Surepure (SURP) 10-Q 2013 Q3 Quarterly report

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 September 30, 2013

¨ 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 November 6, 2013 was 39,242,432.

SUREPURE, INC.

INDEX

PART I FINANCIAL INFORMATION		4
Item 1.	Financial Statements.	4
	Consolidated Balance Sheets September 30, 2013 (Unaudited) and December 31, 2012	4
	Consolidated Statements of Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 2013 and 2012	5
	Consolidated Statements of Other Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2013 and 2012	6
	Consolidated Statement of Stockholders’ Deficit (Unaudited) for the Nine Months Ended September 30, 2013	7
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2013 and 2012	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	34
Item 4.	Controls and Procedures.	35
PART II OTHER INFORMATION		36
Item 1.	Legal Proceedings.	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	36
Item 3.	Defaults Upon Senior Securities.	37
Item 4.	Mine Safety Disclosures.	37
Item 5.	Other Information.	37
Item 6.	Exhibits.	37
SIGNATURES		39

2

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

Consolidated Financial Statements

Three and Nine months ended September 30, 2013 and 2012 and

From August 24, 2005 (inception) to September 30, 2013

Contents

September 30, 2013

	Page
Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	4
Consolidated Statements of Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 2013 and 2012	5
Consolidated Statements of Other Comprehensive Income (Loss) (Unaudited) for the Three Months and Nine Months Ended September 30, 2013 and 2012	6
Consolidated Statements of Stockholders’ Deficit (Unaudited) for the Nine Months Ended September 30, 2013	7
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2013 and 2012	8
Notes to Unaudited Consolidated Financial Statements	9-24

3

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

SUREPURE, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012

	September 30, 2013		December 31, 2012
	(Unaudited)		(Audited)
Assets
Current assets:
Cash	$	5,932	$	142,373
Accounts receivable, net		13,461		19,948
Prepaid expenses and other current assets		89,105		128,646
Total current assets		108,498		290,967
Property and equipment, net		875		4,616
Other assets:
Intangible assets, net		116,457		128,958
Total assets	$	225,830	$	424,541
Liabilities and Equity (Deficit)
Current liabilities:
Accounts payable	$	823,847	$	790,930
Due to officers/stockholders		772,476		247,259
Income taxes payable		303		409
Advance on purchase of common stock		114,500		-
Loan payable		226,616		-
Total current liabilities		1,937,742		1,038,598
Long-term liabilities:
Loans from stockholders		-		3,241,768
Other loans payable		-		219,549
Total long-term liabilities		-		3,461,317
Total liabilities		1,937,742		4,499,915
Commitments and contingencies
Equity (deficit):
Stockholder's equity (deficit):
Common stock		38,232		23,542
Preferred stock		202,106		226,654
Additional paid-in capital		27,294,512		20,920,817
Equity of former variable interest entities		-		920,980
Other comprehensive income		963,076		360,464
Deficit accumulated during the development stage		(30,209,838)		(25,192,142)
Total stockholder's equity (deficit)		(1,711,912)		(2,739,685)
Noncontrolling interest		-		(1,335,689)
Total equity (deficit)		(1,711,912)		(4,075,374)
Total liabilities and equity (deficit)	$	225,830	$	424,541

See notes to consolidated financial statements.

4

 

SUREPURE, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

AND CUMULATIVE FROM AUGUST 24, 2005 (INCEPTION) TO SEPTEMBER 30, 2013

									Cumulative
									From
									August 24,
	Three Months Ended				Nine Months Ended				2005
	September 30,				September 30,				(inception) to
	2013		2012		2013		2012		September 30, 2013
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Sales	$	530	$	127,986	$	130,386	$	248,689	$	2,394,796
Cost of sales		-		51,570		7,565		93,663		1,545,061
Gross profit		530		76,416		122,821		155,026		849,735
Expenses:
General and administrative expenses		999,916		995,730		3,074,623		2,606,280		23,467,130
Promotion and marketing		29,175		32,738		127,102		76,345		718,488
Research and development		67,093		61,281		163,201		96,338		3,792,501
Depreciation and amortization		5,186		5,745		16,242		17,232		192,341
Impairment of patent		-		-		-		-		537,631
Total expenses		1,101,370		1,095,494		3,381,168		2,796,195		28,708,091
Loss from operations		(1,100,840)		(1,019,078)		(3,258,347)		(2,641,169)		(27,858,356)
Other income (expense):
Interest income		1		9		50		34		371,908
Interest expense		(17,394)		(93,654)		(144,272)		(328,694)		(2,601,498)
Miscellaneous income		350		-		350		-		350
Exchange rate gains and losses		-		4,944		(10)		7		(25,397)
Loss on disposition of fixed assets		-		-		-		-		(64,172)
Total other (expense) income		(17,043)		(88,701)		(143,882)		(328,653)		(2,318,809)
Loss before provision for taxes		(1,117,883)		(1,107,779)		(3,402,229)		(2,969,822)		(30,177,165)
Provision for income taxes		-		-		-		-		32,673
Net loss		(1,117,883)		(1,107,779)		(3,402,229)		(2,969,822)		(30,209,838)
Net loss attributable to noncontrolling      interest		-		(13,772)		(17,653)		(84,191)		(1,633,120)
Net loss attributable to SurePure	$	(1,117,883)	$	(1,094,007)	$	(3,384,576)	$	(2,885,631)	$	(28,576,718)
Loss per share – basic and diluted     attributable to SurePure common     stockholders	$	(0.03)	$	(0.03)	$	(0.12)	$	(0.08)	$	(1.06)
Weighted average shares outstanding -     basic and diluted		36,963,853		40,273,132		29,303,078		37,497,355		26,989,781

See notes to consolidated financial statements.

5

 

SUREPURE INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

AND CUMULATIVE FROM AUGUST 24, 2005 (INCEPTION) TO SEPTEMBER 30, 2013

									Cumulative
									From
									August 24,
	Three Months Ended				Nine Months Ended				2005
	September 30,				September 30,				(inception) to
	2013		2012		2013		2012		September 30, 2013
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net loss	$	(1,117,883)	$	(1,107,779)	$	(3,402,229)	$	(2,969,822)	$	(30,209,838)
Other comprehensive income, net of tax
Unrealized gain (loss) on foreign     currency translation		(25,850)		(6,185)		516,392		62,001		963,076
Comprehensive loss		(1,143,733)		(1,113,964)		(2,885,837)		(2,907,821)		(29,246,762)
Less: Comprehensive income (loss) attributable     to noncontrolling interest		-		(9,815)		122,083		(64,197)		(1,407,166)
Comprehensive loss attributable     to SurePure, net of tax	$	(1,143,733)	$	(1,104,149)	$	(3,007,920)	$	(2,843,624)	$	(27,839,596)

See notes to consolidated financial statements.

