The audited consolidated financial statements appearing in this prospectus for the years ended September
30, 2015 and 2014, have been audited by Brightman Almagor Zohar & Co., a member firm of Deloitte Touche Tohmatsu Limited, an
independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting and auditing.
We have filed a registration statement on Form S-1 under the Securities Act with the SEC with respect to the
shares of common stock offered by this prospectus. This prospectus does not contain all the information set forth in the registration
statement. For further information with respect to us and the shares of our common stock to be sold in this offering, we make reference
to the registration statement. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents,
the references are not necessarily complete, and you should refer to the exhibits filed with the registration statement for copies
of the actual contract, agreement or other document.
We are required to file annual, quarterly
and current reports and other information with the SEC. You can read and copy any of this information at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours of 10:00 a.m. to 3:00
p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. This information
is also available from the SEC’s website at http://www.sec.gov.
IN U.S. DOLLARS
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
1 – GENERAL
a.
General
Blue Sphere Corp. (“the Company”),
together with its wholly-owned subsidiaries, Eastern Sphere Ltd. (“Eastern”), Binosphere Inc
(“Binosphere”), Johnstonsphere LLC (“Johnstonsphere”), and Sustainable Energy Ltd.
(“SEL”), is focused on project integration in the clean energy production and waste to energy markets.
As of September 30, 2015, Tipping
LLC and Charlottesphere LLC, two former subsidiaries of the Company, had been dissolved and Johnstonsphere had not commenced operations.
On
May 12, 2015 the Company formed Bluesphere Pavia
(formerly called Bluesphere
Italy S.r.l.), a subsidiary of Eastern in order to acquire certain biogas plants located in Italy (see note 2 below).
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. On February 17, 2010, the Company conducted a reverse merger, name change and forward split of its common stock,
and in March 2010 current management took over operations, at which point the Company changed its business focus to become a project
integrator in the clean energy production and waste to energy markets.
On October
2, 2014, the Company, together with certain third parties, established Permanent Energy Ltd (“Permanent Energy”) in
Israel. Permanent Energy was focused on Build-Own-Operate projects and project integration in the clean energy production and waste
to energy markets, primarily in Israel. The Company held a 50% interest in Permanent Energy. Permanent Energy ceased its operations
in February 2015 and is in the process of dissolution.
The Company
is currently focusing on (i) 10 projects related to the construction, acquisition or development of biogas facilities and (ii)
a recently licensed fast charging battery technology.
On November
26, 2013, the Company amended and restated its Articles of Incorporation to authorize the issuance of 500,000,000 shares of preferred
stock, $0.001 par value, in one or more series and with such rights, preferences and privileges as its Board of Directors may determine
and to effect a 1 for 113 reverse stock split of the Company’s outstanding common stock. In addition, the Amended and Restated
Articles of Incorporation provide, among other things, for indemnification and limitations to the liability of the Company’s
officers and directors.
As a result
of the reverse stock split, which became effective on December 4, 2013, every 113 shares of the Company’s outstanding common
stock prior to the effect of that amendment was combined and reclassified into one share of the Company’s common stock, and
the number of outstanding shares of the Company’s common stock was reduced from 1,292,103,309 to 11,434,611 shares.
All share,
stock option and per share information in these consolidated financial statements have been adjusted to reflect the stock
split on a retroactive basis.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
1 – GENERAL (continue)
b.
Going concern consideration
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of
September 30, 2015, the Company had approximately $161 thousand in cash, a negative working capital of approximately $7,542
thousand, a stockholders’ deficiency of approximately $2,694 thousand and an accumulated deficit of
approximately $43,404 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. Company’s ability to continue as a going
concern is dependent upon raising capital from financing transactions and revenue from operations.
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.
NOTE
2 – INVESTMENTS IN JOINT VENTURES
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.
North
Carolina Project
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 Company also agreed to
use high solid anaerobic digester units designed by Orbit (the “HSAD Units”) and to retain Orbit to implement and operate
the HSAD Units for an annual management fee of $187,500 (the “OEC 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, 2015 upon payment of $75,000. The Company did not pay Orbit the development fee and reimbursement
amount and, pursuant to the terms of the Amended OEC Purchase Agreement, ownership of OEC reverted back to Orbit on January 15,
2015.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
2 – INVESTMENTS IN JOINT VENTURES (continue)
On January
30, 2015, The Company entered into the Orbit Energy Charlotte, LLC Membership Interest Purchase Agreement by and among the Company,
Orbit, Concord Energy Partners, LLC, a Delaware limited liability company (“Concord”), and OEC (the “New OEC
Purchase Agreement”), pursuant to which (i) Concord purchased all of Orbit’s right, title and interest in and to the
membership interests of OEC (the “OEC Interests”), (ii) Orbit abandoned all economic and ownership interest in the
OEC Interests in favor of Concord, (iii) Orbit ceased to be a member of OEC and (iv) Concord was admitted as the sole member of
OEC.
Subject to
the satisfaction of certain conditions by Orbit, The Company agreed to be responsible for all costs of evaluating and incorporating
into the North Carolina project (i) 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 supplied by Orbit (the “Orbit Technology”), and (ii) two HSAD Units designed by Orbit
with up to a total maximum capacity of 100 tons per day. The Company are responsible for 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 Orbit Technology incorporated into the project. The Company also agreed to enter into an operations
agreement with Orbit in respect of the HSAD Units to be integrated into the North Carolina project and to pay Orbit the OEC Management
Fee.
In a letter
agreement executed in connection with the New OEC Purchase Agreement, The Company agreed to pay Orbit an amount equal to thirty
percent (30%) of the North Carolina project’s distributable cash flow after The Company and the other equity investors in
the North Carolina project fully recoup their respective investments in the North Carolina project (such investments to be calculated
solely as amounts expended in and for the construction of the North Carolina project) and the North Carolina project achieves a
thirty percent (30%) internal rate of return. The calculation of the project’s internal rate of return would take into account
and be computed on the basis of any and all benefits from tax credits, depreciation and other incentives of any nature, as well
as the OEC Management Fee.
On the
same date as the New OEC Purchase Agreement, (i) the Company, Concord and York Renewable Energy Partners LLC
(“York”) entered into a development and indemnification agreement (the “Concord Development and
Indemnification Agreement”), pursuant to which Concord paid the Company $1,250,000, issued the Company 250 Series
B units of Concord (“Concord Series B Units”) and issued 750 Series A units of Concord (“Concord Series A
Units”) to York, and (ii) The Company and York entered into an amended and restated limited liability company operating
agreement (the “Concord LLC Agreement”) to establish the Concord Series A Units and Concord Series B Units and
admit the Company and York as 25% and 75% members of Concord, respectively. Pursuant to the foregoing agreements, York also
agreed to pay the Company two equal installments of $587,500 upon (a) mechanical completion of the North Carolina project and
(b) commercial operation of the North Carolina project Company’s rights to receive distributions from Concord are
subject to certain priorities in favor of York.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
2 – INVESTMENTS IN JOINT VENTURES (continue)
In connection
with the foregoing, on January 30 2015, the Company terminated its amended and restated construction finance agreement, dated
June 6, 2014, with Caterpillar Financial Services Corporation. In February 2015, The Company received $1,586,000 for development
fees and reimbursements in connection with the North Carolina project.
If
commercial operations are not commenced within 60 days of December 31, 2015, OEC will be required to pay $500,000
of liquidated damages to Duke Energy pursuant to the Duke PPA. If applicable, York will be responsible for contributing
these funds to OEC. Although no assurances can be given, the Company expects the North Carolina project to commence
commercial operations in the first quarter of 2016.
Based on
the investments made by York as of September 30, 2015, the Company’s portion of net equity in Concord amounted to a total of $3,616,978.
Such amount was presented as an asset in the balance sheet and as deferred revenues from equity in subsidiaries. Such deferred
revenues will be recorded to the profit and loss statement upon completion of the plants and fulfillment of all the Company’s obligation
under the above agreements.
Rhode
Island Project
On
January 7, 2015, the Company signed an amended and restated purchase agreement with Orbit 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 HSAD Units designed by Orbit and to retain Orbit to
implement and operate the HSAD Units for an annual management fee of $187,500 (the “OERI Management Fee”),
subject to certain conditions. The Amended OERI Purchase Agreement provided that the Company had until January 22, 2015 to
pay Orbit the development fee and reimbursement amount, which was extended to February 28, 2015 upon payment of $31,000. The
Company did not pay the development fee and reimbursement amount and, pursuant to the terms of the Amended OERI Purchase
Agreement, ownership of OERI reverted back to Orbit.
On April
8, 2015, the Company entered into the Orbit Energy Rhode Island, LLC Membership Interest Purchase Agreement by and among the Company,
Orbit, Rhode Island Energy Partners, LLC, a Delaware limited liability company (“Rhode Island”) and OERI (the “New
OERI Purchase Agreement”), pursuant to which (i) Rhode Island purchased all of Orbit’s right, title and interest in
and to the membership interests of OERI (the “OERI Interests”), (ii) Orbit abandoned all economic and ownership interest
in the OERI Interests in favor of Rhode Island, (iii) Orbit ceased to me a member of OERI and (iv) Rhode Island was admitted as
the sole member of OERI.
Subject to
the satisfaction of certain conditions by Orbit, the Company agreed to be responsible for all costs of evaluating and incorporating
into the Rhode Island project (i) the Orbit Technology and (ii) two HSAD Units designed by Orbit with up to a total maximum capacity
of 75 tons per day. The Company are responsible for 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 Orbit Technology incorporated into the project. The Company also agreed to enter into an operations agreement with Orbit in
respect of the HSAD Units to be integrated into the Rhode Island project and to pay Orbit the OERI Management Fee.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
2 – INVESTMENTS IN JOINT VENTURES (continue)
The
Company also acknowledged in the New OERI Purchase Agreement its continuing responsibility to pay Orbit an amount equal
to thirty percent (30%) of the Rhode Island project’s distributable cash flow after the Company and the other
equity investors in the Rhode Island project fully recoup Company’s respective investments in the Rhode Island project
(such investments to be calculated solely as amounts expended in and for the construction of the Rhode Island project) and
the Rhode Island project achieves a thirty percent (30%) internal rate of return. The calculation of the project’s
internal rate of return would take into account and be computed on the basis of any and all benefits from tax credits,
depreciation and other incentives of any nature, as well as the OERI Management Fee.
On the
same date as the New OERI Purchase Agreement, (i) the Company, Rhode Island and York entered into a development and
indemnification agreement (the “Rhode Island Development and Indemnification Agreement”), pursuant to which Rhode
Island agreed to pay the Company $1,481,900, issue the Company 2,275 Series B units of Rhode Island (“Rhode Island
Series B Units), and issue 7,725 Series A units of Rhode Island (“Rhode Island Series A Units”) to York, and (ii)
the Company and York entered into an amended and restated limited liability company operating agreement (the “Rhode
Island LLC Agreement”) to establish the Rhode Island Series A Units and Rhode Island Series B Units and admit the
Company and York as 22.75% and 77.25% members of Rhode Island, respectively. Pursuant to the foregoing agreements, York also
agreed to pay the Company three equal installments of $562,500 upon (a) signing of the Rhode Island Development and
Indemnification Agreement, (b) the later of (i) the date of mechanical completion of the Rhode Island project and (ii) the
date on which an executed interconnection agreement between OERI and National Grid, including receipt of any regulatory
approvals from the Rhode Island Public Utility Commission, is delivered by OERI, and (c) commercial operation of the Rhode
Island project.
Based on
the investments made by York as of September 30, 2015, the Company’s portion of net equity in Rhode Island amounted to a
total of $1,335,377. Such amount was presented as an asset in the balance sheet and as deferred revenues from equity in subsidiaries.
Such deferred revenues will be recorded to the profit and loss statement upon completion of the plants and fulfillment of all
the Company’s obligation under the above agreements.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES
a.
Functional currency
The currency
of the primary economic environment in which the operations of the Company are conducted is the U.S dollar (“$” or
“dollar”).
Most of the
Company’s expenses are incurred in dollars. Most of the Company’s external financing is in dollars. The Company holds
most of its cash and cash equivalents in dollars. Thus, the functional currency of the Company is the dollar.
Since the
dollar is the primary currency in the economic environment in which the Company operates, monetary accounts maintained in currencies
other than the dollar are re-measured using the representative foreign exchange rate at the balance sheet date. Operational accounts
and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of transaction. The effects
of foreign currency re-measurement are reported in current operations (as “financial expenses - net) and have not been material
to date.
b.
Principles of consolidation
The consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries.
Inter-company
balances and transactions have been eliminated upon consolidation.
c.
Cash equivalents
Cash equivalents
are short-term highly liquid investments which include short term bank deposit (up to three months from date of deposit), that
are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of
the date acquired.
d.
Property, plant and equipment
Property,
plant and equipment are stated at cost, less accumulated depreciation. Assets are depreciated using the straight-line method over
their estimated useful lives.
Computers,
software and electronic equipment are depreciated over three years. Tools and equipment are depreciated over five years. Furniture
is depreciated over fourteen years.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
(continue)
e.
Investment in affiliated companies
Investments
in affiliated companies that are not controlled but over which the Company can exercise significant influence (generally, entities
in which the Company holds approximately between 20% to 50% of the voting rights of the investee) are presented using the equity
method of accounting. Profits on intercompany sales, not realized outside the Company, are eliminated. The Company discontinues
applying the equity method when its investment (including advances and loans) is reduced to zero and the Company has not guaranteed
obligations of the affiliate or otherwise committed to provide further financial support to the affiliate.
Investments
in preferred shares, which are not in substance common stock, are recorded on a cost basis according to ASC 323-10-15-13, “Investments
- Equity Method and Joint Ventures - In-substance Common Stock” and ASC 323-10-40-1, "Investment -Equity Method and
Joint Ventures - Investee Capital Transactions".
A
change in the Company’s proportionate share of an investee’s equity, resulting from issuance of common or in-substance
common shares by the investee to third parties, is recorded as a gain or loss in the consolidated income statements in accordance
with ASC 323-10-40-1.
Investments
in non-marketable equity securities of entities in which the Company does not have control or the ability to exercise significant
influence over their operation and financial policies, are recorded at cost (generally when the Company holds less than 20% of
the voting rights).
