U.S.
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 ________________
 
 
 FORM
10-KSB
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF
THE SECURITIES EXCHANGE ACT OF 1934
 ________________
 
 For the
fiscal year ended June 30,
2008                                                                                                
Commission file number 000-27545
 
 QUICK-MED TECHNOLOGIES,
INC.
 ----------------------------------------------
 (Name of
registrant as specified in its charter)
 
 Nevada                                                                65-0797243
 (State or
Other Jurisdiction of
organization)                                                                           (IRS
Employer Identification Number)
 
 902
NW 4th
Street
 Gainesville,
Florida 32601
 (888)
835-2211
 (Address,
including zip code, and telephone number,
 including
area code, of registrant’s principal executive offices)
 
 Securities registered pursuant to
Section 12(b) of the Act:
 None
 
 Securities registered pursuant to
Section 12(g) of the Act:
 Common
Stock, $0.0001 par value
 
 Check
whether the registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.  Yes [X] No [  ]
 
 Check if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB/ or any further
amendment to this Form 10-KSB. [  ]
  The
registrant’s revenues for its most recent fiscal year were
$1,360,924.
   The
aggregate market value of the registrant’s voting stock held by non-affiliates
of the registrant as of September 19, 2008 (based upon the closing price of
$0.35 per share on September 19, 2008) was $2,630,278.
   As at
September 19, 2008 there were 30,874,196 shares of the registrant’s common stock
issued and outstanding.
   DOCUMENTS
INCORPORATED BY REFERENCE
   None
    
  
  QUICK-MED
TECHNOLOGIES, INC.
 
 ANNUAL
REPORT
 ON FORM 10-KSB
 For
the Year Ended June 30, 2008
 
 INDEX
 
 Page
 PART
I
   Item
      1.
                Description of Business
                1Item
      1A.
                Risk Factors
                12Item
      2.
                Description of Property
                16Item
      3.
                Legal Proceedings
                16Item
      4.
                Submission of Matters to a Vote of Security
      Holders
                16
 
 PART
II
 
 Item
      5.
                Market for Common Equity and Related Stockholder
      Matters
                17Item
      6.
                Management’s Discussion & Analysis of Financial Condition
      and Results of Operations
                21Item
      7.
                Financial Statements
                27Item
      8.
                Changes in and Disagreements with Accountants on Accounting
      & Financial Disclosure
                27Item
      8A
                Controls and Procedures
                27
 
 PART
III
 
 Item
      9.
                Directors, Executive Officers, Promoters, Control Persons and
      Corporate Governance;
                  Compliance with Section 16(a) of the Exchange
      Act
                28Item
      10.
                Executive Compensation
                31Item
      11.
                Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                36Item
      12.
                Certain Relationships and Related Transactions, and Director
      Independence
                37Item
      13.
                Exhibits and Reports on Form 8-K
                38Item
      14.
                Principal Accountant Fees and Services
                40
 
 
 Signatures
                
                41
  
  Index
  
 PART
I
    ITEM 1.                 DESCRIPTION
OF
BUSINESS
  This
Form 10-KSB contains forward-looking statements based on our current
expectations, assumptions and estimates and that involve risks and
uncertainties.  Any statements contained in this Form 10-KSB
(including, without limitation, statements to the effect that we “estimate,”
“expect,” “anticipate,” “plan,” believe,” “may” or “will” or statements
concerning potential or opportunity or variations thereof or comparable
terminology or the negative thereof) that are not statements of historical fact
should be construed as forward-looking statements.  Actual results
could differ materially and adversely from those projected or anticipated in the
forward-looking statements as a result of a number of risks and uncertainties
pertaining to our business, including, without limitation, those risks and
uncertainties described in the section entitled “Risk Factors” in this Form
10-KSB.  We undertake no obligation to revise or update any such
forward-looking statements.
   Unless
specified otherwise, as used in this Form 10-KSB, the terms “we,” “us,” “our,”
the “Company” or “Quick-Med” refer to Quick-Med Technologies, Inc.
   Corporate
History
 
 We were
incorporated in the State of Nevada on April 21, 1997 in the name of Above
Average Investments, Ltd. to engage in any lawful corporate purpose. Other than
issuing shares to its stockholders, Above Average Investments, Ltd. never
commenced operations. In September 2000, Above Average Investments, Ltd. became
a public reporting company 60 days following the voluntary filing of its Form
10-SB Registration Statement with the Securities and Exchange Commission. In
March 2001, we acquired all of Quick-Med Technology, Inc.'s issued and
outstanding shares of capital stock in exchange for 10,260,000 shares of our
common stock. Upon completion of the merger in February 2002, our name was
changed to Quick-Med Technologies, Inc.
 
 We have
never been the subject of a bankruptcy, receivership or similar
proceeding.
 
 Our
principal executive offices are located at 902 NW 4th Street
Gainesville, Florida 32601.  Our telephone number is (888)
835-2211.
 
 Business
Development
 
 We are a
life sciences company that is developing proprietary technologies for the
medical and consumer healthcare markets. Our two core technologies under
development are:
 
 NIMBUS®(“NIMBUS”), a family of
organic moledules or “polymers” that are bio-engineered to have antimicrobial,
super-absorbent, hemostatic and other properties that can be used in a wide
range of applications, such as wound dressings and apparel.   We
are seeking to use our NIMBUS technology in:  (a) advanced wound care
products and other medical devices; and (b) consumer products, including
apparel, home furnishings and personal care. We believe that the size and growth
characteristics of the antimicrobial market represent an attractive opportunity
for the NIMBUS technology.  Additionally, we believe there are no
competing technologies on the market today that offer the unique combination of
safety, efficacy and cost-effectiveness offered by NIMBUS.  We have
developed “proofs-of-principle” in several applications and are seeking to move
these products to the commercialization stage. On September 18, 2006 we received
a Phase II SBIR grant for continued work on an advanced wound dressing using the
NIMBUS technology. Effective February 1, 2007, we and HBI entered into a
Development and Exclusive Option Agreement with HBI (the “HBI
Agreement”).  Under the HBI Agreement, we granted to HBI an exclusive
option (the “Option”) for a period of six months (“Option Period”) to obtain an
exclusive license to our technology relating to  certain products
produced by HBI (the “License Agreement”).  In September 2007, we were
informed that HBI decided, for internal reasons unrelated to our technology, not
to complete these studies and we mutually agreed not to extend the Option
Period.  In April, 2007, we entered into a license agreement with
Derma Sciences Inc. for NIMBUS treatment of select substrates used in
traditional wound care.  In March, 2008, we entered into a Joint
Development Agreement with a major international healthcare company to develop
antimicrobial medical devices.
 
 
 MultiStatTM(“MultiStat”), a family of patented
organic compounds known as matrix metalloproteinase inhibitors (“MMPIs”)
that  we believe to have significant benefit in  the
maintenance, healing and repair of skin and eyes. External and internal stimuli
that cause the overproduction of enzymes known as matrix metalloproteinase can
adversely affect the skin and eyes.  MultiStat works by inhibiting the
activity of the matrix metalloproteinase enzymes. Independent laboratories as
well as our research show that MultiStat is effective in medical (wound care)
and consumer (cosmetic) applications.  MultiStat is currently being
sold as a performance ingredient to several cosmetics companies via an agreement
with BASF, which was renegotiated and signed on May 16,
2008.Under
this agreement, we appointed BASF as an exclusive manufacturer and distributor
of our MultiStatTM Compound, Ilomastat, (“QMT Compound”) in the over-the-counter
retail cosmetic consumer products in the worldwide territory with the exclusive
and non-exclusive licenses of certain patent rights.MultiStat is also
being evaluated as a post-injury treatment for mustard gas exposure, with the
initial product currently being developed under a Cooperative Research and
Development Agreement (CRADA) with the U.S. Army Medical Research Institute for
Chemical Defense.
 
 Business
Strategy
 
 Our
business strategy is to further develop and execute commercialization strategies
for each of our broad technologies.  We will seek to generate revenue
through four sources:
 
 (1)
              Licenses
      of proprietary technology to industry
partners;
 (2)
              Contracts
      with government agencies;
 (3)
              Sales
      of product (compounds); and,
 (4)
              Research
      and development support agreements.
 
 We expect
that the majority of future revenue from NIMBUS will be generated via licenses,
royalties and profit-sharing agreements.    We believe that
our intellectual property is the value driver and, as such, manufacturing, sales
and distribution are and will be conducted either through client partners or
outsourced.
   -1-
 Index
 
 NIMBUS®
 
 NIMBUS
refers to “Novel Intrinsically MicroBonded Utility Substrate” - a family of
patents, trade secrets, and other intellectual property rights in which polymer
chemistry is used to permanently bond biologically active molecules onto
substrates. NIMBUS is produced by bonding a selection of polyquaternaries to
various materials and can take many forms including: cellulosics, synthetics,
microspheres, sprayable suspensions, superabsorbent polymers, powders,
derivatized mineral particles, and others.  We intend to use low-cost
processes by which typically inexpensive chemicals can be permanently bonded to
create added value to end products.
 
 ·
              The
      NIMBUS technology has potential commercial applications spanning medical
      and consumer healthcare products.  Choices of the substrate, the
      bonded molecules, or the method of bonding generate a range of products
      that can be modified to produce varying product attributes.  By
      altering aspects of the formulation, the product can be made to be
      super-absorbent, have hemostatic properties, or serve as a drug delivery
      system.  For example, it is capable of being used to add a
      second, slowly releasable ingredient to a substrate to permit more than
      one mode of action or property (e.g., perfume, protease inhibitor,
      fungicide, or antibiotic).
 
 ·
              The
      raw material cost of NIMBUS is more economical than many other active
      ingredients, such as silver or PHMB (polyhexamethylene biguanide), used in
      healthcare today.  Additionally, in wound care materials and
      other roll goods-based substrates, NIMBUS requires no more than standard
      textile or paper finishing
equipment.
 
 ·
              The
      most deeply studied potential commercial application of NIMBUS is in
      medical devices where permanent bonding to various substrates can be
      performed using broad spectrum  microbicides that are highly
      effective, as verified by independent laboratories.  In certain
      prototype wound dressings, NIMBUS begins to eradicate bacteria immediately
      and is effective for seven days or more.  Tested in a typical
      potential commercial application, NIMBUS killed 99.9999% of the bacteria
      or other microbes present in the
environment.
 
 ·
              Third party testing and our
      research show that NIMBUS-treated articles are effective against MRSA
      (Methicillin-Resistant
      Staphylococcus Aureus)and VRE (Vancomycin-Resistant
      Enterococcus), two
      antibiotic-resistant organisms responsible for a significant and growing
      number of hospital and community-related infections.  Other high
      bacterial kill levels have been demonstrated for contact lenses against
      Pseudomonas; in food preservation against bacteria that causeListeria
      monocytogenesandSalmonella
      typhimurium; and in
      footwear protection against a wide range of other germs includingTrichophyton
      mentagrophytes, a
      fungus that causes athlete’s
foot.
 
 ·
              While
      lethal to most bacteria, studies performed by us and third-party
      laboratories show that NIMBUS is not harmful to human
      cells.  Independent laboratory tests have shown that NIMBUS is
      non-toxic, non-sensitizing and non-irritating to humans, using standard
      ISO or ASTM test methodologies.
 
 ·
              The
      NIMBUS technology permanently bonds the active agent to the
      substrate.  This attribute is a source of differentiation from
      many competing technologies and gives NIMBUS potential advantages,
      including lower cost and the possible use in devices such as contact
      lenses, wound dressings, incontinence products, or disposable gloves where
      leaching chemicals into the body may pose unacceptable medical
      risk.
 
 A
characteristic of NIMBUS medical devices relates to the reduced likelihood of
bacteria to develop resistance to the microbicide employed – a growing concern
in healthcare facilities.  This characteristic results from the
combined effect of (a) the mechanism by which bacteria are killed – by cell wall
disruption; (b) the bonding of the microbicide to the substrate, which prevents
concentrations of the active molecule from falling below minimum inhibitory
levels and (c) the large size of the molecule which does not permit its entry
into the bacteria cell where resistance can develop.
   -2-
 Index
  Quick-Med
is seeking to commercialize NIMBUS in key end-markets where we believe the
technology provides either a solution to a defined market need or an opportunity
to create attractive new products or product attributes.  We have been
in communication with potential clients or development partners in the following
markets.
 
 Substrate
              Medical
              Consumer
      & HealthcareCotton
      and cotton blends,
                including
      cotton, cotton-rayon blends, cotton-PET blends, cellulosic
      materials
              Wound
      dressings *
                Hospital
      gowns *
                Hospital
      bedding *
                Antimicrobial
      wipes
              Feminine
      protection
                Adult
      incontinence
                Diapers
                Wipes
                UnderwearSynthetics
                including
      polyurethane, polypropylene, PE, PET, nylon, polycarbonates,
      silicones
              Wound
      tapes/films *
                Wound
      dressings *Water/Oil-based
      Formulations
              Hand
      sanitizers*
                Skin
      care products
                Wound
      care gels *
              Hand
      sanitizers
                Skin
      care products
 
 * denotes
a medical device application that may require regulatory approval
 
 We are
initially focusing our NIMBUS technology on the following
industries:
 
 ·
              Wound Dressings and other
      Medical Devices: Potential wound care products under development
      that use the NIMBUS technology have undergone proof-of-concept testing to
      demonstrate their desired characteristics, such as bacterial resistance or
      the ability to control bleeding. Incontinence products using NIMBUS
      technology are also undergoing proof-of-concept
  testing.
 ·
              Apparel: Apparel
      products being developed that use the NIMBUS technology have undergone
      proof-of-concept testing to demonstrate desired characteristics such as
      resistance to odor causing bacteria and discoloration.·
              Medical Textiles:bed
      linens are being evaluated for their ability to deactivate the bacteria
      associated with pathogenic
sickness.
  
  MultiStatTM
 
 The
MultiStat product line has been our primary source of revenue to
date.  MultiStat is a family of advanced, patented compounds and
methods that have shown benefit in promoting the maintenance, healing and repair
of skin and eyes.  Both third party and Quick-Med research shows that
MultiStat is effective in certain medical (wound care) and consumer (cosmetic)
applications.
 
 Matrix
Metalloproteinases, or “MMPs”, are naturally occurring compounds in skin tissue.
External or internal stimuli can trigger an overproduction of certain MMPs,
which can produce chemical reactions within skin cells that induce adverse
outcomes such as blistering, inflammation or accelerated collagen degradation.
External triggers include prolonged sun exposure, as well as chemical burns from
warfare agents such as mustard gas. Internal triggers include natural aging in
which declining estrogen levels naturally inhibit MMPs and lead to accelerated
skin wrinkling.
 
 There are
natural or synthetic compounds that safely inhibit MMP overproduction in the
skin (MMP-inhibitors, or “MMPIs”). These MMPIs can be topically applied to
mitigate the effects of triggering mechanisms. The bioscience of MMPI research
includes the identification of safe compounds that individually or in
combination yield a specific beneficial outcome. MultiStat represents our
portfolio of patented compounds and techniques relating to MMP inhibition. Our
MultiStat compounds are approximately 1,000 times more potent than the natural
MMPIs that are present in human blood and in some plant
extracts.  Therefore, only small amounts of MultiStat compounds are
needed to reduce the elevated levels in MMP activities that cause skin wrinkling
or tissue destruction in chronic wounds.   MultiStat’s array of
uses has been documented in a series of clinical findings by our scientists,
third-party scientific laboratories, and in works published by other academic
researchers.
  
 -3-
 Index
 
 Pharmaceutical
Applications
 
 Scientific
studies have shown that MMP activity plays a major role in the deterioration of
human tissue when exposed to chemical agents such as mustard
gas.  Ilomastat, a member of the MultiStat family of patented
compounds and techniques relating to MMP-inhibition, has been demonstrated to be
safe and highly effective in treating mustard gas exposures based on efficacy
studies conducted in Israel and the Netherlands by third-party scientific
laboratories. We are seeking to develop Ilomastat as a post-injury agent for
mustard gas exposure.
 
 In
November 2000, we entered into a Cooperative Research and Development Agreement
(“CRADA”) with the U.S. Army Medical Research Institute for Chemical Defense at
Edgewood, Maryland, to develop a post-injury agent for mustard gas exposures to
the eye and skin.
 
 Other
potential pharmaceutical applications for Ilomastat include psoriasis, acne and
chronic wounds.
 
 
 
 Cosmetics
 
 Based on
clinical studies performed by us and by the Engelhard Corporation (now a unit of
BASF), MultiStat has shown success in improving the appearance of fine facial
lines and wrinkles associated with skin deterioration resulting from natural
aging or sun damage.  Additionally, MultiStat has been shown in the
same clinical studies to have applications for other conditions, such as skin
roughness or redness.
 
 In
September 2002, we announced an exclusive multi-year distribution agreement with
BASF Catalysts LLC formerly known as Engelhard Corporation
(“BASF”).  This agreement provides for BASF to undertake product
development and subsequent marketing and sales of MultiStat-related skin care
products.   Since 2005, through its agreement with BASF, products
that have incorporated MultiStatTM technology have been commercialized through
various skin care and anti-aging products sold to major cosmetics
companies.
 
 On August
2, 2006, we restructured our agreement with a wholly-owned subsidiary of BASF
Catalysts LLC formerly known as Engelhard Corporation, with a Fourth Amendment
to that certain Letter of Intent (“LOI”) dated February 1, 2006 and effective
through April 28, 2006.  The Fourth Amendment, effective as of June
30, 2006, extended the effective period of the LOI to August 1, 2007. The LOI
amends certain terms included in the distribution agreement, in which we granted
to Engelhard an exclusive license to develop and market our Ilomastat product
(the “Licensed Product”) for the field of over-the-counter anti-aging cosmetics
and a nonexclusive license for the field of over-the-counter acne treatments and
skin moisturizers in the cosmetics market.  In consideration for this
license, as amended by the LOI, we received monthly royalty payments based on a
percentage of the net revenue Engelhard receives from sales of the Licensed
Product but no less than annual minimum royalty payments equal to $1,140,000 for
the first two years, assuming the LOI is not terminated during such period.In addition, we
transferred all ownership, title and interest to the Engelhard intellectual
property rights developed under the agreement held by us back to Engelhard in
exchange for one lump payment of $166,500.
 
 On May
16, 2008, we and BASF Beauty Care Solutions, L.L.C., a member of BASF Group
(“BASF”), signed a Manufacturing and Distribution Agreement (“Agreement”) with
an effective date of August 1, 2007.  This Agreement supersedes The
Master Agreement for Product Development, Manufacturing and Distribution and the
Product Development and Distribution Agreement for Ilomastat dated August 15,
2002, the Tolling Agreement dated October 20, 2005, as amended, and the Letter
of Intent with the effective date of February 1, 2006, as amended, (“Prior
Agreements”) between us and BASF.
  Under
this Agreement, we appointed BASF as an exclusive manufacturer and distributor
of our MultiStatTM Compound, Ilomastat, (“QMT Compound”) in the over-the-counter
retail cosmetic consumer products in the worldwide territory with the exclusive
and non-exclusive licenses of certain patent rights.  In consideration
of the rights and appointments, we are entitled to receive distribution
fees on a quarterly basis of the contract year minimum sales of products
containing QMT Compound in each of the three contract years under the
renegotiated terms of the distribution fees as set forth in the
Agreement.  For the period from the effective date of August 1 to
December 31, 2007, the terms of the distribution fees under the Prior Agreements
remained in effect.  In addition,  BASF agrees that to the
extent required by applicable law, all products used, sold or distributed by
BASF will be manufactured substantially in the U.S. The contract year began
January 1, 2008, and each consecutive 12-month period thereafter during the term
of the Agreement.  The term of the Agreement expires on December 31,
2010.  We may terminate this Agreement prior to such expiration upon a
material breach by BASF, or BASF’s failure to meet minimum sales
requirements.
  The license under the Agreement may be
sublicensed to BASF’s affiliates or third parties solely for the right to
manufacture and to sell the licensed products for the purpose set forth in the
Agreement.
 
 
 -4-
 Index
 
 Competition
 
 The
research and development pertaining to our technologies, which underlie our
MMP-inhibitor (MultiStatTM), microbicide (NIMBUS) and potential future products,
is extremely competitive and is characterized by rapid technological change.
Many of our competitors have substantially greater financial, scientific, and
human resources, and greater research and product development capabilities. In
addition, many of our competitors have greater experience in marketing such
technologies and products and greater potential to develop revenue
streams.  As a result, our competitors may be able to develop and
expand their competing product offerings more rapidly, adapt to new or emerging
technologies and changes in customer requirements more quickly, devote greater
resources to marketing and sales of their products and adopt more aggressive
pricing policies than we can.
 
 Our
competitors include any company that is involved in the development of active
ingredients or catalyst molecules focused on our end markets.  These
may include for-profit companies as well as university, government or sponsored
research organizations.
 
 Specific
examples of competition to our NIMBUS microbicidal technology and potential
future products using that technology, include products utilizing fibers
embedded with silver and/or copper ions to induce anti-bacterial and/or
anti-fungal capabilities, or other microbicidal
technologies.  Competing companies developing or offering such
products include:
 
 ·
              Nucryst
      Pharmaceuticals Inc.
 ·
              Microban
      International, Ltd.
 ·
              Aegis
      Environments·
              Arch
      Chemical
  
 We will
attempt to overcome the competitive advantages of our competitors by entering
into co-development agreements with industry leaders in the potential markets
with exclusivity clauses for future license agreements.
  Intellectual
Property: Patents, and Exclusive Patent Licenses
  Our
strategy is to research and obtain original patents or, to the extent reasonably
available, to license exclusive composition and relevant use patents related to
our core technology. We believe that a comparatively strong intellectual
property position can be a source of differentiation from competing
products.
 
 NIMBUS
technology is covered by one issued U.S. patent,  seven issued foreign
patents (Australia, China, Russia, Indonesia, Korea, Mexico, and Canada), and
ten pending U.S. patents, as well as a number of international patent
applications filed under the Patent Cooperation Treaty (PCT), a treaty that
covers up to 139 countries and a number of foreign patent
applications.
 
 MultiStatTM
technology is covered by seven issued U.S. patents, five issued foreign patents
(Germany, Spain, France, Great
Britain, Italy), two pending U.S. patents and two pending international
patents.
 
 Several
of these patent applications are now under examination in the United States
Patent and Trademark Office.
 
 On
September 4, 2008, we received a notice of allowance as a patent for our
application number 10/546,850 for our invention of Antifungal Gypsum
Board.
 
 Agreements
with Employees and Consultants
 
 With the
exception of Drs. Schultz and Batich discussed below, all of our employees and
scientific consultants have signed agreements that assign to us all intellectual
property rights to any inventions or other proprietary information in any area
in which that person is working with us. These agreements do not provide for the
payment of any royalties. Drs.  Schultz and Batich, who are on the
faculty of University of Florida at Gainesville, are the only consultants who
currently have any rights in any intellectual property that may be shared with
us. Under the University of Florida policy, any rights obtained by Drs. Schultz
and Batich are assigned to the University. Drs. Schultz and Batich may be paid a
royalty by the University out of royalties that may be paid by us to University
of Florida.
 
