UNITED STATES        SECURITIES AND EXCHANGE COMMISSION        Washington, D.C. 20549

# Form        10-KSB

| [X] | ANNUAL REPORT                PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended July 31,        2007

| [_] | TRANSITION                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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|   | For the                transition period from __________ to __________ |
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|   | Commission file                number: 0-21019 |
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| PURE Bioscience                                                       |
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| (Exact name of registrant as                specified in its charter) |

| California                                                                    | 33-0530289                                          |
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| (State or other jurisdiction of                incorporation or organization) | (I.R.S. Employer Identification                No.) |

| 1725 Gillespie Way, El                Cajon, California 92020               |
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| (Address of principal executive                offices, including Zip Code) |

| (619) 596-8600                                                      |
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| (Registrant's Telephone Number,                including area code) |

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| Securities registered pursuant                to Section 12(b) of the Act: None |
| Securities                registered pursuant to Section 12(g) of the Act:      |
| **Common                Stock**                                                 |
| (Title of                Class)                                                 |
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Check whether the issuer (1) filed        all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past        12 months (or for such shorter period that the registrant was required to file such        reports), and (2) has been subject to such filing requirements for the past 90        days.   Yes [X] No [_]

Check if there is no disclosure of        delinquent filers pursuant to Item 405 of Regulation S-B contained in this form, and no        disclosure will 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-KSB        or any amendments to this Form 10-KSB.   [X]

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

The issuer’s revenues for its        most recent fiscal year: $336,392

Aggregate market value of the voting        stock held by non-affiliates of the registrant: Approximately $187,751,700 as of October        25, 2007.

Indicate the number of shares        outstanding of each of the issuer’s classes of common stock: 26,963,901 of common        stock as of October 25, 2007.

Documents incorporated        by reference: Certain Exhibits

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# PART I

# ITEM 1. DESCRIPTION OF        BUSINESS

**Overview**        PURE Bioscience began as a provider of pharmaceutical water purification products for the        pharmacy market. In 2000 we commenced investments in the development of novel bioscience        technologies, and subsequent to the May 2005 sale of our Water Treatment Division we have        been exclusively focused on the development and commercialization of our current and future        bioscience products.

We are expanding into markets with        broad potential by developing new, proprietary bioscience products based upon our patented        silver ion antimicrobial technologies and to a lesser extent our patent-pending boric acid        based pesticide technologies. We are developing technology-based bioscience products,        including our silver dihydrogen citrate-based antimicrobials, which we believe will provide        best in class, non-toxic solutions to numerous global health challenges and represent        innovative advances in diverse markets. We believe that our technologies are in a position        to contribute significantly to today’s global trend toward industrial and consumer        use of “green” products, while providing competitive advantages in efficacy and        safety.

**Bioscience Technologies**Our flagship bioscience technology is an        aqueous disinfectant, silver dihydrogen citrate (SDC). A patented new molecular entity, SDC        is an electrolytically generated source of stabilized ionic silver that can serve as the        basis for a broad range of products in diverse markets. SDC liquid is colorless, odorless,        tasteless, non-caustic and formulates well with other compounds. As a platform technology,        our SDC-based antimicrobial is distinguished from competitors in the marketplace because of        its superior efficacy combined with reduced toxicity. We are producing and plan to expand        the production of pre-formulated, ready-to-use products for private label distribution, as        well as varying strengths of SDC concentrate as an additive or raw material for inclusion        in other companies’        products, including as an active        pharmaceutical ingredient.In addition to SDC, we have obtained        patent protection for ionic silver-based molecular entities utilizing 14 other organic        acids, in addition to citric acid.

We are also developing a        patent-pending pesticide technology, TriglycylborideTM which, like SDC, provides        effective results without human toxicity and is an alternative to traditional poisons.        Triglycylboride has been formulated into EPA registered RoachX® and AntXTM, the        key products in our Innovex® line of pest control products.

**History**        PURE Bioscience was incorporated under the name of Innovative Medical Services in the State        of California on August 24, 1992, to pursue the business of manufacturing and marketing the        Fillmaster, a pharmaceutical water purification product, and subsequently other advanced        technologies to the pharmacy industry, and later to other healthcare markets and retail        consumers.

In 1999, we began investigating        marketing opportunities for a new antimicrobial molecule, silver dihydrogen citrate (SDC).        The SDC patent application was owned at the time by NVID International. Early in 2000,        after concluding that we wished to pursue development and marketing of the SDC technology,        we engaged in a marketing and licensing agreement with NVID International for market        segments in specified geographical areas. In late 2001, as part of a legal settlement with        NVID regarding the marketing rights to SDC, we purchased the SDC patent for 700,000 shares        of our common stock plus certain expenses.

In 2001 we acquired the marketing        rights and patent to our boric acid pesticide technologies. The first of these products        developed, RoachX, launched in October 2001.

In 2001, the first U.S. patent        covering the basic SDC formulation and the method of making was issued, and Environmental        Protection Agency (EPA) registration was obtained for the 2400-parts per million (ppm)        technical grade SDC concentrate (trade name Axenohl®) as well as for the initial        Axen® hard surface disinfectant product for commercial, industrial and consumer        applications including restaurants, homes and medical facilities.

In 2002 we expanded our Innovex line        of pesticides to include RoachX, AntX75, TrapX and CleanKill, an SDC-based hard surface        disinfectant for use in the pest control industry.

In March 2003, we received        Environmental Protection Agency (EPA) registration for our new SDC-based Axen®30        formulated Category IV hard surface disinfectant product for commercial, industrial and        consumer applications. Axen30 is a 30 ppm use-dilution formula of our patented SDC        antimicrobial technology. The additional EPA registration allows us to expand our hard        surface disinfectant claims to include a 30-second kill time on standard indicator        bacteria, a 24 hour residual kill on standard indicator bacteria, a 2-minute kill time on        some resistant strains of bacteria, 10-minute kill time on fungi, 30-second kill time on        HIV Type I, and 10-minute kill time on other viruses. These claims distinguish the efficacy        of Axen30 from many leading commercial and consumer products currently on the market, while        maintaining lower toxicity ratings.

In July 2003 we received a second        U.S. patent granted for SDC. U.S. patent 6,583,176 was issued on June 24, 2003 and covers        the formulation of the aqueous disinfectant in combination with ethyl alcohol. U.S. patent        6,583,176 is a division of the first U.S. patent 6,197,814 issued on March 6, 2001 covering        the basic SDC formulation and the method of making.

In September 2003, we announced the        first commercialization of our SDC-based hard surface disinfectant, Axen30, to be sold by        EnvirOx L.L.C. of Danville, Illinois, as Critical CareTM, a commercial        disinfectant-fungicide-virucide. In the same month, we announced an agreement with        Therapeutics, Incorporated, a drug development company based in La Jolla, California, for        the development and commercialization of Food and Drug Administration (FDA) regulated        SDC-based products. Under this agreement, Therapeutics, Incorporated absorbed the        responsibility for funding and directing development activities and FDA regulatory filings,        initially focusing on development of SDC-based products for the treatment of bacterial,        viral and fungal mediated diseases and conditions.

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Also in September 2003, shareholders        approved a corporate name change from Innovative Medical Services to PURE        Bioscience.

In May 2004 we filed an additional        U.S. patent covering multiple potential uses for our SDC technology including the treatment        of specific types of bacteria, fungus and viruses, as well as medical treatment and the        preservation of consumable and non-consumable products. The additional Disinfectant and        Method of Use patent application was the seventh SDC related patent application filed in        the United States covering inventive aspects of manufacturing, composition and formulations        of our SDC technology.

Also in May 2004, Therapeutics,        Incorporated began development of SDC within the first two groups of products subject to        FDA regulation; women’s health products and acne products.

In June 2004, we obtained EPA        registration of expanded claims for our Axen30 hard surface disinfectant to include use on        hard surfaces in childcare facilities. The EPA previously registered Axen30 for        disinfection of hard surfaces including those in restaurants, homes and medical facilities.        The expanded use claims for our Axen30 disinfectant include children’s toys, toy        boxes, play tables and activity centers, jungle gyms, playpens, child car seats, strollers        and diaper changing tables. The EPA’s registration of such sensitive use sites        emphasizes the “least-toxic” characteristics of Axen30 while expanding its        versatility in the professional and consumer disinfection markets.

In August 2004, we filed a utility        patent application to protect our proprietary silver dihydrogen citrate disinfectant in        combination with other antimicrobial compounds, including quaternary ammonia, oxidizers or        halogens such as chlorine, bromine or iodine. In August 2004, we also filed a utility        patent application to protect anhydrous, or crystalline, silver dihydrogen citrate        antimicrobial compositions, processes of making and methods of use.

In December 2004, we received        registration of our silver dihydrogen citrate-based hard surface disinfectant from the        California Department of Pesticide Regulation. The product had been previously registered        in each of the 49 other states. With registration in all 50 states, we or our        sub-registrants are able to market our hard surface disinfectant nationwide.

In May 2005, we sold the assets of        our Water Treatment Division to Maryland-based Innovative Medical Services, LLC for        $2,375,000.

In June 2005 we filed a utility        patent application to protect our proprietary silver dihydrogen citrate technology in home        care and personal care products, and in September 2005 we filed the international patent        application through the Patent Cooperation Treaty.

In May 2006 we announced that we had        expanded our joint development initiative with Therapeutics, Inc. to include development of        SDC as an active pharmaceutical ingredient in products for treatment of dermatophytoses        such as Tinea pedis (athlete’s foot), onychomycosis (nail fungus), among others, as        well as development of antimicrobial skin wash products, beginning with a hand sanitizer.        In December 2006 Therapeutics submitted an Investigational New Drug (IND) application with        the FDA for an SDC-based hand sanitizer, to enable initiation of the first clinical trial        of a product containing SDC as an active pharmaceutical ingredient. After reviewing the        submission the FDA determined that the product testing in man may begin as        proposed.

During the year ended July 31, 2007        we redeveloped our manufacturing facility and significantly expanded our SDC manufacturing        capacity. In addition we invested in manufacturing equipment, including a new automated        blending and packaging operation, that allows us to produce finished, labeled products.        Subsequent to the end of the fiscal year we announced that our manufacturing facility and        process for the production of pharmaceutical-grade SDC concentrate as an Active        Pharmaceutical Ingredient had received Current Good Manufacturing Practice (cGMP)        certification.

In August 2007, the U.S. Patent and        Trademark Office issued a patent covering our process of manufacturing complexes of        electrolytically generated stabilized ionic silver with 14 additional organic acids,        specifically identifying 14 new complexes. In addition to expanding future product        opportunities, the new patent expands the scope of protection of the SDC patent        portfolio.

# Principal Products and        Markets

**Silver Dihydrogen Citrate.**          Our flagship technology is a patented, aqueous antimicrobial called silver        dihydrogen citrate (SDC). SDC is an electrolytically generated source of stabilized ionic        silver that can serve as the basis for a broad range of products in diverse markets.        Colorless, odorless, tasteless and non-caustic, the aqueous SDC formulates well with other        compounds. We produce and have begun to market, through our distributors, pre-formulated,        ready-to-use product for private label distribution, as well as varying strengths of SDC        concentrate as an additive or raw material for inclusion in other companies’        products.

We currently have Environmental        Protection Agency (EPA) registration for our 2400-parts per million (ppm) technical grade        SDC concentrate (trade name Axenohl) as well as for our Axen and Axen30 hard surface        disinfectant products for commercial, industrial and consumer applications including        restaurants, homes and medical facilities. The Axen30 EPA registration includes claims such        as a 30-second kill time on standard indicator bacteria, a 24 hour residual kill on        standard indicator bacteria, a 2-minute kill time on some resistant strains of bacteria,        10-minute kill time on fungi, 30-second kill time on HIV Type I, and 10-minute kill time on        other viruses. These claims distinguish the efficacy of Axen30 from many of the leading        commercial and consumer products currently on the market, while maintaining lower toxicity        ratings. Based on the EPA toxicity categorization of antimicrobial products that ranges        from Category I (high toxicity) down to Category IV, Axen30, with its combination of the        biocidal properties of ionic silver and citric acid, is an EPA Category IV antimicrobial        for which precautionary labeling statements are normally not required. This compares with        Category II warning statements for most leading brands of antimicrobial products

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The tests conducted to obtain the EPA        registration were performed by nationally recognized independent laboratories Nelson        Laboratories of Salt Lake City, Utah and AppTec ATS of St. Paul, Minnesota, under AOAC        protocol and GLP regulations in accordance with EPA regulations. Specific Axen test results        include:

|   | • | **30-Second                Kill Time**   At 30 ppm, Axen demonstrated a 30-second, 99.9999% kill                of standard indicator organisms including Staphylococcus aureus ATCC 6538,                Pseudomonas aeruginosa ATCC 15442 and Salmonella choleraesuis ATCC 10708. Each is                regarded as ever present in nearly every person’s life and is also a frequent                human pathogen. |
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|   | • | **Residual Kill                Activity**   The residual activity of Axen was tested at 0, 1, 6, and                24 hours after application to a hard surface against standard indicator organisms                (Staphylococcus aureus ATCC 6538, Pseudomonas aeruginosa ATCC 15442 and Salmonella                choleraesuis ATCC 10708). Quantitative residual results at 24 hours after initial                application show a 99.99% reduction in all three bacteria tested. |
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|   | • | **Bacteria**                  Additional testing of Axen against Methicillin Resistant Staphylococcus                aureus ATCC 700698 (MRSA), Vancomycin Resistant Enterococcus faecium ATCC 700221                (VRE) and Escherichia coli OH157 ATCC 43888 demonstrated a 99.9999% kill in 2                minutes. These specific bacteria are especially problematic in hospitals because of                their resistance to antibiotics. Further, Axen showed a 99.9999% kill in 30-seconds                against Listeria monocytogenes ATCC 19111. Food processing operations are                challenged to keep this bacterium under control. |
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|   | • | **Fungus**                  Axen demonstrated a 99.9999% kill in 10 minutes of the common                athlete’s foot fungus, Trichophyton mentagrophytes ATCC 9533. This data                allows the Company to add a fungicidal claim to its hard surface disinfectant                label. |
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|   | • | **Viruses**                  Axen also demonstrated 99.9999% virucidal efficacy against HIV Type 1                in 30 seconds, Herpes simplex virus type 1 in one minute, and Influenza A virus                ATCC VR-544, Rhinovirus type R 37 ATCC VR-1147, Strain 151-1 and Poliovirus type 2                ATCC VR-1022, Strain Lansing in 10 minutes. After review and registration by the                EPA, this data allows the Company to add these virucidal claims to its hard surface                disinfectant label. |
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In June 2004, we received EPA        registration to expand claims made for our Axen30 hard surface disinfectant to include use        on hard surfaces in childcare facilities. The EPA previously approved Axen30 for        disinfection of hard surfaces including those in restaurants, homes and medical facilities.        Expanded use claims for our Axen30 disinfectant feature children’s toys, toy boxes,        play tables and activity centers, jungle gyms, playpens, child car seats, strollers and        diaper changing tables. The EPA’s registration of such sensitive use sites emphasizes        the “least-toxic” characteristics of Axen30 while expanding its versatility in        the professional and consumer disinfection markets. We are currently investigating market        opportunities for products in the childcare segment which includes daycare centers,        preschools, schools, gymnasiums and children’s activity centers.

During the year ending July 31, 2007        we began a program whereby we utilize our expertise to source, assemble and build SDC        blending systems for sale to our distributors. These systems allow our distributors to        blend our SDC concentrate into lower concentrations, thereby significantly reducing the        cost of shipping products from our El Cajon facility, particularly for overseas markets. No        information regarding the method of making SDC is passed to our distributors as in all of        our third party agreements we are, and intend to continue to be, the sole manufacturer and        sole source of SDC concentrate.

We plan to pursue additional EPA and        FDA regulatory approvals for other applications. For example, in September 2003, we        announced an agreement with Therapeutics, Incorporated, a drug development company based in        La Jolla, California, for the development and commercialization of certain Food and Drug        Administration (FDA) regulated silver dihydrogen citrate-based products. Therapeutics,        Incorporated funds and directs all development activities and FDA regulatory filings under        the agreement, initially focusing on development of silver dihydrogen citrate-based        products for the treatment of bacterial, viral and fungal mediated diseases and conditions.        In May 2004, Therapeutics, Incorporated began development of SDC within the first two        groups of products subject to FDA regulation; women’s health products and acne        products. In May 2006 we announced that we had expanded our joint development initiative        with Therapeutics, Inc. to include development of SDC as an active pharmaceutical        ingredient in products for treatment of dermatophytoses such as Tinea pedis        (athlete’s foot), onychomycosis (nail fungus), among others, as well as development        of antimicrobial skin wash products, beginning with a hand sanitizer. In December 2006        Therapeutics submitted an Investigational New Drug (IND) application with the FDA for an        SDC-based hand sanitizer, to enable initiation of the first clinical trial of a product        containing SDC as an active pharmaceutical ingredient. After reviewing the submission the        FDA determined that the product testing in man may begin as proposed. Multiple hand        sanitizer formulations containing SDC are currently being tested for safety and efficacy in        proof of concept studies. We do not currently anticipate any additional IND applications to        the FDA under our agreement with Therapeutics, Inc. for products containing SDC until        2008.

Our SDC technology also shows promise        as a broad-spectrum antimicrobial for multiple other medical indications, including wound        and burn care, as well as for dental and veterinary indications, though these opportunities        are not currently under active development.

In September 2007, we announced that        we had developed a new SDC-based antimicrobial product that provides what we believe to be        the first 24-hour residual protection against norovirus. The highly concentrated product is        designed to be mixed with water at the point of use to create a low toxicity hard surface        antimicrobial. We intend to initially market, through a distributor relationship, the        product, under the name Cruise ControlTM, to the cruise ship industry, which in recent        years has suffered significant economic and reputation damage as a result of common and        well-publicized outbreaks of norovirus. We commissioned an independent, third-party study        entitled “Residual Virucidal Efficacy of a Disinfectant for Use on Inanimate        Environmental Surfaces Utilizing Feline Calicivirus as a Surrogate Virus for        Norovirus.” The study was conducted by the nation’s leading third party        microbiology and virology testing laboratory in accordance with U.S. Environmental        Protection Agency Good Laboratory Practice regulations. The testing laboratory modified an        existing EPA protocol for testing bacterial residual efficacy to a protocol that        appropriately evaluated the residual efficacy of our new formulation against the Feline        Calicivirus. Our new disinfectant demonstrated greater than 99.9999% reduction in viral        titer of Feline Calicivirus after 12 hours and at least a 99.98% reduction after 24        hours.

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**TriglycylborideTM**          In addition to our antimicrobial technology, we market and are developing a        line of pesticide technologies. Like the silver dihydrogen citrate antimicrobial        technology, we believe the boric acid based pesticides may offer competitive advantages in        the market place with regard to efficacy when compared to leading brands, while maintaining        lower toxicity ratings.

Branded as InnovexTM, the        product line launched in October 2001 with our EPA-approved, patent-pending RoachX®.        Subsequently, we have developed additional products in the Innovex product line, including        the EPA-approved AntX75®, EPA-exempt non-toxic TrapX rodent lure and EPA approved        CleanKillTM, the SDC-based hard surface disinfectant for the pest control industry.        United States Department of Agriculture testing confirms that RoachX is over 96% effective        in three to four days with one application for indoor and outdoor eradication of        cockroaches, and can be used near children and food preparation areas. Boric acid is a        well-known and effective deterrent of cockroaches and will kill them on contact, but        cockroaches do not naturally eat the repellent. Although many pesticide products contain        boric acid as the listed active ingredient, we believe RoachX to be new because of the        endothermic reaction caused by the combination of boric acid and polyglycol that produces        three unique results: 1) The formula protects the boric acid from water and humidity, 2)        When combined with an attractant, the cockroaches perceive the formulation as food and will        actually eat the polyglycol-encapsulated boric acid, and 3) The formula acts as a        time-released pesticide, allowing the cockroach to return to the nest before it dies and        then becomes a “bait station” for other roaches in the colony. We believe the        product line, containing particular formulas and attractants for specific pests, is        effective against cockroaches, ants, palmetto bugs, silverfish, waterbugs, ticks, fleas,        lice and garden pests.

Marketing efforts behind these        products to date, and resulting sales, have been limited. We believe that investment in        additional formulations, greater marketing efforts and wider distribution could result in        significantly greater sales and profits than we have historically achieved with the        technology. We continue to evaluate such investments, however in recent years we have        focused our resources on the development of SDC, which we believe has greater market        potential than the Triglycylboride technology. If we decide not to make such investments        ourselves, we may pursue alternatives for our Triglycylboride technology that could include        discontinuing to actively market the Innovex line of products and selling or licensing our        rights to the technology.

**Competition**        The markets for silver dihydrogen citrate and pesticide products are highly competitive.        The markets in which we will sell any such products are dominated by a number of large,        well-capitalized global corporations, which may impact our ability to successfully market        our products or maintain any technological advantage we might develop. We, or our        distributors, would need to invest significant resources in order to attempt to displace        traditional technologies sold by what are in many cases well-known international industry        leaders. Alternatively, we may pursue strategies in selective markets of encouraging        existing competitors to incorporate our products into their existing brands, thereby        reducing the proportion of end-use revenues that would accrue to us. To the extent that we        were to grant any existing competitor exclusivity to any field and/or territory, we would        risk having our technology marketed in a manner that may be less than optimal for us. We        recognize that innovative marketing methods are required in order to establish our        products, and that such methods may not be successful, or as successful as we may believe        should be achievable based upon the true potential for our technology.

**Patents and Intellectual        Property**        We own and have several patents pending related to our silver dihydrogen citrate (SDC)        technology, and we have a patent pending for RoachX and related pesticide        products.

