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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>5</b>. <b>Fair Value of Financial Instruments</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value is defined as an exit price, representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would
use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative guidance establishes a three-tier
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify"> </td>
<td style="width: 24px; text-align: justify"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">Level 1 – Quoted prices in active markets for identical assets or liabilities.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">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.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">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.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the October and November
2015 Private Placements, we issued warrants with derivative features. These instruments were accounted for as derivative liabilities
(See Note 6 to these consolidated financial statements).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We used Level 3 inputs for the valuation methodology
of the derivative liabilities. The estimated fair values were computed using a Monte Carlo option pricing model based on various
assumptions. Our derivative liabilities are adjusted to reflect estimated fair value at each period end, with any decrease or increase
in the estimated fair value being recorded in other income or expense accordingly, as adjustments to the fair value of the derivative
liabilities. Various factors are considered in the pricing models we use to value the warrants, including the Company’s current
stock price, the remaining life of the warrants, the volatility of the Company’s stock price, and the risk free interest
rate.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table provides a reconciliation
of the beginning and ending balances of the derivative liabilities for the years ended July 31, 2018 and 2017:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Fair Value of Significant Unobservable Inputs
(Level 3)</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>Warrant</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Liability</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 82%; text-align: justify"><font style="font-size: 10pt">Balance at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1,802,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Issuances</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Settlement of warrant liability</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(226,000</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Adjustments to estimated fair value</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">277,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Balance at July 31, 2017</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1,853,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Issuances</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Settlement of warrant liability</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(1,394,000</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Adjustments to estimated fair value</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(459,000</font></td>
<td><font style="font-size: 10pt">) </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Balance at July 31, 2018</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>6. Derivative Liability</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 23, 2015, we completed a first closing
of a private placement financing (the “2015 Private Placement Financing”), where we issued, among other securities,
a warrant to purchase up to an aggregate of 6,666,666 shares of common stock with a term of five years and a warrant to purchase
up to an aggregate of 8,666,666 shares of common stock with a term of six months.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On November 23, 2015, we completed a second
and final closing of the 2015 Private Placement Financing, where we issued, among other securities, a warrant to purchase up to
an aggregate of 2,222,217 shares of common stock with a term of five years and a warrant to purchase up to an aggregate of 2,820,670
shares of common stock with a term of six months.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We accounted for the combined 20,376,219 warrants
issued in connection with the 2015 Private Placement Financing in accordance with the accounting guidance for derivatives. The
applicable accounting guidance sets forth a two-step model to be applied in determining whether a financial instrument is indexed
to an entity’s own stock, which would qualify such financial instruments for a scope exception. This scope exception specifies
that a contract that would otherwise meet the definition of a derivative financial instrument would not be considered as such if
the contract is both (i) indexed to the entity’s own stock and (ii) classified in the stockholders’ equity section
of the entity’s balance sheet. We determined the warrants were ineligible for equity classification due to anti-dilution
provisions set forth therein.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2016,
(i) all 2,820,670 of the six-month warrants issued in the second and final closing were exercised, (ii) the six-month warrants
issued in the first closing expired and (iii) the five-year warrants issued in the first closing were cancelled.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 25, 2017, we completed the first
closing of a tender offer (the “Tender Offer”) to amend and exercise outstanding warrants to purchase shares of our
common stock held by the investors participating in the 2015 Private Placement Financing and our 2014 and 2017 private placement
financings. As a result, 1,599,135 warrants issued in connection with the 2015 Private Placement Financing were exercised for cash.
In addition, there was a net exercise on 118,057 warrants which resulted in the issuance of 63,811 shares of our common stock.
The net exercised warrants were issued in connection with the 2015 Private Placement Financing. The change in fair value of the
warrant liabilities on September 25, 2017 was recorded as a change in derivative liabilities in the consolidated statements of
operations. The fair value on the exercise date was returned to additional paid-in capital and is reflected in the settlement of
warrant liability section on the table in Note 5. The following assumptions were used as inputs to the fair value model at September
25, 2017: stock price of $1.00 per share and a warrant exercise price of $0.45 per share as of the valuation date; our historical
stock price volatility of 70.00%; risk free interest rate on U.S. treasury notes of 1.6%; warrant expiration of 3.2 years (See
Note 7 to these consolidated financial statements).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 10, 2017, we completed a second
and final closing of the Tender Offer. As a result, 268,909 warrants issued in connection with the 2015 Private Placement Financing
were exercised. The change in fair value of the warrant liabilities on October 10, 2017 was recorded as a change in derivative
liabilities in the consolidated statements of operations. The fair value on the exercise date was returned to additional paid-in
capital and is reflected in the settlement of warrant liability section on the table in Note 5. The following assumptions were
used as inputs to the fair value model at October 10, 2017: stock price of $1.03 per share and a warrant exercise price of $0.45
per share as of the valuation date; our historical stock price volatility of 70.00%; risk free interest rate on U.S. treasury notes
of 1.6%; warrant expiration of 3.1 years (See Note 7 to these consolidated financial statements).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2018,
all remaining warrants containing derivative features issued in connection with the 2015 Private Placement Financing were exercised.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of July 31, 2018, the total value of the
derivative liabilities was zero. The change in fair value of the warrant liabilities for fiscal years ended July 31, 2018 and
2017, was a decrease of $459,000 and an increase $277,000, respectively, which was recorded as a change in derivative liabilities
in the consolidated statements of operations.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>7. Stockholders’ Equity</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> <i><u>Preferred Stock</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of July 31, 2018, the Company’s Board
of Directors is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.01 per share, in one or more series.
