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EX-31 - EXHIBIT 31.1 -- SCOTT SITRA CERTIFICATION - Blue Water Global Group, Inc.ex311.htm
EX-32 - EXHIBIT 32.1 -- SCOTT SITRA CERTIFICATION - Blue Water Global Group, Inc.ex321.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


(Mark One)


x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended: June 30, 2014


or


¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ________ to ________


Commission File Number: 333-174557


              Blue Water Global Group, Inc.                  

 (Exact name of registrant as specified in its charter)


                    Nevada                    

(State or other jurisdiction of

incorporation or organization)

              45-0611648              

(I.R.S. Employer

Identification Number)


           202 Osmanthus Way, Canton, GA  30114           

 (Address of principal executive offices)

 

            Tel: (949) 264-1475, Fax: (949) 607-4052         

 (Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x      No ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x      No ¨


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer ¨                                                                                                        Accelerated Filer    ¨

Non-Accelerated Filer   ¨  (Do not check if a smaller reporting company)            Smaller Reporting Company x 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨      No x


The number of shares outstanding of the Registrant's common stock, $0.001 par value, as of August 19, 2014, was 253,206,213.





TABLE OF CONTENTS


Item

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

4

 

Item 1

Financial Statements

 

4

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

Item 4

Controls and Procedures

 

43

 

 

 

PART II – OTHER INFORMATION

 

44

 

Item 1

Legal Proceedings

 

44

 

Item 1A

Risk Factors

 

44

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

 

Item 3

Defaults Upon Senior Securities

 

44

 

Item 4

Mine Safety Disclosures

 

44

 

Item 5

Other Information

 

44

 

Item 6

Exhibits

 

45

Signatures

 

45





2






 Forward-Looking Statements

 

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” regarding the plans and objectives of management for future operations.  Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the Registrant to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.  The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties.  The Registrant’s plans and objectives are based, in part, on assumptions involving it continuing as a going concern and executing on its stated business plan and objectives.  Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Registrant.  Although the Registrant believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Registrant or any other person that the objectives and plans of the Registrant will be achieved.


As used in this Quarterly Report, the terms "we", "us", "our", "Blue Water", “Registrant”, and “Issuer” mean Blue Water Global Group, Inc. unless the context clearly requires otherwise.





3







PART I – FINANICAL INFORMATION



Item 1.  Financial Statements


BLUE WATER GLOBAL GROUP, INC.

BALANCE SHEETS

(unaudited)


ASSETS


 

 

6/30/14

 

12/31/13

Current assets:

 

 

 

 

 

Cash and equivalents

$

68,676

$

7,357

 

 

 

68,676

 

7,357

 

 

 

 

 

Total assets:

$

68,676

$

7,357



LIABILITIES AND STOCKHOLDERS’ (DEFICIT)


Current liabilities:

 

 

 

 

 

Accounts payable (related party)

$

388,203

$

192,907

 

Accounts payable (non-related)

 

18,000

 

33,000

 

Convertible notes payable, net of unamortized debt discounts of

     $240,901 and $77,442, respectively

 


39,099

 


27,558

 

Accrued interest

 

6,487

 

1,973

 

Total current liabilities

 

451,789

 

255,438

 

 

 

 

 

 

 

Total liabilities

$

451,789

$

255,438

 

 

 

 

 

Commitments and contingencies

 

-

 

-

 

 

 

 

 

 

Stockholders’ (deficit):

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized;

     no shares issued and outstanding

 


-

 


-

 

Common stock, $0.001 par value, 700,000,000 shares authorized;

     243,206,213 and 229,331,250 shares issued and outstanding, respectively

 


243,206

 


229,331

 

Additional paid-in capital

 

831,280

 

486,852

 

Accumulated deficit

 

(1,457,599)

 

(964,264)

 

 

 

 

 

 

 

Total stockholders’ (deficit)

$

(383,113)

$

(248,081)

 

 

 

 

 

Total liabilities and stockholders’ (deficit)

$

68,676

$

7,357









The accompanying notes to the financial statements are an integral part of these statements.




4






BLUE WATER GLOBAL GROUP, INC.

STATEMENTS OF OPERATIONS

(unaudited)


 

 

For the three months ended

June 30,

 

For the six months ended

June 30,

 

 


2014

 


2013

 


2014

 


2013

 

 

 

 

 

 

 

 

 

 

Revenues, net

$

-

$

-

$

-

$

10,000

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

Gross profit

 

-

 

-

 

-

 

10,000

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

General and administrative

 

26,253

 

4,250

 

40,147

 

6,164

 

Consulting fees

 

37,250

 

9,000

 

215,500

 

18,000

 

Accounting fees

 

4,000

 

1,000

 

7,000

 

4,500

 

Legal fees

 

24,388

 

7,500

 

47,288

 

59,135

 

Total expenses

 

91,891

 

21,750

 

309,935

 

87,799

 

 

 

 

 

 

 

 

 

 

(Loss) from operations

 

(91,891)

 

(21,750)

 

(309,935)

 

(77,799)

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

Interest expense

 

(112,768)

 

-

 

(160,776)

 

-

 

Loss on extinguishment of debt

 


(22,624)

 


-

 


(22,624)

 


-

 

Total other income (expense)

 

(135,392)

 

-

 

(183,400)

 

-

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

Net (loss)

$

(227,283)

$

(21,750)

$

(493,335)

$

(77,799)

 

 

 

 

 

 

 

 

 

 

(Loss) per common share,

     basic and diluted


$


(0.00)


$


(0.00)


$


(0.00)


$


(0.00)

 

 

 

 

 

 

 

 

 

 

Weighted average number of
    common shares outstanding,

     basic and diluted

 



242,107,312

 



211,505,490

 



237,272,007

 



195,839,780














The accompanying notes to the financial statements are an integral part of these statements.




5






BLUE WATER GLOBAL GROUP, INC.

STATEMENT OF STOCKHOLDERS’ (DEFICIT)

For the period from December 31, 2013 to June 30, 2014

(unaudited)




Description

 


Common Stock

 

Additional

Paid-In

Capital

 

Common

Stock

 


Accumulated

Deficit

 



Total

 

Shares

 

Amount

 

 

Subscribed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance,

December 31, 2013

 



229,331,250



$



229,331



$



486,852



$



-



$



(964,264)



$



(248,081)

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for cash

 



3,874,963

 



3,875

 



36,928

 



-

 



-

 



40,803

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for conversion of debt

 




10,000,000

 




10,000

 




(5,000)

 




-

 




-

 




5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount on convertible notes with a Beneficial Conversion Feature (BCF)

 





-

 





-

 





312,500

 





-

 





-

 





312,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) for the period

 


-

 


-

 


-

 


-

 


(493,335)

 


(493,335)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance,

June 30, 2014

 


243,206,213


$


243,206


$


831,280


$


-


$


(1,457,599)


$


(383,113)





















The accompanying notes to the financial statements are an integral part of these statements.




6






 BLUE WATER GLOBAL GROUP, INC.

