Bluesphere highlights 2014, 2015 biogas project development

By Katie Fletcher | March 23, 2015

Bluesphere Corporation recently issued a letter to shareholders discussing results from 2014 and the first few months in 2015, focusing on the development of its projects in the waste-to-energy (WTE) sector. The company set out two critical missions in 2014, to first bring its North Carolina and Rhode Island biogas projects to full financing, in order to be shovel ready in 2014, and to second develop a pipeline of more lucrative projects in the WTE sector.

In 2014, the company increased its number of projects in the U.S., and initiated efforts in Europe and Israel. Highlights of the year include the execution of a binding memorandum of understanding (MOU) on a new anaerobic digestion (AD) project in the Boston area in June. This was followed in December with commencement of construction on both the North Carolina and Rhode Island biogas plants.

At the beginning of this year, financing closing was achieved in the amount of $27 million for the North Carolina biogas plant. Bluesphere also began the year by booking its first revenue in the history of the company in the amount of $1.25 million. Just last month the company also received the final principal permit for construction and operation of its North Carolina biogas plant.

Due to these highlights, the North Carolina biogas project is under construction and is on track to commence commercial operation this year. According to the investor letter, Bluesphere is scheduled to receive another two payments of $587,500 later this year—the first upon mechanical completion of the plant and the second upon commencement of commercial operation. Subsequently, the company will receive revenues of the plant for the next 15 years as a 25 percent owner.

In regards to the Rhode Island biogas project, an engineering, procurement and construction (EPC) contractor started fabrication of critical equipment to the plant. This fabrication will continue from when work starts onsite, which is expected to be this month, until the plant reaches commercial operation. Commencement is expected before the end of the year, contingent on financing agreements for the project, which the company hopes will close in the first quarter of 2015.

A third biogas project in Boston is currently awaiting a power purchase agreement, after which project development activities may begin.

The company’s activities overseas include the signing of a binding memorandum with an Israeli State-owned company to develop a 5MW biogas project in Israel. Negotiations of definitive financing agreements for this project hope to close in the first quarter of 2015. If achieved, the project is expected to commence operation in 2016. Bluesphere is also in the final stage of negotiation and definitive agreement preparation for the acquisition of seven 1 MW AD facilities in Italy. These facilities are fully permitted, already in operation and are producing income, so the letter states the company will start

earning revenue from day one after the acquisition. Each facility is producing enough cash flow to generate an internal rate of return of greater than 25 percent.

The company adds numerous landfill gas-to-energy (LFGTE) projects in the U.S., a number of AD projects in the U.S. and Canada, and 10 renewable natural gas projects in the U.S. to its pipeline of new projects. According to the investor letter, overall, the company is evaluating acquisition, development and/or participation in approximately $500 million in WTE projects in the U.S., Canada and around the world.

Last month, Bluesphere also filed a quarterly report with the Security and Exchange Commission, stating its currently focusing on thirteen projects, the three biogas projects in the U.S., the seven in Italy, one in Israel and two in Ghana—Oti Sanitary LFGTE project and Accra Transfer Station WTE AD project.

According to the quarterly filing, as of Dec. 31, Bluesphere had recorded no revenue since inception. The company reported general and administrative expenses for the three-month period ended Dec. 31, of $827,000, compared to $1.494 million for the three-month period in the prior year. As a result, Bluesphere incurred a net loss of $1.313 million for quarter four, compared to a net loss of $1.531 for the comparable period in 2013.

Bluesphere stated in the filing that it anticipates losses in future periods. This decrease is mainly attributable to the decrease in share-based compensation for employees and service providers, somewhat offset by continuous investment and development expenses incurred in connection with the North Carolina and Rhode Island projects. Also, the increase in financial expenses mainly attributed to the amortization expenses in respect of the beneficial conversion feature embedded in debentures issued by Bluesphere.

At the year’s end Bluesphere reported having $118,000 in cash compared to $298,000 in 2013. Working capital deficit of $830,000 was reported on Dec. 31, in comparison to $55,000 at Dec. 31, 2013. Net cash used in operating activities was $710,000 for quarter four, compared to $400,000 for the same period in 2013. Currently operating costs exceed revenue.

Bluesphere estimate that in order to fund its continued existence, it will require $1 million in cash over the next 12 months. This does not include amounts it will need to invest in the implementation of projects. Assuming the company finances each project with 25 percent equity and 75 percent debt, it will require approximately $20 million in additional capital to make equity investments in U.S., Italian and Israeli projects. The company was unable to estimate the amount required to invest in its Ghanaian projects. According to the SEC filing, the company states there is no assurance that it will be successful in financing its projects with those amounts of equity and debt, and even if successful, there is no assurance that Bluesphere will raise such capital at all or in a timely manner.

In addition to requiring capital to fund corporate activities, the capital needs of project development activities will be significant and will likely require equity investment on the company’s behalf. As a result, the company said it will seek to raise additional funds and any meaningful equity financing will likely result in significant dilution to existing shareholders.

The full quarterly SEC filling can be found here.