As of July 31, 2018 and July 31, 2017, there were no shares of preferred stock issued and outstanding.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Common Stock</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of July 31, 2018, 100,000,000 shares of
common stock with a par value of $0.01 per share are authorized for issuance.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Schedule TO and Warrant Exercises</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white">On October 10, 2017,
we closed the Tender Offer. Specifically, we filed a Schedule TO with the SEC on August 25, 2017 offering to (i) reduce the exercise
price of the warrants to purchase 4,104,980 shares of common stock issued to investors participating in our private placement financing
completed on August 29, 2014, as amended (the “2014 Warrants”) from $0.75 per share to $0.60 per share of common stock
in cash, (ii) reduce the exercise price of outstanding warrants to purchase 1,986,101 shares of common stock issued to investors
participating in our private placement financing completed on November 23, 2015 (the “2015 Warrants”) from $0.45 per
share to $0.40 per share of common stock in cash, (iii) reduce the exercise price of the outstanding warrants to purchase 1,572,941
shares of common stock issued to investors participating in our private placement financing completed on January 23, 2017 (the
“2017 Warrants”, together with the 2014 Warrants and 2015 Warrants, the “Original Warrants”) from $1.25
per share to $0.85 per share of common stock in cash, (iv) shorten the exercise period of the Original Warrants so that they expired
concurrently with the expiration of the Offer to Amend and Exercise at 5:00 p.m. (Pacific Time) on September 25, 2017 (“Expiration
Date”) unless extended until the Subsequent Expiration Date (as defined below), (v) delete the cashless exercise provisions
in the Original Warrants and (vi) delete the price-based anti-dilution provisions contained in the 2015 Warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white">Additionally, we requested
the holders of a majority of the shares issuable upon exercise of the 2014 Warrants (the “2014 Requisite Majority”),
2015 Warrants (the “2015 Requisite Majority”) and 2017 Warrants (the “2017 Requisite Majority”) to approve
an amendment of all of the outstanding 2014 Warrants, 2015 Warrants and 2017 Warrants, respectively, to amend such Original Warrants
in the same manner as set forth above (the “Aggregate Warrant Amendment”), except the Expiration Date would be extended
until October 10, 2017 (the “Subsequent Expiration Date”) if such Aggregate Warrant Amendment was approved with respect
to such class of Original Warrants. The 2015 Requisite Majority approved an amendment of all of the outstanding 2015 Warrants and
holders of 2015 Warrants had until the Subsequent Expiration Date to exercise their 2015 Warrants (the “Subsequent Offer
Period”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Offer to Amend and Exercise with respect
to the 2014 Warrants and 2017 Warrants expired on the Expiration Date of September 25, 2017. As of September 25, 2017, 1,491,649
shares of common stock were issued upon exercise of 2014 Warrants, 1,599,135 shares of common stock were issued upon exercise of
2015 Warrants and 1,396,470 shares of common stock were issued upon exercise of 2017 Warrants, for aggregate gross proceeds to
us of approximately $2,720,000. During the Subsequent Offer Period, 2015 Warrants to purchase 268,909 shares of common stock were
exercised for aggregate gross proceeds to us of approximately $107,000. 2014 Warrants to purchase 2,533,331 shares of common stock
and 2017 Warrants to purchase 176,471 shares of common stock at exercise prices of $0.75 per share and $1.25 per share, respectively,
continue to remain outstanding and no 2015 Warrants remain outstanding.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Original Warrants (including 2015 Warrants
exercised during the Subsequent Offer Period) to purchase an aggregate of 4,756,163 shares of common stock were tendered and exercised
in the Offer to Amend and Exercise for aggregate net proceeds to us of approximately $2,632,000. Garden State Securities Inc. assisted
the Company as warrant solicitation agents with respect to the 2017 Warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Due to the reduction in exercise price for
the Original Warrants issued in connection with the Schedule TO, we determined it was appropriate to record $876,000 of expense
in the consolidated statement of operations for the inducement to exercise the Original Warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Prior Year Private Placements</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 1, 2016, we completed an initial
closing (the “Initial Closing”) of a private placement financing (the “Private Placement Offering”) to
accredited investors. We raised aggregate gross proceeds of $1,000,000 from the sale of (i) an aggregate of 1,176,472 shares of
the Company’s common stock at a purchase price of $0.85 per share and (ii) warrants to purchase up to an aggregate of 1,176,472
shares of common stock with a term of five years at an exercise price of $1.25 per share. We determined the warrants issued in
connection with the Initial Closing were equity instruments and did not represent derivative instruments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 23, 2017, we closed on a second
and final closing (the “Final Closing”) of the Private Placement Offering. In the Final Closing we raised aggregate
gross proceeds of approximately $337,000 from the sale of (i) an aggregate of 396,469 shares of the Company’s common stock
at a purchase price of $0.85 per share and (ii) warrants to purchase up to an aggregate of 396,469 shares of common stock with
a term of five years at an exercise price of $1.25 per share. The securities issued in the Private Placement Offering were issued
pursuant to a securities purchase agreement entered into with the accredited investors. We determined the warrants issued in connection
with the Final Closing were equity instruments and did not represent derivative instruments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We utilized the services of a placement agent
for the Private Placement Offering. In connection with the Private Placement Offering, we paid such placement agent an aggregate
cash fee of $128,600 and issued to such placement agent or its designees warrants to purchase 151,294 shares of common stock at
an exercise price of $1.275 per share. The terms of the placement agent warrants are substantially identical to the investor warrants,
other than the exercise price and the holders’ ability to exercise the placement agent warrants on a cashless basis at its
discretion. Additionally, we agreed to pay the placement agent a $12,000 due diligence fee and to reimburse the placement agent
for fees of counsel up to $35,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The net proceeds from the Private Placement
Offering was approximately $1,049,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Other Activity</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 1, 2017, we entered into a two-year
service agreement for business development services. In accordance with the agreement we issued 50,000 shares of common stock,
with a value of $51,000. The value was capitalized to prepaid expense and is being amortized over the term of the agreement. During
the fiscal year ended July 31, 2018, we recognized $21,000 of expense related to these services.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 13, 2016, we entered into a two-year
service agreement for general financial advisory services. In accordance with the agreement we issued 250,000 shares of common
stock, with a value of $290,000. The value was capitalized to prepaid expense and is being amortized over the term of the agreement.
For the years ended July 31, 2018 and 2017, we recognized $101,000 and $144,000 of expense related to these services, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Warrants</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2018,
in addition to the 4,756,163 Original Warrants exercised, there were net exercises on 573,057 warrants which resulted in the issuance
of 158,342 shares of our common stock. As these warrants were net exercised, as permitted under the respective warrant agreement,
we did not receive any cash proceeds. 198,057 of the warrants exercised during the period were issued in connection with the Original
Warrants discussed above.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2017,
we received approximately $185,000 from the exercise of warrants to purchase 342,116 shares of common stock. 236,116 of the warrants
exercised contained derivative features, while 106,000 of the warrants exercised were considered equity instruments. In addition,
there was a net exercise on 5,335 warrants which resulted in the issuance of 4,179 shares of our common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of our warrant activity and related
data is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%"><font style="font-size: 10pt">Outstanding at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">7,056,426</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,724,235</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(347,451</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Expired/Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(129,374</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding at July 31, 2017</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">8,303,836</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(5,329,220</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Expired/Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(113,520 </font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2,861,096</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes information
related to warrants outstanding at July 31, 2018:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center"><font style="font-size: 10pt"><b>Expiration</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>Exercise</b></font></td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Date</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 61%; text-align: center"><font style="font-size: 10pt">08/29/19</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">0.75</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">2,533,331</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"><font style="font-size: 10pt">12/01/21</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.25</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">58,824</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: center"><font style="font-size: 10pt">12/01/21</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.28</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">117,647</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"><font style="font-size: 10pt">01/23/22</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.25</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">117,647</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: center"><font style="font-size: 10pt">01/23/22</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: Black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: Black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1.28</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">33,647</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,861,096</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>8. Share-Based Compensation</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Restricted Stock Units </u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2018,
the Compensation Committee of the Board of Directors authorized the issuance of 450,000 Restricted Stock Units (“RSUs”)
to newly appointed members of our Board of Directors. RSUs issued to directors vest in two 50% installments on or before our annual
meeting of stockholders, typically held in January. In addition, we issued 300,000 performance based RSUs to third-party consultants.
