**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, 2005    Commission file number 000-27545
 
 **QUICK-MED
        TECHNOLOGIES, INC** **.**
 ----------------------------------------------
 (Name
        of
        registrant as specified in its charter)
  **Nevada**
              **98-0204736**(State
                  or Other Jurisdiction of
                  organization)
              (IRS
                  Employer Identification
                  Number)
 
 
 **3427
        SW 42nd Way**
 **Gainesville,
        Florida 32608**
 **(352)
        379-0611**
 (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 $182,000.
 
 The
        aggregate market value of the registrant’s voting stock held by non-affiliates
        of the registrant as of September 23, 2005 (based upon the closing price
        of
        $1.05 per share on September 23, 2005) was $5,350,167.
 
 As
        at
        September 23, 2005 there were 30,089,637 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, 2005**
 
 **INDEX**
 
 Page
 **PART
        I**
 
 Item
                  1.
              Description
                  of Business
                  ...............................................................................................................................................................................................................
              1Item
                  2.
              Description
                  of Property
                  ...............................................................................................................................................................................................................
              10Item
                  3.
              Legal
                  Proceedings
                  ......................................................................................................................................................................................................................
              11Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
                  ............................................................................................................................................................................
              11
 
 **PART
        II**
 
 Item
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
                  .............................................................................................................................................................
              11Item
                  6.
              Management’s
                  Discussion & Analysis of Financial Condition and Results of Operations
                  ......................................................................................................................
              26Item
                  7.
              Financial
                  Statements
                  ....................................................................................................................................................................................................................
              33Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting & Financial
                  Disclosure
                  .....................................................................................................................
              33
 
 **PART
        III**
 
 Item
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons;Compliance
                  with Section 16(a) of the Exchange Act
                  .............................................................
              34Item
                  10.
              Executive
                  Compensation
                  ..............................................................................................................................................................................................................
              38Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management
                  ....................................................................................................................................................
              40Item
                  12.
              Certain
                  Relationships and Related Transactions
                  ..............................................................................................................................................................................
              41Item
                  13.
              Exhibits
                  and Reports on Form 8-K
                  ...................................................................................................................................................................................................
              42Item
                  14.
              Principal
                  Accountant Fees and Services
                  .........................................................................................................................................................................................
              44
 
 
 Signatures
              .......................................................................................................................................................................................................................................................................
              45
 
 
 
  **PART
          I**
 
 **ITEM
                    1.**
                **DESCRIPTION
                    OF BUSINESS**
 
 *Except
          for historical information, the following description of our business contains
          forward-looking statements based on current expectations, which involve
          risks
          and uncertainties. Our actual results could differ materially from those
          set
          forth in such forward-looking statements as a result of a number of factors,
          including those risk factors set forth in this Amended Annual Report under
          the
          heading “Management’s Discussion and Analysis of Financial Condition and Results
          of Operations” as well as our other periodic filings which are available for
          review at www.sec.gov. Unless specified otherwise, as used herein, the
          terms
“we,”“us” or “our” refer to Quick-Med Technologies, Inc.*
 
 **Business
          Development**
  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 Securities and Exchange Commission 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 3427 SW 42 nd Way,
          Gainesville, Florida 32608. Our telephone number is (352) 379-0611.
 
 **Overview**
  We
          are a
          life science company that develops proprietary technologies in the consumer,
          healthcare, and industrial markets. Our two core technologies under development
          are:
  §
                The
                    MultiStatTM family of methods and compounds, shown to be effective in key
                    skin care therapy applications for the cosmetic, military, and
                    medical
                    markets; and
 §
                Novel
                    Intrinsically Microbicidal Utility Substrate, otherwise known
                    as
                    “NIMBUSTM”, a family of polymers that are bio-engineered to have
                    antimicrobial, super-absorbent, and other properties that can
                    be used in a
                    wide range of applications, such as bandages and apparel.
 
 **Business
          Strategy**
  Our
          business strategy is to further develop and execute commercialization strategies
          for each of our broad technologies. MultiStatTM is being developed in a cosmetic
          product line, including an initial anti-aging product in launch. MultiStatTM is
          also being developed in one or more drug products as a post-injury treatment
          for
          mustard gas exposure, with the initial product currently under development
          under
          a Cooperative Research and Development Agreement with the United States
          Army. We
          intend to use our NIMBUSTM technology in: (a) advanced bandage products; (b)
          consumer products, including apparel and personal care, and (c) building
          materials to protect from rot or mold. With both our MultiStatTM and NIMBUSTM
          technologies, our business strategy is to enter into joint-development
          agreements with companies in the cosmetic, wound/bandage, apparel, personal
          care, and building materials industries to co-develop and commercialize
          our
          products.
  
  We
          will
          continue to develop our core technologies and employ industry partners
          to:
  ·
                further
                    develop our technologies;
 ·
                integrate
                    our technologies into a product line; and
 ·
                commercialize
                    the technologies in end-markets.
  Because
          our primary focus is to develop and commercialize our current and future
          technologies; we do not intend to manufacture, distribute, or market final
          products that employ our technologies, but rather outsource these activities
          to
          industry partners.
 