STATEMENTS OF CASH FLOWS

(unaudited)



 

 

 

For the six months ended

June 30,

 

 


2014

 


2013

Cash flows from operating activities:

 

 

 

 

 

Net (loss)

$

(493,335)

$

(77,799)

 

Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities

 

 

 

 

 

 

Amortization of discount on convertible debt

 

153,125

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Increase (decrease) in accounts payable (related party)

 

195,296

 

57,646

 

 

(Increase) decrease in accounts receivable

 

-

 

(10,000)

 

 

Increase (decrease) in accounts payable (non-related)

 

(14,999)

 

-

 

 

Increase (decrease) in accrued interest

 

4,514

 

-

 

 

 

 

 

 

 

 

Net cash provided (used) by operating activities

 

(155,401)

 

(30,153)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net proceeds from convertible promissory notes

$

312,500

$

-

 

Net proceeds from sale of common stock

 

40,803

 

 

 

Repayment of convertible promissory notes

 

(136,583)

 

-

 

 

 

 

 

 

 

Net cash provided (used) by financing activities

 

216,720

 

-

 

 

 

 

 

Net increase (decrease) in cash

 

61,319

 

(30,153)

 

 

 

 

 

 

 

Cash – beginning of period

 

7,357

 

30,299

 

 

 

 

 

 

 

Cash – end of period

$

68,676

$

146










The accompanying notes to the financial statements are an integral part of these statements.




7






BLUE WATER GLOBAL GROUP, INC.

STATEMENTS OF CASH FLOWS

(unaudited)

(continued)



 

 

 

For the six months ended

June 30,

 

 


2014

 


2013

Non-cash investing and financing operating activities:

 

 

 

 

 

Beneficial Conversion Feature (BCF) of convertible notes

$

312,500

$

-

 

Issuance of common shares in connection with debt conversion

 

5,000

 

-

 

 

$

317,500

 

-

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Interest

$

-

$

-

 

Income taxes

 

-

 

-

 

 

$

-

$

-































The accompanying notes to the financial statements are an integral part of these statements.




8






BLUE WATER GLOBAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

June 30, 2014

(unaudited)



NOTE 1 – Summary of Significant Accounting Policies


Unaudited Interim Financial Information


The accompanying Balance Sheet as of June 30, 2014, Statements of Operations for the three months ended June 30, 2014 and 2013, for the six months ended June 30, 2014 and 2013, Statement of Stockholder’s (Deficit) for the six months ended June 30, 2014, and the Statements of Cash Flows for the six months ended June 30, 2014 and 2013, are unaudited.  These unaudited interim financial statements have been prepared in accordance with accounting principles accepted in the United States of America (“GAAP”).  In the opinion of the company’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and included all adjustments necessary for the fair presentation of the Company’s statement of financial position at June 30, 2014 and its results of operations and its cash flows for the period ended June 30, 2014.  The results for the period ended June 30, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014.


Organization


Blue Water Global Group, Inc. (“Company” or “Blue Water”) is 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 preparing to launch a line of premium rums which include its flagship rum Blue Water Ultra Premium Rum™ and spiced Blue Water Caribbean Gold™ Premium Rum.  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 June 30, 2014, for the three months ended June 30, 2014 and 2013, and for the six months ended June 30, 2014 and 2013.


Use of Estimates


The accompanying financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.  Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.  Actual results may vary from these estimates.


Cash and Cash Equivalents


For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.  As of June 30, 2014 and December 31, 2013, the Company had no cash equivalents.





9






Revenue Recognition


The Company follows the guidance of FASB ASC Topic 605 for revenue recognition.  In general, the Company recognizes revenue when (1) the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) the service has been provided, and (4) collectability is reasonably assured.


The Company anticipates generating future revenue from two sources: (i) food, beverage and souvenir sales from its Blue Water Bar & Grill™ restaurant concept presently under development and (ii) sales of its of distilled spirits, which includes its flagship Blue Water Ultra Premium Rum™ and spiced Blue Water Caribbean Gold™ Premium Rum.  Revenue from all 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 June 30, 2014 and December 31, 2013 the allowance for doubtful accounts was $-0-.


Short-Term Investments


The Company accounts for its short-term investments, which are classified as trading securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that trading securities be carried at fair value.  Unrealized gains and losses due to changes in fair value as well as realized gains and losses resulting from sales of securities are reported as Other Income/Expenses in the statement of operations.  Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available.  The cost basis for realized gains and losses is determined on a specific identification basis.  As of June 30, 2014 and December 31, 2013, the Company had no short-term investments.


Long-Term Investments


The Company accounts for its long-term investments, which are designated as available-for-sale securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that available-for-sale securities be carried at fair value with unrealized gains and losses, net of tax, included in stockholders' equity under accumulated other comprehensive income (loss).  Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available.  As of June 30, 2014 and December 31, 2013, the Company had long-term investments consisting of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0-.


Fair Value of Financial Instruments


ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value.  A financial 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:


Level

 

Description

 

 

 

Level 1

 

Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

 

Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

 

Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.





10






The estimated fair values of the Company’s financial instruments are as follows:


 

Fair Value Measurement at June 30, 2014 Using:

 

 

 

 

 

 

 

 

 






Description

 






6/30/14

 

Quoted Prices In Active Markets For Identical Assets

(Level 1)

 


Significant Other Observable Inputs

(Level 2)

 



Significant Unobservable Inputs

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

Short-term

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

$

68,676

$

68,676

$

-

$

-

Total assets measured at fair value

$

68,676

$

68,676

$

-

$

-

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable (related party)

$

388,203

$

-

$

388,203

$

-

 

Accounts payable (non-related)

 

18,000

 

18,000

 

-

 

-

 

Convertible notes payable, net of unamortized debt discount of $240,901

 



39,099

 



-

 



-

 



39,099

 

Accrued Interest

 

6,487

 

6,487

 

-

 

-

Total liabilities measured at fair value

$

451,789

$

24,487

$

388,203

$

39,099



 

Fair Value Measurement at December 31, 2013 Using:

 

 

 

 

 

 

 

 

 






Description

 






12/31/13

 

Quoted Prices In Active Markets For Identical Assets

(Level 1)

 


Significant Other Observable Inputs

(Level 2)

 



Significant Unobservable Inputs

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

Short-term

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

$

7,357

$

7,357

$

-

$

-

Total assets measured at fair value

$

7,357

$

7,357

$

-

$

-

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable (related party)

$

192,907

$

-

$

192,907

$

-

 

Accounts payable (non-related)

 

33,000

 

33,000

 

 

 

 

 

Convertible notes payable, net of unamortized debt discount of $77,442

 



27,558

 



-

 



-

 



27,558

 

Accrued Interest

 

1,973

 

-

 

-

 

 

Total liabilities measured at fair value

$

255,438

$

33,000

$

192,907

$

27,558



Net Loss per Share Calculation


Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period.   Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.  During the period ended June 30, 2013 the Company had no dilutive financial instruments issued or outstanding.  However, as of December 15, 2013, and including the three and six months ended June 30, 2014, the Company had dilutive financial




11






instruments consisting of an aggregate of 3,000,000 share purchase warrants which enable the holder to purchase 1,000,000 shares of the Company’s common stock at $.005 a share, $0.01 a share, and $0.015 a share, respectively.