6

 

SUREPURE INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

									Equity in						Accumulated
	Common						Additional		Variable		Retained				Other
	Shares		Common		Preferred		Paid-in		Interest		Earnings		Noncontrolling		Comprehensive
	Issued		Stock		Stock		Capital		Entities		(Deficit)		Interest		Income		Total
Balances-December 31, 2012, (audited)		23,542,184	$	23,542	$	226,654	$	20,920,817	$	920,980	$	(25,192,142)	$	(1,335,689)	$	360,464	$	(4,075,374)
Issuance of common stock for cash		2,087,318		2,088				2,085,230										2,087,318
Imputed interest on stockholder loans								105,925										105,925
Conversion of preferred stock to common stock		2,454,816		2,454		(24,548)		22,094										-
Conversion of other loans payable to common stock		222,672		223				222,449										222,672
Issuance of common stock for consulting services		60,000		60				59,940										60,000
Conversion of stockholders loans to former VIE to common stock		6,864,811		6,865				2,766,519										2,773,384
Adjustment to reflect acquisition of former VIE's		3,000,000		3,000		-		1,111,538		(920,980)		(1,633,120)		1,213,606		225,956		-
Net (loss) for the nine months ended September 30, 2013												(3,384,576)		(17,653)				(3,402,229)
Unrealized gain on foreign currency translation adjustment		-		-		-		-		-		-		139,736		376,656		516,392
Balances- September 30, 2013		38,231,801	$	38,232	$	202,106	$	27,294,512	$	-	$	(30,209,838)	$	-	$	963,076	$	(1,711,912)

See notes to consolidated financial statements.

7

 

SUREPURE INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

AND CUMULATIVE FROM AUGUST 24, 2005 (INCEPTION) TO SEPTEMBER 30, 2013

					Cumulative From
	Nine Months Ended				August 24, 2005
	September 30,				(inception) to
	2013		2012		September 30, 2013
		(Unaudited)		(Unaudited)		(Unaudited)
Cash from operating activities:
Net loss	$	(3,402,229)	$	(2,969,822)	$	(30,209,838)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		16,242		17,232		192,341
Impairment of patent		-		-		537,631
Loss on sale of property and equipment		-		-		64,172
Imputed interest on stockholders loans		105,925		324,135		2,469,862
Consulting services paid by issuance of common stock		60,000		-		60,000
Changes in assets and liabilities:
Accounts receivable		6,487		(23,316)		(13,461)
Prepaid expenses and other current assets		39,541		(15,986)		(89,105)
Accounts payable		32,917		(241,945)		823,847
Due to officers/stockholders		525,217		(473,129)		772,476
Income taxes payable		(106)		(319)		303
Total cash used in operating activities		(2,616,006)		(3,383,150)		(25,391,772)
Cash from investing activities:
Purchase of property and equipment		-		-		(181,760)
Proceeds from sales of property and equipment		-		-		16,860
Acquisition of patents		-		-		(746,576)
Total cash used in investing activities		-		-		(911,476)
Cash from financing activities:
Proceeds from sale of equity		2,087,318		2,267,737		15,745,787
Proceeds from equity of former variable interest entities		-		-		83,309
Proceeds from loans from stockholders		-		1,550,029		9,421,605
Proceeds from other loans payable		229,738		-		449,287
Advance on purchase of common stock		114,500		-		114,500
Total cash provided by financing activities		2,431,556		3,817,766		25,814,488
Effect of exchange rate changes on cash and cash equivalents		48,009		62,001		494,692
Net (decrease) increase in cash		(136,441)		496,617		5,932
Cash, beginning of period		142,373		35,475		-
Cash, end of period	$	5,932	$	532,092	$	5,932
Supplemental disclosures:
Interest paid	$	18,398	$	4,957	$	111,687
Income taxes paid	$	-	$	-	$	32,673
Conversion of stockholder's and other loans to equity	$	2,996,056	$	3,689,208	$	8,061,493
Conversion of other loans payable to stockholder's loans	$	-	$	-	$	300,000
Conversion of stockholder's loans to equity of     former variable interest entities	$	-	$	-	$	1,114,400
Imputed interest on stockholder's loans reported as an     increase to additional paid-in capital	$	105,925	$	324,135	$	2,469,862
Conversion of equity of former variable interest entities     to equity of company	$	1,114,539	$	-	$	1,114,539
Conversion of preferred stock to common stock and     additional paid-in capital	$	24,548	$	-	$	24,548
Issuance of common stock for consulting services	$	60,000	$	-	$	60,000

See notes to consolidated financial statements.

8

 

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three and Nine Months Ended September 30, 2013 and 2012

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 Agreementwith 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 was the legal acquirer of SPI, SPI is treated as the acquirer for accounting and financial reporting purposes and under this method, and SurePure US has retained 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”).

As more fully described in Note 11 of these Notes to Consolidated Financial Statements, on June 12, 2013 the Company completed the acquisition of SurePure Holdings South Africa (Pty) Ltd. (“SPHSA”).In the acquisition, SPHSA issued one share of its common stock in exchange for each ZAR 4,000 of SPHSA shareholder loans in the aggregate amount of ZAR 27,459,245.These newly issued 6,865 common shares and the previously issued 3,000 common shares were then exchanged for shares of Common Stock at the rate of 1,000 shares of Common Stock for each share of SPHSA common stock.As a result of this acquisition, SPHSA has become a wholly-owned subsidiary of the Company and is no longer treated as a variable interest entity.

The Group has developed the 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 bovine blood plasma, water, brines and sugar syrup solutions.The Group holds international patents for this technology.The Group has been engaged in raising capital, continuing research and development of its technologies and processes and developing markets for its products.

Basis of Presentation and Consolidation

The accompanying unaudited Consolidated Financial Statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), with the instructions to Form 10-Q and with the requirements of Regulation S-X of the Securities and Exchange Commission for interim financial information.Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual consolidated financial statements. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012. Operating results for the three months and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013.