Management
evaluates investments in affiliated companies, partnerships and other non-marketable equity securities for evidence of other-than-temporary
declines in value. Such evaluation is dependent on the specific facts and circumstances. Accordingly, in determining whether other-than-temporary
declines exist, management evaluates various indicators for other-than-temporary declines and evaluates financial information
(e.g. budgets, business plans, financial statements, etc.). During 2015 and 2014, no material impairment was recognized.
f.
Use of estimates
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results
may differ from those estimates
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (continue)
g.
Share-base payments
Share-based
payments to employees are measured at the fair value of the options issued and amortized over the vesting periods. Share-based
payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments
issued if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the
goods or services are received. The amount recognized as an expense is adjusted to reflect the number of awards expected to vest.
The offset to the recorded cost is to share-based payments reserve. Consideration received on the exercise of stock options is
recorded as capital stock and the related share-based payments reserve is transferred to share capital.
h.
Loss per share
Net loss per
share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common shares and
of common shares equivalents outstanding when dilutive. Common share equivalents include: (i) outstanding stock options under the
Company’s share incentive plan and warrants which are included under the treasury share method when dilutive, and (ii) common
shares to be issued under the assumed conversion of the Company’s outstanding convertible notes, which are included under
the if-converted method when dilutive. The computation of diluted net loss per share for the years ended September 30, 2015, 2014,
and 2013, does not include common share equivalents, since such inclusion would be anti-dilutive.
i.
Deferred income taxes
Deferred taxes
are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial
accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the
tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided
if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not
be realized. The Company has provided a full valuation allowance with respect to its deferred tax assets.
j.
Comprehensive loss
The Company
has no component of comprehensive income loss other than net loss.
k.
Revenue recognition
The Company
recognizes revenues from services rendered in accordance with ASC Topic 605-20 Revenue Recognition from Services. The Company records
services to be supplied under contractual agreements as deferred revenue until such related services are provided.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (continue)
l.
Newly issued accounting pronouncements
In May 2014, the FASB issued ASU
2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting
Standards Codification (“ASC”) 605, Revenue Recognition. The new revenue recognition standard requires entities to recognize
revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB issued Accounting
Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, or ASU 2015-14.
This amendment defers the effective date of the previously issued Accounting Standards Update ASU 2014-09, until the interim and
annual reporting periods beginning after December 15, 2017. Earlier application is permitted for interim and annual reporting periods
beginning after December 15, 2016. If the Company begins generating revenue prior to the effective date of ASU 2015-14, the Company
will evaluate the effect that ASU 2014-09 will have on the results of operations and financial position.
In August 2015, the FASB has issued
Accounting Standards Update (ASU) No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff
Announcement at June 18, 2015 EITF Meeting . This ASU adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18,
2015, Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with
line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to
line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset
and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless
of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company does not expect this update will
have a material impact on the presentation of the Company’s consolidated financial position, results of operations and cash flows.
In September 2015, the FASB issued
ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which eliminates
the requirement to retrospectively account for changes to provisional amounts initially recorded in a business acquisition opening
balance sheet. Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as of
the acquisition date for adjustments to provisional amounts. This guidance is effective for fiscal years beginning after December
15, 2015, including interim periods within fiscal years. The Company is evaluating the effect, if any, this update will have on
the Company’s consolidated financial position, results of operations and cash flows.
In November 2015, the FASB has issued
Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which
changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for
organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead,
organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations
that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for
annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect
this update will have a material impact on the presentation of the Company’s consolidated financial position, results of operations
and cash flows.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4 –
DEBENTURES, NOTES AND LOANS
Convertible Promissory Notes
Between August 4, 2014 and September
30, 2014, the Company issued convertible promissory notes (the “Notes”) to accredited investors in an aggregate principal
amount of $1,408,150 for an aggregate purchase price of $1,201,414, net of expenses incurred in connection of such notes.
Between October 1, 2014 and January
20, 2015, 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 were generally mature
one-year from the date of issuance and accrue interest at rates ranging from 8% 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.
In accordance with ASC 470-20, the
Company allocated to additional paid-in capital a portion of the proceeds of the notes equal to the intrinsic value of the beneficial
conversion feature embedded in the debentures and recorded a corresponding discount on such debentures. The amounts allocated to
additional paid-in capital were $1,040,919 and $482,485 as of September 30, 2014 and September 30, 2015, respectively. As of September
30, 2015 the notes were converted or repaid in full. During the year ended September 30, 2015, the Company recorded amortization
expenses in the amounts of $1,523,404, in respect of the discounts recorded on the debentures.
From February through September 2015,
convertible promissory notes holders representing an aggregate principal amount of $1,480,716 converted their notes into 75,060,414
shares of the Company’s common stock.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4 –
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 the Company’s
common stock equal to 4% of capital raised by them divided by the closing price of the Company common stock on the date of close.
On December 8, 2014 the Company issued 209,041 shares of the Company’s common stock, see note 6 below.
Loans
On
March 7, 2012, the Company entered into a loan agreement with Eli Weinberg, pursuant to which Mr. Weinberg loaned the Company
$135,000. The full principal amount of the loan remains outstanding. Mr. Weinberg has the option to convert any or all of the
principal amount of the loan to common stock of the Company.
On
March 15, 2015, the Company entered into a loan agreement with Ori Ackerman (the “Ackerman Loan Agreement”), pursuant
to which the Company agreed to borrow $220,000 and issue 3,000,000 shares to Ori Ackerman. The Company received $200,000 under
the Ackerman Loan Agreement, as $20,000 was deducted from the original amount of the loan and considered payment of interest in
advance. The loan bears no additional interest, and is payable in full within three business days of the date the Company receives
revenue from any of its Charlotte, Rhode Island or Italian projects. The Company’s obligations under the loan 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. (the “Valter Team Loan Agreement”),
pursuant to which the Company agreed to borrow $68,750 and issue 250,000 shares to Valter Team Ltd. The Company received $62,500
under the Valter Team Loan Agreement, as $6,250 was deducted from the original amount of the loan. This loan bears no interest
and is payable in full on the earlier of the date the Company receives cash proceeds from any of its Charlotte, Rhode Island or
Italian projects and December 25, 2015. The Company’s obligations under the loan are personally guaranteed by Shlomi Palas,
the Company’s Chief Executive Officer. As of September 30, 2015, the Company repaid the loan in full and issued the 250,000
shares.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 –
RELATED PARTY TRANSACTIONS
On July 25, 2011, the Company, JLS
and Roy Amitzur entered into a Management Services Agreement according to which JLS, and Mr.
Amitzur are engaged to provide management services to the Company devoting at least 75% of this time to the Company, with Mr. Amitzur
serving as Executive Vice President. The term of the agreement was originally for two years and in July 2013, was extended for
a further eight months. Since the agreement expired in May 2014, Mr. Amitzur’s agreement was further extended on the same
terms on an oral basis. For services rendered under the agreement, JLS is entitled to a monthly fee of US$10,000 + VAT subject
to the Company raising an aggregate amount of at least $450,000. Subsequently, such fee increases to a monthly fee of $15,000
+ VAT after the Company raises an aggregate equity investment of $2,000,000. Notwithstanding the raise of more than an aggregate
of $2,000,000, payment of Mr. Amitzur monthly fee of US $10,000 + VAT has continued to-date. In addition, the Company issued
to JLS 110,620 shares of common stock vesting in equal amounts quarterly over 24 months, all of which have fully vested. JLS
and Mr. Amitzur are entitled to participate on similar terms as the other executives of the Company in bonus plans or incentive
compensation plans for its employees.
On February 29, 2012, the Company
entered into an employment agreement with Mr. Palas to serve as the Company’s Chief Executive Officer for an indefinite term.
This agreement was intended to extend the term of a previously entered into employment agreement with Mr. Palas whose term was
expiring. Under the agreement, Mr. Palas receives monthly remuneration at a gross rate of USD$15,000 + VAT. Mr. Palas will be entitled
to participate in any bonus plan or incentive compensation plan for its employees adopted by the Company.
On November 5, 2012, the Board of
Directors of the Company approved the issuance of 53,098 shares of the Company to its Chief Executive officer, 44,248 shares to
the Chairman of the Board, 44,248 shares to the Executive Vice-President and 35,399 shares to the Chief Carbon Officer and general
counsel of the Company.
On March 18, 2013, the Board of
Directors of the Company approved the issuance of 53,098 shares of the Company to its Chief Executive Officer, 44,248 shares to
the Chairman of the Board, 44,248 shares to the Executive Vice-President and 35,399 shares to the Chief Carbon Officer and general
counsel of the Company.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 – RELATED PARTY TRANSACTIONS
(continue)
On April 30, 2013, the Board of
Directors of the Company approved the issuance of 230,089 shares of the Company and options to purchase 230,089 shares of common
stock to its Chief Executive Officer, 203,540 shares and options to purchase 203,540 shares of common stock to the Chairman of
the Board, 168,142 shares and options to purchase 168,142 shares of common stock to the Executive Vice-President and 88,496 shares
and options to purchase 88,496 shares of common stock to both the Chief Carbon Officer and general counsel of the Company and for
the CTO of Company. The shares and options will vest over a two year period with 1/8 of the total amount of the shares and options
vesting at the end of each quarter from the date of the grant.
On June 19, 2013 the Board of Directors
of the Company approved the issuance of 53,098 shares of the Company to its Chief Executive officer, 44,248 shares to the Chairman
of the Board, 44,248 shares to the Executive Vice-President and 35,399 shares to the Chief Carbon Officer and general counsel of
the Company.
On January 26, 2014, the Company
signed a subscription agreement with Talya Levy-Tytiun (“Talya”) pursuant to which Talya agreed to invest an aggregate
of $400,000 into the Company for the sale of 1,739,130 shares of common stock. The Company was obligated to issue Talya additional
shares of the Company, if, six months from the date of the agreement her ownership in the Company would be reduced below 12.3%.
In addition, the Company guaranteed that if on the first anniversary of the agreement, the share price of the Company common stock
was 0.23$ per share or less, the Company shall transfer Talya such amount necessary to make Talya whole and reimburse her for any
loss due to her investment. On September 17, 2014 the Company issued Talya 2,866,194, shares of common stock as a reimbursement
under the above agreement.
On December 13, 2013 the Board of
Directors of the Company approved the issuance of 424,779 shares of the Company to its Chief Executive Officer, 353,982 shares
to the Chairman of the Board, 353,982 shares to the Executive Vice-President and 283,186 shares to the Chief Carbon Officer and
general counsel of the Company. Such shares were issued at January 9, 2014.
On March 10, 2014 the Board of Directors
of the Company approved the issuance of 250,000 shares of the Company to its Chief Executive Officer, 220,000 shares to the Chairman
of the Board, 200,000 shares to the Executive Vice-President and 180,000 shares to the Chief Carbon Officer and general counsel
of the Company.
On May 27, 2014 the Company appointed
Mr. Yigal Brosh as a member of the Board of Directors of the Company. Mr. Brosh was granted 200,000 options to purchase shares
of common stock of the Company at an exercise price of $0.01 per share. The Options vets over a period of two years with a pro-rata
portion vesting each three month period.
On February 24, 2015, the
Board of Directors approved a grant of up to 1,450,000 shares of common stock to certain of its directors under the 2010
Plan. In addition, on February 24, 2015 the Company granted under its 2014 Option Plan 7,450,000 shares of common stock and
to 1,775,000 options to purchase shares of common stock to certain of its directors. The shares
will vest on a quarterly basis over a two-year period, and the options will vest on a quarterly basis over a two-year
period with an exercise price of $0.14 per share.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES
On October 25, 2012 the Company
entered into a Subscription Agreement with a non-US investor for the sale of 88,496 shares of common stock for an aggregated amount
of $20,000.
On October 25, 2012 the Company
entered into an agreement with a non-US investor to sell 380,531 shares of common stock for an aggregated amount of $50,000.
On November 5, 2012 the Company
entered into an agreement with a non-US investor to sell 265,487 shares of common stock at December 25, 2012 for an aggregated
amount of $70,000.
On November 5, 2012 the Board of
Directors of the Company approved the issuance of 53,098 shares of the Company to its Chief Executive officer, 44,248 shares to
the Chairman of the Board, 44,248 shares to the Executive Vice-President and 35,399 shares to the Chief Carbon Officer and general
counsel of the Company.
On November 20, 2012, the Company
agreed to issue 331,859 shares of the Company. Such shares have been issued on January 11, 2013 and were valued based on the share
price of the Company to be $101 thousands.
On December 20 2012, the Company
entered into an agreement with a non-US investor to sell 309,735 shares of common stock at a price of $0.32286 per share for $100,000
and to purchase another 154,868 shares of common stock for $50,000 in January 2013 and another 154,868 shares of common stock for
$50,000 in February 2013. Additionally, the Company was (i) obligated to issue such investor 88,496 shares of common stock in February
2013 at no additional cost and (ii) issue to such investor an option to purchase 66,372 shares of common stock for one year for
2.26 per share and to purchase 66,372 shares of common stock for two years at a price per share of $4.52.
The Company has estimated the aggregate
fair value of such options granted using the Black-Scholes option pricing to be approximately $76,000.
On January 3, 2013, the Company
signed a consulting agreement with Emerging Market Consulting, LLC (the “EMC”). According to the agreement, EMC would
assist the Company with the design, development and dissemination of corporate information for a period of three month with an
option to extend the agreement for an additional nine months. The Company paid EMC $11,000 and issued 39,824 restricted shares
of the Company common stock, for the first period. The Company evaluated the cost of such issuance based on the share price of
the Company to be $11 thousand. The Company elected not to renew the agreement and the agreement expired on April 3, 2013.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
On February 2, 2013 the Company
issued 451,328 shares of common stock to an investor for an aggregate amount of $50,000.
On February 19, 2013, the Company
signed a subscription agreement with a non-US investor pursuant to which such investor agreed to invest an aggregate of $75,000
into the Company in three installments: (i) $25,000 on March 10, 2013, (ii) $25,000 on April 10, 2013 and (iii) $25,000 on May
10, 2013. For each $25,000 invested, the Company was obligated to issue 88,496 shares of common stock to the investor. As of September
30, 2013 the investor transferred to the Company all three installments and the Company issued to the investor 265,487 shares.
In addition, the non-US investor invested an additional $25,000 for an additional 88,496 shares of common stock of the Company.
