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EX-31.2 - EXHIBIT 31.2 - SurePure, Inc.v407551_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - SurePure, Inc.v407551_ex32-1.htm
EXCEL - IDEA: XBRL DOCUMENT - SurePure, Inc.Financial_Report.xls

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the quarterly period ended March 31, 2015

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

For the transition period from ________ to ________

 

Commission file number 000-54172

 

SUREPURE, INC.
(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   26-3550286
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)
     
405 Lexington Avenue, 25th Floor, New York, NY   10174
(Address of Principal Executive Offices)   (Zip Code)

 

  (917) 368-8480  
  (Registrant’s Telephone Number, Including Area Code)  

 

   
  (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)  

 

 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

  Large accelerated filer ¨ Accelerated filer  ¨
  Non-accelerated filer  ¨ Smaller reporting company  x
  (Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No x

 

The number of shares outstanding of the issuer’s common stock, as of April 24, 2015 was 47,345,816.

  

 
 

 

SUREPURE, INC.

 

INDEX

 

PART I FINANCIAL INFORMATION 1
   
Item 1. Financial Statements. 1
     
  Consolidated Balance Sheets March 31, 2015 (Unaudited) and December 31, 2014 2
     
  Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2015 and 2014 3
     
  Consolidated Statements of Other Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2015 and 2014 4
     
  Consolidated Statement of Changes in Stockholders’ Deficit (Unaudited) for the Three Months Ended March 31, 2015 5
     
  Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2015 and 2014 6
     
  Notes to Unaudited Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 26
     
Item 4. Controls and Procedures. 26
     
PART II OTHER INFORMATION 28
   
Item 1. Legal Proceedings. 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 28
     
Item 3. Defaults Upon Senior Securities. 28
     
Item 4. Mine Safety Disclosures. 28
     
Item 5. Other Information. 28
     
Item 6. Exhibits. 28
     
SIGNATURES 30

 

 
 

 

PART I

  

FINANCIAL INFORMATION

 

Item 1. Financial Statements.

  

1
 

 

SUREPURE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014

 

   March 31, 2015   December 31, 2014 
   (Unaudited)   (Audited) 
         
Assets          
           
Current assets:          
Cash  $115,450   $526 
Accounts receivable   49,300    16,800 
Prepaid expenses and other current assets   752,497    406,280 
Total current assets   917,247    423,606 
           
Property and equipment, net   -    - 
           
Intangible assets, net:   91,454    95,622 
           
Total assets  $1,008,701   $519,228 
           
Liabilities and Stockholders' Equity (Deficit)          
           
Current liabilities:          
Accounts payable and other current liabilities  $1,207,852   $1,252,203 
Customer deposits   1,420,913    412,703 
Due to officers/stockholders   1,219,508    1,148,085 
Income taxes payable   493    480 
Loan payable   270,647    265,522 
           
Total current liabilities   4,119,413    3,078,993 
           
Total liabilities   4,119,413    3,078,993 
           
Stockholders' equity (deficit):          
Common stock, $.001 par value, 200,000,000 shares authorized,   47,346    47,346 
47,345,816 shares issued and outstanding (47,345,816 shares issued and          
outstanding at December 31, 2014)          
Preferred stock, $.01 par values, 31,155,282 shares authorized,   148,000    148,000 
14,800,000 shares issued and outstanding (14,800,000 shares issued and          
outstanding at December 31, 2014)          
Additional paid-in capital   30,583,175    30,570,760 
Other comprehensive income   967,967    999,456 
Deficit   (34,857,200)   (34,325,327)
Total stockholders' equity (deficit)   (3,110,712)   (2,559,765)
           
Total liabilities and stockholders' equity (deficit)  $1,008,701   $519,228 

 

See notes to Consolidated Financial Statements.

 

2
 

 

SUREPURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

 

   Three Months Ended 
   March 31, 
   2015   2014 
   (Unaudited)   (Unaudited) 
Revenue  $98,340   $25,898 
           
Cost of revenue   46,335    1,653 
           
Gross profit   52,005    24,245 
           
Expenses:          
General and administrative expenses (includes   536,990    877,671 
equity-based compensation of $12,415 and $34,142,     
respectively)          
Promotion and marketing   8,827    28,356 
Research and development   17,338    56,650 
Amortization   4,167    4,167 
           
Total expenses   567,322    966,844 
           
Loss from operations   (515,317)   (942,599)
           
Other income (expense):          
Interest income   -    2 
Interest expense   (16,556)   (14,429)
Exchange rate gains and losses   -    1,190 
           
Total other (expense) income   (16,556)   (13,237)
           
Loss before provision for taxes   (531,873)   (955,836)
           
Provision for income taxes   -    - 
           
Net loss  $(531,873)  $(955,836)
           
Loss per share – basic and diluted   $(0.01)  $(0.02)
           
Weighted average shares outstanding -          
basic and diluted   47,345,816    40,958,102 

 

See notes to Consolidated Financial Statements.

 

3
 

 

SUREPURE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

 

   Three Months Ended 
   March 31, 
   2015   2014 
   (Unaudited)   (Unaudited) 
         
Net loss  $(531,873)  $(955,836)
           
Other comprehensive income, net of tax          
           
Unrealized loss on foreign          
currency translation   (31,489)   (9,634)
          
Comprehensive loss, net of tax  $(563,362)  $(965,470)

 

See notes to Consolidated Financial Statements.

 

4
 

 

SUREPURE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2015

 

                        Accumulated     
   Common           Additional    Retained   Other     
   Shares   Common   Preferred   Paid-in    Earnings   Comprehensive     
   Issued   Stock   Stock   Capital    (Deficit)   Income   Total 
                                     
Balances- December 31, 2014 (audited)   47,345,816   $47,346   $148,000   $30,570,760    $(34,325,327)  $999,456   $(2,559,765)
                                     
Equity-based compensation   -    -    -    12,415     -    -    12,415 
                                     
Net loss for the three months ended march 31, 2015   -    -    -    -     (531,873)   -    (531,873)
                                     
Unrealized loss on foreign currency translation adjustment   -    -    -    -     -    (31,489)   (31,489)
                                     
Balances- March 31, 2015 (unaudited)   47,345,816   $47,346   $148,000   $30,583,175    $(34,857,200)  $967,967   $(3,110,712)

 

 

See notes to Consolidated Financial Statements.

