ST. MAARTEN, DUTCH WEST INDIES / ACCESSWIRE / October 21, 2015 / In furtherance of the Blue Water Global Group, Inc. (OTCQB: BLUU) press release issued on October 16, 2015, I would like to address all shareholders, general investor concerns, and provide a detailed update on all aspects of Blue Water's current situation and various business endeavors.
Share Price
It is our policy not to discuss the share price, whether the stock is up or down. I am going to make an exception this one time since it is the primary question we keep receiving. My focus is building a business with real long-term prospects and growing revenues. Theoretically the share price should reflect what is happening with the underlying fundamental business, but it doesn't always work that way. There is now a huge disconnect between the share price and fundamental business that needs to be corrected.
The share price is down as a result of substantial share dilution. The number of Blue Water common shares has increased from 121,645,969 on June 30, 2015 to 686,253,297 as of yesterday, October 20, 2015. This represents an increase of 464.1% in a very short period of time. All of these shares were legally issued pursuant to conversions of debt instruments into common stock by various convertible note holders.
On this matter several shareholders have asked me "why not refuse to allow these conversions?" The quick answer is we cannot legally prevent the debt holders from converting their debt into Blue Water common shares. Further, Blue Water is not involved in the issuance of these shares. The mechanism is fairly automated. A debt holder sends a Notice of Conversion to Blue Water's transfer agent, who then issues shares automatically pursuant to the terms of the convertible note. Blue Water receives a copy of this notice and files a Form 8-K with the Securities and Exchange Commission ("SEC") reporting the issuance as required by law.
We do not think this continued dilution will stop anytime soon. Blue Water has approximately $1.3 million in convertible debt outstanding. These debt holders may continue to convert - and probably will - until all of the outstanding debt has been eliminated or the number of shares issued and outstanding reaches the maximum authorized limit of 5 billion shares, whichever may occur first.
How We Got Here
Last year Blue Water implemented a plan to repay all of its outstanding debt and pay for all of its planned 2015 capital expenditures. The centerpiece of this plan was a registered direct stock offering through ACAP Financial. On November 17, 2014 Blue Water filed a Form S-1 Registration Statement with the SEC. At the time of the filing Blue Water's common stock was trading at $0.02 a share. As such Blue Water priced the maximum offering price at $0.03 a share, which represented a 50% premium to the then current share price.
When the SEC declared the registration statement "effective" on January 5, 2015 Blue Water's share price had surged to about $0.04 a share. By the time the fee agreements were filed with FINRA and all parties were ready to move forward with closing the offering, Blue Water's share price had jumped to over $0.12 a share and continued as high as $0.16 a share.
In the ordinary course of business this improvement in market conditions would have been very welcomed. Unfortunately, in order to complete the offering Blue Water could only sell shares at a maximum price of $0.036 a share, because the most you can increase an offering amount with a post-effective amendment is 20%. This ended up representing a more than 70% discount from then current market prices. Should Blue Water have gone forward with the offering and sold free trading shares at this steep of a price discount it would have resulted in a class action lawsuit against Blue Water - a class action lawsuit that it would have certainly lost and most likely resulted in Blue Water going of business. Hence, Blue Water was forced to cancel the offering.
To this day none of us at Blue Water have any idea what made the share price go up so drastically. If we had known there was even the slightest possibility that the stock could go so high we would have taken that into consideration when pricing the offering.
Despite the forced cancellation of the offering, over the past few months Blue Water had been holding advanced discussions with several institutional investment funds for a potential deal to consolidate all of the outstanding debt into one or two debts. On two separate occasions it appeared a deal was imminent that would have allowed for the consolidation of all outstanding debt, provide a fresh round of capital for Blue Water, and prevent the increasing dilution we are experiencing today. Sadly, both deals fell apart at the final moment.
We believe these are the reasons why the share price is going down and where it is today.
Financing
The decline in share price and resulting dilution has caused our financial backers to cancel and withhold additional and future funding until the market for Blue Water's common stock rebounds. Fortunately, Blue Water found itself in a situation with other options available to it. This is the reason and purpose behind Blue Water increasing its ownership in Stream Flow Media, Inc. and rearranging the restaurant division under it as a separate public company.
Through this majority owned public company Blue Water will be able to continue raising capital for completing the ongoing construction of the St. Maarten Blue Water Bar & Gril(TM) and start raising funds for the planned Aruba restaurant. New capital will come in the form of:
- traditional bank mortgage financing using the existing restaurant under construction as collateral;
- potential equity credit line; and
- private placements with individual and institutional investors.
Under no circumstance will Blue Water or the new Blue Water Bar & Grill, Inc. (OTC: BWBG) ("BWBG") restaurant holding company engage in or issue any new convertible notes.