 Issued
and Pending - U.S. & Foreign Patents
 
 We have
filed or own joint rights to patent applications for:
 
 U.S.
ISSUED PATENTS
 
 Number
              Issued
      Date
              Expiry
      Date
              Description5,183,900
              February
      1993
              November
      21, 2010
              Matrix
      Metalloprotease Inhibitors (MMPIs)5,189,178
              February
      1993
              November
      21, 2010
              Matrix
      Metalloprotease Inhibitors (MMPIs)5,239,078
              August
      1993
              November
      21, 2010
              Matrix
      Metalloprotease Inhibitors (MMPIs)5,270,326
              December
      1993
              November
      21, 2007
                (November
      21, 2010)
              Treatment
      of Tissue Ulceration5,773,438
              June
      1998
              June
      30, 2015
              Synthetic
      Matrix Metalloprotease Inhibitors (MMPIs) and Use
  Thereof5,892,112
              April
      1999
              April
      6, 2016
              Process
      for Preparing Synthetic Matrix Metalloprotease Inhibitors
      (MMPIs)6,713,074
              March
      2004
              June
      29, 2021
              Cosmetic
      Composition and Method7,045,673
      B1
              May
      16, 2006
              December
      8, 2019
              Intrinsically
      Bactericidal Absorbent Dressing and Method of
  Fabrication
   -5-
 Index
  The above
table includes patents, which are jointly owned by us and an arm of The
University of Florida, as well as patents that are licensed to us by Drs.
Galardy and Grobelny. Maintenance of patent protection through the expiration
date is contingent upon payment of fees at certain intervals. All are active as
of September 1, 2008.
 
  INTERNATIONAL
ISSUED PATENTS
 
 Number
              Jurisdiction
              Expiry Date(2)EPO
      558681(1)
              Europe
      (Germany, Spain, France, Great Britain, Italy)
              November
      21, 2011EPO
      558648(1)
              Europe
      (Germany, France, Great Britain, Italy)
              November
      21, 20111971367
              Japan
              November
      21, 20112001273115
                773532
              Australia
                Australia
              June
      29, 2021
                December
      8, 2019004160
              Russia
              December
      8, 20192096223
              Canada
              November
      21, 201199814229.8
              China
              December
      8, 201910-0689020
              Korea
              December
      8, 2019248078
              Mexico
              December
      8, 20192353436
              Canada
              December
      8, 2019WOO
      2001 01469
              Indonesia
              December
      8, 2019
 
 Notes:
 (1)
              Issued
      by the European Patent Office. Registered in Germany, France, Great
      Britain, and Italy.(2)
              Maintenance
      of patent protection through the expiration date is contingent upon
      payment of yearly fees. All are active as
      of  September  1,
2008.
 
 
 PENDING
PATENT APPLICATIONS - UNITED STATES
 
 
 Absorbent
      Materials Covalently Bonded, Non-Leachable Polymeric Antimicrobial
      Surfaces and Methods for Preparation.Cosmetic
      Composition and MethodComposition
       and Method for Minimizing or Avoiding The Adverse Effects of
      VesicantsImproved
      Antifungal Gypsum BoardSilicates
      and Other Oxides with Bonded Antimicrobials PolymersControlled
      Release of Biologically Active Substances From Select
      SubstratesMethod
      of Attaching an Antimicrobial Compound to the Surface of a
      SubstrateDisinfectant
      with  Quaternary Ammonium Polymer and
  CopolymersNon-Leaching
      Absorbent Wound DressingSystem
      and Method for Enhancing the Efficacy of Antimicrobial Contact
      Lenses
 
  
 -6-
 Index
  PENDING
PATENT APPLICATIONS - INTERNATIONAL
 
 Intrinsically
      Bactericidal Absorbent Dressing and Method of
  FabricationAbsorbent
      Materials Covalently-Bonded, Non-Leachable Polymeric Antimicrobial
      Surfaces and Methods for Preparation.Cosmetic
      Composition and MethodComposition
      and Method for Minimizing or Avoiding the Adverse Effect of
      VesicantsMethod
      of Attaching an Antimicrobial Compound to the Surface of a
      Substrate.Disinfectant
      with Quaternary Ammonium Polymers and
Copolymers
 
 For all
U.S. patents, the Inventor(s) is/are automatically the Applicant(s). For all
foreign patents pertinent here, the Assignee(s), if any, is/are automatically
the Applicant(s). Where both we and the University of Florida are mentioned, it
is because both own the invention jointly as Assignees.
 
 Our
business and competitive position are dependent upon our ability to protect our
proprietary technologies. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to obtain and use information that we regard as
proprietary. We will rely on patent, trade secret and copyright law and
nondisclosure and other contractual arrangements to protect such proprietary
information. We will file patent applications for our proprietary methods and
devices which we believe are patentable.
 
 There can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
our proprietary information, that such information will not be disclosed or that
we can effectively protect our rights to unpatented trade secrets or other
proprietary information.
 
 There can
be no assurance that others will not obtain patents or other legal rights that
would prevent us from commercializing our technologies in the United States or
other jurisdictions.
  There can
be no assurance that our technologies will not be subject to environmental or
other regulation that would impede their adoption and commercialization in the
United States or other jurisdictions.
 
 Our
strategy is to obtain original patents or, to the extent reasonably available,
exclusive composition and use licenses to patents relating to core technologies
and their use in targeted applications.
 
  
 -7-
 Index
   Patent
Related Agreements
   University
of Florida
  
 On
December 3, 2002, we entered into a licensing agreement with University of
Florida that gave us exclusive worldwide rights for the manufacturing,
marketing, and distribution of our NIMBUS and topical Ilomastat technologies.
The license, which covers both awarded patents and patent applications, builds
on intellectual property already owned by us, that includes, non-exclusive
rights to these same technologies or other rights obtained through prior
agreements. The agreement was amended to extend the date of the
commercialization of products to the retail customer for the group of licensed
patents to December 31, 2010, unless the delay is caused by governmental
regulatory agency, including but not limited to the Food and Drug
Administration, in which case we shall be afforded the opportunity to toll the
December 31, 2010 date for a period equal to the period during which such
regulatory review is diligently prosecuted by us.
 
 We have
executed a license agreement with University of Florida at Gainesville, DermaCo,
Inc., Dr. R. Galardy and Dr. D. Grobelny granting us certain rights under
patents relating to a family of MMPIs. We are using these rights to develop both
the cosmetic anti-aging products and vesicant skin treatment products. U.S. and
foreign patent rights, including but not limited to Germany, Spain, France,
United Kingdom, and Italy have been licensed to us for these
applications.
   University
of Michigan
  In June
2007, we entered into a patent license agreement with the University of Michigan
(“U-M”) that significantly expands our MultiStatTM technology – its patented
family of compounds for the cosmetic treatment of skin conditions, including
chronological aging and photo-aging. The license grants us the exclusive right
to commercialize important U-M patents in the field of cosmetic
products.
  We own
exclusive rights for topical use of the MultiStat compounds for cosmetic and
military applications, but previously had non-exclusive patent rights for use of
U-M patents in the anti-aging cosmetic arena. The agreement covers the exclusive
rights to seven (7) U.S. and numerous foreign patents in cosmetics
applications.
   Other
Patent Related Agreements
   We also
have an agreement with BASF that provides BASF Beauty Care Solutions, L.L.C.,
exclusive and non exclusive worldwide right to develop and market certain
products relating to skin care that employ our MultistatTM family of
MMPIs.
    Government  Regulation
   The
research and development, manufacture, and marketing of human pharmaceutical and
diagnostic products and devices are subject to regulation, in the United States
primarily by the Food and Drug Administration, and by comparable authorities in
other countries. These national agencies and other federal, state, and local
entities regulate, among other matters, research and development and the
testing, manufacturing, safety, handling, effectiveness, labeling, storage,
record keeping, approval, advertising, and promotion of the products like those
we are developing.
   Failure
to comply with applicable regulatory requirements can result in the refusal by
regulatory agencies to approve product licensing or the revocation of approvals
previously granted. Non-compliance can also result in fines, criminal
prosecution, recall or seizure of products, total or partial suspension of
production, or refusal to enter into additional contracts.
   Any
regulatory clearances that are received for a product may be subject to
limitations on approved uses for the product. After obtaining marketing
clearance for any product, the manufacturer and the manufacturing facilities for
that product will be subject to continual review and periodic inspections by the
Food and Drug Administration and other regulatory authorities. If previously
unknown problems with the product or with the manufacturer or facility are
discovered, restrictions may be imposed on the product or manufacturer,
including an order to withdraw the product from the market. If we, and any
contract manufacturers we choose to engage, fail to comply with applicable
regulatory requirements, we may be fined, suspended or subject to withdrawal of
regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution.
   -8-
 Index
  We work
with a law firm specializing in regulatory affairs with respect to the
pharmaceutical, cosmetic, and medical device industries. In addition, we utilize
the services of FDA and EPA consulting firms with experience in antimicrobial
medical device regulatory filings and EPA filings.  These firms will
be able to assist us with the following regulatory activities when
required:
  ·
              Regulatory
      Strategy and Liaison with the Food and Drug
  Administration;
 ·
              Regulatory
      Strategy and Liaison with the Environmental Protection
    Agency;
 ·
              Non-clinical
      and clinical program
assessment/development;
 ·
              Non-clinical
      and clinical protocol review/monitoring of
  studies;
 ·
              Regulatory
      affairs management/guidance;
 ·
              Product
      development and launch strategy;
 ·
              Validation
      of methods/processes;
 ·
              Product
      development strategies/assessment;
 ·
              Product
      compliance; and
 ·
              Label
      and labeling compliance.
    Food
and Drug Administration
  Many of
the end-user applications for our technology are regulated in the U.S. as
medical devices by the FDA.  The Agency’s regulations govern, among
other things: pre-clinical testing; product design and development; pre-market
clearance or approval; advertising and promotion; labeling; manufacturing;
product import/export; storage; record keeping; reporting of adverse events;
corrective actions and removals; recalls; and distribution.
 
 Unless an
exemption applies, each medical device to be commercially distributed in the
United States required either a prior 510(k) clearance or prior pre-market
approval (“PMA”) from the FDA.  The FDA classifies medical devices
into one of three classes, depending on the degree of risk associated with the
device and the extent of controls that are needed to ensure safety and
effectiveness.  Devices deemed to pose the least risk are placed in
Class I.  Intermediate risk devices, or Class II devices, in most
instances require the manufacturer to submit to the FDA a pre-market
notification, requesting authorization for commercial distribution, known as
510(k) clearance, and may subject the device to special controls, such as
performance standards, guidance documents specific to the device, or post-market
surveillance.  Most Class I and some low-risk Class II devices are
exempted from this 510(k) requirement.  Devices deemed by the FDA to
pose the greatest risk, such as life-sustaining, life-supporting, or implantable
devices, or a device deemed to be not substantially equivalent to a previously
cleared 510(k) deice, are placed in Class III.  In general, a Class
III device cannot be marketed in the U.S. unless the FDA approves the device
after submission of a PMA.  The FDA can also impose restrictions on
the sale, distribution, or use of devices at the time of their clearance or
approval, or subsequent to marketing.
 
  510(k)
Clearance Pathway
 
 A 510(k)
pre-market notification is submitted to the FDA to demonstrate that the new
device is “substantially equivalent” to a previously cleared 510(k) device or a
device that was in commercial distribution before May 29, 1976 (or to a pre-1976
Class II device for which the FDA has not yet called for the submission of
PMAs).  Such devices are deemed to be “predicate devices” for future
applications.  The FDA attempts to respond to a 510(k) within 90 days
of submission, but the response may be a request for additional information or
data, sometimes including clinical data.  As a practical matter,
510(k) clearance can take significantly longer than 90 days, potentially up to a
year or more.  If the FDA determines that the device, or its intended
use, is not substantially equivalent to a previously cleared device or use, the
FDA will place the device, or the particular use of the device, into Class
III.
 
 After a
device receives 510(k) clearance for a specific intended use, any modification
that could significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, design, or manufacture, will
require a new 510(k) clearance or could require a PMA.  The FDA
requires each manufacturer to make this determination initially, but the FDA can
review any such decision and can disagree with a manufacturer’s
determination.  If the FDA disagrees with a manufacturer’s
determination that a new clearance or approval is not required for a particular
modification, theFDA
can insist that the manufacturer cease marketing and/or recall the modified
device until 510(k) clearance or pre-market approval is obtained.
   -9-
 Index
 
 Pre-Market
Approval Pathway
   A PMA
must be submitted if the device cannot be cleared through the 510(k)
process.  The PMA process is much more demanding than the 510(k)
pre-market notification process.  A PMA must be supported by extensive
data and information including, but not limited to, technical, pre-clinical,
clinical, manufacturing and labeling to establish the safety and effectiveness
of the device to the FDA’s satisfaction.  A PMA usually also requires
a substantial application fee, which is over $100,000 for a small business
entity.
 
 After the
FDA determines that a PMA is complete, the agency accepts the application and
begins an in-depth review of the submitted information.  The FDA, by
statute and regulation, has 180 days to review an accepted PMA, although the
review generally occurs over a significantly longer period of time, and can take
up to several years.  During this review period, the FDA may request
additional information or clarification of information already
provided.  Also, during the review period, an advisory panel of
experts from outside FDA may be convened to review and evaluate the application
and provide recommendations to the FDA as to the approvability of the
device.   In addition, the FDA will conduct a pre-approval
inspection of the manufacturing facility to ensure compliance with the Quality
System Regulations.  New PMA applications or supplemental PMAs are
required for significant modifications to the manufacturing process, labeling,
use and design of a device that is approved through the PMA
process.   PMA supplements often require submission of the same
type of information as a PMA, except that the supplement is limited to
information needed to support any changes from the device covered by the
original PMA and may not require as extensive clinical data or the convening of
an advisory panel.
  
 De
Novo: Alternative Pathway to PMA
 
 If a
medical device is found NSE (not substantially equivalent) by the FDA, an
alternative pathway to the lengthy and costly PMA is available for low risk
devices. The FDA Modernization Act of 1997 amended Section 513 (f) (2) of the
Federal Food, Drug and Cosmetic Act (the Act) to provide this mechanism to
reclassify statutorily classified class III products. This is considered a
fairly unique pathway for clearance and typically is only allowed for new
technologies of low risk. The FDA allows unlimited responses when on this
pathway, different than the three allowed responses under a normal 510(k). A
device placed into class I or II in this written order can then be commercially
distributed, subject to other applicable provisions of the Act. A device
classified into class I or II under this new provision becomes a predicate
device for future premarket notification submissions, which means that a
manufacturer may show that a new device is substantially equivalent to this
predicate. This route to clearance is referred to as de novo because it
establishes a new alternative for a new technology.
 
 We filed
with the FDA for one of the end-user applications using our NIMBUS technology
under the medical device exemptions as an alternative to prior pre-market
approval requirements in March 2006, under a 510(k)
application.  After extensive discussions with the FDA staff,
including the Office of Chief Counsel, we were notified in January 2007 by the
FDA that a De Novo application route would be required for our proposed device.
In November 2007, we submitted our amended De Novo application. We responded to
the FDA staff on their follow up questions.   We expect to
receive a response from the FDA staff regarding the status of our De Novo
application within the next fiscal quarter.  We also understand that
the FDA is in the process of preparing guidance associated with our application
However, there are no assurances when we will receive a response and if it is
received whether our FDA application will be cleared by the FDA or if cleared it
will be a commercial success. Further delays in receiving FDA approval may also
impair our ability to raise capital to continue operations.
    Environmental
Protection Agency
  The EPA
regulates, among other things, antimicrobial products that are intended to
destroy, prevent, repel, or mitigate any microorganism declared by EPA to be a
“pest” pursuant to its authority under the Federal Insecticide, Fungicide, and
Rodenticide Act (“FIFRA”).  Microorganisms declared to be pests by EPA
are “any fungus, bacterium, virus, or other microorganisms, except for those on
or in living man or other living animals and those on or in processed food or
processed animal feed, beverages, drugs (as defined in sec. 201(g)(1) of the
Federal Food, Drug, and Cosmetic Act (“FFDCA”)) and cosmetics (as defined in
FFDCA sec. 201(i)). 40 C.F.R.§ 152.5(d).   The principal EPA
requirement is that antimicrobial products subject to EPA’s jurisdiction under
FIFRA be “registered” for the intended use under Section 3 of
FIFRA.  States also require registration of such products under state
law.  EPA registration requires among things the submission of data
and information sufficient to allow EPA to make a determination that the product
will perform its function without unreasonable adverse effects on health or the
environment.
 
 A number
of the NIMBUS applications may require FIFRA registration for the specific
end-use application.  The major component of NIMBUS is currently
registered with EPA by a third-party for certain unrelated uses, and Quick-Med
intends, in collaboration with strategic corporate partners, to obtain its own
EPA and state registrations for NIMBUS for antimicrobial use.  After
the registrations are secured, articles treated with the NIMBUS technology will
not be required to be registered separately with EPA or the states, provided the
antimicrobial claims made for such articles are limited to the control of
odor-causing bacteria or other spoilage organisms.  The intended use
of NIMBUS-treated articles for the control of pathogenic organisms will require
that the article itself be registered with EPA in those cases where the treated
article falls under EPA jurisdiction.
  
 Distribution
of Technologies /Future Products
  Because
we plan for industry partners in the medical and consumer healthcare markets to
market and distribute co-developed products or products that incorporate our
technologies, we will not directly distribute such products.  Instead,
we will rely upon our industry partners to utilize their advertising, name
recognition, and other marketing techniques to promote such products or products
that incorporate our technologies.
   -10-
 Index
 
 Customers
  Our
customers are companies interested in licensing our technologies or otherwise
partnering with us.  Because our technologies are intended to be used
in potentially widely used products that are used by the general public, such as
cosmetic anti-aging products, wound care products, apparel and personal care, we
do not anticipate becoming dependent upon a few customers; however, to the
extent that we enter into agreements with industry partners upon which we will
become dependent for the marketing and distribution of such products, should any
such agreements be terminated for any reason, our potential revenues and
operations will be negatively impacted.
   Employees
  We have
twelve (12) full time employees consisting of:
 
 ·
              Our
      Chief Executive Officer, who directs our operations and our business
      development projects and executes our business
strategy;·
              Our
      Founder, who is responsible for business development in the textiles and
      apparel markets;·
              Our
      Vice President of Research & Development who leads our scientific
      programs;
   ·
              Three
      Senior Research Scientists, who are responsible for product development
      and testing projects;
 ·
              A
      Director of Research and Business Development in Medical Devices, who is
      responsible for business development in the medical device
      industry;
 ·
              A
      Research Scientist, who is responsible in assisting the senior research
      scientist with testing and product development
  projects;
 ·
              A
      Product Development Engineer, who assists the research scientists with the
      product development projects;
 ·
              Two
      Microbiologists, who conduct the microbiological testing and assist in
      developing the applications of our technologies; and·
              An
      experienced lab assistant to prepare and do some testing of prototype
      products and materials.
  
 We also
utilize several consulting scientists with PhDs in their fields and several part
time employees to provide the necessary expertise in performing testing and
participating in certain of our development projects.
 
 Additionally,
we utilize a consulting Chief Financial Officer, who is a certified public
accountant.
   Cost
of Compliance with Environmental Laws
   Because
our potential products will be manufactured and sold by third parties, we are
not directly subject to environmental laws.
    Research
and Development
   During
our fiscal year ended June 30, 2008, we spent $1,555,287 on research and
development.  During our 2007 fiscal year, we spent $1,526,857 on
research and development.  We intend to continue and expect our
research and development efforts at similar level during the current 2009 fiscal
year.
  
  Reports
to Security Holders
   We are
subject to the informational requirements of the Securities Exchange Act of
1934.  Accordingly, we file annual, quarterly, and other reports and
information with the Securities and Exchange Commission.  Our filings
are available to the public from commercial document retrieval services and the
Internet website maintained by the Securities and Exchange Commission at
http://www.sec.gov.
   
 -11-
 Index
    ITEM
1A.                                RISK
FACTORS
   An
investment in the shares of our common stock involves a substantial risk of
loss.  You should carefully read this entire report and should give
particular attention to the following risk factors.  You should
recognize that other significant risks may arise in the future, which we cannot
foresee at this time.  Also, the risks that we now foresee might
affect us to a greater or different degree than expected.  There are a
number of important factors that could cause our actual results to differ
materially from those indicated by any forward-looking statements in this
document.  These factors include, without limitation, the risk factors
listed below and other factors presented throughout this document and any other
documents filed by us with the Securities and Exchange Commission.
  
 Our
independent registered public accounting firm has issued a going concern opinion
on our audited financial statements for the fiscal years ended June 30, 2008 and
2007 because, during those periods, the Company experienced recurring losses and
negative cash flows from operations as well as a net capital deficiency at June
30, 2008.  These matters raise substantial doubt about our ability to
continue as a going concern.
 
 We have
been dependent primarily on private placements of our equity securities and
stockholder loans to fund our operations, including research and development and
efforts to license our products.  Such funding may not be available to
us when needed, on commercially reasonable terms, or at all. If we are unable to
obtain additional financing if needed, we will likely be required to curtail our
operating plans and possibly cease our operations.  In addition, any
additional equity financing may involve substantial dilution to our
then-existing stockholders.
 
 We
have a history of significant losses and we may never achieve or sustain
profitability. If we are unable to become profitable, our operations will be
adversely effected.
 
  We have
incurred annual operating losses since our inception and our operations have
never been profitable.  At June 30, 2008, we had an accumulated
deficit of $18,085,965.  Our gross revenues for the years ended June
30, 2008 and 2007, were $1,360,924 and $1,952,758 with losses from operations of
$2,224,716 and $1,577,085 and net losses of $2,389,942 and $1,506,018
respectively.  There can be no assurance that we will ever become
profitable.
   We
have risks associated with our dependence on third party developers to
commercialize our technology.  If we are unable to attract such
developers to exploit our technologies, our business will fail. Alternatively,
if such developers fail to commercialize our technology, it would have a
material adverse effect on our business, financial condition and results of
operations.
 
 We depend
upon third parties to develop our products. We must attract such third parties
to develop and commercialize our technologies into end-user applications. If we
are unable to do so our business model will fail.
 
 The
inability of a developer to make our products in a timely manner, including as a
result of local financial market disruption which could impair the ability of
such developers to finance their operations, or to meet quality standards, could
cause us to miss the delivery date requirements of to their customers for those
items, which could result in cancellation of orders, refusal to accept
deliveries or a reduction in purchase prices, any of which could have a material
adverse effect on our financial condition and results of
operations.
 
 For
instance, BASF Beauty Care Solutions, L.L.C. (a unit of
BASF)  develops and commercializes our MultiStat technology pursuant
to a product development and distribution agreement, whereby it formulates our
proprietary compound to specifications as ordered by cosmetic companies. BASF
makes these formulations (“actives”) in kilograms containing our proprietary
compound and ships them to cosmetic customers.  They, in turn, will
mix the actives in their formulations and sell the products to the end
users.  Any event that materially and adversely affects BASF’s ability
or willingness to develop such technology will affect our revenues.
   
 -12-
 Index
  Our
intellectual properties may become obsolete if we are unable to stay abreast of
technological developments.
 
