NOTE 8 – Income Taxes
The provision (benefit) for income taxes for the period from March 3, 2011 (inception) to September 30, 2013 was as follows, assuming a 35 percent effective tax rate:
| | | | | | |
| |
For the nine months ended 9/30/13 | | For the period from March 3, 2011 (inception) to 9/30/13 |
Current tax provision: | | | | |
| Federal | | | | |
| Taxable income | $ | - | $ | |
| | | | | |
| Total current tax provision | $ | - | $ | |
| | | | |
Deferred tax provision: | | | | |
| Federal | | | | |
| Loss carryforwards | $ | 59,286 | $ | 95,534 |
| Change in valuation allowance | | (59,286) | | (95,534) |
| | | | | |
| Total deferred tax provision | $ | - | $ | - |
As of September 30, 2013, the Company had approximately $272,953 in tax loss carryforwards that can be utilized in future periods to reduce taxable income through 2032.
The Company provided a valuation allowance equal to the deferred income tax assets for the period from March 3, 2011 (inception) to September 30, 2013 because it is not presently known whether future taxable income will be sufficient to utilize the tax loss carryforwards.
The Company has no uncertain tax positions.
NOTE 9 – Partytenders, Inc. Subsidiary
On October 1, 2011 we incorporated a wholly-owned subsidiary, Partytenders, Inc., in the State of Nevada.
Through the Partytenders subsidiary the Company intends to offer turnkey catering services to private parties and events. The Company will provide these functions with food servers, bartenders, high-quality food selections and top-shelf spirits.
In late 2012 the Company determined not to pursue the Partytenders concept and dissolved the subsidiary on December 31, 2012. No shares were ever issued by the Partytenders subsidiary. Further, no operating activities ever were conducted within the subsidiary.
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NOTE 10 – Share Exchange with Island Radio, Inc. and Subsequent Sale of Shares
On March 29, 2011 we entered into a Share Exchange Agreement with Island Radio, Inc., which is listed on the OTC Bulletin Board under the trading symbol “ISLD”. Under the terms of the agreement we issued Island Radio 2,000,000 shares of our restricted common stock in exchange for 2,000,000 restricted shares of Island Radio common stock, $0.001 par value. These shares were valued at $20,000, or $0.01 a share.
After a review on March 31, 2011, and in accordance with US Generally Accepted Accounting Principles (US GAAP), we determined these shares of common stock were an impaired asset due to the underlying business’s limited operations and lack of trading on OTC Bulletin Board. Accordingly, we took a ($20,000) impairment charge against this asset.
On October 13, 2011 we transferred our restricted shares of Island Radio to Michael Hume, our then President and Chief Executive Officer. These shares carried no value.
NOTE 11 – 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.
NOTE 12 – Related Party Transactions
As of September 30, 2013, 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.
For the period March 3, 2011 (inception) to September 30, 2013 the Company’s rent expense was zero. This is because of the short time period and the minimal level of operating activities that have transpired during this period of time.
Additionally, for the period of March 3, 2011 (inception) to September 30, 2013 the majority of the Company’s expenses were paid by Taurus Financial Partners, LLC (“Taurus”), an independent service provider that currently provides SEC EDGAR compliance and filing services to the Company, and have been accounted for under the accounts payable to a related party line item; as of September 30, 2013, Taurus owned 73.1% of the Company’s issued and outstanding common stock. Further, 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.
NOTE 13 – Recent Accounting Pronouncements
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 has not had a material impact on the Company’s financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of ASU 2011-11 has not had a material impact on the Company’s financial position or results of operations.
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In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 has not had a material impact on the Company’s financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 has not had a material impact on the Company’s financial position or results of operations.
In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 has not had a material impact on the Company’s financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 has not had a material impact on the Company’s financial position or results of operations.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
·
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
·
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
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The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 has not had a material impact on the Company’s financial position or results of operations.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial statements.
