As
filed with the Securities and Exchange Commission on October 19, 2020
Registration
No. 333-215915
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 5 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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9669
Hermosa Avenue,
Rancho
Cucamonga, CA 91730
(619)
596-8600
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Tom Y. Lee
Chief
Executive Officer
9669
Hermosa Avenue,
Rancho
Cucamonga, CA 91730
(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
9669
Hermosa Avenue,
Rancho
Cucamonga, CA 91730
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.
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [X]
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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”),
Post-Effective Amendment No. 2 filed on October 26, 2017 and declared effective by the Securities Exchange Commission on October
31, 2017 (“POS AM 2”), Post-Effective Amendment No. 3 filed on October 25, 2018 and declared effective by the Securities
Exchange Commission on October 31, 2018 (“POS AM 3”), and Post-Effective Amendment No. 4 filed on October 31, 2019
and declared effective by the Securities Exchange Commission on November 4, 2020 (“POS Am 4”), together with the Original
Registration Statement, POS AM 1, POS AM 2, and POS AM 3, the “Registration Statement”).
This
Post-Effective amendment updates the prospectus dated October 31, 2019 to reflect the filing of the Company’s Annual Report
on Form 10-K for the year ended July 31, 2020.
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 19, 2020
PRELIMINARY
PROSPECTUS
PURE
BIOSCIENCE, INC.
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 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, December 20, 2017, November 13, 2018 (the “prospectus”), and December 17, 2019 to reflect the filing of the
Company’s Annual Report on Form 10-K for the year ended July 31, 2020. 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 15,
2020, the last reported sale price of our common stock on the OTCQB was $1.41 per share.
Our
business and an investment in our securities involve significant risks. See “Risk Factors” beginning on page 8 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 , 2020
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
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 8 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.
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. 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 supporting
various industries.
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.
Limitations
of Existing Food Safety Solutions
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 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;
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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
summary of our risk factors, as well as the information contained under “Risk Factors” beginning on page 8 of this prospectus and in the
documents incorporated by reference into this prospectus.
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We
have a history of losses, and we may not maintain profitability.
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The currently evolving situation related to the COVID-19 pandemic could adversely affect our business, financial
condition and results of operations.
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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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We need to continue to increase customer awareness and adoption of our food safety product offerings, PURE
Hard Surface and PURE Control.
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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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Our
quarterly operating results may vary, which could negatively affect the market price of our common stock.
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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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A
loss of one or more of our key customers could adversely affect our business.
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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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We have limited
sales, marketing and product distribution experience.
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We are dependent
on a third-party, over whom we have limited control, to manufacture our SDC-based products.
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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 9669 Hermosa Avenue, Rancho Cucamonga, California 91730. 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, including
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 176,471 shares of common stock issuable upon exercise of outstanding warrants
(the “2017 Warrants”). See “Selling Stockholders” beginning on page 58 of this prospectus.
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Common
stock to be outstanding assuming cash exercise of the Warrants
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Up
to 87,249,422 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 8 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 87,072,951 shares
outstanding as of July 31, 2020 and excludes as of such date:
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9,432,875 shares
of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $0.88 per share;
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2,012,500 shares
of common stock issuable upon vesting of restricted stock units;
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214,000 shares of
common stock reserved future issuance under our stock incentive plans; and
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327,765 shares of
common stock issuable upon exercise of outstanding warrants at a weighted-average exercise price of $1.26 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 July 31, 2020, and no outstanding options or warrants were exercised
after July 31, 2020.
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
We
have a history of losses, and we may not maintain profitability.
We
had net income of $4,000 for the fiscal year ended July 31, 2020 but had a loss of $6.6 million for the fiscal year ended July
31, 2019. As of July 31, 2020, we have incurred a cumulative net loss of approximately $123 million. We cannot be certain that
we will continue to generate net income in future periods and we may to continue to have losses in future periods. Other than
our agreement with Packers Sanitation Services, Inc., none of our existing agreements, including those with Subway and Chipotle,
contain provisions that provide for fixed or 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, we may not maintain profitability, and we may never achieve profitability again. 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 any future income or our future losses and we may not be able to sustain
or increase profitability on an ongoing basis.
The
currently evolving situation related to the COVID-19 pandemic could adversely affect our business, financial condition and results
of operations.
The
COVID-19 pandemic has led to severe disruptions in general economic activities, as businesses and federal, state, and local governments
take increasingly broad actions to mitigate this public health crisis. While we have experienced some delays related to final
third-party validation of certain of our products and product rollouts by customers using PURE Control, we have not experienced
a material disruption to our business. In addition, we have benefited from increased demand from our customers for our PURE Hard
Surface product due to a focus on surface disinfecting in response to attempting to prevent COVID-19 transmission. We cannot assure
you that such increased demand will continue. Further, on a go-forward basis, we cannot guarantee the overall economic conditions
will not affect our business, as these conditions may significantly negatively impact all aspects of our business. Our business
is dependent on the continued health and productivity of our employees, including our sales staff and corporate management team.
Additionally,
our liquidity could be negatively impacted if these conditions continue for a significant period of time and we may be required
to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, and meet our financial
obligations. Currently, capital and credit markets have been disrupted by the crisis and our ability to obtain any required financing
is not guaranteed and largely dependent upon evolving market conditions and other factors. Depending on the continued impact of
the crisis, further actions may be required to improve our cash position and capital structure.
The
extent to which the COVID-19 pandemic ultimately impacts our business, sales, results of operations and financial condition will
depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration
of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal
economic and operating conditions resume and, more specifically, the effect it has on our customers and suppliers. Even after
the COVID-19 pandemic has subsided, we may experience significant impacts to our business as a result of its global economic impact,
including any economic downturn or recession that has occurred or may occur in the future.
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
may 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 19, 2020, we have 98,846,091 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.
We need to continue to increase customer
awareness and adoption of our food safety product offerings, PURE Hard Surface and PURE Control.
Our
success will depend on our ability to continue to increase customer
awareness and adoption of our food safety product offerings, PURE Hard Surface and PURE Control. 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. Due to the
recent introduction of our food safety products and the importance of food safety to our customers, the sales cycle to secure 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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may not be successful in obtaining any required regulatory approvals on a timely basis, or at all;
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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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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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expectations regarding revenues from sales of our products;
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time and resources required to complete in-plant validation and optimization trials;
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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 current and 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 we have only recent begun to generate meaningful revenues from the sale of our SDC-based products, 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.
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 meats 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 40% of our net product sales for the fiscal year ended July
31, 2020. Our three largest customers accounted for 16%, 13% and 11% 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 continue to maintain 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 in 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. 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.
On
June 9, 2019, 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 manufacture 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 manufacture 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 expect 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. 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 meats 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. For example in August 2019, Mr. Lambert retired from the Board and his position as Chief Executive Officer and President.
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, 2020, we had federal and state tax net operating loss carry-forwards of approximately $106.2 million and
$61.8 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
began expiring in the year ended July 31, 2020 and, unless previously utilized, all but $2.4 million will completely expire in
the year ending July 31, 2038. The $2.4 million can be carried forward indefinitely. Our state tax loss carry-forwards began to
expire in the year ending July 31, 2029, and will completely expire in the year ending July 31, 2040.
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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the
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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the
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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actual
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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introduction of new products or services, or product or service enhancements by us or our competitors;
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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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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.
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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.
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 may continue to do so in the future. For example, during October 2019 and March 2020, we completed two
closings of a private placement financings to accredited investors, in which we raised net proceeds of approximately $2,830,000
in the Closings and issued an aggregate of 9,758,619 shares of our common stock at a purchase price of $0.29 per share. 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.
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.
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.
Holders
As of October 19, 2020, we had approximately
224 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
Equity
Compensation Plan Information
2007
Equity Incentive Plan
In
February 2016, we amended and restated our 2007 Equity Incentive Plan, the (“2007 Plan”), to, among other changes,
increase the number of shares of common stock issuable under the 2007 Plan by 4,000,000 shares and extend the term of the 2007
Plan until February 4, 2026. The 2007 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 of the Board of Directors.
2017
Equity Incentive Plan
In
January 2018 our stockholders approved our 2017 Equity Incentive Plan, the (“2017 Plan”), which has a share reserve
of 5,000,000 shares of common stock. The shares of common stock were registered under a Form S-8 filed with the SEC in February
2018. The 2017 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 of the Board of Directors.
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.
On
August 23, 2017 we filed a Form S-8 to register shares of Common Stock underlying equity awards granted to our directors, officers
and consultants outside the 2007 Amended and Restated Equity Incentive Plan. The S-8 registered 850,000 shares with respect to
RSUs and options, which were also granted on the same date.
The
following table sets forth, as of July 31, 2020, information with respect to our equity compensation plans, and with respect to
certain other options and warrants.
Plan Category
|
|
Number of
securities to
be issued upon exercise of outstanding options, warrants
and rights
(a)(1)
|
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
|
|
Equity compensation plans approved by stockholders
|
|
|
7,232,875
|
|
|
$
|
0.79
|
|
|
|
214,000
|
|
Equity compensation plans not approved by stockholders
|
|
|
2,200,000
|
|
|
|
1.18
|
|
|
|
—
|
|
Total
|
|
|
9,432,875
|
|
|
$
|
0.88
|
|
|
|
214,000
|
|
(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.
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. 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 supporting various
industries.
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.
Limitations
of Existing Food Safety Solutions
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 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;
|
|
|
|
|
●
|
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 on-line reprocessing.
|
|
●
|
Continuing to grow and establish new
strategic alliances to maximize the commercial potential of our technology platform;
|
|
|
|
|
●
|
Continuing to partner with third parties who are seeking, or intend to seek, approvals to market SDC-based
products in markets outside the U.S.
|
|
|
|
|
●
|
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
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. Our current products are as follows:
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. 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 May
2017, we received the required approvals from the FDA stating that our food contact notification for SDC as a raw poultry processing
aid is complete. We received 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.
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.
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:
|
|
|
|
|
PURE®
Multi-Purpose and Floor Cleaner Concentrate
|
|
Cleaner
|
|
Not
applicable
|
PURE®
Multi-Purpose Hi-Foam Cleaner Concentrate
|
|
Cleaner
|
|
Not
applicable
|
Axen®30
|
|
Disinfectant
|
|
Axen30
|
Axenohl®
|
|
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
|
|
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.
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.
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.
|
|
|
|
|
2.
|
Food
manufacturers and processors – such as food production and transportation equipment.
|
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.
Sales
Concentration
Net
product sales were $6,917,000 and $1,909,000 for the years ended
July 31, 2020 and 2019, respectively. The increase of $5,008,000 was attributable to increased sales across our distribution and
end-user network servicing the food processing and transportation industry. Our top three customers accounted for $2,757,000 of
net product sales for the year ended July 31, 2020. For the year ended July 31, 2020, three individual customers accounted for
16%, 13% and 11% 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 was as follows: 98% U.S. and 2% foreign. For the year ended July 31, 2019, one individual
customer accounted for 15%, and two individual customers accounted for 11% of our net product sales. No other individual customer
accounted for 10% or more of our net product sales.
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 40% of our revenue for the fiscal year ended July 31, 2020.
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 of 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
Effective
June 9, 2019, we entered into a five-year manufacturing supply agreement with Intercon Chemical Company (ICC) with a three-year
renewal term option (the “Manufacturing Supply Agreement”). The agreement consists of manufacturing, packaging, and
distribution of PURE’s SDC-based products. The Manufacturing Supply Agreement provides:
|
●
|
ICC
licenses PURE’s patents and technology know-how for the non-exclusive manufacture of PURE’s 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.
|
The
Manufacturing Supply 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 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 19, 2020, we employed 10 full-time and 1 part-time employee. 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 9669 Hermosa Avenue, Rancho Cucamonga, California 91730. 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 report 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 which arise in the ordinary course of business.
The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters
may arise from time to time that may harm our business. We are not currently aware of any such legal proceedings or claims to
which we 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.
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. 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 supporting various industries.
Financial
Overview
This
financial overview provides a general description of our revenue and expenses.
Net
Product Sales
We
contract manufacture and sell SDC-based products for end use, and as a raw material for manufacturing use. We recognize revenue
when we satisfy a performance obligation by transferring control of the promised goods or services to our customers, in an amount
that reflects the consideration we expect to be entitled to in exchange for those goods or services. 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.
COVID-19
The COVID-19 pandemic has led to severe disruptions
in general economic activities, as businesses and federal, state, and local governments take increasingly broad actions to mitigate
this public health crisis. While we have experienced some delays related to final third-party validation of certain of our products
and product rollouts by customers using PURE Control, we have not experienced a material disruption to our business. In addition,
we have benefited from increased demand from our customers for our PURE Hard Surface product due to a focus on surface disinfecting
in response to attempting to prevent COVID-19 transmission. We cannot assure you that such increased demand will continue. Further,
on a go-forward basis, we cannot guarantee the overall economic conditions will not affect our business, as these conditions may
significantly negatively impact all aspects of our business. Our business is dependent on the continued health and productivity
of our employees, including our sales staff and corporate management team.
