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 October 31, 2006
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | [  ] | 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: 23,941,002 as of December 13, 2006.

---



|                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Part I          
                
                
                
                
                
                
Part II | Financial Information
Item 1.                       
                              
                              
                              
Item 2.                       
Item 3.                       
                     
Other Information
Item 1.                       
Item 2.                       
Item 3.                       
Item 4.                       
Item 5.                       
Item 6.                       
               
Signatures and Certifications | Financial Statements
Balance Sheets as of July 31, 2006 and October 31, 2006
Statements of Operations for the three months ended October 31, 2006 and 2005
Statements of Cash Flows for the three months ended October 31, 2006 and 2005
Management's Discussion and Analysis of Financial Condition and Results of Operations
Controls and Procedures
Legal Proceedings
Changes in Securities
Defaults Upon Senior Securities: None
Submission of Matters to a Vote of Security Holders: None
Other Information
Exhibits and Reports on Form 8-K
|                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

2

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|                           
|---------------------------
|CONSOLIDATED BALANCE
SHEETS

|                                                            | (Unaudited)
October 31
2006 |  | July 31
2006 |            
|----------------------------------------------------------- | --------------------------- |  | ------------ | -----------
|ASSETS                                                      |                             |  |              |            
|Current Assets                                              |                             | 
|Cash and cash equivalents                                   |                             |  | $            | 3,876,510  
|Accounts receivable, net of allowance for doubtful accounts |                             | 
|of $0 at July 31, 2006 and $0 at October 31, 2006           |                             |  |              | 51,858     
|Inventories                                                 |                             |  |              | 213,341    
|Prepaid expenses                                            |                             |  |              | 55,000     
|                                                            |                             |  |              |            
|Total current assets                                        |                             |  |              | 4,196,709  
|                                                            |                             |  |              |            
|Property, Plant and Equipment                               |                             | 
|Property, plant and equipment                               |                             |  |              | 437,456    
|                                                            |                             |  |              |            
|Total property, plant and equipment                         |                             |  |              | 437,456    
|                                                            |                             |  |              |            
|Other Assets                                                |                             | 
|Prepaid consulting                                          |                             |  |              | 324,118    
|Deposits                                                    |                             |  |              | 9,744      
|Patents and licenses                                        |                             |  |              | 2,111,961  
|                                                            |                             |  |              |            
|Total other assets                                          |                             |  |              | 2,445,823  
|                                                            |                             |  |              |            
|Total assets                                                |                             |  | $            | 7,079,988  
|                                                            |                             |  |              |            
|LIABILITIES AND STOCKHOLDERS EQUITY                         |                             | 
|Current Liabilities                                         |                             | 
|Accounts payable                                            |                             |  | $            | 129,141    
|Accrued liabilities                                         |                             |  |              | 119,600    
|Taxes payable                                               |                             |  |              | 2,400      
|                                                            |                             |  |              |            
|Total current liabilities                                   |                             |  |              | 251,141    
|                                                            |                             |  |              |            
|Total liabilities                                           |                             |  |              | 251,141    
|                                                            |                             |  |              |            
|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     |                             | 
|24,034,502 issued and outstanding at October 31, 2006       |                             |  |              | 27,687,974 
|Warrants:                                                   |                             | 
|391,698 issued and outstanding at July 31, 2006, and        |                             | 
|391,698 issued and outstanding at October 31, 2006          |                             |  |              | 245,825    
|Accumulated deficit                                         |                             |  |              | (21,104,952
|                                                            |                             |  |              |            
|Total stockholders' equity                                  |                             |  |              | 6,828,847  
|                                                            |                             |  |              |            
|Total liabilities and stockholders' equity                  |                             |  | $            | 7,079,988  
|                                                            |                             |  |              |            

The accompanying notes
are an integral part of the financial statements

3

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|                                     
|-------------------------------------
|CONSOLIDATED STATEMENTS
OF OPERATIONS

|                                             | For the Three Months Ended
October 31 | 
|-------------------------------------------- | ------------------------------------- | 
|
|Net revenues                                 |                                       | 
|Cost of sales                                |                                       | 
|                                             |                                       | 
|Gross profit                                 |                                       | 
|                                             |                                       | 
|Selling expenses                             |                                       | 
|General and administrative expenses          |                                       | 
|Research and development                     |                                       | 
|                                             |                                       | 
|Total operating costs                        |                                       | 
|                                             |                                       | 
|Loss from operations                         |                                       | 
|                                             |                                       | 
|Other income and (expense):                  |                                       | 
|Interest income                              |                                       | 
|Other                                        |                                       | 
|                                             |                                       | 
|Total other income (expense)                 |                                       | 
|                                             |                                       | 
|Net loss before taxes                        |                                       | 
|Income tax provision                         |                                       | 
|                                             |                                       | 
|Net loss after taxes                         |                                       | 
|                                             |                                       | 
|Net loss per common share, basic and diluted |                                       | 
|                                             |                                       | 