NOTE 14 – Subsequent Events
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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are a development stage corporation with only limited early stage operations. Our independent registered public accounting firm has issued a going concern opinion in their audit report dated February 11, 2013, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 11, 2013. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. We do not anticipate generating significant revenues until we are able to open our first restaurant. Accordingly, we must raise additional cash from sources other than operations.
To meet our need for cash we are continually exploring new sources of financing, including raising funds through a secondary public offering, a private placement of securities and/or loans. If we are unable to secure additional financing, we will either have to suspend operations until we do raise the cash or cease operations entirely.
The following discussion should be read in conjunction with our financial statements and the notes thereto and the other information included in this Quarterly Report as filed with the SEC on Form 10-Q.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We are in the early stages of developing operations. We cannot guarantee that we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns, such as increases in marketing costs, increases in administration expenditures associated with daily operations, increases in accounting and audit fees, and increases in legal fees related to filings and regulatory compliance.
To become profitable and competitive, we have to successfully open operating restaurant properties. We anticipate relying on equity sales of our common stock in order to continue to fund our business operations until we are able to generate sufficient revenues to cover our operating expenses, which may never happen. Issuances of additional shares will result in dilution to our then existing stockholders. There is no assurance that we will be able to make any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities. We may also rely on loans from our management or other significant shareholders. However, there are no assurances that management or any of our significant shareholders will provide us with any additional funds.
We are continually exploring new sources of financing to meet our need for additional cash, including raising funds through a secondary public offering, a private placement of securities and/or loans. We cannot provide any assurances that our efforts to secure additional financing will be successful. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Further, future equity financing could result in additional and substantial dilution to existing shareholders.
Plan of Operation
We were incorporated on March 3, 2011 in the State of Nevada. We plan on developing a chain of casual dining restaurants in popular tourist destinations throughout the Caribbean region. Our initial restaurant is going to be called Blue Water Bar & Grill™ and will be located in St. Maarten, Dutch West Indies.
It is important to note that we remain a development stage business with only limited early stage operations. As of September 30, 2013, we had nominal assets, early stage business operating activities, did not operate any restaurant properties, and did not have any ownership or leaseholds in any restaurant properties. Further, we have only recently begun taking the steps necessary towards opening a restaurant, acquiring a restaurant leasehold, obtaining the necessary licenses and permits to operate a restaurant, recruiting or hiring employees, developing a training program, or implementing a management information system. Our business plan, which is outlined in this Quarterly Report, is something we presently aspire to pursue. No assurances can be given that we will ever be able to implement this business plan or, if implemented, it will be successful.
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The projected costs and other related expenses are estimates made by our management and our actual costs related to opening our proposed restaurant may differ significantly.
In addition to the foregoing, and unless otherwise noted, all of the cost estimates and forecasts throughout our business plan are mere estimates made by our management. Our actual costs related to opening and operating the proposed restaurant 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 Bar & Grill™
The Blue Water Bar & Grill™ restaurant concept features a casual, open air Caribbean themed restaurant designed to offer customers a distinctive and relaxing island dining experience. Central to each restaurant will be a large covered outside patio area where customers can enjoy their drinks and food while overlooking a beautiful water view. The patio area will feature an inviting island styled walk up (and in some cases, swim up) bar and a small stage area for live musical performances by local musicians and dancing. Each restaurant will have an open aired kitchen so customers can see their food being prepared.
Each restaurant will begin serving breakfast at 7am. On weekends the restaurant will promote an American styled breakfast buffet and feature a do-it-yourself Bloody Mary station. Lunch service will commence at 11am and will feature handmade burgers, gourmet sandwiches and salads, and Caribbean jerk styled dishes. Dinner service will start at 5pm and will feature hand-cut aged Certified Angus steaks and prime rib, fresh seafood caught by local fishermen, slow cooked ribs, and specialty homemade desserts. The restaurant will close at 11pm nightly and the bar will close later at the 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, which will be a wooden structure approximately 5’ x 5’ in size and covered with an attractive thatched roof. These souvenir items will be primarily marketed to the tourist customers. Based on our preliminary discussions with an importer of these types of souvenir items, we estimate selling this merchandise at a 300% - 600% retail markup, depending on the particular item. Construction of the souvenir hut should take no more than three days and cost us between $1,200 and $1,500.