The first U.S. patent for silver        dihydrogen citrate was issued on March 6, 2001 covering the disinfectant and its method of        making. In June 2003, we received a second U.S. patent granted for silver dihydrogen        citrate that covers the formulation of the aqueous disinfectant in combination with ethyl        alcohol. In addition, PURE has received patents in Australia, New Zealand, the Russian        Federation and China as well as in the ARIPO (African Regional Industrial Property        Organization), the EAPC (Eurasian Patent Community), the OAPI (Organisation Africaine de la        Propriete Intellectuelle) and multiple Eastern European countries. Patent applications are        pending in Brazil, Canada, China, Japan, Mexico and the EPO (European Patent Office)..        These foreign patent applications were filed through the Patent Cooperation Treaty and were        published by the World Intellectual Property Organization (www.wipo.org) as Number WO        99/18790 on April 22, 1999.

In May 2004, we filed an additional        U.S. patent covering multiple potential uses for our SDC technology including the treatment        of specific types of bacteria, fungus and viruses, as well as medical treatment and the        preservation of consumable and non-consumable products. The additional Disinfectant and        Method of Use patent application was the seventh SDC related patent application filed in        the United States covering inventive aspects of manufacturing, composition and formulations        of our SDC technology.

In August 2004, we filed a utility        patent application to protect our SDC disinfectant in combination with other antimicrobial        compounds, including quaternary ammonia, oxidizers or halogens such as chlorine, bromine or        iodine. In addition, we filed the foreign patent application for this utility patent        through the Patent Cooperation Treaty. In February 2006, we entered the international        application into national phase in Australia, Canada, China, Europe, Japan, Israel, India,        Mexico, New Zealand, Norway, South Korea, Singapore, and South Africa.

In August 2004, we filed a utility        patent application to protect anhydrous, or crystalline, silver dihydrogen citrate        antimicrobial compositions, processes of making and methods of use. In addition, we filed        the international patent application for this utility patent through the Patent Cooperation        Treaty. In February 2006, we entered the international application into national phase in        Australia, Canada, China, Europe, Japan, Israel, India, Mexico, New Zealand, Norway, South        Korea, Singapore, and South Africa.

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In May 2005, a U.S. patent was        granted covering SDC in a process for treating water. In June 2005, we filed a utility        patent application to protect our SDC technology in home care and personal care products.        In September 2005, we filed the international patent application through the Patent        Cooperation Treaty. In March 2007, we entered the international application into national        phase in Albania, Australia, Brazil, Canada, China, Costa Rica, the EAPC (Eurasian Patent        Community), Europe, Hong Kong, Indonesia, Israel, India, Japan, South Korea, Mexico,        Norway, New Zealand, the OAPI (Organisation Africaine de la Propriete Intellectuelle),        Philippines, the Russian Federation, Singapore, Viet Nam and South Africa.

In August 2007, a U.S. patent was        granted covering our process of manufacturing complexes of electrolytically generated        stabilized ionic silver with other organic acids, specifically identifying 14 new        complexes.

A patent application for RoachX and        related products was filed in February 1998 to protect a non-aqueous form of insecticide        consisting of a desiccant, preferably boric acid, with additional ingredients for binding,        stability and target insect attraction.

We own the registered trademarks or        trademark applications for PURE Bioscience®, Powered by SDC Ag+TM, Staph        Attack®, StaphacideTM, Axenohl®, Axen®, Silvérion®,        KinderguardTM, Cruise ControlTM, Innovex®, RoachX®, AntXTM,        TrapX® and MedifierTM.

**Manufacturing**        We manufacture and blend the silver dihydrogen citrate products in our manufacturing        facility at our corporate headquarters in El Cajon, California. We manufacture the SDC        concentrate exclusively in our facility and plan to maintain all concentrate manufacturing        in-house. During the year ended July 31, 2007 we completed a redevelopment and expansion of        our manufacturing facility and significantly expanded our SDC manufacturing capacity.        Subsequent to the end of the fiscal year we announced that our manufacturing facility and        process for the production of pharmaceutical-grade SDC concentrate as an Active        Pharmaceutical Ingredient had received Current Good Manufacturing Practice (cGMP)        certification.

In addition to the processes for        manufacturing concentrate, during the year ended July 31, 2007 we invested in manufacturing        equipment, including a new automated blending and packaging operation, that allows us to        produce finished, labeled products, although we outsource some blending and packaging        operations and may continue to outsource such operations to one or potentially multiple        third parties. We outsource such operations where it is economically advantageous to us and        to our customers, particularly in regard to the reduction of shipping costs. Silver, the        primary active ingredient in SDC, is a readily available commodity, and the other active        and inactive ingredients are readily available from chemical supply companies.

We manufacture RoachX, AntX and TrapX        in our manufacturing facility at our corporate offices, and outsource some of the packaging        functions. In future periods we may outsource manufacturing operations for the production        of these products. The active and inactive ingredients are readily available through        multiple manufacturers in the U.S. and overseas.

**Research and Development**        All in-house Research and Development (“R&D”) costs, and outside legal        costs for maintaining approved patents, are charged to operations when incurred and are        included in operating expenses. Outside legal costs and filing fees related to obtaining        patents are capitalized as incurred. The total amounts capitalized for pending patents was        $204,200 and $111,100 in the fiscal years ended July 31, 2007 and 2006, respectively. The        cumulative cost of acquiring patents is amortized on a straight-line basis over the        estimated remaining useful lives of the patents, generally between 17 and 20 years from the        date of issuance. At July 31, 2007 the weighted average remaining amortization period for        all patents was approximately 12.5 years. Amortization expense for the years ended July 31,        2007 and July 31, 2006 was $164,500 and $157,400 respectively. Expense charged to R&D        was $1,220,800 and $1,193,900 in the fiscal years ended July 31, 2007 and 2006,        respectively.

**Government Regulation**        We manufacture and sell pesticide and antimicrobial products that are regulated by the U.S.        Environmental Protection Agency (U.S. EPA) under Federal Insecticide, Fungicide and        Rodenticide Act (FIFRA). We have five products registered by the U.S. EPA; two pesticides,        AntX and RoachX, and three antimicrobial pesticides, Axen, Axen30 and Axenohl. As we        continue to develop new products, we will require a registration from the US EPA in order        to market our products in the United States. There is no guarantee that the US EPA will        grant a registration for the products we submit.

In addition, each of the 50 United        States has its own government agency that regulates pesticide sales into their state. Prior        to distributing a product into any of these states, a registration from the state is        required. We market our pesticide and antimicrobial products to third party distributors        who are responsible for obtaining these state registrations. Should we begin to directly        market our own brands, we would first need to obtain a registration for each state to which        we will distribute product.

We have chosen to pursue certain        approvals through the U.S. Food and Drug Administration (FDA) by partnering with        Therapeutics, Incorporated, which has assumed responsibility for the testing and regulatory        process for selected potential FDA regulated silver dihydrogen citrate-based products. The        process of obtaining FDA and other required regulatory approvals is lengthy, expensive and        uncertain. There is no guarantee that either Therapeutics, Incorporated, any other        potential partner, or ourselves will be able to obtain the resources necessary to obtain        such approvals, or that the products will meet the strict criteria imposed by the        FDA.

Internationally, we, our distributors        or our partners will have to obtain and maintain all necessary regulatory approvals or        registrations in each specific country, to enable our products to be sold in, or into, that        country. Our technology may also face import restrictions or burdens, which may change from        time to time.

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**Employees**        As of October 25, 2007, we employed sixteen people, fifteen of whom were full-time        employees.

**Company Website**        We maintain a website at www.purebio.com. We make our periodic and current reports        available free of charge on our website as soon as is reasonably practical after such        reports are filed with the Securities and Exchange Commission. Information contained on, or        accessible through, our website is not part of this report or our other filings with the        SEC.

**ITEM 2. PROPERTIES**        Our business operates in a 13,200 square foot facility located in a light industrial/office        park in El Cajon, California. This location houses all administrative, manufacturing and        warehousing functions. In May 1996, we entered into an operating lease agreement for the        premises, with an unaffiliated third party, which expired under extension in October        2006.

As part of the agreement to sell the        assets of the Water Treatment Division to Innovative Medical Services, LLC, in May 2005 we        entered into a sublease agreement with IMS LLC, under which IMS LLC occupied approximately        28% of the square footage of the facility and paid us approximately $3,800 per month in        rent. IMS LLC vacated the space in September 2006 and we are now operating in the full        13,200 square feet of the facility. In January 2007 we commenced a new sixty month        operating lease for the facility.

During the year ending July 31, 2007,        we made significant improvements to the manufacturing areas to expand our manufacturing        capacity and warehousing operations.

**ITEM 3. LEGAL PROCEEDINGS**        We are not currently involved in any material legal proceedings that could result in claims        against us. However, we may be subject to various legal actions and claims arising in the        ordinary course of business.

**ITEM 4. SUBMISSION OF MATTERS TO A        VOTE OF SECURITY HOLDERS**        No matters were submitted to shareholders in the fourth quarter of the fiscal        year.

7

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# PART II

# ITEM 5. MARKET FOR THE        REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

|   | (1) | Market                Information: PURE Bioscience’s common stock is traded on the Bulletin Board                under the symbol “PURE.” |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | High and Low Bid                Prices: The following table sets forth high and low bid prices for each fiscal                quarter, for the last two fiscal years as reported on Yahoo! Finance. Such                quotations reflect inter-dealer prices without retail mark-up, mark-down, or                commissions and may not represent actual transactions. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Fiscal 2007                     | Fiscal                2006 |
|---------------------------------|----------------------------|
||
| July 31, 2007                   |                       |   | $ | 3 | .85 | $ | 2 | .30 | July 31, 2006 |   |   | $ | 2 | .99 | $ | 1 | .30 |
| April 30,                2007   |                       |   | $ | 2 | .49 | $ | 1 | .65 | April 30,                2006 |   |   | $ | 3 | .09 | $ | 1 | .22 |
| January 31,                2007 |                       |   | $ | 2 | .80 | $ | 1 | .66 | January 31,                2006 |   |   | $ | 1 | .49 | $ | 0 | .70 |
| October 31,                2006 |                       |   | $ | 2 | .27 | $ | 1 | .26 | October 31,                2005 |   |   | $ | 1 | .05 | $ | 0 | .68 |

|   | (3) | Security                Holders: As of October 25, 2007, we had approximately 239 holders of record of our                common stock. This does not include beneficial owners holding common stock in                street name. The closing price per share on October 25, 2007 was $7.40. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Dividend Plans:                We have paid no common stock cash dividends and have no current plans to do                so. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Preferred Stock:                There are no shares of preferred stock presently outstanding. |
|--------|-----|-----------------------------------------------------------------------------------------------|

|   | (6) | Recent Sales of                Unregistered Securities: |
|--------|-----|---------------------------------------------------------|

|   | On October 19,                2007 we closed on the sale of 1,677,596 unregistered securities units to accredited                investors, at $5.03 per unit. Each unit consisted of one share of PURE Bioscience                common stock and one quarter of a five-year warrant to purchase PURE Bioscience                common stock at $7.17 per share. A total of 419,394 such five-year warrants were                issued to the investors. Additionally, a five-year warrant to purchase 167,776                shares of common stock at $8.60 per share was issued to Taglich Brothers, Inc. as                the placement agent. The gross proceeds of the sale were $8,438,328 and the net                proceeds, after fees and expense, were $7,720,743. Neither the shares of common                stock, nor the common stock underlying the warrants, are registered as of October                25, 2007. We have agreed to file a registration statement with the Securities and                Exchange Commission within ninety days of the closing for the purpose of                registering for resale the common stock issued and sold in the private placement                and the shares underlying the warrants issued to both the investors and the                placement agent. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | Securities                Authorized for Issuance under Equity Compensation Plans |
|--------|-----|-----------------------------------------------------------------------------------|

| Plan Category                        | Number of securities to                    be issued upon exercise                    of outstanding options,                    warrants and rights                    (a) | Weighted-average                    exercise price of                    outstanding options,                    warrants and rights                    (b) | Number of securities                    remaining available for                    future issuance under                    equity compensation plans                    (excluding securities                    reflected in column (a))                    (c) |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity compensation                  |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              |  |   |   |  |   |   |  |   |
| plans approved                by     |                                                                                                                                                                        |                                                                                                                                                        |
| security                holders      |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              | 4,900,000 |   | $ | 0 | .79 |   | 6,706,061 |   |
|                                      |
| Equity                compensation   |                                                                                                                                                                        |                                                                                                                                                        |
| plans not                approved by |                                                                                                                                                                        |                                                                                                                                                        |
| security                holders      |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              | 4,816,868 |   | $ | 2 | .29 |   | 1,678,000 |   |
|                                      |
| Total                                |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              | 9,716,868 |   | $ | 1 | .53 |   | 8,384,061 |   |
|                                      |

The following equity compensation        plans have not been approved by security holders:

|   | 1. | 2001 ETIH2O                Stock Option Plan: Adopted by the Board in January 2001, there are 1,000,000 shares                authorized under this Plan. The options have a five-year term with vesting ratably                over a five-year period. Executive Officers and Directors are not eligible                participants under this plan. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | 2001 Consultants                and Advisors Stock Option Plan: Adopted by the Board in January 2001, there are                500,000 shares authorized under this Plan. The options have a five-year term with                vesting ratably over a five-year period. Executive Officers and Directors are not                eligible participants under this plan. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | 2004 Consultants                and Advisors Stock Option Plan: Adopted by the Board in April 2004, there are                2,000,000 shares authorized under this plan. The options have a five-year term with                vesting ratably over a five-year period. Executive Officers and Directors are not                eligible participants under this plan. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**ITEM 6. MANAGEMENT’S        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The financial statements presented        herein, and discussed below, have been prepared in accordance with Generally Accepted        Accounting Principles in the United States of America.

Except for the historical information        contained herein, the following discussion contains forward-looking statements that are        subject to risks and uncertainties. Actual results may differ substantially from those        referred to herein due to a number of factors, including but not limited to risks described        in the section entitled “Competition” and elsewhere in this Form 10KSB. Our        consolidated financial statements include the financial data of PURE Bioscience and ETI-H2O        Corporation. There were no financial transactions associated with our other subsidiary        legal entities during the periods presented. The following discussion and analysis should        be read in conjunction with the audited financial statements of PURE Bioscience.

**RESULTS OF OPERATIONS FOR THE YEAR        ENDED JULY 31, 2007 VERSUS YEAR ENDED JULY 31, 2006**        PURE Bioscience began as a provider of pharmaceutical water purification products. Our        historical revenues were primarily derived from the Water Treatment business prior to its        sale in May 2005; however, our business is now focused on investing in broader markets with        novel, proprietary bioscience products based upon our patented silver ion antimicrobial        technologies and to a significantly lesser extent our patent pending boric acid based        pesticide technologies.

We are at an early stage in the        development and marketing of our bioscience technologies in highly competitive markets, and        we anticipate that market acceptance of our novel technology may be a long term        achievement. Even when our antimicrobial products have been approved by regulatory        authorities and are available for commercial sale, there is often an extended period of        time in which potential users formulate and test them before committing to significant        purchases. Each formulation of our products requires regulatory approval for each        respective jurisdiction in which it is sold, and in addition to competitive challenges, we        believe that the investment necessary for us to research, test and obtain regulatory        approvals for our antimicrobial products will continue to be significant. However, we        believe we are in a position to accelerate additional regulatory approvals and negotiate        distribution, development and marketing agreements for the inclusion of our silver        dihydrogen (SDC) and related technology into multiple global products.

In November 2001, we acquired the        patent for SDC, a silver ion based technology which is the basis for our silver ion        products, from NVID International, Inc. In October 2003, we filed an arbitration action        against NVID International and other parties and in November 2004 we won a $14.2 million        award against NVID International through the American Arbitration Association International        Centre for Dispute Resolution. We believe it is unlikely that we will ever be able to        collect any part of this award, and we have therefore not recorded any amount as an asset        on the consolidated balance sheets as at July 31, 2006 or 2007.

In October 2005, we received a        further $3.4 million award plus costs of $241,000 resulting from a binding arbitration        proceeding against Falken Industries. In October 2006, we entered into a settlement        agreement with Falken Industries, and all arbitrations and any related appeals between or        among the parties have subsequently been dismissed. No part of this award was recorded as        an asset on our consolidated balance sheets at July 31, 2006 or 2007.

Effective May 25, 2005, we sold the        assets of the Water Treatment Division to Maryland-based Innovative Medical Services, LLC        (“IMS LLC”) for $2,375,000. During the year ended July 31, 2006 we received        $200,000 plus interest on a promissory note, and reimbursement of $132,500 from IMS LLC for        working capital we had provided subsequent to the sale. During the year ended July 31,        2006, we also determined the actual income tax liability on the operation and sale of the        Water Treatment Division for the year ended July 31, 2005 to be $129,990 less than had been        estimated at the prior year’s balance sheet date, and therefore recorded an        adjustment of this amount for the year ended July 31, 2006 on the face of the Statement of        Operations as an additional income tax provision within continuing operations, with a        corresponding and offsetting income tax benefit to discontinued operations. See Note 9 to        the consolidated financial statements included in this Report on Form 10K-SB for a more        detailed discussion of the tax consequences of the sale of the Water Treatment Division.        There were no further financial transactions associated with the sale of the assets of the        Water Treatment Division during the fiscal years ended July 31, 2006 or 2007.

For the year ended July 31, 2007        revenues of $336,400 increased by $136,000, or 68%, compared with the year ended July 31,        2006. 90% of sales for the year ended July 31, 2007 were made to four strategic partners        that are pursuing regulatory approvals and developing markets for our products. Gross        profit for the year ended July 31, 2007 was $115,300, compared with $94,700 in the same        period of the prior fiscal year. The gross margin percentage declined from 47.3% in the        prior year to 34.3% in the current period, due primarily to product and customer mix.        During the year ended July 31, 2007, a higher proportion of revenues were from finished        packaged products and blending systems than in the same period of the prior fiscal year,        when bulk concentrate contributed a higher proportion of sales.

Operating costs increased by 30.2%,        from $3,807,400 in the year ended July 31, 2006, to $4,956,100 in the year ended July 31,        2007. Within these aggregate operating costs, selling expenses increased by $329,000, to        $899,100 in the current period compared with the prior fiscal year. The increase in selling        expenses is primarily due to fees and stock option expense, and other costs associated with        the introduction of silver dihydrogen citrate products to new partners. General and        administrative expenses increased by $792,900, to $2,836,200 in the year ended July 31,        2007, compared with the year ended July 31, 2006. During the year ended July 31, 2007 we        incurred non-cash expense of $793,900 for stock options granted to Officers and Directors        during the year, based on their Black-Scholes valuation at the grant date, including a        grant made to a new Director and stock awarded to Directors based on the market price of        the common stock at the award date. No expense was recorded in the Statement of Operations        for awards made to Officers and Directors for the prior fiscal year (See Note 6 to the        consolidated financial statements for a discussion of stock based compensation expense for        the years ended July 31, 2007 and 2006). In addition, increases in third party expenses for        legal services, insurance and accounting in the year ended July 31, 2007 were offset by the        issuance of stock options and recognition of other expenses in the year ended July 31, 2006        for investor relations and investment consulting services incurred in advance of our March        2006 private placement. In addition to the stock option and common stock awards made to        Officers and Directors, we recognized stock option non-cash expense in general and        administrative expenses for the year ended July 31, 2007 of $127,000. Research and        development costs, including in-house costs, patent amortization, outside legal costs for        maintaining approved patents, and product registration expenditures increased for the year        ended July 31, 2007 by 2.3% to $1,220,800, compared with the prior fiscal year. During the        year ended July 31, 2007, $25,300 of the costs charged to R&D related to manufacturing        and R&D facility overheads incurred during periods in which we were designing and        implementing new manufacturing and bottling processes. We do not currently expect our        research and development expense to grow significantly in future periods, however if        opportunities arise, particularly in the development and testing of new formulations, we        will evaluate the need for additional research expenditures based on potential market sizes        and our estimation of the likelihood of our technology achieving successful        results.

9

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Our loss from operations before taxes        increased by $1,128,200, from a loss of $3,712,600 for the year ended July 31, 2006 to a        loss of $4,840,800 for the year ended July 31, 2007.

Other income was $156,300 greater for        the year ended July 31, 2007 than in the prior year, of which $64,700 was driven by        increased interest income from greater average cash balances. Additionally, income from        legal settlements was partially offset by capital asset write-downs associated with        discontinued software development projects and our facility reconstruction.

The total income tax provision for        each of the years ended July 31, 2007 and 2006 were $2,400, the minimum franchise tax paid        to the State of California regardless of income or loss. Additionally, for the year ended        July 31, 2006 we recorded a $129,990 tax provision on the face of the Statement of        Operations within continuing operations, with a corresponding and offsetting income tax        benefit to discontinued operations, as discussed above and in Note 9 to the consolidated        financial statements included in this Report on Form 10K-SB. All other tax liabilities for        the two years presented were offset by current period losses or available federal and        California net operating loss carry-forwards. At July 31, 2007, we had federal and        California tax net operating loss carry-forwards of approximately $18,855,300 and        $8,758,700 respectively. At July 31, 2006, we had federal and California tax net operating        loss carry-forwards of approximately $15,170,200 and $5,565,500 respectively. Realization        of our deferred tax assets, which relate to operating loss carry-forwards and timing        differences, is dependant on future earnings. The timing and amount of future earnings are        uncertain and therefore a valuation allowance has been established. The increase in the        valuation allowance on the deferred tax asset during the year ended July 31, 2007 was        $2,102,200. For a further discussion of our tax position, see Note 9 to the consolidated        financial statements.

Our net loss after taxes increased by        $972,000, from a net loss of $3,682,900 for the year ended July 31, 2006 to a net loss of        $4,654,900 for the year ended July 31, 2007.

**LIQUIDITY AND CAPITAL        RESOURCES**        From inception through the present, we have financed our operations primarily through our        initial public offering in August of 1996, by subsequent private placement stock sales,        through lines of credit and the issuance of debentures, and in May 2005 by the sale of our        Water Treatment Division. At July 31, 2007 we had net working capital (current assets less        current liabilities) of $1,191,800 and no long-term debt.

