Blue Sphere Corp (OTCMKTS:BLSP) Crashes Without Warning
On June 17, Blue Sphere Corp (OTCMKTS:BLSP) released some good news. First, they said that they are about to kick a share repurchase plan into motion as a part of which they will buy $500 thousand worth of shares and cancel them. The management team said that this reflects their confidence in the company’s short- and long-term success and they also pointed out that, in their opinion, the stock is currently undervalued. They also announced that they have started constructing two waste-to-energy facilities which are supposed to bring around $6 million in revenues before the end of the year.
Investors didn’t really react at first, but about a week after the press release, they started jumping in. In a matter of a few short days, BLSP ran from less than $0.02 per share all the way to just under $0.04, but unfortunately, the climb seems to have come to an end. The ticker first slipped on Wednesday when it lost about 8%, but yesterday, it outright crashed, wiping out 40% of its value and closing the day at $0.021.
Pinpointing the reason for yesterday’s drop is not really that easy. There were no new filings, press releases or promotions that could have put pressure on the ticker, but the truth is, if you do your due diligence, you’ll see that apart from the management team’s words of optimism, there isn’t a whole lot to keep BLSP afloat, either.
Take the company headquarters as an example. BLSP likes to call itself “an international company active in the fields of organic waste to energy, cleantech and energy”, but the residential house that it uses as location for its principal office doesn’t really befit this description.
The latest 10-Q is not exactly stellar, either. Here’s what BLSP had to show for itself at the end of March:
- cash: $374 thousand
- current assets: $515 thousand
- current liabilities: $1.4 million
- NO revenue since inception
- quarterly net loss: $1.8 million
Of course, if the management team achieve the revenues they promised, and if the operations turn out to be profitable, things might start to look a little bit different. Shareholders won’t know whether that’s the case for another few months, however, and in the meantime, they need to think about something else.
As the share repurchase program would suggest, BLSP has gone through quite a lot of dilution over the last few months. Between January 13 and May 14, for example, the number of issued and outstanding shares grew from just over 51 million all the way to more than 83 million. Some of you will probably say that this is not such a big deal. BLSP‘s supporters will most likely argue that virtually all penny stock enterprises dilute their shareholders to some extent and they’ll note that with some of the newly printed shares returned back to the treasury, things might not be that bad.
Sadly, the number of issued and outstanding shares isn’t the only problem. The reason for their issuance is niggling us as well. During the second half of 2014, BLSP sold a total of $1.5 million worth of convertible notes and in January, they borrowed a further $360 thousand under similar agreements. The notes carry a conversion feature which allows the note holders to turn the debt into stock at discounts ranging from 37% to 45%. As a result, during the first three months of the year, around 10 million shares saw the light of day at an average rate of less than $0.06 per share. By contrast, BLSP spent most of the first calendar quarter comfortably above the $0.10 per share mark.
