BLSP Blue Sphere Corporation (CE)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 

(Amounts in thousands, except share and per share data)  

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 Corporation (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 December 31, 2017, as filed with the U.S. Securities and Exchange Commission. The results of operations for the nine-months ended September 30, 2018 are not necessarily indicative of results that could be expected for the entire fiscal year.

NOTE 2 – GENERAL

We are an international Independent Power Producer (“IPP”) that is active in the clean energy production and waste-to-energy markets. We are working to become a leading player in these growing global market segments. We currently focus on projects related to the construction, acquisition or development of biogas and waste-to-energy facilities in the United States, Italy, The Netherlands, and the United Kingdom amongst other markets.

In the third quarter of 2018 we continued to advance our goals and have managed to achieve certain milestones including; completing the primary development work for our biogas project in Brabant, Netherlands.  We now are working to complete the “financial close” for this project with our investing partners and begin construction.  Additionally, our four biogas facilities in the Pavia region of Italy have performed well in the third quarter of 2018.  Each facility is operating above 90% capacity and we are currently exceeding our budgeted goals.  Our business development activities continue to move forward and our development pipeline remains robust.  We have also spent a considerable amount of time in the third quarter of 2018 working with investors and bankers to find the best financing solutions for Blue Sphere to fully capitalize on the opportunities that industry relationships are presenting to us.  

NOTE 3 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements as of September 30, 2018 and for the nine-months period and three-months period 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 nine-months period and three-months period ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The September 30, 2018 Condensed Consolidated 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 December 31, 2017.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 

(Amounts in thousands, except share and per share data)  

The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual financial statements except for revenue ASC 606 On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: (Topic 606) (“ASU 2014-09”), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The Company adopted this pronouncement using the modified retrospective method effective January 1, 2018. Pursuant to Topic 606, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services The adoption of this pronouncement did not have any material impacts related to the above noted areas, nor any impact to opening retained earnings as of January 1, 2018. Additionally, there were no material impacts on the amount and timing of revenue recognized in the Company’s consolidated financial statements.

In January 25, 2018, the FASB issued ASU 2018-01, Leases (Topic 842). Land Easement Practical Expedient for Transition to Topic 842. The amendments in this Update provide an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under Topic 840, Leases. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Update 2016-02. An entity that early adopted Topic 842 should apply the amendments in this Update upon issuance.  

On February 14, 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

On February 28 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments clarify certain aspects of the guidance in Update 2016-01. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after September 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and September 15, 2018, are not required to adopt these amendments until the interim period beginning after September 15, 2018, and public business entities with fiscal years beginning between September 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01.

On March 9, 2018 the FASB issued ASU 2018-04, Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 (SEC Update). The amendments in this Update supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin No. 117. This amendments is effective upon issuance.

On March 14, 2018 the FASB issued Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This amendment is effective upon issuance.

In May 2018, the FASB issued Codification Improvements to Topic 942, Financial Services—Depository and Lending. The amendments in this Update supersede the guidance within Subtopic 942-740 that has been rescinded by the OCC and no longer is relevant. A cross-reference between Subtopic 740-30, Income Taxes—Other Considerations or Special Areas, and Subtopic 942-740 is being added to the remaining guidance in Subtopic 740- 30 to improve the usefulness of the Codification. The amendments in this Update are effective upon issuance of this Update (May 2018).

In June 2018, the FASB issued Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 

(Amounts in thousands, except share and per share data)  

In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Some of the amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the Codification. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this Update do not require transition guidance and will be effective upon issuance of this Update. However, many of the amendments in this Update do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. The amendments in this Update are of a similar nature to the items typically addressed in the Codification improvements project. However, the Board decided to issue a separate Update for the improvements related to Accounting Standards Update No. 2016-02, Leases (Topic 842), to increase stakeholders’ awareness of the amendments and to expedite the improvements. The amendments in this Update affect narrow aspects of the guidance issued in Update 2016-02. For entities that have early adopted Topic 842, the amendments in this Update should be effective upon issuance of the final Update and the transition requirements should be the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements of the amendments should be the same as the effective date and transition requirements in Topic 842.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The amendments in this Update related to separating components of a contract affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. For entities that have not adopted Topic 842 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update related to separating components of a contract are the same as the effective date and transition requirements in Update 2016-02. For entities that have adopted Topic 842 before the issuance of this Update, the transition and effective date of the amendments related to separating components of a contract in this Update are as follows: 1. The practical expedient may be elected either in the first reporting period following the issuance of this Update or at the original effective date of Topic 842 for that entity. 2. The practical expedient may be applied either retrospectively or prospectively. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this Update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update improve the effectiveness of fair value measurement disclosures and modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)—Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. Subtopic 715-20 addresses the disclosure of other accounting and reporting requirements related to single-employer defined benefit pension or other postretirement benefit plans.The amendments in this Update remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the Board’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. For public business entities, the amendments in this ASU are effective for fiscal years ending after December 15, 2020. For all other entities, the amendments are effective for fiscal years ending after December 15, 2021. Early adoption is permitted.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period.  

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 

(Amounts in thousands, except share and per share data)  

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.  

On May 14, 2015, the Company entered into a Share Purchase Agreement (the “Italy Project Agreement”) with Volteo Energie S.p.A., Agriholding S.r.l., and Overland S.r.l. (each, a “Seller” and collectively, the “Sellers”) through our indirect, wholly-owned subsidiary, Bluesphere Pavia S.r.l., pursuant to which we agreed to purchase 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”), each of which is engaged in the operation of an anaerobic digestion biogas plant located in Italy for the production and sale of electricity. Under the Italy Project Agreement, the Company agreed to pay the remaining balance of fifty percent (50%) of the purchase price along with annual interest rate of two percent (2%), less certain credits that is due to the sellers on the third anniversary of the closing date (the “Deferred Payment”). The Purchase Price is subject to certain adjustments and to an adjustment based on the actual EBITDA results in the 18 months following the Closing Date, per the following mechanism: 

On July 21, 2017, the Company notified the Sellers of its estimated Deferred Payment, pursuant to Article 3.03 of the Italy Projects Agreement regulating the Deferred Payment adjustment mechanism. As of April 16, 2018, two of the three Sellers have accepted the Company’s estimate, and the third Seller, Volteo Energie S.p.A., is reviewing the Company’s estimate subject to an independent opinion of a third party appraiser. Volteo Energie S.p.A., which has a majority interest among the Sellers, is presently going through bankruptcy.

