 relating to its stock holdings based on expected market listing, net of related costs as an addition to equity. Accordingly, Blue Water carried the Stream Flow shares at $200,000 and $-0- valuation on the balance sheet as of December 31, 2014 and 2013, respectively.
Next Level Hockey, LLC
On September 5, 2014, and under this Strategic Alliance Agreement, Blue Water entered into a definitive agreement with Next Level Hockey, LLC (“Next Level”), a New Jersey limited liability company. The following is a summary of the terms of this transaction:
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The Next Level transaction will essentially mirror Blue Water’s December 2013 investment in Stream Flow Media, Inc.
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Blue Water will own a net 15% equity interest in Next Level when it goes public on the OTCBB
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Next Level anticipates filing its initial Registration Statement on Form S-1 with the SEC in Q1 2015
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Next Level anticipates applying for a listing on the OTCBB in Summer 2015
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.
On June 10, 2014 Blue Water terminated the Investment Agreement with Dutchess and subsequently withdrew its effective registration statement with the SEC.
Blue Water 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 during the term of this agreement.
Planned 2015 Capital Expenditures
Based on generating a minimum of $1.5 million in new financing during the fiscal year ending December 31, 2015, we anticipate allocating the capital as follows:
Proposed 2015 Milestones
First Quarter Ending March 31, 2015
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Officially launch Blue Water’s premium rum on the island of St. Maarten, Dutch West Indies
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File a Form 15c2-11 to enable Stream Flow Media’s Common Stock to trade on the OTCBB
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Initiate general marketing campaign for Blue Water’s premium rums
Second Quarter Ending June 30, 2015
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Expand rum distribution to St. Bart’s, French West Indies and Anguilla, British West Indies
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Begin scouting for a suitable Blue Water Bar & Grill™ location in Aruba, Dutch West Indies
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Expand brand awareness of the line of premium rums
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Obtain FINRA approval for Stream Flow’s OTCBB listing and commence trading
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Initiate production of 750-ml bottles of Blue Water’s premium rums designed and approved for the US market
Third Quarter Ending September 30, 2015
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Open the flagship Blue Water Bar & Grill™ in St. Maarten, D.W.I.
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Market and promote the St. Maarten Blue Water Bar & Grill™ brand
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Finalize the Blue Water Bar & Grill™ restaurant location in Aruba, Dutch West Indies
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Obtain FINRA approval for one-time stock dividend of 5,000,000 shares of Stream Flow’s common stock to Blue Water’s shareholders
Fourth Quarter Ending December 31, 2015
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Launch third premium rum (an extra old Añejo)
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Finalize architectural and engineering plans for Aruba Blue Water Bar & Grill™
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Execute a Distribution Agreement to export and distribute Blue Water’s premium rums in the United States
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Commence construction of the Blue Water Bar & Grill™ restaurant in Aruba, Dutch West Indies
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Complete production and bottling of 750-ml bottles of Blue Water’s premium rums designed and approved for the US market
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. Aside from the Blue Water Bar & Grill™ currently under development in St. Maarten, Dutch West Indies, we have also identified the following Caribbean islands we intend to eventually open a Blue Water Bar & Grill™ restaurant:
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Aruba, Dutch West Indies;
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Nassau, Bahamas;
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Cozumel, Mexico;
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Grand Cayman; and
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Barbados.
We estimate that we will need to raise an aggregate of between $4 - $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
The Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum brands are currently available in St. Maarten, Dutch West Indies and Anguilla, British West Indies. Blue Water intends to expand these brands during 2015 through distribution agreements into the neighboring islands, including the exclusive and influential St. Barths, French West Indies. Blue Water will continue expanding these brands throughout the Caribbean Region and, ultimately, export them into the United States in early 2016.
In addition to the Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum brands, Blue Water is presently working with its Dominican Republic based producer and bottler to expand its product line premium rums. These rums, along with other similar products, will be introduced and made available to consumers in the future.
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:
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Grand opening promotions;
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Traditional paid advertising (e.g. radio, television, newspaper, etc.);
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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 restaurant’s annual gross sales once it is sufficiently established with regular and recurring revenue.
Financing
We estimate that we will need to generate at least $1.5 million in additional financing in order to meet our planned 2015 capital expenditures. Further, in order to proceed with our long-term plans, we anticipate that we will need to generate at least between $4 and $5 million in additional long-term financing.
Madison Park Advisors Engagement
On July 21, 2014, Blue Water entered into an engagement with Madison Park Advisors, LLC, a New York investment advisory firm that also manages the Madison Park Investment Fund, to provide the completion capital for the St. Maarten, Dutch West Indies Blue Water Bar & Grill™ currently under development.
An ongoing offering of Blue Water’s common stock was prepared with the assistance of Madison Park Advisors. We anticipate that the funds raised through this offering should satisfy a significant portion of our planned 2015 capital expenditures. However, because this is a “best efforts” offering, we cannot offer any assurances that we will generate sufficient financing, if any, from this offering or be able to undertake any of these planned capital expenditures.
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 our engagement with Madison Park Advisors 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.
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 business’s 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
We are presently using the following trademarks and service marks:
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“Blue Water Bar & Grill”;
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“Blue Water Ultra Premium Rum”;
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“Blue Water Caribbean Gold”;
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“Perfectly Caribbean”; and
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“Authentic. Pure. Caribbean.”
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.
Item 1A.
Item 1A. Risk Factors
If any of the following risks actually occur, our business, financial condition and results of operations could be harmed and you may lose your entire investment.
Industry Risk Factors
Our industry is historically seasonal, especially in the Caribbean region where we intend to open our restaurants.
Our industry is historically seasonal, especially in the Caribbean region where we intend open our restaurants. Typically the high season spans the months from November through April. Low season, which typically spans May through October and coincides with hurricane season, often experiences unpredictable and severe weather, storms and other similar conditions which negatively impact overall tourism. Since our restaurants will primarily cater to tourists, failure to generate sufficient sales volumes during high season could prevent our business from reaching profitability, or if profitability is ever obtained, fail to maintain such profitability.
Our industry is highly competitive and as a smaller reporting company we may be at a disadvantage to our competitors.
The restaurant industry is highly competitive in general. Although our targeted marketplace is the Caribbean region where we will be competing primarily with “mom and pop” restaurants, which are typically comprised of smaller family or individually owned and operated non-franchised restaurants, we may have to compete in the future against larger competitors that have greater financial resources and name recognition than we have. We anticipate facing a high level of competition when opening new restaurants for customers (both tourists and locals), securing prime leasehold locations where we wish to open our restaurants, and attracting and retaining qualified employees. Many aspects of our business model are not proprietary and, if they prove successful, may be replicated by others. We cannot prevent such competitors from entering the markets in which we seek to open new restaurants.
Further, because our industry is particular sensitive to cost increases and consists of mostly non-public reporting companies we may be at a competitive disadvantage because of our reporting obligations. We face additional expenses, which a non-public restaurant business does not, including:
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quarterly and annual PCAOB auditor fees;
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EDGAR filing fees; and
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legal and consulting fees related to our ongoing SEC compliance and reporting obligations.
Our non-public competitors do not incur these costs, which puts us at a competitive disadvantage. These expenses are projected to aggregate approximately $125,000 annually in 2015. As our business continues to grow and develop our financial statements and our SEC filings will become more complex, which we estimate will cause these compliance expenses to continue increasing annually, potentially substantially. If we are unable to effectively compete on a continuing basis or unforeseen competitive pressures arise, such inability to compete could have a material adverse effect on our business, results of operations, and overall financial condition.
Our industry is subject to many various government regulations which could require unexpected expenditures and/or reduce our ability to generate sufficient revenues to obtain profitability.
Our industry is subject to many various laws which directly affect our organization and 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.
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 business’s overall revenues and ability to achieve (and if achieved, maintain) profitability.
Company Risk Factors
We lack an operating history and have losses which we expect to continue into the future. There is no assurance our future operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably, our business will fail.
We were incorporated on March 3, 2011, and have generated $50,000 in revenues and incurred ($5,182,398) in losses through December 31, 2014. We have very little operating history upon which an evaluation of our future success or failure can be made. We have not achieved profitability and expect to continue to incur net losses throughout the fiscal year ending December 31, 2015. We expect to incur significant operating expenses and, as a result, will need to generate significant revenues to achieve profitability, which may not occur. Even if we do achieve profitability, we may be unable to sustain or increase profitability on an ongoing basis which could cause us to go out of business.
We need to raise additional capital. Failure to secure adequate financing may prevent us from generating sufficient levels of revenue which could cause our business to fail.
Our operations to date have been primarily funded by our officers, directors, and current stockholders. We estimate that we will need to generate at least $1.5 million in new financing during the fiscal year ending December 31, 2015 in order to satisfy our planned capital expenditures and maintain sufficient levels of working capital. Further, in order to proceed with our long-term plans, we anticipate that we will need to generate at least $4 to $5 million in additional financing.
We have engaged Madison Park Advisors, LLC, manager of the Madison Park Investment Fund, to provide sufficient capital to continue operations as well as for our planned 2015 capital expenditures. We presently do not have any alternative sources of financing secured. Although we believe that Madison Park Advisors will provide for our planned capital expenditures as agreed upon, we cannot provide any assurances that we will receive a sufficient amount of funding from them in a timely manner to meet the following planned capital expenditures. As such, we are continuing to have discussions and explore alternative methods and sources of financing.
If we are not able to obtain sufficient additional financing, we may have to cease operations and investors will lose their entire investment.
Continued weak economic conditions may hinder our ability to open new restaurants, achieve profitability, and raise the $4-$5 million in additional financing we need to pursue our long-term business goals.
The economic conditions starting in late 2008 and continued through fiscal 2014 in the United States and throughout the rest of the world, particularly the Caribbean region where we intend to focus our operations, have contributed, and may continue to contribute to, high unemployment levels, lower consumer spending and reduced credit availability, and has in general impacted business overall and consumer confidence. While it appears economic conditions started improving in the second half of fiscal 2014, there are no guarantees such improvements will continue or remain. If such conditions do not continue improving or begin to worsen again, they could have a further negative impact on tourism to the Caribbean region where we intend to operate, force us to delay new restaurant opening(s), result in reduced per person food, beverage, and souvenir purchases at our future restaurants, and prevent us from achieving profitability, which could affect our future sales, overall business, and force us to cease operations in which case investors could lose their entire investment.
In addition to our immediate financing needs, we anticipate we will need to raise an additional $4 - $5 million to achieve our long-term goals and open additional restaurants throughout the Caribbean region. If weak economic conditions continue, we may not be able to generate this amount of financing and be forced to delay or reevaluate our long-term business plan. Further, even if we are able to obtain this future financing, it could be on terms that may be substantially dilutive to investors in our business which could affect our future earnings per share (EPS) and result in a loss for anyone purchasing shares of common stock in our business.
There is substantial uncertainty as to whether we will continue operations. If we discontinue operations, you could lose your entire investment.
Our independent registered public accounting firm has discussed their uncertainty regarding our business operations in their audit report dated April 13, 2015 which is part of the financial statements that are part of this Annual Report. This means that there is substantial doubt that we can continue as an ongoing business for the next 12 months. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue in business. As such, we may have to cease operations and you could lose your entire investment.
Focusing all of our business interests entirely on the Caribbean region may result in increased costs and risks.
We intend to open our initial Blue Water Bar & Grill™ restaurant in St. Maarten, Dutch West Indies and eventually expand the concept to other islands throughout the Caribbean region. Because most islands within the Caribbean region are independent nations or territories of other sovereign nations, operating internationally throughout the Caribbean region will expose us to a number of risks on each island we chose to operate, including:
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risks of social, political, and economic instability;
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risks of increases in duties and taxes;
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labor risks, including attracting and retaining qualified local workers, general labor unrest, and complying with different labor laws on each island we operate;
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risks relating to government corruption and anti-bribery laws;
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changes in laws and policies governing the operations of foreign-based companies; and
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we may be exposed to exchange rate risks if some of our future revenues and expenses are incurred in foreign currencies that fluctuate independently of the US dollar.
We cannot assure you that our business will not be affected by the aforementioned risks, each of which could have a material adverse effect on our business, potentially causing us to cease operations and you to lose your entire investment.
Because all of our future operating activities and profits, if any, will be generated outside of the United States, we may be subjected to restrictions or substantial tax consequences should we try to repatriate our funds to the United States, thereby potentially limiting our ability to conduct future business within the United States.
All of our intended future business operations will be conducted within the Caribbean region. Presently we deposit a significant portion of our cash holdings in accounts held at CIBC/First Caribbean Bank in St. Maarten, Dutch West Indies. Although we have not experienced any delays or restrictions, we could be subjected to restrictions and unexpected delays on transferring our cash balances into the United States under the provisions of the Patriot Act or applicable Anti-Money Laundering (AML) laws. Should our bank or the US government take such precautions to verify the source of our funds, they could suspend transfers of our cash to the United States until such verification procedures are completed, which could delay the transfer of our funds by several business days. Such verification procedures could be enacted if either our bank or the US government were to suspect any of the funds held in our accounts were linked to:
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financing terrorism;
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illicit profits from drug trafficking; or
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proceeds from money laundering activities.
In addition to the foregoing considerations, we will also be subjected to other tax considerations when repatriating our funds in the United States.
Under current law taxes profits earned by US corporations abroad may be deferred indefinitely, as long as those profits remain in the country they were earned. Because the countries in the Caribbean region where we intend to operate levy little to no corporate income taxes, it will be in our interest to maintain our profits, if any, where they are earned.
Should we wish to repatriate our profits to the United States, those profits would be subject to US income taxes, less applicable foreign tax credits. Because the United States currently has one of the highest corporate tax rates in the world (35%), repatriating funds in the United States could significantly increase our overall effective tax rate which would have a material adverse effect on our results of operations and financial condition and impede our ability to grow and expand our business.
We intend to retain most, if not all, of our profits outside of the United States. We intend to repatriate only enough funds annually to maintain our US operations, which presently, and will continue to, consist of maintaining reporting and compliance requirements with the Securities and Exchange Commission, which we project to aggregate approximately $125,000 annually in 2015. As our business continues to grow and develop our financial statements and our SEC filings will become more complex, which we estimate will cause these compliance expenses to continue increasing annually, potentially substantially. If these expenses increase substantially, then our effective tax rate may also increase as the amount of funds we are required to repatriate each fiscal year increases.
As a holder of our common stock, a delay in repatriating our funds or an increase in our overall effective tax rate could result in you experiencing:
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lower per share earnings, if any, relating to our common stock; and
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a decrease in the valuation or loss in your investment in our common stock.
Our principal officer and sole director, J. Scott Sitra, currently controls approximately 62.8% of our eligible voting securities, inclusive of direct and indirect holdings of common stock and Series A Preferred Stock. Accordingly, Mr. Sitra can solely determine and control all corporate decisions, even if such decisions may not be in the best interest of minority shareholders.
Our principal officer and sole director, J. Scott Sitra, currently controls (through direct ownership and indirectly through his private corporation, Taurus Financial Partners, LLC) an aggregate of 170,000,000 votes in all voting matters, or approximately 62.8%, of the eligible votes. Accordingly, Mr. Sitra can solely determine the outcome of all corporate transactions or other matters, including mergers, consolidations and the sale of all or substantially all of our assets. The interests Mr. Sitra may differ from the interests of the other shareholders and thus result in corporate decisions that are disadvantageous to other shareholders.
The success of our business depends heavily on key personnel, particularly J. Scott Sitra and Michael Hume, and their business experience and understanding of our industry. Our business would likely fail if we were to lose their services.
The success of our business will depend heavily upon the abilities and experience of our executive officers, J. Scott Sitra and Michael Hume. The loss of either officer would have a significant and immediate impact on our business, results of operations, and overall financial condition. Further, the loss of either officer would force us to seek a replacement or replacements who may have less general business experience and, in particular, experience in our
industry, fewer industry contacts, and less understanding of our overall business plan. We can make no assurances that we will be able to find a suitable replacement should either officer depart, which could force us to curtail operations and/or cease operations, whereby you could lose your entire investment.
Neither Mr. Sitra nor Mr. Hume is not presently covered by an employment agreement nor is either subject to a non-compete agreement which would survive the termination of their employment. Both Mr. Sitra and Mr. Hume can terminate their relationship with us at any time without cause. Further, we do not carry “key person” insurance on any employee, including Messrs. Sitra and Hume. The departure of Mr. Sitra or Mr. Hume would most likely have a severe and negative impact on our overall business and cause us to cease operations, whereby you could lose your entire investment.
