U.S. Securities and
Exchange Commission 
Washington, D.C. 20549

Form 10-QSB

(Mark One)

| | [X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the period ended April 30, 2007
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | [  ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No
Fee Required] For the transition period from______ to _______
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------

Commission
File number 0-21019

PURE Bioscience (Name of small business
issuer in its charter)

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

1725 Gillespie Way, El
Cajon, California 92020(Address of principal
executive offices)

619 596 8600Issuers telephone
number

Check
whether the issuer (1) filed all reports 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

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes XNo

State
the number of shares outstanding of each of the issuers classes of common equity as
of the latest practicable date: 24,801,555  as of May 31, 2007.

---



# CONSOLIDATED BALANCE
SHEETS

|                                                            | (Unaudited)
April 30
2007 |  | July 31
2006 |            
|----------------------------------------------------------- | ------------------------- |  | ------------ | -----------
|ASSETS                                                      |                           |  |              |            
|Current Assets                                              |                           | 
|Cash and cash equivalents                                   |                           |  | $            | 2,230,535  
|Accounts receivable, net of allowance for doubtful accounts |                           | 
|of $0 at July 31, 2006 and $0 at April 30, 2007             |                           |  |              | 116,516    
|Inventories                                                 |                           |  |              | 240,790    
|Prepaid expenses                                            |                           |  |              |           
|                                                            |                           |  |              |            
|Total current assets                                        |                           |  |              | 2,587,841  
|                                                            |                           |  |              |            
|Property, Plant and Equipment                               |                           | 
|Property, plant and equipment                               |                           |  |              | 986,598    
|                                                            |                           |  |              |            
|Total property, plant and equipment                         |                           |  |              | 986,598    
|                                                            |                           |  |              |            
|Other Assets                                                |                           | 
|Prepaid consulting                                          |                           |  |              | 174,525    
|Deposits                                                    |                           |  |              | 9,744      
|Patents and licenses                                        |                           |  |              | 2,081,884  
|                                                            |                           |  |              |            
|Total other assets                                          |                           |  |              | 2,266,153  
|                                                            |                           |  |              |            
|Total assets                                                |                           |  | $            | 5,840,592  
|                                                            |                           |  |              |            
|LIABILITIES AND STOCKHOLDERS EQUITY                         |                           | 
|Current Liabilities                                         |                           | 
|Accounts payable                                            |                           |  | $            | 424,240    
|Accrued liabilities                                         |                           |  |              | 97,642     
|Taxes payable                                               |                           |  |              |           
|                                                            |                           |  |              |            
|Total current liabilities                                   |                           |  |              | 521,882    
|                                                            |                           |  |              |            
|Total liabilities                                           |                           |  |              | 521,882    
|                                                            |                           |  |              |            
|Stockholders' Equity                                        |                           | 
|Preferred Stock                                             |                           |  |              |           
|Class A common stock, no par value:                         |                           | 
|50,000,000 shares authorized                                |                           | 
|23,983,002 issued and outstanding at July 31, 2006, and     |                           | 
|24,805,805 issued and outstanding at April 30, 2007         |                           |  |              | 28,062,319 
|Warrants:                                                   |                           | 
|391,698 issued and outstanding at July 31, 2006, and        |                           | 
|391,698 issued and outstanding at April 30, 2007            |                           |  |              | 245,825    
|Accumulated deficit                                         |                           |  |              | (22,989,434
|                                                            |                           |  |              |            
|Total stockholders' equity                                  |                           |  |              | 5,318,710  
|                                                            |                           |  |              |            
|Total liabilities and stockholders' equity                  |                           |  | $            | 5,840,592  
|                                                            |                           |  |              |            

The accompanying notes
are an integral part of the financial statements

1

---



# CONSOLIDATED
STATEMENTS OF OPERATIONS

|                                             | For the Nine Months Ended
April 30 |  | For the Three Months Ended
April 30 |           
|-------------------------------------------- | ---------------------------------- |  | ----------------------------------- | ----------
|
|
|Net revenues                                 |                                    |  | $                                   | 328,842   
|Cost of sales                                |                                    |  |                                     | 215,804   
|                                             |                                    |  |                                     |           
|Gross profit                                 |                                    |  |                                     | 113,038   
|                                             |                                    |  |                                     |           
|Selling expenses                             |                                    |  |                                     | 523,518   
|General and administrative expenses          |                                    |  |                                     | 1,604,849 
|Research and development                     |                                    |  |                                     | 874,900   
|                                             |                                    |  |                                     |           
|Total operating costs                        |                                    |  |                                     | 3,003,267 
|                                             |                                    |  |                                     |           
|Loss from operations                         |                                    |  |                                     | (2,890,229
|                                             |                                    |  |                                     |           
|Other income and (expense):                  |                                    | 
|Interest income                              |                                    |  |                                     | 129,055   
|Other                                        |                                    |  |                                     | 9,402     
|                                             |                                    |  |                                     |           
|Total other income (expense)                 |                                    |  |                                     | 138,457   
|                                             |                                    |  |                                     |           
|Net loss before taxes                        |                                    |  |                                     | (2,751,772
|Income tax provision                         |                                    |  |                                     |          
|                                             |                                    |  |                                     |           
|Net loss after taxes                         |                                    |  |                                     | (2,751,772
|                                             |                                    |  |                                     |           
|Net loss per common share, basic and diluted |                                    |  | $                                   | (0.11     
|                                             |                                    |  |                                     |           

