BLUE SPA INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge)
THE FOLLOWING PRESENTATION OF THE PLAN OF OPERATION OF BLUE SPA INCORPORATED
SHOULD BE READ IN CONJUNCTION WITH THE AUDITED FINANCIAL STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED HEREIN.
Blue Spa is a Nevada company and was incorporated on September 4, 2009. 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 has adopted for its business operations 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's plan of operations is to distribute and sell quality natural skin and
body care products, fitness apparel, and related accessories for women. Blue Spa
intends to (1) identify and brand quality natural skin and body care products
for wholesale distribution and retail sales and (2) develop a Blue Spa line of
yoga and fitness apparel, as a natural extension of the skin and body care
brand. Blue Spa will begin as a wholesale company with a retail component and,
over the course of 10 years, evolve to a retail company with a wholesale
component. Blue Spa will also combine e-commerce and a consumer catalogue into
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 toolfor
Blue Spa Incorporated Form 10-K - 2012 Page 6
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.
Accounting and Audit Plan
Blue Spa has retained a bookkeeper to assist in the keeping and organization of
Blue Spa's financial records. Blue Spa's bookkeeper is expected to charge Blue
Spa approximately $2,700 to maintain Blue Spa's financial records for the next
12 months. Blue Spa's independent auditor is expected to charge approximately
$1,000 to review each of Blue Spa's quarterly financial statements and
approximately $7,500 to audit Blue Spa's annual financial statements. In the
next 12 months, Blue Spa anticipates spending approximately $12,000 to pay for
its accounting and audit requirements.
SEC Filing Plan
Blue Spa intends to become a reporting company after its registration statement
is declared effective. This means that Blue Spa will file documents with the US
Securities and Exchange Commission on a quarterly basis. Blue Spa expects to
incur filing costs of approximately $4,000 per quarter to support its quarterly
and annual filings. In the next 12 months, Blue Spa anticipates spending
approximately $16,000 for legal costs to pay for three quarterly filings, one
annual filing, a 424B4 final prospectus filing, and a Form 8-A filing in order
to complete registration of Blue Spa's common stock.
As at May 31, 2012, Blue Spa had cash of $2,285 and a working capital deficit of
$45,052. Accordingly, Blue Spa will require additional financing in the amount
of $70,767 in order to fund its obligations as a reporting company under the
Securities Act of 1934 and its general and administrative expenses for thenext
During the 12 month period following the date of this annual 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 shares. 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 shares to fund its plan of operations. In
the absence of such financing, Blue Spa will not be able to execute its plan of
operation and its business plan will fail. Even if Blue Spa is successful in
obtaining equity financing and execute its plan of operation, if Blue Spa does
not continue to obtain additional financing, it will be forced to abandon its
business and plan of operations.
Blue Spa Incorporated Form 10-K - 2012 Page 7
An investment in Blue Spa's common shares 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 filed on December 15, 2011.
As at May 31, 2012, Blue Spa had a cash balance of $2,285. Management does not
anticipate generating any revenue for the foreseeable future. When additional
funds become required, the additional funding will come from equity financing
from the sale of Blue Spa's common shares. If Blue Spa is successful in
completing an equity financing, existing shareholders will experience dilution
of their interest in Blue Spa. Blue Spa does not have any financing arranged and
Blue Spa cannot provide investors with any assurance that Blue Spa will be able
to raise sufficient funding from the sale of its common shares. In the absence
of such financing, Blue Spa's business will fail.
Based on the nature of Blue Spa's business, management anticipates incurring
operating losses in the foreseeable future. Management bases this expectation,
in part, on the fact that Blue Spa will rely on third party suppliers. Blue
Spa's future financial results are also uncertain due to a number of factors,
some of which are outside its control. These factors include, but are not
Blue Spa's ability to raise additional funding;
the market price for raw materials;
the results of Blue Spa's expanded website and product lines.