In November 2004, we won a $14.2        million award resulting from a binding arbitration proceeding against NVID International,        Inc. through the American Arbitration Association International Centre for Dispute        Resolution. We believe it is unlikely that we will ever be able to collect any part of this        award, and we have therefore not recorded any amount as an asset on the balance sheets as        at July 31, 2006 or 2007.

In October 2005, we received a $3.4        million award plus costs of $241,000 resulting from a binding arbitration proceeding        against Falken Industries. No part of this award was recorded as an asset on our        consolidated balance sheets as at July 31, 2006 or 2007. In October 2006, we entered into a        settlement agreement and all related arbitrations and any related appeals between or among        the parties have subsequently been dismissed.

As of July 31, 2007, we had current        assets of $1,694,200, a decrease of $3,372,400 from July 31, 2006. Cash and cash        equivalents at July 31, 2007 were $735,700, a decline for the fiscal year of $3,984,700.        This decline in cash and cash equivalents for the year ended July 31, 2007 is partially        offset by an increase of $708,100 in short-term investments. For a further discussion of        our short-term investments, see “Cash, Cash Equivalents and Short-term        Investments” in Note 1 to the consolidated financial statements.

During the year ended July 31, 2007        cash used in operating activities was $2,672,000, compared with $2,436,400 during the prior        fiscal year. Included in the net cash outflows for the year ended July 31, 2006 was the        receipt of $332,500 related to the May 2005 sale of our Water Treatment        Division.

During the year ended July 31, 2007,        cash used in investing activities was $1,787,900, compared with $381,900 used in investing        activities during the previous year. $708,100 of the cash used in investing activities        during the year ended July 31, 2007 was for the acquisition of short-term investments. We        also invested $204,200 in capitalized patents, spent $567,100 to redevelop the        manufacturing and office areas of our El Cajon facility, invested approximately $165,000 in        additional manufacturing assets that included an automated bottling and labeling line, and        purchased a company vehicle for $55,900. During the year we significantly expanded our SDC        manufacturing capability and installed SDC concentrate, blending and packaging equipment        based on our anticipated needs. During the year ended July 31, 2007 we wrote down the value        of our capitalized property, plant and equipment by approximately $168,000, primarily        related to discontinued software development projects. As a result, property, plant and        equipment on the consolidated balance sheets at July 31, 2007 grew by $615,500 over the        capitalized value of property, plant and equipment at July 31, 2006.

Other assets during the year ended        July 31, 2007 declined by $346,200, primarily due to $385,900 of prepaid consulting        amortization (See Note 8 to the consolidated financial statements). The capitalized value        of our patents at July 31, 2007, primarily related to our silver ion technology, was        $2,176,400, an increase of $39,700 from July 31, 2006.

10

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During the year ended July 31, 2007,        cash flows from financing activities were $475,200. $282,200 was received from the exercise        of options by third party service providers on 313,000 shares of common stock at an average        exercise price of $0.90 per share, $97,500 was received from the exercise of options by        employees on 177,250 shares of common stock at an average exercise price of $0.55 per        share, and $95,500 was received from the exercise of options by Officers and Directors on        150,000 shares of common stock at an average exercise price of $0.64 per share. In the        prior fiscal year, net cash provided by financing activities was $7,132,800, which        consisted of $6,766,600 from the sale of 4,992,208 shares of common stock in private        placements and $366,200 from the exercise of 554,333 shares of common stock underlying        options and warrants.

At July 31, 2007 we had current        liabilities of $502,400, an increase of $90,500 from July 31, 2006, primarily due to the        timing of the payment of accounts payable.

**RISK FACTORS**        You should consider carefully the following information regarding the risks of investing in        our common stock, together with the other information contained in this annual report on        Form 10KSB and in our other filings with the Securities and Exchange Commission,        before you decide to buy or maintain an investment in our common stock. We believe that the        risks described below fairly describe the risks that are material to us as of the date of        this annual report. If any of the events described below were to occur, our financial        condition, results of operations and future growth prospects would likely be materially and        adversely affected and the market price of our common stock could decline. As a result you        could lose some or all of any investment you may have made or may make in our common        stock.

**QUANTITATIVE AND QUALITATIVE        DISCLOSURES ABOUT MARKET RISK**        From time to time our investments may be exposed to market risk related to changes in        interest rates. Our current investment policy is to maintain an investment portfolio        consisting only of diversified institutional money market mutual funds investing in A-1        (S&P), Prime-1 (Moody’s) or F1 (Fitch) short-term corporate debt obligations;        U.S. Treasury Securities, or United States Government obligations issued by or backed by a        federal agency of the United States Government. We do not enter into investments for        trading or speculative purposes, and our cash is deposited in and invested through highly        rated financial institutions in the United States. While our available for sale securities        are subject to interest rate risk and would fall in value if market interest rates        increased, we estimate that the fair value of our investment portfolio would not decline by        a material amount in the event of an increase in market interest rates. We therefore would        not expect our operating results or cash flows to be affected to any significant degree by        the effect of a change in market interest rates on our investments.

**RISKS RELATED TO OUR CAPITAL        RESOURCES**        At July 31, 2007 we had current assets of $1,694,200, current liabilities of $502,400 and        no outstanding long-term debt. We do not yet have significant cash inflows from product        sales to offset our ongoing planned investments in corporate infrastructure, research and        development projects, regulatory submissions, business development activities, and sales        and marketing, among other investments.

On October 19, 2007, subsequent to        the end of the fiscal year, we closed on the sale of 1,677,596 unregistered securities        units to accredited investors, at $5.03 per unit. Each unit consisted of one share of PURE        Bioscience common stock and one quarter of a five-year warrant to purchase PURE Bioscience        common stock at $7.17 per share. A total of 419,394 such five-year warrants were issued to        the investors. Additionally, a five-year warrant to purchase 167,776 shares of common stock        at $8.60 per share was issued to Taglich Brothers, Inc. as the placement agent. The gross        proceeds of the sale were $8,438,328 and the net proceeds to us, after fees and expense,        were $7,720,743. If the shares of common stock are not registered within 210 of the filing        date, we would be required to repay 2% of the gross proceeds for each thirty day period        until the shares are registered, up to a maximum repayment of 18% of the gross proceeds. No        registration penalties are payable with respect to the shares underlying the        warrants.

In future periods we may need to seek        additional capital through the issuance of debt, equity, convertible securities or through        other means, any one of which could reduce the value to us, perhaps substantially, of our        technology and its commercial potential. The issuance of debt or equity, or convertible        securities, could lead to the dilution of our existing shareholders. There is no guarantee        that we would be able to obtain capital on terms acceptable to us, or at all. Insufficient        funds could require us to delay, scale back or eliminate some or all of our research and        product development programs, license to third parties the right to commercialize products        or technologies that we would otherwise commercialize ourselves, or to reduce or cease        operations.

**RISKS RELATED TO OUR        OPERATIONS**        We had a loss of $4,654,900 after taxes in the fiscal year ending July 31, 2007, and a loss        of $3,682,900 after taxes in the fiscal year ending July 31, 2006. We may continue to have        losses in the future. If the penetration into the marketplace of SDC is later than        anticipated, revenue growth is slower than anticipated or operating expenses exceed        expectations, it may take an unforeseen period of time to achieve or sustain profitability        and we may never achieve or sustain profitability. During the year ended July 31, 2007 we        invested in the expansion and improvement of our manufacturing facility, and to a lesser        extent our office space, and our future revenues may not provide an adequate return, if        any, on such investments. We may never achieve or sustain cash inflows that exceed our cash        outflows. Slower than anticipated revenue growth would or could force us to scale back        research, testing, product development and marketing of new products, and/or force us to        reduce the size and scope of our operations, or cease operations altogether.

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We are a bioscience company focused        on the marketing and continued development of our electrolytically generated stabilized        ionic silver technology, including our flagship silver dihydrogen citrate antimicrobial,        and to a much lesser extent our Triglycylboride pesticide technology. While the rewards in        these fields are potentially great, the risks, the regulatory hurdles and the costs of        doing business are also high. Our silver dihydrogen citrate is a platform technology rather        than a single use applied technology. As such, products developed from the platform fall        under the jurisdiction of multiple U.S. and international regulatory agencies. We currently        have U.S. Environmental Protection Agency (“EPA”) registration for our        2400-parts per million (ppm) technical grade SDC concentrate (trade name Axenohl), as well        as for our Axen and Axen30 hard surface disinfectant products for commercial, industrial        and consumer applications including restaurants, homes and medical facilities. We intend to        fund and manage additional U.S. EPA-regulated product development internally, in        conjunction with our regulatory consultants and potentially by partnering with other third        parties. We are also partnering, or intend to partner, with third parties who are seeking,        or intend to seek, approvals to market SDC-based products in markets outside the United        States. However, the introduction of additional regulated antimicrobial products in the        U.S. or in markets outside the U.S. could take several months or years.

In addition to its use on inanimate        surfaces, we believe that our technology also shows promise as a broad-spectrum        antimicrobial for use in human and veterinary healthcare products. We are pursuing certain        approvals through the U.S. Food and Drug Administration (FDA) by partnering with        Therapeutics, Incorporated, which has assumed responsibility for the testing and regulatory        process for selected potential FDA regulated silver dihydrogen citrate-based products. We        expect that the development of SDC-based products could lead to multiple IND, NDA and/or        510-K filings for silver dihydrogen citrated-based healthcare products with the FDA. In        December 2006 Therapeutics submitted an Investigational New Drug (IND) application with the        FDA for an SDC-based hand sanitizer, to enable initiation of the first clinical trial of a        product containing SDC as an active pharmaceutical ingredient. After reviewing the        submission the FDA determined that the product testing in man may begin as proposed.        However, the FDA and comparable agencies in many foreign countries impose substantial        limitations on the introduction of new products through costly and time-consuming        laboratory and clinical testing and other procedures. The process of obtaining FDA and        other required regulatory approvals is lengthy, expensive and uncertain. There is no        guarantee that either Therapeutics, Inc., any other potential partner, or ourselves will be        able to obtain the resources necessary to further develop our technology or obtain        regulatory approvals, or that the products will be successful in meeting the strict        criteria imposed by the FDA. It may be several years before we, or a third party to whom we        grant rights to use our silver ion technologies, are able to introduce any FDA regulated        antimicrobial pharmaceutical products containing our technology. Such products may never        achieve regulatory approval and may never be commercialized.

We are marketing our new        antimicrobial silver ion technology to industrial and consumer markets. We also have begun        marketing our environmentally safe pesticides. These products have not yet been accepted        into the marketplace. Risks involved in introducing these new products include liability        for product effectiveness and safety, and competition from existing or emerging sources.        Additionally, government regulation in the United States and in other countries is a        significant factor in the development, manufacturing and marketing of many of our products        and in our ongoing research and development activities. Complying with applicable        government regulations and obtaining necessary clearances or approvals can be time        consuming and expensive, and there can be no assurance that regulatory review will not        involve delays or other actions adversely affecting the marketing and sale of our products.        We also cannot predict the extent or impact of future legislation or regulation. Some of        our new bioscience applications for the healthcare markets and food preparation markets        will require approval by government agencies prior to marketing or sale in the United        States. We have not yet applied for Food and Drug Administration or Department of        Agriculture approval to market any such products. If any future applications are not        approved, we will not be able to market or sell such products, which would limit the        revenues which may be realized. Even after approval, if any, we will remain subject to        changing governmental policies regulating antimicrobial products. We also intend to take        these technologies to the international marketplace, and doing business internationally        carries a great deal of risk, with regard to foreign government regulation, banking and        other factors.

Our silver ion, pesticide and other        products will be competing in markets dominated by extremely large, well financed and        internationally recognized chemical and pharmaceutical companies. Our ability to compete        will depend upon developing brand recognition and distribution methods. Many of our        competitors already have well established brands and distribution, as well as many times        our financial resources. Focused competition by such chemical and pharmaceutical giants        could substantially limit our potential market share and ability to profit from these        products.

We expect that sales of SDC will        constitute a substantial portion of our revenues in future periods. Any material decrease        in the overall level of sales or expected sales of, or the prices for SDC, whether as a        result of competition, change in consumer demand, or any other factor, would have a        materially adverse effect on our business, financial condition and results of        operations.

**LEGAL AND REGULATORY RISKS RELATED        TO OUR BUSINESS**        We rely and may in the future rely on a combination of patent, trademark, trade secret and        copyright law and contractual restrictions to protect the proprietary aspects of our        technology and business. These legal protections afford only limited protection for our        intellectual property and trade secrets. Despite efforts to protect our proprietary rights,        unauthorized parties may attempt to copy aspects of our proprietary technology or otherwise        obtain and use information that we regard as proprietary.

We have filed for U.S. and foreign        patent applications and trademark registrations for our patents and trademarks. It is        possible that competitors or others will create and use products in violation of our        patents and/or adopt service names similar to our service names. Such patent infringement        could have a material, adverse effect on our business. Adopting similar names and        trademarks by competitors could lead to customer confusion. Any claims or customer        confusion related to our trademarks could negatively affect our business.

Litigation may be necessary to        enforce our intellectual property rights and protect our trade secrets. If third parties        prepare and file applications in the United States or other countries that claim trademarks        used or registered by us, we may oppose those applications and may be required to        participate in proceedings before the regulatory agencies who determine priority of rights        to such trademarks. Any litigation or adverse priority proceeding could result in        substantial costs and diversions of resources, and could seriously harm our business and        operating results.

12

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To the extent that we operate        internationally, the laws of many countries may not protect our proprietary rights to as        great an extent as do the laws of the United States. Many countries have a        “first-to-file” trademark registration system. As a result, we may be prevented        from registering or using our trademarks in certain countries if third parties have        previously filed applications to register or have registered the same or similar        trademarks. Our means of protecting our proprietary rights may not be adequate, and our        competitors could independently develop similar technology.

As a business which manufactures and        markets products for use by consumers, we may become liable for any damage caused by our        products when used in the manner intended. Any such claim of liability, whether meritorious        or not, could be time-consuming and/or result in costly litigation. Although we maintain        general liability insurance, our insurance may not cover potential claims of the types        described above and may not be adequate to indemnify for all liabilities that may be        imposed. Any imposition of liability that is not covered by insurance or is in excess of        insurance coverage could harm our business and operating results, and you may lose some or        all of any investment you have made, or may make, in our common stock.

Our common stock is registered under        the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It is        therefore subject to the information, proxy solicitation, insider trading and other        restrictions and requirements of the SEC under the Exchange Act. On July 30, 2002, the        Sarbanes-Oxley Act of 2002 was signed into law. The Sarbanes-Oxley Act relates to us and        adds to our obligations for regulatory reporting, accounting, corporate governance,        internal controls and business practices. The SEC continues to issue new and proposed rules        implementing various provisions of the Sarbanes-Oxley Act, and meeting these rules will        substantially increase the cost to us of being a public company, including substantial        costs during the year ending July 31, 2008. This additional cost will reduce our future        profits or increase our future losses, and a greater proportion of management time and        effort will be needed to meet our regulatory obligations than before.

Since becoming a public company in        August 1996, we have filed our annual and period reports as a small business issuer using        forms 10K-SB and 10Q-SB. Under the provisions of Regulation S-B, as the aggregate market        value of our common stock held by non-affiliates at July 31, 2006 and July 31, 2007 was        more than $25,000,000, we will no longer be within the small business reporting category        under the Exchange Act for the year ending July 31, 2008 and subsequent years. The        increased reporting requirements and heightened corporate governance obligations that we        will face now that we are no longer a small business filer will further increase the cost        to us, perhaps substantially, of being a public company. Additionally, during the year        ending July 31, 2008 or in future fiscal years, based on the aggregate market value of our        common stock we could be required to file our periodic and annual reports on an accelerated        basis, which would necessitate us incurring additional costs to remain compliant with our        obligations under the Exchange Act or Sarbanes-Oxley Act.

**OTHER RISKS RELATED TO INVESTING        IN OUR SECURITIES**        As of October 25, 2007, Michael L. Krall, our President and Chief Executive Officer,        beneficially owned, including exercisable options, approximately 8% of our common stock. As        of the same date, our Directors and Officers as a group beneficially owned, including        exercisable options and warrants, approximately 25% of our common stock. As a result, our        management, and Mr. Krall in particular, are in a position to significantly influence the        direction and policies of the Company, the election of the Board of Directors of the        Company and the outcome of any other matters requiring stockholder approval.

Since our initial public offering in        August 1996, the price and trading volume of our common stock have been highly volatile.        The price has ranged from below $1 per share to over $7 per share, and the monthly trading        volume has varied from under 200,000 shares to over 5.1 million shares. During the twelve        months prior to October 2007, the closing price of our common stock on any given day has        ranged from $1.75 to $7.45, and the monthly trading volume has varied from approximately        1.2 million shares to approximately 5.1 million shares. This volatility could adversely        affect an investor’s ability to sell shares of our common stock and/or the available        price for such shares, and could result in lower prices being available to an investor if        the investor wishes to sell their shares at any given time.

Our common stock may be characterized        as a “penny stock” under SEC regulations. As such, broker-dealers dealing in        the common stock may be subject to the disclosure rules for transactions involving penny        stocks, which generally require that, prior to a purchase, the broker-dealer determine if        purchasing the common stock is suitable for the applicable purchaser. The broker-dealer        must also obtain the written consent of the applicable purchasers to purchase the common        stock and disclose the best bid and offer prices available for the common stock and the        price at which the broker-dealer last purchased or sold the common stock. These additional        burdens imposed upon broker-dealers may discourage them from effecting transactions in our        common stock, which could make it difficult for an investor to sell their shares at any        given time.

We have  approximately  10,348,918 shares of common stock reserved for issuance,  which  includes  shares under  equity compensation  plans,  vested and  unvested  options,  and  warrants.  These  shares have a weighted-average   exercise  price  of  approximately  $1.59.  An  additional  approximately   12,687,181 authorized  shares of common stock remain  available forfuture issuance under equity  compensation  plans or otherwise.  The exercise of optionsand  warrants,  and the sale of shares  underlying  such options or warrants,  could havean adverse  effect on the market for our common  stock,  including the price that aninvestor  could obtain for their  shares.  Investors  may  experience  dilution in thenet  tangible  book value of their  investment upon the exercise of outstanding  optionsand warrants  granted under our stock option plans, and other options and warrants. 

We have never paid any cash dividends        on our common stock and do not anticipate paying cash dividends on our common stock in the        foreseeable future. The future payment of dividends on our common stock will depend on our        earnings, financial condition and other business and economic factors, which the Board of        Directors of the Company may consider relevant.

13

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Certain provisions of our charter and        by-laws may delay or frustrate the removal of incumbent Directors and may prevent or delay        a merger, tender offer or proxy contest involving the Company that is not approved by the        Board of Directors of the Company, even if such events may be beneficial to the interests        of stockholders. For example, our Board of Directors, without stockholder approval, has the        authority and power to issue all authorized and unissued shares of common stock and        preferred stock which have not otherwise been reserved for issuance on such terms as the        Board of Directors determines. The Board of Directors could also issue 5,000,000 shares of        preferred stock and such preferred stock could have voting or conversion rights which could        adversely affect the voting power of the holders of common stock. In addition, California        law may contain provisions that have the effect of making it more difficult for others to        gain control of the Company.

# CRITICAL ACCOUNTING        POLICIES

          **Accounting for Long-Lived Assets / Intangible Assets**        We assess the impairment of long-lived assets, consisting of property, plant, equipment and        finite-lived intangible assets, whenever events or circumstances indicate that the carrying        value may not be recoverable. Examples of such events or circumstances include:

        An        asset’s ability to continue to generate income from operations and positive cash flow        in future periods

        Loss        of legal ownership or title to an asset

        Significant        changes in our strategic business objectives and utilization of the asset(s)

        The        impact of significant negative industry or economic trends

Recoverability of assets to be held        and used in operations is measured by a comparison of the carrying amount of an asset to        the future net cash flows expected to be generated by the assets. The factors used to        evaluate the future net cash flows, while reasonable, requires a high degree of judgment        and the results could vary if the actual results are materially different than the        forecasts. In addition, we base useful lives and amortization or depreciation expense on        our subjective estimate of the period that the assets will generate revenue or otherwise be        used by us. If such assets are considered to be impaired, the impairment to be recognized        is measured by the amount by which the carrying amount of the assets exceeds the fair value        of the assets. Assets to be disposed of are reported at the lower of the carrying amount or        fair value less selling costs.

We also periodically review the lives        assigned to our intangible assets to ensure that our initial estimates do not exceed any        revised estimated periods from which we expect to realize cash flows from the technologies.        If a change were to occur in any of the above-mentioned factors or estimates, the        likelihood of a material change in our reported results would increase.

          **Accounting for Stock-Based Compensation**        We adopted the fair value provisions of SFAS 123(R) on August 1, 2006. Stock-based        compensation expense for all stock-based compensation awards granted after August 1, 2006        is based on the grant date fair value estimated in accordance with the provisions of SFAS        1(R). Specifically, we estimate the weighted-average fair value of options granted using        the Black-Scholes option pricing model based on evaluation assumptions regarding expected        volatility, dividend yield, risk-free interest rates, the expected term of the option and        the expected forfeiture rate. Each of these assumptions, while reasonable, requires a        certain degree of judgment and the fair value estimates could vary if the actual results        are materially different than those initially applied. Prior to the adoption of SFAS        123(R), we did not record compensation cost in the consolidated financial statements for        stock options issued to employees or Directors.

**RECENT ACCOUNTING        PRONOUNCEMENTS**        In preparing our financial statements, we continuously review and adopt new accounting        pronouncements and standards as they apply to us.