# CONSOLIDATED
STATEMENTS OF ACCUMULATED DEFICITS

|                             | (Unaudited)
Year-to-Date
Ended
April 30
2007 |  | Year
Ended
July 31
2006 |            
|---------------------------- | -------------------------------------------- |  | ----------------------- | -----------
|Balance, beginning of period |                                              |  | $                       | (20,237,662
|                             |                                              |  |                         |            
|Net income (loss)            |                                              |  |                         | (2,751,772 
|                             |                                              |  |                         |            
|Balance, end of period       |                                              |  | $                       | (22,989,434
|                             |                                              |  |                         |            

The accompanying notes
are an integral part of the financial statements

2

---



# CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                                                   | For the Nine Months Ended
April 30 | 
|------------------------------------------------------------------ | ---------------------------------- | 
|
|Cash flows from operating activities:                              |                                    | 
|Net loss                                                           |                                    | 
|Adjustments to reconcile net income to net cash                    |                                    | 
|provided by operating activities:                                  |                                    | 
|Amortization and depreciation                                      |                                    | 
|Services paid for with stock and options                           |                                    | 
|Changes in assets and liabilities:                                 |                                    | 
|Accounts receivable                                                |                                    | 
|Other receivables and interest receivable                          |                                    | 
|Notes and other amounts receivable (Water Treatment Division sale) |                                    | 
|Prepaid expense                                                    |                                    | 
|Inventory                                                          |                                    | 
|Accounts payable and accrued cash liabilities                      |                                    | 
|Income tax payable                                                 |                                    | 
|                                                                   |                                    | 
|Net cash (used) in operating activities                            |                                    | 
|                                                                   |                                    | 
|Cash flows from investing activities                               |                                    | 
|Investment in capitalized patents and licenses                     |                                    | 
|Purchase of property, plant and equipment                          |                                    | 
|                                                                   |                                    | 
|Net cash (used) in investing activities                            |                                    | 
|                                                                   |                                    | 
|Cash flows from financing activities                               |                                    | 
|Proceeds from short-term loans                                     |                                    | 
|Payment of short-term loans                                        |                                    | 
|Proceeds from sale of common stock                                 |                                    | 
|                                                                   |                                    | 
|Net cash provided by financing activities                          |                                    | 
|                                                                   |                                    | 
|Net increase (decrease) in cash and cash equivalents               |                                    | 
|                                                                   |                                    | 
|Cash and cash equivalents at beginning of period                   |                                    | 
|                                                                   |                                    | 
|Cash and cash equivalents at end of period                         |                                    | 
|                                                                   |                                    | 
|Supplemental disclosures of cash flow information                  |                                    | 
|Cash paid for taxes                                                |                                    | 
|                                                                   |                                    | 
|Non-cash investing and financing activities:                       |                                    | 
|Value of options issued in exchange for services - prepaid         |                                    | 

The accompanying notes
are an integral part of the financial statements

3

---



# NOTES TO FINANCIAL
STATEMENTS

Note 1. Financial
StatementsThe financial statements included
herein have been prepared by PURE Bioscience (we, us) without
audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have been condensed
or omitted as allowed by such rules and regulations, and we believe that the disclosures
are adequate to make the information presented not misleading. These financial statements
should be read in conjunction with our audited financial statements for the period ending
July 31, 2006 and their accompanying notes, as filed with the Securities and Exchange
Commission in our 10K-SB on October 27, 2006. While management believes the procedures
followed in preparing the financial statements included in this quarterly report on Form
10Q-SB are reasonable, the accuracy of the amounts are at least partially dependent upon
facts that will exist and results that will be accomplished in subsequent periods. The
results of operations for interim periods are not necessarily indicative of the results of
operations for the full year, or any future periods.

We believe that the accompanying
unaudited financial statements contain all adjustments (including normal recurring
adjustments) necessary to present fairly the operations and cash flows for the periods
presented.