Due to Blue Spa's lack of operating history and present inability to generate
revenues, Blue Spa's auditors have stated their opinion that there currently
exists a substantial doubt about Blue Spa's ability to continue as a goingconcern
Blue Spa's functional currency is the United States dollar. Blue Spa has
determined that its functional currency is the United States dollar for the
Blue Spa's current and future financings are and will be in United States
Blue Spa maintains a majority of its cash holdings in United States dollars;
a majority of Blue Spa's administrative expenses are undertaken in United
States dollars; and
all cash flows are generated in United States dollars.
Liquidity and Capital Resources
As of May 31, 2012, Blue Spa had total assets of $2,285, and a working capital
deficit of $45,052, compared with a working capital deficit of $22,406 as of
December 31, 2010. The increase in the working capital deficit was primarily due
to an increase in notes payable. The assets consisted of $2,285 in cash and the
liabilities consisted of $32,000 in notes payable ($12,200 in 2010), $13,482 in
accrued liabilities ($15,625 in 2010), and $1,855 in interest payable ($211in
There are no assurances that Blue Spa will be able to achieve further sales of
its common shares or any other form of additional financing. If Blue Spa is
unable to achieve the financing necessary to continue its plan of operations,
then Blue Spa will not be able to continue its business and plan of operation
and its business will fail.
Net Cash Used in Operating Activities
For the fiscal year ended May 31, 2012, net cash used in operating activities
increased to $23,145 compared with $19,130 for the same period in the previous
fiscal year. The use of cash was primarily due to a net loss of $22,645, less
interest payable of $1,644, and less an increase of $2,144 in accrued expenses.
Net Cash Provided by Investing Activities
Net cash provided by investing activities was $nil for the fiscal year ended May
31, 2012 as compared with cash flow from investing activities of $nil for the
same period in the previous fiscal year.
Blue Spa Incorporated Form 10-K - 2012 Page 8
Net Cash Provided by Financing Activities
Net cash flows provided by financing activities increased to $22,702 for the
fiscal year ended May 31, 2012 as compared with financing activities of $25,168
for the same period in the previous fiscal year. The net cash provided by
financing activities was due to the proceeds from notes payable.
Results of Operation for the Period Ended May 31, 2012
Blue Spa has had no operating revenues since its inception on September 4, 2009,
through to May 31, 2012. Blue Spa's activities have been financed from the
proceeds of share subscriptions and proceeds from notes payable. From its
inception, on September 4, 2009, to May 31, 2012 Blue Spa has raised a total of
$17,000 from private offerings of its common shares.
References to the discussion below to fiscal 2012 are to Blue Spa's fiscal year
ended on May 31, 2012. References to fiscal 2011 are to Blue Spa's fiscal year
ended May 31, 2011.
September 9, 2009
For the Year Ended For the Year Ended (Date of Inception) to
May 31, 2012 May 31, 2011 May 31, 2012
$ $ $
(Audited) (Audited) (Audited)
Revenue - - -
Administrative and other
operating expenses 21,002 21,289 57,281
Formation cost - - 2,916
Interest expenses (1,644 ) (211 ) (1,855 )
Operating loss before income
taxes (22,646 ) (21,500 ) (62.052 )
Income taxes - - -
Net loss and comprehensive loss (22,646 ) (21,500 ) (62.052 )
General and Administrative
General and administrative expenses are the general office and operational
expenses of Blue Spa. They include bank charges, filing and transfer agent fees,
website costs, and rent.
Off-Balance Sheet Arrangements
Blue Spa has no off-balance sheet arrangements including arrangements that would
affect its liquidity, capital resources, market risk support and credit risk
support or other benefits.
Material Commitments for Capital Expenditures
Blue Spa had no contingencies or long-term commitments at May 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.
Blue Spa Incorporated Form 10-K - 2012 Page 9
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.
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 customersare
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.
Blue Spa Incorporated Form 10-K - 2012 Page 10
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