Accounting Considerations
By increasing its ownership to over 80% of the issued and outstanding shares of BWBG, Blue Water has now become the majority owner and affiliate control entity of BWBG. Under US GAAP accounting rules, Blue Water can no longer carry the market value of the shares it owns in BWBG as "Securities Available For Sale" on the balance sheet. Rather, BWBG's financial statements, including balance sheets and statements of operations, will be consolidated into Blue Water's own financial statements based on Blue Water's overall net ownership of BWBG.
In short, Blue Water will initially have to write down the $200,000 carried value of the BWBG shares as reported on June 30, 2015. Moving forward Blue Water will include its pro-rata ownership of BWBG's assets, liabilities and earnings into its financial statements.
Just to be clear. No tangible assets were lost in this transaction or transferred out of Blue Water. This transaction keeps everything under the Blue Water umbrella, just in a slightly different corporate structure that is more streamlined for raising capital for restaurant construction and expansion while sheltering future Caribbean derived restaurant income from US income taxes.
SEC Reporting and Potential Delisting from the OTCQB
One result from Blue Water's financial backers withholding additional financing is that Blue Water will not be able to file its Quarterly Report on Form 10-Q with the SEC for the period ended September 30, 2015 in a timely manner. These filings now cost in excess of $35,000 each quarter due to the complexity of derivative accounting and an auditor mandate that we hire a special third-party valuation firm to calculate the derivative nature of Blue Water's outstanding debt.
The result of not being able to file the Form 10-Q in a timely manner is Blue Water's common stock will eventually be demoted from the current OTCQB tier exchange to the OTC Pink Sheet tier. Blue Water does not believe it will be able to catch up with its filing obligations until sometime in the first half of 2016. Once Blue Water becomes current with its filing obligations again, Blue Water can requalify for the OTCQB tier. During this period shareholders should not notice any change in their ability to trade Blue Water's common stock or obtain daily quotations and trading data.
No Additional Increase in Authorized Shares or Planned Reverse Split
We have received several questions about (i) whether or not Blue Water will increase the number of authorized shares from the current 5 billion and (ii) a rumored pending reverse split.
First, Blue Water has no plans to attempt to increase its authorized shares at the moment. If new financing were made available to Blue Water on reasonable terms prior to and tied to an increase in the authorized capital Blue Water would consider asking shareholders to increase the authorized capital once again. As it stands now, there are no such ongoing discussions or offers on the table. Without a firm commitment Blue Water will not ask its shareholders to approve another increase in the authorized capital.
Second, Blue Water has no plans to enact a reverse split. Any claims to the contrary are nothing more than unsubstantiated rumors. Not only would a reverses split probably be detrimental to current shareholders considering current market trends, based on recent FINRA denials of other companies' attempts to reverse split their stocks Blue Water does not believe it would receive the necessary regulatory approval to undertake a reverse split at this time because of similar circumstances - declining share prices coupled with outstanding convertible debt remaining on the balance sheet.
Dividends
Blue Water has received numerous questions about the planned Stream Flow - now BWBG - dividend. At the moment Blue Water is going to suspend the prospect of this particular dividend. There are two specific reasons for this:
1) We have been advised that most of the outstanding convertible notes have certain debt covenants that would entitle the note holder to receive a portion of any dividend issued to common stockholders based on the theoretical number of shares that note could potentially convert into without actually converting the debt into shares of common stock. In the event we issued a dividend today, the overwhelming majority of the dividend would go to Blue Water's note holders rather than Blue Water's shareholders. This would not be fair or ethical to Blue Water's shareholders and, as such, will not be considered at this moment.
2) The original plan for the dividend concept was to share a portion of all equity investments with Blue Water's shareholders. Blue Water never intended on acquiring majority ownership in any investment company. With the change of direction and increase in ownership in BWBG, Blue Water does not wish to risk losing its majority ownership or control of BWBG and/or the Blue Water Bar & Grill(TM) concept. Issuing a dividend only to lose majority ownership and control of the restaurant concept would be a devastating blow to Blue Water and its shareholders.
If both of these situations change, Blue Water will revisit the concept of a dividend for a portion of the BWBG shares.
St. Maarten Blue Water Bar & Grill(TM)
Yesterday the general contractor reached a major milestone with the construction of the St. Maarten Blue Water Bar & Grill(TM) by making the final significant concrete pour: the 75-ton "V" shaped roof over the bar area that contain a waterfall feature flowing into the pool. This was the most complex pour of the concrete phase and will now be left to harden in the forms for about three weeks. A video and photos of the pour can be viewed on Blue Water's Facebook Page and YouTube Channel. The restaurant is now approximately 60% complete.
While we wait for the concrete to harden and allow the forms to be removed safely Blue Water will be working with its local St. Maarten bank to finalize a long-term mortgage using the restaurant building as collateral. This financing, which is traditional in nature and much less expensive than the convertible notes used in the early stages, will allow Blue Water to complete the construction without relying on any other outside financing sources or cause any further dilution to shareholders. This process will take a few more weeks, but will be a better long-term financing solution for Blue Water and its shareholders.
