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 December 31, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT

 

For the transition period from _________ to ________

 

Commission File No. 333-147716

 

 

 

Bluesphere 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 if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act of 1934.  Yes x No ¨

 

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 February 13, 2012, there were 126,775,297 shares of common stock, par value $0.001 per share, issued and outstanding.

 

 

TABLE OF CONTENTS

 

Part I – Financial Information
Item 1.  Financial Statements	2
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operation	12
Item 3. Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.  Controls and Procedures	16
Part II – Other Information
Item 1.  Legal Proceedings	18
Item 1A.  Risk Factors	18
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3. Defaults upon Senior Securities	18
Item 4. Removed and Reserved	18
Item 5.  Other Information	18
Item 6. Exhibits	18
Signatures	19

 

 

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) uncertainties regarding the market for and value of carbon credits, including carbon credits associated with industrial gases, (iii) uncertainties regarding the market for and value of renewable energy in the countries where we have the opportunity to produce it, (iv) political and governmental risks associated with the foreign countries in which we operate, (v) unanticipated delays associated with project implementation including designing, constructing and equipping projects, as well as delays in obtaining required host country and United Nations 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.

 

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., unless the context clearly requires otherwise.

 

 

ITEM 1. FINANCIAL STATEMENTS

  

BLUE SPHERE CORP.

(A development stage company)

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2011

 

 

BLUE SPHERE CORP.

(A development stage company)

 

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2011

IN U.S. DOLLARS

 

UNAUDITED

 

TABLE OF CONTENTS

 

	Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 2011 and September 30, 2011	4
Statements of operations for the three months ended December 31, 2011 and 2010; and for the period from July 17, 2007 through December 31, 2011	5
Statements of changes in stockholders' deficit for the period of three months ended December 31, 2011; and for the period from July 17, 2007 through September 30, 2011	6
Statements of cash flows for the three months ended December 31, 2011 and 2010; and for the period from July 17, 2007 through December 31, 2011	7
Notes to interim financial statements	8 - 11

 

 

BLUE SPHERE CORP.

(A development stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands except share and per share data)

		December 31,				September 30,
		2011				2011
		Unaudited				Audited
Assets
CURRENT ASSETS:
Cash and cash equivalents		$	7			$	50
Other current assets			44				17
Total current assets			51				67
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation			8				9
Total assets		$	59			$	76
Liabilities and Stockholders’ Equity (Deficit)
CURRENT LIABILITIES:
Accounts payables		$	10			$	9
Other accounts payable			251				163
Asher Capital - Debenture			79				45
Total current liabilities			340				217
STOCKHOLDERS' DEFICIT:
Common shares of $0.001 par value each:
Authorized: 1,750,000,000 shares at December 31, 2011 and September 30, 2011,   Issued and outstanding: 120,825,297 shares and 116,725,297 shares at December 31, 2011 and September 30, 2011, respectively			121				117
Additional paid-in capital			24,321				22,670
Accumulated deficit during the development stage			(24,723	)			(22,928	)
Total Stockholders’ Equity (Deficit)			(281	)			(141	)
Total liabilities and Stockholders’ Equity (Deficit)		$	59			$	76

 

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

 

 

BLUE SPHERE CORP.

(A development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands except share and per share data)

 

										Cumulative
										from July 17,
		Three months ended								2007 through
		December 31								December 31,
		2011				2010				2011
		(Unaudited)								Unaudited
OPERATING EXPENSES -
General and administrative expenses *		$	1,792			$	2,581			$	24,719
FINANCIAL EXPENSES (INCOME), net			3				(1	)			4
NET LOSS FOR THE PERIOD		$	1,795			$	2,580			$	24,723
Net loss per common share - basic and diluted		$	(0.02	)		$	(0.04	)
Weighted average number of common shares outstanding during the period - basic and diluted			119,490,514				68,500,000

 

*

In the three months period ended December 31, 2011 and 2010 - includes $1,559 thousands and $2,338 thousands, respectively of share-based compensation.

 

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

 

 

BLUE SPHERE CORP.