Additionally, our liquidity could be negatively
impacted if these conditions continue for a significant period of time and we may be required to pursue additional sources of financing
to obtain working capital, maintain appropriate inventory levels, and meet our financial obligations. Currently, capital and credit
markets have been disrupted by the crisis and our ability to obtain any required financing is not guaranteed and largely dependent
upon evolving market conditions and other factors. Depending on the continued impact of the crisis, further actions may be required
to improve our cash position and capital structure.
The extent to which the COVID-19 pandemic ultimately
impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly
uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions
to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions resume and,
more specifically, the effect it has on our customers and suppliers. Even after the COVID-19 pandemic has subsided, we may experience
significant impacts to our business as a result of its global economic impact, including any economic downturn or recession that
has occurred or may occur in the future.
Results
of Operations – Comparison of the Years Ended July 31, 2020 and 2019
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, 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 $6,917,000 and $1,909,000
for the years ended July 31, 2020 and 2019, respectively. The increase of $5,008,000 was attributable to increased sales across
our distribution and end-user network servicing the food processing, transportation and janitorial industry. Our top three customers
accounted for $2,757,000 of net product sales for the year ended July 31, 2020.
For the year ended July 31, 2020, three individual
customers accounted for 16%, 13% and 11% 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 was as follows: 98% U.S. and 2% foreign.
For the year ended July 31, 2019, one individual
customer accounted for 15%, and two individual customers accounted for 11% 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
Cost of goods sold was $2,896,000 and $728,000
for the years ended July 31, 2020 and 2019, respectively. The increase of $2,168,000 was primarily attributable to increased product
sales.
Gross margin, as a percentage of net product
sales, was 58% and 62% for the years ended July 31, 2020 and 2019, 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, 2019 as compared with the current year.
Selling,
General and Administrative Expense
Selling, general and administrative expense
was $3,695,000 and $6,416,000 for the years ended July 31, 2020 and 2019, respectively. The decrease of $2,721,000 was primarily
attributable to decreased personnel costs, as well as, decreased business development, marketing, board fees and share-based compensation.
Share-based compensation expense included
in selling, general and administrative expense, was $787,000 and $2,449,000 for the fiscal year ended July 31, 2020 and 2019,
respectively. The decrease of $1,662,000 is primarily due to the prior year vesting of stock options and restricted stock units
granted to employees, directors and consultants supporting our selling, general and administrative functions.
Research
and Development Expense
Research and development expense was $322,000
and $354,000 for the years ended July 31, 2020 and 2019, respectively. The decrease of $32,000 was primarily attributable to reduced
personnel costs and reductions in third-party testing and research supporting our FDA approval efforts.
Inducement
to Exercise Warrants
Inducement expense was zero and $960,000 for
the fiscal year ended July 31, 2020 and 2019, respectively. During the fiscal year ended July 31, 2019, we amended outstanding
warrants held by investors participating in our 2014 private placement financings. In accordance with the terms of the amendment
the strike price for the warrants was reduced. As a result, we recorded an inducement expense of $960,000 during the fiscal year
ended July 31, 2019.
Modified
EBITDA
In
addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA
is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations
or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities
as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization,
stock-based compensation, and warrant inducement expense.
Management
considers our core operating performance to be that which our managers can affect in any particular period through their management
of the resources that affect our underlying revenue and profit generating operations during that period. Non-GAAP adjustments
to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons
we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future
we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified
EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Set
forth below is a reconciliation of net loss to Modified EBITDA for the fiscal year ended July 31, 2020 and 2019:
|
|
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$
|
4,000
|
|
|
$
|
(6,554,000
|
)
|
Add (deduct)
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
|
—
|
|
|
|
5,000
|
|
Depreciation and amortization
|
|
|
191,000
|
|
|
|
241,000
|
|
Inducement to exercise warrants
|
|
|
|
|
|
|
960,000
|
|
Stock-based compensation
|
|
|
787,000
|
|
|
|
2,449,000
|
|
Modified EBITDA
|
|
$
|
982,000
|
|
|
$
|
(2,899,000
|
)
|
We
present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods
on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition,
we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our
business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board
of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among
others, the following:
|
●
|
Modified
EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
|
|
|
●
|
Modified
EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
|
|
|
|
●
|
Modified
EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments,
on our debts; and
|
|
|
|
|
●
|
Although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced
in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.
|
Liquidity and Capital Resources
As of July 31, 2020, we had $3,914,000 in
cash and cash equivalents compared with $473,000 in cash and cash equivalents as of July 31, 2019. The net increase in cash and
cash equivalents was primarily attributable to increased cash collections from customer sales. Additionally, as of July 31, 2020,
we had $1,512,000 of current liabilities, including $1,344,000 in accounts payable, compared with $738,000 of current liabilities,
including $553,000 in accounts payable as of July 31, 2019. The net increase in current liabilities was primarily due to trade
payables due to our contract manufacture.
We have a history of recurring losses, and
as of July 31, 2020 we have incurred a cumulative net loss of $123,474,000. During the fiscal year ended July 31, 2019, we had
a net loss of $6,554,000 and net product sales of $1,909,000. In addition, our cash on hand was $398,000 and we used $2,990,000
in cash to fund operations. During the fiscal year ended July 31, 2020, our financial performance significantly improved, and we
recorded net income of $4,000, recorded net product sales of $6,917,000 and generated $669,000 of cash flows from operations. In
addition, during the year ended July 31, 2020, we raised $2,830,000 through the sale of our common stock, resulting in a cash balance
of $3,839,000 and stockholders’ equity of $4,811,000 at July 31, 2020. Based on current projections, we believe our available
cash on-hand, our current efforts to market and sell our products, and our ability to significantly reduce expenses, will provide
sufficient cash resources to satisfy our operational needs, for at least one year from the date these financial statements are
issued.
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 continually generate positive
cash flow from operations, we will need 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.
The
following table summarizes our contractual obligations as of July 31, 2020.
|
|
Payments due by period
|
|
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
Operating lease obligations
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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
Effective
August 1, 2018, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”),
Topic 606, Revenue from Contracts with Customers (“Topic 606”). Under Topic 606, revenue is recognized at an amount
that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer.
This principle is applied using the following 5-step process:
|
1.
|
Identify
the contract with the customer
|
|
2.
|
Identify
the performance obligations in the contract
|
|
3.
|
Determine
the transaction price
|
|
4.
|
Allocate
the transaction price to the performance obligations in the contract
|
|
5.
|
Recognize
revenue when (or as) each performance obligation is satisfied
|
Under Topic 606, we recognize revenue when
we satisfy a performance obligation by transferring control of the promised goods or services to our customers, in an amount that
reflects the consideration we expect to be entitled to in exchange for those goods or services.
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. We sell various configurations
and dilutions of SDC direct to customers and through distributors. 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.
Contract terms for unit price, quantity, shipping
and payment are governed by sales agreements and purchase orders which we consider to be a customer’s contract in all cases.
The unit price is considered the observable stand-alone selling price for the arrangements. Any promotional or sales discounts
are applied evenly to the units sold for purposes of calculating standalone selling price.
Product sales generally consist of a single
performance obligation that we satisfy at a point in time. We recognize product revenue when the following events have occurred:
(a) we have transferred physical possession of the products, (b) we have a present right to payment, (c) the customer has legal
title to the products, and (d) the customer bears significant risks and rewards of ownership of the products.
Our direct customer and distributer sales are
invoiced based on received purchase orders. Our payment terms on invoiced direct customer and distributor sales range between 30
and 90 days after we satisfy our performance obligation. The majority of our customers are on 30 day payment terms. We currently
offer no right of return on invoiced sales and maintain no allowance for sales returns.
Shipping and handling are treated as activities
to fulfill promises to customers and any amounts billed to a customer, if applicable, represent revenues earned for the goods provided.
Costs related to such shipping and handling billings are classified as cost of sales.
We do not have significant categories of revenue
that may impact how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Variable
Consideration
We
record revenue from customers in an amount that reflects the transaction price we expect to be entitled to after transferring
control of those goods or services. From time to time, we offer sales promotions on our products such as discounts. Variable consideration
is estimated at contract inception only to the extent that it is probable that a significant reversal of revenue will not occur.
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. There were no patent impairments during the fiscal years ended July
31, 2020 or 2019.
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.
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 three members.
Information
with respect to our directors as of October 8, 2020 is shown below.
Name
|
|
Age
|
|
Director
Since
|
|
Position(s)
Held
|
Tom
Y. Lee, CPA
|
|
71
|
|
2014
|
|
Director,
Chief Executive Officer
|
Ivan
Chen
|
|
38
|
|
2018
|
|
Director
|
Dale
Okuno
|
|
68
|
|
2019
|
|
Director
|
Tom
Y. Lee, CPA was appointed to our Board on October 24, 2014 and, effective August 7, 2019, appointed as our President and Chief
Executive Officer. 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. We believe Mr. Lee is qualified to serve on our Board due to his role as President and Chief Executive Officer
of the Company and his leadership experience in manufacturing, distributing and selling products.
Ivan
Chen was appointed to our Board on June 29, 2018. Mr. Chen, an attorney and entrepreneur, brings extensive experience in
the healthcare and technology industries, with deep legal and strategic experience in areas including licensing, joint
ventures, mergers & acquisitions, securities and corporate governance, and has been admitted to the bar in the states of
California and New York. His experience includes serving as Director, Mergers & Acquisitions at eBay, Inc., a
publicly-traded e-commerce platform. In this role, he led the negotiation and execution of numerous US and cross-border
transactions. Prior to eBay, Mr. Chen focused on transactional, securities, and corporate governance matters while serving as
an associate at Morrison & Foerster LLP and at Skadden, Arps, Meagher & Flom LLP, both large international law firms.
Mr. Chen earned a J.D. from Harvard Law School, a master’s degree from the University of Cambridge, and a
bachelor’s degree from Northwestern University. We believe that Mr. Chen is qualified to serve on our Board due to his experience in the healthcare and technology
industries and his legal and strategic experience.
Dale
Okuno was appointed to our Board on January 30, 2019. Mr. Okuno is Chief Executive Officer of Okuno Associates, Inc. an investment
firm that focuses investments in technology companies. Prior to founding Okuno Associates, Mr. Okuno was founder and Chief Executive
Officer of E-Z Data, Inc., a SaaS company, which he sold in 2009, a company that he founded in 1986. Mr. Okuno holds a BA in Philosophy
and Psychology from San Jose State University. We believe that Mr. Okuno is qualified to serve on our Board due to his leadership and investment experience.
Information
Regarding Our Executive Officers
Information
with respect to our executive officers as of October 8, 2020 is shown below. Since Tom Y. Lee also serve on the Board, his
biography is set forth under “Information Regarding the Board of Directors” above.
Name
|
|
Age
|
|
Position(s)
Held
|
|
Position(s)
Held Since
|
Tom
Y. Lee, CPA
|
|
71
|
|
Chief
Executive Officer
|
|
2019
|
Mark
Elliott
|
|
45
|
|
Vice
President, Finance
|
|
2015
|
Tom
Meyers
|
|
68
|
|
Chief
Operating Officer
|
|
2018
|
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.
Mr.
Myers was appointed as our Chief Operating Officer on October 4, 2018 had been serving
as the Company’s Executive Vice President, Technical Support and Services since September 2016 and had previously served
as Executive Vice President, Marketing and Product Development since August 2011 when he joined the Company. In his previous role,
Mr. Myers led the implementation and application of the Company’s SDC-based technology in customer facilities, the development
of the Company’s food transport sanitation solution and other marketing and sales efforts. Prior to joining the Company,
Mr. Myers served as the President and Principal of Idaho Milk Products. Mr. Myers has also held executive management roles at
Weider Nutrition International, Puritan Quartz Pharmaceuticals, FruitSource Associates and FruitSource Confections, Nancy’s
Specialty Foods, Izaki Glico and Berkshire Hathaway Corporation. Mr. Myers holds a Bachelor of Science degree from California
State University Long Beach.
Family
Relationships
Mr.
Ivan Chen is the nephew of Mr. Tom Y. Lee. There are no other family relationships between any current director executive officer,
or any director or executive offer during the fiscal year ended July 31, 2020.
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 Report.
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 three members, two of whom are considered independent as that term
is defined by applicable listing standards of the NYSE MKT. Our independent directors include: Messrs. Chen and Okuno.
Board
and Committee Attendance
During
the fiscal year ended July 31, 2020, the Board of Directors met six times and it took action by unanimous written consent four
times. During the fiscal year ended July 31, 2020 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 Messrs. Okuno (Chair) and Chen. 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 Messrs. Okuno and Chen are each an “independent director” under the listing standards of the NYSE MKT. In addition,
the members of the Compensation Committee qualify as a “non-employee directors” 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. Chen (Chair) and Okuno. 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 Messrs. Chen and Okuno are “independent director” under the listing standards
of the NYSE MKT. The Board of Directors has also determined that Messrs. Chen and Okuno 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.
These roles are currently combined as our Board is currently chaired by Mr. Lee, who is also our Chief Executive Officer. Our
Board believes that it is in the best interest of the company and its stockholders for Mr. Lee to serve in both roles at this
time given his knowledge of our company and industry. We believe that this structure provides appropriate leadership and oversight
of the company and facilitates effective functioning of both management and our Board. Our Board will continue to reassess the
structure to determine what is in the best interests of the Company and 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 and other 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., 9669 Hermosa Avenue,
Rancho Cucamonga, California 91730. 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., 9669 Hermosa Avenue, Rancho Cucamonga, California 91730. 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.