 **Our
          Technology**
 
 ***First
          Core Technology: MultiStatTM***
  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 affects of triggering mechanisms. The
          bioscience of MMPI research includes the identification of safe compounds
          that
          individually or in combination yield a specific beneficial outcome. MultiStatTM
          represents our family of patented compounds and techniques relating to
          MMP
          inhibition. MultiStatTM’s array of uses has been documented in a series of
          clinical findings by our scientists, who are consultants, employees, or
          third
          party scientific laboratories, or published by other academic
          researchers.
 We
          are
          working to commercialize MultiStatTM in the following areas:
  *Cosmetics*
  Based
          on
          clinical studies performed by us and by The Collaborative Group Ltd., which
          as
          of July 30, 2004, was acquired by Engelhard, Inc., MultiStatTM has shown success
          in improving the appearance of fine lines and wrinkles associated with
          the signs
          of skin aging, or deterioration resulting from natural aging or sun damage.
          Additionally, MultiStatTM has been shown in the same clinical studies to have
          applications for other conditions, such as skin roughness or
          redness.
  During
          September 2002, we executed an exclusive multi-year distribution agreement
          with
          The Collaborative Group, Ltd., a specialty chemical company that provides
          ingredients and formulations to the skin care industry. This agreement
          provides
          for The Collaborative Group, Ltd. to employ MultiStatTM in their product
          development, to be followed by marketing and sales of MultiStatTM-related skin
          care products. In June 2003, the first phase of product development was
          completed, and in approximately July 2003, The Collaborative Group, Ltd.
          launched its first product employing MultistatTM, EquiStatTM, a performance
          ingredient for anti-aging skin care products.
  The
          EquiStatTM, a performance ingredient for anti-aging skin care products, has been
          commercialized in the Ceramide Plump Perfect product line by Elizabeth
          Arden in
          the fall of 2004.
  From
          September 2002 to August 2005, we received revenues of approximately $220,000
          under the exclusive muli-year distribution agreement with Engelhard from
          various
          customers. Although sales are increasing, however Engelhard had
          not
          met a critical milestone in this agreement.   On September
          19,
          2005, we sent a notice of material default and termination to Engelhard
          as it is
          in breach of its contractual obligations under the master agreement and
          the
          Product Agreement (collectively the “Agreements”). Engelhard failed at least two
          critical milestones (1) to develop at least one significant sales contract
          within one year of the effective distribution date and (2) to have us realize
          a
          combined annualized net profit of $1 million per year by May 2005. Pursuant
          to
          the termination procedure of the Agreements, we will terminate the Agreements
          in
          their entirety thirty (30) days from Engelhard’s receipt of the termination
          notice provided that Engelhard does not cure its material breaches among
          others
          within that time period.
   2
  In
          accordance with the termination provision of the Agreements, within thirty
          (30)
          days Engelhard must deliver to us any and all materials containing our
          trade
          secrets or confidential information, and must cease and desist from using
          our
          trade secrets or confidential information along with any trademark or trade
          names associated with our intellectual property including without limitation
          “EquiStatTM.” We are currently assessing our legal remedies and investigating our
          damages .
  *Pharmaceutical*
  MMP
          activity has been shown generally in scientific studies to play a role
          in the
          deterioration of human tissue when exposed to chemical agents such as mustard
          gas. Ilomastat, a member of the MultiStatTM family of patented compounds and
          techniques relating to MMP-inhibition, has been demonstrated to be effective
          in
          treating mustard gas exposures based on initial efficacy studies conducted
          in
          Israel and the Netherlands by third party scientific laboratories. We are
          attempting to develop Ilomastat as a post-injury agent for mustard gas
          exposure.
  In
          November 2000, we entered into a six-year Cooperative Research and Development
          Agreement, otherwise known as 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.
 
 ***Second
          Core Technology: NIMBUSTM***
  Novel
          Intrinsically Microbicidal Utility Substrate, otherwise known as NIMBUSTM, refers
          to a family of patents, techniques, and other intellectual property in
          which
          advanced polymer chemistry is used to bond biologically active molecules
          onto
          substrates. Choices of the substrate, the bonded molecules, or the method
          of
          bonding creates products that can be modified to produce varying product
          attributes. The most significant commercial application of NIMBUSTM is in
          creating antimicrobial products. By altering aspects of the formulation,
          the
          product can be made to be super-absorbent as well as antimicrobial.
          Alternatively, the product can be made to have hemostatic properties, or
          the
          ability to stop bleeding. A distinguishing feature of NIMBUSTM treated material,
          as demonstrated in a range of standardized tests by us and a third party
          microbiology testing company, is that the microbicide is effective against
          a
          broad range of bacteria, and the active ingredient does not leach off the
          substrate.
  We,
          in
          collaboration with the University of Florida at Gainesville have developed
          a new
          generation of our NIMBUSTM technology making it significantly more cost-effective
          and valuable in medical applications.
 
 NIMBUSTM
          is a powerful microbicidal agent  that
          can
          be permanently bonded to materials such as cotton, cotton blends or polyurethane
          to create advanced wound dressings, fabrics or other medical or consumer
          products. The new technology significantly reduces production cost and
          is highly
          effective against key strains of bacteria that have become resistant to
          antibiotics commonly used to treat infections. Importantly, the new technology
          has been designed to sharply reduce the possibility that any bacteria could
          develop resistance to the treated articles.
 