While the required level of inventory may vary from location to location, we estimate that our initial location in St. Maarten, Dutch West Indies will require an initial inventory of $17,000. This will be comprised of $10,000 in food and perishables, $4,000 in liquor, and $3,000 in merchandise. Food and liquor inventory will be replenished once or twice a week, depending on sales volumes, and merchandise every two months due to the longer lead time because it will be imported from China.
We intend to open our first Blue Water Bar & Grill™ in the Simpson Bay area, sometimes referred to as “restaurant row”, in St. Maarten, Dutch West Indies. We believe the Simpson Bay area is the ideal location for our restaurant concept. Within walking distance there are six timeshare resorts (Royal Palm, Atrium, Simpson Bay Suites, Simpson Bay Resort, Flamingo and La Vista) and several of the island’s more popular restaurants (Skip Jack’s, Topper’s, Pineapple Pete, Lee’s Roadside Grill, Pizza Galley, and Simpson Bay Yacht Club). Plus, there is the attraction of the draw bridge which attracts a lot of tourists during season (November through April) who wish to watch the megayachts come and go.
Keys for Success
To better achieve our business objectives and successfully compete with other restaurants, we have developed the following focal points and strategies we anticipate implementing in all of our future restaurants:
Create a Fun, Energetic, Destination Drinking and Dining Experience. We wish to create and promote a fun and socially open atmosphere whereby our customers can, if they choose to do so, openly interact with one another. Topics of discussion and frequent interest will often center around where each other is from, what activities have they done while on the island, and giving and receiving recommendations for future activities while on the island; sometimes the floor and bar staff will participate in these discussions and offer their own words of advice. We intend to accomplish this by utilizing sectional floor and foot traffic planning, whereby the bar area will promote social interaction among customers, a stage area will feature local live entertainment performers to create a lively and festive atmosphere, and more intimate dining tables will be located further in the back to provide separation for those who just wish to dine alone and enjoy the island atmosphere. We believe
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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.
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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.
Partytenders, Inc.
On October 1, 2011 we incorporated Partytenders, Inc. in the State of Nevada as a wholly-owned subsidiary. We intended for Partytenders to offer turnkey catering services to private parties and events. On December 31, 2012 we discontinued all plans and operations relating to Partytenders. We never engaged in any business, operating, or financing activities under Partytenders.
Strategic Alliance Agreement with Taurus Financial Partners, LLC
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 10 – 15% 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” approximately one-third of them to its then stockholders in the form of a special stock dividend.
Blue Water anticipates participating in one to three of these spin-off transactions each fiscal year. Blue Water and Taurus are presently in early stage discussions with prospective spin-off candidates.
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.