On February 20, 2013, the Company
signed a subscription agreement with a non-US investor pursuant to which such investor agreed to invest an aggregate of $50,000
into the Company in three installments: (i) $16,600 on March 10, 2013, (ii) $16,600 on April 10, 2013 and (iii) $16,700 on May
10, 2013. Upon receipt of each installment, the Company was obligated to issue 146,903 shares of common stock to the investor.
As of September 30, 2013, the Company received all three installments totaling $50,000 and issued 440,708 shares. Additionally,
on May 23, 2013 the Company issued 35,399 shares of the Company for $4,000 to the non-US investor under the same terms of the agreement
above.
On March 18, 2013 the Board of Directors
of the Company approved the issuance of 53,098 shares of the Company to its Chief Executive Officer, 44,248 shares to the Chairman
of the Board, 44,248 shares to the Executive Vice-President and 35,399 shares to the Chief Carbon Officer and general counsel of
the Company.
On April 30, 2013 the Board of Directors
of the Company approved the issuance of 230,089 shares of the Company and 203,089 options to its Chief Executive officer, 203,540
shares and 203,540 options to the Chairman of the Board, 168,142 shares and 168,142 options to the Executive Vice-President and
88,496 shares and 88,496 options to both the Chief Carbon Officer and general counsel of the Company and for the CTO of Company.
The shares and options will vest over a two year period with 1/8 of the total amount of the shares and options vesting at the end
of each quarter from the date of the grant.
In May and July 2013, the Company
issued 495,576 shares of common stock to an investor for an aggregate amount of $49,315.
On June 19, 2013 the Board of Directors
of the Company approved the issuance of 53,098 shares of the Company to its Chief Executive officer, 44,248 shares to the Chairman
of the Board, 44,248 shares to the Executive Vice-President and 35,399 shares to the Chief Carbon Officer and general counsel of
the Company.
On June 19, 2013 the Company entered
into an agreement with a third party. In exchange for his services the Company issued the third party 176,992 shares of common
stock of the Company. On June 23, 2013, the Company signed an additional agreement with the third party according to which the
Company issued additional 156,611 shares of common stock of the Company.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
On June 19, 2013 the Company entered
into an agreement with a non-US investor to sell 132,744 shares of common stock for an aggregate amount of $50,000.
On June 19, 2013 the Company entered
into an agreement with a non-US investor to sell 53,634 shares of common stock for an aggregate amount of $20,000.
On June 26, 2013 the Company entered
into an agreement with a non-US investor to sell 53,098 shares of common stock for an aggregate amount of $20,000.
On June 26, 2013 the Company signed
a Capital Markets Advisory Consulting Agreement with Incline Partners, LLC (“Incline”). According to the agreement,
Incline agreed to provide the Company with capital market advisory and monthly distribution of articles and media for a period
between June 15, 2013 through August 15, 2013. In consideration for the above services, the Company paid Incline a cash payment
of $28,000 and issued 88,496 restricted shares of the Company common stock.
On July 22, 2013 the Company entered
into an agreement with a non-US investor to sell 268,169 shares of common stock for an aggregate amount of $100,000.
On September 3, 2013 the Company
entered into an agreement with a non-US investor to sell 268,169 shares of common stock for an aggregate amount of $100,000.
On October 13, 2013 a non-US investor
converted $87,000 principal loan for 384,956 shares of the Company’s common stock.
On October 13, 2013, a non-US investor
converted $37,000 principal loan for 163,717 shares of the Company’s common stock.
During October 2013, holders of
$47,878 of principal amount of Asher convertible notes converted their notes into 402,276 shares of the Company’s common stock.
On October 8, 2013, the Company
issued 88,496 shares of common stock for consulting services.
On November 5, 2013, the Company’s
subsidiary, Eastern Sphere, Ltd., entered into an agreement with an investor providing for the issuance of 491,642 shares of the
Company’s common stock in consideration for $100,000.
On November 14, 2013, the Company’s
subsidiary, Eastern Sphere, Ltd., entered into an agreement with an investor providing for the issuance of 146,016 shares of the
Company’s common stock in consideration for $29,107.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
On December 4, 2013, the
Company entered into an agreement with an investor that agreed to provide collateral in the amount of
$480,000 (€353,200) to enable the Company to receive a letter of credit in respect of the Company’s North Carolina
project. In consideration for providing the collateral, the investor shall be entitled to a 4% ownership stake in the
North Carolina project companies and was issued 44,248 shares of the Company’s common stock. Mr. Shlomi Palas
personally guaranteed the Company’s obligations under the agreement with the investor. In addition, in accordance with
the agreement, the Company issued to the investor a convertible note due on March 4, 2014 in the principal amount of $480,000
(€353,200) bearing interest at 1% per month, payable on a monthly basis. On or after March 4, 2014, any outstanding and
unpaid principal under the convertible note is convertible into the Company’s shares of common stock based on the then
applicable market price of the Company’s shares. The Company and the investor have verbally agreed to extend the
maturity of such convertible note indefinitely and, in the meantime, the Company continues to make 1% interest payments on a
monthly basis.
On December 13, 2013 the Board of
Directors of the Company approved the issuance of 424,779 shares of the Company to its Chief Executive Officer, 353,982 shares
to the Chairman of the Board, 353,982 shares to the Executive Vice-President and 283,186 shares to the Chief Carbon Officer and
general counsel of the Company. Such shares were issued at January 9, 2014.
On December 15, 2013, the Company
agreed to issue 600,000 shares of common stock to a consultant providing investor relation services. The shares are to be issued
in three tranches of 200,000 each, the first within 10 days of entering into the agreement, the second on the four month anniversary
of the agreement and the final on the eight month anniversary of the agreement. The first tranche of 200,000 shares was issued
on January 9, 2014. During October 2014, the Company terminated the investor relation service agreement.
On January 9, 2014, the Company
issued 265,486 shares of common stock to an investor for $25,000 in cash.
On January 9, 2014, the
Company issued 345,132 shares of common stock for consulting services. The Company has estimated the fair value of such
shares and recorded an expense of $89,734.
On January 9, 2014, the Company
issued 17,700 shares of common stock for consulting services. The Company has estimated the fair value of such
shares and recorded an expense of $4,602.
On January 26, 2014, the Company
signed a subscription agreement with Talya Levy-Tytiun (“Talya”) pursuant to which Talya agreed to invest an aggregate
of $400,000 into the Company for the sale of 1,739,130 shares of common stock. The Company was obligated to issue Talya additional
shares of the Company, if, six months from the date of the agreement her ownership in the Company would be reduced below 12.3%.
In addition, the Company guaranteed that if on the first anniversary of the agreement, the share price of the Company common stock
was 0.23$ per share or less, the Company shall transfer Talya such amount necessary to make Talya whole and reimburse her for any
loss due to her investment. On September 17, 2014 the Company issued Talya 2,866,194, shares of common stock as a reimbursement
under the above agreement.
On February 7, 2014, the
Company issued an aggregate of 1,200,000 shares of its common stock to CTW – Changing the World Technologies, Ltd.
(“CTW”) in exchange for (i) an investment of $77,000 (for which CTW received 385,000 shares of common stock) and
(ii) the provision of financial engineering services (for which CTW received 815,000 shares of common stock).
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
On March 5, 2014 Eastern Institutional
Funding, LLC purchased $68,750 of the Company’s 20% notes due one year from such date that are convertible into shares of
the Company’s common stock at a discount of 50% from the lowest trade price over the last 20 days from the date of conversion.
On March 21, 2014, Capitoline Ventures II, LLC purchased $68,750 of the Company’s 20% notes due one year from such date that
are convertible into shares of the Company’s common stock at a discount of 50% from the lowest trade price over the last
20 days from the date of conversion. As of June 30, 2014, the Company issued 5,114,073 shares of common stock in respect of the
above notes and the remaining 1,320,000 shares were issued on July 2014.
On March 10, 2014 the Board of Directors
of the Company approved the issuance of 250,000 shares of the Company to its Chief Executive Officer, 220,000 shares to the Chairman
of the Board, 200,000 shares to the Executive Vice-President and 180,000 shares to the Chief Carbon Officer and general counsel
of the Company.
On April 22, 2014 the
Company signed a Consulting Services Agreement with a non-US person pursuant to which, the Company agreed to issue 4,000,000
shares of its common stock in exchange for consulting services to include, but not be limited to, advice on investor
relations, public relations, transaction structuring, ongoing introductions to investors and strategic initiatives. The
agreement is effective for one year commencing September 1, 2013. During the third quarter of 2014, the Company issued
3,350,000 shares of common stock in the Company. The Company has estimated the fair value of such
shares and recorded an expense of $612,700.
During the third quarter of
2014, the Company signed several investment agreements according to which the Company issued 880,000 shares of common stock the
Company for total consideration of $109,721 in cash. In addition, the investors received options to purchase 822,500 shares of
common stock of the Company for an exercise price of 0.10 cent per share.
During the third quarter of 2014,
the Company signed several investment agreements according to which the Company issued 759,041 shares of common stock the Company
for total consideration of $77,127 in cash. In addition, the investors received options to purchase 759,041 shares of common stock
of the Company for an exercise price of 0.10 cent per share and 759,041 shares of common stock of the Company for an exercise price
of 0.13 cent per share.
During the third quarter of 2014,
the Company signed several investment agreements according to which the Company issued 352,805 shares of common stock the Company
for total consideration of $98,784 in cash. In addition, the investors received options to purchase 352,805 shares of common stock
of the Company for an exercise price of 0.60 cent per share.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
On May 1, 2014, the Company signed
a consulting agreement with an investor according to which the company shall issue 2,819,000 shares of common stock of the Company
and warrants to purchase 1,193,000 shares of common stock of the Company at an exercise price of $0.10 for one year commencing
May 1, 2014. On September 22, 2014 the Company issued the consultant, 2,484,000 shares of common stock of the Company under the
above agreement. In addition, on September 22, 2014 the Company issued 963,000 shares of common stock the Company to the consultant,
for total cash consideration of $52,708. In addition, on May 1, 2014 the Company signed an agreement with the consultant according
to which the consultant would provide investor relations services for a period of 12 months. Based on the agreement the Company
issued the consultant 300,000 shares of the Company and 1,500,000 options to purchase shares of the Company at an exercise price
of 0.10 cent per share. The options expire after 5 years. In addition, the Company agreed to issue 500,000 additional shares upon
fulfillment of other conditions set in the agreement. The Company evaluated the fair value of the 300,000 shares and 1,500,000
options issued at $90,000 and $151,434, respectively.
On May 2, 2014 the Company signed
an agreement with a consultant according to which the consultant would provide investor relations services for a period of 12 months.
Based on the agreement the Company issued the consultant 211,084 shares of the Company. The Company evaluated the fair value of
the 211,084 shares and recorded an expense of $41,518.
On May 25, 2014 the Company signed
an agreement with a consultant according to which the consultant would provide investor relations services for a period of 6 months.
Based on the agreement the Company issued the consultant 350,000 shares of the Company and 350,000 warrants to purchase shares
of the Company at an exercise price of 0.20 cent per share. The options expire after 6 month. In addition, the Company agreed to
issue 150,000 additional shares after 6 month from the date of the agreement and additional 150,000 shares for $0.20 per share,
and pay the consultant NIS 18,000 per month during the agreement term. The Company evaluated the fair value of the 300,000 shares
at $54,600. In addition the company recorded an expense related to the warrants issued of $28,310.
On June 1, 2014 the Company signed
an investment agreement with a third party according to which the Company issued 179,856 shares of common stock the Company for
total consideration of $28,874 in cash. In addition, the investor received options to purchase 179,856 shares of common stock of
the Company for an exercise price of 0.25 cent per share.
During the third quarter of 2014,
the Company signed several investment agreements according to which the Company issued 199,039 shares of common stock the Company
for total consideration of $19,904 in cash. In addition, the investors received options to purchase 199,039 shares of common stock
of the Company for an exercise price of 0.13 cent per share and 199,039 shares of common stock of the Company for an exercise price
of 0.16 cent per share.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
On June 18, 2014 the
Company signed an advisory board agreement with an accredited investor according to which the investor will serve on the
Company’s advisory board for a period of one year from the date of the agreement unless otherwise extended by the
parties. For his services, the advisor is entitled to 150,000 shares of the Company’s common stock of which75,000 vest
on the date of the agreement and the remaining amount in three quarterly 25,000 shares, beginning 90 days from the date of
the agreement. In addition the advisor is entitled to receive 150,000 warrants of the Company’s common stock. The
warrants vest in 4 equal amounts over a period of twelve (12) months, the initial amount vesting on the agreement date. The
warrants will allow the director to purchase the common stock of the Company for a period of 3 years from the agreement date.
The warrants shall be exercisable in the following amounts: 1/3 at $0.30 a share, 1/3 at $0.40 a share, and 1/3 at $0.50 a
share. In the event the advisor ceases to be a member of Board at any time during the vesting period for any reason, then any
unvested warrants or unvested shares shall be irrefutably forfeited. On July 10, 2014 the Company issued 75,000 shares on
account of such agreement. The Company evaluated the fair value of the shares and warrants and recorded an expense of $52,800.
At April and June 2014 the Company
signed three agreements with a non-US investor who provided the Company with several loans amounted to $78,400, according to which
the investor converted his balance of loans into 800,892 shares of common stock of the Company. In addition, the Company issued
the non-US investor invested 380,435 shares of common stock of the Company for total cash consideration of $69,000.
On July 3, 2014 the Company issued
1,250,000 shares of common stock the Company to an investor for total cash consideration of $75,000.
On July 29, 2014 the
Company issued 144,054 shares of common stock the Company to an investor for total cash consideration of $34,522. In
addition, the investor received options to purchase 144,054 shares of common stock of the Company for an exercise price of
0.10 cent per share. During April 2015 the investor exercised his option and the Company issued additional 144,054 shares.
During April 2015, a
non-US investor exercised his warrants to purchase shares of common stock of the Company for total consideration of $48,549.
On May 27, 2015 the Company issued consultant 180,000 shares of common stock of the Company in respect of
his 2014 consulting agreement with the Company. The Company has estimated the fair value of such shares and recorded an expense
of $7,560.
During July 2014, the Company issued
a non-US investor 190,000 shares of common stock pursuant to a convertible loan agreement dated June 2013.