In addition to our dependency on Mr. Sitra’s and Mr. Hume’s continued services, our future success will also depend on our ability to attract and retain additional future key personnel, especially in the areas of restaurant managers. We face intense competition for these individuals from well-established and better financed competitors. We may not be able to attract qualified new employees or retain existing employees, which may have a material adverse effect on our results of operations and financial condition.
Because our executive officers, J. Scott Sitra and Michael Hume, devote a limited amount of their time to our operations our business could fail if either is unable or unwilling to devote a sufficient amount of time to our business.
The responsibility of developing our core business, securing the financing necessary to commence full-scale operations, and fulfilling the reporting requirements of a public company all fall upon our executive officers, J. Scott Sitra and Michael Hume. Mr. Sitra presently dedicates approximately 80% of his professional time to Blue Water, or between 30 and 45 hours per week, and Mr. Hume presently dedicates approximately 25% of his professional time to Blue Water, or between 10 and 15 hours per week.
We are dependent upon Mr. Sitra’s knowledge of SEC reporting companies and microcap finance. We have not formulated a plan to resolve any possible conflict of interest with his other competing business activities, which principally involves his position as President and Chief Executive Officer at Taurus Financial Partners, LLC (“Taurus”), a boutique consulting firm specializing in taking emerging development companies public on the OTCBB. In addition, it is important to note that as of April 6, 2015 Taurus owned 16,000,000 shares of our common stock and 150,000 shares of our Series A Preferred Stock, or approximately 61.3% of all eligible votes in all corporate voting matters. Mr. Sitra presently is not under an employment agreement with any of his business interests, including our business as well as Taurus. If he were to enter into such an agreement with an outside business interest, he could be forced to resign from our business or devote even less time to our business interests than he presently does.
In addition to the foregoing, we also rely especially heavily on Mr. Hume’s knowledge and experience in the restaurant industry to further our business development. We have not formulated a plan to resolve any possible conflict of interest with his other competing business activities, which principally involves his position as General Manager of Hooter’s Restaurant, a sports-themed restaurant he has been operating since October 2013. Potential conflicts that may arise between his competing business activities include, among others we may not presently foresee:
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Mr. Hume presently is not under an employment agreement with any of his business interests, including our business. If he were to enter into such an agreement with an outside business interest, he could be forced to resign from our business or devote even less time to our business interests than he presently does; and
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Mr. Hume’s contacts, most notably experienced restaurant and bar managers and training personnel that he wishes to eventually employee through our business, could alternatively enter into exclusive employment agreements with his competing business interests.
In the event either executive officer is unable to fulfill any aspect of their duties, we may experience a shortfall or complete lack of revenue resulting in little or no profits and the eventual closure of our business, whereby you may lose your entire investment.
Our principal officer also serves as our sole director on our Board of Directors. As such, he has the ability to unilaterally decide all non-voting matters, including the ability to establish compensation packages, most notably his own.
Our principal officer, J. Scott Sitra, also serves as our sole director on our Board of Directors. As such, and in all non-voting matters, he can unilaterally determine corporate actions by issuing a Resolution of the Board of Directors. The interests of our sole director may differ from the interests of the other shareholders and thus result in corporate decisions that are disadvantageous to other shareholders. In particular, and at his sole discretion, he may establish his own compensation package, or the compensation package of our other executive officer, Michael Hume, which could be contrary to the interests of other shareholders, and possibly prevent us from ever achieving profitability, have a negative impact on our overall business, and result in you losing all or part of your investment.
Our Sole Director and Principal Executive Officer, J. Scott Sitra, may be subject to conflicts of interest.
Our Sole Director and Principal Executive Officer, J. Scott Sitra, has potential conflicts of interest in his dealings with us. Circumstances under which a conflict of interest could arise between us and Mr. Sitra include:
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Mr. Sitra is free to arbitrarily establish his own compensation package (or that of our other executive officer, Michael Hume);
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Future compensation agreements with Mr. Sitra or others will not be negotiated at arm’s-length as would normally occur if the agreements were with unaffiliated third parties;
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Acquisitions and purchases or sales of assets and other similar transactions can be made without due diligence or extended negotiation; and
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Business combinations or the implementation anti-takeover “poison pill” preventative measures.
We have not formulated a policy for potential conflicts of interest that may arise between us and Mr. Sitra. If a potential conflict of interest arises and cannot be resolved, the result could be contrary to the interests of other shareholders and prevent us from ever achieving profitability, have a negative impact on our overall business, and result in you losing all or part of your investment.
The projected costs and other related expenses used in our business plan are estimates made by our management. Our actual costs related to opening our proposed restaurant may differ significantly.
The projected costs and other related expenses in our business plan and in the Plan of Operation starting on page 6 of this Annual Report are mere cost estimates and forecasts made by our management. Our actual costs related to opening and operating our proposed restaurant may differ significantly from these 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.
We have agreed to indemnify our officers and directors against lawsuits to the fullest extent of the law.
We are a Nevada corporation. Nevada law permits the indemnification of officers and directors against expenses incurred in successfully defending against a claim. Nevada law also authorizes Nevada corporations to indemnify their officers and directors against expenses and liabilities incurred because of their being or having been an officer or director. Our organizational documents provide for this indemnification to the fullest extent permitted by law.
We currently do not maintain any insurance coverage. In the event that we are found liable for damages or other losses, we would incur substantial and protracted losses in paying any such claims or judgments. We have not maintained liability insurance in the past, but intend to acquire such coverage immediately upon resources becoming
available. There is no guarantee that we can secure such coverage or that any insurance coverage, if ever secured, would protect us from any damages or loss claims filed against it.
We may incur additional risks and significant increases in annual costs to be a public company, which requires us to maintain compliance with Securities and Exchange Commission reporting requirements. We may not be able to absorb such increased annual costs.
We may incur additional risks and significant increases in annual costs associated with our public company reporting requirements, which include:
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compliance with applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC;
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compliance with all applicable SEC rules and regulations, including reporting in a timely manner our quarterly and annual operating results, which will significantly increase our legal and financial compliance costs and make some activities more time consuming; and
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increased exposure to broader shareholder claims and litigation may make it more difficult and more expensive for us to obtain director and officer liability insurance. Without obtaining such insurance coverage, which we currently do not have, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.
Presently we estimate these additional reporting and compliance requirements are projected to aggregate approximately $125,000 annually in 2015. As our business grows and develops our financial statements and our SEC filings will become more complex, we anticipate these annual costs will increase, potentially substantially. Additionally, we have not obtained quotes for officers and directors insurance and will not do so until we begin generating sufficient cash flows to pay the annual premiums on such a policy. Further, we may not be able to absorb these costs of being a public company which could negatively affect our business operations and may result in you losing your entire investment.
Risk Factors Relating to Our Common Stock
There is a limited, volatile, and sporadic public trading market for our common stock and we cannot assure you that an active public trading market for our common stock will develop, of if developed, be sustained. Even if a market further develops, you may not be able to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
There is presently a limited public trading market for our registered common stock which presently trades on the OTC Bulletin Board (“OTCBB”) under the trading symbol “BLUU”.
Even though our registered common stock is approved for quotation and electronic trading on the OTC Bulletin Board, the number of institutions and/or persons interested in purchasing our registered common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including, among others, the fact that we are a small and unproven company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community responsible for generating or influencing trading volume, and that even if we were to come to the attention of such institutions and/or persons, they tend to be more risk averse and may be reluctant to follow an unproven business such as ours or purchase or recommend the purchase of our shares until such time as we have demonstrated sufficient success with our business plan. As such, there may be periods of several days or more when trading activity in our shares of common stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without adversely affecting their share price. We cannot assure you that an active public trading market for our registered common stock will develop and, if developed, be sustained.
Even if a sustained active public trading market develops for our registered common stock, the market price of our common stock may also fluctuate significantly in response to the following factors, most of which are beyond our control:
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variations in our quarterly operating results;
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changes in general economic conditions and consumer spending habits;
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announcements by us or our competitors of significant new contracts, acquisitions, strategic partnerships or joint ventures, or capital commitments;
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loss of a significant distributor, retailer, partner or joint venture participant; and
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the addition or loss of key managerial and collaborative personnel.
The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and that have often been unrelated to the operating performance of these companies. Any such fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. As a result, stockholders may be unable to sell their shares, or may be forced to sell them at a loss.
We do not intend to pay any dividends on our common stock, therefore there are limited ways in which you can make a profit on any investment in Blue Water Global Group, Inc.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we may seek additional funding in the future, our future funding sources may likely prohibit us from paying any dividends. Because we do not intend to declare dividends, any gain on an investment in our shares of common stock will need to come through the appreciation of our common stock’s share price, for which we can give no assurances that our common stock will ever appreciate in value and, even if it does appreciate in value, that you will be able to sell your shares of our common stock for a profit.
We have certain anti-takeover provisions and may issue additional stock, both common and preferred, without shareholder consent which may make it difficult, if not impossible, to replace or remove our current management and could also result in significant dilution to an investment in our common stock.
Our Articles of Incorporation, as amended, authorizes the issuance of up to 700 million shares of common stock and of up to 5 million shares of preferred stock with such rights and preferences as may be determined from time to time by our Board of Directors. Our Board of Directors may, without requiring shareholder approval, issue shares of preferred stock with dividends, liquidation, conversion, voting or other rights which could supercede and/or adversely affect the voting power and/or other rights of the holders of our common stock. The ability of our Board of Directors to issue shares of common stock and/or preferred stock may prevent any shareholder attempt to replace or remove current management and/or could make it extremely difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Additionally, the issuance of additional common stock or preferred stock in the future may significantly reduce your proportionate ownership and voting power.
It is important to note that as of April 6, 2015 we had 120,939,547 shares of common stock issued and outstanding which means we could issue up to an additional 579,060,453 shares of common stock without shareholder consent. In addition, as of April 6, 2015, we had 150,000 shares of Series A Preferred Stock issued or outstanding.
The lower our stock price, the lower the fluctuating, below market price conversion rate for the convertible debentures or notes will be and the greater number of shares of our common stock we will have to issue upon conversion of the convertible debentures or notes.
As of April 6, 2015 we had certain outstanding convertible notes payable that are convertible into shares of our common stock based upon a discount to the market price. The conversion terms of the convertible note are based upon a discount to the then-prevailing market prices of our common stock and, as a result, the lower the stock price at the time the investor converts the respective debenture, the more common shares the investor will receive. The number of shares of common stock to be issued is based on the future price of Blue Water’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. If the trading prices of the common stock are low when the conversion price of the convertible debentures or notes is determined, we would be required to issue a higher number of shares of our common stock, which could cause substantial dilution to our stockholders. In addition, if the debenture holders convert their debentures or notes and sell our common stock, this could result in an imbalance of supply and demand for our common stock and reduce our stock
price. The further our stock price declines, the further the adjustment of the conversion price will fall and the greater the number of shares we will have to issue upon conversion.
In addition, the number of shares issuable upon conversion of the convertible debentures or notes is potentially limitless. While the overall ownership by each of the holders of the convertible debentures or notes at any one moment may be limited to 4.99% or 9.99% of the outstanding shares of our common stock, depending on the terms of the particular note, such holders may be free to sell any shares into the market, which have been issued to them, thereby enabling them to convert the remaining convertible debentures or note.
As an example of the potential dilutive effect of our outstanding convertible notes the following table shows the resulting fall of the conversion price and the number of shares that we would be required to issue if all of the shares were converted based upon a 0%, 25%, 50%, and 75% fall in the price of our common stock using the closing price of our common stock as of April 2, 2015 as a baseline point.
As can be seen from the example above, our existing stockholders will experience substantial dilution to their investment upon the conversion of any of these convertible notes into shares of our common stock. As a result, the number of shares issuable could prove to be significantly greater in the event of a decrease in the trading price of our
common stock, which decrease would cause substantial dilution and potentially significant losses to our existing stockholders.
The continuously adjustable conversion price feature of the convertible notes may encourage other investors to sell short our common stock, which could have a depressive effect on the price of our common stock.
The convertible notes are convertible into shares of our common stock at conversion prices as noted in the example table above. The significant downward pressure on the price of our common stock as the holders of the convertible notes convert and sell material amounts of our common stock could encourage other investors to sell short our common stock. This could place further downward pressure on the price of our common stock. In addition, not only the sale of shares issued upon conversion of the convertible notes, but also the mere perception that these sales could occur, may adversely affect the market price of our common stock resulting in significant losses to our existing shareholders.
The issuance of common stock upon conversion of the convertible notes will cause immediate and substantial dilution.
The issuance of common stock upon conversion of the convertible notes will result in immediate and substantial dilution to the interests of other stockholders since the holder of the convertible note may ultimately receive and sell the full amount of shares issuable in connection with the conversion of the convertible notes. Although the convertible notes may not be converted if such conversion would cause the holder thereof to own more than 4.99% or 9.99%, depending on the terms of the particular note, of our issued and outstanding common stock, this restriction does not prevent the holders of the convertible notes from converting some of their holdings, selling those shares, and then converting the rest of their holdings, while still staying below the 4.99% or 9.99% limit. In this way, the holders of the convertible notes could sell more than this limit while never actually holding more shares than this limit allows. If the holders of the convertible notes chooses to do this, it will cause substantial dilution to the then holders of our common stock which could result in substantial losses to the other holders of our common stock.
We are presently subject to the "Penny Stock" rules of the SEC which could limit the trading and liquidity of our common stock, adversely affect the market price of our common stock, and increase your transaction costs to sell shares of our common stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
·
that a broker or dealer approve a person's account for transactions in penny stocks; and
·
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
·
obtain financial information, investment experience and investment objectives of the person; and
·
make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
·
sets forth the basis on which the broker or dealer made the suitability determination; and
·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to sell shares of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Our common stock presently trades under $5 a share and is subject to the “penny stock” rules. The continued application of the “penny stock” rules to our common stock could limit the trading and liquidity of our common stock, adversely affect the market price of our common stock, or cause an increase the transaction costs related to of our common stock.
The OTC Bulletin Board is a quotation system, not an issuer listing service, market, or exchange. Therefore, buying and selling stock on the OTC Bulletin Board is not as efficient as buying and selling stock through an exchange.
The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last sale prices, and volume limitations in over-the-counter securities. Because trades and quotations on the OTC Bulletin Board involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting, and the delivery of legal trade confirmation may be delayed significantly. Consequently, you may not be able to sell shares of our common stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTC Bulletin Board, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price that was quoted by the OTC Bulletin Board at the time of the order entry.
Orders for OTC Bulletin Board securities may be cancelled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received by, and processed by the OTC Bulletin Board. Due to the manual order processing involved in handling OTC Bulletin Board trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit their order in a timely manner. Consequently, you may not be able to sell shares of our common stock at optimum trading prices.
The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTC Bulletin Board if the common stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper” loss due to the price spread. Moreover, dealers trading on the OTC Bulletin Board may not have a bid price for securities bought and sold through the OTC Bulletin Board. As such, demand for securities that are traded through the OTC Bulletin Board may be decreased or eliminated.
Shares eligible for future sale may adversely affect the market price of our common stock.
From time to time, certain of our stockholders may be eligible to sell some or all of their shares of our common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement (which disappears after one year). Affiliates may sell after six months subject to the Rule 144 volume, manner of sale, current public information and notice requirements.
As of April 6, 2015 we had 120,939,547 shares of our common stock issued and outstanding. Of these shares currently issued and outstanding, 96,674,963 are freely tradable without restrictions (commonly referred to as the “public float”) and 24,264,584 are subject to the restrictions and sale limitations imposed by Rule 144. Under Rule 144, these shares can be publicly sold, subject to volume restrictions and restrictions on the manner of sale.
The eventual availability and sale of substantial amounts of our common stock under Rule 144 could adversely affect prevailing market prices for our securities and cause you to lose most, if not all, of your investment in our business.
We expect volatility in the price of our common stock to continue, which may subject us to securities litigation and thereby divert our resources which may materially affect our profitability and results of operations or force us to cease operations.
Our common stock is thinly traded and can be characterized by significant price volatility when compared to seasoned issuers. We expect that our share price will be continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities, could divert management's attention and resources, and could ultimately force us to cease operations whereby you could lose your entire investment.
We have identified deficiencies in our current internal controls over financial reporting. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results.
Our business is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”). We are also required to comply with the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We have, through the participation of our sole officer and director, J. Scott Sitra, assessed the current effectiveness of our internal control over financial reporting. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment under such criteria, management concluded that our current internal controls over financial reporting are not effective due to control deficiencies that constituted material weaknesses.