We currently do not expect the 300,000 RSUs to vest. Each RSU represents the right to receive one share of common stock, issuable
at the time the RSU is delivered and subsequently settles, as set forth in the Restricted Stock Unit Agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="background-color: white">During
the fiscal year ended July 31, 2017, the Compensation Committee of the Board of Directors authorized the issuance of 1,150,000
RSUs to our officers and directors. RSUs granted to our officers vest over a four year period while RSUs granted to our directors
vest</font> in two 50% installments on or before our annual meeting of stockholders, typically held in January.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of our restricted stock unit activity
and related data is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%"><font style="font-size: 10pt">Outstanding at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">1,285,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,150,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(150,000</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Forfeited</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(250,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2017</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2,035,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">750,000 </font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(375,000 </font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Forfeited</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(885,000 </font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,525,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Of the 1,525,000 unvested RSUs outstanding
at July 31, 2018, we currently expect 1,225,000 to vest. As of July 31, 2018, there was $960,000 of unrecognized non-cash compensation
cost related to RSUs we expect to vest, which will be recognized over a weighted average period of 2.64 years. During the fiscal
year ended July 31, 2018, 375,000 RSUs vested, based on service conditions. All of the RSUs that vested during the fiscal year
ended July 31, 2018 have not been delivered and remain outstanding, as set forth in the RSU agreements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2017,
150,000 RSUs vested based on service conditions that were satisfied during the period, resulting in the issuance of 150,000 shares
of common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For the years ended July 31, 2018 and 2017,
share-based compensation expense for RSUs was $834,000 and $102,000, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>RSU Termination</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 13, 2016, we entered into an RSU
Cancellation Agreement with our officers and directors who received RSUs in October 2013 as compensation for their continued services
to us over a required vesting period. Under this Agreement, our officers and directors agreed to cancel RSUs representing the right
to receive an aggregate of 3.9 million vested shares of our common stock. Pursuant to the terms of the cancelled RSUs, we would
have been required to settle and deliver these vested shares to the individual officers and directors prior to January 1, 2017,
which would have triggered a taxable event. Our officers and directors, in their individual capacities, voluntarily agreed to cancel
their respective RSUs based on their determination that cancelling the RSUs would be in the best interests of the Company and our
stockholders. The individual officers and directors reached this conclusion for the following reasons:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 67px; text-align: justify"> </td>
<td style="width: 24px; text-align: justify"><font style="font-size: 10pt">1.</font></td>
<td style="text-align: justify"><font style="font-size: 10pt"><u>Conserved our Additional Available Cash Resources</u>. The RSUs held by our officers provide these individuals with the right to require us to pay the applicable state and federal taxes due upon the settlement and delivery of their vested RSU shares in exchange for the individual cancelling and returning to us that number of shares of common stock equal in value to the contractual tax payment obligation. By agreeing to cancel the RSUs, we were not required to utilize our available cash resources to pay the tax payments on behalf of our officers, and as a result, we were able to conserve our cash resources to support the continued implementation of our business plan.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">2.</font></td>
<td style="text-align: justify"><font style="font-size: 10pt"><u>Reduced Pressure on Our Stock Price</u>. The RSUs held by our non-employee directors provide these individuals with the right to immediately sell into the public market that number of shares of common stock sufficient to cover the applicable state and federal taxes payable as a result of the settlement and delivery of their vested RSU shares. Our common stock has a limited daily trading volume, and the sale or the potential sale of a substantial number of shares of common stock by our officers and directors to cover their federal and state tax obligations would have adversely affected the market price of our common stock, which in turn, could have harmed our ability to raise funds to support our operations or require us to raise funds at terms and valuations that would be more dilutive to our existing stockholders.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Each of our officers and directors who are
parties to the RSU Cancellation Agreement agreed to cancel their RSUs and the shares of common stock underlying the RSUs in their
individual capacities as stockholders and equity award holders, and without any agreement or promise from us or our officers or
directors to issue them equity, equity-based awards or cash compensation in the future in exchange for entering into the Agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2017,
$87,000 of pre-vest expense was reversed as a result of the RSU cancellation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Stock Issued for Services</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2018,
we issued 190,500 shares of common stock for accrued services valued at $121,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Stock Option Plans</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>2007 Equity Incentive Plan</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, we amended and restated our
2007 Equity Incentive Plan, the (“2007 Plan”), to, among other changes, increase the number of shares of common stock
issuable under the 2007 Plan by 4,000,000 shares and extend the term of the 2007 Plan until February 4, 2026. The 2007 Plan provides
for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, to our employees, directors,
consultants and advisors. These awards have up to a 10-year contractual life and are subject to various vesting periods, as determined
by the Compensation Committee of the Board of Directors. As of July 31, 2018, there were approximately 940,000 shares available
for issuance under the 2007 Plan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>2017 Equity Incentive Plan</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Approved by our shareholders in January 2018,
the 2017 Equity Incentive Plan, the (“2017 Plan”), has a share reserve of 5,000,000 shares of common stock, which were
registered under a Form S-8 filed with the SEC in February 2018. The 2017 Plan provides for the grant of incentive and non-qualified
stock options, as well as other share-based payment awards, to our employees, directors, consultants and advisors. These awards
have up to a 10-year contractual life and are subject to various vesting periods, as determined by the Compensation Committee of
the Board of Directors. As of July 31, 2018, there were approximately 2,815,000 shares available for issuance under the 2017 Plan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Stock Option Activity</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2018,
we issued 2,245,000 stock options at various exercise prices to employees, directors, and consultants. The options vest between
one and two years and carry a term between five and ten years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2018,
the Compensation Committee of the Board of Directors extended the expiration terms of 740,000 employee options by three years.
We accounted for the option modification under ASC Topic 718 and recorded a one-time expense of $203,000, which was expensed under
the share-based compensation line item on the consolidated statements of operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended July 31, 2017,
we issued 3,735,000 stock options at various exercise prices to employees, directors, advisory members and consultants. The options
vest between one and four years and carry a term between five and ten years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of our stock option activity for
the fiscal years ended July 31, 2018 and 2017 is as follows: </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-</b></font><br />
<font style="font-size: 10pt"><b>Average</b></font><br />
<font style="font-size: 10pt"><b>Exercise Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Aggregate</b></font><br />
<font style="font-size: 10pt"><b>Intrinsic</b></font><br />
<font style="font-size: 10pt"><b>Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 42%"><font style="font-size: 10pt">Outstanding at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">2,277,968</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">1.60</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3,735,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.05</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(253,125</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1.42</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2017</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">5,759,843</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1.25</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1,120,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,245,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">0.84</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(378,750</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1.96</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">7,626,093</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1.09</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">— </font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 20pt; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The weighted average expected term of options
outstanding at July 31, 2018 was 5.47 years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At July 31, 2018, options to purchase 4,017,343
shares of common stock were exercisable. These options had a weighted-average exercise price of $1.18, an aggregate intrinsic value
of zero, and a weighted average expected term of 4.02 years. The weighted average grant date fair value for options granted during
the years ended July 31, 2018 and 2017, was $0.44 and $0.67, respectively. The total unrecognized compensation cost related to
unvested stock option grants as of July 31, 2018 was approximately $1,533,000 and the weighted average period over which these
grants are expected to vest is 2.43 years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For the fiscal year ended July 31, 2018 and
2017, share-based compensation expense for stock options was $1,525,000 and $968,000 respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We use the Black-Scholes valuation model to
calculate the fair value of stock options. Share-based compensation expense is recognized over the vesting period using the straight-line
method. The fair value of stock options was estimated at the grant date using the following weighted average assumptions:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the years ended</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>July 31,</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Volatility</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">71.18</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">81.00</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.32</font></td>
<td><font style="font-size: 10pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td><font style="font-size: 10pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expected life</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3.69</font></td>
<td><font style="font-size: 10pt">years</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">4.66</font></td>
<td><font style="font-size: 10pt">years</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Volatility is the measure by which our stock
price is expected to fluctuate during the expected term of an option. Volatility is derived from the historical daily change in
the market price of our common stock, as we believe that historical volatility is the best indicator of future volatility.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The risk-free interest rates used in the Black-Scholes
calculations are based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have never paid dividends on our common
stock and do not anticipate paying dividends on our common stock in the foreseeable future. Accordingly, we have assumed no dividend
yield for purposes of estimating the fair value of our share-based compensation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The weighted average expected life of options
was estimated using the average of the contractual term and the weighted average vesting term of the options. Certain options
granted to consultants are subject to variable accounting treatment and are required to be revalued until vested.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>12. Subsequent Events</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Private Placement Financing</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 16, 2018, we completed a closing
(the “Closing”) of a private placement financing to accredited investors. We raised approximately $1.5 million in the
Closing and issued an aggregate of 3,333,964 shares of our common stock at a purchase price of $0.45 per share, including the conversion