In June 2006, the Financial        Accounting Standards Board, or FASB, issued FASB Interpretation No. 48 (“FIN        48”), Accounting for Uncertainty in Income Taxes—an interpretation of FASB        Statement No. 109, which prescribes a recognition threshold and measurement attribute for        the financial statement recognition and measurement of a tax position taken or expected to        be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification,        interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is        effective for fiscal years beginning after December 15, 2006 (our fiscal year ending July        31, 2008). We are still evaluating the impact of FIN 48 on our consolidated financial        statements for future periods.

In September 2006, the FASB issued        Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value        Measurements, which provides a single definition of fair value, a framework for measuring        fair value, and expanded disclosures concerning fair value. Previously, different        definitions of fair value were contained in various accounting pronouncements creating        inconsistencies in measurement and disclosures. SFAS No. 157 applies under those previously        issued pronouncements that prescribe fair value as the relevant measure of value, except        Statement No. 123R and related interpretations and pronouncements that require or permit        measurement similar to fair value but are not intended to measure fair value. This        pronouncement is effective for fiscal years beginning after November 15, 2007 (our fiscal        year ending July 31, 2009). We do not expect the adoption of SFAS No. 157 to have a        material impact on our consolidated financial statements or results of        operations.

Also in September 2006, the SEC        released Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements        when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides        guidance on how the effects of the carryover or reversal of prior year misstatements should        be considered in quantifying a current year misstatement. In some situations, companies        will be required to record errors that occurred in prior years even though those errors        were immaterial for each year in which they arose. Companies may choose to either restate        all previously presented financial statements or record the cumulative effect of such        errors as an adjustment to retained earnings at the beginning of the period in which SAB        108 is applied. SAB 108 is effective for fiscal years ending after November 15, 2006 (our        fiscal year ending July 31, 2007), however the adoption of SAB 108 had no impact on our        consolidated financial statements or results of operations.

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In February 2007, the FASB issued        SFAS No. 159, The Fair Value Option for Financial Assets and Financial        Liabilities—Including an Amendment of FASB Statement No. 115. This standard permits        an entity to choose to measure many financial instruments and certain other items at fair        value. Most of the provisions in SFAS No. 159 are elective, however the amendment to SFAS        No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all        entities with available-for-sale and trading securities. The fair value option established        by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at        specified election dates. Under SFAS No. 159 we would report unrealized gains and losses on        items for which the fair value option has been elected in earnings at each subsequent        reporting date. The fair value option: (a) may be applied instrument by instrument, with a        few exceptions, such as investments otherwise accounted for by the equity method; (b) is        irrevocable (unless a new election date occurs); and (c) is applied only to entire        instruments and not to portions of instruments. SFAS No. 159 is effective as of the        beginning of the first fiscal year that begins after November 15, 2007 (our fiscal year        ending July 31, 2009); however we do not currently expect the adoption of SFAS No. 159 to        have a material impact on our consolidated financial statements.

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# ITEM 7. FINANCIAL        STATEMENTS AND SUPPLEMENTARY DATA

# REPORT OF INDEPENDENT        REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors        and Stockholders        PURE Bioscience

We have audited the accompanying        consolidated balance sheet of PURE Bioscience as of July 31, 2007, and the related        statements of operations, stockholders’ equity, and cash flows for the year then        ended. These financial statements are the responsibility of the Company’s management.        Our responsibility is to express an opinion on these financial statements based on our        audit.

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. An audit includes        examining, on a test basis, evidence supporting the amounts and disclosures in the        financial statements. An audit also includes assessing the accounting principles used and        significant estimates made by management, as well as evaluating the overall financial        statement presentation. We believe that our audit provides a reasonable basis for our        opinion.

In our opinion, the financial        statements referred to above present fairly, in all material respects, the financial        position of PURE Bioscience as of July 31, 2007, and the results of its operations and its        cash flows for the year then ended in conformity with accounting principles generally        accepted in the United States of America.

/s/ Mayer Hoffman        McCann P.C.        San Diego, California        October 26, 2007

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The Board of        Directors        PURE Bioscience

We have audited the accompanying        consolidated balance sheets of PURE Bioscience as of July 31, 2006 and the related        statements of operations, stockholders’ equity and cash flows for the year ended July        30, 2006. These financial statements are the responsibility of the Company’s        management. Our responsibility is to express an opinion on these financial statements based        on our audit.

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. An audit includes        examining on a test basis, evidence supporting the amounts and disclosures in the financial        statements. An audit also includes assessing the accounting principles used and significant        estimates made by management, as well as evaluating the overall financial statement        presentations. We believe that our audits provide a reasonable basis for our        opinion.

In our opinion, the financial        statements referred to above present fairly, in all material respects, the consolidated        financial position of PURE Bioscience and the results of its operations and its cash flows        for the year ended July 31, 2006 in conformity with generally accepted accounting        principles in the United States of America.

/s/ MILLER AND McCOLLOM        MILLER AND McCOLLOM        Certified Public Accountants        4350 Wadsworth Boulevard, Suite 300        Wheat Ridge, Colorado 80033        October 25, 2006

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# PURE        Bioscience

# CONSOLIDATED        BALANCE SHEETS

|                                                                                                                                           | July 31, |        |
|-------------------------------------------------------------------------------------------------------------------------------------------|----------|--------|
||
| **ASSETS**                                                                                                                                |     |   |   |  |   |   |  |   |
| Current Assets                                                                                                                            |     |   |
|       Cash and                cash equivalents                                                              |     |   | $ | 735,654 |   | $ | 4,720,362 |   |
|       Short-term                investments                                                                 |     |   |   | 708,058 |   |   | — |   |
|       Accounts                receivable, net of allowance for doubtful accounts                            |     |   |
|            of                $0 at July 31, 2006 and $0 at July 31, 2007           |     |   |   | 7,548 |   |   | 58,075 |   |
|       Inventories,                net                                                                       |     |   |   | 242,899 |   |   | 171,939 |   |
|       Prepaid                expenses                                                                       |     |   |   | — |   |   | 116,242 |   |
|                                                                                                                                           |          |        |  |  |
|            Total                current assets                                     |     |   |   | 1,694,159 |   |   | 5,066,618 |   |
|                                                                                                                                           |          |        |  |  |
| Total property, plant and                equipment, net                                                                                   |     |   |   | 968,737 |   |   | 353,272 |   |
|                                                                                                                                           |          |        |  |  |
| Other Assets                                                                                                                              |     |   |
|       Prepaid                consulting                                                                     |     |   |   | 13,011 |   |   | 398,915 |   |
|       Deposits                                                                                              |     |   |   | 9,744 |   |   | 9,744 |   |
|       Patents                                                                                               |     |   |   | 2,176,388 |   |   | 2,136,725 |   |
|                                                                                                                                           |          |        |  |  |
|            Total                other assets                                       |     |   |   | 2,199,143 |   |   | 2,545,384 |   |
|                                                                                                                                           |          |        |  |  |
|       Total                assets                                                                           |     |   | $ | 4,862,039 |   | $ | 7,965,274 |   |
|                                                                                                                                           |          |        |  |  |
| **LIABILITIES AND                STOCKHOLDERS' EQUITY**                                                                                   |     |   |
| Current                Liabilities                                                                                                        |     |   |
|       Accounts                payable                                                                       |     |   | $ | 422,753 |   | $ | 334,040 |   |
|       Accrued                liabilities                                                                    |     |   |   | 77,228 |   |   | 75,448 |   |
|       Taxes                payable                                                                          |     |   |   | 2,400 |   |   | 2,400 |   |
|                                                                                                                                           |          |        |  |  |
|            Total                current liabilities                                |     |   |   | 502,381 |   |   | 411,888 |   |
|                                                                                                                                           |          |        |  |  |
|            Total                liabilities                                        |     |   |   | 502,381 |   |   | 411,888 |   |
|                                                                                                                                           |          |        |  |  |
| Stockholders'                Equity                                                                                                       |     |   |
|       Preferred                Stock, no par value:                                                         |     |   |
|            5,000,000                shares authorized, no shares issued            |     |   |   | — |   |   | — |   |
|       Class A                common stock, no par value:                                                    |     |   |
|            50,000,000                shares authorized                             |     |   |
|            23,983,002                issued and outstanding at July 31, 2006, and  |     |   |
|            24,961,805                issued and outstanding at July 31, 2007       |     |   |   | 26,519,543 |   |   | 25,801,653 |   |
|       Additional                Paid-In Capital                                                             |     |   |   | 2,486,829 |   |   | 1,743,570 |   |
|       Warrants:                                                                                             |     |   |
|            391,698                issued and outstanding at July 31, 2006 and 2007 |     |   |   | 245,825 |   |   | 245,825 |   |
|       Accumulated                deficit                                                                    |     |   |   | (24,892,539 | ) |   | (20,237,662 | ) |
|                                                                                                                                           |          |        |  |  |
|            Total                stockholders' equity                               |     |   |   | 4,359,658 |   |   | 7,553,386 |   |
|                                                                                                                                           |          |        |  |  |
|       Total                liabilities and stockholders' equity                                             |     |   | $ | 4,862,039 |   | $ | 7,965,274 |   |
|                                                                                                                                           |          |        |  |  |

The accompanying notes        are an integral part of the consolidated financial statements

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# PURE        Bioscience

# CONSOLIDATED        STATEMENTS OF OPERATIONS

|                                                                                            | For the Years Ended July 31, |        |
|--------------------------------------------------------------------------------------------|------------------------------|--------|
||
| Net                revenues                                                                |                         |   | $ | 336,392 |   | $ | 200,432 |   |
| Cost of sales                                                                              |                         |   |   | 221,108 |   |   | 105,722 |   |
|                                                                                            |                              |        |  |  |
| Gross profit                                                                               |                         |   |   | 115,284 |   |   | 94,710 |   |
|                                                                                            |                              |        |  |  |
| Selling expenses                                                                           |                         |   |   | 899,145 |   |   | 570,155 |   |
| General and administrative                expenses                                         |                         |   |   | 2,836,224 |   |   | 2,043,307 |   |
| Research and                development                                                    |                         |   |   | 1,220,764 |   |   | 1,193,894 |   |
|                                                                                            |                              |        |  |  |
| Total operating                expenses                                                    |                         |   |   | 4,956,133 |   |   | 3,807,356 |   |
|                                                                                            |                              |        |  |  |
| Loss from                operations                                                        |                         |   |   | (4,840,849 | ) |   | (3,712,646 | ) |
|                                                                                            |                              |        |  |  |
| Other income and                (expense):                                                 |                         |   |
|       Interest                income                         |                         |   |   | 150,878 |   |   | 86,174 |   |
|       Interest                expense                        |                         |   |   | — |   |   | (460 | ) |
|       Other                                                  |                         |   |   | 37,494 |   |   | (53,594 | ) |
|                                                                                            |                              |        |  |  |
| Total other income                (expense)                                                |                         |   |   | 188,372 |   |   | 32,120 |   |
|                                                                                            |                              |        |  |  |
| Loss from continuing                operations before income taxes                         |                         |   |   | (4,652,477 | ) |   | (3,680,526 | ) |
| Income tax                provision                                                        |                         |   |   | (2,400 | ) |   | (132,390 | ) |
|                                                                                            |                              |        |  |  |
| Loss from continuing                operations                                             |                         |   |   | (4,654,877 | ) |   | (3,812,916 | ) |
|                                                                                       |                         |   |
| Discontinued                operations:                                                    |                         |   |
|       Income                taxes on discontinued operations |                         |   |   | — |   |   | 129,990 |   |
|                                                                                            |                              |        |  |  |
| Net loss                                                                                   |                         |   |   | (4,654,877 | ) |   | (3,682,926 | ) |
|                                                                                            |                              |        |  |  |
| Net loss per common share,                basic and diluted                                |                         |   |
|       Continuing                operations                   |                         |   | $ | (0.19 | ) | $ | (0.19 | ) |
|       Discontinued                operations                 |                         |   |   | — |   |   | 0.01 |   |
|                                                                                            |                              |        |  |  |
|       Net                Loss                                |                         |   | $ | (0.19 | ) | $ | (0.18 | ) |
|                                                                                            |                              |        |  |  |

The accompanying notes        are an integral part of the consolidated financial statements

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# PURE        Bioscience

# CONSOLIDATED        STATEMENTS OF CASH FLOWS

|                                                                                                                                                   | For the Years Ended                    July 31, |        |
|---------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|--------|
||
| **Cash flows                from operating activities:**                                                                                          |                                            |   |   |  |   |   |  |   |
|                                                                                                                                              |                                            |   |
|       Net                loss                                                                                       |                                            |   | $ | (4,654,877 | ) | $ | (3,682,926 | ) |
|       Adjustments                to reconcile net loss to net cash                                                  |                                            |   |
|       used in                operating activities:                                                                  |                                            |   |
|           Amortization                and depreciation                                          |                                            |   |   | 257,086 |   |   | 257,307 |   |
|           Impairment                of capitalized assets                                       |                                            |   |   | 167,643 |   |   | — |   |
|           Stock-based                compensation                                               |                                            |   |   | 1,371,863 |   |   | 743,843 |   |
|       Changes                in assets and liabilities:                                                             |                                            |   |
|           Accounts                receivable                                                    |                                            |   |   | 50,527 |   |   | 15,185 |   |
|           Other                receivables and interest receivable                              |                                            |   |   | — |   |   | 135,338 |   |
|           Notes                and other amounts receivable (Water Treatment Division sale)     |                                            |   |   | — |   |   | 200,000 |   |
|           Prepaid                expense                                                        |                                            |   |   | 116,242 |   |   | (43,898 | ) |
|           Inventories                                                                           |                                            |   |   | (70,960 | ) |   | (119,879 | ) |
|           Accounts                payable and accrued cash liabilities                          |                                            |   |   | 90,492 |   |   | 58,987 |   |
|           Income                tax payable                                                     |                                            |   |   | — |   |   | (400 | ) |
|                                                                                                                                                   |                                                 |        |  |  |
|                **Net cash (used) in operating activities**             |                                            |   |   | (2,671,984 | ) |   | (2,436,443 | ) |
|                                                                                                                                              |                                            |   |
| **Cash flows from investing                activities**                                                                                           |                                            |   |
|                                                                                                                                              |                                            |   |
|       Investment                in patents                                                                          |                                            |   |   | (204,188 | ) |   | (111,113 | ) |
|       Purchase                of property, plant and equipment                                                      |                                            |   |   | (875,668 | ) |   | (270,788 | ) |
|       Change in                short-term investments                                                               |                                            |   |   | (708,058 | ) |   | — |   |
|                                                                                                                                                   |                                                 |        |  |  |
|                **Net cash (used) in investing activities**             |                                            |   |   | (1,787,914 | ) |   | (381,901 | ) |
|                                                                                                                                              |                                            |   |
| **Cash flows from financing                activities**                                                                                           |                                            |   |
|                                                                                                                                              |                                            |   |
|       Proceeds                from short-term loans                                                                 |                                            |   |   | — |   |   | 80,000 |   |
|       Payment                of short-term loans                                                                    |                                            |   |   | — |   |   | (80,000 | ) |
|       Proceeds                from sale of common stock                                                             |                                            |   |   | 475,190 |   |   | 7,132,818 |   |
|                                                                                                                                                   |                                                 |        |  |  |
|                **Net cash provided by (used in) financing activities** |                                            |   |   | 475,190 |   |   | 7,132,818 |   |
|                                                                                                                                                   |                                                 |        |  |  |
| **Net increase (decrease)                in cash and cash equivalents**                                                                           |                                            |   | $ | (3,984,708 | ) | $ | 4,314,474 |   |
|                                                                                                                                                   |                                                 |        |  |  |
| Cash and cash equivalents at                beginning of period                                                                                   |                                            |   |   | 4,720,362 |   |   | 405,888 |   |
|                                                                                                                                              |                                            |   |
| Cash and cash equivalents at                end of period                                                                                         |                                            |   | $ | 735,654 |   | $ | 4,720,362 |   |
|                                                                                                                                                   |                                                 |        |  |  |
|                                                                                                                                              |                                            |   |
| **Supplemental disclosures                of cash flow information**                                                                              |                                            |   |
|       Cash paid                for taxes                                                                            |                                            |   | $ | 2,400 |   | $ | 6,189 |   |
|       Cash paid                for interest                                                                         |                                            |   | $ | — |   | $ | 460 |   |

The accompanying notes        are an integral part of the consolidated financial statements

20

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# PURE        Bioscience

# CONSOLIDATED        STATEMENTS OF STOCKHOLDERS' EQUITY

|                                                        | Common Stock |        |        | Warrants   |        |        |            |
|--------------------------------------------------------|--------------|--------|--------|------------|--------|--------|------------|
||
| Balance, July                31,2005                   |         |   |   | 17,713,306 |   | $      | 18,577,058 |   | $ | 739,943 |   |   | 640,929 |   | $ | 198,471 |   | $ | (16,554,736 | ) | $ | 2,960,736 |   |
|                                                        |              |        |        |            |        |        |            |  |  |  |  |  |  |  |
| Private                placement                       |         |   |   | 4,992,208  |   |   | 6,530,755  |   |   | — |   |   | 355,698 |   |   | 235,854 |   |   | — |   |   | 6,766,609 |   |
| Common stock issued for                services        |         |   |   | 75,000     |   |   | 139,130    |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 139,130 |   |
| Stock options issued for                services       |         |   |   | —    |   |   | —    |   |   | 1,003,627 |   |   | — |   |   | — |   |   | — |   |   | 1,003,627 |   |
| Stock options                exercised                 |         |   |   | 1,002,488  |   |   | 366,210    |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 366,210 |   |
| Expired / terminated                warrants           |         |   |   | —    |   |   | 69,013     |   |   | — |   |   | (304,929 | ) |   | (69,013 | ) |   | — |   |   | — |   |
| Exercised                Warrants                      |         |   |   | 200,000    |   |   | 119,487    |   |   | — |   |   | (300,000 | ) |   | (119,487 | ) |   | — |   |   | — |   |
| Net loss                                               |         |   |   | —    |   |   | —    |   |   | — |   |   | — |   |   | — |   |   | (3,682,926 | ) |   | (3,682,926 | ) |
|                                                        |              |        |        |            |        |        |            |  |  |  |  |  |  |  |
| Balance, July 31,                2006                  |         |   |   | 23,983,002 |   |   | 25,801,653 |   |   | 1,743,570 |   |   | 391,698 |   |   | 245,825 |   |   | (20,237,662 | ) |   | 7,553,386 |   |
|                                                        |              |        |        |            |        |        |            |  |  |  |  |  |  |  |
| Common stock issued for                services        |         |   |   | 30,000     |   |   | 65,100     |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 65,100 |   |
| Stock options issued for                services       |         |   |   | —    |   |   | —    |   |   | 91,290 |   |   | — |   |   | — |   |   | — |   |   | 91,290 |   |
| Share-based compensation -                options      |         |   |   | —    |   |   | —    |   |   | 651,969 |   |   | — |   |   | — |   |   | — |   |   | 651,969 |   |
| Share-based compensation -                stock grants |         |   |   | 60,000     |   |   | 177,600    |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 177,600 |   |
| Stock options                exercised                 |         |   |   | 978,803    |   |   | 475,190    |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 475,190 |   |
| Canceled shares                                        |         |   |   | (90,000    | )      |   | —    |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Net loss                                               |         |   |   | —    |   |   | —    |   |   | — |   |   | — |   |   | — |   |   | (4,654,877 | ) |   | (4,654,877 | ) |
|                                                        |              |        |        |            |        |        |            |  |  |  |  |  |  |  |
| Balance, July 31,                2007                  |         |   |   | 24,961,805 |   | $      | 26,519,543 |   | $ | 2,486,829 |   |   | 391,698 |   | $ | 245,825 |   | $ | (24,892,539 | ) | $ | 4,359,658 |   |
|                                                        |              |        |        |            |        |        |            |  |  |  |  |  |  |  |

The accompanying notes        are an integral part of the consolidated financial statements

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# Notes to Consolidated        Financial Statements

# Note 1. Organization        and Summary of Significant Accounting Policies

This summary of significant        accounting policies of PURE Bioscience (formerly Innovative Medical Services) is presented        to assist in understanding the Company’s financial statements. The financial        statements and notes are representations of the Company’s management, who are        responsible for their integrity and objectivity. These accounting policies conform to        Generally Accepted Accounting Principles in the United States of America and have been        consistently applied in the preparation of the financial statements.

#       Organization        and Business Activity

PURE Bioscience was incorporated as        Innovative Medical Services in San Diego, California on August 24, 1992 as a provider of        pharmaceutical water purification products. In September 2003, the Company’s        shareholders approved a change in the name of the corporation, to PURE        Bioscience.

In October 1998, the Company formed a        subsidiary, EXCOA Nevada to purchase the assets of Export Company of America, Inc. (EXCOA),        a privately held Fort Lauderdale, Florida-based distributor of disposable medical, dental        and veterinary supplies. The major asset of this company was its 45% interest in Ampromed        Comercio Importacao E Exportacao Ltda (AMPROMED), a Rio de Janeiro-based import company        that sells medical, dental and veterinary supplies and water filtration products to        practitioners, retail outlets and government agencies. We acquired the remaining 55%        interest in AMPROMED from a private individual and transferred it to EXCOA        Nevada.

In November 2000, PURE Bioscience        acquired 100% of the stock of ETIH2O, Inc., a privately held technology corporation that        developed silver dihydrogen citrate and its associated brands, Axenohl and Axen.

Subsequent to the acquisition of        ETIH2O, our business activity was divided into two basic business segments, the Bioscience        Division and the Water Treatment Division. In May 2005, we sold the assets of our Water        Treatment Division to Maryland-based Innovative Medical Services, LLC, and since this time        our business has consisted of a single Bioscience Division, engaged in the development,        production, sale and licensing of silver ion bioscience technologies and boric acid based        pesticides.

#       Basis        of Presentation and Principles of Consolidation

The accompanying financial statements        include the consolidated accounts of PURE Bioscience and its subsidiaries. All        inter-company balances and transactions have been eliminated.