Beneficial Conversion Feature


From time to time, the Company may issue convertible notes that may have conversion prices that create an embedded beneficial conversion feature pursuant to the Emerging Issues Task Force guidance on beneficial conversion features.  A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt.  In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital.  The debt discount is amortized to interest expense over the life of the note using either the straight line method or the effective interest method.


Income Taxes


The Company accounts for income taxes pursuant to FASB ASC 740, Income Taxes.  Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes.  The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

 

The Company maintains a valuation allowance with respect to deferred tax assets.  Blue Water establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the 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.


NOTE 2 – Going Concern


The Company’s independent registered public accounting firm has issued a going concern opinion in their audit report dated March 27, 2014, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2014.  This means that the Company’s auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months.  The Company does not anticipate generating significant revenues until it is able to open its first restaurant presently under development in St. Maarten, Dutch West Indies and have its line of premium rums widely accepted by consumers.


The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United State of America, which contemplate continuation of the Company as a going concern.  The Company has not established a source of revenues sufficient to cover its operating costs, and as such, has incurred an operating loss since its inception.  Further, as of June 30, 2014, the Company had an accumulated net loss of ($1,457,599).  These and other factors raise substantial doubt about the Company’s ability to continue as a going concern.  The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.





12






NOTE 3 – Convertible Promissory Notes


Asher Note 1


On September 16, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Asher Note 1”) in the principal amount $32,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (“Asher”), a Delaware corporation, and Blue Water.  The Asher Note 1 closed on September 18, 2013 and matures on June 18, 2014.  The Asher Note 1 is convertible at 58% of the average of the lowest three trading prices of Blue 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.


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 expenses that has been recorded in the financial statements as interest expense.


Asher Note 2


On November 8, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Asher Note 2”) in the principal amount $37,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (“Asher”), a Delaware corporation, and Blue Water.  The Asher Note 2 closed on November 12, 2013 and matures on May 7, 2014.  The Asher Note 2 is convertible at 58% of the average of the lowest three trading prices of Blue 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 expenses that has been recorded in the financial statements as interest expense.


Asher Note 3


On December 23, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Asher Note 3”) in the principal amount $27,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (“Asher”), a Delaware corporation, and Blue Water.  The Asher Note 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.  





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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 expenses that has been recorded in the financial statements as interest expense.


Mermaid Enterprises, N.V.


On October 9, 2013 we entered into a Purchase Agreement and issued a Convertible Promissory Note (“Mermaid Note”) as payment for the acquisition of three (3) separate business licenses in the country of St. Maarten, Dutch West Indies consisting of one (1) General Business License and two (2) Managing 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.


The fair value of the embedded beneficial conversion feature resulted in a full discount of $35,000 to the note on the debt issuance date.  The discount will be amortized over the term of the note to interest expense using the effective interest method.


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.


As of June 30, 2014, the outstanding balance due on the Mermaid Note was $32,503, which includes $2,503 in accrued interest.  During the three months and six months ended June 30, 2014 this note incurred $4,922 and $9,845, respectively, in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $20,913.


JMJ Financial Note


On January 31, 2014 (“Effective Date”) we sold to JMJ Financial (“JMJ Financial”) a $335,000 Convertible Promissory Note (“JMJ Note”).  The JMJ Note provides up to an aggregate of $300,000 in gross proceeds after taking into consideration an Original Issue Discount (“OID”) of $35,000.


A key feature of the JMJ Note is that should Blue Water, at its sole discretion, repay all consideration received pursuant to the JMJ Note within 90 days of the Effective Date, there will be zero percent interest charged under the JMJ Note.  Otherwise, there will be a one-time interest charge of 12% for all consideration received by Blue Water pursuant to the JMJ Note.


At any time after 180 days of the Effective Date, the Investor may convert all or part of the JMJ Note into shares of Blue 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 expenses that has been recorded in the financial statements as interest expense.





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Prim Note


On October 9, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Prim Note”) to an accredited investor in the principal amount of $100,000 with an interest rate of 10% per annum.  The Prim Note is convertible into shares of our common stock at a fixed price of $0.005 per share beginning no earlier than 180 days from the date of issue.  The Prim Note matures on March 26, 2016.


The fair value of the embedded beneficial conversion feature resulted in a full discount of $100,000 to the note on the debt issuance date.  The discount will be amortized over the term of the note to interest expense using the effective interest method.


As of June 30, 2014, the outstanding balance due on the Prim Note was $102,603, which includes $2,603 in accrued interest.  During the three months and six months ended June 30, 2014 this note incurred $12,362 and $13,048, respectively, in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $86,952.


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.


As of June 30, 2014, the outstanding balance due on the AB Note 1 was $50,460, which includes $460 in accrued interest.  During the three months and six months ended June 30, 2014 this note incurred $5,753 in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $44,247.


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.





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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.


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.


As of June 30, 2014, the outstanding balance due on the LG Note 1 was $100,921, which includes $921 in accrued interest.  During the three months and six months ended June 30, 2014 this note incurred $11,507 in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $88,493.


The table below provides a summary of the convertible promissory notes as of June 30, 2014:


Description-

 

Amount ($)

 

 

 

Mermaid Note

 

30,000

Prim Note

 

100,000

AB Note 1

 

50,000

LG Note 1

 

100,000

 

Less unamortized debt discount

 

(240,901)

Net

$

39,099


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.


On June 10, 2014 the Company terminated the Investment Agreement with Dutchess and subsequently withdrew its effective registration statement with the SEC.





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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 – 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 six months ended June 30, 2014 the Company issued an aggregate of 13,874,963 shares of its common stock.


As of June 30, 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 243,206,213 shares of its common stock issued and outstanding.


NOTE 6 – Preferred Stock


The total number of preferred shares authorized that may be issued by the Company is 5,000,000 shares with a par value of $0.001 per share.


As of June 30, 2014, the Company had no shares of its preferred stock issued and outstanding.


NOTE 7 – Share Purchase Warrants


In conjunction with retaining a consultant, Vitello Capital, Ltd., the Company issued an aggregate of 3,000,000 share purchase warrants enabling the consultant to purchase 1,000,000 shares of the Company’s common stock at a price of $0.005 a share, $0.01 a share, and $0.015 a share, respectively.  The fair value of the warrants was estimated to be $13,109 on the date of the grant using the Black-Scholes option-pricing model.  Expected volatility was determined through the average of a peer group of public companies.  The risk-free rate for periods within the contractual life of the warrants is based on the U.S. Treasury yield in effect at the time of the grant.  The Company has never declared or paid cash dividends and has no plans to do so in the foreseeable future.  The following weighted-average assumptions were utilized for the calculations:


Expected life (in years)

 

1.0

Weighted average volatility

 

167.82%

Weighted average risk-free interest rate

 

0.13%

Expected dividend rate

 

-0-


The following table summarizes the number of warrants, weighted average exercise price, and weighted average life (in years) by price for both total outstanding warrants and total exercisable warrants as of June 30, 2014:


 

 

Total Outstanding Warrants


Exercise Price

 


Warrants

 

Weighted Average

Exercise Price

 

Life

(in years)

 

 

 

 

 

 

 

$0.005

 