Item 11. 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, 2020 and July 31, 2019 by our named executive officers, consisting of (i) each individual serving
as principal executive officer during the fiscal year ended July 31, 2020 and (ii) our other two most highly compensated officers
serving during the fiscal year ended July 31, 2020.
Name
and Principal Position
|
|
Fiscal
Year
|
|
|
Salary
($)(1)
|
|
|
Bonus
|
|
|
Option
Awards
($)(2)
|
|
|
Stock
Awards ($)(3)
|
|
|
All
Other Compensation
($)(4)
|
|
|
Total
Compensation
($)
|
|
Tom Y. Lee
|
|
|
2020
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
242,000
|
(5)
|
|
$
|
|
|
|
$
|
46,000
|
|
|
$
|
288,000
|
|
Chief Executive Officer
|
|
|
2019
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mark S. Elliott
|
|
|
2020
|
|
|
$
|
125,000
|
|
|
|
—
|
|
|
$
|
106,000
|
(6)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
231,000
|
|
Vice President Finance
|
|
|
2019
|
|
|
$
|
180,000
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
180,000
|
|
Tom Myers
|
|
|
2020
|
|
|
$
|
200,000
|
|
|
|
—
|
|
|
$
|
88,000
|
(7)
|
|
$
|
247,000
|
(8)
|
|
$
|
—
|
|
|
$
|
535,000
|
|
Chief Operating Officer
|
|
|
2019
|
|
|
$
|
200,000
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
130,000
|
(9)
|
|
$
|
—
|
|
|
$
|
330,000
|
|
Henry R. Lambert
|
|
|
2020
|
|
|
$
|
25,000
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
58,000
|
|
|
$
|
83,000
|
|
Former Chief Executive Officer (10)
|
|
|
2019
|
|
|
$
|
175,000
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
99,000
|
(11)
|
|
$
|
—
|
|
|
$
|
274,000
|
|
(1)
|
Amounts reflect
salary earned during the respective fiscal years. In August 2019, Mr. Elliott’s base salary was reduced from $180,000
to $125,000 per year.
|
|
|
(2)
|
Amounts for the
years ended July 31, 2020 and 2019 reflect the grant date fair value for financial statement reporting purposes with respect
to stock options granted during the respective fiscal years, calculated in accordance with authoritative guidance.
|
|
|
(3)
|
Amounts for the
years ended July 31, 2020 and 2019 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 $40,000
in Board fees and $6,000 for medical insurance payments reimbursed to Mr. Lee. Represents $58,000 paid to Mr. Lambert for
consulting services.
|
|
|
(5)
|
Represents four
awards consisting of options to purchase seven hundred thousand (700,000) shares of common stock.
|
|
|
(6)
|
Represents two awards
consisting of options to purchase three hundred thousand (300,000) shares of common stock.
|
|
|
(7)
|
Represents two awards
consisting of options to purchase two hundred fifty thousand (250,000) shares of common stock.
|
|
|
(8)
|
Represents an award
consisting of five hundred thousand (500,000) RSUs.
|
|
|
(9)
|
Represents an award
consisting of two hundred sixty two thousand five hundred (262,500) RSUs.
|
|
|
(10)
|
Mr. Lambert retired
as Chief Executive Officer and President of the Company and from our Board and entered into a consulting role pursuant to
a consulting agreement effective as of August 7, 2020.
|
|
|
(11)
|
Represents an award
consisting of two hundred thousand (200,000) RSUs.
|
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, the market rate of compensation paid by companies in our industry for similar positions, our financial position
and performance, and the strength of our business. Base salaries provide a fixed means of compensation in order to attract and
retain talent. Mr. Lee received no base salary as Chief Executive Officer during the fiscal year ended July 31, 2020. Mr. Elliott’s
salary was $125,000 per year during the fiscal year ended July 31, 2020. The base salary for Mr. Myers was $200,000 per year during
the fiscal year ended July 31, 2020.
Performance-Based
Cash Awards: As part of the Company’s executive compensation program, our executive officers are eligible to receive
performance-based cash awards. The annual performance-based cash awards are based on the executive officer’s individual
performance and the Company’s actual performance compared to the corporate goals approved by the Board and the Compensation
Committee. Following the end of each fiscal year, the Board and the Compensation Committee is responsible for determining the
bonus amount payable to an executive officer based on that executive officer’s individual performance during the fiscal
year and its determination of the Company’s actual performance compared to the corporate goals established for that fiscal
year. Due to the Company’s limited financial resources and performance, our named executive officers did not receive any
performance-based cash bonuses for the years ended July 31, 2020 and 2019.
Long-Term
Equity Awards: Equity ownership by our executive officers and key employees encourages them to create long-term value
and aligns their interests with those of our stockholders. As a result, our executive compensation program provides for the issuance
of stock options and restricted stock units (“RSUs”) as determined by the Compensation Committee and our Board.
Outstanding
Equity Awards at Year-End
The
following table provides a summary of all equity awards held by our named executive officers that were outstanding as of July
31, 2020.
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
Number of
shares
or Units of
stock
that have not
vested(#)
|
|
|
Market Value of
shares or Units
of stock that
have not vested
($)(1)
|
|
Tom Y. Lee
|
|
|
87,500
|
|
|
|
262,500
|
|
|
$
|
0.79
|
|
|
5/15/2030
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
150,000
|
|
|
$
|
0.33
|
|
|
1/29/2030
|
(2)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
37,500
|
|
|
|
112,500
|
|
|
$
|
0.29
|
|
|
10/1/2029
|
(2)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
$
|
0.78
|
|
|
2/26/2023
|
(3)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
200,000
|
|
|
|
—
|
|
|
$
|
1.19
|
|
|
6/22/2027
|
(4)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
$
|
0.88
|
|
|
3/1/2022
|
(4)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
$
|
1.05
|
|
|
5/27/2021
|
(5)
|
|
|
—
|
|
|
$
|
—
|
|
Mark Elliott
|
|
|
37,500
|
|
|
|
112,500
|
|
|
$
|
0.33
|
|
|
1/29/2030
|
(6)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
150,000
|
|
|
$
|
0.79
|
|
|
5/15/2030
|
(6)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
150,000
|
|
|
|
—
|
|
|
$
|
0.78
|
|
|
2/26/2023
|
(7)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
150,000
|
|
|
|
—
|
|
|
$
|
0.88
|
|
|
3/1/2022
|
(8)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
150,000
|
|
|
|
—
|
|
|
$
|
1.15
|
|
|
5/11/2021
|
(9)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
6,875
|
|
|
|
—
|
|
|
$
|
6.72
|
|
|
7/14/2021
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
10,000
|
|
|
|
—
|
|
|
$
|
0.86
|
|
|
1/24/2023
|
|
|
|
—
|
|
|
$
|
—
|
|
Tom Myers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
$
|
715,000
|
(10)
|
|
|
|
31,250
|
|
|
|
93,750
|
|
|
$
|
0.33
|
|
|
1/29/2030
|
(11)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
125,000
|
|
|
$
|
0.79
|
|
|
5/15/2030
|
(11)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
$
|
0.78
|
|
|
2/26/2023
|
(12)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
$
|
0.88
|
|
|
3/1/2022
|
(13)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
$
|
1.15
|
|
|
5/11/2021
|
(14)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
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, 2020, which was $1.43.
|
|
|
(2)
|
During the year
ended July 31, 2020, we granted Mr. Lee awards consisting of an options to purchase seven hundred thousand (700,000) shares
of common stock. 500,000 options vest quarterly over one year. The remaining 200,000 options vest quarterly over two years.
All 700,000 options have a ten-year term
|
|
|
(3)
|
During the year
ended July 31, 2018, we granted Mr. Lee a five year award consisting of an option to purchase one hundred thousand (100,000)
shares of common stock. 50% of the option vested January 15, 2019 with the remaining 50% vesting on January 15, 2020.
|
|
|
(4)
|
During the year
ended July 31, 2017, we granted Mr. Lee a ten year award consisting of an option to purchase two hundred thousand (200,000)
shares of common stock. 50% of the option vested January 15, 2018 with the remaining 50% vesting on January 15, 2019. In addition,
during the year ended July 31, 2017, we granted Mr. Lee an award consisting of an option to purchase one hundred thousand
(100,000) shares of common stock. The option has a five-year term and vests in four quarterly installments.
|
|
|
(5)
|
During the year
ended July 31, 2016, we granted Mr. Lee an award consisting of an option to purchase one hundred thousand (100,000) shares
of common stock. The option has a five-year term and vests in four quarterly installments.
|
|
|
(6)
|
During the year
ended July 31, 2020, we granted Mr. Elliott awards consisting of an options to purchase three hundred thousand (300,000) shares
of common stock. The options have a five-year term and vest in four quarterly installments.
|
(7)
|
During the year ended July 31, 2018, 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.
|
|
|
(8)
|
During the year ended July 31, 2017, 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.
|
|
|
(9)
|
During the year ended July 31, 2016, 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.
|
|
|
(10)
|
During the year ended July 31, 2020, we granted Mr. Myers an award consisting of five hundred thousand (500,000) RSUs. The RSU vest in equal installments over a three year period and carry a ten year term.
|
|
|
(11)
|
During the year ended July 31, 2020, we granted Mr. Myers awards consisting of an options to purchase two hundred fifty thousand (250,000) shares of common stock. The options have a five-year term and vest in four quarterly installments.
|
|
|
(12)
|
During the year ended July 31, 2018, we granted Mr. Myers an award consisting of an option to purchase one hundred thousand (100,000) shares of common stock. The option has a five-year term and vests in four quarterly installments.
|
|
|
(13)
|
During the year ended July 31, 2017, we granted Mr. Myers an award consisting of an option to purchase one hundred thousand (100,000) shares of common stock. The option has a five-year term and vests in four quarterly installments.
|
|
|
(14)
|
During the year ended July 31, 2016, we granted Mr. Myers an award consisting of an option to purchase one hundred thousand (100,000) shares of common stock. The option has a five-year term and vests in four quarterly installments.
|
During the year ended July 31, 2020, Messrs.
Lee, Elliott and Myers had 212,500, 37,500 and 31,250 option awards vest, respectively. The respective value on vesting was $51,000,
$8,000 and $7,000 respectively.
Employment
Agreements; Potential Payments Upon Termination or a Change in Control for Current Executive Officers
Agreement
with our former Chief Executive Officer.
Effective
August 7, 2019, Henry R. Lambert retired as Chief Executive Officer and President of the Company and from our Board and entered
into a consulting role pursuant to a consulting agreement effective as of August 7, 2019 (the “Lambert Consulting Agreement”).
The following provides a description of Mr. Lambert’s employment agreement during the fiscal years ended July 31, 2019 and
2018. A description of the Consulting Agreement follows below.
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 he was entitled to an annual base salary. The annual base salary of Mr.
Lambert was $350,000 until April 1, 2018 when his base salary was reduced to $175,000.
The
employment agreement provides that, during the term of the agreement, Mr. Lambert was 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 (the “First Amendment”) to Mr. Lambert’s employment agreement. The
employment agreement, as amended, provided for certain compensation to be paid to Mr. Lambert if his employment was terminated
by the Company without cause or terminated by the executive for good reason or there occurs a Change in Control of the Company.
However, in September 2018, we entered into a second amendment (the “Second Amendment”) to Mr. Lambert’s employment
agreement, pursuant to which Mr. Lambert agreed to reduce the severance payments he was entitled to receive if he was terminated
by the Company without cause or he terminates his employment for good reason. Under the employment agreement as amended by the
first amendment, he was entitled to receive 24 months of base salary plus a $1,000,000 lump sum payment. Under the Second Amendment,
he was entitled to receive six months of base salary. In addition, under the Second Amendment, Mr. Lambert agreed to waive his
rights to: (i) receive 24 months of base salary plus a $1,000,000 lump sum payment in the event he is terminated in connection
with or following a change in control of the Company and (ii) receive “gross-up” payments from the Company in the
event any payment or distribution he receives from the Company is subject to an excise tax under Section 4999 of the Internal
Revenue Code.
Under
the Second Amendment, the term of Mr. Lambert’s employment with the Company was extended to June 30, 2020. During such term,
Mr. Lambert’s employment with the Company was to remain “at-will.” Either party could terminate Mr. Lambert’s
employment early, for any or no reason, and with or without cause, by providing the other party with 30 days’ advance written
notice. Additionally, the Second Amendment provided that Mr. Lambert would be entitled to accelerated vesting of his outstanding
equity awards, and a period of 12 months to exercise any outstanding stock options, if his employment was terminated at the expiration
of his employment term on June 30, 2020.
