Edgar Filing: PURE BIOSCIENCE

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB/A

ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2003

Commission file number 0-21019

PURE Bioscience
(Exact name of registrant as specified in its charter)

California 33-0530289
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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

(619) 596-8600
(Registrant's Telephone Number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendments to
this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $2,589,500

Aggregate market value of the voting stock held by non-affiliates of the
registrant: Approximately $10,123,000 as of October 24, 2003.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 13,854,088 shares of common stock as of February 18, 2004.

Documents incorporated by reference: Certain Exhibits

Explanatory Note on Amendment

This Amendment has been filed to revise Part III, Item 11 Security Ownership of
Certain Beneficial Owners and of Management to reflect current information and
to include the required Sarbanes Oxley certifications Exhibits 31.1, 31.2, 32.1
and 32.2.

PART I
------
ITEM 1. DESCRIPTION OF BUSINESS
Company Overview
PURE Bioscience (formerly Innovative Medical Services) began as a provider of
pharmaceutical water purification products. Although our current revenues are
still primarily from the pharmacy industry, we have expanded from our niche
pharmacy market into other, broader markets with new products, including
residential and commercial water filtration systems, and bioscience products
based upon our silver ion bioscience technologies and boric acid based pesticide
technologies. Because of this business development evolution, in September 2003,
shareholders approved a name change from Innovative Medical Services to PURE
Bioscience.

Water Treatment Division
The Fillmaster(R) pharmaceutical water purification, dispensing and measuring
products include the Pharmapure(R) water purification system, the FMD 550
dispenser, the patented Fillmaster 1000e computerized dispenser and the patented
Scanmaster(TM) bar code reader. We also market proprietary National Sanitation
Foundation certified replacement filters for the Fillmaster Systems.

Our Nutripure(R) line of water treatment and filtration systems includes the
Nutripure 3000S-Series whole-house water softening systems, the Nutripure Elite
reverse osmosis point-of-use systems, the Nutripure 2000 countertop water
filtration system and the Nutripure Sport filtered sport bottle. We distribute
our various Nutripure products in several ways, including retail sales,
catalogue placement, business-to-business sales, internet promotion and in-home
sales presentations.

Bioscience Division
Our bioscience division features a patented, aqueous disinfectant called
Axenohl(R). A patented new molecule, silver dihydrogen citrate, Axenohl is an
electrolytically generated source of stabilized ionic silver that can serve as
the basis for a broad range of products in diverse markets. Axenohl liquid is
colorless, odorless, tasteless and non-caustic and formulates well with other
compounds. Axenohl-based antimicrobial technology is distinguished from
competitors in the marketplace because of its superior efficacy combined with
reduced toxicity. In March 2003, we obtained Environmental Protection Agency
(EPA) registration for our Axen-30(TM) hard surface disinfectant. Axen-30 is a
30-part per million use dilution formula of Axenohl. We plan to pursue
additional EPA and FDA regulatory approvals for other applications.

The bioscience division also includes a patent-pending pesticide technology,
Triglycylboride(TM) which, like Axenohl, provides effective results without
human toxicity and is an alternative to traditional poisons. Triglycylboride has
been formulated into EPA approved RoachX(TM) and AntX(TM), the key products in
the Company's Innovex(TM) line of pest control products. In addition, the
Innovex line features two formulas of EPA-exempt non-toxic TrapX rodent lure,
Pro's Choice(TM) caulk for pest control operators, and EPA approved
CleanKill(TM), the Axen-based hard surface disinfectant for the pest control
industry. The pest control products are being marketed to both commercial pest
control and consumer products companies.

History
PURE Bioscience was incorporated in the State of California on August 24, 1992,
to pursue the immediate business of manufacturing and marketing the Fillmaster
and subsequently a broadly based business of delivering advanced technology,
equipment and supplies to not only the pharmacy industry, but also other
healthcare markets and to retail consumers.

In the past five years, PURE Bioscience transitioned from a one-product company
supplying a niche market to a multi-division company managing new products and
programs. In addition to expanding the Fillmaster product line with the
Fillmaster 1000e and the Scanmaster, we launched a line of residential water
treatment and filtration products. Through acquisition, we have also expanded
into the bioscience arena with our Axenohl antimicrobial products and our
Innovex pesticide products.

In 1997, we developed and launched the now-patented Fillmaster 1000e
computerized, electronic dispenser as an upgrade dispenser to the Fillmaster
pharmaceutical water purification and dispensing system.

In 1997 and 1998 we developed our entry-level residential water system,
Nutripure(R) NP2000CT. After 18 months of extensive market research, PURE
Bioscience completed development of this carbon countertop system and released
the product in June 1998.

In October 1998, PURE Bioscience acquired AMPROMED, Rio de Janeiro, Brazil, and
certain assets of Export Company of America Inc. (EXCOA), Fort Lauderdale, FL,
and established a new Nevada corporation to hold and operate the export/import
operation. AMPROMED's primary business is the sale of medical, dental and
veterinary disposable products. In addition to medical supplies, we plan to
distribute water treatment and silver ion products to Brazil through AMPROMED.
Since the acquisition, the economic conditions in the region have declined and
implementation of the project has been delayed. We no longer have immediate
plans to import medical and dental supplies into Brazil but we believe, however,
that Ampromed is a vital part of our plan to market and sell Axenohl, RoachX and
the Nutripure line of water treatment products.

In 1999 we developed and launched yet another enhancement to our Fillmaster
pharmaceutical water purification and dispensing system, the Scanmaster bar code
reader. Designed as an add-on upgrade to the Fillmaster 1000e computerized
dispenser, the Scanmaster allows the user to scan a prescription's NDC bar code
in front of the dispenser, and the Fillmaster 1000e displays the product name
and required water quantity. The Fillmaster System then dispenses the
prescription with one touch of a button.

Also in 1999, we began investigating marketing opportunities for a silver-ion
based technology called Axenohl. The Axenohl patent was owned at the time by
NVID International.

Early in 2000, after concluding that we wished to pursue development and
marketing of the Axenohl technology, we engaged in a marketing and licensing
agreement with NVID International for Axenohl for specific market segments in
specific geographic areas.

In 2000 we launched the Nutripure Dealer program which expanded our product line
to include whole-house water conditioning systems and other point-of-use water
treatment equipment while expanding our distribution network by offering these
products to independent water treatment for sale to the public under PURE
Bioscience's Nutripure brand.

In 2001 we acquired the marketing rights and patent to our boric acid pesticide
technologies. The first of these products developed, RoachX, launched in October
2001.

In late 2001, as part of a litigation settlement with NVID regarding the
marketing rights to Axenohl, we acquired the patent to the Axenohl technology.

In mid-2002 we expanded our Innovex line of pesticides to include RoachX,
AntX75, two formulas of TrapX, Pro's Choice silicone caulk and CleanKill, a hard
surface disinfectant for use in the pest control industry that uses Axenohl
disinfecting technology.

In 2002 we relaunched the Nutripure Dealer program and changed our Nutripure.com
wholly-owned subsidiary to Nutripure Corporation. The corporation is now being
used to operate the Nutripure Dealer program.

In March 2003, we received Environmental Protection Agency (EPA) registration
for our new Axen-30 formulated Category IV hard surface disinfectant product for
commercial, industrial and consumer applications. Axen-30 is a 30-part per
million (ppm) use-dilution formula of our patented antimicrobial technology,
Axenohl. The additional EPA approval allows us to expand the existing Axen
efficacy claims as a hard surface disinfectant to include a 30 second kill time
on standard indicator bacteria, a 24 hour residual kill on standard indicator
bacteria, a 2 minute kill time on some resistant strains of bacteria, 10 minute
kill time on fungi, 30 second kill time on HIV Type I, and 10 minute kill time
on other viruses. These claims distinguish the efficacy of Axen-30 from many of
the leading commercial and consumer products currently on the market, while
maintaining lower toxicity ratings.

In July 2003 we received a second United States patent granted for the unique
disinfectant Axenohl. United States patent 6,583,176 was issued on June 24, 2003
and covers the formulation of the Axenohl aqueous disinfectant in combination
with ethyl alcohol. United States patent 6,583,176 is a division of the first
United States patent 6,197,814 issued on March 6, 2001 covering the basic
Axenohl formulation and the method of making.

In September 2003, PURE Bioscience announced the first significant
commercialization of its hard surface disinfectant, Axen-30(R), which is sold by
EnvirOx L.L.C. of Danville, Illinois, as Critical Care(TM), a new commercial
disinfectant-fungicide-virucide.

Also in September 2003, the Company announced an agreement with Therapeutics,
Inc., a drug development company based in La Jolla, California, for the
development and commercialization of Food and Drug Administration (FDA)
regulated Axenohl-based products. Therapeutics, Inc. will fund and direct all
development activities and FDA regulatory filings and will initially focus on
development of Axenohl-based products for the treatment of bacterial, viral and
fungal mediated diseases and conditions.

Principal Products and Markets

WATER TREATMENT DIVISION
Pharmaceutical Water Treatment
Fillmaster(R) The Fillmaster dispensing apparatus, connected to the
Pharmapure(R) reverse osmosis water filtration system, provides measured amounts
of purified water for reconstitution of liquid oral antibiotics and certain
other pharmacy applications. Pharmapure is a six-stage water purification unit
featuring an electronic water purity testing module and an auxiliary faucet for
dispensing purified water. Fillmaster is a calibrated volumetric measuring and
dispensing apparatus. The entire system (the "Fillmaster System") integrates
with the building's tap water plumbing and is closed and pressurized to prevent
contamination.

The Fillmaster System saves time and money for pharmacies. According to our
testing, the Fillmaster has a fill rate at least three times that of previous
bottle-and-hose methods, and direct and indirect costs associated specifically
with bottled water are reduced or eliminated. Pharmacy storage space can be
reallocated to more profitable items, labor savings accompany the efficiencies,
and the expense of bottled water purchases of up to $1.25 per gallon is replaced
by one annual filter change. Under optimum usage, a pharmacy reduces the cost of
"purified water" to approximately $.04 per gallon.

In addition to efficiency and cost savings, the Fillmaster System increases
prescription integrity by greatly reducing the possibility of human error while
dispensing prescriptions. The patented Fillmaster 1000e employs multiple
microprocessors to provide accurate and even-flow dispensing. We sell Fillmaster
1000e dispensers as an upgrade to existing installations and as a component of
new installations. The Scanmaster, launched in August 1999, is a pager-sized,
modular upgrade to the Fillmaster 1000e. A user simply scans a prescription's
NDC bar code in front of the dispenser, and the Fillmaster 1000e displays the
product name and required water quantity. The Fillmaster System then dispenses
the prescription with one touch of a button. The advanced technology of the
Fillmaster 1000e computerized dispenser and the Scanmaster bar code reader
ensures accuracy of measurement and assurance of compliance to minimize
liability.

This is a finite, niche market in which our significant customers to date
consist primarily of domestic retail chain pharmacies. There are approximately
72,000 pharmacies in the United States and Canada, with many thousands more
worldwide. Water-mixed antibiotic prescriptions, for which the Fillmaster is
primarily used, make up approximately 12.6% of a pharmacy's total prescriptions
and approximately 20% of a pharmacy's gross profit. We have installed over
22,000 Fillmaster dispensers in pharmacies across the nation, including
Wal-Mart, Walgreens, Albertson's/American Stores, Eckerd, Fred Meyer, Target,
CVS, Kroger, Smith's Food and Drug, Longs Drugs, Rite-Aid, Drug Emporium, Fry's,
Hi-School Pharmacies, H-E-B, Fleming, Giant and Snyders. Also included in the
customer base are many United States Military Clinics, including Bethesda Naval
Hospital; the Kaiser Foundation for Medical Care; the Mayo Clinic and several
hundred Independent and Hospital Pharmacies.

Fillmaster(R) System Filters We also market unique and proprietary NSF certified
filter replacements for the Fillmaster's Pharmapure water purification system,
which require changing at intervals of approximately 12 months or sooner as
indicated by the purity testing module. The filter replacements represent a
significant continuing source of revenues to us.

Customer Service Plan 2000(TM) PURE Bioscience offers outstanding service to its
pharmacy customers with its exclusive Customer Service Plan 2000 (CSP 2000). The
CSP 2000 provides an extended unlimited warranty on all PURE Bioscience's
pharmacy products, regardless of age or quantity; significant discounts on
maintenance item costs; free software upgrades for the Fillmaster 1000e and
Scanmaster; a secure web site that allows pharmacy customers to monitor history,
scheduled maintenance and account status; automatic replacement filter
shipments; and simplified, annual invoicing. Motivated by the cost savings and
the extended warranty coverage, most of our chain customers have entered into
multi-year contracts for the CSP 2000.

Residential Water Treatment PURE Bioscience's Nutripure Water Dealer Program
offers existing independent water treatment dealers a line of residential water
softening and other point-of-use water treatment equipment for sale to the
public under PURE Bioscience's Nutripure brand. In addition, the program
provides complementary, industry-unique financing that extends credit to
consumers for the purchase of water treatment equipment from participating
dealers. We realize revenues from both the sale of Nutripure equipment and the
financing.

The Nutripure whole-house water softening systems, like most water softening
systems on the market, are typically professionally installed in a customer's
basement or garage and require electricity. The Nutripure water softening
systems, comprised of a resin tank, brine tank and controller, extract minerals
from the water through an ion exchange process. Nutripure whole house systems
are often installed in conjunction with Nutripure reverse osmosis systems.

We have formed alliances with independent dealer groups, finance companies and
leading equipment component manufacturers to create a marketing program to sell
and finance whole-house water treatment systems through existing dealers. We
believe this marketing strategy provides consumers and independent dealers a
name and image they can trust. The programmable systems come equipped with
microprocessors and electronic water meters to monitor daily water usage and
provide automatic, demand-based water conditioning. An electronic memory stores
operating system information, and battery backup keeps it current if power is
lost.

PURE Bioscience's Nutripure Water Dealer Program also offers a Nutripure line of
residential drinking water systems that combines reverse osmosis technology with
carbon filtration to improve the taste, smell, quality and safety of standard
tap water. Reverse osmosis is a water treatment process that removes
contaminants from water by using pressure to force the water molecules through a
semi-permeable membrane. Carbon, sometimes referred to as activated carbon, is a
water treatment medium commonly used for dechlorination and for reducing trace
and soluble materials from water. We also market unique and proprietary filter
replacements for the Nutripure residential drinking water systems that require
changing every 12 months.

The Nutripure reverse osmosis filtration system is comprised of a storage tank,
a faucet and a water filtration apparatus which includes a sediment filter, pre-
and post-carbon filters and a reverse osmosis membrane. Nutripure requires
neither professional installation nor electricity to operate. The Nutripure
system filters to .001 micron and reduces heavy metals, chemicals and
microorganisms, such as cryptosporidium and giardia, as well as reducing bad
taste and odor from drinking water. A micron is a measurement unit equal to one
millionth of a meter. Micron measurements are applied to water filtration
systems to indicate the particle size at which suspended solids larger than that
size will be removed.

Nutripure(R) 2000 PURE Bioscience entered the retail venue with its Nutripure
2000 Countertop Water Filtration System. Nutripure 2000, developed specifically
for mass merchandising, offers water filtration technology at competitive
pricing. Nutripure's filter component is a one-micron, carbon microfilter that
reduces dirt, chemicals, lead and parasites to improve the taste, quality and
safety of tap water. The Nutripure 2000 requires no assembly, mounts directly to
a faucet and features a 2,000-gallon capacity filter, an automatic bypass
shutoff valve, an electronic monitor that reminds users when to change the
filter, and an exclusive filter design that prevents leaking and contamination
because water flows only through the completely sealed filter cartridge. We
distribute Nutripure 2000 through retail outlets in the United States.

