Item
1. Business
Overview
We
are focused on developing and commercializing proprietary antimicrobial products that provide safe and cost-effective solutions to the
health and environmental challenges of pathogen and hygienic control. Our technology platform is based on patented stabilized ionic silver,
and our initial products contain SDC. SDC is a broad-spectrum, non-toxic antimicrobial agent, which offers
24-hour residual protection and formulates well with other compounds. As a platform technology, we believe SDC is distinguished from
existing products in the marketplace because of its superior efficacy, reduced toxicity, non-causticity and the inability of bacteria
to form a resistance to it.
We
believe there is a significant market opportunity for our safe, non-toxic, non-caustic and effective SDC-based solutions. We currently
offer PURE® Hard Surface as a food contact surface sanitizer and disinfectant to restaurant chains, food processors and
food transportation companies. We also offer PURE Control® as a direct food contact processing aid. In addition to our
direct sales efforts with PURE Hard Surface and PURE Control, we market and sell our SDC-based products indirectly through third-party
distributors supporting various industries.
Technology
Platform
The
foundation of our technology platform is a proprietary electrochemical process that allows us to generate ionized silver in the presence
of organic acid. This process creates a solution containing stabilized ionic silver that can function as an antimicrobial. Our current
products all contain SDC, which we produce by ionizing silver in citric acid. SDC is a natural, non-toxic, non-caustic, colorless, odorless
antimicrobial agent, which offers 24-hour residual protection, and that formulates well with other compounds. We have also produced ionic
silver-based molecular entities using other organic acids, and we believe these compounds may provide a platform for future product development.
Silver
as an Antimicrobial
The
use of silver as an antimicrobial dates back to ancient times when water, wine and other beverages were kept in silver vessels to maintain
freshness. Ancient Egyptians applied thin strips of beaten silver around wounds to avoid infection, and early royalty ate from silver
plates and with silver utensils to stay healthy. In the past half-century, silver in colloidal and ionic forms has been used successfully
in a wide array of antimicrobial applications, including water purification and topical treatments for burn victims. Silver must be in
an ionic form to be effective at killing microorganisms. The short shelf-life of previous ionic silver solutions has limited the development
of ionic-silver based antimicrobials. SDC, as a stabilized silver ion complex, has a shelf life of more than a decade because the weak
bond of the silver ion to the citric acid allows the ion to remain stable in solution while at the same time making it bioavailable for
antimicrobial action.
Mechanisms
of Action
The
rapid and broad-spectrum efficacy of SDC is attributed to its dual mechanisms of action, both with respect to killing bacteria and other
microorganisms and acting against viruses. SDC can kill microorganisms at both the extracellular and intracellular levels. SDC attracts
bacteria because the citric acid is recognized by the organism as a food source. SDC easily enters the microorganism through membrane
transport proteins. Once inside the organism, SDC binds to DNA and intracellular proteins causing irreversible damage to the DNA and
protein structure. Metabolic and reproductive functions halt, and the organism dies. SDC can also act on an organism’s outer membrane.
Silver ions are highly attracted to sulfur-containing thiol groups found in metabolic and structural proteins bound to the membrane surface.
SDC targets these critical proteins and destroys their structure. This disruption of the organism’s membrane function and integrity
leads to its death.
Viruses
are much smaller than bacteria and present fewer target sites on which a biocide can act. The efficacy of SDC against enveloped and non-enveloped
viruses comes from its ability to destroy not only the viral envelope, preventing the virus from attaching to a host cell, but also the
infectious component of the virus, the nucleic acid.
Safety
Profile
Research
has shown that silver is an effective antimicrobial and not toxic to humans at the residual levels following the use of our SDC-based
products. In addition, our data shows the components of SDC, ionic silver and citric acid, to be non-toxic, particularly at the low concentrations
required to eliminate microorganisms. At higher concentrations, citric acid can be an eye irritant. We have tested a concentrated SDC
formulation using standard protocols to measure acute toxicity. Acute oral and dermal toxicity was not observed at doses up to and including
5000 mg/kg. Data from eye and skin studies showed only slight irritation and no dermal sensitization.
Generally
Recognized as Safe Status as Contact Biocide
A
committee of independent experts critically reviewed efficacy and toxicity data for SDC and the SDC-based PURE Hard Surface
disinfectant and food contact surface sanitizer. The committee found no evidence that SDC demonstrates a hazard to the public when
used as a contact biocide on food contact surfaces and food-use utensils. The committee, therefore, concluded such use to be
generally recognized as safe, or GRAS, consistent with the U.S. Environmental Protection Agency, or EPA, registration (discussed
below), allowing for use on food manufacturing and processing equipment and food preparation surfaces.
Efficacy
Formulations
containing SDC provide complete, quick and broad-spectrum antimicrobial efficacy against gram positive and gram negative bacteria, enveloped
and non-enveloped viruses, and fungi. In addition to quick kill times, SDC provides residual antimicrobial activity. SDC also provides
rapid kill times against multiple drug resistant bacteria, including Methicillin-resistant Staphylococcus aureus, or MRSA, Vancomycin
resistant Enterococcus faecium, or VRE, Carbapenem resistant Escherichia coli, Carbapenem resistant Klebsiella pneumoniae
and Carbapenem resistant Klebsiella pneumoniae, NDM-1+. See “EPA Registrations” below for more detailed efficacy
data.
Natural
and Environmentally Responsible
SDC
is made of simple and all-natural ingredients: water, citric acid and minute amounts of ionic silver. SDC does not present a threat to
the environment. If introduced to water systems, the low concentrations of ionic silver in SDC would react with naturally present substances
such as chlorides, sulfides and organic matter. These reactions would create insoluble silver complexes and render the silver inert.
In addition, we manufacture SDC through a “zero waste” process in which no byproducts or environmental effluent are created.
Market
Opportunity
U.S.
Incidence and Cost of Foodborne Illness
According
to an Ohio State University study published in the Journal of Food Protection, completed by Dr. Scharff, a consumer science professor,
foodborne illness poses a $77.7 billion economic burden in the United States annually. This cost estimate includes health related costs,
associated medical costs, productivity losses, mortality, and pain and suffering. The study noted that excluding the estimated costs
for pain and suffering, health related costs exceeded $51 billion. The study does not include costs to the food industry, including reduced
consumer confidence, reduced brand value, product recall costs, and litigation, nor does it include the cost to public health agencies
(local, state and federal) that are required to respond to illnesses and outbreaks. In addition, the study cited Salmonella as
the most costly pathogen with an economic burden estimated to be in excess of $11 billion. This is primarily due to its high incidence
and mortality rate.
Limitations
of Existing Food Safety Solutions
The
U.S. food industry continues to rely on the use of toxic chemicals as processing aids or interventions during food processing operations
for which pathogens are becoming increasingly resistant and rendering current interventions less efficacious. Most of these chemicals
carry various warning labels for their toxic and/or caustic characteristics, which can negatively affect the safety of processing plant
personnel, plant operating equipment and the plant environment and its surroundings.
Among
the chemicals in current use are: peracetic acid, acidified sodium chlorite, or ASC, ozone, trisodium phosphate, cetylpyridinium
chloride, or CPC, organic acid rinses, lactic acid, hypobromous acid and chlorine dioxide. Some of these chemicals can be
difficult to work with as a processing aid as they require heating to become effective or are difficult to mix and stabilize prior
to use. Additionally, some of these chemicals damage the food being processed, resulting in decreased yields. Further, the use of
certain of these chemicals is limited to treating only specific pathogens and/or only certain foods. In addition, some of these
chemicals can produce noxious fumes that over time have been linked to upper respiratory illness and typically require in-plant
decontamination of their effluence.
Several
large and established corporations currently supply these chemicals. They may also provide other related food safety services such as
environmental sanitation programs and food safety consultation and audit services.
Our
SDC-Based Products as a Food Safety Solution
Based
on the limitations of the existing food safety solutions, we believe that our SDC-based products, including PURE Hard Surface and PURE
Control, are well positioned as new and disruptive solutions for the food safety industry. Given their broad spectrum antimicrobial efficacy
and non-toxic properties, our SDC-based products provide significant improvements over current chemical interventions that can both strengthen
our customers’ food safety practices and help them control and eliminate pathogens present during their food processing operations.
Our
SDC-based products can provide users with the following benefits compared to the current processing chemicals they are using:
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Easier to handle and dilute;
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Non-corrosive to processing
equipment; |
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Non-toxic to manufacturing
personnel by not creating noxious fumes or other detrimental environmental effluence; and |
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Neutral to positive yield
impact on the processed food |
Based
on their performance and characteristics, we believe our SDC-based products can provide our customers with significant advantages to
the chemical interventions they are currently using and help them achieve their goal of improving the safety of processed foods they
offer to consumers.
Business
Strategy
Our
goal is to become a sustainable company by commercializing the SDC-based products we have developed with our proprietary technology platform.
We are focused on delivering leading antimicrobial products that address food safety risks across the food industry supply chain. Key
aspects of our business strategy include:
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Expanding sales and distribution
for our products into the food industry with a focus on a dual track of food safety market opportunities: |
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Hard Surface Disinfectant
- commercializing our current EPA registered PURE Hard Surface disinfectant and sanitizer for use in foodservice operations,
food manufacturing and food transportation. |
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Direct Food Contact
- commercializing FDA approved PURE Control as a direct food contact processing aid for fresh produce; commercializing FDA
approved PURE Control as a food processing and intervention aid for food processors treating raw poultry in pre and post on-line
reprocessing. |
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Continuing to grow and
establish new strategic alliances to maximize the commercial potential of our technology platform; |
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Continuing to partner with
third parties who are seeking, or intend to seek, approvals to market SDC-based products in markets outside the U.S. |
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Developing additional proprietary
products and applications; and |
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Protecting and enhancing
our intellectual property. |
In
addition to our current products addressing food safety, we intend to leverage our technology platform through licensing and distribution
collaborations in order to develop new products and enter into new markets that could potentially generate multiple sources of revenue.
