| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies Basis
of Presentation The
accompanying consolidated financial statements include the consolidated accounts of PURE Bioscience, Inc. and its wholly owned subsidiary,
ETIH2O Inc., a Nevada corporation. ETIH2O Inc. has no business and no material assets or liabilities and there have been no significant
transactions related to ETIH2O Inc. during the periods presented in the consolidated financial statements. All inter-company balances
and transactions have been eliminated. Revenue
Recognition Effective
August 1, 2018, we adopted the Financial Accounting Standards Board or the FASB, Accounting Standards Codification or ASC, Topic 606,
Revenue from Contracts with Customers or Topic 606. Under Topic 606, revenue is recognized at an amount that reflects the consideration
to which we expect to be entitled in exchange for transferring goods or services to a customer. This principle is applied using the following
5-step process:
1. Identify
the contract with the customer
2. Identify
the performance obligations in the contract
3. Determine
the transaction price
4. Allocate
the transaction price to the performance obligations in the contract
5. Recognize
revenue when (or as) each performance obligation is satisfied Under
Topic 606, we recognize revenue when we satisfy a performance obligation by transferring control of the promised goods or services to
our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our
technology platform is based on patented stabilized ionic silver, and our initial products contain silver dihydrogen citrate, or SDC.
SDC is a broad-spectrum, non-toxic antimicrobial agent, which offers residual protection and formulates well with other compounds.
We sell various configurations and dilutions of SDC direct to customers and through distributors. We currently offer PURE ® ® Contract
terms for unit price, quantity, shipping and payment are governed by sales agreements and purchase orders which we consider to be a customer’s
contract in all cases. The unit price is considered the observable stand-alone selling price for the arrangements. Any promotional or
sales discounts are applied evenly to the units sold for purposes of calculating standalone selling price. Product
sales generally consist of a single performance obligation that we satisfy at a point in time. We recognize product revenue when the
following events have occurred: (a) we have transferred physical possession of the products, (b) we have a present right to payment,
(c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. Our
direct customer and distributor sales are invoiced based on received purchase orders. Our payment terms on invoiced direct customer and
distributor sales range between 30 and 90 days after we satisfy our performance obligation. The majority of our customers are on 30 day
payment terms. We currently offer no right of return on invoiced sales and maintain no allowance for sales returns. Shipping
and handling are treated as activities to fulfill promises to customers and any amounts billed to a customer, if applicable, represent
revenues earned for the goods provided. Costs related to such shipping and handling billings are classified as cost of sales. We
do not have significant categories of revenue that may impact how the nature, amount, timing and uncertainty of revenue and cash flows
are affected by economic factors. A
summary of our revenue by product type for the fiscal years ended July 31, 2023 and 2022 is as follows: Summary of Revenue by Product
2023 2022
July 31,
2023 2022
PURE Hard Surface $ 1,786,000 $ 1,498,000
SILVÉRION 85,000 315,000
Revenue $ 1,871,000 $ 1,813,000 Variable
Consideration We
record revenue from customers in an amount that reflects the transaction price we expect to be entitled to after transferring control
of those goods or services. From time to time, we offer sales promotions on our products such as discounts. Variable consideration is
estimated at contract inception only to the extent that it is probable that a significant reversal of revenue will not occur. Use
of Estimates The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements, and the disclosures made in the accompanying notes to the consolidated financial statements. Actual results could differ
materially from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts, inventory
obsolescence, depreciable lives of property and equipment, analysis of impairments of recorded long-term tangible and intangible assets,
realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Cash
and Cash Equivalents Cash
and cash equivalents consist of cash and highly liquid investments with original maturities from the purchase date of three months or
less. Restricted
Cash The
Company is required to maintain $ 75,000 Accounts
Receivable Trade
accounts receivable are recorded net of allowances for doubtful accounts. We evaluate the collectability of our trade accounts receivable
based on a number of factors. In circumstances where we becomes aware of a specific customer’s inability to meet its financial
obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the
estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad
debts, bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding.
Management determined no allowance for doubtful accounts was necessary at July 31, 2023 and 2022. Inventories Inventories
are stated at the lower of cost or net realizable value, and net of a valuation allowance for potential excess or obsolete material.
Cost is determined using the average cost method. We regularly review our inventory quantities on hand and record a provision for excess
and obsolete inventory based primarily on our estimated forecast of product demand and our ability to sell the product(s) concerned.