The filter component, manufactured by Omnipure Filter Company of Caldwell,
Idaho, has been tested by Spectrum Laboratories to meet or exceed National
Sanitation Foundation Standard No. 53 Health Effects and Standard No. 42
Aesthetic Effects. These tests determine if the product meets the most stringent
standards set by the NSF for consumer water filtration. Spectrum Labs, Inc. is
an independent laboratory in New Brighton, Minnesota. The testing on the
Nutripure product was paid for by Omnipure Filter Company, Caldwell, Idaho. The
test reports were submitted by Spectrum Labs, Inc. to Omnipure on April 6, 1998.
We had no prior relationship with Spectrum Labs when the tests were conducted.
We selected the Omnipure filter component for the Nutripure 2000 in part because
it had this testing available, though there are several other similar quality
filter components readily available. Other than purchase orders there is no
written agreement between us and Omnipure.

Spectrum Labs' Product Testing Department conducted testing on the product for
chlorine reduction in accordance with test protocol contained in NSF
International Standard Number 42 "Drinking Water Treatment Units/Aesthetic
Effects," Appendix B, "Chemical Unit Test Methods," Section I, "Procedure -
Plumbed-In and Faucet Mounted Taste, Odor and Chlorine Reduction Units Without
Reservoir," revised June 1988. The product was found to meet the requirements
for compliance under Standard Number 42 for taste, odor and chlorine reduction
for Class I filters.

In addition, Spectrum Labs evaluated the product for cyst and turbidity
reduction and structural integrity in accordance with test protocol contained in
NSF International Standard Number 53, "Drinking Water Treatment Unites/Health
Effects," Section 6.12, "Mechanical Filtration Test Methods," and Section 6.6,
"Structural Integrity Performance. The filter media evaluation was performed
based on test protocol contained in NSF Standard Number 53, Section 6.7, "Filter
Media." Influent and effluent samples were analyzed for cyst reduction using
American Society for Testing and Materials Method Number F796 which is a
standard particle counting method. Samples evaluated for turbidity were analyzed
using EPA Method Number 180.1 which is a nephelometric method. NSF Standard
Number 53, Section 6.6.1.2 protocol was used to perform the pressure evaluation
for structural integrity. The product was found to meet the requirements for
compliance under NSF Standard Number 53 for cyst and turbidity reduction, filter
media evaluation and structural integrity performance.

Nutripure(R) 2000 Replacement Filters We also market replacement filters for the
Nutripure 2000 water system. The Nutripure 2000 contains a 2,000-gallon filter
that must be changed every year.

Nutripure(R) Sport Filtered Sport Bottle The Nutripure Filtered Sport Bottle,
also offered as a private label or premium item, provides clean, great-tasting
water for on-the-go consumers. The Nutripure Filtered Sport Bottle features a
small carbon filter at the bottom end of the plastic straw so that, as the
consumer drinks through the straw, the water is drawn up through the filter. An
innovative alternative to buying expensive bottled water, Nutripure Sport
filters an average of approximately 30 microns, reducing sediment and chlorine,
and can be refilled 60 times before an inexpensive filter change is required.
The Nutripure Sport program provides recurring revenue through sales of the
replacement filter twin pack.

RETAIL PRODUCTS DIVISION
Medifier(TM) We also market the Medifier, a patented universal prescription
bottle label magnifier. The Medifier holds various sized prescription bottles in
position under a magnifier strip that enlarges dosage and use instructions to a
clearly readable size. The Medifier is marketed to PURE Bioscience's existing
sales channels, as well as through catalogue sales and promotional products
distributors.

BIOSCIENCE DIVISION
Our bioscience division features a patented, aqueous disinfectant called
Axenohl(TM). Based on the EPA toxicity categorization of antimicrobial products
that ranges from Category I (high toxicity) down to Category IV, Axen, with its
combination of the biocidal properties of ionic silver and citric acid, is an
EPA Category IV antimicrobial for which precautionary labeling statements are
normally not required. This compares with Category II warning statements for
most leading brands of antimicrobial products.

The initial EPA registration for use of Axenohl and Axen (12-parts per million
formula) as hard surface disinfectants was issued in 2001. In March 2003, we
received Environmental Protection Agency (EPA) registration for our new
Axen-30(TM) formulated Category IV hard surface disinfectant product for
commercial, industrial and consumer applications. Axen-30 is a 30-part per
million (ppm) use-dilution formula of our patented antimicrobial technology,
Axenohl(TM) (silver dihydrogen citrate).

The recent EPA approval allows us to expand the existing Axen efficacy claims as
a hard surface disinfectant to include a 30 second kill time on standard
indicator bacteria, a 24 hour residual kill on standard indicator bacteria, a 2
minute kill time on some resistant strains of bacteria, 10 minute kill time on
fungi, 30 second kill time on HIV Type I, and 10 minute kill time on other
viruses. These claims distinguish the efficacy of Axen-30 from many of the
leading commercial and consumer products currently on the market, while
maintaining lower toxicity ratings.

The tests conducted to obtain the recent EPA approval were performed by
nationally recognized independent laboratories Nelson Laboratories of Salt Lake
City, Utah and AppTec ATS, St. Paul, Minnesota, under AOAC protocol and GLP
regulations in accordance with EPA regulations. Specific Axen test results
include:

o 30-Second Kill Time ---At 30 ppm, Axen demonstrated a 30-second,
99.9999% kill of standard indicator organisms including Staphylococcus
aureus ATCC 6538, Pseudomonas aeruginosa ATCC 15442 and Salmonella
choleraesuis ATCC 10708. Each is regarded as ever present in nearly
every person's life and is also a frequent human pathogen.

o Residual Kill Activity --- The residual activity of Axen was tested at
0, 1, 6, and 24 hours after application to a hard surface against
standard indicator organisms (Staphylococcus aureus ATCC 6538,
Pseudomonas aeruginosa ATCC 15442 and Salmonella choleraesuis ATCC
10708). Quantitative residual results at 24 hours after initial
application show a 99.99% reduction in all three bacteria tested.

o Bacteria---Additional testing of Axen against Methicillin Resistant
Staphylococcus aureus ATCC 700698 (MRSA), Vancomycin Resistant
Enterococcus faecium ATCC 700221 (VRE) and Escherichia coli OH157 ATCC
43888 demonstrated a 99.9999% kill in 2 minutes. These specific
bacteria are especially problematic in hospitals because of their
resistance to antibiotics. Further, Axen showed a 99.9999% kill in 30
seconds against Listeria monocytogenes ATCC 19111. Food processing
operations are challenged to keep this bacterium under control.

o Fungus --- Axen demonstrated a 99.9999% kill in 10 minutes of the
common athlete's foot fungus, Trichophyton mentagrophytes ATCC 9533.
This data allows the Company to add a fungicidal claim to its hard
surface disinfectant label.

o Viruses --- Axen also demonstrated 99.9999% virucidal efficacy against
HIV Type 1 in 30 seconds, Herpes simplex virus type 1 in one minute,
and Influenza A virus ATCC VR-544, Rhinovirus type R 37 ATCC VR-1147,
Strain 151-1 and Poliovirus type 2 ATCC VR-1022, Strain Lansing in 10
minutes. After review and approval by the EPA, this data allows the
Company to add these virucidal claims to its hard surface disinfectant
label.

We plan to pursue additional EPA and FDA regulatory approvals for other
applications. Additional possible uses for this product include wound care,
topical infection care, personal disinfecting retail products, food processing,
and food safety applications which may require FDA approvals, as well as
municipal water treatment and point-of-use/point-of-entry water treatment
products, which may require additional EPA approvals.

Our bioscience division also includes a line of pesticide technologies. Branded
as Innovex(TM), the product line launched in October 2001 with our EPA-approved,
patent-pending RoachX(TM). Subsequently, we have developed and launched
additional products in the Innovex product line, including the EPA-approved
AntX75(TM), two formulas of EPA-exempt non-toxic TrapX rodent lure, Pro's
Choice(TM) caulk for pest control operators, and EPA approved CleanKill(TM), the
Axen-based hard surface disinfectant for the pest control industry.

United States Department of Agriculture testing confirms that RoachX is over 96%
effective in three to four days with one application for indoor and outdoor
eradication of cockroaches, and can be used near children and food preparation
areas. Boric acid is a well-known and effective deterrent of cockroaches and
will kill them on contact, but cockroaches do not naturally eat the repellent.
Although many pesticide products contain boric acid as the listed active
ingredient, we believe RoachX to be new because of the endothermic reaction
caused by the combination of boric acid and polyglycol that produces three
unique results: 1) The formula protects the boric acid from water and humidity,
2) When combined with an attractant, the cockroaches perceive the formulation as
food and will actually eat the polyglycol-encapsulated boric acid, and 3) The
formula acts as a time-released pesticide, allowing the cockroach to return to
the nest before it dies and then becomes a "bait station" for other roaches in
the colony. We believe the product line, containing particular formulas and
attractants for specific pests, is effective against cockroaches, ants, palmetto
bugs, silverfish, waterbugs, ticks, fleas, lice and garden pests.

Like the Axenohl antimircrobial technology, the boric acid based pesticides are
very competitive with regard to efficacy when compared to leading brands while
maintaining lower toxicity ratings.

PURE Bioscience is currently maintaining its initial strategy of marketing its
Innovex pest control product line to industry wholesalers, but the Company is in
the process of significantly expanding its marketing reach. The Company has
taken a high level, executive-to-executive approach with leading national pest
control companies, including the two largest companies in this sector which, as
of the date of this report, are both evaluating the product line. The Company
has also launched an aggressive marketing program to directly target individual
pest control operators to either sell directly or create a grass roots demand
from pest control professionals for the products to be carried by their
distributors. As a final measure to maximize market reach, the Company plans to
offer a private label program which should fortify sales to pest control
professionals as well as provide a cost-effective entry into the consumer retail
marketplace. The company believes the competitive advantages of these products
should allow favorable outcomes from both of the additional marketing
strategies.

Competition
Although we have only one known competitor in our pharmaceutical water
purification market, we face very strong competition in the residential water
treatment markets where many large, long-established competitors currently hold

most of the market share and have the capital resources available to invest in
large national marketing campaigns. The market for Axenohl is highly competitive
because we must work to displace traditional disinfecting technologies sold by
well-known international industry leaders.

The market is similar for our pesticide products. Although recent changes in EPA
regulations may ease our ability to enter the market, ongoing strong market
presence of existing pesticide companies may make it difficult to compete. On
June 8, 2000, the United States EPA reclassified the Dow Chemical product
Dursban (also sold as Lorsban). Over 800 products containing the organophosphate
pesticide chlorpyrifos are reclassified and now may only be sold in a
significantly diluted form. Sales of original, stronger formulations of such
products to retailers ended February 1, 2001, and retailers must remove the
products from shelves by December 31, 2001. The current formulations are also
banned for commercial and agriculture professionals as of December 31, 2000.
Professional pest control companies must use a 100 to 1 diluted version of the
current product strength and obtain a waiver of responsibility from the home or
business owner. As of June 6, 2001, the product underwent a further 10 to 1
dilution, creating a 1000 to 1 diluted treatment.

Our ProChoice caulk, a companion product to our pesticide products, is a
repackaged readily available food-grade silicone caulk manufactured by General
Electric. Although competition is significant because the caulk is commercially
available from multiple manufacturers in standard 10-11 ounce tubes, we have
repackaged it for the convenience of our customers into 4 ounce tubes that fit
bait guns used by the pest control operators.

We recognize that innovative marketing methods are required in such competitive
markets. We work to focus on the high quality and value price of our products in
their markets.

Patents and Intellectual Property
We own patents on the Medifier, the Fillmaster 1000e Electronic Dispenser and
the Axenohl technology. In addition, we have a patent application pending for
RoachX and related pesticide products. Except for the Nutripure whole-house
water treatment systems, our other water treatment products are comprised of
combinations of our own proprietary components, custom made components and
patented, off-the-shelf components and are assembled and packaged by us. The
Nutripure whole-house water treatment systems sold through the Nutripure dealer
program are purchased from a variety of manufacturers as private label products
for PURE Bioscience. These manufacturers use patented key components in their
products.

The Medifier patent, which expires in March 2010, protects a device for use as a
magnifying implement which has a housing member designed to accommodate
prescription bottles of various popular sizes therein in a fixed position. A
longitudinally moveable magnifying lens slideably mounted in the housing member
is utilized to magnify the print contained on an instruction label located on
the side of the prescription bottle. Alternate embodiments allow different size
medicine bottles to be alternately mounted in concentric fashion, or with the
side of the medicine bottles facing the lens in a fixed position.

The Fillmaster 1000e patent expires in August 2017 and protects a method and
apparatus for dispensing fluids in response to a user request for a specified
amount of the fluid. A microprocessor opens and closes a fluid port for
predetermined amounts of time to control the amount of fluid dispensed. The
microprocessor monitors the elapsed time and the amount of fluid that has been
dispensed since the last time the filter was serviced. In one preferred
embodiment, the amount of fluid that is dispensed is measured by continuously
monitoring the volume of fluid flowing through the apparatus. A pressure
measurement device allows the microprocessor to monitor the fluid pressure. The
microprocessor prevents fluid from being dispensed if the pressure is not within
a predetermined range of tolerances. The fluid port is opened and closed by
activating and deactivating a solenoid. A keypad allows the user to input the
amount of fluid that is to be dispensed. A "Wait" period is imposed between the
time that the user initiates the first stage and the time the user may initiate
the second stage. The microprocessor does not open the fluid port if a "Failure"
condition exists. An LCD is provided to display the amount of fluid that the
user has requested. In an alternative embodiment, a bar code scanner or other
input device allows the user to automatically input the amount of fluid that is
to be dispensed.

On November 30, 2001, the Company acquired the patent for Axenohl, a silver ion
based technology and its method of making which is the basis for the Company's
silver ion products. The Company previously licensed the use of this patent.

The Company purchased the patent for 700,000 shares of its common stock plus
certain expenses. The Company valued the patent at $1,540,600 based on the
market price of the stock exchanged. In addition, the Company agreed to pay
royalties in the amount of 5% of gross Axenohl sales until March 2018, the end
of the life of the patent. There are minimum royalties due of $1,000,000 for the

period of November 2001 to July 31, 2004 and for each fiscal year thereafter.
PURE Bioscience has the right, in its sole and absolute discretion, to pay the
minimum royalty in cash or in common stock at prevailing market prices. If the
Company determines it does not wish to pay the minimum royalty payment, it has
the option at any time to transfer the patent back to the prior owner rather
than pay the minimum royalty.

The United States patent for Axenohl was issued on March 6, 2001, and a
supplemental patent has been filed to cover the substitution of 14 other organic
acids for citric acid in the formulation.

In June 2003, we received a second United States patent granted for Axenohl that
covers the formulation of the Axenohl aqueous disinfectant in combination with
ethyl alcohol. In addition, the Company has received national patents in
Australia and New Zealand as well as regional patents in the Eurasian and OAPI
regions of the world. National patent applications are now pending in Brazil,
Canada, China, Japan and Mexico as well as the European and the ARIPO regions of
the world. The Axenohl International Patent Application was published by the
World Intellectual Property Organization (www.wipo.org) on April 22, 1999 under
publication Number WO 99/18790.

A patent application for RoachX and related products was filed in February 1998
to protect a nonaqueous form of insecticide consisting of a desiccant,
preferably boric acid, with additional ingredients for binding, stability and
target insect attraction.

Manufacturing
The Fillmaster and Nutripure water systems are assembled in our manufacturing
facility at our corporate offices primarily from custom manufactured components.
It is our goal to perform minor manufacturing in our facility to minimize wages,
equipment expense and insurance. No components of the systems have permanent or
unequivocally restricted availability. Many manufacturers are available to
produce the components, and a change in suppliers would result in virtually no
lost production.