Our
Products
In
addition to PURE Hard Surface and PURE Control, we manufacture and sell (i) SDC-based products for end use, (ii) products preserved with
SDC and (iii) SDC as a raw material ingredient for manufacturing use. Our current products are as follows:
PURE®
Hard Surface Disinfectant and Sanitizer (Ready to Use)
PURE
Hard Surface is our SDC-based, patented and EPA-registered, ready-to-use hard surface disinfectant and food contact surface sanitizer.
PURE Hard Surface combines high efficacy and low toxicity with bacterial and viral kill times in as few as 30-seconds and 24-hour residual
protection. The product kills resistant pathogens such as MRSA and Carbapenem-resistant Klebsiella pneumoniae (NDM-1), and effectively
eliminates dangerous fungi and viruses including HIV, Hepatitis B, Hepatitis C, Norovirus, Influenza A, Avian Influenza and H1N1. It
also eradicates hazardous food pathogens such as E. coli, Salmonella, Campylobacter and Listeria. PURE Hard
Surface delivers broad-spectrum efficacy yet remains classified as least-toxic by the EPA. The active ingredient, SDC, has been designated
as GRAS, for use on food processing equipment, machinery and utensils.
PURE
Control®
We
have the necessary regulatory approvals from the FDA to offer PURE Control as a direct food contact processing aid for fresh produce
and raw poultry. We also have regulatory approvals from the USDA for certain methods of application of PURE Control on poultry. Additionally,
subject to the results of our focused in-plant validation efforts for our approved produce and poultry solutions, we intend to seek approval
to utilize PURE Control as a direct food contact processing aid for raw meats, including beef and pork.
Poultry
Processing Aid. In May 2017, we received the required approvals from the FDA stating that our food contact notification for SDC
as a raw poultry processing aid is complete. We received a “No Objection Letter” from the USDA’s Food Safety and Inspection
Service (FSIS) granting approval for the higher concentrations of SDC-based PURE Control to be used as a spray or dip applied to poultry
carcasses, parts and organs in pre-OLR (on-line reprocessing) and post chill processing of fresh poultry.
Produce
Processing Aid. In January 2016, we received the required approvals from the FDA stating that our FCN for SDC as a spray or dip
on processed fruits and vegetables is complete. We were not required to obtain any approvals from the USDA to market PURE Control as
a produce processing aid.
Other
Processing Aids under Development. Subject to the results of our focused in-plant validation efforts for our approved produce
and poultry solutions, we intend to seek approval to utilize PURE Control as a direct food contact processing aid for raw meats, including
beef and pork. In addition, we may identify other food processing opportunities for SDC.
Additional
SDC-Based Products
In
addition to PURE Hard Surface and PURE Control, we manufacture and sell (i) SDC-based products for end use, (ii) products preserved with
SDC and (iii) SDC as a raw material ingredient for manufacturing use. These products include:
Product Name | |
Product Use | |
EPA Registration |
PURE Complete Solution: | |
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PURE® Multi-Purpose and Floor Cleaner Concentrate | |
Cleaner | |
Not applicable |
PURE® Multi-Purpose Hi-Foam Cleaner Concentrate | |
Cleaner | |
Not applicable |
Axen®30 | |
Disinfectant | |
Axen30 |
Axenohl® | |
Raw material ingredient | |
Axenohl |
SILVÉRION® | |
Raw material ingredient | |
Not applicable |
PURE
Complete Solution
Our
PURE Complete Solution is comprised of PURE Hard Surface and concentrated cleaning products that were launched as companion products
to PURE Hard Surface. The PURE Complete Solution offers a comprehensive, cost-effective and user-friendly cleaning, disinfecting and
sanitizing product line to end-users including our targeted foodservice, food manufacturing and food processing customers. We can also
target this product line to hospital and medical care facilities, janitorial service providers and the distributors that supply them.
PURE®
Multi-Purpose and Floor Cleaner Concentrate (End-User Dilutable)
PURE
Multi-Purpose Cleaner is an environmentally responsible cleaning product that is protected by SDC. SDC ensures the quality and safety
of PURE Multi-Purpose and Floor Cleaner without human or environmental exposure to toxic chemical preservatives. PURE Multi-Purpose and
Floor Cleaner is non-toxic and non-flammable and contains no EDTA, phosphates, ammonia or bleach as well as no VOCs or NPEs. This efficient
cleaner provides professional strength cleaning in a concentrate formula that yields a 1:96 – 1:256 use dilution that is safe for
use on all resilient surfaces, including floors, glass and food contact surfaces.
PURE®
Multi-Purpose Hi-Foam Cleaner Concentrate (End-User Dilutable)
PURE
Multi-Purpose Hi-Foam Cleaner is an environmentally responsible, professional strength high foam forming cleaning product that is protected
by SDC. SDC ensures the quality and safety of PURE Multi-Purpose Hi-Foam Cleaner without human or environmental exposure to toxic chemical
preservatives. PURE Multi-Purpose Hi-Foam Cleaner is non-toxic and non-flammable and contains no EDTA, phosphates, ammonia or bleach
as well as no VOCs or NPEs. PURE Multi-Purpose Hi-Foam Cleaner provides high foam cleaning in a concentrate formula that yields a 1:50
use dilution that is safe for use on stainless steel equipment, resilient floors, walls and painted surfaces.
Axen®
30 (Ready-to-Use)
Axen30
is our patented and EPA-registered hard surface disinfectant and is a predecessor ready-to-use product to PURE Hard Surface. Axen30 is
currently sold on a limited basis by distributors under their respective private labels.
Axenohl®
(Raw Material Ingredient)
Axenohl
is our patented and EPA-registered SDC-based antimicrobial formulation for use as a raw material ingredient in the manufacturing of EPA-registered
products. Axenohl is a colorless, odorless and stable solution that provides fast acting efficacy against bacteria, viruses and fungi
when manufactured into consumer and commercial disinfecting and sanitizing products. Axenohl is currently sold on a limited basis to
distributors who manufacture their own respective end-use products.
SILVÉRION®
(Raw Material Ingredient)
SILVÉRION
is our patented SDC-based antimicrobial formulation for use as a raw material ingredient in the manufacturing of personal care products.
It can be used as either an active ingredient or a preservative. SILVÉRION is a colorless, odorless and stable solution that provides
ionic silver in a water-soluble form. It provides fast acting efficacy at low concentrations against a broad-spectrum of bacteria, viruses,
yeast and molds. SILVÉRION is currently sold domestically and outside of the United States in various personal care products.
EPA
Registrations
We
sell our EPA-regulated products under the following three EPA registrations: (i) SDC3A, our hard surface disinfectant and food contact
surface sanitizer, (ii) Axen30, our hard surface disinfectant, and (iii) Axenohl, our antimicrobial formulation for use as a raw material
in the manufacturing of EPA-registered products.
PURE
Hard Surface SDC3A Registration
The
EPA registration for SDC3A, marketed as PURE Hard Surface, our disinfectant and food contact surface sanitizer, includes the following
efficacy claims:
Organism | |
Kill Time |
Pseudomonas aeruginosa | |
30 seconds |
Salmonella enterica | |
30 seconds |
Staphylococcus aureus | |
2 minutes |
Listeria monocytogenes | |
2 minutes |
Vancomycin resistant Enterococcus faecium (VRE) | |
2 minutes |
Methicillin resistant Staphylococcus aureus (MRSA) | |
2 minutes |
Community Associated Methicillin resistant Staphylococcus aureus (CA-MRSA) | |
2 minutes |
Community Associated Methicillin resistant Staphylococcus aureus (CA-MRSA-PVL) | |
2 minutes |
Escherichia coli O157:H7 | |
2 minutes |
Acinetobacter baumannii | |
2 minutes |
Campylobacter jejuni | |
2 minutes |
Carbapenem resistant Escherichia coli | |
2 minutes |
Carbapenem resistant Klebsiella pneumoniae | |
2 minutes |
Carbapenem resistant Klebsiella pneumonia, NDM-1 + | |
2 minutes |
Trichophyton mentagrophytes (Athlete’s Foot Fungus) | |
5 minutes |
HIV type 1 | |
30 seconds |
Rotavirus | |
30 seconds |
Human Coronavirus | |
30 seconds |
Influenza A (H1N1) | |
30 seconds |
Swine Influenza A (H1N1) | |
30 seconds |
Respiratory Syncytial Virus | |
30 seconds |
Adenovirus Type 2 | |
30 seconds |
Avian Influenza A | |
30 seconds |
Influenza A | |
30 seconds |
SARS –CoV-2 (COVID-19 virus) | |
30 seconds |
Hepatitis B Virus (HBV) | |
60 seconds |
Hepatitis C Virus (HCV) | |
60 seconds |
Murine Norovirus | |
60 seconds |
Norovirus | |
60 seconds |
Herpes Simplex Type 1 | |
60 seconds |
Rhinovirus | |
60 seconds |
Polio Type 2 | |
60 seconds |
Toxicity
Categories
The
EPA categorizes the toxicity of antimicrobial products from Category I to Category IV. The following table shows the EPA toxicity categories
and required signal words.
Toxicity
Category |
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Signal
Word |
I |
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DANGER, POISON |
II |
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WARNING |
III |
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CAUTION |
IV |
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None required |
SDC3A
is a Category IV product for which no signal words are required.
