BLUE SPA INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operation.
(Edgar Glimpses Via Acquire Media NewsEdge) General
The following discussion of Blue Spa's financial condition, changes in financial
condition and results of operations for the three months ended August 31, 2012
should be read in conjunction with Blue Spa's unaudited interim financial
statements and related notes for the three months ended August 31, 2012.
Blue Spa is a startup company that intends to be engaged in the development,
production, wholesale distribution, and retail sales of quality natural skin and
body care products, fitness apparel, and related accessories. Blue Spa is also a
"shell" company as defined by the SEC as a result of only having nominal
operations and nominal assets. Blue Spa is focused on developing a multi-channel
concept, and intends to develop its business operations into a wholesale
distribution network with a retail strategy, e-commerce, and a consumer
Blue Spa has not commenced significant operations nor generated any revenues and
is considered a Development Stage Company, as defined by Statement of Financial
Accounting Standard ("SFAS") No.7 Accounting and Reporting by Development Stage
Enterprises, and follows the guideline of the Financial Accounting Standards
Board's ("FASB") Accounting Standards Codifications ("ASC") Topic 915
Development State Entities
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, including statements
regarding Blue Spa's capital needs, business plans and expectations. Such
forward-looking statements involve risks and uncertainties regarding Blue Spa's
ability to carry out its planned development and production of products.
Forward-looking statements are made, without limitation, in relation to Blue
Spa's operating plans, Blue Spa's liquidity and financial condition,
availability of funds, operating and exploration costs and the market in which
Blue Spa competes. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may",
"will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks outlined below, and, from time to time, in other reports Blue Spa files
with the SEC. These factors may cause Blue Spa's actual results to differ
materially from any forward-looking statement. Blue Spa disclaims any obligation
to publicly update these statements, or disclose any difference between its
actual results and those reflected in these statements. The information
constitutes forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
Plan of Operation
Blue Spa's plan of operation for the next 12 months is to:
1. develop and populate its website;
2. identify, develop, and purchase products and inventory; and
3. develop and launch Blue Spa's wholesale distribution network.
Phase 1 - Develop and populate Website (six months)
In Phase 1, Blue Spa plans to (1) upgrade and update its website so that it is
more visually appealing and technologically sound, (2) update its product line
and visuals on the Website, and (3) implement a downloadable high resolution
picture format for viewing its products.
Unlike current e-commerce models, management does not intend to use the Internet
to establish Blue Spa's products or its brand, or bring them to market. The
e-commerce consumer is typically brand and convenience conscience. The early
ventures have shown that the costs associated with establishing a brand via this
medium are prohibitive and significant. Instead, Blue Spa will develop its
initial Internet capabilities as a combination business-to-business tool and
e-catalogue. The Website will be simple and direct with minimal cost. Also, the
e-commerce platform will provide Blue Spa with a valuable wholesale tool as it
will provide distributors with an access code that will allow them to place
orders and utilize Blue Spa's product knowledge database as a training tool for
Blue Spa has budgeted $10,000 for this phase and expects it to take six months
to complete, with completion expected within the next six months of Blue Spa's
plan of operation.
Phase 2 - Identify, develop, and purchase products and inventory (six months)
In Phase 2, Blue Spa plans to identify and develop its Water Range skin care
products. Also, Blue Spa will identify and purchase fitness apparel and related
accessories that fits in with its Blue Spa's brand. Phase 2 will overlap with
Phase 1 and will be worked on simultaneously with Phase 1.
Blue Spa has budgeted $25,000 for this phase and expects it to take six months
to complete, with completion expected within the next six months of Blue Spa's
plan of operation.
Phase 3 - Launch Blue Spa wholesale (12 months)
In Phase 3, Blue Spa plans to (1) to identify and secure partnerships with
well-respected distributors, (2) identify and contract with key wholesale
showrooms in which to display Blue Spa's products, (3) further enhance and
develop the brand image of Blue Spa, and (4) identify and retain key
biotechnology specialists and management to assist in the continued development
of its products and the administration of its business operations.
By identifying and securing partnerships with distributors and showrooms to
represent Blue Spa and its products, management intends to gain key show
positions in Hong Kong, Tokyo, San Francisco, and New York gift shows. Terms and
conditions of any contract will include a commission on all sales at a rate
higher than the industry standard to provide motivation for the representatives
to promote Blue Spa's products.
Blue Spa has budgeted $100,000 for this phase and expects it to take 12 months
to complete, with completion expected within the next 12 months of Blue Spa's
plan of operation. Also in this phase, Blue Spa will continue to (a) maintain
and populate the Website with new products and (b) continue to develop and
purchase products and inventory to brand.