 The
          results are based on six years of research conducted by us and the University
          of
          Florida on new techniques of bonding our NIMBUSTM technology to various
          substrates. Prior test results have shown that this material can kill up
          to
          99.9999% of most bacteria types including those often found on a person’s skin,
          such as Staphylococcus aureus, or Staph., as well as common odor-causing
          bacteria and the fungus that causes athlete’s foot. New tests performed earlier
          this year by Biological Consulting Services, an independent research laboratory
          based in Florida, using industry standard test AATCC-100, confirm that
          the next
          generation of NIMBUSTM kills 99.9999% of MRSA (Methicillin-Resistant
          Staphylococcus Aureus) and VRE (Vancomycin-Resistant Enterococcus), two
          potentially lethal bacteria strains that have become resistant to traditional
          antibiotics and are now responsible for many hospital and nursing home
          infections.
  
 3
  We
          are
          attempting to commercialize NIMBUSTM in a number of industries where we believe
          that this technology provides a solution to a defined need or an opportunity
          to
          create attractive products. Our business strategy here is to partner or
          license
          to firms in end-markets for adapting and implementing the technology in
          that
          industry.
 We
          believe that the potential applications for NIMBUSTM include the following
          markets:
 
 **POTENTIAL
          MARKETS FOR NIMBUSTM**
  **Healthcare**
                **Consumer**
                **Industrial**oHemostatic
                    bandage - life threatening injury
                  oChronic
                    wound dressing
                  oAnti-bacterial
                    wound dressing
                oCosmetic
                  oFeminine
                    care
                  oBaby
                    care
                  oWipe
                oBuilding
                    material
                  oWallboard
                  oCellulose
                    insulation
                  oHospitality
                    industryoBlood
                    collection container
                  oUrinary
                    drainage system
                  oCatheter
                  oSurgical
                    drapes, apparel and wound care products
                  oAntiseptic
                    wipes & sprays
                  oPrep
                    solutions
                oClothing
                  oLinen
                  oFood
                    storage
                  oFacemask
                  oSkin
                    sanitizer
                  oContainer
                  oPaper
                    Towel
                  oNapkins
                  oBedding
                oFiber
                    glass insulation
                  oPaper
                    - Pulp, Fiber
                  oWood
                    preservation
                  oPesticide
                  oProtective
                    clothing
                  oWipe
                  oFilter
                  oPacking
                    material
                  oProtective
                    clothingoFootwear
                  oAdult
                    incontinence
                  oPersonal
                    care
                  oOral
                    care
                  oFootwear
                  oContact
                    lens
                oPreservative
                  oFood
                    contact
                  oFood
                    service
                  oWine
                    Corking
 
 We
          are
          focusing our NIMBUSTM technology on the following three industries:.
  ·
                *Bandages,
                    Wound Dressings and Related Products*:
                    Potential Bandage products under development that use the NIMBUSTM
                    technology have undergone proof of concept testing to demonstrate
                    their
                    target characteristics, such as bacterial resistance or the ability
                    to
                    control bleeding.
 ·
                *Apparel*:
                    Apparel products being developed that use the NIMBUSTM technology have
                    undergone proof of concept testing to demonstrate target characteristics
                    such as resistance to odor causing bacteria and
                    discoloration.
 ·
                *Building
                    Materials*:
                    Building materials potential products that use the NIMBUSTM technology,
                    such as wallboard and insulation, have undergone proof of concept
                    testing
                    to demonstrate target characteristics such as the ability to
                    inhibit mold.
  
 4
 **Competitive
          Business Conditions**
  The
          research and development pertaining to our technologies, which underlie
          our
          MMP-inhibitor (MultiStatTM), microbicidal (NIMBUSTM) 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 as a result 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 are located in the United States as well as around the world
          and
          include:
  ·
                Personal
                    Care companies;
 ·
                Wound
                    care companies;
 ·
                University
                    or university-sponsored research organizations;
                    and
 ·
                Government-sponsored
                    research organizations.
  Specific
          examples of competition to our NIMBUSTM 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:
  ·
                Agion
                    Technologies, Inc.;
 ·
                E.I.
                    du Pont de Nemours Company (DuPont -
                    NYSE:DD);
 ·
                Noble
                    Fiber Technologies; and
 ·
                Microban
                    International, Ltd.
 ·
                Aegis
                    Environments
  We
          will
          attempt to overcome the competitive advantages of our competitors by entering
          into co-develop agreements with industry leaders in the potential markets
          with
          exclusivity clauses for future license agreements.
 
 **Intellectual
          Property: Patents, and Exclusive License Patents**
  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.
 
 **Patent
          Related Agreements**
 
 ***Agreement
          with The University of Florida at Gainesville***
  On
          December 3, 2002, we entered into a licensing agreement with The University
          of
          Florida that will give us exclusive worldwide rights for the manufacturing,
          marketing, and distribution of our NIMBUSTM 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.
 
 ***Licensed
          Patents***
  5
  We
          have
          executed a license agreement with Dr. R. Galardy and Dr. D. Grobelny to
          practice
          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. The United States of America and foreign patent rights,
          including but not limited to Germany, Spain, France, United Kingdom, and
          Italy
          have been licensed to us for these applications.
 We
          have
          also executed a license agreement with University of Michigan on May 20th,
          2005
          to practice certain rights under patents relating to the use of MMPIs for
          treating skin aging.
 
 ***Other
          Patent Related Agreements***
  We
          also
          have an agreement with The Collaborative Group, Ltd. (now a unit of Engelhard
          Corporation) that provides The Collaborative Group Ltd. with exclusive
          worldwide
          right to develop and market certain products relating to skin care that
          employ
          the Company’s MultistatTM family of MMPIs.
 
 ***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. Dr. Gregory Schultz and Dr. Christopher Batich,
          who
          are on the faculty of The 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 The University of Florida.
 