We have identified a lack of sufficient personnel in the accounting function due to the limited resources of Blue Water with appropriate skills, training, and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles. To this extent, we have identified specific remedial actions we intend to undertake prior to the end of the current fiscal year ending December 31, 2015 to address the current material weaknesses described above:
·
Improve the effectiveness of the accounting group by augmenting our existing resources with additional outside consultants to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures; and
·
Improve segregation procedures by strengthening cross approval of various functions, particularly quarterly and annual internal audit procedures.
If we are unable to implement the above changes effectively or efficiently, it could harm our operations, financial reporting or financial results.
We are classified as an “emerging growth company” as well as a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.
We are an "emerging growth company", as defined in the Jumpstart our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company”, at such time are we cease being an “emerging growth company”, the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an “emerging growth company” or a “smaller reporting company”. Specifically, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
We have elected to use the extended transition period for complying with the new or revised accounting standards under Section 102(b)(2)(B) of the JOBS Act.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
Our principal executive offices are located at 202 Osmanthus Way, Canton, GA 30114. This office space is being provided to us by Vice President, Michael Hume, free of charge.
We have a leased warehouse located in Cole Bay, St. Maarten, Dutch West Indies. We use this warehouse to store and distribute our line of premium rums in St. Maarten, Dutch West Indies and to the surrounding islands, including St. Barths, French West Indies and Anguilla, British West Indies. Additionally, we also intend to eventually use this
warehouse to store excess merchandise such as t-shirts, koozies, beach towels, etc. for our St. Maarten Blue Water Bar & Grill™.
Item 3.
Item 3. Legal Proceedings
No officer, director, or persons nominated for these positions, and no promoter or significant employee - past or present - 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 neither J. Scott Sitra or Michael Hume has not been the subject of the following events:
1)
Any bankruptcy petition filed by or against any business of which Messrs. Sitra and/or Hume was 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, by any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending, or otherwise limiting either Mr. Sitra’s or Mr. Hume’s involvement in any type of business, securities or banking activities; and
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 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Our common stock trades on the OTC Bulletin Board under the trading symbol “BLUU”. Currently there is only a limited, sporadic, and volatile market for our stock on the OTC Bulletin Board.
The following table sets forth the high and low sales prices of our common stock as reported by the OTC Bulletin Board for the periods indicated. These prices represent prices between inter-dealer prices, do not include retail markups, markdowns, or commissions, and do not necessarily reflect actual transactions.
Note: All prices in the above table are adjusted to reflect a 10-for-1 forward stock split effected September 30, 2013.
The closing price of our common stock on April 6, 2015 was $0.085 as reported by the OTC Bulletin Board.
Holders of Record
As of April 6, 2015, we had 120,939,547 shares of our common stock issued and outstand held by approximately 52 stockholders of record; this figure does not include any shareholders electing to beneficially own their shares through nominees such their stock broker or other financial institution. We had no shares of preferred stock issued and outstanding.
Dividend Policy
We have never declared or paid cash dividends. We currently intend to retain all future earnings for the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our directors.
Penny Stock Regulations and Restrictions on Marketability
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading, (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws, (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price, (d) contains a toll-free telephone number for inquiries on disciplinary actions, (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks, and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock, (b) the compensation of the broker-dealer and its salesperson in the transaction, (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock, and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling their shares of our common stock.
Common Stock
Our Articles of Incorporation authorize us to issue up to 700,000,000 shares of common stock, $0.001 par value. Each holder of our common stock is entitled to one (1) vote for each share held of record on all voting matters we present for a vote of stockholders, including the election of directors. Holders of common stock have no cumulative voting rights or preemptive rights to purchase or subscribe for any stock or other securities, and there are no conversion rights or redemption or sinking fund provisions with respect to our common stock. All shares of our common stock are entitled to share equally in dividends from sources legally available when, and if, declared by our Board of Directors.
Our Board of Directors is authorized to issue additional shares of common stock not to exceed the amount authorized by the Articles of Incorporation, on such terms and conditions and for such consideration as the Board may deem appropriate without further stockholder action.
In the event of our liquidation or dissolution, all shares of our common stock are entitled to share equally in our assets available for distribution to stockholders. However, the rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of preferred stock that our Board of Directors may decide to issue in the future.
As of April 6, 2015, we had 120,939,547 shares of common stock issued and outstanding.
Preferred Stock
Our Articles of Incorporation authorize us to issue up to 5,000,000 shares of preferred stock, $0.001 par value. Our Board of Directors is authorized, without further action by the shareholders, to issue shares of preferred stock and to fix the designations, number, rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. We believe that the Board of Directors’ power to set the terms of, and our ability to issue, preferred stock will provide flexibility in connection with possible financing or acquisition transactions in the future. The issuance of preferred stock, however, could adversely affect the voting power of holders of common stock and decrease the amount of any liquidation distribution to such holders. The presence of outstanding preferred stock could also have the effect of delaying, deterring or preventing a change in control of our company.
Series A Preferred Stock
On November 13, 2014 our Board of Directors authorized a class of preferred stock consisting of up to 1,000,000 shares and designated it Series A Preferred Stock. The Series A Preferred Stock has the following terms and rights:
Rank.
The Series A Preferred Stock shall rank superior to all other class of the Corporation’s classes of stock, including common and other future classes of preferred stock, if any - now or hereafter issued - as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, including the payment of dividends.
Dividends.
The Series A Preferred Stock is eligible for all legal dividends as may be approved by the Corporation’s Board of Directors. In the event a dividend is declared across multiple classes of stock, the amount of any dividend to be received by holders of the Series A Preferred Stock shall be calculated on a fully-diluted, pro-rata basis with the other classes of stock participating in said dividend.
Voting Rights.
Holders of the Series A Preferred Stock shall have the right to vote on any and all matters with holders of common stock (and other classes of preferred stock, if any) by aggregating votes into one (1) class of stock. Each shares of Series A Preferred Stock shall have one-thousand (1,000) votes for any election or other vote placed before the shareholders of the Corporation, regardless if the vote is taken with or without a shareholders’ meeting. Holders of the Series A Preferred Stock may not cumulate their votes in any voting matter.
Conversion.
After a minimum holding period of two (2) years from the date of issue, holders of shares of Series A Preferred Stock may, at their sole option, convert all or a portion of their holdings of Series A Preferred Stock into shares of the Corporation’s common stock at a ratio of one (1) share of Series A Preferred Stock for one-thousand (1,000) shares of common stock. There is no requirement for holders to convert their holdings into shares of common stock.
Redemption by Corporation.
The Corporation has no redemption rights over the Series A Preferred Stock.
As of April 6, 2015, we had 150,000 shares of Series A Preferred Stock issued and outstanding. No other classes of preferred stock have been authorized.
Share Purchase Warrants
As of April 6, 2015, we did not have any other outstanding warrants to purchase shares of our stock.
Options
We have not issued and do not have outstanding any options to purchase shares of our stock.
Registration Rights
As of April 6, 2015, we did not have any outstanding registration rights or similar agreements.
Outstanding Convertible Securities
KBM Worldwide Note 3 (Derivative Liability)
On November 13, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“KBM Note 3”) in the principal amount $65,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water. The KBM Note 3 matures on August 17, 2015. The KBM Note 3 is convertible at 58% of the average of the lowest three trading prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the KBM Note 3, Blue Water determined the aggregate fair value of $62,619 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 227%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.76 years, and (5) estimated fair value of Blue Water’s common stock of $0.022 per share.
The determined fair value of the embedded derivative of $62,619 was charged as a debt discount of the note.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the KBM Note 3 discussed above and determined a fair value of $69,058. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.63 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $6,439 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the KBM Note 3 was $65,684, which includes $684 in accrued interest. During the year ended December 31, 2014 this note incurred $10,851 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $51,768.
Auctus Private Equity Fund LLC Note (Derivative Liability)
On November 19, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Auctus Note”) in the principal amount $56,250 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Auctus Private Equity Fund LLC. (“Auctus”), a Nevada corporation, and Blue Water. The Auctus Note matures on August 19, 2015. The Auctus Note is convertible at 55% of the average of the lowest two trading prices of Blue Water’s common stock during the twenty five trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Auctus Note, Blue Water determined the aggregate fair value of $69,066 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.75 years, and (5) estimated fair value of Blue Water’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $69,066 was charged as a debt discount up to the net proceeds of the note with the remainder, $12,816, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Auctus Note discussed above and determined a fair value of $85,325. The fair value of the embedded derivatives was determined using
Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 227 to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.63 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $16,259 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Auctus Note was $56,768, which includes $518 in accrued interest. During the year ended December 31, 2014 this note incurred $8,654 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $47,596.
Cardinal Capital Group, Inc. Note (Derivative Liability)
On November 14, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Cardinal Note”) in the principal amount $33,500 and net proceeds of $30,000 after taking into consideration an Original Issue Discount (“OID”) of $3,500. The Cardinal Note matures on November 14, 2016. The Cardinal Note is convertible at 55% of the lowest daily closing bid of Blue Water’s common stock during the twenty trading day period prior to the conversion date.
At the inception of the Cardinal Note, Blue Water determined the aggregate fair value of $109,829 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 287.90%, (3) weighted average risk-free interest rate of 0.54%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.021 per share.
The determined fair value of the embedded derivative of $109,829 was charged as a debt discount up to the net proceeds of the note with the remainder, $76,329, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Cardinal Note discussed above and determined a fair value of $121,604. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.67%, (4) expected life of 1.87 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $11,775 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Cardinal Note was $33,500. During the year ended December 31, 2014 this note incurred $2,154 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $31,346.
Macallan Partners, LLC Note (Derivative Liability)
On November 19, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Macallan Note”) in the principal amount $50,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Macallan Partners, LLC. (“Macallan”) and Blue Water. The Macallan Note matures on December 1, 2015. The Macallan Note is convertible at 55% of the lowest closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Macallan Note, Blue Water determined the aggregate fair value of $56,199 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 286.43%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.03 years, and (5) estimated fair value of Blue Water’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $56,199 was charged as a debt discount up to the net proceeds of the note with the remainder, $5,199, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Macallan Note discussed above and determined a fair value of $58,100. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.92 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $1,901 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Macallan Note was $50,460 which includes $460 in accrued interest. During the year ended December 31, 2014 this note incurred $5,570 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $44,430.
Tangiers Investment Group, LLC Note (Derivative Liability)
On November 13, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Tangiers Note”) in the principal amount $220,000 (funded $55,000), net proceeds of $50,000 after taking into consideration an Original Issue Discount (“OID”) of $5,000. The Tangiers Note matures on November 13, 2015. The Tangiers Note is convertible at 55% of the lowest daily closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Tangiers Note, Blue Water determined the aggregate fair value of $176,827 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 287.63%, (3) weighted average risk-free interest rate of 0.53%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.022 per share.
The determined fair value of the embedded derivative of $176,827 was charged as a debt discount up to the net proceeds of the note with the remainder, $121,827, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Tangiers Note discussed above and determined a fair value of $186,306. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.67%, (4) expected life of 0.87 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $9,479 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Tangiers Note was $55,000. During the year ended December 31, 2014 this note incurred $7,233 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $47,767.
Adar Bays, LLC #2 Note (Derivative Liability)
On December 22, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Adar Note”) in the principal amount $50,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Adar Bays LLC (“Adar”) and Blue Water. The Adar Note matures on December 22, 2015. The Adar Note is convertible at 58% of the average of the three lowest trading stock prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Adar Note, Blue Water determined the aggregate fair value of $110,001 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.76%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $110,001 was charged as a debt discount up to the net proceeds of the note with the remainder, $60,001, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Adar Note discussed above and determined a fair value of $171,497. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $61,496 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Adar Note was $50,099 which includes $99 in accrued interest. During the year ended December 31, 2014 this note incurred $1,233 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $48,767.
LG Capital Funding LLC #2 Note (Derivative Liability)
On December 22, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“LG Note”) in the principal amount $100,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between LG Capital Funding LLC (“LG”) and Blue Water. The LG Note matures on December 22, 2015. The LG Note is convertible at 55% of the three lowest daily closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days.
At the inception of the LG Note, Blue Water determined the aggregate fair value of $220,001 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.76%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $220,001 was charged as a debt discount up to the net proceeds of the note with the remainder, $120,001, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the LG Note discussed above and determined a fair value of $342,995. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $122,993 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the LG Note was $100,197 which includes $197 in accrued interest. During the year ended December 31, 2014 this note incurred $2,466 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $97,534.
Black Mountain Equities, Inc. Note (Derivative Liability)
On December 22, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Black Note”) in the principal amount $250,000 (funded $25,000), net proceeds of $22,500 after taking into consideration an Original Issue Discount (“OID”) of $2,500. The Black Note matures on December 22, 2015. The Black Note is convertible at 60% of the lowest trading price of Blue Water’s common stock during the twenty five trading days period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Black Note, Blue Water determined the aggregate fair value of $31,751 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223%, to 235% (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $31,751 was charged as a debt discount up to the net proceeds of the note with the remainder, $3,751, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Black Note discussed above and determined a fair value of $34,601. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $2,850 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Black Note was $28,000 including one time interest of $3,000. During the year ended December 31, 2014 this note incurred $690 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $27,310.
Union Capital Note (Derivative Liability)
On January 26, 2015, the Company entered into a Securities Purchase Agreement with Union Capital, LLC, an accredited investor (“Union Capital”), pursuant to which the Company issued Union Capital two convertible notes. The first note, due January 26, 2016 in the principal amount of $50,000 (“Union Note 1”), was issued in exchange for $50,000 in cash. The second note, due January 26, 2016 in the principal amount of $50,000 (“Union Note 2” and, together with Union Note 1, the “Union Notes”), was issued in exchange for a full-recourse, collateralized promissory note from Union Capital in the amount of $50,000 (“Union Payment Note”). The Union Payment Note is due on September 26, 2015, unless we do not meet the current public information requirement pursuant to Rule 144, in which case both Union Note 2 and the Union Payment Note may be cancelled. The Union Payment Note is secured by Union Note 1. Interest on the Union Notes accrues at the rate of 8% per annum.
JSJ Note 2 (Derivative Liability)
On January 27, 2015, the Company issued a Convertible Promissory Note (“JSJ Note”) in the principal amount $100,000 to JSJ Investments, Inc. (“JSJ”). The JSJ Note has an Original Issue Discount (“OID”) of $5,000 and bears interest at a rate of 12%. The JSJ Note matures on May 19, 2015 (“Maturity Date”).
Blue Citi Note (Derivative Liability)
On February 9, 2015, the Company issued a Convertible Promissory Note (“Blue Citi Note”) in the principal amount $108,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement
between Blue Citi, LLC (“Blue Citi”), a New York limited liability company, and the Company (“Blue Citi Agreement”). The Blue Citi Note matures on February 9, 2016.
KBM Note 4 (Derivative Liability)
On February 17, , the Company issued a Convertible Promissory Note (“KBM Note”) in the principal amount $79,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water (“KBM Agreement”). The KBM Note matures on November 17, 2015.
JDF Capital Note (Derivative Liability)
On February 20, 2015, the Company issued a Convertible Promissory Note (“JDF Note”) in the principal amount $116,000 pursuant to the terms of a Securities Purchase Agreement between JDF Capital, Inc. (“JDF”), a New York corporation, and Blue Water (“JDF Agreement”). The JDF Note matures on February 20, 2016.
Shares Eligible for Future Sale
As of April 6, 2014 we had 120,939,547 shares of our common stock issued and outstanding. Of these shares currently issued and outstanding, 96,674,963 are freely tradable without restrictions (commonly referred to as the “public float”) and 24,264,584 are subject to the restrictions and sale limitations imposed by Rule 144. Under Rule 144, these shares can be publicly sold, subject to volume restrictions and restrictions on the manner of sale.
The eventual availability for sale of substantial amounts of our common stock under Rule 144 could adversely affect prevailing market prices for our securities and cause you to lose most, if not all, of your investment in our business.
Securities Authorized for Issuance Under Equity Compensation Plans
As of April 6, 2015 we did not have any authorized Equity Compensation Plans.
Listing
Our common stock is quoted on the OTC Bulletin Board under the symbol “BLUU”.