Note 2. Business Segment
and Sales ConcentrationsIn 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 three months ended April
30, 2007, 100% of sales were made to four strategic partners that are also developing
markets for our products. During the nine months ended April 30, 2007, 92% of sales were
made to these four strategic partners. 32% of sales for the three month period ended April
30, 2007 were made to U.S. domestic customers, and 68% were made to international
customers. In the nine month period ended April 30, 2007, 75% of sales were made to U.S.
domestic customers, and 25% were made to international customers.

Note 3. ReclassificationsCertain reclassifications have been
made to previously reported statements to conform to our current financial statement
format.

Note 4. Equity and
Common StockIn 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 $91,250 (based on the
Black-Scholes Option Pricing Model assuming no dividend yield, volatility of 70.84% and a
risk-free interest rate of 5.25%).

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.

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 5 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.

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. In the same three
month period we also recorded $2,465 of employee stock option expense (See Note 5 for a
further discussion of this 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. Also during the
quarter we received $8,125 from the exercise of options on 16,250 shares of common stock
issued under employee stock option plans. In addition, we recorded $2,465 of employee
stock option expense (See Note 5 for a further discussion of this expense).

Note 5. Share-Based
CompensationThe Company has, or has had during
the fiscal years presented herein, the following stock option plans (the Plans) pursuant
to which options to acquire common stock have been granted: the 1996 Directors And
Officers Stock Option Plan (terminated on April 17, 2006); the 1998 Directors And Officers
Stock Option Plan; the 2001 Directors And Officers Stock Option Plan; the 2001 ETIH2O
Stock Option Plan; the 2001 Consultants and Advisors Stock Option Plan; the 2002
Non-Qualified Stock Option Plan; the 2002 Employee Incentive Stock Option Plan; and the
2004 Consultants and Advisors Stock Option Plan. During the three months ended April 30,
2007 the shareholders of the Company approved a new Plan, the 2007 Equity Incentive Plan,
which has a share reserve of 5,000,000 shares. The 5,000,000 shares of common stock
underlying the 2007 Equity Incentive Plan were registered under a Form S-8 filed with the
SEC on May 30, 2007.

4

---



The Plans are administered by an
Administrative Committee. The exercise price for Options is set by the Administrative
Committee but shall not be for less than the fair market value of the shares on the date
the Option is granted. Fair market value is defined under the Plans based on the market
price of our common stock for a specified number of trading days prior to the date the
option is granted. The period in which Options can be exercised and their vesting schedule
is set by the Administrative Committee but is not to exceed five years from the date of
Grant.

On August 1, 2006, we adopted the
provisions of SFAS 123R, requiring the Company to recognize expense related to the fair
value of share-based compensation awards to employees and directors. Prior to this date,
we followed the intrinsic value method set forth in APB Opinion 25, Accounting for
Stock Issued to Employees (APB 25) in accounting for our stock option
plans. We have elected to use the modified-prospective-transition method as permitted by
SFAS 123R and therefore have not restated our financial results for prior periods. 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
and as more fully described in Note 6. There is therefore no compensation expense recorded
for the three or nine month periods ending April 30, 2007 related to awards made prior to
August 1, 2006. 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. 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.

As a result of adopting SFAS 123R,
our net loss for the three months ended April 30, 2007 was $2,465 greater, and for the
nine months ended April 30, 2007 was $4,930 greater, than that which we would have
reported had we continued to account for employee share-based compensation under APB 25.
Basic and diluted earnings per share (rounded to the nearest one cent) for the three and
nine month periods ended April 30, 2007 would have been unchanged from those reported, had
we not adopted SFAS 123R.

The following table sets forth the
share-based compensation expense recorded in our Consolidated Statements of Operations for
the three and nine months ended April 30, 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 6:

|                                                                 | Three Months Ended
April 30, 2007 |  | Nine Months Ended
April 30, 2007 |      
|---------------------------------------------------------------- | --------------------------------- |  | -------------------------------- | -----
|
|Share-based compensation for employees and directors:            |                                   |  |                                  |      
|Selling expense                                                  |                                   |  | $                                |     
|General and administrative expenses                              |                                   |  |                                  | 2,465
|Research and development                                         |                                   |  |                                  |     
|                                                                 |                                   |  |                                  |      
|Total share-based compensation for employees and directors       |                                   |  |                                  | 2,465
|Share-based compensation for third party service providers:      |                                   | 
|Selling expense                                                  |                                   |  | $                                |     
|General and administrative expenses                              |                                   |  |                                  |     
|Research and development                                         |                                   |  |                                  |     
|                                                                 |                                   |  |                                  |      
|Total share-based compensation for third party service providers |                                   |  |                                  |     
|                                                                 |                                   |  |                                  |      
|Total share-based compensation expense                           |                                   |  | $                                | 2,465
|                                                                 |                                   |  |                                  |      