The original Fillmaster dispenser and the new Fillmaster 1000e dispenser are
both assembled in our manufacturing facility at our corporate offices mostly
from proprietary and custom parts fabricated to our specifications from
injection-molded plastic and fabricated acrylic.

The Nutripure Sport bottle is also assembled in our manufacturing facility at
our corporate offices from proprietary and custom components manufactured under
exclusive agreements with several different manufacturers. Alternative
manufacturers exist, and a change in suppliers would result in virtually no lost
production. There are no plans to alter production methods.

We manufacture RoachX, AntX and TrapX in our manufacturing facility at our
corporate offices and outsource some of the packaging functions. The active and
inactive ingredients of these products are readily available through multiple
manufacturers in the US and abroad.

We purchase caulk manufactured by General Electric for our ProChoice product
from a General Electric authorized distributor and repackager. This caulk is
readily available through several other manufacturers.

We blend the Axenohl products in our manufacturing facility at our corporate
offices from concentrate produced by our subsidiary, ETI-H2O. Silver, the
primary active ingredient, is a readily available commodity, and the other
active and inactive ingredients of Axenohl are readily available from chemical
supply companies.

We purchase water softening and filtering equipment from a variety of
manufacturers for the Nutripure water dealer program which they produce and
label as Nutripure equipment. We resell to participating water treatment
equipment dealers.

Research and Development
Research and Development costs that have no alternative future uses are charged
to operations when incurred and are included in operating expenses. The total
amounts charged to Research and Development expense were $981,500 and $780,500
in the fiscal years ended July 31, 2003 and 2002, respectively.

Employees
As of October 24, 2003, PURE Bioscience employed twenty-six people, all of whom
are full-time individuals: seven employees in product assembly and shipping,
five employees in sales, marketing and customer service, five employees in
research and development and eight employees in management and administration.
We choose to outsource more expensive, specialized functions including public
relations and selected engineering projects.

ITEM 2. PROPERTIES
Our business operates in a 13,067 square foot facility located in a light
industrial/office park in El Cajon, California. This location houses all
administrative, executive, sales, assembly, shipping and manufacturing
functions. The space is leased from an unaffiliated third party under a
sixty-five month agreement commencing on July 1, 1996. The monthly rental is
$0.80 per square foot plus $0.15 per square foot for maintenance of common
areas. There is also a fixed yearly increase of 4%. We have also signed an
amendment to the lease and exercised an option to lease the building for an
additional five years.

ITEM 3. LEGAL PROCEEDINGS
The following is an update of developments in the previously disclosed
litigation involving PURE Bioscience filed in the Circuit Court of Pinellas
County, Florida by Zedburn Corporation, against us for breach of contract in
October 1997. The breach of contract alleged was for payment of fees for Mr.
David Reitz's and Mr. Steven Durland's services of arranging a public offering
of our common stock. We have filed counterclaims based upon the Racketeer
Influenced and Corrupt Organization (RICO) Act against David Reitz, Zedburn
Corporation, Capital Development Group, Steven Durland and other defendants. It
is our position that Mr. Reitz and others perpetrated a scheme to defraud us of
cash fees and securities in connection with purported services of arranging a
public offering of our common stock. In October 1997, Mr. Reitz and Zedburn
filed for protection under the Federal bankruptcy laws. In August 1998, Mr.
Reitz voluntarily dismissed his bankruptcy and as a result thereof we have named
Mr. Reitz as a defendant to our counterclaims.

We believe that the defendants had perpetrated similar schemes against other
parties. We also believe we have substantially completed discovery and compiled
compelling evidence to prove our claims.

Several of the Defendants filed Motions to Dismiss our counterclaims. A hearing
on the Motions was held on October 1, 1998. Certain of the Motions were granted
pending our amendment of our Counterclaim. We amended our Counterclaims in
accordance with the judge's rulings. Certain Defendants filed second Motions to
Dismiss the amended Counterclaims. A hearing on these latest motions was held in
March 1999, before a different judge than the judge who ruled on the first
motions. On April 20, 1999, orders were entered granting the Defendants' Motions
to Dismiss. However these Orders did not state the basis for the Orders, nor was
our legal counsel provided notice of the Orders or a copy of the new judge's
correspondence offering a "formal ruling" upon request. In May 1999, we filed an
Appeal of the Orders and Motions for Reconsideration based upon inconsistency of
the Orders with the previous judge's rulings and the lack of notice to us. In
August 2001, the Court of Appeals reversed the trial court's ruling and
reinstated our claim against the defendants with the exception of PURE
Biosicence's RICO action. We intend to pursue a trial as soon as possible. On
September 5, 2003 the Circuit Court for Pinellas County, determined this case is
appropriate for mediation, and ordered the parties to attend mediation.

On August 8, 2002, Billy Stapleton and Susie Stapleton filed a complaint for
patent infringement in the United States District Court Eastern District of
Tennessee at Knoxville, against PURE Bioscience' product RoachX. On August 12,
2002 Billy and Susie Stapleton filed an amended complaint. On May 2, 2003 PURE
Bioscience filed its answer to amended complaint, denying allegations generally
and specifically, and stating nine affirmative defenses to the amended
complaint. PURE Bioscience believes Stapleton's amended complaint is frivolous
and without merit.

We have neither accrued a liability in our financial statements regarding this
litigation nor disclosed the matter in the footnotes thereof. We have not done
so because we do not believe there is any merit to Mr. Reitz's claims and that
the likelihood that we will realize a loss from these matters is believed
remote. In addition, we believe that in the unlikely event that we settle, the
amount of any such settlement would not be material to our financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders in the fourth quarter of the fiscal
year.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

(1) Market Information: PURE Bioscience's common stock is traded on the
NASDAQ SmallCap Market under the symbol "PURE".

(2) High and Low Bid Prices: The following table sets forth high and low
bid prices for each fiscal quarter, as reported by NASDAQ, for the
last two fiscal years. Such quotations represent inter-dealer prices
without retail mark-ups, mark-downs, or commissions and, accordingly,
may not represent actual transactions.

Fiscal 2003 Fiscal 2002
Quarter Ended High Low Quarter Ended High Low
------------------------- ---------- -- ---------- ----------------------- ---------- -- -----------

July 31, 2003 $0.98 $0.56 July 31, 2002 $1.76 $0.47
April 30, 2003 $1.10 $0.55 April 30, 2002 $2.29 $1.58
January 31, 2003 $1.23 $0.26 January 31, 2002 $2.55 $1.85
October 31, 2002 $0.82 $0.25 October 31, 2001 $3.47 $1.90

(3) Security Holders: As of October 24, 2003, we had approximately 172
holders of record of our common stock. This does not include
beneficial owners holding common stock in street name. The closing
price per share on October 24, 2003 was $0.80.

(4) Dividend Plans: We have paid no common stock cash dividends and have
no current plans to do so.

(5) Preferred Stock: There are no shares of preferred stock presently
outstanding.

(6) Changes in Securities: During the fourth quarter of the fiscal year,
we conducted a $60,000 private placement in which the Company issued
120,000 shares of common stock to three accredited investors at a
price of $0.50 per share. With respect to the sales made, we relied on
Section 4(2) of the Securities Act of 1933, as amended. No advertising
or general solicitation was employed in offering the securities. The
securities were offered solely to accredited or sophisticated
investors who were provided all of the current public information
available on PURE Bioscience.

(7) Securities Authorized for Issuance under Equity Compensation Plans

--------------------- ------------------------- ----------------------------- ----------------------------
Number of securities
remaining available for
Number of securities to future issuance under
be issued upon exercise Weighted-average exercise equity compensation plans
of outstanding options, price of outstanding (excluding securities
warrants and rights options, warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
--------------------- ------------------------- ----------------------------- ----------------------------

Equity compensation
plans approved by
security holders 3,129,375 1.86 5,987,278
--------------------- ------------------------- ----------------------------- ----------------------------
Equity compensation
plans not approved
by security holders 1,015,000 1.63 533,000
--------------------- ------------------------- ----------------------------- ----------------------------
Total 4,144,375 1.83 6,520,278
--------------------- ------------------------- ----------------------------- ----------------------------

The following equity compensation plans were not approved by security holders:
1. 2001 ETIH2O Stock Option Plan: Adopted by the Board in January 2001 with
1,000,000 shares authorized under this Plan. The options have a five-year
term with vesting ratably over a five-year period.

2. 2001 Consultants and Advisors Stock Option Plan: Adopted by the Board in
January 2001 with 500,000 shares authorized under this Plan. The maximum
number of shares subject to options granted under this Plan to any one
participant shall not exceed 50,000 shares in any 12-month period. The
options have a five-year term with vesting ratably over a five-year period.

3. Executive Officers and Directors are not eligible participants under these
plans.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Except for the historical information contained herein, the following discussion
contains forward-looking statements that are subject to risks and uncertainties.
Actual results may differ substantially from those referred to herein due to a
number of factors, including but not limited to risks described in the section
entitled Competition and elsewhere in this Form 10KSB. Our consolidated
financial data includes Export Company of America, Inc., Ampromed Comercia
Importacao e Exportacao Ltda., ETI-H2O Corporation, and Nutripure Water
Corporation. The following discussion and analysis should be read in conjunction
with the audited financial statements of PURE Bioscience.

Results of Operations for the Year Ended July 31, 2003 Versus Year Ended July
31, 2002 During the year, we continued to realize revenues from multiple product
lines in our different divisions. In order to be more informative regarding
distribution of revenues, discussion of revenues will be in terms of our water
treatment segment and our bioscience segment, which includes silver ionization
and pesticide divisions.

Revenues of $2,589,500 in the year ended July 31, 2003 were 19% lower than the
$3,206,400 in revenues reported for the year ended July 31, 2002. The decrease
was due to a decrease in sales in the biosciences division. During the year,
water treatment division revenues of $2,473,800 were 13% higher than the
$2,188,900 in the prior year. Bioscience segment revenues in the current year of
$115,700 were 89% lower than the $1,017,500 in the prior year and reflect a
large decrease in both silver ionization and pesticide product sales.

The increase of $284,900 in water treatment division revenues was comprised of
an increase of $116,000 in Fillmaster pharmaceutical water system replacement
filter sales, an increase of $48,800 in Residential Water Treatment sales and an
increase of $120,100 in the Nutripure dealer program revenues. Fillmaster
pharmaceutical water system sales remained unchanged at approximately $1,160,700
from the prior year; however, at July 31, 2003 the Company had a backlog of
Fillmaster systems of $273,400. The market continues to be very competitive, and
we expect revenues from our commercial/retail water treatment products to
continue their historic steady growth.

The decrease in pesticide product sales was due to the change in sales strategy
implemented earlier this year, including a change from salaried sales employees
to commissioned outside sales representatives. During the year, we refocused our
market strategy from marketing primarily to the pest control industry
wholesalers to include marketing directly to major industry leaders. The change
in sales and marketing strategy resulted in a decrease in sales as we
restructure the pesticide division to more effectively target the professional
pest control industry's need for highly effective but least toxic pest control
products. We believe that our restructuring will result in increased sales, but
we recognize that we face significant competition from larger, better
capitalized companies in this market. We expect to see a shift toward increasing
pest control product sales in the coming year.

The decrease in silver ionization sales was solely due to lack of sales of Axen
to Dodo & Company. In March 2001, we signed a five-year contract to provide
Axenohl to Dodo & Company, a Korean cosmetics manufacturer and marketer. During
prior fiscal year, Dodo & Company expanded its A-Clinic Club line to include
over 10 different products, all of which contain Axenohl as an active
ingredient. Because of Dodo & Company's significant investment in the product
line, we believed we would be able to renegotiate the contract to the
satisfaction of both parties; however, in early December 2002, we were informed
by the Chairman of Dodo & Company that Dodo & Company has begun a bankruptcy
reorganization process. We have not yet renegotiated the contract but have
resumed incremental shipments to Dodo & Company on a pre-paid, ex-factory basis.

The antimicrobial market is highly competitive, and we anticipate that market
acceptance of a brand new technology may be a long term achievement. In addition
to competition challenges, we believe that the investment necessary to pursue
research testing and regulatory approval for Axenohl products will continue to
be significant. As we receive additional regulatory approvals for Axenohl,
however, we expect revenues to develop quickly. For example, now that we have
received EPA approval on Axen-30(R), our Axenohl-based hard surface
disinfectant, and we expect to see a shift toward increasing Axenohl division
product sales in the coming year, and we believe that sales of Axen-30 will have
a significant impact on revenues in future.

For example, in September 2003, PURE Bioscience announced the first significant
commercialization of its hard surface disinfectant, Axen-30(R), which is sold by
EnvirOx L.L.C. of Danville, Illinois, as Critical Care(TM), a new commercial
disinfectant-fungicide-virucide,

We continue to believe that pesticide technologies will have a material impact
on revenues in the coming year, and we continue to believe that the silver ion
technologies will ultimately become the largest revenue generator for PURE
Bioscience.

Gross profit for the year ended July 31, 2003 was $1,055,500 versus $1,607,900
in 2002. Gross profit percentage of 41% in 2003 was lower when compared to 50%
in 2002 because of the decrease in Axenohl sales associated with higher margins
and the increase in Nutripure dealer program revenues which have proportionally
lower margins.

Net loss from for the year ended July 31, 2003 was $3,284,000 versus net loss of
$2,222,500 for the same period in 2002. During the year, General and
Administrative expenses increased $154,200, or 8%, from $2,027,900 at in fiscal
2003 versus $2,182,100 in fiscal 2002. Administrative expenses include an
increase in amortization costs associated with purchased patents and licenses.
Selling expense decreased approximately $283,100, or 38%, from $749,300 in 2002
to $466,200 in 2003 because of a decreased use of salaried sales personnel and
an increase in the use of commissioned salespeople. Research and Development
increased approximately 26%, or $201,000, over the same period in 2002 from
$780,500 to $981,500. This increase was the result of continued time and
resources devoted to the development and testing of our emerging pesticide and
silver ion technology product lines. Of the loss in the current period,
$1,204,000 is attributable to non-cash items: $635,400 of non-cash start-up cost
attributed to 651,000 warrants valued at $0.976 per warrant used to acquire a
three-part cross marketing and licensing agreement described below in the
Liquidity and Capital Recourses section, $225,400 of services paid with stock
and warrants, $155,500 of amortization and $187,700 of depreciation.

LIQUIDITY AND CAPITAL RESOURCES
From inception through the present, we have financed our operations primarily
through our initial public offering in August of 1996 and by subsequent private
placement stock sales. In addition, the Company had obtained short term
financing through a $500,000 line of credit. In September 2002 the Company
renegotiated its line of credit and extended it until November 2003. The
extension includes an increase from $500,000 to $600,000 at an interest rate of
1 1/2 % per month secured against the entire assets of the Company excluding the
Axenohl patent. The terms of the line of credit required the Company to maintain
current accounts receivable of a minimum of $350,000. At the end of year, the
Company was in technical violation with this provision. The Company has neither
requested nor received a waiver of this provision. The Company believes that
this violation has no implications because the Company intends to pay off this
line of credit with the sale of the trust deed and water treatment division as
discussed below. In July 2003, the Company issued a $300,000 convertible
debenture at an interest rate of 10% per annum due July 2004.

The Company is currently attempting to strengthen its liquidity position by
working with an investment banker because the Company requires an outside source
of capital to fund planned projects relating to new product development and
related product launches, research and development projects, regulatory
approvals. The Company's operations alone may not generate cash flows, within
the next twelve months, sufficient to fund planned expansion.