Transfer Agent
VStock Transfer, LLC
77 Spruce Street, Suite 201
Cedarhurst, NY 11516
(212) 828-8436 Phone
(646) 599-1296 Fax
www.VStockTransfer.com
Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of securities without registration since March 3, 2011 (inception) through April 6, 2015:
On March 3, 2011, we issued 6,000,000 and 5,000,000 shares of common stock, $0.001 par value, to Michael Hume and Christina Harris, respectively, in consideration of their services to us as officers and directors. We issued these shares as Founder’s Shares. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of Mr. Hume’s and Ms. Harris’s relationships with us, each had access to
all relevant information relating to our business and represented that they each had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On March 3, 2011, we issued 5,000,000 shares of common stock to Arctic Eyes, LLC in consideration of its services related to the development of our website and its future marketing requirements. We valued these services at $50,000, or $0.01 a share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of its relationship to us, Arctic Eyes had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On March 3, 2011, we issued 5,000,000 shares of common stock to Taurus Financial Partners, LLC in consideration of its services of assisting with the creation and early development of our business. We valued these services at $50,000, or $0.01 a share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of its relationship to us, Taurus Financial Partners had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On March 29, 2011, we issued 2,000,000 shares of common stock to Island Radio, Inc. in exchange for 2,000,000 restricted shares of Island Radio common stock, $0.001 par value. Island Radio’s common stock trades on the OTC Bulletin Board under the trading symbol “ISLD”. These shares were valued at $20,000, or $0.01 a share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of its relationship to us, Island Radio had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On February 17, 2012, we mutually agreed to rescind our consulting agreement with Arctic Eyes, LLC. Arctic Eyes returned the 5,000,000 shares it had been holding since March 3, 2011. These shares were subsequently cancelled and return to Blue Water’s treasury.
On July 15, 2013, we issued an aggregate of 75,000 shares of restricted common stock to Aeson Ventures, LLC (“Aeson”), an independent service provider. We valued these shares at $18,750, or $0.25 a share, which was the closing price of our common stock as quoted on the OTC Bulletin Board on the same day. In connection with these issuances, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of their relationships with us, Aeson had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On March 23, 2013, we mutually agreed to rescind our consulting agreement with Aeson. As part of rescinding the consulting agreement, Aeson returned 71,875 shares of Blue Water’s common stock. These shares were subsequently cancelled.
On December 15, 2013, we issued an aggregate of 2,000,000 shares of restricted common stock to Vitello Capital, Ltd. (“Vitello”), an independent service provider. We valued these shares at $10,000, or $0.005 a share, which was the closing price of our common stock as quoted on the OTC Bulletin Board on the subsequent trading day. In connection with these issuances, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of its relationships with us, Vitello had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On April 10, 2014, we received a Notice of Conversion under the Mermaid Note (see the notes to the financial statements) and issued 10,000,000 shares of its common stock, $0.001 par value, at an applicable conversion rate of $0.0005 a share. This issuance reduced the principal due to Mermaid by $5,000. After this conversion, the
remaining principal balance on this note was $30,000. By virtue of their relationship with us, the note holder had access to all relevant information relating to our business and represented that it had the required investment intent. The securities were issued pursuant to and in compliance with Rule 144.
On July 21, 2014, we issued an aggregate of ten-million (10,000,000) shares of restricted common stock to Madison Park Advisors, LLC (“Madison Park”), a financial services firm. We valued these shares at $101,000, or $0.0101 a share, which was the closing price of our common stock as quoted on the OTC Bulletin Board on the same day. In connection with these issuances, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of their relationships with us, Madison Park had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On August 5, 2014, we cancelled an aggregate of 3,000,000 share purchase warrants held by Vitello. These share purchase warrants enabled Vitello to purchase 1,000,000 shares of the Blue Water’s common stock at a price of $0.005 a share, $0.01 a share, and $0.015 a share, respectively. Vitello never exercised any of its warrants.
On September 29, 2014, we received a Notice of Conversion under the Prim Note (see the notes to the financial statements) and issued 13,000,000 shares of its common stock, $0.001 par value, at an applicable conversion rate of $0.005 a share. This issuance reduced the principal due to Prim by $65,000. After this conversion, the remaining principal balance on this note was $35,000. By virtue of their relationship with us, the note holder had access to all relevant information relating to our business and represented that it had the required investment intent. The securities were issued pursuant to and in compliance with Rule 144.
On October 23, 2014, we received a Notice of Conversion under the Mermaid Note (see the notes to the financial statements) and issued 10,000,000 shares of its common stock, $0.001 par value, at an applicable conversion rate of $0.0005 a share. This issuance reduced the principal due to Mermaid by $5,000. After this conversion, the remaining principal balance on this note was $25,000. By virtue of their relationship with us, the note holder had access to all relevant information relating to our business and represented that it had the required investment intent. The securities were issued pursuant to and in compliance with Rule 144.
On November 13, 2014, we exchanged 150,000,000 shares of our common stock for 150,000 shares of Series A Preferred Stock. The shares of common stock tendered were subsequently cancelled.
On February 18, 2015, we cancelled 12,500,000 shares of our outstanding common stock.
On February 18, 2015, we issued 3,000,000 and 900,000 shares of common stock, $0.001 par value, to J. Scott Sitra and Michael Hume, respectively, in consideration of and to incentivize their ongoing services to us as executive officers. These shares were valued at $0.1099 a share, which was the closing price of our common stock as quoted by the OTC Bulletin Board on the date of issue. These shares vest proportionately over a three year period as per the table below:
In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of Mr. Sitra’s and Mr. Hume’s relationships with us, each had access to all relevant information relating to our business and represented that they each had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On March 31, 2015, we issued an aggregate of 3,333,334 shares of restricted common stock to five independent consultants. We valued these shares at $273,333.39, or $0.082 a share, which was the closing price of our common stock as quoted on the OTC Bulletin Board on the same day. In connection with these issuances, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of their relationships with us, these consultants had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
During each month within the fourth quarter of the fiscal year ended December 31, 2014, neither we nor any “affiliated purchaser”, as that term is defined in Rule 10b-18(a)(3) under the Exchange Act, repurchased any of our common stock or other securities.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Blue Water was incorporated on March 3, 2011 in the State of Nevada. We are currently developing a chain of casual dining restaurants in popular tourist destinations throughout the Caribbean region under the Blue Water Bar & Grill™ brand and selling a line of premium rums which include the flagship rum Blue Water Ultra Premium Rum™ and aged spiced Blue Water Caribbean Gold™ Premium Rum in St. Maarten, Dutch West Indies and Anguilla, British West Indies. 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.
Our independent registered public accounting firm has issued a going concern opinion in their audit report included in the financial statements that are a part of this Annual Report on Form 10-K. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. Although we have begun executing on our business plan, we are not presently generating sufficient annual revenue to meet our financial obligations, particularly our ongoing reporting requirements with the SEC. We do not anticipate generating revenues sufficient to meet our financial obligations until we are able to open first restaurant. Accordingly, we must raise additional cash from sources other than operations.
To meet our need for cash we presently are exploring other such sources of funding, including raising funds through a second public offering, a private placement of securities and/or loans. If we are unable to raise this additional funding, we may 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 Annual Report as filed with the SEC on Form 10-K.
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 an emerging growth business with limited operating history. 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 are continually exploring new sources of financing to meet our need for additional cash, including raising funds through sales of our equity securities and 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.
Results of Operations
For the ease of reference, we refer to the fiscal year ended December 31, 2014 as fiscal 2014 or the fiscal year ended December 31, 2014 and the fiscal year ended December 31, 2013 as fiscal 2013 or the fiscal year ended December 31, 2013.
Fiscal Year Ended December 31, 2014 and 2013
Revenues. We did not generate any revenue in fiscal 2014 compared to generating $10,000 in revenue during fiscal 2013. The reason for the decrease in revenue during fiscal 2014 compared to fiscal 2013 was the consulting project responsible for generating the revenue was completed during the three months ended March 31, 2013. Since the completion of that project we have not generated any revenue and have focused all of our efforts on completing the development of the St. Maarten, Dutch West Indies Blue Water Bar & Grill™ restaurant and launching our line of premium rums.
Operating Expenses. Our total operating expenses for fiscal 2014 were $623,167, which is a $317,533, or 103.9%, increase compared to operating expenses of $305,634 for the same period a year ago. Our increase in operating expenses was primarily attributable to increased development expenses related to the St. Maarten, Dutch West Indies Blue Water Bar & Grill™ and preparing for the launch our line of premium rums. 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.
(Loss) From Operations. Our loss from operations for fiscal 2014 was ($623,167), which is a $327,533, or 110.8%, increase compared to a loss from operations of ($295,634) for the same period a year ago. Our increase in operating loss was primarily attributable to increased development expenses related to the St. Maarten, Dutch West Indies Blue Water Bar & Grill™ and preparing for the launch our line of premium rums. 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 fiscal 2014 we incurred an aggregate of ($2,957,426) in other expenses compared to ($445,064) for the same period a year ago. These other (expenses) were primarily comprised of non-cash expenses relating to convertible promissory notes and accounting for certain notes as derivative securities.
Net Income (Loss). We had a net loss of ($3,580,593) for fiscal 2014 compared to a net loss of ($740,698) for the same period a year ago, which represented a $2,839,895, or 383.4%, increase in net loss. The increase in net loss was primarily attributable to accounting for certain convertible notes as derivative securities. The remainder of the increase in net loss was the result of increased operating activity related to the development of our St. Maarten, Dutch West Indies Blue Water Bar & Grill™ restaurant and increased expenses related to preparing our line of premium rums for launch. 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.
Total Stockholders’ Deficit. Our stockholders’ deficit was ($1,574,425) as of December 31, 2014.
Liquidity and Capital Resources
As of December 31, 2014, we had total assets of $465,862, which consisted of $192,556 in cash, $28,422 in vendor deposits, $42,484 in materials inventory, available for sale securities valued at $200,000 (comprised 20,000,000 shares of Stream Flow Media, Inc. and a net 15% interest in Next Level Hockey, LLC, valued at $200,000 and $-0-, respectively), and security deposits of $2,400.
As of December 31, 2014, our total liabilities were $2,040,287, which consisted of $8,211 in accounts payable, $494,718 in accounts payable to a related party, Taurus Financial Partners, LLC (“Taurus”), $106,361 in convertible promissory notes (net of unamortized debt discounts of $527,389), $6,986 in accrued interest, and $1,424,011 in derivative liabilities. (It is important to note that as of April 6, 2015, Taurus owned 16,000,000 shares of Blue Water’s issued and outstanding common stock and 150,000 shares of Blue Water’s issued and outstanding preferred stock, which represented 13.2% and 100% of each class of securities, respectively. It is also 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.)
We expect to incur continued losses over the next 12 months, probably even longer. We estimate that we will need to generate at least $1.5 million in additional financing in order to meet our planned 2015 capital expenditures. Further, in order to proceed with our long-term plans, we anticipate that we will need to generate at least between $4 and $5 million in additional long-term financing. Madison Park Advisors has agreed to assist us with this financing, but until it is received we cannot guarantee or compel Madison Park Advisors to provide this financing in an expedient manner.
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.
On June 10, 2014 Blue Water terminated the Investment Agreement with Dutchess and subsequently withdrew its effective registration statement with the SEC.
We have received aggregate net proceeds of $42,563, or approximately $0.01 a share, from the sale of 4,174,963 registered shares of our common stock under the Dutchess Investment Agreement prior to its termination.
Asher Note 1
On September 16, 2013, Blue Water 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 Water’s 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.
This note was redeemed and paid in full on February 7, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $32,500 in amortization expense of the debt discount that has been recorded in the financial statements as interest expense.
Asher Note 2
On November 8, 2013, Blue Water 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 Water’s 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.
This note was redeemed and paid in full on April 2, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $33,033 in amortization expense of the debt discount that has been recorded in the financial statements as interest expense.
Asher Note 3
On December 23, 2013 Blue Water 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 3 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 Water’s 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.
This note was redeemed and paid in full on May 27, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $27,500 in amortization of the debt discount that has been recorded in the financial statements as interest expense.
Mermaid Enterprises, N.V. (Derivative Liability)
On October 9, 2013, Blue Water 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 Director’s 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.
Blue Water has identified the embedded derivatives related to the Mermaid Note. The accounting treatment of derivative financial instruments requires that Blue Water record the fair value of the derivatives as of the inception date of the debenture and to fair value as of each subsequent reporting date.
On August 13, 2014, when the Mermaid Note was deemed to be a derivative, Blue Water determined the aggregate fair value of $651,419 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 325.44%, (3) weighted average risk-free interest rate of 0.1%, (4) expected life of 1.16 years, and (5) estimated fair value of the Company’s common stock of $0.0116 per share.
The determined fair value of the embedded derivative of $651,419 was charged as a loss on change in derivative liability.
On April 10, 2014, Blue Water issued 10,000,000 shares of its common stock valued at $5,000, or $0.0005 a share, as a partial redemption of this note.
On October 23, 2014, Blue Water issued 10,000,000 shares of its common stock valued at $5,000, or $0.0005 a share, as a partial redemption of this note.
On October 31, 2014, Blue Water repaid the remaining Mermaid Note in full. Per the terms of the agreement, Blue Water repaid the Mermaid Note at $28,471.
At October 31, 2014 (date of payoff), Blue Water marked to market the fair value of the derivatives of the Mermaid Note discussed above and determined a fair value of $985,211 and accordingly recorded a loss on change in fair value of derivative liability of $438,403 from September 30, 2014 (last reporting period) . The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 290.56%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 0.94 years, and (5) estimated fair value of Blue Water’s common stock of $0.02 per share.
At October 31, 2014 (date of payoff), Blue Water reclassified the determined fair value of the derivative liability of $985,211 from liability to additional paid in capital.
JMJ Financial Note
On January 31, 2014 (“Effective Date”), Blue Water 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 Water’s 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.
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.
This note was redeemed and paid in full on May 8, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $39,083 in amortization of the debt discount has been recorded in the financial statements as interest expense.
JMJ Financial Note 2 (Derivative Liability)
On August 13, 2014 (“Effective Date”) Blue Water sold to JMJ Financial (“JMJ Financial”) a $335,000 Convertible Promissory Note (“JMJ Note 2”). 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.
At any time after the Effective Date, the Investor may convert all or part of the JMJ Note 2 into shares of Blue Water’s common stock at the lesser of $0.011 a share or 60% of the lowest trade price in the 25 trading days prior to the conversion.
Blue Water has identified the embedded derivatives related to the JMJ Note 2. This embedded derivative included variable conversion or exercise features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the debenture and to fair value as of each subsequent reporting date.
At the inception of the JMJ Note 2, Blue Water determined the aggregate fair value of $73,394 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 318.39%, (3) weighted average risk-free interest rate of 0.43%, (4) expected life of 2 years, and (5) estimated fair value of Blue Water’s common stock of $0.0110 per share.
The determined fair value of the embedded derivative of $73,394 was charged as a debt discount up to the net proceeds of the note with the remainder, $32,636, charged to current period operations as a loss on change in derivative liability.
On November 7, 2014, Blue Water repaid the JMJ Note 2 in full. Per the terms of the agreement, Blue Water repaid the JMJ Note 2 at $40,758. No shares were issued in connection with the redemption of this note.
At November 7, 2014 (date of payoff), Blue Water marked to market the fair value of the derivatives of the JMJ Note 2 discussed above and determined a fair value of $148,840 and accordingly recorded a loss on change in fair value of derivative liability of $78,4323 from September 30, 2014 (last reporting period) . The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 288.62%, (3) weighted average risk-free interest rate of 0.51%, (4) expected life of 1.76 years, and (5) estimated fair value of Blue Water’s common stock of $0.025 per share.
At November 7, 2014 (date of payoff), Blue Water reclassified the determined fair value of the derivative liability of $148,840 from liability to additional paid in capital. During the year ended December 31, 2014, amortization of the debt discount was recorded in the financial statements as interest expense of $40,758.
Prim Note (Derivative Liability)
On March 27, 2014, Blue Water 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.
Blue Water has identified the embedded derivatives related to the Prim Note. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the debenture and to fair value as of each subsequent reporting date.
On August 13, 2014, when the Prim Note was deemed to be a derivative, Blue Water determined the aggregate fair value of $213,794 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 318.70%, (3) weighted average risk-free interest rate of 0.43%, (4) expected life of 1.62 years, and (5) estimated fair value of Blue Water’s common stock of $0.0110 per share.
The determined fair value of the embedded derivative of $213,794 was charged as a loss on change in derivative liability.
On September 29, 2014, Blue Water issued 13,000,000 shares of its common stock valued at $65,000, or $0.005 a share, as a partial redemption of this note. In conjunction with this partial conversion, Blue Water reduced $138,970 in its derivative liability through additional paid in capital and incurred a ($3,999) loss on change in derivative liability.
At October 31, 2014, Blue Water repaid the Prim Note in full. Per the terms of the agreement, Blue Water repaid the Prim Note at $40,403.