For comparative purposes to our
Consolidated Statements of Operations for the three and nine month periods ended April 30,
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 the three and nine month periods ended April 30, 2006:

|                                                                        | Three Months Ended
April 30, 2006 |  | Nine Months Ended
April 30, 2006 |         
|----------------------------------------------------------------------- | --------------------------------- |  | -------------------------------- | --------
|Net loss, as reported                                                   |                                   |  | $                                | (871,452
|Employee stock-based compensation expense under fair-value method       |                                   |  |                                  | (119,362
|Employee stock-based compensation expense included in reported net loss |                                   |  |                                  |        
|                                                                        |                                   |  |                                  |         
|Pro forma net loss                                                      |                                   |  | $                                | (990,814
|Net loss per share:                                                     |                                   | 
|As reported                                                             |                                   |  | $                                | (0.04   
|Pro forma                                                               |                                   |  | $                                | (0.05   
|                                                                        |                                   | 

The fair value of share-based option
awards is estimated using the Black-Scholes option pricing model, with expected volatility
based on historical actual volatility, and a risk-free interest rate based on the U.S.
Treasury yield in effect at the time of the respective grant. We use the shortcut method
described in SAB 107 in determining the expected life of employee options, whereby the
expected term is estimated using the midpoint between the vesting date and the end of the
contractual term. Our estimation of expected life for non-employee director and third
party advisor awards is based on the contractual term of the award. The following
assumptions were used for awards made during the three months ended April 30:

5

---



|                        | 2007 |  | 2006
|----------------------- | ---- |  | ----
|Expected volatility     |      |  |     
|Expected dividend yield |      |  |     
|Risk-free interest rate |      |  |     
|Expected life           |      |  |     

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, 2006    |                  |  |                                     | 11,634,000 |                                   
|                            |                  |  |                                     |           
|Granted                     |                  |  |                                     | 100,000    |                                   
|Exercised                   |                  |  |                                     | (51,500    | )                                 
|Forfeited / Terminated      |                  |  |                                     |           |                                   
|                            |                  |  |                                     |           
|Balance at October 31, 2006 |                  |  |                                     | 11,682,500 |                                   
|Granted                     |                  |  |                                     | 25,000     |                                   
|Exercised                   |                  |  |                                     | (525,053   | )                                 
|Forfeited /  Terminated     |                  |  |                                     | (111,447   | )                                 
|                            |                  |  |                                     |           
|Balance at January 31, 2007 |                  |  |                                     | 11,071,000 |                                   
|Granted                     |                  |  |                                     |           |                                   
|Exercised                   |                  |  |                                     | (216,250   | )                                 
|Forfeited /  Terminated     |                  |  |                                     |           |                                   
|                            |                  |  |                                     |           
|Balance at April 30, 2007   |                  |  |                                     | 10,854,750 |                                   
|                            |                  |  |                                     |           

|               |  | Outstanding | Exercisable
|-------------- |  | ----------- | -----------
|
|$0.50 to $0.75 |  |             |            
|$0.80 to $1.20 |  |             |            
|$1.50 to $2.00 |  |             |            
|               |  |             |            
|               |  |             |            
|               |  |             |            

Cash received from options exercised
during the three months ended April 30 2007 and 2006, was $177,315 and $211,960
respectively. During the three month period ended April 30, 2006 there were net exercises
of options on 580,960 shares which resulted in the issuance of 448,155 shares of common
stock. The intrinsic value of all options exercised during the three months ended April
30, 2007 and 2006, was $313,600 and $1,624,158 respectively. No options were granted
during the three months ended April 30, 2007. The weighted-average grant date fair value
of equity options granted during the three months ended April 30, 2006 was $1.65.

Cash received from options exercised
for the nine months ended April 30, 2007 and 2006, was $355,815 and $264,960 respectively.
During the nine month period ended April 30, 2007 there were net exercises of options on
450,000 shares which resulted in the issuance of 338,553 shares of common stock, and
during the nine month period ended April 30, 2006 there were net exercises of options on
580,960 shares which resulted in the issuance of 448,155 shares of common stock. The
intrinsic value of all options exercised during the nine months ended April 30, 2007 and
2006, was $1,267,300 and $1,713,158 respectively. The weighted-average grant date fair
value of equity options granted during the nine months ended April 30, 2007 and 2006, was
$1.85 and $1.41 respectively.

As of April 30, 2007, there was
$14,789 of unrecognized non-cash compensation cost related to unvested options, in
addition to $174,525 recorded on the face of the consolidated balance sheets as
prepaid consulting and further discussed in Note 6.