During July and August 2014, the Company issued a non-US investor 3,969,133 shares of common stock of the
Company, of which 650,000 were issued pursuant to the April 22, 2014 Consulting Services Agreement signed with the non-US person
and the remaining were issued pursuant to the August 21, 2014 consulting agreement. The Company has estimated the fair value
of such shares and recorded an expense of $970,573.
On July 10, 2014 a loan in the amount
of $24 thousand amount was converted into 115,000 shares of the Company. In addition, the Company granted the investor additional
75,000 shares for granting the loan.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
During July through September, 2014
the Company issued a consultant, 2,177,000 shares of common stock of the Company under his September 10, 2013 and April 22, 2014
consulting agreements. The Company has estimated the fair value of such shares and recorded an expense of $481,810.
On September 21, 2014, the Company
issued 280,592 shares of common stock of the Company for total cash consideration of $59,000.
On September 21, 2014 the
Company issued 48,183 shares of common stock the Company for total cash consideration of $11,557. In addition, the investor
received options to purchase 48,183 shares of common stock of the Company for an exercise price of 0.32 cent per share.
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
4 above.
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. The
Company has estimated the fair value of such shares and options, and recorded an expense of $216,828.
On January 5, 2015 the Company signed
a consulting agreement with Dr. Borenstein Ltd according to which the company issued the consultant 1,000,000 options to purchase
1,000,000 shares of common stock of the Company at an exercise price of $0.001 for one year commencing the date of the agreement.
The Consultant exercised such options at May 27, 2015. The Company has estimated the fair value of such options, and recorded an
expense of $158,024.
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. The Company has estimated the fair value of such shares, and recorded
an expense of $738,353.
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. The Company has estimated
the fair value of such shares, and recorded an expense of $14,103.
In May and June 2015, the Company
issued 3,765,000 shares of the Company to a consultant in respect of his investor relations and public relations services pursuant
to a consulting agreement with the Company. The Company has estimated the fair value of such shares, and recorded an expense of
$150,118.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
In May 2015, the Company issued
3,250,000 shares of the Company to a consultant in respect of his investor relations and public relations services pursuant to
a consulting agreement with the Company. The Company has estimated the fair value of such shares, and recorded an expense of $136,500.
On June 15, 2015 the Company issued
consultant 1,500,000 shares of common stock of the Company in mutual agreement for termination of his June 2014 consulting agreement.
The Company has estimated the fair value of such shares, and recorded an expense of $34,500.
From July through September 2015,
the Company issued 8,035,000 shares of common stock to a consultant in respect of his investor relations and public relations services
consulting agreement with the Company. The Company has estimated the fair value of such shares, and recorded an expense of $198,614.
In August 2015, the Company issued
3,474,405 shares of the Company to Maxim Group LLC in respect of its financial advisor and investment banker agreement with the
Company. The shares have been valued at $34,397.
In August 2015, the Company issued
1,128,237 shares of the Company to a non-U.S. person in respect of its financial advisor and investment banker settlement agreement
with the Company. The Company has estimated the fair value of such shares, and recorded an expense of $13,088.
On April 13, 2015, the Company
entered into a subscription agreement with a non-U.S. person pursuant to which the Company issued 416,667 shares of common stock
in exchange for $25,000.
On April 15, 2015, the Company
entered into a Subscription Agreement with Dr. Borenstein Ltd. (the “April Borenstein Subscription Agreement”) pursuant
to which the Company agreed to sell 1,630,000 shares of common stock of the Company for the aggregate purchase price of $48,000.
Such shares have been issued after the balance sheet date.
On June 12, 2015, the Company
entered into a Subscription Agreement with Dr. Borenstein Ltd. (the “June Borenstein Subscription Agreement”) pursuant
to which the Company agreed to sell 8,484,848 shares of common stock of the Company for the aggregate purchase price of $140,000.
Such shares have been issued after the balance sheet date.
On July 1, 2015, the Company
entered into a subscription agreement with a non-U.S. person pursuant to which the Company issued 2,000,000 shares of common stock
in exchange for $32,000.
On July 6, 2015, the Company
entered into a subscription agreement with several non-U.S. entity pursuant to which the Company issued 2,428,571 shares of common
stock in exchange for $51,000.
On July 17, 2015, the Company
entered into a subscription agreement with several non-U.S. personnel pursuant to which the Company issued 2,318,183 shares of
common stock in exchange for $39,394.
From February through August
2015, convertible promissory notes holders representing an aggregate principal amount of $1,480,716 converted their notes into
75,060,414 shares of the Company’s common stock.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
6 – COMMON SHARES (continue)
Share Repurchase
Program
On
June 17, 2015, the Company’s Board of Directors approved a share repurchase program (the “Share Repurchase Program”).
Under the Share Repurchase Program, the Company is authorized to repurchase up to $500,000 worth of its common stock, which, based
on the value of the Company’s common stock on September 30, 2015, equates to approximately 16,666,667 shares of common stock.
However, the total number of shares could differ based on the ultimate price per share paid by the Company. Further, the Company’s
shares of common stock may be purchased on the open market or through privately negotiated transactions from time-to-time and
in accordance with applicable laws, rules and regulations. The Company is not obligated to make any purchases, including at any
specific time or in any particular situation. The program may be limited or terminated at any time without prior notice. As of
September 30, 2015, the Company had not repurchased any shares under the Share Repurchase Program. On June 23, 2015, the Company
repurchased 144,054 shares from a shareholder for $28,328 as part of a settlement with such shareholder. This repurchase was not
pursuant to the Share Repurchase Program.
Reverse stock
split
On November 26, 2013, the Company
amended and restated its Articles of Incorporation to authorize the issuance of 500,000,000 shares of preferred stock, $0.001 par
value, in one or more series and with such rights, preferences and privileges as its Board of Directors may determine and to effect
a 1 for 113 reverse stock split of the Company’s outstanding common stock. In addition, the Amended and Restated Articles
of Incorporation provide, among other things, for indemnification and limitations to the liability of the Company’s officers
and directors.
As a result of the reverse stock
split, which became effective on December 4, 2013, every 113 shares of the Company’s outstanding common stock prior to the
effect of that amendment was combined and reclassified into one share of the Company’s common stock, and the number of outstanding
shares of the Company’s common stock was reduced from 1,292,103,309 to 11,434,611 shares.
All share, stock option and per
share information in these consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis.
NOTE
7 – STOCK OPTIONS
The 2010 share option plan was established
on March 3, 2010.
On February 24, 2015, the Company’s
Board of Directors approved and adopted the Global Share and Options Incentive Enhancement Plan (2014) (the “2014 Plan”),
pursuant to which the Company may award shares of its common stock, options to purchase shares of its common stock and other equity-based
awards to eligible participants. The 2014 Plan replaced the Company’s Global Share Incentive Plan (2010) (the “2010
Plan”). Subject to the terms and conditions of the 2014 Plan, the Board of Directors has full authority in its discretion,
from time to time and at any time, to determine (i) eligible participants in the 2014 Plan, (ii) the number of options or shares
to be covered by an award, (iii) the time or times at which an award shall be granted, (iv) the vesting schedule and other terms
and conditions of an award, (v) the form(s) of written agreements applicable to an award, and (vi) any other matter which is necessary
or desirable for, or incidental to, the administration of the 2014 Plan and the granting of awards thereunder.
BLUE SPHERE
CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
7 –
STOCK OPTIONS
(continue)
The 2014 Plan permits the grant
of up to 13,100,000 shares of common stock and up to 3,175,000 options to purchase shares of common stock to certain of its managers,
directors and key employees. The shares will vest on a quarterly basis over a two-year period, and the options will vest on a quarterly
basis over a two-year period with an exercise price of $0.14 per share.
Prior to approving the 2014 Plan,
on February 24, 2015, the Board of Directors approved a grant of up to 2,575,000 shares of common stock to certain of its managers,
directors and key employees under the 2010 Plan, of which 1,875,000 shares were issued as of September 30, 2015.
The following table presents the
Company’s stock option activity for employees and directors of the Company for the years ended September 30, 2013 through
2015:
The fair value of the stock options
granted in 2013 was estimated using the Black-Scholes option valuation model that used the following assumptions:
The fair value of the options granted
above using the Black-Scholes model is $0.565 per option.
The fair value of the options granted
above using the Black-Scholes model is between $0.190 to $0.214 per option.
The fair value of the stock options
granted in 2015 was estimated using the Black-Scholes option valuation model that used the following assumptions:
The fair value of the options granted
above using the Black-Scholes model is $0.111 per option.
Costs incurred in respect of stock
based compensation for employees and directors, for the year ended September 30, 2015, 2014 and 2013 were $231, $1,711 and $203
thousands respectively.
The following table summarizes information
about options and warrants to employees, officers and directors outstanding at September 30, 2015 under the plans:
As of September 30, 2015 the aggregated
intrinsic value for the options vested and exercisable was $2.5 thousands with a weighted average remaining contractual life of
1.65 years.
The unrecognized compensation expense
calculated under the fair value method for the stock options expected to vest as of September 30, 2015 is $249,962 and is expected
to be recognized over a weighted average period of 1.5 years.
The weighted average grant date
fair value of the options granted in 2015, 2014 and 2013 was $0.111, $0.192, $0.565 respectively.
US resident companies are taxed
on their worldwide income for corporate income tax purposes at a statutory rate of 35%. No further taxes are payable on this profit
unless that profit is distributed. If certain conditions are met, income derived from foreign subsidiaries is tax exempt in the
US under applicable tax treaties to avoid double taxation.
Taxable income of Israeli companies
is subject to tax at the rate of 25% in 2013, 26.5% in the year 2014 and 25% in the year 2015 and onwards.
The Company accounts for income
taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences
between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which differences
are expected to reverse. Deferred tax assets are adjusted by a valuation allowance, if, based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred income taxes reflect the
net effects of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The breakdown of the deferred tax asset as of September 30 2015, 2014 and 2013 is as follows:
A valuation allowance is provided
when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has determined, based
on its recurring net losses, lack of a commercially viable product and limitations under current tax rules, that a full valuation
allowance is appropriate.
Carry forward losses of the Company
are approximately $14,130 thousand at September 30, 2015 and available throughout 2035.
Carry forward losses of the Israeli
subsidiary are approximately $3,138 thousand at September 30, 2015 and have no expiration date.
On January 31, 2012, the Company
lent an Israeli company, CTG Clean Technology Group Limited (the “Borrower”), U.S. $30,000 at an annual rate of interest
of eight percent (8%). The purpose of this loan was to provide the borrower capital to continue its operations while the Company
considered acquiring such company. On February 8, 2012, the Company received the cash to make such loan to the borrower from a
Cyprus company (JLS Investment Holding). As of December 30, 2012 such loan had been written-off in whole. In May 2015, CTG had
repaid the loan in full and the company recorded incomes in the amount of $38 thousands.
On October 21, 2015 the Company issued
1,630,000 and 8,484,848 shares of common stock of the Company in respect of the April Borenstein Subscription Agreement and June
Borenstein Subscription Agreement, respectively.
In September
2014, the Company entered into a letter of intent to acquire Kinexia S.p.A.’s right, interest and title in, to and under
four biogas projects in the Vigevano area in Italy. The letter of intent also provides for the purchase of three additional biogas
projects in the Emillia-Romagna and Lazio regions upon the same principals set forth in the letter of intent and subject to definitive
agreements.
Pursuant
to the Share Purchase Agreement, the Company paid an aggregate purchase price of $5,837,308 (€5,200,000) (the “Purchase
Price”), subject to certain post-closing adjustments, to acquire the share capital of the SPVs. Fifty percent (50%) of the
Purchase Price, adjusted for certain closing costs, was paid at closing, and the balance is due to the Sellers on the third anniversary
of the closing date. The portion of the Purchase Price paid at closing was primarily financed by a loan of $3,255,422 (€2,900,000)
pursuant to a Long Term Mezzanine Loan Agreement, dated August 18, 2015 (the “Loan Agreement”), by and among the Company,
its wholly-owned subsidiary, Eastern Sphere Ltd. (“Eastern Sphere”), Eastern Sphere’s wholly-owned subsidiary,
Bluesphere Italy, and Helios Italy Bio-Gas 1 L.P.
On August
18, 2015, the Company and two of its wholly-owned subsidiaries, Eastern Sphere Ltd. (“Eastern Sphere”) and BlueSphere
Italy, entered into a Long Term Mezzanine Loan Agreement (the “Helios Loan Agreement”) with Helios Italy Bio-Gas 1
L.P. (“Helios”). Under the Helios Loan Agreement, Helios will make up to $5,612,796 (€5,000,000) available to
Bluesphere Pavia (the “Helios Loan”) to finance (a) ninety percent (90%) of the total required investment of the first
four SVPs acquired, (b) eighty percent (80%) of the total required investment of up to three SVPs subsequently acquired, (c) certain
broker fees incurred in connection with the acquisitions, and (d) any taxes associated with registration of an equity pledge agreement
(as described below). Each financing of an SVP acquisition will be subject to specified conditions precedent and will constitute
a separate loan under the Helios Loan Agreement. Helios may, within 90 days of a closing, require repayment of ten percent (10%)
of the relevant loan and broker fees. If no such repayment is required, Helios may reduce the amount of its commitment to finance
the acquisitions of the three additional SVPs to seventy to eighty percent (70-80%) of the total required investment. Helios’s
commitment to provide any loan under the Helios Loan Agreement that is not utilized by June 30, 2016 will automatically cancel,
unless extended in writing by Helios.
Subject to
specified terms, representations and warranties, the Helios Loan Agreement provides that each loan thereunder will accrue interest
at a rate of 14.5% per annum, paid quarterly. Helios will also be entitled to an annual operation fee, paid quarterly. The final
payment for each loan will become due no later than the earlier of (a) thirteen and one half years from the date such loan was
made available to Bluesphere Italy, and (b) the date that the Feed in Tariff license granted to the relevant SVP expires. Pursuant
to the Helios Loan Agreement and an equity pledge agreement, Eastern Sphere pledged all its shares in Bluesphere Pavia to secure
all loan amounts utilized under the Helios Loan Agreement.
The Company
also entered into a no-interest bearing promissory note, dated December 8, 2015 (the “Palas Promissory Note”), with
R.S. Palas Management Ltd. to finance a small portion of the Purchase Price. The Palas Promissory Note is for an amount of $132,462
(€118,000) and is due and payable, without interest or premium, on December 31, 2015. The payee under the Palas Promissory
Note, R.S. Palas Management Ltd., is an entity owned and controlled by Shlomi Palas, the Company’s President and Chief Executive
Officer and a member of its Board of Directors.