of approximately $0.5 million held in the form of a promissory note as of July 31, 2018. The shares issued in the private placement
financing were issued pursuant to a securities purchase agreement entered into with the investors. Mr. Tom Y. Lee, a member of
the Company’s Board of Directors invested approximately $1.0 million through his affiliates, including approximately $0.5
million of cash and the cancellation of existing indebtedness in the amount of approximately $0.5 million that was held in the
form of a promissory note payable as of July 31, 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The net proceeds to us from the Closing (including
the cancellation of indebtedness), after deducting fees and other offering expenses, are approximately $1.49 million. We expect
to use the net proceeds for general corporate purposes, including our research and development efforts, and for general administrative
expenses and working capital.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The issuance and sale of the Shares was not
registered under the Securities Act of 1933, as amended (the “Securities Act”), and these Shares may not be offered
or sold in the United States absent registration under or exemption from the Securities Act and any applicable state securities
laws. The Shares were issued and sold in reliance upon an exemption from registration afforded by Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D promulgated under the Securities Act. The Investors represented to the Company that each was
an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act, and that each was
receiving the Shares for investment for its own account and without a view to distribute them.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories consist of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; text-align: justify"><font style="font-size: 10pt">Raw materials</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">39,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">82,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Finished goods</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">158,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">191,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt; text-align: justify"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">197,000</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">273,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table provides a reconciliation
of the beginning and ending balances of the derivative liabilities for the years ended July 31, 2018 and 2017:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Fair Value of Significant Unobservable Inputs
(Level 3)</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>Warrant</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Liability</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 82%; text-align: justify"><font style="font-size: 10pt">Balance at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1,802,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Issuances</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Settlement of warrant liability</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(226,000</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Adjustments to estimated fair value</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">277,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Balance at July 31, 2017</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1,853,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Issuances</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Settlement of warrant liability</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(1,394,000</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Adjustments to estimated fair value</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(459,000</font></td>
<td><font style="font-size: 10pt">) </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">Balance at July 31, 2018</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of our stock option activity for
the fiscal years ended July 31, 2018 and 2017 is as follows: </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Weighted-</b></font><br />
<font style="font-size: 10pt"><b>Average</b></font><br />
<font style="font-size: 10pt"><b>Exercise Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Aggregate</b></font><br />
<font style="font-size: 10pt"><b>Intrinsic</b></font><br />
<font style="font-size: 10pt"><b>Value</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 42%"><font style="font-size: 10pt">Outstanding at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">2,277,968</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">1.60</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3,735,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.05</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(253,125</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1.42</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2017</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">5,759,843</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1.25</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1,120,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,245,000</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">0.84</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(378,750</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1.96</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2018</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">7,626,093</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">1.09</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">— </font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of stock options was estimated
at the grant date using the following weighted average assumptions:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the years ended</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>July 31,</b></p></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Volatility</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">71.18</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">81.00</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2.32</font></td>
<td><font style="font-size: 10pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1.70</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td><font style="font-size: 10pt">%</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Expected life</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3.69</font></td>
<td><font style="font-size: 10pt">years</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">4.66</font></td>
<td><font style="font-size: 10pt">years</font></td></tr>
</table>
<p style="margin: 0pt"></p>
58000
50000
26000
19000
503000
64823917
63093153
68248158
1572941
16000
1033000
1049000
1525000
968000
968000
1525000
834000
102000
102000
834000
1394000
226000
226000
1394000
150000
1000
-1000
346295
4914505
2632000
3000
182000
185000
49000
2583000
-3800000
-38000
38000
500000
500000
3000
121000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>1. Organization and Business</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">All references to “PURE,” “we”,
“our,” and “us” refer to PURE Bioscience, Inc. and our wholly owned subsidiary.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">PURE Bioscience, Inc. is focused on developing
and commercializing our proprietary antimicrobial products that provide 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
silver dihydrogen citrate, or SDC. SDC is a broad-spectrum, non-toxic antimicrobial agent that is manufactured as a liquid delivered
in various concentrations. We currently distribute and contract the manufacture and distribution of our SDC-based disinfecting
and sanitizing products. We also contract manufacture and sell SDC-based formulations to manufacturers for use as a raw material
ingredient in the production of personal care products. We believe our technology platform has potential application in a number
of industries. We intend to focus our current resources on providing food safety solutions to the food industry.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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. We operate in one business segment.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Liquidity & Going Concern Uncertainty</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">These consolidated financial statements have
been prepared and presented on a basis assuming we will continue as a going concern. The factors below raise substantial doubt
about our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary
from the outcome of this uncertainty.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Since our inception, we have financed our operations
primarily through public and private offerings of securities, debt financing, and revenue from product sales and license agreements.
We have a history of recurring losses, and as of July 31, 2018, we have incurred a cumulative net loss of $116,924,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We do not have, and may never have, significant
cash inflows from product sales or from other sources of revenue to fund our operations. As of July 31, 2018, we had $851,000 in
cash and cash equivalents, and $1,281,000 of current liabilities, including $608,000 in accounts payable. On August 16, 2018, we
completed a closing of a private placement financing to accredited investors. We raised approximately $1.5 million in net proceeds
from the private placement financing and issued an aggregate of 3,333,964 shares of our common stock at a purchase price of $0.45
per share, including the conversion of approximately $0.5 million held in the form of a promissory note as of July 31, 2018. The
shares issued in the private placement financing were issued pursuant to a securities purchase agreement entered into with the
investors. Mr. Tom Y. Lee, a member of the Company’s Board of Directors invested approximately $1.0 million through his affiliates,
including approximately $0.5 million of cash and the cancellation of existing indebtedness in the amount of approximately $0.5
million that was held in the form of a promissory note payable as of July 31, 2018. We do not currently believe that our existing
cash resources are sufficient to meet our anticipated needs over the next twelve months from the date hereof.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Until we can generate significant cash from
operations, we expect to continue to fund our operations with the proceeds of offerings of our equity and debt securities. However,
we cannot assure you that additional financing will be available when needed or that, if available, financing will be obtained
on terms favorable to us or to our stockholders. If we raise additional funds from the issuance of equity securities, substantial
dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms
of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict
our ability to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us
to relinquish our rights to our products or technology, and we cannot assure you that we will be able to enter into any such contracts
or license arrangements on acceptable terms, or at all. Having insufficient funds may require us to delay or scale back our marketing,
distribution and other commercialization activities or cease our operations altogether.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We do not have any unused credit facilities
or other sources of capital available to us at this time. We intend to secure additional working capital through sales of additional
debt or equity securities. Our intended financing initiatives are subject to risk, and we cannot provide any assurance about the
availability or terms of these or any future financings.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The consolidated financial statements do not
include any adjustment relating to recoverability or classification of recorded assets and classification of recorded liabilities.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>2. Summary of Significant Accounting
Policies</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Basis of Presentation</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Use of Estimates</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Reclassification</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 as of and for the year ended July 31, 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Cash and Cash Equivalents</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash and cash equivalents consist of
cash and highly liquid investments with original maturities from the purchase date of three months or less.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Restricted Cash</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is required to maintain
$75,000 in a restricted certificate of deposit account in order to fully collateralize four revolving credit card accounts.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Fair Value of Financial Instruments</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain of our financial instruments—including
cash and cash equivalents, accounts receivable, inventories, prepaid expenses, accounts payable, accrued liabilities, and deferred
rent are carried at cost, which is considered to be representative of their respective fair values because of the short-term nature
of these instruments. Our derivative liabilities are carried at estimated fair value (See Notes 5 and 6 to these consolidated financial
statements).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Derivative Financial Instruments</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">We do not use derivative instruments
to hedge exposures to cash flow or market or foreign currency risks.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">We review the terms of the common stock,
warrants and convertible debt we issue to determine whether there are derivative instruments, including embedded conversion options
that are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the
host instrument contains more than one embedded derivative instrument, including a conversion option, that is required to be bifurcated,
the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Derivatives are initially recorded at
fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense.