Note 6. Prepaid
ConsultingDuring the three months ended January
31, 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 is now 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 will not be issued if the associated consulting agreements are 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 October 2006 Mr. Sitton
resigned from the Board of Directors. Mr. Sittons consulting agreement is not
affected by his resignation from our Board of Directors.

On their granting during the three
months ended January 31, 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%. This amount is being amortized over the two year life of the consulting agreements
at $24,932 per month. During the three months ended April 30, 2007 we amortized $74,797 of
the prepaid asset to selling expense, and during the nine months ended April 30, 2007 we
amortized $224,390 of the prepaid asset to selling expense. To date we have amortized
seventeen months, or $423,847, of the asset to selling expense and as a result we reported
a prepaid asset of $174,525 as Prepaid consulting on the face of the
consolidated balance sheets as at April 30, 2007.

6

---



Note 7. Subsequent EventsSubsequent to the end of the quarter
ended April 30, 2007, we received $42,875 from the exercise of employee options on 85,750
shares of common stock.

7

---



ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following
discussion and analysis should be read in conjunction with the audited and unaudited
financial statements of PURE Bioscience.

OVERVIEWPURE Bioscience began as a provider
of pharmaceutical water purification products, however we are now expanding into markets
with broader potential by developing new, proprietary bioscience products based upon our
patented silver ion antimicrobial technologies and patent-pending boric acid based
pesticide technologies. In May 2005, we sold the assets of our Water Treatment Division
and are now focused exclusively on the development and commercialization of our current
and future bioscience products.

Bioscience TechnologyOur flagship bioscience technology is
an aqueous disinfectant, silver dihydrogen citrate (SDC). A patented new
molecule, 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 produce
and market pre-formulated, ready-to-use products, as well as varying strengths of SDC
concentrate as an additive or raw material for inclusion in other companies
products. Additionally, in 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 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 Axen®30
hard surface disinfectant products for commercial, industrial and consumer applications
including restaurants, homes and medical facilities. The Axen30 EPA registration includes
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, a 10
minute kill time on fungi, a 30 second kill time on HIV Type I, and a 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 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 disinfectant
products.

Our technology also shows promise as
a broad-spectrum antimicrobial and anti-fungal for use in human and veterinary healthcare
products. We are pursuing certain approvals for human use through the U.S. Food and Drug
Administration (FDA), initially by partnering with Therapeutics, Incorporated
(Therapeutics). Therapeutics has elected to focus on development of potential
SDC-based products for the treatment and prevention of dermatological and womens
health related bacterial, viral and fungal mediated diseases and conditions, and has
assumed responsibility for funding and managing the testing and regulatory processes for
these potential FDA-regulated products. Subsequent to the signing of a Development and
Licensing Agreement granted to Therapeutics in September 2003, Therapeutics initially
focused on the development of womens health and acne treatment products. In April
2006, after the initial period contemplated in the Development and Licensing Agreement for
evaluation and characterization of SDC as an active pharmaceutical ingredient had been
substantially completed, we amended and expanded the joint development initiative with
Therapeutics to include the development of SDC as an active pharmaceutical ingredient in
products for the treatment of dermatophytoses such as Tinea Pedis (athletes foot),
Onychomycosis (nail fungus), as well as the 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.

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.

We are also developing a
patent-pending pesticide technology, Triglycylboride 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 AntX, the
key products in our Innovex® line of pest control products. In addition, the
Innovex® line features our EPA-exempt non-toxic TrapX® rodent lure, and our EPA
registered CleanKill, the SDC-based hard surface disinfectant for the pest control
industry. Marketing efforts behind these pesticide products to date, and resulting sales,
have been very limited. During the current year we intend to evaluate the benefit of
investing in the development of additional formulations of these products which could be
sold, subject to the evaluation of market potential, with wider distribution and increased
marketing efforts.

RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 2007 VERSUS THREE MONTHS ENDED APRIL 30, 2006We 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 SDC 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 to pursue research, testing and regulatory approval for SDC-based
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 SDC into multiple global products.

8

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During the three months ended April
30, 2007 revenues of $132,400 increased by $88,100, or 199%, compared with the three
months ended April 30, 2006. Sales for the three months ended April 30, 2007 were made to
four strategic partners that are also developing markets for our products. Gross profit
for the three months ended April 30, 2007 was $43,500 compared with $21,700 in the same
quarter of the prior fiscal year. The gross margin percentage declined from 49.0% in the
prior year to 32.9% in the current period, due primarily to product mix. Product mix is
expected to be the most significant factor affecting variability in our overall margins in
future periods. Our margins on the sale of finished packaged products, such as our ready
to use hard surface disinfectants, and on the sale of blending systems, are less than the
margins on the sale of bulk products such as our SDC concentrate. In future periods, as
SDC becomes used as an ingredient in third party products in addition to being sold as a
ready to use disinfectant, we expect sales of bulk concentrate to contribute a greater
proportion of our revenues.