The other question that I know is on every shareholders' mind is "when will the restaurant be open?" There is still no definitive date. Construction is now running a few weeks behind schedule - also known as "island time" - and looks like it will slip from late this year to early next year. Some of that delay is due to us making last minute detail changes to the plans and some of it is due to uncontrollable outside circumstances. We will issue a grand opening date via a press release when we are about two or three weeks away from opening. Until then we will continue to strive to keep everyone as up-to-date as possible with ongoing construction progress and current photos and videos. There are still simply too many unforeseen obstacles that could result in a delay or cause us to miss a projected date, including weather, delayed arrival of finishing materials on island, upcoming holidays, and key construction persons taking vacation (St. Maarten is a European island and people routinely take 6-8 weeks a year off in vacation).
Blue Water Premium Rums
Blue Water Premium Rums continue to gain new supporters and converts daily. The rums are now sold in over 60 retail, restaurant and bar locations throughout St. Maarten and Anguilla. Blue Water is working closely with its St. Maarten distributor this off season to double that number by the time season arrives in late November. In addition, meetings with our distributor and "sister" distributors on neighboring regional islands, including St. Barth's, St. Kitt's and Nevis, are beginning to happen with the goal of having Blue Water Rums available on all of the islands in this region of the Caribbean by the time season rolls around.
Blue Water has also used the off season to create a marketing campaign using radio and electronic billboards, including those in the immigration and baggage claim area of the St. Maarten airport. This marketing campaign will be expanded to include more print advertisements, local promotional activities using the Blue Water Girls, charity and musical events, and road signage to keep building awareness and increase sampling of the brand during the upcoming tourist season.
Blue Water had planned on having a third rum announced and available in November this year. The formulation is complete and a custom bottle has been designed. However, due to our financial backers withholding additional financing due to the declining share price, we were forced to delay going into production on this bottle. In the interim, we have developed a 50-ml "mini" bottle for both the Blue Water Ultra Premium Rum and Blue Water Caribbean Gold Premium Rum. When we are able to go into production again we will do a large, economical production run for all three bottles.
And lastly, the other question on everyone's mind "when are you going to be selling the rum in the US?" We have spent a great amount of time and energy towards laying the groundwork to get into the US and Canadian markets. We have had some key players in both markets sample and test the rums. We have also made significant progress with regulatory agencies on clearing the proposed 750-ml bottles' wording and approving/testing the formulations.
While all of this has been positive there have been a few setbacks. The first and obvious one is financing. To successfully enter the US market we have been advised by our prospective distributor that we need to have a multi-million dollar annual marketing budget. The second is we will need a different bottle (750-ml) from those we sell in the Caribbean. And third, there is the potential for frivolous and costly litigation that needs to be resolved and mitigated before we make such a move.
Because the rums were designed as a secondary profit center for the restaurants, and in light of the three points I just mentioned, we have decided to hold off on the US market for the time being and continue to focus on the Caribbean market. Blue Water Rums are currently legal for import and export to just about every Caribbean island. The marketing budget for each island is miniscule compared with what is required by US distributors. Further, frivolous litigation is simply not tolerated by the courts in the Caribbean. With this in mind, Blue Water believes it should continue to focus on its core business plan and look for immediate expansion into other regions of the Caribbean.
Towards this goal Blue Water will be hosting a booth at the 5th Annual Caribbean Rum and Beer Festival. This event is being held in St. Maarten at the Sonesta Maho Resort on November 6th and 7th. Blue Water's mixologist will be competing in the "Cocktail Wars" using Blue Water Rums and the Blue Water Girls will be there cheering him on. We are expecting a good turnout at this event and will be using it as a launching pad to start the process of expanding Blue Water Rums into other regions of the Caribbean.
Thank you for your continued support,
J. Scott Sitra
President and CEO
About Blue Water Global Group
Blue Water Global Group, Inc. is a diversified publicly held 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 under the Blue Water Bar & Grill(TM) (OTCBB: BWBG) brand and a line of award winning premium rums which include its Blue Water Ultra Premium Rum(TM) and aged spiced Blue Water Caribbean Gold(TM) 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 OTCQB. For more information, visit www.bluewaterglobalgroup.com.
Certain statements in this release, other than statements of historical fact, may include forward-looking information that involves various risks and uncertainties. There can be no assurance that such forward-looking statements will prove to be accurate. Actual result and future events could differ materially from those anticipated in such statements. These and all subsequent written and oral forward-looking statements are based on the estimates and opinions of management on the dates they are made and expressly qualified in their entirety by this notice. Blue Water Global Group, Inc. ("Blue Water") assumes no obligation to update forward-looking statements should circumstances or management's estimates or opinions change, other than as required pursuant to applicable securities laws. For a description of additional risks and uncertainties, please refer to Blue Water's filings with the Securities and Exchange Commission, including "Risk Factors" in its Annual Report filed on Form 10-K.
Investor Relations
949.264.1475
ir@bluewaterglobalgroup.com
SOURCE: Blue Water Global Group, Inc.