Axen30
Registration
Axen30
is a hard surface disinfectant and is a predecessor product to SDC3A. It offers similar broad-spectrum efficacy but longer kill times.
Axen30 is not approved for use on food contact surfaces. Axen30 is currently sold on a limited basis by distributors under their respective
private labels.
Axenohl
Registration
Axenohl
is registered as a raw material ingredient for the manufacturing of EPA-registered products and as such does not carry specific efficacy
claims. Axenohl is sold to distributors who manufacture their own respective end-use products.
Intellectual
Property
Our
policy is to pursue patents and trademarks, maintain trade secrets and use other means to protect our technology, inventions and improvements
that are commercially important to the development of our business.
We
have applied for U.S. and foreign patent protection for our SDC technology. Currently, we own twelve U.S. issued patents. Approximately
thirty patents have been issued outside of the U.S., and we own approximately four patents pending around the world. The expiration dates
for our twelve U.S. issued patents begin in 2018 and end in 2030. In September 2013, we decided to abandon pending and issued patents
in non-strategic international territories. We intend to focus our future patent prosecution and defense efforts primarily to North America,
Europe, Asia and Mexico.
Additional
patent applications may not be granted, or, if granted, may not provide adequate protection to us. We also intend to rely on whatever
protection the law affords to trade secrets, including unpatented know-how. Other companies, however, may independently develop equivalent
or superior technologies or processes and may obtain patents or similar rights with respect thereto.
Although
we believe that we have developed our technology independently and have not infringed, and do not infringe, on the patents of others,
third parties may make claims that our technology does infringe on their patents or other intellectual property. In the event of infringement,
we may, under certain circumstances, be required to modify our infringing product or process or obtain a license. We may not be able
to do either of those things in a timely manner if at all, and failure to do so could have a material adverse effect on our business.
In addition, we may not have the financial or other resources necessary to enforce a patent infringement or proprietary rights violation
action or to defend ourselves against such actions brought by others. If any of the products we develop infringe upon the patent or proprietary
rights of others, we could, under certain circumstances, be enjoined or become liable for damages, which would have a material adverse
effect on our business.
We
also rely on confidentiality and nondisclosure agreements with our employees, customers, consultants, advisors, licensees and potential
partners to protect our technology, intellectual property and other proprietary property. Pursuant to the foregoing and for other reasons,
we face the risk that our competitors may acquire information which we consider to be proprietary, that such parties may breach such
agreements or that such agreements will be inadequate or unenforceable.
Further,
we own the registered trademarks or pending trademark applications for PURE Bioscience®, Powered by SDC Ag+®,
PURE®, Axenohl®, Axen®, SILVÉRION®, and PURE Control®.
In addition, we have applications for other trademarks pending around the world, which may or may not be granted. We previously allowed
the marks Kinderguard®, Cruise Control®, Staphacide® , Nutripure®, Elderguard®,
and Critterguard® to go abandoned, as they were no longer in line with our food safety business strategy.
Research
and Development
We
recognize the importance of innovation to our business strategy and long-term success. A key aspect of our business strategy is to leverage
our technology platform to develop additional proprietary products and applications, including end use products and raw material formulations
derived from our technology platform. We conduct our primary research and development activities in-house and use third-party laboratories
to conduct independent testing. We also engage development partners to perform research and development activities at their own expense
for specific products and processes using SDC.
Sales
and Marketing
A
critical aspect of our business strategy is to leverage the industry experience of our internal sales force, the members of our Board
of Directors and our management team in order to maximize the commercial potential of our technology platform in the food industry.
According
to the CDC, FDA and other food industry sources, food contamination and food borne illnesses have been increasing. We believe our focus
on food safety is addressing a significant need to provide safe, non-toxic and effective solutions to mitigate the increase of food contamination
and food borne illnesses. We believe our products can be used effectively to prevent or mitigate the risk of food contaminants in various
stages of the food supply chain. Our current sales and marketing efforts include demonstrating our SDC products’ effectiveness
as a hard surface disinfectant and sanitizer for:
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Foodservice operators and
food transportation companies – such as food preparation and cooking surfaces; consumer eating and other common areas; drink
and ice dispensers; and trucks used to transport food. |
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Food manufacturers and
processors – such as food production and transportation equipment. |
Our
sales team is actively developing customer relationships with certain segments of foodservice operators, food processors, food manufacturers
and food transportation companies. Due to the recent introduction of our food safety products and the importance of food safety to our
customers, the sales cycle to secure a new customer is long and unpredictable. We have recently completed and are currently conducting
numerous product evaluation trials and comparative testing of our SDC-based products with prospective customers, which we believe will
result in future revenue. We believe our products provide superior pathogen and hygiene control performance characteristics as compared
with legacy chemical products, which also have higher toxicity profiles than our SDC-based products.
In
addition to our direct sales and marketing efforts, we intend to selectively form partnerships with industry leaders for a variety of
uses and applications of our products and technology. These partnerships may be for both U.S. and international markets where we believe
we may leverage the product development, sales and marketing resources of business partners to commercialize our SDC technology in their
respective markets.
Sales
Concentration
Net
product sales were $1,813,000 and $3,698,000 for the fiscal year ended July 31, 2022 and 2021, respectively. During the prior fiscal
year we experienced a significant increase in sales due to the COVID-19 pandemic. There was no such increase during the current period.
For the year ended July 31, 2022, three individual customers
accounted for 14%, 13% and 10% of our net product sales. No other individual customer accounted for 10% or more of our net product sales.
For the year ended July 31, 2021, one individual customer accounted for 11% of our net product sales. No other individual customer accounted
for 10% or more of our net product sales. There were no foreign sales during the fiscal year ended July 31, 2022 and 2021.
From
time to time, one or a small number of our customers may represent a significant percentage of our revenue. Our largest customer accounted
for 14% of our revenue for the fiscal year ended July 31, 2022. Although we have agreements with many of our customers, these agreements
typically do not prohibit customers from purchasing products and services from competitors. A decision by any of our major customers
to significantly reduce the amount of product ordered or license fees paid, or their failure or inability to pay amounts owed to us in
a timely manner, or at all, could have a significant adverse effect on our business.
Competition
The
markets for our SDC-based products and each of their potential applications are highly competitive. We have a number of competitors that
vary in size, scope and breadth of products offered. These competitors include some of the largest global corporations, and most of our
competitors have significantly greater financial resources than we do and offer multiple service and product offerings as well as consulting
services to their customers. We expect to face additional competition from other competitors and technologies in the future.
Because
SDC is a new antimicrobial technology to the food industry, our success will depend, in part, upon our ability to achieve a share of
our target markets at the expense of established and future products. Even where SDC may have technological competitive advantages over
competing products, we, our partners, or our distributors, will need to invest significant resources in order to attempt to displace
traditional technologies sold by, what are in many cases, well-known industry leaders.
Our
SDC-based products (especially at higher silver ion concentration levels) are typically more expensive to produce than existing treatment
chemicals, and as a result, customers may not purchase our products for cost reasons, even if we are successful in demonstrating the
superior efficacy our products. Further, customers may determine that the other benefits offered by our products (e.g., non-toxic, non-caustic,
and neutral to positive yield impact) are not sufficient to overcome the lower cost products offered by our competitors.
Manufacturing
Effective
June 9, 2019, we entered into a five-year manufacturing supply agreement with Intercon Chemical Company, or ICC, with a three-year
renewal term option, or the Manufacturing Supply Agreement, pursuant to which we granted ICC the right to be the exclusive manufacturer for all our SDC-based products. The agreement consists of manufacturing, packaging, and
distribution of PURE’s SDC-based products. The Manufacturing Supply Agreement provides:
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ICC licenses PURE’s
patents and technology know-how for the non-exclusive manufacture of PURE’s SDC-based products. |
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ICC will invest in plant
improvements to allow for expanded SDC production. |
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ICC’s R&D team
will collaborate on SDC product line development. |
The
Manufacturing Supply Agreement may be terminated by mutual written consent, or by either party upon the material breach of the terms
of the agreement by the other party.
Silver
is the primary active ingredient in SDC and is a readily available commodity. The other active and inactive ingredients in our products
are readily available from multiple sources.
Government
Regulation
Our
business is subject to various government regulations relating to the protection of public health and the environment. Among these are
laws that regulate the manufacture, storage, distribution and labeling of our products, as well as the use, handling, storage and disposal
of certain materials in the manufacturing of our products.
Regulation
in the United States
Certain
environmental and regulatory matters significant to us are discussed below.
Requirements
Imposed by the EPA and Similar State Agencies
We
manufacture and sell in the U.S. certain disinfecting products that kill or reduce microorganisms (bacteria, viruses, fungi). The manufacture,
labeling, handling and use of these products are regulated by the EPA under the Federal Insecticide, Fungicide, and Rodenticide Act,
or FIFRA. We currently sell three products registered by the EPA under FIFRA, certain of which are approved for use on food contact surfaces
and others of which are approved for use on non-food contact hard surfaces. EPA product registration requires meeting certain efficacy,
toxicity and labeling requirements and paying ongoing registration fees.
Although
states do not generally impose substantive requirements different from those of the EPA, each state in which our products are sold requires
registration and payment of a fee. California and certain other states have adopted additional regulatory programs applicable to these
types of products that, in some cases, impose a fee on total product sales in the state.
Based
on our experience and our knowledge of current trends, we expect the costs and delays in receiving necessary federal and state approvals
for these types of products may increase in the coming years.