Operating costs increased by 5.3%,
from $912,900 in the three months ended April 30, 2006, to $961,000 in the three months
ended April 30, 2007. Within these aggregate operating costs, selling expenses declined by
$44,000, to $124,800 in the current quarter compared with the same three months of the
prior fiscal year. The decrease in selling expenses is primarily due to a reduction in
third party expenses and options issued for services. No options were issued for selling
services during the three months ended April 30, 2007. General and administrative expenses
increased by $170,900, to $582,600 in the three months ended April 30, 2007, compared with
the three months ended January 31, 2006. Included in the increase in general and
administrative expense are payroll and other investments in corporate infrastructure,
including investments necessary to support our facility reconstruction. Additionally,
third party expenses for legal services, investor relations, public relations, insurance
and accounting all increased in the three months ended April 30, 2007 compared with the
same period in the prior year. Included in general and administrative expenses for the
three months ended January 31, 2007 is $2,465 of employee stock option expense. Research
and development costs, including patent, license and product registration expenditures,
decreased in the three months ended April 30, 2007 by 23.7% to $253,600, compared with the
three months ended April 30, 2006. The decrease in expense is primarily due to options
which were issued for formulation consulting services in the three months ended April 30,
2006. No options were issued for research and development services during the three months
ended April 30, 2007. Our research and development expense primarily includes costs
associated with the continuing development of our silver dihydrogen citrate technology and
related investments in patents, licenses, product registrations with regulatory agencies,
and in formulation and method development.

Our loss from operations before taxes
increased by $26,300, from a loss of $891,200 in the three months ended April 30, 2006 to
a loss of $917,500 in the three months ended April 30, 2007. Other income improved by
$21,400 for the three months ended April 30, 2007 compared with the prior year, primarily
due to increased interest income. We made no income tax provision related to the periods
ending April 30, 2007 or 2006, as any tax liabilities are offset by current period losses
or available federal and California net operating loss carry-forwards. As a result, our
net loss after taxes increased by $4,900, from a net loss of $871,500 for the three months
ended April 30, 2006 to a net loss of $876,400 for the three months ended April 30, 2007.

RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED APRIL 30, 2007 VERSUS NINE MONTHS ENDED APRIL 30, 2006During the nine months ended April
30, 2007 revenues of $328,800 increased by $170,000, or 107%, compared with the nine
months ended April 30, 2006. 92% of sales for the three months ended April 30, 2007 were
made to four strategic partners that are also developing markets for our products.

Gross profit for the nine months
ended April 30, 2007 was $113,000, compared with $92,300 in the same period of the prior
fiscal year. The gross margin percentage declined from 58.1% in the prior year to 34.4% in
the current period, due primarily to product and customer mix. During the nine months
ended April 30, 2007, a significantly 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 19.8%,
from $2,504,800 in the nine months ended April 30, 2006, to $3,003,300 in the nine months
ended April 30, 2007. Within these aggregate operating costs, selling expenses increased
by $113,100, to $523,500 in the current period compared with the same period in the prior
fiscal year. The increase in selling expenses is primarily due to fees and prepaid option
expense amortization and other costs associated with the introduction of silver dihydrogen
citrate products to new partners, and to product launches. General and administrative
expenses increased by $326,400, to $1,604,800 in the nine months ended April 30, 2007,
compared with the nine months ended April 30, 2006. The major factors in this increase are
consulting fees and option expenses related to investments in corporate infrastructure,
and increases in third party expenses for legal services, investor relations, public
relations, insurance and accounting, which were partially offset by the issuance of stock
options and recognition of other expenses in the nine months ended April 30, 2006 for
investor relations and investment consulting services incurred in advance of our March
2006 private placement. Included in general and administrative expenses for the nine
months ended April 30, 2007 are non-cash items including $4,930 of employee stock option
expense and $91,250 of expense for the issuance of options in exchange for manufacturing
and facility development consulting services. Research and development costs, including
patent, license and product registration expenditures, increased for the nine months ended
April 30, 2007 by 7.2% to $874,900, compared with the same period in the prior fiscal
year, primarily due to additional testing expenses to support regulatory filings.

Our loss from operations before taxes
increased by $477,800, from a loss of $2,412,500 for the six months ended April 30, 2006
to a loss of $2,890,200 for the six months ended April 30, 2007. Other income was $126,100
greater for the three months ended April 30, 2007 than in the same period of the prior
year, due primarily to increased interest income. Additionally, income from legal
settlements was offset by capital asset write-downs associated with our facility
reconstruction and infrastructure investments. We made no income tax provision related to
the periods ended April 30, 2007 or 2006, as any tax liabilities were offset by current
period losses or available federal and California net operating loss carry-forwards. As a
result, our net loss after taxes increased by $351,600, from a net loss of $2,400,100 for
the nine months ended April 30, 2006 to a net loss of $2,751,800 for the nine months ended
April 30, 2007.