In accordance
with a Framework EBITDA Guarantee Agreement, dated July 17, 2015 (the “EBITDA Agreement”), between the Company and
Austep S.p.A. (“Austep”), Austep will operate, maintain and supervise each biogas plant owned by the SPVs. In addition,
Austep will guarantee a monthly aggregate EBITDA of $211,041 (€188,000) from the four SPVs for the initial six months following
the acquisition, and thereafter Austep will guarantee an annual aggregate EBITDA of $4,220,823 (€3,760,000) from the four
SPVs. Pursuant to the terms of the agreements with Austep, the Company will receive the guaranteed levels of EBITDA and Austep
will receive any revenue in excess of these levels.
Beginning
in November 2015, the Company conducted an offering (the “Offering”) of up to $3,000,000 of the Company's Senior Debentures
(the “Debentures”) and Warrants (the “Warrants”, together with the “Debentures”, the “Securities”)
to purchase up to 8,000,000 shares of common stock of the Company, par value $0.001 per share, in proportion pro rata to each Subscriber’s
subscription amount relative to the total Offering amount, with 50% of the shares exercisable at a price per share of $0.05 and
the other 50% of the shares exercisable at price per share of $0.075.
The
Debentures will bear interest at 11%, paid quarterly, and will mature in two years. The Debentures are secured by a pledge agreement
between the Company and each investor, whereby the Company pledged as collateral up to 49% of its shares of common stock in Eastern
Sphere, Ltd., our wholly-owned subsidiary (the “Pledge Agreement”). The Pledge Agreement further provides that the
Company's obligations under the Debentures rank senior to all other indebtedness of Blue Sphere Corporation, but are subordinate
to all indebtedness and liabilities of its subsidiaries and project-level operating entities. The Warrants are exercisable for
5 years from the date of issuance, with 50% exercisable at $0.05 per share and 50% exercisable at $0.075 per share
The
Securities are being offered pursuant to subscription agreements with each investor (the “Subscription Agreement”).
Pursuant to the Subscription Agreements, the investors in the Offering shall have the right to collectively designate one observer
or member to the Company’s Board of Directors.
On December
23, 2015, the Company completed the only closing of the Offering and entered into Subscription Agreements with investors representing
aggregate gross proceeds to the Company of $3,000,000.
The
Company engaged Maxim Group LLC (“Maxim”) to assist in the Offering. Pursuant to the terms of an engagement letter
between Maxim and the Company, Maxim received commissions equal to 7% of the gross proceeds raised by Maxim in the Offering, as
well as common stock purchase warrants for a number of securities equal to 8% of the total amount of securities sold in the Offering,
at a price per share equal to 110% of the price of the securities paid by investors in the Offering.
BLUE
SPHERE CORP.
STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
(U.S.
dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.001 Par Value
|
|
Proceeds
on account
of Shares
|
|
Treasury
Shares
|
|
Additional
paid-in
Capital
|
|
Accumulated
deficit
|
|
Total
Stockholders’
deficiency
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT SEPTEMBER 30, 2015
(audited)
|
|
|
167,952,595
|
|
|
$
|
1,244
|
|
|
$
|
20
|
|
|
|
(28
|
)
|
|
$
|
39,474
|
|
|
$
|
(43,404
|
)
|
|
$
|
(2,694
|
)
|
CHANGES
DURING THE PERIOD OF THREE MONTHS ENDED DECEMBER 31, 2015
(Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
Issuance
of shares for services
|
|
|
2,435,000
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
49
|
|
Issuance
of common stock, net of issuance costs
|
|
|
10,114,848
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
188
|
|
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,297
|
)
|
|
|
(1,297
|
)
|
BALANCE
AT DECEMBER 31, 2015
(Unaudited)
|
|
|
180,502,443
|
|
|
$
|
1,256
|
|
|
$
|
20
|
|
|
$
|
(28
|
)
|
|
$
|
39,764
|
|
|
$
|
(44,701
|
)
|
|
$
|
(3,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.001 Par Value
|
|
Proceeds
on account
of Shares
|
|
Additional
paid-in Capital
|
|
Accumulated deficit
|
|
Total
Stockholders
deficiency
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT SEPTEMBER 30, 2014
(audited)
|
|
|
50,109,036
|
|
|
$
|
1,126
|
|
|
$
|
20
|
|
|
$
|
35,106
|
|
|
$
|
(35,942
|
)
|
|
$
|
310
|
|
CHANGES DURING THE PERIOD OF THREE MONTHS ENDED DECEMBER 31, 2014
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
97
|
|
Issuance of shares for services
|
|
|
544,041
|
|
|
|
1
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
94
|
|
Issuance of common stock in respect of issuance of convertible notes
|
|
|
471,967
|
|
|
|
—
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
Issuance of convertible debentures containing a beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
322
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,314
|
)
|
|
|
(1,314
|
)
|
BALANCE AT DECEMBER 31, 2014
(Unaudited)
|
|
|
51,125,044
|
|
|
$
|
1,127
|
|
|
$
|
20
|
|
|
$
|
35,662
|
|
|
$
|
(37,256
|
)
|
|
$
|
(447
|
)
|
The
accompanying notes are an integral part of the consolidated financial statements.
BLUE
SPHERE CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.
dollars in thousands)
|
|
Three
months ended
December 31
|
|
|
2015
|
|
2014
|
|
|
(Unaudited)
|
|
(Unaudited)
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net
loss for the period
|
|
$
|
(1,297
|
)
|
|
$
|
(1,314
|
)
|
Adjustments
required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share
based compensation expenses
|
|
|
65
|
|
|
|
97
|
|
Depreciation
|
|
|
68
|
|
|
|
1
|
|
Equity
losses in nonconsolidated subsidiary
|
|
|
—
|
|
|
|
19
|
|
Expenses
in respect of convertible note
s and
loans
|
|
|
322
|
|
|
|
422
|
|
Changes
in Warrants to issue shares
|
|
|
219
|
|
|
|
—
|
|
Issuance
of shares for services
|
|
|
49
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
Decrease
in trade account receivables
|
|
|
893
|
|
|
|
—
|
|
Increase
in other current assets
|
|
|
(259
|
)
|
|
|
(21
|
)
|
Decrease
in accounts payables
|
|
|
(43
|
)
|
|
|
(5
|
)
|
Decrease
in other account payables
|
|
|
(152
|
)
|
|
|
(3
|
)
|
Decrease
in other long term assets
|
|
|
(2
|
)
|
|
|
—
|
|
Net
cash used in operating activities
|
|
|
(137
|
)
|
|
|
(710
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisitions
of subsidiaries, net of cash acquired (Annex A)
|
|
|
(2,130
|
)
|
|
|
—
|
|
Investment
in nonconsolidated subsidiary
|
|
|
—
|
|
|
|
(24
|
)
|
Purchase
of property and equipment
|
|
|
—
|
|
|
|
(36
|
)
|
Net
cash used in investing activities
|
|
|
(2,130
|
)
|
|
|
(60
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loans
received
|
|
|
3,378
|
|
|
|
37
|
|
Proceeds
from issuance of debenture and warrants
|
|
|
2,672
|
|
|
|
—
|
|
Loans
repaid
|
|
|
(1,241
|
)
|
|
|
(7
|
)
|
Proceeds
from issuance of convertible debenture
|
|
|
—
|
|
|
|
560
|
|
Net
cash provided by financing activities
|
|
|
4,809
|
|
|
|
590
|
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
2,542
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT
OF CHANGES IN EXCHANGE RATES ON CASH BALANCES IN FOREIGN CURRENCIES
|
|
|
29
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
161
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
2,732
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
TRANSACTION:
|
|
|
|
|
|
|
|
|
Loans
exercised into equity
|
|
|
188
|
|
|
|
—
|
|
BLUE
SPHERE CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.
dollars in thousands)
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
Interest
|
|
$
|
67
|
|
|
$
|
—
|
|
Income
taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Three
months ended
December 31
|
|
|
2015
|
|
2014
|
|
|
(Unaudited)
|
|
(Unaudited)
|
ANNEX
A
|
|
|
|
|
Acquisition
of subsidiaries, net of cash acquired :
|
|
|
|
|
Working
capital, excluding cash and cash equivalents
|
|
$
|
1,070
|
|
|
$
|
—
|
|
Property
and equipment
|
|
|
(17,738
|
)
|
|
|
—
|
|
Long
term liabilities
|
|
|
24,485
|
|
|
|
—
|
|
Other
long term assets
|
|
|
(5,981
|
)
|
|
|
—
|
|
Intangible
assets
|
|
|
(3,966
|
)
|
|
|
—
|
|
|
|
|
(2,130
|
)
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial statement
BLUE
SPHERE
CORP.
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 audited 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 condensed 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, 2015, as filed with the
U.S. Securities and Exchange Commission. The results of operations for the three months ended December 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”), Johnstonsphere LLC (“Johnstonsphere”), and Sustainable Energy Ltd. (“SEL”),
is focused on project integration in the clean energy production and waste to energy markets.
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. On February 17, 2010, the Company conducted a reverse merger, name change and forward split of its
common stock, and in March 2010 current management took over operations, at which point the Company changed its business focus
to become a project integrator in the clean energy production and waste to energy markets.
As
of December 31, 2015, Johnstonsphere had not commenced operations.
On
May 12, 2015 the Company formed Bluesphere Pavia (formerly called Bluesphere Italy S.r.l.). Italy S.r.l, a subsidiary of Eastern
in order to acquire certain biogas plants located in Italy (see note 3 below).
The
Company is currently focusing on (i) 10 projects related to the construction, acquisition or development of biogas facilities
and (ii) a recently licensed fast charging battery technology.
BLUE
SPHERE
CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
3 – INVESTMENT IN BLUE SPHERE PAVIA
In
September 2014, the Company entered into a letter of intent to acquire Kinexia S.p.A.’s right, interest and title in, to
and under four biogas projects in the Vigevano area in Italy. The letter of intent also provides for the purchase of three additional
biogas projects in the Emillia-Romagna and Lazio regions upon the same principals set forth in the letter of intent and subject
to definitive agreements.
On
December 14, 2015, and pursuant to a Share Purchase Agreement, dated May 14, 2015 ( the “Share Purchase Agreement”),
by and among the Company’s indirect wholly-owned subsidiary, Bluesphere Pavia. (formerly called Bluesphere Italy S.r.l.).
(“Bluesphere Pavia”), and Volteo Energie S.p.A., Agriholding S.r.l., and Overland S.r.l. (collectively, the “Sellers”),
Bluesphere Pavia completed the acquisitions of one hundred percent (100%) of the share capital of Agricerere S.r.l., Agrielektra
S.r.l., Agrisorse S.r.l. and Gefa S.r.l . (each, an “SPV” and collectively, the “SPVs”) from the Sellers.
Each SPV owns and operates an anaerobic digestion biogas plant in Italy for the production and sale of electricity to Gestore
del Servizi Energetici GSE, S.p.A., a state-owned company, pursuant to a power purchase agreement. Pursuant to the Italy Projects
Agreement, the Company also issued a corporate guarantee to the Sellers, whereby the Company will secure the obligations of Bluesphere
Pavia under the Italy Projects Agreement.
Pursuant
to the Share Purchase Agreement, the Company paid an aggregate purchase price of $5,646,628 (€5,200,000) (the “Purchase
Price”), subject to certain post-closing adjustments, to acquire the share capital of the SPVs. Fifty percent (50%) of the
Purchase Price, adjusted for certain closing costs, was paid at closing, and the balance is due to the Sellers on the third anniversary
of the closing date. The portion of the Purchase Price paid at closing was primarily financed by a loan of $3,149,081 (€2,900,000)
pursuant to a Long Term Mezzanine Loan Agreement, dated August 18, 2015 (the “Loan Agreement”), by and among the Company,
its wholly-owned subsidiary, Eastern Sphere Ltd. (“Eastern Sphere”), Eastern Sphere’s wholly-owned subsidiary,
Bluesphere Italy, and Helios Italy Bio-Gas 1 L.P.
On
August 18, 2015, the Company and two of its wholly-owned subsidiaries, Eastern Sphere Ltd. (“Eastern Sphere”) and
BlueSphere Italy, entered into a Long Term Mezzanine Loan Agreement (the “Helios Loan Agreement”) with Helios Italy
Bio-Gas 1 L.P. (“Helios”). Under the Helios Loan Agreement, Helios will make up to $5,646,628 (€5,000,000) available
to Bluesphere Pavia (the “Helios Loan”) to finance (a) ninety percent (90%) of the total required investment of the
first four SVPs acquired, (b) eighty percent (80%) of the total required investment of up to three SVPs subsequently acquired,
(c) certain broker fees incurred in connection with the acquisitions, and (d) any taxes associated with registration of an equity
pledge agreement (as described below). Each financing of an SVP acquisition will be subject to specified conditions precedent
and will constitute a separate loan under the Helios Loan Agreement. Helios may, within 90 days of a closing, require repayment
of ten percent (10%) of the relevant loan and broker fees. If no such repayment is required, Helios may reduce the amount of its
commitment to finance the acquisitions of the three additional SVPs to seventy to eighty percent (70-80%) of the total required
investment. Helios’s commitment to provide any loan under the Helios Loan Agreement that is not utilized by June 30, 2016
will automatically cancel, unless extended in writing by Helios.
BLUE
SPHERE
CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
3 – INVESTMENT IN BLUE SPHERE PAVIA
Subject
to specified terms, representations and warranties, the Helios Loan Agreement provides that each loan thereunder will accrue interest
at a rate of 14.5% per annum, paid quarterly. Helios will also be entitled to an annual operation fee, paid quarterly. The final
payment for each loan will become due no later than the earlier of (a) thirteen and one half years from the date such loan was
made available to Bluesphere Italy, and (b) the date that the Feed in Tariff license granted to the relevant SVP expires. Pursuant
to the Helios Loan Agreement and an equity pledge agreement, Eastern Sphere pledged all its shares in Bluesphere Pavia to secure
all loan amounts utilized under the Helios Loan Agreement.