Proposed Milestones to Implement Business Operations
The following milestones are based on estimates made by our management team. The working capital requirements and the projected milestones are approximations and are subject to adjustments. Our initial baseline budget is based on receiving financing of at least $150,000 executing on the following milestones. Presently we do not have any source of financing
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available to us and are continuing to explore various methods and sources of financing. Upon securing sufficient financing we plan to complete the following proposed milestones:
0 - 2 Months
We will apply for the necessary business licenses and permits to enable us to renovate the selected leasehold to properly reflect the Blue Water Bar & Grill™ concept and allow us to sell prepared foods and liquor. We estimate that these licenses and permits will cost us approximately $5,000 to obtain, as follows:
| |
Description | Expense |
Business License | $871 |
Coffee House License (Liquor License) | 2,821 |
Restaurant License | 265 |
Legal, Notary and Other Fees | 1,043 |
Total | $5,000 |
3 - 4 Months
We will identify and negotiate a long-term lease for a suitable location for our first Blue Water Bar & Grill™ on the island of St. Maarten, Dutch West Indies. We have already conducted some preliminary inquiries into such locations and believe we will be able to secure a leasehold somewhere in the Simpson Bay area of St. Maarten. We estimate that it will cost us approximately $15,000 in security deposits to secure a suitable location, as follows:
| |
Description | Expense |
First Month Rent | $3,500 |
Second Month Rent | 3,500 |
Leasehold Security Deposit | 3,500 |
Utilities Deposit | 4,000 |
Other/Reserve | 500 |
Total | $15,000 |
5 - 11 Months
We will renovate the selected leasehold to properly reflect the Blue Water Bar & Grill™ concept. We are estimating that the cost of the renovations required will be approximately $50,000. It is important to note that the actual amount of renovation necessary will depend on the final location we select. Therefore, our following estimates of the anticipated costs are generic estimates at best:
| |
Description | Expense |
Construction Materials | $25,000 |
New/Replacement Kitchen Equipment | 15,000 |
Labor | 10,000 |
Total | $50,000 |
Concurrently we will finalize the development of our initial restaurant website (www.bluewaterbar.com) for the Blue Water Bar & Grill™ concept and develop a general corporate website for our investors (www.bluewaterglobalgroup.com). In addition, we have also secured the domain name www.bluewaterbeachbar.com. We anticipate spending approximately $2,500 on the initial website development.
12+ Months
About one month prior to the grand opening of the first Blue Water Bar & Grill™ we will hire and train our initial restaurant staff, which is estimated to be comprised of a general manager, six floor wait staff, four bartenders (the head bartend will also act as the bar manager), four kitchen employees (the head chef will also act as the kitchen manager), and one dishwasher. We estimate that these activities will cost us approximately $10,000, as follows:
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| |
Description | Expense |
Training Pay and Salaries | $7,500 |
Printed Training Materials | 1,500 |
Training Video (DVD), includes filming and DVD duplication |
1,000 |
Total | $10,000 |
Further, we intend to launch a marketing campaign to promote the grand opening of the restaurant. We anticipate this initial marketing campaign will cost us $5,000 during the first month of operations, and will be comprised of the following expenditures:
| |
Description | Expense |
Radio (Split Equally Between the Top 3 Radio Stations) |
$3,000 |
Newspaper Advertisements | 1,500 |
Printed Coupons and Promotions for Distribution at Tourist Resorts |
500 |
Total | $5,000 |
Note: The amounts allocated to each line item in the above milestones are subject to change without notice. Our planned milestones are based on the estimated amount of time to complete each milestone once we have secured adequate financing to begin working towards achieving these milestones. Any line item amounts not expended completely, as detailed in the milestones above, shall be held in reserve as working capital and subject to reallocation as required for ongoing operations.
Long-Term Plan (5 Years)
Over the ensuing five years our growth and expansion will focus on a disciplined growth strategy of opening one new Blue Water Bar & Grill™ restaurant a year. Presently we have identified the following Caribbean islands we intend to eventually open a Blue Water Bar & Grill™ restaurant:
·
Barbados;
·
Aruba, Dutch West Indies;
·
Cozumel, Mexico;
·
Grand Cayman; and
·
Nassau, Bahamas.
We estimate that we will need to raise between $1.0 - $1.5 million through additional sales of our equity securities to open the proposed restaurants on each of the listed Caribbean islands.
Sales and Marketing
Our marketing strategy is aimed at attracting new customers through both traditional and creative avenues. We intend to focus on building a reputation among local customers (those living on the island) while directing our marketing efforts toward tourists staying on the island or visiting for the day on a cruise ship. We intend to accomplish this through:
·
Grand opening promotions;
·
Traditional paid advertising (radio, television, newspaper, etc.); and
·
Free media exposure (hosting charity events, food reviews, 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. Our goal with courting these groups is to introduce them to our concept and court them to refer tourists to our restaurant and provide us with free future media exposure.
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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 not intend to spend more than 3% of our annual revenues on marketing with the notable exception of grand opening promotional efforts which we do intend to spend about $5,000.