 The
biomedical industry is characterized by rapid and continuous scientific and
technological development. If we are unable to stay abreast of such
developments, our technologies may become obsolete.  We lack the
substantial research and development resources of some of our
competitors.  This may limit our ability to remain technologically
competitive.
 
 Other
companies could create a technology that competes effectively with our NIMBUS
and MultiStat technologies, and we may be unable to maintain our existing, or
capture additional, market share in our markets.  Based upon our
review of the industry, we are unaware of any company today that markets a
technology that is similar to our technologies.  Nonetheless, our
intended markets generally are dominated by very large corporations (or their
subsidiaries), which have greater access to capital, manpower, technical
expertise, distribution channels and other elements which would give them a
competitive advantage over us were they to begin to compete directly against us.
It is possible that these and other competitors may implement new, advanced
technologies before we are able to, thus affecting our ability to license our
intellectual properties at profitable rates.
 
 We cannot
assure investors that we will be able to achieve the technological advances to
remain competitive and become profitable, that new intellectual properties will
be researched, tested and developed, that anticipated markets will exist or
develop for our technologies, or that any product or services incorporating our
intellectual properties will not become technologically obsolete.
   We
are dependent on our patents and other intellectual property right
protections.  The failure to obtain patent protection could have a
material adverse effect on our business, financial condition and results of
operations.
 
 We have
employed proprietary technologies to license our intellectual
properties.  We seek to protect our intellectual property rights
through a combination of patent filings, trademark registrations,
confidentiality agreements and inventions agreements.  However, no
assurance can be given that such measures will be sufficient to protect our
intellectual property rights.  If we cannot protect our rights, we may
lose our competitive advantage.  Moreover, if it is determined that
our products infringe on the intellectual property rights of third parties, we
may be prevented from marketing or licensing our intellectual properties to
others.
 
 The
failure to protect our patents, trademarks and trade names, may have a material
adverse effect on our business, financial condition and operating
results.  Litigation may be required to enforce our intellectual
property rights, protect our trade secrets or determine the validity and scope
of proprietary rights of others.  Any action we take to protect our
intellectual property rights could be costly and could absorb significant
amounts of our management’s time and attention.  In addition, as a
result of any such litigation, we could lose any proprietary rights we
have.  If any of the foregoing occurs, we may be unable to execute our
business plan and you could lose your investment.
 
 We
depend on key personnel in a competitive market for skilled employees, and
failure to retain and attract qualified personnel could substantially harm our
business.
 
 We
believe that our future success will depend in large part on our ability to
attract and retain highly skilled scientific, technical and management
personnel. We obtained loans from our Chairman and a major shareholder to pay
for one year salary of our Chief Executive Officer and Director beginning in
June 2007.   If we are unable to hire the necessary personnel,
the development of our business will likely be delayed or
prevented.  Competition for these highly skilled employees is
intense.  As a result, we cannot assure you that we will be successful
in retaining our key personnel or in attracting and retaining the personnel we
require for expansion.
    -13-
 Index
 
 We
may be liable for products liability claims for which we have no
insurance.
 
 Although
we do not manufacture our products and the partners that we license our
technologies to have their own products liability insurance coverage (under
which we are covered or indemnified against such liabilities), we may be sued
for products liability if products incorporating our patented technologies
injure the end user.  In the event that we are sued on this basis,
liability claims could require us to spend significant time and money in
litigation and pay significant damages that are not covered by
insurance.  As a result, any of these claims, whether or not valid or
successfully prosecuted, could have a material adverse effect on our business
and financial results.
   Failure
to repay our loan obligations may severely impair our business operations,
assets and your investment in the Company.
 
 We have several loans outstanding,
including loans from our Chairman of the Board.If we are unable to
successfully repay or restructure loans from our Chairman, or our other
outstanding liabilities as they become due, we may have to liquidate our
business and undertake any or all the steps outlined below:
 
 ·
              Significantly
      reduce, eliminate or curtail our business, operating and research and
      development activities so as to reduce operating
  costs;
 
 ·
              Sell,
      assign or otherwise dispose of our assets, if any, to raise cash or to
      settle claims by creditors, including our Chairman of the
      Board;
 
 ·
              Pay
      our liabilities in order of priority, if we have available cash to pay
      such liabilities;
 
 ·
              If
      any cash remains after we satisfy amounts due to our creditors, distribute
      any remaining cash to our stockholders in an amount equal to the net
      market value of our net assets;
 
 ·
              File
      a Certificate of Dissolution with the State of Nevada to dissolve our
      corporation and close our business;
 
 ·
              Make
      the appropriate filings with the Securities and Exchange Commission so
      that we will no longer be required to file periodic and other required
      reports with the Securities and Exchange Commission, if, in fact, we are a
      reporting company at that time; and
 
 ·
              Make
      the appropriate filings with the Financial Industry Regulatory Authority
      to affect a delisting of our stock.
  
  We
have not paid cash dividends and it is unlikely that we will pay cash dividends
in the foreseeable future.  Investing in our securities will not
provide you with income.
 
 We plan
to use all of our earnings, to the extent we have earnings, to fund our
operations.  We do not plan to pay any cash dividends in the
foreseeable future.  We cannot guarantee that we will, at any time,
generate sufficient surplus cash that would be available for distribution as a
dividend to the holders of our common stock.  You should not expect to
receive cash dividends on our common stock.
   -14-
 Index
   We
have the ability to issue additional shares of our common stock, without asking
for stockholder approval, which could cause your investment to be
diluted.
 
 Our
Articles of Incorporation currently authorize the Board of Directors to issue up
to 100,000,000 shares of common stock.  The authority of the Board of
Directors to issue shares of common stock, or warrants or options to purchase
shares of common stock, is generally not subject to stockholder
approval.  Accordingly, any additional issuance of our common stock
may have the effect of further diluting your investment.
   We
may raise additional capital through a securities offering that could dilute
your ownership interest.
 
 We
require substantial working capital to fund our business.  If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the holders of our common stock.  The issuance of
additional common stock by our management will also have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock.
  
 The
market for our common stock is volatile.  This affects both the
ability of our investors to sell their shares, as well as the price at which
they are able to sell their shares.
 
 The
market price for our common stock is extremely volatile and is significantly
affected by factors such as reports written by third parties, over whom we have
no control, about our business and sales of large amounts of our common stock
relative to our average volume.  Furthermore, in recent years the
stock market has experienced extreme price and volume fluctuations that are
unrelated to the operating performance of the affected
companies.  These volatile conditions may make it difficult for you to
sell our common stock at a price that is acceptable to you.
  
 There
is a limited public market for our common stock and our stockholders may be
unable to liquidate their shares.
 
 Our
common stock is listed on the Over-the-Counter Bulletin Board, and there is a
limited volume of sales, thus providing limited liquidity for our
shares.  As a result, stockholders may be unable to sell their shares
in a timely manner.
   Our
executive officers and directors control a large percentage of our common stock,
which allow them to control matters submitted to stockholders for
approval.
 
 Our
executive officers and directors (and their affiliates), in the aggregate, own
approximately 83% of our outstanding common stock, and a substantial majority of
our outstanding voting stock.  Therefore, our officers and directors
have the ability to decide the outcome of matters submitted to our stockholders
for approval (including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets) and to control
our management and affairs.  This concentration of ownership may have
the effect of entrenching management and delaying, deferring or preventing a
change in control, impede a merger, consolidation, takeover or other business
combination or discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control, which in turn could have an adverse
effect on the market price of our common stock.
 
   -15-
 Index
 
  ITEM
2.                
DESCRIPTION OF PROPERTY
  Our
corporate headquarters are located at 902 NW 4 Street, Gainesville,
Florida.  This 3,200 square foot premises is composed of offices and
an equipped laboratory.  We pay monthly lease payment of $2,000 and
our lease expires on February 1, 2011.
   Our
office and laboratory facilities are in good condition and are sufficient to
conduct our operations.
   We do not
own real estate at this time and we have no agreements to acquire any
properties.
   ITEM
3.               
LEGAL PROCEEDINGS
     We are
subject to disputes and litigation in the ordinary course of our
business.  None of these matters, in the opinion of management, is
material or likely to result in a material adverse effect on us based upon
information available to us at this time.
    ITEM 4.               SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
    Not
applicable, as no matters were submitted to a vote of our security holders
during the fourth quarter of the fiscal year 2008.
   
 -16-
 Index
   PART
II
 
    ITEM
5.                 
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
   Market
Information
   Our
common stock began trading on September 4, 2002 on the OTC Bulletin Board under
the symbol QMDT. The following table sets forth the range of high and low
closing sale price per share obtained from www.stockwatch.com as reported by the
OTC Bulletin Board for our common stock for the fiscal quarters indicated. The
OTC Bulletin Board quotations represent quotations between dealers without
adjustment for retail mark-up, markdowns or commissions and may not represent
actual transactions.
   
  Year Ended June 30, 2008High
              LowFourth
      Quarter
              $0.42
              $0.20Third
      Quarter
              $0.45
              $0.29Second
      Quarter
              $0.72
              $0.25First
      Quarter
              $0.87
              $0.56
 
 
 Year Ended June 30, 2007High
              LowFourth
      Quarter
              $1.01
              $0.60Third
      Quarter
              $1.35
              $0.70Second
      Quarter
              $1.70
              $0.80First
      Quarter
              $1.50
              $0.70
 
  Holders
   As of
June 30, 2008, there were 67 holders of record of our common
stock.  We have one class of common stock, $0.0001 par value,
outstanding.
  
 Dividends
  We have
not declared or paid any cash dividends on our common stock since inception. We
intend to retain our future earnings, if any, in order to finance the expansion
of our business and we do not anticipate that any cash dividends will be paid in
the foreseeable future. Our future dividend policy will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors.
  
 Penny
Stock Considerations
  Our
shares are "penny stocks" which term is generally defined in the Securities
Exchange Act of 1934 as equity securities with a price of less than $5.00. Our
shares may be subject to rules that impose sales practice and disclosure
requirements on broker-dealers who engage in certain transactions involving a
penny stock.
   -17-
 Index
   Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or "accredited investor" must make a special
suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required
to:
   §
              Deliver,
      prior to any transaction involving a penny stock, a disclosure schedule
      prepared by the Securities and Exchange Commission relating to the penny
      stock market, unless the broker-dealer or the transaction is otherwise
      exempt;
   §
              Disclose
      commissions payable to the broker-dealer and its registered
      representatives and current bid and offer quotations for the
      securities;
   §
              Send
      monthly statements disclosing recent price information pertaining to the
      penny stock held in a customer's account, the account's value, and
      information regarding the limited market in penny stocks;
    and
   §
              Make
      a special written determination that the penny stock is a suitable
      investment for the purchaser and receive the purchaser's written agreement
      to the transaction, prior to conducting any penny stock transaction in the
      customer's account.
   Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
stockholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market. These additional sales practices and disclosure requirements could
impede the sale of our securities. In addition, the liquidity for our securities
may be adversely affected, with a corresponding decrease in the price of our
securities. Our shares are currently subject to such penny stock rules and our
stockholders will, in all likelihood, find it difficult to sell their
securities.
   Recent
Sales of Unregistered Securities
  On April
18, 2008, we granted an option to acquire 106,645 shares of restricted common
stock at an exercise price of $0.42 per share, the then current market value of
our common stock to Mr. Michael R. Granito for his services as a member of the
board of directors, audit, licensing and executive committees.  We
relied upon section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) for the offer and sale. We believed that Section 4(2) was
available because the offer and sale did not involve a public offering and there
was not general solicitation or general advertising involved in the offer or
sale. We placed restrictive legends on the certificates representing these
securities issued to Mr. Granito stating the securities were not registered
under the Securities Act and are subject to restrictions on their
transferability and resale.
  On April
18, 2008, we granted an option to acquire 121,647 shares of restricted common
stock at an exercise price of $0.42 per share, the then current market value of
our common stock to Mr. David S. Lerner for his services as a member of the
board of directors, licensing and executive committees and as
President.  We relied upon section 4(2) of the Securities Act for the
offer and sale. We believed that Section 4(2) was available because the offer
and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Mr. Lerner stating the securities were not registered under the Securities Act
and are subject to restrictions on their transferability and
resale.
 
 On April
18, 2008, we granted an option to acquire 96,647 shares of restricted common
stock at an exercise price of $0.42 per share, the then current market value of
our common stock to Mr. Paul G. Cerjan for his services as a member of the board
of directors, compensation and executive committees.  We relied upon
section 4(2) of the Securities Act for the offer and sale. We believed that
Section 4(2) was available because the offer and sale did not involve a public
offering and there was not general solicitation or general advertising involved
in the offer or sale. We placed restrictive legends on the certificates
representing these stock options issued to Mr. Cerjan stating the securities
were not registered under the Securities Act and are subject to restrictions on
their transferability and resale.
  On April
18,2008, we issued 65,714 shares of restricted common stock valued at a price of
$0.42 per share, for an aggregate price of $27,600, the then current market
value of our common stock to Mr. Gerald M. Olderman for his services as a member
of the board of directors, and compensation committee. In addition, we granted
to Mr. Olderman an option to acquire 105,000 shares of restricted common stock
at an exercise price of $0.42 per share, the then current market value of our
common stock. These stock options were issued to Mr. Olderman, our Vice
President of Research and Development and Commercialization, as a performance
bonus.  We relied upon section 4(2) of the Securities Act for the
offer and sale. We believed that Section 4(2) was available because the offer
and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Mr. Olderman stating the securities were not registered under the Securities Act
and are subject to restrictions on their transferability and
resale.
   -18-
 Index
 
 On April
18, 2008, we issued 82,857 shares of restricted common stock valued at a price
of $0.42 per share, for an aggregate price of $34,800, and granted an option to
acquire 10,000 shares of restricted common stock at an exercise price of $0.42
per share, the then current market value of our common stock to Mr. George E.
Friel for his services as a member of the board of directors, audit,
compensation and executive committees.  We relied upon section 4(2) of
the Securities Act for the offer and sale. We believed that Section 4(2) was
available because the offer and sale did not involve a public offering and there
was not general solicitation or general advertising involved in the offer or
sale. We placed restrictive legends on the certificates representing these stock
options issued to Mr. Friel stating the securities were not registered under the
Securities Act and are subject to restrictions on their transferability and
resale.
  On April
18, 2008, we granted an option to acquire 76,651 shares of restricted common
stock at an exercise price of $0.42 per share, the then current market value of
our common stock to Mr. Gregory S. Schultz for his services as a member of the
board of directors. In addition, we granted to Mr. Schultz an option to acquire
151,429 shares of restricted common stock for his services as our Vice President
of Laboratory and Clinical Research at an exercise price of $0.42 per share, the
then current market value of our common stock.  We relied upon section
4(2) of the Securities Act for the offer and sale. We believed that Section 4(2)
was available because the offer and sale did not involve a public offering and
there was not general solicitation or general advertising involved in the offer
or sale. We placed restrictive legends on the certificates representing the
stock options issued to Mr. Schultz stating the securities were not registered
under the Securities Act and are subject to restrictions on their
transferability and resale.
  On April
18, 2008, we granted an option to acquire 96,647 shares of restricted common
stock at an exercise price of $0.42 per share, the then current market value of
our common stock to Mr. Richard F. Caffrey for his services as a member of the
board of directors, audit and licensing committees.  We relied upon
section 4(2) of the Securities Act for the offer and sale. We believed that
Section 4(2) was available because the offer and sale did not involve a public
offering and there was not general solicitation or general advertising involved
in the offer or sale. We placed restrictive legends on the certificates
representing these stock options issued to Mr. Caffrey stating the securities
were not registered under the Securities Act and are subject to restrictions on
their transferability and resale.
  On April
18, 2008, we granted to Mr. Nam Nguyen an option to acquire 50,000 shares of
restricted common stock at an exercise price of $0.42 per share, the then
current market value of our common stock. These stock options were issued to Mr.
Nguyen as a performance bonus in connection with Mr. Nguyen’s position as our
Chief Financial Officer.  We relied upon Section 4(2) of the
Securities Act for the offer and sale. We believed that Section 4(2) was
available because the offer and sale did not involve a public offering and there
was not general solicitation or general advertising involved in the offer or
sale. We placed restrictive legends on the certificates representing the stock
options issued to Mr. Nguyen stating the securities were not registered under
the Securities Act and are subject to restrictions on their transferability and
resale.
  On April
18, 2008, we granted to Mr. Christopher Batich an option to acquire 20,000
shares of restricted common stock at an exercise price of $0.42 per share, the
then current market value of our common stock. These stock options were issued
to Mr. Batich in connection with his position as our Consultant for
Bioengineering and Material Science.  We relied upon Section 4(2) of
the Securities Act for the offer and sale. We believed that Section 4(2) was
available because the offer and sale did not involve a public offering and there
was not general solicitation or general advertising involved in the offer or
sale. We placed restrictive legends on the certificates representing the stock
options issued to Mr. Batich stating the securities were not registered under
the Securities Act and are subject to restrictions on their transferability and
resale.
 
 On April
18, 2008, we granted to Mr. Roy Carr an option to acquire 50,000 shares of
restricted common stock at an exercise price of $0.42 per share, the then
current market value of our common stock. These stock options were issued to Mr.
Carr as a performance bonus in connection with his position as our Director of
Medical Devices.  We relied upon Section 4(2) of the Securities Act
for the offer and sale. We believed that Section 4(2) was available because the
offer and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Mr. Carr stating the securities were not registered under the Securities Act and
are subject to restrictions on their transferability and resale.
 
 On April
18, 2008, we granted to Mr. William Toreki, III an option to acquire 45,000
shares of restricted common stock at an exercise price of $0.42 per share, the
then current market value of our common stock. These stock options were issued
to Mr. Toreki as a performance bonus in connection with his position as our
laboratory Director and Senior Polymer Scientist.  We relied upon
Section 4(2) of the Securities Act for the offer and sale. We believed that
Section 4(2) was available because the offer and sale did not involve a public
offering and there was not general solicitation or general advertising involved
in the offer or sale. We placed restrictive legends on the certificates
representing the stock options issued to Mr. Toreki stating the securities were
not registered under the Securities Act and are subject to restrictions on their
transferability and resale.
 
 On April
18, 2008, we granted to Mr. Bernd Liesenfeld an option to acquire 30,000 shares
of restricted common stock at an exercise price of $0.42 per share, the then
current market value of our common stock. These stock options were issued to Mr.
Liesenfeld as a performance bonus in connection with his position as our Senior
Material Scientist.  We relied upon Section 4(2) of the Securities Act
for the offer and sale. We believed that Section 4(2) was available because the
offer and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Mr. Liesenfeld stating the securities were not registered under the Securities
Act and are subject to restrictions on their transferability and
resale.
   -19-
 Index
 
 On April
18, 2008, we granted to Ms. Susan Leander an option to acquire 30,000 shares of
restricted common stock at an exercise price of $0.42 per share, the then
current market value of our common stock. These stock options were issued to Ms.
Leander as a performance bonus in connection with her position as our Material
Scientist.  We relied upon Section 4(2) of the Securities Act for the
offer and sale. We believed that Section 4(2) was available because the offer
and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Ms. Leander stating the securities were not registered under the Securities Act
and are subject to restrictions on their transferability and
resale.
 
 On April
18, 2008, we granted to Mr. David Moore an option to acquire 35,000 shares of
restricted common stock at an exercise price of $0.42 per share, the then
current market value of our common stock. These stock options were issued to Mr.
Moore as a performance bonus in connection with his position as our Senior
Microbiologist.  We relied upon Section 4(2) of the Securities Act for
the offer and sale. We believed that Section 4(2) was available because the
offer and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Mr. Moore stating the securities were not registered under the Securities Act
and are subject to restrictions on their transferability and
resale.
 
 On April
18, 2008, we granted to Ms. Albina Mikhaylova an option to acquire 30,000 shares
of restricted common stock at an exercise price of $0.42 per share, the then
current market value of our common stock. These stock options were issued to Ms.
Mikhaylova as a performance bonus in connection with her position as our Senior
Scientist.  We relied upon Section 4(2) of the Securities Act for the
offer and sale. We believed that Section 4(2) was available because the offer
and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Ms. Mikhaylova stating the securities were not registered under the Securities
Act and are subject to restrictions on their transferability and
resale.
 
 On April
18, 2008, we granted to Ms. Jillian Vella an option to acquire 10,000 shares of
restricted common stock at an exercise price of $0.42 per share, the then
current market value of our common stock. These stock options were issued to Ms.
Vella as a performance bonus in connection with her position as
our  Microbiologist.  We relied upon Section 4(2) of the
Securities Act for the offer and sale. We believed that Section 4(2) was
available because the offer and sale did not involve a public offering and there
was not general solicitation or general advertising involved in the offer or
sale. We placed restrictive legends on the certificates representing the stock
options issued to Ms. Vella stating the securities were not registered under the
Securities Act and are subject to restrictions on their transferability and
resale.
 
 On April
18, 2008, we granted to Mr. David A. Lane an option to acquire  10,000
shares of restricted common stock at an exercise price of $0.42 per share, the
then current market value of our common stock. These stock options were issued
to Mr. Lane as a performance bonus in connection with his position as our Lab
Technician.  We relied upon Section 4(2) of the Securities Act for the
offer and sale. We believed that Section 4(2) was available because the offer
and sale did not involve a public offering and there was not general
solicitation or general advertising involved in the offer or sale. We placed
restrictive legends on the certificates representing the stock options issued to
Mr. Lane stating the securities were not registered under the Securities Act and
are subject to restrictions on their transferability and resale.
    Securities
Authorized for Issuance Under Equity Incentive Plans
   The
following table sets forth information regarding awards made through
compensation plans or arrangements through June 30, 2008, our most recently
completed fiscal year.
    Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              Weighted
      average exercise price of outstanding options, warrants and
      rights
              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding outstanding securities shown
      herein)Equity
      compensation plans approved by security holders
              3,676,525
              $0.61
              316,456Equity
      compensation plans not approved by security holders
              744,937
              $0.48
              N/ATotal
              6,428,481
              $0.59
              316,456
 
  Our 2001
Equity Incentive Plan (The “Plan”) authorizes the issuance of options, right to
purchase Common Stock and stock bonuses to officers, employees, directors and
consultants. The Plan was amended and restated to increase the total number of
shares available to 6,000,000 shares.  We reserved 6,000,000 shares of
our common stock for awards to be made under the 2001 Plan. The 2001 Plan is
administered by a committee comprised of two or more members of the Board of
Directors or, if no committee is appointed, then by the Board of Directors. The
2001 Plan allows for the issuance of incentive stock options (which can only be
granted to employees), non-qualified stock options, stock awards, or stock
bonuses. The committee, or the Board of Directors if there is no committee,
determines the type of award granted, the exercise price, the option term, which
may be no more than ten years, terms and conditions of 2001 and methods of
exercise. Options must vest within ten years. The Plan description and its
activities up to the fiscal year ended are disclosed in our financial statements
for the fiscal year ended contained herein. The number of options under the 2001
Plan available for grant at June 30, 2008 was 316,456.
  