1,000,000

 

$0.005

 

1.0

$0.01

 

1,000,000

 

$0.01

 

1.0

$0.015

 

1,000,000

 

$0.015

 

1.0





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NOTE 8 – Investments


Long-Term Investments; Available-For-Sale Securities


The following table summarizes the Company’s long-term Available-For-Sale (AFS) Securities as of June 30, 2014:


 

As of June 30, 2014

 

 



Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 


Estimated Fair Value

 

 

 

 

 

 

 

 

 

Equity securities

$

-

$

-

$

-

$

-

 

 

 

 

 

 

 

 

 

Total

$

-

$

-

$

-

$

-


The following table summarizes the Company’s long-term Available-For-Sale (AFS) Securities as of December 31, 2013:


 

As of December 31, 2013

 

 



Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 


Estimated Fair Value

 

 

 

 

 

 

 

 

 

Equity securities

$

-

$

-

$

-

$

-

 

 

 

 

 

 

 

 

 

Total

$

-

$

-

$

-

$

-


As of June 30, 2014 and December 31, 2013, the Company’s long-term AFS securities consisted solely of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0-.  More details in Note 10.


All of our investments, excluding trading securities, are subject to periodic impairment review.  The impairment analysis requires significant judgment to identify events or circumstances that would likely have significant adverse effect on the future value of the investment.  We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.


NOTE 9 – 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 described in Note 11 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 August 15, 2014 in return for the Company agreeing to pay all of Stream Flow’s expenses related to obtaining a listing on the OTCBB.

 




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Stream Flow is presently in the process of filing its initial Registration Statement on Form S-1 with the SEC, the first step in obtaining a listing on the OTCBB.  Once Stream Flow obtains its listing on the OTCBB, and upon approval by both the SEC and FINRA, the Company will issue a special one-time stock dividend of approximately 25%, or 5,000,000, of its Stream Flow shares to its shareholders.  The remaining Stream Flow shares will be sold by the Company over an 18-24 month period with the net proceeds going towards financing new units of its Blue Water Bar & Grill™ restaurant concept.


The Company accounts for its Stream Flow asset as Available-For-Sale (AFS) securities that are carried in the financial statements at fair value.  Changes in fair value are recorded in the financial statements as an unrealized gain (loss) in Other Comprehensive Income (OCI).


As of June 30, 2014 and December 31, 2013, the Company had accumulated $-0- in costs related to the Stream Flow shares and there were no observable inputs for a fair valuation.  Accordingly, the Company carried the Stream Flow shares at a $-0- valuation on the balance sheet for the periods.


NOTE 10 – Subsidiaries


As of June 30, 2014, the Company had the following wholly-owned subsidiaries:


Name of Subsidiary

 

Place of Incorporation

 

 

 

Blue Water Bar & Grill, N.V. (1)

 

St. Maarten, Dutch West Indies

Blue Water Beverage Brands, Ltd. (2)

 

British Virgin Islands

BWG Investments & Development, Ltd. (3)

 

British Virgin Islands


(1)

As of June 30, 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 June 30, 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 June 30, 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 11 – Related Party Transactions


As of June 30, 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 June 30, 2014, the Company’s accounts payable to Taurus aggregated $388,203, of which $195,296 was accrued during the six months ended June 30, 2014.


As of June 30, 2014, Taurus owned 68.3% of the Company’s issued and outstanding common stock.  Further, on March 21, 2014 Taurus voluntarily entered into a Stock Lock-Up Agreement whereby none of its holdings could be sold until March 31, 2015 at the earliest.  It is important to note that our President and Chief Executive Officer, J. Scott Sitra, is concurrently the President and Chief Executive Officer at Taurus and has voting disposition over the controlling block of Taurus shares once the stock lock-up agreement expires.


NOTE 12 – Recent Accounting Pronouncements


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




19






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.


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.


In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists."  The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013.  The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.


In June 2014, the FASB issued ASU 2014-10, "Development Stage Entities".  The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.  In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.  The amendments in this update are applied retrospectively.  The Company elected early adoption of ASU 2014-10.  The adoption of ASU 2014-10 removed the development stage entity financial reporting requirements from the Company.


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.




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NOTE 13 – 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


Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 27, 2014, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2014.  This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months.  We do not anticipate generating significant revenues until we are able to open our first restaurant and have our distilled spirits widely accepted by consumers.  Accordingly, we must raise additional cash from sources other than operations.


To meet our need for cash we are continually exploring new sources of financing, including raising funds through a secondary public offering, a private placement of securities and/or loans.  If we are unable to secure additional financing, we will either have to suspend operations until we do raise the cash or cease operations entirely.


The following discussion should be read in conjunction with our financial statements and the notes thereto and the other information included in this Quarterly Report as filed with the SEC on Form 10-Q.


Limited Operating History; Need for Additional Capital


There is limited historical financial information about us upon which to base an evaluation of our performance.  We are 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 may also rely on loans from our management or other significant shareholders.  However, there are no assurances that management or any of our significant shareholders will provide us with any additional funds.

 

We are continually exploring new sources of financing to meet our need for additional cash, including raising funds through a secondary public offering, a private placement of securities and/or loans.  We cannot provide any assurances that our efforts to secure additional financing will be successful.  We have no assurance that future financing will be available to us on acceptable terms.  If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations.  Further, future equity financing could result in additional and substantial dilution to existing shareholders.


Plan of Operation


We were incorporated on March 3, 2011 in the State of Nevada.  We are developer of casual dining restaurant properties and premium distilled spirits.  Blue Water is currently developing a chain of casual dining restaurants in popular tourist destinations throughout the Caribbean region under the Blue Water Bar & Grill™ brand and a line of premium rums which include its flagship rum Blue Water Ultra Premium Rum™ and spiced Blue Water Caribbean Gold™ Premium Rum.  Additionally, Blue Water is engaged in making strategic equity investments in promising businesses that are in the early stages of obtaining their own listing on the OTC Bulletin Board.


It is important to note that we remain an emerging growth company in early stage operations.  As of June 30, 2014, we were an emerging growth company without any operating restaurant properties, had not sold any distilled spirits, and did not have any distribution agreements in place to sell distilled spirits.  No assurances can be given that we will ever be able to implement our business plan or, if implemented, it will be successful.




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The projected costs and other related expenses are estimates made by our management and our actual costs related to opening our proposed restaurant may differ significantly.


In addition to the foregoing, and unless otherwise noted, all of the cost estimates and forecasts throughout our business plan are mere estimates made by our management.  Our actual costs related to opening and operating the proposed restaurants may differ significantly from our estimates, which could have a negative impact on our overall business, cause our business to fail, and result in you losing all of your investment.


Blue Water Structure and Areas of Operation


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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, 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.




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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, Dutch West Indies Restaurant


On June 25, 2014 Blue Water announced the building site of its first Blue Water Bar & Grill™, which is currently under development in St. Maarten, D.W.I.  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:


·

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.

·

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.

·

The restaurant's foot print measures approximately 415 square meters (4,467 square feet) and seats up to 203 people:

·

98 under the main tiki roof, 64 under tropical cover, 26 at the bar, and 15 at the swim up bar.