Results of Operations
Three Months Ended September 30, 2013 and 2012
Revenues. We did not generate any revenue during the three months ended September 30, 2013 compared to $40,000 in revenue for the same period a year ago. The reason for the lack of revenue during the current period was the consulting project responsible for generating the revenue a year ago was completed during the reporting period ended March 31, 2013. Since the completion of that project we have not generated any revenue and have focused our efforts on completing the development of the St. Maarten, Dutch West Indies based Blue Water Bar & Grill™. As such, we do not anticipate generating any new revenue until we successfully open this new restaurant.
Operating Expenses. Our total operating expenses for the three months ended September 30, 2013 were $90,854, which is a $44,754, or 97.1%, increase compared to operating expenses of $46,100 for the same period a year ago. Our increase in operating expenses was primarily attributable to increased advertising and marketing expenses as a result of us implementing an investor relations program. Additionally, we experienced higher general operating expenses and higher costs related to our ongoing SEC reporting requirements, which have consisted primarily of legal, accounting and outside consulting fees.
Other Income (Expenses). During the three months ended September 30, 2013 we incurred ($1,514) in interest expense compared to $-0- for the same period a year ago. This interest expense was comprised of ($85) in accrued interest relating to outstanding convertible promissory notes and ($1,429) in amortized debt discounts resulting from Beneficial Convertible Features (BCF) relating to outstanding convertible promissory notes.
Net Income (Loss). We had a net loss of ($92,368) for the three months ended September 30, 2013 compared to a net loss of ($6,100) for the same period a year ago, which represented a $86,268, or 1,414.2%, increase in net loss. The increase in net loss was the result of (i) generating zero revenue during the period, (ii) initial costs related to implementing an investor relations program, and (iii) increased general operating expenses and higher ongoing SEC compliance and reporting requirements, which consisted primarily of legal, accounting and outside consulting fees.
Nine Months Ended September 30, 2013 and 2012
Revenues. We generated $10,000 in revenue during the nine months ended September 30, 2013 and $40,000 for the same period a year ago, which represents a ($30,000), or (75.0%), decline in revenue. This revenue was the result of us being retained to develop a sports themed restaurant concept, inclusive of financials, 5-year projections, feasibility studies, and floor and traffic planning. We completed work on this project during the three months ended March 31, 2013. Since the completion of that project we have not generated any revenue and have focused our efforts on completing the development of the St. Maarten, Dutch West Indies based Blue Water Bar & Grill™. As such, we do not anticipate generating any new revenue until we successfully open this new restaurant.
Operating Expenses. Our total operating expenses for the nine months ended September 30, 2013 were $178,654, which is a $105,913, or 145.6%, increase compared to operating expenses of $72,741 for the same period a year ago. Our increase in operating expenses was primarily attributable to increased advertising and marketing expenses as a result of us implementing an investor relations program. Additionally, we experienced higher general operating expenses and higher costs related to our ongoing SEC reporting requirements, which have consisted primarily of legal, accounting and outside consulting fees.
Other Income (Expenses). During the nine months ended September 30, 2013 we incurred ($1,514) in interest expense compared to $-0- for the same period a year ago. This interest expense was comprised of ($85) in accrued interest relating to outstanding convertible promissory notes and ($1,429) in amortized debt discounts resulting from Beneficial Convertible Features (BCF) relating to outstanding convertible promissory notes.
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Net Income (Loss). We had a net loss of ($170,168) for the nine months ended September 30, 2013 compared to a net loss of ($32,741) for the same period a year ago, which represented a $137,427, or 419.7%, increase in net loss. The increase in net loss was the result of (i) experiencing a significant drop in revenue during the period, (ii) initial costs related to implementing an investor relations program, and (iii) increased general operating expenses and higher ongoing SEC compliance and reporting requirements, which consisted primarily of legal, accounting and outside consulting fees.
Cumulative During the Development Stage – March 3, 2011 (inception) through September 30, 2013
For ease of reading we refer to the period of March 3, 2011 (inception) through September 30, 2013 as the “Developmental Period”.