On
June 22, 2017, we granted Mr. Lambert (i) 200,000 RSUs for Common Stock and (ii) an option to purchase 400,000 shares of Common
Stock, which were granted outside the Company’s 2007 Amended and Restated Equity Incentive Plan pursuant to an RSU Agreement
and Option Agreement, respectively. The RSU Agreement and Option Agreement provide that 25% of the RSUs and Options vest on December
31, 2018, and the remainder vest in three equal annual installments thereafter and any unvested shares are subject to accelerated
vesting in connection with a termination without Cause or resignation for Good Reason, upon grantee’s death or Complete
Disability or upon a Change in Control (as the terms are defined in the RSU Agreement and Option Agreement as applicable). Additionally,
the RSUs settle on the earlier (i) ten years from the date of grant, (ii) 60 days after the date that the grantee’s service
ceases for any reason, (iii) the date of the grantee’s death or Complete Disability or (iv) a Change in Control. The consulting
agreement we entered into with Mr. Lambert provided that such unvested RSUs and options vested.
On
August 13, 2018, we granted Mr. Lambert an award consisting of two hundred thousand (200,000) RSUs. 50% of the RSUs were to vest
on December 15, 2019 with the remaining 50% vesting on December 15, 2020. The consulting agreement we entered into with Mr. Lambert
provided that such unvested RSUs vested.
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, Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC
on January 20, 2017 and Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 7, 2018, which are incorporated
herein by reference. The foregoing description of the RSU Agreement and Option Agreement does not purport to be complete and is
qualified in its entirety by the terms and conditions of such RSU Agreement and Option Agreement filed as Exhibits 99.1 and 99.2,
respectively, to the Current Report on Form 8-K filed with the SEC on June 23, 2017, which are incorporated herein by reference.
Consulting
Agreement with our former Chief Executive Officer
Pursuant
to the terms of the Lambert Consulting Agreement, Mr. Lambert’s employment agreement as amended was terminated. The Lambert
Consulting Agreement provides that Mr. Lambert will provide consulting services to the Company for a four (4) month period following
August 7, 2019; provided, however, that if the Company achieves Cash Flow Breakeven (as defined in the Lambert Consulting Agreement)
during such four (4) month period, the term of the consultancy shall extend an additional two (2) months. Mr. Lambert will receive
$14,583 per month during the term of his consultancy. Additionally, in connection Mr. Lambert signing a release in favor of the
Company, the vesting of his outstanding stock options and other equity-based awards accelerated notwithstanding any vesting terms
of such stock options and other equity-based awards.
The
Lambert Consulting Agreement also requires Mr. Lambert to comply with restrictions and covenants in favor of the Company, including
confidentiality, non-compete and non-solicitation provisions.
The
foregoing summary of the Lambert Consulting Agreement, including the associated exhibits, does not purport to be complete, and
is qualified in its entirety by reference to the full text thereof, a copy of which is filed as Exhibit 10.1 to a Current Report
on a Form 8-K filed with the Securities and Exchange Commission on July 12, 2019, and 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. Prior to changes
in tax law taking effect in 2018, there was an exception to the $1.0 million limitation for performance-based compensation, including
stock options, meeting certain requirements. Before such amendments we had not adopted a policy that all compensation must qualify
as deductible under Section 162(m) of the Code. The exemption from the Section 162(m) deduction limit for performance-based compensation
has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our Chief Executive
Officer and certain other executive officers in excess of $1.0 million will not be deductible unless it qualifies for transition
relief applicable to certain arrangements in place as of November 2, 2017.
Compensation
of Directors
Each
non-employee director of the Company receives an annual fee of $40,000 payable for such director’s service on the Board.
Members
of the Audit Committee and Compensation Committee do not receive any additional fee for committee participation.
Annual fees are accrued to each non-employee
director in four equal installments on a quarterly basis. Any non-employee directors serving a portion of the year are entitled
to receive such fees on a pro rata basis based on their length of service during the year.
Additionally, new members of the Board are
entitled to receive stock options in an amount to be determined by the Compensation Committee or the Board.
During the fiscal year ended July 31, 2020,
Messrs. Chen and Okuno received options to purchase 250,000 and 200,000 shares of common stock. The options vest fifty percent
(50%) on the date of the next annual meeting and fifty percent (50%) on the date of the following year’s annual meeting.
In
the past, our Board has approved each year, generally in the first or second calendar quarter of the year, an annual option or
stock grant for our non-employee directors. Any such grant is at the discretion of the Board, which considers the recommendation
of our Compensation Committee. Upon the Board’s approval of any such grant, each non-employee director generally may elect
whether to receive the grant as an option or stock award.
The
following table sets forth compensation earned in the fiscal year ended July 31, 2020 by each of our non-employee directors who
are not named executive officers.
|
|
Fees
Earned or
|
|
|
Option
|
|
|
All
Other
|
|
|
Total
|
|
|
|
Paid in Cash
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
Ivan Chen
|
|
$
|
40,000
|
|
|
$
|
86,000
|
|
|
|
—
|
|
|
$
|
126,000
|
|
Dale Okuno
|
|
$
|
40,000
|
|
|
$
|
69,000
|
|
|
|
—
|
|
|
$
|
109,000
|
|
Dr. Hagen
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
10,000
|
|
|
$
|
10,000
|
|
(1)
Amounts for the year ended July 31, 2020 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) Represents amounts accrued to Dr.
Hagen for services on our scientific advisory board. Dr. Hagen did not seek reelection to the Board of Directors at our
annual meeting of shareholders held in January 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The following table provides information regarding
the beneficial ownership of our common stock as of October 8, 2020, or the Evaluation Date, by: (i) each of our current directors,
(ii) each of our named executive officers as set forth in Item 11 of this Annual Report, (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 footnotes to the table and subject to community property laws where applicable, we believe that each of the stockholders
named in the table has sole voting and investment power with respect to the shares indicated as beneficially owned.
Applicable percentages are based on 87,072,951
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.
Name
(1)
|
|
Number
of
Shares
Beneficially
Owned
|
|
|
Percent
of
Common Stock
|
|
Tom Y. Lee
|
|
|
22,637,263
|
(2)
|
|
|
25.73
|
%
|
Mark S. Elliott
|
|
|
614,225
|
(3)
|
|
|
*
|
%
|
Tom Myers
|
|
|
687,600
|
(4)
|
|
|
*
|
%
|
Dale Okuno
|
|
|
7,222,264
|
(5)
|
|
|
8.28
|
%
|
Ivan Chen
|
|
|
712,500
|
(6)
|
|
|
*
|
%
|
All of our named executive officers and directors
as a group (5 persons)
|
|
|
31,873,852
|
(7)
|
|
|
35.54
|
%
|
*
|
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., 9669 Hermosa Avenue Rancho Cucamonga,
California 91730
|
|
|
(2)
|
Consists
of 750,000 shares of common stock subject to options currently
exercisable or exercisable within 60 days of the Evaluation Date, and 21,887,263 shares of common stock held directly by Mr. Lee
and his spouse.
|
|
|
(3)
|
Consists of 541,875 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.
|
|
|
(4)
|
Consists of 367,500 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date, and 320,100 shares of common stock held directly by Mr. Myers.
|
|
|
(5)
|
Consists of 150,000 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date, and 7,072,264 shares of common stock held directly by Mr. Okuno.
|
|
|
(6)
|
Consists of 262,500 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date, and 450,000 shares of common stock held directly by Mr. Chen.
|
|
|
(7)
|
Consists of 2,071,875 shares of common stock subject to options currently exercisable or exercisable within 60 days of the Evaluation Date and 29,801,977 shares of common stock, held by all directors and executive officers as a group.
|
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 above, no person who, during the fiscal year ended July 31, 2020, 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.
Equity Compensation Plan Information
2007 Equity Incentive Plan
In February 2016, we amended and restated our
2007 Equity Incentive Plan, the (“2007 Plan”), to, among other changes, increase the number of shares of common stock
issuable under the 2007 Plan by 4,000,000 shares and extend the term of the 2007 Plan until February 4, 2026. The 2007 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 of the Board of Directors.
2017 Equity Incentive Plan
In January 2018 our stockholders approved our
2017 Equity Incentive Plan, the (“2017 Plan”), which has a share reserve of 5,000,000 shares of common stock. The shares
of common stock were registered under a Form S-8 filed with the SEC in February 2018. The 2017 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 of the Board of Directors.
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.
On August 23, 2017 we filed a Form S-8 to register
shares of Common Stock underlying equity awards granted to our directors, officers and consultants outside the 2007 Amended and
Restated Equity Incentive Plan. The S-8 registered 850,000 shares with respect to RSUs and options, which were also granted on
the same date.
The following table sets forth, as of July
31, 2020, information with respect to our equity compensation plans, and with respect to certain other options and
warrants.
Plan Category
|
|
Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants
and rights
(a)(1)
|
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected
in
column (a))
(c)
|
|
Equity compensation plans approved by stockholders
|
|
|
7,232,875
|
|
|
$
|
0.79
|
|
|
|
214,000
|
|
Equity compensation plans not approved by stockholders
|
|
|
2,200,000
|
|
|
|
1.18
|
|
|
|
—
|
|
Total
|
|
|
9,432,875
|
|
|
$
|
0.88
|
|
|
|
214,000
|
|
(1)
|
Includes options only and does not include restricted stock units
|
Item 13. Certain Relationships and Related
Transactions, and Director Independence
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, 2018 (the beginning of the year ended July 31, 2019), 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, 2020 and 2019, which is $41,000, 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.
For information with respect to the compensation
paid to our executive officers and directors, see heading “Executive Compensation” of this annual report.
On July 29, 2019, we entered into a Sublease
Agreement (the “Sublease”) with SwabPlus L.P. (“SwabPlus”), effective July 25, 2019, pursuant to which
we will sublease certain office and industrial space for our corporate headquarters. The premises are located in Rancho Cucamonga,
California. Pursuant to the terms of the Sublease, the Company will pay SwabPlus rent of approximately $2,333 per month, plus additional
payments for real property taxes, maintenance and repair and related expenses. We terminated the El Cajon lease and transitioned
to the new premises in September 2019. We expect the Sublease to drastically reduce our operating expenses as compared to our operating
expenses under our prior lease at the El Cajon facility (See Note 4 to these consolidated financial statements).
Tom Y. Lee, the Company’s Chief Executive
Officer, Chairman of the Board and President, also serves as chairman of the board of directors and chief executive officer of
SwabPlus. Mr. Lee also serves as president of Hermosa Property, Inc., the landlord of the premises subject to the Sublease. The
Sublease was considered by the Company in accordance with the Company’s Related Party Transaction and Procedures Policy,
and approved by the disinterested members of the Board.
Equity
Transactions with our Directors and Officers
Since
August 1, 2017, the Company has entered into the following equity investment transactions with its directors and officers:
|
●
|
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. Mr. Otis
retired from the Board in June 2018.
|
|
|
|
|
●
|
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. Mr.
Pfanzelter retired from the Board in August 2018.
|
|
|
|
|
●
|
On
August 16, 2018, we completed a closing of a private placement financing to accredited investors. We raised approximately
$1.5 million in net proceeds in the private placement financing and issued an aggregate of 3,333,964 shares of our common
stock at a purchase price of $0.45 per share, including the conversion of approximately $0.5 million held in the form of a
promissory note as of July 31, 2018. The shares issued in the private placement financing were issued pursuant to a securities
purchase agreement entered into with the investors. Mr. Lee invested approximately $1.0 million through his affiliates, including
approximately $0.5 million of cash and the conversion of existing indebtedness in the amount of approximately $0.5
million that was held in the form of a promissory note payable as of July 31, 2018.
|
|
|
|
|
●
|
On
February 19, 2019, we entered into warrants amendments (each a “Warrant Amendment”, and together, the “Warrant
Amendments”) with three holders of warrants to purchase the Company’s common stock issued in August 2014 (the
“2014 Warrants”). The Warrant Amendments provided (i) for a reduction in the exercise price from $0.75 to $0.35
and (ii) that 2014 Warrants would expire unless otherwise exercised on the date of the Warrant Amendments. In connection with
the execution of the Warrant Amendments, on February 19, 2019, the holders exercised the 2014 Warrants to purchase 2,399,999
shares of common stock for an aggregate exercise price of $840,000.
|
|
|
|
|
●
|
Tom
Lee, the Company’s Chairman of the Board, and beneficial holder of a 2014 Warrant to purchase 2,133,333 shares of Common
Stock, entered into a Warrant Amendment and exercised his 2014 Warrant for an aggregate exercise price of $746,666. Additionally,
Dale Okuno, a member of the Company’s Board of Directors, and beneficial holder of a 2014 Warrant to purchase 213,333
shares of Common Stock, entered into a Warrant Amendment and exercised his 2014 Warrant for an aggregate exercise price of
$74,666.
|
|
|
|
|
●
|
During
May, June, July and October of 2019, we completed four closings (the “Closings”) of a private placement financings
to accredited investors. We raised net proceeds of $1,546,000 in the Closings and issued an aggregate of 5,331,031 shares
of our common stock at a purchase price of $0.29 per share. The shares issued in the private placement financing were issued
pursuant to a securities purchase agreement entered into with the investors. Messrs. Tom Y. Lee, Dale Okuno and Ivan Chen,
each of whom is an accredited investor and a member of the Company’s Board of Directors, invested $290,000, $500,000
and $35,000, respectively, in the private placement financings. Mr. Lee also serves as the Company’s President and Chief
Executive Officer.
|
|
|
|
|
●
|
On March 9, 2020, we entered into a Securities Purchase Agreement with various accredited investors with respect
to a private placement financing (the “Private Placement”) and simultaneously completed the closing of the Private
Placement. We raised net proceeds of approximately $2,000,000 in the Private Placement for an aggregate of 6,896,551 shares of
our common stock at a purchase price of $0.29 per share. The per share purchase price was approved by our Board of Directors on
February 24, 2020 and represents a 20% discount to the closing price of the Company’s common stock on that date. Tom Y. Lee,
Dale Okuno and Ivan Chen, each of whom are accredited investors and members of the Company’s Board of Directors, invested
$650,500, $450,000 and $52,000, respectively, in the Private Placement. Mr. Lee also serves as the Company’s President and
Chief Executive Officer.
|
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 annual report.