#       Use        of Estimates

The preparation of the financial        statements in conformity with Generally Accepted Accounting Principles requires management        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.

#       Reclassifications

Certain comparative figures for prior        periods have been reclassified to conform to the current year presentation. Specifically,        we have reclassified $1,743,600 from Common Stock to Additional Paid-In Capital on the        consolidated balance sheets at July 31, 2006 and in the consolidated statements of        stockholders’ equity. This amount relates to the fair value of common stock options        issued for services in the periods prior to August 1, 2006. Additionally, we have        consolidated amounts of $(2,400) and $(129,990) recorded on separate lines within the        statements of operations for the year ended July 31, 2006 related to tax provisions for        continued operations, into one “Income tax provision” of $(132,190). See Note 9        for a further description of this tax provision.

#       Revenue        Recognition

During the periods presented herein        our revenue was derived from the sale of SDC concentrate, the sale of finished packaged        products containing SDC, the sale of SDC blending systems, and the sale of products in our        Innovex® line of pest control products. We recognize revenue from sales of these        products under the provisions of Staff Accounting Bulletin (“SAB”) No. 104,        Revenue Recognition, which is generally when we ship the products free on board from either        our facility or from third party packagers, we have transferred title to the goods, and we        have eliminated our risk of loss.

#       Accounts        Receivable

We generally sell on terms of cash or        net 30 days. Invoices not paid within stated terms are considered delinquent. We analyze        our accounts receivable periodically and recognize an allowance for doubtful accounts based        on estimated collectibility, however at July 31, 2007 we deemed all customer accounts to be        collectable and therefore recorded no such allowance.

#       Intangible        Assets / Long-Lived Assets

Our intangible assets primarily        consist of the worldwide patent portfolio of our silver ion technologies, and to a lesser        extent our Triglycylboride technology. Outside legal costs and filing fees related to        obtaining patents are capitalized as incurred. The total amounts capitalized for pending        patents was $204,200 and $111,100 in the fiscal years ended July 31, 2007 and 2006,        respectively. Patents are stated net of accumulated amortization of $988,742 and $824,217        at July 31, 2007 and July 31, 2006 respectively.

The cumulative cost of acquiring        patents is amortized on a straight-line basis over the estimated remaining useful lives of        the patents, generally between 17 and 20 years from the date of issuance. At July 31, 2007        the weighted average remaining amortization period for all patents was approximately 12.5        years. Amortization expense for the years ended July 31, 2007 and July 31, 2006 was        $164,500 and $157,400 respectively, and the estimated amortization expense over each of the        next five years is as follows:

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| Year Ended July                31                                                    | EstimatedAmortization                                                                                                        |
|--------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|
| 2008                2009                2010                2011                2012 | $                182,000                $ 193,000                $ 206,000                $ 220,000                $ 235,000 |
|                                                                                      |                                                                                                                              |

In accordance with Statement of        Financial Accounting Standards (“SFAS”) No. 144, Accounting for the        Impairment or Disposal of Long-Lived Assets, our long-lived assets and amortizable        intangible assets are tested for impairment whenever events or changes in circumstances        indicate that their carrying value may not be recoverable. We assess the recoverability        such assets by determining whether their carrying value can be recovered through        undiscounted future operating cash flows, including our estimates of revenue driven by        assumed market segment share and estimated costs. If impairment is indicated, we measure        the amount of such impairment by comparing the fair value to the carrying value, however        during the fiscal years ended July 31, 2006 and 2007 there have been no indicators of        impairment.

#       Accounting        for Stock-Based Compensation

In December 2004, the Financial        Accounting Standards Board (“FASB”) revised SFAS 123(R), Share-Based Payment,        which establishes accounting for share-based awards exchanged for employee and Director        services and requires us to expense the estimated fair value of these awards over the        applicable service period. On April 14,2005, the SEC adopted a new rule amending the        effective dates for SFAS No. 123(R). Under SFAS No. 123(R), share-based compensation cost        is measured at the grant date based on the estimated fair value of the award, and is        recognized as expense over the applicable service period.

        We        do not have, and have not had during the years ended July 31, 2007 or 2006, any stock        option awards with market or performance conditions.

        We        adopted the accounting provisions of SFAS No. I23(R) in our first fiscal quarter of the        year ended July 31, 2007 (our fiscal quarter ended October 31, 2006), using the modified        prospective application. Under the modified prospective application, prior fiscal periods        are not revised for comparative purposes. Prior to August 1, 2006, we followed Accounting        Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, as amended, in        our accounting for share-based compensation. The valuation provisions of SFAS No. I23(R)        apply to new awards and to awards that were outstanding on the adoption date and were or        are subsequently modified or cancelled. As at July 31, 2006, all outstanding share-based        awards were fully vested, with the exception of the consultant options recorded in our        balance sheets as “prepaid consulting” (as further discussed in Note        8).

#       Stock        Options to Non-Employees

Charges for stock options granted to        non-employees have been determined in accordance with SFAS No. 123(R) and EITF No. 96-18,        “Accounting for Equity Instruments that are Issued to Other Than Employees for        Acquiring, or in Conjunction with Selling, Goods or Services”, whereby we use the        estimated fair value of the consideration received or the estimated fair value of the stock        options issued, whichever is more reliably measured. The fair value for these stock options        is based on the Black-Scholes pricing model. For such stock options, during the year ended        July 31, 2007 we recorded $346,873 in selling expense, $91,290 in general and        administrative expense, and $39,032 in research and development expense; and during the        year ended July 31, 2006 we recorded $188,863 in selling expense, $307,888 in general and        administrative expense, and $107,962 in research and development expense. Included in these        amounts is the amortization of consultant options recorded in our consolidated balance        sheets as “prepaid consulting” and further discussed in Note 8.

#       Depreciation        Method

The cost of property, plant and        equipment is depreciated on a straight-line basis over the estimated useful lives of the        related assets. The useful lives of property, plant, and equipment for purposes of        computing depreciation are:

|        |                                                                                                                                                     |        |                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|
|   | Computers and                equipment                Computer Software                Furniture and fixtures                Leasehold Improvements |   |  7.0                years                 5.0 years                10.0 years                 4.5 years |
|        |                                                                                                                                                     |        |                                                                                                                        |

In May 2007 we completed a        redevelopment of our leasehold operating facility in El Cajon, California. All costs        associated with the facility redevelopment have been classified as leasehold improvements        and are being depreciated over the remaining life of the lease. See Note 5 for details of        the current lease term of our facility.

#       Shipping        and Handling Costs

Shipping and handling costs payable        by us are charged to cost of sales.

#       Inventory

Inventories are stated at the lower        of cost or net realizable value using the average cost method.

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#       Cash,        Cash Equivalents and Short-term Investments

We consider all liquid investments        with maturities of ninety days or less when purchased to be cash equivalents. Our        short-term investments have maturities of greater than ninety days from our date of        purchase. We classify securities as “available-for-sale” in accordance with        SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, and carry these        investments at fair market value with any unrealized gains and losses reported as a        component of stockholders’ equity on the consolidated balance sheets and in the        statements of stockholders’ equity. All of our short-term investments as at July 31,        2007 are carried at fair value, based upon market prices quoted on the last day of the        fiscal period, and are considered available for sale. We use the specific identification        method to determine the cost of debt securities sold, and include gross realized gains and        losses in investment income, however there were no realized gains and losses recorded for        the years ended July 31, 2007 or 2006. All interest and dividends received from short-term        investments are included in interest income.

As at July 31, 2007 and 2006, all        cash deposits and short-term investments were invested in either U.S. FDIC insured bank        accounts; institutional money market mutual funds investing in A-1 (S&P), Prime-1        (Moody’s) or F1 (Fitch) short-term corporate debt obligations; U.S. Treasury        Securities, or United States Government obligations issued by or backed by a federal agency        of the United States Government.

#       Comprehensive        loss

SFAS 130, Reporting Comprehensive        Income, requires us to display comprehensive loss (or income) and its components as part of        our consolidated financial statements. Comprehensive loss includes our net loss and certain        changes in equity that are excluded from our net loss, including unrealized holding gains        and losses on available-for-sale securities. SFAS 130 requires such changes in        stockholders’ equity to be included in accumulated other comprehensive loss, however        there were no elements of comprehensive loss other than net loss in the periods ended July        31, 2007 or 2006.

#       Fair        Value of Financial Instruments

The carrying amounts for receivables        and payables are the approximate fair value because of their short maturity, generally less        than three months. Whenever shares are issued for services, we use market prices of our        common stock to estimate the fair value of the shares issued. Whenever options or warrants        are issued for services, we use the Black Scholes Option Pricing Model to estimate the fair        value of the equity instrument, using historical market prices of our common stock and        prevailing risk-free interest rates.

#       Advertising        and Promotional Costs

The cost of advertising and promotion        is expensed as incurred.

#       Net        Loss Per Common Share

In accordance with FASB Statement No.        128, Earnings Per Share (“SFAS 128”), the Company computes basic loss per share        by dividing the applicable net loss by the weighted average number of common shares        outstanding during the respective period. Diluted per share amounts assume the conversion,        exercise or issuance of all potential common stock equivalents, including stock options and        warrants, unless the effect is to reduce a loss or increase the income per common share        from continuing operations. As we incurred losses in years ended July 31 2007 and 2006, we        did not include common stock equivalent shares in the computation of net loss per share as        the effect would have been anti-dilutive. Therefore, both the basic and diluted loss per        common share for the years ended July 31, 2007 and July 31, 2006 are based on the weighted        average number of shares of our common stock outstanding during the periods.

The following is a reconciliation of        the weighted average number of shares actually outstanding with the number of shares used        in the computations of loss per common share:

|                                                                              | For the Years Ended |        |
|------------------------------------------------------------------------------|---------------------|--------|
||
| Shares                outstanding                                            |                |   |   | 24,961,805 |   |   | 23,983,002 |   |
|                                                                         |                |   |
| Weighted average number of                common shares actually outstanding |                |   |   | 24,432,905 |   |   | 20,056,721 |   |
| Stock Options                                                                |                |   |   | 10,293,750 |   |   | 11,634,000 |   |
| Warrants                                                                     |                |   |   | 391,698 |   |   | 391,698 |   |
|                                                                              |                     |        |  |  |
|      Total weighted                average shares   |                |   |   | 35,118,353 |   |   | 32,082,419 |   |
|                                                                              |                     |        |  |  |
| Loss from continuing                operations                               |                |   | $ | (4,654,877 | ) | $ | (3,812,916 | ) |
| Income from discontinued                operations                           |                |   |   | — |   |   | 129,990 |   |
|                                                                              |                     |        |  |  |
| Net loss                                                                     |                |   | $ | (4,654,877 | ) | $ | (3,682,926 | ) |
|                                                                              |                     |        |  |  |
| Net loss per common share,                basic and diluted                  |                |   |
|       Continuing                operations     |                |   | $ | (0.19 | ) | $ | (0.19 | ) |
|       Discontinued                operations   |                |   |   | — |   |   | 0.01 |   |
|                                                                              |                     |        |  |  |
|       Net                loss                  |                |   | $ | (0.19 | ) | $ | (0.18 | ) |
|                                                                              |                     |        |  |  |

#       Income        Taxes

We record deferred taxes in        accordance with Statement of Financial Accounting Standards (SFAS) No. 109,        “Accounting for Income Taxes.” The Statement requires recognition of deferred        tax assets and liabilities for temporary differences between the tax basis of assets and        liabilities and the amounts at which they are carried in the financial statements, based        upon the enacted tax rates in effect for the year in which the differences are expected to        reverse. A valuation allowance is established when necessary to reduce deferred tax assets        to the amount expected to be realized.

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#       Recent        Accounting Pronouncements

In June 2006, the Financial        Accounting Standards Board, or FASB, issued FASB Interpretation No. 48 (“FIN        48”), Accounting for Uncertainty in Income Taxes—an interpretation of FASB        Statement No. 109, which prescribes a recognition threshold and measurement attribute for        the financial statement recognition and measurement of a tax position taken or expected to        be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification,        interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is        effective for fiscal years beginning after December 15, 2006 (our fiscal year ending July        31, 2008). We are still evaluating the impact of FIN 48 on our consolidated financial        statements for future periods.

In September 2006, the FASB issued        Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value        Measurements, which provides a single definition of fair value, a framework for measuring        fair value, and expanded disclosures concerning fair value. Previously, different        definitions of fair value were contained in various accounting pronouncements creating        inconsistencies in measurement and disclosures. SFAS No. 157 applies under those previously        issued pronouncements that prescribe fair value as the relevant measure of value, except        Statement No. 123R and related interpretations and pronouncements that require or permit        measurement similar to fair value but are not intended to measure fair value. This        pronouncement is effective for fiscal years beginning after November 15, 2007 (our fiscal        year ending July 31, 2009). We do not expect the adoption of SFAS No. 157 to have a        material impact on our consolidated financial statements or results of        operations.

Also in September 2006, the SEC        released Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements        when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides        guidance on how the effects of the carryover or reversal of prior year misstatements should        be considered in quantifying a current year misstatement. In some situations, companies        will be required to record errors that occurred in prior years even though those errors        were immaterial for each year in which they arose. Companies may choose to either restate        all previously presented financial statements or record the cumulative effect of such        errors as an adjustment to retained earnings at the beginning of the period in which SAB        108 is applied. SAB 108 is effective for fiscal years ending after November 15, 2006 (our        fiscal year ended July 31, 2007), however the adoption of SAB 108 had no impact on our        consolidated financial statements or results of operations.

In February 2007, the FASB issued        SFAS No. 159, The Fair Value Option for Financial Assets and Financial        Liabilities—Including an Amendment of FASB Statement No. 115. This standard permits        an entity to choose to measure many financial instruments and certain other items at fair        value. Most of the provisions in SFAS No. 159 are elective, however the amendment to SFAS        No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all        entities with available-for-sale and trading securities. The fair value option established        by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at        specified election dates. Under SFAS No. 159 we would report unrealized gains and losses on        items for which the fair value option has been elected in earnings at each subsequent        reporting date. The fair value option: (a) may be applied instrument by instrument, with a        few exceptions, such as investments otherwise accounted for by the equity method; (b) is        irrevocable (unless a new election date occurs); and (c) is applied only to entire        instruments and not to portions of instruments. SFAS No. 159 is effective as of the        beginning of the first fiscal year that begins after November 15, 2007 (our fiscal year        ending July 31, 2009), however we do not currently expect the adoption of SFAS No. 159 to        have a material impact on our consolidated financial statements.

# Note 2. Research and        Development

All in-house Research and Development        (“R&D”) costs, and outside legal costs and filing fees for maintaining        approved patents are charged to operations when incurred and are included in operating        expenses. During the year ended July 31, 2007, $25,300 of the costs charged to R&D        related to manufacturing and R&D facility overheads incurred during periods in which we        were designing and implementing new manufacturing and bottling processes and in which no        products were manufactured.

# Note 3.        Inventory

Inventories are stated at the lower        of cost or net realizable value using the average cost method. Inventories at July 31, 2007        and 2006 consisted of:

|                                 | 2007   |        | 2006   |         |
|---------------------------------|--------|--------|--------|---------|
||
| Raw                Materials    |   |   | $      | 78,816  |   | $ | 59,843 |   |
| Work in                Progress |   |   |   | — |   |   | — |   |
| Finished                Goods   |   |   |   | 164,083 |   |   | 112,096 |   |
|                                 |        |        |        |         |
|                            |   |   | $      | 242,899 |   | $ | 171,939 |   |
|                                 |        |        |        |         |

# Note 4. Property, Plant        and Equipment

Property, plant and equipment are        stated at cost less accumulated depreciation. All improvements and additions that extend        the life of existing asset are capitalized. The cost of maintenance and repairs that do not        extend or improve the asset are expensed as occurred. The following is a summary of        property, plant, and equipment – at cost less accumulated depreciation:

|                                                             | July 31, 2007 |        | July 31, 2006 |           |
|-------------------------------------------------------------|---------------|--------|---------------|-----------|
||
| Computers and                equipment                      |          |   | $             | 1,137,431 |   | $ | 997,861 |   |
| Furniture and                fixtures                       |          |   |          | 94,004    |   |   | 86,490 |   |
| Leasehold                improvements                       |          |   |          | 567,104   |   |   | 309,830 |   |
|                                                             |               |        |               |           |
|                                                        |          |   |          | 1,798,539 |   |   | 1,394,181 |   |
| Less:                accumulated depreciation               |          |   |          | 829,802   |   |   | 1,040,909 |   |
|                                                             |               |        |               |           |
|          Total |          |   | $             | 968,737   |   | $ | 353,272 |   |
|                                                             |               |        |               |           |

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In May 2007 we completed a        redevelopment of our leasehold facility in El Cajon, California. Construction costs        totaling $567,100 were capitalized as leasehold improvements. Depreciation on the facility        redevelopment is based on the time remaining on the facility lease term at the time of        completion, which was 4.5 years at July 31, 2007, and during the year ended July 31, 2007        we recognized depreciation expense of $31,505 related to the facility redevelopment.        Additionally, during the year ended July 31, 2007 we wrote down the value of our        capitalized property, plant and equipment by $167,600, based on our evaluation of        impairment and the disposal of assets that were replaced during the facility redevelopment,        and recorded this amount as “Other” within “Other income and        (expense)” in the consolidated statements of operations for the year ended July 31,        2007.

Total depreciation expense for the        years ended July 31, 2007 and July 31, 2006 was $92,600 and $69,500,        respectively.

# Note 5. Commitments and        Contingencies

In May 1996, we entered into an        operating lease agreement for our office and manufacturing location in El Cajon,        California, which expired under extension in October 2006, at which time we entered into a        new sixty month operating lease. The rental expense recorded in general and administrative        expenses for the years ended July 31, 2007 and July 31, 2006 was $173,300 and $137,000,        respectively, net of sublease income. As part of the agreement to sell the assets of the        Water Treatment Division to Innovative Medical Services, LLC, in May 2005 we entered into a        sublease agreement with IMS LLC under which IMS LLC occupied approximately 28% of the        square footage of the facility and paid us approximately $3,800 per month in rent. IMS LLC        vacated the space in September 2006 and we are now operating in the full 13,067 square feet        of the facility.

Future minimum rental payments under        the lease for each of the next five fiscal years, excluding variable and therefore        currently unknown costs for the maintenance of common areas, are as follows:

|        | Year Ended July 31                                                                   | Amount                                                                                                                      |  |
|--------|--------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|--|
|   | 2008                2009                2010                2011                2012 | $                144,800                $ 150,600                $ 156,600                $ 162,900                $ 69,000 |  |
|        |                                                                                      |                                                                                                                             |  |

The Company has an employment        contract with its Chief Executive Officer/President which includes a provision for him to        be paid an amount equal to 3% of the Company’s net income before taxes, if        any.

# Note 6. Equity and        Common Stock

We paid no cash dividends during the        fiscal years ended July 31, 2007 or 2006.

Whenever shares are issued for        services, we use market prices of our common stock to estimate the fair value of the shares        issued. Whenever options or warrants are issued for assets, services or interest, we use        the Black Scholes Option Pricing Model to estimate the fair value of the equity instrument,        using market prices of our common stock and prevailing risk-free interest rates.

In October 2006, we issued options on        100,000 shares in exchange for operations, manufacturing and facility development        consulting services, at an exercise price of $1.83, valued at $91,300 (based on the        Black-Scholes Option Pricing Model assuming no dividend yield, volatility of 70.88% and a        risk-free interest rate of 5.25%). Also during the three months ended October 31, 2006, we        received an aggregate of $51,500 from the exercise of non-employee options on 51,500 shares        of common stock at an average exercise price of $1.00. In November 2006, we issued 30,000        shares of common stock at a market price of $2.17 for research and development services        valued at $65,100.

During the first quarter of the year        ended July 31, 2007, Mr. Michael Sitton resigned from our Board of Directors. At that time,        the Board agreed to modify a stock option agreement for 100,000 shares of common stock that        had been granted to Mr. Sitton in November 2005, to extend the period in which the option        could be exercised as it would otherwise have terminated within a shorter time period based        on his resignation. We expensed $19,237 to general and administrative expense based on this        modification, in accordance with SFAS 123(R). The 100,000 stock options were not exercised        within the extended period and were therefore subsequently forfeited.

In January 2007, there were net        exercises of options which were due to expire and which were issued under the 2002        Non-Qualified Stock Option Plan (See Note 7 for a further description of this Plan).        Options on 450,000 shares under this plan were exercised, resulting in the issuance of        338,553 shares of common stock. We also, in the same month, received $53,000 from the        exercise by a Director of the Company of an option on 100,000 shares of common stock under        the same Plan. Also during the three months ended January 31, 2007 we received an aggregate        of $74,000 from the exercise of non-employee options on 86,500 shares of common stock at an        average exercise price of $0.86, and recorded $2,465 of employee stock option        expense.

During the three months ended April        30, 2007 we received an aggregate of $169,190 from the exercise of non-employee options on        200,000 shares of common stock at an average exercise price of $0.85, received $8,125 from        the exercise of options on 16,250 shares of common stock issued under employee stock option        plans, and recorded $2,465 of employee stock option expense.

In May 2007, we granted options on        275,000 shares of common stock to Directors and Officers of the Company at an exercise        price of $3.00, valued at $429,180 (based on the Black-Scholes Option Pricing Model        assuming no dividend yield, volatility of 84.88% and a risk-free interest rate of 5.25%).        Additionally, in the same month we granted 30,000 shares of stock to two Directors of the        Company, valued at $177,600 based on the market price of our common stock at the time of        grant. In June 2007, we appointed Murray H. Gross to our Board of Directors and on        appointment to the Board Mr. Gross was granted options on 100,000 shares of common stock at        an exercise price of $3.64, valued at $187,100 (based on the Black-Scholes Option Pricing        Model assuming no dividend yield, volatility of 86.35% and a risk-free interest rate of        5.25%). The stock options and stock granted to Directors and Officers during the three        months ended July 31, 2007 were issued under the 2007 Equity Incentive Plan.

