As
filed with the Securities and Exchange Commission on October 27, 2017
Registration
No. 333-215915
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 2 TO
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PURE
BIOSCIENCE, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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2890
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33-0530289
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
Number)
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1725
Gillespie Way
El
Cajon, CA 92020
(619)
596-8600
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Henry
R. Lambert
Chief
Executive Officer
1725
Gillespie Way
El
Cajon, CA 92020
(619)
596-8600
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
With
Copies to:
Jeffrey
C. Thacker, Esq.
Ryan
J. Gunderson, Esq.
Gunderson
Dettmer Stough Villeneuve
Franklin
& Hachigian, LLP
3570
Carmel Mountain Rd., Suite 200
San
Diego, CA 92130
Tel.
(858) 436-8064
Fax:
(877) 881-9192
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Mark
S. Elliott
Vice
President, Finance
1725
Gillespie Way
El
Cajon, CA 92020
Tel.
(619) 596-8600
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Approximate
date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer (Do not check if a smaller reporting company) [ ]
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Smaller
reporting company [X]
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Emerging
growth company [ ]
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The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement. shall become effective
on such date as the Commission acting pursuant to said Section 8(a), may determine.
EXPLANATORY
NOTE
This
Post-Effective Amendment is being filed to update the registration statement (the “Original Registration Statement”)
filed by Pure Bioscience, Inc. (the “Company”, “we”, “our” or “us”) on February
6, 2017 and declared effective by the Securities and Exchange Commission on February 15, 2017, which registered for resale (i)
up to 1,572,941 shares of common stock issued to the selling security holders in the registrant’s private placement offering
(the “Private Placement Offering”), which closed on December 1, 2016 and January 23, 2017 (the “Closings”)
and (ii) up to 1,572,941 shares of our common stock issuable upon the exercise of warrants (the “2017 Warrants”) issued
to the selling security holders in the Private Placement Offering, as amended pursuant to the Post-Effective Amendment No. 1 filed
on August 25, 2017 and declared effective by the Securities Exchange Commission on September 1, 2017 (“POS AM 1”,
together with the Original Registration Statement, the “Registration Statement”).
This
Post-Effective amendment updates the prospectus dated September 1, 2017 to reflect the filing of the Company’s Annual Report
on Form 10-K for the year ended July 31, 2017.
All
applicable registration fees were paid at the time of the original filing of the Registration Statement.
The
information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until
the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED October 27, 2017
PRELIMINARY
PROSPECTUS
PURE
BIOSCIENCE, INC.
1,572,941
shares of Common Stock
176,471
shares of Common Stock issuable upon the exercise of Outstanding Warrants
This
prospectus relates to the resale by selling stockholders named in this prospectus of up to 3,145,882 shares of our common stock
in connection with the resale of:
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up
to 1,572,941 shares of common stock issued to the selling security holders in the registrant’s private placement offering
(the “Private Placement Offering”), which closed on December 1, 2016 and January 23, 2017 (the “Closings”);
and
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up
to 176,471 shares of our common stock issuable upon the exercise of warrants issued to the selling security holders in the
Private Placement Offering (the “2017 Warrants”).
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This
prospectus is being filed to update the prospectus filed on September 6, 2017 (the “prospectus”) to reflect the filing
of the Company’s Annual Report on Form 10-K filed on October 26, 2017. On September 25, 2017, the Company closed an offer
to all holders of 2017 Warrants (among other warrants), to among other changes, amend the 2017 Warrants to reduce the exercise
price from $1.25 per share of common stock to $0.85 per share of common stock and shorten the expiration date of the 2017 Warrants
to September 25, 2017 (or October 10, 2017, if applicable), pursuant to the terms and subject to the conditions of the Offer to
Amend and Exercise Warrants to Purchase Common Stock (the “Offer to Amend and Exercise”), filed as Exhibit (a)(1)(B)
to the Company’s Schedule TO filed with the Securities and Exchange Commission on August 25, 2017. Holders holding 2017
Warrants to purchase 1,396,470 shares of Common Stock exercised such warrants for a reduced exercised price of $0.85 per share.
Holders holding 2017 Warrants to purchase 176,471 shares of Common Stock did not participate in the Offer to Amend and Exercise
and such warrants continue to remain outstanding according to their original terms, including the original exercise price of $1.25
per share.
All
proceeds of this offering will be received by us, and all costs associated with this registration statement will be borne by us.
The
selling stockholders may offer shares of our common stock from time to time in a number of different ways and at varying prices.
For more information on possible methods of offer and sale by the selling stockholders, refer to the section of this prospectus
entitled “Plan of Distribution.”
Our
common stock is traded on the OTC Markets’ OTCQB marketplace under the symbol “PURE”. On October 24,
2017, the last reported sale price of our common stock on the OTCQB was $1.15 per share.
Our
business and an investment in our securities involve significant risks. See “Risk Factors” beginning on page 7 of
this prospectus to read about factors that you should consider before making an investment decision.
We
may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the
entire prospectus and any amendments or supplements carefully before you make your investment decision.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This
prospectus is dated [●], 2017
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
PURE
BIOSCIENCE, INC. HAS NOT REGISTERED THE SHARES OF COMMON STOCK THAT MAY BE SOLD BY THE SELLING SECURITY HOLDERS UNDER THE SECURITIES
LAWS OF ANY STATE. SELLING SECURITY HOLDERS, AND ANY BROKERS OR DEALERS, EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THAT
THE SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES LAWS OF THE STATE OR STATES IN WHICH SALES OF THE SHARES OCCUR AS OF THE
TIME OF SUCH SALES, OR THAT THERE IS AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES LAWS OF SUCH
STATES.
THIS
PROSPECTUS IS NOT AN OFFER TO SELL ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK FOR SALE BY THE SELLING SECURITY HOLDERS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH AN OFFER IS UNLAWFUL.
You
should rely only on the information contained in this prospectus. We have not, and the selling security holders have not, authorized
anyone to provide you with different information. If anyone provides you with different information, you should not rely on it.
We are not, and the selling security holders are not, making an offer to sell these securities in any jurisdiction where the offer
or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date
on the front cover of this prospectus. Neither the delivery of this prospectus nor any sale made in connection with this prospectus
shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus
or that the information contained by reference to this prospectus is correct as of any time after its date. Information contained
on our website, or any other website operated by us, is not part of this prospectus.
Some
of the industry and other data contained in this prospectus may be derived from data from various third-party sources that are
publicly available. We have not independently verified any of that information and it may not be accurate or complete and may
be subject to change based on various factors, including those discussed under the heading “Risk Factors” elsewhere
in this prospectus.
For
investors outside the United States: We have not, and the selling security holders have not, done anything that would permit this
offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves
about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus
outside the United States.
CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section
21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to future events or to our
future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause
our actual results, performance or achievements to be materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. Forward-looking statements may include, but are not limited to, statements
about:
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our
ability to continue as a going concern;
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our
expectations regarding our future operating results or financial performance;
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our
intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
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the
timing, costs and other limitations involved in obtaining regulatory approval for any product;
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our
ability to commercialize and achieve market acceptance of our current products and any new products that we may develop;
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our
ability to enter into any collaboration with respect to any of our products or product candidates;
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our
ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights
of others;
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our
ability to retain the services of our current executive officers, directors and key employees;
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our
ability to continue to operate our business with our current financial resources; and
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our
estimates regarding our future performance and our needs for additional financing.
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In
some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,”
“could,” “would,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “projects,” “predicts,” “potential” and similar expressions intended
to identify forward-looking statements. These statements reflect our current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” contained
in this prospectus and in our SEC filings. Also, these forward-looking statements represent our estimates and assumptions only
as of the date of the document containing the applicable statements.
You
should read this prospectus with the understanding that our actual future results may be materially different from what we expect.
We qualify all of the forward-looking statements in the foregoing documents by these cautionary statements.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that
you should consider before making an investment decision with respect to our securities. You should read the entire prospectus
carefully, including the “Risk Factors” section beginning on page 7 of this prospectus, our financial statements and
related notes beginning on page F-1, and other information contained in this prospectus, before making an investment decision
with respect to our securities. Unless the context indicates otherwise, all references to “we”, “us”,
“our”, “Pure”, or the “Company” refer to Pure Bioscience, Inc. and its wholly owned subsidiary,
ETI H2O, Inc.
Company
Overview
We
are focused on developing and commercializing proprietary antimicrobial products that provide safe and cost-effective solutions
to the health and environmental challenges of pathogen and hygienic control. Our technology platform is based on patented stabilized
ionic silver, and our initial products contain silver dihydrogen citrate, or SDC. SDC is a broad-spectrum, non-toxic antimicrobial
agent, which offers 24-hour residual protection and formulates well with other compounds. As a platform technology, we believe
SDC is distinguished from existing products in the marketplace because of its superior efficacy, reduced toxicity, non-causticity
and the inability of bacteria to form a resistance to it.
Our
SDC-based technology platform has potential application in a number of industries. Our near-term focus is on offering products
that address food safety risks across the food industry supply chain. In 2011, the Centers for Disease Control and Prevention
(CDC) reported that foodborne illnesses affect more than 48 million people annually in the U.S., causing 128,000 hospitalizations
and 3,000 fatalities. The CDC estimated that more than 9 million of these foodborne illnesses were attributed to major pathogens.
The CDC reported that contaminated produce was responsible for approximately 46% of the foodborne illnesses caused by pathogens
and 23% of the foodborne illness-related deaths in the US between 1998 and 2008. Among the top pathogens contributing to foodborne
illness in the U.S. are Norovirus,
Salmonella
,
Campylobacter
,
Staphylococcus
, Shiga toxin–producing
Escherichia coli
and
Listeria
.
Salmonella
is the leading cause of hospitalization, followed by Norovirus,
and is the leading cause of deaths related to foodborne illness.
Based
on these statistics, we believe there is a significant market opportunity for our safe, non-toxic, non-caustic and effective SDC-based
solutions. We currently offer PURE
®
Hard Surface as a food contact surface sanitizer and disinfectant to restaurant
chains, food processors and food transportation companies. We also offer PURE Control
®
as a direct food contact
processing aid. We received the required FDA approvals to market PURE Control as a direct food contact processing aid for raw
poultry and fresh produce in December 2015 and January 2016, respectively. Because additional USDA approval was not required,
we began marketing PURE Control as a direct food contact processing aid for fresh produce following our receipt of FDA approval
in January 2016.
In
July 2016, we received a “No Objection Letter” from the USDA’s Food Safety and Inspection Service (FSIS) granting
approval for SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line
reprocessing) and post chill processing of fresh poultry. In January 2017, we submitted an additional FCN to the FDA to allow
use of higher SDC concentrations in poultry processing, allowing the flexibility to adjust to varying plant and processing conditions.
In May 2017, we received a Final Letter from the FDA for this FCN as well as a “No Objection Letter” from the USDA’s
Food Safety and Inspection Service (FSIS) granting approval for the higher concentrations of SDC-based PURE Control to be used
as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of
fresh poultry. We are currently focused on completing in-plant validation trials for PURE Control in pre- and post OLR poultry
processing applications, which represents approximately 65 to 75% of the total processing aid market for poultry processing. We
are also conducting in-plant trials to optimize the application of PURE Control in OLR to attempt to gain USDA approval for use
in this stage of poultry processing.
Subject
to the results of our focused in-plant validation efforts for our approved produce and poultry solutions, we intend to seek approval
to utilize PURE Control as a direct food contact processing aid for raw meats, including beef and pork. In addition to our direct
sales efforts with PURE Hard Surface and PURE Control, we market and sell our SDC-based products indirectly through third-party
distributors.
Technology
Platform
The
foundation of our technology platform is a proprietary electrochemical process that allows us to generate ionized silver in the
presence of organic acid. This process creates a solution containing stabilized ionic silver that can function as an antimicrobial.
Our current products all contain SDC, which we produce by ionizing silver in citric acid. SDC is a natural, non-toxic, non-caustic,
colorless, odorless antimicrobial agent, which offers 24-hour residual protection, and that formulates well with other compounds.
We have also produced ionic silver-based molecular entities using other organic acids, and we believe these compounds may provide
a platform for future product development.
Market
Opportunity
U.S.
Incidence and Cost of Foodborne Illness
According
to an Ohio State University study published in the Journal of Food Protection, completed by Dr. Scharff, a consumer science professor,
foodborne illness poses a $77.7 billion economic burden in the United States annually. This cost estimate includes health related
costs, associated medical costs, productivity losses, mortality, and pain and suffering. The study noted that excluding the estimated
costs for pain and suffering, health related costs exceeded $51 billion. The study does not include costs to the food industry,
including reduced consumer confidence, reduced brand value, product recall costs, and litigation, nor does it include the cost
to public health agencies (local, state and federal) that are required to respond to illnesses and outbreaks. In addition, the
study cited
Salmonella
as the most costly pathogen with an economic burden estimated to be in excess of $11 billion. This
is primarily due to its high incidence and mortality rate.
Increased
Regulatory Requirements in the U.S.
The
increasing trend of reported foodborne illness over the last decade has resulted in heightened awareness by various government
agencies, national media and social media outlets thereby affecting consumer confidence and elevating federal and state regulatory
scrutiny.
In
2011, the Food Safety Modernization Act was passed by the U.S. Congress, resulting in increased regulatory requirements for preventive
controls, verification and validation of food safety plans by food processors. Additionally, in December 2013, the Food Safety
and Inspection Service (FSIS) of the USDA, announced its
Salmonella
Action Plan (SAP), which is focused on identifying
solutions to reduce the incidence of
Salmonella
in meat and poultry. We believe that the implementation of the SAP will
increase the need for new, effective interventions to assist in reducing the incidence of
Salmonella
in meat and poultry.
Limitations
of Existing Food Safety Solutions
The
statistics of the U.S. public health problems attributed to pathogens in the food supply chain demonstrate the increasing need
for more effective, efficient and safer interventions. The U.S. food industry continues to rely on the use of toxic chemicals
as processing aids or interventions during food processing operations for which pathogens are becoming increasingly resistant
and rendering current interventions less efficacious. Most of these chemicals carry various warning labels for their toxic and/or
caustic characteristics, which can negatively affect the safety of processing plant personnel, plant operating equipment and the
plant environment and its surroundings.
Among
the chemicals in current use are: peracetic acid, acidified sodium chlorite (ASC), ozone, trisodium phosphate, cetylpyridinium
chloride (CPC), organic acid rinses (lactic acid), hypobromous acid and chlorine dioxide. Some of these chemicals can be difficult
to work with as a processing aid as they require heating to become effective or are difficult to mix and stabilize prior to use.
Additionally, some of these chemicals damage the food being processed, resulting in decreased yields. Further, the use of certain
of these chemicals is limited to treating only specific pathogens and/or only certain foods. In addition, some of these chemicals
can produce noxious fumes that over time have been linked to upper respiratory illness and typically require in-plant decontamination
of their effluence.
Several
large and established corporations currently supply these chemicals. They may also provide other related food safety services
such as environmental sanitation programs and food safety consultation and audit services.
Our
SDC-Based Products as a Food Safety Solution
Based
on the limitations of the existing food safety solutions, we believe that our SDC-based products, including PURE Hard Surface
and PURE Control, are well positioned as new and disruptive solutions for the food safety industry. Given their broad spectrum
antimicrobial efficacy and non-toxic properties, our SDC-based products provide significant improvements over current chemical
interventions that can both strengthen our customers’ food safety practices and help them control and eliminate pathogens
present during their food processing operations.
Our
studies indicate that our SDC-based products are more effective in reducing or eliminating pathogens than existing chemical interventions.
Pilot poultry processing studies showed that SDC achieved an average reduction in
Salmonella
of 2.75 log
10
CFU/cm
2
when applied as an OLR spray and 6.28 log
10
CFU/cm
2
when combined with an immersion chilling
process simulating current U.S. industry practices. This data suggests that the use of SDC in poultry processing has the potential
to achieve non-detectable
Salmonella
levels. We are currently focused on completing in-plant validation trials to test
both the effectiveness of PURE Control in actual in-plant use for pre and post OLR poultry processing and to attempt to gain USDA
approval for its use in OLR poultry processing.
Similarly,
pilot produce processing studies showed that SDC achieved average reductions up to 2.36 log
10
CFU/cm
2
when
applied alone as a spray and up to 3.10 log
10
CFU/cm
2
when combined with chlorine wash, simulating current
processing practices. Currently, produce processors hope to achieve only a 1 log
10
CFU/cm
2
reduction per
intervention treatment. This data suggests that by incorporating SDC, produce processors can improve their results 100-fold with
only one step. Moreover, sensory evaluations of both poultry and produce treated with SDC indicated no difference in color, appearance
or odor to untreated controls. Additionally, SDC had no effect on the nutritional composition of either poultry or produce.
In
addition to providing better efficacy, our SDC-based products can provide users with the following benefits compared to the current
processing chemicals they are using:
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Easier
to handle and dilute;
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Non-corrosive
to processing equipment; and
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Non-toxic
to manufacturing personnel by not creating noxious fumes or other detrimental environmental effluence; and
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Neutral
to positive yield impact on the processed food
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Based
on their performance and characteristics, we believe our SDC-based products can provide our customers with significant advantages
to the chemical interventions they are currently using and help them achieve their goal of improving the safety of processed foods
they offer to consumers.
Risk
Factors
An
investment in our common stock is subject to a number of risks and uncertainties. You should carefully consider the following,
as well as the information contained under “Risk Factors” beginning on page 7 of this prospectus and in the documents
incorporated by reference into this prospectus.
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As
a result of our historical lack of financial liquidity, we do not currently have sufficient working capital to fund our planned
operations and may not be able to continue as a going concern.
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We
have a history of losses, and we may not achieve or maintain profitability.
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Raising
additional funds by issuing securities or through collaboration and licensing arrangements may cause dilution to existing
stockholders, restrict our operations or require us to relinquish proprietary rights.
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Because
we only recently focused our business on the food safety market, it is difficult to evaluate our prospects.
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We
may not be able to correctly estimate our future revenues and operating expenses, which could lead to cash shortfalls, and
require us to secure additional financing sooner than planned.
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If
we are unable to obtain the required regulatory approvals from the FDA and USDA, or if such efforts are delayed, our ability
to commercialize PURE Control as a direct food contact processing aid will be harmed and our business and operating results
will suffer.
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We
are dependent on our core SDC technology and if our efforts to achieve or maintain market acceptance of our core SDC technology
are not successful, we are unlikely to attain profitability.
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We
are subject to intense competition in the food safety market.
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Company
Information
We
were incorporated in the state of California in August 1992 as Innovative Medical Services. In September 2003, we changed our
name to PURE Bioscience. In March 2011, we reincorporated in the state of Delaware under the name “PURE Bioscience, Inc.”
Our
corporate offices are located at 1725 Gillespie Way, El Cajon, California 92020. Our telephone number is (619) 596-8600. Our website
address is www.purebio.com. We make available free of charge on our website our periodic and current reports, proxy statements
and other information as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission,
or SEC. Information contained on, or accessible through, our website is not part of this prospectus or our other filings with
the SEC. Our SEC filings are also available to the public from the SEC’s website at www.sec.gov.
SUMMARY
OF PRIVATE PLACEMENT AND TENDER OFFER
Original
Private Placement
On
December 1, 2016, we completed an initial closing (the “Initial Closing”) of a private placement financing (the “Private
Placement Offering”) to accredited investors. We raised aggregate gross proceeds of $1,000,000 from the sale of (i) an aggregate
of 1,176,472 shares of the Company’s common stock at a purchase price of $0.85 per share and (ii) warrants to purchase up
to an aggregate of 1,176,472 shares of common stock with a term of five years at an exercise price of $1.25 per share.
On
January 23, 2017, we closed on a second and final closing (the “Final Closing”) of the Private Placement Offering.
In the Final Closing we raised aggregate gross proceeds of approximately $337,000 from the sale of (i) an aggregate of 396,469
shares of the Company’s common stock at a purchase price of $0.85 per share and (ii) warrants to purchase up to an aggregate
of 396,469 shares of common stock with a term of five years at an exercise price of $1.25 per share. The securities issued in
the Private Placement Offering were issued pursuant to a securities purchase agreement entered into with the accredited investors.
We
utilized the services of a placement agent for the Private Placement Offering. In connection with the Private Placement Offering,
we paid such placement agent an aggregate cash fee of $128,600 and issued to such placement agent or its designees warrants to
purchase 151,294 shares of common stock at an exercise price of $1.275 per share. The terms of the placement agent warrants are
substantially identical to the investor warrants, other than the exercise price and the holders’ ability to exercise the
placement agent warrants on a cashless basis at its discretion. Additionally, we agreed to pay the placement agent a $12,000 due
diligence fee and to reimburse the placement agent for fees of counsel up to $35,000.
The
net proceeds from the Private Placement Offering were approximately $1,049,000 and we expect to use the net proceeds for general
corporate purposes, including our research and development efforts, and for general administrative expenses and working capital.
We
also entered into a registration rights agreement with the Investors (the “Registration Rights Agreement”), pursuant
to which we are obligated to file with the Securities and Exchange Commission (the “SEC”) as soon as practicable,
but in any event, by February 6, 2017, this registration statement on Form S-1 to register 1,572,941 shares of common stock issued
to the selling security holders in the Private Placement Offering and up to 176,471 shares of our common stock issuable upon the
exercise of warrants issued to the selling security holders in the Private Placement Offering. We are obligated to use our commercially
reasonable best efforts to cause this registration statement to be declared effective by the SEC within 45 days after the filing
of this registration statement (or within 75 days if this registration statement is subject to a full review by the SEC). Additionally,
the Registration Rights Agreement provides for certain monetary penalties if this registration statement is not filed or declared
effective prior to certain dates as set forth in the Registration Rights Agreement.
The
Private Placement Offering described above was made pursuant to the exemption provided by Section 4(a)(2) of the Securities Act,
and Regulation D promulgated thereunder.
Tender
Offer
On
September 25, 2017, the Company closed an offer to all holders of 2017 Warrants (among other warrants), to among other changes,
amend the 2017 Warrants to reduce the exercise price from $1.25 per share of common stock to $0.85 per share of common stock and
shorten the expiration date of the 2017 Warrants to September 25, 2017 (or October 10, 2017, if applicable), pursuant to the terms
and subject to the conditions of the Offer to Amend and Exercise Warrants to Purchase Common Stock (the “Offer to Amend
and Exercise”), filed as Exhibit (a)(1)(B) to the Company’s Schedule TO filed with the Securities and Exchange Commission
on August 25, 2017. Holders holding 2017 Warrants to purchase 1,396,470 shares of Common Stock exercised such warrants for a reduced
exercised price of $0.85 per share. Holders holding 2017 Warrants to purchase 176,471 shares of Common Stock did not participate
in the Offer to Amend and Exercise and such warrants continue to remain outstanding according to their original terms, included
the original exercise price of $1.25 per share.
THE
OFFERING
Common
stock offered by us pursuant to this prospectus
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Up
to (i) 1,572,941 shares of common stock and (ii) 176,471 shares of common stock issuable upon exercise of outstanding warrants
(the “2017 Warrants”). See “Selling Stockholders” beginning on page 62 of this prospectus.
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Common
stock to be outstanding assuming cash exercise of the Warrants
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Up
to 68,108,332 shares, assuming the full cash exercise of the outstanding 2017 Warrants.
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Exercise
price of the warrants
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$1.25
per share for the 2017 Warrants.
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Warrant
exercisability and expiration
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The
2017 Warrants are currently exercisable and expire on December 1, 2021 or January 23, 2022.
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Use
of proceeds
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All
proceeds from the sale of shares of common stock under this prospectus will be for the account of the selling stockholders.
We will not receive any proceeds from the sale of our common stock offered pursuant to this prospectus. We intend for any
proceeds received by us from the exercise of the 2017 Warrants to be used to fund our general corporate purposes, including
our research and development efforts, and for general administrative expenses and working capital. See “Use of Proceeds”
on page 22 of this prospectus.
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OTCQB
Ticker Symbol
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PURE
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Risk
factors
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Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning on page 7 of this prospectus for
a discussion of factors you should consider carefully before making an investment decision.
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The
number of shares of our common stock shown above to be outstanding immediately after this offering is based on 67,931,861 shares
outstanding as of October 26, 2017 and excludes as of such date:
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5,759,843
shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $1.25 per share;
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2,035,000
shares of common stock issuable upon vesting of restricted stock units;
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560,971
shares of common stock reserved future issuance under our stock incentive plan; and
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3,236,096
shares of common stock issuable upon exercise of outstanding warrants at a weighted-average exercise price of $0.81 per share
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Unless
otherwise indicated, all information in this prospectus assumes that no options, warrants, shares of common stock, or rights exercisable
or convertible into shares of common stock were issued after September 30, 2017, and no outstanding options or warrants were exercised
after September 30, 2017.
RISK
FACTORS
Any
investment in our common stock involves a high degree of risk. You should consider carefully the following information about these
risks, together with the other information contained in this prospectus, before you decide to buy our common stock. The risks
and uncertainties described below are not the only ones we face. If any of the following events, described as risks, actually
occur, either alone or taken together, our business, financial condition, results of operations and future growth prospects would
likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you
may lose all or part of your investment in our securities. An investment in our securities is speculative and involves a high
degree of risk. You should not invest in our securities if you cannot bear the economic risk of your investment for an indefinite
period of time and cannot afford to lose your entire investment. There may be additional risks that we do not presently know of
or that we currently believe are immaterial which could also impair our business and financial position.
Risks
Related to Our Business and Industry
As
a result of our historical lack of financial liquidity, we do not currently have sufficient working capital to fund our planned
operations and may not be able to continue as a going concern.
We
have a history of recurring losses, and as of July 31, 2017, we have incurred a cumulative net loss of approximately $109 million.
As of July 31, 2017, we had $1,640,000 in cash and cash equivalents and $426,000 in accounts payable. In October 2017, we completed
a tender offer to amend and exercise outstanding warrants held by the investors participating in our 2014, 2015 and 2017 private
placement financings, resulting in our receipt of approximately $2.8 million in cash proceeds from the exercise of 4,756,163 outstanding
warrants. During year ended July 31, 2017, our cash outflows for operating activities and for investments in patents and fixed
assets were $4.8 million. As a result, our existing cash resources are not sufficient to meet our anticipated needs over the next
twelve months from the date hereof, and we will need to raise additional capital to continue our operations and to implement our
business plan, which capital may not be available on acceptable terms or at all.
Our
capital requirements will depend on many factors, including, among others:
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market acceptance of, and demand for, our products;
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the
timing and costs of executing our sales and marketing strategies;
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our
ability to successfully complete the in-plant validation trials requested by potential customers and our ability to convert
these trials into customer orders for our products;
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the
costs and time required to obtain the necessary regulatory approvals for our products, including the required USDA approval
for use of PURE Control in OLR processing of raw poultry;
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the
extent to which we invest in new testing and product development, including in-plant optimization trials;
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the
extent to which our customers continue to place product orders as expected and expand their existing use of our products;
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the
cost and time to satisfy unique customer requirements regarding validation trials or to support the value proposition and
benefits of our products;
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the
timing of vendor payments and the collection of receivables, among other factors affecting our working capital;
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our
ability to control the timing and amount of our operating expenses, including the costs to attract and retain personnel with
the skills required to implement our business plan; and
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the
costs to file, prosecute and defend our intellectual property rights.
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The
above factors, along with our history and near term forecast of incurring net losses and negative operating cash flows, raise
substantial doubt about our ability to continue as a going concern. If we do not obtain additional capital from external sources,
we will not have sufficient working capital to fund our planned operations or be able to continue as a going concern. We cannot
assure you that additional financing will be available when needed or that, if available, we can obtain financing on terms favorable
to us or to our stockholders. If we raise additional funds from the issuance of equity securities, substantial dilution to our
existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may
involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability
to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us to relinquish
our rights to our products or technology, and we cannot assure you that we will be able to enter into any such contracts or license
arrangements on acceptable terms, or at all. Having insufficient funds may require us to delay or scale back our marketing, distribution
and other commercialization activities or cease our operations altogether.
We
have a history of losses, and we may not achieve or maintain profitability.
We
had a loss of $6.3 million for the fiscal year ended July 31, 2017, and a loss of $14.4 million for the fiscal year ended July
31, 2016. As of July 31, 2017, we have incurred a cumulative net loss of approximately $109 million. Although we believe we are
making progress on implementing our business plan focused on the food safety market, we expect to continue to have losses in future
periods. None of our existing agreements, including those with Subway and Chipotle, contain provisions that guarantee us any minimum
revenues. If the penetration into the marketplace of PURE Hard Surface, PURE Control and our other SDC-based products is unsuccessful,
our revenue growth is slower than anticipated or our operating expenses exceed expectations, it may take an unforeseen period
of time to achieve or maintain profitability, and we may never achieve or maintain profitability. Slower than anticipated revenue
growth could force us to reduce our sales and marketing efforts, our product testing and optimization, and our product development
and regulatory initiatives, and/or force us to reduce the size and scope of our operations, to sell or license our technologies
to third parties, or to cease operations altogether. Given our recent introduction of our SDC-based products in the food safety
market, we are unable to predict the extent of our future losses or when we will generate sufficient revenues to become profitable,
and it is possible we will never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase
profitability on an ongoing basis.
Raising
additional funds by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders,
restrict our operations or require us to relinquish proprietary rights.
We
will need to increase our liquidity and capital resources in future periods. We have a history of raising funds through offerings
of our common stock and warrants to purchase shares of our common stock, and we may in the future raise additional funds through
public or private equity offerings, debt financings or corporate collaborations and licensing arrangements. To the extent that
we raise additional capital by issuing equity securities, our stockholders’ ownership will be diluted. Additionally, any
debt financing we obtain may involve covenants that restrict our operations. These restrictive covenants may include, among other
things, limitations on borrowing, specific restrictions on the use of our assets, as well as prohibitions on our ability to create
liens on our assets, pay dividends on or redeem our capital stock or make investments. In addition, if we raise funds through
collaboration and licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to us or relinquish
potentially valuable rights to our products or proprietary technologies. We may be required in future collaborations to relinquish
all or a portion of our sales and marketing rights with respect to our products or license intellectual property that enable licensees
to develop competing products in order to complete any such transaction.
As
of October 26, 2017, we have 78,962,800 shares of common stock issued and outstanding or reserved for issuance under equity compensation
plans, vested and unvested options, warrants, and unvested restricted stock units. Our current authorized capital stock is limited
to 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. Any increase in our authorized capital stock would
require the approval of a majority of our shareholders as well as the approval of our Board of Directors. If we were unable to
increase our authorized capital stock for any reason, our ability to raise additional capital through the issuance of equity or
convertible debt would be severely compromised and we may be unable to obtain equity or convertible debt capital at all.
Because
we only recently focused our business on the food safety market, it is difficult to evaluate our prospects.
Our
success will depend on our ability to increase customer awareness and adoption of our food safety product offerings, PURE Hard
Surface and PURE Control. We only began focusing our business on developing and offering products that address food safety risks
across the food industry supply chain in August 2013. In addition, we only recently received the required FDA and USDA approvals
to market PURE Control as a direct food contact processing aid for fresh produce and as a spray or dip applied to raw poultry
carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing. We are still pursuing the required USDA
approval for use of PURE Control in OLR processing of raw poultry. Further, we are currently working on completing in-plant validation
trials to test the effectiveness of PURE Control in actual in-plant use and to optimize the application of PURE Control for poultry
processing. Due to the recent introduction of our food safety products and the importance of food safety to our customers, the
sales cycle to secure a new customers is long and unpredictable. We have encountered and likely will continue to encounter risks
and difficulties associated with introducing or establishing new commercial products in this highly competitive and rapidly evolving
market. These risks include the following, among others:
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we
may not be successful in demonstrating the effectiveness of PURE Control in actual in-plant use situations or satisfy the
requirements of our potential customers;
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we
may not be successful in converting in-plant trials into customer product orders;
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our
SDC-based product offerings (especially at higher silver-ion concentrations) are typically more expensive to produce than
existing treatment chemicals, and as a result, customers may not purchase our products for cost reasons, even if we are successful
in demonstrating the superior efficacy or other benefits of our products;
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our
customers may not continue to place product orders as expected or may not expand their use of our products;
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we
may not be successful in demonstrating the value proposition of our products, including its non-corrosive and non-toxic characteristics
and its neutral to positive processing yield impact;
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we
may not succeed in materially penetrating the food safety markets with our SDC products and technology;
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we
may not be successful in developing an effective sales and marketing infrastructure to commercialize our products;
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we
may not generate sufficient revenues or raise sufficient funds to support our operations or the implementation of our business
plan;
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we
may not be successful in controlling our operating expenses;
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we
may not be successful in obtaining any required regulatory approvals on a timely basis, or at all;
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we
may not attract and retain key sales and marketing, technical and management personnel;
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we
may not successfully comply with or maintain the regulatory approvals we obtain for our technology and products;
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we
may not succeed in locating strategic partners and licensees of our technology;
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we
may not effectively manage our anticipated growth, if any; and
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we
may not be able to adequately protect our intellectual property.
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Any
failure to successfully address these risks and uncertainties could seriously harm our business and prospects.
We
may not be able to correctly estimate our future revenues and operating expenses, which could lead to cash shortfalls, and require
us to secure additional financing sooner than planned.
We
may not correctly predict the amount or timing of future revenues and our operating expenses may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our control. These factors include:
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our
expectations regarding revenues from sales of our products;
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the
time and resources required to complete in-plant validation and optimization trials;
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the
time and cost of obtaining any necessary regulatory approvals;
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the
cost and time to develop and obtain regulatory approvals for additional products as part of our long-term business plan;
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the
cost and time required to create effective sales and marketing capabilities and commercialization strategies;
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the
expenses we incur to maintain and improve our platform technology;
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the
cost and time to satisfy unique customer requirements regarding validation and optimization trails;
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the
costs to attract and retain personnel with the skills required for effective operations; and
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the
costs of preparing, filing, prosecuting, defending and enforcing patent claims and other patent related costs, including litigation
costs and the results of such litigation.
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In
addition, our budgeted expense levels are based in part on our expectations concerning future revenues from sales of our products
and services, and from collaborations with third parties. However, we may not correctly predict the amount or timing of future
revenues. In addition, we may not be able to adjust our operations in a timely manner to compensate for any unexpected shortfall
in our revenues or we may increase our expenses as part of implementing our long-term business plan. As a result, a significant
shortfall in our planned revenues or a significant increase in our planned expenses could have an immediate and material adverse
effect on our business and financial condition. In such case, we may be required to issue additional equity or debt securities
or enter into other commercial arrangements, including relationships with corporate and other partners, sooner than anticipated
to secure the additional financial resources to support our development efforts and future operations.
Our
quarterly operating results may vary, which could negatively affect the market price of our common stock.
Because
of our limited operating history and the early commercial stage of our SDC-based products in the food safety market, we have limited
insight into trends that may emerge and affect our business. Forecasting future revenues is difficult, especially because our
products are novel, and market acceptance of our products is reliant on our customers’ confidence based on scientific data
and actual in-plant trials that our product can improve their food safety efforts. Because food safety is such a critical factor
to our customers and potential customers, we often experience long sales cycles and our customers often require extensive evaluation
and in-plant trial periods before agreeing to use our products throughout their systems. In addition, fluctuations in the buying
patterns of our current or potential customers could significantly affect the level of our sales on a period to period basis.
Additional factors that could cause our financial results to fluctuate unexpectedly, include: the mix of product sales, the cost
of product sales, our ability to meet customer demand, delays in achieving our regulatory milestones, changes in our operating
expenses, including non-cash expenses such as the fair value of stock options granted to our employees, and manufacturing or supply
issues. As a result, our quarterly operating results may vary, which could negatively affect the market price of our common stock.
If
we are unable to obtain the required regulatory approvals from the FDA and USDA, or if such efforts are delayed, our ability to
commercialize PURE Control as a direct food contact processing aid will be harmed and our business and operating results will
suffer.
We
received the required FDA approvals to market PURE Control as a direct food contact processing aid for raw poultry and fresh produce
in December 2015 and January 2016, respectively. No additional approval from the USDA is required for fresh produce. In July 2016,
we received a “No Objection Letter” from the USDA’s Food Safety and Inspection Service (FSIS) granting approval
for SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing)
and post chill processing of fresh poultry. In January 2017, we submitted an additional FCN to the FDA to allow use of higher
SDC concentrations in poultry processing, allowing the flexibility to adjust to varying plant and processing conditions. In May
2017, we received a Final Letter from the FDA for this FCN as well as a “No Objection Letter” from the USDA’s
Food Safety and Inspection Service (FSIS) granting approval for the higher concentrations of SDC-based PURE Control to be used
as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of
fresh poultry. We have not, however, received the required approval from the USDA to utilize PURE Control in OLR poultry processing.
We are continuing our on-going plant trials to optimize the application of PURE Control, including with higher concentrations
of SDC, in OLR to attempt to gain USDA approval for use in that stage of poultry processing, but there is no assurance that we
will obtain such approval on a timely basis, or at all. Further, even if we elect to seek regulatory approval, there is no assurance
we will be successful in obtaining the required approvals from the FDA and USDA to utilize PURE Control as a direct food contact
processing aid for raw meats, including beef and pork. If we are unable to obtain the required regulatory approvals from the FDA
and USDA, or if such efforts are delayed, our ability to commercialize PURE Control as a direct food contact processing aid for
poultry and as a direct food contact processing aid for raw meets will be restricted and our business and operating results will
suffer.
A
loss of one or more of our key customers could adversely affect our business.
From time to time, one or a small number of
our customers may represent a significant percentage of our revenue. Our three largest customers accounted for 62% of our
net product sales for the fiscal year ended July 31, 2017. Our two largest customers accounted for 33% and 19% of net product
sales, respectively. No other individual customer accounted for 10% or more of our net product sales. Although we have agreements
with many of our customers, these agreements typically do not prohibit customers from purchasing products and services from competitors
or contain minimum purchase obligations. A decision by any of our major customers to significantly reduce the amount of product
ordered or license fees paid, or their failure or inability to pay amounts owed to us in a timely manner, or at all, could have
a significant adverse effect on our business.
We
are dependent on our core SDC technology and if our efforts to achieve or maintain market acceptance of our core SDC technology
are not successful, we are unlikely to attain profitability.
