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EXCEL - IDEA: XBRL DOCUMENT - BLUE SPHERE CORP. | Financial_Report.xls |
EX-31.2 - EXHIBIT 31.2 - BLUE SPHERE CORP. | v409857_ex31-2.htm |
EX-31.1 - EXHIBIT 31.1 - BLUE SPHERE CORP. | v409857_ex31-1.htm |
EX-10.9 - EXHIBIT 10.9 - BLUE SPHERE CORP. | v409857_ex10-9.htm |
EX-32.1 - EXHIBIT 32.1 - BLUE SPHERE CORP. | v409857_ex32-1.htm |
EX-32.2 - EXHIBIT 32.2 - BLUE SPHERE CORP. | v409857_ex32-2.htm |
EX-10.10 - EXHIBIT 10.10 - BLUE SPHERE CORP. | v409857_ex10-10.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _________ to ________
Commission File No.333-147716
Blue Sphere Corp. |
(Exact name of registrant as specified in its charter) |
Nevada | 98-0550257 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
35 Asuta Street, Even Yehuda, Israel 40500 |
(Address of principal executive offices) (zip code) |
972-9-8917438 |
(Registrant’s telephone number, including area code) |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation 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 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 Exchange Act).
Yes ¨ No x
State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: As at May 14, 2015, there were 83,597,582 shares of common stock, par value $0.001 per share, outstanding.
Our financial statements are stated in United States dollars (U.S. $) and are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”). In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars.
As used in this quarterly report, the terms “we”, “us”, “our”, “Blue Sphere” or the “Company” mean Blue Sphere Corp. and its wholly-owned subsidiary, Eastern Sphere, Ltd.1, unless the context clearly requires otherwise.
1 Note to Company: Is Bluesphere Italy S.r.l a wholly-owned subsidiary? Please confirm there are no other subsidiaries to be disclosed.
PART I - FINANCIAL INFORMATION
BLUE SPHERE CORP.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2015
1 |
BLUE SPHERE CORP.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2015
IN U.S. DOLLARS
UNAUDITED
TABLE OF CONTENTS
2 |
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands except share and per share data)
March 31, | September 30, | |||||||
2015 | 2014 | |||||||
Unaudited | Audited | |||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 374 | $ | 298 | ||||
Other current assets | 141 | 265 | ||||||
Total current assets | 515 | 563 | ||||||
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation | 34 | - | ||||||
PAYMENT ON ACCOUNT OF PROJECT | 469 | 469 | ||||||
Total assets | $ | 1,018 | $ | 1,032 | ||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||
CURRENT LIABILITIES: | ||||||||
Current maturities of long term loan | $ | 29 | $ | 32 | ||||
Accounts payables | 29 | 12 | ||||||
Other accounts payable | 448 | 343 | ||||||
Debentures, notes and loans | 952 | 231 | ||||||
Total current liabilities | 1,458 | 618 | ||||||
LONG TERM BANK LOAN | 114 | 104 | ||||||
STOCKHOLDERS' DEFICIT: | ||||||||
Common shares of $0.001 par value each: | ||||||||
Authorized: 1,750,000,000 shares at March 31, 2015 and September 30, 2014, Issued and outstanding: 51,125,044 shares and 50,109,036 shares at March 31, 2015 and September 30, 2014, respectively | 1,146 | 1,126 | ||||||
Proceeds on account of shares | 35 | 20 | ||||||
Additional paid-in capital | 37,332 | 35,106 | ||||||
Accumulated deficit during the development stage | (39,067 | ) | (35,942 | ) | ||||
Total Stockholders’ Equity (Deficit) | (554 | ) | 310 | |||||
Total liabilities and Stockholders’ Equity (Deficit) | $ | 1,018 | $ | 1,032 |
The accompanying notes are an integral part of the consolidated financial statements.
3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands except share and per share data)
Six months ended | Three months ended | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
OPERATING EXPENSES - | ||||||||||||||||
General and administrative expenses, net * | $ | 1,839 | $ | 2,803 | $ | 993 | $ | 1,309 | ||||||||
FINANCIAL EXPENSES (INCOME), net | 1,286 | 81 | 819 | 44 | ||||||||||||
NET LOSS FOR THE PERIOD | $ | 3,125 | $ | 2,884 | $ | 1,812 | $ | 1,353 | ||||||||
Net loss per common share – basic and diluted | $ | (0.059 | ) | $ | (0.220 | ) | $ | (0.033 | ) | $ | (0.092 | ) | ||||
Weighted average number of common shares outstanding during the period – basic and diluted | 53,194,039 | 13,080,574 | 55,404,305 | 14,746,582 |
* | Net of $1,586,000 development fees and reimbursements received. |
The accompanying notes are an integral part of the consolidated financial statements.
4 |
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(U.S. dollars in thousands, except share and per share data)
Common Stock, $0.001 Par | Proceeds on | Additional paid-in | Accumulated | Total Stockholders' | ||||||||||||||||||||
Shares | Amount | shares | Capital | deficit | Equity (deficit) | |||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2014 (audited) | 50,109,036 | $ | 1,126 | $ | 20 | $ | 35,106 | $ | (35,942 | ) | $ | 310 | ||||||||||||
CHANGES DURING THE PERIOD OF SIX MONTHS ENDED MARCH 31, 2015 (unaudited): | ||||||||||||||||||||||||
Share based compensation | 152 | 152 | ||||||||||||||||||||||
Issuance of common stock, net of issuance expenses | 609,039 | 1 | 81 | - | 82 | |||||||||||||||||||
Issuance of shares for services | 8,658,908 | 9 | 972 | 981 | ||||||||||||||||||||
Issuance of common stock in respect of issuance of convertible notes | 10,435,684 | 10 | 518 | 528 | ||||||||||||||||||||
Issuance of convertible debentures containing a beneficial conversion feature | 503 | 503 | ||||||||||||||||||||||
Proceeds on account of shares not yet issued | 15 | 15 | ||||||||||||||||||||||
Net loss for the period | (3,125 | ) | (3,125 | ) | ||||||||||||||||||||
BALANCE AT MARCH 31, 2015 (Unaudited) | 69,812,667 | $ | 1,146 | $ | 35 | $ | 37,332 | $ | (39,067 | ) | $ | (554 | ) |
Common Stock, $0.001 Par | Proceeds on | Additional paid-in | Accumulated | Total Stockholders' | ||||||||||||||||||||
Shares | Amount | shares | Capital | deficit | Equity (deficit) | |||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2013 (audited) | 9,621,210 | $ | 1,086 | - | $ | 26,998 | $ | (28,566 | ) | $ | (482 | ) | ||||||||||||
CHANGES DURING THE PERIOD OF SIX MONTHS ENDED MARCH 31, 2014 (unaudited): | ||||||||||||||||||||||||
Share based compensation | 968 | - | 968 | |||||||||||||||||||||
Issuance of common stock, net of issuance expenses | 3,027,274 | 3 | 230 | - | 233 | |||||||||||||||||||
Issuance of shares for services | 1,443,202 | 1 | 198 | - | 199 | |||||||||||||||||||
Issuance of common stock in respect of issuance of convertible notes | 4,088,449 | 5 | 410 | - | 415 | |||||||||||||||||||
Net loss for the period | (2,884 | ) | (2,884 | ) | ||||||||||||||||||||
BALANCE AT MARCH 31, 2014 (Unaudited) | 18,180,135 | $ | 1,095 | $ | 28,804 | $ | (31,450 | ) | $ | (1,551 | ) | 18,180,135 |
The accompanying notes are an integral part of the consolidated financial statements.