 

5
 

 

SUREPURE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2015 AND 2014 

 

   Three Months Ended 
   March 31, 
   2015   2014 
   (Unaudited)   (Unaudited) 
Cash from operating activities:          
Net loss  $(531,873)  $(955,836)
           
Adjustments to reconcile net loss to cash provided by (used) in operating activities:          
Amortization   4,167    4,167 
Non-cash interest expense and loan costs   16,064    - 
Equity-based compensation   12,415    34,142 
Changes in assets and liabilities:          
Accounts receivable   (32,500)   14,467 
Prepaid expenses and other current assets   (346,217)   14,978 
Accounts payable and other current liabilities   (44,351)   631 
Customer deposits payable   1,008,210    59,782 
Due to officers/stockholders   71,423    64,203 
Income taxes payable   13    3 
           
Total cash provided by (used) in operating activities   157,351    (763,463)
           
Total cash used in investing activities   -    - 
           
Cash from financing activities:          
Proceeds from issuance of equity   -    799,825 
Total cash provided by financing activities   -    799,825 
           
Effect of exchange rate changes on cash and cash equivalents   (42,427)   (9,634)
           
Net increase in cash   114,924    26,728 
           
Cash, beginning of period   526    20,870 
           
Cash, end of period  $115,450   $47,598 
           
Supplemental disclosures:          
Interest paid  $492   $1,852 
          
Conversion of preferred stock to common stock and          
additional paid-in capital  $-   $30,000 

 

See notes to Consolidated Financial Statements.

 

6
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

1. Organization and Significant Accounting Policies

 

Description of Business

 

SurePure Investment Holding AG (“SPI”) was incorporated in Switzerland in 2007. From 2007 to December 12, 2012 SPI was the holding company of the SurePure Group (the “Group”), which included subsidiaries and other entities whose activities primarily benefit the Group. On December 12, 2012, SPI entered into an Amended and Restated Share Exchange Agreement with SurePure, Inc. (“SurePure US” or the “Company”) pursuant to which SurePure US acquired SPI in a share exchange (the “Share Exchange”) and became the holding company for the Group, including SPI. Although SurePure US is the legal acquirer of SPI, SPI is treated as the acquirer for accounting and financial reporting purposes and under this method, SurePure US retains SPI’s financial reporting history.

 

Under the Share Exchange, each share of the capital stock of SPI was exchanged for one share of SurePure US common stock, par value $.001 per share (“Common Stock”), and, in the case of one shareholder of SPI, one share of Nonvoting Convertible Preferred Stock, par value $.01 per share (the “Nonvoting Convertible Preferred Stock”).

 

The Group has developed technology for using shortwave ultraviolet light (“UV-C”) to purify turbid liquids such as wine, fruit juice and milk. Although initially designed to treat food-grade applications, it has successfully been applied to liquids such as dairy products for animal consumption, protein products, bovine blood plasma, water, brines and sugar syrup solutions. The Group holds patents in 66 countries for this technology. The Group has been engaged in raising capital, continuing research and development of its technologies and developing markets for its products.

 

Basis of Presentation and Consolidation

 

The accompanying unaudited consolidated financial statements of the Company and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

The Company’s wholly-owned subsidiaries are as follows:

 

·SurePure Investment Holding AG (“SPI”), which holds the investment in SPO;
  
·SurePure Operations AG (“SPO”), which markets the products of the Group and earns its revenue by selling or otherwise distributing equipment utilizing the Group’s technology globally. SPO owns a patent for the Group’s technology in various countries;
  
·SurePure Participations AG (“SPP”), which was a minority stockholder of SPI and is part of the common holding structure of the Group. SPP has no operations. SPP became a subsidiary as a result of the Share Exchange on December 12, 2012;
  
·SurePure Holdings South Africa (Pty) Ltd. and its wholly-owned subsidiary, SurePure Marketing South Africa (Pty) Ltd. (“SPMSA”), which holds the South African patent, manufacture the products of the Group and earn revenue from selling or otherwise distributing equipment utilizing the Group’s technology. These entities became subsidiaries as a result of their acquisition on June 12, 2013; and
  
·SurePure Latin America Maqinas de Purificasao UVC Ltda. (“SPLAM”), which conducts no operations currently.

 

The Group’s reporting currency is the United States Dollar (“USD”) and these consolidated financial statements are presented in USD or “$.”

 

7
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

Adoption of New Accounting Standards:

 

The Company has early adopted ASU 2014-10 Development Stage Entities which eliminates the requirement to provided Development Stage Entity reporting. As such the financial statements as presented no longer have an extra column reflecting an aggregate of all activities from the date of inception through the reporting date. The adoption of this new standard did not have an impact on our financial position or results or operations.

 

Use of Estimates

 

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

 

Income Taxes

 

The Group accounts for income taxes using the liability method. Under this method, deferred income taxes are recognized based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not provide a future tax benefit.

 

GAAP requires that, in applying the liability method, the consolidated financial statement effects of an uncertain tax position be recognized based on the outcome that is more likely than not to occur. Under this criterion, the most likely resolution of an uncertain tax position should be analyzed based on technical merits and one that will likely be sustained under examination. There are no uncertain tax positions requiring adjustment to or disclosure in these consolidated financial statements.

 

Accounts Receivable

 

Accounts receivable represent amounts due from customers and are carried at original invoice amount less an estimate made for doubtful receivables. The Group establishes a provision for estimated doubtful accounts, if necessary. No allowance for doubtful accounts was deemed to be necessary at March 31, 2015 or at December 31, 2014.

 

Property, Equipment and Related Depreciation

 

Property and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire the asset and any expenditures that substantially increase the asset’s value or extend the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of the property and equipment. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Expenditures for routine repairs and maintenance are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is recognized in operations.

 

8
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

Depreciation is provided over the following estimated useful lives:

 

Plant machinery 3 to 5 years
Furniture and fixtures 3 to 5 years
Motor vehicles 5 years
Office and computer equipment 3 to 5 years

 

Intangible Assets

 

Intangible assets consist of patents in various countries around the world for the Company’s UV-C purification technology. The patents were initially recognized at their cost and are being amortized on a straight-line basis over their estimated useful lives of twelve years beginning with the acquisition of the patents in 2008. The patents expire in October 2020.

 

The Group evaluates the carrying value of its intangible assets for impairment at least annually or when events or changes in circumstances are identified by management that indicate that such carrying values may not be fully recoverable. The evaluation involves estimating the future undiscounted cash flows expected to be derived from the assets to assess whether or not a potential impairment exists. As a result of its evaluations, management determined that it was not necessary to recognize a loss on impairment of its intangible assets for the three months ended March 31, 2015 and March 31, 2014.

 

Revenue

 

Revenue is earned from sales or use of equipment that uses the Company’s patented technology and is recognized, net of returns and discounts, when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. These criteria are usually met upon delivery of the product to the customer, which is also when the risk of ownership and title passes to the customer.

 

Research and Development

 

Research and development costs are charged to expense as incurred.

 

Equity-Based Compensation

 

The Company measures compensation cost for all stock options granted based on fair value on the measurement date, which is typically the grant date. The fair value of each stock option granted is estimated on the grant date using the Black-Scholes-Merton option valuation model. The fair value of each share is based on the fair market value of the Company’s common stock on the date of the grant. Equity-based compensation expense is recognized on a straight-line basis over the requisite service period for each stock option or stock grant expected to vest with forfeitures estimated at the date of grant based on the Company’s historical experience and future expectations.