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 2020, 2019 and 2018, 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 annual report, our Board consists of three members, two of whom are considered independent
as that term is defined by applicable listing standards of the NYSE MKT. Our independent directors include: Messrs. Chen and Okuno.
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:
|
●
|
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 October 29, 2019, 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 October 19, 2020. 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 87,072,951 shares of our common stock outstanding as of October 19, 2020, 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 October 19, 2020 are considered
outstanding. However, such shares are not included in the shares outstanding as of October 19, 2020 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.
|
|
Beneficial Ownership
Prior to Registration
|
|
|
|
|
|
|
|
|
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
|
|
|
Total
Beneficial
Ownership
|
|
|
% of
Class
|
|
Saranow Investments LP
|
|
|
—
|
(1)
|
|
|
*
|
|
|
|
58,824
|
|
|
|
58,824
|
|
|
|
—
|
|
|
|
—
|
|
Intracoastal Capital LLC
|
|
|
—
|
(2)
|
|
|
*
|
|
|
|
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 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.
|
|
|
(2)
|
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:
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
|
●
|
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 19, 2020, there were 87,072,951 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 (the “2017 Warrants”) at an exercise price of $1.25 per share. Currently, there are outstanding
2017 Warrants to purchase 176,471 shares of common stock, 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 provide 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”).
On
February 19, 2019, the Company entered into warrants amendments (each a “2014 Warrant Amendment”, and together, the
“2014 Warrant Amendments”) with three holders of warrants to purchase the Company’s common stock issued in August
2014 (the “2014 Warrants”). The Warrant Amendments provided (i) for a reduction in the exercise price from $0.75 to
$0.35 and (ii) that 2014 Warrants would expire unless otherwise exercised on the date of the Warrant Amendments. In connection
with the execution of the Warrant Amendments, on February 19, 2019, the holders exercised the 2014 Warrants to purchase 2,399,999
shares of common stock for an aggregate exercise price of $840,000. Currently, there are 2014 Warrants to purchase 133,332 shares
of the Company’s common stock and no 2015 Warrants outstanding.
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
Weinberg and Company, P.A, our independent registered public accounting
firm, has audited our consolidated balance sheet as of July 31, 2020, and the related consolidated statements of operations, stockholders’
equity and cash flows for the year ended July 31, 2020, as set forth in their report, which is included in this registration statement.
Mayer Hoffman McCann P.C. audited our consolidated balance sheet as of July 31, 2019, and the related consolidated statements of
operations, stockholders’ equity and cash flows of the year ended July 31, 2019, as set forth in their report, which is included
in this registration statement. Our financial statements are included in this registration statement in reliance on Weinberg and
Company, P.A., and Mayer Hoffman McCann P.C.’s respective reports, given on their authority 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. 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
To the Stockholders and Board of Directors
Pure Bioscience Inc.
Rancho Cucamonga, Ca.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Pure Bioscience Inc. (the “Company”) and Subsidiaries as of July 31, 2020, and the related statements
of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of July 31, 2020, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required
to obtain an understanding of internal control over financial reporting 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.
Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
We have served as the Company’s auditor
since 2019.
/s/ Weinberg and Company, P.A
Los Angeles, California
October 8, 2020
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
PURE
Bioscience, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of PURE Bioscience, Inc. (“the Company”) as of July
31, 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended July
31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of July 31, 2019, and the results
of its operations and its cash flows for the year ended July 31, 2019, in conformity with accounting principles generally accepted
in the United States of America.
Going
Concern Uncertainty
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has incurred recurring losses from operations and is dependent on additional
financing to fund operations. These conditions 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 to the financial statements. The 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.
Adoption
of New Accounting Standard
As
discussed in Note 2 to the financial statements, the Company changed its method of accounting for revenue from contracts with
customers as a result of the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers,
effective August 1, 2018, under the modified retrospective method.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting 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.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion.
We
served as the Company's auditor from 2007 to 2019.
/s/
Mayer Hoffman McCann P.C.
San
Diego, California
October
29, 2019
PURE
Bioscience, Inc.
Consolidated
Balance Sheets
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,839,000
|
|
|
$
|
398,000
|
|
Accounts receivable
|
|
|
1,089,000
|
|
|
|
373,000
|
|
Inventories
|
|
|
547,000
|
|
|
|
177,000
|
|
Restricted cash
|
|
|
75,000
|
|
|
|
75,000
|
|
Prepaid expenses
|
|
|
16,000
|
|
|
|
18,000
|
|
Total current assets
|
|
|
5,566,000
|
|
|
|
1,041,000
|
|
Property, plant and equipment, net
|
|
|
316,000
|
|
|
|
362,000
|
|
Patents, net
|
|
|
441,000
|
|
|
|
529,000
|
|
Total assets
|
|
$
|
6,323,000
|
|
|
$
|
1,932,000
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,344,000
|
|
|
$
|
553,000
|
|
Accrued liabilities
|
|
|
168,000
|
|
|
|
185,000
|
|
Total current liabilities
|
|
|
1,512,000
|
|
|
|
738,000
|
|
Deferred rent
|
|
|
—
|
|
|
|
4,000
|
|
Total liabilities
|
|
|
1,512,000
|
|
|
|
742,000
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
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, 87,072,951
shares issued and outstanding at July 31, 2020, and 76,732,334 shares issued and outstanding at July 31, 2019
|
|
|
871,000
|
|
|
|
768,000
|
|
Additional paid-in capital
|
|
|
127,414,000
|
|
|
|
123,900,000
|
|
Accumulated deficit
|
|
|
(123,474,000
|
)
|
|
|
(123,478,000
|
)
|
Total stockholders’ equity
|
|
|
4,811,000
|
|
|
|
1,190,000
|
|
Total liabilities and stockholders’ equity
|
|
$
|
6,323,000
|
|
|
$
|
1,932,000
|
|
See
accompanying notes.
PURE
Bioscience, Inc.
Consolidated
Statements of Operations
|
|
Year
ended
|
|
|
|
July
31,
|
|
|
|
2020
|
|
|
2019
|
|
Net
product sales (including related party sales of $124,000 for the fiscal year ended July 31, 2020)
|
|
$
|
6,917,000
|
|
|
$
|
1,909,000
|
|
Cost of goods sold
|
|
|
2,896,000
|
|
|
|
728,000
|
|
Gross Profit
|
|
|
4,021,000
|
|
|
|
1,181,000
|
|
Operating costs
and expenses
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
3,695,000
|
|
|
|
6,416,000
|
|
Research
and development
|
|
|
322,000
|
|
|
|
354,000
|
|
Total
operating costs and expenses
|
|
|
4,017,000
|
|
|
|
6,770,000
|
|
Income
(loss) from operations
|
|
|
4,000
|
|
|
|
(5,589,000
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Inducement
to exercise warrants
|
|
|
—
|
|
|
|
(960,000
|
)
|
Interest
expense, net
|
|
|
(5,000
|
)
|
|
|
(6,000
|
)
|
Other
income, net
|
|
|
5,000
|
|
|
|
1,000
|
|
Total
other expense
|
|
|
—
|
|
|
|
(965,000
|
)
|
Net
income (loss)
|
|
$
|
4,000
|
|
|
$
|
(6,554,000
|
)
|
Net
income (loss) per common share - basic
|
|
$
|
0.00
|
|
|
$
|
(0.09
|
)
|
Net
income (loss) per common share - diluted
|
|
|
0.00
|
|
|
|
(0.09
|
)
|
Weighted
average shares - basic
|
|
|
82,209,487
|
|
|
|
72,880,484
|
|
Weighted
average shares - diluted
|
|
|
84,611,822
|
|
|
|
72,880,484
|
|
See
accompanying notes.
PURE
Bioscience, Inc.
Consolidated
Statements of Stockholders’ Equity
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance July 31, 2018
|
|
|
68,248,158
|
|
|
$
|
683,000
|
|
|
$
|
117,522,000
|
|
|
$
|
(116,924,000
|
)
|
|
$
|
1,281,000
|
|
Issuance of common stock in private placements, net
|
|
|
5,802,927
|
|
|
|
58,000
|
|
|
|
2,156,000
|
|
|
|
|
|
|
|
2,214,000
|
|
Share-based compensation expense - stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
1,387,000
|
|
|
|
—
|
|
|
|
1,387,000
|
|
Share-based compensation expense - restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
1,062,000
|
|
|
|
—
|
|
|
|
1,062,000
|
|
Issuance of common stock upon the vesting of restricted stock units
|
|
|
281,250
|
|
|
|
3,000
|
|
|
|
(3,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock upon exercise of warrants
|
|
|
2,399,999
|
|
|
|
24,000
|
|
|
|
816,000
|
|
|
|
—
|
|
|
|
840,000
|
|
Inducement to exercise warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
960,000
|
|
|
|
—
|
|
|
|
960,000
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,554,000
|
)
|
|
|
(6,554,000
|
)
|
Balance July 31, 2019
|
|
|
76,732,334
|
|
|
|
768,000
|
|
|
|
123,900,000
|
|
|
|
(123,478,000
|
)
|
|
|
1,190,000
|
|
Issuance of common stock in private placements, net
|
|
|
9,758,619
|
|
|
|
97,000
|
|
|
|
2,733,000
|
|
|
|
|
|
|
|
2,830,000
|
|
Share-based compensation expense - stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
555,000
|
|
|
|
—
|
|
|
|
555,000
|
|
Share-based compensation expense - restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
232,000
|
|
|
|
—
|
|
|
|
232,000
|
|
Issuance of common stock upon the vesting of restricted stock units
|
|
|
400,000
|
|
|
|
4,000
|
|
|
|
(4,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock upon exercise of stock options
|
|
|
181,998
|
|
|
|
2,000
|
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,000
|
|
|
|
4,000
|
|
Balance July 31, 2020
|
|
|
87,072,951
|
|
|
$
|
871,000
|
|
|
$
|
127,414,000
|
|
|
$
|
(123,474,000
|
)
|
|
$
|
4,811,000
|
|
See
accompanying notes.
PURE
Bioscience, Inc.
Consolidated
Statements of Cash Flows
|
|
Year Ended
|
|
|
|
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,000
|
|
|
$
|
(6,554,000
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
787,000
|
|
|
|
2,449,000
|
|
Amortization of stock issued for services
|
|
|
4,000
|
|
|
|
38,000
|
|
Depreciation and amortization
|
|
|
192,000
|
|
|
|
241,000
|
|
Interest expense on promissory note
|
|
|
—
|
|
|
|
1,000
|
|
Inducement to exercise warrants
|
|
|
—
|
|
|
|
960,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(716,000
|
)
|
|
|
(98,000
|
)
|
Inventories
|
|
|
(370,000
|
)
|
|
|
20,000
|
|
Prepaid expenses
|
|
|
(2,000
|
)
|
|
|
2,000
|
|
Accounts payable and accrued liabilities
|
|
|
774,000
|
|
|
|
(40,000
|
)
|
Deferred rent
|
|
|
(4,000
|
)
|
|
|
(9,000
|
)
|
Net cash provided by (used) in operating activities
|
|
|
669,000
|
|
|
|
(2,990,000
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
Investment in patents
|
|
|
—
|
|
|
|
(6,000
|
)
|
Purchases of property, plant and equipment
|
|
|
(58,000
|
)
|
|
|
(7,000
|
)
|
Net cash used in investing activities
|
|
|
(58,000
|
)
|
|
|
(13,000
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Net proceeds from the sale of common stock
|
|
|
2,830,000
|
|
|
|
1,710,000
|
|
Net proceeds from the exercise of warrants
|
|
|
—
|
|
|
|
840,000
|
|
Net cash provided by financing activities
|
|
|
2,830,000
|
|
|
|
2,550,000
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
|
|
3,441,000
|
|
|
|
(453,000
|
)
|
Cash, cash equivalents, and restricted cash at beginning of year
|
|
|
473,000
|
|
|
|
926,000
|
|
Cash, cash equivalents, and restricted cash at end of year
|
|
$
|
3,914,000
|
|
|
$
|
473,000
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,839,000
|
|
|
$
|
398,000
|
|
Restricted cash
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
3,914,000
|
|
|
$
|
473,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
4,000
|
|
|
$
|
5,000
|
|
Non-cash financing activities
|
|
|
|
|
|
|
|
|
Conversion of promissory note and accrued interest from a related party to common stock
|
|
$
|
—
|
|
|
$
|
504,000
|
|
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
We have a history of recurring losses, and
as of July 31, 2020 we have incurred a cumulative net loss of $123,474,000. During the fiscal year ended July 31, 2019, we had
a net loss of $6,554,000 and net product sales of $1,909,000. In addition, our cash on hand at July 31, 2019 was $398,000
and we used $2,990,000 in cash to fund operations. During the fiscal year ended July 31, 2020, our financial performance significantly
improved, and we recorded net income of $4,000, recorded net product sales of $6,917,000 and generated $669,000 of cash flows
from operations. In addition, during the year ended July 31, 2020, we raised $2,830,000 through the sale of our common stock,
resulting in a cash balance of $3,839,000 and stockholders’ equity of $4,811,000 at July 31, 2020. Based on current projections,
we believe our available cash on-hand, our current efforts to market and sell our products, and our ability to significantly reduce
expenses, will provide sufficient cash resources to satisfy our operational needs, for at least one year from the date these financial
statements are issued.