5 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
Six months ended | ||||||||
March 31 | ||||||||
2015 | 2014 | |||||||
(Unaudited) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss for the period | $ | (3,125 | ) | $ | (2,884 | ) | ||
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
Share based compensation expenses | 152 | 81 | ||||||
Depreciation | 2 | 1 | ||||||
Expenses in respect of Convertible notes and loans | 1,141 | 38 | ||||||
Issuance of shares for services | 981 | 152 | ||||||
Decrease in other current assets | 129 | 237 | ||||||
Increase in accounts payables | 17 | 1 | ||||||
Increase in other account payables | 105 | 702 | ||||||
Net cash used in operating activities | (598 | ) | (1,672 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments on account of project | - | (70 | ) | |||||
Investment in nonconsolidated subsidiary | (24 | ) | - | |||||
Payment for purchasing of fixed assets | (36 | ) | - | |||||
Net cash used in investing activities | (60 | ) | (70 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Loans received | 348 | 584 | ||||||
Loans and convertible debentures repaid | (483 | ) | (260 | ) | ||||
Proceeds from stock issued for cash | 82 | 1,386 | ||||||
Proceeds on account of shares | 15 | - | ||||||
Proceeds from issuance of convertible debenture | 772 | - | ||||||
Net cash provided by financing activities | 734 | 1,710 | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 76 | (32 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 298 | 46 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 374 | $ | 14 |
The accompanying notes are an integral part of the consolidated financial statement
6 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis, as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position and results of operations of Blue Sphere Corp. ("the Company”). These consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company’s audited financial statements included in its Annual Report on Form 10-K for the year ended September 30, 2014, as filed with the Securities and Exchange Commission. The results of operations for the six months ended March 31, 2015 are not necessarily indicative of results that could be expected for the entire fiscal year.
NOTE 2 - GENERAL
Blue Sphere Corp. (the “Company”) together with its wholly owned subsidiaries, Eastern Sphere Ltd. (“Eastern”), Binosphere Inc ("Binosphere"), Charlottesphere LLC ("Charlotteshpere”), Johnstonsphere LLC (“Johnstonsphere”), Sustainable Energy Ltd. (“SEL”) and Tipping LLC (“Tipping”) is focused on project integration in the clean energy production and waste to energy markets.
As at March 31, 2015, Tipping, Johnstonsphere and Charlottesphere had not commenced their respective operations.
On October 2, 2014 the Company together with third parties established Clean Energy Ltd (Clean Energy) in Israel. Clean Energy is focused on project integration in the clean energy production and waste to energy markets mainly in Israel. The Company holds 50% in Clean Energy.
The Company was incorporated in the state of Nevada on July 17, 2007 and was originally in the business of developing and promoting automotive internet sites. During the second quarter of 2010 the management of the Company decided to change its business focus to that of project integrator in the clean energy production and waste to energy markets.
The Company is currently focusing on (i) 11 projects in the United States, Italy and Israel, for which it has either signed agreements, letters of intent, or memoranda of understanding to own and implement such projects and which are in various stages of development and (ii) a recently licensed fast charging battery technology (as detailed below).
Payment on account of project
On October 19, 2012, the Company signed definitive project agreements in respect of both the North Carolina and Rhode Island sites with Orbit Energy, Inc. (“Orbit”) pursuant to which the Company would be entitled to full ownership of each of the entities that owns the rights to implement the respective projects (Orbit Energy Charlotte, LLC in the case of the North Carolina project (“OEC”) and Orbit Energy Rhode Island, LLC in the case of the Rhode Island project (“OERI”) subject to the satisfaction of certain conditions.
7 |
BLUE SPHERE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 2 – GENERAL (continue)
On November 19, 2014, the Company signed an amended and restated purchase agreement with Orbit for the North Carolina project (the “Amended OEC Purchase Agreement”). Subject to the terms of the Amended OEC Purchase Agreement, Orbit transferred ownership of OEC to the Company in exchange for a development fee of $900,000, reimbursement of $17,764 and an amount equal to 30% of the distributable cash flow from the North Carolina project after the project achieves a post-recoupment 30% internal rate of return computed on the basis of any and all benefits from tax credits, depreciation and other incentives of any nature (the “Participation”). The Company also agreed to use high solid anaerobic digester units designed by Orbit (the “HSAD”) and to retain Orbit to implement and operate the digester units for an annual management fee of $187,500 (the “Management Fee”) subject to certain conditions. The Amended OEC Purchase Agreement provided that the Company had until December 15, 2014 to pay Orbit the development fee and reimbursement amount, which was extended to January 15, 2014 upon payment of $75,000.
On January 15, 2015, ownership of OEC reverted back to Orbit.
On January 30, 2015, the Company entered into and signed the (i) Orbit Energy Charlotte, LLC Membership Interest Purchase Agreement by and among Orbit, Concord Energy Partners, LLC, a Delaware limited liability company (“Buyer”) and Project LLC (the “New OEC Purchase Agreement”) pursuant to which Buyer purchased all of Orbit’s right, title and interest in and to the membership interests of Project LLC (the “Interests”), (ii) Orbit abandoned all economic and ownership interest in the Interests in favor of Buyer, (iii) Orbit ceased to be a member of Project LLC and (iv) admitted Buyer as the sole member of Project LLC.