In addition, management anticipates incurring the following expenses during the
next 12 month period:
Management anticipates spending approximately $1,000 in ongoing general and
administrative expenses per month for the next 12 months, for a total
anticipated expenditure of $12,000 over the next 12 months. The general and
administrative expenses for the year will consist primarily of professional
fees for the audit and legal work relating to Blue Spa's regulatory filings
throughout the year, as well as transfer agent fees, development costs and
general office expenses.
Management anticipates spending approximately $16,000 in complying with Blue
Spa's obligations as a reporting company under the Securities Exchange Act of
1934 and as a reporting issuer in Canada. These expenses will consist primarily
of professional fees relating to the preparation of Blue Spa's financial
statements and completing and filing its annual report, quarterly report, and
current report filings with the SEC.
As at August 31, 2012, Blue Spa had cash of $898 and total liabilities of
$53,232. Accordingly, Blue Spa will require additional financing in the amount
of $80,334 in order to fund its obligations as a reporting company under the
Securities Act of 1934 and its general and administrative expenses for the next
During the 12 month period following the date of this report, management
anticipates that Blue Spa will not generate any revenue. Accordingly, Blue Spa
will be required to obtain additional financing in order to continue its plan of
operations. Management believes that debt financing will not be an alternative
for funding Blue Spa's plan of operations as it does not have tangible assets to
secure any debt financing. Rather management anticipates that additional funding
will be in the form of equity financing from the sale of Blue Spa's common
stock. However, Blue Spa does not have any financing arranged and cannot provide
investors with any assurance that it will be able to raise sufficient funding
from the sale of its common stock to fund its plan of operations. In the absence
of such financing, Blue Spa will not be able to develop its products and its
business plan will fail. Even if Blue Spa is successful in obtaining equity
financing and developing its products, additional development of its website and
marketing program will be required. If Blue Spa does not continue to obtain
additional financing, it will be forced to abandon its business and plan of
An investment in Blue Spa's common stock involves a number of very significant
risks. Prospective investors should refer to all the risk factors disclosed in
Blue Spa's Form S-1/A - Amendment #3 filed on December 15, 2011.
Liquidity and Capital Resources
Three Month Period Ended August 31, 2012
At August 31, 2012, Blue Spa had a cash balance of $898 and a working capital
deficiency of $52,334 for the three month period ended August 31, 2012, compared
to a cash balance of $2,285 and negative cash flows from operations of $50,052
for the fiscal period ended May 31, 2012.
The notes to Blue Spa's unaudited interim financial statements as of August 31,
2012, disclose its uncertain ability to continue as a going concern. Blue Spa
has not and does not expect to generate any revenues to cover its expenses while
it is in the development stage and as a result Blue Spa has accumulated a
deficit of $69,334 since inception. As of August 31, 2012, Blue Spa had $53,232
in current liabilities compared to $52,337 for the time period ended May 31,
2012. When its current liabilities are offset against its current assets of $898
Blue Spa is left with a negative working capital of $52,334.
While Blue Spa has successfully generated sufficient working capital through the
sale of common stock and management believes that Blue Spa can continue to do so
for the next year, there are no assurances that Blue Spa will succeed in
generating sufficient working capital through the sale of common stock to meet
its ongoing cash needs.
Net Cash Flows Used in Operating Activities. Net cash flows from operating
activities during the three month period ended August 31, 2012 was a net loss of
$1,387, which was primarily due to accrued expenses of $250 and interest payable
of $645, compared to a net loss of $135 for the same time period for the prior
fiscal period, which was also primarily due to accrued expenses.
Net Cash Flows From Investing Activities. Blue Spa did not have any net cash
flow from investing activities during the three month period ended August 31,
2012 compared to $nil for the same time period for the prior fiscal period.
Net Cash Flows From Financing Activities. Blue Spa had $nil in net cash flow
from financing activities during the three month period ended August 31, 2012,
compared to $nil for the same time period for the prior fiscal period.
Results of Operations - Three months ended August 31, 2012 and August 31, 2011
References to the discussion below to fiscal 2012 are to Blue Spa's current
fiscal year, which ended on May 31, 2012. References to fiscal 2011 are to Blue
Spa's fiscal year ended May 31, 2011.
For the For the from
Three Months Three Months September 4, 2009
Ended Ended (inception)
August 31, 2012 August 31, 2011 to August 31, 2012
$ $ $
Revenue - - -
Administrative and other
operating expenses (1,637 ) (2,860 ) (63,918 )
Formation cost - - (2,916 )
Interest expenses (645 ) (243 ) (2,500 )
Operating loss before income
taxes (2,282 ) (3,103 ) (69,334 )
Income taxes - - -
Net loss and comprehensive
loss (2,282 ) (3,103 ) (69,334 )
Three Month Period Ended August 31, 2012
Net Loss. During the three month period ended August 31, 2012, Blue Spa had a
net loss of $2,282 or $(0.00) per share. The loss was primarily due to
administrative and other operating expenses and interest expenses, compared to
the same time period for the prior fiscal period, when Blue Spa had a net loss
of $3,103 or $ (0.000) per share, which was primarily due to administrative and
other operating expenses.