We
have and are currently focusing substantially all of our time and financial resources in the development and commercialization
of our core SDC technology to address food safety risks across the food industry supply chain. Although our SDC technology has
applications in multiple industries, we expect that sales of SDC and SDC-based products as a food safety solution will constitute
a substantial portion, or all, of our revenues in future periods. We are marketing our SDC-based products to restaurant chains,
food manufacturers, food processors and food transportation companies. Our SDC-based products have not yet been broadly accepted
into the food safety market, and may never be broadly accepted. Any material decrease or significant delay in the overall level
of sales or expected sales of, or the prices for, our SDC-based products, whether as a result of competition, delays in obtaining
regulatory approvals, long sales cycles, change in customer demands or requirements, or any other factor, would have a materially
adverse effect on our business, financial condition and results of operations. In addition, even if our products achieve market
acceptance, we may not be able to maintain product sales or other forms of revenue over time if new products or technologies are
introduced by competitors that are more favorably received than our products, are more cost-effective or otherwise render our
products less attractive or obsolete.
We
are subject to intense competition in the food safety market.
Our
SDC-based products compete in the highly competitive food safety market. Our SDC-based product offerings (especially at higher
silver ion concentration levels) are typically more expensive to produce than existing treatment chemicals, and as a result, customers
may not purchase our products for cost reasons, even if we are successful in demonstrating the superior efficacy of our products.
In addition, customers may determine that the other benefits offered by our products (e.g., non-toxic, non-caustic, and neutral
to positive yield impact) are not sufficient to overcome the lower cost products offered by our competitors. Further, most of
our competitors have been in business for a longer period of time than we have, and offer a greater number of products and services
than we do and have greater financial, technical, sales and other resources than we do. Many of our competitors already have well
established brands and distribution capabilities, and in some cases are able to leverage the sale of other products with more
favorable terms for products competing with our own. We also have significantly fewer sales personnel than virtually all of our
competitors. Furthermore, recent trends in this industry are for large food safety companies to consolidate into a smaller number
of very large entities, which further concentrates financial, technical and market strength and increases competitive pressure
in the industry. If we directly compete with these very large entities for the same markets and/or products, their financial strength
could prevent or delay us from capturing a meaningful share the food safety market. It is also possible that developments by our
competitors will make our technologies or products noncompetitive or obsolete. Our ability to compete will depend upon our ability,
and the ability of our distributors and other partners, to develop brand recognition, develop the scientific and plant trial data
to demonstrate the efficacy of our products, and to displace existing, established and future products in our relevant target
markets. We, or our distributors and partners, may not be successful in doing so, which would have a materially adverse effect
on our business, financial condition and results of operations.
We
have limited sales, marketing and product distribution experience.
We
have limited experience in the sales, marketing and distribution of our products in the food safety market. We began to focus
on the food safety market in August 2013. We received the required FDA approvals to market PURE Control as a direct food contact
processing aid for fresh produce in January 2016. We received the required USDA and FDA approvals to market PURE Control for use
as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of
fresh poultry in July 2016 and May 2017, respectively We have not, however, received the required approval from the USDA to utilize
PURE Control in OLR poultry processing, and there is no assurance we will receive USDA approval, which limits our ability to market
PURE Control for poultry processing. As a result, our sales and marketing experience with these products are limited, and our
current sales, distribution and marketing strategies and programs may not be successful. Further, due to the recent introduction
of our food safety products and the importance of food safety to our customers, the sales cycle to secure a new customer is long
and unpredictable. Potential customers typically require that we complete extensive in-plant validation studies with our products.
We may not be successful in demonstrating the effectiveness of PURE Control in actual in-plant use situations or satisfy the requirements
of our potential customers. Moreover, we may not be successful in converting in-plant trials into customer product orders. We
also have a relatively small sales and marketing organization and a limited number of distributors. We may not be able to establish
the sales, marketing, and distribution capabilities necessary to build our business and generate sufficient revenues to support
our operations and the implementation of our business plan.
We
are dependent on a third-party, over whom we have limited control, to manufacture our SDC-based products.
In
December 2013, we entered into a five-year strategic collaboration agreement with St. Louis-based Intercon Chemical Company (“ICC”)
where we granted ICC the right to be the exclusive manufacture for all our SDC-based products. We do not have any manufacturing
facilities ourselves and we currently rely on ICC to manufacture our SDC-based products and may in the future rely on one or more
third-party manufacturers to properly manufacture our products. We may not be able to quickly replace our manufacturing capacity
if ICC is unable to manufacturer our products as a result of a fire, natural disaster (including an earthquake), equipment failure
or other difficulty, or if such ICC facilities are deemed not in compliance with current “good manufacturing practices,”
and the noncompliance could not be rapidly rectified. ICC is our single manufacturer for our SDC-based products and may not be
replaced without significant effort and delay in production. A supply interruption or an increase in demand beyond our current
manufacturer’s capabilities could harm our ability to manufacturer such products until new manufacturers are identified
and qualified, which would have a significant adverse effect on our business and results. Any third-party manufacturer that we
find may not match our quality standards or be able to meet customer requirements.
Additionally,
our inability or reduced capacity to have our products manufactured would prevent us from successfully evaluating or commercializing
our proposed products. Our dependence upon third parties for the manufacture of our products may adversely affect our profit margins
and our ability to develop and deliver proposed products on a timely and competitive basis.
We
rely on third parties to develop SDC-based products, and they may not do so successfully or diligently.
We
have granted ICC and other third parties to whom we license rights to our technology certain distribution and development rights
to products containing SDC for applications and markets outside the U.S. food safety market. Our reliance on ICC and other third
parties for development and distribution activities reduces our control over these activities. In such arrangements, we have relied,
and expect in the future to rely, on the third party to fund and direct product development activities and appropriate regulatory
filings. Any of these third parties may not be able to successfully develop such SDC-based products due to, among other factors,
a lack of capital, a lack of appropriate diligence, insufficient devotion to sales efforts, a change in the evaluation by the
third party of the market potential for SDC-based products, technical failures, and poorer than expected results from testing
or trial use of any products that may be developed. If the third parties on which we rely are not successful in such development
activities, our business and operating results would be adversely affected.
Pricing
and supply issues may have a material impact on our margins and our ability to supply our customers.
All
of the supply ingredients used to manufacture our SDC-based products are available from multiple suppliers. However, commodity
prices for some ingredients can vary significantly and the margins that we are able to generate could decline if prices rise.
For example, both silver and citric acid prices have been volatile in recent periods.
In
addition to such commodities, we also rely on producers of specialized packaging inputs such as bottles and labels for finished
products. Due to their specialized nature, the supply of such inputs can be periodically constrained and result in additional
costs to obtain these items, which may in turn inhibit our ability to supply products to our customers.
We
are generally unable to increase our product prices to our customers, partners and distributors quickly in order to maintain our
margins, and significant price increases for key inputs could therefore have an adverse effect on our results of operations. Price
increases can also result in lost sales, and any inability to supply our customers’ orders can lead to lost future sales
to such customers.
We
expect ICC to be the sole source supplier of our SDC concentrate and we may use other third parties to blend, package and provide
fulfillment activities for our finished products in future periods. We expect that our margins may be reduced by using ICC and
other such third parties, and our ability to maintain product quality may not be as extensive or effective as when we produce
these products in our own facility(ies). Any quality control issues could lead to product recalls and/or the loss of future sales,
which would reduce our revenues and/or profits.
If
we are not able to manage any growth we achieve effectively, our business and operating results will be harmed.
In
order to implement our business plan and achieve and maintain market acceptance of our SDC-based products, we will need to expand
our business operations and hire additional sales and support personnel. We may not have sufficient resources to do so. If we
hire additional personnel and invest in additional infrastructure, we may not be effective in expanding our operations and our
systems, procedures or controls may not be adequate to support any such expansion. Failure to properly manage our growth could
have a material adverse effect on our business and our operating results.
The
industries in which we operate are heavily regulated.
We
are focused on the marketing and continued development of our SDC antimicrobial technology for use in the food safety market.
Our existing products, PURE Control and PURE Hard Surface, and any additional products we develop based on our SDC technology
in future periods, require or will require approval by government agencies prior to marketing or sale in the U.S. or in foreign
markets. Complying with applicable government regulations and obtaining necessary regulatory approvals can be, and has historically
been, time consuming and expensive, due in part, we believe, to the novel nature of our technology. Regulatory review could involve
delays or other actions adversely affecting the development, manufacture, marketing and sale of our products. While we cannot
accurately predict the outcome of any pending or future regulatory review processes or the extent or impact of any future changes
to legislation or regulations affecting review processes, we expect such processes to remain time consuming and expensive as we,
or our partners, apply for approval to make new or additional efficacy claims for current products or to market new product formulations.
Obtaining approvals for new SDC-based products in the U.S., or in markets outside the U.S., could take several years, or may never
be accomplished.
SDC
is a platform technology rather than a single use applied technology. As such, products developed from the platform may fall under
the jurisdiction of multiple U.S. and international regulatory agencies. Our disinfectant and sanitizer products are regulated
in the U.S. by the EPA. In addition to the EPA, each of the 50 states in the U.S. has its own government agencies that regulate
the sale or shipment of our products into their state. We have obtained registration for these products from the EPA and all states
into which such products are currently marketed and sold. We are required to meet certain efficacy, toxicity and labeling requirements
and pay ongoing fees in order to maintain such registrations. We may not be able to maintain these registrations in the future,
which may eliminate our continued ability to market and sell our products in some or all parts of the U.S. We also may not be
able to obtain necessary registrations with the EPA and applicable states for other SDC disinfectant and sanitizer products that
we or our partners may develop, which would limit our ability to sell any such products in the future.
Some
potential applications of SDC, such as those aimed at healthcare, veterinary and certain food preparation markets, may require
approval of other government agencies prior to marketing or sale in the U.S. or in foreign markets, such as the U.S. Food and
Drug Administration, or FDA, or the United States Department of Agriculture, or USDA. Obtaining FDA and/or USDA approval is a
complicated and expensive process and such approvals may never be obtained for any SDC products. If FDA and/or USDA approvals
are obtained, the approvals may limit the uses for which SDC products may be marketed such that they may not be profitable to
us, and the applicable products would be subject to pervasive and continuing regulation by the FDA and/or USDA that could lead
to withdrawal or limitation of any product approvals.
For
example, in November 2014, we withdrew, without prejudice, our FCN for raw poultry due to receipt of a Deficiency Letter from
the FDA stating that the agency has developed new data that is currently under review, which data calls into question the long
established safety levels of the dietary intake of silver in the U.S. from food contact uses previously approved by the FDA. As
a result, the FDA indicated that it would not approve our FCN absent new data or additional information that adequately addresses
its new toxicity concerns. We also received a similar Deficiency Letter from the FDA for the FCN we submitted in October 2014
for the use of SDC to reduce Salmonella, E. coli and Listeria in the processing of produce. In January 2015, we withdrew, without
prejudice, our produce FCN and postponed the filing of our FCN for the use of SDC as a processing aid for beef and pork. We resubmitted
our poultry FCN in June 2015. In September 2015, we received an Acknowledgement Letter from the FDA stating that our FCN for SDC
as a raw poultry processing aid is complete and setting an effective date of December 2015. Following the completion of additional
testing demonstrating further reduction of silver residues to levels approaching non-detectable, and subsequent encouraging discussions
held with the FDA, we resubmitted our produce FCN in September 2015. We received the required FDA approvals to market PURE Control
as a direct food contact processing aid for raw poultry and fresh produce in December 2015 and January 2016, respectively. In
July 2016, we received a “No Objection Letter” from the USDA’s Food Safety and Inspection Service (FSIS) granting
approval for SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line
reprocessing) and post chill processing of fresh poultry. In January 2017, we submitted an additional FCN to the FDA to allow
use of higher SDC concentrations in poultry processing, allowing the flexibility to adjust to varying plant and processing conditions.
In May 2017, we received a Final Letter from the FDA for this FCN as well as a “No Objection Letter” from the USDA’s
Food Safety and Inspection Service (FSIS) granting approval for the higher concentrations of SDC-based PURE Control to be used
as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of
fresh poultry. We have not, however, received the required approval from the USDA to utilize PURE Control in OLR poultry processing.
We are continuing our on-going plant trials to optimize the application of PURE Control, including with higher concentrations
of SDC, in OLR to attempt to gain USDA approval for use in that stage of poultry processing, but there is no assurance that we
will obtain such approval on a timely basis, or at all. Further, even if we elect to seek regulatory approval, there is no assurance
we will be successful in obtaining the required approvals from the FDA and USDA to utilize PURE Control as a direct food contact
processing aid for raw meats, including beef and pork. If we are unable to obtain the required regulatory approvals from the FDA
and USDA, or if such efforts are delayed, our ability to commercialize PURE Control as a direct food contact processing aid for
poultry and as a direct food contact processing aid for raw meets will be restricted and our business and operating results will
suffer.
We
intend to fund and manage certain of our EPA-regulated product development internally, in conjunction with engaging regulatory
consultants and partnering with other third parties. We have partnered, or intend to partner, with third parties who are seeking,
or intend to seek, approvals to market SDC-based products in markets outside the U.S., and with other third parties who are developing
FDA-regulated SDC-based products who, upon such development, would seek FDA approvals of such products. Our ability to market
and sell our products is dependent on our and our partners’ ability to obtain and maintain required registrations and approvals
of applicable regulatory agencies. Failure by our partners or us to comply with applicable regulations could result in fines or
the withdrawal of approval for us or our partners and distributors to market our products in some or all jurisdictions or for
certain indications, which could cause us to be unable to successfully commercialize SDC or otherwise achieve revenues from sales
of such products.
We
are subject to substantial regulation related to quality standards applicable to our manufacturing and quality processes, and
our partners, including our third-party manufacturer, failure to comply with applicable quality standards could affect our ability
to commercialize SDC products.
The
EPA and other applicable U.S. and foreign government agencies regulate our and our partners’ systems and processes, including
those of ICC, for manufacturing SDC-based products. These regulations require that we and our partners observe “good manufacturing
practices” in order to ensure product quality, safety and effectiveness. Failure by us or our partners to comply with current
or future government regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls
or related field actions, product shortages, and/or delays in product manufacturing, any or all of which could cause significant
cost to us. Further, efficacy or safety concerns and/or manufacturing quality issues with respect to our products or those of
our partners could lead to product recalls, fines, withdrawal of approvals, and/or declining sales, any or all of which could
result in our failure to successfully commercialize SDC or otherwise achieve revenue growth.
If
we suffer negative publicity concerning the safety or efficacy of our products, our sales may be harmed.
If
concerns should arise about the safety or efficacy of any of our products that are marketed, regardless of whether or not such
concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect
the market for those products. Similarly, negative publicity could result in an increased number of product liability claims,
whether or not those claims are supported by applicable law.
Third
parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.
Our
manufacture, use and sale of SDC-based products may subject us to lawsuits relating to the validity and infringement of patents
or other proprietary rights of third parties. Litigation may be costly and time-consuming, and could divert the attention of our
management and technical personnel. If we are found to have violated the trademark, trade secret, copyright, patent or other intellectual
property or proprietary rights of others, such a finding could result in the need to cease use of a trademark, trade secret, copyrighted
work or patented invention in our business and our obligation to pay a substantial amount for past infringement. If the rights
holders are willing to permit us to continue to use their intellectual property rights, it may be necessary for us to enter into
license arrangements with unfavorable terms and pay substantial amounts in royalty and other license fees. Either having to cease
use or pay such fees could prevent us, or our third-party manufacturer, from manufacturing and selling our products, which could
make us much less competitive in our industry and have a material adverse impact on our business, operating results and financial
condition.
We
may become subject to product liability claims.
As
a business that manufactures and markets products for use by consumers and institutions, we may become liable for any damage caused
by our products, whether used in the manner intended or not, including potentially damage to our customers’ businesses.
Regardless of merit or potential outcome, product liability claims against us may result in, among other effects, the inability
to commercialize our products, impairment of our business reputation, and distraction of management’s attention from our
primary business. If we cannot successfully defend ourselves against product liability claims we could incur substantial liabilities.
Although we maintain general and product liability insurance, our insurance may not cover potential claims and may not be adequate
to indemnify for 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.
Litigation
or the actions of regulatory authorities may harm our business or otherwise distract our management.
Substantial,
complex or extended litigation could cause us to incur major expenditures and would distract our management. For example, lawsuits
against us or our officers or directors by employees, former employees, stockholders, partners, customers, or others, or actions
taken by regulatory authorities, could be very costly and substantially disrupt our business. Such lawsuits and actions are not
uncommon, and we may not be able to resolve such disputes or actions on terms favorable to us, and there may not be sufficient
capital resources available to defend such actions effectively, or at all.
Compliance
with the reporting requirements of federal securities laws can be expensive.
We
are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of
the Exchange Act and other federal securities laws, including the compliance obligations of the Sarbanes-Oxley Act. The costs
of complying with the reporting requirements of the federal securities laws, including preparing and filing annual and quarterly
reports and other information with the SEC and furnishing audited reports to stockholders, can be substantial.
If
we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results
or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which could harm
our business and the value of the Company’s common shares.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the
Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting. Our internal
controls and financial reporting are not subject to attestation by our independent registered public accounting firm pursuant
to the exemption provided to issuers that are not “large accelerated filers” or “accelerated filers” under
the Dodd-Frank Act of 2010. We cannot be certain that we will be successful in maintaining adequate internal controls over our
financial reporting and financial processes in the future. We may in the future discover areas of our internal controls that need
improvement. Furthermore, to the extent our business grows, our internal controls may become more complex, and we would require
significantly more resources to ensure our internal controls remain effective. If we or our independent auditors discover a material
weakness, the disclosure of that fact, even if quickly remedied, could reduce the market value of the Company’s common stock.
Additionally, the existence of any material weakness or significant deficiency would require management to devote significant
time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not
be able to remediate any such material weaknesses or significant deficiencies in a timely manner.
We
depend on key personnel for our continued operations and future success, and a loss of certain key personnel could significantly
hinder our ability to move forward with our business plan.
Our
success depends largely on the execution of our business strategy by our management team and the members of our Board of Directors.
Our Board and management will be evaluating how to best execute our near-term strategy to drive customer adoption in the food
industry by addressing food safety solutions across the supply chain in order to prevent or mitigate food contamination or the
potential for food-borne illness with specific customer focus in foodservice providers, food processors and food manufacturers.
Our directors, executive officers and key personnel could terminate their services with us at any time without notice and without
penalty. Additionally, we do not maintain key person life insurance policies on our directors, executive officers or other employees.
The loss of one or more of our directors, executive officers or key employees could seriously harm our ability to execute on our
business strategy, which could harm our business, results of operations, financial condition, and/or the market price of our common
stock. We cannot assure you that in such an event we would be able to recruit qualified personnel able to replace these individuals
in a timely manner, or at all, on terms acceptable to either us or to any qualified candidate. Even if we were able to replace
any such individuals in a timely manner, if we are unable to effectively integrate new executive officers or key employees, our
operations and prospects could be harmed.
Because
competition for highly qualified sales and marketing and management personnel is intense, we may not be able to attract and retain
the employees we need to support our potential growth.
To
successfully meet our objectives, we must attract and retain highly qualified sales and marketing and management personnel with
specialized skill sets focused on the industries in which we compete, or intend to compete. Competition for qualified business
development and bioengineering personnel can be intense. Our ability to meet our business development objectives will depend in
part on our ability to recruit, train and retain top quality people with advanced skills who understand our technology and business.
In addition, it takes time for our new personnel to become productive and to learn our business. If we are unable to hire or retain
qualified personnel, it will be difficult for us to sell our products or to license our technology or to achieve or maintain regulatory
approvals, and we may experience a shortfall in revenue and not achieve our anticipated, or any, growth.
We
may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions
to our management.
From
time to time we may consider engaging in strategic transactions, such as acquisitions of companies, asset purchases and out-licensing
or in-licensing of products, product candidates or technologies. Any such transaction may require us to incur non-recurring or
other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our
management or business, which could adversely affect our operations and financial results. For example, these transactions may
entail numerous operational and financial risks, including, among others, exposure to unknown liabilities, disruption of our business
and diversion of our management’s time and attention in order to develop acquired products, product candidates or technologies,
difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel, and
inability to retain key employees of any acquired businesses. Accordingly, although we may not choose to undertake or may not
be able to successfully complete any transactions of the nature described above, any transactions that we do undertake or complete
could have a material adverse effect on our business, results of operations, financial condition and prospects.
We
may invest or spend our cash in ways with which you may not agree or in ways which may not yield a significant return.
Our
management has considerable discretion in the use of our cash. Our cash may be used for purposes that do not increase our operating
results or market value. Until the cash is used, it may be placed in investments that do not produce significant income or that
may lose value. The failure of our management to invest or spend our cash effectively could result in unfavorable returns and
uncertainty about our prospects, each of which could cause the price of our common stock to decline.
We
may not be able to utilize all, or any, of our tax net operating loss carry-forwards and our future after-tax earnings, if any,
could be reduced.
At
July 31, 2017, we had federal and state tax net operating loss carry-forwards of approximately $100.3 million and $74.7
million, respectively. Utilization of these net operating loss carry-forwards may be subject to a substantial annual limitation
due to ownership change limitations that may have occurred, including with respect to our recent private placements, or that could
occur in the future, as required by Section 382 of the Internal Revenue Code as well as similar state provisions. These ownership
changes may limit the amount of net operating loss carry-forwards that can be utilized annually to offset future taxable income
and tax, respectively. In general, an ownership change, as defined by Section 382 of the Internal Revenue Code, results from a
transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points
of the outstanding stock of a company by certain stockholders or public groups. Since our formation, we have raised capital through
the issuance of capital stock on several occasions (both before and after our initial public offering in 1996) which, combined
with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change,
or could result in an ownership change in the future based upon subsequent disposition. While we believe that we have not experienced
an ownership change, the pertinent tax rules related thereto are complex and subject to varying interpretations, and thus the
applicable taxing authorities may take an alternative position.
Our current federal tax loss carry-forwards
begin expiring in the year ended July 31, 2019 and, unless previously utilized, will completely expire in the year
ending July 31, 2037. The balance of our current federal net operating loss carry-forwards will expire between July 31, 2019 and
July 31, 2037. Our state tax loss carry-forwards begin to expire in the year ending July 31, 2018, and will completely
expire in the year ending July 31, 2037. If we are unable to earn sufficient profits to utilize the carry-forwards by these dates,
they will no longer be available to offset future profits, if any.
We
are subject to tax audits by various tax authorities in multiple jurisdictions.
From
time to time we may be audited by tax authorities to whom we are subject. Any assessment resulting from such audits, if any, could
result in material changes to our past or future taxable income, tax payable or deferred tax assets, and could require us to pay
penalties and interest that could materially adversely affect our financial results.
Risks
Related to Our Intellectual Property
If
we are unable to obtain, maintain or defend the patent and other intellectual property rights relating to our technology, we or
our collaborators and distributors may not be able to develop and market proprietary products based on our technology, which would
have a material adverse impact on our results of operations.
We
rely and expect in the future to continue to rely on a combination of patent, trademark, trade secret and copyright protections,
as well as contractual restrictions, to protect the proprietary aspects of our technology and business.
Legal
protections of our intellectual property and proprietary rights afford only limited protection. For instance, we currently own
twelve U.S. patents related to our SDC technology. The lives of these patents, and any patents that we may obtain in the future,
are not indefinite, and the value to us of some or all of our patents may be limited by their terms. Further, although we have
a number of U.S. and international patent applications pending, some or all of those applications may not result in issued patents,
and the intellectual property claims therein would be unprotected. Additionally, obtaining and maintaining patent protection depends
on our compliance with various procedural, document submission, fee payment and other requirements imposed by government patent
agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. Furthermore, the
patent positions of bioscience companies can be highly uncertain and often involve complex legal, scientific and factual questions,
and, therefore, we cannot predict with certainty whether we will be able to ultimately enforce our patents or other intellectual
property rights. Third parties may challenge, invalidate or circumvent our patents and patent applications relating to our products,
product candidates and technologies. In addition, our patent positions might not protect us against competitors with similar products
or technologies because competing products or technologies may not infringe our patents.
In
addition, to the extent that we operate internationally, the laws of foreign countries may not protect our proprietary rights
to the same extent as the laws of the U.S. Many countries have a “first-to-file” trademark registration system, which
may prevent us 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. Additionally, changes in the patent and/or trademark laws or interpretations
of such laws in the U.S. or other countries could diminish the value of our intellectual property rights. Moreover, our competitors
may develop competing technologies that are not covered by the claims of, and therefore do not infringe upon, our issued patents,
which could render our patents less valuable to us. If our proprietary rights cannot be, or are not sufficiently, protected by
patent and trademark registrations, it could have a material adverse impact on our business and our ability to commercialize or
license our technology and products.
Our
own efforts to protect our intellectual property and other proprietary rights may also be insufficient. Despite efforts to protect
our proprietary rights, including without limitation through confidentiality and other similar contractual restrictions, our means
of protecting such rights may not be adequate and unauthorized parties may attempt to copy aspects of our proprietary technology,
obtain and use information that we regard as proprietary, or otherwise misappropriate our intellectual property. In addition,
unpatented proprietary rights, including trade secrets and know-how, can be difficult to protect and may lose their value if they
are independently developed by a third party or if their secrecy is lost. It is possible that, despite our efforts, competitors
or others will create and use products, adopt service names similar to our service names or otherwise violate or misappropriate
our proprietary rights. The infringement of such rights could have a material negative impact on our business and on our results
of operations.
Litigation
may be necessary to enforce our intellectual property and other proprietary rights, which would be expensive and could consume
time and other resources. The result of any such litigation may be the court’s ruling that our patents or other intellectual
property rights are invalid and/or should not be enforced. Additionally, even if the validity of such rights is upheld, the court
could refuse to stop a third party’s infringing activity on the ground that such activities do not infringe our rights.
The U.S. Supreme Court has recently revised certain tests regarding granting patents and assessing the validity of patents to
make it more difficult to obtain patents. As a consequence, issued patents may be found to contain invalid claims according to
the newly revised standards. Some of our patents may be subject to challenge and subsequent invalidation or significant narrowing
of claim scope in a reexamination proceeding, or during litigation, under the revised criteria.
We
may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property
rights and we may be unable to protect our rights to, or use, our technology.
If
we choose to go to court to attempt to stop someone else from using the inventions claimed in our patents, that individual or
company has the right to ask the court to rule that our patents are invalid and/or should not be enforced against that third party.
These lawsuits are expensive and would consume time and other resources even if we were successful in stopping the infringement
of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we do not
have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents
is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe
our rights to these patents.
Furthermore,
a third party may claim that we are using inventions covered by the third party’s patent rights and may file an injunction
to stop us from engaging in our normal operations and activities, including making or selling our products. These lawsuits are
costly and could affect our results of operations and divert the attention of managerial and technical personnel. There is a risk
that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered
by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the
other party’s patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to
industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents
is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement,
we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent
and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult
since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
Because
some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in
the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications
in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications
for technology covered by our issued patents or our pending applications or that we were the first to invent the technology. Our
competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent
application may have priority over our patent applications and could further require us to obtain rights to issued patents covering
such technologies. If another party has filed a United States patent application on inventions similar to ours, we may have to
participate in an interference proceeding declared by the PTO, to determine priority of invention in the United States. The costs
of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of
our United States patent position with respect to such inventions.
Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Confidentiality
agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information
and may not adequately protect our intellectual property, which could limit our ability to compete.
We
may rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However,
trade secrets are difficult to protect, and we cannot be certain that others will not develop the same or similar technologies
on their own. We have taken steps, including entering into confidentiality agreements with our employees, consultants, outside
scientific collaborators, sponsored researchers and other advisors, to protect our trade secrets and unpatented know-how. These
agreements generally require that the other party keep confidential and not disclose to third parties all confidential information
developed by the party or made known to the party by us during the course of the party’s relationship with us. We also typically
obtain agreements from these parties which provide that inventions conceived by the party in the course of rendering services
to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual
property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult,
expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing
to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive
position.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As
is common in the biotechnology, food, chemical and pharmaceutical industries, we employ individuals who were previously employed
at other biotechnology, food, chemical or pharmaceutical companies, including our competitors or potential competitors. Although
no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise
used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend
against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs
and be a distraction to management.
Risks
Related to our Common Stock
The
price of our common stock may be volatile.
Our
common stock is approved for quotation on the OTC Markets’ OTCQB marketplace under the symbol “PURE.” The OTCQB
is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity
securities and provides significantly less liquidity than a listing on the Nasdaq Stock Markets or other national securities exchange.
The OTCQB securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in
comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our common stock.
Quotes for stocks included on the OTCQB are not listed in the financial sections of newspapers as are those for the Nasdaq Stock
Market or the NYSE. Therefore, prices for securities traded solely on the OTCQB may be difficult to obtain.
Trading
on the OTCQB Marketplace as opposed to a national securities exchange has resulted and may continue to result in a reduction in
some or all of the following, each of which could have a material adverse effect on the price of our common stock and our company:
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liquidity of our common stock;
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market price of shares of our common stock;
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our
ability to obtain financing to support our operations and the implementation of our business plan;
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number of institutional and other investors that will consider investing in shares of our common stock;
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number of market markers in shares of our common stock;
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availability of information concerning the trading prices and volume of shares of our common stock; and
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number of broker-dealers willing to execute trades in shares of our common stock.
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price and trading volume of our common stock have historically been volatile.
In
addition, the market price and trading volume of our common stock may be subject to wide fluctuations in the future in response
to:
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or anticipated fluctuations in our results of operations;
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announcements
regarding the status of our regulatory efforts;
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the
determination that our shares of common stock are “penny stock” which will require brokers trading in our shares
of common stock to adhere to more stringent rules, likely resulting in a reduced level of trading activity in the secondary
trading market for our shares of common stock;
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sale by us of our common or preferred stock or other securities, or the anticipation of sales of such securities;
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the
trading volume of our common stock, particularly if such volume is light;
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the
introduction of new products or services, or product or service enhancements by us or our competitors;
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●
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developments
with respect to our or our competitors’ intellectual property rights or regulatory approvals or denials;
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●
|
announcements
of significant acquisitions or other agreements by us or our competitors;
|
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●
|
sales
or anticipated sales of our common stock by our insiders (management and directors);
|
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●
|
conditions
and trends in our industry;
|
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|
●
|
changes
in our pricing policies or the pricing policies of our competitors;
|
|
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●
|
changes
in the estimation of the future size and growth of our markets; and
|
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|
●
|
general
economic conditions.
|
In
addition, the stock market in general, the OTCQB, and the market for shares of novel technology companies in particular, have
experienced extreme price and volume fluctuations that in some cases may be unrelated or disproportionate to the operating performance
of those companies. These broad market and industry factors may materially harm the market price of our common stock, regardless
of our operating performance. In addition, this volatility could adversely affect an investor’s ability to sell shares of
our common stock, and/or the available price for such shares, at any given time.
Our
common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due
to suitability requirements.
Shares
of our common stock are subject to the so-called “penny stock” rules as that term is defined in Rule 3a51-1 promulgated
under the Securities Exchange Act of 1934. These requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties
or to otherwise dispose of them. This could cause our stock price to decline.
Broker-dealers
dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stock. Moreover,
broker-dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.
Such requirements may discourage broker-dealers from effecting transactions in our common stock, which could limit the market
price and liquidity of our common stock.
Potential
sales or issuances of our common stock to raise capital, or the perception that such sales could occur, could cause dilution to
our current stockholders and the price of our common stock to fall.
We
have historically supported our operations through the issuance of equity securities and expect to continue to do so in the future.
Although we may not be successful in obtaining financing through equity sales on terms that are favorable to us in the future,
if at all, any such sales that do occur could result in substantial dilution to the interests of existing holders of our common
stock. Additionally, the sale of a substantial number of shares of our common stock or other equity securities to any new investors,
or the anticipation of such sales, could cause the trading price of our common stock to fall.
We
have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
The
continued operation and expansion of our business will require substantial funding. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock. We have paid no cash dividends on any of our capital stock to date and we currently
intend to retain our available cash to fund the development and growth of our business. Any determination to pay dividends in
the future will be at the discretion of our Board and will depend upon results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors our Board deems relevant. We do not anticipate paying any
cash dividends on our common stock in the foreseeable future. Any return to stockholders will therefore be limited to the appreciation
of their stock, which may never occur.
Anti-takeover
provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market
price of our stock.
Certain
provisions of our charter and bylaws may delay or frustrate the removal of incumbent directors and may prevent or delay a merger,
tender offer, or proxy contest involving us that is not approved by our Board, even if such events may be beneficial to the interests
of stockholders. For example, our Board, without stockholder approval, has the authority and power to authorize the issuance of
up to 5,000,000 shares of preferred stock and such preferred stock could have voting or conversion rights that could adversely
affect the voting power of the holders of our common stock. Further, the one-for-eight reverse stock split of our outstanding
common stock that we effected on August 14, 2012 has increased the proportion of unissued and authorized common shares to issued
and outstanding common shares, which could allow our Board to issue large numbers of additional shares of our common stock that
could significantly reduce the voting power of our current stockholders. In addition, we are governed by the provisions of Section
203 of the Delaware General Corporation Law, which may discourage, delay or prevent certain business combinations with stockholders
owning 15% or more of our outstanding voting stock. These and other provisions in our charter documents may make it more difficult
for stockholders or potential acquirers to initiate actions that are opposed by our then-current board of directors, including
delaying or impeding a merger, tender offer, or proxy contest or other change of control transaction involving the Company. Any
delay or prevention of a change of control transaction could cause stockholders to lose a substantial premium over the then-current
market price of their shares.
USE
OF PROCEEDS
We
will not receive any proceeds from the sale of shares of our common stock by the selling security holders. A portion of the shares
covered by this prospectus are issuable upon exercise of warrants to purchase our common stock. Upon any exercise of the 2017
Warrants for cash, the selling security holders would pay us the exercise price of the 2017 Warrants. Under certain conditions
set forth in the 2017 Warrants, the 2017 Warrants are exercisable on a cashless basis. We would not receive any cash payment from
the selling security holders upon any cashless exercise of the 2017 Warrants. Instead, the selling security holders would satisfy
their obligation to pay the exercise price through a formula-based transfer of warrant shares to us. The additional proceeds we
could receive from the exercise of such 2017 Warrants have not yet been earmarked for any specific use beyond working capital
needs because there is no certainty that we will ever receive any proceeds from the exercise of such warrants.
The
selling security holders will pay any underwriting discounts and commissions and expenses incurred by the selling security holders
for brokerage, accounting, tax or legal services or any other expenses incurred by the selling security holders in disposing of
the shares. We will bear all other costs, fees and expenses incurred in effecting the registration of the shares covered by this
prospectus, including, without limitation, all registration and filing fees and fees and expenses of our counsel and our accountants.
MARKET
PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information
About Our Common Stock
Our
common stock is approved for quotation on the OTC Markets’ OTCQB marketplace under the symbol “PURE.” The OTCQB
is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity
securities. The OTCQB securities are traded by a community of market makers that enter quotes and trade reports. This market is
limited in comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our
common stock.
On
October 24, 2017, the closing price of our common stock reported on the OTCQB was $1.15 per share. The following
table sets forth, for each of the quarterly periods indicated, the high and low sales prices of our common stock, as reported
on the OTCQB.
|
|
High
|
|
|
Low
|
|
Year
Ending July 31, 2018
|
|
|
|
|
|
|
|
|
First
Quarter (through October 24, 2017)
|
|
$
|
1.30
|
|
|
$
|
0.93
|
|
|
|
High
|
|
|
Low
|
|
Year
Ending July 31, 2017
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.28
|
|
|
$
|
0.78
|
|
Second
Quarter
|
|
$
|
1.10
|
|
|
$
|
0.75
|
|
Third
Quarter
|
|
$
|
1.09
|
|
|
$
|
0.83
|
|
Fourth
Quarter
|
|
$
|
1.36
|
|
|
$
|
0.92
|
|
|
|
High
|
|
|
Low
|
|
Year
Ended July 31, 2016
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.80
|
|
|
$
|
0.49
|
|
Second
Quarter
|
|
$
|
1.55
|
|
|
$
|
0.68
|
|
Third
Quarter
|
|
$
|
1.34
|
|
|
$
|
0.93
|
|
Fourth
Quarter
|
|
$
|
1.22
|
|
|
$
|
0.93
|
|
Holders
As
of October 24, 2017, we had approximately 235 holders of record of our common stock. This does not include beneficial owners
holding common stock in street name.
Dividend
Policy
We
have never paid dividends and have no current plans to do so. We currently anticipate that we will retain all of our future earnings,
if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay
dividends in the future will be at the discretion of our Board and will depend upon our results of operations, financial condition
and other factors that the Board, in its discretion, may deem relevant.
EQUITY
COMPENSATION PLAN INFORMATION
In
February 2016, we amended and restated our 2007 Equity Incentive Plan, or the Plan, to, among other changes, increase the number
of shares of common stock issuable under the Plan by 4,000,000 shares and extend the term of the Plan until February 4, 2026.
The Plan provides for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, to
our employees, directors, consultants and advisors. These awards have up to a 10-year contractual life and are subject to various
vesting periods, as determined by the Compensation Committee or the Board of Directors. Our 2007 Equity Incentive Plan is the
only active plan pursuant to which options to acquire common stock or restricted stock awards can be granted and are currently
outstanding.
All
of our equity incentive plans are administered by the Compensation Committee. The exercise price for stock options is always at
or above the fair market value of our common stock on the date the award is granted. Fair market value is defined by the Plan
and is based on prevailing market prices of our common stock as reported by the OTCQB. The term of stock options granted and their
vesting schedules are determined by the Compensation Committee, subject to any limitations defined in the Plan. The Compensation
Committee also determines the vesting of other, non-option, stock awards.
On
June 23, 2017 we filed a Form S-8 to register shares of Common Stock underlying equity awards granted to our directors and officers
outside the 2007 Amended and Restated Equity Incentive Plan. The S-8 registered 3,150,000 shares with respect to RSUs and options,
which were also granted on the same date.
The
following table sets forth, as of July 31, 2017, information with respect to our equity compensation plans, and with respect to
certain other options and warrants.
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
Number
of
|
|
|
|
|
|
remaining
|
|
|
|
securities
to
|
|
|
Weighted
|
|
|
available
for
|
|
|
|
be
issued
|
|
|
average
|
|
|
future
issuance
|
|
|
|
upon
|
|
|
exercise
|
|
|
under
equity
|
|
|
|
exercise
of
|
|
|
price
of
|
|
|
compensation
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
plans
(excluding
|
|
|
|
options,
|
|
|
options,
|
|
|
securities
|
|
|
|
warrants
|
|
|
warrants
|
|
|
reflected
in
|
|
|
|
and
rights
|
|
|
and
rights
|
|
|
column
(a))
|
|
Plan
Category
|
|
(a)(1)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by stockholders
|
|
|
3,759,843
|
|
|
$
|
1.29
|
|
|
|
560,971
|
|
Equity
compensation plans not approved by stockholders
|
|
|
2,000,000
|
|
|
|
1.19
|
|
|
|
—
|
|
Total
|
|
|
5,759,843
|
|
|
$
|
1.25
|
|
|
|
560,971
|
|
(1)
|
Includes options
only and does not include restricted stock units
|
BUSINESS
Overview
We
are focused on developing and commercializing proprietary antimicrobial products that provide safe and cost-effective solutions
to the health and environmental challenges of pathogen and hygienic control. Our technology platform is based on patented stabilized
ionic silver, and our initial products contain silver dihydrogen citrate, or SDC. SDC is a broad-spectrum, non-toxic antimicrobial
agent, which offers 24-hour residual protection and formulates well with other compounds. As a platform technology, we believe
SDC is distinguished from existing products in the marketplace because of its superior efficacy, reduced toxicity, non-causticity
and the inability of bacteria to form a resistance to it.