 ***Issued,
          issued pending - U.S. & Foreign Patents***
  We
          have
          filed or own joint or exclusive rights to patent applications for:
 
 **U.S.
          ISSUED PATENTS**
 
 **Number**
                **Issued
                    Date**
                **Expiry
                    Date**
                **Description**5,183,900
                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 ulceration5,696,147
                December
                    1997
                November
                    21, 2010
                Inhibition
                    of angiogenesis by synthetic matrix metalloprotease inhibitors
                    (MMPIs)5,773,438
                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, 2011
                Cosmetic
                    Composition and method
   6
  The
          above
          table includes patents, which are jointly owned by Quick-Med Technologies
          and an
          arm of The University of Florida, as well as patents that are licensed
          to us by
          Drs. Galardy and Grobelny.
 
 
 **RELATED
          FOREIGN ISSUED PATENTS**
 
 **Number**
                **Country(ies)**
                
                **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, 2011652016
                Australia
                
                November
                      21, 2011773532
                Australia
                
                December
                    8, 2019004160
                Russia
                
                December
                    8, 20192096223
                Canada
                
                November
                    21, 200599814229.8
                China
                
                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 23,
                    2005.
 
 **PENDING
          PATENT APPLICATIONS - UNITED STATES**
 
 §
                Intrinsically
                    bactericidal absorbent dressing and method of
                    fabrication
 
 §
                Absorbent
                    materials covalently-bonded, nonleachable polymeric antimicrobial
                    surfaces
                    and methods for preparation.
 
 §
                Cosmetic
                    Composition and method
 
 §
                Composition
                    and method for minimizing or avoiding the adverse effects of
                    vesicants
 
 §
                Materials
                    and Methods for treating lumber and
                    wood
 
 §
                Improved
                    antifungal gypsum board*
 
 §
                Antimicrobial
                    and antiproteolytic wound dressing and
                    method*
 
 §
                Silicates
                    and other oxides with bonded antimicrobials
                    polymers*
 
 §
                Controlled
                    release of biologically active substances from select
                    substrates
 
 §
                Synthetic
                    matrix metalloprotease inhibitors and uses
                    thereof
  
 7
 §
                Improved
                    matrix metalloprotease inhibitors
 
 §
                Method
                    of attaching an antimicrobial compound to the surface of a
                    substrate
 
 §
                Disinfectant
                    with prolonged activity based on alcohol-soluble quaternary ammonium
                    copolymers
 
 §
                Controlled
                    release wound dressing based on a polyelectrolyte network using
                    carboxymethyl cellulose
 
 *
          NOTE:  United
          States filing imputed from designation in International Patent Application
          filed
          under the Patent Cooperation Treaty.
 
 **PENDING
          PATENT APPLICATIONS - FOREIGN**
 
 §
                Intrinsically
                    bactericidal absorbent dressing and method of
                    fabrication
 
 §
                Absorbent
                    materials covalently-bonded, nonleachable polymeric antimicrobial
                    surfaces
                    and methods for preparation.
 
 §
                Cosmetic
                    Composition and method
 
 §
                Composition
                    and method for minimizing or avoiding the adverse effects of
                    vesicants
 
 §
                Materials
                    and Methods for treating lumber and
                    wood
 
 §
                Improved
                    antifungal gypsum board
 
 §
                Antimicrobial
                    and antiproteolytic wound: dressing and
                    method
 
 §
                Silicates
                    and other oxides with bonded antimicrobials
                    polymers
 
 §
                Controlled
                    release of biologically active substances from select
                    substrates
 
 §
                Synthetic
                    matrix metalloprotease inhibitors and uses
                    thereof
 
 §
                Improved
                    matrix metalloprotease inhibitors
 
  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.
   8
  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.
  **Distribution
          of Technologies/Future Products**
  Because
          we plan for industry partners in the consumer, healthcare, and industrial
          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.
  **Customers**
  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,
          bandage products, apparel and personal care, and building materials, 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
          four (7) full time employees consisting of:
  ·
                Our
                    President, who directs our operations and our business development
                    projects and executes our business strategy;
 ·
                Two
                    Senior Research Scientists, who are responsible for testing and
                    also
                    participates in our product development
                    projects;
 ·
                A
                    Director of Research and Business Development in Medical Devices,
                    who is
                    responsible in business development in the wound care
                    industry.
 ·
                A
                    Research Scientist, who is responsible in assisting the senior
                    research
                    scientist with testing and product development projects;
                    and
 ·
                A
                    Product Development Engineer, who assists the research scientists
                    with the
                    product development projects.
 ·
                A
                    Microbiologist, who conducts the microbiogical testing and assists
                    in
                    developing the applications of our technologies.
  We
          also
          utilize several consulting scientists with PhD 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 full time consulting scientist who holds a doctorate in Physical
          Chemistry, who directs our research and development.
 
 **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, 2005, we spent $867,013 on research and
          development. During our 2004 fiscal year, we spent $348,449 on research
          and
          development. We intend to continue our research and development efforts
          during
          the current 2006 fiscal year.
   9
  **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.
  We
          have
          not filed for regulatory approval of any potential products as none of
          our
          products have reached the stage of development where filing for regulatory
          approval is required, or the products are exempt from filing requirements.
          Any
          regulatory approvals that are received for a product may be subject to
          limitations on approved uses for the product. After obtaining marketing
          approval
          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.
  We
          work
          with a law firm specializing in regulatory affairs with respect to the
          pharmaceutical, cosmetic, and medical device industries. This firm will
          be able
          to assist us with the following regulatory activities when required:
  ·
                Regulatory
                    Strategy and Liaison with the Food and Drug Administration;
 ·
                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.
  **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** .
 