When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted
for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments.
The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being
recorded at a discount from their face value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The discount from the face value of
any convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through
periodic charges to interest expense, using the effective interest method.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Accounts Receivable</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Trade accounts receivable are recorded
net of allowances for doubtful accounts. Estimates of allowances for doubtful accounts are determined based on historical payment
patterns and individual customer circumstances. The allowance for doubtful accounts was zero at July 31, 2018 and 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Inventories</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Property, Plant and Equipment</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Patents</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 are 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. Capitalized costs related to patent applications are expensed in the period in which a determination is made not to pursue
such applications.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Impairment of Long-Lived Assets</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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. There were
no patent impairments during the years ended July 31, 2018 or 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Revenue Recognition</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">We sell our products to distributors
and end users. We record net sales when we sell products to our customers, rather than when our customers resell products to third
parties. When we sell products to our customers, we reduce the balance of our inventory with a corresponding charge to cost of
goods sold. We do not currently have any consignment sales.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Terms of our product sales are generally
FOB shipping point. Net sales are recognized when delivery of the products has occurred (which is generally at the time of shipment),
title has passed to the customer, the selling price is fixed or determinable, collectability is reasonably assured and we have
no further obligations. Any amounts received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.
We record sales net of discounts at the time of sale and report sales net of such discounts.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">We also license our products and technology
to development and commercialization partners. Upfront product and technology license fees under multiple-element arrangements
are deferred and recognized over the period of such services or performance, if such arrangements require on-going services or
performance. Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any amounts
received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Shipping and Handling Costs</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Shipping and handling costs incurred
by us for product shipments are included in cost of goods sold and were minimal for the years ended July 31, 2018 and 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Research and Development Costs</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Research and development costs are expensed
as incurred.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Share-Based Compensation</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">We grant equity-based awards under share-based
compensation plans. We estimate the fair value of share-based payment awards using the Black-Scholes option valuation model. This
fair value is then amortized over the requisite service periods of the awards. The Black-Scholes option valuation model requires
the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield,
and expected life of the option. Share-based compensation expense is based on awards ultimately expected to vest, and therefore
is reduced by expected forfeitures.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Comprehensive Loss</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 years ended July 31, 2018 and 2017,
our comprehensive loss consisted only of net loss.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Income Taxes</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Net Loss Per Share</u></i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">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 antidilutive effect. For the years ended July 31, 2018 and 2017, the number of shares issuable upon the exercise of stock options,
the vesting of restricted stock units, and the exercise of warrants, none of which are included in the computation of basic net
loss per common share, was 12,012,189 and 16,098,679, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Recent Accounting Pronouncements</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2017, the Financial Accounting Standards
Board (“FASB”) issued a two-part Accounting Standards Update (“ASU”) No. 2017-11, I. Accounting for Certain
Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception (“ASU
2017-11”). ASU 2017-11 amends guidance in FASB ASC 260, Earnings Per Share, FASB ASC 480, Distinguishing Liabilities from
Equity, and FASB ASC 815, Derivatives and Hedging. The amendments in Part I of ASU 2017-11 change the classification analysis of
certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of ASU 2017-11
re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification,
to a scope exception. Those amendments do not have an accounting effect. ASU 2017-11 is effective for public business entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted.
We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective. The new standard was originally effective for public companies for annual reporting periods
beginning after December 15, 2016, with no early application permitted. In August 2015, the FASB issued ASU No. 2015-14 that defers
by one year the effective date for all entities, with application permitted as of the original effective date. The updated standard
becomes effective for us on August 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition
method. We adopted the new standard for the fiscal year beginning August 1, 2018 using the modified retrospective application method.
We have substantially completed the assessment of the new standard and believe that there will not be a material impact on our
consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. This
ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early
adoption permitted. The new guidance must be applied on a retrospective basis. We have evaluated the effect of adopting this new
accounting guidance and determined that adoption will not have a material impact on our Statement of Cash Flows.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2017, the United States (“U.S.”)
enacted the Tax Cuts and Jobs Act (the “2017 Act”), which changes existing U.S. tax law and includes various provisions
that are expected to affect public companies. The 2017 Act (i) changes U.S. corporate tax rates, (ii) generally reduces a company’s
ability to utilize accumulated net operating losses, and (iii) requires the calculation of a one-time transition tax on certain
previously unrepatriated foreign earnings and profits (“E&P”). The 2017 Act will also impact estimates of a company’s
deferred tax assets and liabilities. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary
information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of
the Tax Cuts and Jobs Act (“U.S. Tax Cuts and Jobs Act of 2017”). This new law did not have a significant impact on
our consolidated financial statements for the year ended July 31, 2018 because we maintain a valuation allowance on the entirety
of our deferred tax assets. However, the reduction of the U.S. federal corporate tax rate from 35% to 21% resulted in a remeasurement
of our deferred tax assets.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2017, the FASB issued ASU No. 2017-09,
Compensation - Stock Compensation: Scope of Modification Accounting, which provides clarity and guidance around which changes
to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The
standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual
reporting periods. The adoption of this guidance will have no impact on our consolidated financial statements unless we have modification
accounting in accordance with Topic 718.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>3. Balance Sheet Details</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories consist of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; text-align: justify"><font style="font-size: 10pt">Raw materials</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">39,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">82,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Finished goods</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">158,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">191,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt; text-align: justify"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">197,000</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">273,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended July 31, 2018, we wrote-off
$58,000 of finished goods inventory damaged at our contract manufacturer’s facility. In addition we wrote-off $26,000 of
inventory destroyed in a third-party warehouse fire. We received $45,000 from an insurance claim for the replacement cost of the
inventory destroyed in the fire. As a result, we recorded a gain of $19,000 reflected in the other income section of our consolidated
statements of operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended July 31, 2017, we wrote-off
$50,000 for slow moving finished goods inventory manufactured in prior years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Property, plant, and equipment consist of the
following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; text-align: justify"><font style="font-size: 10pt">Computers and equipment</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1,064,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1,045,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Furniture and fixtures</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">21,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">21,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,085,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,066,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Less accumulated depreciation</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(624,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(518,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt; text-align: justify"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">461,000</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">548,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Depreciation expense was $106,000 and $98,000
for the years ended July 31, 2018 and 2017, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Patents consist of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; text-align: justify"><font style="font-size: 10pt">Patents</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">3,500,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">3,485,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Less accumulated amortization</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(2,842,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(2,663,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">658,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">822,000</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Patent amortization expense for the years ended
July 31, 2018 and 2017 was $179,000 and $178,000, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At July 31, 2018, future patent amortization
expense is expected to be as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%; text-align: justify"><font style="font-size: 10pt">2019</font></td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: justify"><font style="font-size: 10pt">$</font></td>
<td style="width: 19%; text-align: justify"><font style="font-size: 10pt">135,000</font></td>
<td style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"><font style="font-size: 10pt">2020</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">87,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">2021</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">76,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"><font style="font-size: 10pt">2022</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">48,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">2023</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">42,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Thereafter</font></td>
<td style="text-align: justify"> </td>
<td style="border-bottom: Black 1.5pt solid"> </td>
<td style="border-bottom: Black 1.5pt solid; text-align: justify"><font style="font-size: 10pt">270,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: justify"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: justify"><font style="font-size: 10pt">658,000</font></td>
<td style="text-align: justify"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>4. Commitments and Contingencies</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Operating Leases</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During August 2016, we amended the lease of
our primary facility in El Cajon, California under a noncancelable operating lease that now expires in December 2019. This facility
includes our corporate offices, research and development laboratory, and warehouse. Rent expense, including common area maintenance,
was $121,000 and $116,000 for the years ended July 31, 2018 and 2017, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Future minimum annual lease payments for our
primary facility as of July 31, 2018 are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%; text-align: justify"><font style="font-size: 10pt">2019</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 19%; text-align: right"><font style="font-size: 10pt">106,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">2020</font></td>