26

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During the three months ended July        31, 2007 we received an aggregate of $119,375 from the exercise of options on 186,000        shares of common stock issued under employee equity plans, and recorded $11,550 of employee        stock option expense.

# Note 7. Stock-Based        Compensation

We have, or have had during the        fiscal years presented herein, the following equity incentive plans (the Plans) pursuant to        which options to acquire common stock have been granted:

1996 Directors And Officers Stock        Option Plan: In April 1996, the Company’s Board of Directors approved a Directors and        Officers Stock Option Plan. The Plan was not subject to Shareholder approval, and        terminated in April 2006.

1998 Directors And Officers Stock        Option Plan: In December 1998, the Company’s Shareholders approved the Amended PURE        Bioscience 1998 Officers and Directors Stock Option Plan.

2001 Directors And Officers Stock        Option Plan: In January 2001, the Company’s Shareholders approved the PURE Bioscience        2001 Officers and Directors Stock Option Plan.

2001 ETIH2O Stock Option Plan:        Adopted by the Board in January 2001, there are 1,000,000 shares authorized under this        Plan. Executive Officers and Directors are not eligible participants under this        plan.

2001 Consultants and Advisors Stock        Option Plan: Adopted by the Board in January 2001, there are 500,000 shares authorized        under this Plan. Executive Officers and Directors are not eligible participants under this        plan.

2002 Non-Qualified Stock Option Plan:        In March 2002, the Company’s Shareholders approved the PURE Bioscience 2002        Non-Qualified Stock Option Plan. Eligible Plan Participants include the Directors and        Officers of the Company, consultants, advisors and other individuals deemed by the        Compensation Committee to provide valuable services to the Company but who are not        otherwise eligible to participate in the Employee Incentive Stock Option Plan.

2002 Employee Incentive Stock Option        Plan: In March 2002, the Company’s Shareholders approved the PURE Bioscience 2002        Employee Incentive Stock Option Plan. Eligible Plan Participants include employees and        non-employee Directors for the Company.

2004 Consultants and Advisors Stock        Option Plan: Adopted by the Board in April 2004, there are 2,000,000 shares authorized        under this plan. Executive Officers and Directors are not eligible participants under this        plan.

2007 Equity Incentive Plan: Approved        by the Company’s shareholders in April 2007, the 2007 Equity Incentive Plan has a        share reserve of 5,000,000 shares of common stock, which were registered under a Form S-8        filed with the SEC in May 2007. The Plan provides for the grant of incentive and        nonstatutory stock options as well as stock appreciation rights, common stock awards,        restricted stock units, performance units and shares and other stock-based awards. During        the year ended July 31, 2007 common stock options and common stock awards were granted        under this Plan. Eligible Plan Participants include employees, Directors and consultants of        the Company, although incentive stock options generally may be granted only to        employees.

Non-employee Directors are eligible        to receive stock option or other incentive grants under the Company’s 1998 and 2001        Directors and Officers Stock Option Plans, the 2002 Non-Qualified and Employee/Incentive        Stock Option Plan, and the 2007 Equity Incentive Plan. Employee Directors are eligible to        receive stock option or other incentive grants under the Company’s 1998 and 2001        Directors and Officers Stock Option Plans, the 2002 Non-Qualified Stock Option Plan, and        the 2007 Equity Incentive Plan.

The Plans are administered by an        Administrative Committee. The exercise price for stock options, or the value of other        incentive grants granted under the Plans, are set by the Administrative Committee but may        not be for less than the fair market value of the shares on the date the award is granted.        Fair market value is defined under the Plans as being the average of the closing price for        a specified number of consecutive trading days ending on the day prior to the date the        option or other award is granted. The period in which options can be exercised is set by        the Administrative Committee but is not to exceed five years from the date of grant.        Options granted to new Executive Officers or Directors vest one year from date of        appointment or election. Options granted to continuing Officers or Directors are        immediately exercisable and vest upon exercise.

On August 1, 2006, we adopted the        provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123        (revised 2004), Share-Based Payment (“SFAS123(R)”), requiring us to recognize        expense related to the fair value of share-based compensation awards to employees and        Directors. We elected to use the modified-prospective-transition method as permitted by        SFAS 123R and therefore have not restated our financial results for prior fiscal years. As        at July 31, 2006, all outstanding share-based awards were fully vested, with the exception        of the consultant options recorded in our balance sheets as “prepaid        consulting” (as further discussed in Note 8). We recognize compensation expense for        stock option awards on a straight-line basis over the applicable service period of the        award, which is the vesting period. Share-based compensation expense for awards granted        subsequent to July 31, 2006 is based on the grant date fair value estimated in accordance        with the provisions of SFAS 123R, using the Black-Scholes option pricing model. The        following methodology and assumptions were used to calculate share based compensation for        the years ended July 31, 2007 and July 31, 2006:

|  |                                                                                                                                                                                                                 | For the years ended July                    31                                                                                                                                                                                                                                                                                            |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
||
|  | Expected price                volatility                Risk-free interest rate                Expected Rate of Forfeiture                Expected Dividend yield                Weighted Average Expected Term | 70.88% - 86.35%                          5.25%                           0.0%                           0.0%                      2.3 years | 72.35% - 82.23%                  4.25% - 5.25%                           0.0%                           0.0%                      2.5 years |
|  |                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                           |  |

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Expected price volatility is the        measure by which our stock price is expected to fluctuate during the expect term of an        option. Expected volatility is derived from the historical daily change in the market price        of our common stock, as we believe that historical volatility is the best indicator of        future volatility. For stock options granted during the year ended July 31, 2007 we have        excluded the period prior to November 1, 2005 from our historical price volatility, as        during this period our market price reflected significant uncertainty associated with both        our arbitration proceedings against Falken Industries and our ability to close the sale of        the assets of the Water Treatment Division. We believe that the volatility of the market        price of our common stock during periods prior to November 1, 2005 is not reflective of        future expected volatility.

Following the guidance of Staff        Accounting Bulletin No. 107, we follow the “shortcut” method to determine the        expected term of plain vanilla options issued to employees and Directors. The expected term        is presumed to be the mid-point between the vesting date and the end of the contractual        term. Our estimation of expected term for non-employee options is the contractual term of        the option award.

For the purposes of estimating the        fair value of stock option awards, the risk-free interest rate used in the Black-Scholes        calculation is based on the prevailing U.S Treasury yield as determined by the U.S. Federal        Reserve. We have never paid any cash dividends on our common stock and do not anticipate        paying cash dividends on our common stock in the foreseeable future.

Stock-based compensation expense        recognized in the consolidated statements of operations is based on awards ultimately        expected to vest, reduced for estimated forfeitures. SFAS 123R requires forfeitures to be        estimated at the time of grant, and revised, if necessary, in subsequent periods if actual        forfeitures differ from those estimates. Historically, we have not had significant        forfeitures of unvested stock options granted to employees and Directors. A significant        number of our stock option grants are fully vested at issuance or have short vesting        provisions. Therefore, we have estimated the forfeiture rate of our outstanding stock        options as zero.

The following table sets forth the        share-based compensation expense recorded in our consolidated statements of operations for        the fiscal year ended July 31, 2007 resulting from share-based compensation awarded to our        employees, Directors and third party service providers, excluding the amortization of        prepaid consulting as detailed in Note 8:

|                                                                                 | Twelve months ended                    July 31, 2007 |        |
|---------------------------------------------------------------------------------|------------------------------------------------------|--------|
||
| Share-based compensation for                employees and Directors:            |                                                 |   |   |  |   |
| Selling                expense                                                  |                                                 |   | $ | 23,400 |   |
| General and                administrative expenses                              |                                                 |   |   | 790,600 |   |
| Research and                development                                         |                                                 |   |   | 15,600 |   |
|                                                                                 |                                                      |        |
| Total                share-based compensation for employees and Directors       |                                                 |   |   | 829,600 |   |
| Share-based                compensation for third party service providers:      |                                                 |   |
| Selling                expense                                                  |                                                 |   | $ | — |   |
| General and                administrative expenses                              |                                                 |   |   | 91,300 |   |
| Research and                development                                         |                                                 |   |   | 65,100 |   |
|                                                                                 |                                                      |        |
| Total                share-based compensation for third party service providers |                                                 |   |   | 156,400 |   |
|                                                                                 |                                                      |        |
| Total                share-based compensation expense                           |                                                 |   | $ | 986,000 |   |
|                                                                                 |                                                      |        |

For comparative purposes to our        consolidated statements of operations for the fiscal year ended July 31, 2007, the        following table illustrates the pro forma effect on net loss and net loss per common share        of applying the fair value recognition provisions of SFAS 123 to share-based compensation        during our prior fiscal year ending July 31, 2006.

|                                                                                        | Twelve months ended                    July 31, 2006 |        |
|----------------------------------------------------------------------------------------|------------------------------------------------------|--------|
||
| Net                loss, as reported                                                   |                                                 |   | $ | (3,682,926 | ) |
| Employee                stock-based compensation expense under fair-value method       |                                                 |   |   | (436,608 | ) |
| Employee                stock-based compensation expense included in reported net loss |                                                 |   |   | — |   |
| Pro forma net                loss                                                      |                                                 |   | $ | (4,119,534 | ) |
|                                                                                        |                                                      |        |
| Net loss per                share:                                                     |                                                 |   |
| As                reported                                                             |                                                 |   | $ | (0.18 | ) |
| Pro                forma                                                               |                                                 |   | $ | (0.21 | ) |

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A summary of stock option activity is        as follows:

|                                            | Number of                    Shares |        | Weighted-Average                    Exercise Price |            | Aggregate Intrinsic                    Value ($000's) |   |
|--------------------------------------------|-------------------------------------|--------|----------------------------------------------------|------------|-------------------------------------------------------|---|
||
| Balance at July 31,                2005    |                                |   |                                               | 6,485,960  |                                                  | $ | 0 | .64 |   |   |   |
| Granted                                    |                                |   |                                               | 6,558,333  |                                                  | $ | 1 | .56 |   |   |   |
| Exercised                                  |                                |   |                                               | (1,002,488 | )                                                     | $ | 0 | .64 |   |   |   |
| Forfeited                                  |                                |   |                                               | (407,805   | )                                                     | $ | 1 | .57 |   |   |   |
|                                            |                                     |        |                                                    |            |
| Balance at                January 31, 2006 |                                |   |                                               | 11,634,000 |                                                  | $ | 1 | .12 |   |   |   |
|                                            |                                     |        |                                                    |            |
| Granted                                    |                                |   |                                               | 575,000    |                                                  | $ | 2 | .86 |   |   |   |
| Exercised                                  |                                |   |                                               | (978,803   | )                                                     | $ | 0 | .67 |   |   |   |
| Forfeited                                  |                                |   |                                               | (936,447   | )                                                     | $ | 1 | .86 |   |   |   |
|                                            |                                     |        |                                                    |            |
| Balance at July                31, 2007    |                                |   |                                               | 10,293,750 |                                                  | $ | 1 | .18 |   | $22,500 |   |
|                                            |                                     |        |                                                    |            |

|                               |        | Outstanding | Exercisable |
|-------------------------------|--------|-------------|-------------|
||
| $0.50 to $0.75                |   |        |        | 4,175,000 |   |   | 2 | .07 | $ | 0 | .55 |   | 4,175,000 |  | $ | 0 | .55 |
| $0.80 to                $1.20 |   |        |        | 1,773,000 |   |   | 2 | .39 | $ | 0 | .90 |   | 1,773,000 |   | $ | 0 | .90 |
| $1.50 to                $3.65 |   |        |        | 4,345,750 |   |   | 2 | .96 | $ | 1 | .89 |   | 3,752,000 |   | $ | 1 | .80 |
|                               |        |             |             |  |  |  |  |  |  |  |
|                          |   |        |        | 10,293,750 |   |   | 2 | .50 | $ | 1 | .18 |   | 9,700,000 |  | $ | 1 | .10 |
|                               |        |             |             |  |  |  |  |  |  |  |

Cash received from options exercised        for the twelve months ended July 31, 2007 and 2006, was $475,190 and $366,210 respectively.        During the twelve month period ended July 31, 2007 there were net exercises of options on        450,000 shares which resulted in the issuance of 338,553 shares of common stock. During the        twelve month period ended July 31, 2006 there were net exercises of options on 580,960        shares which resulted in the issuance of 448,155 shares of common stock, and a net exercise        of 300,000 warrants which resulted in the issuance of 200,000 shares of common stock. The        intrinsic value of all options exercised during the twelve months ended July 31, 2007 and        2006, was $2,012,600 and $1,798,200 respectively. The weighted-average grant date fair        value of equity options granted during the twelve months ended July 31, 2007 and 2006, was        $1.45 and $1.36 respectively.

During the first quarter of the year        ended July 31, 2007, Mr. Michael Sitton resigned from our Board of Directors. At that time,        the Board agreed to modify a stock option agreement for 100,000 shares of common stock. We        expensed $19,237 to general and administrative expense based on this modification, in        accordance with SFAS 123(R). The 100,000 stock options were not exercised within the        extended period and were therefore subsequently forfeited. See Note 6 for a more detailed        discussion of this modification.

As of July 31, 2007, there was        $111,500 of unrecognized non-cash compensation cost related to unvested options, which will        be recognized over a weighted average period of 1.7 years. In addition, $13,010 is recorded        on the face of the consolidated balance sheets as “prepaid consulting”, which        will be fully amortized by December 2007, as further discussed in Note 8.

# Note 8. Prepaid        Consulting

In January 2006, we entered into a        two-year consulting agreement with Mr. Michael Sitton for domestic and international        business development, the compensation being a fee of $12,500 per month and an option on        2,000,000 shares of unregistered common stock, which vest over three years. We also entered        into a two-year consulting agreement with Secretary Tommy Thompson, for domestic and        international business development, the compensation being a fee of $12,500 per month and        an option on 300,000 shares of unregistered common stock, which vest over three years. Mr.        Sitton subsequently transferred the rights to 700,000 options to Secretary Thompson. Mr.        Sitton was therefore the beneficial owner of 1,300,000, and Secretary Thompson is the        beneficial owner of 1,000,000 of these options.

Under the option agreements, unvested        options would not be issued if the associated consulting agreements were terminated prior        to their two year term. Mr. Sitton and Secretary Thompson were each elected to our Board of        Directors during the quarter ended January 31, 2006, however in the first quarter of the        year ended July 31, 2007 Mr. Sitton resigned from the Board of Directors. Mr.        Sitton’s consulting agreement was not affected by his resignation from our Board of        Directors.

On their granting in January 2006, we        recorded the value of the aggregate of 2,300,000 unvested options as a prepaid asset to be        amortized over the life of the consulting agreements. The options were valued at an        aggregate of $598,372 based on their weighted average exercise prices of between $1.00 to        $2.75, and the Black-Scholes Option Pricing Model assuming no dividend yield, volatility of        82.23% and a risk-free interest rate of 4.25%, to be amortized over the two year life of        the consulting agreements at $24,932 per month.

During the year ended July 31, 2007        we amortized $385,900 of the prepaid asset to selling expense. To date we have amortized        $585,361 of the asset to selling expense and as a result we reported a prepaid asset of        $13,011 as “Prepaid consulting” on the face of the consolidated balance sheets        as at July 31, 2007. Subsequent to the end of the fiscal year, in August 2007, Mr.        Sitton’s consulting agreement was terminated, and Mr. Sitton’s 1,300,000        options are no longer exercisable.

# Note 9.        Taxes

We file federal and California        consolidated tax returns with our subsidiaries. Taxable income is different from the income        reported in our financial statements due to temporary tax differences and certain other        differences between tax laws and generally accepted accounting principles.

29

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The sale of the Water Treatment        Division to Innovative Medical Services, LLC (IMS LLC) was a transaction taxable for United        States federal and California income tax purposes. We recognized taxable income equal to        the amount realized on the sale, consisting of the cash received plus the amount of related        liabilities assumed by IMS LLC, in excess of the tax basis in the assets sold. The realized        gain to us on the sale was $2,187,136, giving rise to an estimated tax liability at July        31, 2005 of $937,500. In addition, income tax related to the operation of the Division        through May 25, 2005 was estimated to be $230,500. The total estimated taxes relating to        the discontinued operation were therefore approximately $1,167,500. This amount was offset        by the realization of a tax benefit of approximately $1,167,500 from losses incurred during        the fiscal year ended July 31, 2005 and available net operating loss carry-forwards        relating to our continuing operations. During the year ended July 31, 2006, we determined        the actual income tax on the operation and sale of the Division for the year ended July 31,        2005 to be $1,037,497. An adjustment of $129,990 is therefore shown on the face of the        Income Statement for the year ended July 31, 2006 as a reduction to “Income taxes on        discontinued operations,” with a corresponding and offsetting reduction to the        “Income tax benefit” to continuing operations.

The net tax effect of our tax        liabilities gives rise to the current provision for income taxes of $2,400 for the years        ended July 31, 2007 and 2006, which is the minimum franchise tax we pay to the State of        California regardless of income or loss.

At July 31, 2007, we had federal and        California tax net operating loss carry-forwards of approximately $22,354,000 and        $12,255,000 respectively. At July 31, 2006, we had federal and California tax net operating        loss carry-forwards of approximately $18,855,300 and $8,758,700 respectively. The        difference between federal and California tax loss carry-forwards is primarily due to        limitations on California loss carry-forwards. The federal tax loss carry-forwards will        begin expiring in the year ending July 31, 2017 unless previously utilized, and will        completely expire in the year ending July 31, 2027. The California tax loss carry-forwards        will begin to expire in the year ended July 31, 2013 and will completely expire in the year        ending July 31, 2017.

Significant components of our        deferred tax assets are as follows:

|                                                                      | July 31, 2007 |        | July 31, 2006 |            |
|----------------------------------------------------------------------|---------------|--------|---------------|------------|
||
| Net                operating loss carry-forward                      |          |   | $             | 8,683,700  |   | $ | 6,948,200 |   |
| Stock options                and warrants                            |          |   |          | 579,500    |   |   | 101,000 |   |
| Other timing                differences and allowances               |          |   |          | (275,900   | ) |   | (164,100 | ) |
|                                                                      |               |        |               |            |
| Total deferred                tax assets                             |          |   |          | 8,987,300  |   |   | 6,885,100 |   |
| Valuation                allowance for deferred tax assets           |          |   |          | (8,987,300 | ) |   | (6,885,100 | ) |
|                                                                      |               |        |               |            |
|      Net                deferred tax assets |          |   | $             | —    |   | $ | — |   |
|                                                                      |               |        |               |            |

Realization of our deferred tax        assets, which relate to operating loss carry-forwards and timing differences, is dependant        on future earnings. The timing and amount of future earnings are uncertain and therefore a        valuation allowance has been established. The increase in the valuation allowance on the        deferred tax asset during the year ended July 31, 2007 was $2,102,200

A reconciliation of income taxes        computed using the statutory income tax, compared to the effective tax rate is as        follows:

|                                                                   | 2007   |        | 2006   |
|-------------------------------------------------------------------|--------|--------|--------|
||
| Federal tax benefit at the                expected statutory rate |   |   |   | 34 | % |   | 34 | % |
| State income                tax, net of federal tax benefit       |   |   |   | 9 |   |   | 9 |   |
| Valuation                allowance                                |   |   |   | (43 | ) |   | (43 | ) |
|                                                                   |        |        |        |  |
| Income tax                benefit - effective rate                |   |   |   | 0 | % |   | 0 | % |
|                                                                   |        |        |        |  |

# Note 10. Sale of Water        Treatment Division and Discontinued Operations

Effective May 25, 2005, we sold the        assets of our Water Treatment Division to Maryland-based Innovative Medical Services, LLC        (IMS LLC) for $2,375,000. IMS LLC also assumed all liabilities associated with the        Division. At closing, we received $1,950,000 in cash and a promissory note in the amount of        $425,000. In June 2005, we received a cash payment of $225,000. During the year ended July        31, 2006, we received the balance of $200,000 plus interest on the promissory        note.

In addition, we agreed to continue to        fund the working capital of IMS LLC for a limited period of time subsequent to the sale of        the Water Treatment Division. During the year ended July 31, 2006, in addition to the        payment of the promissory note IMS LLC reimbursed us for the working capital we had        provided subsequent to the sale.

The realized gain to us on the sale        of the Water Treatment Division was $2,187,136 before the effect of taxes. The sale of the        Water Treatment Division assets to Innovative Medical Services, LLC was a transaction        taxable for United States federal and California income tax purposes. The estimated tax        liability related to the sale was $1,167,487, however this was offset by losses incurred in        the respective fiscal year, and available net operating loss carry-forwards relating to our        continuing operations. During the year ended July 31, 2006, we determined the actual income        tax on the operation and sale of the Division for the year ended July 31, 2005 to be        $1,037,497. An adjustment of $129,990 is therefore shown on the face of the Income        Statement for the year ended July 31, 2006 as a reduction to “Income taxes on        discontinued operations,” with a corresponding and offsetting reduction to the        “Income tax benefit” to continuing operations. For a further discussion of the        tax consequences of the sale, see Note 9.

# Note 11. Legal        Proceedings

In November 2001, we acquired the        patent for silver dihydrogen citrate (SDC), a silver ion based technology which is the        basis for our silver ion products, from NVID International, Inc. In October 2003, we filed        an arbitration action against NVID International and other parties and in November 2004 we        won a $14.2 million award against NVID International through the American Arbitration        Association International Centre for Dispute Resolution. We believe it is unlikely that we        will ever be able to collect any part of this award, and we have therefore not recorded any        amount as an asset on the consolidated balance sheets as at July 31, 2006 or        2007.

30

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In October 2005, we received a        further $3.4 million award plus costs of $241,000 resulting from a binding arbitration        proceeding against Falken Industries. In October 2006, we entered into a settlement        agreement with Falken Industries, and all arbitrations and any related appeals between or        among the parties have subsequently been dismissed. No part of this award was recorded as        an asset on our consolidated balance sheets at July 31, 2006.