 
 **ITEM
                    2.**
                **DESCRIPTION
                    OF PROPERTY**
 
 Our
          corporate headquarters are located at 3427 SW 42 nd Way,
          Gainesville, Florida. This 3,200 square foot premises is composed of two
          offices
          and an equipped laboratory. We pay monthly lease payments of $1,518 and
          our
          lease expires in March 2006.
  In
          accordance with a verbal agreement between our President and us, we lease
          and
          occupy 500 square feet of office space at the residence of our President
          in Boca
          Raton, Florida, which we use for administrative purposes. This space is
          provided
          to us at a fixed gross rental rate of $575 per month by our President.
          This
          lease expires in July 2006.
   10
  We
          lease
          2,900 square feet of an equipped laboratory space at 3427 SW 42 nd Way,
          Gainesville, Florida. We pay monthly lease payments of $1,215. Our lease
          expires
          in March 2006. In April 2005, we obtained additional laboratory space of
          approximately 900 square feet at the same facility for an additional monthly
          lease payment of $303.
  We
          have
          invested from inception to date approximately $14,000 for leasehold improvements
          and equipment for our laboratory. Our offices 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 2005.
 
 **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 2005**High**
                **Low**Fourth
                    Quarter
                $0.90
                $0.66Third
                    Quarter
                $0.88
                $0.51Second
                    Quarter
                $0.87
                $0.13First
                    Quarter
                $0.16
                $0.27
 
 
 Year
                    Ended 2004**High**
                **Low**Fourth
                    Quarter
                $0.30
                $0.11Third
                    Quarter
                $0.27
                $0.15Second
                    Quarter
                $0.33
                $0.15First
                    Quarter
                $0.55
                $0.25
  