(A development stage company)

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

(U.S. dollars in thousands, except share and per share data)

 

														Accumulated
														deficit
		Common Stock, $0.00001 Par Value								Additional paid-in				during the development				Total Stockholders'
		Shares				Amount				Capital				stage				Equity (deficit)
COMMON STOCK ISSUED, JULY 17, 2007 (DATE OF INCEPTION)			1,900,000			$	2			$	67			$	-			$	69
CHANGES DURING THE PERIOD FROM JULY 17,2007 THROUGH DECEMBER 31, 2011 (audited):
Issuance of common stock			471,948				-				198				-				198
Share split of 35:1			64,600,000				65				(65	)			-				-
Common stock issued as direct offering costs			2,000,000				2				995				-				997
Share based compensation			16,025,609				16				16,105				-				16,121
Exercise of Options			8,321,917				8				-				-				8
Issuance of shares for services			23,405,823				24				5,370				-				5,394
Net loss for the period			-				-				-				(22,928	)			(22,928	)
BALANCE AT SEPTEMBER 30, 2011 (audited)			116,725,297			$	117			$	22,670			$	(22,928	)		$	(141	)
CHANGES DURING THE PERIOD OF THREE MONTHS ENDED DECEMBER 31, 2011 (unaudited):
Share based compensation			-				-				1,559				-				1,559
Issuance of common stock			525,000				1				19				-				20
Issuance of shares for services			3,575,000				3				73								76
Net loss for the period			-				-				-				(1,795	)			(1,795	)
BALANCE AT DECEMBER 31, 2011 (Unaudited)			120,825,297			$	121			$	24,321			$	(24,723	)		$	(281	)

 

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

 

 

BLUE SPHERE CORP.

(A development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

										For the period
										From July 17,
		Three months ended								2007 through
		December 31								December 31,
		2011				2010				2011
		(Unaudited)								(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit (Net loss) for the period		$	(1,795	)		$	(2,580	)		$	(24,723	)
Adjustments required to reconcile net loss to net cash used in operating activities:
Share based compensation expenses			1,559				2,338				17,680
Depreciation			1				-				1
Expenses  in respect of the Asher Capital debentures			1				-				1
Issuance of shares for services			76				-				5,470
Decrease (increase) in other current assets			(27	)			11				(44	)
Increase in accounts payables			1				(23	)			10
Increase in other account payables			88				1				251
Net cash used in operating activities			(96	)			(253	)			(1,354	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchasing of fixed assets			-				-				(9	)
Net cash used in investing activities			-				-				(9	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from options exercise			-				-				8
Proceeds from issuance of convertible debenture			33				-				78
Proceeds from stock issued for cash			20				-				1,284
Net cash provided by financing activities			53				-				1,370
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(43	)			(253	)			7
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			50				355				-
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	7			$	102			$	7

 

The accompanying notes are an integral part of the consolidated financial statement

 

 

BLUE SPHERE CORP.

(A development stage company)

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, 2011, as filed with the Securities and Exchange Commission. The results of operations for the three months ended December 31, 2011 are not necessarily indicative of results that could be expected for the entire fiscal year.

  

NOTE 2 - GENERAL

 

a.

The Company was incorporated in the state of Nevada on July 17, 2007 and was 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 Greenhouse Gas (GHG) emission reduction, .The Company seek to generate revenue through sales of carbon credits, energy generation, project development and sale of byproducts.

 

The Company offers potential partners (owners of: landfills, coal mines, fertilizer factories, etc) a kind of turnkey operation in dealing with the emission reduction. The Company service consists of: executing the process needed in order to make the project eligible for carbon credits, choosing the most suitable technology to be applied, arranging for the financing, constructing and managing the project for its life. We operate primarily in countries from the former Soviet Union, China and the USA.

 

On September 16, 2011, we signed a securities purchase agreement with Asher Enterprises, Inc., a Delaware corporation with a head office in New York (“Asher”), pursuant to which Asher purchased an aggregate amount of U.S. $45,000 of our 8% convertible notes (the “Notes”). The Notes are convertible into shares of common stock of the Company from time to time, and at any time, beginning March 14, 2012 and ending, absent any condition of default, on June 14, 2012, subject to the limitations and conditions set forth in the Notes. The Company has the right to prepay the Note under the certain conditions for 180 days following the issue date. On November 21, 2011 Asher purchased additional Note for an aggregate amount of U.S. $32,500 of our 8% convertible notes.

 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 3 - INTERIM FINANCIAL STATEMENTS

 

The accompanying unaudited interim consolidated financial statements as of December 31, 2011 and for the three 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 three months ended December 31, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2012.

 

The September 30, 2011 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, 2011.

 

NOTE 4 – SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies applied in the annual financial statements of the Company as of September 30, 2011, 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 December 31, 2011, the Company had approximately $7 thousand in cash and cash equivalents, approximately $289 thousand in negative working capital, a stockholders’ deficit of approximately $281 thousand and an accumulated deficit during development stage of approximately $24,723 thousand. Management anticipates that 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.