Our
SDC-based technology platform has potential application in a number of industries. Our near-term focus is on offering products
that address food safety risks across the food industry supply chain. In 2011, the Centers for Disease Control and Prevention
(CDC) reported that foodborne illnesses affect more than 48 million people annually in the U.S., causing 128,000 hospitalizations
and 3,000 fatalities. The CDC estimated that more than 9 million of these foodborne illnesses were attributed to major pathogens.
The CDC reported that contaminated produce was responsible for approximately 46% of the foodborne illnesses caused by pathogens
and 23% of the foodborne illness-related deaths in the US between 1998 and 2008. Among the top pathogens contributing to foodborne
illness in the U.S. are Norovirus,
Salmonella
,
Campylobacter
,
Staphylococcus
, Shiga toxin–producing
Escherichia coli
and
Listeria
.
Salmonella
is the leading cause of hospitalization, followed by Norovirus,
and is the leading cause of deaths related to foodborne illness.
Based
on these statistics, we believe there is a significant market opportunity for our safe, non-toxic, non-caustic and effective SDC-based
solutions. We currently offer PURE
®
Hard Surface as a food contact surface sanitizer and disinfectant to restaurant
chains, food processors and food transportation companies. We also offer PURE Control
®
as a direct food contact
processing aid. We received the required FDA approvals to market PURE Control as a direct food contact processing aid for raw
poultry and fresh produce in December 2015 and January 2016, respectively. Because additional USDA approval was not required,
we began marketing PURE Control as a direct food contact processing aid for fresh produce following our receipt of FDA approval
in January 2016.
In
July 2016, we received a “No Objection Letter” from the USDA’s Food Safety and Inspection Service (FSIS) granting
approval for SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line
reprocessing) and post chill processing of fresh poultry. In January 2017, we submitted an additional FCN to the FDA to allow
use of higher SDC concentrations in poultry processing, allowing the flexibility to adjust to varying plant and processing conditions.
In May 2017, we received a Final Letter from the FDA for this FCN as well as a “No Objection Letter” from the USDA’s
Food Safety and Inspection Service (FSIS) granting approval for the higher concentrations of SDC-based PURE Control to be used
as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of
fresh poultry. We are currently focused on completing in-plant validation trials for PURE Control in pre- and post OLR poultry
processing applications, which represents approximately 65 to 75% of the total processing aid market for poultry processing. We
are also conducting in-plant trials to optimize the application of PURE Control in OLR to attempt to gain USDA approval for use
in this stage of poultry processing.
Subject
to the results of our focused in-plant validation efforts for our approved produce and poultry solutions, we intend to seek approval
to utilize PURE Control as a direct food contact processing aid for raw meats, including beef and pork. In addition to our direct
sales efforts with PURE Hard Surface and PURE Control, we market and sell our SDC-based products indirectly through third-party
distributors.
Technology
Platform
The
foundation of our technology platform is a proprietary electrochemical process that allows us to generate ionized silver in the
presence of organic acid. This process creates a solution containing stabilized ionic silver that can function as an antimicrobial.
Our current products all contain SDC, which we produce by ionizing silver in citric acid. SDC is a natural, non-toxic, non-caustic,
colorless, odorless antimicrobial agent, which offers 24-hour residual protection, and that formulates well with other compounds.
We have also produced ionic silver-based molecular entities using other organic acids, and we believe these compounds may provide
a platform for future product development.
Silver
as an Antimicrobial
The
use of silver as an antimicrobial dates back to ancient times when water, wine and other beverages were kept in silver vessels
to maintain freshness. Ancient Egyptians applied thin strips of beaten silver around wounds to avoid infection, and early royalty
ate from silver plates and with silver utensils to stay healthy. In the past half-century, silver in colloidal and ionic forms
has been used successfully in a wide array of antimicrobial applications, including water purification and topical treatments
for burn victims. Silver must be in an ionic form to be effective at killing microorganisms. The short shelf-life of previous
ionic silver solutions has limited the development of ionic-silver based antimicrobials. SDC, as a stabilized silver ion complex,
has a shelf life of more than a decade because the weak bond of the silver ion to the citric acid allows the ion to remain stable
in solution while at the same time making it bioavailable for antimicrobial action.
Mechanisms
of Action
The
rapid and broad-spectrum efficacy of SDC is attributed to its dual mechanisms of action, both with respect to killing bacteria
and other microorganisms and acting against viruses. SDC can kill microorganisms at both the extracellular and intracellular levels.
SDC attracts bacteria because the citric acid is recognized by the organism as a food source. SDC easily enters the microorganism
through membrane transport proteins. Once inside the organism, SDC binds to DNA and intracellular proteins causing irreversible
damage to the DNA and protein structure. Metabolic and reproductive functions halt, and the organism dies. SDC can also act on
an organism’s outer membrane. Silver ions are highly attracted to sulfur-containing thiol groups found in metabolic and
structural proteins bound to the membrane surface. SDC targets these critical proteins and destroys their structure. This disruption
of the organism’s membrane function and integrity leads to its death.
Viruses
are much smaller than bacteria and present fewer target sites on which a biocide can act. The efficacy of SDC against enveloped
and non-enveloped viruses comes from its ability to destroy not only the viral envelope, preventing the virus from attaching to
a host cell, but also the infectious component of the virus, the nucleic acid.
Safety
Profile
Research
has shown that silver is an effective antimicrobial and not toxic to humans at the residual levels following the use of our SDC-based
products. In addition, our data shows the components of SDC, ionic silver and citric acid, to be non-toxic, particularly at the
low concentrations required to eliminate microorganisms. At higher concentrations, citric acid can be an eye irritant. We have
tested a concentrated SDC formulation using standard protocols to measure acute toxicity. Acute oral and dermal toxicity was not
observed at doses up to and including 5000 mg/kg. Data from eye and skin studies showed only slight irritation and no dermal sensitization.
GRAS
Status as Contact Biocide
A
committee of independent experts critically reviewed efficacy and toxicity data for SDC and the SDC-based PURE Hard Surface disinfectant
and food contact surface sanitizer. The committee found no evidence that SDC demonstrates a hazard to the public when used as
a contact biocide on food contact surfaces and food-use utensils. The committee, therefore, concluded such use to be generally
recognized as safe, consistent with the EPA registration (discussed below), allowing for use on food manufacturing and processing
equipment and food preparation surfaces.
Efficacy
Formulations
containing SDC provide complete, quick and broad-spectrum antimicrobial efficacy against gram positive and gram negative bacteria,
enveloped and non-enveloped viruses, and fungi. In addition to quick kill times, SDC provides residual antimicrobial activity.
SDC also provides rapid kill times against multiple drug resistant bacteria, including Methicillin-resistant
Staphylococcus
aureus
, or MRSA, Vancomycin resistant
Enterococcus faecium
, or VRE, Carbapenem resistant
Escherichia coli
, Carbapenem
resistant
Klebsiella pneumoniae
and Carbapenem resistant
Klebsiella pneumoniae,
NDM-1+. See “EPA Registrations”
below for more detailed efficacy data.
Natural
and Environmentally Responsible
SDC
is made of simple and all-natural ingredients: water, citric acid and minute amounts of ionic silver. SDC does not present a threat
to the environment. If introduced to water systems, the low concentrations of ionic silver in SDC would react with naturally present
substances such as chlorides, sulfides and organic matter. These reactions would create insoluble silver complexes and render
the silver inert. In addition, we manufacture SDC through a “zero waste” process in which no byproducts or environmental
effluent are created.
Market
Opportunity
U.S.
Incidence and Cost of Foodborne Illness
According
to an Ohio State University study published in the Journal of Food Protection, completed by Dr. Scharff, a consumer science professor,
foodborne illness poses a $77.7 billion economic burden in the United States annually. This cost estimate includes health related
costs, associated medical costs, productivity losses, mortality, and pain and suffering. The study noted that excluding the estimated
costs for pain and suffering, health related costs exceeded $51 billion. The study does not include costs to the food industry,
including reduced consumer confidence, reduced brand value, product recall costs, and litigation, nor does it include the cost
to public health agencies (local, state and federal) that are required to respond to illnesses and outbreaks. In addition, the
study cited
Salmonella
as the most costly pathogen with an economic burden estimated to be in excess of $11 billion. This
is primarily due to its high incidence and mortality rate.
Increased
Regulatory Requirements in the U.S.
The
increasing trend of reported foodborne illness over the last decade has resulted in heightened awareness by various government
agencies, national media and social media outlets thereby affecting consumer confidence and elevating federal and state regulatory
scrutiny.
In
2011, the Food Safety Modernization Act was passed by the U.S. Congress, resulting in increased regulatory requirements for preventive
controls, verification and validation of food safety plans by food processors. Additionally, in December 2013, the Food Safety
and Inspection Service (FSIS) of the USDA, announced its
Salmonella
Action Plan (SAP), which is focused on identifying
solutions to reduce the incidence of
Salmonella
in meat and poultry. We believe that the implementation of the SAP will
increase the need for new, effective interventions to assist in reducing the incidence of
Salmonella
in meat and poultry.
Limitations
of Existing Food Safety Solutions
The
statistics of the U.S. public health problems attributed to pathogens in the food supply chain demonstrate the increasing need
for more effective, efficient and safer interventions. The U.S. food industry continues to rely on the use of toxic chemicals
as processing aids or interventions during food processing operations for which pathogens are becoming increasingly resistant
and rendering current interventions less efficacious. Most of these chemicals carry various warning labels for their toxic and/or
caustic characteristics, which can negatively affect the safety of processing plant personnel, plant operating equipment and the
plant environment and its surroundings.
Among
the chemicals in current use are: peracetic acid, acidified sodium chlorite (ASC), ozone, trisodium phosphate, cetylpyridinium
chloride (CPC), organic acid rinses (lactic acid), hypobromous acid and chlorine dioxide. Some of these chemicals can be difficult
to work with as a processing aid as they require heating to become effective or are difficult to mix and stabilize prior to use.
Additionally, some of these chemicals damage the food being processed, resulting in decreased yields. Further, the use of certain
of these chemicals is limited to treating only specific pathogens and/or only certain foods. In addition, some of these chemicals
can produce noxious fumes that over time have been linked to upper respiratory illness and typically require in-plant decontamination
of their effluence.
Several
large and established corporations currently supply these chemicals. They may also provide other related food safety services
such as environmental sanitation programs and food safety consultation and audit services.
Our
SDC-Based Products as a Food Safety Solution
Based
on the limitations of the existing food safety solutions, we believe that our SDC-based products, including PURE Hard Surface
and PURE Control, are well positioned as new and disruptive solutions for the food safety industry. Given their broad spectrum
antimicrobial efficacy and non-toxic properties, our SDC-based products provide significant improvements over current chemical
interventions that can both strengthen our customers’ food safety practices and help them control and eliminate pathogens
present during their food processing operations.
Our
studies indicate that our SDC-based products are more effective in reducing or eliminating pathogens than existing chemical interventions.
Pilot poultry processing studies showed that SDC achieved an average reduction in
Salmonella
of 2.75 log
10
CFU/cm
2
when applied as an OLR spray and 6.28 log
10
CFU/cm
2
when combined with an immersion chilling
process simulating current U.S. industry practices. This data suggests that the use of SDC in poultry processing has the potential
to achieve non-detectable
Salmonella
levels. We are currently focused on completing in-plant validation trials to test
both the effectiveness of PURE Control in actual in-plant use for pre and post OLR poultry processing and to attempt to gain USDA
approval for its use in OLR poultry processing.
Similarly,
pilot produce processing studies showed that SDC achieved average reductions up to 2.36 log
10
CFU/cm
2
when
applied alone as a spray and up to 3.10 log
10
CFU/cm
2
when combined with chlorine wash, simulating current
processing practices. Currently, produce processors hope to achieve only a 1 log
10
CFU/cm
2
reduction per
intervention treatment. This data suggests that by incorporating SDC, produce processors can improve their results 100-fold with
only one step. Moreover, sensory evaluations of both poultry and produce treated with SDC indicated no difference in color, appearance
or odor to untreated controls. Additionally, SDC had no effect on the nutritional composition of either poultry or produce.
In
addition to providing better efficacy, our SDC-based products can provide users with the following benefits compared to the current
processing chemicals they are using:
|
●
|
Easier
to handle and dilute;
|
|
|
|
|
●
|
Non-corrosive
to processing equipment; and
|
|
|
|
|
●
|
Non-toxic
to manufacturing personnel by not creating noxious fumes or other detrimental environmental effluence; and
|
|
|
|
|
●
|
Neutral
to positive yield impact on the processed food
|
Based
on their performance and characteristics, we believe our SDC-based products can provide our customers with significant advantages
to the chemical interventions they are currently using and help them achieve their goal of improving the safety of processed foods
they offer to consumers.
Business
Strategy
Our
goal is to become a sustainable company by commercializing the SDC-based products we have developed with our proprietary technology
platform. We are focused on delivering leading antimicrobial products that address food safety risks across the food industry
supply chain. Key aspects of our business strategy include:
|
●
|
Expanding
sales and distribution for our products into the food industry with a focus on a dual track of food safety market opportunities:
|
|
●
|
Hard
Surface Disinfectant
- commercializing our current EPA registered PURE Hard Surface disinfectant and sanitizer for
use in foodservice operations, food manufacturing and food transportation.
|
|
|
|
|
●
|
Direct
Food Contact
- commercializing FDA approved PURE Control as a direct food contact processing aid for fresh produce;
commercializing FDA approved PURE Control as a food processing and intervention aid for food processors treating raw poultry
in pre and post OLR applications. We also intend to continue our on-going in plant trials to optimize the application of PURE
Control in OLR to attempt to gain USDA approval for use in this stage of poultry processing. Additionally, subject to the
results of our focused in-plant validation efforts for our approved produce and poultry solutions, we intend to seek approval
to utilize PURE Control as a direct food contact processing aid for raw meats, including beef and pork.
|
|
●
|
Establishing
strategic alliances to maximize the commercial potential of our technology platform;
|
|
|
|
|
●
|
Developing
additional proprietary products and applications; and
|
|
|
|
|
●
|
Protecting
and enhancing our intellectual property.
|
In
addition to our current products addressing food safety, we intend to leverage our technology platform through licensing and distribution
collaborations in order to develop new products and enter into new markets that could potentially generate multiple sources of
revenue.
Our
Products
Our
near-term focus is on delivering leading antimicrobial products that address food safety risks across the food industry supply
chain. We currently offer PURE
®
Hard Surface as a food contact surface sanitizer and disinfectant to restaurant
chains, food processors and food transportation companies. We also offer PURE Control
®
as a direct food contact
processing aid. We received the required FDA approvals to market PURE Control
®
as a direct food contact processing
aid for raw poultry and fresh produce in December 2015 and January 2016, respectively. Because additional USDA approval was not
required, we began marketing PURE Control as a direct food contact processing aid for fresh produce following our receipt of FDA
approval in January 2016.
In
July 2016, we received a “No Objection Letter” from the USDA’s Food Safety and Inspection Service (FSIS) granting
approval for SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line
reprocessing) and post chill processing of fresh poultry. In January 2017, we submitted an additional FCN to the FDA to allow
use of higher SDC concentrations in poultry processing, allowing the flexibility to adjust to varying plant and processing conditions.
In May 2017, we received a Final Letter from the FDA for this FCN as well as a “No Objection Letter” from the USDA’s
Food Safety and Inspection Service (FSIS) granting approval for the higher concentrations of SDC-based PURE Control to be used
as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of
fresh poultry. We are currently focused on completing in-plant validation trials for PURE Control in pre- and post OLR poultry
processing applications, which represents approximately 65 to 75% of the total processing aid market for poultry processing. We
are also conducting in-plant trials to optimize the application of PURE Control in OLR to attempt to gain USDA approval for use
in this stage of poultry processing.
Subject
to the results of our focused in-plant validation efforts for our approved produce and poultry solutions, we intend to seek approval
to utilize PURE Control as a direct food contact processing aid for raw meats, including beef and pork. In addition to our direct
sales efforts with PURE Hard Surface and PURE Control, we market and sell our SDC-based products indirectly through third-party
distributors.
In
addition to PURE Hard Surface and PURE Control, we manufacture and sell (i) SDC-based products for end use, (ii) products preserved
with SDC and (iii) SDC as a raw material ingredient for manufacturing use.
PURE®
Hard Surface Disinfectant and Sanitizer (Ready to Use)
PURE
Hard Surface is our SDC-based, patented and EPA-registered, ready-to-use hard surface disinfectant and food contact surface sanitizer.
PURE Hard Surface combines high efficacy and low toxicity with bacterial and viral kill times in as few as 30-seconds and 24-hour
residual protection. The product kills resistant pathogens such as MRSA and Carbapenem-resistant
Klebsiella pneumoniae
(NDM-1), and effectively eliminates dangerous fungi and viruses including HIV, Hepatitis B, Hepatitis C, Norovirus, Influenza
A, Avian Influenza and H1N1. It also eradicates hazardous food pathogens such as
E. coli
,
Salmonella
,
Campylobacter
and
Listeria
. PURE Hard Surface delivers broad-spectrum efficacy yet remains classified as least-toxic by the EPA.
The active ingredient, SDC, has been designated as “Generally Recognized as Safe,” or GRAS, for use on food processing
equipment, machinery and utensils.
PURE
Control
®
We
have the necessary regulatory approvals from the FDA to offer PURE Control as a direct food contact processing aid for fresh produce
and raw poultry. We also have regulatory approvals from the USDA for certain methods of application of PURE Control on poultry
and we are also performing additional trials to attempt to gain further USDA approvals for additional food contact applications
for poultry. Additionally, subject to the results of our focused in-plant validation efforts for our approved produce and poultry
solutions, we intend to seek approval to utilize PURE Control as a direct food contact processing aid for raw meats, including
beef and pork.
Poultry
Processing Aid.
In December 2015, we received the required approvals from the FDA stating that our FCN (food contact notification)
for SDC as a raw poultry processing aid is complete. We have received a “No Objection Letter” from the USDA’s
Food Safety and Inspection Service (FSIS) granting approval for SDC-based PURE Control to be used as a spray or dip applied to
poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of fresh poultry. In January 2017,
we submitted an additional FCN to the FDA to allow use of higher SDC concentrations in poultry processing, allowing the flexibility
to adjust to varying plant and processing conditions. In May 2017, we received a Final Letter from the FDA for this FCN as well
as a “No Objection Letter” from the USDA’s Food Safety and Inspection Service (FSIS) granting approval for the
higher concentrations of SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in
pre-OLR (on-line reprocessing) and post chill processing of fresh poultry.
We
are currently focused on completing in-plant validation trials to test the effectiveness of PURE Control in actual in-plant use
for pre and post OLR poultry processing. We are also conducting in-plant trials to optimize the application of PURE Control, including
with higher concentrations of SDC, in OLR to attempt to gain USDA approval for use in that stage of poultry processing.
Testing
data conducted by Dr. James Marsden at Kansas State University and submitted in support of our FCN showed that, SDC achieved an
average reduction in
Salmonella
of 2.75 log
10
CFU/cm
2
when applied as an OLR (online reprocessing)
spray and 6.28 log
10
CFU/cm
2
when combined with an immersion chilling process simulating current U.S. industry
practices. We believe that testing by Dr. Marsden provides support to the following benefits of SDC for poultry processing:
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The
use of SDC antimicrobial solution in poultry processing has the potential to enable plants to achieve non-detectable Salmonella
levels post-chill process.
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A
sensory evaluation of SDC showed no difference in color, appearance or odor in treated poultry.
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SDC
has a neutral to positive impact on yield.
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SDC
offers a highly effective alternative to hazardous and difficult to blend chemicals currently used as treatments in raw poultry
processing.
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SDC
is a significant improvement over current processing practices. The product is:
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Easier
to handle and dilute;
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Non-corrosive
to processing equipment;
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Does
not create noxious fumes; and
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Poultry
processors will also benefit from the highly stable solution, ease of use and improved worker safety.
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We
are currently focused on completing in-plant validation trials to test the effectiveness of PURE Control in actual in-plant use
and to optimize the application of PURE Control for poultry processing.
Produce
Processing Aid
. In January 2016, we received the required approvals from the FDA stating that our FCN for SDC as a spray
or dip on processed fruits and vegetables is complete. We were not required to obtain any approvals from the USDA to market PURE
Control as a produce processing aid.
Data
from testing conducted by Dr. James Marsden at Kansas State University and submitted in support of our FCN for produce showed
that SDC achieved average reductions up to 2.36 log
10
CFU/cm
2
when applied alone as a spray and up to 3.10
log
10
CFU/cm
2
when combined with chlorine wash, simulating current processing practices. Sensory evaluations
of produce treated with SDC indicated no difference in color, appearance or odor to untreated controls; and SDC had no effect
on the nutritional composition of the produce.
Currently,
produce processors target achieving only a 1 log
10
CFU/cm
2
reduction per intervention treatment. Data suggests
that by incorporating SDC, processors can improve their results 100-fold with only one step. This represents a significant advantage
to produce processors as well as improvement to the safety of processed produce going to the consumer.
Other
Processing Aids under Development
. Subject to the results of our focused in-plant validation efforts for our approved
produce and poultry solutions, we intend to seek approval to utilize PURE Control as a direct food contact processing aid for
raw meats, including beef and pork. In addition, we may identify other food processing opportunities for SDC.
Additional
SDC-Based Products
In
addition to PURE Hard Surface and PURE Control, we manufacture and sell (i) SDC-based products for end use, (ii) products preserved
with SDC and (iii) SDC as a raw material ingredient for manufacturing use. These products include:
Product
Name
|
|
Product
Use
|
|
EPA
Registration
|
PURE
Complete Solution:
|
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|
PURE
®
Multi-Purpose and Floor Cleaner Concentrate
|
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Cleaner
|
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Not
applicable
|
PURE
®
Multi-Purpose Hi-Foam Cleaner Concentrate
|
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Cleaner
|
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Not
applicable
|
Axen
®
30
|
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Disinfectant
|
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Axen30
|
Axenohl
®
|
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Raw
material ingredient
|
|
Axenohl
|
SILVÉRION
®
|
|
Raw
material ingredient
|
|
Not
applicable
|
PURE
Complete Solution
Our
PURE Complete Solution is comprised of PURE Hard Surface and concentrated cleaning products that were launched as companion products
to PURE Hard Surface. The PURE Complete Solution offers a comprehensive, cost-effective and user-friendly cleaning, disinfecting
and sanitizing product line to end-users including our targeted foodservice, food manufacturing and food processing customers.
We can also target this product line to hospital and medical care facilities, janitorial service providers and the distributors
that supply them.
PURE
®
Multi-Purpose and Floor Cleaner Concentrate (End-User Dilutable)
PURE
Multi-Purpose Cleaner is an environmentally responsible cleaning product that is protected by SDC. SDC ensures the quality and
safety of PURE Multi-Purpose and Floor Cleaner without human or environmental exposure to toxic chemical preservatives. PURE Multi-Purpose
and Floor Cleaner is non-toxic and non-flammable and contains no EDTA, phosphates, ammonia or bleach as well as no VOCs or NPEs.
This efficient cleaner provides professional strength cleaning in a concentrate formula that yields a 1:96 – 1:256 use dilution
that is safe for use on all resilient surfaces, including floors, glass and food contact surfaces.
PURE
®
Multi-Purpose Hi-Foam Cleaner Concentrate (End-User Dilutable)
PURE
Multi-Purpose Hi-Foam Cleaner is an environmentally responsible, professional strength high foam forming cleaning product that
is protected by SDC. SDC ensures the quality and safety of PURE Multi-Purpose Hi-Foam Cleaner without human or environmental exposure
to toxic chemical preservatives. PURE Multi-Purpose Hi-Foam Cleaner is non-toxic and non-flammable and contains no EDTA, phosphates,
ammonia or bleach as well as no VOCs or NPEs. PURE Multi-Purpose Hi-Foam Cleaner provides high foam cleaning in a concentrate
formula that yields a 1:50 use dilution that is safe for use on stainless steel equipment, resilient floors, walls and painted
surfaces.
Axen
®
30 (Ready-to-Use)
Axen30
is our patented and EPA-registered hard surface disinfectant and is a predecessor ready-to-use product to PURE Hard Surface. Axen30
is currently sold on a limited basis by distributors under their respective private labels.
Axenohl
®
(Raw Material Ingredient)
Axenohl
is our patented and EPA-registered SDC-based antimicrobial formulation for use as a raw material ingredient in the manufacturing
of EPA-registered products. Axenohl is a colorless, odorless and stable solution that provides fast acting efficacy against bacteria,
viruses and fungi when manufactured into consumer and commercial disinfecting and sanitizing products. Axenohl is currently sold
on a limited basis to distributors who manufacture their own respective end-use products.
SILVÉRION
®
(Raw Material Ingredient)
SILVÉRION
is our patented SDC-based antimicrobial formulation for use as a raw material ingredient in the manufacturing of personal care
products. It can be used as either an active ingredient or a preservative. SILVÉRION is a colorless, odorless and stable
solution that provides ionic silver in a water-soluble form. It provides fast acting efficacy at low concentrations against a
broad-spectrum of bacteria, viruses, yeast and molds. SILVÉRION is currently sold domestically and outside of the United
States in various personal care products.
EPA
Registrations
We
sell our EPA-regulated products under the following three EPA registrations: (i) SDC3A, our hard surface disinfectant and food
contact surface sanitizer, (ii) Axen30, our hard surface disinfectant, and (iii) Axenohl, our antimicrobial formulation for use
as a raw material in the manufacturing of EPA-registered products.
PURE
Hard Surface SDC3A Registration
The
EPA registration for SDC3A, marketed as PURE Hard Surface, our disinfectant and food contact surface sanitizer, includes the following
efficacy claims:
Organism
|
|
Kill
Time
|
Pseudomonas
aeruginosa
|
|
30
seconds
|
Salmonella
enterica
|
|
30
seconds
|
Staphylococcus
aureus
|
|
2
minutes
|
Listeria
monocytogenes
|
|
2
minutes
|
Vancomycin
resistant
Enterococcus faecium (VRE)
|
|
2
minutes
|
Methicillin
resistant
Staphylococcus aureus (MRSA)
|
|
2
minutes
|
Community
Associated Methicillin resistant
Staphylococcus aureus (CA-MRSA)
|
|
2
minutes
|
Community
Associated Methicillin resistant
Staphylococcus aureus (CA-MRSA-PVL)
|
|
2
minutes
|
Escherichia
coli O157:H7
|
|
2
minutes
|
Acinetobacter
baumannii
|
|
2
minutes
|
Campylobacter
jejuni
|
|
2
minutes
|
Carbapenem
resistant
Escherichia coli
|
|
2
minutes
|
Carbapenem
resistant
Klebsiella pneumoniae
|
|
2
minutes
|
Carbapenem
resistant
Klebsiella pneumonia,
NDM-1 +
|
|
2
minutes
|
Trichophyton
mentagrophytes (Athlete’s Foot Fungus)
|
|
5
minutes
|
HIV
type 1
|
|
30
seconds
|
Rotavirus
|
|
30
seconds
|
Human
Coronavirus
|
|
30
seconds
|
Influenza
A (H1N1)
|
|
30
seconds
|
Swine
Influenza A (H1N1)
|
|
30
seconds
|
Respiratory
Syncytial Virus
|
|
30
seconds
|
Adenovirus
Type 2
|
|
30
seconds
|
Avian
Influenza A
|
|
30
seconds
|
Influenza
A
|
|
30
seconds
|
Hepatitis
B Virus (HBV)
|
|
60
seconds
|
Hepatitis
C Virus (HCV)
|
|
60
seconds
|
Murine
Norovirus
|
|
60
seconds
|
Norovirus
|
|
60
seconds
|
Herpes
Simplex Type 1
|
|
60
seconds
|
Rhinovirus
|
|
60
seconds
|
Polio
Type 2
|
|
60
seconds
|
The
EPA registration for SDC3A also claims 24-hour residual protection against certain bacteria.
Toxicity
Categories
The
EPA categorizes the toxicity of antimicrobial products from Category I to Category IV. The following table shows the EPA toxicity
categories and required signal words.
Toxicity
Category
|
|
Signal
Word
|
I
|
|
DANGER,
POISON
|
II
|
|
WARNING
|
III
|
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CAUTION
|
IV
|
|
None
required
|
SDC3A
is a Category IV product for which no signal words are required.
Axen30
Registration
Axen30
is a hard surface disinfectant and is a predecessor product to SDC3A. It offers similar broad-spectrum efficacy but longer kill
times. Axen30 is not approved for use on food contact surfaces. Axen30 is currently sold on a limited basis by distributors under
their respective private labels.
Axenohl
Registration
Axenohl
is registered as a raw material ingredient for the manufacturing of EPA-registered products and as such does not carry specific
efficacy claims. Axenohl is sold to distributors who manufacture their own respective end-use products.
Intellectual
Property
Our
policy is to pursue patents and trademarks, maintain trade secrets and use other means to protect our technology, inventions and
improvements that are commercially important to the development of our business.
We
have applied for U.S. and foreign patent protection for our SDC technology. Currently, we own twelve U.S. issued patents. Approximately
thirty patents have been issued outside of the U.S., and we own approximately four patents pending around the world. The expiration
dates for our twelve U.S. issued patents begin in 2018 and end in 2030. In September 2013, we decided to abandon pending and issued
patents in non-strategic international territories. We intend to focus our future patent prosecution and defense efforts primarily
to North America, Europe, Asia and Mexico.
Additional
patent applications may not be granted, or, if granted, may not provide adequate protection to us. We also intend to rely on whatever
protection the law affords to trade secrets, including unpatented know-how. Other companies, however, may independently develop
equivalent or superior technologies or processes and may obtain patents or similar rights with respect thereto.
Although
we believe that we have developed our technology independently and have not infringed, and do not infringe, on the patents of
others, third parties may make claims that our technology does infringe on their patents or other intellectual property. In the
event of infringement, we may, under certain circumstances, be required to modify our infringing product or process or obtain
a license. We may not be able to do either of those things in a timely manner if at all, and failure to do so could have a material
adverse effect on our business. In addition, we may not have the financial or other resources necessary to enforce a patent infringement
or proprietary rights violation action or to defend ourselves against such actions brought by others. If any of the products we
develop infringe upon the patent or proprietary rights of others, we could, under certain circumstances, be enjoined or become
liable for damages, which would have a material adverse effect on our business.
We
also rely on confidentiality and nondisclosure agreements with our employees, customers, consultants, advisors, licensees and
potential partners to protect our technology, intellectual property and other proprietary property. Pursuant to the foregoing
and for other reasons, we face the risk that our competitors may acquire information which we consider to be proprietary, that
such parties may breach such agreements or that such agreements will be inadequate or unenforceable.
Further,
we own the registered trademarks or pending trademark applications for PURE Bioscience
®
, Powered by SDC Ag+
®
,
PURE
®
, Axenohl
®
, Axen
®
, SILVÉRION
®
, and PURE Control
®
. In addition, we have applications for other trademarks pending around the world, which may or may not be granted. We previously
allowed the marks Kinderguard
®
, Cruise Control
®
, Staphacide
®
, Nutripure
®
,
Elderguard
®
, and Critterguard
®
to go abandoned, as they were no longer in line with our food safety
business strategy.
Research
and Development
We
recognize the importance of innovation to our business strategy and long-term success. A key aspect of our business strategy is
to leverage our technology platform to develop additional proprietary products and applications, including end use products and
raw material formulations derived from our technology platform. We conduct our primary research and development activities in-house
and use third-party laboratories to conduct independent testing. We also engage development partners to perform research and development
activities at their own expense for specific products and processes using SDC. Amounts spent on research and development activities
during the fiscal years ended July 31, 2017 and 2016 were $779,000 and $927,000, respectively.
Sales
and Marketing
A
critical aspect of our business strategy is to leverage the industry experience of our internal sales force, the members of our
Board of Directors and our management team in order to maximize the commercial potential of our technology platform in the food
industry. During 2015 and 2016, we strengthened our internal sales and marketing capability by adding to our team experienced
food industry sales professionals.
According
to the CDC, FDA and other food industry sources, food contamination and food borne illnesses have been increasing. We believe
our focus on food safety is addressing a significant need to provide safe, non-toxic and effective solutions to mitigate the increase
of food contamination and food borne illnesses. We believe our products can be used effectively to prevent or mitigate the risk
of food contaminants in various stages of the food supply chain. Our current sales and marketing efforts include demonstrating
our SDC products’ effectiveness as a hard surface disinfectant and sanitizer for:
1.
|
Foodservice
operators and food transportation companies – such as food preparation and cooking surfaces; consumer eating and other
common areas; drink and ice dispensers; and trucks used to transport food.
|
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2.
|
Food
manufacturers and processors – such as food production and food processing.
|
Our
sales team is actively developing customer relationships with certain segments of foodservice operators, food processors, food
manufacturers and food transportation companies. Due to the recent introduction of our food safety products and the importance
of food safety to our customers, the sales cycle to secure a new customer is long and unpredictable. We have recently completed
and are currently conducting numerous product evaluation trials and comparative testing of our SDC-based products with prospective
customers, which we believe will result in future revenue. We believe our products provide superior pathogen and hygiene control
performance characteristics as compared with legacy chemical products, which also have higher toxicity profiles than our SDC-based
products.
In
addition to our direct sales and marketing efforts, we intend to selectively form partnerships with industry leaders for a variety
of uses and applications of our products and technology. These partnerships may be for both U.S. and international markets where
we believe we may leverage the product development, sales and marketing resources of business partners to commercialize our SDC
technology in their respective markets.
A
significant portion of our historical revenues were generated by an international chemical distributor who sold our SDC-based
formulations to other manufacturers for use as a raw material ingredient in the production of personal care products. Other historical
revenues were primarily to U.S. distributors who sold our SDC-based products into the consumer, industrial janitorial and sanitization
market.
Sales
Concentration
Net
product sales were $1,831,000 and $1,289,000 for the years ended July 31, 2017 and 2016, respectively. For the year ended July
31, 2017, two individual customers accounted for 33% and 19%, of our net product sales, respectively. No other individual customer
accounted for 10% or more of our net product sales. The geographic breakdown of net product sales for the year ended July 31,
2017 was as follows: 100% U.S. For the year ended July 31, 2016, one customer accounted for 37% of our net product sales. No other
individual customer accounted for 10% or more of our net product sales. The geographic breakdown of net product sales for the
year ended July 31, 2016 was as follows: 100% U.S.
From
time to time, one or a small number of our customers may represent a significant percentage of our revenue. Our three largest
customers accounted for 62% of our revenue for the fiscal year ended July 31, 2017. Although we have agreements with many
of our customers, these agreements typically do not prohibit customers from purchasing products and services from competitors.
A decision by any of our major customers to significantly reduce the amount of product ordered or license fees paid, or their
failure or inability to pay amounts owed to us in a timely manner, or at all, could have a significant adverse effect on our business.
Competition
The
markets for our SDC-based products and each of their potential applications are highly competitive. We have a number of competitors
that vary in size, scope and breadth of products offered. These competitors include some of the largest global corporations, and
most of our competitors have significantly greater financial resources than we do and offer multiple service and product offerings
as well as consulting services to their customers. We expect to face additional competition from other competitors and technologies
in the future.
Because
SDC is a new antimicrobial technology to the food industry, our success will depend, in part, upon our ability to achieve a share
of our target markets at the expense of established and future products. Even where SDC may have technological competitive advantages
over competing products, we, our partners or our distributors, will need to invest significant resources in order to attempt to
displace traditional technologies sold by, what are in many cases, well-known industry leaders.
Our
SDC-based products (especially at higher silver ion concentration levels) are typically more expensive to produce than existing
treatment chemicals, and as a result, customers may not purchase our products for cost reasons, even if we are successful in demonstrating
the superior efficacy our products. Further, customers may determine that the other benefits offered by our products (e.g., non-toxic,
non-caustic, and neutral to positive yield impact) are not sufficient to overcome the lower cost products offered by our competitors.
Manufacturing
In
December 2013, we entered into a five-year strategic collaboration agreement with St. Louis-based Intercon Chemical Company (ICC).
The agreement consists of a multi-prong approach to help us accelerate the commercialization of our unique and proprietary SDC-based
products. The strategic collaboration agreement provides:
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ICC
licenses from PURE its patents and technology know-how for the exclusive manufacture of our SDC-based products.
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ICC
will invest in plant improvements to allow for expanded SDC production.
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ICC’s
R&D team will collaborate on SDC product line development.
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ICC
licenses the distribution rights for SDC-based products into its core businesses of institutional cleaning and sanitation
products.
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ICC
will also develop a new initiative focused on US hospital, healthcare and medical facilities.
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PURE
earns royalty income on SDC-products sold by ICC and its affiliates.
|
The
agreement may be terminated by mutual written consent, or by either party upon the material breach of the terms of the agreement
by the other party.
Silver
is the primary active ingredient in SDC and is a readily available commodity. The other active and inactive ingredients in our
products are readily available from multiple sources.
Government
Regulation
Our
business is subject to various government regulations relating to the protection of public health and the environment. Among these
are laws that regulate the manufacture, storage, distribution and labeling of our products, as well as the use, handling, storage
and disposal of certain materials in the manufacturing of our products.
Regulation
in the United States
Certain
environmental and regulatory matters significant to us are discussed below.
Requirements
Imposed by the EPA and Similar State Agencies
We
manufacture and sell in the U.S. certain disinfecting products that kill or reduce microorganisms (bacteria, viruses, fungi).
The manufacture, labeling, handling and use of these products are regulated by the EPA under the Federal Insecticide, Fungicide,
and Rodenticide Act, or FIFRA. We currently sell three products registered by the EPA under FIFRA, certain of which are approved
for use on food contact surfaces and others of which are approved for use on non-food contact hard surfaces. EPA product registration
requires meeting certain efficacy, toxicity and labeling requirements and paying ongoing registration fees.