9

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

The accompanying unaudited consolidated financial statements include the accounts and results of operations of the Company and its subsidiaries.The entities that were formerly accounted for as variable interest entities (“VIE’s”) are now accounted for as wholly-owned subsidiaries.All inter-group balances and transactions have been eliminated in the consolidation.As a development stage entity, the Company is devoting most of its efforts to establishing its business; therefore, the accompanying consolidated statements of operations, comprehensive income (loss), and cash flows present cumulative amounts since inception.

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

· 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 Latin America Maqinas de Purificasao UVC Ltda. (“SPLAM”), which conducts no operations currently; and

· 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 and all of its expenses have been and will continue to be paid by SPI.Formerly a VIE, 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.Formerly VIE’s, these entities became subsidiaries as a result of their acquisition on June 12, 2013.

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

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.

10

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

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

The Group performs regular credit evaluations of customers to which it provides sales on credit terms, and adjusts credit limits based on the customer’s payment history and reassessments of their creditworthiness.The Group continuously monitors its collections and establishes a provision for estimated doubtful accounts, if necessary.No allowance for doubtful accounts was deemed to be necessary at September 30, 2013 or at December 31, 2012.

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.

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, which expires in October, 2020.

11

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

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 and nine months ended September 30, 2013 and 2012 or for the year ended December 31, 2012.During the period from inception to September 30, 2013, impairment losses on intangible assets of $537,631 were recognized.

Fair Value of Financial Instruments

Financial instruments include accounts receivable and accounts payable.As of September 30, 2013 and December 31, 2012, the carrying values of the financial instruments approximated their fair values due to the short-term nature of these instruments.

Revenue

Revenue is earned from sales and licensing 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.

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 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.

12

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

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 exchange rates for the periods were:

	Three Months Ended		Nine Months Ended September 30,
	September 30,		September 30,		December 31,
	2013	2012	2013	2012	2012
CHF:
Reporting date	1.1031	1.0638	1.1031	1.0638	1.0942
Average for period	1.0729	1.0394	1.0696	1.0643	N/A
BRL:
Reporting date	0.4428	0.4929	0.4428	0.4929	0.4880
Average for period	0.4364	0.4927	0.4731	0.5228	N/A
ZAR:
Reporting date	0.0989	0.1202	0.0989	0.1202	0.1178
Average for period	0.1000	0.1210	0.1058	0.1242	N/A

Fair Value of Financial Instruments

GAAP has established a framework for measuring fair value that is based on a hierarchy which prioritizes the inputs to valuation techniques according to the degree of objectivity necessary.The fair value hierarchy of the inputs to valuation techniques used to measure fair value is divided into three broad levels of objectivity:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.They are based on best information available in the absence of level 1 and 2 inputs.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value as required by GAAP:

Cash:The carrying amount is the fair value because it is the basic financial instrument used to express fair value.

Accounts receivable and accounts payable:The carrying amounts approximate fair value because of the short-term duration of those instruments.

Loans payable:The carrying amount approximates fair value based on current market conditions and interest rates available to the Group for similar financial instruments.

13

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

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 to the 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.

2. Property and Equipment

Property and equipment consists of the following:

	September 30,		December 31,
	2013		2012
	(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		43,935		40,194
Property and equipment, net	$	875	$	4,616

Depreciation expense was approximately $1,000 and $1,500 for the three months ended September 30, 2013 and 2012, respectively, approximately $3,800 and $4,700 for the nine months ended September 30, 2013 and 2012, respectively and approximately $96,400 for the period from inception to September 30, 2013.

3. Intangible Assets

Intangible assets consist of the following:

	September 30,		December 31,
	2013		2012
	(Unaudited)		(Audited)
Patents	$	208,943	$	208,943
Less: Accumulated amortization		92,486		79,985
Intangible assets, net	$	116,457	$	128,958

Amortization expense was approximately $4,200 and $4,200 for the three months ended September 30, 2013 and 2012, respectively, approximately $12,500 and $12,500 for the nine months ended September 30, 2013 and 2012, respectively and $96,000 for the period from inception to September 30, 2013.

4. Due to Officers/Stockholders

Due to officers/stockholders consists of unpaid salaries, accrued leave and advances from the three executives of the Group entities totaling $772,476 and $247,259 at September 30, 2013 and December 31, 2012, respectively.

14

 

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

5 . Stockholders and Other Loans Payable 

Stockholder and other loans payable consisted of advances by individuals and companies to the Group.Certain of the lenders were either stockholders or are related to stockholders.None of these loans were supported by notes and none had a provision for interest or repayment.The Company has imputed interest on these loans.The rates of interest used to impute interest on these loans range from 4% per annum to 15% per annum during the periods in which these loans were outstanding and represent management’s best estimate of the interest rates that would be applicable to Company in a third-party marketplace.As discussed in Note 1 of these Notes to the Consolidated Financial Statements, these loans were converted into common shares of SPHSA which were then exchanged for shares of Common Stock in the acquisition of SPHSA that was completed on June 12, 2013, at which time interest on these loans was no longer required to be imputed.Imputed interest on these loans was $-0- and $94,052 for the three months ended September 30, 2013 and 2012, respectively, $105,925 and $324,135 for the nine months ended September 30, 2013 and 2012, respectively and $2,469,862 for the period from inception to September 30, 2013.These amounts are included in interest expense in the accompanying consolidated statements of operations and are reflected as an increase in additional paid-in capital in the accompanying consolidated statements of stockholders’ deficit.

In October 2012, the Company and the three lenders whose balances were reflected in Other Loans Payable at December 31, 2012 revised their agreements orally and these agreements were later formalized in writing effective January 2013.The Company agreed with each of these lenders that it would pay interest at 5% per annum on the outstanding balances retroactive to the time that the loans were made in 2011 and repay each of these lenders $105,000 in October 2012.Interest on these loans was $-0- and $3,206 for the three months ended September 30, 2013 and 2012, respectively,$3,107 and $9,456 for the nine months ended September 30, 2013 and 2012, respectively and $27,701 for the period from inception to September 30, 2013.On April 4, 2013, these lenders and the Company further agreed that the lenders would be granted the right to convert each $1.00 of principal and interest that was unpaid under their agreements into one share of Common Stock upon the effective date of the Company’s registration statement which the Company had filed to register the resale of certain shares of the Common Stock.Pursuant to these agreements, these loans were converted into shares of Common Stock at the time that the registration statement was declared effective on May 16, 2013.

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 September 30, 2013.An officer and stockholder of the Company has 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.Interest on this loan was $13,216 for the three months ended September 30, 2013 and $30,044 for the nine months ended September 30, 2013.As of September 30, 2013, the unpaid balance on this loan was $226,616 and is included in loans payable in the accompanying consolidated balance sheet.