  -20-
 Index
 
  ITEM
      6.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
   The
following discussion should be read in conjunction with our audited financial
statements and related notes included therein. The terms "the Company," "we,"
"our" or "us" refer to Quick-Med Technologies, Inc.  This discussion
contains forward-looking statements based on our current expectations,
assumptions, and estimates. The words or phrases "believe," "expect," "may,"
"anticipates," or similar expressions are intended to identify "forward-looking
statements." Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of risks and uncertainties
pertaining to our business, including: (a) because we have a limited operating
history and our technologies are still evolving, we may not be able to
successfully manage our business or achieve profitability; (b) our technology
and product development processes, which include substantial regulatory
approvals, are lengthy and expensive and there is no assurance that we will have
sufficient resources to complete development related to these processes; (c) our
history of losses make it difficult for you to evaluate our current and future
business and prospects and future financial results; (d) we have negative cash
flow from operations and an accumulated deficit that raises substantial doubt
about our ability to continue as a going concern; (e) our future business is
dependent upon third parties to market, manufacture, and distribute our
technologies and/or products or jointly developed products; (f) there is no
assurance that our technologies or products that employ our technologies will be
accepted in the marketplace; (g) we do not currently carry product liability
insurance and should we be subject to  product liability claims, our
financial condition may be adversely affected;  (h) our operations are
currently funded by the revenues and our debt and equity financings, however,
there are no assurances that such financings will be sufficient to ensure
our  future financial performance;  (i) we have substantial
debt obligations due to our Chairman of the Board and a major shareholder, who
have funded our operations, debt obligations of which are secured by our assets
and revenues and which are senior obligations; (k) there is no assurance that we
will be able to attract and retain highly skilled scientific, technical and
management personnel, who are critical to our success and (l) other risk factors
discussed in our periodic filings,  which may be accessed at
http://www.sec.gov.  Statements made herein are as of the date of the
filing of this Form 10-KSB with the Securities and Exchange Commission and
should not be relied upon as of any subsequent date. Unless otherwise required
by applicable law, we do not undertake, and we specifically disclaim any
obligation, to update any forward-looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such
statement.
   Overview
  Quick-Med
is a life sciences company focused on developing proprietary, broad-based
technologies in the consumer, healthcare, and industrial markets. We call one of
these technologies, “NIMBUS®”, which
stands for “Novel Intrinsically MicroBonded Utility Substrate”. NIMBUS is a
family of advanced polymers that are bio-engineered to have antimicrobial,
super-absorbent, hemostatic or other properties with applications across the
medical device and consumer health care related products markets. Our other
leading technology is called “MultiStatTM”, a family of advanced patent methods
and compounds, which we believe may be highly effective in skin care therapy
applications.
  Our
strategy is to further develop our core technologies as well as develop future
technologies. We will attempt to commercialize these technologies through
strategic licensing partnership agreements, joint ventures, or co-development
agreements. We do not intend to manufacture or distribute final products;
instead, we will seek partnership arrangements and/or license agreements with
third parties to develop products that use our technologies and who will perform
the manufacturing, marketing, and distribution functions associated with our
technologies.
  Our
business model has attempted and will continue to attempt to develop the
following revenue segments:
  ·
              License
      fees;
 ·
              Profit
      sharing revenues;
 ·
              Research
      and development fees paid to us in connection with joint development
      agreements; and
 ·
              Government
      research and development grants.
  Our
potential revenues will be derived from government agencies and the following
types of companies in connection with our NIMBUS® and
MultiStatTM technologies:
  ·
              Healthcare
      and medical;
 ·
              Apparel;
 ·
              Cosmetic;
      and
 ·
              Personal
      care companies.
    -21-
 Index
 Uncertainties and
Trends
  Our
revenues are dependent now and in the future upon the following
factors:
   ·
              Acceptance
      of our products or future products in the marketplace;·
              Our
      partner’s ability to develop, market and distribute our technologies under
      a  strategic   partnership
    agreement;
 ·
              Demand
      for products or future products that utilize our
    technologies;
 ·
              Our
      ability to secure license or profit sharing related agreements and secure
      government research and development
grants;
 ·
              Our
      ability to market our services to health care, apparel, cosmetic, and
      personal care companies;
 ·
              Our
      ability to successfully conduct laboratory and clinical testing of our
      potential products; and
 ·
              Our
      ability to obtain regulatory approval of our future
    products.
 
  Uncertainties
or trends that may affect our business also include the possibility that known
or unknown competitors may develop products with similar applications to our
proposed products, which may prove to be superior in performance and/or price to
our products.
  Capital
Expenditures and Requirements
 
 From 2000
to 2008, we have spent approximately $817,000 on the acquisition of patents and
exclusive license agreements.  We owe an additional $160,000 to Dr.
Richard Galardy which is due when certain milestones are met in connection with
a September 2000 license agreement we have with Dr. Galardy and Dr. Damian
Grobeny. This license agreement provides that we compensate Dr. Galardy and Dr.
Grobeny with our common stock and cash for the exclusive license of the
Ilomastat technology invented by them.
 
 We do not
expect any significant additions to property, plant and equipment.
 
 Critical
Accounting Policies and Estimates
  The
preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amounts. The estimates and assumptions are
evaluated on an on-going basis and are based on historical experience and on
various other factors that are believed to be reasonable. Estimates and
assumptions include, but are not limited to economic useful lives of fixed and
intangible assets, income taxes, valuation of options and warrants granted and
contingencies. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
the financial statements. Our accounting for stock compensation requires us to
estimate the value of theshares issued and the
value of intangible assets require us to continually assess whether such assets
are impaired.
   Results
of Operations
  Comparison
of Years Ended June 30, 2008 and 2007
 
 Revenues.During the year ended June
30, 2008 we had revenues of $1,360,924, compared to $1,952,758 of revenues for
the year ended June 30, 2007, representing a 30% decrease in our
revenues.
  Our
revenues during the year ended June 30, 2008 consisted of: (a) $308,958, which
represented our royalties from the product sales by BASF Beauty Care Solutions,
L.L.C., a cosmetic and personal care division of BASF Catalysts, LLC, a
wholly-owned subsidiary of BASF (“BASF”),  in connection with a
manufacturing and distribution agreement we have with BASF  for
product development, manufacturing and distribution (the “BASF Agreement”); (b)
$124,418 which represented the earned portion of the license fee from Derma
Sciences, Inc. and the research and development fees from Mölnlycke and
Hanesbrands Inc. (“HBI”); and (c) $927,548, which represented the revenue earned
from the small business innovation research program and the US Army research on
the development of Ilomastat for treatment of sulfur mustard injuries on the eye
and skin  program (the “US Army research program”).  As more fully described below, we
signed a new manufacturing and distribution agreement with BASF in May 2008, as
a result, we expect a positive trend in product sales by BASF in fiscal year
2009.
 
 Our
revenues during the year ended June 30, 2007 consisted of: (a)
$1,380,869, which represented our royalties from the product sales by BASF
Beauty Care Solutions, L.L.C.;  (b) $185,960 which represented the earned
portion of the exclusive option fee, and the research and development fee from
Hanesbrands Inc. (“HBI”) and the earned portion of the license fee from Derma
Sciences, Inc ; and (c) $385,929, which represented the revenue earned from the
small business innovation research program and the US Army research
program.
 
 Effective
August 1, 2007, we entered into the manufacturing and distribution agreement
with BASF Beauty Care Solutions, L.L.C., a member of the BASF Group (the “BASF
Agreement”).  This agreement grants BASF exclusive and non-exclusive
licenses to develop and market our Ilomastat product for the field of
over-the-counter anti-aging (chronological aging or photoaging) cosmetics. Under
the terms of this agreement, we and BASF share the net revenues in each contract
calendar year beginning January 1, 2008 until December 31, 2010 in accordance
with certain sharing percentages as defined in the agreement.  The
BASF Agreement has an expiration date of December 31, 2010.  This
Agreement supersedes the Master Agreement for Product Development, Manufacturing
and Distribution dated August 15, 2002, the Product Development and Distribution
Agreement for Ilomastat dated August 15, 2002, the Tolling Agreement dated
October 20, 2005, as amended, and the Letter of Intent with the effective date
of February 1, 2006, as amended.
 
 Effective
April 23, 2007, we were awarded a $1 million military contract for research on
the “Development of Ilomastat for Treatment of Sulfur Mustard Injuries to Eye
and Skin.”  The award was provided under the Department of Defense
(“DoD”) Appropriation Act for Fiscal 2006 and was issued by U.S. Army Medical
Research Acquisition Activity (“USAMRAA”), an agency of the DoD.  The
term of the contract is for one year from the effective date and the total
amount of the contract, net of the overhead charged by USAMRAA, is approximately
$880,000.
   -22-
 Index
 
 Operating Losses.Operating
losses for the year ended June 30, 2008 increased by 41% or $647,631
to ($2,224,716) for the year ended June 30, 2008 from ($1,577,085) for
the year ended June 30, 2007. The increase in operating loss was primarily
due to a decrease in revenues of $591,834 offset by an increase in expenses of
$55,797 for the year ended June 30, 2008. The net increase in expenses
was primarily due to the following: (a) an increase of $243,794 or 18% increase
in general and administrative expenses; (b) an increase of $28,430 or 2% in
research and development expenses; (c) a decrease of $221,666 or 80% in cost of
revenues; and (d) a decrease of $5,479 or 2% in licensing and patent expenses,
as described in more detail below.
 
 Research and Development
Expense.  Research and development expense increased by $28,430
or 2% to $1,555,287 for the year ended June 30, 2008, from $1,526,857 for the
year ended June 30, 2007.  The increase in research and development
expense is primarily attributable to an increase of approximately $213,000 in
the expenses related to the US Army research program during the fiscal year 2008
offset by a decrease in share based compensation expense of approximately
$197,000 from prior year resulting from, increased compensation to our head of
research and development department and research team.  In addition,
there were slight increase in research projects, and the usage of scientific
consulting services.
 
 General and Administrative
Expense.  General and administrative expense increased by
$243,794 or 18% to $1,585,866 for the year  ended June 30, 2008, from
$1,342,072 for the year ended June 30, 2007.  This increase in our
general and administrative expenses is primarily attributed to an increase of
approximately $636,000 in our Chief Executive Officer compensation expense,
including approximately $399,000 related to share based
compensation.  The increase as mentioned above was offset by a
reduction in other operating expenses.  Further, there were $217,534
in financing related expenses, and personnel recruiting fees incurred in the
year ended June 30, 2007, with no similar expenses, incurred during the year
ended June 30, 2008.
 
 Licensing and Patent
Expense.  Licensing and patent expense decreased modestly by
$5,479 or 2% to $315,784 for the year ended June 30, 2008 from $321,263 for the
year ended June 30, 2007.  This very slight decrease was primarily due
to the level of utilization of the consulting legal patent services and legal
licensing services including licensing negotiation during the period offset by
an increase in patent maintenance fees.
 
 Other
Income.  During the year ended June 30, 2007, we had $166,500
in other income, which represented a payment from BASF Beauty Care Solutions,
L.L.C., for the transfer of all right, title and interest of the formulations
utilized our proprietary compound, that were customized by BASF for the
customers held by us back to BASF.   However, we did not transfer
the intellectual property rights of our proprietary
compound.    There was no such transaction during the year
ended June30, 2008.
 
 Interest
Income.  During the year ended June 30, 2008, we had $2,195 in
interest income, an increase of
$1,260 or 135% from $935 for the year ended June 30, 2007.  The
amounts represented interest earned on our certificate of deposits and money
market account during the periods.
 
 Interest
Expense.  Interest expense for the year ended June 30, 2008
increased $71,053 or 74% to $167,421 compared to $96,368 the year ended June 30,
2007.  This increase was due to an increase of approximately $607,000
or 38% in the average outstanding loan balance due to our Chairman and a major
stockholder, to approximately $2,217,000, compared to approximately $1,610,000
average outstanding balance for the comparable 2007 period.
 
 Net
Loss.   Net loss for the year ended June 30, 2008 was
$2,389,942 or $0.08 per share compared to $1,506,018 or $0.05 per share for the
year ended June 30, 2007.   This increase is primarily
attributable to a decrease in revenues, the increases in research and
development expenses, general and administrative expenses offset by the
decreases in cost of revenues, and licensing and patent expenses.  In
2007, there was a one-time payment for the transfer of the intellectual property
as described above, while no such payment occurred in 2008.
   -23-
 Index
   Liquidity
and Capital Resources
  Our
auditors have issued a going concern opinion on our audited financial statements
for the fiscal years ended June 30, 2008 and 2007 as we have experienced
recurring losses and negative cash flows from operations in these
periods.  In addition, we have a net capital
deficiency.  These matters raise substantial doubt about our ability
to continue as a going concern.
 
 Total
cash on hand at June 30, 2008 was $72,817 as compared with $83,606 at March 31,
2008.    Further, subsequent to June 30, 2008, we collected
the outstanding receivable balance of approximately $346,709 at June 30,
2008.  As of August 31, 2008, we received an additional $200,000 in
borrowings under  a 2008 Senior Secured Convertible Note 2 from our
Chairman.
 
 On April
4, 2008, we and Mölnlycke Health Care AB (“MHC”) entered into a Joint
Development Agreement (the “Agreement”) effective as of March 19, 2008 with
total value of approximately $90,000 over 90 days period.  We
anticipate the direct expenses for this project of approximately
$25,000.
 
 In
September 2006, we received the SBIR Phase II grant, which included including
the option of SBIR Phase I, totaling approximately $840,000 over the next two
years and we expect the cash outflows related to this grant of approximately
$390,000 to subcontractors and other direct expenses.  To date, we
received approximately $429,000 and incurred approximately $115,000 in expenses
to subcontractors and other direct expenses. Effective April 23, 2007, we were
awarded a military contract of approximately $880,000, net of overhead charged
by USAMRAA.  The expected cash outflows during the term of this
military award were approximately $610,000 for scientific experiments and other
direct expenses.   This award expired in June
2008.  While we expect to receive royalties in the next twelve to
twenty four months from these agreements subject to certain contractual terms,
we need cash in order to maintain and grow our businesses.  See the
section below for further discussion of our cash requirements and related
strategies to meet these needs.
 
  Equity Financing and our
Cash Requirements
  On
November 30, 2004, we completed an agreement to sell 5,000,000 shares of our
restricted common stock to Phronesis Partners, L.P. (“Phronesis”), a Delaware
limited partnership, for $1,000,000 before commission and expenses (the ”Stock
Purchase Agreement”). On November 30, 2004, we received $880,000 net of
commission and expenses of $120,000. In connection with the Stock Purchase
Agreement, our Chairman of the Board, Mr. Granito, converted $500,000 of the
convertible debt we owed to him into 1,315,790 shares of our restricted common
stock at a conversion price applicable to the convertible debt of $0.38 per
share. In connection with the Stock Purchase Agreement,  we completed
a Warrant Agreement with Phronesis, in which we granted Phronesis certain
warrants to purchase shares of our restricted common stock at an exercise price
as defined in the Warrant Agreement. The Warrant Agreement expired on February
5, 2005 and provided for a maximum investment of $1,000,000 by Phronesis through
the exercise of warrants. On December 31, 2004, Phronesis and we agreed to amend
the exercise price for the warrant price to $0.46 per share. All other terms of
the Stock Purchase Agreement and the Warrant Agreement remained the same. On the
same date, Phronesis exercised its warrant to purchase 2,173,913 shares of our
restricted common stock at a per share price of $0.46, or an aggregate purchase
price of $1,000,000 before commission of $70,000.
 
 In
connection with the exercise of the warrant and in accordance with the terms of
the Stock Purchase Agreement, Mr. Granito, our Chairman of the Board,
immediately converted $826,087 of his convertible debt owed by us into 2,173,913
shares of our restricted common stock (equal to the number of shares acquired by
Phronesis) at a conversion price applicable to the convertible debt of $0.38 per
share.
 
 In July
2005, we issued 40,322 shares of restricted common stock for an aggregate
purchase price of $25,000 in cash.
  In August
2005, we issued 13,795 shares of restricted common stock for an aggregate
purchase price of $8,553 in cash.
  In August
2005, we issued 175,000 shares of restricted common stock for an aggregate
exercise price of $29,750 in cash from an exercise of a stock
option.
  In
February 2006, we issued 80,000 shares of restricted common stock for an
aggregate purchase price of $80,000 in cash.
 
 In
September 2006, we issued 33,334 shares of common stock for aggregate exercise
price of $5,000 in cash from an exercise of an employee stock
option.
 
 In
February 2007, we issued 30,000 shares of common stock for an aggregate exercise
price of $6,000 in cash from an exercise of a warrant by an
officer.
 
 In May
2007, we issued 100,000 shares of restricted common stock for an aggregate
purchase price of $79,000 in cash.
 
 In June
2007, we issued 67,500 shares of common stock for an aggregate exercise price of
$12,150 in cash from an exercise of a warrant.
   -24-
 Index
   In
September 2007, we issued 15,000 shares of common stock for an aggregate
exercise price of $2,250 in cash from an exercise of a warrant.
 
 In
October 2007, we issued 5,000 shares of common stock for an aggregate exercise
price of $1,000 in cash from an exercise of a warrant.
 
 In
November 2007, the Company issued 62,500 shares of common stock for an aggregate
exercise price of $8,900 or $0.14 per share for 60,000 shares and $0.20 per
share for 2,500 shares resulting from the exercise of warrants.
 
 Based on
our cash position at June 30, 2008, we cannot continue to satisfy our
current cash requirements for a period of twelve (12) months through our
existing capital. We anticipate total estimated patent related legal fees,
operating and research and development expenditures of approximately $176,000
per month or an aggregate of approximately $2,122,000 over the next twelve (12)
months, in the following areas:
 
 ·
              Research
      and development expenditures of approximately $81,000 per month or an
      aggregate $972,000 over the next twelve (12) months, which will consist of
      the following estimated monthly expenditures: (a) $56,000 in payroll for
      scientists; (b) $10,000 for outside research and development expenditures;
      and (c) $15,000 for chemical supplies, and laboratory operating expenses,
      including rent expense;
 
 ·
              Patent
      related legal fees of approximately $20,000 per month or an aggregate
      $240,000 annually; and
 
 ·
              Operating
      expenses of approximately $75,000 per month or an aggregate $900,000 over
      the next twelve (12) months, including personnel costs, officer and
      director insurance, general liability insurance, rent, consulting fees,
      utilities, legal and accounting fees, and
  payroll.
 
 Our
current cash balance of $72,817 as of June 30, 2008, coupled with
collection on accounts receivable of approximately $346,709, and the receipt of
approximately $200,000 funding under a 2008 senior convertible secured note 2
with our Chairman grant will satisfy our cash requirements for
approximately less than four (4) months assuming no further receipt of
revenues. If we are unable to satisfy the remainder of these obligations by
equity and or debt financing, we will be unable to satisfy our cash requirements
beyond approximately four (3) months assuming no further receipts of
revenues.
  We intend
to raise additional cash by means of equity and or debt financing. Additionally,
we plan to implement cash conservation strategy by extinguishing obligations
through share-based payments and reducing our use of consulting services. There
are no assurances that any planned equity offering and/or debt financing will be
successful or sufficient to meet our cash requirements if that our cash
conservation strategy will be successful.
 
 As of
June 30, 2008, we have six senior convertible notes payable outstanding to our
Chairman totaling $2,988,902 including accrued interest with interest rates
ranging from 6% to 8% per annum and a maturity date ranging from June to
December 2010.  These notes are convertible at conversion prices
ranging from $0.20 to $0.74 per share and are secured by our revenues and
assets.  We also have a $375,000 senior convertible note payable to a
major stockholder.  The senior convertible note has 8% interest rate
per annum with a conversion price of $0.74 per share and a maturity date of
2010, and is secured by our revenues and assets.
   -25-
 Index
   If we are
unable to successfully repay our loans to our Chairman and a major stockholder,
we may have to liquidate our business and undertake any or all the steps
outlined below.
  ·
              Significantly
      reduce, eliminate or curtail our business, operating and research and
      development activities so as to reduce operating
  costs;
 ·
              Sell,
      assign or otherwise dispose of our assets, if any, to raise cash or to
      settle claims by creditors, including our Chairman of the
      Board;
 ·
              Pay
      our liabilities in order of priority, if we have available cash to pay
      such liabilities;
 ·
              If
      any cash remains after we satisfy amounts due to our creditors, distribute
      any remaining cash to our shareholders in an amount equal to the net
      market value of our net assets;
 ·
              File
      a Certificate of Dissolution with the State of Nevada to dissolve our
      corporation and close our business;
 ·
              Make
      the appropriate filings with the Securities and Exchange Commission so
      that we will no longer be required to file periodic and other required
      reports with the Securities and Exchange Commission, if, in fact, we are a
      reporting company at that time; and
 ·
              Make
      the appropriate filings with the National Association of Security Dealers
      to affect a delisting of our stock.
  Based
upon our cash requirements for our Plan of Operations and our current dividend
policy of investing any available cash to our operations, however, we do not
plan to distribute any cash to our stockholders.
  At June
30, 2008, we had a negative working capital of $538,653 that primarily consists
of: (a) cash of $72,817; (b) accounts receivable of $346,709; (c) accounts
payable of $871,074, (d) accrued expenses of $46,034, and (e) unearned revenue
of $41,071.  At June 30, 2008, we had a stockholders’ deficit of
$3,598,131, a substantial portion of which is due to non-cash stock compensation
expense and non-cash interest expense from the notes payable
conversions.
 
 Cash used
in operating activities was $1,233,330 for the year ended June 30,
2008. Net cash used in investing activities was $98,562.  Net cash provided
by financing activities was $1,288,990, of which $12,150 was provided by the
exercise of 82,500 warrants, , and $1,026,840 from our Chairman as part of
several senior convertible notes and $250,000 from a major stockholder as
partial funding of the $375,000 senior convertible note.
 
 During
the year ended June 30, 2007, we received (a) $79,000 from the sale of our
restricted common stock; (b) $23,150 from the exercise of the 130,834 stock
options; (c) the borrowings and repayments of $19,500 to an officer and (d)
$303,600 from our Chairman as part of the $375,000 senior convertible note and
$125,000 from a major stockholder as partial funding of the $375,000 senior
convertible note.
 
 In
November 2007, approximately $21,046 of accounts payable was settled through the
issuance of 34,501 shares of restricted common stock.
 
 Off-balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangement that have, or are reasonably likely to
have, a current or future effect on financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
    -26-
 Index
  Contractual
Obligations And Commercial Commitments
   The
following table summarizes our contractual obligations and commercial
commitments as of June 30, 2008:
  
 Significant Obligations
              Total
              Within 1 Year
              2-3 Years
              4-5 Years
              After 5 YearsCapital
      Leases
              $-Operating
      Leases
              $62,000
              $24,000
              $38,000
              $-
              $-
 
  We are
committed under lease for our Gainesville, Florida office and laboratory
facilities. This lease expires in February 1, 2011.   We do not
have any capital leases.
   ITEM
7.                      FINANCIAL
STATEMENTS
   The
information required by this item is included in pages F-1 to F-18 attached
hereto and incorporated herein by reference.  The index to our annual
financial statements as of and for the years ended June 30, 2008 and 2007 can be
found on page F-1.
    ITEM
      8.
              CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
   None.
   ITEM
8A.                    Controls
and Procedures
  
 Evaluation
of Disclosure Controls and Procedures
  We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act of 1934
reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and our Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, our management recognized
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and our management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.
  Based on
our management’s evaluation, with the participation of our Chief Executive
Officer and Chief Financial Officer, of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")), our Chief Executive Officer and our Chief Financial Officer
have concluded that as of June 30, 2008, the end of the period covered by this
Annual Report on Form 10-KSB, such disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
  
 Changes
in Internal Controls over Financial Reporting
  As of the
end of our fiscal year ended June 30, 2008, there was no change in our internal
controls over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
  
 Management’s
Annual Report on Internal Control Over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
  Management
assessed the effectiveness of our internal control over financial reporting as
of June 30, 2008. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated
Framework.   Based on this assessment management believes that,
as of June 30, 2008, our internal control over financial reporting is
effective.
 