Although
states do not generally impose substantive requirements different from those of the EPA, each state in which our products are
sold requires registration and payment of a fee. California and certain other states have adopted additional regulatory programs
applicable to these types of products that, in some cases, impose a fee on total product sales in the state.
Based
on our experience and our knowledge of current trends, we expect the costs and delays in receiving necessary federal and state
approvals for these types of products may increase in the coming years.
Requirements
Imposed by the FDA and USDA
The
FDA’s Food Contact Notification (“FCN”) Program is intended to ensure the safety of Food Contact Substances
(FCS) used in food processing and packaging.
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The
FCN review period is 120 days from filing, after which, if there are no concerns from the FDA, the FCN automatically becomes
effective.
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An
FCN is considered to be proprietary as it applies only to the specific product and manufacturer or supplier identified in
the FCN.
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In
addition to the FDA’s FCN Program, the Company will be required to obtain USDA approval for the use of PURE Control on meat
or dairy products.
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Upon
the FDA’s granting of an FCN on a meat or dairy product, PURE will be required to submit the FCN to the Food Safety
and Inspection Service (FSIS) of the USDA for a new technology review.
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As
part of the FSIS review process, PURE may be required to conduct up to three in-plant process validation and optimization
trials with the authorization of the USDA.
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After
successful completion of the in-plant validation trials, the USDA will issue a “Letter of No Objection” and list
the Company’s SDC-based product as an OLR processing aid in Attachment 1 of FSIS Directive 7120.1, Safe and Suitable
Ingredients Used in the Production of Meat and Poultry Products.
|
Requirements
Imposed by Ingredient Legislation
Numerous
federal, state and local laws regulate the sale of products containing certain identified ingredients that may impact human health
and the environment. For instance, California has enacted Proposition 65, which requires the disclosure of specified listed ingredient
chemicals on the labels of products. Although none of the ingredients in our current products is reportable under Proposition
65, this and other similar legislation may become more comprehensive in the future and/or new products we may develop could be
subject to these regulations.
Requirements
Imposed by Other Environmental Laws
A
number of federal, state and local environmental, health and safety laws govern the use, handling, storage and disposal of certain
materials. Our current manufacturing process for SDC-based products is a “zero waste” process, meaning that no byproducts
are created, and we do not use hazardous materials, as defined by applicable environmental laws, in the manufacturing of these
products. As such, some of these U.S. environmental laws are not generally applicable to us in their current form. However, these
laws may in the future identify as hazardous materials certain materials that we use in our manufacturing processes, or we may
opt to or be forced to change our manufacturing procedures in a way that subjects our products or operations to these laws.
Requirements
Imposed by the FDA and USDA
Various
laws and regulations have been enacted by federal, state, local and foreign jurisdictions regulating certain products we anticipate
manufacturing and selling for controlling microbial growth in or on foods. In the United States, these requirements generally
are administered by the FDA. However, the U.S. Department of Agriculture and EPA also may share in regulatory jurisdiction of
antimicrobials applied directly to food as it pertains to poultry and meats.
Regulation
Outside the United States
The
commercialization of SDC-based products in countries other than the U.S. may require that we, or companies with whom we partner
for such foreign commercialization, obtain necessary approvals from foreign regulatory authorities comparable to the EPA and USDA,
among others. Applicable approval processes and ongoing requirements vary from country to country and may involve more time and
expense than that required to obtain approvals in the U.S. In international markets, we currently sell our products under active
registrations held by us, or by our distributors. We intend to continue to process registrations ourselves or through distributors
as required.
We currently hold a registration from Health
Canada for our disinfectant product. Other third-party distributors hold registrations in China and are actively pursuing
registrations for our disinfectant products in various Asian markets. Additionally, an opinion has been granted under the Scientific
Committee on Consumer Products to sell SDC in the European Union for use in cosmetics, which includes personal care products.
Employees
As of October 26, 2017, we employed 10
full-time employees and 3 part-time. We believe that we have been successful in attracting skilled and experienced
personnel, but competition for personnel is intense and there can be no assurance that we will be able to attract and retain qualified
personnel in the future. None of our employees are covered by collective bargaining agreements and we consider relations with
our employees to be good.
Company
Information
We
were incorporated in the state of California in August 1992 as Innovative Medical Services. In September 2003, we changed our
name to PURE Bioscience. In March 2011, we reincorporated in the state of Delaware under the name “PURE Bioscience, Inc.”
Our
corporate offices are located at 1725 Gillespie Way, El Cajon, California 92020. Our telephone number is (619) 596-8600. Our website
address is www.purebio.com. We make available free of charge on our website our periodic and current reports, proxy statements
and other information as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission,
or SEC. Information contained on, or accessible through, our website is not part of this prospectus or our other filings with
the SEC. Our SEC filings are also available to the public from the SEC’s website at www.sec.gov.
LEGAL
PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of our business.
The impact and outcome of litigation, if any, is subject to inherent uncertainties, and any adverse result in these or other matters
may arise from time to time that could harm our business. We are not currently aware of any such legal proceedings or claims to
which we are or our wholly owned subsidiary is a party or of which any of our property is subject that we believe will have, individually
or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All
references to “PURE,” “we”, “our,” “us” and the “Company” refer to
Pure Bioscience, Inc. and our wholly owned subsidiary.
The
discussion in this section contains forward-looking statements. These statements relate to future events or our future financial
performance. We have attempted to identify forward-looking statements by terminology such as “anticipate,” “believe,”
“can,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “plan,” “potential,” “predict,” “should,” “would”
or “will” or the negative of these terms or other comparable terminology, but their absence does not mean that a statement
is not forward-looking. These statements are only predictions and involve known and unknown risks, uncertainties and other factors,
which could cause our actual results to differ from those projected in any forward-looking statements we make. Several risks and
uncertainties we face are discussed in more detail under “Risk Factors” elsewhere in this prospectus or in the discussion
and analysis below. You should, however, understand that it is not possible to predict or identify all risks and uncertainties
and you should not consider the risks and uncertainties identified by us to be a complete set of all potential risks or uncertainties
that could materially affect us. You should not place undue reliance on the forward-looking statements we make herein because
some or all of them may turn out to be wrong. We undertake no obligation to update any of the forward-looking statements contained
herein to reflect future events and developments, except as required by law. The following discussion should be read in conjunction
with the consolidated financial statements and the notes to those statements included elsewhere in this prospectus.
Overview
We
are focused on developing and commercializing proprietary antimicrobial products that provide safe and cost-effective solutions
to the health and environmental challenges of pathogen and hygienic control. Our technology platform is based on patented stabilized
ionic silver, and our initial products contain silver dihydrogen citrate, or SDC. SDC is a broad-spectrum, non-toxic antimicrobial
agent, which offers 24-hour residual protection and formulates well with other compounds. As a platform technology, we believe
SDC is distinguished from existing products in the marketplace because of its superior efficacy, reduced toxicity, non-causticity,
and the inability of bacteria to form a resistance to it.
Our
SDC-based technology platform has potential application in a number of industries. Our near-term focus is on offering products
that address food safety risks across the food industry supply chain. In 2011, the Centers for Disease Control and Prevention
(CDC) reported that foodborne illnesses affect more than 48 million people annually in the U.S., causing 128,000 hospitalizations
and 3,000 fatalities. The CDC estimated that more than 9 million of these foodborne illnesses were attributed to major pathogens.
The CDC reported that contaminated produce was responsible for approximately 46% of the foodborne illnesses caused by pathogens
and 23% of the foodborne illness-related deaths in the US between 1998 and 2008. Among the top pathogens contributing to foodborne
illness in the U.S. are Norovirus,
Salmonella
,
Campylobacter
,
Staphylococcus
, Shiga toxin–producing
Escherichia coli
and
Listeria
.
Salmonella
is the leading cause of hospitalization, followed by Norovirus,
and is the leading cause of deaths related to foodborne illness.
Based
on these statistics, we believe there is a significant market opportunity for our safe, non-toxic and effective SDC-based solutions.
We currently offer PURE
®
Hard Surface as a food contact surface sanitizer and disinfectant to restaurant chains,
food processors, and food transportation companies. We also offer PURE Control
®
as a direct food contact processing
aid. We received the required FDA approvals to market PURE Control
®
as a direct food contact processing aid for
raw poultry and fresh produce in December 2015 and January 2016, respectively. Because additional USDA approval was not required,
we began marketing PURE Control as a direct food contact processing aid for fresh produce following our receipt of FDA approval
in January 2016.
In
July 2016, we received a “No Objection Letter” from the USDA’s Food Safety and Inspection Service (FSIS) granting
approval for SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line
reprocessing) and post chill processing of fresh poultry. In January 2017, we submitted an additional FCN to the FDA to allow
use of higher SDC concentrations in poultry processing, allowing the flexibility to adjust to varying plant and processing conditions.
In May 2017, we received a Final Letter from the FDA for this FCN as well as a “No Objection Letter” from the USDA’s
Food Safety and Inspection Service (FSIS) granting approval for the higher concentrations of SDC-based PURE Control to be used
as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of
fresh poultry. We are currently focused on completing in-plant validation trials for PURE Control in pre- and post OLR poultry
processing applications, which represents approximately 65 to 75% of the total processing aid market for poultry processing. We
are also conducting in-plant trials to optimize the application of PURE Control in OLR to attempt to gain USDA approval for use
in this stage of poultry processing.
Subject
to the results of our focused in-plant validation efforts for our approved produce and poultry solutions, we intend to seek approval
to utilize PURE Control as a direct food contact processing aid for raw meats, including beef and pork. In addition to our direct
sales efforts with PURE Hard Surface and PURE Control, we market and sell our SDC-based products indirectly through third-party
distributors.
Liquidity
& Going Concern Uncertainty
Our
consolidated financial statements have been prepared and presented on a basis assuming we will continue as a going concern. The
factors below raise substantial doubt about our ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary from the outcome of this uncertainty.
Since
our inception, we have financed our operations primarily through public and private offerings of securities, debt financing, and
revenue from product sales and license agreements. We have a history of recurring losses, and as of July 31, 2017, we have incurred
a cumulative net loss of $109,482,000.
We
do not have, and may never have, significant cash inflows from product sales or from other sources of revenue to fund our operations.
As of July 31, 2017, we had $1,640,000 in cash and cash equivalents, and $426,000 of accounts payable. As of July 31, 2017, we
have no long-term debt. In October 2017, we completed a tender offer to amend and exercise outstanding warrants held by the investors
participating in our 2014, 2015 and 2017 private placement financings, resulting in our receipt of approximately $2.8 million
in cash proceeds from the exercise of 4,756,163 outstanding warrants. We do not currently believe that our existing cash resources
are sufficient to meet our anticipated needs over the next twelve months from the date hereof.
Our
future capital requirements depend on numerous forward-looking factors. These factors may include, but are not limited to, the
following: the acceptance of, and demand for, our products; our success and the success of our partners in selling our products;
our success and the success of our partners in obtaining regulatory approvals to sell our products; the costs of further developing
our existing products and technologies; the extent to which we invest in new product and technology development; and the costs
associated with the continued operation, and any future growth, of our business. The outcome of these and other forward-looking
factors will substantially affect our liquidity and capital resources.
Until
we can generate significant cash from operations, we expect to continue to fund our operations with the proceeds of offerings
of our equity and debt securities. However, we cannot assure you that additional financing will be available when needed or that,
if available, financing will be obtained on terms favorable to us or to our stockholders. If we raise additional funds from the
issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds
by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific
financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter
into to raise funds may require us to relinquish our rights to our products or technology, and we cannot assure you that we will
be able to enter into any such contracts or license arrangements on acceptable terms, or at all. Having insufficient funds may
require us to delay or scale back our marketing, distribution and other commercialization activities or cease our operations altogether.
We
do not have any unused credit facilities or other sources of capital available to us at this time. We intend to secure additional
working capital through sales of additional debt or equity securities. Our intended financing initiatives are subject to risk,
and we cannot provide any assurance about the availability or terms of these or any future financings.
If
we are unable to obtain sufficient capital, it will have a material adverse effect on our business and operations. It could cause
us to fail to execute our business plan, fail to take advantage of future opportunities, or fail to respond to competitive pressures
or customer requirements. It also may require us to significantly modify our business model and operations to reduce spending
to a sustainable level, which may include delaying, scaling back or eliminating some or all of our ongoing and planned investments
in corporate infrastructure, research and development projects, regulatory submissions, business development initiatives, and
sales and marketing activities, among other investments. If adequate funds are not available when needed, we may be required to
reduce or cease operations altogether.
Financial
Overview
This
financial overview provides a general description of our revenue and expenses.
Net
Product Sales
We
manufacture and sell SDC-based products for end use, and as a raw material for manufacturing use. We also license our products
and technology to development and commercialization partners. Revenue is recognized when realized or realizable and earned. Any
amounts received prior to satisfying revenue recognition criteria are recorded as deferred revenue. See “Critical Accounting
Policies and Estimates –
Revenue Recognition
”.
Cost
of Goods Sold
Cost
of goods sold for product sales includes direct and indirect costs to manufacture products, including materials consumed, manufacturing
overhead, shipping costs, salaries, benefits, reserved inventory, and related expenses of operations. Depreciation related to
manufacturing is systematically allocated to inventory produced, and expensed through cost of goods sold at the time inventory
is sold.
Selling,
General and Administrative
Selling,
general and administrative expense consists primarily of salaries and other related costs for personnel in business development,
sales, finance, accounting, information technology, and executive functions. Other selling, general and administrative costs include
product marketing, advertising, and trade show costs, as well as public relations and investor relations, facility costs, and
legal, accounting and other professional fees.
Research
and Development
Our
research and development activities are focused on leveraging our technology platform to develop additional proprietary products
and applications. Research and development expense consists primarily of personnel and related costs, product registration expenses,
and third-party testing. We expense research and development costs as incurred.
Other
Income (Expense)
We
record interest income, interest expense, the change in derivative liabilities, as well as other non-operating transactions, as
other income (expense) in our consolidated statements of operations.
Results
of Operations – Comparison of the Years Ended July 31, 2017 and 2016
Fluctuations
in Operating Results
Our
results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the
future. We anticipate that our results of operations will be affected for the foreseeable future by several factors that may contribute
to these periodic fluctuations, including fluctuations in the buying patterns of our current or potential customers for which
we have no visibility, the mix of product sales including a change in the percentage of higher or lower margin formulations and
packaging configurations of our products and the cost of product sales including component costs, our inability for any reason
to be able to meet demand, the achievement and timing of research and development and regulatory milestones, unforeseen changes
in expenses, including non-cash expenses such as the fair value of equity awards granted and the fair value change of derivative
liabilities, the calculation of which includes several variable assumptions, and unforeseen manufacturing or supply issues, among
other issues. Due to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a reliable
indication of our future performance. As of the date of this filing, we are not aware of any trends in these factors or events
or conditions that we believe are reasonably likely to impact our results of operations in the future.
Net
Product Sales
Net
product sales were $1,831,000 and $1,289,000 for the years ended July 31, 2017 and 2016, respectively. The increase of $542,000
was primarily attributable to new customer sales in the food safety industry, as well as sales fluctuations within our existing
legacy customer base. Our top three customers accounted for $1,127,000 of net product sales for the year ended July 31, 2017.
For
the year ended July 31, 2017, two individual customers accounted for 33% and 19%, of our net product sales, respectively. No other
individual customer accounted for 10% or more of our net product sales. All of our net product sales occurred in the United States.
For
the year ended July 31, 2016, one legacy customer accounted for 37% of our net product sales. No other individual customer accounted
for 10% or more of our net product sales. All of our net product sales occurred in the United States.
Cost
of Goods Sold
During
the year ended July 31, 2017, we wrote-off $50,000 for slow moving finished goods inventory that was manufactured in prior years.
Cost
of goods sold was $760,000 and $441,000 for the years ended July 31, 2017 and 2016, respectively. Cost of goods sold, excluding
the inventory write-off discussed above, was $710,000 and $441,000 for the years ended July 31, 2017 and 2016, respectively. The
increase of $269,000 is primarily attributable to increased net product sales.
Gross
margin, as a percentage of net product sales, excluding the inventory write-off discussed above, was 61% and 66% for the years
ended July 31, 2017 and 2016, respectively. The decrease in gross margin percentage was primarily attributable to the sale of
higher margin formulations and packaging configurations of our products during the fiscal year ended July 31, 2016 as compared
with the current year.
Selling,
General and Administrative Expense
Selling,
general and administrative expense was $5,230,000 and $5,076,000 for the years ended July 31, 2017 and 2016, respectively. The
increase of $154,000 was primarily attributable to increased personnel and business development costs offset by decreased marketing
costs and legal fees.
Research
and Development Expense
Research
and development expense was $779,000 and $927,000 for the years ended July 31, 2017 and 2016, respectively. The decrease of $148,000
was primarily attributable to reduced spending on research supporting our FDA approvals.
Share-Based
Compensation
Share-based
compensation expense was $1,070,000 and $1,902,000 for the years ended July 31, 2017 and 2016, respectively. The decrease of $832,000
is primarily due to the vesting of restricted stock units granted to employees and directors supporting our selling, general and
administrative, and research and development functions during the prior fiscal year. (See Note 8).
Fair
Value of Derivative Liabilities in Excess of Proceeds
The
fair value of derivative liabilities in excess of proceeds was zero and $1,867,000 for the years ended July 31, 2017 and 2016,
respectively. During the year ended July 31, 2016, we raised $8 million in private placement financings. In connection with the
private placements, we issued warrants that contained derivative features. The expense recognized during the year ended July 31,
2016, is the result of the fair value of the warrant liabilities recorded in connection with the private placements in excess
of the proceeds received (See Notes 6 and 7).
Change
in Derivative Liability
Change in derivative liability for the years
ended July 31, 2017 and 2016 was an increase of $277,000 and $5,481,000, respectively. The overall increase in the derivative
liability is due to updates to the assumptions used in the fair value pricing model for warrants at the end of the reporting period
(See Notes 5 and 6).
Interest
Expense, net
Interest
expense for the years ended July 31, 2017 and 2016 was $5,000 and $10,000, respectively.
Other
(Expense) Income, net
Other
income for the years ended July 31, 2017 and 2016 was $27,000 and $44,000, respectively.
Liquidity
and Capital Resources
Since our inception, we have financed our
operations primarily through public and private offerings of securities, debt financing, and revenue from product sales and license
agreements. We have a history of recurring losses, and as of July 31, 2017 we have incurred a cumulative net loss of $109,482,000.
During
the year ended July 31, 2017, we completed a private placement offering pursuant to which we sold 1,572,941 shares of our common
stock and warrants to purchase 1,572,941 shares of our common stock. The shares were sold at a per share purchase price of $0.85
per share, resulting in $1,337,000 in aggregate gross proceeds. After deducting fees of approximately $288,000, the net proceeds
to us were $1,049,000. In addition, we received $185,000 from the exercise of warrants to purchase 346,295 shares of common stock.
As of July 31, 2017, we had $1,640,000 in
cash and cash equivalents compared with $5,194,000 in cash and cash equivalents as of July 31, 2016. The net decrease in cash
and cash equivalents was primarily attributable to the use of cash to fund our operations. Additionally, as of July 31,
2017, we had $2,528,000 of current liabilities, including $426,000 in accounts payable, compared with $2,536,000 of current liabilities,
including $479,000 in accounts payable as of July 31, 2016. The net decrease in current liabilities was primarily due to the timing
of accounts payable.
Warrant
Tender Offer
On
October 10, 2017, we closed a tender offer to amend and exercise outstanding warrants to purchase shares of our Common Stock.
Specially, we offered to (i) reduce the exercise price of the warrants to purchase 4,104,980 shares of Common Stock issued to
investors participating in our private placement financing completed on August 29, 2014, as amended (the “2014 Warrants”)
from $0.75 per share to $0.60 per share of Common Stock in cash, (ii) reduce the exercise price of outstanding warrants to purchase
1,986,101 shares of Common Stock issued to investors participating in our private placement financing completed on November 23,
2015 (the “2015 Warrants”) from $0.45 per share to $0.40 per share of Common Stock in cash, (iii) reduce the exercise
price of the outstanding warrants to purchase 1,572,941 shares of Common Stock issued to investors participating in our private
placement financing completed on January 23, 2017 (the “2017 Warrants”, together with the 2014 Warrants and 2015 Warrants,
the “Original Warrants”) from $1.25 per share to $0.85 per share of Common Stock in cash, (iv) shorten the exercise
period of the Original Warrants so that they expired concurrently with the expiration of the Offer to Amend and Exercise, (v)
delete the cashless exercise provisions in the Original Warrants and (vi) delete the price-based anti-dilution provisions contained
in the 2015 Warrants.
Additionally,
we requested the holders of a majority of the shares issuable upon exercise of the 2014 Warrants (the “2014 Requisite Majority”),
2015 Warrants (the “2015 Requisite Majority”) and 2017 Warrants (the “2017 Requisite Majority”) to approve
an amendment of all of the outstanding 2014 Warrants, 2015 Warrants and 2017 Warrants, respectively, to amend such Original Warrants
in the same manner as set forth above. The 2015 Requisite Majority approved an amendment to all 2015 Warrants and, as a result,
any 2015 Warrants expired on October 10, 2017 if not exercised by such date.
Original
Warrants to purchase an aggregate of 4,756,163 shares of Common Stock were tendered and exercised in the tender offer for aggregate
gross proceeds to us of approximately $2.83 million.
Additionally, we previously recorded a
warrant liability on our financial statements with respect to the 2015 Warrants due to certain anti-dilution provisions contained
in such warrants. Upon the exercise or expiration of the 2015 Warrants, the warrant liability existing on the Company’s
consolidated financial statements has been terminated.
The
following table summarizes our contractual obligations as of July 31, 2017.
|
|
Payments
due by period
|
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
|
|
|
More
than
|
|
|
|
|
Total
|
|
|
|
1
year
|
|
|
|
1-3
years
|
|
|
|
3-5
years
|
|
|
|
5
years
|
|
Operating
lease obligations
|
|
$
|
245,000
|
|
|
$
|
94,000
|
|
|
$
|
151,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
245,000
|
|
|
$
|
94,000
|
|
|
$
|
151,000
|
|
|
|
—
|
|
|
|
—
|
|
In
addition, from time to time we have entered into employment agreements with our executives that, under certain cases, provide
for the continuation of salary and certain other benefits if these executives are terminated under specified circumstances. These
agreements generally expire upon termination for cause or when we have met our obligations under these agreements. As of July
31, 2017, no events have occurred resulting in the obligation of any such payments.
We
do not have, and may never have, significant cash inflows from product sales or from other sources of revenue to fund our operations.
Our existing cash resources are not sufficient to meet our anticipated needs over the next twelve months from the date hereof.
The uncertainties surrounding our ability to continue to fund our operations raise substantial doubt about our ability to continue
as a going concern.
Our
future capital requirements depend on numerous forward-looking factors. These factors may include, but are not limited to, the
following: the acceptance of, and demand for, our products; our success and the success of our partners in selling our products;
our success and the success of our partners in obtaining regulatory approvals to sell our products; the costs of further developing
our existing products and technologies; the extent to which we invest in new product and technology development; and the costs
associated with the continued operation, and any future growth, of our business. The outcome of these and other forward-looking
factors will substantially affect our liquidity and capital resources.
Until
we can generate significant cash from operations, we expect to continue to fund our operations with the proceeds of offerings
of our equity and debt securities. However, we cannot assure you that additional financing will be available when needed or that,
if available, financing will be obtained on terms favorable to us or to our stockholders. If we raise additional funds from the
issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds
by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific
financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter
into to raise funds may require us to relinquish our rights to our products or technology, and we cannot assure you that we will
be able to enter into any such contracts or license arrangements on acceptable terms, or at all. Having insufficient funds may
require us to delay or scale back our marketing, distribution and other commercialization activities or cease our operations altogether.
We
do not have any unused credit facilities or other sources of capital available to us at this time. We intend to secure additional
working capital through sales of additional debt or equity securities, including through private placements of our securities.
Our intended financing initiatives are subject to risk, and we cannot provide any assurance about the availability or terms of
these or any future financings.
If
we are unable to obtain sufficient capital, it will have a material adverse effect on our business and operations. It could cause
us to fail to execute our business plan, fail to take advantage of future opportunities, or fail to respond to competitive pressures
or customer requirements. It also may require us to significantly modify our business model and operations to reduce spending
to a sustainable level, which may include delaying, scaling back or eliminating some or all of our ongoing and planned investments
in corporate infrastructure, research and development projects, regulatory submissions, business development initiatives, and
sales and marketing activities, among other investments. If adequate funds are not available when needed, we may be required to
reduce or cease operations altogether.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation
of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses, and related disclosures. We evaluate our estimates on an ongoing basis. We base our estimates on historical
experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
We
believe the following accounting policies and estimates are critical to aid you in understanding and evaluating our reported financial
results.
Revenue
Recognition
We
sell our products to distributors and end users. We record net sales when we sell products to our customers, rather than when
our customers resell products to third parties. When we sell products to our customers, we reduce the balance of our inventory
with a corresponding charge to cost of goods sold. We do not currently have any consignment sales.
Terms
of our product sales are generally FOB shipping point. Net sales are recognized when delivery of the products has occurred (which
is generally at the time of shipment), title has passed to the customer, the selling price is fixed or determinable, collectability
is reasonably assured and we have no further obligations. Any amounts received prior to satisfying these revenue recognition criteria
are recorded as deferred revenue. We record net sales net of discounts at the time of sale and report net sales net of such discounts.
We
also license our products and technology to development and commercialization partners. License fee revenue consists of product
and technology license fees earned. If multiple-element arrangements require on-going services or performance, then upfront product
and technology license fees under such arrangements are deferred and recognized over the period of such services or performance.
Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any amounts received
prior to satisfying these revenue recognition criteria are recorded as deferred revenue.
Share-Based
Compensation
We
grant equity-based awards under share-based compensation plans. We estimate the fair value of share-based payment awards using
the Black-Scholes option valuation model. This fair value is then amortized over the requisite service periods of the awards.
The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying
stock, risk-free interest rate, dividend yield, and expected life of the option. Share-based compensation expense is based on
awards ultimately expected to vest, and therefore is reduced by expected forfeitures. Changes in assumptions used under the Black-Scholes
option valuation model could materially affect our net loss and net loss per share.
Impairment
of Long-Lived Assets
In
accordance with GAAP, if indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining
whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is
indicated, we measure the amount of such impairment by comparing the carrying value of the asset to the fair value of the asset
and we record the impairment as a reduction in the carrying value of the related asset and a charge to operating results. Estimating
the undiscounted future cash flows associated with long-lived assets requires judgment, and assumptions could differ materially
from actual results. During the fiscal year ended July 31, 2016 we incurred $48,000 of expense related to the abandonment of a
pending patent not associated with our core business. There were no patent impairments during the fiscal year ended July 31, 2017.
For
purposes of testing impairment, we group our long-lived assets at the lowest level for which there are identifiable cash flows
independent of other asset groups. Currently, there is only one level of aggregation for our intangible assets. We assess the
impairment of long-lived assets, consisting of property, plant, equipment and finite-lived intangible assets primarily consisting
of the worldwide patent portfolio of our silver ion technologies, annually, or whenever events or circumstances indicate that
the carrying value may not be recoverable. Examples of such events or circumstances include:
|
●
|
an
asset group’s inability to continue to generate income from operations and positive cash flow in future periods;
|
|
|
|
|
●
|
loss
of legal ownership or title to an asset;
|
|
|
|
|
●
|
significant
changes in our strategic business objectives and utilization of the asset(s); and
|
|
|
|
|
●
|
the
impact of significant negative industry or economic trends.
|
Additionally,
on a quarterly basis we review the significant assumptions underlying our impairment assessment to determine that our previous
conclusions remain valid. As part of our review, we consider changes in revenue growth rates, operating margins, working capital
needs and other expenditures. With the exception of the impairment discussed above we have not identified any asset groups where
undiscounted cash flows were not substantially in excess of carrying value.
Recoverability
of assets to be held and used in operations is measured by a comparison of the carrying amount of an asset to the future net cash
flows expected to be generated by the assets. The factors used to evaluate the future net cash flows, while reasonable, require
a high degree of judgment and the results could vary if the actual results are materially different than the forecasts. In addition,
we base useful lives and amortization or depreciation expense on our subjective estimate of the period that the assets will generate
revenue or otherwise be used by us. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less selling costs.
We
also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised
estimated periods from which we expect to realize cash flows from the technologies. If a change were to occur in any of the above-mentioned
factors or estimates, the likelihood of a material change in our reported results would increase.
Derivative
Financial Instruments
We
do not use derivative instruments to hedge exposures to cash flow or market or foreign currency risks.
We
review the terms of the common stock, warrants and convertible debt we issue to determine whether there are derivative instruments,
including embedded conversion options that are required to be bifurcated and accounted for separately as derivative financial
instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including a conversion
option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative
instrument.
Derivatives
are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating
income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated
and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative
instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those
instruments being recorded at a discount from their face value.
Various
factors are considered in the pricing models we use to value the warrants, including the Company’s current stock price,
the remaining life of the warrants, the volatility of the Company’s stock price, and the risk free interest rate. Future
changes in these factors will have a significant impact on the computed fair value of the warrant liability. As such, we expect
future changes in the fair value of the warrants to vary significantly from quarter to quarter.
Recent
Accounting Pronouncements
Information
regarding recent accounting pronouncements is contained in Note 2 to the Consolidated Financial Statements, included elsewhere
in this prospectus.
Off
Balance Sheet Arrangements
We
do not have any off balance sheet arrangements.
MANAGEMENT
Information
Regarding Our Board of Directors
Pursuant
to our bylaws, the number of directors is fixed and may be increased or decreased from time to time by resolution of our Board
of Directors, or the Board. The Board has fixed the number of directors at six members.
Information
with respect to our directors as of October 26, 2017 is shown below.
Name
|
|
Age
|
|
Director
Since
|
|
Position(s)
Held
|
Dave
J. Pfanzelter
|
|
64
|
|
2013
|
|
Chairman
|
Henry
R. Lambert
|
|
66
|
|
2013
|
|
Director,
Chief Executive Officer
|
Gary
D. Cohee
|
|
71
|
|
2013
|
|
Director
|
William
Otis
|
|
61
|
|
2013
|
|
Director
|
Tom
Y. Lee, CPA
|
|
68
|
|
2014
|
|
Director
|
Janet
Risi Field
|
|
57
|
|
2017
|
|
Director
|
Dave
J. Pfanzelter
was appointed as our Chairman on August 13, 2013. He previously served as a director of the Company from February
2013 to July 2013. Mr. Pfanzelter served as senior vice president of Kellogg Company, president of Kellogg’s Specialty Channels
and president of Kellogg Canada from May 2004 to May 2010, while also serving as part of the Kellogg Executive Committee and Global
Leadership Team. Mr. Pfanzelter began his career in the food service industry in 1975 with Oscar Mayer Foods Corporation, serving
in several key sales and marketing positions, including director of marketing and national sales manager. In 1995 he was appointed
vice president of sales of Kraft Foodservice, representing the combined manufactured brands of Oscar Mayer, General Foods, and
Kraft Foods. In 1998 Mr. Pfanzelter joined Keebler, serving as vice president and general manager of the food service division
prior to Keebler’s acquisition by Kellogg in 2001. Since 1998, Mr. Pfanzelter has been on the board of directors of Doctor’s
Associates, the parent company of Subway Restaurants, the nation’s largest restaurant chain. In February 2012, Mr. Pfanzelter
joined the Advisory Board of Wrigley Foods. He also served on the Board of the International Food Service Manufacturer’s
Association as chairman and member of its executive committee.
Henry
R. Lambert
was appointed to our Board and appointed as our Chief Executive Officer on September 10, 2013. Mr. Lambert is an
accomplished food industry and consumer products executive with broad management skills, including strategic planning and business
development, go-to-market execution, business integration and food safety. He has over 35 years of food industry experience, having
worked at such notable companies as Heublein Inc., RJ Reynolds, Nabisco, Inc. and, Pinnacle Foods. He has held various business
unit leadership positions servicing the foodservice and leading consumer food brands markets. Mr. Lambert has also served on boards
and as a member of various food industry associations, including the International Foodservice Manufacturers Association (IFMA),
Institute of Food Technologists and Safe Supply of Affordable Food Everywhere (SSAFE). From 2010 through June 2013, Mr. Lambert
served as General Manager of the Global Food and Water Business of Underwriter Laboratories, where he was responsible for the
start-up of the company’s food safety services business. From 2007 to 2010, Mr. Lambert served as Senior Vice President
of Business Development, and then President, of Arrowstream Transportation, Inc., a provider of innovative supply chain management
solutions to the foodservice industry whose key customers included Wendy’s, Applebee’s, Arby’s, TGIF, Sysco,
and DMA. Prior to 2007, Mr. Lambert held executive positions with a number of high profile companies in the foodservice industry.
Mr. Lambert earned his MBA in Finance from the University of Chicago, Booth School of Business, and his BA in Economics (with
Honors) from Union College, Schenectady, N.Y.
Gary
D. Cohee
was appointed to our Board on August 13, 2013. He has over 40 years of experience as an investment banker, having
started his career in 1973 with Blyth, Eastman Dillon & Co. Since 2004, Mr. Cohee has served as President and CEO of PMB Securities
Corp. From 2011 until 2012, Mr. Cohee served on the Advisory Board of Force Fuels, Inc. During his career in the investment banking
business, Mr. Cohee worked for a number of prestigious firms, including Bateman Eichler and Paulson Investment Company. Mr. Cohee
graduated from California State University-Long Beach in 1968 with a BS degree in Business Administration. He previously served
as President of the Long Beach Bond Club, the Southern California Options Society and the Long Beach Century Club.
William
Otis
was appointed to our Board on October 8, 2013. Mr. Otis is currently the Executive Vice President of U.S. packaged meat
operations for Smithfield Foods. Prior to this role, he was the President and Chief Operating Officer of Patrick Cudahy, LLC and
Saratoga Food Specialties. Both companies are food manufacturing companies of John Morrell Food Group and Smithfield Foods. Mr.
Otis began his career in 1980 with Oscar Mayer Foods Corporation serving in several operations, finance and marketing positions.
In 1995, Mr. Otis joined Patrick Cudahy, serving as Vice President of Sales and Marketing and in 2004 was promoted to President
and COO. Mr. Otis also took over the President and COO role at Saratoga Food Specialties in 2012. Mr. Otis earned his Master’s
Degree in Business Management from the University of Wisconsin-Madison.
Tom
Y. Lee, CPA
was appointed to our Board on October 24, 2014. Mr. Lee is currently the Chairman and CEO of Swabplus, Inc., a
contract manufacturer of single-dose applicator and formulation OEM products, and has served as Chairman and CEO since 2008. Mr.
Lee has experience in manufacturing and selling applicator and formulation OEM products, manufacturing and distributing products
in Asia and is experienced in accounting matters. Mr. Lee was formerly audit committee chairman at First Continental Bank (which
merged with United Commercial Bank in 2003). Mr. Lee has been an active CPA since 1983 and earned his Master of Science in accounting
from California State University Long Beach and his Bachelors in Business Administration from TamKang University in Taipei, Taiwan.
Janet
Risi Field
was appointed to our Board on July 26, 2017. Ms. Risi currently serves as President and Chief Executive Officer
of Independent Purchasing Cooperative (“IPC”), a supply chain management organization, which she founded in 1996.
IPC supplies all goods and services to the international fast food company, SUBWAY®. Risi formed IPC when SUBWAY had 7,000
restaurants, and has served on the SUBWAY Strategic Planning Council to help grow the brand to over 40,000+ units worldwide. IPC
now manages in excess of $5 billion annually, covering food, packaging, equipment supplies, distribution, Gift and Loyalty card
sales and marketing management, and services such as technology implementation. Prior to founding IPC, Ms. Risi was a commodities
buyer for Ralston Purina. Ms. Risi also serves on the board of directors for Coral Gables Trust Bank and The Florida House. Ms.
Risi received a B.A in English and a minor in Business from DePauw University.
Information
Regarding Our Executive Officers
Information
with respect to our executive officers as of October 26, 2017 is shown below. Since Henry R. Lambert and David J. Pfanzelter also
serve on the Board, their respective biographies are set forth under “Information Regarding the Board of Directors”
above.
Name
|
|
Age
|
|
Position(s)
Held
|
|
Position(s)
Held Since
|
Henry
R. Lambert
|
|
66
|
|
Chief
Executive Officer
|
|
2013
|
Dave
J. Pfanzelter
|
|
64
|
|
Chairman
of the Board
|
|
2013
|
Mark
Elliott
|
|
42
|
|
Vice
President, Finance
|
|
2015
|
Mark
Elliott
was appointed as our Vice President Finance and Principal Financial and Accounting Officer on July 31, 2015. Mr. Elliott
joined the Company in 2004 and has been responsible for managing all accounting and regulatory reporting activities since he was
promoted to Controller in May 2006. He has also been responsible for establishing all current financial and reporting systems.
Prior to joining the Company, Mr. Elliott worked in government accounting. He earned a Bachelor of Science, Business Administration-Accountancy
at California State University-San Marcos.
Family
Relationships
There
is no family relationship between any current director or executive officer, or any director or executive officer during the fiscal
year ended July 31, 2017.
GOVERNANCE
OF OUR COMPANY
Overview
We
are committed to maintaining high standards of business conduct and corporate governance, which we believe are fundamental to
the overall success of our business, serving our stockholders well and maintaining our integrity in the marketplace. Our Corporate
Governance Guidelines and Code of Business Conduct and Ethics, together with our Certificate of Incorporation, Bylaws and the
charters of our Board Committees, form the basis for our corporate governance framework. As discussed below, our Board of Directors
has established two standing committees to assist it in fulfilling its responsibilities to the Company and its stockholders: the
Audit Committee and the Compensation Committee. The Board of Directors performs the functions typically assigned to a Nominating
and Corporate Governance Committee.
Corporate
Governance Guidelines
Our
Corporate Governance Guidelines are designed to ensure effective corporate governance of our Company. Our Corporate Governance
Guidelines cover topics including, but not limited to, director qualification criteria, director responsibilities, director compensation,
director orientation and continuing education, communications from stockholders to the Board, succession planning and the annual
evaluations of the Board and its Committees. Our Corporate Governance Guidelines are reviewed regularly by the Board and revised
when appropriate. The full text of our Corporate Governance Guidelines can be found in the “Corporate Governance”
section of our website accessible at
www.purebio.com
. A printed copy may also be obtained by any stockholder upon request
to our Corporate Secretary.
Code
of Business Conduct and Ethics
We
have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. This Code constitutes
a “code of ethics” as defined by the rules of the SEC. This Code also contains “whistle blower” procedures
adopted by our Audit Committee regarding the receipt, retention and treatment of complaints related to accounting, internal accounting
controls or auditing matters and procedures for confidential anonymous employee complaints related to questionable accounting
or auditing matters. Copies of the code may be obtained free of charge from our website,
www.purebio.com
. Any amendments
to, or waivers from, a provision of our code of ethics that applies to any of our executive officers will be posted on our website
in accordance with the rules of the SEC. Other than as specifically referenced herein, the information contained on, or that can
be accessed through, our website is not a part of this prospectus.
Director
Independence
We
are not currently listed on any national securities exchange or in an inter-dealer quotation system that has established a standard
for independence. However, in evaluating the independence of our members and the composition of the committees of our Board of
Directors, our Board utilizes the definition of “independence” as that term is defined by applicable listing standards
of the NYSE MKT. As of the date hereof, our Board consists of six members, three of whom are considered independent as that term
is defined by applicable listing standards of the NYSE MKT. Our independent directors include: Messrs. Otis and Lee and Ms. Risi.
Dr. Theno, who passed away in June 2017, was considered independent while he served on the Board.
Board
and Committee Attendance
During
the fiscal year ended July 31, 2017, the Board of Directors met nine times and it took action by unanimous written consent four
times. During the fiscal year ended July 31, 2017 our Compensation Committee met three times and our Audit Committee met four
times. Each of the directors attended 100% of the meetings of the Board of Directors.
Director
Attendance at Annual Meeting
We
believe the annual meeting of stockholders provides a good opportunity for our directors to hear any feedback the stockholders
may share with the Company at the meeting. As a result, we encourage our directors to attend our annual meeting. We reimburse
our directors for the reasonable expenses incurred by them in attending the annual meeting.
Executive
Sessions
Executive
sessions of our independent directors are held at each regularly scheduled meeting of our Board and at other times as necessary
and are chaired by the Chairman of the Board. The Board’s policy is to hold executive sessions without the presence of management,
including our President and Chief Executive Officer, who is the only non-independent director on the Board. Our Board Committees
also generally meet in executive session at the end of each committee meeting.
Board
Committees
Compensation
Committee
. The Compensation Committee of the Board of Directors currently consists of Mr. Otis (Chair) and Ms. Risi. Ms. Risi
was appointed to the Board and Compensation Committee on July 26, 2017 to replace Dr. David Theno who passed away in June 2017.
The functions of the Compensation Committee include the approval of the compensation offered to our executive officers and recommending
to the full Board of Directors the compensation to be offered to our directors, including our Chairman. The Board has determined
that Mr. Otis and Ms. Risi are each an “independent director” under the listing standards of the NYSE MKT and had
previously determined that Dr. Theno was also an “independent director” under the listing standards of the NYSE MKT.
In addition, the members of the Compensation Committee (and Dr. Theno while he served on the Board and the Compensation Committee)
qualify as a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act and as an “outside director”
for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee is governed by a written
charter approved by the Board of Directors, a copy of which is available on our website at
www.purebio.com
.
Audit
Committee
. The Audit Committee of the Board of Directors, currently consists of Messrs. Cohee (Chair), Lee and Otis. The functions
of the Audit Committee include the retention of our independent registered public accounting firm, reviewing and approving the
planned scope, proposed fee arrangements and results of the Company’s annual audit, reviewing the adequacy of the Company’s
accounting and financial controls and reviewing the independence of the Company’s independent registered public accounting
firm. The Board has determined that each of Messrs. Otis and Lee is an “independent director” under the listing standards
of the NYSE MKT. Mr. Cohee is not independent because the Company has retained Mr. Cohee to provide financial advisory services
to the Company. See “Certain Relationships and Related Transactions” for additional information regarding the Company’s
retention of Mr. Cohee. The Board determined that it was in the Company’s and its stockholders best interests for Mr. Cohee
to continue to serve on the audit committee, based on his accounting and financial expertise, until the Board adds additional
independent directors. The Board of Directors has also determined that Messrs. Cohee, Lee and Otis are each an “audit committee
financial expert” within the applicable definition of the SEC. The Audit Committee is governed by a written charter approved
by the Board of Directors, a copy of which is available on our website at
www.purebio.com
.
Nominating
Committee
. The Board has not established a Nominating Committee, and as a result performs the functions typically assigned
to a Nominating Committee, including the identification, recruitment and nomination of candidates for the Board and its committees,
determining the structure, composition and functioning of the Board and its committees including the reporting channels through
which the Board receives information and the quality and timeliness of the information, developing and recommending to the Board
corporate governance guidelines applicable to the Company and annually reviewing and recommending changes, as necessary or appropriate,
overseeing the annual evaluation of the Board’s effectiveness and performance.
Board
and Committee Effectiveness
The
Board and each of its Committees performs an annual self-assessment to evaluate their effectiveness in fulfilling their obligations.
The Board and Committee evaluations cover a wide range of topics, including, among others, the fulfillment of the Board and Committee
responsibilities identified in the Corporate Governance Guidelines and charters for each Committee.
Board
Leadership Structure
Our
Bylaws provide our Board with flexibility to combine or separate the positions of Chairman of the Board and Chief Executive Officer
in accordance with its determination that utilizing one or the other structure would be in the best interests of our company.
At the current time, Mr. Pfanzelter serves as our Chairman of the Board, and Mr. Lambert serves as our Chief Executive Officer.
Our Board believes our leadership structure enhances the accountability of our Chief Executive Officer to the Board and encourages
balanced decision making. In addition, the Board believes that this structure provides an environment in which its independent
directors are fully informed, have significant input into the content of Board meetings and are able to provide objective and
thoughtful oversight of management. Our Board also separated the roles in recognition of the differences in responsibilities.
While our Chief Executive Officer is responsible for the day-to-day leadership of the Company and its business operations, the
Chairman of the Board provides guidance to the Board, sets the agenda for Board meetings and presides over the meetings of the
full Board and the meetings of the Board’s non-management directors. The Board Chairman also provides performance feedback
on behalf of the Board to our Chief Executive Officer. The Board intends to carefully evaluate from time to time whether our Chief
Executive Officer and Chairman positions should remain separate based on what the Board believes is best for the Company and its
stockholders.
Board
Oversight of Risk
The
Board is actively involved in the oversight of risks that could affect the Company. The Board as a whole has responsibility for
risk oversight of the Company’s risk management policies and procedures, with reviews of certain areas being conducted by
the relevant Board committee. The Board satisfies this responsibility through reports by each Committee Chair regarding the Committee’s
considerations and actions, as well as through regular reports directly from management responsible for oversight of particular
risks within the Company. Specifically, the Board committees address the following risk areas:
|
●
|
The
Compensation Committee is responsible for overseeing the management of risks related to the Company’s executive compensation
plans and arrangements.
|
|
|
|
|
●
|
The
Audit Committee discusses with management the Company’s major financial risk exposures and the steps management has
taken to monitor and control such exposures.
|
The
Board as a whole considers risks related to regulatory and compliance matters as well as risks related to the Company’s
sales and marketing and research and development initiatives.
The
Board encourages management to promote a corporate culture that incorporates risk management into the Company’s day-to-day
business operations.
Stockholder
Recommendations for Director Nominees
In
nominating candidates for election as a director, the Board will consider a reasonable number of candidates recommended by a single
stockholder who has held over 20% of PURE Bioscience Common Stock for over one year and who satisfies the notice, information
and consent provisions set forth in our Bylaws and Corporate Governance Guidelines. Stockholders who wish to recommend a candidate
may do so by writing to the Board of Directors in care of the Corporate Secretary, PURE Bioscience, Inc., 1725 Gillespie Way,
El Cajon, California 92020. The Board of Directors will use the same evaluation process for director nominees recommended by stockholders
as it uses for other director nominees. A printed copy of our Bylaws may be obtained by any stockholder upon request to our Corporate
Secretary.
Identification
and Evaluation of Director Nominees
In
evaluating nominees for membership on our Board, our Board applies the Board membership criteria set forth in our Corporate Governance
Guidelines. Under these criteria, the Board takes into account many factors, including an individual’s business experience
and skills (including skills in core areas such as operations, management, technology, accounting and finance, strategic planning
and international markets), as well as independence, judgment, knowledge of our business and industry, professional reputation,
leadership, integrity and ability to represent the best interests of the Company’s stockholders. In addition, the Board
also considers the ability to commit sufficient time and attention to the activities of the Board, as well as the absence of any
potential conflicts with the Company’s interests. The Board does not assign specific weights to particular criteria and
no particular criterion is necessarily applicable to all prospective nominees. The Board does not have a formal policy with respect
to diversity of nominees. Rather, our Board considers Board membership criteria as a whole and seeks to achieve diversity of occupational
and personal backgrounds on the Board.
Our
Board regularly assesses the appropriate size of our Board, and whether any vacancies on our Board are expected due to retirement
or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Board will consider various potential candidates
who may come to the attention of the Board through current Board members, professional search firms, stockholders or other persons.
Each candidate brought to the attention of the Board, regardless of who recommended such candidate, is considered on the basis
of the criteria set forth in our corporate governance guidelines. As stated above, our Board will consider candidates proposed
for nomination by our significant stockholders. Stockholders may propose candidates by submitting the names and supporting information
to: Corporate Secretary, PURE Bioscience, Inc., 1725 Gillespie Way, El Cajon, California 92020. Supporting information should
include (a) the name and address of the candidate and the proposing stockholder, (b) a comprehensive biography of the candidate
and an explanation of why the candidate is qualified to serve as a director taking into account the criteria identified in our
corporate governance guidelines, (c) proof of ownership, the class and number of shares, and the length of time that the shares
of our voting securities have been beneficially owned by each of the candidate and the proposing stockholder, and (d) a letter
signed by the candidate stating his or her willingness to serve, if elected.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth a summary of cash and non-cash compensation awarded, earned or paid for services rendered to us during
the fiscal years ended July 31, 2016 and July 31, 2015 by our named executive officers, consisting of (i) each individual serving
as principal executive officer during the fiscal year ended July 31, 2016 and (ii) our other two most highly compensated officers
serving during the fiscal year ended July 31, 2016.
Name
and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
($)(1)
|
|
Bonus
|
|
Option
Awards($)(2)
|
|
Stock
Awards ($)(3)
|
|
All
Other
Compensation
($)(4)
|
|
Total
Compensation ($)
|
Henry
R. Lambert
|
|
|
2016
|
|
|
$
|
350,000
|
|
|
|
—
|
|
|
$
|
94,000
|
|
|
$
|
144,000
|
|
|
$
|
54,000
|
|
|
$
|
642,000
|
|
Chief
Executive Officer
|
|
|
2015
|
|
|
$
|
350,000
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
189,000
|
|
|
$
|
45,000
|
|
|
$
|
584,000
|
|
Mark
S. Elliott(5)
|
|
|
2016
|
|
|
$
|
165,000
|
|
|
|
—
|
|
|
$
|
51,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
216,000
|
|
Vice
President Finance
|
|
|
2015
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Dave
J. Pfanzelter (6)
|
|
|
2016
|
|
|
$
|
150,000
|
|
|
|
—
|
|
|
$
|
94,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
244,000
|
|
Chairman
of the Board
|
|
|
2015
|
|
|
$
|
150,000
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150,000
|
|
(1)
|
Amounts
reflect salary earned during the respective fiscal years.
|
|
|
(2)
|
Amounts
for the year ended July 31, 2016 reflect the grant date fair value for financial statement reporting purposes with respect
to stock options granted during the fiscal year, calculated in accordance with authoritative guidance.
|
|
|
(3)
|
Reflect
the grant date fair value for financial statement reporting purposes with respect to stock awards granted during the respective
fiscal years, calculated in accordance with authoritative guidance.
|
|
|
(4)
|
Represents
amounts reimbursed to Mr. Lambert for housing expenses in San Diego, where the Company is headquartered. Mr. Lambert maintains
a permanent residence in Lake Forest, Illinois and he rents a corporate apartment in San Diego. The Company reimburses Mr.
Lambert on a monthly basis for the housing expense.
|
|
|
(5)
|
Mr.
Elliott was appointed as our Vice President Finance and Principal Financial and Accounting Officer on July 31, 2015.
|
|
|
(6)
|
Due
to his service as Chairman of the Board, the Company considers Mr. Pfanzelter an executive officer.
|
Narrative
to Summary Compensation Table
The
compensation program established for the Company’s executive officers consisted of the following elements:
Base
Salary
: The base salaries of our named executive officers depend on their job responsibilities and performance, the market
rate of compensation paid by companies in our industry for similar positions, our financial position, and the strength of our
business. Base salaries provide a fixed means of compensation in order to attract and retain talent. The base salary of Mr. Lambert
is $350,000 per year. The base salary for Mr. Elliott was $165,000 per year. Additionally, Mr. Pfanzelter receives $150,000 per
year for his service as Chairman of the Board.
Performance-Based
Cash Awards
: As part of the Company’s executive compensation program, our executive officers are eligible to receive
performance-based cash awards. The annual performance-based cash awards are based on the executive officer’s individual
performance and the Company’s actual performance compared to the corporate goals approved by the Board and the Compensation
Committee. Following the end of each fiscal year, the Board and the Compensation Committee is responsible for determining the
bonus amount payable to an executive officer based on that executive officer’s individual performance during the fiscal
year and its determination of the Company’s actual performance compared to the corporate goals established for that fiscal
year. Due to the Company’s limited financial resources and performance, our named executive officers did not receive any
bonuses for the year ended July 31, 2016.
Long-Term
Equity Awards
: Equity ownership by our executive officers and key employees encourages them to create long-term value
and aligns their interests with those of our stockholders. As a result, our executive compensation program provides for the issuance
of stock options and restricted stock units (“RSUs”).
Outstanding
Equity Awards at Year-End
The
following table provides a summary of all equity awards held by our named executive officers that were outstanding as of July
31, 2016.
|
|
Option
Awards
|
|
|
|
|
|
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Number
of
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
Value
of
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
shares
|
|
|
shares
or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
or
Units of
|
|
|
Units
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
stock
|
|
|
of
stock that
|
|
|
|
Options
(#)
|
|
|
Options
(#)
|
|
|
Price
|
|
|
Expiration
|
|
|
that
have
|
|
|
have
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
not
vested(#)
|
|
|
vested
($)(1)
|
|
Henry
R. Lambert
|
|
|
66,000
|
|
|
|
134,000
|
|
|
$
|
1.05
|
|
|
|
5/27/2021
|
(2)
|
|
|
200,000
|
|
|
$
|
202,000
|
(3)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,000
|
|
|
$
|
152,000
|
(4)
|
Mark
S. Elliott
|
|
|
—
|
|
|
|
150,000
|
|
|
$
|
1.15
|
|
|
|
5/11/2018
|
(5)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
2,500
|
|
|
|
—
|
|
|
$
|
18.72
|
|
|
|
5/14/2019
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
2,500
|
|
|
|
—
|
|
|
$
|
28.00
|
|
|
|
5/19/2020
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
6,875
|
|
|
|
—
|
|
|
$
|
6.72
|
|
|
|
7/14/2021
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
10,000
|
|
|
|
—
|
|
|
$
|
0.86
|
|
|
|
1/24/2023
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
91,667
|
|
|
|
8,333
|
|
|
$
|
1.40
|
|
|
|
12/16/2016
|
|
|
|
—
|
|
|
$
|
—
|
|
Dave
J. Pfanzelter
|
|
|
66,000
|
|
|
|
134,000
|
|
|
$
|
1.05
|
|
|
|
5/27/2021
|
(6)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
40,000
|
|
|
|
—
|
|
|
$
|
0.73
|
|
|
|
2/6/2023
|
|
|
|
—
|
|
|
$
|
—
|
|
(1)
|
The
market value was determined by multiplying the number of shares underlying the awards by the closing price for our common
stock on July 31, 2016, which was $1.01.
|
|
|
(2)
|
During
the year ended July 31, 2016, we granted Mr. Lambert a five year award consisting of an option to purchase two hundred thousand
(200,000) shares of common stock. 33% vested on July 31, 2016; 33% vested on October 31, 2016; and 34% vested on January 31,
2017.
|
|
|
(3)
|
Mr.
Lambert was granted an award consisting of 200,000 RSUs on November 2, 2015. The RSUs vest based on performance conditions
and expire on July 31, 2018. In the event of (i) a change in control of the Company, (ii) Mr. Lambert’s termination
without cause or resignation for good reason or (iii) Mr. Lambert’s death or complete disability, in any event prior
to July 31, 2018, 100% of the Performance-Based RSUs will vest.
|
|
|
(4)
|
Mr.
Lambert was granted an award consisting of 300,000 RSUs on July 31, 2015. 50% of the RSUs vested on July 31, 2016 and 50%
of the RSUs vested on July 31, 2017.
|
|
|
(5)
|
On
May 11, 2016, we granted Mr. Elliott a two year award consisting of an option to purchase one hundred fifty thousand (150,000)
shares of common stock. The options vest quarterly over a one year period.
|
|
|
(6)
|
During
the year ended July 31, 2016, we granted Mr. Pfanzelter a five year award consisting of an option to purchase two hundred
thousand (200,000) shares of common stock. The options vest in three installments: 33% on July 31, 2016; 33% on October 31,
2016; and 34% on January 31, 2017.
|
During
the year ended July 31, 2016, 150,000 of Mr. Lambert’s and 1,400,000 of Mr. Pfanzelter’s RSUs vested. The value realized
on vesting was $152,000 and $1,372,000, respectively. In addition, during the year ended July 31, 2016, 66,000 of Mr. Lambert’s
and Mr. Pfanzelter’s option awards vested. The value realized for each respective award was $67,000.
Employment
Agreements; Potential Payments Upon Termination or a Change in Control for Current Executive Officers
Agreements
with our Chief Executive Officer
On
September 10, 2013, we appointed Henry R. Lambert to serve as Chief Executive Officer and a member of the Board. The terms of
Mr. Lambert’s employment agreement provides that such agreement continues until termination by either the Company or Mr.
Lambert. During the term of Mr. Lambert’s employment agreement, he is entitled to an annual base salary, which may be increased,
but not decreased, by the Board or the Compensation Committee in their discretion. The annual base salary of Mr. Lambert is $350,000.
The
employment agreement provides that, during the term of the agreement, Mr. Lambert is eligible for equity compensation grants to
be awarded at the discretion of the Compensation Committee and the Board, and also provided for annual bonus targets equal to,
as applicable, 50% of Mr. Lambert’s current annual base salary, to be awarded at the sole discretion of the Compensation
Committee and the Board. Additionally, pursuant to the terms of Mr. Lambert’s employment agreement, we granted Mr. Lambert
500,000 RSUs, 200,000 of which subsequently expired by their terms. The award agreement for the 500,000 RSUs had provided Mr.
Lambert with the right to require us to pay his state and federal withholding and other employment taxes upon the vesting and
settlement of these RSUs in exchange for Mr. Lambert cancelling that number of shares of common stock having a value equal to
the tax obligations we pay on his behalf. In December 2016, we entered into an RSU Cancellation Agreement with Mr. Lambert and
our other officers and directors who received restricted stock unit awards (the “RSUs”) in October 2013 as compensation
for their continued services to us over a required vesting period. Mr. Lambert in his individual capacity, voluntarily agreed
to cancel his RSUs based on his determination that cancelling the RSUs would be in the best interests of the Company and our stockholders.
Mr. Lambert reached this conclusion in order to conserve our available cash resources and to reduce pressure on our stock price.
In
January 2017, we entered into an amendment to Mr. Lambert’s employment agreement. The employment agreement, as amended,
provides for certain compensation to be paid to Mr. Lambert if his employment is terminated by the Company without Cause or terminated
by the executive for Good Reason or there occurs a Change in Control of the Company. In summary, “Cause” is the commission
by the executive of an act of fraud or another felony, or gross misconduct resulting in a material adverse effect on the Company;
refusal by the executive to perform his or her duties under the agreement or to otherwise breach the agreement, or a violation
of confidentiality, non-competition and/or non-solicitation provisions to which the Company is bound. “Good Reason”
is a material reduction of the executive’s base salary or target bonus percentage; a material reduction by the Company of
the executive’s authority, duties or responsibilities; a relocation of the Company’s offices that requires an increase
in the executive’s one-way driving distance of more than fifty miles; or a material breach of the agreement by the Company.
A “Change in Control” is the closing of the sale, transfer or other disposition of all or substantially all of the
Company’s assets or the exclusive license of substantially all of the intellectual property of the Company; the consummation
of a merger or consolidation of the Company with or into another entity; any person (subject to certain exemptions) becomes the
beneficial owner of securities of the Company representing 40% or more of the total combined voting power of the Company; or if
individuals who, as of 60 days after the effective date of the agreement are members of the Board, or are nominees of such Board
members, cease to constitute at least a majority of the members of the Board.
Upon
any such event, Mr. Lambert would be entitled to receive, subject to Mr. Lambert’s execution of a release of claims in the
Company’s favor, (i) a payment equal to $1,000,000, (ii) a payment equal to 200% of his annual base salary then in effect,
(iii) the acceleration of then outstanding equity awards and (iv) with respect to termination of employment, continuation of health
benefits for six months. Additionally, the amendment to Mr. Lambert’s employment agreement provides Mr. Lambert a tax gross-up
payment in the event that any payment or distribution made to Mr. Lambert in connection with his separation from the Company or
upon a change of control of the Company becomes subject to an excise tax pursuant to Section 280G and Section 4999 of the Internal
Revenue Code. In addition, all equity based awards would continue to be exercisable for 12 months, but in no event beyond the
maximum permitted expiration date.
The
employment agreement, as amended, with Mr. Lambert also provides that the Company could, in certain circumstances and in order
to avoid incurring fines or penalties under applicable law (including recently enacted federal healthcare legislation), elect
to pay cash payments equivalent to the value of the monthly premiums the Company would otherwise pay to provide for the continuation
of health and dental insurance for Mr. Lambert and his eligible dependents following his termination without Cause or resignation
for Good Reason.
The
foregoing description of the employment agreement, as amended, does not purport to be complete and is qualified in its entirety
by the terms and conditions of the employment agreement filed as Exhibit 10.33 to the Annual Report on Form 10-K for the year
ended July 31, 2013 filed with the SEC on October 24, 2013 and Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC
on January 20, 2017, which are incorporated herein by reference.
Agreements
with our Chairman
On
August 13, 2013, we appointed Dave J. Pfanzelter to serve as Chairman of the Board. On October 23, 2013, we entered into a Chairman
Agreement with Mr. Pfanzelter (the “Chairman Agreement”). The Chairman Agreement provides that Mr. Pfanzelter is to
serve as Chairman of the Board, effective as of August 13, 2013, until his earlier resignation or removal. Pursuant to the Chairman
Agreement, Mr. Pfanzelter is entitled to receive $12,500 per month for his services as Chairman of the Board, payable on a quarterly
basis (collectively “Chairman Compensation”). Mr. Pfanzelter is also eligible to receive annual and periodic bonuses
in the discretion of the Board. Additionally, pursuant to the terms of the Chairman Agreement, we granted Mr. Pfanzelter 2,800,000
RSUs. Due to his service as Chairman, we consider Mr. Pfanzelter an executive officer of the Company. The award agreement for
the 2,800,000 RSUs had provided Mr. Pfanzelter with the right to require us to pay his state and federal withholding and other
employment taxes upon the vesting and settlement of these RSUs in exchange for Mr. Pfanzelter cancelling that number of shares
of common stock having a value equal to the tax obligations we pay on his behalf. In December 2016, we entered into an RSU Cancellation
Agreement with Mr. Pfanzelter and our other officers and directors who received restricted stock unit awards (the “RSUs”)
in October 2013 as compensation for their continued services to us over a required vesting period. Mr. Pfanzelter in his individual
capacity voluntarily agreed to cancel his RSUs based on his determination that cancelling the RSUs would be in the best interests
of the Company and our stockholders. Mr. Pfanzelter reached this conclusion in order to conserve our available cash resources
and to reduce pressure on our stock price.
In
January 2017, we entered into an amendment to the Chairman Agreement. The Chairman Agreement, as amended, provides for certain
compensation to be paid to Mr. Pfanzelter if he is removed by the Board without Cause or Mr. Pfanzelter resigns for Good Reason
or there occurs a Change in Control of the Company. In summary, “Cause” is the commission by Mr. Pfanzelter of an
act of fraud or another felony, or gross misconduct resulting in a material adverse effect on the Company; refusal by Mr. Pfanzelter
to perform his duties under the Chairman Agreement or to otherwise breach the Chairman Agreement, or a material breach by Mr.
Pfanzelter of Company policy or the Chairman Agreement or other agreements between the Company and Mr. Pfanzelter. “Good
Reason” is a material reduction of Mr. Pfanzelter’s compensation; a material reduction by the Board of Mr. Pfanzelter’s
authority, duties or responsibilities; or a material breach of the Chairman Agreement by the Company. A “Change in Control”
is the closing of the sale, transfer or other disposition of all or substantially all of the Company’s assets or the exclusive
license of substantially all of the intellectual property of the Company; the consummation of a merger or consolidation of the
Company with or into another entity; any person (subject to certain exemptions) becomes the beneficial owner of securities of
the Company representing 40% or more of the total combined voting power of the Company; or if individuals who, as of 60 days after
the effective date of the agreement are members of the Board, or are nominees of such Board members, cease to constitute at least
a majority of the members of the Board.
Upon
any such event and subject to Mr. Pfanzelter’s execution of a release of claims in favor of the Company, Mr. Pfanzelter
would be entitled to receive (i) a payment equal to $3,000,000, (ii) a payment equal to 200% of his annual chairman compensation
then in effect and (iii) the acceleration of then outstanding equity awards. Additionally, the amendment to the Chairman Agreement
provides Mr. Pfanzelter a tax gross-up payment in the event that any payment or distribution made to Mr. Pfanzelter in connection
with his separation from the Company or upon a change of control of the Company becomes subject to an excise tax pursuant to Section
280G and Section 4999 of the Internal Revenue Code. In addition, all outstanding vested stock options held by Mr. Pfanzelter at
the date of such termination would continue to be exercisable for a period of up to 90 days following such termination, but in
no event beyond the maximum permitted expiration date.
The
foregoing description of the Chairman Agreement, as amended does not purport to be complete and is qualified in its entirety by
the terms and conditions of such Chairman Agreement filed as Exhibit 10.35 to the Annual Report on Form 10-K for the year ended
July 31, 2013 filed with the SEC on October 24, 2013 and Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on
January 20, 2017, which are incorporated herein by reference.
Code
Section 162(m) Provisions
Section
162(m) of the U.S. Internal Revenue Code, or the Code, generally disallows a tax deduction to public companies for compensation
in excess of $1 million paid to the Chief Executive Officer or any of the four most highly compensated officers. Performance-based
compensation arrangements may qualify for an exemption from the deduction limit if they satisfy various requirements under Section
162(m). Although we consider the impact of this rule when developing and implementing our executive compensation programs, we
believe it is important to preserve flexibility in designing compensation programs. Accordingly, we have not adopted a policy
that all compensation must qualify as deductible under Section 162(m) of the Code. While our stock options are intended to qualify
as “performance-based compensation” (as defined by the Code), amounts paid under our other compensation programs may
not qualify as such.
Compensation
of Directors
Each
non-employee director of the Company receives cash fees from the Company for their services as members of the Board and any committee
of the Board as follows:
|
●
|
Each
non-employee director receives an annual fee of $60,000 payable for such director’s service on the Board and each member
of the Audit Committee and Compensation Committee receives an additional annual fee of $4,000 and $2,500, respectively, payable
for such director’s service on the committee.
|
|
|
|
|
●
|
The
Chair of the Audit Committee receives an additional annual fee of $10,000 for such Chair’s service and the Chair of
the Compensation Committee receives an additional annual fee of $5,000 for such Chair’s service.
|
Annual
fees are paid to each non-employee director in four equal installments on a quarterly basis. Any non-employee directors serving
a portion of the year are entitled to receive such fees on a pro rata basis based on their length of service during the year.
Messrs. Lambert and Pfanzelter do not receive any additional compensation for their board service.
New
non-employee directors receive an initial grant of 200,000 restricted stock units. Currently, all non-employee director grants
of restricted stock units generally vest fifty percent (50%) on the date of the next annual meeting and fifty percent (50%) on
the date of the following year’s annual meeting.
In
the past, our Board has approved each year, generally in the second calendar quarter of the year, an annual option or stock grant
for our non-employee directors. Any such grant is at the discretion of the Board, which considers the recommendation of our Compensation
Committee. Upon the Board’s approval of any such grant, each non-employee director generally may elect whether to receive
the grant as an option or stock award.
The
following table sets forth compensation earned in the year ended July 31, 2016 by each of our directors who are not named executive
officers.
Name
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)(1)
|
|
|
All
Other
Compensation($)
|
|
|
Total
Compensation($)
|
|
Gary
D. Cohee
|
|
$
|
70,000
|
|
|
|
—
|
|
|
$
|
47,000
|
|
|
|
—
|
|
|
$
|
117,000
|
|
David
Theno, Jr., PhD(2)
|
|
$
|
65,000
|
|
|
|
—
|
|
|
$
|
47,000
|
|
|
|
—
|
|
|
$
|
112,000
|
|
William
Otis
|
|
$
|
66,000
|
|
|
|
—
|
|
|
$
|
47,000
|
|
|
|
—
|
|
|
$
|
113,000
|
|
Tom
Y. Lee
|
|
$
|
64,000
|
|
|
|
—
|
|
|
$
|
47,000
|
|
|
|
—
|
|
|
$
|
111,000
|
|
(1)
|
Amounts
for the year ended July 31, 2016 reflect the grant date fair value for financial statement reporting purposes with respect
to stock options granted during the fiscal year, calculated in accordance with authoritative guidance.
|
|
|
(2)
|
Dr.
Theno passed away in June 2017.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table provides information regarding the beneficial ownership of our common stock as of October 26, 2017, or the Evaluation
Date, by: (i) each of our current directors, (ii) each of our named executive officers as set forth in this prospectus, (iii)
all such directors and executive officers as a group and (iv) our five percent or greater stockholders. The table is based upon
information supplied by our officers, directors and principal stockholders and a review of Schedules 13D and 13G, if any, filed
with the SEC. Unless otherwise indicated in the table or the footnotes to the following table, each person named in the table
has sole voting and investment power and that person’s address is c/o Pure Bioscience, Inc., 1725 Gillespie Way, El Cajon,
CA 92020
Applicable
percentages are based on 67,931,861 shares outstanding as of the Evaluation Date, adjusted as required by rules promulgated by
the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power
or investment power with respect to those securities. In addition, the rules include shares of our common stock issuable pursuant
to the exercise of stock options or warrants or settlement of restricted stock units that are either immediately exercisable or
exercisable within 60 days of the Evaluation Date. These shares are deemed to be outstanding and beneficially owned by the person
holding those securities for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding
for the purpose of computing the percentage ownership of any other person.
|
|
Number
of
|
|
|
Percent
|
|
|
|
Shares
|
|
|
of
|
|
|
|
Beneficially
|
|
|
Common
|
|
Name
(1)
|
|
Owned
|
|
|
Stock
|
|
David
J. Pfanzelter
|
|
|
396,000
|
(2)
|
|
|
*
|
|
Henry
R. Lambert
|
|
|
639,556
|
(3)
|
|
|
*
|
|
Mark
S. Elliott
|
|
|
319,225
|
(4)
|
|
|
*
|
|
Gary
D. Cohee
|
|
|
565,643
|
(5)
|
|
|
*
|
|
Janet
Risi
|
|
|
14,140
|
(6)
|
|
|
*
|
|
William
Otis
|
|
|
181,732
|
(7)
|
|
|
*
|
|
Tom
Y. Lee
|
|
|
5,080,154
|
(8)
|
|
|
7.46
|
%
|
All
of our named executive officers and directors as a group (7 persons)
|
|
|
7,196,450
|
(9)
|
|
|
10.57
|
%
|
Franchise
Brands
|
|
|
20,799,999
|
(10)
|
|
|
29.69
|
%
|
*
|
Indicates
less than one percent of the outstanding shares of the Company’s common stock.
|
|
|
(1)
|
Unless,
noted below, the address for each person listed in the table is c/o PURE Bioscience, Inc., 1725 Gillespie Way, El Cajon, California
92020.
|
|
|
(2)
|
Consists
of 340,000 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation
Date, 56,000 shares of common stock held directly by Mr. Pfanzelter.
|
|
|
(3)
|
Consists
of 300,000 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation
Date, and 339,556 shares of common stock held directly by Mr. Lambert.
|
|
|
(4)
|
Consists
of 246,875 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation
Date, and 72,350 shares of common stock held directly by Mr. Elliott.
|
|
|
(5)
|
Consists
of 150,000 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation
Date, and 415,643 shares of common stock held directly by Mr. Cohee.
|
|
|
(6)
|
Consists
of 14,140 shares of common stock held directly by Ms. Risi.
|
|
|
(7)
|
Consists
of 150,000 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation
Date, and 31,732 shares of common stock held directly by Mr. Otis.
|
|
|
(8)
|
Consists
of 150,000 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation
Date, and 4,930,154 shares of common stock held by Mr. Lee and his spouse.
|
(9)
|
Consists
of 1,336,875 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation
Date, and 5,859,575 shares of common stock, held by all directors and executive officers as a group.
|
|
|
(10)
|
Consists
of 18,666,666 shares of common stock and warrants to purchase 2,133,333 shares of common stock which are currently exercisable,
held directly by Franchise Brands. The address for Franchise Brands is 325 Sub Way, Milford, CT 06461.
|
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Act”), requires our executive officers and directors
and persons who beneficially own more than 10% of our Common Stock to file initial reports of beneficial ownership and reports
of changes in beneficial ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all
Section 16(a) forms filed by such persons.
To
the Company’s knowledge, other than as described below, no person who, during the fiscal year ended July 31, 2017, was a
director or officer of the Company, or beneficial owner of more than ten percent of the Company’s Common Stock (which is
the only class of securities of the Company registered under Section 12 of the Act), failed to file on a timely basis reports
required by Section 16 of the Act during such fiscal year.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Certain
Relationships and Related Transactions
Except
as described below and other than Board or employment relationships and compensation resulting from those employment relationships,
no director, executive officer, 5% stockholder or immediate family member of any of the foregoing, was a party to any transaction
or series of transactions since August 1, 2014 (the beginning of the year ended July 31, 2015), or is to be a party to any currently
proposed transaction or series of proposed transactions, in which (i) we were or are to be a participant, (ii) the amount involved
exceeds the lesser of $120,000 or one percent of the average of our total assets at fiscal year-end for the fiscal years ended
July 31, 2016 and 2015, which is $81,210, and (iii) any director, executive officer, or immediate family member of any of the
foregoing had or will have a direct or indirect material interest.
Transactions
with Our Former Executive Officers
Our
current Accounts Receivable and Accounts Payable Manager, Ashley Gumienny, is the daughter of Michael L. Krall, our former President,
Chief Executive Officer, Interim Chief Financial Officer, and Chairman of the Board. Pursuant to the terms of Ms. Gumienny’s
employment arrangement with us, which has been in effect during the period commencing at the beginning of our fiscal year ended
July 31, 2011 and continuing through the date of this prospectus, Ms. Gumienny (1) receives an annual salary of $49,500, (2) receives
certain benefits that are also provided to our other similarly situated employees, which benefits have an approximate annual value
of $7,100 for Ms. Gumienny, and (3) is eligible to receive cash bonuses and equity grants at the discretion of management. Ms.
Gumienny received a cash bonus of $3,000 and received 45,000 stock options valued at $19,000 during the fiscal year ended July
31, 2016.
Separation
Arrangements with Our Former Executive Officers and Directors
On
August 13, 2013, Michael L. Krall and Donna Singer resigned all positions respectively held by them as officers of the Company
by mutual agreement with the Company. Additionally, Dennis Brovarone resigned as a director of the Company.
Michael
L. Krall: In connection with Mr. Krall’s separation from the Company, the Company entered into a Purchase, Severance, and
Release Agreement effective August 13, 2013 with Mr. Krall (the “Krall Release Agreement”). The Krall Release Agreement
provides for a mutual release of all claims between Mr. Krall and the Company. Mr. Krall is also prohibited from engaging in certain
competitive activities for the next four years. Pursuant to the Krall Release Agreement, Mr. Krall (i) was paid $25,000 on August
13, 2013; (ii) is entitled to receive $30,000 per month for 18-months following August 13, 2013, during which time Mr. Krall shall
provide consulting services to the Company, and (iii) is due the amount of his continued health insurance coverage until 18-months
following August 13, 2013. In consideration of Mr. Krall’s transfer to the Company of certain enumerated intellectual property
rights, the Company also (i) paid Mr. Krall the sum of $125,000 on August 13, 2013; and, (ii) issued to Mr. Krall 850,000 shares
of common stock on August 21, 2013 (the “Krall Shares”). The Krall Shares are subject to certain registration rights
intended to register the Krall Shares. The Krall Shares are also subject to a Voting Support Agreement and Irrevocable Proxy (the
“Krall Proxy”). The Krall Proxy gives our CEO the right to vote the Krall Shares for so long as Mr. Krall owns the
Krall Shares.
Donna
Singer: In connection with Ms. Singer’s separation from the Company, we entered into a Purchase, Severance, and Release
Agreement effective August 13, 2013 with Ms. Singer (the “Singer Release Agreement”). The Singer Release Agreement
provides for a mutual release of all claims between Ms. Singer and the Company. Ms. Singer is also prohibited from engaging in
certain competitive activities until August 2017. Pursuant to the Singer Release Agreement, Ms. Singer (i) was paid $45,000 on
August 13, 2013; (ii) is due the amount of her continued health insurance coverage until August 2014; and, (iii) is entitled to
$17,000 per month for 12-months following August 13, 2013, during which time Ms. Singer shall provide consulting services to the
Company. In consideration of Ms. Singer’s transfer to the Company of certain enumerated intellectual property rights, the
Company also issued to Ms. Singer 300,000 shares of common stock on August 21, 2013 (the “Singer Shares”). The Singer
Shares are subject to certain registration rights intended to register the Singer Shares. The Singer Shares are also subject to
a Voting Support Agreement and Irrevocable Proxy (the “Singer Proxy”). The Singer Proxy gives our CEO the right to
vote the Singer Shares for so long as Ms. Singer owns the Singer Shares.