 

 

BLUE SPHERE CORP.

(A development stage company)

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, 2011 was filed.

 

NOTE 7 – COMMON SHARES:

 

On November 3, 2011, the Company entered into a consulting agreement with He Mu for business development and project management in China in exchange for 3,000,000 shares of common stock (the "Shares").  The Shares are restricted for thirty-six (36) months following their issuance and are being held in Escrow for the entire thirty-six (36) month restricted period. The escrowed shares are subject to a claw-back provision so that if the agreement is terminated for any reason prior to the completion of 36 months, the amount of 83,333 shares will be returned to the Company for each month of such early termination.

 

During October 2011, the Company issued 525,000 common shares of the Company to an investor for total consideration of $20 Thousand.

 

On May 22, 2011, the Company and Bluebird Finance & Projects Ltd ("Bluebird") entered into a financing consulting services agreement according to which Bluebird will assist the Company with evaluating potential projects, review agreements, search for potential financing parties, accompany the Company in financing activities, etc. The agreement shall be valid for a period of 24 months and can be terminated by either party subject to a written notice of 60 days in advance. In consideration for Bluebird services, the Company will pay a monthly retainer fee of 15,000 common shares of the Company. In addition, the Company shall pay Bluebird a success fee of 2% for each executed financing round with a minimum of $50 thousand. During the quarter ended December 31, 2011 the Company issued 75,000 common shares in respect of the above agreement.

 

On October 11, 2011, the Company and Bluebird signed an amendment for the May 22, 2011 agreement according to it, in order to incentivize Bluebird to expand and enhance its efforts on behalf of the Blue Sphere, the Company shall issue the Bluebird (1) additional 500,000 common shares of the company upon signing of the amendment to the agreement (2) additional 500,000 common shares upon receipt of an investment or debt of at least $5,000 thousands and (3) additional 500,000 common shares upon receipt of an additional investment or debt of at least $5,000 thousands (total amount received of $10,000 thousand). During the period ended December 31, 2011 the Company issued to Bluebird 500,000 common shares under the above amendment to the agreement. The shares to be issued under the above amendment would be restricted for a period of 12 months from the date of issuance.

 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 8 – SUBSEQUENT EVENTS:

 

On January 5, 2012, the Company approved the issuance of 1,250,000 common shares of the Company to an investor for total consideration of $35 Thousand. The consideration for the shares has not yet been received to the date of the approval of the financial statements.

 

On February 1, 2012 the Company approved the grant of 1,600,000 common shares of the Company for each of its Chief Executive Officer and the Chairman of the Board. In addition, the Company approved the grant of 500,000 common shares of the Company for its Chief Carbon Officer and general counsel.

 

On February 6, 2012 the Company decided to appoint Mr. Joshua Shoham as a director and to issue him 2,000,000 common shares of the Company.

 

  

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

Corporate History

 

We were incorporated in Nevada in July 2007 under the name Jin Jie Corp.  Prior to the second quarter of fiscal 2010 we were engaged in the business of developing and promoting automotive internet websites.  That business generated no revenue and accumulated a deficit of approximately $64,000.  During the second quarter of 2010, we changed our business model to our current business. In connection with such change, we took the following actions: (i) effective February 17, 2010, we changed our name to our current name by merging into our company a wholly-owned subsidiary formed for that purpose; (ii) effective February 17, 2010, we effected a 35-for-1 forward split of our authorized, issued, and outstanding common stock, increasing our authorized common stock from 50,000,000 shares to 1,750,000,000 shares and increasing our outstanding common stock from 1,900,000 shares to 66,500,000 shares;(iii) effective February 26, 2010, certain former shareholders of our company sold an aggregate of 34,800,000 shares of our common stock held by them, representing approximately 38% of our then outstanding stock, to new investors for an aggregate purchase price of $34,800; and, (iv) effective March 3, 2010, we entered into employment agreements with Shlomo Palas, our CEO, and Eliezer Weinberg.  Mssrs. Palas and Weinberg were each granted two-year time-vested stock options to purchase 8,321,917 shares of common stock, representing 9% of our then outstanding shares, at an exercise price of $.001 per share.