Revenues. We have generated $50,000 in revenue during the Development Period. This revenue was the result of us being retained to develop a sports themed restaurant concept, inclusive of financials, 5-year projections, feasibility studies, and floor and traffic planning. We completed work on this project during the three months ended March 31, 2013.
Operating Expenses. Our total operating expenses for the Developmental Period were $422,220. These operating expenses were primarily attributable to organizational costs related to our formation, offerings of our common stock, and complying with our ongoing SEC reporting requirements. These expenses have consisted primarily of legal, accounting, and outside consulting fees.
Other Income (Expenses). During the Development Period we realized a ($20,000) loss on our investment in 2,000,000 shares of Island Radio, Inc. (OTCBB: ISLD) common stock, $0.001 par value, and incurred ($1,514) in interest expenses related to outstanding convertible promissory notes.
Net Loss. We have incurred a net loss of ($393,734) during the Developmental Period. The net loss was primarily attributable to organizational costs related to our formation, offerings of our common stock, and complying with our ongoing SEC reporting requirements. These expenses have consisted primarily of legal, accounting, and outside consulting fees.
Total Stockholders’ Deficit. Our stockholders’ deficit was ($190,453) as of September 30, 2013.
Liquidity and Capital Resources
As of September 30, 2013, we had total assets of $26,026, which consisted solely of cash.
As of September 30, 2013, our total liabilities were $216,479, which consisted of $195,965 in accounts payable to a related party, Taurus Financial Partners, LLC (“Taurus”), $19,000 to non-related parties, and $1,429 in convertible promissory notes (net of unamortized debt discounts of $31,071). It is important to note that as of September 30, 2013 Taurus owned 73.1% of Blue Water’s issued and outstanding common stock and that our president and chief executive officer, J. Scott Sitra, is concurrently the president and chief executive officer at Taurus. Further, we had no external credit facilities (i.e. bank loans, revolving lines of credit, etc.).
We expect to incur continued losses over the next 12 months, probably even longer. As of September 30, 2013, we had nominal assets and anticipate that we need at least $150,000 in additional financing to open our Blue Water Bar & Grill™ in St. Maarten, Dutch West Indies and meet our minimal working capital requirements over the next 12 months.
Dutchess Equity Line
On September 16, 2013 we entered into an Investment Agreement and a Registration Rights Agreement with Dutchess Opportunity Fund, II, LP requiring Dutchess to purchase up to $5,000,000 worth of our common stock over a 36 month period and for us to register 20,000,000 (after taking into consideration our recent 10-for-1 forward stock split) shares of our common stock for resale with the SEC, respectively. Due to various factors relating to this type of financing, we can offer no assurances that we will receive sufficient financing, if any, from the Dutchess Equity Line.
Asher Enterprises Convertible Note
On September 16, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Asher Note”) 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 closed on September
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18, 2013 and matures on June 18, 2014. The Asher Note 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.
This note is measured at fair value at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. 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.
As of September 30, 2013, the outstanding balance due on the Asher Note is 32,588, which includes $88 in accrued interest. Further, as of September 30, 2013, the remaining unamortized debt discount was $31,071.
Additional Need and Sources of Financing
Currently we are exploring various sources of additional financing. However, it is important to note that other than the Dutchess Equity Line we presently do not have any material arrangements for additional financing. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Future equity financing, if ever available, could result in additional and potentially substantial dilution to existing shareholders.
Going Concern Consideration
Our independent registered public accounting firm has issued a going concern opinion in their audit report dated February 11, 2013, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 11, 2013. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. Our financial statements found within this Quarterly Report on Form 10-Q and the aforementioned Annual Report on Form 10-K contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Off –Balance Sheet Operations
As of September 30, 2013, we had no off-balance sheet activities or operations.
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 three months ended September 30, 2013 and 2012, for the nine months ended September 30, 2013 and 2012, and cumulative from March 3, 2011 (inception) to September 30, 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.
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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 September 30, 2013 and December 31, 2012, we had no cash equivalents.
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:
