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EX-32.2 - EXHIBIT 32.2 - SurePure, Inc.v461617_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - SurePure, Inc.v461617_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - SurePure, Inc.v461617_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - SurePure, Inc.v461617_ex31-1.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT

 

(Mark One)

 

þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended December 31, 2016

 

¨ Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                    to                   

 

SurePure, Inc.

 

(Exact name of registrant as specified in its charter)

 

Nevada

 

(State or other jurisdiction of Incorporation
or organization)

 

3556

 

(Primary Standard Industrial
Classification Code Number)

 

26-3550286

 

(I.R.S. Employer Identification No.)

 

405 Lexington Avenue, 26 th Floor

New York, New York 10174

 

Registrant’s telephone number, including area code:

(917) 368-8480

 

Securities registered pursuant to section 12(g) of the Act:

Title of Class:   Common stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨ No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes ¨ No þ

 

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 þ 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 þ   No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

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 þ  Smaller Reporting Company

 

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

 

The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  $4,815,988

 

The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding as of March 30, 2017 was 75,533,263.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

 

SUREPURE, INC.

 

PART I      
Item 1.   Business 6
Item 1A.   Risk Factors 21
Item 1B.   Unresolved Staff Comments 37
Item 2.   Properties 37
Item 3.   Legal Proceedings 37
Item 4.   Mine Safety Disclosures 37
       
PART II     38
Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 38
Item 6.   Selected Financial Data 40
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 40
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk 46
Item 8.   Financial Statements and Supplementary Data 46
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 46
Item 9A.   Controls and Procedures 46
Item 9B.   Other Information 47
       
PART III      
Item 10.   Directors and Executive Officers and Corporate Governance 48
Item 11.   Executive Compensation 52
Item 12.   Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters 58
Item 13.   Certain Relationships and Related Transactions 59
Item 14.   Principal Accountant Fees and Services 60
       
PART IV     62
Item 15.   Exhibits and Financial Statement Schedules 62

 

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Cautionary Note Regarding Forward-Looking Statements

 

Certain statements included in this annual report on Form 10-K, other than statements of historical fact, are forward-looking statements (as such term is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act, and the regulations promulgated thereunder), which are intended to be covered by the safe harbors created thereby. Forward-looking statements contained in this annual report on Form 10-K can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions “may,” “could,” “should,” etc.  In addition, statements that contemplate or make assumptions about actual or potential future sales, market size, collaborations, and trends or operating results also constitute forward-looking statements. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of our management and on information available at the time these statements and disclosures were prepared. Forward-looking statements include, but are not limited to:

 

·the availability, if any, of equity or debt financing to us, our access to operating capital and the period of time after the date of this annual report on Form 10-K for which the proceeds from private financings will enable us to fund our operations and other costs and expenses; and
·the rate at which the Company’s proprietary technology is commercialized and generates significant revenues.

 

In addition to these risks and those identified under “Item 1A. Risk Factors,” many important factors affect our ability to achieve our plans and objectives and to successfully develop and commercialize our technology and the products that utilize it, including our ability:

 

·to obtain funds to operate our business and pay other expenses;
·to enforce our patents against infringers;
·to demonstrate the safety and effectiveness of our technology in the purification of liquids;
·to meet applicable regulatory standards and receive required regulatory approvals;
·to manufacture and distribute Turbulator systems in commercial quantities at reasonable costs; and
·to compete successfully against other products and to market products in a profitable manner.

 

Therefore, current and prospective stockholders are cautioned that there can be no assurance that the forward-looking statements included in this annual report on Form 10-K will prove to be accurate. In light of the significant uncertainties inherent to the forward-looking statements included in this annual report on Form 10-K, the inclusion of such information should not be regarded as a representation or warranty by the Company or any other person that the objectives and plans of the Company will be achieved in any specified time frame, if at all. Except to the extent required by applicable laws or rules, the Company does not undertake any obligation to update any forward-looking statements or to announce revisions to any of the forward-looking statements.

 

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CERTAIN TERMS USED IN THIS REPORT

 

As used in this annual report on Form 10-K, unless the context otherwise requires, “SurePure,” the “Company,” “we,” “us” and “our” refer to SurePure, Inc., a Nevada corporation, as well as its wholly-owned subsidiaries, SurePure Investment Holding AG, a Swiss corporation, SurePure Operations AG, a Swiss corporation, SurePure Participations, AG, a Swiss Corporation, and SurePure Latin America—Maquinas de Purificação U.V.C. LTDA, a Brazilian private company, and also refer to SurePure Holdings South Africa (Pty) Ltd. and SurePure Marketing South Africa (Pty) Ltd., both of which are private South African companies. The Company’s wholly-owned subsidiaries are as follows:

 

The following names refer to the following entities:

 

“SPI”   means SurePure Investment Holding AG, a Swiss corporation which is wholly-owned by SurePure Inc. and wholly owns SPO ;
     
“SPO”   means SurePure Operations AG, a Swiss corporation that is our principal operating business and holds all of our patents other than the patent issued in South Africa, serves as the holding company of SPHSA and SPLAM and contains our international administrative and financial functions;
     
“SPP”   means SurePure Participations AG, a Swiss corporation, and wholly-owned subsidiary of SurePure Inc, holding a minority share in SPI;
     
“SPHSA”   means SurePure Holdings South Africa (Pty) Ltd., a South African private company that serves as the holding company for SPMSA and owns the patent issued in South Africa;
     
“SPMSA”   means SurePure Marketing South Africa (Pty) Ltd., a South African private company that commercializes our technology in South Africa and contains the administrative and financial functions of our business in South Africa; and
     
“SPLAM”   means SurePure Latin America—Maquinas de Purificação U.V.C. LTDA, a Brazilian private company which conducts no operations currently and is in the final stages of deregistration;

 

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We use other defined terms throughout this annual report on Form 10-K, including the following:

 

·“Commission” means the U.S. Securities and Exchange Commission;

 

·“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended;

 

·“Nonvoting Convertible Preferred Stock” means our Nonvoting Convertible Preferred Stock, par value $.01 per share;

  

·“Securities Act” means the U.S. Securities Act of 1933, as amended;

 

·“Share Exchange” means the exchange of shares of SPI for shares of our common stock, which occurred on December 12, 2012, under the terms and conditions of the Share Exchange Agreement;

 

·“Share Exchange Agreement” means the Amended and Restated Share Exchange Agreement that we entered into on December 12, 2012, under which we are obligated to issue shares of our common stock to the shareholders of SPI;

 

·“SurePure Photopurification Technology” means our proprietary Turbulator systems for liquid photopurification technology;

 

·Our “Technology” has the same meaning as “SurePure Photopurification Technology”;

  

·“XOptics” means XOptics (PTC), Ltd., a private company formed under the laws of the British Virgin Islands.

 

All references in this annual report on Form 10-K to “$” shall be to U.S. Dollars. All references in this annual report on Form 10-K to “CHF” shall be to Swiss Francs. All references in this annual report on Form 10-K to “ZAR” shall be to South African Rands.

 

Rounding

 

Certain figures included in this annual report on Form 10-K have been rounded for ease of presentation. Percentage figures included in this annual report on Form 10-K have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, certain percentage amounts in this annual report on Form 10-K may vary from those obtained by performing the same calculations using the figures in our financial statements. Certain other amounts that appear in this annual report on Form 10-K may not sum due to rounding.

 

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Item 1. Description of the Business

 

Overview

 

The Company designs, manufactures, markets, sells or licenses and maintains its proprietary Turbulator systems for innovative liquid photopurification technology in the global marketplace (“SurePure Photopurification Technology” or our “Technology”). We have been engaged in these activities since 2005. Currently, our Technology uses Ultraviolet (“UV”) light in the C band (“UVC”) to process, preserve and sustain the natural quality of food ingredients, such as liquid egg and animal feed constituents, and beverage products, such as juices and concentrates, sugar syrup bases, alcoholic beverages and farm milk. In addition to the foregoing applications now in use, our SurePure Photopurification Technology is being tested for its capacity to reduce the microbial loads in turbid liquids intended for human consumption, such as dairy products, flavored water and coconut water, liquids with industrial applications, such as diesel and bio-ethanol, and liquids with pharmaceutical applications, such as eye preparations, saline drips and personal care products.

 

The use of UVC light energy with a specific wavelength to disinfect food surfaces, water and other beverages is well accepted. In 2001, the U.S. Food and Drug Administration (“FDA”) amended its regulations to permit the use of UVC light as a means of purification for water and fruit juices under certain conditions. There are multiple systems that effectively use UVC to purify or disinfect water and transparent liquids. Beverages and other liquids, such as milk and fruit juice, and water and other liquids used in industrial processes, are cloudy, opaque and contain suspended matter, and are often referred to as “turbid.” The ability to use UVC to purify turbid liquids requires technology that passes limited amounts of liquid at high flow rates very close to the UVC light source so that microbes and other pathogens in the liquid are exposed most directly and intensely to UVC waves.

 

Based on research that we have sponsored, we believe that our SurePure Photopurification Technology improves beverage and liquid food quality and safety by safely disinfecting these products beyond existing technology, such as conventional pasteurization. Because our Technology does not require heat to be generated for purification to occur and therefore requires less energy to operate, we also believe that it enables processors of food, beverages and industrial liquids that use our Technology to reduce their operating expenditures. Our research also leads us to believe that our SurePure Photopurification Technology can be applied to virtually every consumable beverage, many industrial and processing liquids and any liquid pharmaceutical products that may suffer from microbiological contamination. Consequently, the markets that we serve can encompass all industries that manufacture or distribute consumable beverages, industries that use water or other liquids in industrial processes in the manufacturing or processing of foods and beverages and industries that produce liquids that must meet standards for high levels of purification.

 

 6 

 

 

Our Industry

 

Currently, conventional means for purifying dairy products, juices, wine, beer and other beverages are pasteurization and chemical. Pasteurization was developed in the nineteenth century and received widespread adoption in the late nineteenth and twentieth centuries. Pasteurization operates by heating milk or other liquid to a specific temperature level (generally, 73° C or 164° F, although the exact temperature will vary according to need) and holding the temperature constant for a specified period of time, during which period pathogen cells are ruptured as a result of the heat transferred by the liquid. As a result of the heating process, pasteurization transforms components of the liquid, including taste and other sensory attributes, and does not remove the ruptured microbes from the fluid. In order to create sufficient heat to raise the temperature of the liquid to meet pasteurization standards, large amounts of energy must be consumed and CO2 emissions are created.

 

Another principal means for purifying liquids has been the addition of certain chemicals, such as sulfites and other preservatives. The addition of these elements often affects the taste and consistency of the liquid or food to be treated. Published research concludes that the additives used to achieve purification or preservation may lead to unhealthy or otherwise undesirable side effects among certain consumers.

 

Notwithstanding the general effectiveness of pasteurization and other means of purification, certain spore-forming bacteria, such as Bacillus, remain a serious concern in the food industry, since they can survive heat, chemicals, desiccation and radiation and can cause food poisoning and spoilage. Certain species of Bacillus, such as B. sporothermodurans, are heat resistant and can survive the process of pasteurization. We believe that the food and dairy industries are seeking alternative methods to render their products microbiologically safe for consumption against the widest possible range of microorganisms.

 

Our Technology

 

UVC occupies the light spectrum with wavelengths of 10 nanometers to 290 nanometers. UVC has been successfully used as a process for the disinfection of air, water and surfaces. In recent years, scientists have studied UVC irradiation technology as an alternative to heat (pasteurization) or chemically-based processes (preservatives) that currently are being used in the purification and/or sterilization or preservation of foods and liquids. Our Technology uses UVC waves to purify microbiologically sensitive turbid (cloudy or hazy fluids caused by individual particles (or suspended solids)) that are generally invisible to the naked eye by inactivating contaminating microorganisms, such as bacteria, yeasts, moulds and viruses in treated liquids. The UV wavelength most effective for killing microorganisms is between 254 and 260 nanometers. Based on this, our Technology employs UVC radiation at the germicidal wavelength of 254 nanometers of sufficient energy and duration to inactivate contaminating pathogens, including viruses. On the basis of research that we have sponsored, we believe that since our Technology transfers energy directly to microbial DNA, it also limits secondary effects on liquid proteins, enzymes and other components and concomitantly minimizes effects on nutritional, sensory and marketing attributes of the product being purified.

 

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UVC light can penetrate the outer cell membranes of microorganisms, such as viruses, bacteria, mold and mildew. Exposure to UVC causes the DNA molecules of the microorganisms to become fused, or mutated. The mutations further result in the death of the organisms as their metabolic functions such as replication cannot be completed after the mutation results. In addition to being safe, our process is non-thermal, chemical-free, fast and replicable.

 

Our Product

 

We provide our Technology, the Turbulator, to commercial clients for use in their plants. The Turbulator is a mechanical tube system within a double-walled stainless steel cylinder that creates turbulation in the fluid, moves the liquid to be purified in spiral flows over the source of the UVC at a specified distance from the source which maximizes the efficacy of the UVC waves, and ensures that all the liquid is exposed to the UVC source. Existing laminar flow systems, in which the liquid passes across a light source in sheets, do not allow for the sustained, controlled exposure that is necessary for effective purification, particularly for turbid liquids. The Turbulator system can be installed in parallel or series, resulting in a system that uses multiple lamps, with a modular approach enabling the treatment of a number of liquids requiring varying levels of exposure and flow rates. The proprietary design of the Turbulator is based on an internal lamp which is inserted into a quartz sleeve which in turn is placed inside a metal housing. Because of the proximity of the light source to the target liquid within the housing, there is a very high level of energy transfer to individual micro-organisms within the target liquid. The Turbulator system includes a data recording component which records quality assurance and other critical data relating to its operation.

 

 8 

 

 

We have designed the Turbulator system to maximize the range of liquids that our Technology can purify. The color and turbidity of the liquid being treated plays a role as UVC can only penetrate roughly 1 mm into juice and even less so into milk. The efficacy of the UVC is therefore dependent on the properties of the liquids being treated, including the color, viscosity, absorbance and presence of suspended solids. The Turbulator has been designed so that the necessary adjustments can be made to optimize its effectiveness in relation to the properties of the liquids being treated. Moreover, because of the design of the Turbulator and its components, our system can treat liquids where the use of heat as a purifying agent would be detrimental to the product. The Turbulator also allows the processor to set the precise exposure of a treated liquid to the UVC source, so that the exposure can match the exact purification requirements of the liquid.

 

The principal benefit of our SurePure Photopurification Technology is that it purifies liquids by inactivating pathogens without the use of heat energy. Because of the proprietary characteristics of the Turbulator system that control the flow of liquid over the UVC source, the Technology has been effective on all pathogens for which we have performed tests, including those that we believe are resistant to heat. In addition, we believe that our product has other benefits as well:

 

·Because our Turbulator systems do not rely on the generation of heat or other intense energy to perform purification, they consume substantially less power and therefore lead to less power-related expense, both in terms of power inputs and cooling needs;
·Because our Turbulator systems require substantially less power than conventional means of heat-based purification, they substantially reduce the carbon footprint of the process;
·Because the liquids that have been purified have not been subject to significant change in temperature, the quality of the end product remains intact;
·For most liquids treated by our Technology, shelf life improves because we have inactivated the microbes and spores that result in spoilage;
·Because our Turbulator systems are effective in destroying pathogens, the need to use preservatives in the liquid product that has been treated is substantially reduced;
·Because our Turbulator systems effectively purify liquids used in industrial processes for washing and rinsing, among other purposes, those liquids can then be reused, which substantially reduces water consumption and the need to dispose of waste products; and
·Because our Technology does not rely on heat, our Turbulator systems can possibly create new products in situations in which the application of heat has been a limiting factor in their purification.

 

 9 

 

 

More than 2300 Turbulators have been installed since our inception in 2005 and either have been or are in operation or used in tests in the following locations: the United States, Europe, South America, Australia, India and South Africa. Each installed Turbulator system is comprised of one or more Turbulators. We continue to evaluate the performance of our Turbulator systems. As we gain customer feedback, we incorporate it into the design of new Turbulator installations.

 

In certain geographic markets and for applications to certain liquids, we have not obtained or are not required to obtain governmental approvals for the sale or distribution of our Turbulator products. Accordingly, we or our distributors can market our Technology at the present time. In those markets and for those applications where governmental or similar approvals are required, our timelines for market entry are estimated to be between one and three years. See “—Regulation.” Rather, our principal task is to fund research by credible and competent third parties that will generate the scientific data that underpin our requests for clearance and that will convincingly demonstrate the efficacy, as well as what we believe to be the advantages of, our Technology. We believe that the aggregate cost of these reports will be approximately $100,000 during 2016.

 

We do not, and do not expect in the near term, to manufacture Turbulator systems through a facility of our own. Rather, we rely on third-party manufacturers to build our Turbulator components to our specifications and for our final assembly. Our limited financial resources impair our ability to contract with manufacturers, since, among other things, our manufacturers generally require full payment before product delivery and installation. Our current manufacturers are located in France and South Africa. Our products are generally delivered to our customers at their particular industrial sites where our own personnel, supported by our third-party manufacturers, install and test the systems, and then provide training to the customer. The materials used to manufacture and assemble Turbulator systems are commodities and, at the current time, are not in short supply. If any of our suppliers were unable to provide components, we believe that there are sufficient backup sources for components that would permit us to maintain our pricing intact.

 

Our Competitive Strengths

 

Based on our proprietary patented SurePurePhotopurification Technology, we are attempting to become an industry leader in the liquids purification and treatment industry, but we will be able to remain an industry participant only if we can secure equity financing. We believe our competitive strengths include the following:

 

  · Although UV light has long been used as a surface sterilizer and has been successfully applied to clear water, we have developed the first product that processes opaque or turbid liquids using UV light:

 

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§Our patented Turbulator design increases the liquid’s exposure to UVC, enabling greater efficacy and consistency in purification;
§The turbulent flow of the liquid over the UVC source for an extended period at controlled distances from the source ensures a non-fouling, self-cleaning system; and
§The multiple-lamp system used in the Turbulator system provides greater flexibility;

 

·The Technology is an alternative to comparable heat - or chemical-based processes and has a greater microbiological efficacy than conventional, laminar-flow UV systems in turbid liquid applications; and
·The Turbulator uses a low maintenance, non-fouling technology that offers significant process and energy savings.

 

The principal commercial benefits of our Technology and the systems that incorporate it include:

 

·an effective alternative to pasteurization;
·replacement of chemical and other preservatives;
·significant savings of energy and water;
·extended shelf life of treated products;
·preservation of the taste, smell and look of the raw materials or finished products; and
·delivery of replicable, predictable germicidal efficacy.

 

Notwithstanding the above advantages of our product, we nonetheless encounter and therefore must overcome serious challenges to further adoption and implementation of our Technology. As is the case with any business that seeks to replace an existing conventional modality, such as purification heat or preservatives, we have the burden of persuading customers and others of the superiority of the results that we produce and the value to our customers of the return on their investment in our technology. In applications, such as industrial application, where there is no regulatory involvement, we rely on various “cost/benefit” analyses to substantiate the case for acquiring and installing our system. In applications, such as dairy or foods, where there is regulatory involvement, we must demonstrate to the regulators that our Technology and its use of UVC either fits within the scope and application of existing rules and regulations, or, more often, we must persuade the regulators, by evidence they deem to be satisfactory, that they can amend or vary their regulations so that customers can employ our Technology. In many circumstances in which our technology is regulated, we prefer to present initially our Technology, as an adjunct to, and not as a replacement of, existing purification technologies. Although we believe that adjunct use will eventually lead to replacement, we do not yet have an established track record in this respect.

 

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Sales

 

We have focused our sales efforts on “early adopter” global clients with multiple processing plants who have a substantial market share in their industries. Most of our sales activity takes place within our subsidiary SPO, as that company owns and administers all of our patents other than the South African patent. Most of our current sales arrangements are through SPO. During 2016, we generated approximately $1,200,000 of revenues under an existing customer agreement.

 

During 2015, we also sold our Turbid Fluid Photopurification Technology to a producer of natural vegetable juices and an existing customer which supplies equipment to customers who produce milk for consumption by calves and other farm animals. We concluded the installation of an initial 360 Turbulator system for the producer of specialty animal feeds that placed an order during 2014, and during November 2015 we received an order for an additional 360 Turbulator unit from the same customer. During 2016 we installed the 360 Turbulator system ordered during November 2015.

 

We rely predominately on direct sales, and also have distributors in certain limited international markets. To date, we have selected distributors by type of liquid and by geographic region. Currently, we are represented by approximately eight distributors, two of which are based in Africa. Putting into place a distribution network requires that we identify the appropriate players to serve the specific industries in which our end users operate, that we provide them with that equipment and training that enables them to both demonstrate and explain the advantages of our Technology and that we design our Turbulator systems so that they are a compelling offering that permits our distributors to effectively utilize their resources in placing our products. The customer sales cycle is long for any new technology and our distributors may face resistance as a result of the historical investment that customers have made in existing facilities. See “Item 1A. Risk Factors— Risks Relating to our Business, Financial Condition and Corporate Structure—We do not have an expansive or well developed distribution network.”

 

We must raise sufficient working capital to support any distribution network that we establish.

 

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As of December, 2016, we have one existing customer license agreement which generates a non-material amount of revenue. Under that agreement we have licensed a Turbulator system to a U.S.-based manufacturer of equipment used to sterilize milk and milk components used in the feeding of calves with farm milk. The license expires in April 2018. Our ability to deliver and install equipment is dependent on financing the manufacturing and delivery of the equipment, either by the customer, internal working capital or a combination of both.

 

We are currently in discussions with certain prospective customers, but cannot predict whether we will be able to enter into revenue-generating contracts with customers during 2017. Our sales cycle is long and often requires both the customer’s evaluation of our technology and negotiations with multiple levels and groups within a customer. Therefore, we cannot be certain of the timing of these contracts and the amount of revenues to be generated either on a period-by-period basis or over the life of the contract. See “Item 1A. Risk Factors— Risks Relating to our Business, Financial Condition and Corporate Structure—We face significant obstacles to the commercialization of SurePure Photopurification Technology and our Turbulator systems.”

 

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Marketing

 

We have primarily utilized public relations, trade shows and customer trials to convert awareness into interest and purchase. Because our financial resources are extremely limited, however, we will not be able to utilize any of these methods unless we receive increased funding.

 

Our strategy is to locate markets and market participants who require effective means for purifying liquids. In the past, we have focused on producers of milk and other dairy products, fruit juices, wine and sugar syrups in the United States, the United Kingdom, the European Union, South Africa and India. In each case, we sought to approach the strongest market participants and explain the advantages of our Technology as an adjunct to or as a replacement of existing conventional processes. To the extent that permitted uses of our Technology are subject to regulation that limits, restricts or prohibits the use of UVC as a means of purification of a specific liquid or food, we work with the customer in various tests to support an application to amend or replace the applicable regulation.

 

Our technology was developed in South Africa. Since our management team is familiar with the dairy, fruit juice and wine industries in South Africa, we initially focused on the South African market. During the last six years, however, we have worked with customers in the United States, the United Kingdom and the European Union, as well as Australia, New Zealand, South America and Canada.

 

Regulatory Matters

 

The application of our SurePure Photopurification Technology to purify or disinfect milk, other dairy products and wine generally requires that we take various steps to obtain regulatory clearances in each of the jurisdictions in which we plan to market our Technology. The compliance measures that we are required to take differ based on whether we are seeking to have the Technology sold as an adjunct to pasteurization or as an alternative to pasteurization, the latter having a higher standard for clearance. Other uses of our Technology—industrial uses, for example—do not require compliance with regulations governing food or dairy products. Having obtained regulatory clearance in the European Union in January 2016, we are now pursuing compliance efforts principally in the United States of America and the Republic of South Africa in conjunction with commercial partners.

 

United States of America

 

In 2001, the FDA amended its regulations to permit the use of UVC to purify water and certain fruit juices, as long as certain performance characteristics are complied with. With regard to milk and other dairy products in the USA, we plan to market our Technology first as an adjunct to pasteurization. Specifically, we are applying to treat raw milk, which is milk prior to any pasteurization or any other similar process. Although we have not committed to doing so, we plan to pursue clearance from the FDA as an alternative to thermal pasteurization in the future. The timeline for this process may be as long as four to six years and will likely require that we devote additional resources to fund the necessary testing.

 

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The FDA classifies the use of UVC to treat milk or other food as a food additive, the use of which must be expressly permitted. The current FDA regulation that permits the use of ultraviolet radiation for the processing and treatment of food does not include the use of UV light as a means of purification of dairy products, although it does permit the use of UV light in treating potable water and juice products, as well as high fat-content food.

 

In addition, the U.S. Food Drug and Cosmetic Act, which prohibits the manufacture or sale of misbranded foods, provides that any food that purports to be or is represented as pasteurized must have been subjected to a safe process or treatment that meets certain standards. We must satisfy these standards to the satisfaction of the FDA if our purification process does not satisfy the applicable FDA regulations. The submissions that we have made to date to the FDA related to dairy products have not produced a determination that our Technology satisfies its standards.

 

As noted earlier, the FDA has approved the use of UVC light as a means of treating fruit juices. Our Turbid Fluid Photopurification Technology satisfies the requirements of this approval.

 

We also are required to obtain FDA approval for the use of our Technology for wines or other alcoholic beverages before the Alcohol & Tobacco Tax & Trade Bureau will make any determinations with respect to the application of our Technology to purify those products.

 

The Company has had a commercial relationship with Tamarac Biotics of Fresno, California (“Tamarack”).  Tamarack’s proposes to develop dairy products that retain the immune active proteins and other thermally sensitive compounds that are found in raw milk. Tamarack Biotics has utilized our SurePure Photopurification Technology for non-thermal pathogen reduction and also low temperature drying technologies that fully dry milk and milk concentrates into stable powders at temperatures not exceeding a cow's normal body temperature. Using equipment provided by the Company, Tamarack has developed the product known as TruActive NF. During the first quarter of 2017, Tamarack received a certification from an authorized expert classifying Tamarack’s product as “Generally Recognized as Safe” (GRAS) when used as a food ingredient at specified levels for the purposes specified by Tamarack. GRAS is an FDA designation that a chemical or substance added to food is considered safe by experts, and so is exempted from the usual food additive tolerance requirements. The Company expects to recieve an order for equipment from Tamarack during the second quarter of 2017.

 

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European Union

 

In the European Union, before our Technology can be used commercially with respect to foods, food ingredients and beverages, it must receive clearance under Regulation (EC) No. 258/97 of the European Parliament and of the Council of 27 January 1997 Concerning Novel Foods and Novel Food Ingredients. A customer of ours that is a member company of the EU dairy industry submitted an application to the European Food Standards Agency (“EFSA”) on September 12, 2012. In its application, our customer claimed that its use of our Technology significantly increases the levels of Vitamin D in milk and extends the shelf life of dairy foods. On January 11, 2016 EFSA published an opinion stating that cow’s milk treated by our Technology after pasteurization in is safe under the intended conditions of use and finding that treatment by our Technology results in no other significant differences in nutrient content, EFSA’s opinion stated that the use of the technology does not give rise either to safety concerns or to concerns about microbiological quality. The opinion affirmatively stated that “UV-treated milk is comparable to non-UV-treated milk,” except for the significant increase in the vitamin D3 content, and that no adverse effects are expected from UV-treated milk in substitution for other milk that has been pasteurized.

 

Republic of South Africa

 

In South Africa, we are engaged in a process to draft or amend a series of regulations of the Ministry of Health that apply to various foods and foodstuffs. In May 2012 we filed an application to amend certain regulations relating to Milk and Dairy Products GN R1555 of 21 November 1998 applicable to milk and dairy products, wine, fruit juice and other microbiologically sensitive liquids to permit our Product to be used as an alternative to pasteurization. In the case of certain regulations, draft regulations have been published for comment in the government’s official publication. In other cases, publication of the regulations may not occur until we have responded to requests for further information from the government’s Directorate: Food Control, including information that relates to the disposition of applications that we have submitted in the US and the EU. The Directorate of Food Control, Department of Health is not prepared to make an application to the Minister of Health to amend the regulation until such time that we have received either FDA or Novel Food Approval. In addition, the Directorate has advised us that the Agricultural Products Standards Act will have to be amended to conform with any amendments to South Africa’s regulations relating to milk and dairy products. The Directorate has further advised that, due to constraints in its human resource capacity, it has requested the Dairy Standards Agency of South Africa to assist. The Dairy Standards Agency undertook a scientific review of our Technology and other similar technologies during late 2014. During late 2015, South Africa’s Department of Health endorsed ongoing studies of the use of SurePure’s ultra-violet photopurification as an alternative to pasteurization for the treatment to raw milk to make it safe for human consumption. If successful, the program will allow South Africa’s farmers to use the SurePure Photopurification Technology as an alternative processing method to purify, bottle and sell their raw milk. These studies are currently underway in conjunction with commercial partners.

 

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Competition

 

Generally, we compete with a number of engineered services businesses who design and, in some cases, install purification systems for beverages, dairies, wineries and other manufacturers or processors of beverages. We also compete with those businesses that manufacture the systems that are used to pasteurize or otherwise purify beverages and other liquids. Both the service providers and manufacturers with which we compete generally are private companies, although a number are associated with large international conglomerates.

 

We believe that the principal competitive factors in our industry that create barriers to entry include, but are not limited to, reliability, effectiveness of technology to achieve requisite levels of purification, reputation, availability of resources and regulatory compliance for certain applications. Our limited financial resources and lack of a clear financial future may also be factors that make it difficult for us to compete in this marketplace.

 

We believe that any current thermal or chemical preservative process for liquids is a direct competitor to our business. Other developing processes, such as ultrasound, high-pressure or sterile filtration, are also a source of competitive threat.

 

Our strategy for dealing with our competition is to gain commercial acceptance of our Technology by pursuing those applications, such as dairy, that have rigorous regulatory standards that must be met, and at the same time work with large international businesses to receive their backing for our Technology. We also focus our efforts to gain acceptance in emerging growth economies where we believe that our Technology has competitive advantages, such as requiring the use of less power than other means of purification and where there are a large number of “Greenfield” installations for our Technology.

 

Intellectual Property

 

Our patented Turbid Fluid Photopurification Technology is protected by patents which have been granted in 66 countries, including South Africa, United States, China, Japan, Australia and the countries of the European Union. A predecessor entity to SPHSA applied for our patents in October 2000. Each of the patents is based on the same international patent application and relates to the same invention. The patents will expire beginning on October 12, 2020. Our United States patent was granted on July 12, 2005 and will expire on October 12, 2020. If we do not have adequate funds, we may not be able to make the required payments to maintain our patents in all countries in which they have been issued.

 

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The applications for these patents were examined independently by each of the patent offices where patent applications were filed, and each of the examiners in the various countries conducted an independent international novelty search for related published technology and then assessed whether or not the invention was new and inventive and thus qualified for a patent. Each examiner decided independently at the end of his examination that a patent should be granted. Accordingly, we believe that it is unlikely that a third party could successfully challenge the validity of any of our patents, and we further believe that our patents are enforceable with respect to the claims that they describe. The costs of enforcing a patent against an alleged infringer vary significantly from the relatively minor cost of sending a simple cease-and-desist letter which could result in cessation of the infringement, to the significant cost of bringing and maintaining a full patent infringement action. \See “Item 1A. Risk Factors—We rely heavily upon our patents and other intellectual property.”

 

 

We also own the registered trademark “SurePure” and “Turbulator” in various formats in the United States, South Africa, Switzerland and the EU.

 

Research

 

We have contracted for and funded research efforts regarding the use of UVC as employed by our SurePure Photopurification Technology in the purification of liquids generally, and foods and beverages in particular, at academic institutions throughout the world. Generally, we have commissioned research in areas such as flow dynamics, biochemistry and microbiology. We, and in one or two cases, our customers, have provided funding for the studies, which generally covered both direct costs as well as overhead, and we also have provided our equipment to the institutions. In certain cases, we have provided annual grants to academic institutions to study the effects of UVC energy on foods and beverages. The academic institutions that we contracted to perform studies of our Technology or that received grants from us include:

 

ØUniversity of Wisconsin – Madison, Wisconsin, United States of America

 

ØCornell University – Ithaca, New York, United States of America

 

ØQueens College – Belfast, Northern Ireland

 

ØIllinois Institute of Technology, Illinois, United States of America

 

ØCampdens BRI – Gloucestershire, United Kingdom

 

ØUniversity of Birmingham – Birmingham, United Kingdom

 

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ØUniversity of Stellenbosch – Stellenbosch , South Africa

 

ØUniversity of the Western Cape – South Africa

 

ØCape Peninsula University of Technology – Cape Town, South Africa

 

ØIFV – Bordeaux, France

 

By way of example, results of studies conducted at these institutions include the following:

 

oA 2008 published study that concluded that UVC radiation was successful in reducing bacterial counts in raw bovine milk, as well as apple juice, guava juice, pineapple juice and orange juice, while preserving the nutrients of the beverages being treated.

 

oA 2010 unpublished study of the use of our Technology to produce grape juice and wine that is free of microorganisms that found that using the UVC treatment on grape juice and wine samples in five different wineries could provide wine significantly free of microorganisms (i.e., to the extent of less than 1 colony-forming unit per milliliter).

 

oA 2011 published study that explains the effects of UVC radiation on microorganisms found in grape juice and wine products which found that our Technology “clearly indicated significant germicidal effect against the wine specific microorganisms; therefore, UVC radiation may stabilize grape juice and wine microbiologically in conjunction with reduced sodium dioxide levels” and that UVC radiation effectively inactivates wine-associated microorganisms such as Brettanomyces, Saccharomyces, Acetobacter, Lactrobacillus, Pediococcus and Oenococcus.

 

oA 2011 published study that investigated the efficacy of UVC radiation technology to inactivate microorganisms in milk and concluded that UVC treatments produced microbial reductions similar to traditional heat pasteurization. The study also noted that UVC has the advantage of not producing chemical residues, by-products or radiation; is a cold process requiring very low maintenance at low cost; and does not require energy to produce heat.

 

oA 2011 unpublished study currently under peer review that investigated whether UVC treatment could reduce the number of Alicyclobacillus acidoterrestris cells in water, fruit concentrate and grape concentrate and found that our Technology is a viable way to control contamination of juice concentrate by species of that bacterium.

 

oA 2012 published study that examined the use of UVC light to inactivate microorganisms that found a 100% improvement in predicted microbial elimination due to the novel swirl design of our Turbulator.

 

oA 2015 published study on the sapplication of ultraviolet technology to inactivate porcine parvovirus in liquid plasma. This study discusses the use of spray-dried porcine plasma and the benefit of UV photopurification in its production.

 

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We believe that these studies were undertaken by qualified scientists who were employed by academic institutions with experience in the areas of scientific endeavor that relates to our Technology. We also believe that these scientists performed their research in accordance with the ethical and scientific guidelines of their respective universities. Prior to being published, the results were reviewed by scientific peers and presented by journals with international following. Accordingly, we believe that we and others can rely on these studies as proof of the efficacy of our Technology as presented in the studies. We have presented these studies to regulators as evidence of the efficacy of our Technology.

 

In addition to evaluating the results of our Technology as a means of purification, these studies also provided information with respect to certain critical process parameters, such as optimal dosage and flow rates. We plan to commission additional studies to gather additional information on these topics as well as certain toxicological and chemical safety studies. The methods to be used for our studies must comply with various regulatory standards. Any academic institutions with whom we might deal are likely to require that we fund these studies, and, accordingly, we will require additional financing so that we are able to pay all of the expenses and overhead costs that we are required to pay.

 

Employees

 

As of December 31, 2016, we employed 6 people directly. We continue to utilize the services of key academic and professional consultants in the areas of microbiology, biochemistry process engineering and manufacturing to enable us to grow the business and service our customer base on a global basis.

 

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Item 1A. RISK FACTORS

 

Our operations and securities are subject to a number of risks. Below we have identified and discussed the material risks that we are likely to face. Should any of the following risks occur, they may adversely affect our business, financial condition, and/or results of operations as well as the future trading price and/or the value of our securities.

 

Risks Relating to our Business, Financial Condition and Corporate Structure

 

We have a history of significant operating losses for the past eight years and these losses may continue in the future.

 

We have incurred net losses of approximately $36,509,000 for the period from inception through December 31 2016. We have been without significant revenue since inception, and our current agreements provide relatively limited amounts of revenue. Our historical losses are expected to continue into the future unless we are able to generate significant amounts of revenue in our business. Our history of significant operating losses prior to 2016 has also made it difficult for us to raise additional working capital.

 

We require immediate capital to fund our operations and repay certain obligations, and we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations or to liquidate our business.

 

We have significant working capital needs, including approximately$120,000 of US tax penalties and $346,000 of foreign payroll taxes and social security liabilities. Our management team has worked without receiving cash compensation for as long as four years and the total accrued compensation and related expense reimbursements owed to them was approximately $42,500 as of December 31, 2016. Because we do not have sufficient working capital, we continue to accrue compensation and fees owed to them. During the 2016, we issued 5,970,000 shares of our Common Stock to members of our management team in exchange for their discharging the Company and its subsidiaries from claims for accrued and unpaid compensation aggregating approximately $920,000.

 

We have other current liabilities, net of customer deposits, of approximately $880,000. If we are unable to secure adequate financing on reasonable terms, or on any terms, we may not be able to pay these or other operating expenses and to continue to operate our business. There is no assurance that financing will be available to us, in which case we may be compelled to wind down or liquidate our business.

 

Even if we do find a source of capital, we may not be able to negotiate terms and conditions for receiving the capital that are acceptable to us or our shareholders. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to the units. We cannot provide any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.

 

We are at Risk of Having all of our Patents Seized by a Foreign Tax Authority

 

During the fourth quarter of 2016, we reported that we had received a notice from the Debt Enforcement Authority Zug (the “Authority”) on behalf of the Canton of Zug, Switzerland, relating to a possible seizure of the assets of its SPOAG subsidiary, which include all of our international patents other than our South African patent. The basis for the notice of seizure was SPOAG’s failure to pay payroll taxes and social security obligations owing to the Canton of Zug in the approximate amount CHF100,000. Within the next two weeks, we were advised by Swiss counsel that the Authority had agreed to a revised payment schedule for the payment of the overdue payroll taxes due by SPOAG with payments to be made between then and  December 31, 2016. Further, during December 2016 SPOAG was required to submit a proposal for payment of the remaining amount that is due and payable to the Authority, which, as of December 31, 2016, is approximately CHF256,000.  We submitted a plan for payment, but we were not able to make any of the payments to which we committed.  As a result, the Authority rejected the plan. Until we are able to make a payment that is satisfactory to the Authority, we remain at risk of having all of the assets of SPOAG, including the patents, seized.

 

We Have Defaulted on a Convertible Note.

 

On February 11, 2016 we issued to SBI Investments LLC, 2014-1, a statutory series of Delaware limited liability company (“SBI”), our promissory note (the “SBI Note”) in the principal amount of $330,000 which subsequently was increased to $390,000. On August 1, 2016 the Company and SBI agreed to extend the maturity date of the SBI Note from August 9, 2016 to October 11, 2016, which was subsequently extended to January 11, 2017. The conversion price under the SBI Note is 52.5% of the market price of our shares of Common Stock. We did not pay the SBI Note when it came due on January 11, 2017. On March 29, 2017, SBI advised us that it was beginning to convert the SBI Note with an initial conversion of $25,000 resulting in the issuance of 691,467 shares of our Common Stock. We have not been able to make any payments on the SBI Note and, as a result, SBI can exercise its right to convert the SBI Note in accordance with its terms as well as any other remedies available thereunder. As of the date of the filing of this annual report, the Company does not have access to funds to pay all or any part of the SBI Note.

 

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Even if we obtain capital to fund our operations, the capital may not be sufficient to fund our strategies on which the potential growth of our business is premised.

 

Even if we raise capital to fund our day-to-day operations, that capital may not be sufficient to enable us to execute the strategies that we have formulated for our growth. In connection with our growth strategies, we will likely experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the release of competitive products by our competitors; (iii) the level of our investment in research development; and (iv) our need to obtain certain regulatory approvals. We cannot assure you that we will be able to obtain capital in the future to meet our needs.

 

Our efforts to raise capital, if successful, will subject us to ongoing costs and expenses.

 

Each of our efforts to raise working capital, when successful, has required that we enter into obligations to register for resale with the Commission the securities purchased by our investors. Because our trading price is low, the aggregate market value of the shares of our Common Stock held by shareholders other than our affiliates is less than $75,000,000 and, accordingly, we are not able to take advantage of those forms and procedures of the Commission that allow us to incorporate by reference filings that we have made. As a result, our registration process is more expensive and time-consuming than it may be for other companies that can register their shares more efficiently.

 

Since September 2014 we have not been able to raise signficant equity capital from any investors, including our existing shareholders. We cannot predict whether we will be able to fund our business.

 

Although certain of our shareholders had funded us by purchasing equity prior to September, 2014, since that date no investor and no shareholder has purchased any of our equity. As a result, we have funded our operations from commercial revenues or by deferral of operating costs, such as the salaries of our management team and other employees. Although we regularly engage our shareholders in discussions with respect to funding, we have not secured any financing nor is there any indication that this result will change. As a result, we may be forced to suspend operations due to lack of operating funds.

 

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We continue to discuss and negotiate possible financing transactions with our shareholders, but on the basis on our experience in 2015 we believe that we are unlikely to be able to conclude financing transactions with them.

 

We do not currently have any independent directors on our Board.

 

As of March 27, 2013, we ceased to have any independent directors. As of the date of this annual report on Form 10-K, we have two members of our board and they both are members of management. Until an independent director becomes a member of our board, all board decisions will be made by these two members. Because we do not have an independent director, our board of directors has no nominating or compensation committees and our audit committee has no members. In addition, without independent directors, the Company does not have any independent oversight or administration of its management and operations. The Company’s decision-making may suffer from the lack of independent directors, since only officers and employees of the Company will make all important decisions regarding the Company. For example, our executive officers, who are also stockholders and directors, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between the Company and its shareholders generally and the controlling officers or directors.

 

Our success is dependent on our ability to commercialize our SurePure Photopurification Technology and our Turbulator photopurification systems to generate sufficient revenues to sustain and expand our operations.

 

The execution of our business plan in the near-term is wholly dependent on our ability to commercialize our Technology through the use of our Turbulator line of photopurification systems to produce sufficient revenues to cover our operating expenses. The success of these endeavors will require that sufficient funding is available to us to finance the manufacture, marketing and sale of our current Turbulator systems and the development of new photopurification products and applications for those systems. Should we be unable to improve our financial condition through debt or equity offerings, our ability to successfully advance our business plan will be severely limited and we could be forced to discontinue or liquidate our business. Were this to occur, our shareholders would not be likely to receive any significant return, or any return at all, on their investment.

 

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We face significant obstacles to the commercialization of SurePure Photopurification Technology and our Turbulator systems.

 

The industries in which we intend to commercialize our Technology are characterized by existing processes and technologies that have been used for very long periods, such as pasteurization, filtration and chemical and other preservatives. It is difficult for us as a business with limited resources to displace these existing processes and technologies and to gain acceptance even as an adjunct to the existing processes. In the case of businesses with existing facilities, a change to our Technology may require the abandonment in whole or in part of existing facilities which have been in place for an extended period of time. In the case of businesses about to build or invest in new facilities, we face the challenge of marketing a newer and often lesser-known technology.

 

In addition, the principal industries that we have targeted—dairy products, juice products, beer, wine and food—are regulated by government agencies or subject to standards promulgated by industry bodies. These agencies and bodies operate under and enforce regulations which often do not permit UVC purification without change in applicable legislation or regulations or both or classify UVC purification as a food additive. As a result, we are not permitted to address the dairy industry in major markets, such as the United States of America or South Africa, until the restrictive regulations have been changed to permit the use of our Technology or until our Technology has been approved for use in the dairy industry, as it was approved in the European Union in early 2016. The processes that we have undertaken in our attempts to change legislation and other regulation are often prolonged and difficult. See “Item 1. Business—Regulatory Matters.”

 

In order to address these challenges, we seek to create awareness of the advantages of our Turbulator systems among businesses that have purification requirements in their processes. We also plan to continue our efforts to obtain regulatory and similar approvals where required. At the same time, we plan to keep pace with outside technological developments, to respond to technological developments and to seek out additional industries whose liquid purification needs are not being met adequately or at all. In order to pursue these strategies, we believe we will be required to expend significant amounts to hire or engage and manage those persons with the networks, skills, experience and resources to execute these plans. We believe we must also continue to fund independent research at qualified academic and similar institutions to investigate fully the scientific basis of our Technology. The financial and other resources that we currently have available are not adequate for all of these purposes, and we will require significant additions to enable us to execute these plans. If we are not able to secure additional funding, we may not be able to address these challenges adequately or at all and therefore could be forced to discontinue our business. Were this to occur, our shareholders would not likely receive any significant return, or any return at all, on their investment.

 

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Our SurePure Photopurification Technology may become obsolete.

 

The ability of UVC to destroy microbes and other pathogens has been known for several years. We believe the principal advantage of our Turbulator systems is that they purify turbid liquids in a more efficient and effective manner as compared to conventional processes. There is no assurance, however, that another business will not discover and commercialize a system that would use UVC or some other energy source in a manner more efficient and/or effective than our Turbulator systems, in which case our Technology might be rendered obsolete. Were this obsolescence to occur, we could encounter significant difficulty in selling or otherwise deploying our systems and could be forced to write off the value of our investment in our Technology. In addition, if we were not able to deploy technology or systems that met the challenge of these developments, we could be forced to discontinue our business. Were this to occur, our shareholders would not likely receive any significant return, or any return at all, on their investment.

 

We compete with established purification processes with wide market acceptance and installed bases.

 

Since we acquired the SurePure Photopurification Technology in 2005, we have faced considerable difficulty entering the marketplace. Although we believe that our Technology has considerable advantages over conventional modalities, businesses in the market have made considerable fixed cost investments in the installation of the conventional processes, and the replacement of their installed technology with our Technology would entail added costs in the short-term. The success of our business is likely to depend principally upon our ability to convincingly demonstrate the longer-term technical and cost advantages of our Turbulator systems and secure a reliable base of customers who are willing to install our Technology together with or in replacement of the existing purification technologies. It is possible that, despite our ability to prove our effectiveness and our cost efficiencies across a range of industries, our customers will, because of their reluctance to adopt a new technology, prefer to fully amortize their investment in existing purification systems or, because of simple inertia, remain unwilling to purchase our Turbulator systems or otherwise acquire our Technology.

 

At the same time, many of the businesses that sell and install the existing processes with which our Technology competes have considerable resources and sophisticated marketing plans and operating distribution networks. These factors have made and may continue to make it difficult for us to compete with these businesses. In addition, many of our potential customers engage and rely on industrial engineering firms to recommend and select purification systems for their facilities. The fact that we are a relatively new business with a newly developed technology and with very limited resources may make it difficult for these engineering firms to recommend our Technology over the existing processes.

 

In addition, competitors could develop technologies or systems similar to or better than our own, finish development of new technologies in advance of us, or be more successful at marketing new products, any of which factors may hurt our prospects for success.

 

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If we are not able to deal effectively with these competitive factors either directly or by focusing on geographic or industrial markets where these competitive factors are less intense, we may not be able to generate revenues for our business. As a result, without revenues, we may be forced to discontinue or sell our business. Were this to occur, our shareholders would not likely receive any significant return, or any return at all, on their investment.

 

General economic conditions will affect our operations.

 

Changes in general domestic and international economic conditions may adversely affect the financial performance of the Company. Factors that may contribute to a change in economic conditions include slow or non-existent GDP growth or recession in developed and/or emerging market economies, volatility, uncertainty or actual or potential downturns in banking and/or financial markets, fluctuations in interest rates, availability of credit, inflation rates or currency exchange rates, labor disputes and political and social unrest or reform. Further, the delayed recovery of the global economy is not conducive to growth, particularly of technology companies with newly commercialized products. Any adverse development in economic conditions, whether in banking or financial markets, or in levels of economic activity generally, could increase our expenses and make it more difficult for us to market and commercialize our Technology.

 

To date, certain of our marketing efforts had been in markets in emerging economies, which economies may exhibit less stability and predictability than developed economies.

 

Since we acquired our Technology, we devoted resources to marketing it in South Africa and other emerging economies. We believe that emerging economies tend to offer certain opportunities, such as growing consumer populations, which may lead to the construction of new breweries, dairies and other food and beverage processing facilities. We also believe that it may be easier for the owner or operator of a facility that is about to be built to adopt our Technology than for the owner or operator of an existing facility which already has a purification system installed. Doing business in emerging economies, however, is subject to substantial risks. Among other things, economic conditions in those countries may be volatile. The role of governmental agencies and other regulators may be subject to change without advance notice or without any notice. The plans of our current and potential customers to construct or complete the planned construction of their facilities therefore may change. In addition, perception of risk in any one particular emerging market country or region can heighten the perception of risk in emerging market countries in general, whether among banking or financial markets or otherwise. As a result, the investment that we have made with respect to the projects may not have the return that we anticipated or any return at all.

 

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We do not have an expansive or well-developed distribution network.

 

To date, we have relied on distributors to sell our Technology on a country-by-country or region-by-region basis without putting into place a coordinated international distribution network. We believe that the establishment and maintenance of an effective worldwide distribution network will require a substantial amount of financing which has not yet been available to us. The lack of an effective worldwide distribution network may place us at a competitive disadvantage to other providers of liquid purification technologies. If we are not able to secure adequate equity or debt financing in the future, we may not be able to create channels of distribution for our systems, and, as a result, our revenues may not increase.

 

We rely on third parties to manufacture our Turbulator systems and do not have our own manufacturing facilities.

 

Although our own employees design, assemble and install our Turbulator systems in conjunction with our distributors and customers, we have contracted the manufacturing of the components of our Turbulator systems to third parties. As a result, we do not directly control these components and are subject to risks, including late or non-delivery, defective manufacture by third parties, breakage in transit and insufficient supply. Any of these problems, as well as other problems deriving from outsourced manufacture of components, could lead us to default on our obligations to our customers, which could have adverse financial consequences for us and as well as adverse consequences for our business reputation.

 

We rely heavily upon our patent and other intellectual property.

 

We rely on a combination of the counterparts of our issued patent, trade secrets and licenses, and, to a lesser extent, trademarks, together with non-disclosure and confidentiality agreements, to establish and protect proprietary rights to our Technology. See “Item 1. Business—Intellectual Property.” Our success depends, in part, on our ability to obtain additional United States and foreign patent protection for our products, their uses and our processes to preserve our trade secrets and to maintain the patents that we hold. We do not know whether any of the claims in our issued patents or pending applications will provide us with any significant protection against competitive products or otherwise be commercially valuable. Legal standards regarding the validity of patents and the proper scope of their claims are still evolving, and there is no consistent law or policy regarding the valid breadth of claims. Additionally, there may be third-party patents, patent applications and other intellectual property relevant to our products and technology which are not known to us and that block or compete with our products. Since we do business in emerging economies where legal means for effectively addressing infringement of our patent may not be available, we may not be able to prevent infringement or to obtain judicial relief when infringement occurs.

 

Our limited financial resources impede our ability to assert our patents against infringers and to obtain additional patents. Accordingly, we may not be able to exercise our rights to their full extent. As a result, infringement may have a material and adverse affect on our ability of our SurePure Technology to compete.

 

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We may not be able to effectively manage our growth.

 

Over the longer term we will seek to achieve considerable future growth in our business. This growth may come from the market acceptance of our Technology, increased licensing and commercialization of our Turbulator systems and expanding applications and markets for our Technology. To achieve growth in an efficient and timely manner, we will have to maintain strict controls over our internal management, technical, accounting, marketing, and research and development functions in all of our companies, both in the United States and elsewhere. We believe that we will continue to employ sufficient quality personnel to manage our anticipated future growth. Should we be unable to successfully manage our anticipated future growth by employing or otherwise engaging personnel and professionals who will maintain these standards, our costs may increase, our growth could be impaired and our ability to operate in existing and new marketplaces may be impaired.

 

Failure to receive regulatory approval and other governmental action may adversely affect our business.

 

We have developed our SurePure Photopurification Technology such that it can be used by industries without being subject to prior regulatory approval as well as in those industries where regulatory approval is required. Should our Technology not receive regulatory approval, the applications of our Technology will become limited to those industries where regulatory approval is not required, and our business and financial results would thereby be seriously harmed.

 

In those markets and industries in which regulatory approval is required, the approval process is frequently long, unpredictable and costly. See “Item 1. Business—Regulatory Matters.” Although we believe that we have accumulated sufficient scientific data to prove that our Technology is both safe and effective, governmental agencies frequently request additional or updated data. To satisfy these requests, we may be required to expend significant amounts and delay our entry into the market place, both of which adversely affect our business. The regulatory standards that we seek to satisfy are in large part subjective, and therefore we cannot be certain that our evidence will be satisfactory in any given case until the regulatory body so determines.

 

Although regulatory bodies in different jurisdictions may consider approval in one jurisdiction to be persuasive on certain issues of concern, in general, we must address each regulatory body separately and attempt to satisfy its own set of standards in each case. This process is extremely time-consuming and costly. Frequently delays arise because of, among other reasons, changes in the staffing of regulatory agencies or because of changes in priorities within the regulatory agencies. Although we have employees dedicated to regulatory issues, in almost all cases we must rely on outside consultants for each jurisdiction in which we are seeking regulatory approval. Although these consultants have frequent contact and wide experience with the government agency in question, these consultants are expensive and cannot assure us of a favorable outcome or that delays will be avoided.

 

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In certain jurisdictions, regulatory approval requires that an existing law or regulation be modified. Typically, the existing laws or regulations limit the means by which foods and beverages can be purified to the existing modalities. The modification process requires publication or debate of the intended change. Publication and debate give our competitors and those businesses that have vested interests in maintaining the exclusivity of the existing modalities the opportunity to oppose our efforts to modify the existing limitations. As a result, we may be forced to spend significant resources to counter these efforts, and we may not be successful in doing so. If we are not successful, then we could be prohibited from selling or distributing our Technology in that market. Even if we are successful, we would likely undergo significant delays and expend significant resources, which may impair or prevent us from operating in such markets.

 

Moreover, because we are regulated in certain markets as a food additive, we are subject to ongoing scrutiny and subject to changes in regulatory actions even after approval has been obtained. Furthermore, changes in legislation and governmental policy could also negatively impact us.

 

Because our Technology is applied to food and beverage products to be consumed by the public, we may face liability claims.

 

Although we have conducted testing programs to identify potential material defects in our Technology and have relied on published, peer-reviewed studies of UVC by independent investigators, these tests and studies may not have detected all potential defects. Any undetected defects could harm our business reputation, diminish our customer base, shrink revenues and expose us to product liability claims. We carry product liability insurance in amounts that we consider to be adequate for the size of our business. However, we cannot assure you that we will have adequate insurance to cover all claims that we may face, and any determination of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition.

 

Consumer advocates and others may question the safety of the effects of our Technology.

 

We are aware that certain organizations that purport to be consumer advocates and others may question the safety of irradiation for purposes of preservation and avoiding spoilage. Often, these persons question the safety testing that has been done with respect to the consumption of foods and beverages that have been irradiated and attempt to establish a link between irradiated food and cancer, despite the FDA’s efforts to educate the public on questions relating to irradiation. These persons may attempt to use the Internet or other media to bring pressure on governmental agencies and generate publicity against the use of irradiation. As a result, and because UVC may be characterized as a form of radiation, their concerns may adversely affect the reputation of our Technology and our ability to increase our revenues. Were their concerns to become pervasive, our business could be damaged. In that case, we might have to restrict our marketing and sales efforts to markets and industries that were not affected by governmental actions or publicity.

 

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We may be unable to attract and retain qualified employees and management personnel necessary for the operation of our business.

 

Our future success also depends upon our continuing ability to attract and retain highly qualified personnel. Expansion of our business and the management and operation will require additional managers and employees with industry experience, and our success will be highly dependent on our ability to attract and retain skilled management personnel and other employees. There can be no assurance that we will be able to attract or retain highly qualified personnel. Competition for skilled personnel in our industry and in the locations in which we operate is significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees.

 

The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.

 

Our Articles of Incorporation contains a specific provision that eliminates the liability of directors for monetary damages that may be awarded to us and our shareholders; further, we provide indemnification to our directors and officers to the extent provided by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our executive officers. The foregoing indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against our directors and officers, which we may be unable to recover. These provisions and resultant costs may also discourage us from bringing lawsuits against our directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers, even though such actions, if successful, might otherwise benefit us and our shareholders.

 

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We are controlled by our current officers, directors and principal shareholders.

 

Our directors and executive officers and their affiliates beneficially own approximately 16.9% of the outstanding shares of our Common Stock. See “Item 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters.” Accordingly, our directors, executive officers and principal shareholders will have substantial influence over, and may have the ability to control, the election of our board of directors and the outcome of issues submitted to a vote of our shareholders. Although our board members and officers owe a fiduciary duty to our shareholders and must act in good faith in a manner they reasonably believe to be in the best interests of our shareholders, as a shareholder such persons are entitled to vote their shares in their own interests, which may not always be in the interests of shareholders generally.

 

Risks Relating to our Securities

 

Shares of our Common Stock are very thinly traded, and the price may not reflect our value and there can be no assurance that there will be an active market for shares of our Common Stock either now or in the future.

 

Although our Common Stock is quoted on the OTCQB, shares of our Common Stock are very thinly traded, and the price of our Common Stock, if traded, may not reflect our value. OTCQB securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities transactions are conducted through a computer network connecting dealers in stocks. OTCQB stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange. As a result, there can be no assurance that there will be an active market for shares of our Common Stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, shareholders may not be able to liquidate their investment in us or liquidate it at a price that reflects the value of our business. As a result holders of our securities may not find purchasers for our securities should they desire to sell the securities that they hold. Consequently, only investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time should purchase our securities.

 

If a more active market for our shares should develop, the price of shares of our Common Stock may be highly volatile. Because there may be a low price for shares of our Common Stock, many brokerage firms may not be willing to effect transactions in our securities. Even if an investor finds a broker willing to effect a transaction in the shares of our Common Stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price.

 

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If we are not able to satisfy the eligibility standards of the OTCQB market, the trading of our shares will become more difficult.

 

During 2014 the OTCQB market underwent changes that require us to comply with its new eligibility standards. If we become unable to satisfy the eligibility standards of the OTCQB market, OTCQB has advised us that it would move the trading of our shares to OTC Pink, a market in which it could be substantially more difficult for volume in our shares to increase and for buyers and sellers to transact with each other. This development, in turn, may make it more difficult for us to sell shares directly to investors because our shares will not have the liquidity of other shares of other companies. To date, we have been able to comply with the standards.

 

Our shares may lose their status as “DTC-Eligible.”

 

Shares of our Common Stock became “DTC-eligible” during the first quarter of 2013. This means that our shares can be electronically transferred between brokerage accounts. It is, however, possible that DTC could in the future change the status of our shares to other than “DTC-eligible” or otherwise subject our shares to a limited status which DTC references as a “chill.” Were either or both of these events to occur, our shares would not be able to be electronically transferred between brokerage accounts and the transfer process would therefore become manual. Manual processing may take several days and is not a favored option for companies such as us that rely on broker dealers for stock transactions. If we were to lose DTC-eligibility, our shares may not be able to trade with any volume.

 

We cannot assure our shareholders that an active market for shares of our Common Stock can be sustained.

 

We cannot assure our shareholders that an active trading market for our Common Stock can be sustained. A shareholder may find it difficult to dispose of shares or obtain accurate quotations as to the market value of our shares on the OTCQB. Securities quoted on the OTCQB may be subject to a Commission rule that imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, this rule may deter broker-dealers from recommending or selling such securities, which may further limit the liquidity of our shares. If applicable, this rule could also make it more difficult for us to raise additional capital.

 

Sales by our major shareholders under Rule 144, Regulation S or another exemption from the Securities Act, or pursuant to a registration of our shares, may depress the price of our Common Stock.

 

As of the date of this annual report on Form 10-K, our stockholder XOptics holds 12,000,000 shares of our Nonvoting Convertible Preferred Stock. Those shares are convertible into 12,000,000 shares of our Common Stock on a 1-to-1 basis under certain terms and conditions, including upon any sale to a third party purchaser. Any shares of Common Stock that are issued to XOptics upon conversion of its shares will be restricted securities unless the shares are first registered prior to their resale.

 

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XOptics is able to sell, or convert and then sell, the 12,000,000 shares of our Nonvoting Convertible Preferred Shares that it holds under Rule 144 under the Securities Act, which permits XOptics to resell, subject to various terms and conditions, its restricted securities. In addition, because XOptics is not a “U.S. person,” as defined in Regulation S under the Securities Act, it may be able to sell shares of our Nonvoting Convertible Preferred, or convert those shares and then sell the conversion shares, in offshore transactions.

 

Any sale of a substantial number of shares at one time or from time to time may depress or limit the market price of our shares. Moreover, because these sales could occur in the future, the anticipated effect of the shares becoming available in the market through future sales, also known as overhang, could reduce the trading price of shares of our Common Stock.

 

Our efforts to raise capital, if successful, will subject our shareholders to dilution.

 

As described under “—We require immediate capital to fund our operations, and we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations or to liquidate our business,” we require immediate capital to fund our operations. Our efforts to raise capital have resulted in multiple subscription and share purchase agreements. Since the date of the Share Exchange and through December 31, 2016, we have issued 47,534,612 shares of our Common Stock, or an increase of approximately 204% of our issued and outstanding shares. Of the shares issued, 16,153,590 have been issued to shareholders in exchange for consideration, 20,715,575 have been issued to discharge loans and accrued compensation liability and 10,665,447 have been issued upon conversion of shares of our Nonvoting Convertible Preferred Stock. These issuances have diluted the interests of our shareholders; any future issuances will continue to dilute their interests. Therefore, any investment in our shares of our Common Stock carries that risk that such investment will be diluted by a subsequent share issuance by us as a result of, among other things, our need for external sources of capital.

 

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We are incurring increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our operating results.

 

As a public company, we are incurring significant legal, accounting and other expenses, including costs associated with public company reporting requirements. We also are incurring substantial expenses in connection with the preparation and filing of this registration statement and responding to the Commission’s comments in connection with its review of the registration statement. We may be required to incur costs associated with current corporate governance requirements, including requirements under provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well as rules implemented by the Commission or any stock exchange or quotation system on which shares of our Common Stock may be listed in the future. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically in recent years. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We are unable to currently estimate these costs with any degree of certainty. We also expect these rules and regulations may make it difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage available to privately-held companies. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

 

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.

 

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of Sarbanes-Oxley could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our Common Stock.  In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

 

Because we became public by means of a reverse acquisition, we have not been able to attract the attention of major brokerage firms.

 

Additional risks may exist as a result of our having become a public reporting company through a “reverse acquisition.” Security analysts of major brokerage firms do not cover us or our stock. Because we became public through a reverse acquisition, there may be less incentive for brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will want to provide analyst coverage of us or our stock in the future, which may result in less liquidity and lower trading prices for our shareholders.

 

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We are subject to Sarbanes-Oxley and Dodd Frank and the reporting requirements of federal securities laws, which can be expensive and time-consuming.

 

We are subject to Sarbanes-Oxley and the Dodd Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”), as well as related rules implemented by the Commission and reporting requirements of the Exchange Act and other federal securities laws. The costs of compliance with Sarbanes-Oxley and of preparing and filing annual and quarterly reports, proxy statements and other information with the Commission, and furnishing audited reports to shareholders, are significant and require us to expend significant amount on our costs and expenses of complying with these rules, principally the fees and expenses of our professional advisors.

 

We have never paid dividends on our Common Stock, and we do not intend to do so for the foreseeable future.

 

We have never paid dividends on our Common Stock, and we do not anticipate that we will pay any dividends on our Common Stock for the foreseeable future. Accordingly, any return on an investment in our Common Stock will be realized, if at all, only when a shareholder sells shares of our Common Stock.  In addition, our failure to pay dividends may make our stock less attractive to investors, adversely impacting trading volume and price.

 

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Commission rules limit our ability to list on a national securities exchange.

 

Commission require us to maintain a requisite minimum share price for at least 30 of the most recent 60 trading days prior to the date of the initial listing application and the date of listing on any national securities exchange.  As a result of these rules, we will be eligible to list on a national securities exchange only if our stock trades above the requisite minimum price in accordance with the listing requirements of the applicable national securities exchange.

 

All of our outstanding shares of our Common Stock may be sold into the public market in the near future, which could cause the market price to drop significantly, even if our business is doing well.

 

Since the Share Exchange we have registered for resale by our shareholders a total of 58,533,992 shares, or approximately 100% of the issued and outstanding shares of our Common Stock. We believe that, despite these registrations, our shareholders have not sold most of those shares of our Common Stock but would likely do if there were broader demand for our shares in the market or if the bid price increased. Sales of a substantial number of shares in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could depress the trading price of our Common Stock or limit increases in the trading price.

 

Because it may be considered a “penny stock,” our shareholders may have difficulty selling shares of our Common Stock.

 

Our Common Stock may be considered a “penny stock” since the price for our Common Stock is below $5.00 per share and our Common Stock does not trade on an exchange and we do not meet certain net asset or revenue thresholds. These thresholds include the possession of net tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2,000,000 if we have been operating for at least three years or $5,000,000 if we have been operating for fewer than three years, and the recognition of average revenues equal to at least $6,000,000 for each of the last three years. In that case, our shares will be subject to the requirements of Rule 15g-9 under the Exchange Act.  Under this rule, broker-dealers who recommend penny stocks to persons other than established customers and accredited investors must satisfy special sales practice requirements.  The broker-dealer must make an individualized written suitability determination for the purchaser, considering such purchaser’s financial situation; investment experience and investment objectives, with respect to penny stock transactions, and receive the purchaser’s written consent prior to the transaction.

 

The penny stock rules severely limit the liquidity of securities in the secondary market, and many brokers choose not to participate in penny stock transactions. As a result, there is generally less trading in penny stocks. If you become a holder of our Common Stock, you may not always be able to resell shares of our Common Stock publicly at the time and price that a shareholder believes are fair or appropriate.

 

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Item 1B. UNRESOLVED STAFF COMMENTS

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

 

Item 2. PROPERTIES

 

SPMSA leases one premises of approximately 2,000 square feet, in South Africa under an operating leases. This lease terminates at the end of May 2017 and will not be extended.

 

Item 3. LEGAL PROCEEDINGS

 

We are not involved in any material legal proceedings that are pending as of the date of this annual report on Form 10-K. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and adverse results in contested matters that may arise from time to time may harm our business.

 

Item 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

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PART II

 

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market for Common Stock

 

Our Common Stock has been approved for quotation on the OTCQB under the symbol “SURP.”   The Company stock began trading on OTCQB on September 20, 2010.   The table below sets forth the high and low bid prices for our Common Stock for the eight quarters ended December 31, 2016 as reported on the OTCQB website for the relevant quarters. The information reflects inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions. See “Item 1A. Risk Factors—Shares of our Common Stock are very thinly traded, and the price may not reflect our value and there can be no assurance that there will be an active market for shares of our Common Stock either now or in the future” and “Item 1A. Risk Factors —Because it may be considered a “penny stock,” our shareholders may have difficulty selling shares of our Common Stock . ” Also, see “Item 1A. Risk Factors— If we are not able to satisfy the eligibility standards of the OTCQB market, the trading of our shares will become more difficult”

 

Quarter Ended  Bid High ($)   Bid Low ($) 
December 31, 2016   0.20    0.04 
September 30, 2016   0.23    0.10 
June 30, 2016   0.18    0.11 
March 31, 2016   0.22    0.13 
December 31, 2015   0.21    0.15 
September 30, 2015   0.40    0.08 
June 30, 2015   0.16    0.08 
March 31, 2015   0.20    0.05 

 

As of December 31, 2016, 70,841,796 shares of our Common Stock were issued and outstanding, an additional 12,000,000 shares of our Common Stock were issuable upon the conversion of the issued and outstanding shares of our Nonvoting Convertible Preferred Stock., We have reserved 3,000,000 shares of our Common Stock for future issuance under the 2012 Stock Plan, under which we issued options to purchase 475,000 shares of our Common Stock in 2013.

 

Record Holders

 

As of December 31, 2016, there were approximately 90 holders of record of our Common Stock.

 

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Equity Compensation Plan Information

 

As of December 31, 2016, options to purchase 475,000 shares of our Common Stock had been issued under our 2012 Nonqualified Stock Option Plan (the “2012 Stock Plan”). Under the terms of the grants of those options, options to purchase 190,000 of those shares vested on the date of grant (November 12, 2013) , options to purchase 142,500 shares vested on November 12, 2014 and options to purchase 142,500 shares vested on November 12, 2015.

 

DTC Eligibility

 

DTC, a financial industry service provider that immobilizes and makes "book-entry" changes to ownership of securities, has advised us that shares of our Common Stock became “DTC eligible”. This means that shares of our Common Stock can be electronically transferred between brokerage accounts. It is, however, possible that in the future DTC could change the status of our shares to other than “DTC eligible” or otherwise subject them to a limited status that DTC refers to as a “chill.” Were either or both of these events to occur, the process for transferring our shares between brokerage accounts would become manual. Manual processing may take several days and is not a favored option for companies such as us that rely on broker dealers for stock transactions. Unless and until we again became DTC eligible, our shares might not be able to trade with any volume. See “Item 1A. Risk Factors—Our shares may lose their status as “DTC-eligible.””

 

Dividend Policy

 

We have never paid or declared any dividends on our shares of Common Stock. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

 

Performance Graph

 

As a smaller reporting company, as defined in Rule 12b-2 promulgated under the Exchange Act, and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide this the information requested by this Item.

 

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Item 6. SELECTED FINANCIAL DATA

 

As a smaller reporting company, as defined in Rule 12b-2 promulgated under the Exchange Act, and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

 

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other parts of this annual report on Form 10-K 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 annual report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements.  These statements are based on the beliefs and assumptions of our management based on information currently available to them.  Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those identified under the caption “Risk Factors” in our this annual report, as well as in other documents that we have filed with the Commission.  Furthermore, such forward-looking statements speak only as of the date of this annual report on Form 10-K.  Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Rounding

 

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

 

Overview

 

The results presented in this “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” are those of SurePure, Inc. and its subsidiaries (all of which are collectively referred to in this Management’s Discussion and Analysis of Financial Condition and Results of Operations as “we”) as reflected in our unaudited consolidated financial statements included in this Annual Report on Form 10-K. The following discussion should be read in conjunction with such consolidated financial statements and the notes thereto. The results presented below pertain to our audited consolidated financial statements for the years ended December 31, 2016 and 2015.

 

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Insufficient Funding

 

For the period from our inception on August 24, 2005 to December 31, 2016, we had net losses of approximately $36,509,000. During 2016, we continued to experience a significant shortfall in funding from investors. As a result, we require significant additional funding to maintain our operations and execute our business plan. If we are unable to obtain financing from our current shareholders or other sources, we will be unable to meet our business objectives and may scale back or even discontinue our operations until such time, if ever, that we are able to obtain financing. Notwithstanding our efforts to obtain financing, there is no assurance that any financing will be available on acceptable terms or at all. See “—Liquidity and Capital Resources.”

 

Business Overview

 

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

 

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

 

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

 

We have experienced negative cash flows from operations with respect to our business since our inception. As of December 31, 2016, we did not have adequate working capital resources to satisfy our current liabilities, and, as a result, we have substantial doubt about our ability to continue as a going concern. Based on our current projections, we are not assured that we will have the cash resources to enable us to continue to fund normal operations. In addition, during the year, we issued Common Stock in settlement of certain liabilities that we were unable to settle in cash.

  

Plan of Operation

 

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

 

·Relying on the regulatory approval that was granted in January 2016 by the European Food Standards Agency for dairy milk treated with our Technology to extend its shelflife and increase its vitamin D content, to generate additional customer interest and transactions in the EU and elsewhere for dairy applications;
·Attend and promote our product at international trade shows in 2017 for the brewing, dairy industries, carbonated soft drink and industrial applications. At these venues we will seek to establish contact with industry participants, including distributors of engineered systems, and to make them aware of our product’s advantages and the expanded applications of the product that we have developed;

 

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·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 wine, dairy, fruit juice, carbonated soft drink and other beverage industries;
·Expand our distribution networks for our products by identifying additional distributors according to geographic market, expertise with specific liquids and existing client relationships and negotiating agreements with the identified distributors on terms acceptable to both the distributors and to us; and
·Obtain additional equity financing to support our growth from current shareholders, institutional investors or other investors to provide capital to support and augment our operations.

 

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

 

During the period ended December 31, 2016, we focused on the following activities:

 

·continuing with commercial trials with key customers;
·concluding agreements with customers;
·manufacturing, delivering and commissioning equipment ordered by customers; and
·attempting to negotiate financing arrangements.

 

Subsequent to December 31, 2016, we have focused on the following activities:

 

·continuing with commercial trials with key customers;
·concluding agreements and accepting orders from new customers;
·manufacturing, delivering and commissioning equipment ordered by customers; and
·negotiating possible equity financing agreements.

 

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Results of Operations

 

The following table summarizes our results of operations for the year ended December 31, 2016 compared with our results of operations for the year ended December 31, 2015:

 

   Years Ended:   Variance 
   December 31, 2016   December  31, 2015   $   % 
                 
Revenues  $1,237,000    2,454,000    (1,217,000)   -50%
                     
General and Administrative Expenses   1,682,000    1,822,000    (140,000)   -8%
                     
Research and Development   27,000    46,000    (19,000)   -41%
                     
Interest Expense   223,000    47,000    176,000    374%
                     
Net Loss   1,487,000    697,000    790,000    113%

 

Revenues

 

We had revenues of approximately $1,237,000 during the year ended December 31, 2016, representing a 50% decrease as compared to approximately $2,454,000 for the year ended December 31, 2015. This decrease as compared to the year ended December 31, 2015 was primarily due to the fewer new customer installations during the period.

 

Although we are negotiating certain agreements for the commercialization of our SurePure technology and although there are ongoing tests of our technology with potential customers, it is unlikely that more than two or three of those agreements as currently structured will generate significant amounts of revenue during 2017. As a general matter, however, we expect that revenues will increase to the extent that our commercialization efforts are successful. These commercialization efforts seek to introduce our technology to a broader range of clients and geographic areas. Our business model is largely based on sales of equipment.

 

General and Administrative Expenses

 

We had general and administrative expenses of approximately $1,682,000 during the year ended December 31, 2016, representing a 8% decrease as compared with approximately $1,822,000 during the year ended December 31, 2015. The decrease as compared to 2015 was primarily due to lower professional fees, lower employment costs due to reduction in staff numbers and remuneration levels, as well as reduced travel expenditures due to timing of customer visits.

 

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

 

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

 

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Research and Development Expenses

 

We incurred research and development expenses of approximately $27,000 for the year ended December 31, 2016, representing a 41% decrease as compared with approximately $46,000 for the year ended December 31, 2015. This decrease as compared to the 2015 year was primarily due to timing of research work related to regulatory submissions.

 

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

 

Net Interest Expense

 

We had net interest expense of approximately $223,000 for the year ended December 31, 2016, representing a 374% increase, as compared to approximately $47,000 of net interest expense for the year ended December 31, 2015. This increase was mainly due to the fact that during February 2016 we entered into a loan agreement.

 

Gain on Settlement of Debt

 

We recognized a gain of $150,599 representing the difference between the fair value of the consideration issued in the settlement transaction and the carrying value of the amounts due officers and a number of other current liabilities. This gain has been included as ‘‘Gain on settlement of debt’’ under ‘‘Other income (expense)’’ within income from continuing operations in the accompanying consolidated statement of operations for the year ended December 31, 2016.

  

Net Loss

 

For the reasons discussed above, we had a net loss of approximately $1,487,000 for the year ended December 31, 2016, compared with a net loss of approximately $697,000 for the year ended December 31, 2015.

 

We did not generated sufficient revenue to fund our operations for the year ended December 31, 2016. We expect our net losses to occur from time to time until such time as our commercialization efforts for our technology produce an increase in revenues sufficient to meet the cost of our operations on an ongoing basis.

 

Income Tax Expense (Benefit)

 

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

 

Impact of Inflation

 

We believe that inflation has not had a material effect on our operations for the period from August 24, 2005 (when our operations began) to December 31, 2016.

 

Capital Expenditures

 

We did not invest in property and equipment during the year ended December 31, 2016.

 

Liquidity and Capital Resources

 

Our principal sources of liquidity have historically been through sales of our Common Stock to our investors. During the year ended December 31, 2016, however, we were unable to obtain significant additional equity funding. During the year we entered into a loan agreement and additionally, as noted below, we have also issued Common Stock in settlement of certain liabilities during the year.

 

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

 

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

 

The following table summarizes our financial position at December 31, 2016, compared with our financial position at December 31, 2016:

 

   As of:   Variance 
   December 31, 2016   December 31, 2015   $   % 
                 
Cash  $-    5,000    5,000    100%
                     
Other Current Assets   40,000    235,000    (195,000)   -83%
                     
Total Assets   102,000    320,000    (218,000)   -68%
                     
Current Liabilities   1,827,000    1,747,000    80,000    -53%

 

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

 

As of December 31, 2016, we had cash of approximately $0 and other current assets of approximately $40,000, consisting of prepaid expenses, and total assets of approximately $102,000. As of December 31, 2016, we had no accounts receivable due to the timing of sales contacts. As of December 31, 2016, we had current liabilities of approximately $1,827,000, consisting of accounts payable, accounts payable to related parties, accrued liabilities and short term loans. Of this amount, approximately $42,000 represented liabilities that were due to officers and directors, a decrease in liabilities to officers and stockholders of approximately $233,000 as compared to such amount as of December 31, 2015. This was attributable to the fact that we issued 3,908,706 shares of our Common Stock in settlement of a portion of the liability (approximately $611,900) to our officers and directors.

 

Our shareholders’ deficit was approximately $1,724,000 as of December 31, 2016, compared with deficit of approximately $1,427,000 as of December 31, 2015.

 

Cash Flow Analysis

 

For the year ended December 31, 2016 our cash used in operating activities was approximately $435,000, which amount corresponded mainly to net losses from our operations offset by a decrease in customer deposits, liabilities and amounts due to officers and stockholders, a portion of which was settled with the issuance of shares of our Common Stock. We expect to continue to have periods of negative cash flows from operating activities until such time as we fully commercialize our technology.

 

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

 

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

 

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

 

Off Balance Sheet Arrangements

 

As of December 31, 2016, we had no off-balance sheet arrangements.

 

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

As a smaller reporting company, as defined in Rule 12b-2 promulgated under the Exchange Act, and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

 

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The consolidated financial statements and supplementary data required by this item are included beginning at page F-1 herein.

 

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

Item 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We designed our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective to provide such reasonable assurance.

 

In designing and evaluating the disclosure controls and procedures, management recognized that such controls and procedures, as any controls and procedures, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

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Management’s Annual Report on Internal Control Over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act.

 

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework.” Based on this assessment, management concluded that as of December 31, 2016, the Company’s internal control over financial reporting is effective.

 

As a smaller reporting company, the Company is not required to include in this annual report a report on Form 10-K the effectiveness of internal control over financial reporting by the Company’s independent registered public accounting firm.

 

Changes in Internal Control Over Financial Reporting

 

During management’s assessment of the effectiveness of the Company’s internal control over financial reporting, management did not identify any change that occurred during the year ended December 31, 2016 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

 

Item 9B. OTHER INFORMATION

 

None.

 

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Item 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth the names and ages of the Company’s directors and executive officers as of December 31, 2016. At this time, our board of directors has no nominating or compensation committees and our audit committee has no members.

 

Name   Age   Position with the Company   Officer/Director
Since
Guy Kebble   50   Chief Executive  Officer   December 12, 2012
        President   December 12, 2012
        Director   January 6, 2013
Stephen Robinson   53   Chief Financial Officer   December 12, 2012
        Chief Accounting Officer   December 12, 2012
        Treasurer   December 12, 2012
        Secretary   December 12, 2012
        Director   December 12, 2012

 

Term of Office

 

Our directors and executive officers hold office until the earlier of their death, resignation, removal or until their successors have been duly elected and qualified.  Our executive officers are employed by us on full time basis and are appointed by the board of directors and serve at the discretion of the board, subject to the provisions of the employment and consulting agreements referred to under “Item 11. Executive Compensation—Employment and Consulting Agreements.” There are no family relationships among our directors and executive officers.

 

Agreements and Understandings

 

Our executive officers have entered into employment or consulting contracts with. The terms and conditions of those agreements are described under “Item 11. Executive Compensation—Employment and Consulting Agreements.” Except as disclosed under “Item 11. Executive Compensation—Employment and Consulting Agreements,” there are no arrangements or understandings between any of our directors and officers, and any other person, pursuant to which he serves as our officer or director.

 

The business experience during the past five years of our directors and executive officers is as follows:

 

Stephen Robinson —Prior to the Share Exchange, Mr. Robinson served as the chief financial officer of the SurePure group of companies since January 2008. Mr. Robinson also is a member of the board of directors of each of the companies in the SurePure group. Mr. Robinson’s role incorporates the following key areas of responsibility: finance and accounting support, legal and compliance; governance and operational support.

 

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Mr. Robinson is a Chartered Accountant and attained his Bachelor of Accounting degree from the University of the Witwatersrand in South Africa in 1989. He has been registered with the South African Institute of Chartered Accountants since 1990. Mr. Robinson has over 20 years of financial executive experience in the mining and technology sectors during which he acquired wide ranging financial and general management skills honed in international corporate and medium sized companies in the Technology, Mining, Manufacturing, Logistics and Shared Service sectors. From September 2004 through July 2007, Mr. Robinson was employed as group finance manager for the Trans Hex Group Ltd., a South African diamond mining company.

 

Mr. Robinson was appointed as a member of the board of directors due to his strong experience in management, structuring and finance planning of international businesses. In addition to his extensive familiarity with SurePure group of companies, he had been employed by Samancor (then part of the BHP Billiton Group) for ten years where he became group finance manager and was involved with international joint ventures, corporate treasury and international reporting, as well as the corporate governance and risk management portfolios. For two years, he was employed by the largest mining section in the Anglo Platinum Group to develop and manage a multidisciplinary services unit, which deployed logistical, engineering, financial and human resources support to four key operating units accounting for a substantial portion of Anglo Platinum’s outputs. Mr. Robinson is a citizen of the United Kingdom and a resident of Switzerland.

 

Guy Kebble —Prior to the Share Exchange, Mr. Kebble served as the chief executive officer and a director of SPHSA and SPMSA since the inception of the SurePure business in 2005, both of which companies are variable interest entities of SurePure US. Mr. Kebble’s role at SurePure incorporates the following key areas of responsibility: shareholder interaction, strategic development, brand and market assessment, key stakeholder relationships and team building.

 

Mr. Kebble began his career in 1990 working for Natal Rugby Union as a professional rugby player. From 1996 to 2004 he managed private property portfolio managed investments. His involvement as a financier in the South African mining business led to the SurePure technology being brought forward as a project. Mr. Kebble is a citizen and resident of South Africa. His enthusiasm, passion and drive have been instrumental in bringing the technology to the current stage of technical development and market awareness. These qualifications, among others, led to the conclusion that Mr. Kebble should serve as a member of our board of directors.

 

Family Relationships

 

None of our officers or directors is related to any other officer or director.

 

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Involvement in Certain Legal Proceedings

 

During the past ten years no director, executive officer, promoter or control person of SurePure US, SPI or any of their subsidiaries, and no person who became a director of SurePure US in December 2012 or January 2013, has:

 

·been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
·been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
·been found by a court of competent jurisdiction in a civil action or by the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
·been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
·been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Procedures for Security Holders to Nominate Candidates to the Board of Directors

 

During 2016, there were no changes made to the procedures by which shareholders may nominate candidates to our board of directors. The full board of directors will consider all director candidates nominated by shareholders during such times as the Company is actively considering appointment of new directors.  Candidates recommended by shareholders will be evaluated based on the same criteria described above.  Shareholders desiring to suggest a candidate for consideration should send a letter to the Company’s Corporate Secretary and include:

 

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·a statement that the writer is a shareholder (providing evidence if the person’s shares are held in street name) and is proposing a candidate for consideration;
·the name and contact information for the candidate;
·a statement of the candidate’s business and educational experience;
·information regarding the candidate’s qualifications to be director, including but not limited to an evaluation of the factors discussed above which the board would consider in evaluating a candidate;
·information regarding any relationship or understanding between the proposing shareholder and the candidate;
·information regarding potential conflicts of interest; and
·a statement that the candidate is willing to be considered and willing to serve as director if nominated and elected.

 

There is no assurance that all shareholder proposed candidates will be fully considered, that all candidates will be considered equally, or that the proponent of any candidate or the proposed candidate will be contacted by the Company or the board, and no undertaking to do so is implied by the willingness to consider candidates proposed by shareholders.

 

Our bylaws do not set forth procedures by which our shareholders may recommend nominees to our board of directors.

 

Director Independence

 

We are not currently a “listed company” under the rules of the Commission and are therefore not required to have a board comprised of a majority of independent directors or separate committees comprised of independent directors.  We do not have any independent directors. We use the definition of “independence” under Rule 5605 of the Nasdaq Stock Market Rules, as applicable and as may be modified or supplemented from time to time and the interpretations thereunder, to determine if the members of our board are independent.  In making this determination, our board considers, among other things, transactions and relationships between each director and his immediate family and the Company, including those described under “Item 11. Executive Compensation.” The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent.

 

Board Committees

 

As of the date of this annual report on Form 10-K, we do not have any board committees. We may in the future adopt certain board committees, although we cannot assure you when or if this will occur. Accordingly, the descriptions below are for informational purposes only.

 

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Audit Committee

 

We do not have an Audit Committee.

 

Executive Compensation, and Director Nomination and Corporate Governance Function

 

We do not have a compensation committee, nominating or corporate governance committee.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Executive officers, directors and certain persons who own more than 10% of our outstanding Common Stock are required by Section 16(a) of the Exchange Act to file with the Commission an initial report of ownership of our Common Stock on Form 3 and reports of change s in ownership on Form 4 or Form 5, and such persons are required to furnish us with copies of all such forms that they file.  We believe that all such Section 16(a) reports were filed on a timely basis in 2016. .

 

Code of Ethics

 

We have a Code of Ethics and Business Conduct (the “Code”) that applies to all directors, officers and employees, which will be posted on our website or can be obtained by writing to us at 405 Lexington Avenue, 25 th /26 th Floor, New York, New York 10174 c/o Corporate Secretary.  All of our directors, officers and employees are expected to be familiar with the Code and to adhere to those principles and procedures set forth in the Code that apply to them.  The Company will post any amendments to the Code, as well as any waivers that are required to be disclosed by the rules of the Commission, on the Company’s web site.

 

Item 11. EXECUTIVE COMPENSATION

 

In determining executive compensation, we consider the skills and added value of the individuals concerned, as well as relative cost of living and the statutory requirements in the jurisdiction in which the individual provides his services. Since our executives provide their services to various of our subsidiaries, in some cases we use separate employment contracts.

 

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Summary Compensation Table

 

The following table sets forth, for the periods indicated, all of the compensation awarded to, earned by or paid to (i) each individual serving as a principal executive officer of SurePure or any of the subsidiaries or related operating entities of SurePure during our last completed fiscal year; and (ii) each other individual that served as an executive officer or significant employee of SurePure or any of the subsidiaries or related operating entities of SurePure at the conclusion of the fiscal year ended December 31, 2015 and who received in excess of $100,000 in compensation during such fiscal year (collectively, the “named executive officers”).

  

Name and Principal             Option     
Position  Year  Salary   Bonus   Awards   Total 
Guy R. Kebble,  2016  $215,414   $-   $-   $215,414 
Director, President and Chief Executive Officer (1)  2015  $225,648   $-   $-   $225,648 
                        
Stephen M. Robinson,  2016  $328,912   $-    -   $328,192 
Director and Chief Financial Officer (2)  2015  $343,134   $-   $-   $343,134 

 

(1)Has served as chief executive officer of the companies controlled by SPI and as Chairman of SPMSA since January 1, 2010.
(2)Has served as chief financial officer of the companies controlled by SPI and as the sole director of SPI, SPO and SPP and as a director of SPMSA and SPHSA since January 1, 2008.

 

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Employment and Consulting Agreements

 

Guy Kebble and SPMSA entered into an updated Service Agreement dated July 1, 2012, under which SPMSA appointed Mr. Kebble as a permanent employee in the position of chief executive officer. The appointment is of indefinite duration, but may be terminated either by the employer or by Mr. Kebble on not less than three months’ prior written notice to the other and may also be summarily terminated by the employer if the executive commits a material breach of his contractual obligations under the agreement or in any circumstances justifying such termination at law. At the end of 2016 the consulting arrangement was modified such that Mr. Kebble’s services are being rendered solely to SPO. This modification became effective as of July 1, 2015. As chief executive officer, Mr. Kebble reports to the board of directors. His compensation under the agreement is ZAR 960,000 per annum (approximately $63,000) and is to be reviewed annually by the board of directors with a view to granting inflation-related or other increases. Mr. Kebble is also to be reimbursed for expenses incurred on behalf of SPMSA. The agreement provides for 20 days of vacation per year.

 

Mr. Kebble also has entered into an updated Consulting Agreement with SPO, dated January 1, 2012, under which he provides his services as an independent contractor to develop markets globally for those products and services marketed by SPO and to provide such other assistance to SPO as agreed with the directors of SPO from time to time. Under this agreement, Mr. Kebble has agreed to serve as the chief executive officer of SurePure US and its subsidiaries. Effective January 1, 2015, Mr. Kebble’s remuneration from SPO is $150,000 per annum payable in equal monthly installments. Either party to the consulting agreement may terminate it for convenience on three months’ prior written notice. SPO has the right to terminate the agreement for cause with immediate notice. The agreement further provides that during the term of the agreement and for one year after the completion of his services to SPO, Mr. Kebble will not provide any services relating to the products or services of SPO to its clients. The agreement further provides that Mr. Kebble may not disclose any of SPO’s confidential information or other trade secrets and may not solicit or contact any employee, advisor or other individual working on behalf of clients in connection with SPO’s products or services for the purpose of obtaining or executing new work for the same 12-month period. The agreement is governed by Swiss law.

 

Stephen Robinson entered into an Employment Agreement with SPO, dated July 1, 2012, under which he is employed as the chief financial officer of SPO. In performing his duties, Mr. Robinson reports to the chief executive officer and board of directors of SPO. His duties are to be determined by the board of directors and include those normally associated with the position of chief financial officer. Subject to provisions of applicable law which permit termination for cause, Mr. Robinson’s appointment may be terminated either by SPO or by Mr. Robinson on not less than three months’ prior written notice to the other. Effective January 1, 2015 Mr. Robinson’s remuneration from SPO is CHF 318,000 (approximately $320,000) per annum payable in equal monthly installments and is to be reviewed annually by the board of directors with a view to granting inflation-related or other increases. In addition, the employer agrees to make contributions for social security and other compulsory expenses, plus the cost of certain airfare, and other local travel expenses in Switzerland. Mr. Robinson also is entitled to receive an allowance of CHF 500 (approximately $500) per month. The agreement further provides that Mr. Robinson may not disclose any of SPO’s confidential information or other trade secrets.

 

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Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information regarding each unexercised option held by each of the named executive officers as of December 31, 2016:

 

Option Awards

 

   Number of
Securities
Underlying
Unexercised
Options
   Number of
Securities
Underlying
Unexercised
Options
   Stock Option   Stock Option
Name  Exercisable   Unexercisable   Exercise Price   Expiration Date
Guy R. Kebble, Director, President and Chief Executive Officer   100,000    -    0.89   11/11/2023
                   
Stephen M. Robinson, Director and Chief Financial Officer   100,000    -    0.89   11/11/2023

 

Each grant of options vests and becomes exercisable as follows: 40% on the date of grant; the next 30% on the first anniversary of the date of grant; and the remaining 30% on the second anniversary of the date of grant. The exercise price of each option is $0.89 per share which was the fair market value of our Common Stock, as ascertained by our Board of Directors.

 

2012 Stock Plan

 

In December of 2012, our directors and a majority of our shareholders, acting by written consent, approved the 2012 Stock Plan. We have reserved 3,000,000 shares of our Common Stock for future issuance under the 2012 Stock Plan, of which 475,000 shares are subject to outstanding grants of options.

 

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The 2012 Stock Plan authorizes the granting of non-qualified stock options to our directors and to any independent consultants.  The Plan will be administered by our board, or a committee appointed by our board (in either case, 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.  Our board may suspend or terminate the Plan at any time.

 

The Plan provides that the determination of the option price per share for any option rests in the sole and unfettered 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 Committee may establish installment exercise terms for an option such that the option becomes fully exercisable in a series of accumulating portions. The Committee may also accelerate the exercise of any option. Options may be exercised by delivery of a written notice of exercise and payment of the full price of the Common Stock underlying the option. The exercise price of an option may be paid in cash, or, at the discretion of the Committee, through the delivery of fully paid and nonassessable shares of Common Stock having an aggregate fair market value as of the date of exercise equal to the option price, or by a combination of both. The Committee has the right to determine acceptable methods for tendering shares of Common Stock as payment upon exercise and may impose such limitations and prohibitions on the use of Common Stock to exercise an option as it deems appropriate. With the consent of the optionee, the Committee may cancel any options issued under the Plan and issue a new option to the optionee. Except by will or the laws of descent and distribution, or with the written consent of the Committee, no optionee may assign his interest in any option and no interest of any optionee in a stock option may become subject to any lien or obligation of the optionee. Options shall be exercisable during the optionee's lifetime only by the optionee or his assignees or by the duly appointed legal representative of an incompetent optionee or after the optionee's lifetime only by the duly appointed legal representative of the deceased optionee.

 

If the Company becomes a party to any merger, consolidation, reorganization or sale of assets, each outstanding option applies to the securities or property which a holder of the Company’s Common Stock be entitled to receive pursuant to such transaction. Whenever a change in control occurs, certain optionees are entitled to receive, in lieu of the exercise of their options, a cash payment equal to the difference between the exercise price of the option and the final offer price per share paid for common stock or such lower price as the Committee may determine to conform an option to preserve its status or the aggregate fair market value of the Common Stock underlying the stock options.

 

At any time and from time to time 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.

 

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Each option granted under the plan is to be embodied in a written stock option agreement and shall be signed by the optionee and an officer of the Company. Option agreements are to be subject to applicable provisions of the Plan and such other provisions as the Committee may adopt.

 

The Plan terminates on December 9, 2022.

 

Director Compensation

 

We have not yet determined any policy for the payment of compensation to our directors in their capacities as directors. Our directors received no compensation in their capacity as such during 2015 or 2016. We may make grants of options from time to time under the 2012 Stock Plan to our directors in addition to those grants made in November 2013.

 

Our directors have been, and will continue to be, reimbursed for the reasonable out-of-pocket costs incurred by them in connection with travel to and from board meetings.

 

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Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table summarizes certain information regarding the beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of our outstanding Common Stock as of December 31, 2016 by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding Common Stock, (ii) each of our directors, (iii) each of our named executive officers (as defined in Item 402(m) of Regulation S-K under the Securities Act), and (iv) all executive officers and directors as a group.  Shares of our common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of the date of the Share Exchange are deemed to be beneficially owned and outstanding for purposes of computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person.  An asterisk (*) denotes less than 1%.

 

Name of Beneficial Owner  Number of Shares
Beneficially Owned (1)
   Percent Beneficially Owned (1) 
         
Estate of Roger Kebble
P.O. Box 166
Rondebosch, Cape Town, South Africa, 7700
Norman J. Osburn and Colin Kenneth Hickling, as Executors
   8,494,386    12.00%
           
Guy Kebble
P.O. Box 71
Milnerton
Cape Town
South Africa, 7435
   5,326,699(2)   7.51%
           
Stephen Robinson
Dammstrasse 19, CH-6301,
Zug, Switzerland
   8,465,645(3)   11.93%
All Officers and Directors as a Group   13,792,344    19.44%

 

  (1) Based on the sum of (a) 70,841,796 shares issued and outstanding as of December 31, 2016, and (b) as to each listed beneficial owner, any additional rights to acquire shares of our Common Stock that are exercisable within the 60 days after December 31, 2016.
     
  (2) Includes options to purchase 100,000 shares of our Common Stock granted to Mr. Kebble under our 2012 Stock Plan, which are currently exercisable.
     
  (3) Includes options to purchase 100,000 shares of our Common Stock granted to Mr. Robinson under our 2012 Stock Plan, which are currently exercisable.

 

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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Transactions with Related Persons

 

Transactions with Trinity and Affiliates

 

We believe that during 2013 and parts of 2014 Trinity was the beneficial owner of 7,246,000, or 17.5%,   of the shares of our Common Stock as of December 31, 2013, after including as beneficially owned 900,000 shares of our Common Stock referred to under “Item 13. Certain Relationships and Related Transactions—Transactions with Trinity Asset Management Limited and Affiliates—TAMIL Share Purchase Agreement.” See “Item 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters.” We now believe that because of changes to its authority to vote and dispose of shares of our Common Stock, it no longer beneficially owns 5% or more of shares of our Common Stock.

 

Consulting and Employment Agreements

 

For a more complete discussion of those agreements under which our directors and officers provide their services, see “Item 11. Executive Compensation—Employment and Consulting Agreements.”

 

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Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Commencing March 2, 2016 RBSM LLP (“RBSM”) was engaged to serve as our independent registered public accounting firm for the fiscal year ended December 31, 2015.

 

RSSM CPA LLP (“RSSM”), formerly known as Rosen Seymour Shapss Martin & Company LLP, served as our independent registered public accounting firm for the fiscal years ended December 31, 2012, 2013 and 2014. RSSM served as the independent certified public accounting firm for SPI for 2011 and 2012. Total principal accounting fees for professional services rendered by RBSM for the twelve months ended December 31, 2016 and December 31, 2015 and by RSSM for the twelve months ended December 31, 2015 and December 31, 2014, are summarized as follows:

 

RBSM  Fiscal
2016
   Fiscal
2015
 
         
Audit  $65,000   $ 
Tax   15,000     
Total  $80,000   $ 

 

RSSM  Fiscal
2015
   Fiscal
2014
 
         
Audit  $126,400   $117,500 
Tax        
Total  $126,400   $117,500 

 

Audit Fees .   RBSM’s audit fees billed during 2016 were for professional services rendered in connection with the audit of SurePure’s 2015 consolidated financial statements, reviews of registration statements that we filed in 2016 and RBSM’s reviews of our quarterly financial statements during 2015. RSSM’s 2014 audit fees billed during 2015 were for professional services rendered in connection with the audit of SurePure’s 2014 consolidated financial statements included in our annual report on Form 10-K for 2014, reviews of registration statements that we filed in 2015 and RSSM’s reviews of our quarterly financial statements during 2015.