At October 31, 2014 (date of payoff), Blue Water marked to market the fair value of the derivatives of the Prim Note discussed above and determined a fair value of $134,363 and accordingly recorded a loss on change in fair value of derivative liability of $56,933 from September 30, 2014 (last reporting period) . The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 290.56%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.40 years, and (5) estimated fair value of Blue Water’s common stock of $0.02 per share.
At October 31, 2014 (date of payoff), Blue Water reclassified the determined fair value of the derivative liability of $134,363 from liability to additional paid in capital. During the year ended December 31, 2014, amortization of the debt discount was recorded in the financial statements as interest expense of $100,000.
Adar Bays, LLC Financing
On May 19, 2014, Blue Water entered into a Securities Purchase Agreement with Adar Bays, LLC, an accredited investor (“Adar Bays”), pursuant to which we issued Adar Bays two convertible notes. The first note, due May 19, 2015 in the principal amount of $50,000 (“AB Note 1”), was issued in exchange for $50,000 in cash. The second note, due May 19, 2015 in the principal amount of $50,000 (“AB Note 2” and, together with AB Note 1, the “AB Notes”), was issued in exchange for a full-recourse, collateralized promissory note from Adar Bays in the amount of $50,000 (“AB Payment Note”). The AB Payment Note is due on January 15, 2015, unless the Company does not meet the current public information requirement pursuant to Rule 144, in which case both AB Note 2 and the AB Payment Note may be cancelled. The AB Payment Note is secured by AB Note 1.
Interest on the AB Notes accrues at the rate of 8% per annum. Blue Water is not required to make any payments on the AB Notes until maturity. Blue Water has the right to repay the AB Notes at any time during the first six months of the notes at a rate of 125% of the unpaid principal amount during the first 90 days, 135% of the unpaid principal amount between days 91 and 150, and 145% of the unpaid principal amount between days 151 and 180.
Adar Bays may convert the outstanding principal on the AB Notes into shares of Blue Water’s common stock beginning no earlier than 180 days from the date of issue at the conversion price per share equal to 55% of the lowest daily closing bid with a 20 day look back immediately preceding and including the date of conversion. There is no minimum conversion price.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $50,000 to the AB Notes 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.
At December 23, 2014, Blue Water repaid the Adar Bays Note in full. Per the terms of the agreement, Blue Water repaid the Adar Bay Note at $50,000. This note incurred an aggregate of $50,000 in amortization of debt discount that has been recorded in the financial statements as interest expense during the year ended December 31, 2014.
LG Capital Funding, LLC
On May 19, 2014, Blue Water entered into a Securities Purchase Agreement with LG Capital Funding, LLC, an accredited investor (“LG Capital”), pursuant to which we issued LG Capital two convertible notes. The first note, due May 19, 2015 in the principal amount of $100,000 (“LG Note 1”), was issued in exchange for $100,000 in cash. The second note, due May 19, 2015 in the principal amount of $100,000 (“LG Note 2” and, together with LG Note 1, the “LG Notes”), was issued in exchange for a full-recourse, collateralized promissory note from LG Capital in the amount of $100,000 (“LG Payment Note”). The LG Payment Note is due on January 15, 2015, unless we do not meet the current public information requirement pursuant to Rule 144, in which case both LG Note 2 and the LG Payment Note may be cancelled. The LG Payment Note is secured by LG Note 1.
Interest on the LG Notes accrues at the rate of 8% per annum. Blue Water is not required to make any payments on the LG Notes until maturity. Blue Water has the right to repay the LG Notes at any time during the first six months of the notes at a rate of 125% of the unpaid principal amount during the first 90 days, 135% of the unpaid principal amount between days 91 and 150, and 145% of the unpaid principal amount between days 151 and 180.
LG Capital may convert the outstanding principal on the LG Notes into shares of Blue Water’s common stock beginning no earlier than 180 days from the date of issue at the conversion price per share equal to 55% of the lowest daily closing bid with a 20 day look back immediately preceding and including the date of conversion. There is no minimum conversion price.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $100,000 to the LG Notes 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.
At December 22, 2014, Blue Water repaid the LG Capital Note in full. Per the terms of the agreement, Blue Water repaid the LG Capital at $100,000. This note incurred an aggregate of $100,000 in amortization of debt discount that has been recorded in the financial statements as interest expense during the year ended December 31, 2014.
KBM Worldwide Note 1 (Derivative Liability)
On August 26, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“KBM Note 1”) in the principal amount $53,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water. The KBM Note 1 matures on May 28, 2015. The KBM Note 1 is convertible at 58% of the average of the lowest three trading prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days.
At the inception of the KBM Note 1, Blue Water determined the aggregate fair value of $85,972 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 318.74%, (3) weighted average risk-free interest rate of 0.085%, (4) expected life of 0.75 years, and (5) estimated fair value of Blue Water’s common stock of $0.0116 per share.
The determined fair value of the embedded derivative of $85,972 was charged as a debt discount up to the net proceeds of the note with the remainder, $32,972, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the KBM Note 1 discussed above and determined a fair value of $137,009. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 278.07%, (3) weighted average risk-free interest rate of 0.12%, (4) expected life of 0.41 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $51,040 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the KBM Note 1 was $54,476, which includes $1,475 in accrued interest. During the year ended December 31, 2014 this note incurred $24,476 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $28,524.
Subsequently on January 23, 2015, Blue Water repaid the KBM Note 1 in full. Per the terms of the agreement, Blue Water repaid the KBM Note 1 at $73,269.23.
KBM Worldwide Note 2 (Derivative Liability)
On October 1, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“KBM Note 2”) in the principal amount $43,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water. The KBM Note 2 matures on July 3, 2015. The KBM Note 2 is convertible at 58% of the average of the lowest three trading prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days.
At the inception of the KBM Note 2, Blue Water determined the aggregate fair value of $38,021 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.10%, (4) expected life of 0.75 years, and (5) estimated fair value of Blue Water’s common stock of $0.0112 per share.
The determined fair value of the embedded derivative of $38,021 was charged as a debt discount of the note.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the KBM Note 2 discussed above and determined a fair value of $46,524. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 227%, (3) weighted average risk-free interest rate of 0.12%, (4) expected life of 0.50 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $8,503 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the KBM Note 2 was $43,858, which includes $858 in accrued interest. During the year ended December 31, 2014 this note incurred $12,581 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $25,440.
Subsequently on February 23, 2015, Blue Water repaid the KBM Note 2 in full. Per the terms of the agreement, Blue Water repaid the KBM Note 2 at $59,369.45.
KBM Worldwide Note 3 (Derivative Liability)
On November 13, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“KBM Note 3”) in the principal amount $65,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water. The KBM Note 3 matures on August 17, 2015. The KBM Note 3 is convertible at 58% of the average of the lowest three trading prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days.
At the inception of the KBM Note 3, Blue Water determined the aggregate fair value of $62,619 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 227%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.76 years, and (5) estimated fair value of Blue Water’s common stock of $0.022 per share.
The determined fair value of the embedded derivative of $62,619 was charged as a debt discount of the note.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the KBM Note 3 discussed above and determined a fair value of $69,058. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.63 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $6,439 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the KBM Note 3 was $65,684, which includes $684 in accrued interest. During the year ended December 31, 2014 this note incurred $10,851 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $51,768.
Auctus Private Equity Fund LLC Note (Derivative Liability)
On November 19, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Auctus Note”) in the principal amount $56,250 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Auctus Private Equity Fund LLC. (“Auctus”), a Nevada corporation, and Blue Water. The Auctus Note matures on August 19, 2015. The Auctus Note is convertible at 55% of the average of the lowest two trading prices of Blue Water’s common stock during the twenty five trading day period prior to the conversion date after 180 days.
At the inception of the Auctus Note, Blue Water determined the aggregate fair value of $69,066 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.75 years, and (5) estimated fair value of Blue Water’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $69,066 was charged as a debt discount up to the net proceeds of the note with the remainder, $12,816, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Auctus Note discussed above and determined a fair value of $185,325. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 227 to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.63 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $16,259 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Auctus Note was $56,768, which includes $518 in accrued interest. During the year ended December 31, 2014 this note incurred $8,654 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $47,596.
Cardinal Capital Group, Inc. Note (Derivative Liability)
On November 14, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Cardinal Note”) in the principal amount $33,500 and net proceeds of $30,000 after taking into consideration an Original Issue Discount (“OID”) of $3,500. The Cardinal Note matures on November 14, 2016. The Cardinal Note is convertible at 55% of the lowest daily closing bid of Blue Water’s common stock during the twenty trading day period prior to the conversion date.
At the inception of the Cardinal Note, Blue Water determined the aggregate fair value of $109,829 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 287.90%, (3) weighted average risk-free interest rate of 0.54%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.021 per share.
The determined fair value of the embedded derivative of $109,829 was charged as a debt discount up to the net proceeds of the note with the remainder, $76,329, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Cardinal Note discussed above and determined a fair value of $121,604. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.67%, (4) expected life of 1.87 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $11,775 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Cardinal Note was $33,500. During the year ended December 31, 2014 this note incurred $2,154 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $31,346.
JSJ Investments, Inc. Note (Derivative Liability)
On November 19, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“JSJ Note”) in the principal amount $100,000, net proceeds of $95,000 after taking into consideration an Original Issue Discount (“OID”) of $5,000. The JSJ Note matures on May 19, 2015. The JSJ Note is convertible at 50% of the lowest trading stock price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days.
At the inception of the JSJ Note, Blue Water determined the aggregate fair value of $139,851 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.50 years, and (5) estimated fair value of Blue Water’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $139,851 was charged as a debt discount up to the net proceeds of the note with the remainder, $39,851, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the JSJ Note discussed above and determined a fair value of $343,200. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.38 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $31,141for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the JSJ Note was $100,000. During the year ended December 31, 2014 this note incurred $23,204 in amortization expenses that was recorded in the financial
statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $76,796.
Subsequently on January 23, 2015, Blue Water repaid the JSJ Note in full. Per the terms of the agreement, Blue Water repaid the JSJ Note at $144,188.49.
Macallan Partners, LLC Note (Derivative Liability)
On November 19, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Macallan Note”) in the principal amount $50,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Macallan Partners, LLC. (“Macallan”) and Blue Water. The Macallan Note matures on December 1, 2015. The Macallan Note is convertible at 55% of the lowest closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date.
At the inception of the Macallan Note, Blue Water determined the aggregate fair value of $56,199 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 286.43%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.03 years, and (5) estimated fair value of Blue Water’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $56,199 was charged as a debt discount up to the net proceeds of the note with the remainder, $5,199, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Macallan Note discussed above and determined a fair value of $58,100. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.92 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $1,901 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Macallan Note was $50,460 which includes $460 in accrued interest. During the year ended December 31, 2014 this note incurred $5,570 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $44,430.
Tangiers Investment Group, LLC Note (Derivative Liability)
On November 13, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Tangiers Note”) in the principal amount $220,000 (funded $55,000), net proceeds of $50,000 after taking into consideration an Original Issue Discount (“OID”) of $5,000. The Tangiers Note matures on November 13, 2015. The Tangiers Note is convertible at 55% of the lowest daily closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days.
At the inception of the Tangiers Note, Blue Water determined the aggregate fair value of $176,827 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 287.63%, (3) weighted average risk-free interest rate of 0.53%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.022 per share.
The determined fair value of the embedded derivative of $176,827 was charged as a debt discount up to the net proceeds of the note with the remainder, $121,827, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Tangiers Note discussed above and determined a fair value of $186,306. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.67%, (4) expected life of 0.87 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $9,479 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Tangiers Note was $55,000. During the year ended December 31, 2014 this note incurred $7,233 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $47,767.
Adar Bays, LLC #2 Note (Derivative Liability)
On December 22, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Adar Note”) in the principal amount $50,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Adar Bays LLC (“Adar”) and Blue Water. The Adar Note matures on December 22, 2015. The Adar Note is convertible at 58% of the average of the three lowest trading stock prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days.
At the inception of the Adar Note, Blue Water determined the aggregate fair value of $110,001 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.76%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $110,001 was charged as a debt discount up to the net proceeds of the note with the remainder, $60,001, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Adar Note discussed above and determined a fair value of $171,497. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $61,496 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Adar Note was $50,099 which includes $99 in accrued interest. During the year ended December 31, 2014 this note incurred $1,233 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $48,767.
LG Capital Funding LLC #2 Note (Derivative Liability)
On December 22, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“LG Note”) in the principal amount $100,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between LG Capital Funding LLC (“LG”) and Blue Water. The LG Note matures on December 22, 2015. The LG Note is convertible at 55% of the three lowest daily closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days.
At the inception of the LG Note, Blue Water determined the aggregate fair value of $220,001 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.76%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $220,001 was charged as a debt discount up to the net proceeds of the note with the remainder, $120,001, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the LG Note discussed above and determined a fair value of $342,995. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $122,993 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the LG Note was $100,197 which includes $197 in accrued interest. During the year ended December 31, 2014 this note incurred $2,466 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $97,534.
Black Mountain Equities, Inc. Note (Derivative Liability)
On December 22, 2014, Blue Water entered into an agreement for the sale of a Convertible Promissory Note (“Black Note”) in the principal amount $250,000 (funded $25,000), net proceeds of $22,500 after taking into consideration an Original Issue Discount (“OID”) of $2,500. The Black Note matures on December 22, 2015. The Black Note is convertible at 60% of the lowest trading price of Blue Water’s common stock during the twenty five trading days period prior to the conversion date after 180 days.
At the inception of the Black Note, Blue Water determined the aggregate fair value of $31,751 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223%, to 235% (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of Blue Water’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $31,751 was charged as a debt discount up to the net proceeds of the note with the remainder, $3,751, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, Blue Water marked to market the fair value of the derivatives of the Black Note discussed above and determined a fair value of $34,601. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of Blue Water’s common stock of $0.038 per share.
Blue Water recorded a loss on change in derivative liability of $2,850 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Black Note was $28,000 including one time interest of $3,000. During the year ended December 31, 2014 this note incurred $690 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $27,310.
Additional Need and Sources of Financing
Currently we are exploring various sources of additional long-term financing. However, it is important to note that other than our engagement with Madison Park Advisors 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.
Going Concern Consideration
Our independent auditors included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Off-Balance Sheet Transactions
We do not engage in off-balance sheet transactions.
Contractual Obligations
The following table summarizes Blue Water’s contractual obligations as of December 31, 2014:
(1)
On January 1, 2015, Blue Water entered into a two-year lease agreement for a warehouse in St. Maarten, Dutch West Indies. Rent is fixed at $1,200 per month throughout the term of the lease. The first month’s rent was pro-rated at $1,045.
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 Commission’s (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of Blue Water’s management, necessary for a fair presentation of the financial position and operating results as of and for the fiscal years ended December 31, 2014 and 2013.
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 December 31, 2014 and 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 generates and 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 management’s best estimate of uncollectible receivable balances based on the creditworthiness of the customer and prior collection history. As of December 31, 2014 and 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 December 31, 2014, 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 December 31, 2014 and 2013, Blue Water had long-term investments consisting of (i) 20,000,000 shares of Stream Flow Media, Inc. and (ii) a net 15% interest in Next Level Hockey, LLC. At December 31, 2014, Blue Water recorded a net unrealized gain on change in available-for-sale securities of $188,563 to additional paid in capital.
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 instrument’s 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:
The estimated fair values of Blue Water’s financial instruments are as follows:
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. Blue Water excludes all potentially dilutive securities from its diluted net loss per share computation since their effect would be anti-dilutive because Blue Water recorded a loss for the years ended December 31, 2014 and 2013.
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 Water’s 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 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
Blue Water has elected early adoption of Accounting Standards Update (ASU) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification™.
A development stage entity is one that devotes substantially all of its efforts to establishing a new business and for which: (a) planned principal operations have not commenced; or (b) planned principal operations have commenced, but have produced no significant revenue. For example, many start-ups or even long-lived organizations that have not yet begun their principal operations or do not have significant revenue would be identified as development stage entities.
For public business entities, the presentation and disclosure requirements in Topic 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted.
Blue Water has chosen to adopt the provisions of the ASU, hence all of the past development stage disclosures and presentations have been eliminated.
The FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.
There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on Blue Water's financial position, results of operations or cash flows.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Blue Water Global Group, Inc.