The fair value measurement of the fair market value of the Deferred Payment is based on significant inputs not observed in the market and thus represents a Level 3 measurement, which reflects the Company’s own assumptions in measuring fair value. The Company estimated the fair value of the Deferred Payment using the discounted cash flow model. Key assumptions include the level and timing of the expected future payment and discount rate consistent with the level of risk and economy in general. The Deferred Payment due to the acquisition of the SPVs is included in Current Liabilities in the consolidated Balance Sheets and the change in fair value of remaining balance is included in interest expenses in the consolidated statements of income.

The estimated fair values of outstanding warrant liability were measured using Black-Scholes valuation models. These valuation models involved using such inputs as the estimated fair value of the underlying stock at the measurement date, risk-free interest rates, expected dividends on stock and expected volatility of the price of the underlying stock. Due to the nature of these inputs, the valuation of the warrants was considered a Level 3 measurement. 

As of September 30, 2018, and December 31, 2017, the Level 3 liabilities consisted of the Company’s warrant liability.  

NOTE 5 – GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2018, the Company had approximately $2,548 in cash and cash equivalents, approximately $19,183 in negative working capital, a stockholders’ deficit of approximately $12,288 and an accumulated deficit of approximately $63,212. 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. 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 and capital markets as the Company will need to finance future activities. 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 6 – SHORT TERM LOAN AND DEBENTURES

This foregoing summarizes transactions previously reported by the Company on Form 8-K filed on December 28, 2015, on Form 8-K filed on March 24, 2017, on Form 8-K/A filed on December 28, 2017, and on Form 8-K/A filed on April 9, 2018.

As reported on Form 8-K/A by the Company on December 28, 2017, on December 23, 2015, the Company completed an offering with six investors (the “2015 Debenture Holders”), thereby issuing $3,000 of our two-year 11% Senior Debentures (the “2015 Debentures”) and warrants to purchase up to 61,544 shares of Common Stock, with 50% of such shares exercisable at a price per share of $6.50 and the other 50% of such shares exercisable at price per share of $9.75 (all such warrants, the “2015 Debenture Warrants”). On March 24, 2017, the Company and five of the nine 2015 Debenture Holders, representing an aggregate principal balance of $2,000, amended the 2015 Debentures to provide that some or all of the principal balance, and accrued but unpaid interest thereon, is convertible into shares of our Common Stock at the 2015 Debenture Holders’ election. The 2015 Debenture Debentures initially matured on December 22, 2017 (the “2015 Debenture Maturity Date”). Between December 22, 2017 and December 28, 2017, the Company and the 2015 Debenture Holders entered into a letter agreement dated December 21, 2017 (the “First 2015 Debenture Letter Agreement”), pursuant to which (a) the Company and the 2015 Debenture Holders extended the 2015 Debenture Maturity Date to April 3, 2018; (a) the Company agreed to pay to the 2015 Debenture Holders, in the aggregate, $150, of which $30 was paid and $120 was payable on or before April 3, 2018; (c) the Company and the 2015 Debenture Holders amended the exercise price of the 2015 Debenture Warrants to $1.60 per share; and (d) the Company issued to the 2015 Debenture Holders five-year warrants to purchase, in the aggregate, up to 224,550 shares of Common Stock at $1.60 per share (the “First New Warrants”).

On May 23, 2018 and May 25, 2018 the Company paid to the Debentures Holders an aggregate of $241, consisting of an extension fee of $150 and interest of $91 for the period ended April 2, 1018. As of September 30, 2018, the Company was required to pay the 2015 Debenture Holders an aggregate of $413, consisting of an extension fee of $30, failure to pay fee of $150 and interest of $233 for the period ended on September 30, 2018. The amount that was due on September 30, 2018 has not been paid as of the date of this report. 

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands, except share and per share data)  

Extension of the August 2017 Loan Agreement

On August 20, 2017, the Company entered into a 90-day Loan Agreement with Global Smart Cards Inc., an affiliated party of Viskoben Limited to borrow $200 at a quarterly interest rate of ten percent (10.0%). As of December 31, 2017, this note was not paid and extended through February 20, 2018 in consideration of $8. On February 25, 2018, this loan was extended to April 20, 2018 in consideration of $15 and three-year warrants to purchase up to 20,000 shares of Common Stock at the lowest price published on Yahoo finance for the seven (7) trading days prior to the holder’s notice of conversion. On August 14, 2018, this loan was further extended for the first to occur of (i) another 100 days from September 20, 2018, (ii) seven calendar days after the Company receives an investment in debt or equity from a third-party of seven calendar days after the closing of the Company’s transaction in The Netherlands. In consideration of the lender’s willingness to so extend, the Company agreed to the following terms: (i) the remaining unpaid Loan accrued Principal unpaid interest and extra payments is $220, which shall bear interest at a fixed interest rate at the monthly rate of three and three-tenths percent (3.3%), (ii) an additional payment to the lender of $30 by September 20, 2018, (iii) the issuance of 40,000 more three-year warrants to purchase shares of common stock of the Company at a strike price equal to the lowest price published by Yahoo finance during the seven trading days prior to notice to the Company of intent to exercise the warrants and (iv) payment not later than the date on which the outstanding principal amount of the loan is repaid of any amount required to compensate the lender for exchange rate losses based on an exchange rate of USD 1 = NIS 3.63.

NOTE 7 – CONTINGENT

From time to time the Company may be a party to commercial and litigation matters involving claims against the Company. None of the Company’s directors, officers, nonconsolidated affiliates, or any owner of record or beneficially of more than five percent of the issued and outstanding shares of Common Stock, is involved in a material proceeding adverse to the Company and its subsidiaries or has a material interest adverse to the Company or its subsidiaries. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. In management’s opinion, there are no current matters that would have a material effect on the Company’s financial position or results of operations and no contingent liabilities requiring accrual as of September 30, 2018.