In August of 2003, the Company completed a financing arrangement which included
the acquisition of a $1,600,000 Trust Deed asset in exchange for the issuance of
2,000,000 shares of the Company's common stock to a party unrelated to the
grantor. In October 2003, the Company signed a term sheet to sell the Trust Deed
asset for cash at face value. The purchasing party is also acquiring the water
treatment division for $2,750,000 in cash plus up to $1,250,000 in deferred
payments over the next year. Completion of the divestment of the water treatment
division is subject to approval by PURE Bioscience shareholders. The Company
intends to use a portion of the proceeds of this transaction to satisfy
outstanding debt. The remaining proceeds should be sufficient to sustain
operations and fund product development and commercialization until our
bioscience technologies result in positive cash flow.

Although the Company has no plans to continue to fund operations with additional
private placements of stock, we may evaluate opportunities to sell additional
equity or debt securities, or obtain credit facilities from lenders to
strengthen our financial position. The sale of additional equity or convertible
debt securities could result in additional dilution to our stockholders.

Our liquidity is unaffected by the financing program offered to participating
dealers in the Nutripure water dealer program. We receive funds from our lender
and disperse the funds to the dealer, less a commission charged by us, upon
completion of the contract. The lender disperses funds to us. We record a
liability when the funds are received and relief of liability when funds are
dispersed, and we do not retain liability on the credit extended.

July 31, 2003, our current assets to liabilities ratio decreased from 1.07 to
0.35. Current assets decreased $590,200 from $1,299,800 at July 31, 2002 to
$709,600 at July 31 2003 due to a decrease in inventories associated with lower
sales volume and a large decrease in officer and employee loans and prepaid
expenses. Current liabilities increased $800,300 from $1,120,000 to $2,010,300.
This increase was due mainly to an increase in loans from shareholders of
$100,000, the addition of a convertible debenture of $180,500 and an increase in
accounts payable of approximately $488,100.

Net fixed assets decreased approximately $181,200 due mainly to depreciation of
equipment. Noncurrent assets decreased approximately $151,100 due to
amortization. Non-current assets of $2,484,600 consist almost entirely of
Patents and Licenses.

Cash flows used from operations were $851,600 in the year ended July 31, 2003
and $1,035,300 in 2002. For fiscal 2003, cash flows used in investing activities
included $500 for the purchase of machinery and equipment and $4,300 for the
purchase of patents and licenses. In fiscal 2002 cash flows used in investing
activities included $71,500 for the purchase of machinery and equipment and
$165,200 for the purchase of patents and licenses.

Cash flows from financing activities were $956,300 in fiscal 2003 and $1,216,200
in fiscal 2002. Financing activities for the current period included the
addition of $100,000 in loans from shareholders from a line of credit
renegotiated in September 2002 and $300,000 from a convertible debenture issued
in July of 2003. Cash flows from financing activities also included an increase
of common stock of $556,325. During the current year, the Company conducted a
$250,000 private placement in which the Company issued 933,332 shares of common
stock to six accredited investors at a price of $0.30 per share (less costs), a
$200,000 private placement in which the Company issued 400,000 shares of common
stock to six accredited investors at a price of $0.50 per share and a $60,000
private placement in which the Company issued 120,000 shares of common stock to
three accredited investors at a price of $0.50 per share The Company also
received $81,325 from the exercise of options. In the prior period, cash flows
from financing activities included the addition of $500,000 in notes payable
from a line of credit established in September 2001. Cash flows from financing
activities in the prior period also included an increase of common stock of
$435,300 which included a $400,000 private placement in which the Company issued
250,000 shares of common stock to eleven accredited investors at a price of
$1.60 per share. The Company also received approximately $68,000 from the
exercise of options.

VALUATION OF INTANGIBLE ASSETS
SFAS 142 requires that goodwill and other intangible assets be tested for
impairment on an annual basis and between annual tests in certain circumstances.
Recoverability of assets to be held for use is based on expectations of future
discounted cash flows from the related operations, and when circumstances
dictate, the Company adjusts the asset to the extent the carrying value exceeds
the fair value of the asset. Our impairment review process is based on the
discounted future cash flow approach that uses our estimates of revenue driven
by assumed market segment share and estimated costs. Also included in our
analysis is an estimate of revenues expected from our agreement with
Therapeutics, Inc. We have entered into an agreement with Therapeutics Inc. for
the development and commercialization of FDA regulated Axenohl based products
where Therapeutics is responsible for funding and directing all development
activities and regulatory filings. In the agreement Therapeutics Inc. has agreed
to reimburse the Company for $2.2M of pre-contract acquisition and development
costs of the Axenohl intellectual property as well as reimbursement for ongoing
intellectual property costs associated with Axenohl. Following reimbursement of
costs, depending on the type of product, the Company will receive 40% to 90% of
all sales proceeds, licensing fees, royalty payments and all other forms of cash
and non-cash consideration. The Company will also realize revenues from the sale
of Axenohl raw material as an active ingredient.

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

Commitments
As a condition of the purchase agreement of the Axenohl patent, the Company
agreed to make certain royalty payments to NVID of 5% of the gross product sales
with a minimum royalty payment total of $1,000,000 for the period from November
15, 2001 to July 31, 2004 and subsequently $1,000,000 per year for the remaining
life of the patent. The contract states that at July 31, 2004 the Company shall
have the right, in its sole and absolute discretion, to do one of the following:
a) pay the initial minimum royalty payment of $1,000,000 in cash or common stock
of the Company to NVID, less royalty amounts already paid, on or before July 31,
2004, b) transfer the patent back to NVID, at which time the Company would be
released of any future minimum payments and granted a license to manufacture and
distribute products covered by the patent while retaining all Axen and Axenohl
related patents filed by the Company, including retention of all of its
previously granted license rights to sell, distribute and manufacture all
Axenohl based products, or c) cancel any royalty obligation under the contract
by selling, transferring or assigning its ownership of the primary patent to a
third party and paying NVID a percentage of the gross proceeds of 10% or 5%,
depending on how near the date of the transfer is to July 31, 2004, while
retaining all Axen and Axenohl related patents filed by the Company, including
retention of all of its previously granted license rights to sell, distribute
and manufacture all Axenohl based products. The Company has not recorded or
accrued an amount for the minimum royalty payments in the financial statements
because the Company has determined that it is unlikely to choose the option to
pay the minimum royalty.

In January 2003, the Company signed a cross-marketing and licensing agreement
with Nickel Ltd., a manufacturer and distributor of wet wipes in Europe to
acquire two "Super Distribution Agreements" and establish a 50/50 joint venture
between PURE Bioscience and Nickel, to be known as CARLINE AMERICA LTD(TM). In
exchange, and as total consideration on the Company's part, the Company agreed
to issue a warrant to Nickel Ltd. to purchase 651,000 shares of common stock for
$0.0001 per share valued at $635,000. This amount was expensed as start-up costs
in the second quarter of the year. No cash was expended to acquire these
agreements. Because of Nickel's failure to pay for product and failure to
fulfill key material obligations under the contract, Company does not consider
the warrant vested or exercisable and neither the warrant nor the common stock
underlying the warrant will be issued.

PURE BIOSCIENCE

CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended July 31, 2003 and July 31, 2002

Independent Accountants' Report

Board of Directors
PURE Bioscience

We have audited the accompanying consolidated balance sheets for PURE
Bioscience as of July 31, 2003 and 2002, and the related consolidated statements
of operations, statement of accumulated deficits and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements as of July 31, 2002 and for the year
then ended have been restated to correct errors as described in Note 2.

In our opinion, the consolidated financial statements, referred to above,
present fairly, in all material respects, the financial position of PURE
Bioscience as of July 31, 2003 and July 31, 2002, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles in the United States of America.

/s/ Miller and McCollom
-----------------------------------
MILLER AND MCCOLLOM, CPAs
4350 Wadsworth Boulevard, Suite 300
Wheat Ridge, Colorado
October 21, 2003

CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------
July 31 July 31
2003 2002
(Restated)
(See Note 2)
---------- -------------

ASSETS
Current Assets
Cash and cash equivalents $ 251,087 $ 151,257
Accounts receivable, net of allowance for doubtful
accounts of $ 63,500 at July 31, 2003
and $111,000 at July 31, 2002 163,895 166,601
Due from officers and employees 61 209,437
Inventories 287,940 595,071
Prepaid expenses 6,654 177,445
---------- ----------
Total current assets 709,637 1,299,811
---------- ----------
Property, Plant and Equipment
Property, plant and equipment 432,744 613,909
---------- ----------

Total property, plant and equipment 432,744 613,909
---------- ----------

Noncurrent Assets
Deposits 9,341 8,954
Patents and licenses 2,475,280 2,626,376
---------- ----------

Total noncurrent assets 2,484,621 2,635,330
---------- ----------

Total assets $ 3,627,002 $ 4,549,050
=========== ===========

LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable $ 1,079,128 $ 591,031
Accrued liabilities 150,688 118,975
Notes payable 180,513 -
Loans from shareholders 600,000 500,000
---------- ----------

Total current liabilities 2,010,329 1,210,006
---------- ----------

Stockholders' Equity
Class A common stock, no par value: authorized
50,000,000 shares, issued and outstanding
10,594,088 at July 31, 2003 and
8,400,899 at July 31, 2002 14,758,203 13,976,448
Warrants: issued and outstanding 1,037,429
warrants 788,473 8,610
Accumulated deficit (13,930,003) (10,646,014)
----------- -----------

Total stockholders' equity 1,616,673 3,339,044
---------- ----------

Total liabilities and stockholders' equity $ 3,627,002 $ 4,549,050
=========== ===========

The accompanying notes are an integral part of these financial statements

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

For the Year Ended
July 31
2003 2002
(Restated)
(See Note 2)
------------ -------------

Net revenues $ 2,589,496 $ 3,206,448
Cost of sales 1,533,970 1,598,553
------------ -------------

Gross profit 1,055,526 1,607,895
------------ -------------

Selling expenses 466,198 749,348
General and administrative expenses 2,182,097 2,027,875
Research and development 981,493 780,510
Start-up costs 635,376 47,831
------------ -------------

Total operating costs 4,265,164 3,605,564
------------ -------------

Loss from operations (3,209,638) (1,997,669)
------------ -------------

Other income and (expense):
Interest income 1,333 9,999
Interest expense (98,765) (39,024)
Other 23,081 (2,400)
------------ -------------

Total other income (expense) (74,351) (31,425)
------------ -------------

Loss from continuing operations (3,283,989) (2,029,094)
------------ -------------

Discontinued operations:
Loss from discontinued operations - 152,405
Loss from disposal of discontinued operations - 41,049
------------ -------------
Total discontinued operations - 193,454
------------ -------------

Net loss $ (3,283,989) $ (2,222,548)
============ =============

Net loss per common share, basic and diluted
Continuing operations $ (0.36) $ (0.27)
Discontinued operations - (0.02
------------ -------------
Net loss $ (0.36) $ (0.29)
============ =============

The accompanying notes are an integral part of these financial statements

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

For the Year Ended
July 31
2003 2002
(Restated)
(See Note 2)
------------ -------------

Cash flows from operating activities
Net loss $(3,283,989) $(2,222,547)

Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 155,461 187,870
Depreciation 181,697 266,530
Services paid for with stock and warrants 885,509 100,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 2,706 404,133
(Increase) decrease in due from officers and employees 209,376 30,564
(Increase) decrease in prepaid expense 171,087 13,721
(Increase) decrease in inventory 307,131 115,947
(Increase) decrease in deposits (387) (827)
Increase (decrease) in accounts payable 488,097 47,039
Increase (decrease) in accrued liabilities 31,713 22,283
------------ -------------

Net cash provided (used) by operating
activities (851,599) (1,035,287)
------------ -------------

Cash flows from investing activities
Purchase of patents and licenses (4,365) (71,495)
Purchase of property, plant and equipment (531) (165,236)
------------ -------------

Net cash (used) in investing activities (4,896) (236,731)
------------ -------------

Cash flows from financing activities
Proceeds from debt obligations 400,000 500,000
Proceeds from sale of common stock 556,325 716,183
------------ -------------

Net cash provided by financing activities 956,325 1,216,183
------------ -------------

Net increase (decrease) in cash and cash equivalents 99,830 (55,835)
------------ -------------

Cash and cash equivalents at beginning of period 151,257 207,092
------------ -------------

Cash and cash equivalents at end of period $ 251,087 $ 151,257
============ =============

Supplemental disclosures of cash flow information
Cash paid for interest paid $ 98,765 $ 39,024
Cash paid for taxes paid $ 3,500 $ 2,400
Noncash investing and financing activities:
Value of shares issued in exchange for Silver Ion Technology patent $ 1,540,600

The accompanying notes are an integral part of these financial statements

PURE Bioscience
Notes to Consolidated Financial Statements
See Independent Accountants' Report

Note 1. Organization and Summary of Significant Accounting Policies
This summary of significant accounting policies of PURE Bioscience (formerly
Innovative Medical Services) is presented to assist in understanding the
Company's financial statements. The financial statements and notes are
representations of the Company's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles in the United States of America and have been
consistently applied in the preparation of the financial statements. The
financial statements are stated in United States of America dollars.

Organization and Business Activity The Company was incorporated as Innovative
Medical Services in San Diego, California on August 24, 1992 as a provider of
pharmaceutical water purification products. Based on revenues, the Company's
primary business is the sale and manufacture of residential and commercial water
filtration systems. In addition, the Company produces, manufactures and licenses
silver ion bioscience technologies (Axenohl and Axen) and produces products for
the pesticide industry (Innovex). In September 2003 the Company effected a name
change as approved by shareholders to PURE Bioscience.

In October of 1998, the Company formed a subsidiary, EXCOA Nevada to purchase
the assets of Export Company of America, Inc. (EXCOA), a privately held Fort
Lauderdale, Florida-based distributor of disposable medical, dental and
veterinary supplies. The major asset of this company was its 45% interest in
Ampromed Comercio Importacao E Exportacao Ltda (AMPROMED), a Rio de
Janeiro-based import company that sells medical, dental and veterinary supplies
and water filtration products to practitioners, retail outlets and government
agencies. The Company acquired the remaining 55% interest in AMPROMED from a
private individual and transferred it to EXCOA Nevada.

In November 2000, PURE Bioscience acquired 100% of the stock of ETIH2O, Inc, a
privately held technology corporation that developed Axenohl and is responsible
for processing, and production of Axenohl and Axen. ETI-H2O is also responsible
for all supervision of all research, studies, data and quality control of the
Axenohl/Axen product line.

Basis of Presentation and Principles of Consolidation
The accompanying financial statements include the consolidated accounts of PURE
Bioscience and its subsidiaries. All inter-company balances and transactions
have been eliminated.

Revenue Recognition
Generally, the company recognizes income based upon concluded arrangements with
customers and when all events have occurred by delivery or performance. Certain
income is recognized upon shipment where the sale is made f.o.b. shipping point
including sales to dealers and pharmacies. Customer acceptance provisions and
installation procedures accompanying delivery are minor in nature, and the
Company has not experienced any material expense in satisfying warranties and
returns.

The Company has a program of providing financing to independent dealers for
equipment of other manufacturers and not the Company's products. The Company
receives funds from its primary lender and disperses the funds to the dealer,
less a commission charged by the Company, upon completion of the contract. The
Company records the commissions earned as revenues when received.

Most of the Company's chain customers have entered into multi-year contracts for
the Customer Service Plan 2000. The CSP 2000 provides an extended warranty on
PURE Bioscience's Fillmaster pharmacy products; significant discounts on
maintenance item costs; free software upgrades for the Fillmaster 1000e and
Scanmaster; automatic replacement filter shipments; and simplified, annual
invoicing. When the customer buys a dispenser on the Customer Service Plan 2000
it agrees to pay a fixed annual fee that covers replacement filters and parts.
The filters should be replaced once a year. In order to match income with
related costs, and for simplicity in accounting and billing, the Company bills
the customer the annual fee and recognizes the revenue in the same month that it
ships the replacement filters to the store. This is done one year after the
store is added to the Plan and each year thereafter. Future warranty costs
associated with the CSP 2000 Plan are discussed in Note 18.