Revenue. Blue Spa had no operating revenues since its inception on September 4,
2009, through to August 31, 2012. Blue Spa's activities have been financed from
the proceeds of share subscriptions.
Operating Expenses. Blue Spa's operating expenses since its inception on
September 4, 2009, through to August 31, 2012 were $69,334. The operating
expenses were primarily due to $63,918 in administrative and other operating
expenses, $2,916 in formation costs, and $2,500 in interest expenses.
Blue Spa has not attained profitable operations and is dependent upon obtaining
financing to pursue any extensive business activities. For these reasons the
financial statements have been prepared assuming Blue Spa will continue as a
Management anticipates continuing to rely on equity sales of Blue Spa's common
stock in order to continue to fund its business operations. Issuances of
additional common stock will result in dilution to Blue Spa's existing
stockholders. There is no assurance that Blue Spa will achieve any additional
sales of its common stock or arrange for debt or other financing to fund its
Management does not believe that inflation will have a material impact on Blue
Spa's future operations.
Off-balance Sheet Arrangements
Blue Spa has no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
Contingencies and Commitments
Blue Spa had no contingencies or long-term commitments at August 31, 2012.
Tabular Disclosure of Contractual Obligations
Blue Spa is a smaller reporting company as defined by Rule 12b-2 of the Exchange
Act and is not required to provide the information required under this item.
Critical Accounting Policies
Blue Spa's financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Management believes that understanding the
basis and nature of the estimates and assumptions involved with the following
aspects of Blue Spa's financial statements is critical to an understanding of
Blue Spa's financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Management makes its best estimate of the ultimate outcome for these items based
on historical trends and other information available when the financial
statements are prepared. Changes in estimates are recognized in accordance with
the accounting rules for the estimate, which is typically in the period when new
information becomes available to management. Actual results could differ from
Development Stage Company
Blue Spa is a developmental stage company, and follows the guideline of the
Financial Accounting Standards Board's ("FASB") Accounting Standards
Codifications ("ASC") Topic 915 Development State Entities. All losses
accumulated since inception has been considered as part of Blue Spa's
development stage activities.
Website Development Costs
Blue Spa recognized the costs associated with developing a website in accordance
with ASC 350-50 "Website Development Cost" that codified the American Institute
of Certified Public Accountants ("AICPA") Statement of Position ("SOP") NO.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". Relating to website development costs Blue Spa follows the
guidance pursuant to the Emerging Issues Task Force (EITF) NO. 00-2, "Accounting
for Website Development Costs". The website development costs are divided into
three stages, planning, development and production. The development stage can
further be classified as application and infrastructure development, graphics
development and content development. In short, website development cost for
internal use should be capitalized except content input and data conversion
costs in content development stage.
Costs associated with the website consist primarily of website development costs
paid to third party. These capitalized costs will be amortized based on their
estimated useful life over three years upon the website becoming operational.
Internal costs related to the development of website content will be charged to
operations as incurred. Web-site development costs related to the customers are
charged to cost of sales.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in
time, based on relevant information about financial markets and specific
financial instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
values. The fair value of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and short term note - related
party, approximate their carrying values since they are short term in nature and
they are receivable or payable on demand. Management is of the opinion that Blue
Spa is exposed to significant interest or credit risks arising from the
bank-held assets. Blue Spa is operating outside the United States of America and
may have significant exposure to foreign currency risk due to the fluctuation of
the currency in which Blue Spa operates and the U.S. dollar. Blue Spa accounts
for certain assets and liabilities at fair value.
Concentration of Credit Risk
Blue Spa places its cash and cash equivalents with a high credit quality
financial institution. Blue Spa maintains United States Dollars at a bank in the
Switzerland that are not insured. Blue Spa minimizes its credit risks associated
with cash by periodically evaluating the credit quality of its primary financial
Foreign Currency Translation
Blue Spa is located and operating outside of the United States of America. The
functional currency of Blue Spa is the U.S. Dollar. At the transaction date,
each asset, liability, revenue and expense is translated into U.S. dollars by
the use of the exchange rate in effect at that date. At the period end, monetary
assets and liabilities are re-measured by using the exchange rate in effect at
that date. The resulting foreign exchange gains and losses are included in
Research and Development Costs
Research and development costs will be expensed as incurred.
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