Barkats Litigation

On October 22, 2016, the law firm of JS Barkats PLLC filed a complaint against the Company and its Chief Executive Officer, seeking allegedly unpaid legal fees for services rendered from June 9, 2011 through April 23, 2012 in the amount of $428 (thousands), plus interest for a total of $652 (thousands). This Litigation was filed as JS Barkats PLLC v. Blue Sphere Corporation and Shlomo Palas with the Supreme Court of the State of New York for the County of New York, Index No. 655600/2016. On October 26, 2016, without notice to the Company or its Chief Executive Officer or an opportunity to be heard, the New York Court issued a Temporary Restraining Order (the “TRO”) in favor JS Barkats PLLC, prohibiting the Company and Mr. Palas from transferring or dissipating any assets up to $652. On October 31, 2016, the Company removed the Barkats Litigation to federal court, filed as JS Barkats PLLC v. Blue Sphere Corporation and Shlomo Palas with the United Stated District Court, Southern District Court of New York, Docket No. 1:16-cv-08404, and on December 6, 2016, Mr. Barkats filed a motion to remand to the New York Court and request for oral argument. The Company terminated the services of JS Barkats LLC in 2012 and management believe the claims brought by JS Barkats PLLC are without merit, that the TRO was improvidently granted, and that JS Barkats PLLC misrepresented, mischaracterized and omitted material facts and the law in seeking the TRO.

On July 10, 2017, the Federal Court granted JS Barkats PLLC’s motion to remand the action to the New York Court, but denied JS Barkats PLLC’s request for costs and fees in bringing its remand petition.  The Federal Court did not rule upon whether plaintiff’s complaint should be dismissed and/or the matter compelled to arbitration and did not rule upon Plaintiff’s motion to hold the Company and Mr. Palas in contempt for allegedly violating the TRO. The Federal Court has since remanded the case back to the New York Court where it is currently pending.  On or about May 16, 2018, Plaintiff moved in state court for the entry of a default against the Company and Palas.  The Company and Palas opposed the motion and filed its own cross-motion to compel arbitration and both motions were submitted to the Court on June 6, 2018.  The Court has scheduled oral argument on the motions for January 10, 2019. The Court is unlikely to rule on the motions prior to oral argument.

The Company terminated the services of JS Barkats LLC in 2012 and believe the claims brought by JS Barkats PLLC are without merit, that the TRO was improvidently granted, and that JS Barkats PLLC misrepresented, mischaracterized and omitted material facts and the law in seeking the TRO. The Company intend to vigorously defend against this Litigation, the TRO and any other attempts to attach the assets of the Company.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

Prassas Litigation

On March 15, 2017, Prassas Capital, LLC, an Arizona limited liability company, filed a complaint against the Company alleging breach of contract and seeking (a) unpaid fees in the amount of $1,607 plus interest, (b) issuance of an order of prejudgment attachment and garnishment on the Company’s bank accounts, other property held by the Company and all payments owed to the Company from third parties, (c) an injunction restraining the Company from transferring funds or property outside of the court’s jurisdiction or alternatively that the court appoint a receiver to manage, operate, control and take possession of the Company’s assets, and (d) a declaration that Prassas Capital, LLC has been granted a contractual right to purchase 53,847 shares of Common Stock at a price of $6.50 per share (after giving effect to the reverse stock split described below). This litigation was filed as Prassas Capital, LLC v. Blue Sphere Corporation with the United States District Court for the Western District of North Carolina, Civil Action No. 3:17-CV-00131. The Company disputes the allegations and claims, and intends to rigorously defend against this litigation.

On April 10, 2017, the Company filed its answer in the Prassas Litigation, denying the underlying factual allegations contained in the complaint and denying the contention that Prassas is entitled to any relief. In addition to filing its answer, the Company (1) moved for the court to dismiss the Prassas Litigation, because of Prassas’ failure to plead one or more essential elements of its claims, and (2) brought against Prassas claims of fraud, breach of fiduciary duty, constructive fraud, negligence, unjust enrichment and punitive damages. The Company seeks reimbursement of amounts fraudulently or negligently billed by Prassas and paid by the Company of not less than $833, pre and post judgement interest, attorney’s fees and costs actually incurred in defending the Prassas Litigation.

On May 10, 2017, Prassas filed its answer to the Company’s response, whereby Prassas moved for the court to dismiss the Company’s counterclaims alleging that, among other things, the Company did not plead one or more essential elements of its claims.

On June 2, 2017, the Company responded by filing with the court its memorandum in opposition to Prassas’ motion dismiss the Company’s counterclaims, and further to motion for a partial judgement on the pleadings of the Company’s counterclaims in the amount of $833, plus pre-judgment and post-judgment interest.  

The Company intend to vigorously defend against this Litigation, the TRO and any other attempts to attach the assets of the Company.

On March 30, 2018, the Court denied BSC’s motion for judgment on the pleadings and granted Prassas’ motion to dismiss counterclaims.

Fact discovery has concluded as of October 31, 2018.  No TRO or other injunctive relief has been granted.  Blue Sphere has moved to amend its Answer to conform with the evidence to include claims for fraud in the inducement and breach of contract.  Prassas has opposed the motion.  Prassas also has filed for summary judgment on some of its claims, which Blue Sphere has opposed. Trial is scheduled to begin on January 7, 2019.

Chijnsgoed Note

On June 7, 2018, we issued a non-interest bearing convertible note to Bedrijvenpark ‘t Chijnsgoed B.V., a private company with limited liability established in The Netherlands (“Chijnsgoed”) for the principal sum of Euro 282 (the “Chijnsgoed Note”). In connection with the Chijnsgoed Note, we entered into a note purchase agreement. The Chijnsgoed Note matured on September 1, 2018 and was issued as security for the payment of amounts owing under the lease between Chijnsgoed and Blue Sphere Brabant B.V., a subsidiary of the Company (“BSB”), dated October 3, 2016, as amended (the “Lease”), from February 1, 2018 through August 31, 2018 with such amounts being equal to the Principal Amount, as defined in the Chijnsgoed Note  (the “Lease Payment”). If BSB pays the Lease Payment in full on or before the maturity date, then the Chijnsgoed Note will be terminated and of no further force or effect.