Subject to the satisfaction of certain conditions precedent by Orbit, the Company further agreed to be responsible for all costs of evaluating and incorporating Orbit’s high solids anaerobic digestion technology consisting of a proprietary process that uses an anaerobic digester design developed by the U.S. Department of Energy and subsequently modified by Orbit in combination with the proprietary bacteria to be supplied by Orbit (the “Technology”) and two high solids anaerobic digester units designed by Orbit in the Charlotte, North Carolina project up to a total maximum capacity of 100 tons per day, including both direct and indirect costs, all payments to be made to Orbit and all increased costs, expenses and any damages incurred in connection with the design, installation, integration, operation and maintenance of the Technology incorporated into the project.
The Company further agreed in a letter agreement dated January 29, 2015 to pay Orbit an amount equal to thirty percent (30%) of the Project’s distributable cash flow after BSC and the party(ies) making an equity investment in the Project fully recoup their respective investment in the Project (such investment(s) to be calculated solely as amounts expended in and for the construction of the Project) and the Project achieves a thirty (30%) percent internal rate of return, which, for the avoidance of doubt, will take into account and be computed on the basis of any and all benefits from tax credits, depreciation and other incentives of any nature and an annual management fee of $187,500. We also agreed to enter into an operations agreement with Orbit in respect of the HSAD Units to be integrated into the Project.
8 |
NOTE 2 – GENERAL (continue)
On January 30, 2015, the Company, Buyer and York Renewable Energy Partners LLC (“York”) entered into a development and indemnification agreement (the “D and I Agreement”) pursuant to which in consideration of the representations and warranties regarding Project LLC, its assets and liabilities and the Project and the covenants of the Company set forth therein, Buyer agreed to pay the Company $1,250,000 and issue 250 Series B units (“Series B Units”) to the Comapny and 750 Series A Units (“Series A Units”) to York, such that York will be a member of Buyer holding 750 Series A units representing 75% of the limited liability company interests of Buyer and BSC was admitted as a member of Buyer holding 250 Series B units representing 25% of the limited liability company interests of Buyer in accordance with the terms of an amended and restated limited liability company agreement of Buyer.
On January 30, 2015, the Company and York entered into an amended and restated limited liability company operating agreement (the “Concord LLC Agreement”) to establish two new classes of limited liability company interests represented by Series A units and Series B units, admit the Company as a 25% member of Buyer (as disclosed above) with the Company’s right to receive distributions from Buyer being subject to certain priorities in favor of York and pay to the Company two equal installments of $587,500 upon (i) mechanical completion of the Project and (ii) commercial operation of the Project. Buyer shall be managed by a board of Managers initially consisting of three managers (the “Board”). So long as York owns more than 50% of the membership interest of Buyer, York shall be entitled to appoint two of the Board’s three managers. So long as the Company owns no less than 12.5% of the membership interests in Buyer, the Company shall be entitled to appoint one manager. In the event that the Board determines in good faith that equity capital in addition to the initial Project budget is needed by Buyer and is in the best interests of the Project, the Board shall, in good faith, determine the amount of additional capital needed and issue new units to raise the necessary funds. In this case, the Company’s percentage interest in Buyer shall be reduced accordingly. There are also certain restrictions on the Company’s right to transfer its membership interests to third-parties.
In parallel with this, the Company terminated our amended and restated construction finance agreement dated June 6, 2014 with Caterpillar Financial Services Corporation.
In February 2015 the Company received $1,586,000 related to the above development fees and reimbursements. Such amounts were credited against expenses incurred during the six months ended March 31, 2015 in respect of the North Carolina project.
On January 7, 2015, the Company signed an amended and restated purchase agreement for the Rhode Island project (the “Amended OERI Purchase Agreement”). Subject to the terms of the Amended OERI Purchase Agreement, Orbit transferred full ownership of OERI to the Company in exchange for a development fee of $300,000, reimbursement of $86,432 and an amount equal to 30% of the distributable cash flow from the Rhode Island project after the project achieves a post-recoupment 30% internal rate of return computed on the basis of any and all benefits from tax credits, depreciation and other incentives of any nature. The Company also agreed to use high solid anaerobic digester units designed by Orbit and to retain Orbit to implement and operate the digester units for an annual management fee of $187,500 subject to certain conditions. The Amended OERI Purchase Agreement provides that the Company has until January 22, 2015 to pay Orbit the development fee and reimbursement amount, which may be extended to February 28, 2015 upon payment of $31,000. If the Company do not pay the development fee and reimbursement amount by January 22, 2015, or February 28, 2015 if extended, then ownership of OERI will automatically revert back to Orbit.
Payments on account of land permits related to this projects on the amount of $469 thousand are presented as long term assets in the balance sheet as of March 31, 2015.
9 |
BLUE SPHERE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 3 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements as of March 31, 2015 and for the six months then ended, have been prepared in accordance with accounting principles generally accepted in the United States relating to the preparation of financial statements for interim periods. Accordingly, they do not include all the information and footnotes required for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending September 30, 2015.
The September 30, 2014 Condensed Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.
NOTE 4 – SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the annual financial statements of the Company as of September 30, 2014, are applied consistently in these financial statements.
NOTE 5 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of March 31, 2015, the Company had approximately $374 thousand in cash and cash equivalents, approximately $943 thousand in negative working capital, a stockholders’ deficit of approximately $554 thousand and an accumulated deficit of approximately $39,067 thousand. Management anticipates their business will require substantial additional investments that have not yet been secured. The Company anticipates that the existing cash will not be sufficient to continue its operations through the next 12 months. Management is continuing in the process of fund raising in the private equity markets as the Company will need to finance future activities and general and administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability.
10 |
BLUE SPHERE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 6 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS:
No new accounting standards have been adopted since the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014 was filed.
NOTE 7 – COMMON SHARES:
On October 28, 2014 the Company issued 335,000 shares of the Company’s common stock, in connection with the May 1, 2014 service agreement.
During October, 2014, Asher converted $42,500 principal amount out of the April 11, 2014 notes for 471,967 shares of the Company’s common stock.
On December 8, 2014 the Company issued 209,041 shares of the Company’s common stock to Carter Terry, in connection with the issuance of as detailed in note 8 below.
On October 3, 2014 the Company signed a consulting agreement with a non-US citizen according to which the consultant would provide investor relation and public relations services for a period of one year. The Company agreed to grant the consultant 2,000,000 shares of the Company and additional 500,000 options to purchase company's shares at an exercise price of $0.001 per shares. Such shares were issued on March 19, 2015. In addition, on the same date the Company issued the consultant 500,000 shares of the Company for the exercised of the options granted.
On February 28, 2015 and March 19, 2015 the Company issued 6,114,867 shares of the Company the consultant in respect of his September 2014 consulting investor relation and public relations services agreement with the Company.