15

 

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

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.For all of 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 the 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 June 14, 2011, a majority of the shareholders and directors of SurePure US approved a special resolution to undertake a forward split of the Company’s common stock resulting in an increase in the number of outstanding shares on that date from 2,135,000 to 32,452,000.Of these shares, 23,180,000 shares that were held by the former directors and officers were redeemed and cancelled as a condition to the Share Exchange, leaving 9,272,000 shares of SurePure US outstanding immediately prior to the Share Exchange.No preferred shares were issued prior to the date of the Share Exchange.

In determining the annual number of outstanding common shares on a weighted-average basis, the 9,272,000 common shares held by former SurePure US stockholders are considered to be outstanding from July 25, 2011, the date that the Company and SPI entered into an Agreement and Plan of Merger.

On December 12, 2012, SurePure US designated 31,155,282 of its authorized shares of preferred stock as Nonvoting Convertible Preferred Stock.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 us and will receive shares of our Common Stock in return.

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

On May 14, 2013, the preferred stockholder converted 1,200,000 of its shares of the Company’s preferred stock into 1,200,000 shares of Common Stock.On September 3, 2013, the preferred stockholder converted an additional 1,254,816 of its shares of the Company’s preferred stock into 1,254,816 shares of Common Stock.At September 30, 2013 and December 31, 2012, respectively, after giving effect to the acquisition of SPHSA, there were 38,231,801 and 23,542,184 shares of Common Stock issued and outstanding, and there were respectively 20,210,631 and 22,665,447, issued and outstanding shares of the Company’s preferred stock .

16

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

All references in these consolidated financial statements to the number of shares of Common Stock, price per share and weighted average number of shares of Common Stock outstanding prior to the June 2011 forward split have been adjusted to reflect the stock split on a retroactive basis unless otherwise noted.As of September 30, 2013, the Company has not granted any stock options and has not recorded any stock-based compensation.

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, the closing price on the last trading day prior to September 1, 2013.

7. Stock Subscription Agreements

On May 24, 2013, the Company entered into a Share Purchase Agreement with Trinity Asset Management (Proprietary) Limited, a South Africa-based investment manager (“Trinity”), in which Trinity agreed to purchase 1,000,000 new shares of the Company’s Common Stock at $1.00 per share in three installments: 250,000 shares on May 24, 2013, 250,000 shares on May 31, 2013 and 500,000 shares on June 28, 2013.If Trinity had complied with its purchase commitment, it would also have had the right to purchase up to 1,000,000 additional shares of Common Stock at $1.35 per share before July 31, 2013 by providing written notice three days prior to the purchase of the additional shares.As of June 12, 2013, Trinity had purchased 50,000 of the second installment of 250,000 shares of Common Stock and demand was made for the unpaid portion of the second installment.On June 26, 2013, the Company granted a waiver of time until July 31, 2013 for Trinity to purchase the remaining shares of Common Stock that were to have beenpurchased by June 28, 2013.During June and July 2013, Trinity purchased 151,318 additional shares of the second installment, of which 50,000 shares were purchased in July 2013.Trinity’s right to purchase additional shares under its share purchase agreement terminated on July 31, 2013.

17

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

On July 25, 2013, Regency Capital Corporation, a Turks and Caicos Islands corporation (“Regency”),agreed to subscribe for and purchase 661,500 shares of the Company’s Common Stock in three equal installments of 220,500 shares each over the period ending September 13, 2013.Regency completed the purchase of all 661,500 shares as agreed.All shares of Common Stock under this share purchase agreement were purchased and sold at an issue price of $1.00 per share.

On July 25, 2013, the Company entered into a Share Purchase Agreement with Minaurum Limited, a Malta-based investment manager (“Minaurum”), in which Minaurum agreed to purchase 100,000 new shares of the Company’s Common Stock on that day.Minaurum completed the purchase as agreed.These shares of Common Stock were purchased and sold at an issue price of $1.00 per share.

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 Common Stock in monthly installments during the period ending March 25, 2014.The agreement requires 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 has 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. As of October 25, 2013, the Company and TAMIL amended the Share Purchase Agreement. See Note 14 “Subsequent Events” below.

8. Stockholders’ Deficit

The consolidated stockholders’ equity of the Group consists of common stock, additional paid-in capital, retained 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 group members 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:

									From August 24, 2005
	Three Months Ended September 30,				Nine Months Ended September 30,				(inception) to
	2013		2012		2013		2012		September 30, 2013
Switzerland	$	(521,379)	$	(1,028,477)	$	(1,921,159)	$	(2,485,037)	$	(18,437,044)
South Africa		(313,753)		(79,302)		(547,655)		(484,785)		(9,849,774)
United States		(282,751)		-		(933,415)		-		(948,849)
Brazil		-		-		-		-		(941,498)
Total	$	(1,117,883)	$	(1,107,779)	$	(3,402,229)	$	(2,969,822)	$	(30,177,165)

18

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

The provision for income taxes shown in the accompanying consolidated statements of operations consists consists of the following:

									From August 24, 2005
	Three Months Ended September 30,				Nine Months Ended September 30,				(inception) to
	2013		2012		2013		2012		September 30, 2013
Current tax provision:
Switzerland	$	-	$	-	$	-	$	-	$	32,673
South Africa		-		-		-		-		-
United States		-		-		-		-		-
Brazil		-		-		-		-		-
Total current tax provision		-		-		-		-		32,673
Deferred tax provision:
Switzerland		(92,532)		(145,542)		(341,684)		(356,170)		(3,171,894)
South Africa		(86,717)		(2,246)		(107,549)		(71,149)		(1,929,098)
United States		(98,963)		-		(326,695)		-		(332,097)
Brazil		-		-		-		-		(235,375)
Change in valuation allowance		278,212		147,788		775,928		427,319		5,668,464
Total deferred provision		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	32,673

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:

	September 30,		December 31,
	2013		2012
Deferred tax assets:
Net operating loss carryforwards	$	5,668,464	$	4,892,536
Less: valuation allowance		(5,668,464)		(4,892,536)
Total	$	-	$	-

19

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

 

The following reconciles the effective income tax rates with the statutory rates for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012 and for the period from inception to September 30, 2013:

					United
	Switzerland		South Africa		States		Brazil		Total
Three months ended September 30, 2013:
Net (loss) from operations before taxes	$	(521,379)	$	(313,753)	$	(282,751)	$	-	$	(1,117,883)
As calculated at the statutory rate		(92,532)		(87,851)		(98,963)		-		(279,346)
Permanent differences		-		1,134		-		-		1,134
Change in valuation reserves		92,532		86,717		98,963		-		278,212
Provision for income taxes	$	-	$	-	$	-	$	-	$	-
Three months ended September 30, 2012:
Net (loss) income from operations before taxes	$	(1,028,477)	$	(79,302)	$	-	$	-	$	(1,107,779)
As calculated at the statutory rate		(147,492)		(22,206)		-		-		(169,698)
Permanent differences		1,950		19,960		-		-		21,910
Change in valuation reserves		145,542		2,246		-		-		147,788
Provision for income taxes	$	-	$	-	$	-	$	-	$	-
Nine months ended September 30, 2013:
Net (loss) from operations before taxes	$	(1,921,159)	$	(547,655)	$	(933,415)	$	-	$	(3,402,229)
As calculated at the statutory rate		(341,684)		(153,344)		(326,695)		-		(821,723)
Permanent differences		-		45,795		-		-		45,795
Change in valuation reserves		341,684		107,549		326,695		-		775,928
Provision for income taxes	$	-	$	-	$	-	$	-	$	-
Nine months ended September 30, 2012:
Net (loss) income from operations before taxes	$	(2,485,037)	$	(484,785)	$	-	$	-	$	(2,969,822)
As calculated at the statutory rate		(357,302)		(135,740)		-		-		(493,042)
Permanent differences		1,132		64,591		-		-		65,723
Change in valuation reserves		356,170		71,149		-		-		427,319
Provision for income taxes	$	-	$	-	$	-	$	-	$	-

20

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

	Switzerland		South Africa		United States		Brazil		Total
For the period from August 24, 2005 (inception) to September 30, 2013:
Net (loss) from operations before taxes	$	(18,437,044)	$	(9,849,774)	$	(948,849)	$	(941,498)	$	(30,177,165)
As calculated at the statutory rate		(3,151,545)		(2,757,937)		(332,097)		(235,375)		(6,476,954)
Permanent differences		12,324		828,839		-		-		841,163
Change in valuation reserves		3,171,894		1,929,098		332,097		235,375		5,668,464
Provision for income taxes	$	32,673	$	-	$	-	$	-	$	32,673

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 two years ended December 31, 2012 in Switzerland and South Africa, for the three years ended December 31, 2012 in the U.S and for the four years ended December 31, 2012 in Brazil.

10. Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivables.Cash is maintained in financial institutions in foreign countries that do not insure the balances in the accounts.The credit risk for customer accounts is concentrated because accounts receivable consists of the balance due from one customer.However, the customer’s account typically is collected within a short period of time and, based on its assessment of current conditions, management believes there is no risk of loss.Management continuously monitors these conditions.

11. Acquisition of SPHSA

On August 16, 2012, SPI entered into an agreement (the "Acquisition Agreement") with SPHSA providing for the acquisition of 100% of the outstanding shares of SPHSA from its shareholders.The Company has assumed the executory obligations of SPI under the Acquisition Agreement.

21

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

Prior to its acquisition, SPHSA was accounted for as a subsidiary of SPI under variable interest accounting rules.The shareholdings in SPHSA had remained largely unchanged since the formation of that company in 2005.Since October 2007, SPHSA has also provided various management services for SPI and SPO.In addition, our subsidiary SPO had loaned approximately $2,000,000 to SPHSA, all of which was due on demand.There had been and continue to be various intercompany transactions relating to the sale and purchase of goods and services between SPI and SPHSA.Accordingly, the boards of directors of both SPI and SPHSA believed it to be in the best interest of their respective companies to combine such that SPHSA would become a wholly-owned subsidiary of SPI and SPO would convert its loans and advances to SPHSA into equity, thereby improving the financial condition of SPHSA.

Subject to the terms and conditions of the Acquisition Agreement, on August 21, 2012, SPI made its offer, which initially was irrevocable for a period of 20 business days after the date of the offer to purchase from each of the shareholders of SPHSA all of their shares of SPHSA at a closing to be held September 19, 2012, which was the 21st business day after the date of the offer.The shares of SPHSA subject to SPI’s offer to purchase included shares that reflected the value of shareholder loans outstanding at the time of the offer.On September 21, 2012, SPI extended the period during which its offer remained open until November 26, 2012 to permit the satisfaction of conditions to the closing of the offer.On November 30, 2012, SPI and SPHSA agreed to amend the Acquisition Agreement to provide that the offer would remain open until February 28, 2013, so as to permit the fulfillment of certain closing conditions.On March 8, 2013, SPI extended the date that the offer would remain open to June 28, 2013. The Acquisition Agreement provided that SPI would settle the purchase price it is paying for the shares of SPHSA in shares of SPI in the ratios of (i) 1,000 common shares of SPI for each share of SPHSA and (ii) 1,000 common shares of SPI for each ZAR 4,000 in principal amount of loans owed by SPHSA to its shareholders.The purchase price for the shares of SPHSA under the offer was ZAR 4,000 (approximately $500.00) per share of SPHSA.The Acquisition Agreement provided that SPI would settle the purchase price it paid for the shares of SPHSA in shares of SPI in the ratio of (i) 1,000 common shares of SPI for each share of SPHSA and (ii) 1,000 common shares of SPI for each ZAR 4,000 in principal amount of loans owed by SPHSA to its shareholders.

Acting under the terms of the Share Exchange, at the time of the Share Exchange SPI assigned its rights under the Acquisition Agreement to SurePure US, and SurePure US assumed the obligations of SPI to issue shares to the shareholders of SPHSA at such time, if any, that the pending acquisition of SPHSA is completed.

On May 23, 2013, SPHSA received a final determination from the South African Reserve Bank that the transaction could proceed with certain conditions and controls designed to repatriate the funds of any sale of Company common stock by the South African shareholders.On June 12, 2013, the acquisition was completed.In the acquisition, SPHSA issued one common share in exchange for each ZAR 4,000 of SPHSA shareholder loans in the aggregate amount of ZAR 27,459,245 (approximately $2,775,000).These newly issued 6,865 common shares of SPHSA and the previously issued 3,000 common shares of SPHSA were then exchanged at the rate of 1,000 shares of Common Stock for each SPHSA common share and a total of 9,864,811 shares of Common Stock wasissued.

