10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2011
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission File Number 0-21019

Pure Bioscience, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-0530289
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1725 Gillespie Way El Cajon, California	92020
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (619) 596-8600

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o    Accelerated filer  o   Non-accelerated filer  o   Smaller reporting company  ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

As of December 13, 2011, there were 41,521,750 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Explanatory Note

The sole purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q for the period ended October 31, 2011, or the Form 10-Q, of Pure Bioscience, Inc., or the Company, as filed with the Securities and Exchange Commission, or the SEC, on December 15, 2011, is to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 provides the financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language).

No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q does not reflect events that may have occurred subsequent to the original filing date of the Form 10-Q and does not modify or update in any way disclosures made in the Form 10-Q as originally filed.

Pursuant to Rule 406T of Regulation S-T, the interactive data files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Item 6.  Exhibits

The following Exhibits are filed as part of this report pursuant to Item 601 of Regulation S-K:

10.1	*	Employment Agreement by and between Pure Bioscience, Inc. and Craig Johnson, dated October 26, 2011 (Incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K filed with the SEC on October 31, 2011)
10.2	*	Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K filed with the SEC on October 31, 2011)
10.3	*	Amendment to Amended and Restated Employment Agreement by and between Pure Bioscience, Inc. and Michael L. Krall, dated October 26, 2011 (Incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K filed with the SEC on October 31, 2011)
10.4	*	Amendment to Employment Agreement by and between Pure Bioscience, Inc. and Donna Singer, dated October 26, 2011 (Incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K filed with the SEC on October 31, 2011)
10.5	*	Purchase Agreement, dated December 14, 2011, by and between Pure Bioscience, Inc. and Lincoln Park Capital Fund, LLC (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 15, 2011)
10.6	*	Purchase Agreement, dated December 15, 2011, by and between Pure Bioscience, Inc. and Lincoln Park Capital Fund, LLC (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on December 15, 2011)
10.7	*	Registration Rights Agreement, dated December 15, 2011, by and between Pure Bioscience, Inc. and Lincoln Park Capital Fund, LLC (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on December 15, 2011)
10.8	*	Engagement Letter, dated December 8, 2011, by and between Pure Bioscience, Inc. and Wharton Capital Markets LLC (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on December 15, 2011)
31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Incorporated by reference to Exhibit 31.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on December 15, 2011)
31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Incorporated by reference to Exhibit 31.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on December 15, 2011)
32.1	*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Incorporated by reference to Exhibit 32.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on December 15, 2011)
32.2	*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Incorporated by reference to Exhibit 32.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on December 15, 2011)
101	†	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at October 31, 2011 and July 31, 2011; (ii) Consolidated Statements of Operations for the three months ended October 31, 2010 and 2011; (iii) Consolidated Statements of Cash Flows for the three months ended October 31, 2010 and 2011; and (iv) Notes to Consolidated Financial Statements, tagged as block of text.

*  Previously included or incorporated by reference in the Company’s Quarterly Report on Form 10-Q for the period ended October 31, 2011, filed with the SEC on December 15, 2011.

†  Filed herewith.

Signatures

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			PURE BIOSCIENCE, INC.
Date:	December 22, 2011	By:	/s/ MICHAEL L. KRALL
			Michael L. Krall, President / Chief Executive Officer (Principal Executive Officer)
Date:	December 22, 2011	By:	/s/ CRAIG A. JOHNSON
			Craig A. Johnson, Chief Financial Officer
			(Principal Financial and Accounting Officer)

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Comprehensive Loss

3 Months Ended

Oct. 31, 2011

Comprehensive Loss [Abstract]

Comprehensive Loss

4.Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on marketable securities and foreign currency translation adjustments. For the quarters ended October 31, 2011 and 2010, our comprehensive loss consisted only of net loss.

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Net Loss Per Share

3 Months Ended

Oct. 31, 2011

Net Loss Per Share [Abstract]

Net Loss Per Share

3.Net Loss Per Share

Basic loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share is calculated by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. For the purposes of this calculation, stock options and warrants are considered to be common share equivalents, and are determined using the treasury stock method. Common share equivalents are only included in the calculation of diluted loss per share when their effect is dilutive. Because we have incurred a net loss for all the periods presented, the effect of common share equivalents is anti-dilutive, and there is no difference between basic loss per share and diluted loss per share. As of October 31, 2011 and 2010, the number of stock options and warrants not included in the computation totaled 4,396,850 and 7,409,100, respectively.