<td> </td>
<td style="border-bottom: Black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: Black 1.5pt solid; text-align: right"><font style="font-size: 10pt">45,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt; text-align: justify"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">151,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>9. Related Party Transactions</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 28, 2018, we raised $500,000 to support
our continued operations by issuing a one-year promissory note to Tom Y. Lee, a member of the Company’s Board of Directors
and our largest stockholder. The note accrues interest at 6.5% per annum, compounded annually. As of July 31, 2018, $500,000 of
principal and $3,000 of accrued and unpaid interest remained payable (See Note 12 to these consolidated financial statements).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 11, 2013, the Company entered into
a five-year strategic collaboration agreement with St. Louis-based Intercon Chemical Company (ICC). The agreement consists of a
multi-prong approach to accelerate the commercialization of PURE’s unique and proprietary SDC-based products. The strategic
collaboration agreement provides:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; font: 12pt Times New Roman, Times, Serif; text-align: justify"> </td>
<td style="width: 24px; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">●</font></td>
<td style="font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">ICC licenses from PURE its patents and technology know-how for the exclusive manufacture of our SDC-based products. </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify"> </td>
<td style="width: 24px; text-align: justify"> </td>
<td style="width: 24px; text-align: justify"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">ICC will invest in plant improvements to allow for expanded SDC production. </font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">ICC’s R&D team will collaborate on SDC product line development. </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px; text-align: justify"> </td>
<td style="width: 24px; text-align: justify"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">ICC licenses the distribution rights for SDC-based products into its core businesses of institutional cleaning and sanitation products. </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 48px"> </td>
<td style="width: 24px"> </td>
<td style="width: 24px"><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">ICC will also develop a new initiative focused on US hospital, healthcare and medical facilities. </font></td></tr>
<tr style="vertical-align: top">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">●</font></td>
<td style="text-align: justify"><font style="font-size: 10pt">PURE earns royalty income on SDC-products sold by ICC and its affiliates. </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the years ended July 31, 2018 and 2017,
our net product sales to ICC was $8,000 and $33,000, respectively. As of July 31, 2018, $86,000 was payable to ICC for the production
of SDC based products with no accounts receivable due to the Company. As of July 31, 2017, $75,000 was payable to ICC for the production
of SDC based products and $6,000 of accounts receivable was due to the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The president of ICC is a shareholder of the
Company.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>10. Sales Concentration</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Net product sales were $1,774,000 and $1,831,000
for the years ended July 31, 2018 and 2017, respectively. For the year ended July 31, 2018, three individual customers accounted
for 20%, 16% and 11%, of our net product sales, respectively. No other individual customer accounted for 10% or more of our net
product sales. For the year ended July 31, 2017, two individual customers accounted for 33% and 19%, of our net product sales,
respectively. No other individual customer accounted for 10% or more of our net product sales. For the years ended July 31, 2018
and 2017, all net product sales occurred in the United States.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>11. Income Taxes </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We file federal and state consolidated tax
returns with our subsidiaries. Our income tax provision for the years ended July 31, 2018 and 2017 was $1,650; the minimum state
franchise taxes we pay regardless of income or loss.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At July 31, 2018, we had federal and state
tax net operating loss carry-forwards of approximately $105.2 million and $60.5 million, respectively. At July 31, 2017, we had
federal and state tax net operating loss carry-forwards of approximately $100.3 million and $74.7 million, respectively. Utilization
of the net operating loss carry-forwards may be subject to a substantial annual limitation due to ownership change limitations
that may have occurred 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 upon subsequent disposition. While we do not believe
that we have experienced an ownership change, the pertinent tax rules related thereto are complex and subject to varying interpretations,
and thus complete assurance cannot be provided that the taxing authorities would not take an alternative position.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our current federal tax loss carry-forwards
begin expiring in the year ended July 31, 2019 and, unless previously utilized, will completely expire in the year ending July
31, 2038. 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, 2038.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Significant components of our deferred tax
assets are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 72%"><font style="font-size: 10pt">Net operating loss carry-forward</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">26,170,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">30,970,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Stock options and warrants</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,590,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3,250,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Other temporary differences</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(130,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(140,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total deferred tax assets</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">28,630,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">34,080,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance for deferred tax assets</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(28,630,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(34,080,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt; padding-left: 10pt"><font style="font-size: 10pt">Net deferred tax assets</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white">During the year ended
July 31, 2018, we had a net decrease in deferred tax assets of $5,450,000. This change is a result of current year activity as
well as a change in the federal tax rates. The change as a result of current year activity is an increase in deferred tax assets
of $7,653,000. This increase was offset by a $13,103,000 decrease due to a remeasurement of the deferred tax assets based on new
tax rates established through the Tax Cuts and Jobs Act passed December 22, 2017. The remeasurement is a provisional estimate under
Staff Accounting Bulletin (“SAB”) 118 that could be revised based on any additional guidance issued by the U.S. Treasury
Department, the U.S. Internal Revenue Service, and other standard-setting bodies. This new law did not have a significant impact
on our consolidated financial statements for the year ended July 31, 2018 because we maintain a valuation allowance on the entirety
of our deferred tax assets. However, the reduction of the U.S. federal corporate tax rate from 35% to 21% resulted in a remeasurement
of the deferred tax asset reflected in the tax rate reconciliation table below, as well as, the deferred tax assets table listed
above.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white">Given the significant
impact of the Tax Cuts and Jobs Act, the SEC staff issued SAB 118 which provides guidance on accounting for uncertainties of the
effects of the Tax Act. Specifically, SAB 118 allows companies to record a provisional estimate of the impact of the Tax Act during
a one year “measurement period”. We have recognized the provisional tax impact related to the revaluation of deferred
tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended July 31, 2018.
The ultimate impact may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations
and assumptions we have made, and additional regulatory guidance that may be issued.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A reconciliation of income taxes computed using
the statutory income tax rate, compared to the effective tax rate, is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 72%"><font style="font-size: 10pt">Federal tax benefit at the expected statutory rate</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">26.4</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">34.0</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">State income tax, net of federal tax benefit</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">32.5</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0.8</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Expired net operating loss carryforwards</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(20.0</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(6.6</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Other</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(2.9</font></td>
<td><font style="font-size: 10pt">) </font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(7.7</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Rate change adjustment</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(175.4</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Change in state tax rates</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(4.2</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Permanent items</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(3.3</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">139.4</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(13.0</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Income tax benefit - effective rate</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Following authoritative guidance, we recognize
the tax benefit from a tax position if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our practice is to recognize interest and/or
penalties related to income tax matters in income tax expense; however we have had no accrued interest or penalties at either July
31, 2018 or July 31, 2017. We are subject to income taxes in the United States and in various states, and our historical tax years
remain subject to future examination by the U.S. and state tax authorities. During the years ended July 31, 2018 and 2017, we did
not record any activity related to our unrecognized tax benefits.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company and its subsidiaries are subject
to federal income tax as well as income tax of multiple state jurisdictions. With few exceptions, the Company is no longer subject
to income tax examination by tax authorities in major jurisdictions for tax years prior to 2012. However, to the extent allowed
by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated and carried
forward, and make adjustments up to the amount of the carryforwards. The Company is not currently under examination by the IRS
or state taxing authorities.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Reclassification</u></i></p>
<p style="font: 9pt Times-Italic; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0">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 as of and for the year ended July 31, 2017.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Basis of Presentation</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Use of Estimates</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Cash and Cash Equivalents</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash and cash equivalents consist of cash
and highly liquid investments with original maturities from the purchase date of three months or less.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Restricted Cash</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is required to maintain $75,000
in a restricted certificate of deposit account in order to fully collateralize four revolving credit card accounts.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Fair Value of Financial Instruments</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain of our financial instruments—including
cash and cash equivalents, accounts receivable, inventories, prepaid expenses, accounts payable, accrued liabilities, and deferred
rent are carried at cost, which is considered to be representative of their respective fair values because of the short-term nature
of these instruments. Our derivative liabilities are carried at estimated fair value (See Notes 5 and 6 to these consolidated
financial statements).</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Derivative Financial Instruments</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We do not use derivative instruments to hedge
exposures to cash flow or market or foreign currency risks.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We review the terms of the common stock, warrants
and convertible debt we issue to determine whether there are derivative instruments, including embedded conversion options that
are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host
instrument contains more than one embedded derivative instrument, including a conversion option, that is required to be bifurcated,
the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Derivatives are initially recorded at fair
value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense.