 

9
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

Foreign Currency Translations

 

These consolidated financial statements are presented in USD, which is the Group’s reporting currency. The consolidated financial statements of the Group members have been translated into USD in accordance with GAAP. All assets and liability accounts on the consolidated balance sheets have been translated using the spot exchange rate in effect at the consolidated balance sheet date. Equity accounts have been translated at their historical rates when the capital transaction occurred. Income and expenses have been translated at the average exchange rates for the periods presented. Adjustments resulting from the translation of the Group’s consolidated financial statements are included in the consolidated statement of other comprehensive income (loss). Actual transaction gains and losses are included in the consolidated statements of operations as incurred.

 

The functional currencies of the companies included in the Group are their respective local currencies. Accordingly, the Group is exposed to transaction gains and losses that result from changes in various foreign currency exchange rates.

 

Applicable functional currencies are:

 

SPI, SPO, and SPP Swiss Francs – CHF
SPLAM Brazilian Real – BRL
SPHSA and SPMSA South African Rand – ZAR

  

Exchange rates used for conversion of foreign items to USD at the end of each period and the average for each period were:

 

   March 31,   March 31,   December 31, 
   2015   2014   2014 
CHF:               
Reporting date   1.0369    1.1278    1.0105 
Average for period   1.0508    1.1203     1.0938 
                
BRL:               
Reporting date   0.3073    0.4432    0.3722 
Average for period   0.3512    0.424     0.4257 
                
ZAR:               
Reporting date   0.0827    0.0946    0.0861 
Average for period   0.0851    0.0922     0.0922 

 

Earnings (Loss) per Share

 

Basic and diluted earnings (loss) per share are computed by dividing net income or loss by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue shares of Common Stock, such as options, convertible notes and convertible preferred stock, were exercised or converted into shares of Common Stock or could otherwise cause the issuance of shares of Common Stock that then would share in earnings (losses). Such potential issuances of additional shares of Common Stock are included in the computation of diluted earnings per share. Except as disclosed in Note 7 of these Notes to Consolidated Financial Statements, the Company has no securities or other contracts to issue shares of Common Stock that could cause any dilution of earnings. In addition, when there is a loss, diluted loss per share is not computed because any potential additional common shares of Common Stock would reduce the reported loss per share and therefore have an anti-dilutive effect.

 

10
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

2. Property and Equipment

 

Property and equipment consists of the following:

 

   March 31,   December 31, 
   2015   2014 
   (Unaudited)   (Audited) 
         
Machinery and equipment  $5,010   $5,010 
Furniture and fixtures   12,753    12,753 
Motor vehicles   14,400    14,400 
Office and computer equipment   12,647    12,647 
    44,810    44,810 
Less: Accumulated depreciation   44,810    44,810 
           
Property and equipment, net  $-   $- 

 

Depreciation expense was $0 for the three months ended March 31, 2015 and 2014.

 

3. Intangible Assets

 

Intangible assets consist of the following:

 

   March 31,   December 31, 
   2015   2014 
   (Unaudited)   (Audited) 
         
Patents  $208,943   $208,943 
Less: Accumulated amortization   117,489    113,321 
           
Intangible assets, net  $91,454   $95,622 

 

Amortization expense was $4,167 for the three months ended March 31, 2015 and 2014.

 

4. Due to Officers/Stockholders

 

Due to officers/stockholders consists of unpaid salaries, accrued leave and advances from two executives and one employee/stockholder totaling $1,219,508 and $1,148,085 at March 31, 2015 and December 31, 2014, respectively. During 2014, the Company’s Chief Executive Officer advanced $58,720 to a subsidiary of the Company of which $51,522 was outstanding at March 31, 2015. The Company’s chief executive officer has not been paid a portion of his salary and unreimbursed expenses and as of March 31, 2015 $80,699 was due. The Company’s chief financial officer has not been paid any of his salary and a portion of his business expenses since October 2012. The amount owed to the chief financial officer as of March 31, 2015 includes unpaid salary of $696,952, unreimbursed expenses paid on behalf of the Company of $70,394 and an amount due to the chief executive officer which has been ceded to the chief financial offer of $238,861.

 

5. Other Loans Payable

 

On April 4, 2013, SPMSA borrowed ZAR 2 million (approximately $201,000) from a lender pursuant to a note. The terms of the loan provide for interest of 2% per month on the outstanding balance which is payable together with the principal balance no later than December 31, 2013. An officer and stockholder of the Company deposited 1,000,000 shares of Common Stock with the lender as security for the repayment of the loan to SPMSA. On September 26, 2013, the repayment date was extended to October 31, 2013. On October 31, 2013, the repayment date was extended to November 30, 2013. On November 21, 2013, the repayment date was further extended to March 31, 2014. On March 19, 2014, the repayment date was further extended to June 30, 2014. On June 24, 2014, the repayment date was further extended to September 30, 2014. On September, 30, 2014, the repayment date was further extended to December 31, 2014. On November 26, 2014, the repayment date was further extended to June 30, 2015. Interest on this loan was approximately $16,000 and $13,700 for the three months ended March 31, 2015 and 2014. As of March 31, 2015, the unpaid balance on this loan was $270,647 and is included in loans payable in the accompanying Consolidated Balance Sheet.

 

11
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

6. Equity

 

Common Stock through the date of the Share Exchange consisted of the common stock of SPI. The amounts presented for periods prior to the Share Exchange were denominated in CHF and have been translated from CHF to USD using the exchange rates in effect on the date of each issuance. As of December 31, 2011, SPI had 26,822,215 common shares issued and outstanding. During 2012 prior to the Share Exchange, SPI issued 2,500,000 shares in connection with the subscription agreement referenced in Note 7 of these Notes to Consolidated Financial Statements and 7,378,416 shares in connection with the conversion of SPI stockholder loans to common shares, resulting in 36,700,631 common shares of SPI being outstanding immediately prior to the Share Exchange.

 

On December 12, 2012, SurePure US designated 31,155,282 of its authorized shares of preferred stock as Nonvoting Convertible Preferred Stock, par value $0.01 per share.  Under the terms of the Certificate of Designation (the “Certificate”), each share of Nonvoting Convertible Preferred Stock is convertible into one share of Common Stock, subject to certain limitations and restrictions as defined in the Certificate.

 

The issued shares of Nonvoting Convertible Preferred Stock automatically convert, at the applicable conversion ratio as defined in the Certificate, into shares of the Company’s Common Stock upon the assignment, sale or other transfer of shares to any person other than an affiliate of the holder of the seller.  Any assignee, purchaser or other transferee may surrender certificates representing the assigned shares to the Company and will receive shares of the Company’s Common Stock in return. 