 

Tax Fees .  Other than $15,000 in fees paid to RBSM in 2016, there were no tax fees for professional services related to tax compliance, tax advice and tax planning within the United States that were paid to either RBSM or RSSM in either 2015 or 2016.

 

Board of Directors Pre-Approval Policies and Procedures . At its regularly scheduled meetings, the board of directors, in lieu of an established audit committee, considers and pre-approves any audit and non-audit services to be performed by our independent registered public accounting firm. The board of directors has the authority to grant pre-approvals of non-audit services.

 

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The board of directors has not, as of the time of filing this annual report on Form 10-K with the Commission, adopted policies and procedures for pre-approving audit or permissible non-audit services performed by our independent auditors. Instead, the board of directors as a whole has pre-approved all such services. In the future, our board of directors may approve the services of our independent registered public accounting firm pursuant to pre-approval policies and procedures adopted by the board of directors, provided the policies and procedures are detailed as to the particular service, the board of directors is informed of each service, and such policies and procedures do not include delegation of the board of director’s responsibilities to our management.

 

The board of directors determined that the provision of services by RBSM described above is compatible with maintaining RBSM’s independence at our independent registered public accounting firm.

 

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Part IV

 

Item 15.  Exhibits and Financial Statement Schedules.

 

Financial Statement Schedules

 

Required information is included in the footnotes to the Consolidated Financial Statements.

 

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EXHIBIT INDEX

Exhibit
No.
  Description
3.1   Articles of Incorporation of SurePure, Inc., as amended.  (1)
     
3.2   Bylaws of SurePure, Inc.   (2)
     
10.2   Amended and Restated Share Exchange Agreement, dated December 12, 2012, by and among SurePure, Inc. (formerly SOEFL Inc.), XOptics (PTY) Limited and the holders of all shares in SurePure Investment Holdings AG (3)
     
10.3   Acquisition Agreement, dated August 16, 2012, between SurePure Investment Holding AG and SurePure Holdings South Africa (Pty) Ltd.  (3)
     
10.4   Amendment to Acquisition Agreement, dated November 26, 2012  (3)
     
10.5   2012 Nonqualified Stock Option Plan. (3)
     
10.6   Subscription Agreement, dated July 23, 2012, between SurePure Investment Holding AG and Trinity Investment Management (Pte) Limited. (3)
     
10.7   Termination Letter, dated November  22, 2012, from SurePure Investment Holding AG to Trinity Investment Management (Pte) Limited. (3)
     
10.8   Employment Agreement dated July 1, 2012, between SurePure Marketing South Africa Ltd. and Guy Kebble. (3)
     
10.9   Consulting Agreement, dated July 1, 2012, between SurePure Operations AG and Guy Kebble. (3)
     
10.10   Employment Agreement, dated July 1, 2012, between SurePure Operations AG and Stephen Robinson. (3)
     
10.11   Employment Agreement dated July 1, 2012, between SurePure Marketing South Africa Ltd. and Stephen Miller. (3)
     
10.12   Consulting Agreement, dated July 1, 2012, between SurePure Operations AG and Stephen Miller. (3)
     
10.13   Agreement of Lease dated February 8, 2012, between Anglo African Development (Pty) Ltd. and SurePure Marketing South Africa (Pty) Ltd., effective March 1, 2012 until February 28, 2014, for the premises located at One Lagoon Beach, Unit 204, Lagoon Beach Milnerton, South Africa. (3)

 

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10.14   Memorandum of Agreement of Lease, dated April 25, 2012, between HY Jack Property Holdings CC and SurePure Marketing South Africa Ltd., effective May 1, 2008, for the premises located at 4 Acteon Street, Unit 2, Paarden Eiland, South Africa. (3)
     
10.15   Agreement of Extension of Lease, dated April 19, 2012, between HY Jack Property Holdings CC and SurePure Marketing South Africa Ltd, effective January 5, 2012 until November 11, 2012, for the premises located at 4 Acteon Street, Unit 2, Paarden Eiland, South Africa. (3)
     
10.17   Form of Indemnification Agreement. (3)
     
10.18   Subscription Agreement, dated November 26, 2012, between SurePure Investment Holding AG and RD Active Capital Limited. (4)
     
10.19   Share Purchase Agreement, dated May 24, 2013, between SurePure, Inc. and Trinity Asset Management (Proprietary) Ltd. (5)
     
10.20   Waiver under the Share Purchase Agreement, dated May 24, 2013, between SurePure, Inc. and Trinity Asset Management (Proprietary) Ltd. (6)
     
10.21   Share Purchase Agreement, dated as of July 25, 2013, between SurePure, Inc. and MinAurum Limited. (7)
     
10.22   Registration Rights Agreement, dated as of July 25, 2013, between SurePure, Inc. and MinAurum Limited. (7)
     
10.23   Share Purchase Agreement, dated as of July 25, 2013, between SurePure, Inc. and Regency Capital Corporation. (7)
     
10.24   Registration Rights Agreement, dated as of July 25, 2013, between SurePure, Inc. and Regency Capital Corporation. (7)
     
10.25   Share Purchase Agreement, dated as of September 19. 2013, between SurePure, Inc. and Trinity Asset Management International Limited (8)
     
10.26   Registration Rights Agreement, dated as of September 19. 2013, between SurePure, Inc. and Trinity Asset Management International Limited. (8)
     
10.27   Share Purchase Agreement, dated as of October 25, 2013, between SurePure, Inc. and Regency Capital Corporation. (9)
     
10.28   Amendment, dated as of November 7, 2013, to the Share Purchase Agreement, dated as of September 19. 2013, between SurePure, Inc. and Trinity Asset Management International Limited. (10)

 

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10.29   Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation  (11)
     
10.30   Amendment, dated February 13, 2014, to the Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation (13)
     
10.31   Second Amendment, dated March 19, 2014, to the Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation (14)
     
10.32   Agreement for the Subscription of Shares, dated as of May 20, 2014, between SurePure, Inc. and Trinity Asset Management (Proprietary) Limited (15)
     
10.33   Lease Agreement, dated May 20, 2014, between Southern African Landmark Properties CC and SurePure Marketing South Africa (Pty) Ltd. (15)
     
10.34   Third Amendment, dated June 26, 2014, to the Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation (16)
     
10.35   Securities Purchase Agreement, dated June 23, 2014, between the Company and Peak One (17)
     
10.36   Debenture, issued June 23, 2014 by the Company to Peak One (17)
     
10.37   Registration Rights Agreement, dated June 23, 2014, between the Company and Peak One (17)
     
10.38   Guaranty Agreement, dated June 23, 2014, among SurePure Investment Holdings, AG, SurePure Operations, AG, SurePure Participations, AG, SurePure Holdings South Africa (Pty) Limited, SurePure Marketing South Africa (Pty) Limited and Peak One (17)
     
10.39   Amendment, dated July 24, 2014, to the Agreement for the Subscription of Shares, dated as of May 20, 2014, between SurePure, Inc. and Trinity Asset Management (Proprietary) Limited (18)
     
10.40   Loan Agreement, dated as of July 6, 2015, between SurePure Marketing South Africa Pty. Ltd. and Guy R. Kebble (18)
     
10.41   Agreement, dated August 7, 2015, by and among SurePure, Inc., SurePure Operations AG and SurePure Marketing South Africa Pty. Ltd., and Guy Kebble (19)
     
10.42   Agreement, dated August 7, 2015, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (19)
     
10.43   Agreement, dated August 7, 2015, by and among SurePure, Inc., SurePure Operations AG and Christophe Jovenieaux (19)
     
10.44   Share Purchase Agreement, dated August 10, 2015, between SurePure, Inc. and M Cubed Holdings Limited (20)
     
10.45   Agreement, dated November 16, 2015, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (21)
     
10.46   Agreement, dated November 16, 2015, between SurePure, Inc. and ProActive Capital Resources Group, LLC (21)
     
10.47   Agreement, dated November 16, 2015, between SurePure, Inc. and Steven Miller (21)
     
10.48   Securities Purchase Agreement, dated February 11, 2016, between the Company and SBI Investments LLC, 2014-1 (22)
     
10.49   Promissory Note, dated February 11, 2016, by the Company to SBI Investments LLC, 2014-1 (22)
     
10.50   Irrevocable Transfer Agent Instructions, dated February 11, 2016, from the Company to VStock Transfer LLC (22)
     
10.51   Amendment No. 1 to Promissory Note, dated August 1, 2016, between the Company and SBI Investments LLC, 2014-1 (23).
     
10.52   Agreement, dated August 22, 2015, by and among SurePure, Inc., SurePure Operations AG and SurePure Marketing South Africa Pty. Ltd., and Guy Kebble (24)
     
10.53   Agreement, dated August 22, 2015, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (24)
     
10.54   Agreement, dated August 22, 2015, by and among SurePure, Inc., SurePure Operations AG and Christophe Joveniaux (24)

 

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10.55   Agreement, dated August 22, 2015, by and among SurePure, Inc. and ProActive Capital Resources Group LLC (24)
     
10.56   Amendment No. 2 to Promissory Note, dated November 17, 2016, between the Company and SBI Investments LLC, 2014-1 (25).
     
10.57   Amendment No. 2 Fee Letter, dated November 17, 2016, between the Company and SBI Investments LLC, 2014-1(25)
     
10.58   Agreement, dated December 30, 2016, by and among SurePure, Inc., SurePure Operations AG and SurePure Marketing South Africa Pty. Ltd., and Guy Kebble (26)
     
10.59   Agreement, dated December 30, 2016, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (26)
     
10.60   Agreement, dated December 30, 2016, by and among SurePure, Inc., SurePure Operations AG and Christophe Joveniaux (26)
     
16.2   Letter from Seale & Beers, CPAs, dated December 21, 2012, to the Securities and Exchange Commission (12)

 

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31.1*   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2*   Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1**   Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2**   Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101*   The following materials from SurePure, Inc. Form 10-K for the year ended December 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) Audited Consolidated Balance Sheets at December 31, 2016 and 2015, (ii) Audited Consolidated Statements of Operations for the years ended December 31, 2016 and 2015, (iii) Audited Consolidated Statements of Other Comprehensive Income (Loss) for the years ended December 31, 2016 and 2015, (iv) Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2016 and 2015, and (v) Audited Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015 and (v) Notes to Consolidated Financial Statements.

 

 

 

    (1)  Incorporated by reference from Exhibit 3 to Form S-1 filed on March 23, 2009, Exhibit 3.1 to Form 8-K filed on July 29, 2011 and Exhibit 3.3 to Form 8-K filed on December 16, 2011.
     
    (2)  Incorporated by reference to Exhibit 3.2 to the registration statement of SOEFL Inc. on Form S-1, as filed with the Securities and Exchange Commission on March 23, 2009.   
     
    (3)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 12, 2012.
     
    (4)  Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2013.
     
    (5)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 29, 2013
     
    (6)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2013.
     
    (7)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 5, 2013.
     
    (8)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 26, 2013

 

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    (9)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on October 30, 2013
     
    (10)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 12, 2013
     
    (11)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 25, 2013
     
    (12)  Incorporated herein by reference to the Company’s Current Report on Form 8-K/A filed with the Commission on December 21, 2012.
     
    (13)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on February 18, 2014.
     
    (14)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 25, 2014.
     
    (15)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 22, 2014.
     
    (16)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2014.
     
    (17) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 27, 2014.
     
    (18)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 8, 2015.
     
    (19)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 11, 2015.
     
    (20)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 13, 2015.
     
    (21)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 19, 2015.
     
    (22)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on February 12, 2016.
     
    (23)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 3, 2016.
     
    (24)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 25, 2016.
     
    (25)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 21, 2016.
     
    (26)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2017.
     
    * Filed herewith
     
    ** Furnished herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
     
/s/ Guy R. Kebble   Chief Executive Officer; Director   May 15, 2017
Guy R. Kebble   (Principal Executive Officer)    
     
/s/ Stephen M. Robinson   Chief Financial Officer; Director   May 15, 2017
Stephen M. Robinson  

(Principal Financial Officer and Principal Accounting Officer)

   

 

EXHIBIT INDEX

 

The following exhibits are filed as part of, or are incorporated by reference into, this annual report on Form 10-K:

 

Exhibit
No.
  Description
3.1   Articles of Incorporation of SurePure, Inc., as amended.  (1)
     
3.2   Bylaws of SurePure, Inc.   (2)
     
10.2   Amended and Restated Share Exchange Agreement, dated December 12, 2012, by and among SurePure, Inc. (formerly SOEFL Inc.), XOptics (PTY) Limited and the holders of all shares in SurePure Investment Holdings AG (3)
     
10.3   Acquisition Agreement, dated August 16, 2012, between SurePure Investment Holding AG and SurePure Holdings South Africa (Pty) Ltd.  (3)
     
10.4   Amendment to Acquisition Agreement, dated November 26, 2012  (3)
     
10.5   2012 Nonqualified Stock Option Plan. (3)
     
10.6   Subscription Agreement, dated July 23, 2012, between SurePure Investment Holding AG and Trinity Investment Management (Pte) Limited. (3)
     
10.7   Termination Letter, dated November  22, 2012, from SurePure Investment Holding AG to Trinity Investment Management (Pte) Limited. (3)
     
10.8   Employment Agreement dated July 1, 2012, between SurePure Marketing South Africa Ltd. and Guy Kebble. (3)
     
10.9   Consulting Agreement, dated July 1, 2012, between SurePure Operations AG and Guy Kebble. (3)
     
10.10   Employment Agreement, dated July 1, 2012, between SurePure Operations AG and Stephen Robinson. (3)
     
10.11   Employment Agreement dated July 1, 2012, between SurePure Marketing South Africa Ltd. and Stephen Miller. (3)
     
10.12   Consulting Agreement, dated July 1, 2012, between SurePure Operations AG and Stephen Miller. (3)
     
 10.13   Agreement of Lease dated February 8, 2012, between Anglo African Development (Pty) Ltd. and SurePure Marketing South Africa (Pty) Ltd., effective March 1, 2012 until February 28, 2014, for the premises located at One Lagoon Beach, Unit 204, Lagoon Beach Milnerton, South Africa. (3)
     
10.14   Memorandum of Agreement of Lease, dated April 25, 2012, between HY Jack Property Holdings CC and SurePure Marketing South Africa Ltd., effective May 1, 2008, for the premises located at 4 Acteon Street, Unit 2, Paarden Eiland, South Africa. (3)
     
10.15   Agreement of Extension of Lease, dated April 19, 2012, between HY Jack Property Holdings CC and SurePure Marketing South Africa Ltd, effective January 5, 2012 until November 11, 2012, for the premises located at 4 Acteon Street, Unit 2, Paarden Eiland, South Africa. (3)

 

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10.17   Form of Indemnification Agreement. (3)
     
10.18   Subscription Agreement, dated November 26, 2012, between SurePure Investment Holding AG and RD Active Capital Limited. (4)
     
10.19   Share Purchase Agreement, dated May 24, 2013, between SurePure, Inc. and Trinity Asset Management (Proprietary) Ltd. (5)
     
10.20   Waiver under the Share Purchase Agreement, dated May 24, 2013, between SurePure, Inc. and Trinity Asset Management (Proprietary) Ltd. (6)
     
10.21   Share Purchase Agreement, dated as of July 25, 2013, between SurePure, Inc. and MinAurum Limited. (7)
     
10.22   Registration Rights Agreement, dated as of July 25, 2013, between SurePure, Inc. and MinAurum Limited. (7)
     
10.23   Share Purchase Agreement, dated as of July 25, 2013, between SurePure, Inc. and Regency Capital Corporation. (7)
     
10.24   Registration Rights Agreement, dated as of July 25, 2013, between SurePure, Inc. and Regency Capital Corporation. (7)
     
10.25   Share Purchase Agreement, dated as of September 19. 2013, between SurePure, Inc. and Trinity Asset Management International Limited (8)
     
10.26   Registration Rights Agreement, dated as of September 19. 2013, between SurePure, Inc. and Trinity Asset Management International Limited. (8)
     
10.27   Share Purchase Agreement, dated as of October 25, 2013, between SurePure, Inc. and Regency Capital Corporation. (9)
     
10.28   Amendment, dated as of November 7, 2013, to the Share Purchase Agreement, dated as of September 19. 2013, between SurePure, Inc. and Trinity Asset Management International Limited. (10)
     
10.29   Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation  (11)
     
10.30   Amendment, dated February 13, 2014, to the Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation (13)
     
10.31   Second Amendment, dated March 19, 2014, to the Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation (14)
     
10.32   Agreement for the Subscription of Shares, dated as of May 20, 2014, between SurePure, Inc. and Trinity Asset Management (Proprietary) Limited (15)
     
10.33   Lease Agreement, dated May 20, 2014, between Southern African Landmark Properties CC and SurePure Marketing South Africa (Pty) Ltd. (15)
     
10.34   Third Amendment, dated June 26, 2014, to the Share Purchase Agreement, dated as of November 22, 2013, between SurePure, Inc. and Regency Capital Corporation (16)
     
10.35   Securities Purchase Agreement, dated June 23, 2014, between the Company and Peak One (17)
     
10.36   Debenture, issued June 23, 2014 by the Company to Peak One (17)
     
10.37   Registration Rights Agreement, dated June 23, 2014, between the Company and Peak One (17)
     
10.38   Guaranty Agreement, dated June 23, 2014, among SurePure Investment Holdings, AG, SurePure Operations, AG, SurePure Participations, AG, SurePure Holdings South Africa (Pty) Limited, SurePure Marketing South Africa (Pty) Limited and Peak One (17)
     
10.39   Amendment, dated July 24, 2014, to the Agreement for the Subscription of Shares, dated as of May 20, 2014, between SurePure, Inc. and Trinity Asset Management (Proprietary) Limited (18)
     
10.40   Loan Agreement, dated as of July 6, 2015, between SurePure Marketing South Africa Pty. Ltd. and Guy R. Kebble (18)
     
10.41   Agreement, dated August 7, 2015, by and among SurePure, Inc., SurePure Operations AG and SurePure Marketing South Africa Pty. Ltd., and Guy Kebble (19)

 

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10.42   Agreement, dated August 7, 2015, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (19)
     
10.43   Agreement, dated August 7, 2015, by and among SurePure, Inc., SurePure Operations AG and Christophe Jovenieaux (19)
     
10.44   Share Purchase Agreement, dated August 10, 2015, between SurePure, Inc. and M Cubed Holdings Limited (20)
     
10.45   Agreement, dated November 16, 2015, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (21)
     
10.46   Agreement, dated November 16, 2015, between SurePure, Inc. and ProActive Capital Resources Group, LLC (21)
     
10.47   Agreement, dated November 16, 2015, between SurePure, Inc. and Steven Miller (21)
     
10.48   Securities Purchase Agreement, dated February 11, 2016, between the Company and SBI Investments LLC, 2014-1 (22)
     
10.49   Promissory Note, dated February 11, 2016, by the Company to SBI Investments LLC, 2014-1 (22)
     
10.50   Irrevocable Transfer Agent Instructions, dated February 11, 2016, from the Company to VStock Transfer LLC (22)
     
10.51   Amendment No. 1 to Promissory Note, dated August 1, 2016, between the Company and SBI Investments LLC, 2014-1 (23).
     
10.52   Agreement, dated August 22, 2015, by and among SurePure, Inc., SurePure Operations AG and SurePure Marketing South Africa Pty. Ltd., and Guy Kebble (24)
     
10.53   Agreement, dated August 22, 2015, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (24)
     
10.54   Agreement, dated August 22, 2015, by and among SurePure, Inc., SurePure Operations AG and Christophe Joveniaux (24)
     
10.55   Agreement, dated August 22, 2015, by and among SurePure, Inc. and ProActive Capital Resources Group LLC (24)
     
10.56   Amendment No. 2 to Promissory Note, dated November 17, 2016, between the Company and SBI Investments LLC, 2014-1 (25).
     