|                                               
|-----------------------------------------------
|CONSOLIDATED STATEMENTS
OF ACCUMULATED DEFICITS

|                             | Year-to-Date
Ended
October 31
2006 |  | Year
Ended
July 31
2006 |            
|---------------------------- | ---------------------------------- |  | ----------------------- | -----------
|Balance, beginning of period |                                    |  | $                       | (20,237,662
|Net income (loss)            |                                    |  |                         | (867,290   
|                             |                                    |  |                         |            
|Balance, end of period       |                                    |  | $                       | (21,104,952
|                             |                                    |  |                         |            

The accompanying notes
are an integral part of the financial statements

4

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|                                     
|-------------------------------------
|CONSOLIDATED STATEMENTS
OF CASH FLOWS

|                                                                   | For the Three Months Ended
October 31 | 
|------------------------------------------------------------------ | ------------------------------------- | 
|
|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                                                |                                       | 
|Notes and other amounts receivable (Water Treatment Division sale) |                                       | 
|Prepaid expense                                                    |                                       | 
|Inventory                                                          |                                       | 
|Accounts payable and accrued cash liabilities                      |                                       | 
|                                                                   |                                       | 
|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 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                  |                                       | 
|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

5

---



# 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 processes 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 October
31, 2006, 98% of sales were made to three strategic partners that are also developing
markets for our products. 100% of sales for the three month period were made to U.S.
domestic customers.

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

Note 4. 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.

# 

Note 5. Stock OptionsThe 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.

Non-employee directors are eligible
to receive stock option grants under the 1998 and 2001 Directors and Officers Stock Option
Plans and the 2002 Non-Qualified and Employee/Incentive Stock Option Plans. Employee
Directors are eligible to receive stock option grants under the 1999 and 2001 Directors
and Officers Stock Option Plans and the 2002 Non-Qualified Stock Option Plan. 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 as
being the average of the closing price for five consecutive trading days ending on the day
prior to the date the option is granted, with the exception of the 2002 Employee Incentive
Stock Option Plan where the number of consecutive trading days is thirty. 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. Shares issuable under options granted
to continuing officers or directors are immediately exercisable and vest upon exercise.

6

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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 period ending October 31, 2006 related to awards made prior to August 1, 2006.
Share-based compensation expense for awards granted subsequent to July 31, 2006 is, or
will be, 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, or intend to
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 October 31, 2006 was unchanged from that which we
would have reported had we continued to account for employee share-based compensation
under APB 25, as no employee grants were made during the three months ended October 31,
2006. Basic and diluted earnings per share for the three months ended October 31, 2006
would also have been the same 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 months ended October 31, 2006 resulting from stock option grants to our
employees, directors and third party service providers, excluding the amortization of
prepaid consulting as detailed in Note 6:

|                                                                 | Three Months Ended
October 31, 2006 | 
|---------------------------------------------------------------- | ----------------------------------- | 
|Share-based compensation for employees and directors:            |                                     | 
|Selling expense                                                  |                                     | 
|General and administrative expenses                              |                                     | 
|Research and development                                         |                                     | 
|                                                                 |                                     | 
|Total share-based compensation for employees and directors       |                                     | 
|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                           |                                     | 
|                                                                 |                                     | 

For comparative purposes to our
Consolidated Statements of Operations for the three months ended October 31, 2006, 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 months ended October 31, 2005:

|                                                                                   | Three Months Ended
October 31, 2005 | 
|---------------------------------------------------------------------------------- | ----------------------------------- | 
|Net loss, as reported                                                              |                                     | 
|Employee stock-based compensation expense determined under fair-value based method |                                     | 
|Employee stock-based compensation expense included in reported net loss            |                                     | 
|                                                                                   |                                     | 
|Pro forma net loss                                                                 |                                     | 
|                                                                                   |                                     | 
|Net loss per share:                                                                |                                     | 
|                                                                                   |                                     | 
|As reported                                                                        |                                     | 
|                                                                                   |                                     | 
|Pro forma                                                                          |                                     | 