We have audited the accompanying consolidated balance sheets of Blue Water Global Group, Inc. as of December 31, 2014 and 2013 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blue Water Global Group, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a net loss of $3,580,593 and negative cash flows from operating activities of $440,787, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
Houston, TX
www.mkacpas.com
April 13, 2015
F - 2
BLUE WATER GLOBAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
ASSETS
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F - 3
BLUE WATER GLOBAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F - 4
BLUE WATER GLOBAL GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 2014
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F - 5
BLUE WATER GLOBAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F - 6
BLUE WATER GLOBAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F - 7
BLUE WATER GLOBAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Blue Water Global Group, Inc. (“Company” or “Blue Water”) is an emerging growth 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 selling a line of premium rums which include its flagship rum Blue Water Ultra-Premium Rum™ and aged spiced Blue Water Caribbean Gold™ Premium Rum in St. Maarten, Dutch West Indies and Anguilla, British West Indies. Additionally, the Company 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 Commission’s (“SEC”) Regulation S-X. They reflect all adjustments which are, in the opinion of the Company’s management, necessary for a fair presentation of the financial position and operating results as of and for the fiscal years ended December 31, 2014 and 2013.
The consolidated financial statements include the accounts of Blue Water Global Group, Inc. and its wholly owned subsidiaries, Blue Water Bar & Grill, N.V. (St Maarten, Dutch West Indies company), Blue Water Beverage Brands, Ltd (British Virgin Islands company) and BWG Investments & Development, Ltd. (British Virgin Islands company) (hereafter referred to as the “Company” or “Blue Water”).
All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the assumptions used in the fair value of stock-based compensation and derivative liabilities.
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 December 31, 2014 and 2013, the Company had no cash equivalents.
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 generates and 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.
F - 8
Accounts Receivable
Accounts receivable are stated at net invoice amount. An allowance for doubtful accounts is based on management’s best estimate of uncollectible receivable balances based on the creditworthiness of the customer and prior collection history. As of December 31, 2014 and 2013 the allowance for doubtful accounts was $-0-.
Vendor deposits and Inventory materials
The Company has advanced funds to its contract manufacturer in production as of December 31, 2014. As of December 31, 2014, the aggregate advances were $28,422.
As of December 31, 2014, the Company, after eliminating defective production, purchased 18,948 1-liter rum bottles (13,167 of Blue Water Ultra-Premium Rum™ and 5,781 of Blue Water Caribbean Gold™ Premium Rum) to be incorporated in the manufacturing process of the Company’s products at a cost of $42,484.
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 December 31, 2014 and 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 December 31, 2014 and 2013, the Company had long-term investments consisting of (i) 20,000,000 shares of Stream Flow Media, Inc. and (ii) a net 15% interest in Next Level Hockey, LLC. At December 31, 2014, the Company recorded a net unrealized gain on change in available-for-sale securities of $188,563 to additional paid in capital.
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 instrument’s 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:
All items required to be recorded or measured on a recurring basis consist of derivative liabilities and are based upon level 3 inputs.
F - 9
The estimated fair values of the Company’s financial instruments are as follows:
Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price increased approximately 332% from December 31, 2013 to December 31, 2014. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.
F - 10
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. The Company excludes all potentially dilutive securities from its diluted net loss per share computation since their effect would be anti-dilutive because the Company recorded a loss for the years ended December 31, 2014 and 2013.
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.
Accounting for Derivative Instruments
All derivatives have been recorded on the balance sheet at fair value based on the Black-Scholes calculation. These derivatives, including embedded derivatives in the Company's convertible notes which have floating conversion prices based on changes to the quoted price of the Company's common stock and common stock equivalents tainted as a result of the derivative, are separately valued and accounted for on the Company's balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
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 Company’s 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.
Recent Accounting Pronouncements
The Company has adopted Accounting Standards Update (ASU) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, Development Stage Entities, from the FASB Accounting Standards Codification™.
F - 11
A development stage entity is one that devotes substantially all of its efforts to establishing a new business and for which: (a) planned principal operations have not commenced; or (b) planned principal operations have commenced, but have produced no significant revenue. For example, many start-ups or even long-lived organizations that have not yet begun their principal operations or do not have significant revenue would be identified as development stage entities.
For public business entities, the presentation and disclosure requirements in Topic 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted.
The Company has chosen to adopt the provisions of the ASU, hence all of the past development stage disclosures and presentations have been eliminated.
The FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.
There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements during year ended December 31, 2014, the Company incurred net losses of ($3,580,593) and used $440,787 in cash for operating activities. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.
The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE 3 - CONVERTIBLE PROMISSORY NOTES
Asher Note 1
On September 16, 2013, the Company 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 Water’s 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.
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This note was redeemed and paid in full on February 7, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $32,500 in amortization expense of the debt discount that has been recorded in the financial statements as interest expense.
Asher Note 2
On November 8, 2013, the Company 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 Water’s 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.
This note was redeemed and paid in full on April 2, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $33,033 in amortization expense of the debt discount that has been recorded in the financial statements as interest expense.
Asher Note 3
On December 23, 2013 the Company 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 3 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 Water’s 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.
This note was redeemed and paid in full on May 27, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $27,500 in amortization of the debt discount that has been recorded in the financial statements as interest expense.
Mermaid Enterprises, N.V. (Derivative Liability)
On October 9, 2013, the Company 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 Director’s 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.
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The Company has identified the embedded derivatives related to the Mermaid Note. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the debenture and to fair value as of each subsequent reporting date.
On August 13, 2014, when the Mermaid Note was deemed to be a derivative, the Company determined the aggregate fair value of $651,419 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 325.44%, (3) weighted average risk-free interest rate of 0.1%, (4) expected life of 1.16 years, and (5) estimated fair value of the Company’s common stock of $0.0116 per share.
The determined fair value of the embedded derivative of $651,419 was charged as a loss on change in derivative liability.
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 this note. The shares were issued at the conversion rate as defined in the note.
On October 23, 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 this note. The shares were issued at the conversion rate as defined in the note.
On October 31, 2014, the Company repaid the remaining Mermaid Note in full. Per the terms of the agreement, Blue Water repaid the Mermaid Note at $28,471.
At October 31, 2014 (date of payoff), the Company marked to market the fair value of the derivatives of the Mermaid Note discussed above and determined a fair value of $985,211 and accordingly recorded a loss on change in fair value of derivative liability of $438,403 from September 30, 2014 (last reporting period) and year to date loss of $462,792. . The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 290.56%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 0.94 years, and (5) estimated fair value of the Company’s common stock of $0.02 per share.
At October 31, 2014 (date of payoff), the Company reclassified the determined fair value of the derivative liability of $985,211 from liability to additional paid in capital.
JMJ Financial Note
On January 31, 2014 (“Effective Date”), the Company 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 Water’s 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.
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.
This note was redeemed and paid in full on May 8, 2014. No shares were issued in connection with the redemption of this note. This note incurred an aggregate of $39,083 in amortization of the debt discount has been recorded in the financial statements as interest expense.
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JMJ Financial Note 2 (Derivative Liability)
On August 13, 2014 (“Effective Date”) the Company sold to JMJ Financial (“JMJ Financial”) a $335,000 Convertible Promissory Note (“JMJ Note 2”). 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.
At any time after the Effective Date, the Investor may convert all or part of the JMJ Note 2 into shares of Blue Water’s common stock at the lesser of $0.011 a share or 60% of the lowest trade price in the 25 trading days prior to the conversion.
The Company has identified the embedded derivatives related to the JMJ Note 2. This embedded derivative included variable conversion or exercise features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the debenture and to fair value as of each subsequent reporting date.
At the inception of the JMJ Note 2, the Company determined the aggregate fair value of $73,394 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 318.39%, (3) weighted average risk-free interest rate of 0.43%, (4) expected life of 2 years, and (5) estimated fair value of the Company’s common stock of $0.0110 per share.
The determined fair value of the embedded derivative of $73,394 was charged as a debt discount up to the net proceeds of the note with the remainder, $32,636, charged to current period operations as a loss on change in derivative liability.
On November 7, 2014, Blue Water repaid the JMJ Note 2 in full. Per the terms of the agreement, Blue Water repaid the JMJ Note 2 at $40,758. No shares were issued in connection with the redemption of this note.
At November 7, 2014 (date of payoff), the Company marked to market the fair value of the derivatives of the JMJ Note 2 discussed above and determined a fair value of $148,840 and accordingly recorded a loss on change in fair value of derivative liability of $78,432 from September 30, 2014 (last reporting period) and a year to date loss of $80,460 . The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 288.62%, (3) weighted average risk-free interest rate of 0.51%, (4) expected life of 1.76 years, and (5) estimated fair value of the Company’s common stock of $0.025 per share.
At November 7, 2014 (date of payoff), the Company reclassified the determined fair value of the derivative liability of $148,840 from liability to additional paid in capital. During the year ended December 31, 2014, amortization of the debt discount was recorded in the financial statements as interest expense of $40,758.
Prim Note (Derivative Liability)
On March 27, 2014, the Company 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 Company has identified the embedded derivatives related to the Prim Note. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the debenture and to fair value as of each subsequent reporting date.
On August 13, 2014, when the Prim Note was deemed to be a derivative, the Company determined the aggregate fair value of $213,794 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 318.70%, (3) weighted average risk-free interest rate of 0.43%, (4) expected life of 1.62 years, and (5) estimated fair value of the Company’s common stock of $0.0110 per share.
The determined fair value of the embedded derivative of $213,794 was charged as a loss on change in derivative liability.
On September 29, 2014, the Company issued 13,000,000 shares of its common stock valued at $65,000, or $0.005 a share, as a partial redemption of this note. In conjunction with this partial conversion, the Company reduced $138,970 in its derivative liability through additional paid in capital and incurred a ($3,999) loss on change in derivative liability.
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At October 31, 2014, Blue Water repaid the Prim Note in full. Per the terms of the agreement, Blue Water repaid the Prim Note at $40,403.
At October 31, 2014 (date of payoff), the Company marked to market the fair value of the derivatives of the Prim Note discussed above and determined a fair value of $134,363 and accordingly recorded a loss on change in fair value of derivative liability of $56,933 from September 30, 2014 (last reporting period) and a year to date loss of 59,534 . The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 290.56%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.40 years, and (5) estimated fair value of the Company’s common stock of $0.02 per share.
At October 31, 2014 (date of payoff), the Company reclassified the determined fair value of the derivative liability of $134,363 from liability to additional paid in capital. During the year ended December 31, 2014, amortization of the debt discount was recorded in the financial statements as interest expense of $100,000.
Adar Bays, LLC Financing
On May 19, 2014, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC, an accredited investor (“Adar Bays”), pursuant to which we issued Adar Bays two convertible notes. The first note, due May 19, 2015 in the principal amount of $50,000 (“AB Note 1”), was issued in exchange for $50,000 in cash. The second note, due May 19, 2015 in the principal amount of $50,000 (“AB Note 2” and, together with AB Note 1, the “AB Notes”), was issued in exchange for a full-recourse, collateralized promissory note from Adar Bays in the amount of $50,000 (“AB Payment Note”). The AB Payment Note is due on January 15, 2015, unless the Company does not meet the current public information requirement pursuant to Rule 144, in which case both AB Note 2 and the AB Payment Note may be cancelled. The AB Payment Note is secured by AB Note 1.
Interest on the AB Notes accrues at the rate of 8% per annum. The Company is not required to make any payments on the AB Notes until maturity. The Company has the right to repay the AB Notes at any time during the first six months of the notes at a rate of 125% of the unpaid principal amount during the first 90 days, 135% of the unpaid principal amount between days 91 and 150, and 145% of the unpaid principal amount between days 151 and 180.
Adar Bays may convert the outstanding principal on the AB Notes into shares of the Company’s common stock beginning no earlier than 180 days from the date of issue at the conversion price per share equal to 55% of the lowest daily closing bid with a 20 day look back immediately preceding and including the date of conversion. There is no minimum conversion price.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $50,000 to the AB Notes 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.
At December 23, 2014, Blue Water repaid the Adar Bays Note in full. Per the terms of the agreement, Blue Water repaid the Adar Bay Note at $50,000. This note incurred an aggregate of $50,000 in amortization of debt discount that has been recorded in the financial statements as interest expense during the year ended December 31, 2014.
LG Capital Funding, LLC
On May 19, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC, an accredited investor (“LG Capital”), pursuant to which we issued LG Capital two convertible notes. The first note, due May 19, 2015 in the principal amount of $100,000 (“LG Note 1”), was issued in exchange for $100,000 in cash. The second note, due May 19, 2015 in the principal amount of $100,000 (“LG Note 2” and, together with LG Note 1, the “LG Notes”), was issued in exchange for a full-recourse, collateralized promissory note from LG Capital in the amount of $100,000 (“LG Payment Note”). The LG Payment Note is due on January 15, 2015, unless we do not meet the current public information requirement pursuant to Rule 144, in which case both LG Note 2 and the LG Payment Note may be cancelled. The LG Payment Note is secured by LG Note 1.
Interest on the LG Notes accrues at the rate of 8% per annum. The Company is not required to make any payments on the LG Notes until maturity. The Company has the right to repay the LG Notes at any time during the first six months of the notes at a rate of 125% of the unpaid principal amount during the first 90 days, 135% of the unpaid principal amount between days 91 and 150, and 145% of the unpaid principal amount between days 151 and 180.
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LG Capital may convert the outstanding principal on the LG Notes into shares of the Company’s common stock beginning no earlier than 180 days from the date of issue at the conversion price per share equal to 55% of the lowest daily closing bid with a 20 day look back immediately preceding and including the date of conversion. There is no minimum conversion price.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $100,000 to the LG Notes 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.
At December 22, 2014, Blue Water repaid the LG Capital Note in full. Per the terms of the agreement, Blue Water repaid the LG Capital at $100,000. This note incurred an aggregate of $100,000 in amortization of debt discount that has been recorded in the financial statements as interest expense during the year ended December 31, 2014.
KBM Worldwide Note 1 (Derivative Liability)
On August 26, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“KBM Note 1”) in the principal amount $53,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water. The KBM Note 1 matures on May 28, 2015. The KBM Note 1 is convertible at 58% of the average of the lowest three trading prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the KBM Note 1, the Company determined the aggregate fair value of $85,972 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 318.74%, (3) weighted average risk-free interest rate of 0.085%, (4) expected life of 0.75 years, and (5) estimated fair value of the Company’s common stock of $0.0116 per share.
The determined fair value of the embedded derivative of $85,972 was charged as a debt discount up to the net proceeds of the note with the remainder, $32,972, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the KBM Note 1 discussed above and determined a fair value of $137,009. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.12%, (4) expected life of 0.41 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $51,035 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the KBM Note 1 was $54,476, which includes $1,475 in accrued interest. During the year ended December 31, 2014 this note incurred $24,476 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $28,524.
Subsequently on January 23, 2015, the Company repaid the KBM Note 1 in full. Per the terms of the agreement, the Company repaid the KBM Note 1 at $73,269.23.
KBM Worldwide Note 2 (Derivative Liability)
On October 1, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“KBM Note 2”) in the principal amount $43,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water. The KBM Note 2 matures on July 3, 2015. The KBM Note 2 is convertible at 58% of the average of the lowest three trading prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the KBM Note 2, the Company determined the aggregate fair value of $38,021 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.10%, (4) expected life of 0.75 years, and (5) estimated fair value of the Company’s common stock of $0.0112 per share.
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The determined fair value of the embedded derivative of $38,021 was charged as a debt discount of the note.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the KBM Note 2 discussed above and determined a fair value of $46,524. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 227%, (3) weighted average risk-free interest rate of 0.12%, (4) expected life of 0.50 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $8,503 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the KBM Note 2 was $43,858, which includes $858 in accrued interest. During the year ended December 31, 2014 this note incurred $12,581 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $25,440.
Subsequently on February 23, 2015, the Company repaid the KBM Note 2 in full. Per the terms of the agreement, the Company repaid the KBM Note 2 at $59,369.
KBM Worldwide Note 3 (Derivative Liability)
On November 13, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“KBM Note 3”) in the principal amount $65,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water. The KBM Note 3 matures on August 17, 2015. The KBM Note 3 is convertible at 58% of the average of the lowest three trading prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the KBM Note 3, the Company determined the aggregate fair value of $62,619 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223% to 227%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.76 years, and (5) estimated fair value of the Company’s common stock of $0.022 per share.
The determined fair value of the embedded derivative of $62,619 was charged as a debt discount of the note.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the KBM Note 3 discussed above and determined a fair value of $69,058. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.63 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $6,439 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the KBM Note 3 was $65,684, which includes $684 in accrued interest. During the year ended December 31, 2014 this note incurred $10,851 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $51,768.