Requirements
Imposed by Ingredient Legislation
Numerous
federal, state and local laws regulate the sale of products containing certain identified ingredients that may impact human health and
the environment. For instance, California has enacted Proposition 65, which requires the disclosure of specified listed ingredient chemicals
on the labels of products. Although none of the ingredients in our current products is reportable under Proposition 65, this and other
similar legislation may become more comprehensive in the future and/or new products we may develop could be subject to these regulations.
Requirements
Imposed by Other Environmental Laws
A
number of federal, state and local environmental, health and safety laws govern the use, handling, storage and disposal of certain materials.
Our current manufacturing process for SDC-based products is a “zero waste” process, meaning that no byproducts are created,
and we do not use hazardous materials, as defined by applicable environmental laws, in the manufacturing of these products. As such,
some of these U.S. environmental laws are not generally applicable to us in their current form. However, these laws may in the future
identify as hazardous materials certain materials that we use in our manufacturing processes, or we may opt to or be forced to change
our manufacturing procedures in a way that subjects our products or operations to these laws.
Requirements
Imposed by the FDA and USDA
Various
laws and regulations have been enacted by federal, state, local and foreign jurisdictions regulating certain products we anticipate manufacturing
and selling for controlling microbial growth in or on foods. In the United States, these requirements generally are administered by the
FDA. However, the USDA and EPA also may share in regulatory jurisdiction of antimicrobials applied directly
to food as it pertains to poultry and meats.
Regulation
Outside the United States
The
commercialization of SDC-based products in countries other than the U.S. may require that we, or companies with whom we partner for such
foreign commercialization, obtain necessary approvals from foreign regulatory authorities comparable to the EPA and USDA, among others.
Applicable approval processes and ongoing requirements vary from country to country and may involve more time and expense than that required
to obtain approvals in the U.S. In international markets, we currently sell our products under active registrations held by us, or by
our distributors. We intend to continue to process registrations ourselves or through distributors as required.
We
currently hold a registration from Health Canada for our disinfectant product. Other third-party distributors hold registrations in China
and are actively pursuing registrations for our disinfectant products in various Asian markets. Additionally, an opinion has been granted
under the Scientific Committee on Consumer Products to sell SDC in the European Union for use in cosmetics, which includes personal care
products.
Human Capitol
As
of October 28, 2022, we employed 15 full-time employees and 1 part-time employee. We believe that we have been successful in
attracting skilled and experienced personnel, but competition for personnel is intense and there can be no assurance that we will be
able to attract and retain qualified personnel in the future. None of our employees are covered by collective bargaining agreements
and we consider relations with our employees to be good. We strive to maintain and promote a culture that fosters the values, behaviors and attributes necessary to advance our business and execute
our strategy.
Company
Information
We
were incorporated in the state of California in August 1992 as Innovative Medical Services. In September 2003, we changed our name to
PURE Bioscience. In March 2011, we reincorporated in the state of Delaware under the name “PURE Bioscience, Inc.”
Our
corporate offices are located at 9669 Hermosa Avenue, Rancho Cucamonga, California 91730. Our telephone number is (619) 596-8600. Our
website address is www.purebio.com. We make available free of charge on our website our periodic and current reports, proxy statements
and other information as soon as reasonably practicable after such reports are filed with the SEC. Information contained on, or accessible through, our website is not part of this report or our other filings with the SEC. Our SEC
filings are also available to the public from the SEC’s website at www.sec.gov.
Item
1A. Risk Factors
You
should carefully consider the following information about risks and uncertainties that may affect us or our business, together with the
other information appearing elsewhere in this Annual Report, including our consolidated financial statements and the related
notes thereto. If any of the following events, described as risks, actually occur, either alone or taken together, our business, financial
condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances,
the market price of our common stock could decline, and you may lose all or part of your investment in our securities. An investment
in our securities is speculative and involves a high degree of risk. You should not invest in our securities if you cannot bear the economic
risk of your investment for an indefinite period of time and cannot afford to lose your entire investment. There may be additional risks
that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.
Risks
Related to Our Business and Industry
As
a result of our historical lack of financial liquidity, we do not currently have sufficient working capital to fund our planned operations
and may not be able to continue as a going concern.
We
have a history of recurring losses, and as of July 31, 2022 we have incurred a cumulative net loss of $129.0 million. During the fiscal
year ended July 31, 2022, we recorded a net loss of $3.5 million on recorded net revenue of $1.9 million. In addition, during the year ended
July 31, 2022 we used $2.5 million in operating and investing activities resulting in a cash balance of $3.4 million as of July 31, 2022.
As a result, our existing cash resources are not sufficient to meet our anticipated needs over the next twelve months from the date hereof,
and we will need to raise additional capital to continue our operations and to implement our business plan, which capital may not be
available on acceptable terms or at all.
Our
capital requirements will depend on many factors, including, among others:
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the market acceptance of,
and demand for, our products; |
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the timing and costs of
executing our sales and marketing strategies; |
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our ability to successfully
complete the in-plant validation trials requested by potential customers and our ability to convert these trials into customer orders
for our products; |
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the costs and time required
to obtain the necessary regulatory approvals for our products, including the required USDA approvals: |
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the extent to which we
invest in new testing and product development, including in-plant optimization trials; |
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the extent to which our
customers continue to place product orders as expected and expand their existing use of our products; |
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the cost and time to satisfy
unique customer requirements regarding validation trials or to support the value proposition and benefits of our products; |
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the timing of vendor payments
and the collection of receivables, among other factors affecting our working capital; |
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our ability to control
the timing and amount of our operating expenses, including the costs to attract and retain personnel with the skills required to
implement our business plan; and |
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the costs to file, prosecute
and defend our intellectual property rights. |
The
above factors, along with our history and near term forecast of incurring net losses and negative operating cash flows, raise
substantial doubt about our ability to continue as a going concern. If we do not obtain additional capital from external sources, we
will not have sufficient working capital to fund our planned operations or be able to continue as a going concern. We cannot assure
you that additional financing will be available when needed or that, if available, we can obtain financing on terms favorable to us
or to our stockholders. If we continue to raise additional funds from the issuance of equity securities, substantial dilution to our
existing stockholders would likely continue to result. If we raise additional funds by incurring debt financing, the terms of the
debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our
ability to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us to
relinquish our rights to our products or technology, and we cannot assure you that we will be able to enter into any such contracts
or license arrangements on acceptable terms, or at all. Having insufficient funds may require us to delay or scale back our
marketing, distribution and other commercialization activities or cease our operations altogether.
We
have a history of losses, and we may not achieve or maintain profitability.
We
had a loss of $3.5 million for the fiscal year ended July 31, 2022, and a loss of $2.3 million for the fiscal year ended July 31, 2021.
As of July 31, 2022, we have incurred a cumulative net loss of approximately $129.0 million. Although we believe we are making progress
on implementing our business plan focused on the food safety market, we expect to continue to have losses in future periods. None of
our existing agreements, including those with Packers Sanitation Services, Inc, Subway and Chipotle, contain provisions that provide
for fixed or minimum revenues. If the penetration into the marketplace of PURE Hard Surface, PURE Control and our other SDC-based products
is unsuccessful, our revenue growth is slower than anticipated or our operating expenses exceed expectations, we may not achieve profitability,
and we may never achieve profitability again. Slower than anticipated revenue growth could force us to reduce our sales and marketing
efforts, our product testing and optimization, and our product development and regulatory initiatives, and/or force us to reduce the
size and scope of our operations, to sell or license our technologies to third parties, or to cease operations altogether. Given our
recent introduction of our SDC-based products in the food safety market, we are unable to predict the extent of any future income or
our future losses and we may not be able to sustain or increase profitability on an ongoing basis.
The
COVID-19 pandemic or other health-related pandemics could adversely affect our business, financial condition and results of operations.
The
COVID-19 pandemic led to severe disruptions in general economic activities, as businesses and federal, state, and local governments took
broad actions to mitigate this public health crisis. While we have experienced some delays related to final third-party validation of
certain of our products and product rollouts by customers using PURE Control and supply chain issues, we did not experience a material
disruption to our business. In addition, we previously benefited from increased demand from our customers for our PURE Hard Surface product
due to a focus on surface disinfecting in response to attempting to prevent COVID-19 transmission. We subsequently experienced an abatement
in such demand. Such abatement has not stabilized and we cannot assure you that demand will stabilize in the future. Additionally, we
experienced supply chain issues with our various plastic packaging configurations and citric acid. Further, on a go-forward basis, we
cannot guarantee the overall economic conditions will not affect our business, as these conditions may significantly negatively impact
all aspects of our business. Our business is dependent on the continued health and productivity of our employees, including our sales
staff and corporate management team.
The
extent to which the COVID-19 pandemic or other health-related pandemic impacts our business, sales, results of operations and financial
condition will depend on future developments, which are highly uncertain and cannot be predicted. Even after the COVID-19 pandemic or
other health-related pandemics has subsided, we may experience significant impacts to our business as a result of its global economic
impact, including any economic downturn or recession that has occurred or may occur in the future.
Raising
additional funds by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders,
restrict our operations or require us to relinquish proprietary rights.
We
may need to increase our liquidity and capital resources in future periods. We have a history of raising funds through offerings of
our common stock and warrants to purchase shares of our common stock, and we may in the future raise additional funds through public
or private equity offerings, debt financings or corporate collaborations and licensing arrangements. For example, during July 2022,
we completed a private placement financing to accredited investors, in which we raised net proceeds of $3.5 million and issued an
aggregate of 23,333,332 shares of our common stock at a purchase price of $0.15 per share. To the extent that we continue to raise
additional capital by issuing equity securities, our stockholders’ ownership will be diluted. Additionally, any debt financing
we obtain may involve covenants that restrict our operations. These restrictive covenants may include, among other things,
limitations on borrowing, specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens on
our assets, pay dividends on or redeem our capital stock or make investments. In addition, if we raise funds through collaboration
and licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to us or relinquish potentially
valuable rights to our products or proprietary technologies. We may be required in future collaborations to relinquish all or a
portion of our sales and marketing rights with respect to our products or license intellectual property that enable licensees to
develop competing products in order to complete any such transaction.