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 continually generate positive cash flow from operations, we will need 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.
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 Inc., a Nevada corporation. ETIH2O Inc. has no business and no material assets or liabilities and there have
been no significant transactions related to ETIH2O Inc. during the periods presented in the consolidated financial statements.
All inter-company balances and transactions have been eliminated.
Revenue
Recognition
Effective
August 1, 2018, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”),
Topic 606, Revenue from Contracts with Customers (“Topic 606”). Under Topic 606, revenue is recognized at an amount
that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer.
This principle is applied using the following 5-step process:
|
1.
|
Identify
the contract with the customer
|
|
2.
|
Identify
the performance obligations in the contract
|
|
3.
|
Determine
the transaction price
|
|
4.
|
Allocate
the transaction price to the performance obligations in the contract
|
|
5.
|
Recognize
revenue when (or as) each performance obligation is satisfied
|
Under
Topic 606, we recognize revenue when we satisfy a performance obligation by transferring control of the promised goods or services
to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
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. We sell various configurations and dilutions of SDC direct to customers and through distributors. 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.
Contract
terms for unit price, quantity, shipping and payment are governed by sales agreements and purchase orders which we consider to
be a customer’s contract in all cases. The unit price is considered the observable stand-alone selling price for the arrangements.
Any promotional or sales discounts are applied evenly to the units sold for purposes of calculating standalone selling price.
Product
sales generally consist of a single performance obligation that we satisfy at a point in time. We recognize product revenue when
the following events have occurred: (a) we have transferred physical possession of the products, (b) we have a present right to
payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership
of the products.
Our
direct customer and distributor sales are invoiced based on received purchase orders. Our payment terms on invoiced direct
customer and distributor sales range between 30 and 90 days after we satisfy our performance obligation. The majority of our customers
are on 30 day payment terms. We currently offer no right of return on invoiced sales and maintain no allowance for sales returns.
Shipping
and handling are treated as activities to fulfill promises to customers and any amounts billed to a customer, if applicable, represent
revenues earned for the goods provided. Costs related to such shipping and handling billings are classified as cost of sales.
We
do not have significant categories of revenue that may impact how the nature, amount, timing and uncertainty of revenue and cash
flows are affected by economic factors.
Variable
Consideration
We
record revenue from customers in an amount that reflects the transaction price we expect to be entitled to after transferring
control of those goods or services. From time to time, we offer sales promotions on our products such as discounts. Variable consideration
is estimated at contract inception only to the extent that it is probable that a significant reversal of revenue will not occur.
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. Those estimates and assumptions include estimates for reserves of uncollectible
accounts, inventory obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible
and intangible assets, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing
stock instruments issued for services.
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.
Accounts
Receivable
Trade
accounts receivable are recorded net of allowances for doubtful accounts. We evaluate the collectability of our trade accounts
receivable based on a number of factors. In circumstances where we becomes aware of a specific customer’s inability to meet
its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized
receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification
of potential bad debts, bad debt charges are recorded based on our historical losses and an overall assessment of past due trade
accounts receivable outstanding. The allowance for doubtful accounts was zero at July 31, 2020 and 2019.
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. We regularly review our inventory quantities on hand and record a
provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and our ability to sell
the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products
include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations
of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of
future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and
obsolete inventory. At July 31, 2020 and 2019, management determined that a reserve for inventory obsolescence was not required.
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.
Management assesses the carrying value
of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of
the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss
is recognized to write down the asset to its estimated fair value. For the years ended July 31, 2020 and 2019, Company Management
determined there were no indicators of impairment of its property and equipment.
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 years ended July 31, 2020 or 2019.
Shipping
and Handling Costs
Shipping
and handling costs incurred by us for product shipments are included in cost of goods sold.
Research
and Development Costs
Research
and development costs are expensed as incurred.
Share-Based
Compensation
We periodically issue stock options and
restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs.
We account for such grants issued and vesting to employees based on ASC 718, whereby the value of the award is measured on the
date of grant and recognized as compensation expense on the straight-line basis over the vesting period. In prior periods, we
accounted for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance
of the FASB whereby the value of the stock compensation is based upon the measurement date as determined at either a) the date
at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments
is complete. On August 1, 2019, the Company adopted Accounting Standards Update (ASU) 2018-07 which expands the scope of Topic
718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company recognizes the
fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the
services rendered. The adoption of ASU 2018-07 had no cumulative effect on previously reported amounts.
We estimate the fair value of share-based
payment awards at the date of grant using the Black-Scholes option valuation model. 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.
Fair
Value Measurements
The
Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value
maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with
three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:
|
●
|
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.
|
The
carrying amounts of financial instruments such as cash, accounts receivable, inventories, accounts payable and accrued liabilities,
approximate the related fair values due to the short-term maturities of these instruments.
Concentrations
Gross
sales. For the year ended July 31, 2020, three individual customers accounted for 16%, 13% and 11% 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
was as follows: 98% U.S. and 2% foreign. For the year ended July 31, 2019, one individual customer accounted for 15%, and two
individual customers accounted for 11% 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.
Accounts
receivable. As of July 31, 2020, we had accounts receivable from three customers that comprised 21%, 16% and 11% of total
accounts receivable, respectively. As of July 31, 2019, we had accounts receivable from two customers that comprised of 36%,
and 20% of total accounts receivable, respectively.
Purchases.
For the fiscal year ended July 31, 2020, one vendor accounted for 54% of our purchases. For the fiscal year ended July 31,
2019, one vendor accounted for 18% of our purchases.
Accounts
payable. As of July 31, 2020, one vendor accounted for 66% of the total trade accounts payable. As of July 31, 2019, two vendors
accounted for 14% and 13% of the total trade accounts payable, respectively.
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.
Income
(Loss) Per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average
number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable
to common stockholders by the sum of the weighted-average number of common shares outstanding during the period and the weighted-average
number of dilutive common share equivalents outstanding during the period, using the treasury stock method. Dilutive common share
equivalents are comprised of in-the-money stock options and restricted stock units, based on the average stock price for each
period using the treasury stock method. For the fiscal year ended July 31, 2020, the incremental dilutive common share equivalents
were 2,402,335. Since we incurred a loss for the fiscal year ended July 31, 2019 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 9,736,772.
Segments
We operate in one segment for the manufacture
and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC, our chief operating
decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions
about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management
approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually
entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets
and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar
customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and
distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting”
can be found in the accompanying financial statements.
Reclassification
For
the fiscal year ended July 31, 2019, share-based compensation expense of $2,449,000 has now been included in selling,
general and administrative expense. This reclassification did not have an impact on our results of operations or financial condition
for the fiscal year ended July 31, 2020 and 2019.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC
326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts
and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss”
model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the
standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective. As small business filer, the standard will be effective for us for interim and annual
reporting periods beginning after December 15, 2022. The Company is currently assessing the impact of adopting this standard on
the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU No.
2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing
the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models
will result in fewer embedded conversion features being separately recognized from the host contract as compared with current
GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features
that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify
for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which
the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts
in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January
1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that
year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements, but
currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting.
Recent
accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on
the Company’s present or future consolidated financial statement presentation or disclosures.
3.
Balance Sheet Details
Inventories
consist of the following:
|
|
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
17,000
|
|
|
$
|
30,000
|
|
Finished goods
|
|
|
530,000
|
|
|
|
147,000
|
|
|
|
$
|
547,000
|
|
|
$
|
177,000
|
|
Property,
plant, and equipment consist of the following:
|
|
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Computers and equipment
|
|
$
|
819,000
|
|
|
$
|
1,001,000
|
|
Furniture and fixtures
|
|
|
—
|
|
|
|
21,000
|
|
|
|
|
819,000
|
|
|
|
1,022,000
|
|
Less accumulated depreciation
|
|
|
(503,000
|
)
|
|
|
(660,000
|
)
|
|
|
$
|
316,000
|
|
|
$
|
362,000
|
|
Depreciation
expense for the years ended July 31, 2020 and 2019 was $104,000 and $106,000, respectively.
Patents
consist of the following:
|
|
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Patents
|
|
$
|
3,504,000
|
|
|
$
|
3,504,000
|
|
Less accumulated amortization
|
|
|
(3,063,000
|
)
|
|
|
(2,975,000
|
)
|
|
|
$
|
441,000
|
|
|
$
|
529,000
|
|
Patent
amortization expense for the years ended July 31, 2020 and 2019 was $88,000 and $135,000, respectively.
At
July 31, 2020, future patent amortization expense is expected to be as follows:
2021
|
|
$
|
76,000
|
|
2022
|
|
|
48,000
|
|
2023
|
|
|
42,000
|
|
2024
|
|
|
42,000
|
|
2025
|
|
|
42,000
|
|
Thereafter
|
|
|
191,000
|
|
|
|
$
|
441,000
|
|
4.
Commitments and Contingencies
COVID-19
The
COVID-19 pandemic has led to severe disruptions in general economic activities, as businesses and federal, state, and local governments
take increasingly broad actions to mitigate this public health crisis. While we have experienced some delays related to final
third-party validation of certain of our products and product rollouts by customers using PURE Control, we have not experienced
a material disruption to our business. In addition, we have benefited from increased demand from our customers for our PURE Hard
Surface product due to a focus on surface disinfecting in response to attempting to prevent COVID-19 transmission. We cannot assure
you that such increased demand will continue. Further, on a go-forward basis, we cannot guarantee the overall economic conditions
will not affect our business, as these conditions may significantly negatively impact all aspects of our business. Our business
is dependent on the continued health and productivity of our employees, including our sales staff and corporate management team.
Additionally,
our liquidity could be negatively impacted if these conditions continue for a significant period of time and we may be required
to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, and meet our financial
obligations. Currently, capital and credit markets have been disrupted by the crisis and our ability to obtain any required financing
is not guaranteed and largely dependent upon evolving market conditions and other factors. Depending on the continued impact of
the crisis, further actions may be required to improve our cash position and capital structure.
The
extent to which the COVID-19 pandemic ultimately impacts our business, sales, results of operations and financial condition
will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the
duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and
to what extent normal economic and operating conditions resume and, more specifically, the effect it has on our customers and
suppliers. Even after the COVID-19 pandemic has subsided, we may experience significant impacts to our business as a result
of its global economic impact, including any economic downturn or recession that has occurred or may occur in the
future.
Legal
From
time to time, we could become involved in disputes and various litigation matters that arise in the normal course of business.
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. As of July 31, 2020, there were no material lawsuits
against the Company.
Operating
Leases
On
July 29, 2019, we entered into a Sublease Agreement (the “Sublease”) with SwabPlus L.P. (“SwabPlus”),
effective July 25, 2019, pursuant to which we will sublease certain office and industrial space for our corporate headquarters.
The premises are located in Rancho Cucamonga, California. Pursuant to the terms of the Sublease, the Company will pay SwabPlus
rent of approximately $2,333 per month, plus additional payments for real property taxes, maintenance and repair and related expenses.
We terminated our prior lease in El Cajon, California and transitioned to the new premises in September 2019. Rent expense, including
common area maintenance, was $37,000 and $111,000 for the years ended July 31, 2020 and 2019, respectively.
Tom
Y. Lee, the Company’s Chief Executive Officer, Chairman of the Board and President, also serves as chairman of the board
of directors and chief executive officer of SwabPlus. Mr. Lee also serves as president of Hermosa Property, Inc., the landlord
of the premises subject to the Sublease. The Sublease was considered by the Company in accordance with the Company’s Related
Party Transaction and Procedures Policy, and approved by the disinterested members of the Board. The total payments
to SwabPlus during the year ended July 31, 2020 was $39,000.
The
Sublease expires December 2020. Future annual lease payment for our primary facility as of July 31, 2020 is $12,000.
Manufacturing
Effective June 9, 2019, we entered into
a five-year manufacturing supply agreement with Intercon Chemical Company (ICC) with a three-year renewal term option (the “Manufacturing
Supply Agreement”). The agreement consists of manufacturing, packaging, and distribution of PURE’s SDC-based products
and contains no mandatory purchase commitment levels. The Manufacturing Supply Agreement provides:
|
●
|
ICC licenses PURE’s patents and technology know-how
for the non-exclusive manufacture of PURE’s 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.
|
The Manufacturing Supply 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.
5.
Stockholders’ Equity
Preferred
Stock
As
of July 31, 2020, 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, 2020 and July 31, 2019, there were no shares of preferred stock
issued and outstanding.
Common
Stock
As
of July 31, 2020, 100,000,000 shares of common stock with a par value of $0.01 per share are authorized for issuance.