22

 

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

12. 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 will be administered by the Company’s board, or a committee appointed by the board (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 will terminate on December 9, 2022.

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.

There are no outstanding grants under the Plan as of September 30, 2013.

13. 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, with a monthly rent of $4,689, but has been renegotiated to extend the lease term to February 28, 2014, at a monthly rent of $2,677, for the first year and $2,946 for the second year.The lease for the Group’s workshop facility originally expired on April 30, 2012, with a monthly rent of $2,460.This lease term has been extended through October 31, 2013 with a monthly rent of $2,595, through April 30, 2013 and a monthly rent of $2,855 thereafter. This lease was not renewed. 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 $21,400 and $18,900 for the three months ended September 30, 2013 and 2012, respectively, approximately $57,300 and $57,800 for the nine months ended September 30, 2013 and 2012, respectively, and approximately $837,300 for the period from inception to September 30, 2013.Rent expense is included in general and administrative expenses in the accompanying consolidated statements of operations.

23

SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

The future rent commitments under the above leases for the twelve months ended September 30, 2014 is approximately $15,000.There is no future rent commitment subsequent to September 30, 2014.

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 September 30, 2013, the total monthly salary commitment applicable to these employees, exclusive of the executives, was approximately $31,300.

Payroll Tax Obligation

SPMSA has 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.During the Company’s review of this matter in 2012, it was discovered that additional taxes amounting to approximately $62,000 were due.At September 30, 2013 and December 31, 2012, the unpaid balance of this liability was approximately $105,000 and $187,000, respectively and is included in accounts payable and other current liabilities in the accompanying consolidated balance sheets.

Employment and Consulting Agreements

The Group has entered into agreements to secure the services of three executives.These agreements provide for annual compensation and require a termination notice period by the Group of three months.The executives all are stockholders of the Company.

The total compensation paid to these executives was approximately $252,000 and $254,000 for the three months ended September 30, 2013 and 2012, respectively, approximately $761,000 and $809,000 for the nine months ended September 30, 2013 and 2012, respectively and approximately $5,853,000 for the period from inception to September 30, 2013.These amounts are included in general and administrative expenses.

The Group entered into agreements with unrelated third party consultants and institutions for consulting, research and professional services.With the exception of one agreement that has a remaining term of six months as of September 30, 2013, these agreements can be terminated by either party with between two weeks 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 $158,000 over the twelve months ending September 30, 2014.

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SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

14. Subsequent Events

The Company has evaluated its subsequent events from the balance sheet date. The Company has determined that there were no material subsequent events requiring adjustment to or disclosure in these consolidated financial statements except the following:

On October 25, 2013, the Company entered into an additional Share Purchase Agreement with Regency, an existing stockholder, under which Regency agreed to purchase 600,000 shares of Common Stock during the period ended October 31, 2013.All shares of Common Stock under this additional share purchase agreement with Regency were purchased at an issue price of $1.00 per share during October 2013. The Company received an advance of $114,500 under this agreement. 

As of October 25, 2013 the Company and TAMIL agreed to modify the schedule for the purchase of the shares under the TAMIL Share Purchase Agreement such that the purchase and sale of all 900,000 Shares to be purchased and sold under the TAMIL Share Purchase Agreement shall occur on such dates during the period ending March 25, 2014 as the Company and TAMIL agree and to modify the purchase price to be paid for the first 360,000 shares so that the purchase price for all shares to be purchased is the greater of $1.00 per share and 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 October 22, 2013, the preferred stockholder converted 410,631 additional shares of the Company’s preferred stock into 410,631 shares of Common Stock.

15. 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 the UV-C technology and develops marketing, sales and financial plans.As reflected in the accompanying consolidated financial statements, the Group’s total liabilities exceed total assets at September 30, 2013 and December 31, 2012 by $1,711,912 and $4,075,374, respectively, and the Group has incurred cumulative operating losses since the date of inception.To date, the Group’s cash flow requirements have been met with cash investments by the stockholders, certain third parties and to a lesser extent, sales and interest income.

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

The Group’s access to additional financing will depend on a variety of factors many over which the Group has little or no control. These factors include market conditions, the general availability of credit, the overall availability of credit to the Group’s industry, its credit ratings and credit capacity, the actual financial and operational results of the Group as well as the lenders’ or investors’ perception of the Group’s short-term and long-term financial prospects.If future financing is not available on acceptable terms, the Group may not be able to continue as a going concern.

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SurePure, Inc. and Subsidiaries

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three and Nine Months Ended September 30, 2013 and 2012

Management is currently pursuing various plans to meet the cash flow requirements of the Company for the twelve months ending September 30, 2014. The Company is engaged in ongoing discussions with current and other potential investors and the Company is also considering additional offerings of Common Stock during the remainder of 2013.In addition, the Company projects that increase in the commercialization of the Group’s technology may provide additional cash flow for operations, but the Company did not enter into any agreements during the first nine months of 2013 that provided materials amounts of revenue.

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 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 our management.  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 heading “Risk Factors” included in other documents we have filed with the Securities and Exchange Commission (the “Commission”).  Furthermore, such forward-looking statements speak only as of the date of this report.  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.

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 as the “Group”) as reflected in our unaudited consolidated financial statements included in this report. The following discussion should be read in conjunction with such consolidated financial statements and the notes thereto.The results presented below pertain to the unaudited consolidated financial statements for the three and nine months ended September 30, 2013 and September 30, 2012 and the audited consolidated financial statements for the year ended December 31, 2012.

Additional Funding

We continued to experience both insufficient operating revenues and a shortfall in funding from investors for the nine months ended September 30, 2013.As a result, we require additional funding to maintain our operations and execute our business plan. Funding provided during the nine months ended September 30, 2013 has been largely provided by four of our current shareholders.Should we be unable to secure financing from our current shareholdersor outside sources, we will be unable to meet our milestones and may scale back or even discontinue our operations until such time, if ever, that we are able to secure financing.Notwithstanding our efforts to secure financing, there is no assurance that any financing will be available on acceptable terms or at all.See “Liquidity and Capital Resources” below in this Management’s Discussion and Analysisof Financial Condition and Results of Operation.

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Plan of Operation

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

· Attend and promote our product at three or more international trade shows during late 2013 and the first half of 2014 for the wine, brewing, fruit juice and dairy industries.The purpose of our exhibitions at these venues will be to reach out to 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 24 months;

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

o 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”;

o 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;

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

o To receive approval from the Director General: Health of South Africa of our application for the amendment of South African regulations relating to milk and dairy products permitting the use of our technology to purify milk;

· 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 South African wine, dairyand fruit juice 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.

