Quarterly Report for Quarter Ending APRIL 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

All references in this Item 2 and elsewhere in this Quarterly Report to "PURE," "we", "our," "us" and the "Company" refer to PURE Bioscience, Inc., a Delaware corporation, and our wholly owned subsidiary, ETI H2O, Inc., a Nevada corporation. ETI H2O, Inc. currently has no business operations and no material assets or liabilities and there have been no significant transactions related to ETI H2O, Inc. during the periods presented in the condensed consolidated financial statements contained elsewhere in this Quarterly Report.

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" in Part II, Item 1A of this Quarterly Report 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 condensed consolidated financial statements and the notes to those financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are dedicated to developing and commercializing proprietary antimicrobial products that address health and environmental challenges related to pathogen and hygienic control. Our technology platform is based on patented stabilized ionic silver, and our initial products contain Silver Dihydrogen Citrate, or SDC. This broad-spectrum, non-toxic antimicrobial agent is available in liquid form and various concentrations, distinguished by its superior efficacy, reduced toxicity, non-causticity, and the inability of bacteria to develop resistance.

Our SDC-based disinfecting and sanitizing products are registered with the United States Environmental Protection Agency, or EPA, the United States Food and Drug Administration, or FDA, and Health Canada. In addition to manufacturing and distributing these products, we also supply SDC-based formulations as raw material ingredients for personal care products.

We see significant market opportunities for our safe and effective SDC-based solutions, particularly in the food industry. Our registered offerings include PURE® Hard Surface, a food contact surface sanitizer and disinfectant designed for restaurant chains, food processors, and transportation companies, as well as PURE Control®, a direct food contact processing aid. Our products are sold directly to end-use customers, as well as third-party distributors who market and sell our products across various industries, maximizing our reach and impact.

Business Strategy

Our goal is to establish a sustainable company by commercializing SDC-based products developed through our proprietary technology platform. We aim to deliver leading antimicrobial solutions that tackle food safety risks across the entire food industry supply chain. Our products are sold directly to end-use customers and through our expanding distribution network. Key elements of our business strategy include:

1.

Growing and supporting our distribution network. Expanding sales through distribution provides the following:

	a.	Expanded Reach: Distributors often have established networks and customer relationships, allowing us to access new markets and customer segments more efficiently.
	b.	Cost Savings: Utilizing distributors can reduce overhead costs associated with logistics, warehousing, and inventory management.
	c.	Market Knowledge: Distributors typically have local market insights and expertise, helping us navigate regional preferences and regulatory requirements.
	d.	Faster Time to Market: Distributors can accelerate product availability in geographic regions throughout the country, enabling quicker responses and shortening the sales cycle.
	e.	Sales Support: Distributors provide additional sales resources and support, such as training and promotional activities, enhancing product visibility.
	f.	Scalability: Distributors can easily scale operations to accommodate growth without requiring significant investment from the manufacturer.
	g.	Customer Service: Local distributors can offer better customer support, including faster response times and tailored services to meet specific client needs.

	2.	Continuing to partner with third parties seeking, or intending to seek, approvals to market SDC-based products outside the U.S.
	3.	Developing additional proprietary products and applications.
	4.	Protecting and enhancing our intellectual property.

In addition to our existing food safety products, we plan to leverage our technology platform through licensing and distribution collaborations to create new products and explore additional markets, aiming to generate multiple revenue streams.

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, as well as other non-operating transactions, as other income (expense) in our consolidated statements of operations.

Results of Operations

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.

Comparison of the Three Months Ended April 30, 2025 and 2024

Net Product Sales

Net product sales were $489,000 and $440,000 for the three months ended April 30, 2025 and 2024, respectively. The increase of $49,000 was attributable to increased sales across our distribution network. Our top customer accounted for $40,000 of net product sales for the three months ended April 30, 2025.

For the three months ended April 30, 2025, no individual customer accounted for 10% or more of our net product sales. All of our net product sales were U.S. based sales.

For the three months ended April 30, 2024, one customer accounted for 20% of net product sales. No other individual customer accounted for 10% or more of our net product sales. All of our net product sales were U.S. based sales.

During the three months ended April 30, 2025 and 2024, we recognized $2,000 and $1,000 in royalties from a nonexclusive third-party distributor, respectively.

Cost of Goods Sold

Cost of goods sold was $208,000 and $183,000 for the three months ended April 30, 2025 and 2024, respectively. The increase of $25,000 was primarily attributable to increased sales during the current quarter.

Gross margin as a percentage of net product sales, was 57% and 58% for the three months ended April 30, 2025 and 2024, respectively. The decrease in gross margin percentage was primarily attributable to increased sales of lower margin packaging configurations of our products during the current quarter ended April 30, 2025.

Selling, General and Administrative Expense

Selling, general and administrative expense was $776,000 and $998,000 for the three months ended April 30, 2025 and 2024, respectively. The decrease of $222,000 was due to reduced facilities cost, professional service fees and personnel costs.

Share-based compensation expense, included in selling, general and administrative expense, was $33,000 and $32,000 for the three months ended April 30, 2025 and 2024, respectively. The slight increase is primarily due to the current 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, primarily consisting of third-party fees and personnel costs, was $91,000 and $77,000 for the three months ended April 30, 2025 and 2024, respectively.