Private
Placement Financing – Fiscal Year 2020
On
October 2, 2019, we entered into and completed a closing (the “Closing”) of a private placement financing to accredited
investors. We raised net proceeds of $830,000 in the Closing of an aggregate of 2,862,068 shares of our common stock at a purchase
price of $0.29 per share, the closing sales price of our common stock on the date prior to the Closing. The Shares issued in the
private placement financing were issued pursuant to a securities purchase agreement entered into with the investors. Tom Y. Lee
and Dale Okuno, each of whom are accredited investors and members of the Company’s Board of Directors invested $290,000
and $250,000, respectively, in the private placement financing. Mr. Lee also serves as the Company’s President and Chief
Executive Officer.
The
net proceeds to us from the Closing, after deducting the forgoing fees and other offering expenses, were $830,000.
On
March 9, 2020, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with various accredited
investors with respect to a private placement financing (the “Private Placement”) and simultaneously completed the
closing (the “Closing”) of the Private Placement. We raised net proceeds of approximately $2,000,000 in the Private
Placement for an aggregate of 6,896,551 shares of our common stock (the “Shares”) at a purchase price of $0.29 per
share. The per share purchase price was approved by our Board of Directors on February 24, 2020 and represents a 20% discount
to the closing price of the Company’s common stock on that date. Tom Y. Lee, Dale Okuno and Ivan Chen, each of whom are
accredited investors and members of the Company’s Board of Directors, invested $650,500, $450,000 and $52,000, respectively,
in the Private Placement. Mr. Lee also serves as the Company’s President and Chief Executive Officer.
The
net proceeds to us from the Private Placement, after deducting estimated fees and other offering expenses, were approximately
$2,000,000.
The
issuance and sale of the Shares was not registered under the Securities Act of 1933, as amended (the “Securities Act”),
and these Shares may not be offered or sold in the United States absent registration under or exemption from the Securities Act
and any applicable state securities laws. The Shares were issued and sold in reliance upon an exemption from registration afforded
by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. The Investors represented
to the Company that each was an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities
Act, and that each was receiving the Shares for investment for its own account and without a view to distribute them.
Private
Placement Financing – Fiscal Year 2019
On
August 16, 2018, we completed a Closing of a private placement financing to accredited investors. We raised approximately $1.5
million in the Closing and issued an aggregate of 3,333,964 shares of our common stock at a purchase price of $0.45 per share,
including the conversion of approximately $0.5 million held in the form of a promissory note as of July 31, 2018 to Tom Y.
Lee, a member of the Company’s Board of Directors and our largest stockholder. The shares issued in the private placement
financing were issued pursuant to a securities purchase agreement entered into with the investors. Mr. Tom Y. Lee, a member of
the Company’s Board of Directors invested approximately $1.0 million through his affiliates, including approximately $0.5
million of cash and the cancellation of existing indebtedness in the amount of approximately $0.5 million that was held in the
form of a promissory note payable as of July 31, 2018.
During May, June and July of 2019, we completed
three closings (the “Closings”) of a private placement financings to accredited investors. We raised net proceeds
of $716,000 in the Closings and issued an aggregate of 2,468,963 shares of our common stock at a purchase price of $0.29 per share.
The shares issued in the private placement financing were issued pursuant to a securities purchase agreement entered into with
the investors. Messrs. Dale Okuno and Ivan Chen, each of whom are accredited investors and members of the Company’s Board
of Directors invested $250,000 and $35,000, respectively, in the private placement financings.
The
issuance and sale of the shares was not registered under the Securities Act of 1933, as amended (the “Securities Act”),
and these shares may not be offered or sold in the United States absent registration under or exemption from the Securities Act
and any applicable state securities laws. The shares were issued and sold in reliance upon an exemption from registration afforded
by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. The Investors represented
to the Company that each was an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities
Act, and that each was receiving the shares for investment for its own account and without a view to distribute them.
Other Activity
During the three months ended October 31,
2017, we entered into a two-year service agreement for business development services. In accordance with the agreement we issued
50,000 shares of common stock, with a value of $51,000. The value was capitalized to prepaid expense and is being amortized over
the term of the agreement. During the fiscal year ended July 31, 2020 and 2019, we recognized $4,000 and $25,000 of expense related
to these services, respectively.
Warrant
Financing – Fiscal Year 2019
On
February 19, 2019, we entered into warrants amendments (each a “Warrant Amendment”, and together, the “Warrant
Amendments”) with three holders of warrants to purchase the Company’s common stock issued in August 2014 (the “2014
Warrants”). The Warrant Amendments provided (i) for a reduction in the exercise price from $0.75 to $0.35 and (ii) that
2014 Warrants would expire unless otherwise exercised on the date of the Warrant Amendments. In connection with the execution
of the Warrant Amendments, on February 19, 2019, the holders exercised the 2014 Warrants to purchase 2,399,999 shares of common
stock for an aggregate exercise price of $840,000.
Tom
Lee, the Company’s Chairman of the Board, and beneficial holder of a 2014 Warrant to purchase 2,133,333 shares of Common
Stock, entered into a Warrant Amendment and exercised his 2014 Warrant for an aggregate exercise price of $746,666. Additionally,
Dale Okuno, a member of the Company’s Board of Directors, and beneficial holder of a 2014 Warrant to purchase 213,333 shares
of Common Stock, entered into a Warrant Amendment and exercised his 2014 Warrant for an aggregate exercise price of $74,666.
Due
to the reduction in exercise price for the 2014 Warrants issued in connection with the Warrant Amendment, we determined it was
appropriate to record $960,000 of expense in the 2019 condensed consolidated statement of operations for the inducement to exercise
the 2014 Warrants.
A
summary of our warrant activity and related data is as follows:
|
|
Shares
|
|
Outstanding at July 31, 2018
|
|
|
2,861,096
|
|
Issued
|
|
|
—
|
|
Exercised
|
|
|
(2,399,999
|
)
|
Expired/Cancelled
|
|
|
—
|
|
Outstanding at July 31, 2019
|
|
|
461,097
|
|
Issued
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
Expired/Cancelled
|
|
|
(133,332
|
)
|
Outstanding at July 31, 2020
|
|
|
327,765
|
|
The
following table summarizes information related to warrants outstanding at July 31, 2020:
Expiration
|
|
Exercise
|
|
|
|
|
Date
|
|
Price
|
|
|
Shares
|
|
12/01/21
|
|
$
|
1.25
|
|
|
|
58,824
|
|
12/01/21
|
|
$
|
1.28
|
|
|
|
117,647
|
|
01/23/22
|
|
$
|
1.25
|
|
|
|
117,647
|
|
01/23/22
|
|
$
|
1.28
|
|
|
|
33,647
|
|
|
|
|
|
|
|
|
327,765
|
|
6.
Share-Based Compensation
Restricted
Stock Units
The
Company issues restricted stock unit awards (“RSUs”) to key management and as compensation for services to consultants
and others. The RSUs typically vest over a one to three-year period and carry a ten-year term. 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 Company determines that fair value of those awards at the date of grant, and amortizes those awards as an expense
over the vesting period of the award. The shares earned under the grant are usually issued when the award settles at the end of
the term.
On
October 4, 2018, the Board of Directors appointed Tom Myers as the Company’s Chief Operating Officer. In connection with
Mr. Myers appointment, the Board agreed to grant him 500,000 RSUs upon the achievement by the Company of profitability for a fiscal
quarter, after which such RSUs shall vest annually over the following three years. In May 2020, the 500,000 RSUs were formally
granted to Mr. Myers due to the Company’s profitable April 30, 2020 fiscal quarter.
Of
the 2,012,500 RSUs outstanding, we currently expect 500,000 to vest.
During
the fiscal year ended July 31, 2020, the Company recognized $70,000 of compensation cost relating to the shares vesting during
the period. In addition, the Company accelerated the vesting of 400,000 shares of stock issued to Henry R. Lambert with a remaining
value of $162,000 upon his retirement during the period. In total, the Company recognized $232,000 from the vesting of these restricted
stock units. For fiscal year ended July 31, 2019 share-based compensation expense for RSUs was $1,062,000, of which $489,000 was
due to the accelerated vesting of RSU’s held by Dave Pfanzelter, the former Chairman of our Board. Mr. Pfanzelter
retired from our Board in August 2018.
During
the fiscal year ended July 31, 2020, 400,000 shares were settled and delivered to Mr. Lambert upon his retirement.
Of
the 2,012,500 RSUs outstanding as of July 31, 2020, 1,512,500 RSUs are vested and issuable. These RSUs are issued upon settlement
date which is defined as “for each Vested Unit, the earliest of (i) the ten-year anniversary of the Grant Date; (ii) sixty
days after the date the Grantee’s Service ceases for any reason and such cessation constitutes a “separation from
service” within the meaning of Section 409A of the Code; (iii) the date of Grantee’s death or (iv) the date of a Change
in Control that constitutes a “change in control event” within the meaning of Section 409A of the Code”.
As of July 31, 2020, there was $227,000
of unrecognized non-cash compensation cost related to the remaining RSUs we expect to vest, which will be recognized over a weighted
average period of 2.75 years.
A
summary of our restricted stock unit activity and related data is as follows:
|
|
Shares
|
|
Outstanding at July 31, 2018
|
|
|
1,525,000
|
|
Granted
|
|
|
725,000
|
|
Vested
|
|
|
(206,250
|
)
|
Forfeited
|
|
|
(131,250
|
)
|
Outstanding at July 31, 2019
|
|
|
1,912,500
|
|
Granted
|
|
|
500,000
|
|
Vested
|
|
|
(400,000
|
)
|
Forfeited
|
|
|
—
|
|
Outstanding at July 31, 2020
|
|
|
2,012,500
|
|
Stock
Option Plans
2007
Equity Incentive Plan
In
February 2016, we amended and restated our 2007 Equity Incentive Plan, the (“2007 Plan”), to, among other changes,
increase the number of shares of common stock issuable under the 2007 Plan by 4,000,000 shares and extend the term of the 2007
Plan until February 4, 2026. The 2007 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 of the Board of Directors. As of
July 31, 2020, there were approximately 33,000 shares available for issuance under the 2007 Plan.
2017
Equity Incentive Plan
Our
shareholders approved our 2017 Equity Incentive Plan (the “2017 Plan”) in January 2018, which has a share reserve
of 5,000,000 shares of common stock that were registered under a Form S-8 filed with the SEC in February 2018. The 2017 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 of the Board of Directors. As of July 31, 2020, there were approximately 181,000 shares available
for issuance under the 2017 Plan.
Stock
Option Activity
During
the fiscal year ended July 31, 2020, the Compensation Committee of the Board of Directors authorized the issuance of 2,550,000
stock options to our employees, officers, directors and consultants with a fair value of $946,000 as determined by the Black Scholes
option pricing model. The vesting terms of the options vary between one and two years and carry a ten year term.
A
summary of our stock option activity for the fiscal years ended July 31, 2020 and 2019 is as follows:
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 31, 2018
|
|
|
7,626,093
|
|
|
$
|
1.09
|
|
|
$
|
—
|
|
Granted
|
|
|
300,000
|
|
|
$
|
0.52
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Cancelled
|
|
|
(562,968
|
)
|
|
$
|
1.47
|
|
|
|
|
|
Outstanding at July 31, 2019
|
|
|
7,363,125
|
|
|
$
|
1.04
|
|
|
$
|
—
|
|
Granted
|
|
|
2,550,000
|
|
|
$
|
0.58
|
|
|
|
4,300
|
|
Exercised
|
|
|
(440,000
|
)
|
|
$
|
0.82
|
|
|
|
|
|
Cancelled
|
|
|
(40,250
|
)
|
|
$
|
11.41
|
|
|
|
|
|
Outstanding at July 31, 2020
|
|
|
9,432,875
|
|
|
$
|
0.88
|
|
|
$
|
5,255,000
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Range
of Exercise Prices
|
|
Number
of Shares Outstanding
|
|
|
Weighted
Average Remaining Contractual Life
(in years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
of Shares Exercisable
|
|
|
Weighted
Average Remaining Contractual Life
(in years)
|
|
|
Weighted
Average Exercise Price
|
|
$0.25
to $0.50
|
|
|
1,440,000
|
|
|
|
9.29
|
|
|
$
|
0.34
|
|
|
|
541,250
|
|
|
|
9.19
|
|
|
$
|
0.34
|
|
$0.51
to $1.50
|
|
|
7,973,500
|
|
|
|
4.59
|
|
|
$
|
0.97
|
|
|
|
6,505,167
|
|
|
|
3.63
|
|
|
$
|
0.99
|
|
$1.51
to $6.72
|
|
|
19,375
|
|
|
|
0.95
|
|
|
$
|
6.72
|
|
|
|
19,375
|
|
|
|
0.95
|
|
|
$
|
6.72
|
|
|
|
|
9,432,875
|
|
|
|
5.30
|
|
|
$
|
0.88
|
|
|
|
7,065,792
|
|
|
|
4.05
|
|
|
$
|
0.96
|
|
The
weighted average expected term of options outstanding at July 31, 2020 was 5.30 years.
For
the fiscal year ended July 31, 2020 share-based compensation expense for stock options vesting during the period was $555,000.