 This
annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's independent registered public accounting firm pursuant to the rules of
the Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
 
 
 ITEM
      8B.
              Other Information
 
 
 -27-
 Index
 
 
  PART
III
   
   ITEM
      9.
              DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(a) OF THE EXCHANGE ACT
   The
following table sets forth the names, ages and positions held for our directors,
executive officers and significant employees.
  Our
executive officers, key employees and directors are as follows:
   Name
              Age
              PositionMichael
      R. Granito
              57
              Chairman
      of the BoardJ
      Ladd Greeno
              59
              Chief
      Executive Officer and DirectorGeorge
      E. Friel
              66
              Vice
      President, Chemical & Biological Affairs, and
  DirectorGerald
      M. Olderman
              75
              Vice
      President, Research & Development and Commercialization, and
      DirectorGregory
      S. Schultz
              58
              Vice
      President, Laboratory & Clinical Research, and
  DirectorRichard
      F. Caffrey
              66
              DirectorNam
      H. Nguyen
              51
              Chief
      Financial Officer
    Mr. Granito has served as our
Chairman since July 2000. In September 2003, Mr. Granito joined Federated
Investors, Inc. as senior vice president and head of capital market research.
 From July 1979 to December 2002, Mr. Granito was the managing director and
head of capital market research of J.P. Morgan Fleming Asset Investment
Management located in New York City. From 1984 through 1996 he served as an
adjunct Professor of Finance at Yale University and New York University. Mr.
Granito has authored a book and 14 papers on finance and foreign exchange
topics. In 1973, Mr. Granito earned a B.S. and a B.A. in Economics from the
University of Pennsylvania.
  Mr. Greenohas served as our
Chief Executive Officer since August 2007 and as our Director since September
2007. From 2003 to 2006, Mr. Greeno was President and Chief Executive Officer of
Agion Technologies, a leading provider of ionic silver antimicrobials. Before
joining Agion, Mr. Greeno held a number of senior management positions at the
global management and technology consulting firm, Arthur D. Little, Inc., (ADL)
including Chief Operating Officer and senior vice president in charge of the
firm’s North American Management Consulting business.  Mr. Greeno
began his consulting career in ADL’s Strategy & Organization practice and
then moved into leadership roles successfully building ADL’s worldwide
Environmental, Health, and Safety Consulting business. Mr. Greeno received an
M.B.A. from Harvard Business School and a B.B.A from the University of
Oklahoma.
   -28-
 Index
   Major General Friel (Ret.) has
served as our director from July 2000. MG. Friel has been self-employed as a
consultant to various organizations in the defense industry since September
1998. MG. Friel served in the U.S. Army from 1960 to 1998. He was the commanding
general of the U.S. Army Chemical and Biological Defense Command, at the
Aberdeen Proving Ground in Maryland from August 1992 to August 1998 and deputy
chief of staff for Chemical and Biological Matters of the Army Material Command
in Virginia, during the same time. MG. Friel was also responsible for a $600
million annual budget for the Nuclear, Biological, and Chemical Defense Command
for six years and directed over 1,100 scientists and engineers. MG. Friel has
also served as chairman of the boards of the Nuclear, Biological, and Chemical
Defense Enterprise at the Edgewood Arsenal in Maryland and the U.S. Army
Material Command, Acquisition and Procurement Enterprise. MG. Friel earned an
M.B.A. from Northwest Missouri State University and a B.S. from the University
of Nebraska. He is a graduate from the U.S. Army Chemical School, The Army
Command and General Staff College and The Industrial College of the Armed
Forces.  He was a director for Engineer Support Systems, Inc from
September 1998 until January 2006.
   Mr. Olderman has served as our
Vice President, Research & Development and Commercialization since July
1997, and as our Director since July 2000.  Mr. Olderman brings 35
years of healthcare experience, 31 years of technical management experience, and
25 years serving as the head of research and development activities for fortune
500 companies. Since November 1996, Mr. Olderman was Vice President and
Associate of R.F. Caffrey & Associates Inc., a management consultant to
medical device companies and suppliers. Prior to joining R.F. Caffrey &
Associates, Mr. Olderman served as Director and head of research and development
for C.R. Bard, Inc.'s Cardiopulmonary Division, where he organized a new product
development process in which 19 new medical devices were developed. Mr. Olderman
also served as Vice President for domestic and international research and
development for the Pharmaceutical Division of Baxter Healthcare Corp.
and Vice President for research and development for the Converters, a division
of American Hospital Supply Corporation prior to its acquisition by Baxter
Healthcare Corporation, where he led product development and made material
changes that helped increase market share from 30% to 45% within a $750 million
market.  Mr. Olderman has also served as Vice President for research
and development and as a director for Surgikos, Inc. a subsidiary of Johnson
& Johnson.  Mr. Olderman received a B.S in Chemistry from
Rensselaer Polytechnic Institute in New York. He also holds an M.S. in Physical
Chemistry and a Ph.D. in Physical Chemistry from Seton Hall University in New
Jersey.
   Mr. Schultz has served as our
Vice President, Laboratory and Clinical Research and Director since July 2000.
From 1999 through 2001, Mr. Schultz served as the President of the Wound Healing
Society, and has worked as a consultant for 12 major biotechnology
companies.  In 1989, he was appointed Professor of Obstetrics/Gynecology
and Director of the Institute for Wound Research in the College of Medicine at
the University of Florida at Gainesville, Florida.  He has published over
200 research articles and book chapters that have been cited over 4,000
times.  He has been continuously funded by major grants from the National
Institutes of Health and supported by grants from the U.S. Army grant on
treatment of burns with growth factors.  Mr. Schultz earned a doctorate in
biochemistry from Oklahoma State University and postdoctoral fellowship in cell
biology at Yale University in Connecticut.
   Mr. Caffrey has served as our
Director since March 2004. Mr. Caffrey has more than twenty years of corporate
experience, including marketing research, strategic planning, business
development and management recruiting, in both senior-line and senior-staff
positions. Mr. Caffrey is currently the president of R.F. Caffrey &
Associates, Inc., a full service marketing consulting practice that offers
assistance to participants in the healthcare, industrial, and consumer related
markets. Previously, Mr. Caffrey was vice president of John R. Starr, Inc., a
management consulting firm; president, and chief operating officer of CPM Inc.,
a New England based specialty paper company; vice president of sales and
marketing of Codman & Shurtleff, Inc. (subsidiary of Johnson & Johnson
Company), a surgical instruments and equipment company; group product director
of Surgikos, Inc. (subsidiary of Johnson & Johnson Company), a marketer of
medical products and supplies; vice president, business development of Chicopee
(subsidiary of Polymer Group, Inc. whose major holdings are controlled by
InterTech Group), a non-woven fabrics supplier; and marketing research manager
of  Sealtest Foods. He holds both B.S. and M.B.A. degrees in Business
Administration from Seton Hall University.
   Mr. Nguyen has been our Chief
Financial Officer since August 2004.  Since January 2003, he has
provided accounting services through his professional firm. From November 2003
until July 2004, Mr. Nguyen served as acting Secretary. Mr. Nguyen is currently
president of his public accounting firm, Nam H. Nguyen, CPA, P.A.  Mr.
Nguyen was a Manager of Financial Controls of W. R. Grace & Co., responsible
for its risk-based global audit plan for its worldwide operations.  He
was Vice President of Financial Reporting of John Alden Financial Corporation
with responsibilities for the SEC filings and state insurance filings in the
United States. A certified public accountant, who has worked for
PricewaterhouseCoopers LLP, as a senior manager, Mr. Nguyen specialized in the
insurance and health care business in both the United States and
Europe.  Mr. Nguyen is also a Certified Internal Auditor.
   The above
listed officers and directors will serve until the next annual meeting of the
stockholders or until their death, resignation, retirement, removal, or
disqualification, or until their successors have been duly elected and
qualified. Vacancies in the existing board are filled by majority vote of the
remaining directors. Our officers serve at the will of the board. There are no
family relationships between any of the executive officers and
directors.
   No
officer, director, or persons nominated for such positions, promoter or
significant employee has been involved in legal proceedings that would be
material to an evaluation of our management.
   -29-
 Index
  Our
directors, executive officers and control persons have not been involved in any
of the following events during the past five years:
   1.
              any
      bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of the
      bankruptcy or within two years prior to that
  time;
   2.
              any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor
      offenses);
   3.
              being
      subject to any order, judgment, or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      or
   4.
              being
      found by a court of competent jurisdiction (in a civil action),the
      Commission or the Commodity Futures Trading Commission to have violated a
      federal or state securities or commodities law, and the judgment has not
      been reversed, suspended, or
vacated.
   Committees
of the Board of Directors
   Executive
Committee.  Our Executive Committee is composed of Michael R.
Granito, our Chairman of the Board, Directors J. Ladd Greeno, Richard F. Caffrey
and George E. Friel.  This committee’s chairman is George
Friel.  This committee acts for our Board of Directors when a meeting
of the full board is not practical.
   Compensation
Committee.  The Compensation Committee is composed of George E.
Friel and Gerald M. Olderman, is chaired by George E. Friel.  This
committee approves, administers and interprets our compensation and health
benefits, including our executive incentive programs. Additionally, this
committee reviews and makes recommendations to our Board of Directors to ensure
that our compensation and benefit policies are consistent with our compensation
philosophy and corporate governance principles.  This committee is
also responsible for establishing our Chief Executive Officer and senior
executive officers’ compensation.
   Audit
Committee.  The Audit Committee is composed of George E. Friel,
Michael R. Granito, and Richard F. Caffrey, and is chaired by George E.
Friel.  This committee has general responsibility for the oversight
and surveillance of our accounting, reporting and financial control
practices.  Among other functions, the committee retains our
independent public accountants.
   Licensing
Committee.  The Licensing Committee is composed of J. Ladd
Greeno, Gerald M. Olderman, Gregory S. Schultz, and Richard F. Caffrey and is
chaired by Richard F. Caffrey.  This committee has general
responsibility for the review of the licensing terms and agreements with our
business partners and to recommend them to the Board of Directors for approval
as appropriate.
   Audit
Committee Financial Expert
  Currently,
we do not have an Audit Committee “financial expert”.No individual
on our Board of Directors possesses all of the attributes of an audit committee
financial expert and no one on our Board of Directors is deemed to be an audit
committee financial expert.  In forming our Board of Directors, we
sought out individuals who would be able to guide our operations based on their
business experience, both past and present, or their education.  Our
business model is not complex and our accounting issues are
straightforward.  Responsibility for our operations is centralized
within management, which is comprised of four people.  We rely on the
assistance of others, such as our accountant, to help us with the preparation of
our financial information.  We recognize that having a person who
possesses all of the attributes of an audit committee financial expert would be
a valuable addition to our Board of Directors, however, we are not, at this
time, able to compensate such a person therefore, we may find it difficult to
attract such a candidate.
   Code
of Ethics
   We have
adopted a Code of Ethics for our board members, our principal executive and
senior financial officers, our other officers and our employees.  A
copy of this Code of Ethics is located on our website at www.quickmedtech.com.  We
intend to post any waivers of or amendments to our Code of Ethics on our
website.
    Compliance
with Section 16(a) of the Securities Exchange Act of 1934
   Under
United States securities laws, our directors, executive officers and any persons
holding more than 10% of our issued and outstanding common stock are required to
report their ownership of common stock (or securities convertible into common
stock) to the Securities and Exchange Commission.  Due dates for these
reports have been set by the Commission and we are required to report any
failure to file by those deadlines.  To our knowledge, based solely on
a review of the copies of such reports furnished to us by those persons and on
representations from those persons that no other reports were required, all
reports were timely filed as required under Section 16(a) of the Securities
Exchange Act of 1934 by all such persons during the fiscal year ended June 30,
2008.
   
 -30-
 Index
  ITEM
10.               
EXECUTIVE COMPENSATION
  J. Ladd
Greeno, Chief Executive Officer, currently receives an annual salary of
$250,000. Gerald M. Olderman, Vice President of R&D and Commercialization,
signed an employment agreement effective November 2006, with an annual salary of
$150,000. Our other officers have agreed to act without cash compensation,
except those with consulting agreements, until authorized by our Board of
Directors, which is not expected to occur until we have generated sufficient
revenues from operations or we have obtained sufficient financing. The officers
or directors are not otherwise accruing any compensation under any agreement
with us. The officers and directors have been granted stock options for past
services, as set forth below.
  
 Summary
Compensation Table
 
 Name
      and principal position
              Year
              
              Salary  ($)
              
              Bonus
      ($)
              
              Stock
      Awards
                ($)(1)
              
              Option
      Awards($)(1)
              
              Non-Equity
      Incentive Plan Compen-sation ($)
              
              Nonquali-fied
      Deferred Compen-sation Earnings ($)
              
              All
      Other Compen-sation
    ($)
              
              Total
      ($)J.
      Ladd Greeno, Chief
                Executive
      Officer
              2008
              
              $
              250,000
              
              —
              
              
              —
              
              $399,347
              
              
              —
              
              —
              
              
              
              $
              649,347Gerard
      M. Olderman, Vice
                President
      of R & D and
                Commercialization
              2008
              
              
              150,000
              
              
              
              $
              27,600
              
              29,473
              
              
              
              
              
              
              
              
              
              207,0732007
              
              
              132,000
              
              
              
              $
              45,000
              
              26,008
              
              
              
              
              
              
              
              
              
              203,008
  
 (1)
Reflects dollar amount expensed by us during applicable fiscal years for
financial statement reporting purposes pursuant to FAS 123R. FAS 123R requires
us to determine the overall value of the options as of the date of grant based
upon the Black-Scholes method of valuation, and to then expense that value over
the service period over which the options become exercisable (vest). As a
general rule, for time in service based options, we will immediately expense any
option or portion thereof which is vested upon grant, while expensing the
balance on a pro rata basis over the remaining vesting term of the option. See
the assumptions made in the valuation of the stock options in the footnotes of
our financial statements on pages F-1 to F-20 attached hereto and incorporated
by reference.  During the year ended June 30, 2008, Mr. Greeno was
granted 484,056 stock options, which were vested immediately and 1,452,167 stock
options, which are vested one-sixteenth (1/16) every three month beginning on
June 17, 2007.  These stock options were granted as part of Mr.
Greeno’s employment agreement.  We recognized approximately $399,347
of share-based compensation expenses for the fiscal year ended June 30, 2008 for
Mr. Greeno services.  During the year end June 30, 2008, we granted
65,714 restricted common shares and 10,000 stock options to Mr. Olderman for his
services as a director and 105,000 stock options as Vice President of R &D
and Commercialization.   These stock options were vested
one-third at the grant date and one-third to be vested at every twelve months
thereafter.  We recognized $39,733 in share-based compensation expense
for the fiscal year ended June 30, 2008.  During the year ended June
30, 2007, we entered into an employment agreement with Mr. Olderman and granted
him 45,000 shares of restricted common stock.  In addition, we granted
Mr. Olderman 45,385 stock options for his services as a director and 30,000
stock options as Vice President of R &D and
Commercialization.  These stock options were vested one-third at the
grant date and one-third to be vested at every twelve months
thereafter.  We recognized $26,008 in share-based expense for the
fiscal year ended June 30, 2007.
 
  No
retirement, pension or insurance programs or other similar programs have been
adopted for our employees or consultants. A stock option plan has been approved
by our board.  On December 13, 2004, our shareholders approved our
amended and restated 2001 equity incentive plan to increase the total number of
shares of common stock to 4,000,000 from 3,000,000.  On November 13,
2007, our shareholders ratified the amendment to increase the total number of
shares to be granted under the Plan from 4,000,000 to
6,000,000.  Options to purchase 1,140,000 shares of common stock have
been granted to officers, directors, employees and consultants under the plan in
2002. All 2002 stock options have an exercise price equal to 75% of the closing
bid price for the first 30 days of trading in the common stock, which commenced
September 6, 2002, with the exception of Peter Barton Hutt, whose stock options
are at 25% of such price. Options to purchase a total of 840,000 shares of
common stock were issued in 1999, 2000 and 2001 to officers, directors,
employees and consultants. On August 16, 2005, all 840,000 options were expired.
In July 2003, the Board of Directors have authorized the issuance of options to
acquire up to approximately 1,300,000 shares of common stock and the grant of
250,000 shares of restricted common stock to officers, directors, employees and
consultants.   In July 2004, the Board of Directors approved the
issuance up to 500,000 shares of restricted common stock and options to acquire
approximately 600,000 shares of common stock to be granted to officers,
directors, employees and consultants.  In September 2005, the Board of
Directors approved the issuance of 130,000 shares of restricted common stock and
options and warrants to acquire approximately 885,000 to employees, directors,
officers and consultants. In December 2006, the Board of Directors approved the
issuance of stock options to acquire approximately 790,770 to employees,
directors, officers and consultants.  In April 2008, the Board of
Directors approved the issuance of the stock options to acquire approximately
1,074,666 to employees, directors and consultants.
   -31-
 Index
 
 
 The
following table summarizes the amount of our executive officers’ equity-based
compensation outstanding at the fiscal year ended June 30, 2008:
 
 OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END
  OPTION
      AWARDS
              
              STOCK
      AWARDSName
              
              Number
      of securities underlying unexercised options (#)
    Exercisable
              
              Number
      of
                securities
      underlying unexercised options (#)
                Unexercis-
                able
              
              Equity
      Incentive Plan Awards: Number of Securities underlying unexercised
      unearned options (#)
              
              Option
      exercise price ($)
              
              Option
      expiration date
              
              Number
      of shares or units of stock that have not vested (#)
              
              Market
      value of shares or units of stock that have not vested ($)
              
              Equity
      incentive plan awards: number of unearned shares, units or other rights
      that have not vested (#)
              
              Equity
      incentive plan awards: Market or payout value of unearned shares, units or
      other rights that have not vested (#)J.
      Ladd Greeno
                Chief
      Executive Officer
              
              484,056
              (1)
              
              
              
              
              
              0.75
              
              08/06/2012
              
              0
              
              0
              
              0
              
              0363,040
              (2)
              
              1,089,127
              
              0
              
              0.874
              
              09/25/2012Gerard
      M. Olderman
              
              37,917
              (3)
              
              67,083
              
              67,083
              
              0.42
              
              04/18/2013
              
              0
              
              0
              
              0
              
              0Vice
      President
              
              62,820
              (4)
              
              12,565
              
              12,565
              
              1.05
              
              12/19/2011R&D
      and
                Commercialization
              
              150,000
              (5)
              
              0
              
              0
              
              0.80
              
              09/09/2010149,000
              (6)
              
              0
              
              0
              
              0.55
              
              07/23/2008
  
 (1)
              These
      stock options were granted under our amended and restated 2001 Equity
      Incentive Plan and were vested on the date of
  grant.
 (2)
              These
      stock options were granted under our amended and restated 2001 Equity
      Incentive Plan and are vested as follows one-sixthteenth (1/16) every
      three month beginning on June 17,
2007.
 (3)
              These
      stock options were granted under our amended and restated 2001 Equity
      Incentive Plan with the vested dates as follows: One-third vested at the
      grant date of April 18, 2008; one-third vested at April 18, 2009; and the
      remaining vested at April 18, 2010.
 (4)
              These
      stock options were granted under our amended and restated 2001 Equity
      Incentive Plan with the vested dates as follows: One-third vested at the
      grant date of December 20, 2006; one-third vested at December 20, 2007;
      and the remaining vested at December 20,
2008.
 (5)
              These
      stock options were granted under our amended and restated 2001 Equity
      Incentive Plan with the vested dates as follows: One-third vested at the
      grant date of September 9, 2005; one-third vested at September 9, 2006;
      and the remaining vested at September 9,
2007.
 (6)
              These
      stock options were granted under our amended and restated 2001 Equity
      Incentive Plan with the vested dates as follows: One-third vested at the
      grant date of July 23, 2003; one-third vested at July 23, 2004; and the
      remaining vested at July 23, 2005
 
   -32-
 Index
 
 
 Compensation of
Directors
 
 The
following director compensation disclosure reflects all compensation awarded to,
earned by or paid to the directors below for the fiscal year ended June 30,
2008.
  
 DIRECTOR
COMPENSATION
 Non-Equity
                Incentive
              
              NonqualifiedFees
      Earned
                or
      Paid in
              
              Stock
              
              Option
              
              
              Plan
                Compen-
              
              Deferred
                Compensation
              
              All
      OtherCash
              
              Awards
              
              Awards
              
              
              sation
              
              Earnings
              
              Compensation
              
              TotalName
              
              ($)
              
              ($)(1)
              
              ($)(1)
              
              
              ($)
              
              ($)
              
              ($)(6)
              
              ($)Michael
      Granito
              
              0
              
              0
              
              $12,323
              (2)
              
              0
              
              0
              
              0
              
              $12,323George
      Friel
              
              0
              
              34,800
              
              1,156
              (3)
              
              0
              
              0
              
              0
              
              35,956Gregory
      Schultz
              
              0
              
              0
              
              8,857
              (4)
              
              0
              
              0
              
              17,498
              
              26,355Rich
      Caffrey
              
              0
              
              0
              
              11,168
              (5)
              
              0
              
              0
              
              0
              
              11,168
 
 (1)
              Reflects
      dollar amount expensed by the company during applicable fiscal year for
      financial statement reporting purposes pursuant to FAS 123R. FAS 123R
      requires the company to determine the overall value of the options as of
      the date of grant based upon the Black-Scholes method of valuation, and to
      then expense that value over the service period over which the options
      become exercisable (vest). As a general rule, for time in service based
      options, the company will immediately expense any option or portion
      thereof which is vested upon grant, while expensing the balance on a pro
      rata basis over the remaining vesting term of the
  option.
 (2)
              At
      fiscal year ended June 30, 2008, Mr. Granito had a total of 520,260 stock
      options outstanding.
 (3)
              At
      fiscal year ended June 30, 2008, Mr. Friel had a total of 152,115 stock
      options outstanding.
 (4)
              At
      fiscal year ended June 30, 2008, Mr. Schultz l had a total
      of  635,620 stock options
outstanding.
 (5)
              At
      fiscal year ended June 30, 2008, Mr. Caffrey had a total of 206,647 stock
      options outstanding.
 (6)
              Effective
      January 2007, we have a consulting agreement with Mr. Schultz for his
      scientific advisory services with a monthly fee of $2,500.  Mr.
      Schultz agreed to receive stock options in lieu of cash payment for the
      amounts owed in the fiscal year ended June 30,
  2008.
 