Chijnsgoed has the right to convert all or part of the Chijnsgoed Note into shares of Common Stock at the market price (as reported on www.bloomberg.com or www.otcmarkets.com) at the time of conversion, in part or in whole at any time and from time to time. Any such conversion will reduce the principal sum and, thus, the number of shares into which the Principal Amount, as defined in the Chijnsgoed Note, may be converted by whatever amount is converted. Conversion of the Chijnsgoed Note into shares of Common Stock is the sole recourse of Chijnsgoed vis-à-vis the Company in the event that BSB does not make the Lease Payment in full on or before the maturity date. In no circumstance will the Company be required to pay or owe to Chijnsgoed any amount in cash. Any principal amount converted into shares of Common Stock will reduce the amount of the Lease Payment accordingly. . Through the date of this Report, Chijnsgoed has not made any communication or taken any action in respect of the Chijnsgoed Note.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

NOTE 8 – COMMON SHARES

Unregistered Sales of Equity Securities

Each of the transactions described below were exempt from the registration requirements of the Securities Act of 1933, as amended (“Securities Act”), in reliance upon Section 4(a)(2) of the Securities Act, Regulation D promulgated under the Securities Act and, in the case of sales to investors who are non-US persons, Regulation S promulgated under the Securities Act.

Crown Bridge Partners Note

On January 3, 2018, the Company issued a Convertible Promissory Note to Crown Bridge Partners, LLC, having a principal amount of $339, of which $30 constituted an original issue discount, in exchange for $309, payable in tranches (the “Crown Note”).  In contemplation thereof, the Company and Crown Bridge Partners, LLC entered into a Securities Purchase Agreement, pursuant to which the Company agreed to issue the Crown Note and five-year warrants to purchase shares of Common Stock and included piggyback registration rights for Common Stock issued and underlying such securities.  On or about January 11, 2018, Crown Bridge Partners, LLC paid $103 to the Company under the first tranche, having an original discount amount of $10, resulting in an outstanding principal balance under the Crown Note of $113; as of the date hereof, no additional tranches have been funded. The Crown Note matures on January 3, 2019, and bears interest at a rate of 10%, which will increase to 12% upon default. The holder may convert the Crown Note any time, at a conversion price that is equal to the lowest sale price during the 20 trading days prior to the date of the notice to convert.  The Crown Note may be prepaid, subject to a tiered premium scale ranging from 110%-135% of outstanding amounts due under the Crown Note.  The Crown Note contains terms found in like instruments for equitable conversion price adjustments.  Crown Bridge Partners, LLC has a right of first refusal to match any capital or financing terms offered by any third party. On January 3, 2018, the Company issued to Crown Bridge Partners, LLC a five-year Warrant to purchase up to 56,500 shares of Common Stock at an exercise price of $3.15 per share, subject to adjustment.  The foregoing descriptions of the Crown Note, Securities Purchase Agreement and the Warrant do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

Labrys Fund Note

On January 30, 2018, the Company issued a Convertible Promissory Note to Labrys Fund, LP, having a principal amount of $500 of which $50 constituted an original issue discount, in exchange for $450, payable in tranches (the “Labrys Note”).  In contemplation thereof, the Company and Labrys Fund, LP entered into a Securities Purchase Agreement. On or about January 30, 2018, Labrys Fund, LP paid $153 to the Company under the first tranche, having an original discount amount of $17, resulting in an outstanding principal balance under the Labrys Note of $170; as of the date hereof,  no additional tranches have been funded.  The Labrys Note matured on July 29, 2018   , and bears interest at a rate of 12%, which will increase to 24% upon default. The holder may convert the Labrys Note any time, at a conversion price that the lower of the lowest sale price during the 20 trading days prior to (a) the date of the notice to convert or (b) the date of the Labrys Note. The Labrys Note contains terms found in like instruments for equitable conversion price adjustments. Pursuant to the Securities Purchase Agreement with Labrys Fund, LP, on January 31, 2018, the Company issued 7,500 shares of Common Stock as a commitment fee and 85,000 shares of Common Stock, returnable upon proper repayment of the Labrys Note.  The foregoing descriptions of the Labrys Note and Securities Purchase Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

LG Capital Note

On May 11, 2018, we issued a 12% convertible redeemable note to LG Capital Funding, LLC (“LG Capital”) for the principal sum of $79 (the “LG Capital Note”). In connection with the LG Capital Note, the Company and LG Capital entered into a Securities Purchase Agreement. The LG Note will mature on May 11, 2019 and may be pre-paid in whole or in part for the 180-day period following the date of issuance at a premium equal to 150% multiplied by the sum of the remaining principal plus accrued interest. Any amount of principal or interest on the LG Capital Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”).

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

LG Capital has the right beginning on the date which is one hundred eighty (180) days following the date of the LG Capital Note to convert all or any part of the outstanding and unpaid principal amount of the LG Capital Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to 58% multiplied by of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future for the twenty prior trading days including the date of conversion. The LG Capital Note contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the LG Capital Note), the LG Capital Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

Adar Note

On May 14, 2018, we issued a 12% convertible redeemable note to Adar Bays, LLC (“Adar”) for the principal sum of $57 (the “Adar Note”). In connection with the Adar Note, the Company and Adar entered into a Securities Purchase Agreement. The Adar Note will mature on May 14, 2019 and may be pre-paid in whole or in part for the 180-day period following the date of issuance at a premium of 150% of the outstanding principal plus accrued interest. Any amount of principal or interest on the Adar Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”).

Adar has the right to convert all or any part of the outstanding and unpaid principal amount of the Adar Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to 58% multiplied by of the lowest trading price of the common stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future for the twenty prior trading days including the date of conversion. The Adar Note contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the Adar Note), the Adar Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

Coolidge Note

On May 17, 2018, we issued a 12% convertible promissory note to Coolidge Capital LLC (“Coolidge Capital”) for the principal sum of $75 (the “Coolidge Note”). In connection with the Coolidge Note, the Company and Coolidge entered into a Securities Purchase Agreement. The Coolidge Note will mature on May 17, 2019 and may be pre-paid in whole or in part for the 180-day period following the date of issuance at a tiered premium ranging from 115% to 140% of the outstanding principal plus accrued interest. Any amount of principal or interest on the Coolidge Note which is not paid when due shall bear interest at the rate of twenty four percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).