On March 12, 2015 the Company issued 109,039 shares of the Company for an investor pursuant to the exercise of his options granted at May 2014.
NOTE 8 – STOCK OPTIONS:
On February 24, 2015 the Company approved and adopted the “Global Shares and Options Incentive Enhancement Plan 2014” (the “Plan”). Subject to the other conditions of the Plan, the Board of Directors of the Company has full authority in its discretion, from time to time and at any time, to determine (i) eligible participants, (ii) the number of options or shares to be covered by each award, (iii) the time or times at which the award shall be granted, (iv) the vesting schedule and other terms and conditions applying to awards, (v) the form(s) of written agreements applying to awards, and (vi) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan and the granting of awards.
In addition, the Company approved the grant of 13,100,000 shares and 3,175,000 options to purchase shares of the Company to its managers. The shares vest on a quarterly basis over a two-year period. The options vest on a quarterly basis over a 2 years period with an exercise price of $0.14 per share.
As a one-time, special award, the Company approved the grant of 2,575,000 shares to the managers of the Company under the Global Share Incentive Plan (2010).
11 |
NOTE 9 – DEBENTURES, NOTES AND LOANS:
Other Notes
Between August 4, 2014 and September 22, 2014, the Company issued convertible promissory notes (the “Notes”) to accredited investors in an aggregate principal amount of $1,207,750 for an aggregate purchase price of $1,040,919, net of expenses incurred in connection of such notes.
Between October 28, 2014 and December 24, 2014 the Company issued convertible promissory notes (the “Notes”) to accredited investors in an aggregate principal amount of $504,250 for an aggregate purchase price of $464,970, net of expenses incurred in connection of such notes.
The Notes generally mature one-year from the date of issuance and accrue interest at rates ranging from 5% to 18% per annum and in an event of default, the Notes bear interest at rates ranging from 12% to 24% per annum. The Notes may generally be converted into shares of the Company’s common stock at conversion prices ranging from 37% to 45% discounts to lowest trade or closing prices during periods in proximity to the time of conversion subject to further discounts in the case of certain events of default.
On January 12, 2015, the Company issued a 10% convertible promissory note to an accredited investor in an aggregate principal amount of $220,000. The aggregate initial purchase price was $55,000, including $5,000 of original issue discount, insofar as the initial aggregate purchase amount was only $60,000. This note matures one-year from the date of issuance at the full initial principal amount of $60,000. This note may generally be converted into shares of our common stock at a conversion price of 45% discount to our lowest trade or closing prices during periods in proximity to the time of conversion subject to further discounts in the case of certain events of default. The investor reserves the right to pay additional consideration at any time and in any amount it desires, up to the total face value of this Note, at its sole discretion. The principal sum (including the prorated amount of the original issue discount) owed by the Company shall be prorated to the amount of consideration paid by the investor and only the consideration received by the Company, plus prorated interest and other fees and prorated original issue discount, shall be deemed owed by the Company. The original issue discount is set at 10% of any consideration paid. The Company is not responsible to repay any unfunded portion of such note
On January 12, 2015, the Company issued an 8% convertible promissory note to an accredited investor in an aggregate principal amount of $140,400 for an aggregate purchase price of $130,000, including $14,400 of original issue discount. This note matures one-year from the date of issuance at the full principal amount of $140,400. This note may generally be converted into shares of our common stock at a conversion price of a 42% discount to our lowest trade or closing prices during periods in proximity to the time of conversion subject to further discounts in the case of certain events of default.
In accordance with ASC 470-20, the company allocated a portion of the proceeds equal to the intrinsic value of beneficial conversion feature embedded in the debentures in the amounts of $1,040,919 and $482,485 as of September 30, 2014 and March 31, 2015 respectively, to additional paid-in capital, and recorded a corresponding discount on such debentures. During the six and three month ended March 31, 2015 the company recorded amortization expenses in the amounts of $565,395 and $390,726, respectively, in respect of the above discount.
During February and March 2015, notes holders of $590 thousands principal amount, converted their notes to 9,963,717 shares of the Company common stock.
12 |
BLUE SPHERE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 9 – DEBENTURES, NOTES AND LOANS (continue):
The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment. In addition, it shall constitute an event of default under certain of the Notes if the Company is delinquent in its filings with the Securities and Exchange Commission, ceases to be quoted on the OTCQB, its common stock is not DWAC eligible or if it has to restate its financial statements in any material respect. In the event of an event of default the Notes may become immediately due and payable at premiums to the outstanding principal. The Notes also provide that if shares issuable upon conversion of the Notes are not timely delivered in accordance with the terms of the Notes then the Company shall be subject to certain cash or share penalties that increase proportionally to the duration of the delinquency up to certain maximums.
The Company paid aggregate commissions of $7,500 to MD Global Partners, LLC and $46,000 to Carter Terry & Company (“Carter Terry”), registered broker-dealers, in connection with the issuance of some of Notes in the aggregate principal of up to $480,000. In addition, Carter Terry is entitled to receive 100,000 shares of the Company’s common stock and a further amount of shares of our common stock equal to 4% of capital raised by them divided by the closing price of our common stock on the date of close. On December 8, 2014 the Company issued 209,041 shares of the Company’s common stock.
Additional covenants, representations, and warranties between the parties are included in the Notes and accompanying Securities Purchase Agreements that were entered into.
On March 15, 2015, the Company entered into a loan agreement with Israeli citizens, pursuant to which the Company borrowed $220,000 and agreed to issue 3,000,000 shares. The Company received only $200,000 with $20,000 being deducted from the amount of cash transferred to the Company. This note bears no interest and is payable in full as soon as we receive any cash proceeds from our Charlotte, Rhode Island or Italian projects and, if no such cash proceeds are received, then by no later than December 25, 2015. The Company’s obligations under this note are personally guaranteed by Shlomi Palas, the Company’s chief executive officer.
On March 25, 2015, the Company entered into a loan agreement with Valter Team, Ltd., an Israeli company, pursuant to which, the Company borrowed $68,750 and agreed to issue 250,000 restricted shares. The Company received only $62,500 with $6,250 being deducted from the amount of cash transferred to the Company. This note bears no interest and is payable in full as soon as we receive any cash proceeds from our Charlotte, Rhode Island or Italian projects and, if no such cash proceeds are received, then by no later than December 25, 2015. The Company’s obligations under this note are personally guaranteed by Shlomi Palas, the Company’s chief executive officer
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NOTE 10 – SUBSEQUENT EVENTS:
During April and May 2015the Company issued 11,055,732 shares of common stock in respect of the conversion of notes.