10.57   Amendment No. 2 Fee Letter, dated November 17, 2016, between the Company and SBI Investments LLC, 2014-1(25)
     
10.58   Agreement, dated December 30, 2016, by and among SurePure, Inc., SurePure Operations AG and SurePure Marketing South Africa Pty. Ltd., and Guy Kebble (26)
     
10.59   Agreement, dated December 30, 2016, by and among SurePure, Inc., SurePure Operations AG and Stephen Robinson (26)
     
10.60   Agreement, dated December 30, 2016, by and among SurePure, Inc., SurePure Operations AG and Christophe Joveniaux (26)
     
31.1*   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2*   Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1**   Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2**   Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101*   The following materials from SurePure, Inc. Form 10-K for the year ended December 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at December 31, 2016 and 2015, (ii) Consolidated Statements of Operations for the years ended December 31, 2016 and 2015, (iii) Consolidated Statements of Other Comprehensive Income (Loss) for the years ended December 31, 2016 and 2015, (iv) Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2016 and 2015, and (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016 and (v) Notes to Consolidated Financial Statements.

 

 

 

    (1)  Incorporated by reference from Exhibit 3 to Form S-1 filed on March 23, 2009, Exhibit 3.1 to Form 8-K filed on July 29, 2011 and Exhibit 3.3 to Form 8-K filed on December 16, 2011.
     
    (2)  Incorporated by reference to Exhibit 3.2 to the registration statement of SOEFL Inc. on Form S-1, as filed with the Securities and Exchange Commission on March 23, 2009.   

 

 71 

 

 

    (3)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 12, 2012.
     
    (4)  Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2013.
     
    (5)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 29, 2013.
     
    (6)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2013.
     
    (7)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 5, 2013.
     
    (8)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 26, 2013.
     
    (9)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on October 30, 2013.
     
    (10)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 12, 2013.
     
    (11)  Incorporated by reference to the Company’s Current Report on Form8-K filed with the Commission on November 25, 2013.
     
    (12)  Incorporated herein by reference to the Company’s Current Report on Form 8-K/A filed with the Commission on December 21, 2012.
     
    (13)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on February 18, 2014
     
    (14)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 25, 2014
     
    (15)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 22, 2014
     
    (16)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2014
     
    (17) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 27, 2014.
     
    (18)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 8, 2015.
     
    (19)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 11, 2015.
     
    (20)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 13, 2015.
     
    (21)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 19, 2015.
     
    (22)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on February 21, 2016.
     
    (23)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 3, 2016.
     
    (24)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 25, 2016.
     
    (25)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 21, 2016.
     
    (26)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2017.
     
    * Filed herewith  
     
    ** Furnished herewith

 

 72 

 

 

SUREPURE, INC. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

Years Ended December 31, 2016 and 2015

 

SUREPURE, INC. AND SUBSIDIARIES

 

CONTENTS

 

  Page
   
CONSOLIDATED FINANCIAL STATEMENTS  
   
Report of Independent Registered Public Accountants F-2
   
Consolidated Balance Sheets as of December 31, 2016 and 2015 F-3
   
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015 F-4
   
Consolidated Statements of Other Comprehensive Loss for the years ended December 31, 2016 and 2015 F-5
   
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2016 and 2015 F-6
   
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015 F-7
   
Notes to Consolidated Financial Statements F-8 to F-24

 

 F-1 

 

 

 

805 Third Avenue
New York, NY 10022
212.838-5100
212.838.2676/ Fax
www.rbsmllp.com

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

  

To the Board of Directors and Stockholders

SurePure, Inc. and Subsidiaries

 

We have audited the accompanying consolidated balance sheet of SurePure, Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, other comprehensive loss, changes in stockholders’ deficit and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SurePure, Inc. and Subsidiaries at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for the two years then ended, in conformity with U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 12 to the consolidated financial statements, the Company has incurred recurring operating losses and has a working capital deficiency. Also, as more fully described in Note xx, the Company is in arrears with various governmental authorities in Switzerland. This could result in seizure of the Company’s assets and effectively force a shutdown of its operations which could force liquidation of the entire Company. These conditions among others raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 12. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 

 

 

 

New York, NY

May 15, 2017

 

New York, NY Washington DC Mumbai, India San Francisco, CA Las Vegas, NV Kansas City, KS Beijing, China Athens, Greece

 

Member: ANTEA International with affiliated offices worldwide

 

 F-2 

 

 

SUREPURE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2016 AND DECEMBER 31, 2015

 

   December 31, 2016   December 31, 2015 
         
Assets          
           
Current assets:          
Cash  $439   $5,476 
Prepaid expenses and other current assets   39,728    235,262 
Total current assets   40,167    240,738 
           
Intangible assets, net   62,284    78,954 
           
Total assets  $102,451   $319,692 
           
Liabilities and Stockholders' Deficit          
           
Current liabilities:          
Accounts payable and other current liabilities  $1,345,748   $1,124,104 
Customer deposits   7,098    388,497 
Due to officers   42,475    233,486 
Income taxes payable   466    479 
Loan payable   431,000    - 
           
Total current liabilities   1,826,787    1,746,566 
           
           
Total liabilities   1,826,787    1,746,566 
           
Stockholders' deficit:          
Common stock, $.001 par value, 200,000,000 shares authorized, 70,841,796 shares issued and outstanding at December 31, 2016 (58,533,992 shares issued and outstanding at December 31, 2015)   70,842    58,534 
Preferred stock, $.01 par values, 31,155,282 shares authorized, 12,000,000 shares issued and outstanding at December 31, 2016 (14,800,000 shares issued and outstanding at December 31, 2015)   120,000    148,000 
Additional paid-in capital   33,549,578    32,324,095 
Other comprehensive income   1,044,429    1,064,911 
Accumulated deficit   (36,509,185)   (35,022,414)
Total stockholders' deficit   (1,724,336)   (1,426,874)
           
Total liabilities and stockholders' deficit  $102,451   $319,692 

 

See Notes to Consolidated Financial Statements.

 

 F-3 

 

 

SUREPURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2016 AND 2015

 

   Years Ended 
   December 31, 
   2016   2015 
         
         
Revenue  $1,236,876   $2,454,174 
           
Cost of revenue   921,497    1,274,947 
           
Gross profit   315,379    1,179,227 
           
Expenses:          
General and administrative expenses (includes equity-based compensation of $0 and $43,454 respectively)   1,681,664    1,822,312 
Promotion and marketing   4,151    16,509 
Research and development   27,258    45,701 
Amortization   16,670    16,668 
Total expenses   1,729,743    1,901,190 
           
Loss from operations   (1,414,364)   (721,963)
           
Other income (expense):          
Interest expense (net)   (223,006)   (46,975)
Gain on settlement of debt with issuance of stock   150,599    71,851 
Total other expense   (72,407)   24,876 
           
Loss before provision for taxes   (1,486,771)   (697,087)
           
Provision for income taxes   -    - 
           
Net loss  $(1,486,771)  $(697,087)
           
Loss per share – basic and diluted  $(0.02)  $(0.01)
           
           
Weighted average shares outstanding -basic and diluted   60,493,653    51,316,348 

 

See Notes to Consolidated Financial Statements.

 

 F-4 

 

 

SUREPURE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2016 AND 2015

 

   Years ended 
   December 31, 
   2016   2015 
         
         
Net loss  $(1,486,771)  $(697,087)
           
Other comprehensive income, net of tax          
           
Unrealized gain (loss) on foreign currency translation   (20,482)   65,455 
Comprehensive loss net of tax  $(1,507,253)  $(631,632)

 

See Notes to Consolidated Financial Statements.

 

 F-5 

 

 

SUREPURE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE YEAR ENDED DECEMBER 31, 2016

 

                       Accumulated     
   Common           Additional       Other   Total 
   Shares   Common   Preferred   Paid-in   Accumulated   Comprehensive   Stockholders' 
   Issued   Stock   Stock   Capital   Deficit   Income   Deficit 
                             
December 31, 2014   47,345,816   $47,346   $148,000   $30,570,760   $(34,325,327)  $999,456   $(2,559,765)
                                    
Issuance of common stock to settle liabilities   11,188,176    11,188         1,709,881              1,721,069 
                                    
Equity-based compensation                  43,454              43,454 
                                    
Net (loss) for the year                       (697,087)        (697,087)
                                    
Unrealized loss on foreign currency translation adjustment   -    -    -    -    -    65,455    65,455 
                                    
December 31, 2015   58,533,992    58,534    148,000    32,324,095    (35,022,414)   1,064,911    (1,426,874)
                                    
Issuance of common stock for cash   500,000    500         99,500              100,000 
Issuance of common stock for cash   423,077    423         49,577              50,000 
                                    
Issuance of common stock to settle liabilities   2,716,008    2,716         437,957              440,673 
Issuance of common stock to settle liabilities   4,809,895    4,810         476,660              481,470 
Issuance of common stock to settle liabilities   1,058,824    1,059         136,589              137,648 
                                    
Conversion of preferred stock to common stock   2,800,000    2,800    (28,000)   25,200                
                                    
Net (loss) for the year                       (1,486,771)        (1,486,771)
                                    
Unrealized loss on foreign currency translation adjustment   -    -    -    -    -    (20,482)   (20,482)
                                    
December 31, 2016   70,841,796   $70,842   $120,000   $33,549,578   $(36,509,185)  $1,044,429   $(1,724,336)

 

See Notes to Consolidated Financial Statements.

  

 F-6 

 

 

SUREPURE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2016 AND 2015

 

   Years Ended 
   December 31, 
   2016   2015 
         
Cash from operating activities:          
Net loss  $(1,486,771)  $(697,087)
           
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation and amortization   16,670    16,668 
Non-cash interest expense and loan costs   221,000    46,332 
Non-cash gain on settlement of debt with issuance of stock   (150,599)   (71,851)
Equity-based compensation   -    43,454 
Changes in assets and liabilities:          
Accounts receivable   -    16,800 
Prepaid expenses and other current assets   195,534    171,018 
Accounts payable and other current liabilities   730,108    53,401 
Customer deposits payable   (381,399)   (24,206)
Due to officers   420,915    408,269 
           
Total cash used in operating activities   (434,542)   (37,202)
           
           
Cash from financing activities:          
Proceeds from issuance of equity   150,000    - 
Proceeds from issuance of note   300,000    - 
           
Total cash provided by financing activities   450,000    - 
           
Effect of exchange rate changes on cash   (20,495)   42,152 
           
Net increase / (decrease) in cash   (5,037)   4,950 
           
Cash, beginning of period   5,476    526 
           
Cash, end of period  $439   $5,476 
           
Supplemental disclosures:          
Interest paid  $2,006   $643 
           
Issuance of common stock in settlement of liabilities  $508,464   $114,570 
           
           
Issuance of common stock in settlement of loans  $-   $251,400 
           
Issuance of common stock in settlement of amounts due to officers  $611,926   $1,398,000 

 

See Notes to Consolidated Financial Statements.

 

 F-7 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

1. Organization and Significant Accounting Policies

 

Description of Business

 

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

 

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

 

The Group has developed technology for using shortwave ultraviolet light (“UV-C”) to purify turbid liquids such as wine, fruit juice and milk. Although initially designed to treat food-grade applications, it has successfully been applied to liquids such as dairy products for animal consumption, protein products, bovine blood plasma, water, brines and sugar syrup solutions. The Group holds a patent in 68 countries for this technology. The Group has been engaged in raising capital, continuing research and development of its technologies and developing markets for its products.

 

Basis of Presentation

 

Our accompanying audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Our consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position for periods presented. All such adjustments are of a normal recurring nature. Amounts in our audited consolidated financial statements are, except as otherwise noted, expressed in U.S. Dollars.

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 F-8 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

Basis of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Inter-company items and transactions have been eliminated in consolidation.

 

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

 

·SurePure Investment Holding AG (“SPI”), which wholly-owns SPO;

 

·SurePure Operations AG (“SPO”), which markets the products of the Group and earns its revenue by selling or otherwise distributing equipment utilizing the Group’s technology globally. SPO owns a patent for the Group’s technology in various countries;

 

·SurePure Participations AG (“SPP”), is a minority stockholder of SPI and is part of the common holding structure of the Group. SPP has no operations. SPP became a subsidiary as a result of the Share Exchange on December 12, 2012;

 

·SurePure Holdings South Africa (Pty) Ltd., which holds the South African patent, and its wholly-owned subsidiary, SurePure Marketing South Africa (Pty) Ltd. (“SPMSA”), which sells or otherwise distributes equipment utilizing the Group’s technology in South Africa. These entities became subsidiaries as a result of their acquisition on June 12, 2013; and

 

·SurePure Latin America Maqinas de Purificasao UVC Ltda. (“SPLAM”), which conducts no operations currently and is in the final stages of deregistration.

 

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

 

Adoption of New Accounting Standards

 

The Company has, effective January 1, 2015, early adopted ASU 2014-10 Development Stage Entities which eliminates the requirement to provided Development Stage Entity reporting. As such, the financial statements as presented no longer contain information that aggregates all activities from the date of inception through the reporting date. The adoption of this new standard did not have a material impact on our financial position or results or operations.

 

Use of Estimates

 

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

 

 F-9 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

Income Taxes

 

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

 

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

 

Accounts Receivable

 

Accounts receivable represent amounts due from customers and are carried at original invoice amount less an estimate made for doubtful receivables. The Group establishes a provision for estimated doubtful accounts, if necessary.

 

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 beginning with the acquisition of the patents in 2008. The patents expire in October 2020.

 

 F-10 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

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 either of the years ended December 31, 2016 and 2015.

 

Revenue

 

Revenue is earned from sales or use of equipment that uses the Company’s patented technology and is recognized, net of returns and discounts, when persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured. These criteria are usually met upon completion of delivery and customer acceptance testing of the product by the customer.

 

Major Customers and Accounts Receivable

 

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

 

For the year ended December 31, 2016, 1 customer accounted for 96% of revenue and for the year ended December 31, 2015, 2 customers accounted for 93% of revenue.

 

Shipping and Handling Costs

 

Shipping and handling costs are expensed as cost of goods sold when the related inventory is sold.

 

Research and Development

 

Research and development costs are charged to expense as incurred.

 

Equity-Based Compensation

 

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

 

 F-11 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

 

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 asset and liability accounts on the consolidated balance sheets have been translated using the spot exchange rate in effect at the consolidated balance sheet date. Equity accounts have been translated at their historical rates when the capital transaction occurred. Income and expenses have been translated at the average exchange rates for the periods presented. Adjustments resulting from the translation of the Group’s consolidated financial statements are included in the consolidated statement of other comprehensive income (loss). Actual transaction gains and losses are included in the consolidated statements of operations as incurred.

 

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

 

Applicable functional currencies are:

 

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

 

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

 

   December 31,   December 31, 
   2016   2015 
CHF:        
Reporting date   0.9809    1.0073 
Average for period   1.0151    1.0398 
           
BRL:          
Reporting date   0.3069    0.2523 
Average for period   0.2882    0.3046 
           
ZAR:          
Reporting date   0.0726    0.0643 
Average for period   0.0681    0.0788 

 

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 Notes 5, 6 and 9 of these Notes to Consolidated Financial Statements, the Company has no securities or other contracts to issue shares of Common Stock that could cause any dilution of earnings. In addition, when there is a loss, diluted loss per share is not computed because any potential additional common shares of Common Stock would reduce the reported loss per share and therefore have an anti-dilutive effect.

 

 F-12 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

2. Property and Equipment

 

Property and equipment consists of the following:

 

   December 31,   December 31, 
   2016   2015 
         
         
Machinery and equipment  $5,010   $5,010 
Furniture and fixtures   12,753    12,753 
Motor vehicles   14,400    14,400 
Office and computer equipment   12,647    12,647 
    44,810    44,810 
Less: Accumulated depreciation   44,810    44,810 
           
Property and equipment, net  $-   $- 

 

Property and equipment is fully depreciated, and there was no depreciation expense for the years ended December 31, 2016 and 2015.

 

3. Intangible Assets

 

Intangible assets consist of the following:

 

   December 31,   December 31, 
   2016   2015 
         
         
Patents  $208,943   $208,943 
Less: Accumulated amortization   146,659    129,989 
           
Intangible assets, net  $62,284   $78,954 

 

Amortization expense was $16,670 and $16,678 for the years ended December 31, 2016 and 2015 respectively.

 

4. Due to Officers

 

Due to officers consists of unpaid salaries, reimbursible expenses and advances from executives totaling $42,475 and $233,486 at December 31, 2016 and 2015, respectively. The Company’s chief financial officer was due $42,475 of unreimbursed expenses as of December 31, 2016.

 

On August 7, 2015, the Company entered into separate agreements with two of its executive officers, under which each agreed to discharge the Company from a portion of amounts owed to them in respect of consulting fees due from its subsidiary, SPO, and also, in the case of one executive, a loan obligation and consulting fees due from its subsidiary, SPMSA, in each case in exchange for the issuance of shares of Common Stock. The chief executive officer discharged the Company from $30,000 of the amount of $30,000 owed to him by SPO in respect of fees accrued and unpaid as of June 30, 2015 and $292,500 due in respect of an aggregate of $301,800 of loans made to and fees owed to him by SPMSA, all in exchange for 2,150,000 shares of Common Stock. The chief financial officer discharged the Company from approximately $680,000 of the total amount of approximately $1,030,000 owed to him by SPO in respect of fees for services accrued and unpaid as of June 30, 2015 in exchange for 4,500,000 shares of Common Stock.

 

 F-13 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

On November 16, 2015, the Company entered into an agreement with its chief financial officer, under which he agreed to discharge the Company from a portion of amounts owed to him in respect of fees due from its subsidiary, SPO, in exchange for the issuance of shares of Common Stock. The chief financial officer discharged the Company from approximately $250,000 of approximately $353,500 owed in respect of fees for services accrued and unpaid as of September 30, 2015 in exchange for 1,250,000 shares of Common Stock.

 

On August 22, 2016, the Company entered into separate agreements with two of its executive officers, under which each agreed to discharge the Company from a portion of amounts owed to them in respect of consulting fees due from its subsidiary, SPO, and also, in the case of one executive, consulting fees due from its subsidiary, SPMSA, in each case in exchange for the issuance of shares of Common Stock. The chief executive officer discharged the Company from $150,000 of the amount of approximately $179,780 owed to him by SPO in respect of fees accrued and unpaid as of July 31, 2016 and $50,000 due in respect of an amount of approximately $50,000 of fees owed to him by SPMSA as of July 31, 2016, all in exchange for 1,000,000 shares of Common Stock. The chief financial officer discharged the Company from approximately $157,200 of the total amount of approximately $218,000 owed to him by SPO in respect of fees for services accrued and unpaid as of July 31, 2016 in exchange for 786,001 shares of Common Stock.

 

On December 30, 2016, the Company entered into separate agreements with two of its executive officers, under which each agreed to discharge the Company from a portion of amounts owed to them in respect of salaries and consulting fees due from its subsidiary, SPO, in each case in exchange for the issuance of shares of Common Stock. The chief executive officer discharged the Company from approximately $129,200 owed to him by SPO in respect of fees accrued and unpaid as of December 30, 2016 in exchange for 1,076,698 shares of Common Stock. The chief financial officer discharged the Company from approximately $125,500 owed to him by SPO in respect of fees for services accrued and unpaid as of December 31, 2016 in exchange for 1,046,000 shares of Common Stock.