We intend to grow rapidly over the next five years through the use of working capital and equity financing, if financing is available to us.If we are able to secure sufficient financing, we believe that it will be feasible for us to meet our expectations based on our strategy of targeting strategic global regions with multiple potential clients.However, we will carefully monitor the risks associated with achieving our goals in each scenario to ensure that we can meet client expectations while becoming financially solvent.

Results of Operations

During the three months ended September 30, 2013, we focused on the following developments:

· continuing with commercial trials at two key customer sites;

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

· nurturing relationships with key investors.

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Subsequent to September 30, 2013, we have continued to focus on the following developments:

· continuing with commercial trials at two key customer sites;

· continuing the expansion of our distributor network internationally; and

· negotiating possible equity financing agreements

Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2013 compared with our results of operations for the three and nine months ended September 30, 2012: 

	Three Months Ended:				Variance
	September 30, 2013		September 30, 2012		$		%
Revenues	$	1,000		128,000		(127,000)		-99	%
General and Admin Expenses		1,000,000		996,000		4,000		0	%
Research and Development		67,000		61,000		6,000		10	%
Interest Expense		17,000		94,000		(77,000)		-82	%
Net Loss		1,118,000		1,108,000		10,000		1	%
Cash used in operating activities		911,000		1,760,000		849,000		-48	%
Cash provided by financing activities		934,000		2,247,000		1,313,000		-58	%

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	Nine Months Ended:				Variance
	September 30, 2013		September 30, 2012		$		%
Revenues	$	130,000		249,000		(119,000)		-48	%
General and Admin Expenses		3,075,000		2,606,000		469,000		18	%
Research and Development		163,000		96,000		67,000		70	%
Interest Expense		144,000		329,000		(185,000)		-56	%
Net Loss		3,402,000		2,970,000		432,000		15	%
Cash used in operating activities		2,616,000		3,383,000		(767,000)		-23	%
Cash provided by financing activities		2,432,000		3,818,000		1,386,000)		-36	%

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Revenues

We recognized minimal revenue of approximately $1,000 during the three months ended September 30, 2013and approximately $130,000 during the nine months ended September 30, 2013. Revenues are lower than the $128,000 and $249,000 for comparable periods in 2012 primarily due to reduced demand from our contract to supply equipment to the calves milk market. This was partially due to the distributor’s stocking up in 2012.Additionally, the decreases in revenues for the three-month and nine-months periods reflect that we have not entered into any significant commercial revenue-producing agreements during the past 12 months. Although we are negotiating and entering into agreements for new applications of our SurePure technology, none of those agreements as currently structured will generate significant amounts of revenue during the next six months or more.

As a general matter, we project that revenues realized from sales and royalty income will increase in line with our commercialization efforts, related to the introduction of our technologies to a broader range of clients and geographic areas.Our business model is largely based on usage royalties or usage fees. We do not expect, however, an increased level of commercialization to occur before the second quarter of 2014, at the earliest.

General and Administrative Expenses

Our general and administrative expenses for the three months ended September 30, 2013 of approximately $1,000,000 are comparable with our general and administrative expenses for the three months ended September 30, 2012.For the nine months ended September 30, 2013, general and administrative expenses at approximately $3,075,000 were 18% higher than the comparable expenses of $2,606,000 for the nine months ended September 30, 2012, largely as a result of the professional fees associated with the closing of the share exchange that occurred in December 2012, the closing of our acquisition of two variable interest entities and our filing of reports and other documents with the Commission.

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 secure 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

Our research and development expenses for the three months ended September 30, 2013 of approximately $67,000 compare with $61,000 for the three months ended September 30, 2012.Our research and development expenses for the nine months ended September 30, 2013 of $163,000 were approximately $67,000, or 70% higher than the $96,000 of research and development expenses for the nine months ended September 30, 2012.A large portion of these expenditures was for work undertaken to submit our application seeking GRAS status for our technology to the FDA and an increased level of trials at key customer sites.

We expect that our research and development expenses will increase in future periods as we pursue new applications for our technology.In addition, we anticipate that certain additional research work may be required to support our application to the FDA seeking GRAS status for our technology.

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Net Losses

For the period from August 24, 2005 (inception) to September 30, 2013, we incurred net losses of approximately $30,177,000.Our net losses for the three months ended September 30, 2013 were approximately $1,118,000, or approximately even with the approximately $1,108,000 of net losses for the three months ended September 30, 2012.Our net losses for the nine months ended September 30, 2013 were approximately $3,402,000, compared with approximately $2,970,000 of net losses for the nine months ended September 30, 2012, or an increase of 15%.The increase in net losses over the comparable three-month and nine-month periods is primarily attributable to increases in expenditures for professional fees incurred related to completion of the December 2012 share exchange and the acquisition of two variable interest entities, offset by the lower sales revenues.

We have not as yet generated sufficient revenue from our revenues 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 through fiscal year 2013.

Income Tax Expense (Benefit)

We have realized net operating losses in Switzerland, South Africa, the United States and Brazil. We may have a prospective income tax benefit resulting from a net operating loss carry-forward that can offset future operating profits into the extent of any unexpired net operating losses.

Impact of Inflation

We believe that inflation has not had a material effect on our operations for the period from August 24, 2005 (inception) to September 30, 2013.

Capital Expenditures

We have spent approximately $182,000 on property and equipment for the period from August 24, 2005 (inception) to September 30, 2013.

Liquidity and Capital Resources

The following table summarizes our financial position at September 30, 2013 compared with our financial position at December 31, 2012:

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	As of:				Variance
	September 30, 2013		December 31, 2012		$		%
Cash	$	6,000		142,000		(136,000)		-96	%
Other Current Assets		103,000		149,000		(46,000)		-31	%
Total Assets		226,000		425,000		(199,000)		-47	%
Current Liabilities		1,937,000		1,039,000		898,000		86	%
Long term Liabilities		0		3,461,000		(3,461,000)		-100	%

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

We have been in the development stage since inception. As of September 30, 2013, we had cash of approximately $6,000 and other current assets of approximately $103,000, consisting of accounts receivable and prepaid expenses, and total assets of approximately $226,000. As of September 30, 2013, we had current liabilities of approximately $1,937,000, consisting of accounts payable, accounts payable to related parties and accrued liabilities. Of this amount, approximately $772,000 represented liabilities that were due to officers and stockholders, an increase of approximately $525,000 from December 31, 2012.There were no long-term liabilities due to the conversion of those loans to equity at the time of the acquisition of SPHSA.Shareholders’ deficit was approximately $1,712,000 at September 30, 2013, compared with shareholders’ deficit of approximately $4,075,000 at December 31, 2012.This change is largely due to the due to the net loss incurred during the period and the conversion of stockholder loans to equity at the time of the acquisition of SPHSA.