During April 2015 the Company issued 1,875,000 under its Global Share Incentive Plan (2010) as detailed in note 7 above.
On April 8, 2015, the Company entered into and signed the Orbit Energy Rhode Island, LLC Membership Interest Purchase Agreement by and among Seller, Rhode Island Energy Partners, LLC, a Delaware limited liability company (“Buyer”) and Project LLC (the “New OERI Purchase Agreement”) pursuant to which (i) Buyer purchased all of Seller’s right, title and interest in and to the membership interests of Project LLC (the “Interests”), (ii) Seller abandoned all economic and ownership interest in the Interests in favor of Buyer, (iii) Seller ceased to be a member of Project LLC and (iv) admitted Buyer as the sole member of Project LLC. Subject to the satisfaction of certain conditions precedent by Seller, BSC agreed to be responsible for all costs of evaluating and incorporating Seller’s high solids anaerobic digestion technology consisting of a proprietary process that uses an anaerobic digester design developed by the U.S. Department of Energy and subsequently modified by Seller in combination with the proprietary bacteria to be supplied by Seller (the “Technology”) and two high solids anaerobic digester units designed by Seller (the “HSAD Units”) in the Project up to a total maximum capacity of 75 tons per day, including both direct and indirect costs, all payments to be made to Seller and all increased costs, expenses and any damages incurred in connection with the design, installation, integration, operation and maintenance of the Technology incorporated into the Project.
BSC further acknowledged in the New OERI Purchase Agreement its continuing responsibility to (i) pay Orbit an amount equal to thirty percent (30%) of the Project’s distributable cash flow after BSC and the party(ies) making an equity investment in the Project fully recoup their respective investment in the Project (such investment(s) to be calculated solely as amounts expended in and for the construction of the Project) and the Project achieves a thirty (30%) percent internal rate of return, which, for the avoidance of doubt, will take into account and be computed on the basis of any and all benefits from tax credits, depreciation and other incentives of any nature and an annual management fee of $187,500 and (ii) to enter into an operation agreement with Orbit in respect of the HSAD Units to be integrated into the Project.
Development and Indemnification Agreement
On April 8, 2015, the Company, Buyer and York Renewable Energy Partners LLC (“York”) entered into a development and indemnification agreement (the “D and I Agreement”) pursuant to which in consideration of the representations and warranties regarding Project LLC, its assets and liabilities and the Project and the covenants of BSC set forth therein, Buyer agreed to pay to BSC $1,481,900 and issue 2,275 Series B units (“Series B Units”) to BSC and 7,725 Series A Units (“Series A Units”) to York, such that York will be a member of Buyer holding 7,725 Series A units representing 77.25% of the limited liability company interests of Buyer and BSC was admitted as a member of Buyer holding 2,275 Series B units representing 22.75% of the limited liability company interests of Buyer in accordance with the terms of an amended and restated limited liability company agreement of Buyer.
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On April 8, 2015, the Company and York entered into an amended and restated limited liability company operating agreement (the “Rhode Island LLC Agreement”) to establish two new classes of limited liability company interests represented by Series A units and Series B units, admit BSC as a 22.75% member of Buyer (as disclosed above) with BSC’s right to receive distributions from Buyer being subject to certain priorities in favor of York and pay to BSC three equal installments of $562,500 upon (i) signing the D and I Agreement (which amount was part of the $1,541,900 received by BSC, as mentioned above), (ii) on the later of (1) the date of “Mechanical Completion” (as defined in the Amended and Restated Agreement for the Design, Construction and Delivery of a Biogas Plant between Auspark LLC and Project LLC, dated April 8, 2015, with respect to the Project) or (2) the date on which the fully-executed, final Interconnection Agreement between Project LLC and National Grid, including receipt of any regulatory approvals as may be necessary from the Rhode Island Public Utility Commission, is delivered to Project LLC and (ii) commercial operation of the Project. Buyer shall be managed by a board of Managers initially consisting of three managers (the “Board”). So long as York owns more than 50% of the membership interest of Buyer, York shall be entitled to appoint two of the Board’s three managers. So long as BSC owns no less than 11.375% of the membership interests in Buyer, BSC shall be entitled to appoint one manager. In the event that the Board determines in good faith that equity capital in addition to the initial Project budget is needed by Buyer and is in the best interests of the Project, the Board shall, in good faith, determine the amount of additional capital needed and issue new units to raise the necessary funds. In this case, BSC’s percentage interest in Buyer shall be reduced accordingly. There are also certain restrictions on BSC’s right to transfer its membership interests to third-parties.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our financial statements and related notes contained in Part I, Item 1 of this report.
Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, without limitation, (i) uncertainties regarding our ability to obtain adequate financing on a timely basis including financing for specific projects, (ii) the financial and operating performance of any of our projects, (iii) uncertainties regarding the market for and value of carbon credits and other environmental attributes, (iv) political and governmental risks associated with the countries in which we may operate, (v) unanticipated delays associated with project implementation including designing, constructing and equipping projects, as well as delays in obtaining required government permits and approvals, (vi) the development stage of our business and (vii) our lack of operating history.
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.
Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Company Overview
Summary of Current Operations
We are a project integrator in the clean energy production and organics to energy markets. We aspire to become a key player in these global markets, working with enterprises with clean energy, organics to energy and related by-product potential to generate clean energy, soil amendments, compost and other by-products. We believe that these markets have tremendous potential insofar as there is a virtually endless supply of waste and organic material that can be used to generate power and valuable by-products. Not only is there a virtually endless supply of waste and organic material, but in most, if not all cases, disposing of such waste and material in most parts of the world today is a costly problem with an environmentally-damaging solution, such as landfilling. We seek to offer a cost-effective, environmentally-safe alternative.
We are currently focusing on (i) 11 projects in various stages of development, for which we have signed either agreements, letters of intent or memoranda of understanding to own and implement such projects, and (ii) a recently acquired fast charging battery technology.