When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted
for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments.
The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being
recorded at a discount from their face value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The discount from the face value of any convertible
debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges
to interest expense, using the effective interest method.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Accounts Receivable</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Trade accounts receivable are recorded net
of allowances for doubtful accounts. Estimates of allowances for doubtful accounts are determined based on historical payment
patterns and individual customer circumstances. The allowance for doubtful accounts was zero at July 31, 2018 and 2017.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Inventories</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Property, Plant and Equipment</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Patents</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 are 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. Capitalized costs related to patent applications are expensed in the period in which a determination is made not to
pursue such applications.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Impairment of Long-Lived Assets</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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. There
were no patent impairments during the years ended July 31, 2018 or 2017.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Revenue Recognition</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We sell our products to distributors and end
users. We record net sales when we sell products to our customers, rather than when our customers resell products to third parties.
When we sell products to our customers, we reduce the balance of our inventory with a corresponding charge to cost of goods sold.
We do not currently have any consignment sales.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Terms of our product sales are generally FOB
shipping point. Net sales are recognized when delivery of the products has occurred (which is generally at the time of shipment),
title has passed to the customer, the selling price is fixed or determinable, collectability is reasonably assured and we have
no further obligations. Any amounts received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.
We record sales net of discounts at the time of sale and report sales net of such discounts.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We also license our products and technology
to development and commercialization partners. Upfront product and technology license fees under multiple-element arrangements
are deferred and recognized over the period of such services or performance, if such arrangements require on-going services or
performance. Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any
amounts received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Shipping and Handling Costs</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Shipping and handling costs incurred by us
for product shipments are included in cost of goods sold and were minimal for the years ended July 31, 2018 and 2017.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Research and Development Costs</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Research and development costs are expensed
as incurred.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Share-Based Compensation</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We grant equity-based awards under share-based
compensation plans. We estimate the fair value of share-based payment awards using the Black-Scholes option valuation model. This
fair value is then amortized over the requisite service periods of the awards. The Black-Scholes option valuation model requires
the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield,
and expected life of the option. Share-based compensation expense is based on awards ultimately expected to vest, and therefore
is reduced by expected forfeitures.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Comprehensive Loss</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 years ended July 31, 2018 and 2017,
our comprehensive loss consisted only of net loss.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Income Taxes</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Net Loss Per Share</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 antidilutive effect. For the years ended July 31, 2018 and 2017, the number of shares issuable upon the exercise
of stock options, the vesting of restricted stock units, and the exercise of warrants, none of which are included in the computation
of basic net loss per common share, was 12,012,189 and 16,098,679, respectively.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i><u>Recent Accounting Pronouncements</u></i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2017, the Financial Accounting Standards
Board (“FASB”) issued a two-part Accounting Standards Update (“ASU”) No. 2017-11, I. Accounting for Certain
Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception (“ASU
2017-11”). ASU 2017-11 amends guidance in FASB ASC 260, Earnings Per Share, FASB ASC 480, Distinguishing Liabilities from
Equity, and FASB ASC 815, Derivatives and Hedging. The amendments in Part I of ASU 2017-11 change the classification analysis of
certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of ASU 2017-11
re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification,
to a scope exception. Those amendments do not have an accounting effect. ASU 2017-11 is effective for public business entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted.
We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective. The new standard was originally effective for public companies for annual reporting periods
beginning after December 15, 2016, with no early application permitted. In August 2015, the FASB issued ASU No. 2015-14 that defers
by one year the effective date for all entities, with application permitted as of the original effective date. The updated standard
becomes effective for us on August 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition
method. We adopted the new standard for the fiscal year beginning August 1, 2018 using the modified retrospective application method.
We have substantially completed the assessment of the new standard and believe that there will not be a material impact on our
consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. This
ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early
adoption permitted. The new guidance must be applied on a retrospective basis. We have evaluated the effect of adopting this new
accounting guidance and determined that adoption will not have a material impact on our Statement of Cash Flows.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2017, the United States (“U.S.”)
enacted the Tax Cuts and Jobs Act (the “2017 Act”), which changes existing U.S. tax law and includes various provisions
that are expected to affect public companies. The 2017 Act (i) changes U.S. corporate tax rates, (ii) generally reduces a company’s
ability to utilize accumulated net operating losses, and (iii) requires the calculation of a one-time transition tax on certain
previously unrepatriated foreign earnings and profits (“E&P”). The 2017 Act will also impact estimates of a company’s
deferred tax assets and liabilities. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary
information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of
the Tax Cuts and Jobs Act (“U.S. Tax Cuts and Jobs Act of 2017”). This new law did not have a significant impact on
our consolidated financial statements for the year ended July 31, 2018 because we maintain a valuation allowance on the entirety
of our deferred tax assets. However, the reduction of the U.S. federal corporate tax rate from 35% to 21% resulted in a remeasurement
of our deferred tax assets.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2017, the FASB issued ASU No. 2017-09,
Compensation - Stock Compensation: Scope of Modification Accounting, which provides clarity and guidance around which changes
to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The
standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual
reporting periods. The adoption of this guidance will have no impact on our consolidated financial statements unless we have modification
accounting in accordance with Topic 718.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At July 31, 2018, future patent amortization
expense is expected to be as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%; text-align: justify"><font style="font-size: 10pt">2019</font></td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: justify"><font style="font-size: 10pt">$</font></td>
<td style="width: 19%; text-align: justify"><font style="font-size: 10pt">135,000</font></td>
<td style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"><font style="font-size: 10pt">2020</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">87,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">2021</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">76,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"><font style="font-size: 10pt">2022</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">48,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 10pt">2023</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 10pt">42,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Thereafter</font></td>
<td style="text-align: justify"> </td>
<td style="border-bottom: Black 1.5pt solid"> </td>
<td style="border-bottom: Black 1.5pt solid; text-align: justify"><font style="font-size: 10pt">270,000</font></td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: justify"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: justify"><font style="font-size: 10pt">658,000</font></td>
<td style="text-align: justify"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Property, plant, and equipment consist of the
following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; text-align: justify"><font style="font-size: 10pt">Computers and equipment</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1,064,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">1,045,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Furniture and fixtures</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">21,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">21,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,085,000</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,066,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Less accumulated depreciation</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(624,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(518,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt; text-align: justify"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">461,000</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">548,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Future minimum annual lease payments for our
primary facility as of July 31, 2018 are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%; text-align: justify"><font style="font-size: 10pt">2019</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 19%; text-align: right"><font style="font-size: 10pt">106,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">2020</font></td>
<td> </td>
<td style="border-bottom: Black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: Black 1.5pt solid; text-align: right"><font style="font-size: 10pt">45,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt; text-align: justify"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">151,000</font></td>
<td style="padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of our warrant activity and related