 

During the year ended December 31, 2014, the preferred stockholder converted 5,000,000 shares of the Company’s preferred stock into 5,000,000 shares of the Company’s Common Stock.  At December 31, 2014 and December 31, 2013, there were 14,800,000 and 19,800,000 issued and outstanding shares of the Company’s preferred stock.

 

Effective with the acquisition of SPHSA on June 12, 2013, 3,000 common shares of SPHSA were then exchanged for 3,000,000 shares of the Company’s Common Stock, which shares are treated as being outstanding as of June 12, 2013. The shareholder loans of SPHSA were converted to 6,865 common shares of SPHSA which were then exchanged for 6,864,811 shares of the Company’s Common Stock, which shares are treated as being outstanding as of June 12, 2013.

 

On September 1, 2013, the Company issued 60,000 common shares to a consultant in exchange for services.  The shares issued and the related consulting services were valued at $60,000 based upon a value of $1.00 per share, which was the closing price of the shares of the Company’s Common Stock on the last trading day prior to September 1, 2013.  On December 19, 2013, the Company issued 145,000 common shares to two consultants in exchange for services.  The shares issued and the related consulting services were valued at $130,500 based upon a value of $.90 per share, which was the closing price of the shares of the Company’s Common Stock on the last trading day prior to December 19, 2013.

 

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SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

On April 1, 2014, the Company entered into an agreement with a consultant to issue 30,000 common shares on the first business day of each month through September, 2014 in exchange for services. A total of 90,000 common shares were issued during the year ended December 31, 2014. The shares issued and the related consulting services were valued at $51,300 based upon the closing price on each date of issuance.

 

On June 23, 2014, the Company issued 75,000 common shares to Peak One as part of the cost of the financing in connection with the sale of the convertible debentures. The shares issued were valued at $.49, the closing share price on that day. On July 18, 2014, Peak One converted $30,000 of the Debenture into 177,514 shares of the Company’s Common Stock. On August 5, 2014, Peak One converted an additional $30,000 of the Debenture into 209,795 shares of the Company’s Common Stock.

 

At March 31, 2015 and December 31, 2014, there were 47,345,816 shares, of the Company’s Common Stock issued and outstanding.

 

7. Stock Subscriptions  

 

On September 20, 2013, the Company and Trinity Asset Management International Limited (“TAMIL”), a company formed under the laws of Mauritius, entered into the Share Purchase Agreement (the “TAMIL Share Purchase Agreement”), dated as of September 19, 2013, under which TAMIL agreed to purchase 900,000 shares of the Company’s Common Stock in monthly installments during the period ending March 25, 2014. The agreement required that TAMIL purchase the first 360,000 shares on September 30, 2013 or on such later date, not later than October 25, 2013 as the Company and TAMIL may agree. TAMIL agreed to purchase the remaining 540,000 shares in six installments of 90,000 shares each during the months beginning October 2013 and ending March 2014. TAMIL did not purchase any shares during the third quarter or fourth quarter of 2013. On November 7, 2013, the Company and TAMIL amended the Share Purchase Agreement to permit TAMIL to purchase the 900,000 shares of Common Stock at any time until March 25, 2014 and to modify the purchase price to be paid for the shares to be the greater of $1.00 per share or 92% of the volume weighted average price per share for the 20 trading days prior to the third business day before the purchase and sale of the shares. On March 5, 2014, TAMIL purchased 184,825 shares of the Company’s Common Stock under the agreement for a purchase price of $184,825.  The agreement included a liquidated damages provision in the event that TAMIL failed to purchase the agreed upon number of shares. The liquidated damages provision required TAMIL to pay an amount equal to the difference between $900,000 and the amount paid for the shares under the agreement. TAMIL did not purchase any of the remaining 715,175 shares of the Company’s Common Stock under this agreement as amended. The Company did not enforce its rights under the liquidated damages provision.

 

On November 22, 2013, the Company entered into an additional Share Purchase Agreement with Regency Capital Corporation, an existing stockholder, under which Regency agreed to purchase a total of 170,000 shares of Common Stock during the period ended November 30, 2013. In addition, Regency was given an option to purchase an additional 430,000 shares of Common Stock before January 31, 2014. Regency purchased the 170,000 shares of Common Stock as agreed and purchased an additional 380,000 shares of Common Stock through December 31, 2013. The remaining 50,000 shares of the Company’s Common Stock were purchased on January 24, 2014. All shares of Common Stock under this additional share purchase agreement with Regency were purchased at an issue price of $1.00 per share.

 

13
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

On February 13, 2014, effective as of January 31, 2014, this agreement was amended to grant Regency an option to purchase an additional 500,000 common shares not later than March 31, 2014 at the greater of $1.00 and 92% of the volume-weighted average price of for the 20 trading days ending on the third trading day before each additional share closing (the “Amendment Option Price”). Under this agreement as amended and through June 30, 2014, Regency has purchased 500,000 shares of the Company’s Common Stock at an issue price of $1.00 per share for an aggregate purchase price of $500,000.

 

On March 19, 2014, the Company and Regency entered into a second amendment of the Share Purchase Agreement that granted Regency the right to purchase 1,000,000 additional shares of Common Stock during the period ending June 30, 2014 at a cash purchase price equal to the Amendment Option Price. Under the second amendment and through June 30, 2014, Regency has purchased 315,000 shares of the Company’s Common Stock for an aggregate purchase price of $315,000.

 

On May 20, 2014, the Company and Trinity Asset Management (Proprietary) Limited (“Trinity”) entered into an Agreement for the Subscription of Shares that permitted Trinity arrange for the purchase of 850,000 shares of the Company’s Common Stock by offers to purchase by other subscribers at the price of $1.00 per share before July 30, 2014. In addition, Trinity agreed to assume the obligations of TAMIL with respect to the liquidated damages in connection with the unpurchased shares under the TAMIL agreement dated as of September 19, 2013 as amended. As of July 24, Trinity had not provided any offers to purchase to the Company and requested an extension of time to September 30, 2014 to complete it obligations under the agreement. Subsequent to June 30, 2014, no such offers to purchase have been made to the Company and no sales of Common Stock have taken place under the agreement.

 

On June 24, 2014, the Company and Regency entered into a third amendment of the Share Purchase Agreement that extended to September 30, 2014 Regency’s right to purchase the remaining 685,000 shares of the Company’s Common Stock under the second amendment. Through September 30, 2014, 141,250 shares were purchased under the third amendment.

 

During the year ended December 31, 2014, the Company issued an aggregate of 1,191,075 shares of its Common Stock for aggregate gross proceeds of $1,190,075, 575,000 shares of its Common Stock in settlement of liabilities to executives and consultants, 180,000 shares of its Common Stock in connection with a consulting agreement, 75,000 shares of its Common Stock in connection with the issuance of the Peak One convertible debentures and 387,309 shares issued in connection with the conversion rights under the Peak One convertible debentures.