During the year ended July 31, 2007        we received approximately $205,000 in proceeds from legal settlements and recorded this        amount as “Other” within “Other income and (expense)” in the        consolidated statements of operations for the year ended July 31, 2007.

# Note 12. Retirement        Plan

We participate in a Small SEP program        under which we are entitled to make contributions on an employee’s behalf. The        program includes a salary reduction arrangement (SARSEP), which may be used only in years        in which the SEP meets requirements that the IRS may impose to ensure distribution of        excess contributions. Annual contributions made by employers under a SEP may be excluded        from the participating employee’s gross income, however we made no contributions        during the years ending July 31, 2007 or July 31, 2006.

# Note 13. Business        Segment and Sales Concentrations

In accordance with the provisions of        SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, certain        information may be disclosed based on the way we organize financial information for making        operating decisions and assessing performance. SFAS 131 requires that we apply standards        based on a management approach, and requires segmentation based upon our internal        organization and disclosure of revenue and operating income based upon internal accounting        methods. In determining operating segments, we have reviewed the current management        structure reporting to the chief operating decision-maker (‘CODM’) and analyzed        the reporting the CODM receives to allocate resources and measure performance.

We have determined that based upon        the end use of our products, the value added contributions made by us, the regulatory        requirements, the customers and partners, and the strategy required to successfully market        finished products, we are operating in a single segment.

During the year ended July 31, 2007,        90% of sales were made to four strategic partners that are also developing markets for our        products. 76% of sales for the year were made to U.S. domestic customers, and 24% were made        to international customers.

All of our tangible assets are        located in the United States.

# Note 14. Subsequent        Events

Subsequent to July 31, 2007 we        received an aggregate of $216,500 from the exercise of options on 302,000 shares of common        stock, and $25,560 from the exercise of warrants on 10,000 shares of common        stock.

In August, the consulting agreement        of Mr. Michael Sitton was terminated, resulting in the forfeiture of 1,300,000 stock        options. See Note 8 for further information regarding the consulting agreement and stock        options.

On October 19, 2007, subsequent to        the end of the fiscal year, we closed on the sale of 1,677,596 unregistered securities        units to accredited investors, at $5.03 per unit. Each unit consisted of one share of PURE        Bioscience common stock and one quarter of a five-year warrant to purchase PURE Bioscience        common stock at $7.17 per share. A total of 419,394 such five-year warrants were issued to        the investors. Additionally, a five-year warrant to purchase 167,776 shares of common stock        at $8.60 per share was issued to Taglich Brothers, Inc. as the placement agent. The gross        proceeds of the sale were $8,438,328 and the net proceeds to us, after fees and expense,        were $7,720,743. If the shares of common stock are not registered within 210 days of the filing        date, we would be required to repay 2% of the gross proceeds for each thirty day period        until the shares are registered, up to a maximum repayment of 18% of the gross proceeds. No        registration penalties are payable with respect to the shares underlying the        warrants.

# ITEM 8. CHANGES IN AND        DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On September 20, 2007, our Board of        Directors agreed to accept the resignation of Miller and McCollom, Certified Public        Accountants, as auditors of our financial statements. On that same date, the Board engaged        Mayer Hoffman McCann, PC, to serve as the independent registered public accounting firm to        audit our financial statements and to serve as our independent registered public accounting        firm for the fiscal year ended July 31, 2007.

The reports of Miller and McCollom on        our consolidated financial statements as of and for the fiscal years ended July 31, 2006        and July 31, 2005 and any subsequent interim period through the date of engagement of Mayer        Hoffman McCann PC, did not contain any adverse opinion or disclaimer of opinion, nor were        they qualified or modified as to uncertainty, audit scope or accounting        principle.

During the two fiscal years ended        July 31, 2006 and July 31, 2005 and any subsequent interim period through the date of        engagement of Mayer Hoffman McCann P.C., there were no (1) disagreements with Miller and        McCollom on any matter of accounting principles or practices, financial statement        disclosure, or auditing scope or procedure, which disagreements, if not resolved to Miller        and McCollom’s satisfaction, would have caused Miller and McCollom to make reference        thereto in its report on the financial statements for such years, or (2) reportable events        described under Item 304(a)(1)(iv)(B) of Regulation SB.

During the two fiscal years ended        July 31, 2006 and July 31, 2005 and the subsequent interim period through the engagement of        Mayer Hoffman McCann PC, we did not consult with Mayer Hoffman McCann PC regarding any of        the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-B.

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# ITEM 8A. CONTROLS AND        PROCEDURES

We maintain disclosure controls and        procedures that are designed to ensure that information required to be disclosed in our        Exchange Act reports is recorded, processed, summarized and reported within the time        periods specified in the SEC’s rules and forms, and that such information is        accumulated and communicated to our management, including our Chief Executive Officer and        Chief Financial Officer, who also acts as our Principal Accounting Officer, as appropriate,        to allow timely decisions regarding required disclosure based closely on the definition of        “disclosure controls and procedures” in Rule 13a-14(c). In designing and        evaluating the disclosure controls and procedures, management recognized that any controls        and procedures, no matter how well designed and operated, can provide only reasonable        assurance of achieving the desired control objectives, and management necessarily was        required to apply its judgment in evaluating the cost-benefit relationship of possible        controls and procedures.

We have carried out an evaluation        under the supervision and with the participation of our management, including our Chief        Executive Officer and our Chief Financial Officer/Principal Accounting Officer, of the        effectiveness of the design and operation of our disclosure controls and procedures. Based        on the foregoing, our Chief Executive Officer and Chief Financial Officer/Principal        Accounting Officer concluded that our disclosure controls and procedures were effective as        of July 31, 2007.

There have been no significant        changes in our internal controls or in other factors that could significantly affect the        internal controls subsequent to the date we completed our evaluation.

# ITEM 8B. OTHER        INFORMATION

Since becoming a public company in        August 1996, we have filed our annual and period reports as a small business issuer using        forms 10K-SB and 10Q-SB. Under the provisions of Regulation S-B, as the aggregate market        value of our common stock held by non-affiliates at July 31, 2006 and July 31, 2007 was        more than $25,000,000, we will no longer be within the small business reporting category        under the Exchange Act when we file our quarterly and annual reports for the year ending        July 31, 2008 and subsequent years.

32

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# PART III

ITEM 9. DIRECTORS AND        EXECUTIVE OFFICERS OF THE REGISTRANT, AND CORPORATE GOVERNANCE

The Executive Officers and Directors        of PURE Bioscience and their ages are as follows:

| Name                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Age                                                                                                                                                | Position                                                                                                                                                                                                                                                                                              | Held Position Since                                                                                                                                                  |  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|
|         Michael                L. Krall                        Andrew J. Buckland                        Donna Singer                        Gary Brownell, CPA                        Dennis Atchley, Esq.                        Greg Barnhill                        Dennis Brovarone                        Tommy G. Thompson                        Murray H. Gross | 55                44                37                55                57                52                51                65                69 | President, CEO,                Chairman, Director                CFO, Principal Accounting Officer                Executive Vice President, Director                Director                Secretary                Director                Director                Director                Director | 1992                2005                1998                1996                1996                2001                1996                2006                2007 |  |

The Directors serve until their        successors are elected by the shareholders. Vacancies on the Board of Directors may be        filled by appointment of the majority of the continuing Directors. Mr. Gross was appointed        by the Board in June 2007.

**Business Experience**        DENNIS B. ATCHLEY, ESQ. Mr. Atchley is the Secretary of PURE Bioscience and currently        practices as a sole practitioner in Oceanside, California handling corporate and business        related litigation matters. A 1973 graduate of Loyola Marymount University in Los Angeles        and a 1976 graduate of California Western School of Law in San Diego, California, Mr.        Atchley is a member of the California Bar, the San Diego County Bar Association, and the        Consumer Attorneys of San Diego.

GREGORY H. BARNHILL Mr. Barnhill is a        Partner and member of the Board of Brown Advisory Securities, LLC. Previously, Mr. Barnhill        served as Managing Director of North American Equity Sales at Deutsche Banc Alex.Brown        Inc., Baltimore, MD. He joined the firm in 1975, following his graduation from Brown        University with an AB degree in economics.

DENNIS BROVARONE Mr. Brovarone has        been practicing corporate and securities law since 1986 and as a sole practitioner since        1990. He was elected to the Company’s Board of Directors in April 1996. From January        2002 to September 2007, Mr. Brovarone served on the Board of Directors of Shannon        International, Inc., a publicly held Nevada corporation.

GARY W. BROWNELL Mr. Brownell served        as the CFO for PURE Bioscience from 1996 through June 2005 and has been a Director of PURE        Bioscience since 1996.

ANDREW J. BUCKLAND Mr. Buckland        joined PURE Bioscience as its Chief Financial Officer in 2005. Prior to joining PURE, Mr.        Buckland served as Vice President of Finance at Cardionet, Inc. Previous to that, Mr.        Buckland served as Chief Financial Officer and as Chief Accounting Officer of Advanced        Tissue Sciences, a public biotechnology company based in San Diego. He earned an MBA from        the University of California, Irvine and a BA (with Honors) from the University of the West        of England Business School.

MICHAEL L. KRALL Mr. Krall is the        President, CEO and Chairman of the Board of Directors of PURE Bioscience, a position he has        held since 1993.

DONNA M. SINGER Ms. Singer is the        Executive Vice President of PURE Bioscience and has been a Director since 1997. From        1996-1998, Ms. Singer served as Vice President of Operations for the Company.

TOMMY G. THOMPSON Secretary Thompson        is currently the Independent Chairman of the Deloitte Center for Health Solutions, a        partner at the law firm of Akin Gump Strauss Hauer & Feld, and President of Logistics        Health Incorporated. Secretary Thompson served as HHS Secretary from 2001 to 2005 and as        Governor of Wisconsin from 1987-2001. Secretary Thompson also serves as a Director on the        Boards of Centene Corporation and CR Bard, Inc.

MURRAY H. GROSS Mr. Gross currently        serves as Chairman and Chief Executive Officer of U.S. Home Systems, Inc. In addition to        his current positions at USHS, Gross served as President, CEO and a Director since the        company’s inception in January 1997. Prior to USHS, Mr. Gross joined Facelifters in        1987 as Vice President and Director and was named President and COO in 1990. Facelifters        was acquired by AMRE (a NYSE listed company) in 1996. He was Vice President and served as a        Director of AMRE until founding USHS in 1997.

**Family Relationships**        There is no family relationship between any Director, executive or person nominated or        chosen by PURE Bioscience to become a Director or Executive Officer.

**Audit Committee**        The Board of Directors does not have an audit committee. The functions of the audit        committee are currently performed by the entire Board of Directors. PURE Bioscience is        under no legal obligation to establish an audit committee and has elected not to do so at        this time so as to avoid the time and expense of identifying independent Directors willing        to serve on the audit committee. PURE Bioscience may establish an audit committee in the        future if the Board determines it to be advisable or we are otherwise required to do so by        applicable law, rule or regulation.

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As the Board of Directors does not        have an audit committee, it therefore has no designated “audit committee financial        expert” within the meaning of Item 401(e) of Regulation S-B. In general, an        “audit committee financial expert” is an individual member of the audit        committee who understands Generally Accepted Accounting Principles and financial        statements; is able to assess the general application of such principles in connection with        accounting for estimates, accruals and reserves; has experience preparing, auditing,        analyzing or evaluating financial statements comparable to the breadth and complexity to        our financial statements; understands internal controls over financial reporting, and        understands audit committee functions.

**Board of Directors        Independence**        Three of our Directors, Gregory Barnhill, Dennis Brovarone and Murray Gross, are        “independent” within the meaning of definitions established by the Securities        and Exchange Commission or any self-regulatory organization. PURE is not currently subject        to any law, rule or regulation requiring that all or any portion of its Board of Directors        include “independent” Directors.

**Compliance with Section 16(a) of        Securities Exchange Act of 1934**        To our knowledge, during the fiscal year ended July 31, 2007, our Directors and Officers        complied with all applicable Section 16(a) filing requirements. This statement is based        solely on a review of the copies of such reports that reflect all reportable transactions        furnished to us by our Directors and Officers and their written representations that such        reports accurately reflect all reportable transactions.

**Code of Ethics**        Under the Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission’s        related rules, PURE Bioscience is required to disclose whether it has adopted a code of        ethics that applies to PURE’s Principal Executive Officer, Principal Financial        Officer, Principal Accounting Officer or Controller or persons performing similar        functions. We have adopted a code of ethics that applies to our Chief Executive Officer,        Chief Financial Officer and other Officers, legal counsel and to any person performing        similar functions. We have made the code of ethics available and intend to provide        disclosure of any amendments or waivers of the code within five business days after an        amendment or waiver on our website, www.purebio.com.

# ITEM 10. EXECUTIVE        COMPENSATION

# Compensation Discussion        and Analysis

**Overview of Our Compensation        Program**        The following Compensation Discussion and Analysis (CD&A) provides information on the        compensation programs established for our “Named Executive Officers” during our        fiscal year ended July 31, 2007. All information provided herein should be read in        conjunction with the tables provided below.

Our Board of Directors is responsible        for establishing, implementing and monitoring the policies governing compensation for our        executives. Currently our Board does not have a compensation committee. Michael L. Krall,        our President, Chief Executive Officer and Chairman of our Board of Directors is one of        seven Directors able to vote on matters of compensation. However it has been the practice        of the Board to make decisions related to Mr. Krall’s compensation independent of Mr.        Krall. We are not currently under any legal obligation to establish a compensation        committee and have elected not to do so at this time. In the future, we may establish a        compensation committee if the Board determines it to be advisable or we are otherwise        required to do so by applicable law, rule or regulation. During the year ended July 31,        2007 our Board did not employ any outside consultants to assist in carrying out its        responsibilities with respect to executive compensation, although we have access to general        executive compensation information regarding both local and national industry compensation        practices. In future periods we intend to participate in regional and national surveys that        benchmark executive compensation by peer group factors such as company size, annual        revenues, market capitalization and geographical location.

The employment market in San Diego        County is very competitive due to the number of biotechnology companies in the region with        whom we compete to attract and retain executive and other staff with the requisite skills        and experience to carry out our strategy and to maintain compliance with multiple Federal        and State regulatory agencies. Many of these companies have significantly greater economic        resources than our own. Our Board has recognized that our compensation packages must be        able to attract and retain highly talented individuals that are committed to our goals and        objectives, without at this time paying cash salaries that are competitive with some of our        peers with greater economic resources. Our compensation structure is weighted towards        equity compensation in the form of options to acquire common stock, which the Board        believes motivates and encourages executives to pursue strategic opportunities while        managing the risks involved in our current business stage, and aligns compensation        incentives with value creation for our shareholders.

**Components of Our Executive        Compensation Program**        Our executive compensation program incorporates components we believe are necessary in        order for the Company to provide a competitive compensation package relative to our peers        and to provide an appropriate mix between short-term and long-term cash and non-cash        compensation. Elements of our executive compensation are listed below:

|   | • | Base                Salary |
|--------|--------|----------------------------|

|   | • | Stock                Awards |
|--------|--------|-----------------------------|

|   | • | Other benefits                available to all employees |
|--------|--------|----------------------------------------------------------|

|   | • | Items specific                to our President and Chief Executive Officer per an employment agreement |
|--------|--------|--------------------------------------------------------------------------------------------------------|

Base Salary: Our salary structure for        employees and executives is based on skill set, knowledge and responsibilities. Base        salaries may be adjusted periodically to reflect current market levels. Salaries for new        personnel are determined in part by experience and our need to fill a particular skill set        within the company. During the year ended July 31, 2007 none of our Named Executive        Officers received a salary increase.

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Stock Awards: A portion of        compensation paid to our executives is equity based. We believe equity compensation helps        align the interests of our executives with the interests of our shareholders. In that        regard, our executives’ compensation is subject to downside risk in the event that        our common stock price decreases. In addition, we believe stock awards provide incentives        to aid in the retention of key executives.

Other Benefits: Our Executive        Officers and employees receive the following benefits; health and dental insurance; life        insurance; and the ability to participate in a small SEP retirement program (the Company        has never matched contributions or a portion of contributions to the SEP retirement        program). We believe our current benefit package is competitive with other similar        companies in our region.

Employment Agreement: In April 1996,        the Board of Directors approved a five-year employment agreement for Michael Krall, our        President and Chief Executive Officer. Mr. Krall receives a salary that is determined from        time to time by the Board of Directors plus an amount equal to 3% of PURE        Bioscience’s net income before taxes, if any, plus other benefits including a car        allowance of $500 per month. The Board of Directors has extended Mr. Krall’s        employment agreement each year subsequent to the original term. In May 2005, the Board of        Directors approved a salary of $200,000 per year for Mr. Krall, which has remained        unchanged.

**Summary Compensation Table**        The following table contains information with respect to compensation earned for the year        ended July 31, 2007 by our Chief Executive Officer, Chief Financial Officer, and our        Executive Vice President (our Named Executive Officers):

# Summary Compensation        Table for the Year Ended July 31, 2007

| Name and Principal                    Position                   |        | Fiscal Year |        | Salary ($)(1) |        | Bonus ($) |         | Stock Awards ($) |        | Option Awards ($)(2) |        | Non-Equity Incentive Plan                    Compensation ($) |         | Change in Pension Value and                    Nonqualified Deferred Compensation Earnings ($) |        | All Other Compensation                    ($)(3) |        | Total ($) |         |
|------------------------------------------------------------------|--------|-------------|--------|---------------|--------|-----------|---------|------------------|--------|----------------------|--------|---------------------------------------------------------------|---------|------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|-----------|---------|
||
| Michael Krall                                                    |   |        | 2007   |          |   |      | 206,000 | (4)              |   | —              |   |                                                          | — |                                                                                           |   | 78,033                                           |   |      | — |   |   | — |   |   | 13,334 |   |   | 297,367 |   |
|      President                and       |   |        |   |          |   |      |    |             |   |                 |   |                                                          |    |                                                                                           |   |                                             |   |      |    |   |   |   |   |   |   |   |   |   |   |
|      Chief                Executive     |   |        |
|      Officer                            |   |        |
|                                                             |        |             |        |               |        |           |         |                  |        |
| Andrew                Buckland                                   |   |        | 2007   |          |   |      | 175,000 |             |   | —              |   |                                                          | — |                                                                                           |   | 78,033                                           |   |      | — |   |   | — |   |   | — |   |   | 253,033 |   |
|      Chief                Financial     |   |        |   |          |   |      |    |             |   |                 |   |                                                          |    |                                                                                           |   |                                             |   |      |    |   |   |   |   |   |   |   |   |   |   |
|      Officer                            |   |        |
|                                                             |        |             |        |               |        |           |         |                  |        |
| Donna                Singer                                      |   |        | 2007   |          |   |      | 150,000 |             |   | —              |   |                                                          | — |                                                                                           |   | 78,033                                           |   |      | — |   |   | — |   |   | — |   |   | 228,033 |   |
|      Executive                Vice      |   |        |   |          |   |      |    |             |   |                 |   |                                                          |    |                                                                                           |   |                                             |   |      |    |   |   |   |   |   |   |   |   |   |   |
|      President                and       |   |        |
|      Assistant                Secretary |   |        |

| (1) | Represents                amounts actually earned during the year ended July 31, 2007, and does not include                payments made during the year ended July 31, 2007 for amounts accrued and earned in                prior years, such as accrued vacation. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Amount reflects                the stock-based compensation expense recognized for financial reporting purposes                for the fiscal year ended July 31, 2007, in accordance with SFAS 123(R).                Assumptions underlying these amounts are detailed in Note 7 to the consolidated                financial statements. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Amount reflects                the cost of benefits paid by the Company on behalf of our Chief Executive Officer                for health, dental, vision and life insurance. Benefits paid by the Company for the                other Named Executive Officers did not meet the reporting threshold of                $10,000. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Total includes a                $6,000 vehicle allowance based on the terms of Mr. Krall's employment contract,                earned during the year ended July 31, 2007. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Grants of Plan-Based        Awards**        The following table shows information regarding grants of plan-based awards made to our        Named Executive Officers for the year ended July 31, 2007:

| Name and Principal                    Position               |        | Grant Date |           | All Other Option Awards:                    Number of Securities Underlying Options (#) |        | Exercise or Base Price of                    Option Awards ($/Sh)(1) |        | Grant Date Fair Value of                    Stock and Option Awards (2) |        |
|--------------------------------------------------------------|--------|------------|-----------|-----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|
||
| Michael Krall                                                |   |       | 5/23/2007 |                                                                                    |   |                                                                 | 50,000 |                                                                    |   | 3.00 |   |   | 78,033 |   |
|      President                and   |   |       |
|      Chief                Executive |   |       |
|      Officer                        |   |       |
|                                                         |   |       |
| Andrew                Buckland                               |   |       | 5/23/2007 |                                                                                    |   |                                                                 | 50,000 |                                                                    |   | 3.00 |   |   | 78,033 |   |
|      Chief                Financial |   |       |
|      Officer                        |   |       |
|                                                         |   |       |
| Donna                Singer                                  |   |       | 5/23/2007 |                                                                                    |   |                                                                 | 50,000 |                                                                    |   | 3.00 |   |   | 78,033 |   |
|      Executive                Vice  |   |       |
|      President                      |   |       |

|   | (1) | The exercise                price of the stock option award is greater than the fair market value of the stock                on grant date. All option awards to Named Executive Officers were issued under the                2007 Equity Incentive Plan approved by shareholders during the year ended July 31,                2007. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Amount reflects                the stock-based compensation expense recognized for financial reporting purposes                for the year ended July 31, 2007, in accordance with SFAS 123(R). Assumptions                underlying these amounts are detailed in Note 7 to the consolidated financial                statements. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Outstanding Equity Awards at        Fiscal Year-End**        The following table shows information regarding unexercised stock options held by our Named        Executive Officers as of July 31, 2007:

|                                | Option Awards |        | Stock Awards |         |
|--------------------------------|---------------|--------|--------------|---------|
||
| Michael Krall                  |          |   |         | 50,000  |   | - |   |   |   | $0 | .53 |   | 01/10/08 |   | - |   |   | - |   |   |
|                           |          |   |         | 450,000 |   | - |   |   |   | $0 | .53 |   | 12/19/08 |   | - |   |   | - |   |   |
|                           |          |   |         | 350,000 |   | - |   |   |   | $0 | .53 |   | 12/20/09 |   | - |   |   | - |   |   |
|                           |          |   |         | 150,000 |   | - |   |   |   | $0 | .53 |   | 01/07/11 |   | - |   |   | - |   |   |
|                           |          |   |         | 550,000 |   | - |   |   |   | $1 | .65 |   | 04/21/11 |   | - |   |   | - |   |   |
|                           |          |   |         | 50,000  |  (2) | - |   |   |   | $3 | .00 |   | 05/23/12 |   | - |   |   | - |   |   |
|                           |               |        |              |         |  |  |
| Andrew                Buckland |          |   |         | 150,000 |   | - |   |   |   | $0 | .85 |   | 08/02/10 |   | - |   |   | - |   |   |
|                           |          |   |         | 200,000 |   | - |   |   |   | $1 | .65 |   | 04/21/11 |   | - |   |   | - |   |   |
|                           |          |   |         | 50,000  |  (2) | - |   |   |   | $3 | .00 |   | 05/23/12 |   | - |   |   | - |   |   |
|                           |               |        |              |         |  |  |
| Donna                Singer    |          |   |         | 50,000  |   | - |   |   |   | $0 | .53 |   | 01/10/08 |   | - |   |   | - |   |   |
|                           |          |   |         | 150,000 |   | - |   |   |   | $0 | .53 |   | 12/19/08 |   | - |   |   | - |   |   |
|                           |          |   |         | 250,000 |   | - |   |   |   | $0 | .53 |   | 12/20/09 |   | - |   |   | - |   |   |
|                           |          |   |         | 150,000 |   | - |   |   |   | $0 | .53 |   | 01/07/11 |   | - |   |   | - |   |   |
|                           |          |   |         | 500,000 |   | - |   |   |   | $1 | .65 |   | 04/21/11 |   | - |   |   | - |   |   |
|                           |          |   |         | 50,000  |  (2) | - |   |   |   | $3 | .00 |   | 05/23/12 |   | - |   |   | - |   |   |
|                                |               |        |              |         |  |  |
|                                |               |        |              |         |  |  |

|   | (1) | All stock                options for our Named Executive Officers were fully vested as of July 31,                2007. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------|

|   | (2) | During our                fiscal year ended July 31, 2007 each Named Executive Officer was granted options on                50,000 shares of common stock. The grant date fair value is reported on the Summary                Compensation Table for Fiscal Year 2007 shown above and further detailed in Note 7                to the consolidated financial statements. All options issued to Named Executives                during the year ended July 31, 2007 were fully vested on grant date. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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# Option Exercises and        Stock Vested