Demand for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes
in consumer preferences, general market conditions or other factors, which may result in cancellations of advance orders or a reduction
in the rate of reorders placed by customers. Additionally, our management’s estimates of future product demand may be inaccurate,
which could result in an understated or overstated provision required for excess and obsolete inventory. At July 31, 2023 and 2022, the
Company determined that an additional reserve for inventory obsolescence of $ 34,000 75,000 Property,
Plant and Equipment Property,
plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives of our property, plant, and equipment range from three to ten years.
Capitalized costs associated with leasehold improvements are depreciated over the lesser of the useful life of the asset or the remaining
life of the lease. Depreciation is generally included in selling, general and administrative expense. Depreciation related to manufacturing
is systematically allocated to inventory produced, and expensed through cost of goods sold at the time inventory is sold. Management
assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from
the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment
loss is recognized to write down the asset to its estimated fair value. For the year ended July 31, 2023, management performed its annual
impairment test and determined that its forecasted operations could no longer support $ 237,000
of manufacturing equipment previously capitalized
as fixed assets, and as such an impairment was recognized. In addition, we wrote down $ 78,000 55,000 Patents We
have filed a number of patent applications with the United States Patent and Trademark Office and in foreign countries. Certain legal
and related costs incurred in connection with pending patent applications have been capitalized. Costs related to successful patent applications
in prior years were capitalized and were amortized over the lesser of the remaining useful life of the related technology or the remaining
patent life, commencing on the date the patent is issued. Costs related to patent applications are expensed in the period and recorded
as a component of selling, general and administrative expense. Impairment
of Long-Lived Assets In
accordance with GAAP, if indicators of impairment exist, we assess the recoverability of the affected long-lived assets, including
our capitalized patent costs, 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. As of July 31, 2023, management performed its annual impairment test and
determined that its forecasted operations could no longer support $ 237,000 78,000 299,000 Shipping
and Handling Costs Shipping
and handling costs incurred by us for product shipments are included in cost of goods sold. Research
and Development Costs Research
and development costs are expensed as incurred. Share-Based
Compensation We
periodically issue stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services
and for financing costs. We account for such grants issued and vesting to employees based on ASC 718, whereby the value of the award
is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. We
estimate the fair value of share-based payment awards at the date of grant using the Black-Scholes option valuation model. The Black-Scholes
option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest
rate, dividend yield, and expected life of the option. Share-based compensation expense is based on awards ultimately expected to vest,
and therefore is reduced by expected forfeitures. Fair
Value Measurements The
Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the
use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs,
of which the first two are considered observable and the last unobservable, to measure fair value:
● Level
1 — Quoted prices in active markets for identical assets or liabilities.
● Level
2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
● Level
3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. The
carrying amounts of financial instruments such as cash, accounts receivable, inventories, accounts payable and accrued liabilities, approximate
the related fair values due to the short-term maturities of these instruments. Concentrations Gross
sales 24 10 14 13 10 10 Accounts
receivable. 28 17 15 13 Purchases.
19 19 Accounts
payable. 29 25 Income
Taxes We
recognize deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts
at which they are carried in the financial statements based upon the enacted tax rates in effect for the year in which the differences
are expected to reverse. A valuation allowance is established to reduce deferred tax assets to the amount expected to be realized. Income
(Loss) Per Share Basic
net loss per common share is computed as net loss divided by the weighted average number of common shares outstanding for the period.
Our diluted net loss per common share is the same as our basic net loss per common share because we incurred a net loss during each period
presented, and the potentially dilutive securities from the assumed exercise of all outstanding stock options, restricted stock units,
and warrants would have an anti-dilutive effect. As of July 31, 2023 and 2022, stock options, shares issuable upon the conversion of
debt, and shares issuable under restricted stock unit awards of 14,220,381 7,291,625 ,
respectively, have been excluded from the computation of diluted shares outstanding. Segments We
operate in one Reclassification For the fiscal year ended July 31, 2022, $ 55,000 Recent
Accounting Pronouncements In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments or ASC 326. The standard
significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivable. The
standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies
will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect
adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As small business
filer, the standard will be effective for us for interim and annual reporting periods beginning after December 15, 2022. The Company
is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures. In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50),
Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options or ASU
2021-04. ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange
of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an
exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference
between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange
and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each
category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or
modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. The adoption of ASU 2021-04 did not have any impact on the Company’s consolidated financial statement
presentation or disclosures. Recent
accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statement presentation or disclosures. |