As
of October 28, 2022, we have 118,648,098 shares of common stock issued and outstanding or reserved for issuance under equity compensation
plans, vested and unvested options, warrants, and unvested restricted stock units. Our current authorized capital stock is limited to
150,000,000 shares of common stock and 5,000,000 shares of preferred stock. Any increase in our authorized capital stock would require
the approval of a majority of our shareholders as well as the approval of our Board of Directors. If we were unable to increase our authorized
capital stock for any reason, our ability to raise additional capital through the issuance of equity or convertible debt would be severely
compromised and we may be unable to obtain equity or convertible debt capital at all.
We
need to continue to increase customer awareness and adoption of our food safety product offerings, PURE Hard Surface and PURE Control.
Our
success will depend on our ability to continue to increase customer awareness and adoption of our food safety product offerings, PURE
Hard Surface and PURE Control. We have encountered and likely will continue to
encounter risks and difficulties associated with introducing or establishing new commercial products in this highly competitive and rapidly
evolving market. These risks include the following, among others:
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we may not be successful
in demonstrating the effectiveness of PURE Control in actual in-plant use situations or satisfy the requirements of our potential
customers; |
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we may not be successful
in converting in-plant trials into customer product orders; |
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our SDC-based product offerings
(especially at higher silver-ion concentrations) are typically more expensive to produce than existing treatment chemicals, and as
a result, customers may not purchase our products for cost reasons, even if we are successful in demonstrating the superior efficacy
or other benefits of our products; |
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our customers may not continue
to place product orders as expected or may not expand their use of our products; |
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we may not be successful
in demonstrating the value proposition of our products, including its non-corrosive and non-toxic characteristics and its neutral
to positive processing yield impact; |
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we may not succeed in materially
penetrating the food safety markets with our SDC products and technology; |
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we may not be successful
in developing an effective sales and marketing infrastructure to commercialize our products; |
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we may not generate sufficient
revenues or raise sufficient funds to support our operations or the implementation of our business plan; |
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we may not be successful
in controlling our operating expenses; |
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we may not be successful
in obtaining any required regulatory approvals on a timely basis, or at all; |
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we may not attract and
retain key sales and marketing, technical and management personnel; |
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we may not successfully
comply with or maintain the regulatory approvals we obtain for our technology and products; |
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we may not succeed in locating
strategic partners and licensees of our technology; |
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we may not effectively
manage our anticipated growth, if any; and |
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we may not be able to adequately
protect our intellectual property. |
Any
failure to successfully address these risks and uncertainties could seriously harm our business and prospects.
We
may not be able to correctly estimate our future revenues and operating expenses, which could lead to cash shortfalls, and require us
to secure additional financing sooner than planned.
We
may not correctly predict the amount or timing of future revenues and our operating expenses may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside of our control. These factors include:
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our expectations regarding
revenues from sales of our products; |
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the time and resources
required to complete in-plant validation and optimization trials; |
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the cost and time to develop
and obtain regulatory approvals for additional products as part of our long-term business plan; |
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the cost and time required
to create effective sales and marketing capabilities and commercialization strategies; |
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the expenses we incur to
maintain and improve our platform technology; |
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the cost and time to satisfy
unique customer requirements regarding validation and optimization trails; |
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the costs to attract and
retain personnel with the skills required for effective operations; and |
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the costs of preparing,
filing, prosecuting, defending and enforcing patent claims and other patent related costs, including litigation costs and the results
of such litigation. |
In
addition, our budgeted expense levels are based in part on our expectations concerning current and future revenues from sales of our
products and services, and from collaborations with third parties. However, we may not correctly predict the amount or timing of future
revenues. In addition, we may not be able to adjust our operations in a timely manner to compensate for any unexpected shortfall in our
revenues or we may increase our expenses as part of implementing our long-term business plan. As a result, a significant shortfall in
our planned revenues or a significant increase in our planned expenses could have an immediate and material adverse effect on our business
and financial condition. In such case, we may be required to issue additional equity or debt securities or enter into other commercial
arrangements, including relationships with corporate and other partners, sooner than anticipated to secure the additional financial resources
to support our development efforts and future operations.
Our
quarterly operating results may vary, which could negatively affect the market price of our common stock.
Because
of our limited operating history and the early commercial stage of our SDC-based products in the food safety market, we have limited
insight into trends that may emerge and affect our business. Forecasting future revenues is difficult, especially because we have only
recent begun to generate meaningful revenues from the sale of our SDC-based products, our products are novel, and market acceptance of
our products is reliant on our customers’ confidence, based on scientific data and actual in-plant trials, that our product can
improve their food safety efforts. We often experience
long sales cycles and our customers often require extensive evaluation and in-plant trial periods before agreeing to use our products
throughout their systems. In addition, fluctuations in the buying patterns of our current or potential customers could significantly
affect the level of our sales on a period to period basis. Additional factors that could cause our financial results to fluctuate unexpectedly,
include: the mix of product sales, the cost of product sales, our ability to meet customer demand, delays in achieving our regulatory
milestones, changes in our operating expenses, including non-cash expenses such as the fair value of stock options granted to our employees,
and manufacturing or supply issues. As a result, our quarterly operating results may vary, which could negatively affect the market price
of our common stock.
A
loss of one or more of our key customers could adversely affect our business.
From
time to time, one or a small number of our customers may represent a significant percentage of our revenue. For the year ended July 31,
2022, three individual customers accounted for 14%, 13% and 10% of our net product sales.
Although
we have agreements with many of our customers, these agreements typically do not prohibit customers from purchasing products and services
from competitors or contain minimum purchase obligations. A decision by any of our major customers to significantly reduce the amount
of product ordered or license fees paid, or their failure or inability to pay amounts owed to us in a timely manner, or at all, could
have a significant adverse effect on our business.
We
are dependent on our core SDC technology and if our efforts to achieve or maintain market acceptance of our core SDC technology are not
successful, we are unlikely to continue to maintain profitability.
We
have and are currently focusing substantially all of our time and financial resources in the development and commercialization of our
core SDC technology to address food safety risks across the food industry supply chain. Although our SDC technology has applications
in multiple industries, we expect that sales of SDC and SDC-based products as a food safety solution will constitute a substantial portion,
or all, of our revenues in future periods. We are marketing our SDC-based products to restaurant chains, food manufacturers, food processors
and food transportation companies. Our SDC-based products have not yet been broadly accepted into the food safety market, and may never
be broadly accepted. Any material decrease or significant delay in the overall level of sales or expected sales of, or the prices for,
our SDC-based products, whether as a result of competition, delays in obtaining regulatory approvals, long sales cycles, change in customer
demands or requirements, or any other factor, would have a materially adverse effect on our business, financial condition and results
of operations. In addition, even if our products achieve market acceptance, we may not be able to maintain product sales or other forms
of revenue over time if new products or technologies are introduced by competitors that are more favorably received than our products,
are more cost-effective or otherwise render our products less attractive or obsolete.
We
are subject to intense competition in the food safety market.
Our
SDC-based products compete in the highly competitive food safety market. Our SDC-based product offerings (especially at higher silver
ion concentration levels) are typically more expensive to produce than existing treatment chemicals, and as a result, customers may not
purchase our products for cost reasons, even if we are successful in demonstrating the superior efficacy of our products. In addition,
customers may determine that the other benefits offered by our products (e.g., non-toxic, non-caustic, and neutral to positive yield
impact) are not sufficient to overcome the lower cost products offered by our competitors. Further, most of our competitors have been
in business for a longer period of time than we have, and offer a greater number of products and services than we do and have greater
financial, technical, sales and other resources than we do. Many of our competitors already have well established brands and distribution
capabilities, and in some cases are able to leverage the sale of other products with more favorable terms for products competing with
our own. We also have significantly fewer sales personnel than virtually all of our competitors. Furthermore, recent trends in this industry
are for large food safety companies to consolidate into a smaller number of very large entities, which further concentrates financial,
technical and market strength and increases competitive pressure in the industry. If we directly compete with these very large entities
for the same markets and/or products, their financial strength could prevent or delay us from capturing a meaningful share the food safety
market. It is also possible that developments by our competitors will make our technologies or products noncompetitive or obsolete. Our
ability to compete will depend upon our ability, and the ability of our distributors and other partners, to develop brand recognition,
develop the scientific and plant trial data to demonstrate the efficacy of our products, and to displace existing, established and future
products in our relevant target markets. We, or our distributors and partners, may not be successful in doing so, which would have a
materially adverse effect on our business, financial condition and results of operations.
We
have limited sales, marketing and product distribution experience.
We
have limited experience in the sales, marketing and distribution of our products in the food safety market. We began to focus on the
food safety market in August 2013. After acquiring necessary regulatory approvals we begun to commercialize our products in 2016. As
a result, our sales and marketing experience with these products are limited, and our current sales, distribution and marketing
strategies and programs may not be successful. Further, the sales cycle to secure a new customer is long and unpredictable.