Projects
United States
· | Charlotte, NC Waste to Energy Anaerobic Digester (under construction with commercial operation expected in the fourth quarter of 2015) |
· | Johnston, RI Waste to Energy Anaerobic Digester (under construction with commercial operation expected in the fourth quarter of 2015) |
· | Middleborough, MA Waste to Energy Anaerobic Digester |
Italy
· | Soc. agr. AGRICERERE srl – Tromello (Pavia) |
· | Soc. agr. AGRIELEKTRA srl – Alagna (Pavia) |
· | Soc. agr. AGRISORSE srl - Garlasco (Pavia) |
· | Soc. agr. GEFA srl – Dorno (Pavia) |
· | Soc. agr. SAMMARTEIN srl – San Martino in Rio (Reggio Emilia) |
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· | Soc. agr. ER srl – Aprilia (Latina) |
· | Soc. agr. BIOENERGIE SRL – Aprilia (Latina) |
Israel
· | Ramat Chovav Waste to Energy Anaerobic Digester |
Results of Operations – For the Three Months Ended March 31, 2015 Compared to the three Months Ended March 31, 2014
Revenue
As at March 31, 2015, we had recorded no revenue since inception.
General and administrative expenses
General and administrative expenses for the three-month period ended March 31, 2015 were $993,000 as compared to $1,309,000 for the three-month period ended March 31, 2014. The decrease is mainly attributable to development fees and reimbursements in the amount of $1,586,000, received in respect of our North Carolina project somewhat offset by share-based compensation expenses for employees and service providers and by our continuous investment and development expenses incurred in connection with our North Carolina and Rhode Island projects.
Net Loss
We incurred a net loss of $1,812,000 for the three-month period ended March 31, 2015, as compared to a net loss of $1,353,000 for the three-month period ended March 31, 2014. We anticipate losses in future periods. The increase is mainly attributable to the increase in financial expenses mainly attributed to the amortization expenses in respect of the beneficial conversion feature embedded in debentures issued by the Company and our continuous investment and development expenses incurred in connection with our North Carolina and Rhode Island projects somewhat offset by development fees and reimbursements in the amount of $1,586,000, received in respect of our North Carolina project.
Inflation
Our results of operations have not been materially affected by inflation and management does not expect that inflation risk would cause material impact on its operations in the future.
Seasonality
Our results of operations are not materially affected by seasonality and we do not expect seasonality to cause any material impact on our operations in the near future.
Results of Operations – For the Six Months Ended March 31, 2015 Compared to the Six Months Ended March 31, 2014
Revenue
As at March 31, 2015, we had recorded no revenue since inception.
General and administrative expenses
General and administrative expenses for the six-month period ended March 31, 2015 were $1,820,000 as compared to $2,803,000 for the six-month period ended March 31, 2014. The decrease is mainly attributable to development fees and reimbursements in the amount of $1,586,000, received in respect of our North Carolina project somewhat offset by share-based compensation expenses for employees and service providers and by our continuous investment and development expenses incurred in connection with our North Carolina and Rhode Island projects.
Net Loss
We incurred a net loss of $3,125,000 for the six-month period ended March 31, 2015, as compared to a net loss of $2,884,000 for the six-month period ended March 31, 2014. We anticipate losses in future periods. The increase is mainly attributable to the increase in financial expenses mainly attributed to the amortization expenses in respect of the beneficial conversion feature embedded in debentures issued by the Company and our continuous investment and development expenses incurred in connection with our North Carolina and Rhode Island projects somewhat offset by development fees and reimbursements in the amount of $1,586,000, received in respect of our North Carolina project.
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Inflation
Our results of operations have not been materially affected by inflation and management does not expect that inflation risk would cause material impact on its operations in the future.
Seasonality
Our results of operations are not materially affected by seasonality and we do not expect seasonality to cause any material impact on our operations in the near future.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements. No new accounting standards have been adopted since the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014 was filed.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
As at March 31, 2015, we had cash of $374,000, as compared to $14,000 as of March 31, 2014. As at March 31, 2015, we had a working capital deficit of $948,000, as compared to $1,767,000 as of March 31, 2014.
Net cash used in operating activities was $598,000 for the six–month period ended March 31, 2015, as compared to $1,672,000 for the six-month period ended March 31, 2014. Currently, operating costs exceed revenue.
Net cash flows used in investing activities was $60,000 for the six-month period ended March 31, 2014, as compared to $70,000 for the six-month period ended March 31, 2014.
Net cash flows provided by financing activities was $734,000 for the six-month period ended March 31, 2015, as compared to $1,710,000 for the six-month period ended March 31, 2014. The decrease in cash provided by financing activities was due to an decrease in equity financing for cash somewhat offset by an increase in the financing from issuance of convertible debenture and loans received from third-parties. Until the quarter ended March 31, 2015 we had principally financed our operations through the sale of our common stock and the issuance of debt.
The opinion of our independent registered public accounting firm on our audited financial statements as of and for the year ended September 30, 2014 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future sales.—to be discussed with the auditors
Management anticipates that existing cash resources will be sufficient to fund our planned operations and project investment through the end of calendar year 2015. We estimate that, in order to fund our continued existence through the end of calendar year 2015, we will require $3,110,705 in cash. This includes up to approximately $430,000 (based on today’s exchange rate from Euro to U.S. dollars) we may have to invest in the implementation of our first seven projects in Italy.
To-date, we have arranged all required financing for our projects from third-parties. The Italian projects, if consummated, will be the first projects in which we will invest our own funds in the purchase thereof. Otherwise, although no assurance can be offered, we intend to finance all other projects through third-parties. There is no assurance that we will be successful in financing our projects.
Although we have started booking revenue and have sufficient funds through the end of calendar year 2015, we are still seeking to raise additional funds for future operations and possible project investment and any meaningful equity or convertible debt financing will likely result in significant dilution to our existing shareholders. There is no assurance that additional funds will be available on terms acceptable to us, or at all.
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Off-Balance Sheet Arrangements
As at March 31, 2015, we had no off-balance sheet arrangements of any nature.
Market Risk and Contingent Liabilities
We are seeking to operate outside of the United States, making us susceptible to changes in the economic, political, and social conditions therein. The world has experienced political, economic and social uncertainty in recent years, including an economic crisis characterized by increased inflation, high domestic interest rates, in some cases, negative economic growth, reduced consumer purchasing power and high unemployment. Currently, many countries have been pursuing economic stabilization policies, including the encouragement of foreign trade and investment and other reforms. In the last year, there was an overall improvement in the world (and, consequently, developing world) economic environment. Nevertheless, no assurance can be given that the countries in which we currently or will operate will continue to pursue these policies, that these policies will be successful if pursued or that these policies will not be significantly altered. In case of a decline in the world economy, political or social problems or a reversal of foreign investment policies, it is likely that any such change will have an adverse effect on our results of operations and financial condition. Additionally, inflation may lead to higher wages and salaries for local employees and increases in the cost of materials, which would adversely affect the Company’s profitability.