Dennis
Brovarone: In connection with Mr. Brovarone’s separation from the Company, we entered into a Settlement and Release Agreement
effective August 13, 2013 with Mr. Brovarone (the “Brovarone Release Agreement”). The Brovarone Release Agreement
provides for a mutual release of all claims between Mr. Brovarone and the Company. Mr. Brovarone shall be paid $91,332.77 (the
“Brovarone Amount”) as follows: (i) starting November 11, 2013 the Brovarone Amount shall be subject to 2% interest
per annum; (ii) starting December 11, 2013 and continuing on the same day of each month for 60-months the Company shall pay $1,600.86;
(iii) the Company shall have the right to prepay without penalty upon 30-days’ notice; and, (iv) Brovarone shall have the
right to convert the then outstanding balance of the Brovarone Amount, at any time and with 10-days’ advance notice, into
common stock at a conversion price equal to the average closing price for our common stock on the principal market on which our
common stock is then listed or quoted for the ten trading days immediately preceding the date of the conversion notice.
Arrangements
Related to 2013 Board and Management Changes
Cohee
Director Agreement: On August 13, 2013, we appointed Mr. Cohee to serve as a member of the Board and on September 17, 2013, we
entered into a letter agreement with Mr. Cohee. Mr. Cohee’s letter agreement provides that his initial term will be for
one year. In connection with his execution of the letter agreement, we are obligated to issue him 250,000 shares of our common
stock pursuant to a restricted stock unit agreement in the form of a non-employee RSU award. Additionally, we will pay him an
annual retainer fee of $60,000, payable quarterly. Additionally, he acknowledges and agrees that in order to satisfy certain rules
for public companies he may be required to serve on one or more of the Board’s Audit Committee, Compensation Committee,
and/or Nominating and Governance Committee, and that such committee assignments will be agreed between him and the Company, and
that he will be compensated for such service. His letter agreement also provides that he will also be subject to certain confidentiality
obligations. On April 24, 2014, the Company and Gary Cohee entered into an amendment to the Cohee Director Agreement to provide
for a monthly consulting fee for certain investor relations activities.
Equity
Transactions with our Director and Officers
Since
August 1, 2014, the Company has entered into the following equity investment transactions with its directors and officers:
|
●
|
On
August 23, 2014, the Company completed the first closing of a private placement in which it issued Units at a purchase price
of $0.75 per Unit, with each Unit consisting of one share of common stock and a warrant to purchase 0.4 of a share of common
stock with an exercise price of $0.75 per share (the “August 2014 Financing”). On August 29, 2014, Mr. Lee and
his spouse invested an aggregate of $600,000 in the second closing of the August 2014 Financing, acquiring an aggregate of
800,000 shares of common stock and warrants to purchase up to 320,000 shares of common stock at an exercise price of $0.75
per share.
|
|
|
|
|
●
|
On
November 23, 2015, we completed the second and final closing of the private placement financing. We raised $2.0 million in
this closing. Mr. Lee, together with certain of his affiliates, purchased an aggregate of 1,049,408 shares of common stock
for $472,000 and warrants to purchase up to 1,206,819 shares of common stock at an exercise price of $0.45 per share.
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|
|
|
|
●
|
On
May 20, 2016, Mr. Lee and his spouse exercised an outstanding warrant for 487,115 shares of common stock for an aggregate
exercise price of $219,202.
|
|
|
|
|
●
|
On
September 25, 2017, Mr. Lee and his spouse exercised warrants to purchase 694,703 shares of Common Stock for an aggregate
exercise price of $341,881 in connection with the Company’s warrant tender offer to holders of the Company’s warrants.
|
|
|
|
|
●
|
On
September 25, 2017, Bill Otis exercised warrants to purchase 9,066 shares of Common Stock for an aggregate exercise price
of $5,440 in connection with the Company’s warrant tender offer to holders of the Company’s warrants.
|
|
|
|
|
●
|
On
September 25, 2017, Dave Pfanzelter exercised warrants to purchase 16,000 shares of Common Stock for an aggregate exercise
price of $9,600 in connection with the Company’s warrant tender offer to holders of the Company’s warrants.
|
Transactions
with Franchise Brands
Franchise
Brands, LLC is our largest stockholder beneficially holding approximately 32% of our common stock as of the date of this prospectus.
On October 23, 2015, we completed an initial closing of a private placement financing with Franchise Brands. Prior to the private
placement financing, Franchise Brands beneficially held approximately 17.8% of our common stock. In the private placement financing,
we issued Franchise Brands (i) an aggregate of 13,333,333 shares of the Company’s common stock at a purchase price of $0.45
per share, (ii) a warrant to purchase up to an aggregate of 6,666,666 shares of common stock with a term of five years and (iii)
a warrant to purchase up to an aggregate of 8,666,666 shares of common stock with a term of six months and only exercisable for
cash, for aggregate gross proceeds to the Company of $6.0 million. The offer and sale of the securities to Franchise Brands was
on the same terms offered to other investors in the private placement financing. On April 23, 2016, the six-month warrant issued
to Franchise Brands expired unexercised and on July 19, 2016 we entered into a warrant termination agreement with Franchise Brands,
LLC to terminate the five-year warrant.
Compensation
of Our Current Directors and Executive Officers
For
information with respect to the compensation offered to our current directors and executive officers, please see the descriptions
under the heading “Executive Compensation” of this prospectus.
Related
Party Transaction Policy and Procedures
Pursuant
to our Related Party Transaction and Procedures, our executive officers, directors, and principal stockholders, including their
immediate family members and affiliates, are prohibited from entering into a related party transaction with us without the prior
consent of our Audit Committee or our independent directors. Any request for us to enter into a transaction with an executive
officer, director, principal stockholder, or any of such persons’ immediate family members or affiliates, must first be
presented to our Audit Committee for review, consideration and approval. In approving or rejecting the proposed agreement, our
Audit Committee will consider the relevant facts and circumstances available and deemed relevant, including, but not limited,
to the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services
or products, and, if applicable, the impact on a director’s independence. Our Audit Committee shall approve only those agreements
that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our Audit Committee determines
in the good faith exercise of its discretion.
Compensation
Committee Interlocks and Insider Participation.
None
of the members of our Compensation Committee are or have been an officer or employee of us. During fiscal 2017, 2016, 2015 and
2014, no member of our Compensation Committee had any relationship with us requiring disclosure under Item 404 of Regulation S-K,
except as set forth above, none of our executive officers served on the Compensation Committee (or its equivalent) or board of
directors of another entity any of whose executive officers served on our Compensation Committee or board of directors.
Board
Composition
We
are not currently listed on any national securities exchange or in an inter-dealer quotation system that has established a standard
for independence. However, in evaluating the independence of our members and the composition of the committees of our Board of
Directors, our Board utilizes the definition of “independence” as that term is defined by applicable listing standards
of the NYSE MKT. As of the date of this prospectus, our Board consists of six members, three of whom are considered independent
as that term is defined by applicable listing standards of the NYSE MKT. Our independent directors include: Messrs. Otis and Lee
and Ms. Risi.
Our
directors are appointed annually, and hold office until their successors have been elected and qualified or until their earlier
death, resignation, disqualification, or removal.
SELLING
SECURITY HOLDERS
We
are registering the following shares of common stock:
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●
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up
to 1,572,941 shares of common stock issued to the selling security holders in the registrant’s private placement offering
(the “Private Placement Offering”), which closed on December 1, 2016 and January 23, 2017; and
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|
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|
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●
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up
to 176,471 shares of our common stock issuable upon the exercise of the 2017 Warrants issued to the selling security holders
in the Private Placement Offering.
|
For
additional information regarding the issuances of those shares of common stock and warrants, see “Summary of Private Placement
and Tender Offer” above. We are registering the shares of common stock in order to permit the selling security holders to
offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling
security holders have not had any material relationship with us within the past three years.
The
selling security holders may sell some, all or none of their shares. We do not know how long the selling security holders will
hold the shares offered hereunder before selling them. We currently have no agreements, arrangements or understandings with the
selling security holders regarding the sale of any of the shares by them other than the registration rights agreement. The shares
offered by this prospectus may be offered from time to time by the selling security holders. As used in this prospectus, the term
“selling security holder” includes each of the selling security holders listed below, and any donee, pledgee, transferee
or other successor in interest selling shares received after the date of this prospectus from a selling security holder as a gift,
pledge, or other non-sale related transfer. The selling security holders may have sold or transferred, in transactions exempt
from the registration requirements of the Securities Act, some or all of their shares since the date on which the information
in the table is presented. Information about the selling security holders may change over time.
The
following table sets forth the name of each selling security holder, the number of shares owned by such selling security holder
(including shares underlying warrants) as of September 25, 2017, the number of shares that may be offered under this prospectus
by such selling security holder, and the number of shares of our common stock and the percentage (if one percent or more) of our
common stock to be owned by such selling security holder after completion of this offering, assuming that all shares offered hereunder
are sold as contemplated herein. The number of shares in the column “Shares of Common Stock Being Offered in the Offering”
represents all of the shares that a selling security holder may offer under this prospectus, which includes the shares issuable
upon exercise of the warrants covered by this prospectus. Except as otherwise disclosed in this prospectus, none of the selling
security holders has, or within the past three years has had, any position, office or other material relationship with us. The
selling security holders have advised us that they may enter into short sales in the ordinary course of their business of investing
and trading securities. Other than the costs of preparing and providing this prospectus and a registration fee to the SEC, we
are not paying any costs relating to the sales by the selling security holders.
Ownership
reflected in this table for each selling security holder is based upon information provided to us by the selling security holder
as of September 25, 2017. Each selling security holder participated in the Offer to Amend and Exercise and exercised their 2017
Warrants (other than Saranow Investments LP and Intracoastal Capital LLC). The percentages of common stock owned after the offering
are based on 67,931,861 shares of our common stock outstanding as of October 26, 2017, including the shares of common stock issued
in the Private Placement Offering. Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC
under the Exchange Act. In computing the number of shares owned by and the percentage ownership of a selling security holder,
shares of common stock that could be issued upon the exercise of outstanding options, warrants or other rights held by that selling
security holder that are currently exercisable or exercisable within 60 days of September 30, 2017 are considered outstanding.
However, such shares are not included in the shares outstanding as of September 30, 2017 when computing the percentage ownership
of each other selling security holder.
Unless
otherwise noted, each person or group identified possesses sole voting and investment power with respect to the shares, subject
to community property laws where applicable. Additionally, unless otherwise noted, each selling security holder has represented
that it is not a broker dealer.
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Beneficial
Ownership
Prior to Registration
|
|
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|
|
|
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Beneficial
Ownership
After Registration
Assuming all Shares are
Sold#
|
|
Name
|
|
Shares
|
|
|
%
of
Class
|
|
|
Shares
of
Common Stock
Being
Offered in
the Offering
|
|
|
Shares
Underlying
Warrants
Being Offered
in the Offering
|
|
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Total
Beneficial
Ownership
|
|
|
%
of
Class
|
|
Drysdale,
Eugene
|
|
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58,824
|
(1)
|
|
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*
|
|
|
|
29,412
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
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|
Hoffman,
Michael
|
|
|
235,294
|
(2)
|
|
|
*
|
|
|
|
117,647
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Katz,
Brian
|
|
|
58,824
|
(3)
|
|
|
*
|
|
|
|
29,412
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Saranow
Investments LP
|
|
|
117,648
|
(4)
|
|
|
*
|
|
|
|
58,824
|
|
|
|
58,824
|
|
|
|
—
|
|
|
|
—
|
|
DeMar,
Lawrence
|
|
|
117,648
|
(5)
|
|
|
*
|
|
|
|
58,824
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Larry
Trust(6)
|
|
|
117,648
|
(6)
|
|
|
*
|
|
|
|
58,824
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Struve,
Clayton
|
|
|
1,647,058
|
(7)
|
|
|
2.42
|
%
|
|
|
823,529
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Becker,
Paul
|
|
|
200,000
|
(8)
|
|
|
*
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Brennan,
Jim
|
|
|
58,822
|
(9)
|
|
|
*
|
|
|
|
29,411
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Evans,
Bruce L.
|
|
|
1,055,000
|
(10)
|
|
|
1.54
|
%
|
|
|
120000
|
|
|
|
-
|
|
|
|
815,000
|
(10)
|
|
|
1.29
|
%
|
Ulie,
Thomas R.
|
|
|
58,822
|
(11)
|
|
|
*
|
|
|
|
29,411
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Intracoastal
Capital LLC(12)
|
|
|
235,294
|
|
|
|
*
|
|
|
|
117,647
|
|
|
|
117,647
|
|
|
|
—
|
|
|
|
—
|
|
*
|
Indicates
less than one percent of the outstanding shares of the Company’s common stock.
|
|
|
#
|
Reflects
the sale of shares pursuant to this offering (and the sale of any shares issued upon a previous exercise of the 2017 Warrants).
|
|
|
(1)
|
Represents
29,412 shares of common stock and 29,412 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
|
|
(2)
|
Represents
117,647 shares of common stock and 117,647 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
|
|
(3)
|
Represents
29,412 shares of common stock and 29,412 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
|
|
(4)
|
Represents
58,824 shares of common stock and 2017 Warrants to purchase 58,824 shares of common stock. Mitch Saranow has voting and dispositive
power of the shares held by Saranow Investments LP.
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|
|
(5)
|
Represents
58,824 shares of common stock and 58,824 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
|
|
(6)
|
Represents
58,824 shares of common stock and 58,824 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
Steven DeMar is the trustee of Larry Trust and voting and dispositive power of the shares held by the Larry Trust.
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|
|
(7)
|
Represents
823,529 shares of common stock and 823,529 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
|
|
(8)
|
Represents
100,000 shares of common stock and 100,000 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
|
|
(9)
|
Represents
29,411 shares of common stock and 29,411 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
(10)
|
Represents
695,000 shares of common stock and 120,000 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
Also includes other warrants to purchase 360,000 shares of common stock. Mr. Evans’ beneficial ownership after registration
and assuming all shares registered pursuant to the registration statement represents 455,000 shares of common stock and warrants
to purchase 360,000 shares of common stock.
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|
|
(11)
|
Represents
29,411 shares of common stock and 29,411 shares of common stock issued upon exercise of such holder’s 2017 Warrants.
|
|
|
(12)
|
Represents
117,647 shares of common stock and 2017 Warrants to purchase 117,647 shares of common stock. Mitchell P. Kopin (“Mr.
Kopin”) and Daniel B. Asher (“Mr. Asher”), each of whom are managers of Intracoastal Capital LLC (“Intracoastal”),
have shared voting control and investment discretion over the securities reported herein that are held by Intracoastal. As
a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership (as determined under Section 13(d) of
the Exchange Act of the securities reported herein that are held by Intracoastal. Mr. Asher, who is a manager of Intracoastal,
is also a control person of a broker-dealer. As a result of such common control, Intracoastal may be deemed to be an affiliate
of a broker-dealer. Intracoastal acquired the ordinary shares being registered hereunder in the ordinary course of business,
and at the time of the acquisition of the ordinary shares and warrants described herein, Intracoastal did not have any arrangements
or understandings with any person to distribute such securities.
|
PLAN
OF DISTRIBUTION
Each
selling security holder (the “Selling Security Holders”) of the securities and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market
or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales
may be at fixed or negotiated prices. A Selling Security Holder may use any one or more of the following methods when selling
securities:
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●
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ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
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●
|
block
trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
|
|
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
|
|
|
|
●
|
privately
negotiated transactions;
|
|
|
|
|
●
|
settlement
of short sales;
|
|
|
|
|
●
|
in
transactions through broker-dealers that agree with the Selling Security Holders to sell a specified number of such securities
at a stipulated price per security;
|
|
|
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
|
|
|
●
|
a
combination of any such methods of sale; or
|
|
|
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The
Selling Security Holders may also sell securities under Rule 144 or any other exemption from registration under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Security Holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Security Holders (or, if any broker-dealer acts as agent for the purchaser of securities,
from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the securities or interests therein, the Selling Security Holders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of
hedging the positions they assume. The Selling Security Holders may also sell securities short and deliver these securities to
close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The
Selling Security Holders may also enter into option or other transactions with broker-dealers or other financial institutions
or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of
securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant
to this prospectus (as supplemented or amended to reflect such transaction).
The
Selling Security Holders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Each Selling Security Holder has informed the Company that it does not have any written or oral agreement
or understanding, directly or indirectly, with any person to distribute the securities.
The
Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The
Company has agreed to indemnify the Selling Security Holders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
We
agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling
Security Holders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without
the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act
or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under
the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered
hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not
simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In addition, the Selling Security Holders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of the common stock by the Selling Security Holders or any other person. We will make copies of this prospectus
available to the Selling Security Holders and have informed them of the need to deliver a copy of this prospectus to each purchaser
at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
DESCRIPTION
OF SECURITIES
Capital
Stock
Our
authorized capital stock consists of 100,000,000 shares of common stock, $0.01 par value per share, and 5,000,000 shares of preferred
stock, $0.01 par value per share. As of October 26, 2017, there were 67,931,861 shares of common stock outstanding and no shares
of preferred stock outstanding. The following summary description of our capital stock is based on the provisions of our Certificate
of Incorporation and Bylaws and the applicable provisions of the Delaware General Corporation Law, or the DGCL. This information
is qualified entirely by reference to the applicable provisions of our Certificate of Incorporation and Bylaws and the DGCL.
Common
Stock
Dividend
rights
. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding
shares of our common stock are entitled to receive dividends out of funds legally available pursuant to the DGCL if our Board
of Directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our Board of
Directors may determine.
Voting
rights
. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted
to a vote of stockholders. Our Certificate of Incorporation does not provide for the right of stockholders to cumulate votes for
the election of directors. Our Certificate of Incorporation does not establish a classified board of directors and all directors
will be elected at each annual meeting of our stockholders.
No
preemptive or similar rights
. Our common stock is not entitled to preemptive rights and is not subject to conversion,
redemption or sinking fund provisions. The rights, preferences and privileges of the holders of our common stock are subject to,
and may be adversely affected by, the rights of the holders of any series of our preferred stock that we may designate and issue
in the future.
Right
to receive liquidation distributions
. Upon our dissolution, liquidation or winding-up, the assets legally available for
distribution to our stockholders are distributable ratably among the holders of our common stock, subject to prior satisfaction
of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding
shares of preferred stock.
Fully
paid and nonassessable
. All of our outstanding shares of common stock are fully paid and nonassessable.
Transfer
agent
. The transfer agent for our common stock is Transfer Online, Inc. Its address is 512 SE Salmon St. Portland, OR
97214, and its telephone number is (503) 227-2950.
OTCQB
.
Our common stock is approved for quotation on the OTC Markets’ OTCQB marketplace under the symbol “PURE.”
Preferred
Stock
Pursuant
to our Certificate of Incorporation, our Board of Directors has the authority, without further action by our stockholders (unless
such stockholder action is required by applicable law), to designate and issue up to 5,000,000 shares of preferred stock in one
or more series, to establish from time to time the number of shares to be included in each such series, to fix the designations,
powers, preferences and rights of the shares of each wholly unissued series, and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series
then outstanding.
Our
Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of our common stock. Preferred stock could be issued quickly with terms designed
to delay or prevent a change in control of the Company or make removal of management more difficult. Additionally, the issuance
of preferred stock may have the effect of decreasing the market price of our common stock.
Warrants
issued to Selling Security Holders
On
December 1, 2016 and January 23, 2017, in closings of the Private Placement Offering, we issued warrants to purchase 1,572,941
shares of common stock at an exercise price of $1.25 per share, which are included for registration in this registration statement.
Term
.
The warrants are immediately exercisable, without any vesting, for five years from the date of issuance.
Cashless
Exercise
. The warrants are exercisable on a cashless basis if at any time after the six-month anniversary of the date of issuance,
there is no effective registration statement registering, or no current prospectus available for, the resale of the shares underlying
the warrants by the holder, subject to certain exceptions.
Transferability
.
The warrants are transferable if (i) registered under state and Federal securities laws or (ii) the transfer is made under an
exemption to registration under state and Federal securities laws. If the transfer of any of the warrants is made pursuant to
an exemption from registration, we may require the holder of the warrant to provides us with (i) a written opinion of counsel
and (ii) an executed investment letter. Additionally, we may require that the transferee be an “accredited investor”
or a “qualified institutional buyer” (as such terms are defined under SEC rules).
Adjustments
.
The exercise price and the number of shares of common stock issuable upon the exercise of the warrants is subject to adjustments
in the event of a stock split, reverse stock split, reclassifications of our common stock or stock dividend.
Other
Warrants
The
Company has also issued various warrants to purchase shares of the Company’s common stock to investors participating in
the Company’s private placement financings (i) completed on August 29, 2014, as amended (the “
2014 Warrants
”);
(ii) completed on November 23, 2015, as amended (the “
2015 Warrants
”). Currently, there are 2014 Warrants to
purchase 2,533,3311 shares of the Company’s common stock and no 2015 outstanding. The 2014 Warrants
The
terms of the 2014 Warrants are as follows:
Term
.
The warrants are immediately exercisable, without any vesting, for five years from the date of issuance.
Cashless
Exercise
. The warrants are exercisable on a cashless basis at any time, subject to certain exceptions.
Transferability
.
The warrants are transferable if (i) registered under state and Federal securities laws or (ii) the transfer is made under an
exemption to registration under state and Federal securities laws. If the transfer of any of the warrants is made pursuant to
an exemption from registration, we may require the holder of the warrant to provides us with a written opinion of counsel Additionally,
we may require that the transferee be an “accredited investor” or a “qualified institutional buyer” (as
such terms are defined under SEC rules).
Adjustments
.
The exercise price and the number of shares of common stock issuable upon the exercise of the warrants is subject to adjustments
in the event of a stock split, reverse stock split, reclassifications of our common stock or stock dividend.
Registration
Rights Agreements
We
have entered into various registration rights agreements with investors in the private placements to file this registration statement
with the Securities and Exchange Commission (the “Commission”) to register for resale under the Securities Act, the
shares of common stock held by the selling security holders, including shares issuable upon exercise of the warrants. We are obligated
to use our commercially reasonable best efforts to cause this registration statement to be declared effective by the SEC as soon
as reasonably practicable after the filing of post-effective amendment. Additionally, the Registration Rights Agreement provides
for certain monetary penalties if this registration statement is not filed or declared effective prior to certain dates as set
forth in the registration rights agreements.
Additionally
in October and November 2015, we entered into registration rights agreements with various investors which granted certain demand
registration rights to such investors, upon request of the investors holding 75% of the registrable securities issued in the private
placements.
Convertible
Debt
In
connection with Mr. Brovarone’s separation from the Company, we entered into a Settlement and Release Agreement effective
August 13, 2013 with Mr. Brovarone (the “Brovarone Release Agreement”). The Brovarone Release Agreement provides for
a mutual release of all claims between Mr. Brovarone and the Company. Mr. Brovarone shall be paid $91,332.77 (the “Brovarone
Amount”) as follows: (i) starting November 11, 2013 the Brovarone Amount shall be subject to 2% interest per annum; (ii)
starting December 11, 2013 and continuing on the same day of each month for 60-months the Company shall pay $1,600.86 and (iii)
the Company shall have the right to prepay without penalty upon 30-days’ notice. Mr. Brovarone shall have the right to convert
the then outstanding balance of the Brovarone Amount, at any time and with 10-days’ advance notice, into common stock at
a conversion price equal to the average closing price for our common stock on the principal market on which our common stock is
then listed or quoted for the ten trading days immediately preceding the date of the conversion notice.
Anti-takeover
effects of provisions of our Certificate of Incorporation, our Bylaws and Delaware law
Certificate
of Incorporation and Bylaws
Because
our stockholders do not have cumulative voting rights in the election of directors, stockholders holding a majority of the shares
of common stock represented in person or by proxy at a duly called stockholder meeting will be able to elect all of our directors.
Our Board of Directors will be able to elect a director to fill a vacancy created by the expansion of the Board or due to the
resignation, death or departure of an existing member of the Board. Our Certificate of Incorporation and Bylaws also provide that
all stockholder actions must be effected at a duly called meeting of stockholders and not by a consent in writing, and that only
the Board of Directors, Chairman of the Board or Chief Executive Officer may call a special meeting of stockholders. In addition,
our Bylaws include a requirement for the advance notice of nominations for election to our Board of Directors or for proposing
matters that can be acted upon at a stockholders’ meeting. As described above, our Certificate of Incorporation also provides
for the ability of the Board of Directors to issue, without stockholder approval, up to 5,000,000 shares of preferred stock with
terms set by the Board of Directors, which rights could be senior to those of our common stock and which terms could be designed
to delay or prevent a change in control of the Company or make removal of management more difficult.
The
foregoing provisions may make it difficult for our existing stockholders to replace our Board of Directors, as well as for another
party to obtain control of the Company by replacing our Board of Directors. In addition, the authorization of undesignated preferred
stock makes it possible for the Board of Directors to issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change the Company’s control. Further, our Certificate of Incorporation and Bylaws
provide that we will indemnify our directors and officers against liabilities, losses and expenses incurred or suffered in investigations
and legal proceedings resulting from their services for us, which may include service in connection with takeover defense measures.
Section
203 of the DGCL
We
are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. Under Section 203 of the DGCL, a Delaware
corporation is prohibited from engaging in a “business combination” with an “interested stockholder” for
three years following the date that such person or entity becomes an interested stockholder. With certain exceptions, an interested
stockholder is a person or entity that owns, individually or with or through other persons or entities, fifteen percent (15%)
or more of the corporation’s outstanding voting stock (including rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights, and also stock as to which the
person has voting rights only). The three-year moratorium imposed by Section 203 on business combinations does not apply if:
|
●
|
Prior
to the date on which the interested stockholder becomes an interested stockholder, the board of directors of the corporation
approves either the business combination or the transaction that resulted in the person or entity becoming an interested stockholder;
|
|
|
|
|
●
|
Upon
consummation of the transaction that makes the person or entity an interested stockholder, the interested stockholder owns
at least eighty-five percent (85%) of the corporation’s voting stock outstanding at the time the transaction commenced
(excluding, for purposes of determining voting stock outstanding, shares owned by directors who are also officers of the corporation
and shares held by employee stock plans that do not give employee participants the right to decide confidentially whether
to accept a tender or exchange offer); or
|
|
|
|
|
●
|
On
or after the date the person or entity becomes an interested stockholder, the business combination is approved both by the
board of directors and by the stockholders at a meeting by sixty-six and two-thirds percent (66 2/3 %) of the outstanding
voting stock not owned by the interested stockholder.
|
A
Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation
or an express provision in its certificate of incorporation or bylaws resulting from a stockholders’ amendment approved
by at least a majority of the outstanding voting shares. We have not “opted out” and do not plan to “opt out”
of these provisions. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly,
may discourage attempts to acquire us.
LEGAL
MATTERS
The
validity of the securities offered hereby is being passed upon for us by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, San Diego, California. Any underwriter, dealer, or agent may be advised about issues relating to any offering by its own
legal counsel.
EXPERTS
The
consolidated financial statements of PURE Bioscience, Inc. as of July 31, 2017 and 2016, and for the years then ended, have been
included herein in reliance upon the report of Mayer Hoffman McCann P.C., an independent registered public accounting firm, given
upon the authority of said firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of a registration statement on Form S-1 that we filed with the SEC. Certain information in the registration
statement has been omitted from this prospectus in accordance with the rules of the SEC. We are a reporting company and file annual,
quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for more information about the operation of the Public Reference Room. Our SEC filings are also available at the SEC’s website
at www.sec.gov. We also maintain a web site at www.purebio.com, which provides additional information about our company and through
which you can also access our SEC filings. Information contained in or accessible through either website is not and should not
be considered a part of this prospectus and you should not rely on that information in deciding whether to invest in our common
stock.
Index
to Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders
PURE
Bioscience, Inc.
We
have audited the accompanying consolidated balance sheets of PURE Bioscience, Inc. (“the Company”) as of July 31,
2017 and 2016, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the
years in the two year period ended July 31, 2017. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of PURE Bioscience, Inc. as of July 31, 2017 and 2016, and the consolidated results of their operations and
their cash flows for each of the years in the two year period ended July 31, 2017, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and is dependent on
additional financing to fund operations for the next twelve months. These conditions, among others, raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described
in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome
of this uncertainty
/s/
Mayer Hoffman McCann P.C.
|
|
|
|
San
Diego, California
|
|
October
26, 2017
|
|
PURE
Bioscience, Inc.
Consolidated Balance Sheets
|
|
July
31, 2017
|
|
|
July
31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,640,000
|
|
|
$
|
5,194,000
|
|
Accounts
receivable
|
|
|
297,000
|
|
|
|
263,000
|
|
Inventories,
net
|
|
|
273,000
|
|
|
|
350,000
|
|
Restricted
cash
|
|
|
75,000
|
|
|
|
75,000
|
|
Prepaid
expenses
|
|
|
174,000
|
|
|
|
260,000
|
|
Total
current assets
|
|
|
2,459,000
|
|
|
|
6,142,000
|
|
Property,
plant and equipment, net
|
|
|
548,000
|
|
|
|
440,000
|
|
Patents,
net
|
|
|
822,000
|
|
|
|
980,000
|
|
Total
assets
|
|
$
|
3,829,000
|
|
|
$
|
7,562,000
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
426,000
|
|
|
$
|
479,000
|
|
Restructuring
liability
|
|
|
19,000
|
|
|
|
39,000
|
|
Accrued
liabilities
|
|
|
230,000
|
|
|
|
216,000
|
|
Derivative
liabilities
|
|
|
1,853,000
|
|
|
|
1,802,000
|
|
Total
current liabilities
|
|
|
2,528,000
|
|
|
|
2,536,000
|
|
Deferred
rent
|
|
|
11,000
|
|
|
|
3,000
|
|
Total
liabilities
|
|
|
2,539,000
|
|
|
|
2,539,000
|
|
Commitments
and contingencies (See Note 4)
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value: 5,000,000 shares authorized, no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $0.01 par value: 100,000,000 shares authorized, 63,093,153 shares issued and outstanding at July 31, 2017, and 64,823,917
shares issued and outstanding at July 31, 2016
|
|
|
631,000
|
|
|
|
649,000
|
|
Additional
paid-in capital
|
|
|
110,141,000
|
|
|
|
107,593,000
|
|
Accumulated
deficit
|
|
|
(109,482,000
|
)
|
|
|
(103,219,000
|
)
|
Total
stockholders’ equity
|
|
|
1,290,000
|
|
|
|
5,023,000
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,829,000
|
|
|
$
|
7,562,000
|
|
See
accompanying notes.
PURE
Bioscience, Inc.
Consolidated Statements of Operations
|
|
Year
ended
|
|
|
|
July
31,
|
|
|
|
2017
|
|
|
2016
|
|
Net
product sales
|
|
$
|
1,831,000
|
|
|
$
|
1,289,000
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
760,000
|
|
|
|
441,000
|
|
Selling,
general and administrative
|
|
|
5,230,000
|
|
|
|
5,076,000
|
|
Research
and development
|
|
|
779,000
|
|
|
|
927,000
|
|
Share-based
compensation
|
|
|
1,070,000
|
|
|
|
1,902,000
|
|
Total
operating costs and expenses
|
|
|
7,839,000
|
|
|
|
8,346,000
|
|
Loss
from operations
|
|
|
(6,008,000
|
)
|
|
|
(7,057,000
|
)
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Fair
value of derivative liabilities in excess of proceeds
|
|
|
—
|
|
|
|
(1,867,000
|
)
|
Change
in derivative liabilities
|
|
|
(277,000
|
)
|
|
|
(5,481,000
|
)
|
Interest
expense, net
|
|
|
(5,000
|
)
|
|
|
(10,000
|
)
|
Other
income, net
|
|
|
27,000
|
|
|
|
44,000
|
|
Total
other expense
|
|
|
(255,000
|
)
|
|
|
(7,314,000
|
)
|
Net
loss
|
|
$
|
(6,263,000
|
)
|
|
$
|
(14,371,000
|
)
|
Basic
and diluted net loss per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.25
|
)
|
Shares
used in computing basic and diluted net loss per share
|
|
|
63,492,406
|
|
|
|
56,830,533
|
|
See
accompanying notes.
PURE
Bioscience, Inc.
Consolidated Statements of Stockholders’ Equity
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance
July 31, 2015
|
|
|
41,859,297
|
|
|
$
|
420,000
|
|
|
$
|
90,811,000
|
|
|
$
|
(88,848,000
|
)
|
|
$
|
2,383,000
|
|
Issuance
of common stock in private placements, net
|
|
|
17,777,772
|
|
|
|
177,000
|
|
|
|
(177,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Share-based
compensation expense - stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
358,000
|
|
|
|
—
|
|
|
|
358,000
|
|
Share-based
compensation expense - restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
1,544,000
|
|
|
|
—
|
|
|
|
1,544,000
|
|
Stock
issued for services
|
|
|
250,000
|
|
|
|
3,000
|
|
|
|
287,000
|
|
|
|
—
|
|
|
|
290,000
|
|
Warrant
liability removed due to warrant exercise and cancellation
|
|
|
—
|
|
|
|
—
|
|
|
|
13,550,000
|
|
|
|
—
|
|
|
|
13,550,000
|
|
Issuance
of common stock upon vesting of restricted stock units
|
|
|
2,075,000
|
|
|
|
21,000
|
|
|
|
(21,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Issuance
of common stock upon exercise of warrants
|
|
|
2,861,848
|
|
|
|
28,000
|
|
|
|
1,241,000
|
|
|
|
—
|
|
|
|
1,269,000
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,371,000
|
)
|
|
|
(14,371,000
|
)
|
Balance
July 31, 2016
|
|
|
64,823,917
|
|
|
$
|
649,000
|
|
|
$
|
107,593,000
|
|
|
$
|
(103,219,000
|
)
|
|
$
|
5,023,000
|
|
Issuance
of common stock in private placements, net
|
|
|
1,572,941
|
|
|
|
16,000
|
|
|
|
1,033,000
|
|
|
|
—
|
|
|
|
1,049,000
|
|
Share-based
compensation expense - stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
968,000
|
|
|
|
—
|
|
|
|
968,000
|
|
Share-based
compensation expense - restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
102,000
|
|
|
|
—
|
|
|
|
102,000
|
|
Warrant
liability removed due to warrant exercise
|
|
|
—
|
|
|
|
—
|
|
|
|
226,000
|
|
|
|
—
|
|
|
|
226,000
|
|
Issuance
of common stock upon vesting of restricted stock units
|
|
|
150,000
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Issuance
of common stock upon exercise of warrants
|
|
|
346,295
|
|
|
|
3,000
|
|
|
|
182,000
|
|
|
|
—
|
|
|
|
185,000
|
|
Restricted
stock unit cancellation
|
|
|
(3,800,000
|
)
|
|
|
(38,000
|
)
|
|
|
38,000
|
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,263,000
|
)
|
|
|
(6,263,000
|
)
|
Balance
July 31, 2017
|
|
|
63,093,153
|
|
|
$
|
631,000
|
|
|
$
|
110,141,000
|
|
|
$
|
(109,482,000
|
)
|
|
$
|
1,290,000
|
|
See
accompanying notes.
PURE
Bioscience, Inc.
Consolidated Statements of Cash Flows
|
|
Year
ended
|
|
|
|
July
31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,263,000
|
)
|
|
$
|
(14,371,000
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
1,070,000
|
|
|
|
1,902,000
|
|
Amortization
of stock issued for services
|
|
|
144,000
|
|
|
|
225,000
|
|
Fair
value of derivative liabilities in excess of proceeds
|
|
|
—
|
|
|
|
1,867,000
|
|
Impairment
of patents
|
|
|
—
|
|
|
|
48,000
|
|
Depreciation
and amortization
|
|
|
276,000
|
|
|
|
219,000
|
|
Inventory
write-off
|
|
|
50,000
|
|
|
|
—
|
|
Change
in fair value of derivative liabilities
|
|
|
277,000
|
|
|
|
5,481,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(34,000
|
)
|
|
|
(74,000
|
)
|
Inventories
|
|
|
27,000
|
|
|
|
(143,000
|
)
|
Prepaid
expenses
|
|
|
(58,000
|
)
|
|
|
(8,000
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(59,000
|
)
|
|
|
(131,000
|
)
|
Deferred
rent
|
|
|
8,000
|
|
|
|
(6,000
|
)
|
Net
cash used in operating activities
|
|
|
(4,562,000
|
)
|
|
|
(4,991,000
|
)
|
Investing
activities
|
|
|
|
|
|
|
|
|
Investment
in patents
|
|
|
(20,000
|
)
|
|
|
(15,000
|
)
|
Purchases
of property, plant and equipment
|
|
|
(206,000
|
)
|
|
|
(390,000
|
)
|
Net
cash used in investing activities
|
|
|
(226,000
|
)
|
|
|
(405,000
|
)
|
Financing
activities
|
|
|
|
|
|
|
|
|
Net
proceeds from the sale of common stock
|
|
|
1,049,000
|
|
|
|
8,000,000
|
|
Net
proceeds from the exercise of warrants
|
|
|
185,000
|
|
|
|
1,269,000
|
|
Net
cash provided by financing activities
|
|
|
1,234,000
|
|
|
|
9,269,000
|
|
Net
decrease and increase in cash and cash equivalents
|
|
|
(3,554,000
|
)
|
|
|
3,873,000
|
|
Cash
and cash equivalents at beginning of year
|
|
|
5,194,000
|
|
|
|
1,321,000
|
|
Cash
and cash equivalents at end of year
|
|
$
|
1,640,000
|
|
|
$
|
5,194,000
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash
paid for taxes
|
|
$
|
7,000
|
|
|
$
|
2,000
|
|
Noncash
Investing and Financing activities
|
|
|
|
|
|
|
|
|
Warrant
liability removed due to settlements
|
|
$
|
226,000
|
|
|
$
|
13,550,000
|
|
Restricted
stock unit cancelation
|
|
$
|
38,000
|
|
|
$
|
—
|
|
Fair
value of warrant liability at issuance
|
|
$
|
—
|
|
|
$
|
9,867,000
|
|
Common
stock issued for prepaid services
|
|
$
|
—
|
|
|
$
|
290,000
|
|
See
accompanying notes.
PURE
Bioscience, Inc.
Notes to Consolidated Financial Statements
1.
Organization and Business
All
references to “PURE,” “we”, “our,” and “us” refer to PURE Bioscience, Inc. and
our wholly owned subsidiary.
PURE
Bioscience, Inc. is focused on developing and commercializing our proprietary antimicrobial products that provide solutions to
the health and environmental challenges of pathogen and hygienic control. Our technology platform is based on patented stabilized
ionic silver, and our initial products contain silver dihydrogen citrate, or SDC. SDC is a broad-spectrum, non-toxic antimicrobial
agent that is manufactured as a liquid delivered in various concentrations. We currently distribute and contract the manufacture
and distribution of our SDC-based disinfecting and sanitizing products. We also contract manufacture and sell SDC-based formulations
to manufacturers for use as a raw material ingredient in the production of personal care products. We believe our technology platform
has potential application in a number of industries. We intend to focus our current resources on providing food safety solutions
to the food industry.