Potential customers typically require that we complete extensive in-plant validation studies with our products. We may not be
successful in demonstrating the effectiveness of PURE Control in actual in-plant use situations or satisfy the requirements of our
potential customers. Moreover, we may not be successful in converting in-plant trials into customer product orders. We also have a
relatively small sales and marketing organization and a limited number of distributors. Therefore, we may not be able to establish
the sales, marketing, and distribution capabilities necessary to generate sales and build our business to generate sufficient
revenues to support our operations and the implementation of our business plan.
We
are dependent on a third-party, over whom we have limited control, to manufacture our SDC-based products.
On
June 9, 2019, we entered into a five-year strategic collaboration agreement with St. Louis-based Intercon Chemical Company, or
ICC, where we granted ICC the right to be the exclusive manufacturer for all our SDC-based products. We do not have any
manufacturing facilities and we currently rely on ICC to manufacture our SDC-based products and may in the future rely on
one or more third-party manufacturers to properly manufacture our products. We may not be able to quickly replace our manufacturing
capacity if ICC is unable to manufacturer our products as a result of a fire, natural disaster (including an earthquake), equipment
failure or other difficulty, or if such ICC facilities are deemed not in compliance with current “good manufacturing
practices,” and the noncompliance could not be rapidly rectified. ICC is our single manufacturer for our SDC-based products
and may not be replaced without significant effort and delay in production. A supply interruption or an increase in demand beyond
our current manufacturer’s capabilities could harm our ability to manufacturer such products until new manufacturers are
identified and qualified, which would have a significant adverse effect on our business and results. Any third-party manufacturer
that we find may not match our quality standards or be able to meet customer requirements.
Additionally,
our inability or reduced capacity to have our products manufactured would prevent us from successfully evaluating or commercializing
our proposed products. Our dependence upon third parties for the manufacture of our products may adversely affect our profit margins
and our ability to develop and deliver proposed products on a timely and competitive basis.
We
rely on third parties to develop SDC-based products, and they may not do so successfully or diligently.
We
have granted ICC and other third parties to whom we license rights to our technology certain distribution and development rights to products
containing SDC for applications and markets outside the U.S. food safety market. Our reliance on ICC and other third parties for development
and distribution activities reduces our control over these activities. In such arrangements, we have relied, and expect in the future
to rely, on the third party to fund and direct product development activities and appropriate regulatory filings. Any of these third
parties may not be able to successfully develop such SDC-based products due to, among other factors, a lack of capital, a lack of appropriate
diligence, insufficient devotion to sales efforts, a change in the evaluation by the third party of the market potential for SDC-based
products, technical failures, and poorer than expected results from testing or trial use of any products that may be developed. If the
third parties on which we rely are not successful in such development activities, our business and operating results would be adversely
affected.
Pricing
and supply issues may have a material impact on our margins and our ability to supply our customers.
All
of the supply ingredients used to manufacture our SDC-based products are available from multiple suppliers. However, commodity prices
for some ingredients can vary significantly and the margins that we are able to generate could decline if prices rise. For example, both
silver and citric acid prices have been volatile in recent periods.
In
addition to such commodities, we also rely on producers of specialized packaging inputs such as bottles and labels for finished products.
Due to their specialized nature, the supply of such inputs can be periodically constrained and result in additional costs to obtain these
items, which may in turn inhibit our ability to supply products to our customers.
We
are generally unable to increase our product prices to our customers, partners and distributors quickly in order to maintain our margins,
and significant price increases for key inputs could therefore have an adverse effect on our results of operations. Price increases can
also result in lost sales, and any inability to supply our customers’ orders can lead to lost future sales to such customers.
We
expect ICC to be the sole source supplier of our SDC concentrate and we may use other third parties to blend, package and provide fulfillment
activities for our finished products in future periods. We expect that our margins may be reduced by using ICC and other such third parties,
and our ability to maintain product quality may not be as extensive or effective as when we produce these products in our own facility(ies).
Any quality control issues could lead to product recalls and/or the loss of future sales, which would reduce our revenues and/or profits.
If
we are not able to manage any growth we achieve effectively, our business and operating results will be harmed.
In
order to implement our business plan and achieve and maintain market acceptance of our SDC-based products, we expect to expand our business
operations and hire additional sales and support personnel. We may not have sufficient resources to do so. If we hire additional personnel
and invest in additional infrastructure, we may not be effective in expanding our operations and our systems, procedures or controls
may not be adequate to support any such expansion. Failure to properly manage our growth could have a material adverse effect on our
business and our operating results.
If
we suffer negative publicity concerning the safety or efficacy of our products, our sales may be harmed.
If
concerns should arise about the safety or efficacy of any of our products that are marketed, regardless of whether or not such concerns
have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for
those products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not those claims
are supported by applicable law.
We
may become subject to product liability claims.
As
a business that manufactures and markets products for use by consumers and institutions, we may become liable for any damage caused by
our products, whether used in the manner intended or not, including potentially damage to our customers’ businesses. Regardless
of merit or potential outcome, product liability claims against us may result in, among other effects, the inability to commercialize
our products, impairment of our business reputation, and distraction of management’s attention from our primary business. If we
cannot successfully defend ourselves against product liability claims we could incur substantial liabilities. Although we maintain general
and product liability insurance, our insurance may not cover potential claims and may not be adequate to indemnify for liabilities that
may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could harm our business
and operating results.
We
depend on key personnel for our continued operations and future success, and a loss of certain key personnel could significantly hinder
our ability to move forward with our business plan.
Our
success depends largely on the execution of our business strategy by our management team and the members of our Board of Directors. Our
Board and management will be evaluating how to best execute our near-term strategy to drive customer adoption in the food industry by
addressing food safety solutions across the supply chain in order to prevent or mitigate food contamination or the potential for food-borne
illness with specific customer focus in foodservice providers, food processors and food manufacturers. Our directors, executive officers
and key personnel could terminate their services with us at any time without notice and without penalty. Additionally, we do not maintain
key person life insurance policies on our directors, executive officers or other employees. The loss of one or more of our directors,
executive officers or key employees could seriously harm our ability to execute on our business strategy, which could harm our business,
results of operations, financial condition, and/or the market price of our common stock. We cannot assure you that in such an event we
would be able to recruit qualified personnel able to replace these individuals in a timely manner, or at all, on terms acceptable to
either us or to any qualified candidate. Even if we were able to replace any such individuals in a timely manner, if we are unable to
effectively integrate new executive officers or key employees, our operations and prospects could be harmed.
Because
competition for highly qualified sales and marketing and management personnel is intense, we may not be able to attract and retain the
employees we need to support our potential growth.
To
successfully meet our objectives, we must attract and retain highly qualified sales and marketing and management personnel with specialized
skill sets focused on the industries in which we compete, or intend to compete. Competition for qualified business development and bioengineering
personnel can be intense. Our ability to meet our business development objectives will depend in part on our ability to recruit, train
and retain top quality people with advanced skills who understand our technology and business. In addition, it takes time for our new
personnel to become productive and to learn our business. If we are unable to hire or retain qualified personnel, it will be difficult
for us to sell our products or to license our technology or to achieve or maintain regulatory approvals, and we may experience a shortfall
in revenue and not achieve our anticipated, or any, growth.
We
may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our
management.
From
time to time we may consider engaging in strategic transactions, such as acquisitions of companies, asset purchases and out-licensing
or in-licensing of products, product candidates or technologies. Any such transaction may require us to incur non-recurring or other
charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or
business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous operational
and financial risks, including, among others, exposure to unknown liabilities, disruption of our business and diversion of our management’s
time and attention in order to develop acquired products, product candidates or technologies, difficulty and cost in combining the operations
and personnel of any acquired businesses with our operations and personnel, and inability to retain key employees of any acquired businesses.
Accordingly, although we may not choose to undertake or may not be able to successfully complete any transactions of the nature described
above, any transactions that we do undertake or complete could have a material adverse effect on our business, results of operations,
financial condition and prospects.
We
may invest or spend our cash in ways with which you may not agree or in ways which may not yield a significant return.
Our
management has considerable discretion in the use of our cash. Our cash may be used for purposes that do not increase our operating results
or market value. Until the cash is used, it may be placed in investments that do not produce significant income or that may lose value.
The failure of our management to invest or spend our cash effectively could result in unfavorable returns and uncertainty about our prospects,
each of which could cause the price of our common stock to decline.
We
may not be able to utilize all, or any, of our tax net operating loss carry-forwards and our future after-tax earnings, if any, could
be reduced.
At
July 31, 2022, we had federal and state tax net operating loss carry-forwards of approximately $107.3 million and $63.3 million, respectively.
Utilization of these net operating loss carry-forwards may be subject to a substantial annual limitation due to ownership change limitations
that may have occurred, including with respect to our recent private placements, or that could occur in the future, as required by Section
382 of the Internal Revenue Code as well as similar state provisions. These ownership changes may limit the amount of net operating loss
carry-forwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change,
as defined by Section 382 of the Internal Revenue Code, results from a transaction or series of transactions over a three-year period
resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public
groups. Since our formation, we have raised capital through the issuance of capital stock on several occasions (both before and after
our initial public offering in 1996) which, combined with the purchasing stockholders’ subsequent disposition of those shares,
may have resulted in such an ownership change, or could result in an ownership change in the future based upon subsequent disposition.
While we believe that we have not experienced an ownership change, the pertinent tax rules related thereto are complex and subject to
varying interpretations, and thus the applicable taxing authorities may take an alternative position.
Our
current federal tax loss carry-forwards began expiring in the year ended July 31, 2020 and, unless previously utilized, all but $5.9
million will completely expire in the year ending July 31, 2038. The $5.9 million can be carried forward indefinitely. Our state tax
loss carry-forwards began to expire in the year ending July 31, 2029, and will completely expire in the year ending July 31, 2040.