The
Company also entered into a no-interest bearing promissory note, dated December 8, 2015 (the “Palas Promissory Note”),
with R.S. Palas Management Ltd. to finance a small portion of the Purchase Price. The Palas Promissory Note is for an amount of
$129,146 (€118,000) and is due and payable, without interest or premium, on December 31, 2015. The payee under the Palas
Promissory Note, R.S. Palas Management Ltd., is an entity owned and controlled by Shlomi Palas, the Company’s President
and Chief Executive Officer and a member of its Board of Directors.
In
accordance with a Framework EBITDA Guarantee Agreement, dated July 17, 2015 (the “EBITDA Agreement”), between the
Company and Austep S.p.A. (“Austep”), Austep will operate, maintain and supervise each biogas plant owned by the SPVs.
In addition, Austep will guarantee a monthly aggregate EBITDA of $204,147 (€188,000) from the four SPVs for the initial six
months following the acquisition, and thereafter Austep will guarantee an annual aggregate EBITDA of $4,082,946 (€3,760,000)
from the four SPVs. Pursuant to the terms of the agreements with Austep, the Company will receive the guaranteed levels of EBITDA
and Austep will receive any revenue in excess of these levels.
BLUE
SPHERE
CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
4 – INTERIM FINANCIAL STATEMENTS
The
accompanying unaudited interim consolidated financial statements as of December 31, 2015 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, 2015 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2016.
The
September 30, 2015 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, 2015.
NOTE
5 – SIGNIFICANT ACCOUNTING POLICIES
The
significant accounting policies applied in the annual financial statements of the Company as of September 30, 2015, are applied
consistently in these financial statements except for the following:
|
a.
|
Business
combinations and Goodwill
|
The
Company accounts for its business combinations using the purchase method of accounting. Under this method, the Company allocates
the purchase price to tangible and intangible assets acquired and liabilities assumed based on estimated fair values at the date
of acquisition, with the excess of the purchase price amount being allocated to goodwill.
Acquisition-related
and integration costs associated to the business combination are expensed as incurred. Changes in estimates associated with future
income tax assets after measurement period are recognized as income tax expense with prospective application to all business combinations
regardless of the date of acquisition.
Goodwill
for each reporting unit is assessed for impairment at least annually, or when an event or circumstance occurs that more likely
than not reduces the fair value of a reporting unit below its carrying amount. An impairment charge is recorded when the carrying
amount of the reporting unit exceeds its fair value and is determined as the difference between the goodwill’s carrying
amount and its implied fair value.
Intangible
assets consist of allocated acquisition costs of PPAs, which are amortized using the straight-line method over the 15 year terms
of the agreements (see Note 3).
When
events or changes in circumstances indicate that the carrying amount of long-lived assets, such as capital assets and intangible
assets, may not be recoverable, undiscounted estimated cash flows are projected over their remaining term and compared to the
carrying amount. To the extent that such projections indicate that future undiscounted cash flows are not sufficient to recover
the carrying amounts of related assets, a charge is recorded to reduce the carrying amount to the projected future discounted
cash flows.
BLUE
SPHERE
CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
5 – SIGNIFICANT ACCOUNTING POLICIES (continue)
Revenues
related to the sale of electricity are recorded based upon output delivered and capacity provided at rates specified under relevant
contract terms.
NOTE
6 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of
December 31, 2015, the Company had approximately $2,732 thousand in cash and cash equivalents, approximately $17,191 thousand
in negative working capital, a stockholders’ deficit of approximately $3,689 thousand and an accumulated deficit of
approximately $44,701 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. Company’s ability to continue as a going
concern is dependent upon raising capital from financing transactions and revenue from operations.
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.
NOTE
7 – 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, 2015 was filed.
NOTE
8 – COMMON SHARES:
On
October 21, 2015 the Company issued 1,630,000 shares of common stock of the Company for the aggregate purchase price of $48,000.
Such issuance was made pursuant to the April 15, 2015, Subscription Agreement with Dr. Borenstein Ltd. (the “April Borenstein
Subscription Agreement”).
On
October 21, 2015 the Company issued 8,484,848 shares of common stock of the Company for the aggregate purchase price of $140,000.
Such issuance was made pursuant to the April 15, 2015, Subscription Agreement with Dr. Borenstein Ltd. (the “April Borenstein
Subscription Agreement”).
On
October 26, 2015 and December 2, 2015, the Company issued 2,060,000 shares of common stock to a consultant in respect of his investor
relations and public relations services consulting agreements with the Company. The Company has estimated the fair value of such
shares, and recorded an expense of $40,579.
On
October 12, 2015, the Company issued 375,000 shares of common stock to a consultant in respect of its general advisory services
and strategic planning consulting agreement with the Company. The Company has estimated the fair value of such shares, and recorded
an expense of $8,438.
BLUE
SPHERE
CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
9 – DEBENTURES AND NOTES:
Senior
Debentures
offering
Beginning
in November 2015, the Company conducted an offering (the “Offering”) of up to $3,000,000 of the Company’s Senior
Debentures (the “Debentures”) and Warrants (the “Warrants”, together with the “Debentures”,
the “Securities”) to purchase up to 8,000,000 shares of common stock of the Company, par value $0.001 per share, in
proportion pro rata to each Subscriber’s subscription amount relative to the total Offering amount, with 50% of the shares
exercisable at a price per share of $0.05 and the other 50% of the shares exercisable at price per share of $0.075.
The
Debentures bear interest at 11%, paid quarterly, and mature in two years. The Debentures are secured by a pledge agreement between
the Company and each investor, whereby the Company pledged as collateral up to 49% of its shares of common stock in Eastern Sphere,
Ltd., our wholly-owned subsidiary (the “Pledge Agreement”). The Pledge Agreement further provides that the Company’s
obligations under the Debentures rank senior to all other indebtedness of Blue Sphere Corporation, but are subordinate to all
indebtedness and liabilities of its subsidiaries and project-level operating entities. The Warrants are exercisable for 5 years
from the date of issuance, with 50% exercisable at $0.05 per share and 50% exercisable at $0.075 per share
The
warrants were accounted for as derivative liabilities. The Company has estimated the fair value of such warrants at a value of
$208,597 at the date of issuance using the Black-Scholes option pricing model using the following assumptions:
|
|
%
|
Dividend
yield
|
|
|
0
|
|
Risk-free
interest rate
|
|
|
1.74
|
%
|
Expected
term (years)
|
|
|
5
|
|
Volatility
|
|
|
202
|
%
|
The
Securities were offered pursuant to subscription agreements with each investor (the “Subscription Agreement”). Pursuant
to the Subscription Agreements, the investors in the Offering shall have the right to collectively designate one observer or member
to the Company’s Board of Directors.
On
December 23, 2015, the Company completed the closing of the Offering and entered into Subscription Agreements with investors representing
aggregate gross proceeds to the Company of $3,000,000.
The
Company engaged Maxim Group LLC (“Maxim”) to assist in the Offering. Pursuant to the terms of an engagement letter
between Maxim and the Company, Maxim received commissions equal to 7% of the gross proceeds raised by Maxim in the Offering, as
well as common stock purchase warrants for a number of securities equal to 8% of the total amount of securities sold in the Offering,
at a price per share equal to 110% of the price of the securities paid by investors in the Offering. Based on the agreement the
Company granted Maxim 4,480,000 warrants at an average exercise price of $ 0.06875.
BLUE
SPHERE
CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
10 – SUBSEQUENT EVENTS:
On
January 26, 2016 the Company issued 1,000,000 shares of common stock of the Company to a consultant in consideration for financial
consulting services.
In
February 2016, the Company conducted an offering (the “Offering”) consisting of (a) up to USD $1,925,000 of the Company’s
shares of common stock, par value $0.001 per share (“Common Stock”), priced at the closing price for shares of Common
Stock, as reported on the OTCQB Venture Marketplace, on the trading day prior to the closing of the Offering, and (b) 5-year warrants
to purchase shares of Common Stock in an amount equal to 50% of the number of shares of Common Stock so purchased by the subscriber
(the “Warrants”, together with the shares of Common Stock subscribed for, the “Securities”).
The
Securities have been offered pursuant to subscription agreements with each investor (the “Subscription Agreement”).
In addition to other customary provisions, each Subscription Agreement provides that the Company will use its reasonable commercial
efforts to register all shares of Common Stock sold in the Offering, including all shares of Common Stock underlying the Warrants,
within 60 days of the closing of the Offering. The Warrants are exercisable for 5 years from the date of issuance at $0.10 per
share, include an option by which the holder may exercise the Warrant by means of a cashless exercise, and include customary weighted-average
price adjustment and anti-dilution terms.
On
February 15, 2016, the Company completed the only closing of the Offering, representing aggregate gross proceeds to the Company
of USD $1,925,000. In connection with the closing, the Company and subscribers entered into (a) Subscription Agreements for, in
the aggregate, 35,000,000 shares of Common Stock at $0.055 per share, and (b) Warrants to purchase, in the aggregate, up to 17,500,000
shares of Common Stock at an exercise price of $0.10 per share.
The
Company engaged Maxim Group LLC (“Maxim”) to assist in the Offering. Pursuant to the terms of an engagement letter
between Maxim and the Company, Maxim received commissions equal to 7% of the gross proceeds raised by Maxim in the Offering, as
well as common stock purchase warrants for a number of securities equal to 8% of the total amount of securities sold in the Offering,
at a price per share equal to 110% of the price of the securities paid by investors in the Offering.
BLUE
SPHERE CORP.
INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JUNE 30, 2016
TABLE OF CONTENTS
BLUE SPHERE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands except share
and per share data)
|
|
June 30,
2016
|
|
September 30,
2015
|
|
|
Unaudited
|
|
Audited
|
Assets
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,280
|
|
|
$
|
161
|
|
Trade account receivables
|
|
|
861
|
|
|
|
—
|
|
Other current assets
|
|
|
525
|
|
|
|
21
|
|
Total current assets
|
|
|
2,666
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT,
net of accumulated depreciation
|
|
|
17,938
|
|
|
|
31
|
|
OTHER LONG TERM ASSETS
|
|
|
6,137
|
|
|
|
—
|
|
INVESTMENTS IN JOINT VENTURES
|
|
|
8,927
|
|
|
|
4,952
|
|
INTANGIBLE ASSETS
|
|
|
3,967
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
39,635
|
|
|
$
|
5,165
|
|
Liabilities and Stockholders’ Deficiency
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Current maturities of long term loan
|
|
$
|
1,711
|
|
|
$
|
32
|
|
Accounts payables
|
|
|
3,475
|
|
|
|
58
|
|
Other accounts payable and liabilities
|
|
|
1,443
|
|
|
|
681
|
|
Debentures, notes and loans
|
|
|
84
|
|
|
|
519
|
|
Deferred revenues from joint ventures
|
|
|
10,409
|
|
|
|
6,434
|
|
Total current liabilities
|
|
|
17,122
|
|
|
|
7,724
|
|
|
|
|
|
|
|
|
|
|
LONG TERM BANK LOANS
|
|
|
18,888
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LOANS AND LIABILITIES
|
|
|
6,855
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
DEBENTURES
|
|
|
2,410
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
WARRANTS TO ISSUE SHARES
|
|
|
2,647
|
|
|
|
—
|
|
STOCKHOLDERS’ DEFICIENCY:
|
|
|
|
|
|
|
|
|
Common shares of $0.001 par value each:
|
|
|
|
|
|
|
|
|
Authorized: 1,750,000,000 shares at June 30, 2016 and September 30, 2015. Issued and outstanding: 243,051,884 shares and 167,952,595 shares at June 30, 2016 and September 30, 2015, respectively
|
|
|
1,318
|
|
|
|
1,244
|
|
Proceeds on account of shares
|
|
|
—
|
|
|
|
20
|
|
Treasury shares
|
|
|
(28
|
)
|
|
|
(28
|
)
|
Accumulated other comprehensive income
|
|
|
46
|
|
|
|
—
|
|
Additional paid-in capital
|
|
|
42,293
|
|
|
|
39,474
|
|
Accumulated deficit
|
|
|
(51,916
|
)
|
|
|
(43,404
|
)
|
Total Stockholders’ Deficiency
|
|
|
(8,287
|
)
|
|
|
(2,694
|
)
|
Total liabilities and Stockholders’ Deficiency
|
|
$
|
39,635
|
|
|
$
|
5,165
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements.
BLUE SPHERE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(U.S. dollars in thousands except share
and per share data)
|
|
Six months ended
June 30
|
|
Three months ended
June 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
REVENUES
|
|
$
|
2,706
|
|
|
$
|
—
|
|
|
$
|
1,303
|
|
|
$
|
—
|
|
COST OF REVENUES
|
|
|
(2,323
|
)
|
|
|
—
|
|
|
|
(1,007
|
)
|
|
|
—
|
|
GROSS INCOME
|
|
|
383
|
|
|
|
—
|
|
|
|
296
|
|
|
|
—
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
4,590
|
|
|
|
3,450
|
|
|
|
2,809
|
|
|
|
2,439
|
|
Other income
|
|
|
(102
|
)
|
|
|
(57
|
)
|
|
|
—
|
|
|
|
(38
|
)
|
OPERATING LOSS
|
|
|
4,105
|
|
|
|
3,393
|
|
|
|
2,513
|
|
|
|
2,401
|
|
FINANCIAL EXPENSES, net
|
|
|
3,110
|
|
|
|
1,551
|
|
|
|
1,131
|
|
|
|
732
|
|
NET LOSS FOR THE PERIOD
|
|
$
|
7,215
|
|
|
$
|
4,944
|
|
|
$
|
3,644
|
|
|
$
|
3,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
(0.035
|
)
|
|
$
|
(0.068
|
)
|
|
$
|
(0.017
|
)
|
|
$
|
(0.040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding during the period - basic and diluted
|
|
|
210,663,024
|
|
|
|
72,482,628
|
|
|
|
225,772,114
|
|
|
|
79,543,760
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements.
BLUE SPHERE CORP.
CONDENSED
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS
(U.S. dollars in thousands except share
and per share data)
|
|
Six months ended
June 30
|
|
Three months ended
June 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
NET LOSS
|
|
$
|
7,215
|
|
|
$
|
4,944
|
|
|
$
|
3,644
|
|
|
$
|
3,133
|
|
Other comprehensive income loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
(46
|
)
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
—
|
|
TOTAL COMPREHENSIVE LOSS
|
|
$
|
7,169
|
|
|
$
|
4,944
|
|
|
$
|
3,618
|
|
|
$
|
3,133
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements.