Accounts Receivable
The Company sells on terms of cash or net 30 days. Invoices not paid within
stated terms are considered delinquent. The Company analyzes its accounts
receivable periodically and recognizes an allowance for doubtful accounts based
on estimated collectibility. Individual accounts deemed uncollectible are
charged to the allowance. At July 31, 2003, $47,500 was considered past due,
determined by 90 day after invoice date.

Stock-Based Compensation
The Company follows FASB Statement No. 123, 'Accounting for Stock-Based
Compensation' ('FAS 123'). The provisions of FAS 123 allow companies to either
expense the estimated fair value of stock options or to continue to follow the
intrinsic value method set forth in APB Opinion 25, 'Accounting for Stock Issued
to Employees' ('APB 25') but disclose the pro forma effects on net income (loss)
had the fair value of the options been expensed. The Company has elected to
continue to apply APB 25 in accounting for its stock option plans. For awards
that generate compensation expense as defined under APB 25, the Company
calculates the amount of expenses and recognizes the expense over the vesting
period of the award.

In March 2000, the FASB issued FASB Interpretation No. 44, 'Accounting for
Certain Transactions involving Stock Compensation' ('FIN 44'), which contains
rules designed to clarify the application of APB 25. FIN 44 became effective on
July 1, 2000 at which time the Company adopted it. The impact of the adoption of
FIN 44 was not material to the earnings or financial position of the Company.

Research and Development
Research and Development costs that have no alternative future uses are charged
to operations when incurred and are included in operating expenses. The total
amount charged to Research and Development expense was $981,500 and $780,500 in
the fiscal years ended July 31, 2003 and 2002, respectively.

Depreciation Method
The cost of property, plant and equipment is depreciated on a straight-line
basis over the estimated useful lives of the related assets. The useful lives of
property, plant, and equipment for purposes of computing depreciation are:

Computers and equipment 7.0 years
Furniture and fixtures 10.0 years
Website 3.0 years
Vehicle 5.0 years to 7.0 years

Leasehold improvements are being depreciated over the life of the lease, which
is equal to 120 months.

Amortization of Intangible Assets
The cost of patents acquired is amortized on a straight-line basis over the
remaining lives of the patents. Licenses are amortized on a straight-line basis
over periods ranging from 15 to 20 years. The weighted average amortization
period for all patents and licenses is 17.56 years. The estimated amortization
expense over each of the next five years is $155,700.

Amortization expense for the years ended July 31, 2003 and July 31, 2002 was
$155,500 and $187,900, respectively.

Long-Lived Assets
In accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for Impairment of
Long-Lived Assets, and for Long-Lived Assets to be Disposed, the Company
periodically analyzes its intangible assets and long-lived assets for potential
impairment, assessing the appropriateness of lives and recoverability of
unamortized balances through measurement of undiscounted operation cash flows on
a basis consistent with accounting principles generally accepted in the United
States of America.

Inventory
Inventories are stated at the lower of cost or net realizable value using the
average cost method. Inventories at July 31 consisted of:

2003 2002
--------------- --------------
Finished Goods $ 133,900 $ 257,600
Work in Progress 0 29,900
Raw Materials 181,900 334,600
--------------- --------------
$ 315,800 $ 622,100
--------------- --------------

Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments
The carrying amounts for cash equivalents, receivables, and payables approximate
fair value because of the short maturity, generally less than three months, of
these instruments. The carrying value of the Company's line of credit
approximates fair value since the current borrowing rates available for
financing are similar in terms.

Advertising and Promotional Costs
Cost of advertising and promotion are expensed as incurred. Such costs were
$466,200 and $448,800 for the years ended July 31, 2003 and July 31, 2002,
respectively.

Net Income (Loss) Per Common Share
The Company adopted FASB Statement No. 128, Earnings Per Share ("SFAS 128"),
which is effective for periods ending after December 15, 1997. Entities that
have only common stock outstanding are required to present basic earnings per
share amounts. All other entities are required to present basic and diluted per
share amounts. Diluted per share amounts assume the conversion, exercise or
issuance of all potential common stock instruments unless the effect is to
reduce a loss or increase the income per common share from continuing
operations.

Following is a reconciliation of the weighted average number of shares actually
outstanding with the number of shares used in the computations of loss per
common share:

For the Years Ended
July 31, 2003 July 31, 2002
----------------- -----------------

Shares outstanding 10,594,088 8,400,899

Weighted average number of shares actually 9,153,887 7,607,146
outstanding
Stock Options 4,144,375 3,586,875
Warrants
1,037,429 15,000
----------- -----------
Total weighted average shares 14,335,691 11,009,021
------------ ------------
Loss from continuing operations $ (3,174,259) $ (2,251,439)

Loss from discontinued operations - (193,454)
------------- ------------

Net loss $ (3,174,259) $ (2,444,893)
------------ ------------

Net loss per common share
Continued operations $ (0.35) $ (0.30)
Discontinued operations (0.00) (0.02)
------------ ------------
Net loss $ (0.35) $ (0.32)
============ ============

Income Taxes
The Company records deferred taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
statement requires recognition of deferred tax assets and liabilities for
temporary differences between the tax bases 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 when necessary to reduce
deferred tax assets to the amount expected to be realized.

Other
The Company's fiscal year end is July 31.

The Company paid no cash dividends during the periods presented.

Shipping and handling costs payable by the Company are charged to cost of sales.

Certain comparative figures have been reclassified to conform to the current
year presentation.

All of the Company's assets are located in the United States.

Note 2. Restatement of Financial Statements - Start-up Costs and Warranty
Liability
The accompanying financial statements have been restated to correct an error in
the recording and reporting of Start-up Costs and the Warranty Liability of the
Company.

The Company expended $230,000 during the year ended July 31, 2001 and an
additional $47,831 during the July 31, 2002 fiscal year in an effort to acquire
and set up a Korean corporation. The Company capitalized these costs as Deferred
Acquisition costs as incurred. The Company later determined the venture was not
feasible and decided not to go forward with the project. The total costs of
$277,831 were written-off as Abandoned Projects at July 31, 2002. We now believe
the treatment of these costs was not correct. The accompanying financial
statements now show these costs as expensed when incurred as Start-up Costs. The
effect of this restatement was to increase the net loss at July 31, 2001 by
$230,000 and to decrease the net loss at July 31, 2002 by $230,000.

In previous years the Company had not recorded a liability for its future
warranty obligation. Because the Company has now computed and booked this
liability the accompanying financial statements have been restated to include
this obligation.. A liability of $42,430 at July 31, 2003 and $41,445 at July
31, 2002 are included in Accrued Liabilities. The income statement effect of
these items was to reduce net loss at July 31, 2001 by $729 and to increase net
loss at July 31, 2002 by $7,654.

The accompanying financial statements also include 15,000 warrants issued for
$8,310 that were omitted from the July 31, 2002 balance sheet in error.

Note 3. Cash and Cash Equivalents
For purposes of the balance sheets and statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. At July 31, 2003, the Company had
deposits of $124,842 in excess of FDIC insured limits. At July 31, 2002, the
Company had no deposits in excess of FDIC insured limits.

Note 4. Due from Officers and Employees (Related Parties)
At July 31, 2003, there were no amounts due from officers and $61 represents
amounts due from employees. At July 31, 2002, there were notes receivable of
$64,075 due from officers and $145,362 due from employees. All notes receivable
are due and payable within one year. The carrying value of the notes, based on
the terms at which those same loans would be made currently, approximate their
fair value. All notes in excess of $10,000 have interest accrued at 6%. Advances
to employees of amounts under $10,000 are not charged interest. The total of
these loans to employees of under $10,000 was $61 at July 31, 2002 and $7,620 at
July 31, 2002.

Note 5. Property, Plant and Equipment
The following is a summary of property, plant, and equipment - at cost, less
accumulated depreciation:

July 31, 2003 July 31, 2002
----------------- -------------------

Computers and equipment $ 1,081,046 $ 1,076,466
Furniture and fixtures 108,129 103,855
Website - 207,916
Vehicle 50,985 50,985
Leasehold improvements 309,830 307,606
----------------- -------------------
1,549,990 1,746,828
Less: accumulated depreciation
and amortization 1,117,246 1,091,870
----------------- -------------------
Total $ 432,744 $ 654,958
----------------- -------------------

Depreciation expense charged to general and administrative expense for the years
ended July 31, 2003 and July 31, 2002 was $320,500 and $266,500, respectively.

Note 6. Notes Payable
The details relating to note payable are as follows:

July 31, 2003 July 31, 2002
------------------ ------------------

Convertible Debenture, interest payable quarterly at
10% per annum due and payable on July 24, 2004. $ 300,000 $ -
Discount
(119,487) -
Current maturities of notes payable included in
current liabilities 180,513
------------------ ------------------

Total long term debt $ - $ -
------------------ ------------------

The note contains a provision that the holder can demand the note be paid in
full in cash if the Company obtains any future financing (whether debt or
equity) of at least $500,000. If held to maturity, principal is automatically
converted to common shares of the Company at the conversion price of $0.50 per
share. The conversion price can be reset after 180 days and again after one year
to 75% of the trading price of the stock if the per share price falls below
$0.75 on those dates. The note was contained in a Unit Purchase Agreement in
which the holder of the note receives 300,000 five-year warrants to purchase
common stock of the Company at an exercise price of $0.75. The recorded value of
the note payable and the warrants were apportioned based on their respective
fair values. This resulted in the note being recorded at its discounted value of
$180,513. The discount of $119,487 will be amortized over the one-year life of
the note. If the contract were to have settled on July 31, 2003, the Company
would have had to pay the holder of the note 600,000 shares of common stock. The
maximum amount of shares the Company would be required to pay under the contract
is the lower of 75% of the price of the Company's common stock at the 180 day or
one-year reset dates divided by the $300,000 face value of the note.

Note 7. Loans from Shareholder
The details relating to loans from shareholders are as follows:

July 31, 2003 July 31, 2002

---------------- --------------

Line of Credit (from shareholder) $600,000 line of credit,
interest at 18% Due and payable November 13, 2003
Secured by total assets of the Company $ 600,000 $ 500,000
Excluding the Axenohl patent
Current maturities of loans payable included in
current liabilities 600,000 500,000
---------------- ------------

Total long term debt $ - $ -
---------------- -------------

The terms of the line of credit required the Company to maintain current
accounts receivable of a minimum of $350,000. At the end of year, the Company
was in technical violation with this provision. The Company has neither
requested nor received a waiver of this provision.

Note 8. Warranty Liability

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". Interpretation 45 is
effective for financial statements of interim or annual periods fiscal
years ending after December 15, 2002 and requires the following
disclosures of the Company's product warranties:

The Company provides a standard warranty of two years for replacement
parts on all Fillmaster systems sold. Most of the Company's chain
customers have entered into multi-year contracts for the Customer
Service Plan 2000. The CSP 2000 provides an extended unlimited
warranty on all PURE Bioscience pharmacy products; significant
discounts on maintenance item costs; free software upgrades for the
Fillmaster 1000e and Scanmaster; automatic replacement filter
shipments; and simplified, annual invoicing. When the customer buys a
dispenser on the Customer Service Plan 2000 it agrees to pay a fixed
annual fee that covers replacement filters and parts. The Company
monitors the costs of providing replacement parts other than filters.
This cost has remained steady and is computed as a percentage of
related revenues. The following is a summary of changes in the
Company's product warranty liability.

Beginning Expense Warranty Ending
Liability Incurred Payments Liability
---------- ---------- ----------- ---------

Year ended July 31, 2002 $ 33,791 $ 39,602 $ 31,948 $ 41,445
========= ========== ======== =======

Year ended July 31, 2003 $ 41,445 $ 33,692 $ 32,707 $ 42,430
========= ========== ====== =======

Note 9. Commitments
On May 14, 1996, the Company entered into an operating lease agreement for its
home office which expires (under extension) in October 2006. The lease includes
a yearly increase of 4%. The rental expense recorded in general and
administrative expenses for the years ended July 31, 2003 and July 31, 2002 was
$160,545 and $144,348, respectively. Future minimum rental payments required for
each of the 5 succeeding years assuming exercise of the option are as follows:

Year Ended July 31 Amount
------------------ ------
2004 $166,967
2005 $173,645
2006 $180,591
2007 $187,815
2008 $195,328

The Company has an employment contract with its Chief Executive
Officer/President which includes a provision for him to be paid an amount equal
to 3% of the Company's net income before taxes, if any.

On November 30, 2001 the Company acquired the patent for Axenohl, a silver ion
based technology (Note 17). As a condition of the purchase agreement of the
Axenohl patent, the Company agreed to make certain royalty payments to NVID of
5% of the gross product sales with a minimum royalty payment total of $1,000,000
for the period from November 15, 2001 to July 31, 2004 and subsequently
$1,000,000 per year for the remaining life of the patent. The contract states
that at July 31, 2004 the Company shall have the right, in its sole and absolute
discretion, to do one of the following: a) pay the initial minimum royalty
payment of $1,000,000 in cash or common stock of the Company to NVID, less
royalty amounts already paid, on or before July 31, 2004, b) transfer the patent
back to NVID, at which time the Company would be released of any future minimum
payments and granted a license to manufacture and distribute products covered by
the patent while retaining all Axen and Axenohl related patents filed by the
Company, including retention of all of its previously granted license rights to
sell, distribute and manufacture all Axenohl based products, or c) cancel any
royalty obligation under the contract by selling, transferring or assigning its
ownership of the primary patent to a third party and paying NVID a percentage of
the gross proceeds of 10% or 5%, depending on how near the date of the transfer
is to July 31, 2004, while retaining all Axen and Axenohl related patents filed
by the Company, including retention of all of its previously granted license
rights to sell, distribute and manufacture all Axenohl based products. The
Company has not recorded or accrued an amount for the minimum royalty payments
in the financial statements because the Company has determined that it is
unlikely to choose the option to pay the minimum royalty. There are potential
minimum royalties due of $1,000,000 for the period of November 2001 to July 31,
2004 and for each fiscal year thereafter. Future minimum royalty payments
required for each of the 5 succeeding years are as follows:

Year Ended July 31 Amount
------------------ ------
2004 $1,000,000
2005 $1,000,000
2006 $1,000,000
2007 $1,000,000
2008 $1,000,000

The maximum royalty payments cannot be estimated because they are based on
future sales.

In June 2003, the Company signed a Letter of Engagement with GunnAllen Financial
to become the Company's exclusive financial advisor. In the agreement the
Company agreed to pay GunnAllen Financial a fee of $10,000 per month for a
period of two years. As additional compensation, in August of 2003 the agreement
was amended to include a warrant to purchase 200,000 shares of common stock of
the Company at a strike price of $0.80.