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Consolidated Balance Sheets (USD $)	Oct. 31, 2011	Jul. 31, 2011
Assets
Cash and cash equivalents	$ 992,000	$ 1,794,000
Accounts receivable, net	119,000	50,000
Inventories, net	850,000	861,000
Prepaid expenses	189,000	100,000
Total current assets	2,150,000	2,805,000
Property, plant and equipment, net	357,000	426,000
Patents, net	1,908,000	1,917,000
Total assets	4,415,000	5,148,000
Liabilities and stockholders' equity
Accounts payable	1,025,000	677,000
Accrued liabilities	348,000	258,000
Total current liabilities	1,373,000	935,000
Deferred rent	2,000	6,000
Total liabilities	1,375,000	941,000
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value: 5,000,000 shares authorized, no shares issued	0	0
Common stock, $0.01 par value: 100,000,000 shares authorized 41,148,206 issued and outstanding at October 31, 2011, and 40,034,659 issued and outstanding at July 31, 2011	411,000	400,000
Additional paid-in capital	58,600,000	57,417,000
Accumulated deficit	(55,971,000)	(53,610,000)
Total stockholders' equity	3,040,000	4,207,000
Total liabilities and stockholders' equity	$ 4,415,000	$ 5,148,000

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Basis Of Presentation

3 Months Ended

Oct. 31, 2011

Basis Of Presentation [Abstract]

Basis Of Presentation

1.Basis of Presentation

The accompanying unaudited consolidated financial statements include the consolidated accounts of Pure Bioscience, Inc. and its wholly owned subsidiary, ETIH2O Corporation, a Nevada corporation. ETIH2O Corporation has no business and no material assets or liabilities and there have been no significant transactions related to ETIH2O during the periods presented in the consolidated financial statements. All inter-company balances and transactions have been eliminated. All references to "PURE," "we," "our," "us" and the "Company" refer to Pure Bioscience, Inc. and our wholly owned subsidiary.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information pursuant to the instructions to Form 10-Q and Article 10/Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended October 31, 2011 are not necessarily indicative of the results that may be expected for other quarters or the year ending July 31, 2012. The July 31, 2011 balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP and included in our Annual Report on Form 10-K. For more complete information, these unaudited financial statements and the notes thereto should be read in conjunction with the audited financial statements for the year ended July 31, 2011 included in our Annual Report on Form 10-K covering such period filed with the Securities and Exchange Commission, or SEC.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Certain reclassifications have been made to prior period amounts to conform to current period presentation. These reclassifications did not have an impact on our results of operations or financial condition for the periods presented.

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Liquidity

3 Months Ended

Oct. 31, 2011

Liquidity [Abstract]

Liquidiity

2.Liquidity

Since our inception, we have financed our operations through public and private offerings of securities, revenue from product sales and license agreements, proceeds from the sale of a division and interest income from invested cash balances. We have a history of recurring losses, and we have incurred a cumulative net loss of $55,971,000.

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

We will need to increase our liquidity and capital resources in the near term by one or more measures. These measures may include, but are not limited to, the following: reducing operating expenses; obtaining financing through the issuance of equity, debt, or convertible securities; entering into partnerships, licenses, or other arrangements with third parties; and reducing the exercise price of outstanding warrants. If we issue equity, debt or convertible securities to raise additional funds, our existing stockholders may experience dilution, and the new equity, debt or convertible securities may have rights, preferences and privileges senior to those of our existing stockholders. There is no guarantee that we will be able to obtain capital on terms acceptable to us, or at all.

If we are unable to obtain sufficient capital in the near term, it will have a material adverse effect on our business and operations. It could cause us to fail to execute our business plan, fail to take advantage of future opportunities, or fail to respond to competitive pressures or customer requirements. It also may require us to delay, scale back or eliminate some or all of our research and development programs, to license to third parties the right to commercialize products or technologies that we would otherwise commercialize ourselves, or to reduce or cease operations. If adequate funds are not available when needed, we may be required to significantly modify our business model and operations to reduce spending to a sustainable level.