Interest Expense

Interest expense was $78,000 and $41,000 for the three months ended April 30, 2025 and 2024, respectively. The increase of $37,000 was primarily due to accrued interest on convertible notes issued in 2025, 2024 and 2023.

Other Income

Other income was $82,000 and $1,000 for the three months ended April 30, 2025 and 2024, respectively. During the current quarter we received $82,000 from the U.S. Governments Employee Retention Tax Credit Program.

Comparison of the Nine Months Ended April 30, 2025 and 2024

Net Product Sales

Net product sales were $1,435,000 and $1,483,000 for the nine months ended April 30, 2025 and 2024, respectively. The decrease of $48,000 was attributable to decreased sales across our end user network. Our top customer accounted for $193,000 of net product sales for the nine months ended April 30, 2025.

For the nine months ended April 30, 2025, two individual customers accounted for 13% and 10% 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 were U.S. based sales.

For the nine months ended April 30, 2024, one individual customer accounted for 23% 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 were U.S. based sales.

During the nine months ended April 30, 2025 and 2024, we recognized $3,000 and $6,000 in royalties from a nonexclusive third-party distributor, respectively.

Cost of Goods Sold

Cost of goods sold was $603,000 and $612,000 for the nine months ended April 30, 2025 and 2024, respectively. The decrease of $9,000 was primarily attributable to decreased sales during the current fiscal year.

Gross margin as a percentage of net product sales, or gross margin percentage, was 58% and 59% for the nine months ended April 30, 2025 and 2024, respectively. The decrease in gross margin percentage was primarily attributable to the sale of lower margin packaging configurations of our products during the nine months ended April 30, 2025, as compared with the prior period.

Selling, General and Administrative Expense

Selling, general and administrative expense was $2,528,000 and $3,136,000 for the nine months ended April 30, 2025 and 2024, respectively. The decrease of $608,000 was primarily attributable to decreased personnel costs, professional service fees and board of director fees. These decreases were partially offset by increased travel expense.

Share-based compensation expense, included in selling, general and administrative expense, was $117,000 and $176,000 for the nine months ended April 30, 2025 and 2024, respectively. The decrease of $59,000 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, primarily consisting of third-party fees and personnel costs, was $243,000 and $233,000 for the nine months ended April 30, 2025 and 2024, respectively.

Interest Expense

Interest expense was $210,000 and $103,000 for the nine months ended April 30, 2025 and 2024, respectively. The increase of $107,000 was primarily due to accrued interest on the outstanding 2025, 2024 and 2023 convertible notes.

Other Income

Other income was $79,000 and $1,000 for the nine months ended April 30, 2025 and 2024, respectively. During the nine months ended April 30, 2025, we received $82,000 from the U.S. Governments Employee Retention Tax Credit Program.

Liquidity and Capital Resources

As of April 30, 2025, we had $615,000 in cash and cash equivalents compared with $424,000 in cash and cash equivalents as of July 31, 2024. The net increase in cash and cash equivalents was attributable to cash received from financing activities, offset by cash used to fund continuing operations. Additionally, as of April 30, 2025, we had $972,000 of current liabilities, including $799,000 in accounts payable, compared with $733,000 of current liabilities, including $601,000 in accounts payable as of July 31, 2024. The net increase in current liabilities was due to increased trade payables owed to our contract manufactures.

We have a history of recurring losses, and as of April 30, 2025 we have a stockholder deficiency of $4,814,000. During the nine months ended April 30, 2025, we recorded a net loss of $2,067,000 on recorded net revenue of $1,438,000. In addition, during the nine months ended April 30, 2025 we used $1,559,000 in operating activities resulting in a cash balance of $540,000 as of April 30, 2025. Our history of recurring operating losses, and negative cash flows from operating activities give rise to substantial doubt regarding our ability to continue as a going concern. 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 classifications of liabilities that may result from our possible inability to continue as a going concern.

Our future capital requirements depend on numerous forward-looking factors. These factors may include, but are not limited to, the following: the acceptance of, and demand for, our products; our success and the success of our partners in selling our products; our success and the success of our partners in obtaining regulatory approvals to sell our products; the costs of further developing our existing products and technologies; the extent to which we invest in new product and technology development; and the costs associated with the continued operation, and any future growth, of our business. The outcome of these and other forward-looking factors will substantially affect our liquidity and capital resources.

Until we can 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.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed 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.

In addition, the condensed consolidated financial statements included in this Quarterly Report have been prepared and presented on a basis assuming we will continue as a going concern. Until we can generate significant cash from operations, we expect to continue to fund our operations with the proceeds of offerings of our equity and debt securities. However, we cannot assure you that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us to relinquish our rights to our products or technology, and we cannot assure you that we will be able to enter into any such contracts or license arrangements on acceptable terms, or at all. Having insufficient funds may require us to delay or scale back our marketing, distribution and other commercialization activities or cease our operations altogether. Our financial statements do not include any adjustment relating to recoverability or classification of recorded assets and classification of recorded liabilities.

We believe the following accounting policies and estimates are critical to aid you in understanding and evaluating our reported financial results.

Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board, or 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.

We do not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Our licensing contracts typically provide for royalties based on the licensee's sales of various configurations of PURE Hard Surface. We record royalty revenue in the month in which the licensee sold our products to end users. Payments are generally received in the subsequent month.

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 or stand-alone contracts. 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.

Recent Accounting Pronouncements

See Note 4 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.