 

During the year ended December 31, 2014, the holder of the Company’s convertible preferred shares converted 5,000,000 shares of Preferred Stock into 5,000,000 shares of Common Stock.

 

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SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

8. Stockholders’ Deficit

 

The consolidated stockholders’ equity of the Company consists of common stock, additional paid-in capital, deficit and accumulated other comprehensive income. The amounts for equity in variable interest entities and noncontrolling interest have been reclassified to additional paid-in capital, retained earnings and accumulated other comprehensive income effective with the acquisition of SPHSA on June 12, 2013.

 

9. Income Taxes

 

The Company and its subsidiaries file income tax returns in Switzerland, South Africa, the United States and Brazil. The components of income (loss) from operations before income taxes, by jurisdiction, are as follows:

 

   Three Months Ended March 31, 
   2015   2014 
Switzerland  $(229,522)  $(485,783)
South Africa   (135,986)   (226,654)
United States   (166,365)   (243,399)
Brazil   -    - 
Total Net Loss  $(531,873)  $(955,836)

 

The provision for income taxes shown in the accompanying consolidated statements of operations consists of the following for the three months ended December 31, 2015 and 2014:

 

       Three Months Ended March 31,    
       2015          2014    
Current tax provision:                
Switzerland   $ -     $ -  
South Africa     -       -  
United States     -       -  
Brazil     -       -  
Total current tax provision     -     $ -  
                 
Deferred tax provision:          
Switzerland   (41,008)  $(86,767)
South Africa   (38,041)   (63,424)
United States   (58,227)   (85,190)
Brazil   -    - 
Change in valuation allowance   137,276    235,381 
Total deferred provision   -    - 
           
Total  $-   $- 

  

The Company has determined that the future tax benefits from net operating losses are not likely to be realized in future periods and a full valuation allowance has been provided for all periods.

 

The income tax effect of each type of temporary difference giving rise to the net deferred tax asset as follows:

 

   March 31,   December 31, 
   2015   2014 
Deferred tax assets:          
Net operating loss carryforwards  $6,790,138   $6,652,862 
Less: valuation allowance   (6,790,138)   (6,652,862)
           
Total  $-   $- 

 

The following reconciles the effective income tax rates with the statutory rates for the three months ended March 31, 2015 and 2014:

 

           United     
   Switzerland   South Africa   States   Brazil 
                 
Statutory rate of tax   8.5%/18%   28.0%   35.0%   25.0%
                     
Three months ended March 31, 2015:                    
Net loss from operations                    
before taxes  $(229,522)  $(135,986)  $(166,365)  $- 
                     
As calculated at the statutory rate   (41,008)   (38,041)   (58,227)   - 
                     
Permanent differences   -    -    -    - 
Change in valuation reserves   41,008    38,041    58,227    - 
                     
Provision for income taxes  $-   $-   $-   $- 
                     
Three months ended March 31, 2014:                    
Net loss from operations                    
before taxes  $(485,783)  $(226,654)  $(243,399)  $- 
                     
As calculated at the statutory rate   (86,768)   (63,463)   (85,190)   - 
                     
Permanent differences   -    39    -    - 
Change in valuation reserves   86,768    63,424    85,190    - 
                     
Provision for income taxes  $-   $-   $-   $- 

 

Permanent differences are principally related to loss on disposal of property and equipment, interest and penalties and unallowable expenses.

 

The Company and Group members remain subject to tax examinations for the year ended December 31, 2014 in Switzerland and South Africa, for the six years ended December 31, 2014 in the U.S and for the four years ended December 31, 2014 in Brazil.

 

The Company was notified by the U.S. Internal Revenue Service during December 2013 of assessments totaling $40,000 for the failure by the management of the Company prior to the December 12, 2012 share exchange to file certain information returns for the years 2008-2011. The Company requested but did not receive administrative relief from the assessments. The Company has entered into an agreement with the Internal Revenue Service to pay the outstanding balance over four months in installments of $10,000 each commencing August 15, 2014. The Company made the payment of the first installment of $10,000 on August 7, 2014. The Company obtained an updated settlement amount from the U.S. Internal Revenue Service during February 2015 and paid the amount in full during March 2015.

 

10. 2012 Stock Option Plan

 

On December 11, 2012, the Company adopted the 2012 Stock Plan (the “Plan”). Under the terms of the Plan, 3,000,000 shares of our Common Stock have been reserved for future issuance. The Plan authorizes the granting of non-qualified stock options to our directors and to any independent consultants. The Plan is administered by the Company’s board of directors, and may also be administered by a committee appointed by the board of directors (the “Committee”). The Committee may determine persons eligible for grants and the timing, type, amount, fair market value and other provisions of such grants. The Committee will have authority, subject to the express provisions of the Plan, to construe the Plan and the option agreements granted pursuant to the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to promote the best interests of the Company. The Plan terminates on December 9, 2022.

 

15
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

The Plan provides that the determination of the option price per share for any option rests in discretion of the Committee. Options granted under the Plan must be granted within ten years from the date on which the Plan has been adopted. No options granted under the Plan may be exercisable after ten years from the date of grant. The Company’s board of directors may suspend or terminate the Plan in whole or in part or amend the Plan in such respects as the board may deem appropriate and in the best interest of the company. No amendment, suspension or termination of the Plan shall, however, without the optionee's consent, alter or impair any of the rights or obligations granted under the Plan.

 

On November 12, 2013, the Company granted non-qualified stock options to purchase an aggregate of 475,000 shares of the Company’s Common Stock under the plan, each at an exercise price of $0.89 per share. The options vest over three years as follows:

 

Options vested on November 12, 2013   190,000 
Options vesting on November 12, 2014   142,500 
Options vesting on November 12, 2015   142,500 
      
    475,000 

 

The Company uses the Black-Scholes-Merton option pricing model to estimate the fair value of stock options. The principal assumptions utilized in valuing stock options include the expected stock price volatility (based on the most recent historical period beginning December 12, 2012); the expected option life; the expected dividend yield; and the risk-free rate (an estimate based upon the yields of Treasury constant maturities) equal to the expected life of the option. The fair values for the options, all of which were granted in 2013, were determined using the Black-Scholes-Merton option pricing model with the following assumptions:

 

Dividend yield  0.00%
Risk-free interest rates  2.80%
Expected volatility  72.68%
Expected term (in years)  10

 

There was no reduction for estimated forfeitures. Under this model and the foregoing assumptions, the options granted in 2013 were valued at $151,053. Of this amount, $87,452, $15,900 and $47,701 is attributable to executives, employees and consultants, respectively. Equity-based compensation for the three months ended March 31, 2015 and 2014 was $12,415 and $34,142 respectively. These amounts are included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

 