·

Indigo Bay is an eco-friendly commercial and residential development encompassing approximately 150 acres of lush tropical and beachfront land.

·

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.

·

Approximate GPS coordinates: 1801'17.5 North and 6304'33 West.

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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.




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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 will be produced and bottled in the Dominican Republic.  These rums will be sold through Blue Water’s restaurants as well as other third-party retail locations.  Blue Water will launch the first two rums – its flagship Blue Water Ultra Premium Rum™ and spiced Blue Water Caribbean Gold™ Premium Rum – in late Summer 2014 in St. Maarten, D.W.I.  Blue Water intends to expand these brands in 2015 through distribution channels into the neighboring islands, including the exclusive and influential St. Barts, French West Indies and Anguilla, British West Indies.  Blue Water will continue expanding these brands throughout the Caribbean Region and, ultimately, export them into the United States as early as 2016.



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[bluu_s1003.jpg]

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).

 

 

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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).




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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 August 15, 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 an unrealized gain (loss) under Other Comprehensive Income (OCI).


As of June 30, 2014, Blue Water had accumulated $-0- in investment costs related to the Stream Flow shares and there were no observable inputs for a fair valuation.  Accordingly, Blue Water carried the Stream Flow shares at a $-0- valuation on the balance sheet for the period.


Next Level Hockey, LLC


On April 25, 2014, and under this Strategic Alliance Agreement, Blue Water entered into a definitive agreement with Next Level Hockey, LLC (“Next Level”).  The general terms of this Letter of Intent (“LOI”) include:


·

The Next Level transaction will essentially mirror Blue Water’s December 2013 investment in Stream Flow Media, Inc.

·

Blue Water will own a net 15% equity interest in Next Level when it goes public on the OTCBB


As of August 15, 2014, Blue Water and Next Level were still in discussions and performing due diligence on Next Level and its long-term market prospects.


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



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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.


2014 Planned Capital Expenditures and Milestones


The following planned capital expenditures and milestones are based on estimates made by our management team.  The working capital requirements and the projected milestones are approximations and are subject to adjustments.  Our initial 2014 baseline budget is based on receiving financing of at least $900,000 over the course of the fiscal year ending December 31, 2014, which will enable us to undertake the following planned capital expenditures and achieve the proposed milestones.  


We have engaged Madison Park Advisors, LLC, manager of the Madison Park Investment Fund, to provide sufficient capital for our planned 2014 capital expenditures and do not have any alternative sources of financing secured.  Although we believe the 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.


Planned 2014 Capital Expenditures


Based on generating a minimum of $900,000 in new financing during the fiscal year ending December 31, 2014, we anticipate allocating the capital as follows:


Planned Capital Expenditure

 

Amount ($)

 

 

 

Restaurant Development and Construction

 

$500,000

Initial Inventory and Launching of

Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum

 



200,000

SEC Filing and Compliance

 

75,000

Legal and Consulting

 

35,000

Engineering and Architectural Consulting

 

50,000

Location Scouting and Surveying

 

15,000

General Operations

 

25,000

 

Total

 

$900,000


Proposed 2014 Milestones


During the course of the fiscal year ending December 31, 2014, and provided we are successful at raising sufficient capital to meet our primary objectives, we anticipate achieving the following quarterly milestones:


First Quarter Ending March 31, 2014


o

Finalize the Blue Water Bar & Grill™ Restaurant Location in St. Maarten, Dutch West Indies
(Location Determined.  Not Publicly Disclosed Yet Due to Non-Disclosure Agreement.)



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o

Commence necessary engineering and architectural drawings and approvals for the St. Maarten restaurant
(Retained Another Ard Production on February 27, 2014)

 

o

File a Registration Statement on Form S-1 for Stream Flow Media, Inc. (“Stream Flow”) initiating the “going public” process
(Filed with the SEC on March 11, 2014; declared “effective” on July 7, 2014)


Second Quarter Ending June 30, 2014


o

Secure second spin-off candidate (e.g. Stream Flow Media, Inc.) (Secured Next Level Hockey, LLC)


Third Quarter Ending September 30, 2014


o

Conclude the necessary engineering and architectural drawings and approvals for the St. Maarten restaurant

 

o

Launch the Blue Water Rums Website (www.bluewaterrum.com)

 

o

File a Form 15c2-11 to Enable Stream Flow’s Common Stock to Trade on the OTC Bulletin Board (“OTCBB”)


o

Officially launch the Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum brands in St. Maarten, Dutch West Indies


o

Obtain the necessary building permits and commence construction on the flagship Blue Water Bar & Grill™ in St. Maarten, Dutch West Indies

 

o

Obtain FINRA approval for Stream Flow’s OTCBB listing and commence trading


o

File a Registration Statement on Form S-1 for Next Level Hockey, LLC (“Next Level”) initiating the “going public” process


Fourth Quarter Ending December 31, 2014


o

Launch the Blue Water Bar & Grill™ Website (www.bluewaterbar.com), Complete with Online Merchandise Store


o

Open the flagship Blue Water Bar & Grill™ in St. Maarten, D.W.I.

 

o

Market and promote the St. Maarten Blue Water Bar & Grill™ brand during the 2014 “high season”

 

o

Begin scouting for a suitable Blue Water Bar & Grill™ location in Aruba, Dutch West Indies


Long-Term Plan (5 Years)


Blue Water Bar & Grill™


Over the next five years we plan to focus on a disciplined growth strategy of opening one new Blue Water Bar & Grill™ restaurant each year.  Presently we have identified the following Caribbean islands we intend to eventually open a Blue Water Bar & Grill™ restaurant:


·

Aruba, Dutch West Indies;

·

Barbados;

·

Cozumel, Mexico;

·

Grand Cayman; and

·

Nassau, Bahamas.




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We estimate that we will need to raise an aggregate of between $3 - $5 million to open the proposed restaurants on each of the listed Caribbean islands.  This capital will most likely be raised through the sales of additional equity securities, which will have a dilutive effect on existing shareholders.


Distilled Spirits


Following the planned launch of the Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum brands in St. Maarten, Dutch West Indies in late Summer 2014.  Blue Water intends to expand these brands in 2015 through distribution agreements into the neighboring islands, including the exclusive and influential St. Barts, French West Indies and Anguilla, British West Indies.  Blue Water will continue expanding these brands throughout the Caribbean Region and, ultimately, export them into the United States as early as 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:


·

Grand opening promotions;

 

·

Traditional paid advertising (e.g. radio, television, newspaper, etc.);


·

Free media exposure (e.g. hosting charity events, food reviews, etc.); and


·

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 $900,000 in additional financing in order to meet our planned 2014 capital expenditures and open our first Blue Water Bar & Grill™.  Further, in order to proceed with our long-term plans, we anticipate that we will need to generate at least between $3 and $5 million in additional long-term financing.


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.




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Key elements to this engagement include:


·

Madison Park is committed to provide Blue Water with a minimum of $500,000 in new capital this year to complete the Blue Water Bar & Grill™ currently under development in St. Maarten, D.W.I.

·

Madison Park’s initial investment tranche of $250,000 will be through a registered transaction.