 

On March 3, 2010, Mssrs. Palas and Weinberg were elected as members of our board of directors, with Mr. Weinberg being elected as non-executive Chairman.  In April and May 2010, the remaining management and board members of our company prior to the change of business resigned. On October 25, 2010, we appointed Mark Radom as our Chief Carbon Officer. Mr. Radom serves in this capacity on a full-time basis. Mr. Radom is receives a monthly salary of U.S. $7,000 and is entitled to receive five percent of the net profits of any project he introduces to the Company and two percent of the net profits of any other project the Company implements. On August 23, 2011, Mr. Radom received 4,500,000 shares of common stock of the Company. On July 28, 2011, we appointed Roy Amizur our Executive Vice-President and on August 18, 2011 we appointed Amit Zilbershtein our Chief Financial Officer. Mr. Zilbershtein resigned from the Company on January 11, 2012 and received no compensation from the Company whatsoever. On January 9, 2012, we appointed Shlomo Zakai as our new chief financial officer on a non-exclusive basis. Mr. Zakai is entitled to receive NIS 220 per hour for the work he performs for the Company. Mr. Amizur is entitled to receive U.S. $10,000 plus VAT per month after he arranges an investment of no less than U.S. $450,000 in the Company and U.S. $15,000 plus VAT per month after he arranges an equity investment in the Company of no less than U.S. $2,000,000. Mr. Amizur has also received 12,500,000 shares of common stock of the Company. If Mr. Amizur resigns from the Company prior to July 25, 2013, he will forfeit a pro rata portion of his shares back to the Company (the amount subject to forfeiture being equal to the number of days, which Mr. Amizur did not serve as Executive Vice-President out of the two year term of his management services agreement. Mr. Amizur also received 1,075,000 shares of common stock on August 23, 2011 as a bonus, which are not subject to any forfeiture. In November 2011, we entered into an agreement with our former chief financial officer, Alex Werber, to assist us with the preparation of our annual report on Form 10K, which was filed on January 3, 2012. Mr. Werber is no longer be assisting the Company in any capacity. On August 31, 2011, our chief operating officer resigned from the Company and, in this connection, converted his unpaid compensation plus a bonus of 10% thereof into shares of the Company. We have four full-time employees–our non-executive chairman (who is not an officer of the Company, but has an employment agreement nonetheless), our chief executive officer, our executive vice-president and our chief carbon officer and four part-time employees – our chief financial officer, an office manager, a book-keeper and a representative in China, who assists us in identifying projects in China. In November 2011, we issued our Chinese representative 3,000,000 shares of common stock in exchange for project introduction and management services to be performed over the course of three years. We have employment agreements with our non-executive chairman and our chief executive officer and a consulting agreement with our chief carbon officer. We have no other employment or similar agreements with any of our employees.

 

 

Summary of Current Operations

 

Bluesphere has current and potential operations in two areas: (i) renewable energy generation and (ii) carbon credit projects. Altogether, we have six signed projects and a pipeline of several other projects that are in various stages of negotiation.

 

Renewable Energy Generation

 

Five of our six signed project agreements have renewable energy potential and we are separately evaluating other non-carbon credit projects or projects with low volumes of carbon credits for renewable energy generation. As with our carbon credit projects, we are currently evaluating the renewable energy component of each project to determine its optimal method of implementation, identifying suitable experts to assist us in project implementation and arranging necessary financing. We are also continuing to pursue and sign new projects with renewable energy potential.

 

Carbon Credit Projects

 

We have six signed agreements to implement carbon credit projects and are currently evaluating each project to determine its optimal method of implementation, identifying suitable experts to assist us in project implementation and arranging necessary financing. We are also continuing to pursue and sign new carbon credit projects with high volume potential.

 

On July 10, we signed a joint venture agreement with BPure Environmental Improvement Group, Ltd. (“BPure”), an experienced project management Israeli company specializing in green development projects, to finance the entire capital and manage the equipment, procurement and construction work required to implement two (2) or our landfill projects in Ghana, Africa: (i) the Oti Sanitary Landfill in Kumasi and (ii) either the Oblogo/Mallam Waste Disposal Site in Accra or the Sofokrom Landfill site in Takoradi. Under the terms of the agreement, we will open a special purpose company to implement the projects of which we shall be equal owners, but BPure will be entitled to recoup 100% of its investment before we will be entitled to any dividends or distributions.

 

In October 2011, we signed a cooperation agreement with Pacific Portland Capital (“PPC”) pursuant to which PPC will source projects at its own expense for us in the United States and elsewhere and assist us in implementing and operating such projects in exchange for an ownership stake in such projects (the size of which will depend on the extent to which PPC participates in the implementation and operation of such projects).