We believe our current efforts to raise capital, including our recent agreements with Lincoln Park (summarized in Note 10 below), our current efforts to market and sell our products, and our ability to significantly reduce expenses, will provide sufficient cash resources to satisfy our needs over the next 12 months. However, we do not yet have, and we may never have, significant cash inflows from product sales or from other sources of revenue to offset our ongoing and planned investments in corporate infrastructure, research and development projects, regulatory submissions, business development activities, and sales and marketing, among other investments. Some or all of our ongoing or planned investments may not be successful. In addition, irrespective of our cash resources, we may be contractually or legally obligated to make certain investments which cannot be postponed.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Oct. 31, 2011	Jul. 31, 2011
Consolidated Balance Sheets [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	41,148,206	40,034,659
Common stock, shares outstanding	41,148,206	40,034,659

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Document And Entity Information	3 Months Ended
	Oct. 31, 2011	Dec. 13, 2011
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Oct. 31, 2011
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012
Entity Registrant Name	PURE BIOSCIENCE, INC.
Entity Central Index Key	0001006028
Current Fiscal Year End Date	--07-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		41,521,750

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Consolidated Statements Of Operations (USD $)	3 Months Ended
	Oct. 31, 2011	Oct. 31, 2010
Consolidated Statements Of Operations [Abstract]
Net product sales	$ 257,000	$ 23,000
Operating costs and expenses
Cost of goods sold	129,000	10,000
Selling, general and administrative	1,997,000	1,535,000
Research and development	493,000	502,000
Total operating costs and expenses	2,619,000	2,047,000
Loss from operations	(2,362,000)	(2,024,000)
Other income (expense)
Interest income	1,000	2,000
Total other income (expense)	1,000	2,000
Net loss	$ (2,361,000)	$ (2,022,000)
Basic and diluted net loss per share	$ (0.06)	$ (0.06)
Shares used in computing basic and diluted net loss per share	40,370,592	35,671,933

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Common Stock

3 Months Ended

Oct. 31, 2011

Common Stock [Abstract]

Common Stock

7.Common Stock

On October 24, 2011, we entered into a one year service agreement for investor relations services. We issued 150,000 shares of our common stock, with a value of $97,000, for these services. The value was capitalized to prepaid expenses and is being amortized over the term of the agreement.

In April 2011, we entered into a sales agreement with an investment banking firm. On December 14, 2011, we terminated such sales agreement, as permitted by the terms thereof. See Note 10 below. Under the terms of the sales agreement, we were permitted to offer and sell shares of our common stock having an aggregate offering price of up to $7,000,000. The sales were made, from time to time, through the investment bank in "at the market" offerings, as defined by the SEC, and were made pursuant to our effective shelf registration statement previously filed with the SEC. During the quarter ended October 31, 2011, we sold 963,547 shares of our common stock pursuant to these offerings, for net proceeds of $720,000. As of October 31, 2011, we had $2,913,458 remaining on our shelf registration statement, which expires in May 2012.

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Impairment Of Long-Lived Assets

3 Months Ended

Oct. 31, 2011

Impairment Of Long-Lived Assets [Abstract]

Impairment Of Long-Lived Assets

6.Impairment of Long-Lived Assets

In accordance with GAAP, if indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairment by comparing the carrying value of the asset to the fair value of the asset and we record the impairment as a reduction in the carrying value of the related asset and a charge to operating results. Estimating the undiscounted future cash flows associated with long-lived assets requires judgment, and assumptions could differ materially from actual results. During the quarters ended October 31, 2011 and 2010, no impairment of long-lived assets was indicated or recorded.

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Subsequent Events

3 Months Ended

Oct. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

10.Subsequent Events

At the Market Offerings and Termination of Sales Agreement

From November 1, 2011 through December 13, 2011, we sold 373,544 shares of our common stock in at the market offerings pursuant to our sales agreement with an investment banking firm as detailed further in Note 7 above. Net proceeds from the sale of these shares were $228,000. Effective as of December 14, 2011, we terminated the sales agreement pursuant to which such at the market offerings were made. As a result of such termination, there will be no future sales of our common stock under the sales agreement. As of December 13, 2011, we had $2,674,340 remaining on our shelf registration statement.