Note 10. Equity and Common Stock
The following schedule summarizes the change in equity:

Common Common
Stock Stock Warrants Warrants Accumulated
Shares $ Issued $ Deficit Total
--------- ---------- ---------- ----------- ------------ ---------

Balance, July 31, 2001 6,954,699 $11,510,915 4,472,500 $108,750 $(8,423,467) $3,196,198
--------- ---------- --------- ------- ----------- ---------

Sale of Stock 35,200 75,183 75,183

Private Placement 511,000 641,000 641,000

Shares Issued for
Services 200,000 100,000 100,000

Warrants Issued for
Services 15,000 8,610 8,610
Expiration of Warrants
108,750 (4,472,500) (108,750)

Purchase of Patents 700,000 1,540,600 1,540,600

Net Loss 0 0 0 0 (2,222,547) (2,222,547)
--------- --------- --------- --------- ----------- ------------

Balance, July 31, 2002 8,400,899 13,976,448 15,000 8,610 (10,646,014) 3,339,044

Sale of Stock 72,500 81,325 81,325

Private Placement 1,788,439 475,000 371,429 144,487 619,487

Shares Issued for
Services 332,250 225,430 225,430

Warrants Issued for
Services 666,000 635,376 635,376

Net Loss 0 0 0 0 (3,283,989) (3,283,989)
--------- --------- --------- --------- ----------- ------------

Balance, July 31, 2003 10,594,088 $14,758,203 1,037,429 $ 788,473 $(13,930,003) $1,616,673
========== =========== ============ ========= ============= ==========

The Company also has 5,000,000 shares of preferred stock authorized, no
preferred stock has been issued.

The following schedule summarizes the outstanding warrants:

Weighted
Average
Date Exercise Exercise Expiration
Issued For Issued Amount $ Amount Price Price Date
------------------ -------- ---------- ---------- ---------- ------- ----------

Services 6/14/02 15,000 $8,610 $1.00 $1.00 6/14/07

Private Placement 1/31/03 71,429 25,000 $0.30 $0.30 1/31/08

Start-up Costs 1/15/03 651,000 635,376 $0.001 $0.001 1/15/08

Private Placement 7/24/03 300,000 119,487 $0.75 $0.75 7/24/08
------- -------
Total 1,037,429 $788,473
========= ========

The Company had issued Class A warrants which entitled the holder to acquire an
additional common share for $5.25 per common share beginning August 8, 1997 and
expiring August 8, 2001. The Class A Warrants were redeemable by the Company for
$0.05 per warrant, at the Company's option, commencing one year after the
effective date of the offering provided the closing bid price for the Company's
common shares shall have averaged in excess of $9.00 per share for thirty
consecutive business days ending within five days of the date of notice of
redemption.

The Company had issued Class Z warrants which entitled the holder to acquire an
additional common share for $10.00 per common share beginning August 8, 1998 and
expiring August 8, 2001. The Class Z Warrants were redeemable by the Company for
$0.10 per warrant, at the Company's option, commencing one year after the
effective date of the offering provided the closing bid price for the Company's
common shares shall have averaged in excess of $15.00 per share for thirty
consecutive business days ending within five days of the date of notice of
redemption.

On August 8, 2001 the total 3,687,500 Class A warrants and the total 785,000
Class Z warrants expired without exercise.

Note 11. Related Party Transactions
See Note 7.

Note 12. Stock Option Plans
The Company has the following stock option plans (the Plans) pursuant to which
options to acquire common stock have been granted.

1996 Incentive Stock Option Plan: Approved by Shareholders in April, 1996 with
1,000,000 shares authorized under this Plan. The options have a five-year term
with vesting ratably over a five-year period.

1996 Directors and Officers Stock Option Plan: Adopted by the Board in April,
1996 with 1,000,000 shares authorized under this Plan. The maximum number of
shares subject to options granted under this Plan to any one Director or Officer
shall not exceed 200,000 shares in any 12-month period. The options have a
five-year term with vesting ratably over a five-year period.

Amended 1998 Directors and Officers Stock Option Plan: Approved by Shareholders
in December, 1998 with 2,000,000 shares authorized under this Plan. The maximum
number of shares subject to options granted under this Plan to any one Director
or Officer shall not exceed 200,000 shares in any 12-month period. The options
have a five-year term with vesting ratably over a five-year period.

2001 Directors and Officers Stock Option Plan: Approved by Shareholders in
January 2001 with 1,000,000 shares authorized under this Plan. The maximum
number of shares subject to options granted under this Plan to any one Director
or Officer shall not exceed 200,000 shares in any 12-month period. The options
have a five-year term with vesting ratably over a five-year period.

2001 ETIH2O Stock Option Plan: Adopted by the Board in January 2001 with
1,000,000 shares authorized under this Plan. The options have a five-year term
with vesting ratably over a five-year period.

2001 Consultants and Advisors Stock Option Plan: Adopted by the Board in January
2001 with 500,000 shares authorized under this Plan. The maximum number of
shares subject to options granted under this Plan to any one participant shall
not exceed 50,000 shares in any 12-month period. The options have a five-year
term with vesting ratably over a five-year period.

On March 11, 2002, the Company's shareholders approved the PURE Bioscience 2002
Employee Incentive Stock Option Plan. The purpose of the Plan is to advance the
business and development of the Company and its shareholders by affording to the
key employees and non-employee directors of the Company the opportunity to
acquire a propriety interest in the Company by the grant of Options to acquire
shares of the Company's common stock.

The Options granted are "Incentive Stock Options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, for certain key employees.
The Plan is administered by an Administrative Committee whom shall serve a
one-year term. Subject to anti-dilution provisions, the Plan may issue Options
to acquire up to 4,000,000 shares to Key Employees. The exercise price for
Options shall be set by the Administrative Committee but shall not be for less
than the fair market value of the shares on the date the Option is granted. The
period in which Options can be exercised shall be set by the Administrative
Committee not to exceed five years from the date of Grant. The Plan may be
terminated, modified or amended by the Board of directors upon the
recommendation of the Administrative Committee. The options vest ratably over a
five-year period.

On March 11, 2002, the Company's shareholders approved the PURE Bioscience 2002-
Non-Qualified Stock Option Plan. The purpose of the Plan is to advance the
business and development of the Company and its shareholders by affording
Eligible Plan Participants the opportunity to acquire a propriety interest in
the Company by the grant of Options to acquire shares of the Company's common
stock. Eligible Plan Participants include the Directors and Officers of the
Company, consultants, advisors and other individuals deemed by the Compensation
Committee to provide valuable services to the Company but who are not otherwise
eligible to participate in the Employee Incentive Stock Option Plan.

The Plan is administered by an Administrative Committee whom shall serve a
one-year term. The Administrative Committee is composed of the Board's
Compensation/Administration Committee. Subject to anti-dilution provisions, the
Plan may issue Options to acquire up to 2,000,000 shares to Eligible Plan
Participants. The Company will not receive any consideration for the grant of
options under the Plan and approximate market value of the shares to be reserved
for the plan is $4,000,000 based upon the average thirty trading day closing
price for the Company's common stock for the period ending January 31, 2002. The
exercise price for Options shall be set by the Administrative Committee but
shall not be for less than the fair market value of the shares on the date the
Option is granted. Fair market value shall mean the average of the closing price
for ten consecutive trading days at which the Stock is listed in the Nasdaq
quotation system ending on the day prior to the date an Option is granted. The
period in which Options can be exercised shall be set by the Administrative
Committee not to exceed five years from the date of Grant.

The Company estimates a fair value method of accounting for stock-based
compensation in accordance with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). In accordance with
SFAS 123, the Company has chosen to continue to account for employee stock-based
compensation utilizing the intrinsic value method. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the fair market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.

Also, in accordance with SFAS 123, the Company has provided footnote disclosure
with respect to stock-based employee compensation. The cost of stock-based
employee compensation is measured at the grant date based on the value of the
award and is recognized over the service period. The value of the stock based
award is determined using a pricing model whereby compensation cost is the
excess of the fair value of the stock as determined by the model at grant date
or other measurement date over the amount an employee must pay to acquire the
stock.

The Company accounts for non-employee stock based compensation by recording the
fair value of the stock options granted over the anticipated service period.

The effect of applying FAS 123 on the years ended July 31, 2003 and 2002 pro
forma net loss as stated below is not necessarily representative of the effects
on reported net loss for future years due to, among other things, the vesting
period of the stock options and the fair value of additional stock options in
future years. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under the
plans consistent with the methodology prescribed under FAS 123, the Company's
net loss in the years ended July 31, 2003 and 2002 would have been approximately
$4,014,900 and $2,856,400 or $(0.44) per share and $(0.38) per share,
respectively, on a diluted basis. Compensation cost for non-employees of
$191,600 was charged to income in the year ended July 31, 2003 and $27,300 in
the year ended July 31, 2002. The weighted average fair value of the options

granted during the years ended July 31, 2003 and 2002 are estimated at $1.16 per
share and $1.13 per share, respectively, on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for
grants in 2003 and 2002; no dividend yield, volatility of 137.78% and 101.48%,
respectively; a risk-free interest rate of 2.25% and 5.25%, respectively and an
expected life of 2.24 and 2.98 years from date awarded.

A summary of stock option activity is as follows:

Weighted-Average
Number of Shares Exercise Price ($)
--------------------- --------------------

Balance at July 31, 2001 2,734,966 1.72
Granted 1,850,000 1.56
Exercised (35,200) 1.93
Forfeited (338,091) 1.63
----------
Balance at July 31, 2002 4,211,675 1.74
Granted 637,500 0.50
Exercised (156,875) 0.55
Forfeited (0) 0.00
----------
Balance at July 31, 2003 4,692,300 1.64
==========

Outstanding Exercisable
Range of Number Weighted Average Weighted Average Weighted
Exercise Shares Remaining Life Exercise Number Average
Prices Outstanding (in years) Price Exercisable Price ($)
-------------------- ------------------- ------------------ ------------------- ------------------ -----------------

$0.50 to $0.74 1,125,000 3.30 $0.53 892,500 0.53
$1.00 523,750 0.70 $1.00 518,125 1.00
$1.31 to $1.90 547,300 3.70 $1.72 537,500 1.73
$2.00 1,600,000 2.25 $2.00 1,300,000 2.00
$2.10 to $2.50 460,000 3.18 $2.11 460,000 2.11
$2.93 to $3.56 436,250 1.31 $3.05 436,250 3.05
----------- ------------
4,692,300 2.24 $1.61 4,144,375 1.64
=========== ============

Note 13. Pension Plan
The Company participates in a Small SEP program under which the employer makes
contributions to a SEP, which includes a salary reduction arrangement (SARSEP).
Employees who participate in the SARSEP may elect to have the employer: (a) make
contributions to the SEP on their behalf, or (b) pay them cash. A salary
reduction arrangement may be used only in years in which the SEP meets
requirements that the IRS may impose to ensure distribution of excess
contributions. Annual contributions of an employer under a SEP are excluded from
the participant's gross income. No employer contributions were made during the
fiscal years ending July 31, 2003 and July 31, 2002.

Note 14. Income Taxes
The current provisions for income taxes of $3,200 for fiscal year ended July 31,
2003 and $2,400 for July 31, 2002 is the minimum franchise tax paid to the State
of California regardless of income or loss. The Company files federal and
California consolidated tax returns with its subsidiaries.

At July 31, 2003, the Company had federal, and California tax net operating loss
carryforwards of approximately $12,030,000 and $4,945,700 respectively. At July
31, 2001, the Company had federal, and California tax net operating loss
carryforwards of approximately $9,796,900 and $3,717,500 respectively. The
difference between the financial reporting and the federal tax loss
carryforwards is primarily due to accrued expenses and valuation allowances
reported in the financials but not deductible for tax purposes. The difference
between federal and California tax loss carryforwards is primarily due to the
limitation on California loss carryforwards. The federal tax loss carryforwards
will begin expiring in the fiscal year ended July 31, 2011, unless previously
utilized and will completely expire in fiscal year ended July 31, 2023. The
California tax loss carryforwards will begin to expiring in fiscal year ended
July 31, 2011, unless previously utilized and will completely expire in fiscal
year ended July 31, 2023.

The Company has total deferred tax assets of approximately $4,726,000 and
$3,325,700 for the fiscal years ended July 31, 2003 and 2002, respectively.
Realization of these deferred tax assets, which relate to operating loss
carryforwards and timing differences, is dependant on future earnings. The
timing and amount of future earnings are uncertain and therefore, the valuation
allowance had been established. The increase in the valuation allowance on the
deferred tax asset during the fiscal year ended July 31, 2003 was $950,300.

Significant components of the Company's deferred tax assets are as follows:

July 31, 2003 July 31, 2002
------------- -------------

Net operating loss carryforward $ 4,551,000 $ 3,547,800

Depreciation and amortization 124,600 90,500
Calculation allowances (292,800) (292,100)
Stock options and warrant 385,400 29,800

Other (42,200) (50,300)
-------- --------
Total deferred tax assets 4,726,000 3,325,700

Valuation allowance for deferred tax assets (4,276,000) (3,325,700)
----------- -----------
Net deferred tax assets $ 0 $ 0
============ =============

A reconciliation of income taxes computed using the statutory income tax
compared to the effective tax rate is as follows:

2003 2002
------ ------

Federal tax benefit at the expected statutory rate 34 % 34 %
State income tax, net of federal tax benefit 9 9
Valuation allowance (43) (43)
------ ------

Income tax benefit - effective rate 0 % 0 %
====== ======

Note 15. Risks and Uncertainties
The Company faces competitive risks for its Axenohl and pesticide products
because the products displace traditional technologies sold by better
capitalized and established companies.

A significant part of the Company's revenues are from pharmaceutical water
products.

Note 16. Business Segment and Sales Concentrations
In accordance with the provisions of SFAS No. 131, certain information is
disclosed based on the way management organizes financial information for making
operating decisions and assessing performance. In determining operating
segments, the Company reviewed the current management structure reporting to the
chief operating decision-maker ('CODM') and analyzed the reporting the CODM
receives to allocate resources and measure performance.

The Company's business activities are divided, managed and conducted in two
basic business segments, the Water Treatment segment and the Bioscience segment.
These two segments were determined by management based upon the inherent
differences in the end use of the products, the inherent differences in the
value added processes made by the Company, the differences in the regulatory
requirements and the inherent differences in the strategies required to
successfully market finished products. The Water Treatment segment includes
Commercial Water and Residential Retail products and the Nutripure Water Dealer
program. Bioscience includes Axenohl (Silver Ion Technology) and the Innovex
line of pest control products.

Segment information is presented in accordance with SFAS 131, Disclosures about
Segments of an Enterprise and Related Information. This standard is based on a
management approach, which requires segmentation based upon the Company's
internal organization and disclosure of revenue and operating income based upon
internal accounting methods. The Company's financial reporting systems present
various data for management to run the business, including internal profit and
loss statements prepared on a basis not consistent with U.S. generally accepted
accounting principles. Reconciling amounts consist of unallocated general and
administrative expenses.

Water Reconciling
Treatment Biosciences Amounts Consolidated
----------- ------------ ------------ -------------
2003
------

Revenues
Commercial Water Treatment
Fillmaster Products $1,160,700 $ 1,160,700
-----------------------
Replacement Filters (Includes CSP 2000) 640,600 640,600
--------------------------------------
Residential Water Treatment 155,200 155,200
---------------------------
Water Dealer Program 517,300 517,300
--------------------
Silver Ionization - $ 54,500 54,700
-----------------
Pesticide - 61,200 61,200
--------- ---------- ---------- ------------- ------------
Total Revenues $2,473,800 $ 115,700 $ 0 $ 2,589,500
------------------- ========== ========== ======= ==========

Operating Income/(Loss) $ 379,900 $ (173,083) $(2,967,500) $ (3,174,300)
----------------------- ----------- ---------- ------------ ------------
Segment Assets $ 423,300 $2,436,100
-------------- ----------- ----------

2002
------
Revenues
Commercial Water Treatment
Fillmaster Products $1,161,800 $1,161,800
-----------------------
Replacement Filters (Includes CSP 2000) 524,000 524,000
------------------------------------------
Residential Water Treatment 106,400 106,400
---------------------------
Water Dealer Program 396,700 396,700
--------------------
Silver Ionization - $ 683,100 683,100
-----------------
Pesticide - 334,400 334,400
--------- ----------- ------------ ------------ -----------
Total Revenues $ 2,188,900 $ 1,017,500 $ 0 $ 3,206,400
-------------- =========== ============ =========== ===========

Operating Income/(Loss) $ 186,100 $ (717,300) $(1,691,300) $(2,222,500)
----------------------- ----------- ------------ ----------- -----------
Segment Assets $ 790,200 $ 2,450,100
-------------- ----------- -----------

Significant customers primarily consisted of domestic retail chain pharmacies.
Sales concentrations to major chain stores were approximately $923,000 and
export sales were $73,000 for the year ended July 31, 2003. Sales concentrations
to major chain stores were approximately $1,107,200 and export sales were
$584,600 for the year ended July 31, 2002 No customer accounted for more than
10% of consolidated sales.