Coolidge has the right beginning on the date which is one hundred eighty (180) days following the date of the Coolidge Note to convert all or any part of the outstanding and unpaid principal amount of the Coolidge Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to Variable Conversion Price (as defined below) (subject to equitable adjustments by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 65% multiplied by the Market Price (as defined below). “Market Price” means the average of the lowest two (2) Trading Prices (as defined below) for the common stock during the Thirty (30) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the OTCQB, OTCQX, Pink Sheets electronic quotation system or applicable trading market as reported by a reliable reporting service designated by Coolidge.

In the case of an Event of Default (as defined in the Coolidge Note), the Coolidge Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

If the Company fails to pay any default amounts within five (5) business days of written notice that such amount is due and payable, then Coolidge shall have the right at any time, to require the Company, to immediately issue, in lieu of the amounts due in connection with an event of default, the number of shares of common stock of the Company equal to the relevant default amount payable divided by the Conversion Price then in effect.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

GS Capital Note

On May 17, 2018, we issued a 10% convertible redeemable note to GS Capital Partners, LLC (“GS Capital”) for the principal sum of $110 (the “GS Capital Note”). In connection with the GS Capital Note, the Company and GS Capital entered into a Securities Purchase Agreement. The GS Capital Note contained a $3 original issue discount such that purchase price was $107. The GS Note will mature on May 17, 2019 and may be pre-paid in whole or in part for the 180-day period following the date of issuance at a tiered premium ranging from 110% to 140% of the outstanding principal plus accrued interest. Any amount of principal or interest on the GS Capital Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”).

GS Capital has the right beginning on the date which is one hundred eighty (180) days following the date of the GS Capital Note to convert all or any part of the outstanding and unpaid principal amount of the GS Capital Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to 60% multiplied by of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future for the twenty prior trading days including the date of conversion. The GS Capital Note contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the GS Capital Note), the GS Capital Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

Auctus Note

One May 22, 2018, we issued a 12% convertible promissory note to Auctus Fund, LLC (“Auctus”) for the principal sum of $114 (the “Auctus Note”). In connection with the Auctus Note, we entered into a securities purchase agreement. The Auctus Note will mature on May 22, 2019 and may be pre-paid in whole or in part for the life of the Note at a tiered premium ranging from 135% to 150% of the outstanding principal plus accrued interest plus Default Interest (if any). Any amount of principal or interest on the Auctus Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”).

Auctus has the right to convert all or any part of the outstanding and unpaid principal amount of the Auctus Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to the lesser of: (i) the lowest Trading Price (as defined below) during the previous twenty-five (25) trading day period ending on the latest complete Trading Day prior to the date of the Auctus Note and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 58% multiplied by the Market Price (as defined below). “Market Price” means the lowest Trading Price (as defined below) for shares of Common Stock during the twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the lesser of: (i) the lowest trade price on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by Auctus. The Auctus Note contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the Auctus Note), the Auctus Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price. If the Auctus Note is not paid at its Maturity Date, then the outstanding principal due under the Auctus Note shall increase by Fifteen Thousand and no/100 dollars ($15).

Auctus shall have the right at any time, to require the Company to immediately issue, in lieu of the amounts due in connection with an event of default, the number of shares of common stock of the Company equal to the relevant default amount payable divided by the Conversion Price then in effect.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

Auctus Warrant

In connection with the Auctus Note, on May 22, 2018, we also issued Auctus a warrant (the “Auctus Warrant”) to purchase from the Company during the Exercise Period up to 40,715 shares of its common stock (the “Auctus Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of the warrant) at the Auctus Exercise Price per share then in effect. For purposes of the Auctus Warrant, the term “Auctus Exercise Price” means $1.40, subject to adjustment as provided therein (including but not limited to cashless exercise), and the term “Auctus Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the five-year anniversary thereof.

If the Company or any subsidiary thereof, as applicable, at any time while the Auctus Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any common stock or securities entitling any person or entity to acquire shares of common stock (upon conversion, exercise or otherwise) (including but not limited to under the Auctus Note), at an effective price per share less than the then Auctus Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the common stock or common stock equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of common stock at an effective price per share which is less than the Auctus Exercise Price, such issuance shall be deemed to have occurred for less than the Auctus Exercise Price on such date of the Dilutive Issuance), then the Auctus Exercise Price shall be reduced at the option of Auctus and only reduced to equal the Base Share Price, and the number of Auctus Warrant Shares issuable thereunder shall be increased such that the aggregate Auctus Exercise Price payable thereunder, after taking into account the decrease in the Auctus Exercise Price, shall be equal to the aggregate Auctus Exercise Price prior to such adjustment. Such adjustment shall be made whenever such common stock or common stock equivalents are issued.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

ONE44 Capital Note

On May 22, 2018, we issued a 10% convertible redeemable note to ONE44 Capital LLC (“144 Capital”) for the principal sum of $113 (the “144 Capital Note”). In connection with the 144 Capital Note, we entered into a securities purchase agreement. The 144 Capital Note will mature on May 22, 2019 and may be pre-paid in whole or in part for the life of the Note at a tiered premium ranging from 120% to 140% of the outstanding principal plus accrued interest. Any amount of principal or interest on the 144 Capital Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”).

144 Capital has the right beginning on the date which is one hundred eighty (180) days following the date of the 144 Capital Note to convert all or any part of the outstanding and unpaid principal amount of the 144 Capital Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to 60% multiplied by of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future for the twenty prior trading days including the date of conversion. The 144 Capital Note contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the 144 Capital Note), the 144 Capital Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

Coventry Note

On June 1, 2018, we issued a 10% convertible redeemable note to Coventry Enterprises, LLC (“Coventry”) for the principal sum of $55 out of which, OID amounted to $5 and the net amount received was $50 (the “Coventry Note”). In connection with the Coventry Note, we entered into a securities purchase agreement. The Coventry Note will mature on June 1, 2019 and may be pre-paid in whole or in part for the life of the Note at a premium of 135% of the outstanding principal plus accrued interest. Any amount of principal or interest on the Coventry Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”).