Risks
Related to the Regulation of our Products
If
we are unable to obtain the required regulatory approvals from the FDA and USDA, or if such efforts are delayed, our ability to commercialize
PURE Control as a direct food contact processing aid will be harmed and our business and operating results will suffer.
We
have received the required FDA approvals to market PURE Control as a direct food contact processing aid for raw poultry and fresh produce
and we have received a “No Objection Letter” from the USDA’s Food Safety and Inspection Service, or FSIS, granting
approval for SDC-based PURE Control to be used as a spray or dip applied to poultry carcasses, parts and organs in pre-OLR (on-line reprocessing)
and post chill processing of fresh poultry. We have not, however, received the required approval from the USDA to utilize PURE Control
in OLR poultry processing. Further, even if we elect to seek regulatory approval, there is no assurance we will be successful in obtaining
the required approvals from the FDA and USDA to utilize PURE Control as a direct food contact processing aid for raw meats, including
beef and pork. If we are unable to obtain the required regulatory approvals from the FDA and USDA, or if such efforts are delayed, our
ability to commercialize PURE Control as a direct food contact processing aid for poultry and as a direct food contact processing aid
for raw meets will be restricted and our business and operating results will suffer.
The
industries in which we operate are heavily regulated.
We
are focused on the marketing and continued development of our SDC antimicrobial technology for use in the food safety market. Our existing
products, PURE Control and PURE Hard Surface, and any additional products we develop based on our SDC technology in future periods, require
or will require approval by government agencies prior to marketing or sale in the U.S. or in foreign markets. Complying with applicable
government regulations and obtaining necessary regulatory approvals can be, and has historically been, time consuming and expensive,
due in part, we believe, to the novel nature of our technology. Regulatory review could involve delays or other actions adversely affecting
the development, manufacture, marketing and sale of our products. While we cannot accurately predict the outcome of any pending or future
regulatory review processes or the extent or impact of any future changes to legislation or regulations affecting review processes, we
expect such processes to remain time consuming and expensive as we, or our partners, apply for approval to make new or additional efficacy
claims for current products or to market new product formulations. Obtaining approvals for new SDC-based products in the U.S., or in
markets outside the U.S., could take several years, or may never be accomplished.
SDC
is a platform technology rather than a single use applied technology. As such, products developed from the platform may fall under the
jurisdiction of multiple U.S. and international regulatory agencies. Our disinfectant and sanitizer products are regulated in the U.S.
by the EPA. In addition to the EPA, each of the 50 states in the U.S. has its own government agencies that regulate the sale or shipment
of our products into their state. We have obtained registration for these products from the EPA and all states into which such products
are currently marketed and sold. We are required to meet certain efficacy, toxicity and labeling requirements and pay ongoing fees in
order to maintain such registrations. We may not be able to maintain these registrations in the future, which may eliminate our continued
ability to market and sell our products in some or all parts of the U.S. We also may not be able to obtain necessary registrations with
the EPA and applicable states for other SDC disinfectant and sanitizer products that we or our partners may develop, which would limit
our ability to sell any such products in the future.
Some
potential applications of SDC, such as those aimed at healthcare, veterinary and certain food preparation markets, may require approval
of other government agencies prior to marketing or sale in the U.S. or in foreign markets, such as the U.S. Food and Drug Administration,
or FDA, or the United States Department of Agriculture, or USDA. Obtaining FDA and/or USDA approval is a complicated and expensive process
and such approvals may never be obtained for any SDC products. If FDA and/or USDA approvals are obtained, the approvals may limit the
uses for which SDC products may be marketed such that they may not be profitable to us, and the applicable products would be subject
to pervasive and continuing regulation by the FDA and/or USDA that could lead to withdrawal or limitation of any product approvals.
We
have managed and funded certain of our EPA-regulated product development internally, in conjunction with engaging regulatory consultants
and partnering with other third parties. We have partnered, or intend to partner, with third parties who are seeking, or intend to seek,
approvals to market SDC-based products in markets outside the U.S., and with other third parties who are developing FDA-regulated SDC-based
products who, upon such development, would seek FDA approvals of such products. Our ability to market and sell our products is dependent
on our and our partners’ ability to obtain and maintain required registrations and approvals of applicable regulatory agencies.
Failure by our partners or us to comply with applicable regulations could result in fines or the withdrawal of approval for us or our
partners and distributors to market our products in some or all jurisdictions or for certain indications, which could cause us to be
unable to successfully commercialize SDC or otherwise achieve revenues from sales of such products.
We
are subject to substantial regulation related to quality standards applicable to our manufacturing and quality processes, and our partners,
including our third-party manufacturer, failure to comply with applicable quality standards could affect our ability to commercialize
SDC products.
The
EPA and other applicable U.S. and foreign government agencies regulate our and our partners’ systems and processes, including those
of ICC, for manufacturing SDC-based products. These regulations require that we and our partners observe “good manufacturing practices”
in order to ensure product quality, safety and effectiveness. Failure by us or our partners to comply with current or future government
regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions,
product shortages, and/or delays in product manufacturing, any or all of which could cause significant cost to us. Further, efficacy
or safety concerns and/or manufacturing quality issues with respect to our products or those of our partners could lead to product recalls,
fines, withdrawal of approvals, and/or declining sales, any or all of which could result in our failure to successfully commercialize
SDC or otherwise achieve revenue growth.
Litigation
or the actions of regulatory authorities may harm our business or otherwise distract our management.
Substantial,
complex or extended litigation could cause us to incur major expenditures and would distract our management. For example, lawsuits against
us or our officers or directors by employees, former employees, stockholders, partners, customers, or others, or actions taken by regulatory
authorities, could be very costly and substantially disrupt our business. Such lawsuits and actions are not uncommon, and we may not
be able to resolve such disputes or actions on terms favorable to us, and there may not be sufficient capital resources available to
defend such actions effectively, or at all.
Risks
Related to Our Intellectual Property
If
we are unable to obtain, maintain or defend the patent and other intellectual property rights relating to our technology, we or our collaborators
and distributors may not be able to develop and market proprietary products based on our technology, which would have a material adverse
impact on our results of operations.
We
rely and expect in the future to continue to rely on a combination of patent, trademark, trade secret and copyright protections, as well
as contractual restrictions, to protect the proprietary aspects of our technology and business.
Legal
protections of our intellectual property and proprietary rights afford only limited protection. For instance, we currently own twelve
U.S. patents related to our SDC technology. The lives of these patents, and any patents that we may obtain in the future, are not indefinite,
and the value to us of some or all of our patents may be limited by their terms. Further, although we have a number of U.S. and international
patent applications pending, some or all of those applications may not result in issued patents, and the intellectual property claims
therein would be unprotected. Additionally, obtaining and maintaining patent protection depends on our compliance with various procedural,
document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could be reduced
or eliminated for non-compliance with these requirements. Furthermore, the patent positions of bioscience companies can be highly uncertain
and often involve complex legal, scientific and factual questions, and, therefore, we cannot predict with certainty whether we will be
able to ultimately enforce our patents or other intellectual property rights. Third parties may challenge, invalidate or circumvent our
patents and patent applications relating to our products, product candidates and technologies. In addition, our patent positions might
not protect us against competitors with similar products or technologies because competing products or technologies may not infringe
our patents.
In
addition, to the extent that we operate internationally, the laws of foreign countries may not protect our proprietary rights to the
same extent as the laws of the U.S. Many countries have a “first-to-file” trademark registration system, which may prevent
us from registering or using our trademarks in certain countries if third parties have previously filed applications to register or have
registered the same or similar trademarks. Additionally, changes in the patent and/or trademark laws or interpretations of such laws
in the U.S. or other countries could diminish the value of our intellectual property rights. Moreover, our competitors may develop competing
technologies that are not covered by the claims of, and therefore do not infringe upon, our issued patents, which could render our patents
less valuable to us. If our proprietary rights cannot be, or are not sufficiently, protected by patent and trademark registrations, it
could have a material adverse impact on our business and our ability to commercialize or license our technology and products.
Our
own efforts to protect our intellectual property and other proprietary rights may also be insufficient. Despite efforts to protect our
proprietary rights, including without limitation through confidentiality and other similar contractual restrictions, our means of protecting
such rights may not be adequate and unauthorized parties may attempt to copy aspects of our proprietary technology, obtain and use information
that we regard as proprietary, or otherwise misappropriate our intellectual property. In addition, unpatented proprietary rights, including
trade secrets and know-how, can be difficult to protect and may lose their value if they are independently developed by a third party
or if their secrecy is lost. It is possible that, despite our efforts, competitors or others will create and use products, adopt service
names similar to our service names or otherwise violate or misappropriate our proprietary rights. The infringement of such rights could
have a material negative impact on our business and on our results of operations.
Litigation
may be necessary to enforce our intellectual property and other proprietary rights, which would be expensive and could consume time and
other resources. The result of any such litigation may be the court’s ruling that our patents or other intellectual property rights
are invalid and/or should not be enforced. Additionally, even if the validity of such rights is upheld, the court could refuse to stop
a third party’s infringing activity on the ground that such activities do not infringe our rights. The U.S. Supreme Court has recently
revised certain tests regarding granting patents and assessing the validity of patents to make it more difficult to obtain patents. As
a consequence, issued patents may be found to contain invalid claims according to the newly revised standards. Some of our patents may
be subject to challenge and subsequent invalidation or significant narrowing of claim scope in a reexamination proceeding, or during
litigation, under the revised criteria.
We
may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights
and we may be unable to protect our rights to, or use, our technology.