We
were incorporated in the state of California in August 1992 as Innovative Medical Services. In September 2003, we changed our
name to PURE Bioscience. In March 2011, we reincorporated in the state of Delaware. We operate in one business segment.
Liquidity
& Going Concern Uncertainty
These
consolidated financial statements have been prepared and presented on a basis assuming we will continue as a going concern. The
factors below raise substantial doubt about our ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary from the outcome of this uncertainty.
Since
our inception, we have financed our operations primarily through public and private offerings of securities, debt financing, and
revenue from product sales and license agreements. We have a history of recurring losses, and as of July 31, 2017, we have incurred
a cumulative net loss of $109,482,000.
We
do not have, and may never have, significant cash inflows from product sales or from other sources of revenue to fund our operations.
As of July 31, 2017, we had $1,640,000 in cash and cash equivalents, and $426,000 of accounts payable. As of July 31, 2017, we
had no long-term debt. In October 2017, we completed a tender offer to amend and exercise outstanding warrants held by the investors
participating in our 2014, 2015 and 2017 private placement financings, resulting in our receipt of approximately $2.8 million
in cash proceeds from the exercise of 4,756,163 outstanding warrants. We do not currently believe that our existing cash resources
are sufficient to meet our anticipated needs over the next twelve months from the date hereof.
Our
future capital requirements depend on numerous forward-looking factors. These factors may include, but are not limited to, the
following: the acceptance of, and demand for, our products; our success and the success of our partners in selling our products;
our success and the success of our partners in obtaining regulatory approvals to sell our products; the costs of further developing
our existing products and technologies; the extent to which we invest in new product and technology development; and the costs
associated with the continued operation, and any future growth, of our business. The outcome of these and other forward-looking
factors will substantially affect our liquidity and capital resources.
Until
we can generate significant cash from operations, we expect to continue to fund our operations with the proceeds of offerings
of our equity and debt securities. However, we cannot assure you that additional financing will be available when needed or that,
if available, financing will be obtained on terms favorable to us or to our stockholders. If we raise additional funds from the
issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds
by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific
financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter
into to raise funds may require us to relinquish our rights to our products or technology, and we cannot assure you that we will
be able to enter into any such contracts or license arrangements on acceptable terms, or at all. Having insufficient funds may
require us to delay or scale back our marketing, distribution and other commercialization activities or cease our operations altogether.
We
do not have any unused credit facilities or other sources of capital available to us at this time. We intend to secure additional
working capital through sales of additional debt or equity securities. Our intended financing initiatives are subject to risk,
and we cannot provide any assurance about the availability or terms of these or any future financings.
If
we are unable to obtain sufficient capital, it will have a material adverse effect on our business and operations. It could cause
us to fail to execute our business plan, fail to take advantage of future opportunities, or fail to respond to competitive pressures
or customer requirements. It also may require us to significantly modify our business model and operations to reduce spending
to a sustainable level, which may include delaying, scaling back or eliminating some or all of our ongoing and planned investments
in corporate infrastructure, research and development projects, regulatory submissions, business development initiatives, and
sales and marketing activities, among other investments. If adequate funds are not available when needed, we may be required to
reduce or cease operations altogether.
The
consolidated financial statements do not include any adjustment relating to recoverability or classification of recorded assets
and classification of recorded liabilities.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements include the consolidated accounts of PURE Bioscience, Inc. and its wholly owned
subsidiary, ETIH2O Corporation, a Nevada corporation. ETIH2O Corporation has no business and no material assets or liabilities
and there have been no significant transactions related to ETIH2O during the periods presented in the consolidated financial statements.
All inter-company balances and transactions have been eliminated.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements, and the disclosures made in the accompanying notes to the consolidated financial statements. Actual results
could differ materially from those estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash and highly liquid investments with original maturities from the purchase date of three months
or less.
Restricted
Cash
The
Company is required to maintain $75,000 in a restricted certificate of deposit account in order to fully collateralize four revolving
credit card accounts.
Fair
Value of Financial Instruments
Certain
of our financial instruments—including cash and cash equivalents, accounts receivable, inventories, prepaid expenses, accounts
payable, accrued liabilities, and deferred rent are carried at cost, which is considered to be representative of their respective
fair values because of the short-term nature of these instruments. Our derivative liabilities are carried at estimated fair value
(See Notes 5 and 6).
Derivative
Financial Instruments
We
do not use derivative instruments to hedge exposures to cash flow or market or foreign currency risks.
We
review the terms of the common stock, warrants and convertible debt we issue to determine whether there are derivative instruments,
including embedded conversion options that are required to be bifurcated and accounted for separately as derivative financial
instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including a conversion
option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative
instrument.
Derivatives
are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating
income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated
and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative
instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those
instruments being recorded at a discount from their face value.
The
discount from the face value of any convertible debt, together with the stated interest on the instrument, is amortized over the
life of the instrument through periodic charges to interest expense, using the effective interest method.
Accounts
Receivable
Trade
accounts receivable are recorded net of allowances for doubtful accounts. Estimates of allowances for doubtful accounts are determined
based on historical payment patterns and individual customer circumstances. The allowance for doubtful accounts was zero at July
31, 2017 and 2016.
Inventories
Inventories
are stated at the lower of cost or net realizable value, and net of a valuation allowance for potential excess or obsolete material.
Cost is determined using the average cost method.
Property,
Plant and Equipment
Property,
plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. The estimated useful lives of our property, plant, and equipment range from three to
ten years. Capitalized costs associated with leasehold improvements are depreciated over the lesser of the useful life of the
asset or the remaining life of the lease. Depreciation is generally included in selling, general and administrative expense. Depreciation
related to manufacturing is systematically allocated to inventory produced, and expensed through cost of goods sold at the time
inventory is sold.
Patents
We
have filed a number of patent applications with the United States Patent and Trademark Office and in foreign countries. Certain
legal and related costs incurred in connection with pending patent applications have been capitalized. Costs related to successful
patent applications are amortized over the lesser of the remaining useful life of the related technology or the remaining patent
life, commencing on the date the patent is issued. Capitalized costs related to patent applications are expensed in the period
in which a determination is made not to pursue such applications.
Impairment
of Long-Lived Assets
In
accordance with GAAP, if indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining
whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is
indicated, we measure the amount of such impairment by comparing the carrying value of the asset to the fair value of the asset
and we record the impairment as a reduction in the carrying value of the related asset and a charge to operating results. Estimating
the undiscounted future cash flows associated with long-lived assets requires judgment, and assumptions could differ materially
from actual results. There were no patent impairments during the year ended July 31, 2017. During the year ended July 31, 2016
we incurred $48,000 of expense related to the abandonment of a pending patent not associated with our core business.
Revenue
Recognition
We
sell our products to distributors and end users. We record net sales when we sell products to our customers, rather than when
our customers resell products to third parties. When we sell products to our customers, we reduce the balance of our inventory
with a corresponding charge to cost of goods sold. We do not currently have any consignment sales.
Terms
of our product sales are generally FOB shipping point. Net sales are recognized when delivery of the products has occurred (which
is generally at the time of shipment), title has passed to the customer, the selling price is fixed or determinable, collectability
is reasonably assured and we have no further obligations. Any amounts received prior to satisfying these revenue recognition criteria
are recorded as deferred revenue. We record sales net of discounts at the time of sale and report sales net of such discounts.
We
also license our products and technology to development and commercialization partners. Upfront product and technology license
fees under multiple-element arrangements are deferred and recognized over the period of such services or performance, if such
arrangements require on-going services or performance. Non-refundable amounts received for substantive milestones are recognized
upon achievement of the milestone. Any amounts received prior to satisfying these revenue recognition criteria are recorded as
deferred revenue.
Shipping
and Handling Costs
Shipping
and handling costs incurred by us for product shipments are included in cost of goods sold and were minimal for the years ended
July 31, 2017 and 2016.
Research
and Development Costs
Research
and development costs are expensed as incurred.
Share-Based
Compensation
We
grant equity-based awards under share-based compensation plans. We estimate the fair value of share-based payment awards using
the Black-Scholes option valuation model. This fair value is then amortized over the requisite service periods of the awards.
The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying
stock, risk-free interest rate, dividend yield, and expected life of the option. Share-based compensation expense is based on
awards ultimately expected to vest, and therefore is reduced by expected forfeitures.
Other
Income (Expense)
We
record interest income, interest expense, the change in derivative liabilities, as well as other non-operating transactions, as
other income (expense) on our consolidated statements of operations.
Comprehensive
Loss
Comprehensive
loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources,
including unrealized gains and losses on marketable securities and foreign currency translation adjustments. For the years ended
July 31, 2017 and 2016, our comprehensive loss consisted only of net loss.
Income
Taxes
We
recognize deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the
amounts at which they are carried in the financial statements based upon the enacted tax rates in effect for the year in which
the differences are expected to reverse. A valuation allowance is established to reduce deferred tax assets to the amount expected
to be realized.
Net
Loss Per Share
Basic
net loss per common share is computed as net loss divided by the weighted average number of common shares outstanding for the
period. Our diluted net loss per common share is the same as our basic net loss per common share because we incurred a net loss
during each period presented, and the potentially dilutive securities from the assumed exercise of all outstanding stock options,
restricted stock units, and warrants would have an antidilutive effect. For the years ended July 31, 2017 and 2016, the number
of shares issuable upon the exercise of stock options, the vesting of restricted stock units, and the exercise of warrants, none
of which are included in the computation of basic net loss per common share, was 16,098,679 and 10,619,394, respectively.
Recent
Accounting Pronouncements
In
July 2017, the Financial Accounting Standards Board (“FASB”) issued a two-part Accounting Standards Update (“ASU”)
No. 2017-11, I. Accounting for Certain Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral
for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests With a Scope Exception (“ASU 2017-11”). ASU 2017-11 amends guidance in FASB ASC 260, Earnings Per Share,
FASB ASC 480, Distinguishing Liabilities from Equity, and FASB ASC 815, Derivatives and Hedging. The amendments in Part I of ASU
2017-11 change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round
features. The amendments in Part II of ASU 2017-11 re-characterize the indefinite deferral of certain provisions of Topic 480
that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting
effect. ASU 2017-11 is effective for public business entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. We are evaluating the effect that this update will have on our consolidated financial statements
and related disclosures.
In
August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15,
Presentation
of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern,
which requires management to evaluate whether there is substantial doubt about the entity’s ability to continue
as a going concern and, if so, provide certain footnote disclosures. This ASU is effective for annual periods ending after December
15, 2016, and interim periods within annual periods beginning after December 15, 2016. We adopted ASU 2014-15 during the fiscal
year ended July 31, 2017. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In
May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
which amended the existing accounting
standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods
or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services.
In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. We expect to
adopt ASU 2014-09 in the first fiscal quarter of 2019. We currently do not have any material revenue contracts with customers
and will review any new contracts entered into prior to the adoption of the new standard. We are evaluating the effect that this
update will have on our consolidated financial statements and related disclosures.
In
March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which is designed
to simplify several aspects of accounting for share-based payment award transactions, including income tax consequences, classification
of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. We
adopted ASU No. 2016-09 during the fiscal year ended July 31, 2017. The adoption of this guidance did not have a material impact
on the consolidated financial statements.
3.
Balance Sheet Details
Inventories
consist of the following:
|
|
July
31,
|
|
|
|
2017
|
|
|
2016
|
|
Raw
materials
|
|
$
|
82,000
|
|
|
$
|
120,000
|
|
Finished
goods
|
|
|
191,000
|
|
|
|
230,000
|
|
|
|
$
|
273,000
|
|
|
$
|
350,000
|
|
During
the year ended July 31, 2017, we wrote-off $50,000 for slow moving finished goods inventory manufactured in prior years. In addition,
during the years ended July 31, 2017 and 2016, we received $34,000 and $46,000, respectively, from the sale of inventory which
was reserved in prior fiscal years. The $34,000 and $46,000 gain is reflected in the other income (expense) section of the consolidated
statements of operations.
Property,
plant, and equipment consist of the following:
|
|
July
31,
|
|
|
|
2017
|
|
|
2016
|
|
Computers
and equipment
|
|
$
|
1,045,000
|
|
|
$
|
840,000
|
|
Furniture
and fixtures
|
|
|
21,000
|
|
|
|
21,000
|
|
|
|
|
1,066,000
|
|
|
|
861,000
|
|
Less
accumulated depreciation
|
|
|
(518,000
|
)
|
|
|
(421,000
|
)
|
|
|
$
|
548,000
|
|
|
$
|
440,000
|
|
Depreciation
expense was $98,000 and $40,000 for the years ended July 31, 2017 and 2016, respectively.
Patents
consist of the following:
|
|
July
31,
|
|
|
|
2017
|
|
|
2016
|
|
Patents
|
|
$
|
3,485,000
|
|
|
$
|
3,475,000
|
|
Less
accumulated amortization
|
|
|
(2,663,000
|
)
|
|
|
(2,495,000
|
)
|
|
|
$
|
822,000
|
|
|
$
|
980,000
|
|
Patent
amortization expense for the years ended July 31, 2017 and 2016 was $178,000 and $179,000, respectively. At July 31, 2017, the
weighted average remaining amortization period for all patents was approximately five years. The annual patent amortization expense
for the next five years is expected to be approximately $178,000 per year. There were no patent impairments during the year ended
July 31, 2017. During the year ended July 31, 2016 we incurred $48,000 of expense related to the abandonment of a pending patent
not associated with our core business.
4.
Commitments and Contingencies
Severance
Agreement
On
August 13, 2013, the Company entered into a Severance and Release Agreement with Dennis Brovarone, a former Board member. Mr.
Brovarone will receive $91,000, payable in 60 monthly installments of approximately $1,600, commencing December 11, 2013 for amounts
previously accrued as of July 31, 2013. For the years ended July 31, 2017 and 2016, $19,000 and $39,000 remained payable under
the agreement and is included in the accrued restructuring liability section of the consolidated balance sheets as of July 31,
2017 and 2016.
Operating
Leases
During
August 2016, we amended the lease of our primary facility in El Cajon, California under a noncancelable operating lease that now
expires in December 2019. This facility includes our corporate offices, research and development laboratory, and warehouse. Rent
expense, including common area maintenance, was $116,000 and $99,000 for the years ended July 31, 2017 and 2016, respectively.
Future
minimum annual lease payments for our primary facility as of July 31, 2017 are as follows:
2018
|
|
$
|
94,000
|
|
2019
|
|
$
|
106,000
|
|
2020
|
|
$
|
45,000
|
|
|
|
$
|
245,000
|
|
5.
Fair Value of Financial Instruments
Fair
value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,
the authoritative guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value
as follows:
|
●
|
Level
1 – Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
●
|
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities.
|
In
connection with the October and November 2015 Private Placements and a prior Bridge Loan, we issued warrants with derivative features.
These instruments are accounted for as derivative liabilities (See Note 6).
We
used Level 3 inputs for the valuation methodology of the derivative liabilities. The estimated fair values were computed using
a Monte Carlo option pricing model based on various assumptions. Our derivative liabilities are adjusted to reflect estimated
fair value at each period end, with any decrease or increase in the estimated fair value being recorded in other income or expense
accordingly, as adjustments to the fair value of the derivative liabilities. Various factors are considered in the pricing models
we use to value the warrants, including the Company’s current stock price, the remaining life of the warrants, the volatility
of the Company’s stock price, and the risk free interest rate. Future changes in these factors will have a significant impact
on the computed fair value of the warrant liability. As such, we expect future changes in the fair value of the warrants to vary
significantly from quarter to quarter.
The
following table provides a reconciliation of the beginning and ending balances of the derivative liabilities for the years ended
July 31, 2017 and 2016:
Fair
Value of Significant Unobservable Inputs (Level 3)
|
|
Warrant
|
|
|
|
Liability
|
|
Balance
at July 31, 2015
|
|
$
|
4,000
|
|
Issuances
|
|
|
9,867,000
|
|
Settlement
of warrant liability
|
|
|
(13,550,000
|
)
|
Adjustments
to estimated fair value
|
|
|
5,481,000
|
|
Balance
at July 31, 2016
|
|
$
|
1,802,000
|
|
Issuances
|
|
|
—
|
|
Settlement
of warrant liability
|
|
|
(226,000
|
)
|
Adjustments
to estimated fair value
|
|
|
277,000
|
|
Balance
at July 31, 2017
|
|
$
|
1,853,000
|
|
6.
Derivative Liability
On
October 23, 2015 (the “October Closing Date”), we completed a first closing of a private placement financing (the
“2015 Private Placement Financing”), where we issued, among other securities, a warrant to purchase up to an aggregate
of 6,666,666 shares of common stock with a term of five years and a warrant to purchase up to an aggregate of 8,666,666 shares
of common stock with a term of six months (See Note 7).
On
November 23, 2015 (the “November Closing Date’), we completed a second and final closing of the 2015 Private Placement
Financing, where we issued, among other securities, a warrant to purchase up to an aggregate of 2,222,217 shares of common stock
with a term of five years and a warrant to purchase up to an aggregate of 2,820,670 shares of common stock with a term of six
months (See Note 7).
We
accounted for the combined 20,376,219 warrants issued in connection with the 2015 Private Placement Financing in accordance with
the accounting guidance for derivatives. The applicable accounting guidance sets forth a two-step model to be applied in determining
whether a financial instrument is indexed to an entity’s own stock, which would qualify such financial instruments for a
scope exception. This scope exception specifies that a contract that would otherwise meet the definition of a derivative financial
instrument would not be considered as such if the contract is both (i) indexed to the entity’s own stock and (ii) classified
in the stockholders’ equity section of the entity’s balance sheet. We determined the warrants were ineligible for
equity classification due to anti-dilution provisions set forth therein.
During the fiscal year ended July 31, 2017,
we received approximately $106,000 from the exercise of warrants to purchase 236,116 shares of common stock issued at the November
Closing Date. The fair value on the exercise date was returned to additional paid in capital and is reflected in the settlement
of warrant liability section on the table above.
During
the fiscal year ended July 31, 2016, (i) all 2,820,670 of the six-month warrants issued in the second and final closing were exercised,
(ii) the six-month warrants issued in the first closing expired and (iii) the five-year warrants issued in the first closing were
cancelled. The fair value on the exercise date and the date of expiration and cancelation was returned to additional paid in capital
and is reflected in the settlement of warrant liability section on the table above.
On
the October Closing Date, the derivative liabilities were recorded at an estimated fair value of $7,008,000. Given that the fair
value of the derivative liabilities exceeded the total proceeds of the private placement of $6,000,000, no net amounts were allocated
to the common stock. The $1,008,000 amount by which the recorded liabilities exceeded the proceeds was charged to other expense
at the October Closing Date. On the November Closing Date, the derivative liabilities were recorded at an estimated fair value
of $2,859,000. Given that the fair value of the derivative liabilities issued on the November Closing Date exceeded the total
proceeds of the private placement of $2,000,000, as of the November Closing Date, no net amounts were allocated to the common
stock. The $859,000 amount by which the recorded liabilities exceeded the proceeds was charged to other expense at the November
Closing Date.
As
of July 31, 2017, we had a warrant liability of $1,853,000 related to the 1,986,101 warrants outstanding issued in connection
with the November Closing Date of the 2015 Private Placement Financing. The following assumptions were used as inputs to the model
at July 31, 2017: stock price of $1.25 per share and a warrant exercise price of $0.45 per share; our historical stock price volatility
of 70.00%; risk free interest rate on U.S. treasury notes of 1.6%; warrant expiration of 3.3 years. In addition, as of the valuation
date, management assessed the probabilities of future financings assumptions in the valuation model.
During
the fourth quarter of 2012 we issued 132,420 warrants with derivative features pursuant to a Bridge Loan financing. During the
year ended July 31, 2017, of the 9,709 warrants outstanding, there was a net exercise on 5,335 warrants which resulted in the
issuance of 4,179 shares of our common stock. As these warrants were net exercised, as permitted under the respective warrant
agreement, we did not receive any cash proceeds. The remaining 4,374 warrants issued in connection with the Bridge Loan expired
during the year ended July 31, 2017. The fair value on the exercise date and the date of expiration was returned to additional
paid in capital and is reflected in the settlement of warrant liability section on the table above.
As
of July 31, 2017 and 2016, the total value of the derivative liabilities was $1,853,000 and $1,802,000, respectively. The change
in fair value of the warrant liability for the year ended July 31, 2017 and 2016, was an increase of $277,000 and $5,481,000,
respectively, which was recorded as a change in derivative liability in the consolidated statements of operations. We have revalued
the derivative liabilities as of July 31, 2017, and will continue to do so on each subsequent balance sheet date until the securities
to which the derivative liabilities relate are exercised or expire, with any changes in the fair value between reporting periods
recorded as other income or expense.
Please
see Note 12. Subsequent Events for a discussion of our tender offer to amend and exercise the outstanding warrants held by the
investors participating in our 2014, 2015 and 2017 private placement financings.
7.
Stockholders’ Equity
Preferred
Stock
As
of July 31, 2017, the Company’s Board of Directors is authorized to issue 5,000,000 shares of preferred stock with a par
value of $0.01 per share, in one or more series. As of July 31, 2017 and 2016, there were no shares of preferred stock issued
and outstanding.
Common
Stock
As
of July 31, 2017, 100,000,000 shares of common stock with a par value of $0.01 per share are authorized for issuance.
Private
Placements
On
December 1, 2016, we completed an initial closing (the “Initial Closing”) of a private placement financing (the “Private
Placement Offering”) to accredited investors. We raised aggregate gross proceeds of $1,000,000 from the sale of (i) an aggregate
of 1,176,472 shares of the Company’s common stock at a purchase price of $0.85 per share and (ii) warrants to purchase up
to an aggregate of 1,176,472 shares of common stock with a term of five years at an exercise price of $1.25 per share. We determined
the warrants issued in connection with the Initial Closing were equity instruments and did not represent derivative instruments.
On
January 23, 2017, we closed on a second and final closing (the “Final Closing”) of the Private Placement Offering.
In the Final Closing we raised aggregate gross proceeds of approximately $337,000 from the sale of (i) an aggregate of 396,469
shares of the Company’s common stock at a purchase price of $0.85 per share and (ii) warrants to purchase up to an aggregate
of 396,469 shares of common stock with a term of five years at an exercise price of $1.25 per share. The securities issued in
the Private Placement Offering were issued pursuant to a securities purchase agreement entered into with the accredited investors.
We determined the warrants issued in connection with the Final Closing were equity instruments and did not represent derivative
instruments.
We
utilized the services of a placement agent for the Private Placement Offering. In connection with the Private Placement Offering,
we paid such placement agent an aggregate cash fee of $128,600 and issued to such placement agent or its designees warrants to
purchase 151,294 shares of common stock at an exercise price of $1.275 per share. The terms of the placement agent warrants are
substantially identical to the investor warrants, other than the exercise price and the holders’ ability to exercise the
placement agent warrants on a cashless basis at its discretion. Additionally, we agreed to pay the placement agent a $12,000 due
diligence fee and to reimburse the placement agent for fees of counsel up to $35,000.
The
net proceeds from the Private Placement Offering were approximately $1,049,000 and we are using the net proceeds for general corporate
purposes, including our research and development efforts, and for general administrative expenses and working capital.
We
also entered into a registration rights agreement with the Investors (the “Registration Rights Agreement”), pursuant
to which we were obligated to file with the Securities and Exchange Commission (the “SEC”) as soon as practicable,
but in any event, by February 6, 2017, on Form S-1 to register 1,572,941 shares of common stock issued to the selling security
holders in the Private Placement Offering and up to 1,572,941 shares of our common stock issuable upon the exercise of warrants
issued to the selling security holders in the Private Placement Offering. We were obligated to use our commercially reasonable
best efforts to cause the registration statement to be declared effective by the SEC within 45 days after the filing of the registration
statement (or within 75 days if this registration statement is subject to a full review by the SEC). Additionally, the Registration
Rights Agreement provides for certain monetary penalties if the registration statement is not filed or declared effective prior
to certain dates, or it is not maintained effective, as set forth in the Registration Rights Agreement.
The
Private Placement Offering described above was made pursuant to the exemption provided by Section 4(a)(2) of the Securities Act,
and Regulation D promulgated thereunder.
On
February 6, 2017, we filed a resale registration statement on Form S-1 with the SEC, which was declared effective on February
15, 2017, registering the 1,572,941 shares of common stock issued to the selling security holders in the Private Placement Offering
and up to 1,572,941 shares of our common stock issuable upon the exercise of warrants issued to the selling security holders in
the Private Placement Offering.
I
n
the October closing of the 2015 Private Placement Financing we issued 13,333,333 shares of common stock for aggregate gross proceeds
to us of $6.0 million. In addition, we issued a warrant to purchase up to an aggregate of 6,666,666 shares of common stock
with a term of five years and a warrant to purchase up to an aggregate of 8,666,666 shares of common stock with a term of six
months. We did not engage a placement agent or investment banker to facilitate the Private Placement Financing (See Note 6).
In
the November closing of the 2015 Private Placement Financing we issued 4,444,439 shares of common stock for aggregate gross proceeds
to us of $2.0 million. In addition, we issued a warrant to purchase up to an aggregate of 2,222,217 shares of common stock
with a term of five years and a warrant to purchase up to an aggregate of 2,820,670 shares of common stock with a term of six
months. We did not engage a placement agent or investment banker to facilitate the Private Placement Financing (See Note 6).
We
offered the securities in the 2015 Private Placement Financing to the Company’s existing investors who previously purchased
securities in our private placement financings in August and September of 2014 (the “Prior Financings”). Tom Lee,
a member of our board of directors and a participant in the Prior Financings, together with certain of his affiliates, invested
approximately $472,000 in the final closing of the 2015 Private Placement Financing on the same terms offered to the other Investors.
During
the fiscal year ended July 31, 2016, (i) all 2,820,670 of the six-month warrants issued in the second and final closing of the
2015 Private Placement were exercised, (ii) the six-month warrants issued in the first closing of the 2015 Private Placement expired
and (iii) the five-year warrants issued in the first closing of the 2015 Private Placement were cancelled.
We
also entered into a registration rights agreement with the Investors in the 2015 Private Placement Financing (the “Registration
Rights Agreement”), pursuant to which we are obligated, upon request of the Investor in the October closing of the 2015
Private Placement Financing and subject to certain conditions, to file with the SEC as soon as practicable, but in any event within
60 days after receiving such applicable request, a registration statement on Form S-1 (the “2015 Resale Registration Statement”)
to register the Purchase Shares and the Warrant Shares for resale under the Securities Act of 1933, as amended (the “Securities
Act”) and other securities issued or issuable with respect to or in exchange for the Purchase Shares or Warrant Shares.
We are obligated to use our commercially reasonable efforts to cause the 2015 Resale Registration Statement to be declared effective
by the SEC as promptly as reasonably practicable after the filing of the Resale Registration Statement, but no monetary penalty
or liquidated damages will be imposed upon the Company if the Registration Statement is not declared effective by the SEC.
Other
Activity
During
the fiscal year ended July 31, 2016, we entered into a two-year service agreement for general financial advisory services. In
accordance with the agreement we issued 250,000 shares of common stock, with a value of $290,000. The value was capitalized to
prepaid expense and is being amortized over the term of the agreement. For the years ended July 31, 2017 and 2016, we recognized
$144,000 and $43,000, respectively, of expense related to these services. In addition, during the year ended July 31, 2016, we
recognized $182,000 of expense for services rendered associated with stock issued in prior years.
Warrants
During
the fiscal year ended July 31, 2017, we received approximately $185,000 from the exercise of warrants to purchase 342,116 shares
of common stock. 236,116 of the warrants exercised contained derivative features, while 106,000 of the warrants exercised were
considered equity instruments. In addition, there was a net exercise on 5,335 warrants which resulted in the issuance of 4,179
shares of our common stock (See Note 6).
During
the fiscal year ended July 31, 2016, we received $1,269,000 from the exercise of warrants issued in November 2015 to purchase
2,820,670 shares of our common stock. In addition, there was a net exercise on 78,000 warrants which resulted in the issuance
of 41,178 shares of our common stock. As these warrants were net exercised, as permitted under the respective warrant agreement,
we did not receive any cash proceeds. The warrants were issued in connection with a prior year private placement and were considered
equity instruments.
A
summary of our warrant activity and related data is as follows:
|
|
Shares
|
|
Outstanding
at July 31, 2015
|
|
|
5,035,156
|
|
Issued
|
|
|
20,376,219
|
|
Exercised
|
|
|
(2,898,670
|
)
|
Expired
|
|
|
(15,456,279
|
)
|
Outstanding
at July 31, 2016
|
|
|
7,056,426
|
|
Issued
|
|
|
1,724,235
|
|
Exercised
|
|
|
(347,451
|
)
|
Expired/Cancelled
|
|
|
(129,374
|
)
|
Outstanding
at July 31, 2017
|
|
|
8,303,836
|
|
The
following table summarizes information related to warrants outstanding at July 31, 2017:
Expiration
|
|
Exercise
|
|
|
|
|
Date
|
|
Price
|
|
|
Shares
|
|
09/17/17
|
|
$
|
1.38
|
|
|
|
113,520
|
|
01/24/18
|
|
$
|
0.83
|
|
|
|
375,000
|
|
08/29/19
|
|
$
|
0.75
|
|
|
|
4,104,980
|
|
11/23/20
|
|
$
|
0.45
|
|
|
|
1,986,101
|
|
12/01/21
|
|
$
|
1.25
|
|
|
|
1,176,472
|
|
12/01/21
|
|
$
|
1.28
|
|
|
|
117,647
|
|
01/23/22
|
|
$
|
1.25
|
|
|
|
396,469
|
|
01/23/22
|
|
$
|
1.28
|
|
|
|
33,647
|
|
|
|
|
|
|
|
|
8,303,836
|
|
Restricted
Stock Units
During
the fiscal years ended July 31, 2017 and 2016, we issued 150,000 and 2,075,000 shares of common stock to employees and directors
for restricted stock units that vested, based on service conditions, respectively (See Note 8).
8.
Share-Based Compensation
Restricted
Stock Units
During
the fiscal year ended July 31, 2017, the Compensation Committee of the Board of Directors authorized the issuance of 1,150,000
Restricted Stock Units (“RSUs”) to our officers and directors. Each RSU represents the right to receive one share
of common stock, issuable at the time the RSU subsequently settles, as set forth in the Restricted Stock Unit Agreement. The breakdown
is as follows:
|
●
|
Henry
R. Lambert RSU Award: We granted Mr. Lambert an award consisting of two hundred thousand (200,000) RSUs. 25% of the RSUs vest
on December 31, 2018 with the remaining shares vesting in three equal annual installments thereafter.
|
|
|
|
|
●
|
Chairman
RSU Award: We granted Mr. Pfanzelter an award consisting of five hundred thousand (500,000) RSUs. 25% of the RSUs vest on
December 31, 2018 with the remaining shares vesting in three equal annual installments thereafter.
|
|
|
|
|
●
|
Director
RSU Awards: We granted Messrs. Cohee, Lee, and Otis, awards consisting of one hundred fifty thousand (150,000) RSUs, respectively.
50% of the RSUs will vest on the earlier of the date of our annual meeting of stockholders held in 2018 or January 15, 2018
and 50% of the RSUs will vest on the earlier of the date of our annual meeting of stockholders held in 2019 or January 15,
2019.
|
A
summary of our restricted stock unit activity and related data is as follows:
|
|
Shares
|
|
Outstanding
at July 31, 2015
|
|
|
3,210,000
|
|
Granted
|
|
|
1,272,500
|
|
Vested
|
|
|
(2,075,000
|
)
|
Forfeited
|
|
|
(1,122,500
|
)
|
Outstanding
at July 31, 2016
|
|
|
1,285,000
|
|
Granted
|
|
|
1,150,000
|
|
Vested
|
|
|
(150,000
|
)
|
Forfeited
|
|
|
(250,000
|
)
|
Outstanding
at July 31, 2017
|
|
|
2,035,000
|
|
During
the fiscal year ended July 31, 2017, 150,000 RSUs vested based on service conditions that were satisfied during the period, resulting
in the issuance of 150,000 shares of common stock. Of the 2,035,000 RSUs outstanding, we currently expect 1,150,000 to vest. As
of July 31, 2017, there was $1,302,000 of unrecognized non-cash compensation cost related to RSUs we expect to vest, which will
be recognized over a weighted average period of 3.32 years.
During
the fiscal year ended July 31, 2016, 2,075,000 RSUs vested based on service conditions that were satisfied during the period,
resulting in the issuance of 2,075,000 shares of common stock. In addition, we granted 1,272,500 RSUs that vest based on service
and performance conditions. During the year ended July 31, 2017 and 2016, no RSUs granted in prior years vested based on performance
conditions.
For
the years ended July 31, 2017 and 2016, share-based compensation expense for RSUs was $102,000 and $1,544,000, respectively.
RSU
Termination
On
December 13, 2016, we entered into an RSU Cancellation Agreement with our officers and directors who received RSUs in October
2013 as compensation for their continued services to us over a required vesting period. Under this Agreement, our officers and
directors agreed to cancel RSUs representing the right to receive an aggregate of 3.9 million vested shares of our common stock.
Pursuant to the terms of the cancelled RSUs, we would have been required to settle and deliver these vested shares to the individual
officers and directors prior to January 1, 2017, which would have triggered a taxable event. Our officers and directors, in their
individual capacities, voluntarily agreed to cancel their respective RSUs based on their determination that cancelling the RSUs
would be in the best interests of the Company and our stockholders. The individual officers and directors reached this conclusion
for the following reasons:
1.
|
Conserves
our Available Cash Resources
. The RSUs held by our officers provide these individuals with the right to require us to
pay the applicable state and federal taxes due upon the settlement and delivery of their vested RSU shares in exchange for
the individual cancelling and returning to us that number of shares of common stock equal in value to the contractual tax
payment obligation. By agreeing to cancel the RSUs, we will not be required to utilize our available cash resources to pay
the tax payments on behalf of our officers, and as a result, we can conserve our available cash resources to support the continued
implementation of our business plan.
|
|
|
2.
|
Reduces
Pressure on Our Stock Price
. The RSUs held by our non-employee directors provide these individuals with the right to immediately
sell into the public market that number of shares of common stock sufficient to cover the applicable state and federal taxes
payable as a result of the settlement and delivery of their vested RSU shares. Our common stock currently has a limited daily
trading volume, and the sale or the potential sale of a substantial number of shares of common stock by our officers and directors
to cover their federal and state tax obligations would adversely affect the market price of our common stock, which in turn,
could harm our ability to raise funds to support our operations or require us to raise funds at terms and valuations that
would be more dilutive to our existing stockholders.
|
Each
of our officers and directors who are parties to the RSU Cancellation Agreement agreed to cancel their RSUs and the shares of
common stock underlying the RSUs in their individual capacities as stockholders and equity award holders, and without any agreement
or promise from us or our officers or directors to issue them equity, equity-based awards or cash compensation in the future in
exchange for entering into the Agreement.
During
the fiscal year ended July 31, 2017, $87,000 of pre-vest expense was reversed as a result of the RSU cancelation.
Stock
Option Plans
In
February 2016, we amended and restated our 2007 Equity Incentive Plan, or the Plan, to, among other changes, increase the number
of shares of common stock issuable under the Plan by 4,000,000 shares and extend the term of the Plan until February 4, 2026.
The Plan provides for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, to
our employees, directors, consultants and advisors. These awards have up to a 10-year contractual life and are subject to various
vesting periods, as determined by the Compensation Committee or the Board of Directors. Our 2007 Equity Incentive Plan is the
only active plan pursuant to which options to acquire common stock or restricted stock awards can be granted and are currently
outstanding. As of July 31, 2017, there were approximately 561,000 shares available for issuance under the Plan.
During
the fiscal year ended July 31, 2017, the Compensation Committee of the Board of Directors authorized the issuance of 2,950,000
stock options to our officers and directors. Each option represents the right to receive one share of common stock, issuable at
the time the option vests, as set forth in the option agreement. The breakdown is as follows:
|
●
|
Henry
R. Lambert Option Awards: We granted Mr. Lambert an award consisting of an option to purchase two hundred thousand (200,000)
shares of common stock. The option has a five-year term and vests in four quarterly installments. In addition, we granted
Mr. Lambert an award consisting of an option to purchase four hundred thousand (400,000) shares of common stock. The option
has a ten-year term and vests 25% on December 31, 2018 with the remaining shares vesting in three equal annual installments
thereafter.
|
|
|
|
|
●
|
Mark
S. Elliott Option Award: We granted Mr. Elliott an award consisting of an option to purchase one hundred fifty thousand (150,000)
shares of common stock. The option has a five-year term and vests in four quarterly installments.
|
|
|
|
|
●
|
Chairman
Option Awards: We granted Mr. Pfanzelter an award consisting of an option to purchase two hundred thousand (200,000) shares
of common stock. The option has a five-year term and vests in four quarterly installments. In addition, we granted Mr. Pfanzelter
an award consisting of an option to purchase one million (1,000,000) shares of common stock. The option has a ten-year term
and vests 25% on December 31, 2018 with the remaining shares vesting in three equal annual installments thereafter.
|
|
|
|
|
●
|
Director
Option Awards: We granted Messrs. Cohee, Lee, Otis and Dr. Theno, awards consisting of an option to purchase one hundred thousand
(100,000) shares of common stock, respectively. The option has a five-year term and vests quarterly in four installments.
In addition, we granted Messrs. Cohee, Lee and Otis awards consisting of an option to purchase two hundred thousand (200,000)
shares of common stock, respectively. The option has a ten-year term with 50% vesting on the earlier of the date of our annual
meeting of stockholders held in 2018 or January 15, 2018 and 50% vesting on the earlier of the date of our annual meeting
of stockholders held in 2019 or January 15, 2019.
|
During
the fiscal year ended July 31, 2016, the Compensation Committee of the Board of Directors authorized the issuance of 950,000 stock
options to our officers and directors. Each option represents the right to receive one share of common stock, issuable at the
time the option vests, as set forth in the option agreement. The breakdown is as follows:
|
●
|
We
granted Mr. Lambert a five year award consisting of an option to purchase two hundred thousand (200,000) shares of common
stock.
|
|
|
|
|
●
|
Mark
S. Elliott Option Award: We granted Mr. Elliott a two year award consisting of an option to purchase one hundred fifty thousand
(150,000) shares of common stock. The option shares vest quarterly over a one year period.
|
|
|
|
|
●
|
Chairman
Option Award: We granted Mr. Pfanzelter a five year award consisting of an option to purchase two hundred thousand (200,000)
shares of common stock.
|
|
|
|
|
●
|
Director
Option Awards: We granted Messrs. Cohee, Lee, Otis and Dr. Theno, five year awards consisting of an option to purchase one
hundred thousand (100,000) shares of common stock, respectively.
|
The
option awards granted to Messrs. Lambert, Pfanzelter, Cohee, Lee, Otis and Dr. Theno vested in three installments: 33% on July
31, 2016; 33% on October 31, 2016; and 34% on January 31, 2017.