Note 17. Patent Acquisition
On November 30, 2001, the Company acquired the patent for Axenohl, a silver ion
based technology which is the basis for the Company's silver ion products. The
Company previously licensed the use of this patent.

Note 18. Discontinued Operations
In December 1999, the Company formed NUTRIPURE.COM as a wholly owned subsidiary
to operate an e-commerce health website, composed primarily of Bergen Brunswig
products. On January 15, 2002, Bergen Brunswig Corporation terminated the
distribution license for these products. As a result, we closed our e-commerce
division. The Nutripure subsidiary now is holding the website for resale, which
is its only remaining asset. Assets of the subsidiary were zero at July 31, 2003
and zero at July 31, 2002. Revenues from discontinued operations were zero in
2003 and $1,000 in 2002. No income tax expense was allocated to discontinued
operations because of the uncertainty of realizing net operating loss
carryforwards.

Note 19. Subsequent Events
In August of 2003 the Company completed a financing arrangement which included
the acquisition of a $2,000,000 Trust Deed receivable and $35,000 related
accrued interest and issuing a $435,000 note payable resulting in a net increase
of $1,600,000 in equity during the period. This note receivable is in exchange
for the issuance of 2,000,000 shares of the Company's common stock to a party
unrelated to the Company, and that is fully secured by specific assets other
than the equity instruments granted.

In October 2003 the Company conducted a $50,000 private placement in which the
Company issued 100,000 shares of common stock to an accredited investor at a
price of $0.50 per share. Also in October of 2003 the Company conducted a
$420,000 private placement in which the Company issued 700,000 shares of common
stock to an accredited investor at a price of $0.60 per share.

Note 20. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations." The Statement is to be adopted for all business
combinations initiated after June 30, 2001. The adoption of this statement did
not impact the Company's financial position, results of operations, or cash
flows.

In June 2001, the FASB issued SFAS No. 142 "Accounting for Goodwill and
Intangible Assets." In accordance with certain provisions of the Statement,
goodwill acquired after June 30, 2001 is not amortized. All provisions of the
Statement are required to be applied in the fiscal year beginning after December
15, 2001. The adoption of this statement did not impact the Company's financial
position, results of operations, or cash flows.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. The Company adopted this statement for the year ending
December 31, 2002. The adoption of this statement did not impact the Company's
financial position, results of operations, or cash flows.

In July 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets which is effective for fiscal years beginning
after December 15, 2001. SFAS 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and establishes a single
accounting model, based on the framework established in SFAS 121, for long lived
assets to be disposed of by sale. The adoption of this statement did not impact
the Company's financial position, results of operations, or cash flows.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
SFAS 145, which is effective for fiscal years beginning after May 15, 2002,
provides guidance for income statement classification of gains and losses on
extinguishments of debt and accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. The adoption
of this statement did not impact the Company's financial position, results of
operations, or cash flows.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 nullifies the guidance of the
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
liability for a cost that is associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS 146 also establishes that fair
value is the objective for the initial measurement of the liability. The
provisions of SFAS 146 are required for exit or disposal activities that are
initiated after December 31, 2002. The adoption of this statement did not impact
the Company's financial position, results of operations, or cash flows.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS 148 amends FASB Statement No.
123, "Accounting for Stock-Based Compensation", to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on the reported results. The provisions of SFAS 148 are effective for
financial statements for fiscal years ending after December 15, 2002. The
adoption of this statement did not impact the Company's financial position,
results of operations, or cash flows.

In November 2002, the FASB issued FIN 45, which expands previously issued
accounting guidance and disclosure requirements for certain guarantees. Except
as described in Note 8, the adoption of this statement did not impact the
Company's financial position, results of operations, or cash flows.

In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends and clarifies the
accounting guidance on certain derivative instruments and hedging activities.
SFAS 149 is generally effective for contracts entered into or modified after
June 30, 2003 and hedging relationships designated after June 30, 2003. The
adoption of this statement did not impact the Company's financial position,
results of operations, or cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
establishes standards for how an issuer of equity (including the equity shares
of any entity whose financial statements are included in the consolidated
financial statements) classifies and measures on its balance sheet certain
financial instruments with characteristics of both liabilities and equity. SFAS
150 is effective for financial instruments entered into or modified after May
31, 2003 and for existing financial instruments after July 1, 2003. The adoption
of this statement did not impact the Company's financial position, results of
operations, or cash flows.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None.

PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of PURE Bioscience and their ages are as
follows:

Name Age Position Held Position Since
------------------------- --------- ------------------------------------ -------------------

Michael L. Krall 51 President, CEO, Chairman, Director 1992
Gary Brownell, CPA 54 Treasurer CFO, Director 1996
Gene Auerbach 58 Chief Operating Officer 2002
Donna Singer 33 Executive Vice President, Director 1998
Dennis Atchley, Esq. 50 Secretary 1996
Greg Barnhill 49 Director 2001
Dennis Brovarone 47 Director 1996
Patrick Galuska 44 Director 1996
Eugene Peiser, PD 71 Director 1996

The Directors serve until their successors are elected by the shareholders.
Vacancies on the Board of Directors may be filled by appointment of the majority
of the continuing directors. The executive officers serve at the discretion of
the Board of Directors except as subject to the employment agreement with Mr.
Krall.

Business Experience
-------------------
DENNIS B. ATCHLEY, ESQ. Mr. Atchley is the Secretary of PURE Bioscience and
currently practices as a sole practitioner in Carlsbad, California handling
corporate and business related litigation matters. A 1973 graduate of Loyola
Marymount University in Los Angeles and a 1976 graduate of California Western
School of Law in San Diego, California, Mr. Atchley is a member of the
California Bar, the San Diego County Bar Association, and the Association of
Business Trial Lawyers.

GENE AUERBACH Mr. Auerbach is the Chief Operating Officer of PURE Bioscience.
Prior to joining the Company in June 2002, Mr. Auerbach served as Senior Vice
President, Global Supply Chain for Estee Lauder Companies (NYSE: EL) in New York
City. Previously, he served as Senior Vice President for Development and
International Development at AutoZone (NYSE: AZO) in Memphis, Tennessee. Prior
to joining AutoZone, Mr. Auerbach gained significant international experience as
Regional Director, Asia for Dairy Farm International (Jardines), where he played
a key role in the executive management of 1400 retail stores in eight countries,
including supermarkets, drug stores, convenience stores and restaurants. Before
joining Dairy Farm International, Mr. Auerbach held the position of Senior Vice
President at Costco (NasdaqNM: COST) and, prior thereto, Executive Vice
President for Price Club. Before joining Price Club/Costco, Mr. Auerbach served
22 years in the US Navy where he was, and still is, the youngest officer ever
selected for Captain (06) in the history of the Navy Supply Corps. Mr. Auerbach
holds a BA degree in Business Administration from University of Washington and
an MBA degree from Wharton School of Finance and Commerce.

GREGORY H. BARNHILL Mr. Barnhill is Managing Director of North American Equity
Sales at Deutsche Bank Securities, Inc., Baltimore, MD. He joined the firm in
1975, following his graduation from Brown University with an AB degree in
economics.

DENNIS BROVARONE Mr. Brovarone has been practicing corporate and securities law
since 1986 and as a sole practitioner since 1990. He was elected to the
Company's Board of Directors in April 1996. From January 3002 to the present,
Mr. Brovarone serves on the Board of Directors of Shannon International
Resources, Inc., a publicly held Nevada corporation. From December 1997 to April
2001, Mr. Brovarone served as the President and Chairman of the Board of
Directors of Ethika Corporation, a publicly held, Mississippi corporation
investment holding company with its office in Littleton, Colorado. From January
1995 to March 1998, Mr. Brovarone served as President (Chairman) of the Board of
Directors of The Community Involved Charter School, a four year old K-12 public
school located in Lakewood, Colorado, operating under an independent charter and
serving approximately 350 students in an individualized, experiential learning
environment. Prior to 1990, Mr. Brovarone served as in-house counsel to R.B.
Marich, Inc., a Denver, Colorado based brokerage firm. Mr. Brovarone lives and
works in Littleton, Colorado.

GARY W. BROWNELL Mr. Brownell is a Certified Public Accountant in a private
partnership practice. He is the partner in charge of taxes and municipal audits
for his firm. Mr. Brownell graduated from San Diego State University in 1973
with a Bachelor of Science degree in accounting. He received his Certified
Public Accountant designation in 1983. Mr. Brownell has been a partner in
Brownell and Duffy since 1985.

PATRICK GALUSKA Mr. Galuska is a consulting petroleum engineer in Denver,
Colorado. His practice focuses mainly on the acquisition and exploitation of
underdeveloped oil and gas assets in the Rocky Mountain area. He is a Registered
Professional Engineer and is a member of the Society of Petroleum Engineers. Mr.
Galuska earned his BS degree in petroleum engineering from the University of
Wyoming and received his MBA degree in Finance from the University of Denver.
Mr. Galuska resides in Littleton, Colorado with his wife and two children.

MICHAEL L. KRALL Mr. Krall is the President, CEO and Chairman of the Board of
Directors of PURE Bioscience, a position he has held since 1993. He is
responsible for the strategic planning, product development, and day-to-day
operations of PURE Bioscience. Previously, Mr. Krall was the President and CEO
of Bettis-Krall Construction, Inc. a successful building-development company of
custom homes and commercial property in San Diego County, California. He has
also held numerous positions in general management in the hospitality industry.
Mr. Krall attended Pepperdine University (economics, statistics, mechanical
engineering). He previously served 4 years in the United States Marine Corps and
was elected, by general election, to a 4 year term on the Valle de Oro Planning
Board. Mr. Krall lives in El Cajon, California with his wife, Connie, and two
children.

EUGENE S. PEISER, DOCTOR OF PHARMACY Dr. Peiser has been an independent
consultant to FDA regulated industries since 1974 and a Member of the Board of
PURE Bioscience since 1994. He graduated from the University of Tennessee
College of Pharmacy with a Bachelor of Science in Pharmacy in 1951 and has
received his Doctorate of Pharmacy. Dr. Peiser's consultancy advises on a wide
variety of subjects, including compliance with the Prescription Drug Marketing
Act and other government compliance matters, employee training and drug
repackaging. Dr. Peiser furnishes expert witness services and has provided
approved Pharmaceutical Continuing Education to several thousand attendees at
his seminars. Dr. Peiser is a Founding Director of the Association of Drug
Repackagers; is appointed as a Registered Arbitrator by the American Registry of
Arbitrators; and is President of the Southwest Chapter of the Association of
Military Surgeons. Dr. Peiser lives and works in Palm Harbor, FL.

DONNA SINGER Ms. Singer is the Executive Vice President of PURE Bioscience. From
1996-1998, Ms. Singer served as Vice President of Operations for the Company.
Ms. Singer is responsible for company operations, corporate communications,
investor relations and marketing. Previously, Ms. Singer served as the investor
relations executive at Western Garnet International, a Toronto Stock Exchange
mining company. Ms. Singer graduated from Gonzaga University with a Bachelor of
Arts degree and lives in El Cajon, California.

Committees: Meetings of the Board
We have a Compensation/Administration Committee and an Audit Committee. The
Compensation/Administration Committee and the Audit Committee were formed in
1995. Messrs. Barnhill, Brovarone, Galuska and Peiser comprise the
Compensation/Administration Committee and Messrs. Barnhill, Brownell, Galuska
and Peiser are the Audit Committee. The Compensation/Administration Committee
recommends to the Board the compensation of executive officers and will serve as
the Administrative Committee for the Company's Stock Option Plans. The Audit
Committee serves as a liaison between the Board and the Company's auditor. The
Compensation/Administration Committee met once during the fiscal year ended July
31, 2003, and the Audit Committee met once during the fiscal year ended July 31,
2003.

Our Board of Directors held six meetings during the fiscal year ended July 31,
2003, at which time all the then Directors were present or consented in writing
to the action taken at such meetings. No incumbent Director attended fewer than
100% of said meetings.

Compliance with Section 16(a) of Securities Exchange Act of 1934
To our knowledge, during the fiscal year ended July 31, 2003, our Directors and
Officers complied with all applicable Section 16(a) filing requirements. This
statement is based solely on a review of the copies of such reports furnished to
us by our Directors and Officers and their written representations that such
reports accurately reflect all reportable transactions.

Family Relationships
There is no family relationship between any Director, executive or person
nominated or chosen by PURE Bioscience to become a Director or executive
officer.

Code of Ethics
We have not as yet adopted a Code of Ethics that applies to our principal
executive officer and principal financial officer. The Company's recent focus
has been codifying internal controls as required by the Sarbanes-Oxley Act. We
intend to adopt a Code of Ethics during this fiscal year.

Transactions with Management
PURE Bioscience did not enter into any transactions with Management during the
fiscal year ended July 31, 2002.

ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows for the fiscal year ending July 31, 2003, the
compensation awarded or paid by the Company to its Chief Executive Officer and
any of the executive officers of the Company whose total salary and bonus
exceeded $100,000 during such year (The "Named Executive Officers"):

Michael L. Krall President/CEO| 2003| 168,000 | 0 | 50,000 Common| 0 |
---------------------------------------------------------------------------------------------------------
Michael L. Krall President/CEO| 2002| 144,000 | 0 |150,000 Common| 0 |
---------------------------------------------------------------------------------------------------------
Michael L. Krall President/CEO| 2001| 144,000 | 0 | 50,000 Common| 0 |
---------------------------------------------------------------------------------------------------------

No other executive officer earned more than $100,000 during the current fiscal
year.

-----------------------------------------------------------------------------------------------------------------------
Option Grants in Last Fiscal Year
-----------------------------------------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------------------------------------------------------------
Number of
Common Shares
Underlying
Options Granted % of Total Options Granted to Exercise Price Expiration
Name (#) Employees in Fiscal Year ($/Sh) Date
-----------------------------------------------------------------------------------------------------------------------

Michael L. Krall President/CEO 50,000 11 .50 1/10/08
-----------------------------------------------------------------------------------------------------------------------

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option/Values
The following table sets forth the number and value of the unexercised options
held by each of the Named Executive Officers at July 31, 2003.

------------------------------------------------------------------------------------------------------------------------
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
------------------------------------------------------------------------------------------------------------------------
Shares Value Number of Securities Underlying Value of Unexercised In-the Money
Acquired on Realized at Unexercised Options at FY-End (#) Options at FY-End ($)
Name Exercise (#) FY-End ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------------------

Michael L. Krall 0 0 731,250 Common Shares/Exercisable 48,000/Exercisable (1)
President/CEO
------------------------------------------------------------------------------------------------------------------------

(1) Option value based on the difference between the exercise price of
unexercised options and the average closing price of $0.74 for the 30
trading days ending July 31, 2003.

Employment Agreements and Executive Compensation
In April 1996, the Board of Directors approved a five-year employment agreement
for Michael Krall, its President. Mr. Krall receives a salary of $168,000 per
year plus an amount equal to 3% of PURE Bioscience's net income before taxes, if
any, plus other benefits. The Board of Directors has extended Mr. Krall's
employment agreement for an additional year.