The fair value of share-based 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, or will 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 the three months ended October 31:

|                        | 2006 |  | 2005
|----------------------- | ---- |  | ----
|Expected volatility     |      |  |     
|Expected dividend yield |      |  |     
|Risk-free interest rate |      |  |     
|Expected life           |      |  |     

7

---



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                   |                  |  |                                     |           |                                   
|                            |                  |  |                                     |           
|Balance at October 31, 2006 |                  |  |                                     | 11,682,500 |                                   
|                            |                  |  |                                     |           

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

Cash received from options exercised
for the three months ended October 31, 2006 and 2005, was $51,500 and zero respectively.
The weighted-average grant date fair value of equity options granted during the three
months ended October 31, 2006 and 2005, was $1.83 and $0.85, respectively, and the
intrinsic value of options exercised during the three months ended October 31, 2006 and
2005, was $52,530 and zero respectively. As of October 31, 2006, there was no unrecognized
non-cash compensation cost related to non-vested options, with the exception of $324,118
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 for which is 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 for
which is 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 has 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 which will 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 October 31, 2006 we
amortized $74,797 of the prepaid asset to selling expense. To date we have amortized
eleven months, or $274,254, of the asset to selling expense and as a result we reported a
prepaid asset of $324,118 as Prepaid consulting on the face of the
consolidated balance sheets as at October 31, 2006.

# 

Note 7. Subsequent EventsSubsequent to the end of the quarter
ended October 31, 2006 we received $31,500 from the exercise of options on 31,500 shares
of common stock, issued in prior periods for services provided to the Company.  We
also issued 30,000 shares of common stock for research and development services valued at
$65,100.

8

---



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.

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 have chosen to pursue certain approvals for human use through the U.S. Food
and Drug Administration (FDA) by partnering with Therapeutics, Incorporated
(Therapeutics). Therapeutics has elected to focus on development of multiple
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. 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 limited. During the current fiscal year we intend to develop additional
formulations of these products to subsequently be sold, subject to evaluation of market
potential, with wider distribution and increased marketing efforts.

RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED OCTOBER 31, 2006 VERSUS THREE MONTHS ENDED OCTOBER 31, 2005During
the three months ended October 31, 2006 revenues of $27,700 decreased by 49.8% from the
three months ended October 31, 2005. 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 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. For example, during the quarter ended
January 31, 2006, we announced that we had entered into a supply and distribution
agreement with Enviroguard Sciences LLC, initially for the supply and distribution of our
hard surface disinfectant. In October 2006, Enviroguard announced the initial distribution
of Staph Attack, a new hard surface disinfectant containing SDC, for institutional
evaluation. As a result of this and other agreements, we expect sales of our SDC-based
products to accelerate in future periods.

Gross profit for the three months
ended October 31, 2006 was $15,500 versus $40,400 in the same quarter of the prior fiscal
year. The gross margin percentage declined from 73.2% in the prior year to 56.1% in the
current period, due primarily to product and customer mix. The most significant factor
affecting variability in our overall margins is, and is expected in future periods to be,
product mix. Our margins on the sale of finished packaged products, such as our ready to
use hard surface disinfectants, and are less than the margins on the sale of bulk products such
as our SDC concentrate.

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Operating costs increased from
$642,300 in the three months ended October 31, 2005, to $925,200 in the three months ended
October 31, 2006. Within these operating cost totals, selling expenses increased by
$84,400, to $182,200 in the current quarter compared with the same quarter 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 pending product launches. General and
administrative expenses increased by $173,100, to $468,700 in the three months ended
October 31, 2006, compared with the three months ended October 31, 2005. The increase in
expense for the most recent quarter is primarily due to consulting fees and option
expenses related to investments in corporate infrastructure. Included in general and
administrative expenses for the three months ended October 31, 2006 is $91,250 of expense
related to the issuance of 100,000 options in exchange for operations, manufacturing and
facility development consulting services. In addition and to a lesser extent, insurance
and accounting fees increased year over year. Research and development costs, including
patent, license and product registration expenditures, increased for the three months
ended October 31, 2006 by 10% to $274,400, compared with the same period in the prior
fiscal year. This is primarily due to increased consulting fees paid to outside advisors.
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 net loss from operations before
taxes increased by $307,700, from a net loss of $602,000 in the three months ended October
31, 2005 to a net loss of $909,600 in the three months ended October 31, 2006. Other
income improved by $49,900 for the three months ended October 31, 2006 compared with the
prior year, primarily due to increased interest income resulting from higher cash
balances. We made no income tax provision related to the periods ending October 31, 2006
or 2005, 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 $257,800, from a net loss of $609,500 in the three months ended October 31,
2005 to a net loss of $867,300 in the three months ended October 31, 2006.