 

In November 2011, we signed a project agreement with the Takoradi-Sekondi Metropolitan Assembly and JSO to implement a landfill gas extraction and power production project at the Sofokrom Sanitary Landfill in Takoradi, Ghana under the rubric of the CDM of the KP. This project is eligible to receive carbon credits under the CDM of the KP and has renewable energy, compost and by-product potential.

 

On December 14, 2011, we filed a registration statement on Form S-1 with the Securities Exchange Commission to register the resale of approximately 12.8 million shares of common stock Blue Sphere may issue to Centurion Private Equity, LLC (“Centurion”) pursuant to the terms of its $20 million equity line of credit (“Equity Facility”) opened in August 2011 with Centurion. We expect this registration statement to be declared effective in the first calendar quarter of 2012.

 

We performed a pump test on January 12, 2012 at our Oti Landfill site in Kumasi, Ghana, the results of which were satisfactory to us and BPure.

 

On January 18, 2012, Puresphere Limited, our joint venture with BPure (in which our stake is 50%), signed an emissions reduction purchase agreement (“ERPA”) with Vattenfall Energy Trading Netherlands N.V., a subsidiary of Vattenfall AB, a Swedish company and one of Europe’s biggest power producers (“Vattenfall”), in respect of up to nine emissions reduction projects in Ghana and Nigeria. Subject to the terms of this agreement, Vattenfall is obligated to purchase through 2020 the certified emissions reductions (“CERs”) to be received in respect of up to nine landfill sites at a discount to the market price on the date of delivery. Vattenfall has an option to purchase such CERs beyond 2020 in its discretion. Vattenfall has also committed to finance the costs of registering such landfill sites with the Executive Board (“EB”) of the Clean Development Mechanism (“CDM”) of the Kyoto Protocol in order to receive CERs. If the price per CER on the date of the first deliver thereof is less than Euro 8, then we will be obligated to reimburse Vattenfall certain of such registration costs.

 

 

Based on the results of the pump test and the execution of an ERPA with Vattenfall, we are proceeding with the registration of the project with the EB of the CDM of the Kyoto Protocol and the required field work to install gas capture and power generation equipment.

 

Results of Operations

 

Revenue

 

We have recorded no revenue since inception.

 

General and administrative expenses

 

General and administrative expenses for the three-month period ended December 31, 2011 were $1,792,000 as compared to $2,581,000 for the three-month period ended December 30, 2010. The decrease is mainly attributable to the decrease in share-based compensation for employees and service providers.

  

Net Loss

 

As a result of the above, we incurred a net loss of $1,795,000 for the three-month period ended December 31, 2011, as compared to a net loss of $2,580,000 for the three-month period ended December 31, 2010.  We anticipate losses in future periods. The decrease is mainly attributable to the decrease in share-based compensation for employees and service providers.

 

Inflation

 

Our results of operations have not been 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/A for the fiscal year ended September 30, 2011 was filed.

 

Liquidity

 

As of December 31, 2011, we had cash of $7,000 compared to $102,000 thousand as of December 31, 2010. As of December 31, 2011, we had working capital deficit of $281,000 compared to working capital of $19,000 as of December 31, 2010. Management anticipates that existing cash resources, including the proceeds of the equity placements subsequent to December 31, 2011 described below will not be sufficient to fund our planned operations during the next 12 months. We estimate that, in order to fund our continued existence, we will require $1,000,000 in cash over the next 12 months. This does not include amounts we will have to invest in the implementation of our projects. Assuming we finance each project with 20% equity and 80% debt, we will require approximately $11,000,000 in additional capital to make equity investments in each of our projects. There is no assurance that we will be successful in financing our projects with 20% equity and 80% debt (such amounts could be more or less) and, even if successful, there is no assurance that we will raise such capital at all or in a timely manner.

 

 

In addition to requiring capital to fund our corporate activities, the capital needs of our project development activities will be significant and will likely require equity investment on our part. As a result, we are seeking to raise additional funds and any meaningful equity financing will likely result in significant dilution to our existing shareholders. There can be no assurance that additional funds will be available on terms acceptable to us, or at all. These conditions raise substantial doubt about our ability to continue to operate as a going concern. The financial statements contained in this report do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

  

Capital Resources

 

As at December 31, 2011, we had no commitments for any capital expenditures. Based on project agreements signed to-date, we anticipate the incurrence of such commitments during the fiscal year ending December 31, 2012. We expect to fund such commitments partly with equity to be contributed by us and partly with debt to be raised from financial institutions. In order to make any equity contribution, we will be forced to raise additional funds in the form of an equity investment in us of from external investors.