BLUE SPHERE CORP.
STATEMENTS OF CHANGES
IN SHAREHOLDERS’ DEFICIENCY (UNAUDITED)
(U.S. dollars in thousands, except share
and per share data)
|
|
Common
Stock,
$0.001 Par Value
|
|
Proceeds
on
account of
Shares
|
|
Treasury
Shares
|
|
Accumulated
other
comprehensive
income
|
|
Additional
paid-in
Capital
|
|
Accumulated
deficit
|
|
Total
Stockholder’
deficiency
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT DECEMBER 31, 2015 (Unaudited)
|
|
|
180,502,443
|
|
|
$
|
1,256
|
|
|
$
|
20
|
|
|
|
(28
|
)
|
|
|
—
|
|
|
$
|
39,764
|
|
|
$
|
(44,701
|
)
|
|
$
|
(3,689
|
)
|
CHANGES
DURING THE PERIOD OF SIX MONTHS ENDED JUNE 30, 2016 (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguish
of liability upon shares issuance
|
|
|
7,103,467
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
634
|
|
Issuance
of shares for services
|
|
|
3,500,000
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
262
|
|
Issuance
of common stock, net of issuance costs
|
|
|
37,315,232
|
|
|
|
36
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
589
|
|
Issuance
of common stock in respect of issuance of convertible notes
|
|
|
13,930,742
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
1,045
|
|
Exercise of warrants
|
|
|
700,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
41
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
(7,215
|
)
|
|
|
(7,169
|
)
|
BALANCE
AT JUNE 30, 2016 (Unaudited)
|
|
|
243,051,884
|
|
|
$
|
1,318
|
|
|
$
|
—
|
|
|
$
|
(28
|
)
|
|
$
|
46
|
|
|
$
|
42,293
|
|
|
$
|
(51,916
|
)
|
|
$
|
(8,287
|
)
|
|
|
Common
Stock,
$0.001 Par
Value
|
|
Proceeds
on
account of
Shares
|
|
Additional
paid-in
Capital
|
|
Accumulated
deficit
|
|
Total
Stockholder’
deficiency
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT DECEMBER 31, 2014 (Unaudited)
|
|
|
51,125,044
|
|
|
$
|
1,127
|
|
|
$
|
20
|
|
|
$
|
35,662
|
|
|
$
|
(37,256
|
)
|
|
$
|
(447
|
)
|
CHANGES
DURING THE PERIOD OF SIX MONTHS ENDED JUNE 30, 2015 (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
158
|
|
Issuance
of common stock, net of issuance expenses
|
|
|
2,169,760
|
|
|
|
2
|
|
|
|
|
|
|
|
249
|
|
|
|
|
|
|
|
251
|
|
Issuance
of shares for services
|
|
|
20,357,035
|
|
|
|
20
|
|
|
|
|
|
|
|
1,316
|
|
|
|
|
|
|
|
1,336
|
|
Issuance
of common stock in respect of issuance of convertible notes
|
|
|
39,962,236
|
|
|
|
40
|
|
|
|
|
|
|
|
1,196
|
|
|
|
|
|
|
|
1,236
|
|
Issuance
of convertible debentures containing a beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
181
|
|
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,944
|
)
|
|
|
(4,944
|
)
|
BALANCE
AT JUNE 30, 2015 (Unaudited)
|
|
|
113,614,075
|
|
|
$
|
1,189
|
|
|
$
|
20
|
|
|
$
|
38,762
|
|
|
$
|
(42,200
|
)
|
|
$
|
(2,229
|
)
|
The accompanying notes are an integral
part of the condensed consolidated financial statements.
BLUE SPHERE CORP.
CONDENSED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(U.S. dollars in thousands)
|
|
Six months ended
June 30
|
|
|
2016
|
|
2015
|
|
|
(Unaudited)
|
|
(Unaudited)
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net loss for the period
|
|
$
|
(7,215
|
)
|
|
$
|
(4,944
|
)
|
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Share based compensation expenses
|
|
|
369
|
|
|
|
158
|
|
Depreciation
|
|
|
749
|
|
|
|
3
|
|
Amortization of intangible assets
|
|
|
48
|
|
|
|
—
|
|
Equity in losses on nonconsolidated subsidiary
|
|
|
—
|
|
|
|
(19
|
)
|
Expense in respect of convertible notes and loans
|
|
|
899
|
|
|
|
1,421
|
|
Non-cash interest
|
|
|
258
|
|
|
|
—
|
|
Changes in Warrants to issue shares
|
|
|
960
|
|
|
|
—
|
|
Issuance of shares for services
|
|
|
262
|
|
|
|
1,336
|
|
Projects costs expensed
|
|
|
—
|
|
|
|
469
|
|
Decrease in trade account receivables
|
|
|
611
|
|
|
|
—
|
|
Decrease (increase) in other current assets
|
|
|
(11
|
)
|
|
|
107
|
|
Increase in other long term assets
|
|
|
(76
|
)
|
|
|
—
|
|
Decrease
in accounts payables
|
|
|
2,313
|
|
|
|
60
|
|
Increase in other account payables
|
|
|
(1,433
|
)
|
|
|
54
|
|
Increase in Deferred revenues
|
|
|
—
|
|
|
|
1,553
|
|
Net cash provided by (used in) operating activities
|
|
|
(2,266
|
)
|
|
|
198
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(18
|
)
|
|
|
(1
|
)
|
Net cash used in investing activities
|
|
|
(18
|
)
|
|
|
(1
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loans received
|
|
|
50
|
|
|
|
461
|
|
Payment of loans and convertible debentures
|
|
|
(1,022
|
)
|
|
|
(963
|
)
|
Proceeds from issuance of shares and warrants
|
|
|
1,752
|
|
|
|
242
|
|
Proceeds
from exercise of warrants
|
|
|
41
|
|
|
|
—
|
|
Proceeds from issuance of convertible debenture
|
|
|
—
|
|
|
|
212
|
|
Net cash provided by financing activities
|
|
|
821
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(1,463
|
)
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH BALANCES IN FOREIGN CURRENCIES
|
|
|
11
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
2,732
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
1,280
|
|
|
$
|
267
|
|
NON-CASH TRANSACTION:
|
|
|
|
|
|
|
|
|
Extinguish
of debt upon shares issuance
|
|
|
411
|
|
|
|
—
|
|
Deferred net equity in joint ventures
|
|
|
1,493
|
|
|
|
3,256
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
360
|
|
|
$
|
—
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements.
BLUE SPHERE
CORP.
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 audited 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 condensed 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, 2015, as filed with the U.S. Securities
and Exchange Commission. The results of operations for the three months ended June 30, 2016 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 LLC (“Binosphere”),
Johnstonsphere LLC (“Johnstonsphere”), and Sustainable Energy Ltd. (“SEL”), is focused on project integration
in the clean energy production and waste to energy markets.
|
|
|
|
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.
On February 17, 2010, the Company conducted a reverse merger, name change and forward split of its common stock, and in March 2010
current management took over operations, at which point the Company changed its business focus to become a project integrator in
the clean energy production and waste to energy markets.
|
|
|
|
As of June 30, 2016, Johnstonsphere
had not commenced operations.
|
|
|
|
On May 12, 2015 the Company
formed Bluesphere Pavia (formerly called Bluesphere Italy S.r.l.). Italy S.r.l, a subsidiary of Eastern in order to acquire certain
biogas plants located in Italy (see note 3 below).
|
BLUE SPHERE
CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
NOTE
3 – INVESTMENT IN BLUE SPHERE PAVIA
|
On August 18, 2015, the Company and two of its wholly-owned subsidiaries, Eastern
Sphere Ltd. (“Eastern Sphere”) and BlueSphere Italy, entered into a Long Term Mezzanine Loan Agreement (the “Helios
Loan Agreement”) with Helios Italy Bio-Gas 1 L.P. (“Helios”). Under the Helios Loan Agreement,
Helios will make up to $5,646,628 (€5,000,000) available to Bluesphere Pavia (the “Helios Loan”) to finance
(a) ninety percent (90%) of the total required investment of the first four SVPs acquired, (b) eighty percent (80%) of the
total required investment of up to three SVPs subsequently acquired, (c) certain broker fees incurred in connection with the
acquisitions, and (d) any taxes associated with registration of an equity pledge agreement (as described below). Each financing
of an SVP acquisition will be subject to specified conditions precedent and will constitute a separate loan under the Helios
Loan Agreement. Helios may, within 90 days of a closing, require repayment of ten percent (10%) of the relevant loan and broker
fees. If no such repayment is required, Helios may reduce the amount of its commitment to finance the acquisitions of the
three additional SVPs to seventy to eighty percent (70-80%) of the total required investment. Helios’s commitment to
provide any loan under the Helios Loan Agreement that is not utilized by June 30, 2016 will automatically cancel, unless extended
in writing by Helios. Subject to specified terms, representations and warranties, the Helios Loan Agreement provides that
each loan thereunder will accrue interest at a rate of 14.5% per annum, paid quarterly. Helios will also be entitled to an
annual operation fee, paid quarterly. The final payment for each loan will become due no later than the earlier of (a) thirteen
and one half years from the date such loan was made available to Bluesphere Italy, and (b) the date that the Feed in Tariff
license granted to the relevant SVP expires. Pursuant to the Helios Loan Agreement and an equity pledge agreement, Eastern
Sphere pledged all its shares in Bluesphere Pavia to secure all loan amounts utilized under the Helios Loan Agreement.
|
|
|
|
On December 14, 2015, and
pursuant to a Share Purchase Agreement, dated May 14, 2015 (the “Share Purchase Agreement”), by and among the Company’s
indirect wholly-owned subsidiary, Bluesphere Pavia (formerly called Bluesphere Italy S.r.l.) (“Bluesphere Pavia”),
and Volteo Energie S.p.A., Agriholding S.r.l., and Overland S.r.l. (collectively, the “Sellers”), Bluesphere Pavia
completed the acquisitions of one hundred percent (100%) of the share capital of Agricerere S.r.l., Agrielektra S.r.l., Agrisorse
S.r.l. and Gefa S.r.l. (each, an “SPV” and collectively, the “SPVs”) from the Sellers. Each SPV owns and
operates an anaerobic digestion biogas plant in Italy for the production and sale of electricity to Gestore del Servizi Energetici
GSE, S.p.A., a state-owned company, pursuant to a power purchase agreement. Pursuant to the Italy Projects Agreement, the Company
also issued a corporate guarantee to the Sellers, whereby the Company will secure the obligations of Bluesphere Pavia under the
Italy Projects Agreement.
|
|
|
|
Pursuant to the Share Purchase
Agreement, the Company to pay $5,646,628 (€5,200,000) (the “Purchase Price”), subject to certain post-closing
adjustments, to acquire the share capital of the SPVs. Fifty percent (50%) of the Purchase Price, adjusted for certain post-closing
adjustments and closing costs, in the amount of $2,143,181 (€1,952,858) was paid at closing, and the balance is due to the
Sellers on the third anniversary of the closing date. The portion of the Purchase Price paid at closing was primarily financed
by a loan of $3,149,081 (€2,900,000) pursuant to the Helios Loan Agreement whereas the Company repaid $342,192 (€310,204)
during the six months ended June 30, 2016.
|
BLUE SPHERE
CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
NOTE
3 – INVESTMENT IN BLUE SPHERE PAVIA (continued)
|
On or around December 2,
2015, the Company also received funds to finance a portion of the Purchase Price in the amount of $80,000 from a company in which
a director of the Company serves as an officer. Such amount was not repaid as of June 30, 2016 and is classified as short-term
debentures, notes and loans.
|
|
|
|
In accordance with a Framework
EBITDA Guarantee Agreement, dated July 17, 2015 (the “EBITDA Agreement”), between the Company and Austep S.p.A. (“Austep”),
Austep will operate, maintain and supervise each biogas plant owned by the SPVs. In addition, Austep will guarantee a monthly aggregate
EBITDA of $204,147 (€188,000) from the four SPVs for the initial six months following the acquisition, and thereafter Austep
will guarantee an annual aggregate EBITDA of $4,082,946 (€3,760,000) from the four SPVs. Pursuant to the terms of the agreements
with Austep, the Company will receive the guaranteed levels of EBITDA and Austep will receive half of the revenue in excess of
these levels.
|
NOTE
4 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
The accompanying unaudited condensed consolidated financial statements as of
June 30, 2016 and for the six and 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 six and three months ended June 30, 2016 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2016.
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|
|
|
The September 30, 2015 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 audited financial statements and notes thereto
contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015.
|
BLUE SPHERE
CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
NOTE 5 – SIGNIFICANT
ACCOUNTING POLICIES
|
|
The significant accounting
policies applied in the annual financial statements of the Company as of September 30, 2015, are applied consistently in these
financial statements except for the following:
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|
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|
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a.
|
Business combinations and Goodwill
|
|
|
|
|
|
The Company accounts for
its business combinations using the purchase method of accounting. Under this method, the Company allocates the purchase price
to tangible and intangible assets acquired and liabilities assumed based on estimated fair values at the date of acquisition, with
the excess of the purchase price amount being allocated to goodwill. Acquisition-related and integration costs associated
to the business combination are expensed as incurred. Changes in estimates associated with future income tax assets after measurement
period are recognized as income tax expense with prospective application to all business combinations regardless of the date of acquisition.
Goodwill for each reporting unit is assessed for impairment at least annually, or when an event or circumstance occurs that more
likely than not reduces the fair value of a reporting unit below its carrying amount. An impairment charge is recorded when the
carrying amount of the reporting unit exceeds its fair value and is determined as the difference between the goodwill’s carrying
amount and its implied fair value. Goodwill consists of allocated acquisition costs of PPAs, which are amortized using the
straight-line method over the 15 year terms of the agreements (see Note 3).
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|
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b.
|
Intangible Assets
|
|
|
|
|
|
Intangible assets
consist of non-monetary and separately identifiable assets, which can be controlled and are expected to generate future
economic benefits. Such assets are recognized at acquisition and/or production cost, including directly attributable expenses
to make the asset ready for use, net of accumulated amortization charges and any impairment losses. The costs incurred
internally to develop new services and platforms are considered intangible assets generated internally and are recognized as
assets only if the following requirements are met:
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1.
|
the cost incurred for the development of the assets can be reliably measured;
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2.
|
the entity has the intention, the availability of financial resources, the ability to complete the assets and to use or sell them;
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3.
|
the entity has the intention, the availability of financial resources, the ability to complete the assets and to use or sell them;
|
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Capitalized development costs
include only expenses incurred that can be directly attributed to the process of developing new products and services.