9

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LIQUIDITY AND CAPITAL
RESOURCESFrom inception through the present,
we have financed our operations primarily through our initial public offering in August of
1996, by subsequent private placement common stock sales, through lines of credit and the
issuance of debentures, and in May 2005 by the sale of our Water Treatment Division. We
currently have no long-term debt.

As at April 30, 2007, we had current
assets of $2,587,800, a decrease of $2,478,800 from July 31, 2006. Cash and cash
equivalents at April 30, 2007 were $2,230,500 after net cash outflows for the nine month
period from July 31, 2006 of $2,489,800.

During the nine months ended April
30, 2007, cash used in operating activities was $1,938,100, compared with $1,541,400
during the same period in the prior fiscal year. During the prior year we received
$332,500 in amounts related to the May 2005 sale of our Water Treatment Division, however
if these amounts are excluded our operating cash outflow for the nine months ended April
30, 2006 was $1,876,800.

During the nine months ended April
30, 2007, cash used in investing activities was $907,500, compared with $107,400 used in
investing activities during nine months ended April 30, 2006. In addition to $67,400
invested in capitalized patents, during the current fiscal year we have spent
approximately $524,000 to redevelop the manufacturing and office areas of our El Cajon
facility, and to purchase additional manufacturing assets. We have significantly expanded
our SDC manufacturing capability and installed SDC concentrate, blending and packaging
equipment based on our anticipated needs. We have also improved our computer hardware and
software infrastructure. During the nine months ended January 31, 2007 we wrote down the
value of our capitalized property, plant and equipment by approximately $200,000 based on
our evaluation of obsolescence and assets that were replaced during our facility
redevelopment. As a result, property, plant and equipment on the consolidated balance
sheets at April 30, 2007 grew by $633,326 over the nine month period from July 31, 2006.

Other assets during the nine months
ended April 30, 2007 declined by $279,200, primarily due to $224,400 of prepaid consulting
amortization (See Note 6 to the consolidated financial statements) and an excess of patent
amortization over patent investment. The capitalized value of patents and licenses at
April 30, 2007, primarily related to our silver dihydrogen citrate technology, was
$2,081,900, a decline of $54,800 from July 31, 2006.

During the nine months ended April
30, 2007, cash flows from financing activities were $355,815. $347,690 was received from
the exercise of options by non-employees on 438,000 shares of common stock at an average
exercise price of $0.79 per share, and $8,125 was received from the exercise of options by
employees on 16,250 shares of common stock at an average exercise price of $0.50 per
share. In the corresponding period of the prior fiscal year, net cash provided by
financing activities was $7,041,600, which consisted of $6,766,600 from the sale of
4,992,208 shares of common stock in private placements and $275,000 from the exercise of
436,833 shares of common stock underlying options and warrants.

At April 30, 2007 we had current
liabilities of $521,900, an increase of $110,000 from July 31, 2006, primarily due to the
timing of the payment of accounts payable.

RISKS RELATED TO OUR
CAPITAL RESOURCESAt April 30, 2007, we had current
assets of $2,587,800, current liabilities of $521,900 and no outstanding long-term debt;
however we do not yet have significant cash inflows from product sales to offset our
ongoing planned investments in infrastructure, manufacturing capacity, product launches,
research and development projects and regulatory submissions, among other investments.

We may need to seek additional
capital through the issuance of equity, debt, convertible securities or through other
means, any one of which could reduce the value to us, perhaps substantially, of the
commercialization of our bioscience technology. The issuance of equity, debt or
convertible securities could also lead to a reduction in the value of shares held by our
existing shareholders and/or the dilution of their proportionate share of the
companys securities. 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
OPERATIONSWe had a loss of $3,680,500 from
continuing operations before taxes in the fiscal year ending July 31, 2006, and a loss of
$2,751,800 before taxes in the nine months ended April 30, 2007. We may continue to have
losses in the future. If our 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. Slower than
anticipated revenue growth from new products would force us to scale back research,
testing, product development and marketing of new products, at which time we would reduce
the size and scope of our operations, or cease operations. We are currently investing in
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 are a bioscience company focused
on the marketing, selling and continued development of silver dihydrogen citrate
antimicrobial technology and 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 Environmental Protection Agency (the 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 EPA regulated product development internally and in
conjunction with current regulatory consultants; however the introduction of additional
EPA regulated antimicrobial products could take several months.

10

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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, Incorporated, 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 meet the
strict criteria imposed by the FDA. It may be several years before we are able to
introduce any FDA regulated antimicrobial pharmaceutical products, if at all.