For the fiscal year ended July 31, 2019 share-based compensation expense for stock options vesting during the period was
$1,387,000, of which $739,000 was due the accelerated vesting of stock options held by Dave Pfanzelter, the former Chairman of
our Board. Mr. Pfanzelter retired from our Board in August 2018.
At
July 31, 2020, options to purchase 7,065,792 shares of common stock were exercisable. These options had a weighted-average exercise
price of $0.88 and a weighted average remaining contractual term of 4.05 years. The weighted average grant date fair value for
options granted during the fiscal year ended July 31, 2020 was $0.40. The total unrecognized compensation cost related to unvested
stock option grants as of July 31, 2020 was approximately $731,000 and the weighted average period over which these grants are
expected to vest is 1.20 years.
During
the fiscal year ended July 31, 2020, there was a net exercise on 440,000 stock options which resulted in the issuance of 181,998
shares of our common stock. As these options were net exercised, as permitted under the respective option agreements, we did not
receive any cash proceeds.
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,
|
|
|
|
2020
|
|
|
2019
|
|
Volatility
|
|
|
83.15
|
%
|
|
|
75.67
|
%
|
Risk-free interest rate
|
|
|
0.89
|
%
|
|
|
2.63
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life
|
|
|
5.45
years
|
|
|
|
4.80
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.
7.
Related Party Transactions
On
June 28, 2018, we raised $500,000 to support our continued operations by issuing a one-year promissory note to Tom Y. Lee, a member
of the Company’s Board of Directors and our largest stockholder. The note accrued interest at 6.5% per annum, compounded
annually. On August 16, 2018, $500,000 of principal and approximately $4,000 of accrued interest was converted into 1,120,633
shares of common stock (See Note 5 to these consolidated financial statements).
On
July 29, 2019, we entered into a Sublease Agreement (the “Sublease”) with SwabPlus L.P. (“SwabPlus”),
effective July 25, 2019, pursuant to which we will sublease certain office and industrial space for our corporate headquarters.
The premises are located in Rancho Cucamonga, California. Pursuant to the terms of the Sublease, the Company will pay SwabPlus
rent of approximately $2,333 per month, plus additional payments for real property taxes, maintenance and repair and related expenses
(See Note 4 to these consolidated financial statements). During the year ended July 31, 2020, $39,000 was paid to SwabPlus.
During
the fiscal year ended July 31, 2020, we sold $124,000 of product to Harmony Bioscience, Inc. PURE Chairman and CEO Tom Y. Lee
is an affiliate of Harmony Bioscience.
As
of July 31, 2020 and July 31, 2019, accounts payable included $60,000 in board fees due to officers and directors,
respectively.
8.
Sales Concentration
Net
product sales were $6,917,000 and $1,909,000 for the years ended July 31, 2020 and 2019, respectively. For the year ended July
31, 2020, three individual customers accounted for 16%, 13% and 11% of our net product sales. No other individual customer accounted
for 10% or more of our net product sales. For the year ended July 31, 2019, one individual customer accounted for 15%, and two
individual customers accounted for 11% of our net product sales. No other individual customer accounted for 10% or more of our
net product sales.
9.
Income Taxes
We
file federal and state consolidated tax returns with our subsidiaries. Our income tax provision for the years ended July 31, 2020
and 2019 was $1,650; the minimum state franchise taxes we pay regardless of income or loss.
At
July 31, 2020, we had federal and state tax net operating loss carry-forwards of approximately $106.2 million and $61.8 million,
respectively. At July 31, 2019, we had federal and state tax net operating loss carry-forwards of approximately $108.3 million
and $62.1 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 began expiring in the year ended July 31, 2020 and, unless previously utilized, all but
$2.4 million will completely expire in the year ending July 31, 2038. The $2.4 million can be carried forward indefinitely. Our
state tax loss carry-forwards began to expire in the year ending July 31, 2029, and will completely expire in the year ending
July 31, 2040.
Significant
components of our deferred tax assets are as follows:
|
|
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net operating loss carry-forward
|
|
$
|
26,540,000
|
|
|
$
|
26,940,000
|
|
Stock options and warrants
|
|
|
1,950,000
|
|
|
|
2,030,000
|
|
Other temporary differences
|
|
|
(120,000
|
)
|
|
|
(130,000
|
)
|
Total deferred tax assets
|
|
|
28,370,000
|
|
|
|
28,840,000
|
|
Valuation allowance for deferred tax assets
|
|
|
(28,370,000
|
)
|
|
|
(28,840,000
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
A
reconciliation of income taxes computed using the statutory income tax rate, compared to the effective tax rate, is as follows:
|
|
2020
|
|
|
2019
|
|
Federal tax benefit at the expected statutory rate
|
|
|
—
|
%
|
|
|
21.0
|
%
|
State income tax, net of federal tax benefit
|
|
|
—
|
|
|
|
0.6
|
|
Other
|
|
|
—
|
|
|
|
(18.3
|
)
|
Valuation allowance
|
|
|
—
|
|
|
|
—
|
|
Income tax benefit - effective rate
|
|
|
—
|
%
|
|
|
(3.3
|
)%
|
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, 2020 or July 31, 2019. 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, 2020 and 2019, 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.
PURE
BIOSCIENCE, INC.
176,471
Shares of Common Stock
Issuable
Upon the Exercise of Outstanding Warrants
Prospectus
,
2019
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.
On March 9, 2020, we entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with various accredited investors with respect to a private placement
financing (the “Private Placement”) and simultaneously completed the closing (the “Closing”) of the Private
Placement. We raised net proceeds of approximately $2,000,000 in the Private Placement for an aggregate of 6,896,551 shares of
our common stock (the “Shares”) at a purchase price of $0.29 per share. The per share purchase price was approved
by our Board of Directors on February 24, 2020 and represents a 20% discount to the closing price of the Company’s common
stock on that date. Tom Y. Lee, Dale Okuno and Ivan Chen, each of whom are accredited investors and members of the Company’s
Board of Directors, invested $650,500, $450,000 and $52,000, respectively, in the Private Placement. Mr. Lee also serves as the
Company’s President and Chief Executive Officer.
On
each of May 9, 2019, June 21, 2019, July 16, 2019 and October 2, 2019, we completed a closing of a private placement financing
to accredited investors. We raised approximately an aggregate of $1,546,000 in the private placement financings and issued an
aggregate of 5,331,031 shares of our common stock at a purchase price of $0.29 per share. The shares issued in each of the private
placement financings were issued pursuant to securities purchase agreements entered into with accredited investors. Mr. Tom Y.
Lee and Mr. Dale Okuno, members of our Board of Directors, invested $290,000 and $250,000, respectively, in the October 2, 2019
private placement financing. Mr. Lee also serves as our President and Chief Executive Officer. Mr. Okuno and Mr. Evan Chen, members
of our Board of Directors, invested $250,000 and $35,000, respectively, in the May 9, 2019 private placement financing. The shares
of common stock issued under the private placement financings 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 Rule 506 of
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 of the Securities Act) and that
it was purchasing the securities for its own account and without a view to distribute them. The shares 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 did not utilize the services of a placement agent in any of the private placement financings.
On
August 16, 2018, we completed a closing of a private placement financing to accredited investors. We raised approximately $1.5
million in the private placement financing and issued an aggregate of 3,333,964 shares of our common stock at a purchase price
of $0.45 per share. The shares issued in the private placement financing were issued pursuant to a securities purchase agreement
entered into with the investors. Mr. Tom Y. Lee, a member of the Company’s Board of Directors invested approximately $1.05
million through his affiliates, including $547,000 of cash and the conversion of existing indebtedness in the amount of
approximately $504,000 that was held in the form of a promissory note. The shares of common stock issued under the private placement
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 shares 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 did not utilize the services of a placement agent in this private placement financing.
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.
Item
16. Exhibits.
(a)
|
(1)
|
|
The list of financial
statements filed in response to Part II, Item 8 is set forth at the end of this Annual Report.
|
|
|
|
|
|
(2)
|
|
Schedules are omitted
because they are not applicable or the required information is shown in the financial statements or notes thereto.
|
|
|
|
|
(b)
|
|
|
The following exhibits
are filed as part of this Annual Report pursuant to Item 601 of Regulation S-K:
|
|
|
|
|
|
3.1
|
|
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)
|
|
|
|
|
|
3.1.1
|
|
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)
|
|
|
|
|
|
3.2
|
|
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)
|
|
|
|
|
|
3.2.1
|
|
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)
|
|
|
|
|
|
4.1
|
|
Form of Warrant (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the SEC on December 7, 2016).
|
|
|
|
|
|
4.2
|
|
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).
|
|
|
|
|
|
4.3
|
|
Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on December 7, 2016)
|
|
|
|
|
|
5.1*
|
|
Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP.
|
|
|
|
|
|
10.1
|
|
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)
|
|
|
|
|
|
10.2 #
|
|
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)
|
|
|
|
|
|
10.3 #
|
|
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)
|
|
|
|
|
|
10.4 #
|
|
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)
|
|
|
|
|
|
10.5 #
|
|
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)
|
|
|
|
|
|
10.6
|
|
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)
|
|
|
|
|
|
10.7†
|
|
Manufacturing Supply Agreement, dated June 21, 2019, by and between Pure Bioscience Inc. and Intercon Chemical Company (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on June 26, 2019).
|
|
|
|
|
|
10.8 #
|
|
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)
|
|
|
|
|
|
10.9 #
|
|
Amendment to Executive Employment Agreement, dated January 19, 2017, by and between the Company and Henry Lambert (incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed with the SEC on January 20, 2017)
|
|
10.10
#
|
|
CEO RSU Agreement, dated as of June 22, 2017, by and between the Company and Henry Lambert (incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-K filed with the SEC on June 23, 2017)
|
|
|
|
|
|
10.11 #
|
|
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)
|
|
|
|
|
|
10.12 #
|
|
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)
|
|
|
|
|
|
10.13 #
|
|
Pure Bioscience, Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on January 18, 2018)
|
|
|
|
|
|
10.14
|
|
Promissory Note, dated June 28, 2018, issued to Tom Y. Lee (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on July 2, 2018)
|
|
|
|
|
|
10.15
|
|
Consulting Agreement, dated June 28, 2018, by and between the Company and William Otis (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on July 2, 2018)
|
|
|
|
|
|
10.16
|
|
Consulting Agreement, dated August 13, 2018, by and between the Company and Dave Pfanzelter (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on August 7, 2018)
|
|
|
|
|
|
10.17
|
|
Amendment to Consultant Agreement, effective August 1, 2019, by and between the Company and Dave Pfanzelter (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on August 2, 2018).
|
|
|
|
|
|
10.18 #
|
|
Second Amendment to Employment Agreement, dated September 5, 2018, by and between the Company and Henry R. Lambert (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on September 7, 2018)
|
|
|
|
|
|
10.19
|
|
Form of Warrant Amendment (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on February 22, 2019)
|
|
|
|
|
|
10.20
|
|
Form of Amendment to Securities Purchase Agreement (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on June 29, 2019).
|
|
|
|
|
|
10.21
|
|
Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on October 3, 2019)
|
|
|
|
|
|
10.22
|
|
Sublease Agreement, effective July 25, 2019, by and between the Company and SwabPlus L.P. (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on August 2, 2019).
|
|
|
|
|
|
21.1
|
|
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)
|
|
|
|
|
|
23.1 *
|
|
Consent of Weinberg and Company, P.A and Mayer Hoffman McCann P.C.
|
|
|
|
|
|
23.2 *
|
|
Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP. (included in Exhibit 5.1)
|
|
|
|
|
|
24.1
|
|
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)
|
|
|
|
|
|
101 *
|
|
The following materials
from the Company’s Annual Report on Form 10-K for the annual period ended July 31, 2020, formatted in XBRL (eXtensible
Business Reporting Language): (i) Consolidated Balance Sheets as at July 31, 2020 and 2019; (ii) Consolidated Statements of
Operations for the years ended July 31, 2020 and 2019; (iii) Consolidated Statements of Stockholders’ Equity for the
years ended July 31, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the years ended July 31, 2020 and 2019;
and (v) Notes to Consolidated Financial Statements.
|
*
|
Filed herewith
|
#
|
Management contract or compensatory plan or
arrangement
|
|
|
†
|
Certain confidential
portions of this exhibit were omitted by means of marking such portions with an asterisk because the identified confidential
portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. The Company hereby undertakes
to provide further information regarding such redacted information to the Commission upon request.
|
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, 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.
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 Rancho Cucamonga, State of California, on this October
19th 2020.
|
PURE
BIOSCIENCE, INC.
|
|
|
|
|
By:
|
/s/
Tom Y. Lee
|
|
|
Tom
Y. Lee
|
|
|
Chief
Executive Officer
|
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
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Tom Y. Lee
|
|
Chief
Executive Officer and Director
|
|
October
19, 2020
|
Tom
Y. Lee
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Mark S. Elliott
|
|
Vice
President, Finance
|
|
October
19, 2020
|
Mark
S. Elliott
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Ivan Chen
|
|
Director
|
|
October
19, 2020
|
Ivan
Chen
|
|
|
|
|
|
|
|
|
|
/s/
Dale Okuno
|
|
Director
|
|
October
19, 2020
|
Dale
Okuno
|
|
|
|
|
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