Auctus Private Equity Fund LLC Note (Derivative Liability)
On November 19, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“Auctus Note”) in the principal amount $56,250 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Auctus Private Equity Fund LLC. (“Auctus”), a Nevada corporation, and Blue Water. The Auctus Note matures on August 19, 2015. The Auctus Note is convertible at 55% of the average of the lowest two trading prices of Blue Water’s common stock during the twenty five trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Auctus Note, the Company determined the aggregate fair value of $69,066 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1)
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dividend yield of 0%; (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.75 years, and (5) estimated fair value of the Company’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $69,066 was charged as a debt discount up to the net proceeds of the note with the remainder, $12,816, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the Auctus Note discussed above and determined a fair value of $85,325. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 227 to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.63 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $16,259 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Auctus Note was $56,768, which includes $518 in accrued interest. During the year ended December 31, 2014 this note incurred $8,654 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $47,596.
Cardinal Capital Group, Inc. Note (Derivative Liability)
On November 14, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“Cardinal Note”) in the principal amount $33,500 and net proceeds of $30,000 after taking into consideration an Original Issue Discount (“OID”) of $3,500. The Cardinal Note matures on November 14, 2016. The Cardinal Note is convertible at 55% of the lowest daily closing bid of Blue Water’s common stock during the twenty trading day period prior to the conversion date.
At the inception of the Cardinal Note, the Company determined the aggregate fair value of $109,829 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 287.90%, (3) weighted average risk-free interest rate of 0.54%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.021 per share.
The determined fair value of the embedded derivative of $109,829 was charged as a debt discount up to the net proceeds of the note with the remainder, $76,329, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the Cardinal Note discussed above and determined a fair value of $121,604. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.67%, (4) expected life of 1.87 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $11,775 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Cardinal Note was $33,500. During the year ended December 31, 2014 this note incurred $2,154 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $31,346.
JSJ Investments, Inc. Note (Derivative Liability)
On November 19, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“JSJ Note”) in the principal amount $100,000, net proceeds of $95,000 after taking into consideration an Original Issue Discount (“OID”) of $5,000. The JSJ Note matures on May 19, 2015. The JSJ Note is convertible at 50% of the lowest trading stock price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the JSJ Note, the Company determined the aggregate fair value of $139,851 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1)
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dividend yield of 0%; (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 0.50 years, and (5) estimated fair value of the Company’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $139,851 was charged as a debt discount up to the net proceeds of the note with the remainder, $39,851, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the JSJ Note discussed above and determined a fair value of $170,992. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.38 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $31,141for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the JSJ Note was $100,000. During the year ended December 31, 2014 this note incurred $23,204 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $76,796.
Subsequently on January 23, 2015, the Company repaid the JSJ Note in full. Per the terms of the agreement, the Company repaid the JSJ Note at $144,188.
Macallan Partners, LLC Note (Derivative Liability)
On November 19, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“Macallan Note”) in the principal amount $50,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Macallan Partners, LLC. (“Macallan”) and Blue Water. The Macallan Note matures on December 1,, 2015. The Macallan Note is convertible at 55% of the lowest closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Macallan Note, the Company determined the aggregate fair value of $56,199 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 286.43%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.03 years, and (5) estimated fair value of the Company’s common stock of $0.024 per share.
The determined fair value of the embedded derivative of $56,199 was charged as a debt discount up to the net proceeds of the note with the remainder, $6,199, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the Macallan Note discussed above and determined a fair value of $58,100. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.92 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $1,901 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Macallan Note was $50,460 which includes $460 in accrued interest. During the year ended December 31, 2014 this note incurred $5,570 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $44,430.
Tangiers Investment Group, LLC Note (Derivative Liability)
On November 13, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“Tangiers Note”) in the principal amount $220,000 (funded $55,000), net proceeds of $50,000 after taking into consideration an Original Issue Discount (“OID”) of $5,000. The Tangiers Note matures on November 13, 2015. The Tangiers Note is convertible at 55% of the lowest daily closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days.
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At the inception of the Tangiers Note, the Company determined the aggregate fair value of $176,827 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 287.63%, (3) weighted average risk-free interest rate of 0.53%, (4) expected life of 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.022 per share.
The determined fair value of the embedded derivative of $176,827 was charged as a debt discount up to the net proceeds of the note with the remainder, $121,827, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the Tangiers Note discussed above and determined a fair value of $186,306. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.67%, (4) expected life of 0.87 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $9,479 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Tangiers Note was $55,000. During the year ended December 31, 2014 this note incurred $7,233 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $47,767.
Adar Bays, LLC #2 Note (Derivative Liability)
On December 22, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“Adar Note”) in the principal amount $50,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Adar Bays LLC (“Adar”) and Blue Water. The Adar Note matures on December 22, 2015. The Adar Note is convertible at 58% of the average of the three lowest trading stock prices of Blue Water’s common stock during the ten trading day period prior to the conversion date after 180 days.
At the inception of the Adar Note, the Company determined the aggregate fair value of $110,001 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.76%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $110,001 was charged as a debt discount up to the net proceeds of the note with the remainder, $60,001, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the Adar Note discussed above and determined a fair value of $171,497. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $61,496 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Adar Note was $50,099 which includes $99 in accrued interest. During the year ended December 31, 2014 this note incurred $1,233 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $48,767.
LG Capital Funding LLC #2 Note (Derivative Liability)
On December 22, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“LG Note”) in the principal amount $100,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between LG Capital Funding LLC (“LG”) and Blue Water. The LG Note matures on December 22, 2015. The LG Note is convertible at 55% of the three lowest daily closing bid price of Blue Water’s common stock during the twenty trading day period prior to the conversion date after 180 days.
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At the inception of the LG Note, the Company determined the aggregate fair value of $220,001 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.76%, (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $220,001 was charged as a debt discount up to the net proceeds of the note with the remainder, $120,001, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the LG Note discussed above and determined a fair value of $342,995. The fair value of the embedded derivatives was determined using Black-Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 278.07%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $122,993 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the LG Note was $100,197 which includes $197 in accrued interest. During the year ended December 31, 2014 this note incurred $2,466 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $97,534.
Black Mountain Equities, Inc. Note (Derivative Liability)
On December 22, 2014, the Company entered into an agreement for the sale of a Convertible Promissory Note (“Black Note”) in the principal amount $250,000 (funded $25,000), net proceeds of $22,500 after taking into consideration an Original Issue Discount (“OID”) of $2,500. The Black Note matures on December 22, 2015. The Black Note is convertible at 60% of the lowest trading price of Blue Water’s common stock during the twenty five trading days period prior to the conversion date after 180 days. In addition, the Promissory Note provides for changes in conversion price should certain events occur (as defined).
At the inception of the Black Note, the Company determined the aggregate fair value of $31,751 of embedded derivatives. The fair value of the embedded derivatives was determined using the Lattice Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 223%, to 235% (3) weighted average risk-free interest rate of 0.15%, (4) expected life of 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.025 per share.
The determined fair value of the embedded derivative of $31,751 was charged as a debt discount up to the net proceeds of the note with the remainder, $3,751, charged to current period operations as non-cash loss on change in derivative liability.
At December 31, 2014, the Company marked to market the fair value of the derivatives of the Black Note discussed above and determined a fair value of $34,601. The fair value of the embedded derivatives was determined using Lattice Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 223% to 235%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 0.98 years, and (5) estimated fair value of the Company’s common stock of $0.038 per share.
The Company recorded a loss on change in derivative liability of $2,850 for the year ended December 31, 2014.
As of December 31, 2014, the outstanding balance due on the Black Note was $28,000 including one time interest of $3,000. During the year ended December 31, 2014 this note incurred $690 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of December 31, 2014, the remaining unamortized debt discount was $27,310.
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The table below provides a summary of the convertible promissory notes as of December 31, 2014:
The table below sets forth a summary of changes in the fair value of the Company debt derivative for the year ended December 31, 2014:
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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.
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On June 10, 2014 the Company terminated the Investment Agreement with Dutchess and subsequently withdrew its effective registration statement with the SEC.
The Company received aggregate net proceeds of $42,563, or approximately $0.01 a share, from the sale of 4,174,963 registered shares of our common stock under the Dutchess Investment Agreement during the term of this agreement.
NOTE 5 - EQUITY
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.
On November 13, 2014, the Company’s board of directors designated 1,000,000 shares of preferred stock as Series A Preferred Stock at $0.001 par value. Series A Preferred Stock shall rank superior to all other classes of stock including common and other future classes of preferred in regard to liquidation, dissolution or winding up of the Company. The Series A Preferred Stock shall participate in all legal dividends declared by the board of directors and shall have the right to vote on all matters with holders of common stock with 1,000 for each share of Series A Preferred Stock.
After a minimum holding period of two years from the date of issuance, the holders of Series A Preferred stock, at their election, convert into shares of common stock at a conversion rate of 1,000 shares of common for each share of Series A Preferred stock converted.
On November 14, 2014, the Company exchanged 150,000,000 shares of common stock held by a shareholder for 150,000 shares of Series A Preferred stock. The exchange was based on the underlying conversion rate of the Series A Preferred Stock.
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 Company’s 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 fiscal year ended December 31, 2014 the Company issued an aggregate of 46,874,963 shares of its common stock for $216,803 ($115,803 for cash and $101,000 for services). The valuations of common stock issued for services were based upon the fair value of the common stock and did not differ materially from the fair value of the services rendered.
Additionally, on November 13, 2014 Taurus tendered 150,000,000 shares of our common stock in exchange for 150,000 shares of our Series A Preferred Stock. These shares of common stock were subsequently cancelled by the Company.
As of December 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 126,206,213 shares of its common stock issued and outstanding.
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 Company’s common stock at a price of $0.005 a share, $0.01 a share, and $0.015 a share, respectively in December 2013. 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:
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As of December 31, 2014, all outstanding warrants were canceled in connection with the service contract cancellation.
NOTE 6 - INVESTMENTS
Long-Term Investments; Available-For-Sale Securities
The following table summarizes the Company’s long-term Available-For-Sale (AFS) Securities as of December 31, 2014:
(1)
The Company’s long-term AFS securities consisted of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $188,563 and a net 15% interest in Next Level Hockey, LLC which was valued at $-0-.
The following table summarizes the Company’s long-term Available-For-Sale (AFS) Securities as of December 31, 2013:
(1)
The Company’s long-term AFS securities consisted solely of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0-.
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.
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NOTE 7 - CONTRACTUAL OBLIGATIONS
The following table summarizes the Company’s contractual obligations as of December 31, 2014:
(2)
On January 1, 2015, the Company entered into a two-year lease agreement for a warehouse in St. Maarten, Dutch West Indies. Rent is fixed at $1,200 per month throughout the term of the lease. The first month’s rent was pro-rated at $1,045.
NOTE 8 - 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 Taurus’s 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.
Stream Flow Media, Inc.
On December 2, 2013 the Company entered into its first Registered Spin-Off transaction pursuant to the Strategic Alliance Agreement with Stream Flow Media, Inc., a Colorado corporation (“Stream Flow”). As per the terms 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 Flow’s issued and outstanding shares of common stock as of April 6, 2015 in return for the Company agreeing to pay all of Stream Flow’s expenses related to obtaining a listing on the OTCBB.
Stream Flow is presently in the process of preparing and filing its Form 15c2-11 with FINRA to obtain its 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 and expanding the distribution and marking of its premium distilled spirits.
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).
During the years ended December 31, 2014 and 2013, the Company had accumulated $11,437 and $-0-, respectively, in costs related to the Stream Flow shares, recorded to additional paid in capital. During the year ended December 31, 2014, the Company recorded an unrealized gain of $188,563 relating to its stock holdings based on expected market listing. Accordingly, the Company carried the Stream Flow shares at $200,000 and $-0- valuation on the balance sheet as of December 31, 2014 and 2013, respectively.
Next Level Hockey, LLC
On September 5, 2014 the Company entered into a definitive agreement with Next Level Hockey, LLC (“Next Level”), a New Jersey limited liability company. As per the terms of this transaction, the Company will receive a net 15% equity interest in Next Level when it goes public on the OTCBB in return for the Company agreeing to pay all of Next Level’s expenses related to obtaining a listing on the OTCBB.
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Next Level will convert from a limited liability company to a “C” corporation during the three months ending December 31, 2014 and will prepare and submit its initial Registration Statement on Form S-1 with the SEC during the three months ending March 31, 2015.
The Company accounts for its Next Level investment 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 December 31, 2014, the Company had accumulated $-0- in costs related to the Next Level investment and there were no observable inputs for a fair valuation. Accordingly, the Company carried the Next Level investment at a $-0- valuation on the balance sheet for the period.
NOTE 9 - SUBSIDIARIES
As of December 31, 2014, the Company had the following wholly-owned subsidiaries:
(1)
As of December 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 Director’s Licenses.
(2)
As of December 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.
(3)
As of December 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 10 - RELATED PARTY TRANSACTIONS
As of December 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, a significant portion of the Company’s expenses have been 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 December 31, 2014 and 2013, the Company’s accounts payable to Taurus aggregated $494,718 and $192,907, respectively.
As of December 31, 2014, Taurus owned 16,000,000 shares of the Company’s issued and outstanding common stock and 150,000 shares of the Company’s issued and outstanding preferred stock, which represented 12.7% and 100% of each class of securities, respectively. 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.
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NOTE 11 - INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2014 and 2013 was as follows, assuming a 35% effective tax rate:
As of December 31, 2014, the Company had approximately $1,052,000 in tax loss carryforwards that can be utilized in future periods to reduce taxable income through 2033.
The Company provided a valuation allowance equal to the deferred income tax assets for the period from March 3, 2011 (inception) to December 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 12 - SUBSEQUENT EVENTS
On January 23, 2015, the Company repaid the KBM Note 1 described in Note 3 in full with no conversion. Per the terms of the agreement, the Company repaid the KBM Note 1 at $73,269.
On January 23, 2015, the Company repaid the JSJ Note described in Note 3 in full with no conversion. Per the terms of the agreement, the Company repaid the JSJ Note at $144,188.
On January 26, 2015, the Company entered into a Securities Purchase Agreement with Union Capital, LLC, an accredited investor (“Union Capital”), pursuant to which the Company issued Union Capital two convertible notes. The first note, due January 26, 2016 in the principal amount of $50,000 (“Union Note 1”), was issued in exchange for $50,000 in cash. The second note, due January 26, 2016 in the principal amount of $50,000 (“Union Note 2” and, together with Union Note 1, the “Union Notes”), was issued in exchange for a full-recourse, collateralized promissory note from Union Capital in the amount of $50,000 (“Union Payment Note”). The Union Payment Note is due on September 26, 2015, unless we do not meet the current public information requirement pursuant to Rule 144, in which case both Union Note 2 and the Union Payment Note may be cancelled. The Union Payment Note is secured by Union Note 1. Interest on the Union Notes accrues at the rate of 8% per annum.
On January 27, 2015, the Company issued a Convertible Promissory Note (“JSJ Note”) in the principal amount $100,000 to JSJ Investments, Inc. (“JSJ”). The JSJ Note has an Original Issue Discount (“OID”) of $5,000 and bears interest at a rate of 12%. The JSJ Note matures on May 19, 2015 (“Maturity Date”).
On February 9, 2015, the Company issued a Convertible Promissory Note (“Blue Citi Note”) in the principal amount $108,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Blue Citi, LLC (“Blue Citi”), a New York limited liability company, and the Company (“Blue Citi Agreement”). The Blue Citi Note matures on February 9, 2016.
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On February 17, , the Company issued a Convertible Promissory Note (“KBM Note”) in the principal amount $79,000 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between KBM Worldwide, Inc. (“KBM”), a New York corporation, and Blue Water (“KBM Agreement”). The KBM Note matures on November 17, 2015.
On February 18, 2015, the Company received and cancelled 12,500,000 shares of its outstanding common stock, $0.001 par value.
On February 18, 2015, the Company issued 3,000,000 and 900,000 shares of common stock, $0.001 par value, to J. Scott Sitra and Michael Hume, respectively, in consideration of and to incentivize their ongoing services to us as executive officers. These shares were valued at $0.1099 a share, which was the closing price of our common stock as quoted by the OTC Bulletin Board on the date of issue.
On February 20, 2015, the Company issued a Convertible Promissory Note (“JDF Note”) in the principal amount $116,000 pursuant to the terms of a Securities Purchase Agreement between JDF Capital, Inc. (“JDF”), a New York corporation, and Blue Water (“JDF Agreement”). The JDF Note matures on February 20, 2016.