16
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

11. Commitments, Contingencies and Tax Obligation

 

Lease Commitments

 

The Group leases two premises in South Africa under operating leases.  One location is an office facility and the other is a workshop.  The office facility lease was originally scheduled to expire on April 30, 2012 and has been extended in a short-term basis several times. The lease term terminated on February 28, 2014 and the Company leased this office for an additional month in March 2014.  The Company executed a one-year lease for a new office facility effective April 1, 2014 and was able to terminate this lease in May 2014. The lease for the Group’s workshop facility originally expired on April 30, 2012 and was also extended on a short-term basis. The workshop is being leased on a month-to-month basis. On June 1, 2014, the Company lease new office and workshop facilities for a one-year term. The monthly rent for the office lease is approximately $1,800 and the monthly rent for the workshop is $900. In addition to the payments required under the preceding leases, payments are made for space rentals on an as-needed basis. The total rent expense was approximately $11,000 and $17,000 for the three months ended March 31, 2015 and 2014, respectively. Rent expense is included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

 

The future rent commitments under the above leases for the twelve months ending December 31, 2015 is approximately $8,000.

 

Payroll Commitments

 

The Group’s employees in South Africa have employment contracts that provide for one month of notice before the employee can be terminated.  As of March 31, 2015, the total monthly salary commitment applicable to these employees was approximately $12,500.

 

Payroll Tax Obligation

 

During 2013, SPMSA received notification from the South African Revenue Service regarding unpaid payroll taxes of approximately $185,000.  SPMSA requested additional time to arrange a payment plan that is suitable to both parties and has commenced making monthly payments against this balance. Due to insufficient funds the SPMSA has been unable to continue making additional payments in this regard and additionally SPMSA has been unable to meet current payroll tax obligations. As at March 31, 2015 and December 31, 2014, the unpaid balance of this liability was approximately $114,000 and $80,000, respectively and is included in accounts payable and other current liabilities in the accompanying consolidated balance sheets. Effective October 31, 2014, the South African Revenue Service placed a collection order on the bank account of SPMSA for the outstanding amounts due.

 

Employment and Consulting Agreements

 

The Company has entered into agreements to secure the services of two executives.  These agreements provide for annual compensation and require a minimum termination notice period by the employer of three months.  Both executives are stockholders of the Company. The minimum amount due under these agreements is approximately $141,000 over the year ending December 31, 2015.

 

17
 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

The total compensation to these executives and one former executive was approximately $147,000 and $257,000 for the three months ended March 31, 2015 and 2014, respectively.

 

The Company entered into agreements with unrelated third party consultants and institutions for consulting, research and professional services.  These agreements can be terminated by either party with between one and three months written notice or immediately if for cause.  The amounts due vary according to the nature of the service arrangement and the length of notice required for termination. The minimum amount due under these agreements is approximately $58,000 over the year ending December 31, 2015.

 

Other Commitments

 

The Company is obligated to make payments of approximately $424,000 subsequent to March 31, 2015 in connection with purchase orders open as of March 31, 2015 for the purchase of machines to be delivered in 2015. Payments to vendors relating to these purchases are scheduled to be made prior to July 31, 2015 from the proceeds of the sales to which they relate.

 

12. Subsequent Events

 

The Company has evaluated its subsequent events since March 31, 2015 and has disclosed in Note 9 with respect to income taxes payable and Note 11 with respect to open purchase orders and payroll tax obligations.

 

13. Going Concern

 

The accompanying Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the continuation of the Group as a going concern. Due to the start-up nature of its business, the Group has generated recurring losses and expects to incur additional losses as it expands its photopurification technology and develops marketing, sales and financial plans. As reflected in the accompanying Consolidated Financial Statements, the Company’s total consolidated liabilities exceed total consolidated assets at March 31, 2015 and December 31, 2014 by $3,110,712 and $2,259,765, respectively, and the Company has incurred cumulative consolidated operating losses since the date of inception.

 

To date, the Company’s cash flow has been funded with cash investments by its shareholders, certain third parties and to a considerably lesser extent, sales and interest income. These inflows have been insufficient to enable the company to cover its costs. For the three months ended March 31, 2015 there has been a substantial increase in current liabilities. Additionally as disclosed in Note 9 with respect to income taxes payable and Note 11 with respect to payroll tax obligations, the Company has been unable to meet its obligations in terms of these taxes.

 

The Company requires additional capital to continue its development and to achieve sufficient revenues to support its operations. The extent of the Company’s future capital requirements depend on many factors, including its ability to maintain revenues and to manage expenses. The Company requires additional financing either through borrowings or the sale of additional equity to support its operations.

 

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SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Three months ended March 31, 2015 and 2014

 

 

The Company’s access to additional financing, if any, will depend on a variety of factors over which the Company has little or no control. These factors include market conditions, the general unavailability of equity financing to the Company in light of its limited revenues, the actual financial and operational results of the Company on a consolidated basis, as well as investors’ perception of the Company’s short-term and long-term financial prospects. If future financing is not available on acceptable terms, or on any other terms, the Company will not be able to continue as a going concern.

 

Management is currently pursuing plans to address the cash flow requirements of the Company for the twelve months ending March 31, 2016 and beyond. The Company is engaged in discussions with current and other potential investors, and the Company is also considering additional offerings of Common Stock. The Company was not, however, able to secure any additional equity financing during the first quarter of 2015 from existing shareholders or otherwise, despite its efforts to do so. In addition, the Company projects that increase in the commercialization of its technology may provide additional cash flow for operations. The Company entered into contracts of approximately $940,000 during the period ended March 31, 2015.

 

The Consolidated Financial Statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

  

Forward Looking Statements

 

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other parts of this Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.  The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements.  These statements are based on the beliefs and assumptions of our management based on information currently available to them.  Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those identified under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (the “Commission”), as well as in other documents that we have filed with the Commission.  Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q.  Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Rounding

 

Certain figures included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other parts of this Quarterly Report on Form 10-Q have been rounded for ease of presentation. Percentage figures included in this Quarterly Report on Form 10-Q have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, certain percentage amounts in this Quarterly Report on Form 10-Q may vary from those obtained by performing the same calculations using the figures in our financial statements. Certain other amounts that appear in this Quarterly Report on Form 10-Q may not sum due to rounding.

 

Overview

 

The results presented in this “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” are those of SurePure, Inc. and its subsidiaries (all of which are collectively referred to in this Management’s Discussion and Analysis of Financial Condition and Results of Operations as “we”) as reflected in our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with such consolidated financial statements and the notes thereto. The results presented below pertain to our audited consolidated financial statements for the quarters ended March 31, 2015 and 2014.