·

All new equity issuances will be at a market-based fixed price and non-toxic.

·

No toxic convertible or derivative styled debt (or other securities) will be issued in conjunction with this financing.

·

Madison Park engagement can be expanded to provide additional new capital for the planned expansion Blue Water Bar & Grill™ restaurant in Aruba.


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, and intend to formally register, the trademarks “Blue Water Bar & Grill”, “Blue Water Ultra Premium Rum”, and “Blue Water Caribbean Gold”.


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.




32





Executive Offices and Telephone Number


Our executive office and main telephone number is currently:


202 Osmanthus Way

Canton, GA  30114


Tel: (949) 264-1475

Fax: (949) 607-4052

www.bluewaterglobalgroup.com


This space is provided to us free of charge by Michael Hume, our Vice President.  If Mr. Hume decides to no longer allow us access to this office space in the future it would force us to seek outside office space elsewhere, potentially at a very high cost.


Results of Operations


Three Months Ended June 30, 2014 and 2013


Revenues.  We did not generate any revenue during the three months ended June 30, 2014 or 2013.  We do not anticipate generating any revenue until we successfully launch our first distilled spirits, Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum, later this summer which will be followed by the opening of our first Blue Water Bar & Grill™ restaurant in St. Maarten, Dutch West Indies.

 

Operating Expenses.  Our total operating expenses for the three months ended June 30, 2014 were $91,891, which is a $70,140, or 322.5%, increase compared to operating expenses of $21,751 for the same period a year ago.  Our increase in operating expenses was primarily attributable to increased operating activity related to the development of our St. Maarten, Dutch West Indies based Blue Water Bar & Grill™ restaurant and increased expenses related to preparing our initial two rums for launch later this summer.  Additionally, due to expanded operating activities, we experienced higher general operating expenses and higher costs related to our ongoing SEC reporting requirements, which have consisted primarily of legal, accounting and outside consulting fees.


Other Income (Expenses).  During the three months ended June 30, 2014 we incurred ($135,392) in other income (expenses) compared to $-0- for the same period a year ago.  These expenses were comprised of ($112,768 in interest expenses relating to outstanding convertible promissory notes and a one-time expense of ($22,624) recorded for the early extinguishment of outstanding convertible debt.


Net Income (Loss).  We had a net loss of ($227,283) for the three months ended June 30, 2014 compared to a net loss of ($21,750) for the same period a year ago, which represented a $205,533, or 945.0%, increase in net loss.  The increase in operating expenses was primarily attributable to increased operating activity related to the development of our St. Maarten, Dutch West Indies based Blue Water Bar & Grill™ restaurant and increased expenses related to preparing our initial two rums for launch later this summer.  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.


Six Months Ended June 30, 2014 and 2013


Revenues.  We did not generate any revenue during the six months ended June 30, 2014 compared to $10,000 in revenue for the same period a year ago.  The reason for the lack of revenue during the current period was the consulting project responsible for generating the revenue a year ago was completed during the reporting period ended March 31, 2013.  Since the completion of that project we have not generated any revenue and have focused our efforts on completing the development of the St. Maarten, Dutch West Indies based Blue Water Bar & Grill™ restaurant and preparing for the launch of our first distilled spirits, Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum.  As such, we do not anticipate generating any new revenue until we launch these premium rums later this summer followed by the opening of this restaurant.

 

Operating Expenses.  Our total operating expenses for the six months ended June 30, 2014 were $309,935, which is a $221,136, or 251.9%, increase compared to operating expenses of $87,779 for the same period a year ago.  Our increase in operating expenses was primarily attributable to increased operating activity related to the development of our St. Maarten,



33





Dutch West Indies based Blue Water Bar & Grill™ restaurant and increased expenses related to preparing our initial two rums for launch later this summer.  Additionally, due to expanded operating activities, we experienced higher general operating expenses and higher costs related to our ongoing SEC reporting requirements, which have consisted primarily of legal, accounting and outside consulting fees.


Other Income (Expenses).  During the six months ended June 30, 2014 we incurred ($183,400) in other income (expenses) compared to $-0- for the same period a year ago.  These expenses were comprised of ($160,776) in interest expenses relating to outstanding convertible promissory notes and a one-time expense of ($22,624) recorded for the early extinguishment of outstanding convertible debt.


Net Income (Loss).  We had a net loss of ($493,335) for the six months ended June 30, 2014 compared to a net loss of ($77,799) for the same period a year ago, which represented a $415,536, or 534.1%, increase in net loss.  The increase in operating expenses was primarily attributable to increased operating activity related to the development of our St. Maarten, Dutch West Indies based Blue Water Bar & Grill™ restaurant and increased expenses related to preparing our initial two rums for launch later this summer.  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.


Liquidity and Capital Resources


As of June 30, 2014, we had total assets of $68,676, which consisted of cash and 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0- a share.  


As of June 30, 2014, our total liabilities were $451,789, which consisted of $388,203 in accounts payable to a related party, Taurus Financial Partners, LLC (“Taurus”), $18,000 to non-related parties, $39,099 in convertible promissory notes (net of unamortized debt discounts of $240,901), and $6,487 in accrued interest.  It is important to note that as of August 15, 2014 Taurus owned 65.6% 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 June 30, 2014, we had nominal assets and anticipate that we need at least $900,000 in aggregate financing to open our Blue Water Bar & Grill™ restaurant in St. Maarten, Dutch West Indies, launch our first distilled spirits, Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum, and meet our ongoing working capital requirements over the next 12 months.


Dutchess Equity Line


On September 16, 2013 we entered into an Investment Agreement and a Registration Rights Agreement with Dutchess Opportunity Fund, II, LP requiring Dutchess to purchase up to $5,000,000 worth of our common stock over a 36 month period and for us to register 20,000,000 (after taking into consideration our recent 10-for-1 forward stock split) shares of our common stock for resale with the SEC, respectively.  Due to various factors relating to this type of financing, we can offer no assurances that we will receive sufficient financing, if any, from the Dutchess Equity Line.


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 Enterprises Convertible Note 1


On September 16, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Asher Note 1”) in the principal amount $32,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (“Asher”), a Delaware corporation, and Blue Water.  The Asher Note 1 closed on September 18, 2013 and matures on June 18, 2014.  The Asher Note 1 is convertible at 58% of the average of the lowest three trading prices of Blue 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



34





after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  


The fair value of the embedded beneficial conversion feature resulted in a full discount of $32,500 to the note on the debt issuance date.  The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.


On February 7, 2014, Blue Water repaid the Asher Note 1 in full with no conversion.  Per the terms of the agreement, Blue Water repaid the Asher Note 1 at $44,886.51.  No shares were issued in connection with the redemption of this note.  The Asher Note 1 incurred an aggregate of $32,500 in amortization expenses that has been recorded in the financial statements as interest expense.


Asher Enterprises Convertible Note 2


On November 8, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Asher Note 2”) in the principal amount $37,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (“Asher”), a Delaware corporation, and Blue Water.  The Asher Note 2 closed on November 12, 2013 and matures on May 7, 2014.  The Asher Note 2 is convertible at 58% of the average of the lowest three trading prices of Blue 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.