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

Coventry has the right beginning on the date which is one hundred eighty (180) days following the date of the Coventry Note to convert all or any part of the outstanding and unpaid principal amount of the Coventry Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to 60% multiplied by of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future for the twenty prior trading days including the date of conversion. The Coventry Note contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the Coventry Note), the Coventry Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

Power Up Notes

On June 14, 2018, we issued a 12% convertible promissory note to Power Up Lending Group Limited (“Power Up”) for the principal sum of $63 (the “Power Up Note No.1”). In connection with the Power Up Note No. 1, the Company and Power Up entered into a Securities Purchase Agreement. The Power Up Note will mature on March 30, 2019 and may be pre-paid in whole or in part for the 180-day period following the date of issuance at a tiered premium ranging from 112% to 130% of the outstanding principal plus accrued interest. Any amount of principal or interest on the Power Up Note No. 1 which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). 

Power Up has the right beginning on the date which is one hundred eighty (180) days following the date of the Power Up Note No. 1 to convert all or any part of the outstanding and unpaid principal amount of the Power Up Note No. 1 into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to 65% multiplied by the Market Price (as defined below). “Market Price” means the average of the lowest two (2) Trading Prices (as defined below) for shares of Common Stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. “Trading Price” means, for any security as of any date, the closing bid price on the OTCQB, OTCQX, Pink Sheets electronic quotation system or applicable trading market (the “OTC”) as reported by a reliable reporting service designated by Power Up. The Power Up Note No. 1 contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the Power Up Note No. 1), the Power Up Note No. 1 shall become immediately due and payable and the Company shall pay to Power Up an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of the Power Up Note No. 1 plus (x) accrued and unpaid interest on the unpaid principal amount of the Power Up Note No. 1 to the date of payment plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any penalties or other applicable amounts. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

On June 22, 2018, we issued a 12% convertible promissory note to Power Up for the principal sum of $53 (the “Power Up Note No. 2”). In connection with the Power Up Note No. 2, the Company and Power Up entered into a Securities Purchase Agreement. The Power Up Note No. 2 will mature on March 30, 2019 and may be pre-paid in whole or in part for the 180-day period following the date of issuance at a tiered premium ranging from 112% to 130% of the outstanding principal plus accrued interest. Any amount of principal or interest on the Power Up Note No. 2 which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).

Power Up has the right beginning on the date which is one hundred eighty (180) days following the date of the Power Up Note No. 2 to convert all or any part of the outstanding and unpaid principal amount of the Power Up Note No. 2 into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to 65% multiplied by the Market Price (as defined below). “Market Price” means the average of the lowest two (2) Trading Prices (as defined below) for shares of Common Stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. “Trading Price” means, for any security as of any date, the closing bid price on the OTCQB, OTCQX, Pink Sheets electronic quotation system or applicable trading market (the “OTC”) as reported by a reliable reporting service designated by Power Up. The Power Up Note No. 2 contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the Power Up Note No. 2), the Power Up Note No. 2 shall become immediately due and payable and the Company shall pay to Power Up an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of the Power Up Note No. 2 plus (x) accrued and unpaid interest on the unpaid principal amount of the Power Up Note No. 2 to the date of payment plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any penalties or other applicable amounts. Certain events of default will result in further penalties, including daily fines and material reductions in the Conversion Price.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.  

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

JSJ Investments Note

On July 13, 2018, we issued a 12% convertible promissory note to JSJ Investments, Inc. (“JSJ”) for the principal sum of $83 (the “JSJ Note”). In connection with the JSJ Note, the Company and JSJ entered into a Securities Purchase Agreement. The JSJ Note contained a $3 original issue discount such that purchase price was $80. The JSJ Note will mature on July 13, 2019 and may be pre-paid in whole or in part without the consent of JSJ for the 180-day period following the date of issuance at a tiered premium ranging from 115% to 130% of the outstanding principal plus accrued interest. After 180 days from the date of issuance, the Company may pre-pay the JSJ Note at a premium of 140% of the then outstanding principal plus accrued interested and Default Interest (as defined below).  Any amount of principal or interest on the JSJ Note which is not paid when due shall bear interest at the rate of eighteen percent (18%) per annum from the due date thereof until the same is paid (“Default Interest”).

JSJ has the right beginning on the date which is one hundred eighty (180) days following the date of the JSJ Note to convert all or any part of the outstanding and unpaid principal amount of the JSJ Note into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price is equal to a 35% discount to the lowest trading price during the previous fifteen (15) trading days to the date of a conversion notice.  The JSJ Note contains customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in the JSJ Note), the JSJ Note shall become immediately due and payable and interest shall accrue at the rate of Default Interest.  Certain events of default will result in further penalties.

Mai Pai Note

On August 1, 2018, we issued a non-interest bearing note to Mai Pai Investments Limited (“Mai Pai”) for the principal sum of NIS 180 (the “Mai Pai Note”). The Mai Pai Note will mature on November 1, 2018 and may be pre-paid in whole or part at no penalty at any time at the option of the Company.

In consideration of receiving NIS 180 from Mai Pai, the Company issued Mai Pai 400,000 shares of its common stock and three-year warrants to purchase 400,000 shares of its common stock at the closing price of its shares of common stock on August 1, 2018. Since the Mai Pai Note was not repaid in full on November 1, 2018, $5 was added to the principal amount of the Mai Pai Note. Mai Pai has other remedies Mai Pai under the note. On November 11, 2018 Pai Mai extend the maturity date of the NIS 180 received to December 31, 2018.

The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference.

Leonite Note No. 1

On September 16, 2018 (the “Issue Date”), the Company issued a 12% Senior Secured Convertible Promissory Note to Leonite Capital, LLC (“Leonite”), having a principal amount of $111 of which $11 constituted an original issue discount (“Leonite Note No. 1”). In connection with Leonite Note No. 1, the Company and Leonite entered into a Securities Purchase Agreement. Leonite Note No. 1 will mature on the earlier of six (6) months from the Issue Date or a capital raise (or raises) in which the Borrower receives in aggregate $111 or more through equity, debt or sale of assets.

Leonite Note No. 1 may not be pre-paid in whole or in part. Any amount of principal or interest on Leonite Note No. 1 which is not paid when due shall bear interest at the rate of twenty four (24%) per annum from the due date thereof until the same is paid (“Default Interest”).