For the period from August 24, 2005 (inception) to September 30, 2013, our cash used in our operating activities was approximately $25,392,000.Cash used in our operating activities for the three months ending September 30, 2013, was approximately $911,000, compared to approximately $1,760,000 for the three months ended September 30, 2012.Cash used in our operating activities for the nine months ending September 30, 2013, was approximately  $2,616,000 compared to approximately $3,383,000 for the nine months ended September 30, 2012.Cash used in operating activities during the 2013 periods can be attributed to net losses from operations, offset by an approximately $525,000 increase in unpaid compensation expense and advances due to executive officers of the Company.

We expect to continue to have negative cash flows from operating activities until such time as we fully commercialize our technology.

33

 

For the period from August 24, 2005 (inception) to September 30, 2013, our cash flow used in investing activities was approximately $911,000. These cash flows have largely been provided during the period since inception through purchases of our Common Stock. During the past twelve months, two institutional investors have purchased our shares, but those investors no longer have any obligations to purchase our shares. During the nine months ended September 30, 2013, Regency Capital Corporation has purchased 1,199,500 shares of the 2,087,318 shares that we have sold to investors during that period. During the month of October 2013, Regency purchased an additional 600,000 shares of our Common Stock at a cash purchase price of $1.00 per share. Regency is an affiliate of XOptics (PTC) Ltd., a British Virgin Islands corporation, which holds 19,800,000 shares of our Non-Voting Convertible Preferred Stock, after giving effect to the most recent conversion on October 22, 2013. We believe that the ability of Regency to provide financing to us by purchasing additional shares may be limited, and we are not relying on Regency to provide significant amounts of additional financing to us. Similarly, although another existing stockholder purchased 100,000 shares from us for $100,000 during the third quarter, we cannot be certain that the stockholder will purchase additional shares from us at the price that we have offered. We continue to discuss and negotiate financing transactions with others of our shareholders but cannot be certain that we can conclude financing transactions with them or, if completed, that our shareholders will perform their obligations to purchase shares from us.

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 a number of prospective sources that include the sale of equity to allow us to meet our commercialization targets.We face certain financial 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.

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.

We plan to increase the number of employees to meet the anticipated demand on wider commercialization for our technology.

Off Balance Sheet Arrangements

As of September 30, 2013, we had no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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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 September 30, 2013.

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 quarterly period ended September 30, 2013, and has concluded that there was no change that occurred during the quarterly period ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

35

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.

Shares Issued under Previously Reported Agreements

During the third quarter, we issued:

· 50,000 shares of our Common Stock to Trinity Asset Management Inc. under the share purchase agreement disclosed in our Current Report on Form 8-K filed on May 29, 2013;

· 100,000 shares of our Common Stock to MinAurum Ltd., under the share purchase agreement disclosed in our Current Report on Form 8-K filed on September 5, 2013; and

· 661,500 shares of our Common Stock to Regency Capital Corporation, under the share purchase agreement disclosed in our Current Report on Form 8-K filed on September 5, 2013

Other Shares Issued

On September 1, 2013 we issued 60,000 shares of our Common Stock to ProActive Capital Group LLC (“ProActive”), an investor relation firm, with whom we entered into a consulting agreement, dated April 1, 2013, which we amended on August 26, 2013. The certificate representing the shares issued to ProActive bears a legend restricting its transferability. On the basis of the facts surrounding the issuance of our shares to ProActive, we believe that the issuance was exempt from the registration requirements of the Securities Act under the exemption provided by Section 4(a)(2) of the Securities Act.

36

Shares Issued on Conversion of Preferred Stock

On September 3, 2013, we issued 1,254,816 shares of our Common Stock to XOptics (PTC) Ltd., a British Virgin Islands corporation, upon the conversion of 1,254,816 shares of our Non-Voting Convertible Preferred Shares.The conversion was made under the terms and condition of the preferred shares.The issuances of shares to XOptics (PTC) Ltd. was exempt from the registration requirements of the Securities Act under Section 4(a)(2) thereof as a transaction not involving a public offering.The issuance was also exempt from registration under Regulation S, as XOptics (PTC) Ltd. is not a “U.S. Person” as defined in that regulation.The certificate evidencing the shares of our Common Stock that we have issued to XOptics (PTC) Ltd. bears a legend restricting its transferability until the shares have been sold as part of a registered public offering.

Other than as set forth above, there were no unregistered sales of equity securities during the quarter.

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:

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.*

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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 September 30, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheets at September 30, 2013 and December 31, 2012, (ii) Unaudited Consolidated Statements of Operations for the three months and nine months ended September 30, 2013 and 2012, and for the Cumulative Period from August 24, 2005 (inception) to September 30, 2013, (iii) Unaudited Consolidated Statement of Comprehensive Income for the three months and nine months ended September 30, 2013 (iv) Unaudited Consolidated Statements of Stockholders' Deficit for the nine months ended September 30, 2013, (vi) Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and for the Cumulative Period from August 24, 2005 (inception) to September 30, 2013 and (vi) Notes to the Unaudited Consolidated Financial Statements.**

* Filed herewith.

**   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended and otherwise are not subject to liability under those sections.

38

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:  November 12, 2013	By:	/s/ Guy Kebble
		Name:	Guy Kebble
		Title:	President and Chief Executive Officer
			(Principal Executive Officer)
Date:  November 12, 2013	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 September 30, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheets at September 30, 2013 and December 31, 2012, (ii) Unaudited Consolidated Statements of Operations for the three months and nine months ended September 30, 2013 and 2012, and for the Cumulative Period from August 24, 2005 (inception) to September 30, 2013, (iii) Unaudited Consolidated Statement of Comprehensive Income for the three months and nine months ended September 30, 2013 (iv) Unaudited Consolidated Statements of Stockholders' Deficit for the nine months ended September 30, 2013, (vi) Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and for the Cumulative Period from August 24, 2005 (inception) to September 30, 2013 and (vi) Notes to the Unaudited Consolidated Financial Statements.**

* Filed herewith.

**   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended and otherwise are not subject to liability under those sections.

40