 
  Employment
Contracts and Termination of Employment and Change in Control
Arrangements
  On August
6, 2007 (the “Effective Date”), we entered into an employment agreement with J.
Ladd Greeno to serve as our Chief Executive Officer (the
“Agreement”).  Mr. Greeno began employment with us on June 11, 2007
(the “Start Date”).  Mr. Greeno will report to our Board of Directors
(the “Board”) and will render such business and professional services in the
performance of his duties, consistent with his position as our Chief Executive
Officer, as will reasonably be assigned to him by the Board.
  We pay
Mr. Greeno a base salary of $250,000 per year (the “Base Salary”), subject to
review by the Board on an annual basis and subject to increase in the
Registrant’s discretion.  Mr. Greeno is eligible to receive an annual
bonus (the “Annual Bonus”) of up to fifty percent (50%) of the Base Salary upon
the achievement of performance objectives that were reasonably determined by the
Board or the Board’s Compensation Committee in consultation with Mr. Greeno
within forty-five (45) days after the Effective Date, and annually thereafter as
part of our annual planning process.  Mr. Greeno is also eligible to
receive awards of stock options, restricted stock or other equity awards
pursuant to any plans or arrangements we may have in effect from time to
time.
   -33-
 Index
   Subject
to the Board’s approval, we granted Mr. Greeno two options (each, an “Option,”
and together, the “Options”) to purchase that number of shares of the
Registrant’s common stock equal to five percent (5%) of the Registrant’s
outstanding equity on the date of grant, calculated on a diluted basis and
taking into account any equity commitments to other employees that were made as
of the Start Date and which remain outstanding as of the grant date (the “Share
Number”).  The first Option was granted, subject to Board approval, on
the Effective Date with respect to twenty-five percent (25%) of the Share Number
at an exercise price of $0.75 per share and was fully vested and immediately
exercisable on the date of grant.  The second Option was granted,
subject to Board approval, at a date determined by the Board, but no later than
October 1, 2007, and was granted with respect to seventy-five percent (75%) of
the Share Number.  The second Option will vest and become exercisable
as to 1/16th of the
shares subject to the Option on each three (3)-month anniversary of the Start
Date, subject to Mr. Greeno’s continued service with the Registrant through each
such date.  Each Option had a maximum term of five (5)
years.  The second Option  had an exercise price equal to
the fair market value of the underlying shares as of the date of grant of the
relevant Option, calculated in a manner intended to comply with Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”).  Each
Option was subject to the terms and conditions of the equity award grant
agreements between us and Mr. Greeno.  Notwithstanding the foregoing
or anything in the Agreement to the contrary, except in the event of a “change
of control” (as defined in the Agreement), if before the one (1) year
anniversary of the Start Date (A) we terminate Mr. Greeno’s employment with the
Registrant for “cause” (as defined in the Agreement) or (B) Mr. Greeno
voluntarily resigns from his employment with us for any or no reason except
“good reason” (as defined in the Agreement), the vested shares subject to the
Options was held in escrow until the one (1) year anniversary of the Start
Date.
  Mr.
Greeno is eligible to participate in accordance with the terms of all our
employee benefit plans, policies and arrangements that are applicable to our
other senior executive officers, as such plans, policies and arrangements may
exist from time to time.  Mr. Greeno is entitled to paid vacation of
four (4) weeks per year in accordance with our vacation policy, prorated for
calendar year 2007.  The timing and duration of specific vacations is
mutually and reasonably agreed to by us and Mr.
Greeno.  We  reimburse Mr. Greeno for reasonable travel,
entertainment and other expenses incurred by Mr. Greeno in the furtherance of
the performance of his duties under the Agreement, in accordance with our
expense reimbursement policy as in effect from time to time.
  In the
event Mr. Greeno’s employment with us terminates for any reason, Mr. Greeno is
entitled to any (a) unpaid Base Salary accrued up to the effective date of the
termination, (b) unpaid, but earned and accrued Annual Bonus for any completed
fiscal  year as of his termination of employment, provided Mr. Greeno
was not terminated for “cause” (as defined in the Agreement) that was
attributable to conduct during the performance period, (c) pay for accrued but
unused vacation, (d) benefits or compensation as provided under the terms of any
employee benefit and compensation agreements or plans applicable to Mr. Greeno,
(e) unreimbursed expenses required to be reimbursed to Mr. Greeno, and (f)
rights to indemnification Mr. Greeno may have under our Articles of
Incorporation, Bylaws, the Agreement, or separate indemnification agreement, as
applicable.
  If (i) we
terminate Mr. Greeno’s employment without “cause” (as defined in the Agreement),
(ii) Mr. Greeno resigns from his employment with us for “good reason” (as
defined in the Agreement), or (iii) Mr. Greeno resigns from his employment with
us for any or no reason within one hundred eighty (180) days following a “change
of control” (as defined in the Agreement), then subject to other provisions in
the Agreement, Mr. Greeno will receive: (i) continuing payments of severance pay
at a rate equal to his Base Salary as then in effect for twelve (12) months form
the date of such termination, (ii) the Annual Bonus for the fiscal year in which
Mr. Greeno’s employment under the Agreement terminated, which shall be prorated
to reflect the number of days of the fiscal year during which Mr. Greeno was
employed by us, and (iii) the same level of health (i.e. medical, vision and
dental) coverage and other benefits as in effect for Mr. Greeno, and, if
applicable, Mr. Greeno’s dependents, on the day immediately preceding Mr.
Greeno’s termination at the same costs to him as was in effect on the day prior
to his separation from service; provided, however, that (1) Mr. Greeno
constitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of the
Code, and (2) Mr. Greeno elects continuation coverage pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
within the time period prescribed pursuant to COBRA.  We will
reimburse Mr. Greeno’s COBRA premiums until the earlier of (A) twelve (12)
months from Mr. Greeno’s termination, or (B) until Mr. Greeno obtains
substantially similar coverage under another employer’s group insurance
plan.
  If (i) we
terminate Mr. Greeno’s employment for “cause”, (ii) Mr. Greeno’s employment
terminates due to death or “disability” (as defined in the Agreement), or (iii)
Mr. Greeno resigns his employment with us without “good reason” (other than a
resignation that is within one hundred eighty (180) days following a “change of
control”, then (1) all vesting will terminate immediately with respect to Mr.
Greeno’s outstanding equity awards, (2) all payments of compensation by us to
Mr. Greeno hereunder will terminate immediately (except as to amounts already
earned, including unused and accrued vacation), and (3) Mr. Greeno will not be
eligible for severance or other benefits, except in accordance with any
generally applicable Registrant plans or policies as are then in
effect.
  If we
undergo a “change of control” before the one (1) year anniversary of the Start
Date, fifty percent (50%) of the unvested shares subject to Mr. Greeno’s
outstanding equity awards are immediately vested and become exercisable or
released from our repurchase or reacquisition right.  If we undergo a
“change of control” on or after the one (1) year anniversary of the Start Date,
one hundred percent (100%) of the unvested shares subject to Mr. Greeno’s
outstanding equity awards are immediately vested and become exercisable or
released from our repurchase or reacquisition right.
   -34-
 Index
   If in the
course of Mr. Greeno’s employment with us, he incorporates into any invention,
improvement, development, product, copyrightable material or trade secret any
invention, improvement, development, concept, discovery or other proprietary
information owned by him or in which he has an interest, we
are  granted and shall have a nonexclusive, royalty-free, irrevocable,
perpetual, worldwide license to make, have made, modify, use and sell such item
as part of in connection with such product, process or machine.  Mr.
Greeno agrees that he will promptly make full written disclosure to us, will
hold in trust for our sole right and benefit, and assign to us, or its designee,
all his right, title, and interest in and to any and all inventions, original
works of authorship, developments, concepts, improvements or trade secrets,
whether or not patentable or registrable under copyright or similar laws, which
Mr. Greeno may solely or jointly conceive or develop or reduce to practice, or
cause to be conceived or developed or reduced to practice, during the period of
time Mr. Greeno is in our employ.
  Mr.
Greeno agreed to the confidentiality, non-competition and non-solicitation
provisions of the Agreement.
   On
November 1, 2006, we entered into an employment agreement with Gerald Olderman,
its Vice President of R & D and Commercialization. Mr. Olderman has an
annual salary of $132,000 per year, subject to adjustment by the Compensation
Committee of the Board of Directors (“Board”) based on new revenue streams and
increases in our shareholder value. Mr. Olderman received a signing bonus of
$100,000 in cash.  This signing bonus was vested as follows,
$25,000  were vested immediately, $25,000 were vested upon service
through February 1, 2007, $25,000 were vest upon service through May 1, 2007,
and $25,000 were vested upon service through August 1, 2007. We have the option
of paying the signing bonus any time up to the 24 months from the effective date
of the agreement based on our cash flows.  We also granted Mr.
Olderman 45,000 shares of restricted common stock.  Mr. Olderman is
entitled to 4 weeks of paid vacation and three additional days for every
additional year of employment. The Board of Directors may not approve any change
of control unless the acquiring corporation assumes responsibility for this
Agreement and all payments due hereunder. In addition, all options, warrants and
common stock under this Agreement shall become immediately vested upon such
change of control.  The agreement has a term of one year and shall
automatically renew unless the Board of Directors acts to terminate the
Agreement. Mr. Olderman may terminate this agreement by giving us one month’s
notice.  We may terminate the Agreement without just cause provided
that it pays Mr. Olderman a settlement payment of 12 months of monthly
compensation plus immediate vesting of all stock options previously
granted.  Mr. Olderman will be deemed to be terminated without just
cause if we unilaterally change his level of responsibility and compensation or
if we appoint any individual other than Mr. Olderman to the position of Vice
President of R & D and Commercialization.  Mr. Olderman agrees to
tender his resignation and release us from all obligations to pay any further
amounts in consideration of the settlement payment. We are entitled to terminate
the agreement and Mr. Olderman’s employment for just cause without any
notice.
   Prior to
November 1, 2006, Mr. Olderman served in the same capacity as our Vice President
of Research and Development and Commercialization under a consulting agreement
with a monthly compensation of $10,000 since July 2005.  Mr. Olderman
has served this capacity since July 2000.
  In
January 2004, we entered into a formal consulting agreement with Nam H. Nguyen
to serve as a consulting accounting advisor.  In August 2004, Mr.
Nguyen was appointed as our Chief Financial Officer under the same
agreement.  Beginning in July 2004, his compensation was set at $8,000
monthly base compensation with a monthly $2,500 minimum cash payment and the
remainder may be paid in shares of restricted common stock.  In
addition, he has also received 400,000 shares of common stock plus warrants to
acquire 300,000 shares of common stock at $0.20 per share in accordance with a
vesting schedule.  Effective July 1, 2005, his compensation increased
to $10,000 monthly base compensation as approved by the Compensation Committee
and the Board of Directors.
   
 -35-
 Index
    ITEM 11.                 
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  The
following table sets forth, as of September 19, 2008, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Information relating to beneficial ownership of common
stock by our principal stockholders and management is based upon information
furnished by each person using "beneficial ownership" concepts under the rules
of the Securities and Exchange Commission. Under these rules, a person is deemed
to be a beneficial owner of a security if that person has or shares voting
power, which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within 60 days.
Under the Securities and Exchange Commission rules, more than one person may be
deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may not have
any pecuniary beneficial interest. We are unaware of any contract or
arrangement, which could result in a change in our control.
 
 The
following table assumes, based on our stock records, that there are 30,874,196
shares issued and outstanding as of September 19, 2008.
 
 The
following table sets forth the ownership of our common stock by:
 
 §
              Each
      stockholder known by us to own beneficially more than 5% of our common
      stock;
 §
              Each
      executive officer;
 §
              Each
      director or nominee to become a director;
and
 §
              All
      directors and executive officers as a
group.
 
 
 Name and Address of Beneficial
      Owner(A)
              Shares Beneficially
OwnedNumber
              PercentMichael
      R. Granito, Chairman and Director
              16,779,690
      (1)
              37.7%Phronesis
      Partners, L.P.
              7,632,044
      (2)
              17.1%David
      S. Lerner, Founder
              4,413,348
      (3)
              9.9%J.
      Ladd Greeno, Chief Executive Officer and Director
              847,096
      (4)
              1.9%George
      E. Friel, Director
              578,203
      (5)
              1.3%Gerald
      M. Olderman, Director and Vice President
              723,737
      (6)
              1.6%Gregory
      S. Schultz, Director and Vice President
              1,157,837
      (7)
              2.6%Richard
      F. Caffrey, Director
              214,553
      (8)
              0.5%Nam
      H. Nguyen, Chief Financial Officer
              1,115,648
      (9)
              2.5%All
      Quick-Med Directors and Officers as a Group
                (9
      persons)
              33,462,156
              75.2%
 
  NOTES:    (A)
The address for each of the above is c/o Quick-Med Technologies, Inc., 902 NW 4
Street,    Gainesville, Florida
32601.
  
   
 (3)
Includes 377,759 shares issuable upon the exercise of options exercisable within
60 days.
 
 (4)
Includes 847,096 shares issuable upon the exercise of options exercisable within
60 days.
 
 (5)
Includes 131,703 shares issuable upon the exercise of options exercisable within
60 days.
 
 (6)
Includes 224,737 shares issuable upon the exercise of options exercisable within
60 days.
 
 (7)
Includes 379,337 shares issuable upon the exercise of options exercisable within
60 days.
 
 (8)
Includes 118,231 shares issuable upon the exercise of options exercisable within
60 days.
 
 (9)
Includes 34,725 shares issuable upon the exercise of warrants exercisable within
60 days.
  
 -36-
 Index
    ITEM 12.              
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
   Effective
May 17, 2008, the Company issued a 2008 senior convertible note payable (“Note
2”) to its Chairman to combine the borrowings (the “Advances”) ranging from
$50,000 to $135,000 each from May 17, 2008 through August 28, 2008. As of June
30, 2008, the Company received approximately $285,000.  This Note 2 is
secured by the Company’s revenues and assets with the same priority as the 2007
senior convertible notes described below and has a maturity date of
2010.  This Note 2 has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.  In September 15, 2008, we received an advance of $50,000 from
our Chairman, the terms of which is to be determined.
 
 Effective
February 11, 2008, the Company issued a 2008 senior convertible note payable
(“Note 1”) to its Chairman to combine the borrowings (the “Advances”) ranging
from $50,000 to $75,000 each from February 11, 2008 through April 29, 2008. As
of June 30, 2008, the Company received $370,000.  This Note 1 is
secured by the Company’s revenues and assets with the same priority as the 2007
senior convertible notes described below and has a maturity date of
2010.  This Note 1 has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.
 
 Effective
October 30, 2007, the Company issued another 2007 senior convertible note
payable to its Chairman to combine the borrowings (the “Advances”) in a series
of $50,000 each from October 30, 2007 through January 30, 2008. As of June 30,
2008, the Company received $300,000.  This senior convertible note is
secured by the Company’s revenues and assets with the same priority as the 2007
senior convertible notes described below and has a maturity date of
2010.  This note has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.
 
 In June
2007, we issued two 2007 senior convertible note payables to our Chairman and a
major stockholder for $375,000 each. As of September 30, 2007, we received
$303,160 from our Chairman and the remaining $71,840 in July 2007 totaling
$375,000.  We also received $125,000 from a major stockholder and
received the remainder in September 2007.  These two senior
convertible note payables are secured by our revenues and
assets.  These notes were fully funded, approximately $250,000 were
allocated and restricted for payment of the chief executive officer’s salary for
the next twelve months. We may prepay the principal and interest upon meeting
certain cash flow requirements and the approval of our board.
 
 In
addition, we combined our other outstanding note payables to our Chairman
totaling $208,955 into a single note with the same annual interest rate and
extended the maturity date to 2010.  This senior convertible note is
also secured by our revenues and assets with the same priority as the 2007
senior convertible notes.
 
 In
September 2003, the Company negotiated a successor agreement with its Chairman
regarding the line of credit, which became a single convertible note for up to
$1,500,000 excluding accrued interest, at an interest rate of 6% and due July 1,
2004.  The convertible note is secured by the assets and revenues of
the Company, which has the same priority as other senior convertible note
payables.   The note plus accrued interest will be convertible at
a conversion rate of $0.38 per share.  The conversion rate was
determined as 15% above the average share price over the prior 20 trading days
($0.33 per share). The note has an anti-dilution provision in the event that the
Company sells stock to other investors at less than $0.20 per
share.  During the year ended June 30, 2006, the maturity date of the
note was extended until October 1, 2007. In January 2007, the Chairman agreed to
extend the maturity date of the note until April 1, 2008.  In June
2007, the maturity date of the 2003 senior convertible note was extended to June
2010.
 
 At June
30, 2008, the Company accrued interest payable of $181,322 and $25,315 on the
convertible notes with the director  and on the convertible note with a
related party, respectively.
 
 During
the period ended June 30, 2007, the Company paid accrued interest on the 2003
senior convertible note for the three quarters by issuing the note payables for
the interest amounts owed for the respective periods.  For the fourth
quarter of the year ended June 30, 2007, the interest was accrued to be paid at
the maturity date extended to June 2010.  These note payables were
combined into a $208,955 single convertible note in June 2007 as describe
above.
 
 During
the year ended June 30, 2007, the Company received several short-term loans at
8% interest rate per annum totaling approximately $19,500 from an officer of the
Company, which was repaid fully by June 30, 2007.
  In August
2006, we borrowed $7,000 from one of our officers under a short term note
payable at a 8% interest rate per annum and we repaid it in September
2006.
   Messrs.
Lerner and Granito are deemed to be our promoters. Mr. Lerner received 4,273,000
shares and Mr. Granito received 2,930,000 shares of common stock for founding
us. There have not been any other transactions with promoters.
  Other
than the relationships with The University of Florida at Gainesville, no officer
or director has any relationship with any company or entity that will be working
on developing our family of technologies or patents.
 
 Director
Independence
 
 Our board
of directors has determined that it currently has two members who qualify as
"independent" as the term is used in Item 407 of Regulation S-B as promulgated
by the SEC and in the listing standards of The Nasdaq Stock Market, Inc. -
Marketplace Rule 4200. The independent directors are Mr. George E. Friel and Mr.
Richard F. Caffrey.
 
 
 -37-
 Index
    ITEM
13.              
EXHIBITS
  (a)           Exhibits
 
 Exhibit
Number                                Description
 
 2.1
              Merger
      Agreement dated March 19, 2001 between Above Average Investments
      Ltd. and Quick-Med Technologies, Inc.
(1)
  
 2.2
              Amendment
      to Merger Agreement (1)
 
 3.1
              Articles
      of Incorporation (1)
 
 3.2
              Bylaws
      (1)
 
 10.1
              Quick-Med
      Technologies MMP License Agreement
(1)
 
 10.2
              Quick-Med
      Technologies Stock Option Plan (1)
 
 10.3
              Cooperative
      Research and Development Agreement with the
U.S.
 Army
Medical Research Institute of Chemical Defense (1)
 
 10.4
              Financing
      Agreement with Euro Atlantic Capital Corporation
  (1)
 
 10.5
              Consulting
      Agreement - Gregory Schultz (1)10.5.1
              Consulting
      Agreement - Christopher Batich (1)10.5.2
              Consulting
      Agreement - Bruce Mast (1)10.5.3
              Consulting
      Agreement - William Toreki (1)
    
 10.6
              Note
      issued to Michael Granito by Quick-Med Technologies
  (1)
 10.6.1
              Senior
      Convertible Note issued to Michael Granito
(4)
 10.6.2
              2007
      Senior Convertible Note issued to Michael Granito
  (4)
 10.6.3
              2007
      Senior Convertible Note 2 issued to Michael Granito
  (5)
 10.6.4
              2008
      Senior Convertible Note 1 issued to Michael Granito
  (7)
 10.6.5
              2008
      Senior Convertible Note 2 issued to Michael Granito filed
      herewith
 
 10.7
              2007
      Senior Convertible Note issued to Phronesis Partners, L.P.
    (4)
 
 10.8
              License
      Agreement with University of Michigan
(4)
  10.9
              Employment
      Agreement with Gerard Bencen (1)
  10.10
              Research
      and Development Agreement with The Collaborative Group, Ltd.
      (2)
  10.11
              Agreement
      Between Noville and Quick-Med Technologies, Inc.
  (3)
  10.12
              Joint
      Development Agreement by and between Quick Med Technologies, Inc. and
      Mölnlycke Health Care AB dated April 4,
  2008. (6)
 
 10.13
              Manufacturing
      and Distribution Agreement by and between Quick-Med and BASF
      (8)
    -38-
 Index
 31.1
              Certification
      of Principal Executive Officer Pursuant to Rule 13a-14(a)
      and 15d-14(a), filed
herewith.
  31.2
              Certification
      of Chief Financial Officer Pursuant to Rule 13a-14(a)
      and 15d-14(a), filed
herewith.
       32.1
              Certification
      of Principal Executive Officer pursuant to 18
  U.S.C.
 Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
 Act of
2002, filed herewith.
 
 32.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C.
 Section1
350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
 of 2002,
filed herewith.
 
 99.3
              Assignment
      of Patent for Wound Care (1)
 
 99.4
              Assignment
      of Patent for Mustard Gas (1)
 
 99.5
              Assignment
      of Patent for Anti-wrinkle cream
(1)
 
 NOTES:
 (1)           Incorporated
by reference to the Company's registration statement on Form SB-2 (file no.
333-41672)
 
 (2)
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB for the year
      ended September 30, 2002
 (3)
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-QSB for the
      three-month ended September 30,
2002.
 (4)
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB for the year
      ended June 30, 2007.
 (5)
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-QSB for the
      three-month ended December 31,
2007.
 (6)
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed on April 9,
      2008.
 (7)
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-QSB for the
      three-month ended March 31, 2008.
 (8)
              Incorporated
      by reference to the Company’s Current Report on Form 8-K filed on May 21,
      2008.
 
 
 
 
 
 -39-
 Index
 
     ITEM
14.              
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
  The
following table sets forth fees billed to us by our auditors during the fiscal
years ended June 30, 2008 and June 30, 2007 for: (i) services rendered for the
audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services by our auditor that are reasonably related
to the performance of the audit or review of our financial statements and that
are not reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered including a review of SEC registration statement filing. "Audit Related
Fees" consisted of consulting regarding accounting issues.
  
 June
      30, 2008
              June 30, 2007(i)
              Audit
      Fees
              $
      46,500
              $
      38,500(ii)
              Audit
      Related Fees
              $
      0
              $0(iii)
              Tax
      Fees
              $
      5,000
              $5,000(iv)
              All
      Other Fees
              $
      0
              $
      0
 
  While we
have established an audit committee of the Board of Directors, we have not
established a pre-approval policy.  All services provided by the
auditors for fiscal year 2008 were accepted by the audit committee and approved
by the full Board of Directors.
  
 
 
   
 -40-
 Index
 
 
  
 
 
 
 
 SIGNATURES
  In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant certifies that it has caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
  
 QUICK-MED
TECHNOLOGIES, INC.
 