During
the years ended July 31, 2017 and 2016, none of the options granted to our officers and directors were granted pursuant to any
compensatory, bonus, or similar plan maintained or otherwise sponsored by the Company.
During
the year ended July 31, 2017, we issued 600,000 options to purchase common stock to employees supporting our selling, general
and administrative, and research and development functions and 85,000 options to purchase common stock to third-party consultants
for business development and investor relations services. In addition, we issued 100,000 options to purchase common stock to a
member of our scientific advisory board. All options granted to employees, consultants and advisory board members have a five-year
term and vest in four quarterly installments.
During
the year ended July 31, 2016, we issued 850,000 options to purchase common stock to employees supporting our selling, general
and administrative, and research and development functions. The vesting terms of the options varied from 100% on grant date to
quarterly over a one year period. In addition, during the year ended July 31, 2016, we issued 50,000 options to purchase common
stock to third-party consultants for business development services. 12,500 option shares vested during the year ended July 31,
2016. The remaining options vest only if sales milestones are achieved. We currently do not expect the remaining options issued
under the agreements to vest.
A
summary of our stock option activity for the fiscal years ended July 31, 2017 and 2016 is as follows:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at July 31, 2015
|
|
|
434,218
|
|
|
$
|
4.07
|
|
|
$
|
—
|
|
Granted
|
|
|
1,850,000
|
|
|
$
|
1.07
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Cancelled
|
|
|
(6,250
|
)
|
|
$
|
2.20
|
|
|
|
|
|
Outstanding
at July 31, 2016
|
|
|
2,277,968
|
|
|
$
|
1.60
|
|
|
$
|
46,000
|
|
Granted
|
|
|
3,735,000
|
|
|
$
|
1.05
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Cancelled
|
|
|
(253,125
|
)
|
|
$
|
1.42
|
|
|
|
|
|
Outstanding
at July 31, 2017
|
|
|
5,759,843
|
|
|
$
|
1.25
|
|
|
$
|
1,120,000
|
|
The
weighted-average remaining contractual term of options outstanding at July 31, 2017 was 5.66 years.
At
July 31, 2017, options to purchase 2,729,843 shares of common stock were exercisable. These options had a weighted-average exercise
price of $1.43, an aggregate intrinsic value of $654,000, and a weighted average remaining contractual term of 3.21 years. The
weighted average grant date fair value for options granted during the years ended July 31, 2017 and 2016, was $0.67 and $0.47,
respectively. The total unrecognized compensation cost related to unvested stock option grants as of July 31, 2017 was approximately
$1,892,000 and the weighted average period over which these grants are expected to vest is 3.05 years.
For
the fiscal year ended July 31, 2017 and 2016, share-based compensation expense for stock options was $968,000 and $358,000 respectively.
We
use the Black-Scholes valuation model to calculate the fair value of stock options. Share-based compensation expense is recognized
over the vesting period using the straight-line method. The fair value of stock options was estimated at the grant date using
the following weighted average assumptions:
|
|
For
the years ended
July 31,
|
|
|
|
2017
|
|
|
2016
|
|
Volatility
|
|
|
81.00
|
%
|
|
|
82.12
|
%
|
Risk-free
interest rate
|
|
|
1.70
|
%
|
|
|
0.83
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected
life
|
|
|
4.66
|
years
|
|
|
2.13
|
years
|
Volatility
is the measure by which our stock price is expected to fluctuate during the expected term of an option. Volatility is derived
from the historical daily change in the market price of our common stock, as we believe that historical volatility is the best
indicator of future volatility.
The
risk-free interest rates used in the Black-Scholes calculations are based on the prevailing U.S. Treasury yield as determined
by the U.S. Federal Reserve.
We
have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future.
Accordingly, we have assumed no dividend yield for purposes of estimating the fair value of our share-based compensation.
The
weighted average expected life of options was estimated using the average of the contractual term and the weighted average vesting
term of the options. Certain options granted to consultants are subject to variable accounting treatment and are required to be
revalued until vested.
Share-based
compensation expense is based on awards ultimately expected to vest, and therefore is reduced by expected forfeitures. We have
not had significant forfeitures of stock options granted to employees and directors as a significant number of our historical
stock option grants were fully vested at issuance or were issued with short vesting provisions. Therefore, we have estimated the
forfeiture rate of our outstanding stock options as zero.
9.
Related Party Transactions
On
December 11, 2013, the Company entered into a five-year strategic collaboration agreement with St. Louis-based Intercon Chemical
Company (ICC). The agreement consists of a multi-prong approach to accelerate the commercialization of PURE’s unique and
proprietary SDC-based products. The strategic collaboration agreement provides:
|
●
|
ICC
licenses from PURE its patents and technology know-how for the exclusive manufacture of our SDC-based products.
|
|
|
|
|
|
|
●
|
ICC
will invest in plant improvements to allow for expanded SDC production.
|
|
|
|
|
|
|
●
|
ICC’s
R&D team will collaborate on SDC product line development.
|
|
●
|
ICC
licenses the distribution rights for SDC-based products into its core businesses of institutional cleaning and sanitation
products.
|
|
|
|
|
|
|
●
|
ICC
will also develop a new initiative focused on US hospital, healthcare and medical facilities.
|
|
|
|
|
|
|
●
|
PURE
earns royalty income on SDC-products sold by ICC and its affiliates.
|
During
the years ended July 31, 2017 and 2016, our net product sales to ICC was $33,000 and $34,000, respectively. As of July 31, 2017,
$75,000 was payable to ICC for the production of SDC based products and $6,000 of accounts receivable was due to the Company.
As of July 31, 2016, $118,000 was payable to ICC for the production of SDC based products and $24,000 of accounts receivable was
due to the Company.
The
president of ICC is a shareholder of the Company.
10.
Sales Concentration
Net
product sales were $1,831,000 and $1,289,000 for the years ended July 31, 2017 and 2016, respectively. For the year ended July
31, 2017, two individual customers accounted for 33% and 19%, of our net product sales, respectively. No other individual customer
accounted for 10% or more of our net product sales. The geographic breakdown of net product sales for the year ended July 31,
2017 was as follows: 100% U.S. For the year ended July 31, 2016, one customer accounted for 37% of our net product sales. No other
individual customer accounted for 10% or more of our net product sales. The geographic breakdown of net product sales for the
year ended July 31, 2016 was as follows: 100% U.S.
11.
Income Taxes
We
file federal and state consolidated tax returns with our subsidiaries. Our income tax provision for the year ended July 31, 2017
and 2016 was $1,600; the minimum state franchise taxes we pay regardless of income or loss.
At
July 31, 2017, we had federal and state tax net operating loss carry-forwards of approximately $100.3 million and $74.7
million, respectively. Included in these net operating loss carry-forwards is $18.6 million related to a deduction for income
tax purposes for which the Company has not realized a tax benefit. In future periods an adjustment would be recorded to Additional
Paid in Capital at the time that these net operating losses may be utilized and reduce income tax. At July 31, 2016, we had federal
and state tax net operating loss carry-forwards of approximately $95.4 million and $79.0 million, respectively. Utilization of
the net operating loss carry-forwards may be subject to a substantial annual limitation due to ownership change limitations that
may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code as well as similar
state provisions. These ownership changes may limit the amount of net operating loss carry-forwards that can be utilized annually
to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Internal
Revenue Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of
more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since our formation,
we have raised capital through the issuance of capital stock on several occasions (both before and after our initial public offering
in 1996) which, combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in
such an ownership change, or could result in an ownership change in the future upon subsequent disposition. While we do not believe
that we have experienced an ownership change, the pertinent tax rules related thereto are complex and subject to varying interpretations,
and thus complete assurance cannot be provided that the taxing authorities would not take an alternative position.
Our current federal tax loss carry-forwards
begin expiring in the year ended July 31, 2019 and, unless previously utilized, will completely expire in the year ending July
31, 2037. Our state tax loss carry-forwards begin to expire in the year ending July 31, 2018, and will completely
expire in the year ending July 31, 2037.
Significant
components of our deferred tax assets are as follows:
|
|
July
31,
|
|
|
|
2017
|
|
|
2016
|
|
Net
operating loss carry-forward
|
|
$
|
30,970,000
|
|
|
$
|
30,160,000
|
|
Stock
options and warrants
|
|
|
3,250,000
|
|
|
|
3,250,000
|
|
Other
temporary differences
|
|
|
(140,000
|
)
|
|
|
(140,000
|
)
|
Total
deferred tax assets
|
|
|
34,080,000
|
|
|
|
33,270,000
|
|
Valuation
allowance for deferred tax assets
|
|
|
(34,080,000
|
)
|
|
|
(33,270,000
|
)
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Realization of our deferred tax assets, which
relate to operating loss carry-forwards and timing differences, is dependent on future earnings, among other factors. The timing
and amount of future earnings are uncertain and therefore a valuation allowance has been established. The increase in the valuation
allowance on the deferred tax asset during the years ended July 31, 2017 and 2016 was $810,000 and $2,423,000, respectively.
A
reconciliation of income taxes computed using the statutory income tax rate, compared to the effective tax rate, is as follows:
|
|
2017
|
|
|
2016
|
|
Federal tax benefit at the expected statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income tax, net of federal tax benefit
|
|
|
0.8
|
|
|
|
1.9
|
|
Expired net operating loss carryforwards
|
|
|
(6.6
|
)
|
|
|
(1.5
|
)
|
Other
|
|
|
(7.7
|
)
|
|
|
—
|
|
Change in state tax rates
|
|
|
(4.2
|
)
|
|
|
—
|
|
Permanent items
|
|
|
(3.3
|
)
|
|
|
(17.9
|
)
|
Valuation allowance
|
|
|
(13.0
|
)
|
|
|
(16.5
|
)
|
Income tax benefit - effective rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Following
authoritative guidance, we recognize the tax benefit from a tax position if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position.
Our
practice is to recognize interest and/or penalties related to income tax matters in income tax expense; however we have had no
accrued interest or penalties at either July 31, 2017 or July 31, 2016. We are subject to income taxes in the United States and
in various states, and our historical tax years remain subject to future examination by the U.S. and state tax authorities. During
the years ended July 31, 2017 and 2016, we did not record any activity related to our unrecognized tax benefits.
The
Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state jurisdictions. With few
exceptions, the Company is no longer subject to income tax examination by tax authorities in major jurisdictions for tax years
prior to 2012. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where
net operating losses were generated and carried forward, and make adjustments up to the amount of the carryforwards. The Company
is not currently under examination by the IRS or state taxing authorities.
12.
Subsequent Events
On
October 10, 2017, we closed a tender offer to amend and exercise outstanding warrants to purchase shares of our Common Stock.
Specially, we filed a Schedule TO with the Securities and Exchange Commission (the “SEC”) on August 25, 2017 offering
to (i) reduce the exercise price of the warrants to purchase 4,104,980 shares of Common Stock issued to investors participating
in our private placement financing completed on August 29, 2014, as amended (the “2014 Warrants”) from $0.75 per share
to $0.60 per share of Common Stock in cash, (ii) reduce the exercise price of outstanding warrants to purchase 1,986,101 shares
of Common Stock issued to investors participating in our private placement financing completed on November 23, 2015 (the “2015
Warrants”) from $0.45 per share to $0.40 per share of Common Stock in cash, (iii) reduce the exercise price of the outstanding
warrants to purchase 1,572,941 shares of Common Stock issued to investors participating in our private placement financing completed
on January 23, 2017 (the “2017 Warrants”, together with the 2014 Warrants and 2015 Warrants, the “Original Warrants”)
from $1.25 per share to $0.85 per share of Common Stock in cash, (iv) shorten the exercise period of the Original Warrants so
that they expired concurrently with the expiration of the Offer to Amend and Exercise at 5:00 p.m. (Pacific Time) on September
25, 2017 (“Expiration Date”) unless extended until the Subsequent Expiration Date (as defined below), (v) delete the
cashless exercise provisions in the Original Warrants and (vi) delete the price-based anti-dilution provisions contained in the
2015 Warrants.
Additionally,
we requested the holders of a majority of the shares issuable upon exercise of the 2014 Warrants (the “2014 Requisite Majority”),
2015 Warrants (the “2015 Requisite Majority”) and 2017 Warrants (the “2017 Requisite Majority”) to approve
an amendment of all of the outstanding 2014 Warrants, 2015 Warrants and 2017 Warrants, respectively, to amend such Original Warrants
in the same manner as set forth above (the “Aggregate Warrant Amendment”), except the Expiration Date would be extended
until October 10, 2017 (the “Subsequent Expiration Date”) if such Aggregate Warrant Amendment was approved with respect
to such class of Original Warrants. The 2015 Requisite Majority approved an amendment of all of the outstanding 2015 Warrants
and holders of 2015 Warrants had until the Subsequent Expiration Date to exercise their 2015 Warrants (the “Subsequent Offer
Period”).
The
Offer to Amend and Exercise with respect to the 2014 Warrants and 2017 Warrants expired on the Expiration Date of September 25,
2017. As of September 25, 2017, 1,491,649 shares of Common Stock were issued upon exercise of 2014 Warrants, 1,599,135 shares
of Common Stock were issued upon exercise of 2015 Warrants and 1,396,470 shares of Common Stock were issued upon exercise of 2017
Warrants, for aggregate gross proceeds to us of approximately $2.72 million. During the Subsequent Offer Period, 2015 Warrants
to purchase 268,909 shares of Common Stock were exercised for aggregate gross proceeds to us of approximately $107,000. 2014 Warrants
to purchase 2,533,331 shares of Common Stock and 2017 Warrants to purchase 176,471 shares of Common Stock at exercise prices of
$0.75 per share and $1.25 per share, respectively, continue to remain outstanding. 2015 Warrants that were not exercised by the
Subsequent Expiration Date expired unexercised on such date.
Original
Warrants (including 2015 Warrants exercised during the Subsequent Offer Period) to purchase an aggregate of 4,756,163 shares of
Common Stock were tendered and exercised in the Offer to Amend and Exercise for aggregate gross proceeds to us of approximately
$2.83 million. Garden State Securities Inc. assisted the Company as warrant solicitation agents with respect to the 2017 Warrants.
Additionally, we previously recorded a
warrant liability on our financial statements with respect to the 2015 Warrants due to certain anti-dilution provisions contained
in such warrants. Upon the exercise and expiration of the 2015 Warrants, the warrant liability existing on the Company’s
consolidated financial statements has been terminated.
PURE
BIOSCIENCE, INC.
1,572,941
Shares of Common Stock
176,471
Shares of Common Stock
Issuable
Upon the Exercise of Outstanding Warrants
Prospectus
,
2017
PART
II Information Not Required In Prospectus
Item
13. Other Expenses of Issuance and Distribution.
The
following is a statement of estimated expenses in connection with the issuance and distribution of the securities being registered,
other than underwriting discounts and commissions.
Legal
Fees and Expenses
|
|
$
|
70,000
|
|
Accounting
Fees and Expenses
|
|
$
|
20,000
|
|
Printing
and Mailing Expenses
|
|
$
|
3,000
|
|
Miscellaneous
Expenses
|
|
$
|
2,000
|
|
Total
|
|
$
|
95,000
|
|
Item
14. Indemnification of Directors and Officers.
The
Company’s Certificate of Incorporation, as amended, provides that, except to the extent prohibited by the Delaware General
Corporation Law, or the DGCL, the Company’s directors shall not be liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as directors of the Company. Under the DGCL, the directors have a fiduciary duty to the
Company, which is not eliminated by these provisions of the Certificate of Incorporation and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain available. This provision does not affect the directors’
responsibilities under any other laws, such as the U.S. federal securities laws or state or federal environmental laws.
Section
145 of the DGCL empowers a corporation to indemnify its directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers. The DGCL provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation’s
bylaws, any agreement, a vote of stockholders or otherwise. The Company’s Bylaws provide that the Company shall indemnify,
to the fullest extent permitted by the DGCL and applicable law, as may be amended, any person who was or is a party or is threatened
to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative,
is or was one of the Company’s directors, officers, employees or agents or is or was serving at the Company’s request
as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against all expenses, liability and loss (including attorneys’
fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments,
or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed as a result of the actual or deemed
receipt of any indemnification payments made to such person by the Company) reasonably incurred or suffered by such person.
The
Company has purchased and intends to maintain insurance on behalf of any person who is or was a director or officer of the Company
against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to
certain exclusions.
See
also the undertakings set out in response to Item 17 herein.
Item
15. Recent Sales of Unregistered Securities.
In
December 2016 and January 2017 we closed on the private placement financing pursuant to which we issued an aggregate of 1,572,941
shares of the Company’s common stock at a purchase price of $0.85 per share and warrants to purchase up to an aggregate
of 1,572,941 shares of common stock with a term of five years and at an exercise price of $1.25 per share. The shares of common
stock and the warrants issued under the private placements were offered and sold without registration under the Securities Act,
or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and Regulation D promulgated
thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or
advertising in connection with the sale of the securities; the representation of each investor to the Company that it is an accredited
investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and
without a view to distribute them. The securities, including the shares underlying the warrants, may not be offered or sold in
the United States without an effective registration statement or pursuant to an exemption from applicable registration requirements.
We utilized the services of a placement agent for this private placement financing. In connection with the private placement financing
we paid such placement agent an aggregate cash fee of $128,600 and issued to such placement agent or its designees warrants to
purchase 151,294 shares of common stock at an exercise price of $1.275 per share. The terms of the placement agent warrants are
substantially identical to the warrants issued to the investors, other than the exercise price and the holders’ ability
to exercise the placement agent warrants on a cashless basis at its discretion. Additionally, we agreed to pay the placement agent
a $12,000 due diligence fee and to reimburse the placement agent for fees of counsel up to $35,000. We also entered into a registration
rights agreement with the investors, pursuant to which we are obligated to file with the SEC as soon as practicable, but in any
event, by February 6, 2017, this registration statement on Form S-1 to register the shares of common stock issued to the investors
and the shares of our common stock issuable upon the exercise of warrants issued to the investors. We are obligated to use our
commercially reasonable best efforts to cause this registration statement to be declared effective by the SEC within 45 days after
the filing of this registration statement (or within 75 days if the Resale Registration Statement is subject to a full review
by the SEC). Additionally, the registration rights agreement provides for certain monetary penalties if this registration statement
is not filed or declared effective prior to certain dates as set forth in the registration rights agreement.
In
October and November 2015 in a private placement financing, we issued a total of 17,777,772 shares of common stock at a purchase
price of $0.45 per share, warrants to purchase 8,888,883 shares of common stock that were exercisable for six months and warrants
to purchase 11,487,336 shares of common stock that were exercisable for five years, at an aggregate for gross proceeds of approximately
$8.0 million. The shares of common stock and the warrants issued under the private placements were offered and sold without registration
under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) of the Securities
Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack
of any general solicitation or advertising in connection with the sale of the securities; the representation of each investor
to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing
the securities for its own account and without a view to distribute them. The securities, including the shares underlying the
warrants, may not be offered or sold in the United States without an effective registration statement or pursuant to an exemption
from applicable registration requirements. Franchise Brands, LLC is our largest stockholder beneficially holding approximately
32% of our common stock as of the date of this prospectus. In the private placement financing, we issued Franchise Brands an aggregate
of 13,333,333 shares of the our common stock, a warrant to purchase up to an aggregate of 6,666,666 shares of our common stock
with a term of five years and a warrant to purchase up to an aggregate of 8,666,666 shares of our common stock with a term of
six months. Additionally, in the private placement financing we issued our director, Tom Y. Lee, and certain of his affiliates
1,049,408 shares of our common stock, warrants to purchase up to an aggregate of 524,704 shares of our common stock with a term
of five years and warrants to purchase up to an aggregate of 682,115 shares of our common stock with a term of six months The
offer and sale of the securities to Franchise Brands and Mr. Lee was on the same terms offered to other investors in the private
placement financing. Additionally, as part of this financing, we granted certain demand registration rights to the investors.
We did not utilize the services of a placement agent in this private placement financing.
From
August 1, 2014 through December 31, 2014, we issued a total of 9,990,659 shares of common stock and warrants to purchase 3,996,259
shares of common stock for gross proceeds of approximately $7.49 million. Additionally, in connection with the price adjustment
terms in subscription agreements we previously entered into with investors in prior private placements prior to July 31, 2014,
we issued an aggregate of 95,366 shares of common stock and warrants to purchase up to an aggregate of 234,721 shares of common
stock to existing investors who purchased shares from the Company in private placement transactions. The shares of common stock
and the warrants issued under the private placements were offered and sold without registration under the Securities Act, or state
securities laws, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and Regulation D promulgated
thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or
advertising in connection with the sale of the securities; the representation of each investor to the Company that it is an accredited
investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and
without a view to distribute them. The securities, including the shares underlying the warrants, may not be offered or sold in
the United States without an effective registration statement or pursuant to an exemption from applicable registration requirements.
In this offering, we carefully considered the exemption from registration offered under Section 4(a)(2) of the Securities Act,
and integration issues with respect to the offering due to us having a registration statement (File No. 333-186394) on file with
the SEC since February 1, 2013, which had not been declared effective (the “Registration Statement”) and which we
have requested to be withdrawn. In this analysis, we relied on the guidance set forth in the SEC’s Compliance and Disclosure
Interpretations, Securities Act Section, Question and Answer 139.25 and in Securities Act Release No. 8828 (August 10, 2007) concerning
integration issues implicated by concurrent public and private offerings of securities (the “Interpretive Guidance”).
There were 38 investors who purchased shares in the private placements, each of whom represented to us to be an accredited investor
at the time of the offer and sale of the shares. Two of the investors came to the offering through introduction and direct contact
by Bibicoff & MacInnis, Inc. (“Bibicoff”), our investor relations firm, and were not solicited by means of the
Registration Statement. Bibicoff had a previous relationship with each of the investors and Bibicoff did not participate in a
general solicitation or general advertising (as those terms are used Regulation D under the Securities Act) with respect to the
offering. Bibicoff is not a registered broker-dealer and merely introduced the investors to us. Additionally, they were not paid
any compensation in connection with making introductions to potential investors. 26 investors came to the offering through direct
contact by our Chief Financial Officer, Peter Wulff, who had a previous relationship with such investors and were not solicited
by means of the Registration Statement. Mr. Wulff did not participate in a general solicitation or general advertising (as those
terms are used Regulation D under the Securities Act) with respect to the offering. Ten investors came to the offering through
direct contact by our one of our customers, Tom Lee (and now a director), who had a previous relationship with such investors
and were not solicited by means of the Registration Statement. Additionally, as part of this financing, we granted certain registration
rights, under which we agreed to file a registration statement covering the resale of the shares of common stock sold in this
financing.
During
the three months ended July 31, 2014, we completed private placements pursuant to which we sold 511,440 shares of our common stock,
resulting in net proceeds of $455,000. The shares of common stock issued under the private placements were offered and sold without
registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) of
the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws,
based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation
of each investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that
it was purchasing the securities for its own account and without a view to distribute them. The securities may not be offered
or sold in the United States without an effective registration statement or pursuant to an exemption from applicable registration
requirements. We have used, and intend to continue to use, the remaining proceeds from the offering for working capital and general
corporate purposes. In these offerings, we carefully considered the exemption from registration offered under Section 4(a)(2)
of the Securities Act, and integration issues with respect to the offering due to us having the Registration Statement on file
with the SEC. In this analysis we relied on the Interpretive Guidance. There were 11 investors who purchased shares in the private
placements, each of whom represented to us to be an accredited investor at the time of the offer and sale of the shares. Gary
Cohee, a member of our Board, confirmed that two of the investors came to the offering through introduction and direct contact
by Mr. Cohee, and such investors were not solicited by means of the Registration Statement. These investors have a previous relationship
with Mr. Cohee. Mr. Cohee did not participate in a general solicitation or general advertising (as those terms are used Regulation
D under the Securities Act) with respect to the offering. Three of the investors came to the offering through introduction and
direct contact by Bibicoff, our investor relations firm, and were not solicited by means of the Registration Statement. Bibicoff
had a previous relationship with each of the investors and Bibicoff did not participate in a general solicitation or general advertising
(as those terms are used Regulation D under the Securities Act) with respect to the offering. Bibicoff is not a registered broker-dealer
and merely introduced the investors to us. Additionally, they were not paid any compensation in connection with making introductions
to potential investors. Five investors came to the offering through direct contact by our Chief Financial Officer, Peter Wulff,
who had a previous relationship with such investors and were not solicited by means of the Registration Statement. Mr. Wulff did
not participate in a general solicitation or general advertising (as those terms are used Regulation D under the Securities Act)
with respect to the offering. One investors came to the offering through direct contact by our one of our customers, Tom Lee (now
a director), who had a previous relationship with such investors and were not solicited by means of the Registration Statement.
Additionally, as part of this financing, we granted certain registration rights, under which we agreed to file a registration
statement covering the resale of the shares of common stock sold in this financing.
During
the three months ended April 30, 2014, we completed private placements pursuant to which we sold 1,575,000 shares of our common
stock, resulting in approximately $1,545,000 in aggregate gross proceeds to the Company. After deducting fees of $47,000, the
net proceeds to us were $1,498,000. The shares of common stock issued under the private placements were offered and sold without
registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) of
the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws,
based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation
of each investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that
it was purchasing the securities for its own account and without a view to distribute them. The securities may not be offered
or sold in the United States without an effective registration statement or pursuant to an exemption from applicable registration
requirements. We have used, and intend to continue to use, the remaining proceeds from the offering for working capital and general
corporate purposes. In these offerings, we carefully considered the exemption from registration offered under Section 4(a)(2)
of the Securities Act, and integration issues with respect to the offering due to us having the Registration Statement on file
with the SEC. In this analysis we relied on the Interpretive Guidance. There were 18 investors who purchased shares in the private
placements, each of whom represented to us to be an accredited investor at the time of the offer and sale of the shares. Gary
Cohee, a member of our Board, confirmed that six of the investors came to the offering through introduction and direct contact
by Mr. Cohee, and such investors were not solicited by means of the Registration Statement. These investors have a previous relationship
with Mr. Cohee. Mr. Cohee did not participate in a general solicitation or general advertising (as those terms are used Regulation
D under the Securities Act) with respect to the offering. One of the investors came to the offering through introduction and direct
contact by Bibicoff, our investor relations firm, and were not solicited by means of the Registration Statement. Bibicoff had
a previous relationship with each of the investors and Bibicoff did not participate in a general solicitation or general advertising
(as those terms are used Regulation D under the Securities Act) with respect to the offering. Bibicoff is not a registered broker-dealer
and merely introduced the investors to us. Additionally, they were not paid any compensation in connection with making introductions
to potential investors. Eight investors came to the offering through direct contact by our Chief Financial Officer, Peter Wulff,
who had a previous relationship with such investors and were not solicited by means of the Registration Statement. Mr. Wulff did
not participate in a general solicitation or general advertising (as those terms are used Regulation D under the Securities Act)
with respect to the offering. Three investors came to the offering through direct contact by our one of our customers, Tom Lee
(and now a director), who had a previous relationship with such investors and were not solicited by means of the Registration
Statement. Additionally, as part of this financing, we granted certain registration rights, under which we agreed to file a registration
statement covering the resale of the shares of common stock sold in this financing.
Item
16. Exhibits.
See
the Exhibit Index of this Registration Statement, which follows the signature pages hereof and is incorporated herein by reference.
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, (A) each prospectus filed by
the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus
was deemed part of and included in the registration statement; and
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to any charter provision, by law or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than
payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing
on Form S-1 and has duly caused this amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of El Cajon, State of California, on this October 27, 2017.
|
PURE
BIOSCIENCE, INC.
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By:
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/s/
Henry R. Lambert
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Henry
R. Lambert
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Chief
Executive Officer
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Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name
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Title
|
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Date
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/s/
Henry R. Lambert
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Chief
Executive Officer and Director
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October
27, 2017
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Henry
R. Lambert
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(Principal
Executive Officer)
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/s/
Mark S. Elliott
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Vice
President, Finance
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October
27, 2017
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Mark
S. Elliott
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(Principal
Financial and Accounting Officer)
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*
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Chairman
of the Board of Directors
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October
27, 2017
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Dave
J. Pfanzelter
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*
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Director
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October
27, 2017
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Gary
D. Cohee
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*
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Director
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October
27, 2017
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William
Otis
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*
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Director
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October
27, 2017
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Tom
Y. Lee
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*
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Director
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October
27, 2017
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Janet
Risi Field
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By:
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/s/
Henry R. Lambert
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Henry
R. Lambert
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Attorney-in-fact
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EXHIBIT
INDEX
Exhibit
No.
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Description
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2.1
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Agreement
and Plan of Merger, dated as of March 24, 2011, by and between PURE Bioscience and PURE Bioscience, Inc. (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K, filed with the SEC on March 25, 2011)
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3.1
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Certificate
of Incorporation of PURE Bioscience, Inc. (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K, filed
with the SEC on October 29, 2012)
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3.1.1
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Certificate
of Amendment to Certificate of Incorporation of PURE Bioscience, Inc. (incorporated by reference to Exhibit 3.1.1 to the Annual
Report on Form 10-K, filed with the SEC on October 29, 2012)
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3.2
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Bylaws
of PURE Bioscience, Inc. (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K, filed with the SEC on
October 29, 2012)
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3.2.1
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Amendment
to the Bylaws of PURE Bioscience, Inc. (incorporated by reference to Exhibit 3.2.1 to the Annual Report on Form 10-K, filed
with the SEC on October 29, 2012)
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4.1
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Wharton Capital Markets LLC Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC on March 16, 2012)
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4.2
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Form
of Underwriter’s Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the
SEC on September 13, 2012)
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4.3
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Morrison
& Foerster LLP Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC
on January 31, 2013)
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4.4
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Form
of Investor Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC April
23, 2013)
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4.5
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Warrant,
dated February 3, 2012, issued by PURE Bioscience, Inc. to Wharton Capital Markets LLC (incorporated by reference to Exhibit
4.1 of the Quarterly Report on Form 10-Q filed with the SEC on March 16, 2012)
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4.6
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Form
of Investor Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC August
27, 2014)
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4.7
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Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed with the
SEC on June 29, 2012)
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4.8
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Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the
SEC on July 6, 2012)
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4.9
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Form
of Five-Year Warrant (incorporated by reference to Exhibit 4.11 of the Annual Report on Form 10-K filed with the SEC on October
28, 2015)
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4.10
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Form
of Investor Warrant (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the SEC on December
7, 2016)
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4.11
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Form
of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K filed with the SEC
on December 7, 2016)
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5.1*
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Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP.
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10.1
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Amended
and Restated PURE Bioscience 2007 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Current Report
on Form 8-K, filed with the SEC on February 5, 2016)
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Exhibit
No.
|
|
Description
|
|
|
|
10.2
#
|
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Form
of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed with the SEC
on October 24, 2013)
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10.3
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Letter Agreement, dated as of January 25, 2013, between PURE Bioscience, Inc., and Morrison & Foerster LLP (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on January 31, 2013)
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10.4
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Promissory Note, dated as of January 25, 2013, in favor of Morrison & Foerster LLP (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on January 31, 2013)
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10.5
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Services Agreement dated as of August 13, 2013, between PURE Bioscience, Inc. and Pillar Marketing Group, Inc. (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on August 20, 2013)
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10.6
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Voting
Support Agreement and Irrevocable Proxy dated as of August 13, 2013 between PURE Bioscience, Inc. and Michael L. Krall (incorporated
by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the SEC on August 20, 2013)
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10.7
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Voting
Support Agreement and Irrevocable Proxy dated as of August 13, 2013 between PURE Bioscience, Inc. and Donna Singer (incorporated
by reference to Exhibit 10.6 of the Current Report on Form 8-K filed with the SEC on August 20, 2013)
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10.8
#
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Director
Agreement dated as of September 17, 2013 between PURE Bioscience, Inc. and Gary D. Cohee (incorporated by reference to Exhibit
10.32 to the Annual Report on Form 10-K filed with the SEC on October 24, 2013)
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10.9
#
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Employment
Agreement dated as of October 23, 2013 between PURE Bioscience, Inc. and Henry R. Lambert (incorporated by reference to Exhibit
10.33 to the Annual Report on Form 10-K filed with the SEC on October 24, 2013)
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10.10
#
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Chairman
Agreement dated as of October 23, 2013 between PURE Bioscience, Inc. and Dave J. Pfanzelter (incorporated by reference to
Exhibit 10.35 to the Annual Report on Form 10-K filed with the SEC on October 24, 2013)
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10.11
#
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Form
of RSU Agreement between PURE Bioscience, Inc. and Non-employee directors (incorporated by reference to Exhibit 10.36 to the
Annual Report on Form 10-K filed with the SEC on October 24, 2013)
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10.12#
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RSU
Agreement dated as of October 23, 2013 between PURE Bioscience, Inc. and Henry R. Lambert (incorporated by reference to Exhibit
10.37 to the Annual Report on Form 10-K filed with the SEC on October 24, 2013)
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10.13
#
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RSU
Agreement dated as of October 23, 2013 between PURE Bioscience, Inc. and Dave J. Pfanzelter (incorporated by reference to
Exhibit 10.39 to the Annual Report on Form 10-K filed with the SEC on October 24, 2013)
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10.14
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Form
of Officer and Director Indemnification Agreement (incorporated by reference to Exhibit 10.2 of the Annual Report on Form
10-K filed with the SEC on October 24, 2013)
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10.15
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Strategic Collaboration Agreement, dated December 11, 2013, by and between PURE Bioscience, Inc. and Intercon Chemical Company (incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q filed with the SEC on March 13, 2014)
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10.16
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Amendment
to Director Agreement dated as of April 24, 2014, between PURE Bioscience, Inc. and Gary D. Cohee (incorporated by reference
to Exhibit 10.2 of the Quarterly Report on Form 10-Q filed with the SEC on June 10, 2014)
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Exhibit
No.
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|
Description
|
|
|
|
10.17
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Securities
Purchase Agreement, dated August 22, 2014 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed
with the SEC on August 27, 2014)
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10.18
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Amendment
to Services Agreement, dated October 2, 2014, between PURE Bioscience, Inc. and Pillar Marketing Group, Inc. (incorporated
by reference to Exhibit 10.48 of the Registration Statement on Form S-1 filed with the SEC on October 10, 2014)
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10.19
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Securities
Purchase Agreement, dated October 8, 2015, by and between the Company and the purchaser party thereto (incorporated by reference
to Exhibit 10.30 of the Annual Report on Form 10-K filed with the SEC on October 28, 2015)
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10.20
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Registration
Rights Agreement, dated October 8, 2015, by and between the Company and the purchaser party thereto (incorporated by reference
to Exhibit 10.31 of the Annual Report on Form 10-K filed with the SEC on October 28, 2015)
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10.21#
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Form
of RSU Agreement between PURE Bioscience, Inc. and executive officers (incorporated by reference to Exhibit 10.32 of the Annual
Report on Form 10-K filed with the SEC on October 28, 2015)
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10.22
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Securities
Purchase Agreement, dated December 1, 2016, between the Company and the purchasers party thereto (incorporated by reference
to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on December 7, 2016)
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10.23
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Registration
Rights Agreement, dated December 1, 2016, by and between the Company and the purchasers party thereto (incorporated by reference
to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on December 7, 2016)
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10.24
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RSU
Cancellation Agreement, dated as of December 13, 2016, by and among the Company and the parties thereto (incorporated by reference
to Exhibit 10.3 of the Quarterly Report on Form 10-K filed with the SEC on December 14, 2016)
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10.24
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Amendment
to Chairman Agreement, dated January 19, 2017, by and between the Company and Dave Pfanzelter (incorporated by reference to
Exhibit 99.1 of the Current Report on Form 8-K filed with the SEC on January 20, 2017)
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10.25
|
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Amendment
to Executive Employment Agreement, dated January 19, 2017, by and between the Company and Hank Lambert (incorporated by reference
to Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC on January 20, 2017)
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10.26
|
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Amendment
to Registration Rights Agreement, dated January 20, 2017, between the Company and the purchasers party thereto (incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on January 24, 2017)
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10.27
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Chairman
RSU Agreement, dated as of June 22, 2017, by and between the Company and Dave Pfanzelter (incorporated by reference to Exhibit
99.1 of the Current Report on Form 8-K filed with the SEC on June 23, 2017)
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10.28
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Chairman
Option Agreement, dated as of June 22, 2017, by and between the Company and Dave Pfanzelter (incorporated by reference to
Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC on June 23, 2017)
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10.29
|
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CEO
RSU Agreement, dated as of June 22, 2017, by and between the Company and Hank Lambert (incorporated by reference to Exhibit
99.3 of the Current Report on Form 8-K filed with the SEC on June 23, 2017)
|
Exhibit
No.
|
|
Description
|
|
|
|
10.30
|
|
CEO
Option Agreement, dated as of June 22, 2017, by and between the Company and Dave Pfanzelter (incorporated by reference to
Exhibit 99.4 of the Current Report on Form 8-K filed with the SEC on June 23, 2017)
|
|
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10.31
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Form
of Non-Employee Director RSU Agreement (Non-plan) (incorporated by reference to Exhibit 99.5 of the Current Report on Form
8-K filed with the SEC on June 23, 2017)
|
|
|
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10.32
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|
Form
of Non-Employee Director Option Agreement (Non-plan) (incorporated by reference to Exhibit 99.6 of the Current Report on Form
8-K filed with the SEC on June 23, 2017)
|
|
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21.1
|
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Subsidiaries
of the Registrant (incorporated by reference to Exhibit 21.1 to the Annual Report on Form 10-K, filed with the SEC on October
13, 2009)
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23.1*
|
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Consent of Mayer Hoffman McCann P.C.
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23.2*
|
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Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (included in Exhibit 5.1).
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24.1
|
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Power
of Attorney (incorporated by reference to the signature page to the Post-Effective Amendment No. 1 to Registration Statement
filed on August 25, 2017)
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101*
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The
following materials from the Company’s Annual Report on Form 10-K for the annual period ended July 31, 2017, formatted
in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as at July 31, 2017 and 2016; (ii) Consolidated
Statements of Operations for the years ended July 31, 2017 and 2016; (iii) Consolidated Statements of Stockholders’
Equity for the years ended July 31, 2017 and 2016, (iv) Consolidated Statements of Cash Flows for the years ended July 31,
2017 and 2016; and (v) Notes to Consolidated Financial Statements.
|
*
Filed herewith
#
Management Contract or compensatory plan or arrangement
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