On February 23, 2015, the Company repaid the KBM Note 2 described in Note 3 in full with no conversion. Per the terms of the agreement, the Company repaid the KBM Note 2 at $59,369
On March 31, 2015, the Company issued an aggregate of 3,333,334 shares of restricted common stock to five independent consultants. These shares were valued at $273,333, or $0.082 a share, which was the closing price of our common stock as quoted on the OTC Bulletin Board on the same day.
No other material events or transactions have occurred during this subsequent event reporting period which required recognition or disclosure in the financial statements.
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Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our principal 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 as of a date ("Evaluation Date") within ninety (90) days prior to the filing of our December 31, 2014 Annual Report with the SEC on Form 10-K.
Based upon that evaluation, Mr. Sitra has concluded that, as of December 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 periodic filings with the SEC.
Mr. Sitra 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 did not result in any audit adjustments to our 2013 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;
·
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 Water’s 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.
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.
We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2015, subject to our ability to obtain sufficient future financing and subject to our ability to start generating revenue.
Internal Control over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our principal officer and sole director, J. Scott Sitra, assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment under such criteria, management concluded that our internal controls over financial reporting were not effective as of December 31, 2014 due to control deficiencies that constituted material weaknesses.
Management has identified a lack of sufficient personnel in the accounting function due to the limited resources of Blue Water with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles.
We are in the process of developing and implementing remediation plans to address our material weaknesses in our internal controls.
Management has identified specific remedial actions to address the material weaknesses described above:
·
Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issue by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations and/or have raised significant additional working capital; and
·
Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
(b) Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by Blue Water's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit Blue Water to provide only management's report in this Annual Report. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this Annual Report.
(c) Changes in Controls and Procedures
There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2014 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our executive officers and directors and their respective ages as of the date of April 6, 2015 are as follows:
Our Board of Directors is comprised of only one class of director. Each director is elected to hold office until the next annual meeting of shareholders and until his successor has been elected and qualified. Officers are elected annually by the Board of Directors and hold office until successors are duly elected and qualified. There are no arrangements, agreements, or understandings between non-management shareholders and management under which non-management shareholders may, directly or indirectly, participate in or influence the management of our business affairs. The following is a brief account of the business experience of each of our directors and executive officers. There is no family relationship between any director or executive officer.
J. Scott Sitra, has served as our President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary, and member of our Board of Directors since June 2013. He concurrently serves as the President and Chief Executive Officer of Taurus Financial Partners, LLC (“Taurus”), an international management and financial consulting firm specializing in assisting small and promising businesses with obtaining and maintaining a public listing on the OTC Bulletin Board (OTCBB). Mr. Sitra founded Taurus in February 2010.
Before starting Taurus, Mr. Sitra worked as an independent consultant advising early stage businesses on various matters relating to business finance and how to obtain a public listing on a US exchange. Prior to being an independent consultant, Mr. Sitra served in varying capacities, including as an executive officer and a member of the board of directors, to several private and public entities. He has actively participated in the successful growth and development of several private and public entities within a multitude of industries, including high technology, oil and gas exploration, marketing and retailing, food and beverage, and publishing.
Mr. Sitra is not currently an officer or director of any other reporting company. Mr. Sitra presently devotes approximately 80%, or 35 to 45 hours per week, of his business time to our affairs.
Michael Hume, is one of our co-founders and has served as our Treasurer and Secretary since January 2013. Mr. Hume brings to us over 18 years of sales, management, and promotional experience within the restaurant industry. Concurrently with his duties at Blue Water, Mr. Hume has served as the General Manager of the Tin Lizzy’s Cantina at the Mall of Georgia since August 2014. Before joining Tin Lizzy’s Cantina he was a General Manager for Hooter’s Restaurants in Atlanta, Georgia. Prior to joining Hooter’s, Mr. Hume was the General Manager of The Arena Tavern in Duluth, Georgia, a restaurant he helped develop and launch in April 2009. Prior to opening The Arena Tavern and starting in August 2007, Mr. Hume was involved in the opening and development of The Hudson Grille chain of restaurants in the Atlanta, Georgia area which was comprised of 14 restaurants companywide. Between August 2005 and April 2007 Mr. Hume served as the Treasurer and Secretary of Premier Development & Investment, Inc., a publicly traded company, and was the General Manager of its wholly-owned Player’s Grille, Inc. subsidiary starting in August 2004. Mr. Hume attended the University of South Florida in Tampa, Florida between 1993 and 1997.
Mr. Hume is not currently an officer or director of any other reporting company. Mr. Hume presently devotes approximately 25%, or 10 to 15 hours per week, of his business time to our affairs. Mr. Hume intends to make the transition to working exclusively for Blue Water during fiscal 2015 when the ongoing construction of the St. Maarten Blue Water Bar & Grill™ nears completion.
Committees of the Board of Directors
We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committee of our Board of Directors. As such, our entire Board of Directors acts as our audit committee.
Audit Committee Financial Expert
Our Board of Directors does not currently have any member who qualifies as an audit committee financial expert. We believe that the cost of retaining such a financial expert at this time is prohibitive. Further, because we are in the start-up stage of our business operations, we believe the services of an audit committee financial expert are not necessary at this time.
Involvement in Legal Proceedings
None of our officers or directors - past or present - have appeared as a party during the past ten (10) years in any legal proceedings that may bear on their ability or integrity to serve as an officer or director of Blue Water.
Information Concerning Non-Director Executive Officers
Michael Hume is not a director of Blue Water. Mr. Hume did serve as a director for Blue Water from its inception on March 3, 2011 through June 2013 when he voluntarily resigned. Mr. Hume continues to work in an executive officer capacity and presently is Blue Water’s Vice President. In the future, when Blue Water has secured sufficient financing and Mr. Hume can devote more time to Blue Water’s business, he may consider rejoining Blue Water’s Board of Directors.
Code of Ethics
We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers.
Potential Conflict of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our directors have the authority to determine issues concerning management compensation, including their own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our officers or directors.
Board of Director’s Role in Risk Oversight
The Board of Directors assesses on an ongoing basis the risks faced by Blue Water. These risks include financial, technological, competitive, and operational risks. The Board dedicates time at each of its meetings to review and consider the relevant risks faced at that time. In addition, since Blue Water does not have an Audit Committee, the Board of Directors is also responsible for the assessment and oversight of Blue Water’s financial risk exposures.
Compliance with Section 16(A) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, require Blue Water's executive officers, directors and persons who own more than 10% of a registered class of Blue Water's equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership, and annual reports concerning their ownership of common stock and other equity securities of Blue Water on Form(s) 3, 4, and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish Blue Water with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that for the fiscal year ended December 31, 2014, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with and that there were no deficiencies.
Item 11.
Item 11. Executive Compensation
The following table sets forth information with respect to compensation paid by us to our officers from inception on March 3, 2011 through December 31, 2014. Our fiscal year end is December 31. No cash compensation has been paid to our officers from inception on March 3, 2011 through December 31, 2014.
Summary Compensation Table
(1)
Mr. Sitra joined Blue Water on June 14, 2013 and has not received any form of compensation as of December 31, 2014.
(2)
Michael Hume received 6,000,000 shares of our common stock on March 3, 2011. These shares were issued as Founder’s Shares, which are recorded with a net valuation of $-0-.
The following table sets forth information with respect to compensation paid by us to our directors from inception on March 3, 2011 through December 31, 2014. Our fiscal year end is December 31.
Director Compensation Table
(1)
J. Scott Sitra joined Blue Water’s Board of Directors on June 14, 2013. Through December 31, 2014 Mr. Sitra has not received any form of compensation for serving on the Board of Directors.
(2)
Michael Hume joined Blue Water’s Board of Directors on March 3, 2011 (inception) and served as a director until June 2013. Mr. Hume continues serving Blue Water in an executive officer capacity as a Vice President.
All compensation received by our officers and directors has been disclosed. There are no stock option, retirement, pension, or profit sharing plans for the benefit of our officers and directors, past or present.
Employment Agreements
We have not entered into any employment agreements with any of our officers or directors. As of March 25, 2014 we had no employees other than those listed above. All future employment arrangements are subject to the discretion of our Board of Directors.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
Officer Compensation
Michael Hume received 6,000,000 shares of our shares of our common stock as compensation for his services on March 3, 2011. These shares were issued as Founder’s Shares, which were recorded with a net valuation of $-0-. We have no plans to begin paying our current officer any cash compensation during the current fiscal year ending December 31, 2014.
Director Compensation
We have no plans to begin paying our directors any cash compensation until our business becomes operationally profitable. We may, however, reimburse our directors for any out-of-pocket travel and lodging expenses associated with their attendance of Board meetings.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership as of April 6, 2015 by (i) each named executive officer, (ii) each member of our Board of Directors, (iii) each person deemed to be the beneficial owner of more than five percent (5%) of any class of our common stock, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, each person named in the following table is assumed to have sole voting power and investment power with respect to all shares of our common stock listed as owned by such person.
As of April 6, 2015, we had 120,939,547 shares of common stock issued and outstanding and 150,000 shares of Series A Preferred Stock issued and outstanding.
* Less than 1%
(1)
Does not include 16,000,000 shares of our common stock or 150,000 shares of our Series A Preferred Stock held by Taurus Financial Partners, LLC (“Taurus”), a company Mr. Sitra concurrently serves as its President and Chief Executive Officer. Mr. Sitra has dispositive control over Taurus’s Blue Water shares.
(2)
Taurus received 5,000,000 shares of our common stock valued at $50,000, or $0.01 a share, on March 3, 2011 in consideration of its services of assisting with the creation and early development of our business, including incorporation and formation assistance, preparation of a prospectus and related registration statement on Form S-1, and continued EDGAR filing support and services. Further, on September 28, 2011, Taurus purchased an additional 700,000 shares of our common stock from Island Radio, Inc. On July 25, 2013 Michael Hume transferred 10,900,000 shares of his holdings to Taurus. On November 13, 2014 Taurus tendered 150,000,000 shares of our common stock in exchange for 150,000 shares of our Series A Preferred Stock. Taking these events into consideration and Blue Water’s forward stock split effected on September 30, 2013, Taurus’s owned 16,000,000 shares of our common stock and 150,000 shares of our Series A Preferred Stock. J. Scott Sitra, our President and Chief Executive Officer, is the sole owner and control person of Taurus.
Securities Authorized for Issuance Under Equity Compensation Plans
As of April 6, 2015 we did not have any authorized Equity Compensation Plans.
Changes in Control
We are unaware of any contract or other arrangement that could result in a change of control of Blue Water.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We are currently operating out of office space provided by our Vice President, Michael Hume. This arrangement was agreed upon by Mr. Hume on a rent-free basis for an indeterminate period of time. There is no written agreement or other material terms or arrangements relating to this arrangement. Should Mr. Hume become uninvolved in our business this arrangement would certainly come to an end and we would be required to seek office space elsewhere, potentially at great expense to us.
Other than the foregoing, we do not currently have any conflicts of interest. We have not yet formulated a policy for handling conflicts of interest. However, we intend to do so prior to hiring our first employee.
Share Issuances to Promoters
On March 3, 2011 we issued an aggregate of 11,000,000 restricted shares of our common stock, par value $0.001, to our officers, Michael Hume and Christina Harris, as Founder’s Stock, which was recorded with a net valuation of $-0-. Mr. Hume and Ms. Harris received 6,000,000 and 5,000,000 shares, respectively.
On July 9, 2012 Ms. Harris transferred her shares to Mr. Hume as a gift. Ms. Harris no longer owns any shares of our common stock.
On July 25, 2013 Mr. Hume transferred 10,900,000 of his shares to Taurus Financial Partners, LLC (“Taurus”) as a gift. As of April 6, 2015 Mr. Hume owned 1,900,000 shares of our common stock.
On March 3, 2011 we issued 5,000,000 restricted shares of our common stock to Taurus for:
·
assisting with the creation and early development of our business, including incorporation and formation assistance;
·
preparation of a stock offering prospectus and related registration statement on Form S-1 (and subsequent amendments); and
·
continued and ongoing EDGAR filing support and services.
The market value of these services provided to us by Taurus was valued at $50,000. Hence, we valued the shares we issued Taurus at $50,000, or $0.01 per share.
Additionally, and as of December 31, 2014, we had $494,718 in accounts payable to Taurus.
Further, and as of April 6, 2015, Taurus is considered a promoter and an affiliate shareholder and presently owns 16,000,000 shares of our common stock and 150,000 shares of our Series A Preferred Stock. As such, Taurus has the equivalent of 166,000,000 votes in all corporate voting matters, which represents a majority vote of 61.3% in all potential votes in a corporate voting matter. J. Scott Sitra, our President and Chief Executive Officer, is concurrently the President and Chief Executive Officer at Taurus.
On March 3, 2011 we issued 5,000,000 restricted shares of our common stock to Arctic Eyes, LLC (“Arctic Eyes”) for:
·
assisting with the initial development and future hosting of our website (www.bluewaterbar.com); and
·
future marketing efforts aimed at building the Blue Water Bar & Grill™ brand, including (i) advertising and blogging on various Caribbean travel websites such as Travel Talk Online - St. Maarten/St. Martin (www.traveltalkonline.com), (ii) developing spot advertisements and regular promotional interviews on local radio and television stations, and (iii) through print media outlets such as newspapers and free tourist pamphlets.
The market value of the services at the time of the share issuance was valued at $50,000. Hence, we valued the shares we issued Arctic Eyes at $50,000, or $0.01 per share.
On February 17, 2012, Blue Water and Arctic Eyes, LLC mutually agreed to rescind their consulting agreement. Arctic Eyes returned the 5,000,000 shares it was holding which were subsequently cancelled by Blue Water.
There is no formal business relationship between Taurus and Arctic Eyes. The companies have worked on the same project in the past and sometimes, during the normal course of business, refer clients to one another. Neither has paid nor received compensation, cash or otherwise, for such client referrals.
On November 13, 2014, Taurus tendered 150,000,000 shares of its holdings of Blue Water common stock in exchange for 150,000 newly issued shares of Blue Water Series A Preferred Stock. Blue Water subsequently cancelled the shares of common stock tendered in this stock exchange.
As of April 6, 2015, and because of their positions and involvement in our business organization and development, the following table summarizes our current promoters as defined by Rule 405 of Regulation C and the nature and amount of their compensation:
(1)
J. Scott Sitra has not received any compensation for his services to Blue Water, nor are there any plans to provide him with compensation, cash or otherwise, during the fiscal year ending December 31, 2015. As of April 6, 2015, Mr. Sitra directly owned 4,000,000 shares of our common stock.
(2)
Issued as Founder’s Shares, which are recorded with a net valuation of $-0-.
(3)
J. Scott Sitra, our President and Chief Executive Officer, is concurrently the President and Chief Executive Officer of Taurus. As of April 6, 2015, Taurus owned 16,000,000 shares of our common stock and 150,000 shares of our Series A Preferred Stock.
As of April 6, 2015, we had no agreements in place to provide additional compensation to any of the above promoters.
Indemnification
Under our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his/her position, if he/she acted in good faith and in a manner he/she reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he/she is to be indemnified, we must indemnify him/her against all expenses incurred, including reasonable attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to officers or directors under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
Director Independence
The OTC Bulletin Board, where our shares of common stock are quoted under the symbol “BLUU”, does not have any director independence requirements. In determining whether our directors are independent, we refer to NASDAQ Stock Market Rule 4200(a)(15). Based on these widely-accepted criteria, we have determined that none of our directors are independent at this time.
No member of management is or will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officer(s) and director(s) in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer's understanding of his/her fiduciary duties to us.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and NASDAQ Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because none of our directors are independent directors, we do not currently have independent audit or compensation committees. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
Item 14.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the annual audit of our financial statements and review of financial statements included in our quarterly reports and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Given the small size of our Board of Directors, as well as the limited financial resources and minimal operations of Blue Water, our Board acts as our Audit Committee. Our Board pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services, tax services and other services. Our Board approves these services on a case-by-case basis.
PART IV
Item 15.
Item 15. Exhibits, Financial Statements Schedules
The following documents are filed as a part of this Annual Report:
(1)
Financial Statements
The financial statements required to be filed as part of this report are set forth in Item 8 of Part II of this Annual Report.
(2)
Financial Statement Schedules
All schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable.
(3)
Exhibits
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 13th day of April, 2015.
BLUE WATER GLOBAL GROUP, INC.
By:
/s/ J. Scott Sitra
J. Scott Sitra
President, Chief Executive Officer,
Principal Executive Officer, Secretary, Treasurer,
Principal Financial Officer, Principal Accounting Officer and
Sole Director