Risks inherent in foreign operations include nationalization, war, terrorism, and other political risks and risks of increases in foreign taxes or changes in U.S. tax treatment of foreign taxes paid and the imposition of foreign government royalties and fees.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and the Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the six-months ended March 31, 2015. Based upon that evaluation, the Company’s CEO and CFO concluded that, as of the end of such periods, the Company’s disclosure controls and procedures were not effective as of March 31, 2015, due to the material weakness noted below, in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Material weakness: Due to limited manpower, the Company did not have sufficient segregation of duties to support its internal control over financial reporting and lacked multiple levels of transaction review.
Management is in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed has been recorded, processed, summarized and reported accurately. Our management acknowledges the existence of this issue, and intends to develop procedures to address it to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner, or that they will be adequate once implemented.
Changes in Internal Controls
Our management, with the participation our CEO and CFO, performed an evaluation to determine whether any change in our internal controls over financial reporting occurred during the six month period ended March 31, 2015. Based on that evaluation, our CEO and our CFO concluded that, except for the formation of an internal control committee consisting of our CFO and general counsel on March 1, 2015 which is to receive copies of all agreements to be signed by the Company, no change occurred in the Company’s internal controls over financial reporting during the quarter ended March 31, 2015, that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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None.
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 12, 2015, we issued a 10% convertible promissory note to an accredited investor in an aggregate principal amount of $220,000. The aggregate initial purchase price was $55,000, including $5,000 of original issue discount, insofar as the initial aggregate purchase amount was only $60,000. This note matures one-year from the date of issuance at the full initial principal amount of $60,000. This note may generally be converted into shares of our common stock at a conversion price of 45% discount to our lowest trade or closing prices during periods in proximity to the time of conversion subject to further discounts in the case of certain events of default. The investor reserves the right to pay additional consideration at any time and in any amount it desires, up to the total face value of this Note, at its sole discretion. The principal sum (including the prorated amount of the original issue discount) owed by the Company shall be prorated to the amount of consideration paid by the investor and only the consideration received by the Company, plus prorated interest and other fees and prorated original issue discount, shall be deemed owed by the Company. The original issue discount is set at 10% of any consideration paid. The Company is not responsible to repay any unfunded portion of such note.
The note includes customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment. In addition, it shall constitute an event of default under the note if we are delinquent in our filings with the Securities and Exchange Commission, cease to be quoted on the OTCQB, or our common stock is not DWAC or DTC eligible. In the event of an event of default the notes may become immediately due and payable at a premium to the outstanding principal. The note also provides that if shares issuable upon conversion of the note are not timely delivered in accordance with the terms of the note then we shall be subject to certain cash penalties that increase proportionally to the duration of the delinquency.
On January 12, 2015, we issued an 8% convertible promissory note to an accredited investor in an aggregate principal amount of $140,400 for an aggregate purchase price of $130,000, including $14,400 of original issue discount. This note matures one-year from the date of issuance at the full principal amount of $140,400. This note may generally be converted into shares of our common stock at a conversion price of a 42% discount to our lowest trade or closing prices during periods in proximity to the time of conversion subject to further discounts in the case of certain events of default.
The note includes customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment. In addition, it shall constitute an event of default under the note if we are delinquent in our filings with the Securities and Exchange Commission, cease to be quoted on the OTCQB, or our common stock is not DWAC or DTC eligible. In the event of an event of default the notes may become immediately due and payable at a premium to the outstanding principal. The note also provides that if shares issuable upon conversion of the note are not timely delivered in accordance with the terms of the note then we shall be subject to certain cash penalties that increase proportionally to the duration of the delinquency.
On March 25, 2015, we entered into a loan agreement with Valter Team, Ltd., an Israeli company, pursuant to which we borrowed $68,750 and agreed to issue 250,000 restricted shares. We received only $62,500 with $6,250 being deducted from the amount of cash transferred to us. This note bears no interest and is payable in full as soon a we receive any cash proceeds from our Charlotte, Rhode Island or Italian projects and, if no such cash proceeds are received, then by no later than December 25, 2015. The Company’s obligations under this note are personally guaranteed by Shlomi Palas, the Company’s chief executive officer. This was paid in full in April 2015.
On March 15, 2015, the Company entered into a loan agreement with non-US persons, pursuant to which, the Company borrowed $220,000 and agreed to issue 3,250,000 shares. The Company received only $200,000 with $20,000 being deducted from the amount of cash transferred to the Company. This note bears no interest and is payable in full as soon as we receive any cash proceeds from our Charlotte, Rhode Island or Italian projects and, if no such cash proceeds are received, then by no later than December 25, 2015. The Company’s obligations under this note are personally guaranteed by Shlomi Palas, the Company’s chief executive officer.
On April 13, 2015, we entered into a subscription agreement with a non-US person pursuant to which we issued such person 416,667 shares of common stock in exchange for $25,000 in a transaction not involving a public offering.
On April 14, 2015, we entered into a subscription agreement with a non-US person pursuant to which we agreed to issue such person 3,000,000 shares of common stock in exchange for $150,000 to be issued in tranches against receipt of cash in a transaction not involving a public offering.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
On February 24, 2015, we adopted a new global share and options incentive plan that supersedes our former plan (the “Plan”). Subject to the other conditions of the Plan, the Board of Directors of the Company has full authority in its discretion, from time to time and at any time, to determine (i) eligible participants, (ii) the number of options or shares to be covered by each award, (iii) the time or times at which the award shall be granted, (iv) the vesting schedule and other terms and conditions applying to awards, (v) the form(s) of written agreements applying to awards, and (vi) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan and the granting of awards. A copy of such plan is attached hereto as Exhibit 10.10.
Subsequent Events Disclosure
By way of background, on January 7, 2015, Blue Sphere Corporation (“BSC”) and Orbit Energy, Inc., a North Carolina corporation (“Seller”), entered into and signed an amended and restated purchase agreement pursuant to which BSC purchased all of Seller’s right, title and interest in, to and under Orbit Energy Rhode Island, LLC, a Rhode Island limited liability company (“Project LLC”) subject to the payment of $300,000 (the “Development Fee”) and $86,432 in reimbursement of expenses by no later than February 28, 2015, which was extended until immediately prior to the closing of the Project LLC Purchase Agreement (as defined below). BSC did not pay Seller the Development Fee by February 28, 2015 or prior to the closing of the Project LLC Purchase Agreement and, as such, ownership of Project LLC reverted back to Seller.