On April 2, 2014, Blue Water repaid the Asher Note 2 in full with no conversion.  Per the terms of the agreement, Blue Water repaid the Asher Note 2 at $51,775.68.  No shares were issued in connection with the redemption of this note.  The Asher Note 2 incurred an aggregate of $33,033 in amortization expenses that has been recorded in the financial statements as interest expense.


Asher Enterprises Convertible Note 3


On December 23, 2013 we entered into an agreement for the sale of a Convertible Promissory Note (“Asher Note 3”) in the principal amount $27,500 with an interest rate of 8% per annum pursuant to the terms of a Securities Purchase Agreement between Asher Enterprises, Inc. (“Asher”), a Delaware corporation, and Blue Water.  The Asher Note 2 closed on January 7, 2014 and matures on September 26, 2014.  The Asher Note 3 is convertible at 58% of the average of the lowest three trading prices of Blue 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.


On May 27, 2014, Blue Water repaid the Asher Note 3 in full with no conversion.  Per the terms of the agreement, Blue Water repaid the Asher Note 3 at $37,974.86.  No shares were issued in connection with the redemption of this note.  The Asher Note 3 incurred an aggregate of $27,500 in amortization expenses that has been recorded in the financial statements as interest expense.




35





Mermaid Enterprises, N.V.


On October 9, 2013 we entered into a Purchase Agreement and issued a Convertible Promissory Note (“Mermaid Note”) as payment for the acquisition of three (3) separate business licenses in the country of St. Maarten, Dutch West Indies consisting of one (1) General Business License and two (2) Managing 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.


The fair value of the embedded beneficial conversion feature resulted in a full discount of $35,000 to the note on the debt issuance date.  The discount will be amortized over the term of the note to interest expense using the effective interest method.


On April 10, 2014 Mermaid redeemed $5,000 of the Mermaid Note in exchange for 10,000,000 shares of our common stock.  As of June 30, 2014, there was a $30,000 principal balance (not including any accrued interest) remaining on this note.


As of June 30, 2014, the outstanding balance due on the Mermaid Note was $32,503, which includes $2,503 in accrued interest.  During the three months and six months ended June 30, 2014 the Mermaid Note incurred $4,922 and $9,845, respectively, in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $19,151.


JMJ Financial


On January 31, 2014 (“Effective Date”) we sold to JMJ Financial (“JMJ Financial”) a $335,000 Convertible Promissory Note (“JMJ Note”).  The JMJ Note provides up to an aggregate of $300,000 in gross proceeds after taking into consideration an Original Issue Discount (“OID”) of $35,000.


A key feature of the JMJ Note is that should Blue Water, at its sole discretion, repay all consideration received pursuant to the JMJ Note within 90 days of the Effective Date, there will be zero percent interest charged under the JMJ Note.  Otherwise, there will be a one-time interest charge of 12% for all consideration received by Blue Water pursuant to the JMJ Note.


At any time after 180 days of the Effective Date, the Investor may convert all or part of the JMJ Note into shares of Blue 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.


The JMJ Financial has agreed to restrict its ability to convert the JMJ Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.  The JMJ Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of Blue Water.  The JMJ Note also provides for penalties and rescission rights if Blue Water does not deliver shares of its common stock upon conversion within the required timeframes.


On May 8, 2014, Blue Water repaid the JMJ Note in full with no conversion.  Per the terms of the agreement, Blue Water repaid the JMJ Note at $39,083.33.  The JMJ Note incurred an aggregate of $39,083 in amortization expenses that has been recorded in the financial statements as interest expense.  No shares were issued in connection with the redemption of this note.


Prim Note


On March 27, 2014 we entered into an agreement for the sale of a Convertible Promissory Note (“Prim Note”) to an accredited investor in the principal amount of $100,000 with an interest rate of 10% per annum.  The Prim Note is convertible into shares of our common stock at a fixed price of $0.005 per share beginning no earlier than 180 days from the date of issue.  The Prim Note matures on March 26, 2016.


The fair value of the embedded beneficial conversion feature resulted in a full discount of $100,000 to the note on the debt issuance date.  The discount will be amortized over the term of the note to interest expense using the effective interest method.



36






As of June 30, 2014, the outstanding balance due on the Prim Note was $102,603, which includes $2,603 in accrued interest.  During the three months and six months ended June 30, 2014 the Prim Note incurred $12,362 and $13,048, respectively, in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $86,952.


Adar Bays, LLC Financing


On May 19, 2014, we 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 we do 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.  We are not required to make any payments on the AB Notes until maturity.  We have 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 our common stock 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.


As of June 30, 2014, the outstanding balance due on the AB Note 1 was $50,460, which includes $460 in accrued interest.  During the three months and six months ended June 30, 2014 the AB Note 1 incurred $5,753 in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $44,247.


LG Capital Funding, LLC


On May 19, 2014, we 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.  We are not required to make any payments on the LG Notes until maturity.  We have 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 our common stock 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.




37





As of June 30, 2014, the outstanding balance due on the LG Note 1 was $100,921, which includes $921 in accrued interest.  During the three months and six months ended June 30, 2014 the LG Note 1 incurred $11,507 in amortization expenses that was recorded in the financial statements as interest expense.  Further, as of June 30, 2014, the remaining unamortized debt discount was $88,493.


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 registered public accounting firm has issued a going concern opinion in their audit report dated March 27, 2014, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2014.  This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months.


Off-Balance Sheet Transactions


We do not engage in off-balance sheet transactions.


Contractual Obligations


The following table summarizes the Company’s contractual obligations as of June 30, 2014:


 

 

 

 

Due Within

Description

 

Total

 

2014

 

2015

 

 

 

 

 

 

 

Convertible promissory notes

$

280,000

$

-

$

180,000

 

Total

$

280,000

$

-

$

180,000



CRITICAL ACCOUNTING POLICIES


The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange 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 June 30, 2014 and 2013, for the six months ended June 30, 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 June 30, 2014 and December 31, 2013, Blue Water had no cash equivalents.




38





Revenue Recognition


Blue Water follows the guidance of FASB ASC Topic 605 for revenue recognition.  In general, Blue Water recognizes revenue when (1) the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) the service has been provided, and (4) collectability is reasonably assured.


Blue Water anticipates generating future revenue from two sources: (i) food, beverage and souvenir sales from its Blue Water Bar & Grill™ restaurant concept presently under development and (ii) sales of its of distilled spirits, which includes its Blue Water Ultra Premium Rum™ and Blue Water Caribbean Gold™ Premium Rum brands.  Revenue from all 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 June 30, 2014 and December 31, 2013 the allowance for doubtful accounts was $-0-.


Short-Term Investments


Blue Water accounts for its short-term investments, which are classified as trading securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that trading securities be carried at fair value.  Unrealized gains and losses due to changes in fair value as well as realized gains and losses resulting from sales of securities are reported as Other Income/Expenses in the statement of operations.  Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available.  The cost basis for realized gains and losses is determined on a specific identification basis.  As of June 30, 2014 and December 31, 2013, Blue Water had no short-term investments.