The following table shows information        regarding options exercised by our Named Executive Officers during the year ended July 31,        2007:

|                                | Option Awards |        | Stock Awards |        |
|--------------------------------|---------------|--------|--------------|--------|
||
| Michel Krall                   |          |   |         | 75,234 | (1) |   | 173,038 |   | - |   |   | - |   |   |
| Andrew                Buckland |          |   |         | 50,000 |   |   | 135,000 | (2) | - |   |   | - |   |   |
| Donna                Singer    |          |   |         | 75,234 | (3) |   | 173,038 |   | - |   |   | - |   |   |
|                                |               |        |              |        |

|   | (1) | Acquired as a                net exercise on options which were to expire and which were issued under the 2002                Non-Qualified Stock Option Plan. Options on 100,000 shares under this plan were                exercised, resulting in the issuance of 75,234 shares of common stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Computed by                multiplying the number of shares by the closing market price of our common stock on                the date of exercise less the exercise price per share. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Acquired as a                net exercise on options which were to expire and which were issued under the 2002                Non-Qualified Stock Option Plan. Options on 100,000 shares under this plan were                exercised, resulting in the issuance of 75,234 shares of common stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Post-Employment        Compensation**        None.

**Pension        Benefits**        None.

**Nonqualified Deferred        Compensation**        None.

37

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**Compensation of Directors**        Directors are entitled to receive $300 plus reimbursement for all out-of-pocket expenses        incurred for attendance at Board of Directors meetings. Directors, upon joining the Board,        each receive an option on 100,000 shares at fair market value. Upon each subsequent        anniversary thereof, each such Director will receive an option to purchase 50,000 shares of        common stock at fair market value. The Plans also give the Administrative Committee        discretion to award additional options. The Board of Directors as a whole acts as the        Administrative Committee for the Plans.

Compensation earned by our        non-employee Directors for the year ended July 31, 2007 was as follows:

# Director Compensation        Table

| Name                              |        | Fees Earned or Paid in Cash                    ($)(1) |        | Stock Awards ($)(2) |        | Option Awards                    ($)(3)(4) |         | Non-Equity Incentive Plan                    Compensation ($) |        | Change in Pension Value and                    Nonqualified Deferred Compensation Earnings |        | All other Compensation                    ($) |        | Total ($) |         |
|-----------------------------------|--------|-------------------------------------------------------|--------|---------------------|--------|--------------------------------------------|---------|---------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|-----------|---------|
||
| Tommy Thompson                    |   |                                                  |   | 150,000             |   |                                       | 88,800  |                                                          |   | —                                                                                    |   | —                                       |   |      | — |   |   | — |   |   |   | 238,800 |   |
|                              |        |                                                       |        |                     |        |                                            |         |
| Dennis                Brovarone   |   |                                                  |   | 48,106              |   |                                       | — |                                                          |   | 78,033                                                                                     |   | —                                       |   |      | — |   |   | — |   |   |   | 126,139 |   |
|                              |        |                                                       |        |                     |        |                                            |         |
| Gary                Brownell      |   |                                                  |   | 5,000               |   |                                       | — |                                                          |   | 78,033                                                                                     |   | —                                       |   |      | — |   |   | — |   |   |   | 83,033 |   |
|                              |        |                                                       |        |                     |        |                                            |         |
| Greg                Barnhill      |   |                                                  |   | —             |   |                                       | 88,800  |                                                          |   | —                                                                                    |   | —                                       |   |      | — |   |   | — |   |   |   | 88,800 |   |
|                              |        |                                                       |        |                     |        |                                            |         |
| Murray                Gross       |   |                                                  |   | —             |   |                                       | — |                                                          |   | 187,072                                                                                    |   | —                                       |   |      | — |   |   | — |   |   |   | 187,072 |   |
|                              |        |                                                       |        |                     |        |                                            |         |
| Michael Sitton                (5) |   |                                                  |   | 37,500              |   |                                       | — |                                                          |   | 19,237                                                                                     |   | —                                       |   |      | — |   |   | — |   |   |   | 56,737 |   |
|                              |        |                                                       |        |                     |        |                                            |         |
|                                   |        |                                                       |        |                     |        |                                            |         |

| (1) | All fees earned                or paid in cash during the year ended July 31, 2007 were for services or consulting                provided to the Company other than as a Director. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Amount                represents the value of 30,000 shares of common stock granted to two Directors of                the Company, valued at $177,600 based on the market price of our common stock at                the time of grant. The Directors elected to receive common stock in lieu of common                stock options with an approximately equivalent value at the time of grant. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Amount                represents compensation costs recognized by us during the year ended July 31, 2007                related to stock option awards granted to non-employee Directors as described in                SFAS 123(R). Assumptions underlying these amounts are detailed in Note 7 to the                consolidated financial statements. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The aggregate                number of stock and stock option awards outstanding at July 31, 2007 for each                Director was as follows: Tommy Thompson (630,000); Dennis Brovarone (935,000);                Dennis Atchley (415,000); Gary Brownell (900,000); Greg Barnhill (716,000); Murray                Gross (100,000). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | During the first                quarter of the year ended July 31, 2007, Mr. Michael Sitton resigned from our Board                of Directors. At that time, the Board agreed to modify the terms of a stock option                agreement for 100,000 shares of common stock, and we expensed $19,237 to general                and administrative expense based on this modification, in accordance with SFAS                123(R). See Note 6 to the consolidated financial statements for a further                description of this modification. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

38

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# ITEM 11. SECURITY        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER        MATTERS

The following table sets forth the        number of shares of the Company’s common stock beneficially owned as of October 25,        2007 by individual Directors and Executive Officers and by all Directors and Executive        Officers of the Company as a group. Based upon a review of the Company’s shareholders        list as of October 25, 2007, other than Michael L. Krall, President and CEO, there are no        registered holders of five percent or more of the Company’s common stock. As of        October 25, 2007, there were 26,963,901 shares outstanding.

| Name and                Address ofBeneficial Owner                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Title                                                                                                                                                                                                                                                                                                                                                                                                                 | Common                StockOwnership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Percentage of                SharesOutstanding (%)                                                                                                                                                                                                                                                                                                                      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Dennis                Atchley                1725 Gillespie Way                El Cajon, CA 92020                Gregory Barnhill                1725 Gillespie Way                El Cajon, CA 92020                Dennis Brovarone                1725 Gillespie Way                El Cajon, CA 92020                Gary Brownell                1725 Gillespie Way                El Cajon, CA 92020                Andrew J. Buckland                1725 Gillespie Way                El Cajon, CA 92020                Murray H. Gross                1725 Gillespie Way                El Cajon, CA 92020                Michael L. Krall                1725 Gillespie Way                El Cajon, CA 92020                Donna Singer                1725 Gillespie Way                El Cajon, CA 92020                Tommy G. Thompson                1725 Gillespie Way                El Cajon, CA 92020                Directors and Officers as a Group                (10 individuals) | Secretary                Director                Director                Director                Chief Financial Officer                Director                President, CEO/Chairman                Executive VP, Director                Director                                         |        523,639                (1)                     1,009,400 (2)                     1,110,655 (3)                     1,043,082 (4)                       402,943 (5)                       114,000 (6)                     2,293,389 (7)                     1,250,935 (8)                       630,000 (9)                8,378,043 (10, 11) |    1.91                   3.65                   3.98                   3.74                   1.47                   0.42                   8.03                   4.45                   2.29                  24.82 |

| (1) | Includes                presently exercisable options to acquire up to 415,000 shares. |
|-----|----------------------------------------------------------------------------------------|

| (2) | Includes                presently exercisable options to acquire up to 686,000 shares. |
|-----|----------------------------------------------------------------------------------------|

| (3) | Includes                presently exercisable options to acquire up to 935,000 shares. |
|-----|----------------------------------------------------------------------------------------|

| (4) | Includes                presently exercisable options to acquire up to 900,000 shares. |
|-----|----------------------------------------------------------------------------------------|

| (5) | Includes                presently exercisable options to acquire up to 400,000 shares. |
|-----|----------------------------------------------------------------------------------------|

| (6) | Includes                presently exercisable options to acquire up to 100,000 shares. |
|-----|----------------------------------------------------------------------------------------|

| (7) | Includes                presently exercisable options to acquire up to 1,600,000 shares. |
|-----|------------------------------------------------------------------------------------------|

| (8) | Includes                presently exercisable options to acquire up to 1,150,000 shares. |
|-----|------------------------------------------------------------------------------------------|

| (9) | Includes                presently exercisable options to acquire up to 600,000 shares. |
|-----|----------------------------------------------------------------------------------------|

| (10) | Includes                presently exercisable options held by all of the above Officers and Directors to                acquire up to 6,786,000 shares. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11) | As of October                25, 2007, the Directors and Officers have a right to acquire these shares within 60                days. |
|------|---------------------------------------------------------------------------------------------------------------------------------------|

39

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The following table sets forth        information about our common stock that may be issued upon exercise of options under our        equity compensation plans.

| Plan Category                        | Number of securities to                    be issued upon exercise                    of outstanding options,                    warrants and rights                    (a) | Weighted-average                    exercise price of                    outstanding options,                    warrants and rights                    (b) | Number of securities                    remaining available for                    future issuance under                    equity compensation plans                    (excluding securities                    reflected in column (a))                    (c) |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity compensation                  |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              |  |   |   |  |   |   |  |   |
| plans approved                by     |                                                                                                                                                                        |                                                                                                                                                        |
| security                holders      |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              | 4,900,000 |   | $ | 0 | .79 |   | 6,706,061 |   |
|                                      |
| Equity                compensation   |                                                                                                                                                                        |                                                                                                                                                        |
| plans not                approved by |                                                                                                                                                                        |                                                                                                                                                        |
| security                holders      |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              | 4,816,868 |   | $ | 2 | .29 |   | 1,678,000 |   |
|                                      |
| Total                                |                                                                                                                                                                        |                                                                                                                                                        |                                                                                                                                                                                                                                                              | 9,716,868 |   | $ | 1 | .53 |   | 8,384,061 |   |
|                                      |

The following equity compensation        plans were not approved by security holders:

| 1. | 2001 ETIH2O                Stock Option Plan: Adopted by the Board in January 2001, there are 1,000,000 shares                authorized under this Plan. The options have a five-year term with vesting ratably                over a five-year period. Executive Officers and Directors are not eligible                participants under this plan. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | 2001 Consultants                and Advisors Stock Option Plan: Adopted by the Board in January 2001, there are                500,000 shares authorized under this Plan. The options have a five-year term with                vesting ratably over a five-year period. Executive Officers and Directors are not                eligible participants under this plan. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | 2004 Consultants                and Advisors Stock Option Plan: Adopted by the Board in April 2004, there are                2,000,000 shares authorized under this plan. The options have a five-year term with                vesting ratably over a five-year period. Executive Officers and Directors are not                eligible participants under this plan. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

# ITEM 12. CERTAIN        RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

During the quarter ended January 31,        2006, we entered into a two-year consulting agreement with Mr. Michael Sitton for domestic        and international business development, the compensation for which is a fee of $12,500 per        month and an option on two million shares of unregistered common stock, which vest over        three years. We also entered into a two-year consulting agreement with Secretary Tommy        Thompson, for domestic and international business development, the compensation for which        is a fee of $12,500 per month and an option on three hundred thousand shares of        unregistered common stock, which vest over three years. Mr. Sitton subsequently transferred        the rights to 700,000 options to Secretary Thompson. Mr. Sitton was therefore the        beneficial owner of 1,300,000, and Secretary Thompson the beneficial owner of 1,000,000 of        these options. Mr. Sitton and Secretary Thompson were each elected to our Board of        Directors during the quarter ended January 31, 2006; however, during the first quarter of        the year ended July 31, 2007 Mr. Sitton resigned from the Board of Directors.

40

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# ITEM 13. PRINCIPAL        ACCOUNTANTS’ FEES AND SERVICES

**Audit Fees**        Miller & McCollom, Certified Public Accountants, were our independent auditors for the        fiscal year ended July 31, 2006. On September 20, 2007, subsequent to the end of our fiscal        year ended July 31, 2007, our Board of Directors agreed to accept the resignation of Miller        and McCollom as our independent auditors. On that same date, our Board engaged Mayer        Hoffman McCann, PC, to serve as the independent registered public accounting firm to audit        our financial statements and to serve as our independent registered public accounting firm        for the fiscal year ended July 31, 2007.

We incurred aggregate fees payable to        Miller & McCollom of approximately $40,750 for the fiscal year ended July 31, 2007, and        paid them $49,525 for the fiscal year ended July 31, 2006, for professional services        rendered for the audit of our annual financial statements for the year ended July 31, 2006;        for review of the financial statements included in our quarterly reports on Form 10QSB        during these fiscal years, and for review of the financial statements included in our SB-2        filed on April 24, 2006 and subsequently amended, and for review of the financial        statements included in our S-8 filed on May 30, 2007.

We did not pay any fees to Mayer        Hoffman McCann, PC during the fiscal years ended July 31, 2007 or 2006. Subsequent to July        31, 2007 we have incurred fees payable to Mayer Hoffman McCann, PC of approximately $90,000        for professional services rendered for the audit of our financial statements for the year        ended July 31, 2007.

**Audit-Related Fees**        Neither Miller & McCollom nor Mayer Hoffman McCann, PC were paid any additional fees        for the fiscal years ended July 31, 2007 or 2006 for services related to the performance of        the audit or review of our financial statements.

**Tax Fees**        No fees were paid for tax related services to any independent advisors during the years        ended July 31, 2007 or 2006.

**Other Fees**        Neither Miller & McCollom nor Mayer Hoffman McCann, PC were paid any other fees for        professional services during the fiscal years ended July 31, 2007 or 2006.

41

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# PART IV

# ITEM 14.        EXHIBITS

**A.     The        following Exhibits are filed as part of this registration statement pursuant to Item 601 of        Regulation S-B:**

| 3.1 | (1) -- Articles                of Incorporation, Articles of Amendment and Bylaws |
|-----|-----------------------------------------------------------------------------------|

| 3.1.1 | (2) -- Articles                of Amendment dated March 11, 2002 |
|-------|------------------------------------------------------------------|

| 4.3 | (1) -- Form of                common stock Certificate |
|-----|--------------------------------------------------------|

| 4.4 | (6) -- Form of                Investor Warrant |
|-----|------------------------------------------------|

| 4.5 | (6) -- Form of                Placement Agent Warrant |
|-----|-------------------------------------------------------|

| 10.1 | (1) --                Employment Contract/Michael L. Krall |
|------|------------------------------------------------------------|

| 10.13 | (3) --                Therapeutics, Incorporated Agreement [CONFIDENTIAL TREATMENT REQUESTED FOR CERTAIN                OMITTED INFORMATION FILED SEPARATELY] |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.14 | (6) -- Placement                Agent Agreement |
|-------|-------------------------------------------------|

| 13 | (2) --                Subsidiaries of the Registrant |
|----|------------------------------------------------------|

| 14.1 | (4) -- Code of                Ethics |
|------|--------------------------------------|

| 16.1 | (5) -- Changes                in the Registrant’s Certifying Accountant |
|------|-------------------------------------------------------------------------------|

| 31.1 | -- Section 302                Certification |
|------|---------------------------------------------|

| 31.2 | -- Section 302                Certification |
|------|---------------------------------------------|

| 32.1 | -- Section 906                Certification |
|------|---------------------------------------------|

| 32.2 | -- Section 906                Certification |
|------|---------------------------------------------|

| (1) | Incorporated by                reference from Form SB-2 registration statement SEC File #333-00434 effective                August 8, 1996 |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated by                reference from the Annual Report on Form 10KSB for the fiscal year ended July 31,                2002 filed on October 29, 2003 |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Incorporated by                reference from the Amended Annual Report on Form 10KSB for the fiscal year ended                July 31, 2003 filed on January 30, 2004 |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Incorporated by                reference from the Annual Report on Form 10KSB for the fiscal year ended July 31,                2004 filed on October 29, 2004 |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Incorporated by                reference from the Report on Form 8-K - Current Report Items 4.01 and 9.01: Changes                in the Registrant’s Certifying Accountant filed on September 24, 2007 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Incorporated by                reference from the Report on Form 8-K - Current Report Items 3.02 and 9.01:                Unregistered Sales of Equity Securities filed on October 25, 2007  |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**B.     Reports        on Form 8-K:**

| 1. | Current Report                Items 5.02 and 9.01: Departure of Directors or Principal Officers; Election of                Directors; Appointment of Principal Officers filed on July 3, 2007. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Current Report                Items 4.01 and 9.01: Changes in the Registrant's Certifying Accountant filed on                September 24, 2007. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Current Report                Items 3.02 and 9.01: Unregistered Sales of Equity Securities filed on October 25,                2007. |
|----|--------------------------------------------------------------------------------------------------------------------------------------|

42

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**Signatures**

Pursuant to the requirements of Section        13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this        report to be signed on its behalf by the undersigned, thereunto duly authorized.

| **PURE                    BIOSCIENCE**                        |   | **DATE**        |
|---------------------------------------------------------------|--------|-----------------|
|                                                          |   |            |
| /s/ MICHAEL L.                    KRALL                       |   | October26, 2007 |
| Michael L. Krall,                    Chairman/President/CEO   |   |            |
|                                                          |   |            |
| /s/ ANDREW J.                    BUCKLAND                     |   | October26, 2007 |
| Andrew J. Buckland, Chief                    FinancialOfficer |   |            |
| (Principal AccountingOfficer)                                 |   |            |

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

| **NAME**                                                     | **TITLE**                                               | **DATE**        |
|--------------------------------------------------------------|---------------------------------------------------------|-----------------|
|                                                         |                                                    |            |
| **/s/                    GREGORY BARNHILL**                  | Director                                                | October29, 2007 |
| **Gregory                    Barnhill**                      |                                                    |            |
|                                                         |                                                    |            |
| **/s/                    DENNIS BROVARONE**                  | Director                                                | October29, 2007 |
| **Dennis                    Brovarone**                      |                                                    |            |
|                                                         |                                                    |            |
| **/s/                    GARY BROWNELL**                     | Director                                                | October29, 2007 |
| **Gary                    Brownell**                         |                                                    |            |
|                                                         |                                                    |            |
| **/s/                    MURRAYH.                    GROSS** | Director                                                | October29, 2007 |
| **Murray                    H. Gross**                       |                                                    |            |
|                                                         |                                                    |            |
| **/s/                    MICHAEL L. KRALL**                  | President/CEO andDirector                               | October26, 2007 |
| **Michael                    L. Krall**                      |                                                    |            |
|                                                         |                                                    |            |
| **/s/                    DONNA SINGER**                      | Executive Vice President                    andDirector | October29, 2007 |
| **Donna                    Singer**                          |                                                    |            |
|                                                         |                                                    |            |
| **/s/                    TOMMY G. THOMPSON**                 | Director                                                | October29, 2007 |
| **Tommy                    G. Thompson**                     |                                                    |            |

43