 

Off-Balance Sheet Arrangements

 

As at December 31, 2011, we had no off-balance sheet arrangements of any nature.

 

Market Risk and Contingent Liabilities

 

The Company is seeking to operate largely in the developing world (such as, e.g., countries in Africa, Central Asia and Southeast Asia), making it susceptible to changes in the economic, political, and social conditions therein. The developing 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 of the countries in the developing world where we have projects 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 the Company's 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.

 

Subsequent Events

 

Our former chief financial officer, Mr. Amit Zilbershtein, resigned from the Company on January 11, 2012. On January 9, 2012, we appointed Shlomo Zakai as our new chief financial officer on a non-exclusive basis. Mr. Zakai is entitled to receive NIS 220 per hour for the work he performs for the Company. On January 5, 2012, we approved the issuance of 1,250,000 common shares of the Company to an investor for $35,000. We will deliver such shares to the investor against receipt of payment.of the $35,000 purchase price.

 

 

On February 1, 2012 we issued and granted 1,600,000 shares of our common stock to each of our Chief Executive Officer and Chairman of the Board and 500,000 shares of our common stock to our Chief Carbon Officer and general counsel, in each case, to compensate them for their extraordinary efforts to cause Vattenfall to sign the ERPA with Puresphere.

 

On February 6, 2012, we increased the number of the board members from two to three and appointed Mr. Joshua Shoham as the third member of our board of directors for a term of two years. We also granted 2,000,000 common shares of our stock to Mr. Shoham, which are subject to pro-rata forfeiture in the event that Mr. Shoham ceases to serve as director for any reason prior to the end of his two year term. Mr. Shoham will not receive any other compensation for his service as director.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable.

 

ITEM 4.  CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as at December 31, 2011. Based on such review, our chief executive officer and chief financial officer have determined that in light of their conclusion with respect to the effectiveness of our internal control over our financial reporting as of such date, we had in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (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, and is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

 

Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:

 

	£	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
	£	provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
	£	provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as on December 31, 2011 based on the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway Commission (“Treadway Commission Framework”). Management’s evaluation concluded that there were no material weaknesses with respect to segregation of duties that may not provide reasonable assurance regarding the reliability of internal control over financial reporting and may not prevent or detect misstatements.

 

Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were effective as at December 31, 2011.

 

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Commission that permit us to provide only management’s report in this Annual report.

 

On March 31, 2011, we appointed Mark Radom our internal control officer and finalized and adopted an internal control plan and policy for the Company going forward.

 

 

PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

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 October 4, 2011, we issued 200,000 shares of common stock to a private investor based in Israel for cash consideration of U.S. $10,000.

 

On October 31, 2011, we issued 325,000 shares of common stock to the same private investor in Israel for cash consideration of U.S. $10,000.

 

On September 16, 2011, we signed a securities purchase agreement with Asher Enterprises, Inc., a Delaware corporation with a head office in New York (“Asher”), pursuant to which Asher purchased an aggregate amount of U.S. $45,000 of our 8% convertible notes (the “Notes”). The Notes are convertible into shares of common stock of the Company from time to time, and at any time, beginning March 14, 2012 and ending, absent any condition of default, on June 14, 2012, subject to the limitations and conditions set forth in the Notes. The Company has the right to prepay the Note under the certain conditions for 180 days following the issue date.

 

On November 16, 2011, we signed an additional securities purchase agreement with Asher, pursuant to which Asher purchased an aggregate amount of U.S. $32,500 of our 8% convertible notes (the “Notes”). The Notes are convertible into shares of common stock of the Company from time to time, and at any time, beginning 180 days following the date of the note and ending on the complete satisfaction of the note (by payment or conversion). The Company has the right to prepay the Note under the certain conditions for 180 days following the issue date.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. REMOVED AND RESERVED

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6.  

 

No.	Description
10.1	Securities Purchase Agreement with Asher Enterprises, Inc.
10.2	Service Agreement with Shlomo Zakai
10.3	Sofokrom Landfill Project Agreement
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

 

 

SIGNATURES

 

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:  February 15, 2012
By:	/s/ Shlomo Zakai
	Chief Financial Officer and Treasurer
	(Principal Accounting Officer and Principal Financial Officer)
	Date:  February 15, 2012