 11
  **Holders**
  As
          of
          June 30, 2005, there were 49 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.
  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
          July
          24, 2003, we granted 29,000 shares of common stock to Mr. George E. Friel
          for
          his service as a member of the board of directors and member of the executive,
          audit, compensation, and research & development committees. In addition, we
          granted to Mr. Friel an option to acquire up to 82,500 shares of restricted
          common stock. These stock options were issued to Mr. Friel for his services
          as
          our Vice President, Chemical and Biological Affairs. We relied upon Section
          4(2)
          of the Securities Act for the offer and sale. We believed that Section
          4(2) of
          the Securities Act 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 shares issued to Mr. Friel stating the securities were
          not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
   12
  On
          July
          24, 2003, we issued 29,000 shares of common stock to Mr. Paul G. Cerjan
          for his
          service as a member of the board of directors, and member of the executive,
          compensation committees. In addition, we granted to Mr. Cerjan an option
          to
          acquire up to 92,000 shares of restricted common stock. These stock options
          were
          issued to Mr. Cerjan for his services as our Vice President, Worldwide
          Military
          Affairs. 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
          security certificates representing these securities 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
          July
          24, 2003, we granted 29,000 shares of common stock to Mr. Gerald M. Olderman
          for
          his service as a member of the board of directors, and member of the research
          and development committee. In addition, we granted to Mr. Olderman an option
          to
          acquire up to 149,000 shares of restricted common stock. These stock options
          were issued to Mr. Olderman as a performance bonus in his capacity as our
          Vice
          President, Research and Development and Commercialization. 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 shares issued to Mr. Olderman stating the securities were
          not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
  On
          July
          24, 2003, we issued 26,000 shares of common stock to Mr. Gregory S. Schultz
          for
          his service as a member of the board of directors. In addition, we granted
          to
          Mr. Schultz an option to acquire up to 126,000 shares of restricted common
          stock. These stock options were issued to Mr. Schultz for his services
          as our
          Vice President, Laboratory and Clinical Research. 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 security certificates representing
          the shares 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
          July
          24, 2003, we granted 26,000 shares of common stock to Mr. Peter Barton
          Hutt for
          his service as a member of the board of directors. In addition, we granted
          to
          Mr. Hutt an option to acquire up to 48,000 shares of restricted common
          stock.
          These stock options were issued to Mr. Hutt for his services as our business
          advisor and were subsequently forfeited. 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
          shares
          issued to Mr. Hut stating the securities were not registered under the
          Securities Act and are subject to restrictions on their transferability
          and
          resale. On November 5, 2003, Mr. Hutt resigned from the board.
  On
          July
          24, 2003, we granted 29,000 shares of common stock to Mr. Michael R. Granito
          for
          his services as a member of the board of directors, and member of various
          board
          committees. In addition, we granted to Mr. Granito an option to acquire
          up to
          234,000 shares of restricted common stock. These stock options were issued
          to
          Mr. Granito for his services as Chairman of the Board. 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
          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
          July
          24, 2003, we granted 29,000 shares of common stock to Mr. David S. Lerner
          for
          his service as a member of the board of directors, and member of the executive
          committee. In addition, we granted to Mr. Lerner an option entitling him
          to
          acquire up to 113,000 shares of restricted common stock. These stock options
          were issued to Mr. Lerner as a performance bonus in his capacity as our
          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 shares issued to Mr. Lerner stating the securities
          were not registered under the Securities Act and are subject to restrictions
          on
          their transferability and resale.
  13
 On
          July
          24, 2003, we granted 26,000 shares of common stock to Mr. Michael Karsch
          for his
          service as a member of the board of directors. In addition, we granted
          to Mr.
          Karsch an option to acquire up to 82,000 shares of restricted common stock.
          These stock options were issued to Mr. Karsch for his services as our then
          general counsel and were subsequently forfeited. 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 security certificates representing
          these securities issued to Mr. Karsch stating the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale. On September 30, Mr. Karsch resigned from the
          board.
  On
          July
          24, 2003, we issued 35,000 shares of our common stock to Mr. Steven Gulyas
          in
          payment for consulting services rendered to us by Mr. Gulyas. The shares
          issued
          to Mr. Gulyas were valued at a price of $0.55 per share, or an aggregate
          price
          of $19,250. 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 no general solicitation or
          general
          advertising involved in the offer or sale. We placed restrictive legends
          on the
          stock certificates representing the shares issued to Mr. Gulyas stating
          that the
          securities were not registered under the Securities Act and were subject
          to
          restrictions on their transferability and sale.
  On
          September 12, 2003, we sold 1,000,000 shares of our common stock to Mr.
          Michael
          R. Granito, our Chairman of the Board, for a price of $0.25 per share or
          in
          aggregate of $250,000 in cash.  We relied upon Section 4(2) of the
          Securities Act of 1933, as amended ("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 no general solicitation or general
          advertising involved in the offer or sale. We placed restrictive legends
          on the
          stock certificates representing the shares issued to Mr. Granito stating
          that
          the securities were not registered under the Securities Act and were subject
          to
          restrictions on their transferability and resale.
  On
          September 25, 2003, we issued 50,000 shares of our common stock to Investors
          Relations Group, Inc. in exchange for approximately $27,000, which we owed
          to
          Investors Relations Group, Inc. for services rendered. The shares issued
          to
          Investor Relations Group, Inc. were valued at a price of $0.54 per share,
          or an
          aggregate price of approximately $27,000.  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 no general solicitation or general advertising involved in the offer
          or
          sale. We placed restrictive legends on the stock certificates representing
          the
          shares issued to Investor Relations Group Inc. stating that the securities
          were
          not registered under the Securities Act and were subject to restrictions
          on
          their transferability and resale.
  On
          September 24, 2003, we issued 44,422 shares of our common stock to Ms.
          Dorothy
          Lerner, a shareholder and our President's mother, in return for $11,105,
          including principal and interest, which we owed to Ms. Lerner for monies
          that we
          had borrowed from Ms. Lerner.  The shares issued to Ms. Lerner were
          valued
          at a price of $0.25 per share, or an aggregate price of $11,105. 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 no general solicitation or general advertising involved
          in the offer or sale. We placed restrictive legends on the stock certificates
          representing the shares issued to Ms. Lerner stating that the securities
          were
          not registered under the Securities Act and were subject to restrictions
          on
          their transferability and resale.
   14
 On
          October 10, 2003, we granted 57,501 shares of common stock to Mr. Nam H.
          Nguyen
          as payment for consulting services rendered to us by Mr. Nguyen. The shares
          granted to Mr. Nguyen were valued at a price of $0.25 per share, or aggregate
          price of $14,375.25. 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 stock certificate representing the shares 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
          November 21, 2003, we sold 1,400,000 shares of our common stock to Mr.
          Michael
          R. Granito, our Chairman of the Board, for a price of $0.25 per share or
          in
          aggregate of $350,000 in cash.  We relied upon Section 4(2) of the
          Securities Act of 1933, as amended ("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 no general solicitation or general
          advertising involved in the offer or sale. We placed restrictive legends
          on the
          stock certificates representing the shares issued to Mr. Granito stating
          that
          the securities were not registered under the Securities Act and were subject
          to
          restrictions on their transferability and resale .
  On
          January 31, 2004, we granted 50,000 shares of common stock to Ms. Natasha
          A.
          Sorobey as partial payment for consulting services rendered to us by Ms.
          Sorobey
          from September 1, 2003 to January 31, 2004. The shares granted to Ms. Sorobey
          were valued at a price of $0.25 per share, or aggregate price of $12,500.
          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
          stock certificate representing the shares issued to Ms. Sorobey stating
          the
          securities were not registered under the Securities Act and are subject
          to
          restrictions on their transferability and resale.
  Effective
          April 2, 2004, we issued 200,000 shares of common stock to Ms. Natasha
          A.
          Sorobey as additional compensation payable to Ms. Sorobey under her consulting
          agreement with us. 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 stock certificate representing the shares issued
          to
          Ms. Sorobey stating the securities were not registered under the Securities
          Act
          and are subject to restrictions on their transferability and resale.
  On
          April
          2, 2004, we granted 200,000 shares of common stock to Mr. Nam H. Nguyen
          as part
          of Mr. Nguyen’s consulting agreement with us. In addition, we issued to Mr.
          Nguyen a warrant entitling him to acquire up to 300,000 shares of restricted
          common stock at an exercise price of $0.20 per share, the then current
          market
          value of our common stock, also in accordance with Mr. Nguyen’s consulting
          agreement with us. 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 security certificates representing these securities
          issued to Mr. Nam Nguyen stating the securities were not registered under
          the
          Securities Act and are subject to restrictions on their transferability
          and
          resale.
  On
          May 1,
          2004, we granted 60,000 shares of common stock to Mr. Nam H. Nguyen as
          partial
          payment for consulting services rendered to us by Mr. Nguyen from January
          1,
          2004 to April 30, 2004. The shares granted to Mr. Nguyen were valued at
          a price
          of $0.20 per share, or aggregate price of $12,000. 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 stock certificate representing
          the