On April 8, 2015, BSC entered into and signed the Orbit Energy Rhode Island, LLC Membership Interest Purchase Agreement by and among Seller, Rhode Island Energy Partners, LLC, a Delaware limited liability company (“Buyer”) and Project LLC (the “New OERI Purchase Agreement”) pursuant to which (i) Buyer purchased all of Seller’s right, title and interest in and to the membership interests of Project LLC (the “Interests”), (ii) Seller abandoned all economic and ownership interest in the Interests in favor of Buyer, (iii) Seller ceased to be a member of Project LLC and (iv) admitted Buyer as the sole member of Project LLC. Subject to the satisfaction of certain conditions precedent by Seller, BSC agreed to be responsible for all costs of evaluating and incorporating Seller’s high solids anaerobic digestion technology consisting of a proprietary process that uses an anaerobic digester design developed by the U.S. Department of Energy and subsequently modified by Seller in combination with the proprietary bacteria to be supplied by Seller (the “Technology”) and two high solids anaerobic digester units designed by Seller (the “HSAD Units”) in the Project up to a total maximum capacity of 75 tons per day, including both direct and indirect costs, all payments to be made to Seller and all increased costs, expenses and any damages incurred in connection with the design, installation, integration, operation and maintenance of the Technology incorporated into the Project.
BSC further acknowledged in the New OERI Purchase Agreement its continuing responsibility to (i) pay Orbit an amount equal to thirty percent (30%) of the Project’s distributable cash flow after BSC and the party(ies) making an equity investment in the Project fully recoup their respective investment in the Project (such investment(s) to be calculated solely as amounts expended in and for the construction of the Project) and the Project achieves a thirty (30%) percent internal rate of return, which, for the avoidance of doubt, will take into account and be computed on the basis of any and all benefits from tax credits, depreciation and other incentives of any nature and an annual management fee of $187,500 and (ii) to enter into an operation agreement with Orbit in respect of the HSAD Units to be integrated into the Project.
On April 8, 2015, BSC, Buyer and York Renewable Energy Partners LLC (“York”) entered into a development and indemnification agreement (the “D and I Agreement”) pursuant to which in consideration of the representations and warranties regarding Project LLC, its assets and liabilities and the Project and the covenants of BSC set forth therein, Buyer agreed to pay to BSC $1,481,900 and issue 2,275 Series B units (“Series B Units”) to BSC and 7,725 Series A Units (“Series A Units”) to York, such that York will be a member of Buyer holding 7,725 Series A units representing 77.25% of the limited liability company interests of Buyer and BSC was admitted as a member of Buyer holding 2,275 Series B units representing 22.75% of the limited liability company interests of Buyer in accordance with the terms of an amended and restated limited liability company agreement of Buyer.
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On April 8, 2015, BSC and York entered into an amended and restated limited liability company operating agreement (the “Rhode Island LLC Agreement”) to establish two new classes of limited liability company interests represented by Series A units and Series B units, admit BSC as a 22.75% member of Buyer (as disclosed above) with BSC’s right to receive distributions from Buyer being subject to certain priorities in favor of York and pay to BSC three equal installments of $562,500 upon (i) signing the D and I Agreement (which amount was part of the $1,541,900 received by BSC, as mentioned above), (ii) on the later of (1) the date of “Mechanical Completion” (as defined in the Amended and Restated Agreement for the Design, Construction and Delivery of a Biogas Plant between Auspark LLC and Project LLC, dated April 8, 2015, with respect to the Project) or (2) the date on which the fully-executed, final Interconnection Agreement between Project LLC and National Grid, including receipt of any regulatory approvals as may be necessary from the Rhode Island Public Utility Commission, is delivered to Project LLC and (ii) commercial operation of the Project. Buyer shall be managed by a board of Managers initially consisting of three managers (the “Board”). So long as York owns more than 50% of the membership interest of Buyer, York shall be entitled to appoint two of the Board’s three managers. So long as BSC owns no less than 11.375% of the membership interests in Buyer, BSC shall be entitled to appoint one manager. In the event that the Board determines in good faith that equity capital in addition to the initial Project budget is needed by Buyer and is in the best interests of the Project, the Board shall, in good faith, determine the amount of additional capital needed and issue new units to raise the necessary funds. In this case, BSC’s percentage interest in Buyer shall be reduced accordingly. There are also certain restrictions on BSC’s right to transfer its membership interests to third-parties.
All of the foregoing was reported on our current report on Form 8-K dated April 8, 2015.
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No. | Description | |
10.1 | Orbit Energy Rhode Island Membership Interest Purchase Agreement dated April 8, 2015(1) | |
10.2 | York Renewable Energy Partners LLC Development and Indemnification Agreement dated April 8, 2015(1) | |
10.3 | Amended and Restated Rhode Island Energy Partners LLC Agreement dated April 8, 2015(1) | |
10.4 | Tangiers Investment Group, LLC 10% Note Purchase Agreement dated January 12, 2015(2) | |
10.5 | Tangiers Investment Group, LLC $60,000 Convertible Note dated January 12, 2015(2) | |
10.6 | Blue Citi, LLC Note Purchase Agreement dated January 12, 2015(2) | |
10.7 | Blue Citi, LLC 8% 140,400 Convertible Note dated January 12, 2015(2) | |
10.8 | Orbit Energy Rhode Island Letter Agreement dated January 29, 2015 (3) | |
10.9 | Ori Ackerman Loan Agreement dated March 15, 2015 | |
10.10 | Global Share and Options Incentive Enhancement Plan (2014) | |
31.1 | Rule 13a-14(a)/15d-14(a) Certifications (ii) Rule 13a-14/15d-14 Certification Chief Executive Officer | |
31.2 | Rule 13a-14(a)/15d-14(a) Certifications (ii) Rule 13a-14/15d-14 Certification Chief Financial Officer | |
32.1 | Section 1350 Certification Chief Executive Officer | |
32.2 | Section 1350 Certification Chief Financial Officer |
(1) Incorporated by reference to our current report on Form 8-K filed with the SEC on April 14, 2015.
(2) Incorporated by reference to our quarterly report on Form 10-Q filed with the SEC on February 18, 2015.
(3) Incorporated by reference to our current report on Form 8-K filed with the SEC on February 3, 2015.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.
BLUE SPHERE CORP. | ||||
By: | /s/Shlomi Palas | |||
President, Chief Executive Officer, Secretary and Director | ||||
(Principal Executive Officer) | ||||
Date: May 15, 2015 | ||||
By: | /s/ Shlomo Zaki | |||
Chief Financial Officer and Treasurer | ||||
(Principal Accounting Officer and Principal Financial Officer) | ||||
Date: May 15, 2015 |
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