Long-Term Investments


Blue Water accounts for its long-term investments, which are designated as available-for-sale securities, in accordance with US GAAP for certain investments in debt and equity securities, which requires that available-for-sale securities be carried at fair value with unrealized gains and losses, net of tax, included in stockholders' equity under accumulated other comprehensive income (loss).  Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available.  As of June 30, 2014 and December 31, 2013, Blue Water had long-term investments consisting of 20,000,000 shares of Stream Flow Media, Inc. which were valued at $-0- a share


Fair Value of Financial Instruments


ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value.  A financial 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:


Level

 

Description

 

 

 

Level 1

 

Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

 

Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

 

Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.





39





The estimated fair values of Blue Water’s financial instruments are as follows:


 

Fair Value Measurement at June 30, 2014 Using:

 

 

 

 

 

 

 

 

 






Description

 






6/30/14

 

Quoted Prices In Active Markets For Identical Assets

(Level 1)

 


Significant Other Observable Inputs

(Level 2)

 



Significant Unobservable Inputs

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

Short-term

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

$

68,676

$

68,676

$

-

$

-

Total assets measured at fair value

$

68,676

$

68,676

$

-

$

-

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable (related party)

$

388,203

$

-

$

388,203

$

-

 

Accounts payable (non-related)

 

18,000

 

18,000

 

-

 

-

 

Convertible notes payable, net of unamortized debt discount of $240,901

 



39,099

 



-

 



-

 



39,099

 

Accrued Interest

 

6,487

 

6,487

 

-

 

-

Total liabilities measured at fair value

$

451,789

$

24,487

$

388,203

$

39,099



 

Fair Value Measurement at December 31, 2013 Using:

 

 

 

 

 

 

 

 

 






Description

 






12/31/13

 

Quoted Prices In Active Markets For Identical Assets

(Level 1)

 


Significant Other Observable Inputs

(Level 2)

 



Significant Unobservable Inputs

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

Short-term

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

$

7,357

$

7,357

$

-

$

-

Total assets measured at fair value

$

7,357

$

7,357

$

-

$

-

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable (related party)

$

192,907

$

-

$

192,907

$

-

 

Accounts payable (non-related)

 

33,000

 

33,000

 

 

 

 

 

Convertible notes payable, net of unamortized debt discount of $77,442

 



27,558

 



-

 



-

 



27,558

 

Accrued Interest

 

1,973

 

-

 

-

 

 

Total liabilities measured at fair value

$

255,438

$

33,000

$

192,907

$

27,558


Net Loss per Share Calculation


Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period.   Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.  During the three months ended March 31, 2013 Blue Water had no dilutive financial instruments issued or outstanding.  However, as of December 15, 2013, and including the three and six months ended June 30, 2014 Blue Water had dilutive financial instruments consisting of an aggregate of 3,000,000 share purchase warrants which enable the holder to purchase 1,000,000 shares of the Company’s common stock at $.005 a share, $0.01 a share, and $0.015 a share, respectively.




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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.


Election to Use Extended Transitional Period Under Jumpstart Our Business Startups Act (“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.


Recent Accounting Pronouncements


In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02.  This update amends ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with 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 Blue Water’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 Blue Water’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



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Standards Codification and conforming amendments related to fair value measurements.  The amendments in this update will be effective for fiscal periods beginning after December 15, 2012.  The adoption of ASU 2012-04 has not had a material impact on Blue Water’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 Blue Water’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.


The amendments apply to all public and private companies that report items of other comprehensive income.  Public companies are required to comply with these amendments for all reporting periods (interim and annual).  The amendments are effective for reporting periods beginning after December 15, 2012, for public companies.  Early adoption is permitted.  The adoption of ASU No. 2013-02 has not had a material impact on Blue Water’s financial position or results of operations.


In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists."  The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013.  The adoption of ASU No. 2013-11 is not expected to have a material impact on Blue Water's Consolidated Financial Statements.


In June 2014, the FASB issued ASU 2014-10, "Development Stage Entities".  The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.  In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.  The amendments in this update are applied retrospectively.  Blue Water elected early adoption of ASU 2014-10.  The adoption of ASU 2014-10 removed the development stage entity financial reporting requirements from Blue Water.




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Blue Water has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial statements.


Contractual Obligations


The following table summarizes the Company’s contractual obligations as of June 30, 2014:


 

 

 

 

Due Within

Description

 

Total

 

2014

 

2015

 

 

 

 

 

 

 

Convertible promissory notes

$

280,000

$

-

$

180,000

 

Total

$

280,000

$

-

$

180,000


Item 3.  Quantitative and Qualitative Disclosures About Market Risk


Not applicable since we are a smaller reporting company.


Item 4.  Controls and Procedures


Disclosure Controls and Procedures


As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of principal executive officer and sole director, J. Scott Sitra, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act).


A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be presented or detected on a timely basis.


Based on management’s assessment, we have concluded that, as of June 30, 2014, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us required to be included in our annual and interim filings with the SEC.


Management has concluded that our disclosure controls and procedures had the following material weaknesses:


·

We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function.  While this control deficiency has not resulted in any audit adjustments to our interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties;

 

·

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.


These weaknesses have existed since our inception on March 3, 2011 and, as of June 30, 2014, have not been remedied.


To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned material weaknesses, including, but not limited to, the following:


·

Considering the engagement of consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;



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·

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 of opening our first Blue Water Bar & Grill™ in St. Maarten, Dutch West Indies and initiating wholesale and retail sales of our distilled spirits.


Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses may not be overcome in the near-term due to our limited financial resources.  Until such remedial actions can be realized, we will continue to rely on the limited advice of outside professionals and consultants.


Changes in Controls and Procedures


There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II


Item 1.  Legal Proceedings


No officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management.  We are not aware of any pending or threatened legal proceedings involving Blue Water Global Group, Inc.

 

During the past ten (10) years, J. Scott Sitra and Michael Hume have not been the subject of the following events:

 

1)

Any bankruptcy petition filed by or against any business of which either Mr. Sitra or Mr. Hume were a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time;


2)

Any conviction in a criminal proceeding or being subject to a pending criminal proceeding;


3)

An order, judgment, or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting Mr. 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 1A.  Risk Factors


Not applicable since we are a smaller reporting company.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds


None.


Item 3.  Default Upon Senior Securities


None.


Item 4.  Mine Safety Disclosures


Not Applicable.




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Item 5.  Other Information


None.


Item 6.  Exhibits


Exhibit Number

 


Description of Exhibit

 

 

 

3.1 (1)

 

Articles of Incorporation

3.2 (1)

 

Bylaws

3.3 (2)

 

Amendment to Articles of Incorporation dated June 13, 2013

3.4 (3)

 

Certificate of Change dated September 9, 2013

31.1

 

Section 302 Certifications under Sarbanes-Oxley Act of 2002

32.1

 

Section 906 Certification under Sarbanes Oxley Act of 2002


(1)

Incorporated by reference to our Registration Statement on Form S-1 filed May 27, 2011.

(2)

Incorporated by reference to our Current Report on Form 8-K filed July 11, 2013.

(3)

Incorporated by reference to current report on Form 8-K filed on September 23, 2013.



SIGNATURES



Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereto duly authorized on this 19th day of August, 2014.



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



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