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Intangible assets with a
finite useful life are amortized on a straight-line basis over their useful lives and are tested for impairment when circumstances
indicate that the carrying value may be impaired. The amortization period and the amortization method for intangible assets with
a finite useful lives are reviewed at least at each reporting date.
|
BLUE SPHERE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
NOTE 5 – SIGNIFICANT
ACCOUNTING POLICIES (continued)
|
|
Changes in expected useful
lives, or in the way the future economic benefits will be generated by the assets, are either recognized through a change in the
period or in the amortization method and are accounted for as changes in accounting estimates. The amortization charges for intangible
assets with a finite useful life are classified in the statement of income, in the costs appropriate for the function of the related
intangible assets.
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c.
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Long-Lived Assets
|
|
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When events or changes in
circumstances indicate that the carrying amount of long-lived assets, such as capital assets and intangible assets, may not be
recoverable, undiscounted estimated cash flows are projected over their remaining term and compared to the carrying amount. To
the extent that such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts
of related assets, a charge is recorded to reduce the carrying amount to the projected future discounted cash flows.
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d.
|
Revenue recognition
|
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Revenues related to the sale
of electricity are recorded based upon output delivered and capacity provided at rates specified under relevant contract terms.
|
NOTE 6 – GOING
CONCERN
|
The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As of June 30, 2016, the Company had approximately $1,280,000 in cash and cash equivalents, approximately $14,456,000
in negative working capital, a stockholders’ deficit of approximately $8,287,000 and an accumulated deficit of approximately
$51,916,000. Management anticipates their business will require substantial additional investments that have not yet been secured.
Management is continuing in the process of fund raising in the private equity markets as the Company will need to finance future
activities. The Company’s ability to continue as a going concern is dependent upon raising capital from financing transactions
and revenue from operations. These unaudited 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.
|
NOTE 7 – 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, 2015 was filed.
|
BLUE SPHERE CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
8 – COMMON SHARES
|
On January 26, 2016, the
Company issued 1,000,000 shares of common stock pursuant to a subscription agreement dated June 12, 2015.
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|
On February 1, 2016 the Company
issued 540,000 shares of common stock to a consultant in respect of his consulting services for the Company. The Company has estimated
the fair value of such shares, and recorded an expense of $36,126.
|
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|
|
In February 2016, the Company conducted an offering (the “February Offering”)
consisting of (a) up to USD $1,925,000 of the Company’s shares of common stock, par value $0.001 per share
(“Common Stock”), priced at the closing price for shares of Common Stock, as reported on the OTCQB Venture
Marketplace, on the trading day prior to the closing of the February Offering, and (b) 5-year warrants to purchase shares of
Common Stock in an amount equal to 50% of the number of shares of Common Stock so purchased by the subscriber (the
“February Warrants”, together with the shares of Common Stock subscribed for, the “February
Securities”). The February Securities have been offered pursuant to subscription agreements with each investor
(the “February Subscription Agreement”). In addition to other customary provisions, each February
Subscription Agreement provides that the Company will use its reasonable commercial efforts to register all
shares of Common Stock sold in the February Offering, including all shares of Common Stock underlying
the February Warrants, within 60 days of the closing of the February Offering. The February Warrants are
exercisable for 5 years from the date of issuance at $0.10 per share, include an option by which
the holder may exercise the February Warrant by means of a cashless exercise, and include
customary weighted-average price adjustment and anti-dilution terms. On February 15, 2016, the
Company completed the only closing of the February Offering, representing aggregate gross proceeds to
the Company of $1,925,000. In connection with the closing, the Company and subscribers entered
into (a) February Subscription Agreements for, in the aggregate, 35,000,000 shares of Common Stock at
$0.055 per share, and (b) February Warrants to purchase, in the aggregate, up to 17,500,000
shares of Common Stock at an exercise price of $0.10 per share. The warrants were
accounted for as derivative liabilities. The Company has estimated the fair value of such
warrants at a value of $933,358 at the date of issuance and using the Black-Scholes
option pricing model using the following assumptions:
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|
|
%
|
Dividend yield
|
|
|
0
|
|
Risk-free interest rate
|
|
|
1.20
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
203
|
%
|
BLUE SPHERE CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
8 – COMMON SHARES (continued)
|
The Company engaged Maxim Group LLC (“Maxim”) to assist in the
February Offering. Pursuant to the terms of an engagement letter between Maxim and the Company, Maxim received commissions
equal to 7% of the gross proceeds raised by Maxim in the February Offering, warrants to purchase, in the aggregate, up to
2,800,000 shares of Common Stock at an exercise price of $0.0605 per share and to purchase, in the aggregate, up to
1,400,000 shares of Common Stock at an exercise price of $0.11 per share. The Company has estimated the fair value of
such warrants at a value of $224,413 at the date of issuance and using the Black-Scholes option pricing model using the
following assumptions:
|
|
|
%
|
Dividend yield
|
|
|
0
|
|
Risk-free interest rate
|
|
|
1.20
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
203
|
%
|
|
On March 15, 2016, the Company
issued 85,000 shares of common stock to a consultant in respect of his consulting services for the Company. The Company has estimated
the fair value of such shares, and recorded an expense of $5,687.
|
|
|
|
On April 13, 2016, the Company
issued 1,000,000 shares of common stock of the Company to a consultant in consideration for corporate finance, investor communications
and financial and investor public relations services. On June 13, 2016 and per the consulting agreement the Company issued an additional
1,000,000 shares of common stock as a service bonus since the agreement was not terminated prior to June 9, 2016. The Company has
estimated the fair value of such shares, and recorded an expense of $165,400.
|
|
|
|
On April 13, 2016, we issued an aggregate of 875,000 shares of our common stock to a
consultant, pursuant to consulting agreements dated September 1, 2015 and March 1, 2016, in consideration for investment
banking, business and financial consulting, investor relations and communications and operational executive management
services.
|
|
|
|
On May 18, 2016, a 1.5-year
warrant to purchase shares of common stock, dated May 4, 2015, was exercised into 700,000 shares of common stock at an exercise
price of $0.058 per share, for total consideration of $40,235.
|
|
|
|
On June 2, 2016, the Company
issued 13,930,742 shares of common stock in consideration for loans in the amount of $145,526 that were received to finance a portion
of the acquisitions of one hundred percent (100%) of the SPVs.
|
|
|
|
On June 13, 2016, the Company issued 7,103,467 shares of common stock of the Company to several officers,
directors, employees and/or consultants of the Company. All shares were issued pursuant to the Company’s Global Share and
Options Incentive Enhancement Plan (2014) (the “2014 Incentive Plan”) and the Company’s Global Share Incentive Plan (2010).
The Company has estimated and recorded the fair value of such shares as an expense of $585,326 which was recorded through the vesting
periods.
|
|
|
|
On June 13, 2016, the Company
issued 850,000 shares of common stock of the Company to a consultant in consideration for investment banking, business and financial
consulting, investor relations and communications and operational executive management. The Company has estimated the fair value
of such shares, and recorded an expense of $72,625.
|
|
|
|
On June 26, 2016, the Company
issued 500,000 shares of common stock of the Company in order to complete its obligations under the Share Purchase Agreement from
2015.
|
NOTE 9 –
WARRANTS, DEBENTURES AND NOTES
|
On February 3, 2016, the
Company issued 3-year warrants to purchase up to 1,500,000 shares of Company’s common stock at an exercise price of $0.06
per share, in full satisfaction of certain obligations of the Company.
|
|
|
|
The Company has estimated
the fair value of such warrants at a value of $87,331 at the date of issuance using the Black-Scholes option pricing model using
the following assumptions:
|
|
|
%
|
Dividend yield
|
|
|
0
|
|
Risk-free interest rate
|
|
|
1.2
|
%
|
Expected term (years)
|
|
|
3
|
|
Volatility
|
|
|
203
|
%
|
|
Changes in the fair value of the warrants are
recorded as interest expenses.
|
BLUE SPHERE CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 9 – WARRANTS, DEBENTURES AND NOTES (continued)
|
Senior
Debentures Offering
|
|
|
|
Beginning in November 2015, the Company conducted an offering (the “Debenture Offering”) of up
to $3,000,000 of the Company’s Senior Debentures (the “Debentures”) and warrants (the “Debenture Offering
Warrants”, together with the “Debentures”, the “Debenture Offering Securities”) to purchase up to
8,000,000 shares of Common Stock in proportion to each Subscriber’s subscription amount relative to the total offering amount,
with 50% of the Debenture Offering Warrants exercisable at a price per share of $0.05 and the other 50% of the Debenture Offering
Warrants exercisable at price per share of $0.075.
|
|
|
|
The Debentures bear interest at 11%, paid quarterly, and mature in two years. The Debentures
are secured by a pledge agreement between the Company and each investor, whereby the Company pledged as collateral up to 49%
of its shares of common stock in Eastern Sphere, Ltd., our wholly-owned subsidiary (the “Pledge Agreement”). The
Pledge Agreement further provides that the Company’s obligations under the Debentures rank senior to all other
indebtedness of Blue Sphere Corporation, but are subordinate to all indebtedness and liabilities of its subsidiaries and
project-level operating entities. The Debenture Offering Warrants are exercisable for 5 years from the date of issuance, with
50% exercisable at $0.05 per share and 50% exercisable at $0.075 per share
|
|
|
|
The November 2015 Warrants were accounted
for as derivative liabilities. The Company has estimated the fair value of such warrants at a value of $208,597 at the date of
issuance using the Black-Scholes option pricing model using the following assumptions:
|
|
|
%
|
Dividend yield
|
|
|
0
|
|
Risk-free interest rate
|
|
|
1.74
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
202
|
%
|
|
The Debenture Offering Securities were offered pursuant to subscription
agreements with each investor (the “Debenture Offering Subscription Agreement”). Pursuant to the Debenture
Offering Subscription Agreements, the investors in the Debenture Offering shall have the right to collectively
designate one observer or member to the Company’s Board of Directors.
|
|
|
|
On December 23, 2015, the Company completed the closing of the Debenture Offering and
entered into Debenture Offering Subscription Agreements with investors representing aggregate gross proceeds to the
Company of $3,000,000.
|
|
|
|
The Company engaged Maxim Group LLC to assist in the Debenture Offering. Pursuant to the
terms of an engagement letter between Maxim and the Company, Maxim received commissions equal to 7% of the gross proceeds
raised by Maxim in the Debenture Offering and warrants to purchase, in the aggregate, up to 4,480,000 shares of Common Stock
at an exercise price of $0.06875 per share. The Company has estimated the fair value of such warrants at a value of $116,599
at the date of issuance using the Black-Scholes option pricing model using the following assumptions:
|
|
|
%
|
Dividend yield
|
|
|
0
|
|
Risk-free interest rate
|
|
|
1.74
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
202
|
%
|
NOTE 10 – SUBSEQUENT
EVENTS
|
In June and July 2016, we conducted
an offering (the “June Offering”) consisting of (a) up to USD $3,000,000 of our shares of Common Stock, priced at
the closing price for shares of Common Stock, as reported on the OTCQB Venture Marketplace on the trading day prior to each respective
closing of the June Offering, and (b) five-year warrants (the “June Warrants”, together with the shares of Common
Stock subscribed for, the “June Securities”) to purchase shares of Common Stock in an amount equal to one hundred
percent (100%) of the number of shares of Common Stock so purchased by the subscriber, with an exercise price equal to the per
share price of the Common Stock or $0.011 per share, whichever is greater. The June Offering consisted of one or more closings,
with the last closing to occur on or before July 26, 2016, or as extended by the Company in is sole discretion. The June Securities
were offered pursuant to subscription agreements with each subscriber (the “June Subscription Agreement”). In addition
to other customary provisions, each June Subscription Agreement provides that the Company will use its reasonable commercial efforts
to register all shares of Common Stock sold in the June Offering, including all shares of Common Stock underlying the June Warrants,
within twenty (20) days of the final closing of the June Offering. Each June Subscription Agreement also provides that if, during
the period beginning on the date of the first closing of the June Offering and ending on the six month anniversary thereof, the
Company completes (a) a subsequent closing of the June Offering or (b) a public or private offering and sale of USD $1,000,000
or more of Common Stock or warrants to purchase Common Stock, where such subsequent closing or offering, as applicable, provides
for material deal terms and conditions more favorable than are contained in such June Subscription Agreement, then the June Subscription
Agreement will be deemed modified to provide the applicable subscriber with the more favorable deal terms and conditions, and
the Company will take all reasonable steps necessary to amend the June Securities and/or issue new securities to the applicable
subscriber reflecting such more favorable material deal terms and conditions (the “June MFN Rights”). The June Warrants
are exercisable for five years from the date of issuance, include an option by which the holder may exercise the June Warrant
by means of a cashless exercise, and include customary weighted-average price adjustment and anti-dilution terms.
On July 26, 2016, the Company completed closings of the June
Offering, both such closings representing aggregate gross proceeds to the Company of USD $1,370,000. In connection with both
closings, the Company
and subscribers entered into (a) June Subscription Agreements for
18,266,668 shares of Common Stock at $0.075 per share, and (b)
June Warrants to purchase up to 18,266,668 shares of
Common Stock at an exercise price of $0.11 per share. The subscriber in the
July 7, 2016 closing received an adjustment to its June Securities pursuant to its June MFN Rights. The June Offering ended on July 26, 2016.
The Company engaged Maxim Group LLC to assist in the June Offering. Pursuant to the terms of an engagement
letter between Maxim and the Company, in connection with both closings, Maxim received commissions equal to 4.44% of the gross
proceeds raised, warrants to purchase up to 928,000 shares of Common Stock at an exercise price of $0.0825 per share, and warrants
to purchase up to 928,000 shares of Common Stock at an exercise price of $0.121 per share.
|
This prospectus is part of a registration
statement we filed with the SEC. You should rely only on the information or representations contained in this prospectus. We have
not authorized anyone to provide information other than that provided in this prospectus. We are not making an offer of these securities
in any jurisdiction or state where the offer is not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
89,033,337 Shares of Common Stock
PROSPECTUS
September 16, 2016