If
we choose to go to court to attempt to stop someone else from using the inventions claimed in our patents, that individual or company
has the right to ask the court to rule that our patents are invalid and/or should not be enforced against that third party. These lawsuits
are expensive and would consume time and other resources even if we were successful in stopping the infringement of these patents. In
addition, there is a risk that the court will decide that these patents are not valid and that we do not have the right to stop the other
party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse
to stop the other party on the ground that such other party’s activities do not infringe our rights to these patents.
Furthermore,
a third party may claim that we are using inventions covered by the third party’s patent rights and may file an injunction to stop
us from engaging in our normal operations and activities, including making or selling our products. These lawsuits are costly and could
affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide
that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition,
there is a risk that a court will order us to pay the other party damages for having violated the other party’s patents. The biotechnology
industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover
various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation
is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either
do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this.
Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption
of validity enjoyed by issued patents.
Because
some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United
States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific
literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered
by our issued patents or our pending applications or that we were the first to invent the technology. Our competitors may have filed,
and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over
our patent applications and could further require us to obtain rights to issued patents covering such technologies. If another party
has filed a United States patent application on inventions similar to ours, we may have to participate in an interference proceeding
declared by the PTO, to determine priority of invention in the United States. The costs of these proceedings could be substantial, and
it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such
inventions.
Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially
greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material
adverse effect on our ability to raise the funds necessary to continue our operations.
Third
parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.
Our
manufacture, use and sale of SDC-based products may subject us to lawsuits relating to the validity and infringement of patents or other
proprietary rights of third parties. Litigation may be costly and time-consuming, and could divert the attention of our management and
technical personnel. If we are found to have violated the trademark, trade secret, copyright, patent or other intellectual property or
proprietary rights of others, such a finding could result in the need to cease use of a trademark, trade secret, copyrighted work or
patented invention in our business and our obligation to pay a substantial amount for past infringement. If the rights holders are willing
to permit us to continue to use their intellectual property rights, it may be necessary for us to enter into license arrangements with
unfavorable terms and pay substantial amounts in royalty and other license fees. Either having to cease use or pay such fees could prevent
us, or our third-party manufacturer, from manufacturing and selling our products, which could make us much less competitive in our industry
and have a material adverse impact on our business, operating results and financial condition.
Confidentiality
agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and
may not adequately protect our intellectual property, which could limit our ability to compete.
We
may rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade
secrets are difficult to protect, and we cannot be certain that others will not develop the same or similar technologies on their own.
We have taken steps, including entering into confidentiality agreements with our employees, consultants, outside scientific collaborators,
sponsored researchers and other advisors, to protect our trade secrets and unpatented know-how. These agreements generally require that
the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known
to the party by us during the course of the party’s relationship with us. We also typically obtain agreements from these parties
which provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However,
these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party
illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable.
In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain
trade secret protection could adversely affect our competitive position.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As
is common in the biotechnology, food, chemical and pharmaceutical industries, we employ individuals who were previously employed at other
biotechnology, food, chemical or pharmaceutical companies, including our competitors or potential competitors. Although no claims against
us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even
if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Risks
Related to our Common Stock
The
price of our common stock has been and may continue to be volatile.
Our
common stock is approved for quotation on the OTC Markets’ OTCQB marketplace under the symbol “PURE.” The OTCQB is
a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities
and provides significantly less liquidity than a listing on the Nasdaq Stock Markets or other national securities exchange. The OTCQB
securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the
national stock exchanges and any prices quoted may not be a reliable indication of the value of our common stock. Quotes for stocks included
on the OTCQB are not listed in the financial sections of newspapers as are those for the Nasdaq Stock Market or the NYSE. Therefore,
prices for securities traded solely on the OTCQB may be difficult to obtain.
Trading
on the OTCQB Marketplace as opposed to a national securities exchange has resulted and may continue to result in a reduction in some
or all of the following, each of which could have a material adverse effect on the price of our common stock and our company:
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liquidity of our common stock; |
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market price of shares of our common stock; |
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our
ability to obtain financing to support our operations and the implementation of our business plan; |
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the
number of institutional and other investors that will consider investing in shares of our common stock; |
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number of market markers in shares of our common stock; |
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availability of information concerning the trading prices and volume of shares of our common stock; and |
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number of broker-dealers willing to execute trades in shares of our common stock. |
The
price and trading volume of our common stock have historically been volatile.
In
addition, the market price and trading volume of our common stock may be subject to wide fluctuations in the future in response to:
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announcements
regarding the status of our regulatory efforts; |
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the
determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common
stock to adhere to more stringent rules, likely resulting in a reduced level of trading activity in the secondary trading market
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sale by us of our common or preferred stock or other securities, or the anticipation of sales of such securities; |
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trading volume of our common stock, particularly if such volume is light; |
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introduction of new products or services, or product or service enhancements by us or our competitors; |
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developments
with respect to our or our competitors’ intellectual property rights or regulatory approvals or denials; |
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announcements
of significant acquisitions or other agreements by us or our competitors; |
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sales
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conditions
and trends in our industry; |
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changes
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addition, the stock market in general, the OTCQB, and the market for shares of novel technology companies in particular, have experienced
extreme price and volume fluctuations that in some cases may be unrelated or disproportionate to the operating performance of those companies.
These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance.
In addition, this volatility could adversely affect an investor’s ability to sell shares of our common stock, and/or the available
price for such shares, at any given time.
Potential
sales or issuances of our common stock to raise capital, or the perception that such sales could occur, could cause dilution to our current
stockholders and the price of our common stock to fall.
We
have historically supported our operations through the issuance of equity securities and may continue to do so in the future. For example,
during July 2022, we completed a private placement financing to accredited investors, in which we raised net proceeds of $3.5 million
and issued an aggregate of 23,333,332 shares of our common stock at a purchase price of $0.15 per share. Although we may not be successful
in obtaining financing through equity sales on terms that are favorable to us in the future, if at all, any such sales that do occur
could result in substantial dilution to the interests of existing holders of our common stock. Additionally, the sale of a substantial
number of shares of our common stock or other equity securities to any new investors, or the anticipation of such sales, could cause
the trading price of our common stock to fall.
Our
common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability
requirements.
Shares
of our common stock are subject to the so-called “penny stock” rules as that term is defined in Rule 3a51-1 promulgated under
the Securities Exchange Act of 1934. These requirements may reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise
dispose of them. This could cause our stock price to decline.
Broker-dealers
dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stock. Moreover, broker-dealers
are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. Such requirements
may discourage broker-dealers from effecting transactions in our common stock, which could limit the market price and liquidity of our
common stock.
We
have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
The
continued operation and expansion of our business will require substantial funding. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock. We have paid no cash dividends on any of our capital stock to date and we currently intend
to retain our available cash to fund the development and growth of our business. Any determination to pay dividends in the future will
be at the discretion of our Board and will depend upon results of operations, financial condition, contractual restrictions, restrictions
imposed by applicable law and other factors our Board deems relevant. We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock, which may never occur.
Anti-takeover
provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price
of our stock.
Certain
provisions of our charter and bylaws, as amended, or Bylaws, may delay or frustrate the removal of incumbent directors and may prevent or delay a merger, tender
offer, or proxy contest involving us that is not approved by our Board, even if such events may be beneficial to the interests of stockholders.
For example, our Board, without stockholder approval, has the authority and power to authorize the issuance of up to 5,000,000 shares
of preferred stock and such preferred stock could have voting or conversion rights that could adversely affect the voting power of the
holders of our common stock. Further, the one-for-eight reverse stock split of our outstanding common stock that we effected on August
14, 2012 has increased the proportion of unissued and authorized common shares to issued and outstanding common shares, which could allow
our Board to issue large numbers of additional shares of our common stock that could significantly reduce the voting power of our current
stockholders. In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage,
delay or prevent certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other
provisions in our charter documents may make it more difficult for stockholders or potential acquirers to initiate actions that are opposed
by our then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest or other change of control
transaction involving the Company. Any delay or prevention of a change of control transaction could cause stockholders to lose a substantial
premium over the then-current market price of their shares.
General
Risk Factors
Compliance
with the reporting requirements of federal securities laws can be expensive.
We
are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange
Act and other federal securities laws, including the compliance obligations of the Sarbanes-Oxley Act. The costs of complying with the
reporting requirements of the federal securities laws, including preparing and filing annual and quarterly reports and other information
with the SEC and furnishing audited reports to stockholders, can be substantial.
If
we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent
fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which could harm our business and
the value of the Company’s common shares.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley
Act of 2002 requires us to evaluate and report on our internal controls over financial reporting. Our internal controls and financial
reporting are not subject to attestation by our independent registered public accounting firm pursuant to the exemption provided to issuers
that are not “large accelerated filers” or “accelerated filers” under the Dodd-Frank Act of 2010. We cannot be
certain that we will be successful in maintaining adequate internal controls over our financial reporting and financial processes in
the future. We may in the future discover areas of our internal controls that need improvement. Furthermore, to the extent our business
grows, our internal controls may become more complex, and we would require significantly more resources to ensure our internal controls
remain effective. If we or our independent auditors discover a material weakness, the disclosure of that fact, even if quickly remedied,
could reduce the market value of the Company’s common stock. Additionally, the existence of any material weakness or significant
deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses
or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a
timely manner.
We
are subject to tax audits by various tax authorities in multiple jurisdictions.
From
time to time we may be audited by tax authorities to whom we are subject. Any assessment resulting from such audits, if any, could result
in material changes to our past or future taxable income, tax payable or deferred tax assets, and could require us to pay penalties and
interest that could materially adversely affect our financial results.