 Date:
September 29,
2008                                                                                      By: /s/ J. LADD
GREENO
 _________________________________________
 J. Ladd Greeno
 Chief Executive
Officer and Principal Executive Officer
 
  In
accordance with the Securities Exchange Act of 1934, the Annual Report on Form
10-KSB has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:
  Signature
                Title
                Date/s/ J. LADD
      GREENO
                  J.
      Ladd Greeno
                Chief
      Executive Officer and Director
                September
      29, 2008/s/ MICHAEL R.
      GRANITO
                  Michael R. Granito
                Chairman
      of the Board
                September
      29, 2008/s/ GREGORY S.
      SCHULTZ
                  Gregory
      S. Schultz
                Vice
      President, Laboratory & Clinical Research, and
Director
                September
      29, 2008/s/ GEORGE E.
      FRIEL
                  George
      E. Friel
                Director
                September
      29, 2008/s/ GERALD M.
      OLDERMAN
                  Gerald
      M. Olderman
                Vice
      President, Research & Development and Commercialization, and
      Director
                September
      29, 2008/s/ RICHARD
      CAFFREY
                  Richard
      F. Caffrey
                Director
                September
      29, 2008/s/ NAM H.
      NGUYEN
                  Nam
      H. Nguyen
                Chief
      Financial Officer
                September
      29, 2008
   -41-
 Index






TABLE OF
CONTENTS






Report of Independent Registered Public Accounting
      Firm
              F-2Financial
      Statements:Balance
      Sheets as of June 30, 2008 and 2007
              F-3Statements
      of Operations for the years ended June 30, 2008 and
    2007
              F-4Statements
      of Changes in Stockholders’ Equity for the years ended June 30, 2008 and
      2007
              F-5Statements
      of Cash Flows for the years ended June 30, 2008 and 2007
              F-6Notes
      to Financial Statements
              F-7-
      18















F-1












Report of Independent
Registered Public Accounting Firm







To the
Board of Directors and Stockholders
 Quick-Med
Technologies, Inc.
 
 We have
audited the accompanying balance sheets of Quick-Med Technologies, Inc. as of
June 30, 2008 and 2007, and the related statements of operations, changes in
stockholders’ deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  The Company has
determined that it is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Quick-Med Technologies, Inc., as of
June 30, 2008 and 2007, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. The Company has experienced recurring losses and
negative cash flows from operations for the years ended June 30, 2008 and 2007,
and has a net capital deficiency. These matters raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans
regarding those matters are described in the footnotes accompanying the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
  
 /s/
Daszkal Bolton LLP
 Boca
Raton, Florida
 September
29, 2008










F-2
 QUICK-MED
TECHNOLOGIES, INC.
 BALANCE
SHEETS
 AS
OF JUNE 30, 2008 AND 2007








ASSETS2008
              
              2007Current
      assets:Cash
      and cash equivalents
              
              $
              72,817
              
              $
              115,719Accounts
      receivable
              
              
              346,709
              
              
              385,596Total
      current assets
              
              
              419,526
              
              
              501,315Property
      and equipment, net
              
              
              24,983
              
              
              30,711Other
      assets:Prepaid
      expenses
              
              
              5,311
              
              
              5,170Intangible
      asset, net
              
              
              459,445
              
              
              427,695Total
      other assets
              
              
              464,756
              
              
              432,865Total
      assets
              
              $
              909,265
              
              $
              964,891LIABILITIES AND STOCKHOLDERS'
      DEFICITCurrent
      liabilities:Accounts
      payable
              
              $
              871,074
              
              $
              766,685Unearned
      revenue
              
              
              41,071
              
              
              88,214Accrued
      expenses
              
              
              46,034
              
              
              16,298Total
      current liabilities
              
              
              958,179
              
              
              871,197License
      payable
              
              
              160,000
              
              
              160,000Long-term
      liability - convertible note payable - related party
              
              
              400,315
              
              
              126,808Long-term
      liability - convertible note payable - director
              
              
              2,988,902
              
              
              1,818,147Total
      liabilities
              
              
              4,507,396
              
              
              2,976,152Commitments
      and contingenciesStockholders'
      deficit:Common
      stock, $0.0001 par value; 100,000,000authorized
      shares; 30,874,196 and 30,603,483 shares issuedand
      outstanding at June 30, 2008 and 2007, respectively
              
              
              3,087
              
              
              3,060Additional
      paid-in capital
              
              
              11,882,403
              
              
              11,772,573Outstanding
      stock options
              
              
              2,602,344
              
              
              1,909,129Accumulated
      deficit
              
              
              (18,085,965
              )
              
              (15,696,023
              )Total
      stockholders' deficit
              
              
              (3,598,131
              )
              
              (2,011,261
              )Total
      liabilities and stockholders' deficit
              
              $
              909,265
              
              $
              964,891







See
accompanying notes to financial statements.
 F-3
 QUICK-MED
TECHNOLOGIES, INC.
 STATEMENTS
OF OPERATIONS
 FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007







2008
              
              2007RevenuesProduct
      sales
              $
              308,958
              
              $
              1,380,869Research
      and development service
              
              950,447
              
              
              496,889License
      fees
              
              101,519
              
              
              75,0001,360,924
              
              
              1,952,758Expenses:Cost
      of sales
              
              56,162
              
              
              277,828Research
      and development
              
              1,555,287
              
              
              1,526,857General
      and administrative expenses
              
              1,585,866
              
              
              1,342,072Licensing
      and patent expenses
              
              315,784
              
              
              321,263Depreciation
      and amortization
              
              72,541
              
              
              61,823Total
      expenses
              
              3,585,640
              
              
              3,529,843Loss
      from operations
              
              (2,224,716
              )
              
              (1,577,085
              )Other
      income (expense):Interest
      income
              
              2,195
              
              
              935Interest
      expense
              
              (167,421
              )
              
              (96,368
              )Other
      income
              
              -
              
              
              166,500Loss
      before income taxes
              
              (2,389,942
              )
              
              (1,506,018
              )Provision
      (benefit) for income taxes
              
              -
              
              
              -Net
      loss
              $
              (2,389,942
              )
              $
              (1,506,018
              )Net
      loss per share (basic and diluted)
              $
              (0.08
              )
              $
              (0.05
              )Weighted
      average commonshares
      outstanding (basic and diluted)
              
              30,716,499
              
              
              30,361,210









See
accompanying notes to financial statements.
 F-4
 QUICK-MED
TECHNOLOGIES, INC.
 STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT
 FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007








AdditionalCommon
      Stock
              
              Paid-In
              
              Accumulated
              
              OutstandingShares
              
              Amount
              
              Capital
              
              Deficit
              
              Stock
      Options
              
              
              TotalBalance,
      June 30, 2006
              30,221,215
              
              $3,022
              
              $
              11,506,487
              
              $
              (14,190,005
              )
              $
              1,399,959
              
              
              $
              (1,280,537
              )Stock
      issuance for cash
              100,000
              
              10
              
              
              78,990
              
              
              -
              
              
              -
              
              
              
              79,000Stock
      options granted for services
              -
              
              -
              
              
              -
              
              
              -
              
              
              527,753
              
              
              
              527,753Stock
      issued for services
              151,434
              
              15
              
              
              145,376
              
              
              -
              
              
              -
              
              
              
              145,391Exercise
      of stock options and warrants
              130,834
              
              13
              
              
              41,720
              
              
              -
              
              
              (18,583
              )
              
              
              23,150Net
      loss, July 1, 2006 to June 30, 2007
              -
              
              -
              
              
              -
              
              
              (1,506,018
              )
              
              -
              
              
              
              (1,506,018
              )Balance,
      June 30, 2007
              30,603,483
              
              3,060
              
              $
              11,772,573
              
              $
              (15,696,023
              )
              $
              1,909,129
              
              
              $
              (2,011,261
              )Stock
      issued for services
              153,712
              
              16
              
              
              65,520
              
              
              -
              
              
              -
              
              
              
              65,536Stock
      options granted for services
              -
              
              -
              
              
              -
              
              
              -
              
              
              704,340
              
              
              
              704,340Stock
      issued in settlement of a liability
              34,501
              
              3
              
              
              21,043
              
              
              -
              
              
              -
              
              
              
              21,046Exercise
      of stock warrants
              82,500
              
              8
              
              
              23,267
              
              
              -
              
              
              (11,125
              )
              
              
              12,150Net
      loss, July 1, 2007 to June 30, 2008
              -
              
              -
              
              
              -
              
              
              (2,389,942
              )
              
              -
              
              
              
              (2,389,942
              )Balance,
      June 30, 2008
              30,874,196
              
              $3,087
              
              $
              11,882,403
              
              $
              (18,085,965
              )
              $
              2,602,344
              
              
              $
              (3,598,131
              )










See
accompanying notes to financial statements.
 F-5
 QUICK-MED
TECHNOLOGIES, INC.
 STATEMENTS
OF CASH FLOWS
 FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007








2008
              
              2007Cash
      flows from operating activities:Net
      loss
              
              $
              (2,389,942
              )
              $
              (1,506,018
              )Adjustments
      to reconcile net loss to netcash
      provided by (used in) operating activities:Depreciation
      and amortization
              
              72,541
              
              
              61,823Stock
      granted for services
              
              86,581
              
              
              145,391Stock-based
      compensation
              
              704,340
              
              
              527,753(Increase)
      decrease in:Accounts
      receivable
              
              38,887
              
              
              (340,595
              )Prepaid
      expenses
              
              (142
              )
              
              (189
              )Increase
      (decrease) in:Accounts
      payable
              
              104,390
              
              
              547,736Accrued
      interest
              
              167,421
              
              
              39,215Other
      current liabilities
              
              (17,406
              )
              
              97,669Net
      cash used in operating activities
              
              (1,233,330
              )
              
              (427,215
              )Cash
      flows from investing activities:Purchase
      of fixed assets
              
              (4,922
              )
              
              (22,666
              )Patents
              
              
              (93,640
              )
              
              (205,992
              )Net
      cash used in investing activities
              
              (98,562
              )
              
              (228,658
              )Cash
      flows from financing activities:Issuance
      of common stock for cash, net
              
              -
              
              
              79,000Proceeds
      from stock option exercise
              
              12,150
              
              
              23,150Proceeds
      from note payable - officer
              
              -
              
              
              19,500Repayment
      of note payable - officer
              
              -
              
              
              (19,500
              )Increase
      in notes payable - related party
              
              250,000
              
              
              125,000Increase
      in notes payable - director
              
              1,026,840
              
              
              360,300Net
      cash provided by financing activities
              
              1,288,990
              
              
              587,450Net
      decrease in cash and cash equivalents
              
              (42,902
              )
              
              (68,423
              )Cash
      and cash equivalents at beginning of period
              
              115,719
              
              
              184,142Cash
      and cash equivalents at end of period
              $
              72,817
              
              $
              115,719Supplementary
      Information:Cash
      paid for:Interest
              $
              -
              
              $
              -Income
      taxes
              $
              -
              
              $
              -Non-cash
      disclosures of investing andfinancing
      activities:Stock
      issuance in settlement of a liability
              $
              21,046
              
              $
              12,000Stock
      options granted for services
              $
              704,340
              
              $
              527,753














See
accompanying notes to financial statements.
 F-6
 QUICK-MED
TECHNOLOGIES, INC.
 NOTES
TO FINANCIAL STATEMENTS







NOTE 1 - DESCRIPTION OF
BUSINESS





Founded
in April 1997, Quick-Med Technologies Inc. (the ”Company”) is a life sciences
company focused on developing proprietary, broad-based technologies in medical
and consumer healthcare markets. The Company’s two core technologies under
development are: (1) MultiStatTM, a family of advanced patented methods and
compounds shown to be effective in skin therapy applications; and (2) Novel
Intrinsically MicroBonded Utility Substrate (NIMBUS®), a
family of advanced polymers bio-engineered to have antimicrobial,
super-absorbent, and other properties that can be used in a wide range of
applications. Currently, MultiStatTM has been developed in a cosmetic product
line with the anti-aging products. MultiStatTM is also being employed in a drug
product line as a post-injury treatment for mustard gas exposure, with the
initial product currently at a developmental state of development in partnership
with the U.S. Army. Quick-Med Technologies Inc.’s NIMBUS technology has
initially been targeted at (a) medical device, including advanced wound dressing
products, and (b) several enhanced consumer products, including ordor-controlled
products (e.g. apparel or hygiene), (c) medical textiles, and antibacterial
related products. In each instance, the Company intends to form joint ventures
or joint development partnerships with leading firms in the respective industry
to co-develop and commercialize its products.





The
Company specializes in the research and development of biomedical products and
devices for antibacterial applications. The Company conducts research efforts or
collaborates with third parties as necessary to develop products and administer
the patent process.  The Company does not expect to produce nor
directly market its products.  Instead, the Company intends to partner
with clients for those activities.





Since its
inception, the Company has been heavily dependent upon the receipt of capital
investment or other financing and revenues to fund its continuing
activities.  In addition to the normal risks associated with a new
business venture, there can be no assurance that the Company’s product
development will be successfully completed or that it will be a commercial
success.  Further, the Company is dependent upon certain related
parties to provide continued funding and capital resources.








NOTE 2 – BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Going
Concern





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  The Company has negative cash flows
from operations and an accumulated deficit that raises substantial doubt about
its ability to continue as a going concern.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.





For the
remainder of the year ending June 30, 2009, the Company will need additional
cash infusions to meet its operating expenses.  The Company’s common
stock began trading on September 4, 2002 on the OTC Bulletin Board and the
Company intends to raise additional equity or debt.  The Company may
also secure strategic partnerships or other joint ventures to either conduct its
research or fund a portion of the expenses.  No assurances can be made
that we will be successful in these activities.  Should the events not
occur, the financial statements will be materially affected.





Cash and Cash
Equivalents





All
highly liquid investments purchased with maturity of three months or less from
the time of purchase are considered to be cash equivalents.





Use of
Estimates





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






F-7


NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, continued




Intangible
Assets





The costs
of obtaining license agreements along with the costs to defend the patents
underlying the license agreements are capitalized and are amortized using the
straight-line method over the estimated useful lives of the underlying license
agreements.  The costs of obtaining and maintaining new patents are
capitalized and amortized using the straight-line method over the estimated
useful lives of the patents. The cost of patents in process is not amortized
until the patent is issued.





Property and
Equipment





Property
and equipment are stated at cost.  Depreciation on property and
equipment is computed using the straight-line method over the expected useful
lives of the assets.





Accounts Receivable and
Allowance for Doubtful Accounts





Accounts
receivable as of June 30, 2008 represents amounts due from the customers and is
reported in the balance sheet reduced by an allowance for doubtful accounts for
estimated losses resulting from receivables not considered to be
collectible.





Research and Development
Costs





Research
and development costs are expensed as incurred.





Earnings Per
Share





Basic net
loss per common share are computed by dividing net loss applicable to common
shareholders by the weighted-average number of common shares outstanding during
the period.  Diluted net loss per common share is determined using the
weighted-average number of common shares outstanding during the period, adjusted
for the dilutive effect of common stock equivalents, consisting of shares that
might be issued upon exercise of common stock options and warrants. For the
years ended June 30, 2008 and 2007, 7,923,687 and 4,738,238 diluted common stock
equivalents, respectively, have been excluded from the calculation of diluted
earnings per share, as their inclusion would have been
anti-dilutive.





Revenue
Recognition





The
Company recognizes the revenue of its royalties from the sale of products by
BASF under the master agreement for product development, manufacturing and
distribution (the “Master Agreement”) and the new agreement with BASF, which
supersedes the Master Agreement.  The Company also recognizes the
revenue from the non-refundable exclusivity license fee derived from BASF under
the Master Agreement and Derma Sciences Inc. on a pro rata basis over the term
of the related exclusive license agreements. Revenue from the research agreement
is recognized on a pro rata basis over the term of the
agreement.  Further, the Company recognizes the exclusive option fee
as revenue on a pro rata basis over the term of the related exclusive option
agreement.  Revenue from the research agreement is recognized on a pro
rata basis over the term of the agreement or is recognized as the work performed
in accordance with the term of the agreement. Revenues from the small business
innovation research program and the US Army medical research program are
recognized based on the research work performed in accordance with the program
requirements.




Unearned
Revenue





The
amount of unearned revenue represents the exclusive option fee, the license fee,
and advance royalty fee yet to be earned on a pro rata basis over the exclusive
option period of the related option and license agreements.






F-8




NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, continued


Stock
Compensation





In
December 2004, the Financial Accounting Standards Board ("FASB") issued a final
standard, SFAS No. 123R, "Share-Based Payment," ("SFAS 123R"), which requires
companies to expense the value of employee stock options and similar awards.
Under SFAS 123R, share-based payment awards result in a cost that will be
measured at fair value on the grant date of the awards, based on the estimated
number of awards that are expected to vest. Compensation cost for awards that
vest would not be reversed if the awards expire without being exercised. The
Company adopted SFAS 123R beginning in the first quarter of the fiscal year 2006
using the modified prospective approach.  Under the modified
prospective approach, SFAS 123R applies to all outstanding and unvested
share-based payment awards at the adoption date. The fair value of stock options
was determined using the Black-Scholes option-pricing model. The fair value of
the restricted stock awards was based on the closing price of the Company's
common stock on the date of grant.





Concentration of credit risk
of financial instruments





Financial
instruments that potentially subject the Company to credit risk consist of cash
equivalents and accounts receivable.  As of June 30, 2008, the
Company’s cash levels did not exceed the federally insured limit.  As
of June 30, 2008, all of the Company’s accounts receivable was derived from BASF
and the US Army. The credit risk of the accounts receivable is considered
limited given the customers credit rating. There were no write-offs of
uncollectible receivable during the year ended June 30, 2008.





Income
Taxes





The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes.”  This
standard requires, among other things, recognition of future tax consequences,
measured by enacted tax rates attributable to taxable and deductible temporary
differences between financial statement and income tax bases of assets and
liabilities.  Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be
realized.  Income tax expense is the tax payable for the period and
the change during the period in the deferred tax asset and
liability.





Recently Issued Accounting
Pronouncements





In June
2007, the FASB Emerging Issues Task Force issued EITF Issue No. 07-3 (“EITF
07-3”), “Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities.”  EITF
07-3 addresses the accounting for nonrefundable advance payments for goods or
services to be used or rendered in future research and development activities
pursuant to an executory contractual arrangement.  EITF 07-3 concludes
such amounts should be deferred and capitalized and recognized as an expense as
the related goods are delivered or the related services are
performed.  EITF is effective for fiscal years beginning after
December 15, 2007.  The Company is assessing the impact of EITF 07-3,
but it does not expect that it will have a significant impact on its financial
position or results of operations.








In June
2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109.”  This interpretation
prescribes a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of uncertain tax positions taken or
expected to be taken in income tax returns.  The Company is assessing
the impact of Fin No. 48, but does not expect that it will have a significant
impact on its financial position or results of operations.








NOTE 3 – FAIR VALUE OF
FINANCIAL INSTRUMENTS





The
Company’s financial instruments are accounts receivable, accounts payable and
notes payable.  The carrying values of accounts receivable and
accounts payable approximate fair values based on their short-term
nature.  The recorded values of the notes payable, including the
convertible debt, approximate their fair values based on the equivalent market
data and the interest rate approximates the market rate.





NOTE 4 – PROPERTY AND
EQUIPMENT





Property
and equipment consist of the following at June 30, 2008 and 2007:




2008
              
              2007Computer
      equipment
              $
              25,917
              
              $
              23,822Equipment
              
              32,403
              
              
              29,575Less:
      accumulated depreciation
              
              (33,337
              )
              
              (22,686
              )Net
      property and equipment
              $
              24,983
              
              $
              30,711





Depreciation
expense for the years ended June 30, 2008 and 2007 was $10,651 and $7,759,
respectively.




F-9


NOTE 5 – INTANGIBLE
ASSETS





License
Agreement





The
Company has a license agreement with two inventors (“Licensors”) for the
worldwide rights to the MMP inhibitors and uses thereof.  The license
agreement transfers to the Company the technology that is the subject of issued
patents as well as pending patent applications, which were filed by the original
inventors. The licenses are amortized on a straight-line basis over the
estimated useful lives of the underlying patents or the license agreement. The
U.S. patents expire beginning November 2007 through December 2019 and the
international patents expire beginning on November 21, 2011 through December 8,
2019.  Accumulated amortization for the years ended June 30, 2008 and
2007 was $357,249 and $295,359, respectively.





The
Company assesses whether its intangible assets are impaired as required by SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” based
on an evaluation of undiscounted projected cash flows through the remaining
useful lives. If impairment exists, the amount of such impairment is calculated
as the estimated fair value of the assets.





Under the
terms of the license agreement, the Company paid $200,000 and granted 160,000
shares of common stock valued at $0.05 per share and granted 160,000 stock
options.  The stock options are valued at the estimated minimum value
in accordance with SFAS 123 of $8,000.   In order to maintain the
Company’s exclusive rights to the licenses, the agreements require total
payments of $260,000 if certain milestones regarding the proof-of-concept and
development of a prototype are reached. If a
milestone on the “Civilian Chemical Burn” and “Other topical Medical Uses”
categories is not met by the third anniversary of the agreement, the licenses
granted within these categories become nonexclusive. The Company
elected not to pay each inventor $25,000 per year until all such milestones are
met.  At June 30, 2008 and 2007, the balance due under the license
agreement is $160,000.





As
additional compensation to the Licensors, the Company will pay a royalty based
on the Company’s net sales of licensed products.  The royalty rate is
2% on the first $1,500,000 of applicable quarterly revenue and 1.5% of sales
above $1,500,000 on applications of products other than applications for
military and cosmetic
products.  For each sublicense granted by the Company, the Licensors
will be paid 3% of the up-front licensing fee, limited to $100,000.





In
November 2002, the Company and the University of Florida Research Foundation
(the “University”) entered into an agreement whereby the University gave the
Company exclusive sub-license rights to the use of its patents and patent
applications from the effective date of the agreement until the earlier of the
date that no licensed patents remain enforceable patents or the payment of
earned royalties ceases more than three calendar quarters.  The
royalty rate is 3% of the first $10 million of cumulative realized revenues and
1.8% of all subsequent realized revenues.





In June
2007, the Company and the Regents of the University of Michigan (“Michigan”)
entered into an agreement whereby Michigan gave the Company worldwide exclusive
rights including sub-license rights to the use of its patents and patent
applications of the uses of MMP inhibitors from the effective date of the
agreement until the earlier of the date that no licensed patents remain
enforceable patents or the default event.  In addition to the initial
license fee of $80,000, the Company will pay a 4% royalty rate of the net sales,
20% of the sublicense income, the annual fee of $50,000 for 2008 and 2009,
$75,000 for 2010 and $100,000 in 2011 and in each year thereafter during the
term of the agreement.  The Company will also reimburse Michigan for
the maintenance patent fee of $13,000 each period no later than December 31,
2007, 2008 and 2009.





During
the fiscal year 2006, the Company was issued both US and international patents
for its NIMBUS technology on “Intrinsically Bactericidal Absorbent Dressing And
Method Of Fabrication”.  These patents expire on December 8,
2019.  The total capitalized costs for this issued patent were $35,470
and are being amortized over the life of the patents.





During
the fiscal years 2008 and 2007, the Company filed a number of US and
international patent applications for its NIMBUS technology and applied for
certain trademarks. As of June 30, 2008, the total capitalized costs for the
patent applications and trademarks were $168,572.