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 October 31, 2006 we had
current assets of $4,196,700, a decrease of $869,900 from July 31, 2006. Cash and cash
equivalents at October 31, 2006 were $3,876,500 after net cash outflows for the three
month period of $843,900. During the three months ended October 31, 2005, we received
$333,100 in amounts related to the May 2005 sale of our Water Treatment Division, however
if these amounts are excluded from cash inflows for the period, our net cash outflow for
the comparable period of the prior fiscal year was $677,700.

During the three months ended October
31, 2006 cash used in operating activities was $740,700. Included in this amount is
$41,400 invested during the quarter in additional inventory for anticipated product
launches for our partners. During the three months ended October 31, 2005, excluding the
amounts received related to the May 2005 sale of our Water Treatment Division as discussed
above, cash used in operating activities was $695,700.

During the three months ended October
31, 2006 cash used in investing activities was $154,700, including cash invested in
property, plant and equipment of $103,700. On the consolidated balance sheets at October,
31 2006, property, plant and equipment, including construction in process, increased by
$84,000 to $437,500. These investments are primarily due to the commencement during the
quarter of activities to develop the manufacturing and office areas of our El Cajon
location, based on our anticipated facility needs.

Other assets during the three months
ended October 31, 2006 declined by $99,600, primarily due to an excess of patent
amortization over patent investment, and $74,800 of prepaid consulting amortization as
detailed in Note 6 to the consolidated financial statements. The capitalized value of
patents and licenses at October 31, 2006, primarily related to our silver dihydrogen
citrate technology, was $2,112,000, a decline of $24,800 from July 31, 2006.

During the three months ended October
31, 2006 cash flows from financing activities were $51,500, all of which came from the
exercise of non-employee options on 51,500 shares of common stock. There were no cash
flows from financing activities for the corresponding period in the prior year.

At October 31, 2006, we had current
liabilities of $251,100, a decrease of $160,700 from July 31, 2006, primarily due to the
timing of the payment of accounts payable.

RISKS RELATED TO OUR
CAPITAL RESOURCESAt October 31, 2006, we had current
assets of $4,196,700, current liabilities of $251,100 and no outstanding 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.

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 the
commercialization of our bioscience technology. 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.

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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
$867,300 from continuing operations before taxes in the three months ended October 31,
2006. 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 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.

Our technology also shows promise as
a broad-spectrum antimicrobial for use in human and veterinary healthcare products. 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. We expect that Therapeutics experience with drug development
and FDA processing, especially with regard to dermal pharmaceuticals, could lead to IND,
NDA and/or 510-K filings for silver dihydrogen citrated-based healthcare products with the
FDA. 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 obtain such 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 markets, including healthcare, dental,
veterinary and food processing, as well as to consumer products 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. If these applications are not approved, we will not be able to
market or sell such products, which would limit the revenues which may be realized from
these products. Even after approval, we will remain subject to changing governmental
policies regulating antimicrobial products. We also intend to take these technologies to
the international marketplace, and international business carries a great deal of risk
with regard to foreign governments, banking and markets.

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.

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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.

OTHER RISKS RELATED TO
INVESTING IN OUR SECURITIESAs of December 13, 2006, 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 28% of the 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 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 3,000,000 shares. During the twelve
months prior to December 2006, the daily closing price of our common stock has ranged from
$0.73 to $2.95, and the monthly trading volume has varied from approximately 727,000
shares to approximately 4,354,000 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 reserved approximately
12,006,698 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 $1.16. Approximately 14,052,300 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 the common stock in the
foreseeable future. The payment of dividends on the common stock will depend on our
earnings, financial condition and other business and economic factors affecting us at such
time as 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 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.

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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.

As of the end of the previous fiscal
year, we 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 IIITEM 1. LEGAL PROCEEDINGS
None

ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIESNone

ITEM 3. DEFAULTS UPON SENIOR
SECURITIESNot applicable.

ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERSNone.

ITEM 5. OTHER INFORMATIONNot
applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM
8-KA. 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: 
     1.    
      Current Report Items 5.02 and 9.01 Departure of Directors or Principal Officers;
Election of Directors;          Appointment of Principal Officers filed on October 11,
2006.

SIGNATURESPursuant 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
          December 13, 2006
By: /s/ Andrew J. Buckland
          Andrew J. Buckland, CFO/Principal Accounting Officer
          December 13, 2006

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