 

Insufficient Funding

 

For the period from our inception on August 24, 2005 to March 31, 2015, we had net losses from operations of approximately $34,857,000. During the three months ended March 31, 2015, we continued to experience both insufficient operating revenues and a significant shortfall in funding from investors. As a result, we require significant additional funding to maintain our operations and execute our business plan. If we are unable to obtain financing from our current shareholders or other sources, we will be unable to meet our business objectives and may scale back or even discontinue our operations until such time, if ever, that we are able to obtain financing. Notwithstanding our efforts to obtain financing, there is no assurance that any financing will be available on acceptable terms or at all. See “—Liquidity and Capital Resources.”

 

20
 

 

Business Overview

 

SurePure Inc. (SURP) is quoted on the USA OTC QB market and owns the international patent for a novel liquid purification technology that uses UV, rather than heat, to sterilise liquids. Using ultraviolet C light, the photopurification process can deliver the same or superior microbiological efficacy to pasteurisation on both clear and turbid liquids without the concomitant energy consumption or degradation of the liquid, either biochemically or organoleptically

 

Whilst UV light has long been used as a surface steriliser and has been applied to clear water successfully, this is the first technology of its kind that can process opaque or turbid liquids. Its scope of application is therefore virtually unlimited. Food-grade liquid application in beverages abound; technical application to process water and liquid raw materials, as well as liquids such as diesel are possible; even the medical application of this technology from blood to breast milk is being explored. We continue to do research work either by ourselves or in conjucntion with clients to establish the the efficacy on other liquids including various consumer beverages and home care products.

 

The heart of the SurePure photopurification technology is the turbulator technology for which SurePure holds 1 United States and 16 foreign patents. The unique and self-cleaning design of the turbulator enables the purification of turbid liquids on an industrial processing scale.

 

We have experienced negative cash flows from operations with respect to our business since our inception. As of March 31, 2015, we did not have adequate working capital resources to satisfy our current liabilities and as a result we have substantial doubt about our ability to continue as a going concern. Based on our current projections, including equity financing subsequent to December 31, 2014, we are not assured that we will have the cash resources to enable us to continue to fund normal operations.

 

We reported a number of accomplishments during the first quarter of 2015, in particular that we have received orders to the value of $940,000, delivery of which is expected to be take place during the second quarter of 2015.

  

Plan of Operation

 

We seek to expand the commercial acceptance of our SurePure Turbulator purification systems. To pursue this goal, contingent on our obtaining sufficient capital to maintain our operations, we plan to execute the following steps:

 

·Attend and promote our product at international trade shows in 2015 and 2016 for the brewing, dairy industries, liquid egg and industrial applications. At these venues we will seek to establish contact with industry participants, including distributors of engineered systems, and to make them aware of our product’s advantages and the expanded applications of the product that we have developed over the past 36 months;

 

·Continue to pursue regulatory clearances and approvals for applications, such as dairy and products, that are required for our technology to be sold in those industries. In particular, we expect to take the following actions with regulatory agencies:

 

·To request review of the SurePure technology by the US Food and Drug Administration (“FDA”) for a number of applications so that the technology may be categorized as “generally recognized as safe,” or “GRAS”;

 

21
 

 

·To receive approval of the material that we and a UK customer submitted to the UK Food Standard Authority in June 2011 to obtain EU Novel Food approval; and

 

·To receive approval from the International Organization of Wine and Vine (“OIV”) for the use of the SurePure technology for wine industry applications.

 

·Seek to market and sell our product and our technology for industrial applications;

 

·Seek to expand the level of commercialization of our technology in the liquid egg, wine, dairy, fruit juice and other beverage industries;

 

·Expand our distribution networks for our products by identifying additional distributors according to geographic market, expertise with specific liquids and existing client relationships and negotiating agreements with the identified distributors on terms acceptable to both the distributors and to us; and

 

·Obtain additional equity financing to support our growth from current shareholders, institutional investors or other investors to provide capital to support and augment our operations.

 

Our goal is to grow significantly over the next five years through the use of working capital and equity financing, if capital and financing are available to us. If we are able to obtain sufficient financing, we believe that it will be feasible for us to grow our operations based on our strategy of targeting strategic global regions with multiple potential clients for the commercialization of our technology. However, we will also seek to carefully monitor the risks associated with achieving our goal to increase commercialization and meet client expectations while also becoming financially solvent.

 

During the period ended March 31, 2015, we focused on the following activities:

 

    ·         continuing with commercial trials with key customers;

 

    ·         concluding  agreements with customers;

 

    ·         working with regulatory authorities such that our technology can be employed in key areas;

 

    ·         manufacturing, delivering and commissioning equipment ordered by customers; and

 

    ·         negotiating financing arrangements.

 

Subsequent to March 31, 2015, we have focused on the following activities:

 

    ·         continuing with commercial trials with key customers;

 

    ·         concluding agreements and accepting orders from new customers;

 

    ·         pursuing the expansion of our customer base and distributor network internationally;

 

    ·         manufacturing, delivering and commissioning equipment ordered by customers; and

 

    ·         negotiating possible equity financing agreements.

  

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Results of Operations

 

The following table summarizes our results of operations for the three months ended March 31, 2015 compared with our results of operations for the three months ended March 31, 2014:

 

   Three Months Ended:   Variance 
   March 31,
2015
   March 31,
2014
   $   % 
                 
Revenues  $98,000   $26,000    72,000    277%
                     
General and Admin Expenses   537,000    878,000    (341,000)   -39%
                     
Research and Development   17,000    57,000    (40,000)   -70%
                     
Interest Expense   17,000    14,000    3,000    21%
                     
Net Loss   532,000    956,000    (424,000)   -44%

 

Revenues

 

We had revenues of approximately $98,000 during the three months ended March 31, 2015, representing a 277% increase as compared to approximately $26,000 for the three months ended March 31, 2014. This increase as compared to the 2014 year was primarily due to the increase in new customer installations during the period.

 

Although we are negotiating agreements for the commercialization of our SurePure technology, it is unlikely that more than one or two of those agreements as currently structured will generate significant amounts of revenue during the next six months. As a general matter, we expect that revenues will increase to the extent that our commercialization efforts are successful. These commercialization efforts seek to introduce our technology to a broader range of clients and geographic areas. Our business model is largely based on sales of equipment, usage royalties or usage fees.

 

General and Administrative Expenses

 

We had general and administrative expenses of approximately $537,000 during the three months ended March 31, 2015, representing a 39% decrease as compared with approximately $878,000 during the three months ended March 31, 2014. This decrease as compared to 2014 was primarily due to lower professional fees resulting from the conclusion of the incorporation of the SA entities during 2014, lower employment costs due to reduction in staff numbers and remuneration levels as well as reduced travel expenditures due to timing of customer visits.

 

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General and administrative expenses are largely attributable to employment costs, professional and consulting fees and business travel expenses.

 

We expect that our general and administrative expenses will increase in future periods if we are able to obtain funding for our operations, as the increased level of commercialization of our technology will require increased levels of staffing and associated expenditures.