June
      30, 2008
              
              June
      30, 2007Gross
              
              Accumulated
              
              Gross
              
              AccumulatedAmount
              
              Amortization
              
              Amount
              
              AmortizationAmortized Intangible
      AssetsLicense
      agreement
              $
              648,123
              
              $
              (357,249
              )
              $
              648,123
              
              $
              (295,359
              )Patents
      in process
              
              168,571
              
              
              -
              
              
              74,931
              
              
              -Total
              $
              816,694
              
              $
              (357,249
              )
              $
              723,054
              
              $
              (295,359
              )


F-10




NOTE 5 – INTANGIBLE ASSETS,
continued





Amortization
of patents in process commences when the patents are issued.





June
      30, 2008
              
              June
      30, 2007Gross
              
              Accumulated
              
              Gross
              
              AccumulatedAmount
              
              Amortization
              
              Amount
              
              AmortizationAggregate Amortization
      ExpenseFor
      the years ended
              $
              61,890
              
              $
              357,249
              
              $
              54,063
              
              $
              295,359Estimated Amortization
      Expense
              AmountFor
      the year ended June 30, 2009
              $
              61,890For
      the year ended June 30, 2010
              $
              61,890For
      the year ended June 30, 2011
              $
              61,890For
      the year ended June 30, 2013
              $
              61,890For
      the year ended June 30, 2014
              $
              43,314







NOTE 6 – STOCKHOLDERS’
EQUITY (DEFICIT)





Fiscal
2008





In July
2007, the Company issued a total of 5,141 shares of restricted common stock for
payment of services provided by a consultant.  The amount charged to
operations was $3,136, the value of the shares on the dates issued.





In
September 2007, the Company issued 15,000 shares of common stock for an
aggregate exercise price of $2,250 or $0.15 per share resulting from the
exercise of a warrant.





In
October 2007, the Company issued 5,000 shares of common stock for an aggregate
exercise price of $1,000 or $0.20 per share resulting from the exercise of a
warrant.





In
November 2007, the Company issued 34,501 shares of restricted common stock as a
settlement for a liability of $21,046.





In
November 2007, the Company issued 62,500 shares of common stock for an aggregate
exercise price of $8,900 or $0.14 per share for 60,000 shares and $0.20 per
share for 2,500 shares resulting from the exercise of warrants.





In April
2008, the Company issued 148,571 shares of restricted common stock for the
payment of services rendered by the members of the Board of Directors, who
elected to receive common stocks.  In addition, the Company granted
stock options of 1,074,666 to board members, employees and consultants with
exercise prices of $0.42 per share as payments of their services and performance
bonus according to the vesting schedule.





Fiscal
2007





In July,
August and September 2006, the Company issued a total of 10,352 shares of
restricted common stock for payment of services provided by two
consultants.  The amount charged to operations was $11,481, the value
of the shares on the dates issued.




In
September 2006, the Company issued 33,334 shares of restricted common stock for
an aggregate exercise price of $5,000 or $0.15 per share resulting from the
exercise of a stock option.






F-11






NOTE 6 – STOCKHOLDERS’
EQUITY (DEFICIT), continued








In
October, November and December 2006, the Company issued a total of 10,511 shares
of restricted common stock for payment of services provided by two
consultants.  The amount charged to operations was $12,326, the value
of the shares on the dates issued.





In
November 2006, the Company issued 45,000 shares of restricted common stock as
part of an employee compensation package.  The amount charged to
operations was $45,000, the value of the shares on the dates
issued.





In
December 2006, the Company issued 75,000 shares of restricted common stock as a
payment to a licensor for certain licensing rights.  The amount
capitalized to intangible assets was $67,500, the value of the shares on the
dates issued.





In
January, February and March 2007, the Company issued a total of 5,148 shares of
restricted common stock for payment of services provided by a
consultant.  The amount charged to operations was $4,778, the value of
the shares on the dates issued.





In
February 2007, the Company issued 30,000 shares of restricted common stock for
an aggregate exercise price of $6,000 or $0.20 per share resulting from the
exercise of a warrant.





In April,
May and June 2007, the Company issued a total of 5,423 shares of restricted
common stock for payment of services provided by a consultant. The amount
charged to operations was $4,306, the value of the shares on the dates
issued.





In May
2007, the Company issued 100,000 shares of restricted common stock for an
aggregate exercise price of $79,000 or $0.79 per share for cash.





In June
2007, the Company issued 67,500 shares of restricted common stock for an
aggregate exercise price of $12,150 or $0.18 per share resulting from the
exercise of a warrant.








NOTE 7 -
COMMITMENTS





The
Company leases an equipped laboratory in Gainesville, Florida. The lease expires
in February 1, 2011. Rent expense for the years ended June 30, 2008 and 2007 was
approximately $27,304 and $19,000, respectively.





The
following is a schedule of minimum future payments on the operating lease as of
June 30, 2008:




For
      The Years Ending June 30,2009
              $
              24,0002010
              
              24,0002011
              
              14,000Thereafter
              
              -Total
              $
              62,000


F-12





NOTE 8– STOCK OPTIONS AND
WARRANTS





The
Company adopted a qualified equity incentive plan (the “Plan”) on March 4, 2001.
Under the Plan the Company is authorized to grant up to 3,000,000 shares of
common stock. On December 13, 2004, the shareholders approved the Plan and
ratified the amendment to increase the total number of shares to be granted
under the Plan from 3,000,000 to 4,000,000 effective November 1,
2004.  On November 13, 2007 the shareholders ratified the amendment to
increase the total number of shares to be granted under the Plan from 4,000,000
to 6,000,000.





In
December 2004, the Financial Accounting Standards Board ("FASB") issued a final
standard, SFAS No. 123R, "Share-Based Payment," ("SFAS 123R"), which requires
companies to expense the value of employee stock options and similar awards.
Under SFAS 123R, share-based payment awards result in a cost that will be
measured at fair value on the grant date of the awards, based on the estimated
number of awards that are expected to vest. Compensation cost for awards that
vest would not be reversed if the awards expire without being exercised. The
Company adopted SFAS 123R beginning in the first quarter of the fiscal year 2006
using the modified prospective approach.  Under the modified
prospective approach, SFAS 123R applies to all outstanding and unvested
share-based payment awards at the adoption date. The fair value of stock options
was determined using the Black-Scholes option-pricing model. The fair value of
the restricted stock awards was based on the closing price of the Company's
common stock on the date of grant.





On April
18, 2008, the Board of Directors (the “Board”) granted 148,571 shares of
restricted common stock as payment for the services rendered by the board
members for the year ended June 30, 2007 for
those elected to receive common stocks and all shares were immediately
vested.  In addition, the Board granted 1,074,666 stock options to the
board members, employees, consultants as payments for their services and in
recognition of individual performance for the year ended June 30,
2007.  The stock options were vested one-third immediately, one-third
will be vested on April 17, 2009 and the remaining one-third will be vested on
April 17, 2010, assuming the person receiving the equity awards is employed by
the Company at the time of vesting.  The exercise price of those stock
options and warrants is $0.42 per share, which was the closing price of the
common stock on the date of grant.  The weighted average grant date
fair value of options was $0.32 per share based on the Black-Scholes
option-pricing model.  The options and warrants expire five years from
the date of grant.





On August
6, 2007, the Board of Directors (the “Board”) granted 484,056 non-qualified
stock options to the Chief Executive Officer (“CEO”) at an exercise price of
$0.75 per share. These options were fully vested and immediately exercisable at
the date of grant.  In addition, the Board granted 1,452,167
non-qualified stock options at an exercise price of $0.74 per share on September
25, 2007, as part of the CEO’s employment agreement. The second stock options
are vested and become exercisable 1/16th of the
total 1,452,167 options on each three-month anniversary beginning on June 11,
2007.  The average grant date fair value of the options was $0.46 per
share based on the Black-Scholes option-pricing model.  These options
expire five years from the date of grant.





On
December 20, 2006, the Company issued 790,770 stock options to the board
members, the management, the employees, and the consultants for their
services.  These options have an exercise price of
$1.05 per share. The stock options were vested one-third immediately, one-third
was vested on December 20, 2007 and the remaining one-third will be vested on
December 20, 2008, assuming the person receiving the equity awards is employed
by the Company at the time of vesting.  The weighted average grant
date fair value of options was $0.69 per share based on the Black-Scholes
option-pricing model.  The options expire five years from the date of
grant.  On March 5, 2008, 84,615 stock options were
forfeited.





On
September 9, 2005, the Board of Directors (the “Board”) granted 130,000 shares
of restricted common stock as payment for the services rendered by the board
members for the year ended June 30, 2005 and
all shares were immediately vested.  In addition, the Board granted
710,000 stock options and 175,000 warrants to our employees and directors and
consultants, respectively, in recognition of individual
performance for the year ended June 30, 2005.  The stock options and
warrants were vested one-third immediately, one-third was vested on July 1, 2006
and the remaining one-third was vested on July 1, 2007, assuming the person
receiving the equity awards is employed by the Company at the time of
vesting.  The exercise price of those stock options and warrants is
$0.80 per share, which was the closing price of the common stock on the date of
grant.  The weighted average grant date fair value of options was
$0.72 per share based on the Black-Scholes option-pricing model.  The
options and warrants expire five years from the date of grant.





The
weighted average grant date fair value of options granted during the fiscal year
ended June 30, 2008 were estimated on the date of grant using the Black-Scholes
option-pricing model with the assumptions noted in the following table. Expected
volatilities are based on historical volatility of common stock, and other
factors.  The expected term of the options represents the period of
time that options granted are expected to be outstanding and is derived from
historical terms and other factors.





Assumptions
utilized to value options are as follows:





Risk-free interest
rate                                                 4%
to 6%


Expected life
(years)                                                   5


Expected
volatility                                                      50%
to 138%


Expected
dividends                                                     None







During
2002, 1,140,000 unqualified options were granted under the Plan. The exercise
prices for 990,000 and 150,000 of the options were $2.84 and $0.95,
respectively, representing the average trading price of the
Company’s stock during the first 30 days after commencement of the stock trading
on the Over the Counter (“OTC”) Market. The vesting provisions for 100,000 of
the options are immediate and the remainder
of the 1,040,000 options vested one-third on January 15, 2002, one third on
January 15, 2003, and one-third on January 15, 2004. All of the options were
expired or forfeited as of June 30, 2007.





In July
2003, 1,231,500 unqualified options were granted under the Plan to employees,
directors, and service providers.  The options had an exercise price
of $0.55, the average closing trading price at the grant date. The options
vested immediately.  All of the options expire five years after the
grant date.






F-13




NOTE 8 – STOCK OPTIONS AND
WARRANTS, continued


On
October 1, 2004, the Company granted 50,000 unqualified options to a consultant,
one third of which vested immediately, one third vested on July 1, 2005 and the
remaining one third vested on July 1, 2006.  The options had an
exercise price of $0.15, the closing trading price at the grant
date.  Using the Black Scholes option pricing model, $4,333 of
compensation expense was recorded during this fiscal year period. All the
options expire five years after the grant date.  On June 29, 2005,
16,666 options were exercised for an aggregate price of approximately $2,500. On
September 15, 2006, 33,334 options were exercised for an aggregate price of
approximately $5,000.




A summary
of options for the years ended June 30, 2008 and 2007 is shown
below:




June
      30, 2008
              
              June
      30, 2007Number
              
              Weighted-Average
              
              Number
              
              Weighted-Averageof
      Shares
              
              Exercise
      Price
              
              of
      Shares
              
              Exercise
      PriceOutstanding
      at beginning of period
              2,757,270
              
              $
              0.61
              
              2,779,834
              
              $
              1.33Granted
              3,010,889
              
              
              0.63
              
              790,770
              
              
              1.05Exercised
              -
              
              
              -
              
              (33,334
              )
              
              0.15Forfeited
              (84,615
              )
              
              1.05
              
              (15,000
              )
              
              0.80Expired
              -
              
              
              -
              
              (765,000
              )
              
              3.69Outstanding
      at end of period
              5,683,544
              
              $
              0.61
              
              2,757,270
              
              $
              0.61Exercisable
      at end of period
              3,676,525
              
              
              
              
              2,371,885Available
      for issuance at end of period
              316,456
              
              
              
              
              1,034,396


During
the year ended June 30, 2008, the Company issued 18,839 common stock warrants to
consultants as part of the payment for their services.  These warrants
were accounted for in accordance with the fair value provisions of SFAS
123R.  The warrants vested one-third immediately with fair market
values ranging from $0.44 per share to $0.58 per share and the total cost
of approximately $12,000.  The warrants were valued on the date of
grant using the Black-Scholes option-pricing model.  In addition,
there were 45,000 warrants expired during the fiscal year 2008.





During
the year ended June 30, 2007, the Company issued 37,640 common stock warrants to
consultants as part of the payment for their services.  These warrants
were accounted for in accordance with the provisions of SFAS
123R.  These warrants are vested immediately with fair market
values ranging from $0.62 per share to $1.25 per share and the total cost
of approximately $36,000. Approximately 97,500 warrants were exercised for an
aggregate price of approximately $18,150.





Assumptions
utilized to value warrants are as follows:





Risk-free
interest
rate                                                  6.00%


Expected life
(years)                                                    5


Expected
volatility                                                      73%
to 138%


Expected
dividends                                                     None







June
      30, 2008
              
              June
      30, 2007Number
              
              Weighted-Average
              
              Number
              
              Weighted-Averageof
      Shares
              
              Exercise
      Price
              
              of
      Shares
              
              Exercise
      PriceOutstanding
      at beginning of period
              854,108
              
              $
              0.42
              
              913,968
              
              $
              0.37Granted
              18,329
              
              
              0.65
              
              37,640
              
              
              0.96Exercised
              (82,500
              )
              
              0.15
              
              (97,500
              )
              
              0.19Expired
              (45,000
              )
              
              0.74
              
              -
              
              
              -Outstanding
      at end of period
              744,937
              
              $
              0.48
              
              854,108
              
              $
              0.42Exercisable
      at end of period
              744,937
              
              
              
              
              854,108


F-14





NOTE 9 - INCOME
TAXES





For
federal income tax purposes, the Company elected to capitalize start-up costs
incurred during 1999 and 2000 totaling $357,989.  The start-up costs
are being amortized over sixty (60) months beginning in 2001.  An
analysis of the components of the (loss) before income taxes and the related
income tax (benefit) is presented in the following tables.  The tax
amounts have been calculated using the 34% federal and 5.5% state income tax
rates.





The
(provision) benefit for income taxes consists of the following:




2008
            
            2007Current
            $
            -
            
            $
            -Deferred
            
            -
            
            
            -$
            -
            
            $
            -







2008
              
              2007Deferred
      tax assets:Depreciation
      and amortization
              $
              7,986
              
              $
              1,303Stock
      based compensation
              
              2,616,736
              
              
              2,327,030Net
      operating loss carry forward
              
              3,831,869
              
              
              3,242,236Interest
      accrual
              
              11,044
              
              
              -Research
      tax credit
              
              7,203
              
              
              7,203Total
      deferred tax assets
              
              6,474,838
              
              
              5,577,772Valuation
      allowance:Beginning
      of year
              
              (5,577,772
              )
              
              (5,011,587
              )Decrease
      (increase) during the year
              
              (897,066
              )
              
              (566,185
              )Ending
      balance
              
              (6,474,838
              )
              
              (5,577,772
              )Net
      deferred taxes
              $
              -
              
              $
              -


A
reconciliation of income tax at the statutory rate to the Company’s effective
tax rates for the periods ended June 30, 2008 and 2007 is as
follows:
 2008
                
                2007Federal
      income tax at statutory rate of 34%
                $
                (812,580
                )
                $
                (511,568
                )State
      tax, net of federal benefit
                
                (86,697
                )
                
                (54,617
                )Other
                
                2,211
                
                
                -Valuation
      allowance
                
                897,066
                
                
                566,185$
                -
                
                $
                -
  As of
June 30, 2008, the Company had a net operating loss carry forward of
approximately $10,234,566 which will begin to expire in 2017.
 
  F-15
 
 NOTE 10 – NOTES
PAYABLE
 
 Interest
                
                
                ConversionDirector
                
                Maturity
                
                Rate
                
                
                Price
                
                June
      30, 20082003
      Senior Convertible Note
                
                2010
                
                6
                %
                
                $
                0.38
                
                $
                1,268,625Senior
      Convertible Note
                
                2010
                
                8
                %
                
                $
                0.74
                
                
                208,9552007
      Senior Convertible Note
                
                2010
                
                8
                %
                
                $
                0.74
                
                
                375,0002007
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.55
                
                
                50,0002007
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.51
                
                
                50,0002007
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.40
                
                
                50,0002007
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.40
                
                
                50,0002007
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.34
                
                
                50,0002007
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.32
                
                
                50,0002008
      Senior Convertible Note 1
                
                2010
                
                8
                %
                
                $
                0.32
                
                
                50,0002008
      Senior Convertible Note 1
                
                2010
                
                8
                %
                
                $
                0.45
                
                
                70,0002008
      Senior Convertible Note 1
                
                2010
                
                8
                %
                
                $
                0.40
                
                
                75,0002008
      Senior Convertible Note 1
                
                2010
                
                8
                %
                
                $
                0.33
                
                
                50,0002008
      Senior Convertible Note 1
                
                2010
                
                8
                %
                
                $
                0.42
                
                
                75,0002008
      Senior Convertible Note 1
                
                2010
                
                8
                %
                
                $
                0.40
                
                
                50,0002008
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.29
                
                
                50,0002008
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.20
                
                
                50,0002008
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.38
                
                
                50,0002008
      Senior Convertible Note 2
                
                2010
                
                8
                %
                
                $
                0.35
                
                
                135,000Accrued
      interest
                
                
                
                
                
                
                
                
                
                
                181,3222,988,902Related
      Party2007
      Senior Convertible Note
                
                2010
                
                8
                %
                
                $
                0.74
                
                
                375,000Accrued
      interest
                
                
                
                
                
                
                
                
                
                
                25,315400,315Total long term note
    payable
                
                
                
                
                
                
                
                
                
                $
                3,389,217Director
                
                
                
                
                
                
                
                
                
                June
      30, 20072003
      Senior Convertible Note
                
                2010
                
                6
                %
                
                $
                0.38
                
                $
                1,268,625Senior
      Convertible Note
                
                2010
                
                8
                %
                
                $
                0.74
                
                
                208,9552007
      Senior Convertible Note
                
                2010
                
                8
                %
                
                $
                0.74
                
                
                303,160Accrued
      interest
                
                
                
                
                
                
                
                
                
                
                37,4071,818,147Related
      Party2007
      Senior Convertible Note
                
                2010
                
                8
                %
                
                $
                0.74
                
                
                125,000Accrued
      interest
                
                
                
                
                
                
                
                
                
                
                1,808126,808Total long term note
    payable
                
                
                
                
                
                
                
                
                
                $
                1,944,955
 
 Effective
May 17, 2008, the Company issued a 2008 senior convertible note payable (“Note
2”) to its Chairman to combine the borrowings (the “Advances”) ranging from
$50,000 to $135,000 each from May 17, 2008 through August 28, 2008. As of June
30, 2008, the Company received approximately $285,000.  This Note 2 is
secured by the Company’s revenues and assets with the same priority as the 2007
senior convertible notes described below and has a maturity date of
2010.  This Note 2 has the conversion prices
determined by the closing trading prices of the Company’s common stock on the
dates the Advances were received.
  F-16
  NOTE 10 – NOTES PAYABLE,
continued
  Effective
February 11, 2008, the Company issued a 2008 senior convertible note payable
(“Note 1”) to its Chairman to combine the borrowings (the “Advances”) ranging
from $50,000 to $75,000 each from February 11, 2008 through April 29, 2008. As
of June 30, 2008, the Company received $370,000.  This Note 1 is
secured by the Company’s revenues and assets with the same priority as the 2007
senior convertible notes described below and has a maturity date of
2010.  This Note 1 has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.
 
 Effective
October 30, 2007, the Company issued another 2007 senior convertible note
payable to its Chairman to combine the borrowings (the “Advances”) in a series
of $50,000 each from October 30, 2007 through January 30, 2008. As of June 30,
2008, the Company received $300,000.  This senior convertible note is
secured by the Company’s revenues and assets with the same priority as the 2007
senior convertible notes described below and has a maturity date of
2010.  This note has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.
 
 In June
2007, the Company issued two other 2007 senior convertible note payables to its
Chairman and a major stockholder for $375,000 each. As of September 30, 2007,
the Company received $303,160 from its Chairman and the remaining $71,840 in
July 2007 totaling $375,000.  The Company also received $125,000 from
a major stockholder and the remainder in September 2007.  These two
senior convertible note payables are secured by the Company’s revenues and
assets.  These note payables require the Company to allocate
approximately $162,000 of these funds to be restricted for payment of the chief
executive officer’s salary for the remainder of the twelve months from the date
of hire. The Company may
 prepay
the principal and interest upon meeting certain cash flow requirements and the
approval of the board.
 
 In
addition, the Company combined its other outstanding note payables to its
Chairman totaling $208,955 into a single note with the same annual interest rate
and extended the maturity date to 2010.  This senior convertible note
is secured by the Company’s revenues and assets with the same priority as the
2007 senior convertible notes.  Further, the 2003 senior convertible
note maturity date was extended until 2010.
 
 In
September 2003, the Company negotiated a successor agreement with its Chairman
regarding the line of credit, which became a single convertible note for up to
$1,500,000 excluding accrued interest, at an interest rate of 6% and due July 1,
2004.  The convertible note is secured by the assets and revenues of
the Company, which has the same priority as other senior convertible note
payables.   The note plus accrued interest will be convertible at
a conversion rate of $0.38 per share.  The conversion rate was
determined as 15% above the average share price over the prior 20 trading days
($0.33 per share). The note has an anti-dilution provision in the event that the
Company sells stock to other investors at less than $0.20 per
share.  During the year ended June 30, 2006, the maturity date of the
note was extended until
 October
1, 2007. In January 2007, the Chairman agreed to extend the maturity date of the
note until April 1, 2008.  In June 2007, the maturity date of this
note was extended to June 2010.
 
 At June
30, 2008, the Company accrued interests of $181,322 and $25,315 on the
convertible notes with the director and on the convertible note with a related
party, respectively.
 
 During
the period ended June 30, 2007, the Company paid accrued interest on the 2003
senior convertible note for the three quarters by issuing the note payables for
the interest amounts owed for the respective periods.  For the fourth
quarter of the year ended June 30, 2007, the interest was accrued to be paid at
the maturity date.
   F-17
  NOTE 11 – RELATED PARTY
TRANSACTIONS
 
 As fully
described in Note 10, the Company has several senior convertible note payables
with its Chairman and a major stockholder during the periods ended June 30, 2008
and 2007.
 
 Subsequent
to June 30, 2008, the Company received the additional Advances totaling $200,000
from its Chairman, which were combined with the $285,000 previous borrowings
into a senior convertible note (Note 2) as more fully described in Note 10
above.  In addition, the Company received an Advance of $50,000 on
September 15, 2008,  the terms of this Advance has yet to be
determined.
 
 During
the year ended June 30, 2007, the Company received several short-term loans
totaling approximately $19,500 from an officer of the Company, which was repaid
fully by June 30, 2007.
 
 
 
 
 
 
 
 
 
  F-18