Agreements with Lincoln Park; Engagement Letter with Wharton Capital Markets

On December 14, 2011, we entered into a purchase agreement, or the $7.5M Purchase Agreement, and a registration rights agreement, or the Registration Rights Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from us up to $7,500,000 in shares of our common stock from time to time over the 36-month period commencing on the date of the effectiveness of a registration statement for the resale of such shares that we must file with the SEC pursuant to the Registration Rights Agreement. We do not have the right to commence any sales to Lincoln Park under the $7.5M Purchase Agreement until the SEC has declared effective the resale registration statement, but after such registration statement is declared effective, we may direct Lincoln Park, from time to time and at our sole discretion (subject to the terms and conditions thereof), to purchase shares of our common stock at a purchase price per share based on the prevailing market prices of our common stock immediately preceding each notice of sale to Lincoln Park. There is no upper limit on the price per share that Lincoln Park could be obligated to pay for our common stock under the $7.5M Purchase Agreement, but in no event will such shares be sold to Lincoln Park at a price of less than $0.25 per share. As consideration for its commitment to purchase shares of our common stock pursuant to the $7.5M Purchase Agreement, we have issued to Lincoln Park 470,711 shares of our common stock at no cost to Lincoln Park. Such shares will be registered for resale pursuant to the registration statement that we must file pursuant to the $7.5M Purchase Agreement and the Registration Rights Agreement.

On December 15, 2011, we entered into an additional purchase agreement, or the $2.5M Purchase Agreement, with Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from us up to $2,500,000 in shares of our common stock. Under the terms of the $2.5M Purchase Agreement, Lincoln Park will initially purchase 1,347,709 shares of our common stock at a price per share of $0.371 for an aggregate amount of $500,000. Thereafter, we may, from time to time and at our sole discretion (subject to the terms and conditions thereof) over a 36-month period, direct Lincoln Park, to purchase shares of our common stock at a purchase price per share based on the prevailing market prices of our common stock immediately preceding each notice of sale to Lincoln Park. The shares sold to Lincoln Park pursuant to the $2.5M Purchase Agreement will be made pursuant to our effective shelf registration statement previously filed with the SEC, as supplemented by our registration statement on Form S-3MEF. As with the $7.5M Purchase Agreement, there is no upper limit on the price per share that Lincoln Park could be obligated to pay for our common stock under the $2.5M Purchase Agreement, but in no event will such shares be sold to Lincoln Park at a price of less than $0.25 per share. As consideration for its commitment to purchase shares of our common stock under to the $2.5M Purchase Agreement, we have issued to Lincoln Park an additional 156,904 shares of our common stock at no cost to Lincoln Park.

In connection with the sale of our common stock to Lincoln Park pursuant to the $2.5M Purchase Agreement and the $7.5M Purchase Agreement, subject to our receipt of written confirmation that the Corporate Finance Department of the Financial Industry Regulatory Authority, Inc., or FINRA, has determined not to raise any objection with respect to the fairness or reasonableness of the compensation terms of our arrangement with Wharton, we have agreed to pay a cash fee to Wharton Capital Markets LLC, or Wharton, pursuant to an engagement letter with Wharton dated December 8, 2011, or the Engagement Letter, in an amount equal to 6% of the aggregate gross proceeds to us from the issuance and sale of shares to be offered pursuant to our agreements with Lincoln Park. Such amounts will become due and payable to Wharton at the time that we actually receive funds from Lincoln Park pursuant to such agreements, provided that we have received such written confirmation of no objections from FINRA. Additionally, only upon our receipt of such written confirmation of no objections from FINRA, we have agreed to issue to Wharton or its designee a warrant to purchase 200,000 shares of our common stock with an exercise price of 110% of the closing sale price of our common stock on the date of the issuance of such warrant. Neither the warrant to be issued to Wharton nor the shares to be issued thereunder are to be registered for sale or resale under the Securities Act and will be issued in reliance on an exemption from registration under the Securities Act pursuant to Section 4(2) thereof.

The matters described in this Note 10 are described in more detail in our Current Report on Form 8-K, which we filed with the SEC on December 15, 2011. In addition, the $2.5M Purchase Agreement, the $7.5M Purchase Agreement, the Registration Rights Agreement and the Engagement Letter are each filed as exhibits to this Quarterly Report on Form 10‑Q.