 

Research and Development Expenses

 

We had research and development expenses of approximately $17,000 for the three months ended March 31, 2015, representing a 70% decrease as compared with approximately $57,000 for the three months ended March 31, 2014.

 

We expect that our research and development expenses will increase in future periods as we pursue new applications and clients for our technology.

 

Interest Expense

 

We had interest expense of approximately $17,000 for the three months ended March 31, 2015, representing a 21% increase, as compared to approximately $14,000 of interest expense for the three months ended March 31, 2014..

 

Net Loss

 

For the reasons discussed above, we had a net loss of approximately $532,000 for the three months ended March 31, 2015, representing a 44% decrease in net losses as compared to a net loss of approximately $956,000 for the three months ended March 31, 2014.

 

We have not as yet generated sufficient revenue to fund our operations, and we expect our net losses to continue until such time as our commercialization efforts related to our technologies produce an increase in revenues sufficient to meet the cost of our operations. Accordingly, we expect to continue to operate at a loss at least through calendar 2015.

 

Income Tax Expense (Benefit)

 

We have realized net operating losses in Switzerland, South Africa and the United States. In addition to net operating losses in prior periods, our net operating losses during the quarter may result in a potential future income tax benefit, to the extent that any unexpired net operating loss carry-forwards can offset future operating profits.

 

Impact of Inflation

 

We believe that inflation has not had a material effect on our operations for the period to March 31, 2015.

 

Capital Expenditures

 

We did not invest in property and equipment during the period ended March 31, 2015.

 

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Liquidity and Capital Resources

 

Our principal sources of liquidity have historically been through sales of our Common Stock to our investors. During the quarter ended March 31, 2015, we were unable to obtain additional equity funding.

 

We continue to discuss potential financing transactions with various third parties, but we cannot provide any assurance that we will be able to conclude financing transactions with these or any other investors.

 

Our current assets are insufficient to meet our current obligations or to satisfy our cash needs over the next twelve months and, as such, we will require debt or equity financing. We are pursuing prospective sources for equity financing in an amount that would allow us to meet our commercialization targets. We face significant obstacles to attracting new financing due to our historical and current record of net losses and working capital deficits. Therefore, despite our efforts, we can provide no assurances that we will be able to obtain the financing required to meet our stated objectives or even to continue our business as a going concern.

 

The following table summarizes our financial position at March 31, 2015 compared with our financial position at December 31, 2014:

 

   As of:   Variance 
   March 31,
2015
   December 31,
2014
   $   % 
                 
Cash  $115,000   $1,000    114,000    11400%
                     
Other Current Assets   802,000    423,000    379,000    90%
                     
Total Assets   1,009,000    519,000    490,000    94%
                     
Current Liabilities   4,119,000    3,079,000    1,040,000    34%

 

As noted above under “Insufficient Funding” and as also noted below under this heading, our current cash resources are extremely limited.

 

As of March 31, 2015, we had cash of approximately $115,000 and other current assets of approximately $802,000, consisting of accounts receivable and prepaid expenses, and total assets of approximately $1,009,000. As of March 31, 2015, we had current liabilities of approximately $4,199,000, consisting of accounts payable, accounts payable to related parties and accrued liabilities. Of this amount, approximately $1,220,000 represented liabilities that were due to officers and stockholders, an increase in liabilities to officers and stockholders of approximately $72,000 as compared to such amount as of December 31, 2014. Our shareholders’ deficit was approximately $3,111,000 as of March 31, 2015, compared with deficit of approximately $2,560,000 as of December 31, 2014.

 

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Cash Flow Analysis

 

For the period from August 24, 2005 (when we began operations) to March 31, 2015, our cash used in operating activities was approximately $27,519,000. We expect to continue to have negative cash flows from operating activities until such time as we fully commercialize our technology.

 

For the three months ended March 31, 2015 our cash generated by operating activities was $157,000, which amount corresponded mainly to net losses from our operations offset by an increase in customer deposits and amounts due to officers and stockholders.

 

We do not expect to pay cash dividends in the foreseeable future.

 

We have a defined stock option plan and contractual commitments with all of our officers and directors. See “Market for Registrants Common Equity, Related Equity Stockholder Matters and Issuer Purchases of Equity Securities—Equity Compensation Plan Information” below in this Quarterly Report on Form 10-Q.

 

We plan to increase the number of employees to meet the anticipated demand if we are able to achieve wider acceptance of our technology.

 

Off Balance Sheet Arrangements

 

As of March 31, 2015, we had no off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosures.

 

As of the end of the period covered by this report, our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures.  Based on their evaluation of our disclosure controls and procedures and as a result of the material weaknesses discussed below, management, including our principal executive officer and principal financial officer, has concluded that our disclosure controls and procedures were effective as of March 31, 2015.

 

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Changes in Internal Control Over Financial Reporting

 

Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred during the period ended March 31, 2015, and has concluded that there was no change that occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

 

OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no unregistered sales of equity securities during the first quarter of 2015.

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

None

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits.

 

The following is a list of exhibits filed as part of this Form 10-Q:

 

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Exhibit Number Description
   
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   
101 The following materials from SurePure, Inc. Form 10-Q for the quarter ended March 31, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheets at March 31, 2015 and December 31, 2014, (ii) Unaudited Consolidated Statements of Operations for the three months ended March 31, 2015 and March 31, 2014, (iii) Unaudited Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2015 and March 31, 2014, (iv) Unaudited Consolidated Statements of  Stockholders' Deficit for the three months ended March 31, 2015, (vi) Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and March 31, 2014 and (vi) Notes to the Unaudited Consolidated Financial Statements.*

_____________

 

* Filed herewith.

  

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

  SurePure,, Inc.
   
Date:  April 24, 2015 By:  /s/ Guy R Kebble
    Name:   Guy R Kebble
    Title: President and Chief Executive Officer
      (Principal Executive Officer)
       
Date:  April 24, 2015 By: /s/ Stephen M. Robinson
    Name: Stephen M. Robinson
    Title: Chief Financial Officer
      (Principal Financial and Accounting Officer)

  

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EXHIBIT INDEX

 

 

 

Exhibit Number Description
   
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   
101 The following materials from SurePure, Inc. Form 10-Q for the quarter ended March 31, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheets at March 31, 2015 and December 31, 2014, (ii) Unaudited Consolidated Statements of Operations for the three months ended March 31, 2015 and March 31, 2014, (iii) Unaudited Consolidated Statement of  Comprehensive Income (Loss) for the three months ended March 31, 2015 and March 31, 2014, (iv) Unaudited Consolidated Statements of  Stockholders' Deficit for the three months ended March 31, 2015, (vi) Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and March 31, 2014 and (vi) Notes to the Unaudited Consolidated Financial Statements.*

 _____________

 

* Filed herewith.

 

 

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