data is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%"><font style="font-size: 10pt">Outstanding at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">7,056,426</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,724,235</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(347,451</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Expired/Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(129,374</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Outstanding at July 31, 2017</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">8,303,836</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Issued</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Exercised</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(5,329,220</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Expired/Cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(113,520 </font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2,861,096</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes information
related to warrants outstanding at July 31, 2018:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center"><font style="font-size: 10pt"><b>Expiration</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 10pt"><b>Exercise</b></font></td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Date</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Price</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 61%; text-align: center"><font style="font-size: 10pt">08/29/19</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">0.75</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">2,533,331</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"><font style="font-size: 10pt">12/01/21</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.25</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">58,824</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: center"><font style="font-size: 10pt">12/01/21</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.28</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">117,647</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"><font style="font-size: 10pt">01/23/22</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">1.25</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">117,647</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: center"><font style="font-size: 10pt">01/23/22</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: Black 1.5pt solid"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: Black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1.28</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">33,647</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">2,861,096</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of our restricted stock unit activity
and related data is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%"><font style="font-size: 10pt">Outstanding at July 31, 2016</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 20%; text-align: right"><font style="font-size: 10pt">1,285,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">1,150,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(150,000</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Forfeited</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(250,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2017</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">2,035,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">750,000 </font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font-size: 10pt">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(375,000 </font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 10pt"><font style="font-size: 10pt">Forfeited</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(885,000 </font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Outstanding at July 31, 2018</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">1,525,000</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Significant components of our deferred tax
assets are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 72%"><font style="font-size: 10pt">Net operating loss carry-forward</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">26,170,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">30,970,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Stock options and warrants</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">2,590,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">3,250,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Other temporary differences</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(130,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(140,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total deferred tax assets</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">28,630,000</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">34,080,000</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance for deferred tax assets</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(28,630,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(34,080,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt; padding-left: 10pt"><font style="font-size: 10pt">Net deferred tax assets</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="padding-bottom: 2.5pt"></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A reconciliation of income taxes computed using
the statutory income tax rate, compared to the effective tax rate, is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 72%"><font style="font-size: 10pt">Federal tax benefit at the expected statutory rate</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">26.4</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 11%; text-align: right"><font style="font-size: 10pt">34.0</font></td>
<td style="width: 1%"><font style="font-size: 10pt">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">State income tax, net of federal tax benefit</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">32.5</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">0.8</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Expired net operating loss carryforwards</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(20.0</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(6.6</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Other</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(2.9</font></td>
<td><font style="font-size: 10pt">) </font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(7.7</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Rate change adjustment</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(175.4</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Change in state tax rates</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">—</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">(4.2</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Permanent items</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">—</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(3.3</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Valuation allowance</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">139.4</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(13.0</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Income tax benefit - effective rate</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">0.0</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">%</font></td></tr>
</table>
<p style="margin: 0pt"></p>
1500000
1500000
150000
4179
63811
158342
3333964
1176472
396469
3333964
0.75
0.60
0.45
0.40
1.25
0.85
0.75
1.25
0.45
0.85
0.85
0.45
1000000
1000000
500000
500000
500000
500000
0
0
12012189
16098679
0.264
0.340
0.21
.21
45000
106000
98000
179000
178000
82000
39000
191000
158000
1066000
1085000
1064000
21000
1045000
21000
518000
624000
3485000
3500000
2663000
2842000
135000
87000
76000
48000
42000
270000
121000
116000
106000
45000
151000
1802000
1853000
-226000
-1394000
277000
-459000
342116
6666666
8666666
2222217
2820670
4104980
1572941
1491649
1599135
1396470
268909
2533331
176471
4756163
1599135
268909
1986101
1176472
396469
151294
P5Y
P5Y
P6M
P6M
2820670
20376219
118057
1.00
1.03
0.45
0.45
0.7000
0.016
0.7000
0.016
P3Y2M12D
P3Y1M6D
459000
277000
P5Y
P5Y
1.25
1.25
1.275
0.75
1.25
1.28
1.25
1.28
128600
12000
35000
1049000
21000
101000
144000
4756163
573057
236116
106000
5335
198057
8303836
2861096
7056426
1724235
5329220
347451
113520
129374
2861096
2533331
58824
117647
117647
33647
450000
300000
1150000
0.50
0.50
1225000
300000
1525000
960000
P2Y7M21D
150000
375000
102000
834000
1525000
968000
3900000
87000
4000000
2026-02-04
P10Y
P10Y
940000
2815000
5000000
2245000
3735000
2245000
3735000
The options vest between one and two years and carry a term between five and ten years.
740000
P3Y
P5Y5M20D
4017343
1.18
0
P4Y7D
0.44
0.67
1533000
P2Y5M5D
2035000
1525000
1285000
1150000
750000
250000
885000
5759843
7626093
2277968
378750
253125
1.25
1.09
1.60
0.84
1.05
1.96
1.42
1120000
0.7118
0.8100
0.0232
0.0170
0.000
0.000
P3Y8M9D
P4Y7M28D
0.065
500000
3000
75000
86000
0.10
0.20
0.16
0.11
0.10
0.33
0.19
1650
1650
100300000
105200000
74700000
60500000
0.50
2038-07-31
2038-07-31
13103000
5450000
7653000
0.000
0.000
0.325
0.008
-0.029
-0.077
-0.042
-0.033
1.394
-0.130
30970000
26170000
3250000
2590000
-140000
-130000
34080000
28630000
-1.754
34080000
28630000
1774000
1831000
876000
876000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Patents consist of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>July 31,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2017</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; text-align: justify"><font style="font-size: 10pt">Patents</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">3,500,000</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 15%; text-align: right"><font style="font-size: 10pt">3,485,000</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Less accumulated amortization</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(2,842,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(2,663,000</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">658,000</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">822,000</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
P10Y
P3Y
19000
December 2019
2017-09-25
The reduction of the U.S. federal corporate tax rate from 35% to 21% resulted in a remeasurement of the deferred tax asset
The reduction of the U.S. federal corporate tax rate from 35% to 21% resulted in a remeasurement of our deferred tax assets.
1490000
-0.200
-0.066
true
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">This Post-Effective Amendment is being
filed to update the registration statement (the “Original Registration Statement”) filed by Pure Bioscience, Inc. (the
“Company”, “we”, “our” or “us”) on February 6, 2017 and declared effective by the
Securities and Exchange Commission on February 15, 2017, which registered for resale (i) up to 1,572,941 shares of common stock
issued to the selling security holders in the registrant’s private placement offering (the “Private Placement Offering”),
which closed on December 1, 2016 and January 23, 2017 (the “Closings”) and (ii) up to 1,572,941 shares of our common
stock issuable upon the exercise of warrants (the “2017 Warrants”) issued to the selling security holders in the Private
Placement Offering, as amended pursuant to the Post-Effective Amendment No. 1 filed on August 25, 2017 and declared effective by
the Securities Exchange Commission on September 1, 2017 (“POS AM 1”) and Post-Effective Amendment No. 2 filed on October
26, 2017 and declared effective by the Securities Exchange Commission on October 31, 2017 (“POS AM 2”, together with
the Original Registration Statement and POS AM 1, the “Registration Statement”).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">This Post-Effective amendment updates
the prospectus dated December 20, 2017 to reflect the filing of the Company’s Annual Report on Form 10-K for the year ended
July 31, 2018.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">All applicable registration fees were
paid at the time of the original filing of the Registration Statement.</p>
500000
500000