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Share-Based Compensation

3 Months Ended

Oct. 31, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

8.Share-Based Compensation

The following table summarizes share-based compensation expense related to stock options and restricted stock awards for the three months ended October 31, 2011 and 2010:

		For the three months ended October 31,
		2011		2010
Share-based compensation for employees and directors:
Selling, general and administrative	$	322,000	$	246,000
Research and development		63,000		37,000
		385,000		283,000

Share-based compensation for consultants:
Selling, general and administrative		(8,000)		33,000
Research and development		0		(8,000)
		(8,000)		25,000
Total share-based compensation expense	$	377,000	$	308,000

As of October 31, 2011, there was $1,760,000 of unrecognized non-cash compensation cost related to unvested options, which will be recognized over a weighted average period of 1.78 years. Also, as of October 31, 2011, there was $19,000 of unrecognized non-cash compensation cost related to unvested restricted shares, which will be recognized over a weighted average period 0.22 years.

We estimate the fair value of each option grant on the grant date using the Black-Scholes option valuation model with the following weighted-average assumptions:

	For the three months ended October 31,
	2011	2010
Volatility	81.55% - 81.56%	82.18% - 89.91%
Risk-free interest rate	0.97 % - 1.32%	0.48 % - 2.00%
Dividend yield	0.0%	0.0%
Expected life	5.05 years	3.24 years

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Recent Accounting Pronouncements

3 Months Ended

Oct. 31, 2011

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

9.Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board, or FASB, issued ASU No. 2011-04, "Fair Value Measurement" to amend the accounting and disclosure requirements on fair value measurements. This ASU limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, this update expands the disclosure on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. ASU No. 2011-04 is to be applied prospectively and is effective during interim and annual periods beginning after December 15, 2011 (our quarter beginning February 1, 2012). We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income". This ASU presents an entity with the option to present the total of comprehensive income, the components of net income, and the component of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity/deficit. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU No. 2011-05 should be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (our quarter beginning February 1, 2012). As ASU No. 2011-05 relates only to the presentation of Comprehensive Income, we do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

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Consolidated Statements Of Cash Flows (USD $)	3 Months Ended
	Oct. 31, 2011	Oct. 31, 2010
Consolidated Statements Of Cash Flows [Abstract]
Net loss	$ (2,361,000)	$ (2,022,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation	377,000	308,000
Depreciation and amortization	117,000	118,000
Changes in operating assets and liabilities:
Accounts receivable	(69,000)	(110,000)
Inventories	11,000	(122,000)
Prepaid expenses	8,000	70,000
Accounts payable and accrued liabilities	438,000	190,000
Deferred revenue	0	345,000
Deferred rent	(4,000)	(2,000)
Net cash used in operating activities	(1,483,000)	(1,225,000)
Investing activities
Investment in patents	(39,000)	(40,000)
Net cash used in investing activities	(39,000)	(40,000)
Financing activities
Net proceeds from the sale of common stock	720,000	2,367,000
Net proceeds from exercise of stock options and warrants	0	385,000
Net cash provided by financing activities	720,000	2,752,000
Net increase (decrease) in cash and cash equivalents	(802,000)	1,487,000
Cash and cash equivalents at beginning of period	1,794,000	2,193,000
Cash and cash equivalents at end of period	992,000	3,680,000
Supplemental disclosure of cash flow information
Cash paid for taxes	1,000	0
Supplemental disclosure of non-cash investing and financing activities
Common stock issued for prepaid services	$ 97,000	$ 0

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Inventory

3 Months Ended

Oct. 31, 2011

Inventory [Abstract]

Inventory

5.Inventory

Inventories are stated at the lower of cost or net realizable value, and net of a valuation allowance for potential excess or obsolete material. Cost is determined using the average cost method. Depreciation related to manufacturing is systematically allocated to inventory produced, and expensed through cost of goods sold at the time inventory is sold.

Inventories consist of the following:

		October 31, 2011		July 31, 2011
Raw materials	$	556,000	$	498,000
Finished goods		294,000		363,000
	$	850,000	$	861,000