Leonite has the right at any time or at any time after an Event of Default occurs, at the Holder’s option to convert all or any part of the outstanding and unpaid principal amount of Leonite Note No. 1 into fully paid and non-assessable shares of common stock of the Company at the conversion price (the “Conversion Price”). The Conversion Price shall be, at the option of Leonite, (i) $0.02 (the “Fixed Conversion Price”) (subject to adjustment as further described in Leonite Note No. 1) or (ii) the closing price of the stock on the Issue Date. At any time after any Event of Default (as defined in Leonite Note No. 1), the Conversion Price shall immediately be equal to the lesser of (i) the Fixed Conversion Price and (ii) 60% multiplied by the lowest bid price of the Common Stock during the twenty-one (21) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion or (iii) the discount to market based on subsequent financings with other investors. Leonite Note No. 1 contains anti-dilution protection and other customary terms found in like instruments for conversion price adjustments.

In the case of an Event of Default (as defined in Leonite Note No. 1), Leonite Note No. 1 shall become immediately due and payable and interest shall accrue at the rate of Default Interest. Certain events of default will result in further penalties.

On September 16, 2018, the Company issued to Leonite warrants (the “Warrants”) exercisable for four million (4,000,000) shares of the Company’s Common Stock. The Warrants have a term of seventy-two (72) months, are exercisable at a price of $0.04 per share (subject to adjustment) and contain full-ratchet anti-dilution protection provisions.

The foregoing descriptions of Leonite Note No. 1 and Warrant do not purport to be complete and are qualified in their entirety by reference to the full text of the same, filed as exhibits hereto, and are incorporated herein by reference. 

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)  

Conversions of Convertible Notes During the Nine-Months Ended September 30, 2018  

 In connection with the convertible promissory note issued to Power Up Lending Group Ltd. by the Company, dated October 30, 2017, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on May 8, 2018 the Company issued 15,806 shares for $15, of principal and interest amounts due; (b) on May 15, 2018 the Company issued 21,899 shares for $20 of principal and interest amounts due; (c) on May 21, 2018 the Company issued 11,353 shares for $10 of principal and interest amounts due; (d) on May 24, 2018 the Company issued 16,556 shares for $12 of principal and interest amounts due; (e) on May 30, 2018 the Company issued 13,797 shares for $10 of principal and interest amounts due; (f) on June 5, 2018 the Company issued 23,077 shares for $15 of principal and interest amounts due; (g) on June 18, 2018 the Company issued 45,468 shares for $15 of principal and interest amounts due; (h) on June 19, 2018 the Company issued 30,312 shares for $10 of principal and interest amounts due; (i) on June 21, 2018 the Company issued 56,969 shares for $15 of principal and interest amounts due; (j) on June 22, 2018 the Company issued 47,337 shares for $12 of principal and interest amounts due; (k) on June 27, 2018 the Company issued 61,526 shares for $15 of principal and interest amounts due; and (l) on June 28, 2018 the Company issued 54,061 shares for $4 of principal and interest amounts due. Between May 8, 2018 and June 28, 2018, in the aggregate, the Company issued a total of 398,161 shares of Common Stock to Power Up Lending Group Ltd. upon the conversion of $164 of amounts due and convertible under such note, for an average conversion price of $0.4073 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $0.

In connection with the convertible promissory note issued to JSJ Investments, Inc. by the Company, dated November 22, 2017, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on June 15, 2018 the Company issued 137,362 shares for $50 of principal amounts due; (b) on June 27, 2018 the Company issued 129,001 shares for $30 of principal and interest amounts due. Between June 15, 2018 and June 27, 2018, in the aggregate, the Company issued a total of 266,363 shares of Common Stock to JSJ Investments, Inc. upon the conversion of $80 of amounts due and convertible under such note, for an average conversion price of $0.301 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $0.

In connection with the convertible promissory note issued to EMA Financial, LLC by the Company, dated December 4, 2017, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on June 19, 2018 the Company issued 40,000 shares for $9 of principal and conversion fee amounts due; (b) on June 26, 2018 the Company issued 115,000 shares for $21 of principal and conversion fee amounts due. (c) on July 5, 2018 the Company issued 120,000 shares for $12 of principal and conversion fee amounts due; (d) on July 13, 2018 the Company issued 250,000 shares for $20 of principal and conversion fee amounts due; (e) on July 25, 2018 the Company issued 300,000 shares for $12 of principal and conversion fee amounts due; (f) on August 8, 2018 the Company issued 430,000 shares for $6.5 of principal and conversion fee amounts due. (g) on Augusy 24, 2018 the Company issued 550,000 shares for $5 of principal and conversion fee amounts due; (h) on August 30, 2018 the Company issued 795,000 shares for $5 of principal and conversion fee amounts due; (i) on September 5, 2018 the Company issued 872,700 shares for $5 of principal and conversion fee amounts due; (j) on September 10, 2018 the Company issued 1,074,600 shares for $6.5 of principal and conversion fee amounts due. (k) on September 13 2018 the Company issued 1,300,000 shares for $8 of principal and conversion fee amounts due; (l) on September 19, 2018 the Company issued 1,621,000 shares for $10 of principal and conversion fee amounts due; (m) on September 24, 2018 the Company issued 1,768,500 shares for $11 of principal and conversion fee amounts due; Between June 19, 2018 and September 24, 2018, in the aggregate, the Company issued a total of 9,236,800 shares of Common Stock to EMA FINANCIAL, LLC upon the conversion of $130 of amounts due and convertible under such note, for an average conversion price of $0.0141 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $9.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands, except share and per share data)  

In connection with the convertible promissory note issued to MORNINGVIEW FINANCIAL, LLC by the Company, dated November 21, 2017, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on May 29, 2018 the Company issued 32,468 shares for $10 of principal and conversion fee amounts due; (b) on June 11, 2018 the Company issued 34,091 shares for $11 of principal and conversion fee amounts due; (c) on June 20, 2018 the Company issued 34,091 shares for $7 of principal and conversion fee amounts due; (d) on June 25, 2018 the Company issued 63,132 shares for $13 of principal and conversion fee amounts due. (e) on July 2, 2018 the Company issued 103,536 shares for $20.5 of principal and conversion fee amounts due; (f) on July 10, 2018 the Company issued 119,555 shares for $12.5 of principal and conversion fee amounts due; (g) on July 13, 2018 the Company issued 141,515 shares for $12.5 of principal and conversion fee amounts due; (h) on July 23, 2018 the Company issued 275,483 shares for $12.5 of principal and conversion fee amounts due; (i) on August 3, 2018 the Company issued 383,839 shares for $9.5 of principal and conversion fee amounts due; (j) on August 10, 2018 the Company issued 422,078 shares for $6.5 of principal and conversion fee amounts due; (k) on August 29, 2018 the Company issued 670,641 shares for $4.5 of principal and conversion fee amounts due; (l) on September 6, 2018 the Company issued 864,584 shares for $4 of principal and conversion fee amounts due; (m) on September 14, 2018 the Company issued 1,312,500 shares for $6 of principal and conversion fee amounts due; (n) on September 24, 2018 the Company issued 1,729,167 shares for $8 of principal and conversion fee amounts due Between May 29, 2018 and September 24, 2018, in the aggregate, the Company issued a total of 6,186,680 shares of Common Stock to MORNINGVIEW FINANCIAL, LLC upon the conversion of $137 of amounts due and convertible under such note, for an average conversion price of $0.022152 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $40.

In connection with the convertible promissory note issued to Jabro Funding Corp. by the Company, dated October 30, 2017, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on July 2, 2018 the Company issued 64,103 shares for $15 of principal amounts due; (b) on July 6, 2018 the Company issued 91,813 shares for $12 of principal amounts due; (c) on July 10, 2018 the Company issued 121,457 shares for $15 of principal amounts due; (d) on July 17, 2018 the Company issued 142,450 shares for $15 of principal amounts due; (e) on July 18, 2018 the Company issued 199,145 shares for $21 of principal and interest amounts due; (f) on July 26, 2018 the Company issued 77,780 shares for $3 of interest amounts due. Between July 2, 2018 and July 26, 2018, in the aggregate, the Company issued a total of 696,748 shares of Common Stock to Jabro Funding Corp. upon the conversion of $81 of amounts due and convertible under such note, for an average conversion price of $0.1163 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $0.

In connection with the convertible promissory note issued to Altshuler Shaham netz. by the Company, dated December 10, 2017, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on July 2, 2018 the Company issued 76,870 shares for $11 of principal and interest amounts due; (b) on July 18, 2018 the Company issued 269,437 shares for $19 of principal and interest amounts due; (c) on July 30, 2018 the Company issued 269,300 shares for $7 of principal and interest amounts due; (d) on August 13, 2018 the Company issued 387,035 shares for $4 of principal and interest amounts due; (e) on August 24, 2018 the Company issued 387,006 shares for $3 of principal and interest amounts due; (f) on August 29, 2018 the Company issued 587,841 shares for $3.5 of principal and interest amounts due; (g) on September 6, 2018 the Company issued 588,000 shares for $3 of principal and interest amounts due; (h) on September 17, 2018 the Company issued 587,650 shares for $3 of principal and interest amounts due; (i) on September 26, 2018 the Company issued 660,102 shares for $6 of principal and interest amounts due; Between July 2, 2018 and September 26, 2018, in the aggregate, the Company issued a total of 3,813,241 shares of Common Stock to Altshuler Shaham netz. upon the conversion of $59 of amounts due and convertible under such note, for an average conversion price of $0.015196 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $159.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)

In connection with the convertible promissory note issued to Crown Bridge Partners LLC., by the Company, dated January 3, 2018, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on July 13, 2018 the Company issued 160,000 shares for $10 of principal and conversion fee amounts due; (b) on July 18, 2018 the Company issued 247,000 shares for $16 of principal and conversion fee amounts due; (c) on August 10, 2018 the Company issued 433,000 shares for $5 of principal and conversion fee amounts due; (d) on August 29, 2018 the Company issued 644,000 shares for $3 of principal and conversion fee amounts due; (e) on September 7, 2018 the Company issued 799,000 shares for $4 of principal and conversion fee amounts due; (f) on September 17, 2018 the Company issued 1,450,000 shares for $7 of principal and conversion fee amounts due; (g) on September 24, 2018 the Company issued 1,621,000 shares for $8 of principal and conversion fee amounts due; . Between July 13, 2018 and September 24, 2018, in the aggregate, the Company issued a total of 5,354,000 shares of Common Stock to Crown Bridge Partners LLC., upon the conversion of $53 of amounts due and convertible under such note, for an average conversion price of $0.00994 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $63.

In connection with the convertible promissory note issued to Labrys Funds LP., by the Company, dated January 30, 2018, the holder thereof elected to convert amounts convertible thereunder into shares of Common Stock, as follows: (a) on August 1, 2018 the Company issued 306,226 shares for $10 of principal amounts due; (b) on August 8, 2018 the Company issued 398,000 shares for $7 of interest amounts due; (c) on August 14, 2018 the Company issued 433,160 shares for $7 of principal and interest amount due; (d) on August 22, 2018 the Company issued 325,000 shares for $4 of principal and interest amount due; (e) on August 27, 2018 the Company issued 616,864 shares for $4 of principal and interest amount due; (f) on August 30, 2018 the Company issued 675,091 shares for $5 of principal and interest amount due; (g) on September 5, 2018 the Company issued 872,770 shares for $5 of principal and interest amount due; (h) on September 10, 2018 the Company issued 1,045,332 shares for $7 of principal and interest amount due; (i) on September 13, 2018 the Company issued 1,323,569 shares for $9 of principal and interest amount due; (j) on September 19, 2018 the Company issued 1,321,779 shares for $8 of principal and interest amount due;. Between August 1, 2018 and September 19, 2018, in the aggregate, the Company issued a total of 7,317,791 shares of Common Stock to Labrys Funds LP., upon the conversion of $67 of amounts due and convertible under such note, for an average conversion price of $0.00911 per share. The principle balance outstanding under this convertible promissory note following the foregoing conversions is $123.

In connection with the warrant issued to JMJ Financials by the Company, dated October 24, 2016, the holder thereof elect to convert an aggregate of $57 into 7,472,789 shares of common stock in a cashless exercise, which leaves an outstanding principal balance of $443 on the warrant.

BLUE SPHERE CORPORATION

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 (Amounts in thousands, except share and per share data)