News Column

BLUE SPHERE CORP. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 19, 2014

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 four projects for which we have signed agreements, term sheets or memoranda of understanding to own and implement such projects and which are in various stages of development:

United States Charlotte, NC Waste to Energy Anaerobic Digester 5.2 MW Plant Johnston, RI Waste to Energy Anaerobic Digester 3.2 MW Plant Ghana Oti Sanitary Landfill Waste to Energy 1 MW Plant Accra Transfer Station Waste to Energy Anaerobic Digester 10MW Plant Results of Operations Revenue



We have recorded no revenue since inception.

General and administrative expenses

General and administrative expenses for the nine-month period ended June 30, 2014 were $4,074,000 as compared to $1,348,000 for the nine-month period ended June 30, 2013. The increase is mainly attributable to the increase in share-based compensation for employees and service providers and our continues investment and development expenses incurred in connection with our North Carolina and Rhode Island projects.

Net Loss



As a result of the above, we incurred a net loss of $4,195,000 for the nine-month period ended June 30, 2014, as compared to a net loss of $1,456,000 for the nine-month period ended June 30, 2013. We anticipate losses in future periods. The increase is mainly attributable to the increase in share-based compensation for employees and service providers and our continuous investment and development expenses incurred in connection with our North Carolina and Rhode Island projects.

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.

20 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, 2013 was filed.

Liquidity



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 June 30, 2014, we had cash of $258,000 compared to $46,000 as of June 30, 2013. As at June 30, 2014, we had a working capital deficit of $1,325,000 compared to $703,000 as of June 30, 2013.

Net cash used in operating activities was $1,022,000 for the nine months ended June 30, 2014, compared to $730,000 for the same period ended June 30, 2013. The increase of $292,000 in cash used in operating activities was primarily due to development expenses incurred in connection with our North Carolina and Rhode Island projects. Currently operating costs exceed revenue. We have not generated any revenue to-date.

Net cash flows used in investing activities was $70,000 for the nine months ended June 30, 2014 as compared to $292,000 for the same period ended June 30, 2013. The net decrease in cash used in investing activities was due to payments made during the nine months ended June 30, 2013 for our operations in our US projects as detailed above.

Net cash flows provided by financing activities was $1,304,000 for the nine months ended June 30, 2014 as compared to $1,223,000 for the same period ended June 30, 2013. The increase in cash provided by financing activities was due to an increase in equity financing and loans received from third-parties. To date we have 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, 2013 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.

Management anticipates that existing cash resources, including the proceeds of the equity placements subsequent to June 30, 2014 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 25% equity and 75% debt, we will require approximately $22,000,000 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 25% equity and 75% 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.

Off-Balance Sheet Arrangements

As at June 30, 2014, we had no off-balance sheet arrangements of any nature.

Market Risk and Contingent Liabilities

We are seeking to operate in the developing world (i.e. Ghana), making us 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 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.

21



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.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters