(U.S. dollars in thousands, except share
and per share data)
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 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 September 30, 2015, as filed with the
U.S. Securities and Exchange Commission. The results of operations for the nine and three months ended September 30, 2016 are
not necessarily indicative of results that could be expected for the entire fiscal year.
NOTE
2 – GENERAL
Blue Sphere Corporation
(the “Company”), together with its wholly-owned subsidiaries, Eastern Sphere Ltd. (“Eastern”), BinoSphere
LLC (“Binosphere”), Johnstonsphere LLC (“Johnstonsphere”), Sustainable Energy Ltd. (“SEL”),
and Blue Sphere Brabant B.V. (“BSB”), 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 September 30, 2016, Johnstonsphere
and BSB 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 3 below).
BLUE SPHERE CORPORATION
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 and Bluesphere Pavia, 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,
i
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. 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 (“Closing
Date”), 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, 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. The Purchase Price for each SPV was determined based on a Base Line EBITDA
guaranteed by the Sellers and an Equity IRR Target calculated on the Purchase Price of no less than twenty-five percent (25%).
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
remaining fifty percent (50%) of the Purchase Price, prior to and after closing date, and any variation of EBITDA results in the
18 months following the closing date , will be promised by a note from each Seller, to be paid on the third anniversary of the
closing, along with interest on the unpaid balance due at an annual rate of two percent (2%).. 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 $404,000 (€365,303) during the nine months ended September 30, 2016.
BLUE SPHERE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
NOTE
3 – INVESTMENT IN BLUE SPHERE PAVIA (continued)
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 guaranteed 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 ninety percent (90%) of the revenue in excess of these levels.
The Company applied the equity method of accounting for those investments because the Framework EBITDA Guarantee
Agreement between the Company and Austep whereas Austep operates, maintains and supervises each biogas
plants prevents us from exercising a controlling influence over operating policies of the plants. Under this method, our equity
investment is reflected as an investment in non-consolidated subsidiaries on our Condensed Balance Sheets and the net earnings
or losses of the investments is reflected as equity in net earnings of non-consolidated companies on our Consolidated Statements
of Operations.
NOTE
4 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited
condensed consolidated financial statements as of September 30, 2016 and for the nine 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 nine and three months ended September 30, 2016 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.
BLUE SPHERE CORPORATION
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:
|
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.
|
b.
|
Investment in non-consolidated and affiliated companies
|
Investments in non-consolidated
and 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 100% 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.
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:
|
1.
|
the cost incurred for the development of the assets can be reliably measured;
|
|
2.
|
the entity has the intention, the availability of financial resources, the ability to complete the assets and to use or sell them;
|
Capitalized development costs
include only expenses incurred that can be directly attributed to the process of developing new products and services.
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 CORPORATION
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.
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.
NOTE 6 – GOING CONCERN
The accompanying financial
statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2016, the
Company had approximately $375,000 in cash and cash equivalents, approximately $11,618,000 in negative working capital, a
stockholders’ deficit of approximately $8,949,000 and an accumulated deficit of approximately $52,114,000. 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. 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.
BLUE SPHERE CORPORATION
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.
On February 1, 2016 the
Company issued 540,000 shares 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 $108,327.
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, 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:
|
|
%
|
|
Dividend yield
|
|
|
0
|
|
Risk-free interest rate
|
|
|
1.20
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
203
|
%
|
BLUE SPHERE CORPORATION
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 $5,685.
On April 13, 2016, the Company issued
1,000,000 shares of Common Stock to a consultant in consideration for corporate finance, investor communications and financial
and investor public relations services. The Company has estimated the fair value of such shares, and recorded an expense of $72,733
in second fiscal quarter of 2016 and $10,267 in first fiscal quarter of 2016. 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 $89,000.
On April 13, 2016, the Company issued
an aggregate of 875,000 shares of Common Stock to a consultant, pursuant to consulting agreements dated September 1, 2015 and March
1, 2016, in consideration for investor relations and communications services. The Company has estimated the fair value of such shares, and recorded an expense of $42,467.
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, we
issued 13,930,742 shares of our Common Stock in consideration of $145,525 pursuant to all but one of the July 2015 Offering
Subscription Agreements, with the issuance of the remaining 7,658,129 shares of our Common Stock currently in process.
On June 13, 2016 the Company issued
7,103,467 shares of Common Stock 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 $632,208 which was recorded through the vesting periods.
On June 26, 2016 the Company issued
500,000 shares of Common Stock in order to complete its obligations under the Share Purchase Agreement from 2015.
On July 14, 2016 the Company cancelled
85,000 shares of Common Stock that were issued in error.
In June and July 2016, The Company conducted
an offering (the “June Offering”) consisting of (a) up to USD $3,000,000 of 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 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 warrants were accounted for as derivative
liabilities. The Company has estimated the fair value of such warrants at a value of $1,140,462 at the date of issuance and using
the Black-Scholes option pricing model using the following assumptions:
|
|
%
|
|
Dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.00
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
147
|
%
|
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. The Company has estimated the fair value of such warrants at a value of $116,561 at the date
of issuance and using the Black-Scholes option pricing model using the following assumptions:
|
|
%
|
|
Dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.00
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
147
|
%
|
On August 7, 2016, the Company
issued 143,000 shares of Common Stock, in consideration for past capital advisory services rendered to the Company. The Company
has estimated the fair value of such shares, and recorded an expense of $11,440.
On August 16, 2016 the Company issued
400,000 shares of Common Stock in satisfaction of debt of $24,000.
On September 15, 2016, the Company
issued 500,000 shares of Common Stock to a consultant in consideration for communications and investor relations services. The
Company has estimated the fair value of such shares, and recorded an expense of $19,983.
On September 15, 2016, the Company
issued 500,000 shares of Common Stock to a consultant in consideration for communications and investor relations services. The
Company has estimated the fair value of such shares, and recorded an expense of $34,450.
NOTE 9 – WARRANTS, DEBENTURES AND
NOTES
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 pro rata 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
|
%
|
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
|
%
|
In connection with the
June Offering, the Company issued Warrants to purchase up to 18,266,668 shares of Common Stock at an exercise price of $0.11 per
share. The warrants were accounted for as derivative liabilities. The Company has estimated the fair value of such warrants at
a value of $1,140,462 at the date of issuance and using the Black-Scholes option pricing model using the following assumptions:
|
|
%
|
Dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.00
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
147
|
%
|
In connection with the June
Offering, 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, Maxim received 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. The Company
has estimated the fair value of such warrants at a value of $116,561 at the date of issuance and using the Black-Scholes option
pricing model using the following assumptions:
|
|
%
|
Dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.00
|
%
|
Expected term (years)
|
|
|
5
|
|
Volatility
|
|
|
147
|
%
|
Changes in the fair value of the warrants are recorded as
interest expenses.
NOTE 10 – SUBSEQUENT EVENTS
On October 25, 2016, the Company completed
a private placement of its securities to JMJ Financial, an accredited investor. Pursuant to the financing,
the Company entered into a Securities Purchase Agreement with the investor thereby agreeing to issue shares of
Common Stock, notes, and warrants to purchase shares of Common Stock, in exchange for USD $500,000 paid at
closing and an additional USD $250,000 in guaranteed financing upon the achievement of certain milestones, as well as up to an
additional USD $250,000 in financing upon the mutual agreement of the Investor and the Company.
Pursuant to the terms of such
financing, the Company agreed to issue to the investor (i) restricted shares of Common Stock equal to twenty-five percent
(25%) of the note principal paid to the Company by the Investor, subject to certain adjustments, (ii) a six (6) month promissory note covering the note
principal plus an amount equal to approximately five percent (5%) of the actual note principal, in total USD $1,053,000, and
(iii) a five (5) year warrant to purchase 6,666,666 shares of Common Stock with an aggregate exercise amount of USD
$500,000.
On November 18, 2016, the Charlotte,
NC Waste to Energy Anaerobic Digester 5.2 MW Plant (the “Facility”) commenced commercial operations and started to
provide its output to Duke Energy pursuant to the power purchase agreement with Duke Energy. The Facility will now enter the mechanical
completion and ramp-up phase of the project. The commencement of the commercial operations includes the gradual intake of waste
from the Facility’s feedstock suppliers, increasing the parasitic load to the digesters, completing the waste-water-treatment
resources and completing all other mechanical features needed for the Facility to operate at full capacity. The Company estimates
that this project will be fully completed by the end of the first quarter of 2017.