Compensation of Directors
Directors are entitled to receive $300 plus reimbursement for all out-of-pocket
expenses incurred for attendance at Board of Directors meetings.

Other Arrangements
1996 Directors And Officers Stock Option Plan: On April 17, 1996, the Company's
Board of Directors approved a Directors and Officers Stock Option Plan. The
purpose of the Plan is to advance the business and development of the Company
and its shareholders by affording to the Directors and Officers of the Company
who are ineligible to participate in the above Incentive Stock Option Plan, the
opportunity to acquire a propriety interest in the Company by the grant of
Options to acquire shares of the Company's common stock. The Plan is
administered by the entire Board of Directors. The Plan became effective on
April 17, 1996 by the Board of Directors, was not subject to Shareholder
approval and shall terminate on April 17, 2006. Subject to anti-dilution
provisions, the Plan may issue Options to acquire up to 1,000,000 shares to
Directors and Officers. The maximum number of shares subject to Options granted
to any one Director or Officer shall not exceed 200,000 shares in any 12-month
period. The exercise price for Options shall be set by the Board of Directors
but shall not be for less than eighty-five (85%) of the fair market value per
share on the date of grant. The period in which Options can be exercised shall
be set by the Board of Directors not to exceed five years from the date of
Grant. The Plan may be terminated, modified or amended by the Board of
Directors.

The PURE Bioscience 1998 Directors And Officers Stock Option Plan: On December
19, 1998, the Company's Shareholders approved the Amended PURE Bioscience 1998
Officers and Directors Stock Option Plan. The purpose of the Plan is to advance
the business and development of the Company and its shareholders by affording to
the Directors and Officers of the Company the opportunity to acquire a propriety
interest in the Company by the grant of Options to acquire shares of the
Company's common stock.

The PURE Bioscience 2001 Directors And Officers Stock Option Plan: On January 8,
2001, the Company's Shareholders approved the PURE Bioscience 2001 Officers and
Directors Stock Option Plan. The purpose of the Plan is to advance the business
and development of the Company and its shareholders by affording to the
Directors and Officers of the Company the opportunity to acquire a propriety
interest in the Company by the grant of Options to acquire shares of the
Company's common stock.

The PURE Bioscience 2002 Non-Qualified Stock Option Plan: On March 11, 2002, the
Company's Shareholders approved the PURE Bioscience 2002- Non-Qualified Stock
Option Plan. The purpose of the Plan is to advance the business and development
of the Company and its shareholders by affording Eligible Plan Participants the
opportunity to acquire a propriety interest in the Company by the grant of
Options to acquire shares of the Company's common stock. Eligible Plan
Participants include the Directors and Officers of the Company, consultants,
advisors and other individuals deemed by the Compensation Committee to provide
valuable services to the Company but who are not otherwise eligible to
participate in the Employee Incentive Stock Option Plan.

The Options granted are not "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended. The issuance of
such non-qualified options pursuant to this Plan is not expected to be a taxable
event for the recipient until such time that the recipient elects to exercise
the option whereupon the recipient is expected to recognize income to the extent
the market price of the shares exceeds the exercise price of the option on the
date of exercise.

The Plans are administered by an Administrative Committee whom shall serve a one
year term. The Administrative Committee is composed of the Board's
Compensation/Administration Committee. Subject to anti-dilution provisions, each
Plan may issue Options to acquire up to 2,000,000 shares to Directors and
Officers. The exercise price for Options shall be set by the Administrative
Committee but shall not be for less than the fair market value of the shares on
the date the Option is granted. Fair market value shall mean the average of the
closing price for ten consecutive trading days at which the Stock is listed in
the NASDAQ quotation system ending on the day prior to the date an Option is
granted. The period in which Options can be exercised shall be set by the
Administrative Committee not to exceed five years from the date of Grant.
Options granted to new executive officers or directors shall vest one year from
date of appointment or election. Shares issuable under options granted to
continuing officers or directors are immediately exercisable and vest upon
exercise. The maximum number of shares subject to Options granted to any one
Director of Officer shall not exceed 200,000 shares in any 12-month period.

The Executive Officers and Directors of the Company are eligible to participate
in the Plans. The Administrative Committee first granted the Executive Officers
and Directors an option to purchase 100,000 shares of common stock at $1.00 per
share in 1998. The Administrative Committee shall grant to individuals newly
appointed as Executive Officers or as Directors, an option to purchase 100,000
shares of common stock at fair market value. Upon each subsequent anniversary
thereof, each such Officer and Director will receive an option to purchase
50,000 shares of common stock at fair market value. The Plans also give the
Administrative Committee discretion to award additional options. The aggregate
number and kind of shares within the Plans and the rights under outstanding
Options granted hereunder, both as to the number of shares and Option price,
will be adjusted accordingly in the event of a reverse split in the outstanding
shares of the Common Stock of the Company.

The Board may at any time terminate the Plans. The approval of the majority of
shareholders is required to increase the total number of shares subject to the
Plans, change the manner of determining the option price or to withdraw the
administration of the Plans from the Administrative Committee.

Termination of Employment and Change of Control Arrangement
There is no compensatory plan or arrangement with respect to any individual
named above which results or will result from the resignation, retirement or any
other termination of employment with the Company, or from a change in the
control of the Company.

ITEM 11. Security Ownership of Certain Beneficial Owners and of Management

The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of February 19, 2004 by individual directors and
executive officers and by all directors and executive officers of the Company as
a group. Based upon a review of the Company's shareholders list as of February
19, 2004, there are two other registered holders of five percent or more of the
Company's Common Stock. As of February 19, 2004 there were 13,854,088 shares
outstanding.

Name and Address of Common Stock Percentage of Shares
Beneficial Owner Title Ownership Outstanding (%)
----------------------- --------------------- --------------- ------------------------

Dennis Atchley Secretary 243,860 (1) 1.76
1725 Gillespie Way
El Cajon, CA 92020

Gene Auerbach Chief Operating Officer 175,000 (2) 1.26
1725 Gillespie Way
El Cajon, CA 92020

Gregory Barnhill Director 425,000 (3) 3.07
1725 Gillespie Way
El Cajon, CA 92020

Dennis Brovarone Director 506,483 (4) 3.66
1725 Gillespie Way
El Cajon, CA 92020

Gary Brownell Treasurer, CFO/Director 450,321 (5) 3.25
1725 Gillespie Way
El Cajon, CA 92020

Patrick Galuska Director 420,690 (6) 3.04
1725 Gillespie Way
El Cajon, CA 92020

Michael L. Krall President, CEO/Chairman 1,353,560 (7) 9.77
1725 Gillespie Way
El Cajon, CA 92020

Eugene Peiser Director 476,136 (8) 3.44
1725 Gillespie Way
El Cajon, CA 92020

Donna Singer Executive VP, Director 403,356 (9) 2.91
1725 Gillespie Way
El Cajon, CA 92020

Directors and Officers as a Group
(9 individuals) 4,454,406 (10) 32.15

Next9, LLC Shareholder 2,000,000 (11) 14.44
850 State Street
San Diego, CA 92101

Jeffery P. Dauenhauer Shareholder 700,000 5.05
800 5th Ave., Suite 4100
Seattle WA, 98104

(1) Includes presently exercisable options to acquire up to 200,000 shares.
(2) Includes presently exercisable options to acquire up to 150,000 shares.
(3) Includes presently exercisable options to acquire up to 250,000 shares.
(4) Includes presently exercisable options to acquire up to 435,000 shares.
(5) Includes presently exercisable options to acquire up to 400,000 shares.
(6) Includes presently exercisable options to acquire up to 350,000 shares.
(7) Includes presently exercisable options to acquire up to 731,250 shares.
(8) Includes presently exercisable options to acquire up to 400,000 shares.
(9) Includes presently exercisable options to acquire up to 375,000 shares.
(10) Includes presently exercisable options held by all of the above officers
and directors to acquire up to 2,814,250 shares.
(11) Lee Brukman is the control person of Next9, LLC.

Securities Authorized for Issuance under Equity Compensation Plans

------------------------ ------------------------- -------------------------- ----------------------------

Number of securities
remaining available for
Number of securities to future issuance under
be issued upon exercise Weighted-average equity compensation plans
of outstanding options, exercise price of (excluding securities
warrants and rights outstanding options, reflected in column (a))
(a) warrants and rights (c)
Plan Category (b)
------------------------ ------------------------- -------------------------- ----------------------------
Equity compensation
plans approved by
security holders 3,129,375 1.86 5,987,278
------------------------ ------------------------- -------------------------- ----------------------------
Equity compensation
plans not approved by
security holders 1,015,000 1.63 533,000
------------------------ ------------------------- -------------------------- ----------------------------
Total 4,144,375 1.83 6,520,278
------------------------ ------------------------- -------------------------- ----------------------------

The following equity compensation plans were not approved by security holders:

1. 2001 ETIH2O Stock Option Plan: Adopted by the Board in January 2001
with 1,000,000 shares authorized under this Plan. The options have a
five-year term with vesting ratably over a five-year period.

2. 2001 Consultants and Advisors Stock Option Plan: Adopted by the Board
in January 2001 with 500,000 shares authorized under this Plan. The
maximum number of shares subject to options granted under this Plan to
any one participant shall not exceed 50,000 shares in any 12-month
period. The options have a five-year term with vesting ratably over a
five-year period.

3. Executive Officers and Directors are not eligible participants under
these plans.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.

ITEM 13. EXHIBITS. The following Exhibits are filed as part of this registration
statement pursuant to Item 601 of Regulation S-B:

3.1 (1) -- Articles of Incorporation, Articles of Amendment and Bylaws
3.1.1 (2) -- Articles of Amendment dated March 11, 2002
3.1.2 -- Articles of Amendment dated October 6, 2003
4.1 (1) -- Form of Class A Warrant
4.2 (1) -- Form of Class Z Warrant
4.3 (1) -- Form of Common Stock Certificate
4.4 (1) -- Warrant Agreement
4.5 (3) -- March 2000 Warrant
4.6 (4) -- January 2001 Warrant
4.7 (5) -- Convertible Debenture
4.8 (6) -- Convertible Debenture Purchase Agreement
4.9 (7) -- Convertible Debenture Warrant
10.1 (1) -- Employment Contract/Michael L. Krall
10.2 (8) -- Manufacturing, Licensing and Distribution Agreement dated
March 26, 2001
10.3 (9) -- Axenohl License Agreement
10.4 (10) -- Weaver - Roach X Assignment
10.5 (10) -- Dodo Agreement [Confidential treatment requested for
certain omitted information filed separately.]
10.6 (9) -- Promissory Note of Michael Krall
10.7 (9) -- Promissory Note of Gary Brownell
10.8 (10) -- Nutripure Dealer Agreement
10.9 (10) -- Sales Finance Agreement
10.10 (11) -- ETIH2O, Inc., Acquisition Agreement
10.11 (12) -- NVID Litigation Settlement Agreement
10.12 (13) -- Addendum #1 to NVID Settlement Agreement
10.13 (14) -- Therapeutics, Inc. Agreement [Confidential treatment requested
for certain omitted information filed seperately.]
21 (15) -- Subsidiaries of the Registrant
31.1 -- Sarbanes Oxley 302 Certification - CEO
31.2 -- Sarbanes Oxley 302 Certification - CFO
32.1 -- Sarbanes Oxley 906 Certification - CEO
32.2 -- Sarbanes Oxley 906 Certification - CFO

(1) Incorporated by reference from Form SB-2 registration statement, SEC File #
333-00434 effective August 8, 1996
(2) Incorporated by reference from the Annual Report on Form 10KSB for the
fiscal year ended July 31, 2002 filed on October 29, 2002.
(3) Incorporated by reference from S-3 registration statement, SEC File
#333-36248 effective on May 17, 2000
(4) Incorporated by reference from S-3 registration statement, SEC File
#333-55758 effective on February 26, 2001
(5) Incorporated by reference from S-3 registration statement, SEC File
#333-61664 filed on May 25, 2001
(6) Incorporated by reference from pre-effective amendment no. 1 to S-3
registration statement, SEC File #333-61664 filed on July 10, 2001
(7) Incorporated by reference from pre-effective amendment no. 2 to S-3
registration statement, SEC File #333-61664 filed on August 13, 2001
(8) Incorporated by reference from Current Report on Form 8-K filed on May 24,
2001 as amended on October 19, 2001
(9) Incorporated by reference from the
Amended Annual Report on Form 10KSB for the fiscal year ended July 31, 2000
filed on October 19, 2001
(10) Incorporated by reference from Amended Form 10QSB for the nine month period
ended April 30, 2001 filed on October 19, 2001
(11) Incorporated by reference from the Amended Annual Report on Form 10KSB for
the fiscal year ended July 31, 2001 filed on November 13, 2001
(12) Incorporated by reference from Current Report on Form 8-K filed on December
6, 2001
(13) Incorporated by reference from Amended Current Report on Form 8-K filed on
December 7, 2001
(14) Incorporated by reference from Amended Annual Report on Form 10-KSB for the
fiscal year ended July 31, 2003 filed on January 30, 2004
(15) Incorporated by reference from Annual Report on Form 10-KSB for the fiscal
year ended July 31, 2003 filed on October 29, 2003.

B. Reports on Form 8-K: No Reports on Form 8-K were filed during the fourth
quarter of the fiscal year.

ITEM 14. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

As of the end of the period, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and the Company's Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective.

There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Miller & McCollom, Certified Public Accountants, are the Company's independent
auditors to examine the financial statements of the Company for the fiscal year
ending July 31, 2003. Miller & McCollom has performed the following services and
has been paid the following fees for these fiscal years.

Audit Fees
Miller & McCollom was paid aggregate fees of $39,312 for the fiscal year ended
July 31, 2002 and $70,457 for the fiscal year ended July 31, 2003 for
professional services rendered for the audit of the Company's annual financial
statements and for the reviews of the financial statements included in Company's
quarterly reports on Form 10QSB during these fiscal years.

Audit -Related Fees
Miller & McCollom was not paid any additional fees for the fiscal year ended
July 31, 2002 and July 31, 2003 for assurance and related services reasonably
related to the performance of the audit or review of the Company's financial
statements.

Tax Fees
Miller & McCollom was paid aggregate fees of $15,450 for the fiscal year ended
July 31, 2002 and $10,900 for the fiscal year ended July 31, 2003 for
professional services rendered for tax compliance, tax advice and tax planning.

Other Fees
Miller & McCollom was paid no other fees for professional services during the
fiscal years ended July 31, 2002 and July 31, 2003.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

PURE BIOSCIENCE DATE

/s/ MICHAEL L. KRALL February 19,2004
---------------------------------------- -----------------------
Michael L. Krall, Chairman/President/CEO

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

NAME TITLE DATE

/s/ GREGORY BARNHILL Director February 19, 2004
------------------------------------------- -------------------------
Gregory Barnhill

/s/ DENNIS BROVARONE Director February 19, 2004
------------------------------------------- -------------------------
Dennis Brovarone

/s/ GARY BROWNELL Chief Financial Officer and Director February 19, 2004
------------------------------------------- -------------------------
Gary Brownell

/s/ PATRICK GALUSKA Director February 19, 2004
------------------------------------------- -------------------------
Patrick Galuska

/s/ MICHAEL L. KRALL President/CEO and Director February 19, 2004
------------------------------------------- -------------------------
Michael L. Krall

/s/ EUGENE PEISER Director February 19, 20044
------------------------------------------- -------------------------
Eugene Peiser

/s/ DONNA SINGER Executive Vice President and Director February 19, 2004
------------------------------------------- -------------------------
Donna Singer