 

5. Other Loans Payable

 

On April 4, 2013, SPMSA borrowed ZAR 2 million (approximately $201,000) from a lender pursuant to a note. The terms of the loan provide for interest of 2% per month on the outstanding balance which is payable together with the principal balance no later than December 31, 2013. An officer and stockholder of the Company deposited 1,000,000 shares of Common Stock with the lender as security for the repayment of the loan to SPMSA. On June 10, 2015, the repayment date was further extended to September 30, 2015. Interest on this loan was approximately $16,500 and $15,500 for the three months ended September 30, 2015 and 2014 and approximately $38,000 and $44,200 for the nine months ended September 30, 2015 and 2014. As of August 10, 2015, the loan was settled with the issuance of 1,676,000 shares of Common Stock. The Company recognized a gain of $28,951 representing the difference between the fair value of the consideration issued in the settlement transaction and the carrying value of the amounts due to the lender. This gain has been included as ‘‘Gain on settlement of debt’’ under ‘‘Other income (expense)’’ within income from continuing operations in the accompanying Consolidated Statement of Operations for the year ended December 31, 2015.

 

 F-14 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

On February 11, 2016 the Company entered into a Securities Purchase Agreement with SBI Investments LLC, 2014-1, a statutory series of Delaware limited liability company (“SBI”). Under the Purchase Agreement, SBI purchased the Company’s promissory note (the “SBI Note”) in the principal amount of $330,000 for a purchase price of $300,000. The SBI Note bears interest at the rate of 0% per annum until the occurrence of an Event of Default, at which time the SBI Note bears default interest at the rate of 22% per annum. SBI has the right to convert the SBI Note into shares of the Company’s Common Stock following the occurrence of an event of default under the SBI Note, including the failure to repay the note on or before its maturity date. On August 1, 2016 the Company and SBI agreed to extend the maturity date of the SBI Note from August 9, 2016 to October 11, 2016.

 

On November 17, 2016 the Company and SBI agreed to extend the maturity date of the SBI Note from October 11, 2016 to January 11, 2017. As part of the agreement on November 17, 2016 to extend the maturity of the SBI Note until January 11, 2017, SBI and the Company agreed that (i) the number of shares of the Company’s Common Stock into which SBI could convert the SBI Note following the occurrence of an event of default under the SBI Note, including the failure to repay the SBI Note on or before January 11, 2017, would be based on a conversion price that is 52.5% of the market price of the Company’s shares, rather than 55%; and (ii) the principal amount to be paid to SBI to discharge the SBI Note in full is $390,000 if the Company repays the SBI Note prior to or on January 11, 2017. In connection with Amendment No. 2, the Company entered into a fee letter agreement with SBI under which the Company agreed to pay SBI a structuring fee on November 17, 2016 in the amount of $90,000 with 1,058,824 shares of its Common Stock and a loan monitoring fee of $45,000 which is due on the maturity of the SBI Note.

 

On March 29, 2017, the Company was advised by SBI that SBI will begin conversion of the SBI Note, with an initial conversion of $25,000. This initial conversion resulted in the issuance of 691,467 shares of Common Stock to SBI. In addition SBI has required that the Company increase the number of shares of Common Stock that are reserved for issuance upon conversion of the SBI Note by 25,000,000 shares to 30,000,000 shares based on the decline in the share price. The conversion results from the Company’s failure to pay the SBI Note on January 11, 2017.

 

On May 4, 2017, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of April 27, 2017, with LG Capital Funding, LLC, a New York limited liability company (“LGCF”). Under the Securities Purchase Agreement, LGCF agreed to purchase from the Company its 4% Convertible Redeemable Note (the “LGCF Note”) in the principal amount of $42,900. The LGCF Note is convertible into shares of Common Stock, at the option of its holder, at a conversion price equal to 55% of the average of the three lowest trading prices of Common Stock for the last 15 trading days prior to conversion. The LGCF Note also bears interest at 4% per annum, contains a 10% original issue discount such that the purchase price paid by LGCF is $39,000 and matures on April 27, 2018. As a condition to the obligation of LGCF to purchase the LGCF Note, the Company also amended and restated $35,000 principal amount of the SBI Note into a new promissory note in the principal amount of $35,000 payable to LGCF (the “Amended and Restated Note”). The Amended and Restated Note is convertible into shares of Common Stock at a conversion price equal to 55% of the average of the three lowest trading prices of Common Stock for the last 15 trading days prior to conversion, bears interest at 4% per annum interest and matures on April 27, 2018.

 

6. Equity

 

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

 

 F-15 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

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

 

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

 

During the year ended December 31, 2016, the preferred stockholder converted 2,800,000 shares of the Company’s preferred stock into 2,800,000 shares of Common Stock. 

 

At December 31, 2016 and December 31, 2015, there were 12,000,000 and 14,800,000 issued and outstanding shares of Nonvoting Convertible Preferred Stock respectively.

 

On August 7, 2015, the Company entered into separate agreements with two of its executive officers and one consultant, under which each agreed to discharge the Company from a portion of amounts owed to them in respect of consulting fees due from its subsidiary, SPO, and also, in the case of one executive, a loan obligation and consulting fees due from its subsidiary, SPMSA, in each case in exchange for the issuance of shares of Common Stock. In each case, shares of Common Stock were valued at $0.15 per share for purposes of determining the number of shares to be issued under the three agreements. The Company issued an aggregate of 7,620,000 shares of Common Stock in these transactions to obtain the discharge of $1,148,000 of liabilities. The chief executive officer discharged the Company from $30,000 of the amount of $30,000 owed to him by SPO in respect of fees accrued and unpaid as of June 30, 2015, and $292,500 due in respect of an aggregate of $301,800 of loans made to and fees owed to him by SPMSA, all in exchange for 2,150,000 shares of Common Stock. The chief financial officer discharged the Company from approximately $680,000 of the total amount of approximately $1,030,000 owed in respect of fees for services accrued and unpaid as of June 30, 2015 in exchange for 4,500,000 shares of Common Stock; and a consultant to SPO, discharged the Company from $145,500 of the total amount of $236,498 owed to him in respect of fees accrued and unpaid as of June 30, 2015 in exchange for 970,000 shares of Common Stock.

 

 F-16 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

On August 10, 2015, the Company and M Cubed Holdings Limited (“MCubed”), a corporation formed under the laws of South Africa, entered into a share purchase agreement under which MCubed agreed to purchase 1,676,000 shares of Common Stock, in exchange for the cancellation in full of loan indebtedness of ZAR 3,542,204 (approximately $280,400), including interest and loan fees, due from its subsidiary SPMSA. SPMSA and MCubed had entered into the loan agreement under which MCubed loaned ZAR 2,000,000 to SPMSA on April 17, 2013.

 

On November 16, 2015, the Company entered into separate agreements with its chief financial officer its investor relations consultant, and a former employee, under which the Company was discharged from approximately $364,570 of obligations in exchange for 1,892,176 shares of the Company’s Common Stock. Specifically, the chief financial officer discharged the Company from approximately $250,000 of approximately $363,400 owed in respect of fees for services accrued and unpaid as of October 31, 2015 in exchange for 1,250,000 shares of the Common Stock; the consultant discharged the Company from $36,000 owed in respect of fees for services accrued and unpaid as of October 31, 2015 in exchange for 180,000 shares of the Company’s Common Stock; and the former employee discharged the Company from $78,570 owed in respect of its obligation to pay past due compensation in exchange for 462,176 shares of the Company’s Common Stock.  

 

On August 16, 2016 the Company issued 500,000 shares to an investor at a value of $0.20 per share.

 

On August 22, 2016, the Company entered into separate agreements with two of its executive officers and two consultants, under which each agreed to discharge the Company from a portion of amounts owed to them in respect of consulting fees due from the Company and its subsidiary, SPO, and also, in the case of one executive, consulting fees due from its subsidiary, SPMSA, in each case in exchange for the issuance of shares of Common Stock. In each case, shares of Common Stock were valued at $0.20 per share for purposes of determining the number of shares to be issued under the three agreements. The Company issued an aggregate of 2,716,008 shares of Common Stock in these transactions to obtain the discharge of $543,202 of liabilities. The chief executive officer discharged the Company from $150,000 of the amount of approximately $179,780 owed to him by SPO in respect of fees accrued and unpaid as of July 31, 2016 and $50,000 due in respect of an amount of approximately $50,000 of fees owed to him by SPMSA as of July 31, 2016, all in exchange for 1,000,000 shares of Common Stock. The chief financial officer discharged the Company from approximately $157,200 of the total amount of approximately $218,000 owed to him by SPO in respect of fees for services accrued and unpaid as of July 31, 2016 in exchange for 786,001 shares of Common Stock; a consultant to SPO, discharged the Company from $150,000 of the total amount of approximately $235,800 owed to him in respect of fees accrued and unpaid as of July 31, 2016 in exchange for 750,000 shares of Common Stock; and a consultant to the Company discharged the Company from $36,000 of the total amount of approximately $36,000 owed to it in respect of fees accrued and unpaid as of July 31, 2016 in exchange for 180,000 shares of Common Stock.

 

 F-17 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

On December 30, 2016, the Company entered into separate agreements with two of our executive officers and  five consultants, under which Share Issuance Agreements each counterparty agreed to discharge amounts owed to them in respect of fees due, in the case the two executives, from our subsidiary SPO, in the case of four of the consultants, consulting fees due from SPO, and in the case of the other consultant, consulting fees due from us, in each case in exchange for the issuance of shares of our Common Stock. In each case, shares of our Common Stock were valued at $0.12 per share for purposes of determining the number of shares to be issued under the three agreements. We issued an aggregate of 4,809,895 shares of our Common Stock in these transactions to obtain the discharge of $577,188 of liabilities from our consolidated balance sheet. Specifically, Guy Kebble, a member of our board of directors and our chief Executive Officer, discharged us from $129,204 owed to him by SPO in respect of fees accrued and unpaid as of December 31, 2016 in exchange for 1,076,698 shares of our Common Stock; Stephen Robinson, a member of our board of directors and our Chief Financial Officer and a director, discharged us from $125,520 owed in respect of fees for services accrued and unpaid as of December 30, 2016 in exchange for 1,046,000 shares; Christophe Joveniaux, a consultant to SPO, discharged us from $157,527 owed in respect of fees accrued and unpaid as of December 30, 2016, in exchange for 1,311,891 shares; and ProActive Capital Resources Group LLC, our investor relations agent, discharged us from $16,000 of fees owed by us under an agreement, dated August 26, 2013, in exchange for 133,333 shares. The remaining three consultants discharged us from an aggregate of $149,037 owed in respect of fees accrued and unpaid as of December 30, 2016, in exchange for an aggregate of 1,241,973 shares of our Common Stock.

 

There were 70,841,796 shares of Common Stock issued and outstanding at December 31, 2016 and 58,533,992 shares of Common Stock issued and outstanding at December 31, 2015.

 

7. Shareholders’ Deficit

 

The consolidated shareholders’ deficit of the Company consists of common stock, additional paid-in capital, deficit and accumulated other comprehensive income.

 

 F-18 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

8. Income Taxes

 

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

 

   Years Ended December 31, 
   2016   2015 
Switzerland  $(1,059,499)  $60,496 
South Africa  $83,877    (377,230)
United States  $(511,149)   (380,353)
Brazil   -    - 
Total Net income (loss)  $(1,486,771)  $(697,087)

 

The provision for income taxes shown in the accompanying consolidated statements of operations consists of the following for the years ended December 31, 2016 and 2015:

 

   Years Ended December 31, 
   2016   2015 
Current tax provision:          
Switzerland  $-   $- 
South Africa   -    - 
United States   -    - 
Brazil   -    - 
Total current tax provision  $-   $- 
           
Deferred tax provision:          
Switzerland  $290,264   $558,856 
South Africa   23,601    (102,278)
United States   (178,902)   (133,123)
Brazil   -    235,375 
Change in valuation allowance   (134,963)   (558,830)
Total deferred provision   -    - 
           
Total  $-   $- 

 

The Company has determined that the future tax benefits from net operating losses are not likely to be realized in future periods and a 100% valuation allowance has been provided for all periods.

 

 

 F-19 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

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

 

   December 31,   December 31, 
   2016   2015 
Deferred tax assets:          
Net operating loss carryforwards  $5,959,069   $6,094,032 
Less: valuation allowance   (5,959,069)   (6,094,032)
           
Total  $-   $- 

 

The following reconciles the effective income tax rates with the statutory rates for years ended December 31, 2016 and 2015:

 

           United         
   Switzerland   South Africa   States   Brazil   Total 
                     
Statutory rate of tax   8.5%/18%   28.0%   35.0%   25.0%    
                          
Year ended December 31, 2016:                         
Net (loss)  from operations before taxes  $(1,059,499)  $83,877   $(511,149)  $-   $(1,486,771)
                          
As calculated at the statutory rate   (190,292)   23,486    (178,902)   -    (345,708)
                          
Permanent differences   480,556    115    -    -    480,671 
Change in valuation reserves   (290,264)   (23,601)   178,902    -    (134,963)
                          
Provision for income taxes  $-   $-   $-   $-   $- 
                          
Year ended December 31, 2015:                         
Net income (loss)  from operations before taxes  $60,496   $(377,230)  $(380,353)  $-   $(697,087)
                          
As calculated at the statutory rate   12,889    (105,624)   (133,124)   -    (225,859)
                          
Permanent differences   545,967    3,346    -    235,375    784,689 
Change in valuation reserves   (558,856)   102,278    133,124    (235,375)   (558,830)
                          
Provision for income taxes  $-   $-   $-   $-   $- 

 

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

 

The Company and Group members remain subject to tax examinations for the two years ended December 31, 2016 in Switzerland and South Africa, for the eight years ended December 31, 2016 in the U.S and for the six years ended December 31, 2016 in Brazil.

 

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

 

During June 2016, the IRS levied penalties of $120,000 relating to filings of United States income tax returns for the year ended December 31, 2014 and December 31, 2015 beyond the required deadlines. These penalties have been provided for in current liabilities as at December 31, 2016. The Company has proposed settlements of these penalties to the IRS, but as of December 31, 2016 had not received a response from the IRS.

 

 F-20 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

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

 

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

 

On November 12, 2013, the Company granted non-qualified stock options to purchase an aggregate of 475,000 shares of the Company’s Common Stock under the plan, each at an exercise price of $0.89 per share. The options now are fully vested.

 

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

 

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

 

 F-21 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

There was no reduction for estimated forfeitures. Under this model and the foregoing assumptions, the options granted in 2013 were valued at $151,053. Of this amount, $87,452, $15,900 and $47,701 is attributable to executives, employees and consultants, respectively. Equity-based compensation for the years ended December 31, 2016 and 2015 was $0 and $43,454, respectively. These amounts are included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

 

10. Commitments, Contingencies and Tax Obligation

 

Lease Commitments

 

On June 1, 2014, the Company leased new office and workshop facilities for a one-year term with an automatic extension for another year unless cancelled with due notice. A new lease for these premises was entered into on May 30, 2016 for an additional one-year term, commencing June 1, 2016, with an option for extension for another year with due notice. The monthly rent for the workshop lease is approximately $850. In addition to the payments required under the workshop lease, payments are made for space rentals on an as-needed basis. The total rent expense was approximately $14,000 and $27,000 for the years ended December 31, 2016 and 2015, respectively. Rent expense is included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

 

The future rent commitments under the above lease for the year ending December 31, 2017 is approximately $4,300.

 

Payroll Tax Obligations

 

During 2013, SPMSA received notification from the South African Revenue Service (“SARS”) regarding unpaid payroll taxes of approximately $185,000.  SPMSA requested additional time to arrange a payment plan that is suitable to both parties and commenced making monthly payments to SARS. Due to insufficient funds the SPMSA has been unable to continue making additional payments in this regard and has requested additional time to arrange a payment plan that is suitable to both parties. As at December 31 2016 and December 31, 2015, the unpaid balance of this liability was approximately $105,000 and $93,000, respectively and is included in accounts payable and other current liabilities in the accompanying Consolidated Balance Sheets. Effective October 31, 2014, SARS placed a collection order on the bank account of SPMSA for the outstanding amounts due .

 

Additionally, the Company has payroll tax and social security obligations in Switzerland relating to the employment of the chief financial officer by SPOAG. As at December 31, 2016 and December 31, 2015, the unpaid balance of this liability was approximately $246,000 and $169,000, respectively and is included in accounts payable and other current liabilities in the accompanying Consolidated Balance Sheets.

 

During the fourth quarter of 2016, the Company reported that it had received a notice from the Debt Enforcement Authority Zug (the “Authority”) on behalf of the Canton of Zug, Switzerland, relating to a possible seizure of the assets of its SPOAG subsidiary, which include all of the Company’s international patents other than its South African patent. The basis for the notice of seizure was SPOAG’s failure to pay payroll taxes and social security obligations owing to the Canton of Zug included in the obligations referred to above. Within the next two weeks, the Company was advised by its Swiss counsel that the Authority had agreed to a revised payment schedule for the payment of the overdue payroll taxes, with payments by SPOAG to be made before December 31, 2016. The Company did not make any of the scheduled payments and, as a result, the Authority has rejected the plan. Until the Company can make a payment that is satisfactory to the Authority, SPOAG remains at risk of having all of its assets seized by the Authority.

 

 F-22 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

Employment and Consulting Agreements

 

The Company has entered into agreements to secure the services of two executives.  These agreements provide for annual compensation and require a minimum termination notice period by the employer of three months. Both executives are stockholders of the Company. The total compensation to these executives was approximately $505,000 and $551,000 for the years ended December 31, 2016 and 2015 respectively. The minimum amount due under these agreements is approximately $135,000 over the year ending December 31, 2017.

 

The Company has entered into agreements with third party consultants and institutions for consulting, research and professional services.  These agreements can be terminated by either party with between one and three months written notice or immediately if for cause.  The amounts due vary according to the nature of the service arrangement and the length of notice required for termination. The minimum amount due under these agreements is approximately $73,000 over the year ending December 31, 2017.

 

Other Commitments

 

The Company is obligated to make payments of approximately $6,500 subsequent to December 31, 2016 in connection with purchase orders open as of December 31, 2016 for the purchase of machines to be delivered in 2017. Payments to vendors relating to these purchases are scheduled to be made prior to June 30, 2017 from the proceeds of the sales to which they relate.

 

11. Subsequent Events

 

The Company has evaluated its subsequent events since December 31, 2016. The Company has determined that other than as noted under Note 5 there were no material subsequent events requiring adjustment to or disclosure in these audited consolidated financial statements.

 

12. Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the continuation of the Company as a going concern.

 

The Company has incurred recurring operating losses and has a working capital deficiency. Also, as more fully described in Note 10 to the consolidated financial statements, the Company is in arrears with various governmental authorities in Switzerland. This could result in seizure of the Company’s assets and effectively force a shutdown of its operations which could force liquidation of the entire Company. These conditions among others raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company has generated recurring losses and expects to incur additional losses as it expands its photopurification technology and develops marketing, sales and financial plans. As reflected in the accompanying audited consolidated financial statements, the Company’s total consolidated liabilities exceed total consolidated assets at December 31, 2016 and December 31, 2015 by $1,724,336 and $1,426,874, respectively.

 

 F-23 

 

 

SurePure, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Years ended December 31, 2016 and 2015

 

 

  

To date, the Company’s cash flow has been funded with cash investments by its shareholders, certain third parties and to a considerably lesser extent, revenue. These inflows have been insufficient to enable the company to cover its costs and, as disclosed in Notes 4 and 6,resulting from the inability to settle liabilities with cash, the Company issued Common Stock to settle a number of liabilities during the year ended December 31, 2016. Additionally, as disclosed in Note 8, with respect to payroll tax obligations due in both Switzerland and South Africa and tax penalties due the IRS, the Company has been unable to meet its obligations for payment of its taxes and the filing of tax returns.

 

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

 

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

 

Management is currently pursuing plans to address the cash flow requirements of the Company for the year ending December 31, 2017 and beyond. The Company is engaged in discussions with current and other potential investors, and the Company is also considering additional offerings of Common Stock. The Company was not, however, able to secure significant additional equity financing during the year to December, 2016 from existing shareholders or otherwise, despite its efforts to do so. In addition, although the Company has projected that increase in the commercialization of its technology may provide additional cash flow for operations, it has not generated any significant new equipment sales orders in the past year.

 

The audited consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

 

 F-24