          shares issued to Mr. Nguyen stating the securities were not registered
          under the
          Securities Act and are subject to restrictions on their transferability
          and
          resale.
  15
 Effective
          June 30, 2004, we granted 62,500 shares of common stock to Ms. Natasha
          A.
          Sorobey as partial payment for consulting services rendered to us by Ms.
          Sorobey
          from February 1 to June 30, 2004. The shares granted to Ms. Sorobey were
          valued
          at a price of $0.20 per share, or aggregate price of $12,500. 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 stock certificate
          representing the shares issued to Ms. Sorobey stating the securities were
          not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
  Effective
          June 30, 2004, we also granted to Ms. Sorobey a warrant entitling her to
          acquire
          up to 200,000 shares of restricted common stock at an exercise price of
          $0.18
          per share. This warrant was issued to Ms. Sorobey as part of Ms. Sorobey’s
          consulting agreement with us, with vesting provisions applicable to 133,333
          shares of common stock underlying this warrant. We relied upon both 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 warrant certificate representing
          this
          warrant issued to Ms. Sorobey stating the securities were not registered
          under
          the Securities Act and are subject to restrictions on their transferability
          and
          resale.
  On
          June
          30, 2004, we issued 30,000 shares of common stock to Mr. Nam H. Nguyen
          as
          partial payment for consulting services rendered to us by Mr. Nguyen from
          May 1
          to June 30, 2004. The shares granted to Ms. Nguyen were valued at a price
          of
          $0.20 per share, or aggregate price of $6,000. 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 stock certificate representing
          the
          shares 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
          July
          1, 2004, we granted 75,000 shares of common stock to Mr. Michael R. Granito
          for
          his services as a member of the board of directors and executive committee.
          In
          addition, we granted to Mr. Granito an option to acquire up to 25,000 shares
          of
          restricted common stock. These stock options were issued to Mr. Granito
          for his
          services as our Chairman of the Board. 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
          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
          July
          1, 2004, we issued 75,000 shares of common stock to Mr. David S. Lerner
          for his
          services as a member of the board of directors and executive committee.
          In
          addition, we granted to Mr. Lerner an option to acquire up to 175,000 shares
          of
          restricted common stock for his services as our President. These stock
          options
          were issued to Mr. Lerner 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
          shares
          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
          July
          1, 2004, we granted 87,500 shares of common stock to Mr. Paul G. Cerjan
          for his
          services as a member of the board of directors, executive committee, and
          compensation committee. In addition, we granted to Mr. Cerjan an option
          to
          acquire up to 25,000 shares of restricted common stock. These stock options
          were
          issued to Mr. Cerjan for his services as our Vice President, Worldwide
          Military
          Affairs. 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
          security certificates representing these securities issued to Mr. Cerjan
          stating
          the securities were not registered under the Securities Act and are subject
          to
          restrictions on their transferability and resale.
  16
 On
          July
          1, 2004, we issued 62,500 shares of common stock to Mr. Gerald M. Olderman
          for
          his services as a member of the board of directors. In addition, we granted
          to
          Mr. Olderman an option to acquire up to 175,000 shares of restricted common
          stock. These stock options were issued to Mr. Olderman as a performance
          bonus in
          his capacity as our Vice President, Research and Development and
          Commercialization. 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 shares issued
          to Mr.
          Olderman stating the securities were not registered under the Securities
          Act and
          are subject to restrictions on their transferability and resale.
  On
          July
          1, 2004, we granted 100,000 shares of common stock to Mr. George E. Friel
          for
          his services as a member of the board of directors, audit committee, executive
          committee, and compensation committee. In addition, we granted to Mr. Friel
          an
          option to acquire up to 5,000 shares of restricted common stock. These
          stock
          options were issued to Mr. Friel for his services as our Vice President,
          Chemical and Biological Affairs. 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 security certificates representing these securities
          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
          July
          1, 2004, we issued 62,500 shares of 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 up to 100,000 shares of restricted common
          stock. These stock options were issued to Mr. Schultz for his services
          as our
          Vice President, Laboratory and Clinical Research. 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
          shares
          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
          July
          1, 2004, we granted 18,322 shares of common stock to Mr. Richard F. Caffrey
          for
          his services as a member of the board of directors. In addition, we granted
          to
          Mr. Caffrey an option to acquire up to 10,000 shares of restricted common
          stock.
          These stock options were issued to Mr. Caffrey for assisting us in developing
          our new business plan. 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 security certificates representing these securities
          issued to Mr. Caffrey stating the securities were not registered under
          the
          Securities Act and are subject to restrictions on their transferability
          and
          resale. Mr. Caffrey became a board member on March 15, 2004.
  Effective
          July 1, 2004, we issued warrants to Mr. Kyle B.A. Scott entitling him to
          acquire
          up to 67,500 shares of restricted common stock at an exercise price of
          $0.18 per
          share, the then-current market value of our common stock. These warrants
          were
          issued to Mr. Scott in accordance with our consulting agreement with Mr.
          Scott,
          as partial payment for services rendered to us by Mr. Scott from May 15
          to June
          30, 2004, with vesting provisions applicable to 40,000 shares of common
          stock
          underlying these warrants. 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 warrant certificates representing the warrants
          issued
          to Mr. Scott stating the securities were not registered under the Securities
          Act
          and are subject to restrictions on their transferability and
          resale.
  On
          August
          4, 2004, we amended the terms of the notes issued to Mr. Michael R. Granito,
          our
          Chairman. Of the two notes then held by Mr. Granito, the convertible note
          with a
          principal amount of $1,425,200 (of a maximum $1,500,000), convertible to
          common
          stock at a conversion price of $0.38 per share, was extended to July 31,
          2005,
          while the second, non-convertible note, with a principal amount of $404,000
          (subsequently increased by a further $190,000 advance by Mr. Granito to
          $594,000), was granted identical terms to the extended convertible note,
          including the same conversion privileges. These notes were combined into
          a
          single note due July 31, 2005, currently with a principal amount outstanding
          of
          $2,019,200. The current principal amount (excluding accrued interest) of
          this
          note is convertible at the option of the holder, Mr. Granito, into a maximum
          of
          approximately 5,313,684 shares of restricted common stock based on the
          $0.38 per
          share conversion price (which is subject to certain anti-dilution protection
          provisions). We have stated in the note agreement thatthe shares of common
          stock
          into which the principal amount may be converted have not been registered
          under
          the Securities Act and are subject to restrictions on their transferability
          and
          resale.
  17
 Effective
          August 24, 2004, we granted 50,000 shares of common stock to Mr. Michael
          J.
          Pitsokos as part of his January 2, 2003 consulting agreement with us. 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 stock certificate
          representing the shares issued to Mr. Pitsokos stating the securities were
          not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
  On
          August
          31, 2004, we granted 27,047 shares of common stock to Ms. Natasha A. Sorobey
          as
          partial payment for consulting services rendered to us by Ms. Sorobey from
          July
          1 to August 31, 2004. The shares granted to Ms. Sorobey were valued at
          a price
          ranging from$0.18 to $0.19 per share, for an aggregate price of $5,000.
          We
          relied uponSection 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
          stock certificate representing the shares issued to Ms. Sorobey stating
          the
          securities were not registered under the Securities Act and are subject
          to
          restrictions on their transferability and resale.
  On
          September 3, 2004, we issued 200,000 shares of common stock to Ms. Natasha
          A.
          Sorobey in accordance with her consulting agreement with us. We relied
          upon
          Section 4(2) of the Securities Act of 1933, as amended (“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 stock certificate representing the shares issued
          to
          Ms. Sorobey stating the securities were not registered under the Securities
          Act
          and are subject to restrictions on their transferability and
          resale.
  On
          September 30, 2004, we granted 83,505 shares of common stock to Mr. Nam
          H.
          Nguyen as partial payment for services rendered to us by Mr. Nguyen from
          July 1,
          2004 to September 30, 2004. The shares granted to Mr. Nguyen were valued
          at
          prices ranging from of $0.17 to $0.19 per share, for an aggregate price
          of
          $15,000. 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
          stock certificate representing the shares 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
          September 30, 2004, we issued a warrant to Mr. Kyle B.A. Scott entitling
          him to
          acquire up to 15,000 shares of common stock at an exercise price of $0.15
          per
          share, the then-current market value of our common stock. This warrant
          was
          issued to Mr. Scott as partial payment for services rendered to us by Mr.
          Scott
          from July 1 to September 30, 2004. 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 warrant certificate representing the warrant
          issued
          to Mr. Scott stating the securities were not registered under the Securities
          Act
          and are subject to restrictions on their transferability and
          resale.
  On
          October 1, 2004, we granted 36,667 shares of common stock to Mr. Nam H.
          Nguyen
          as partial payment for services rendered to us by Mr. Nguyen for October
          2004.
          The shares granted to Mr. Nguyen were valued at price of $0.15 per share,
          for an
          aggregate price of $5,500. 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 stock certificate representing the shares issued
          to
          Mr. Nguyen stating that the securities were not registered under the Securities
          Act and are subject to restrictions on their transferability and
          resale.
 