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 ability. Focused competition by such chemical and pharmaceutical giants
could substantially limit our potential market and ability to profit from these products.

We expect that sales of SDC will
constitute a substantial portion of our revenues during the fiscal year ending July 31,
2007 and 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 material adverse effect on our
business, financial condition and results of operations.

LEGAL RISKS RELATED TO
OUR BUSINESSWe 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.

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.

OTHER RISKS RELATED TO
INVESTING IN OUR SECURITIESAs of May 31, 2007, Michael L. Krall,
our President and Chief Executive Officer, beneficially owned, including exercisable
options, approximately 9% of our common stock. As of the same date, our directors and
officers as a group beneficially owned, including exercisable options and warrants,
approximately 27% 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.

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Since going public in August 1996,
the price and trading volume of our common stock has been highly volatile. The price has
ranged from below $1 per share to over $7 per share. In addition, the monthly trading
volume has varied from under 200,000 shares to over 4.4 million shares. During the twelve
months prior to June 2007, the daily closing price of our common stock has ranged from
$1.38 to $3.18, and the monthly trading volume has varied from approximately 1.45 million
shares to approximately 4.46 million shares. This volatility could adversely affect an
investors ability to sell shares of our common stock, and the available price for
such shares, including resulting in lower prices being available to an investor if the
investor desires 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 the
common stock, which could make it difficult for an investor to sell his, her or its Shares
at any given time.

We have approximately 11,330,698
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 $1.25. Approximately 13,873,997 shares of
common stock remain available for future issuance under equity compensation plans or
otherwise. The exercise of options and common stock purchase warrants, and the sale of
underlying shares, could have an adverse effect on the market for our common stock.

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.

Investors may experience dilution in
the net tangible book value of their investment upon the exercise of outstanding options
and warrants granted under our stock option plans, and other options, warrants and
outstanding convertible securities.

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 or
delaying attempts by others to gain control of the Company.

VALUATION OF INTANGIBLE
ASSETSSFAS 142 requires that goodwill and
other intangible assets be tested for impairment on an annual basis, and in certain
circumstances between annual tests. Recoverability of assets to be held for use is based
on expectations of future discounted cash flows from the related operations, and when
circumstances dictate, we adjust the asset to the extent the carrying value exceeds the
fair value of the asset. Our impairment review process is based on the discounted future
cash flow approach that uses our estimates of revenue driven by assumed market segment
share and estimated costs. Also included in our analysis is an estimate of revenues
expected from the development of SDC-based products in human and veterinary applications,
including those under our agreement with Therapeutics, Incorporated
(Therapeutics). We entered into an agreement with Therapeutics in September
2003, which was amended and expanded in April 2006, for the development and
commercialization of certain FDA regulated silver dihydrogen citrate based products, where
Therapeutics is responsible for development activities and regulatory filings. In the
agreement, Therapeutics has agreed to reimburse us for pre-contract acquisition and
development costs of the silver dihydrogen citrate intellectual property as well as
reimbursement for ongoing intellectual property costs associated with silver dihydrogen
citrate. Following the reimbursement of both Therapeutics and our costs, depending
on the type of product, we will receive a minimum of 40% of all sales proceeds, licensing
fees, royalty payments and all other forms of cash and non-cash consideration received by
the two parties. We will also realize revenues from the sale of silver dihydrogen citrate
raw material as an active ingredient.

Judgments made by us related to the
expected useful lives of long-lived assets and our ability to realize discounted cash
flows in excess of the carrying amounts of such assets are affected by factors such as the
ongoing maintenance and improvements of the assets and changes in economic and market
conditions. As we assess the ongoing expected cash flows and carrying amounts of our
long-lived assets, these factors could cause us to realize a material impairment charge,
which would result in decreased results of operations and a decrease in the carrying value
of these assets on our consolidated balance sheets.

ITEM 3. CONTROLS AND
PROCEDURESWe 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.

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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.

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.

# PART II

# ITEM 1. LEGAL PROCEEDINGS

None

# ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES

None

# ITEM 3. DEFAULTS UPON
SENIOR SECURITIES

Not applicable.

# ITEM 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS

None.

# ITEM 5. OTHER INFORMATION

Not applicable.

# ITEM 6. EXHIBITS AND
REPORTS ON FORM 8-K

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

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

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

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

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

|B. | Reports
on Form 8-K:  None.
|-- | ---------------------------

# SIGNATURES

Pursuant to the requirement 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                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | By: /s/ Michael L. Krall
      Michael L. Krall, President/CEO
       June 12, 2007
By: /s/ Andrew J. Buckland
     Andrew J. Buckland, CFO/Principal Accounting Officer 
     June 12, 2007

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