 18
 On
          October 31, 2004, we issued a warrant to Mr. Kyle B.A. Scott entitling
          him to
          acquire up to 5,000 shares of common stock at an exercise price of $0.20
          per
          share, the then-current market value of our common stock. This warrant
          was
          issued to Mr. Scott as partial payment for services rendered to us by Mr.
          Scott
          from October 1 to October 31, 2004. 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 warrant certificate representing
          the
          warrant issued to Mr. Scott stating that the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale.
 
 Effective
          November 15, 2004, we issued warrants to Mr. Kyle B.A. Scott entitling
          him to
          acquire up to 60,000 shares of restricted common stock at an exercise price
          of
          $0.14 per share, the then-current market value of our common stock. These
          warrants were issued to Mr. Scott in accordance with our consulting agreement
          with Mr. Scott, as partial payment for services rendered to us by Mr. Scott
          from
          November 15 to May 15, 2005, with vesting provisions applicable to 22,500
          shares
          of common stock underlying these warrants. 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 warrant certificates representing
          the
          warrants issued to Mr. Scott stating that the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale.
 
 On
          December 1, 2004, we issued 66,335 shares of our common stock to Mr. Christopher
          Batich in exchange for approximately $13,267, which we owed to Mr. Batich
          for
          services rendered to us. The shares granted to Mr. Batich were valued at
          price
          of $0.20 per share, for an aggregate price of approximately $13,267. 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 stock certificate
          representing the shares issued to Mr. Batich stating that the securities
          were
          not registered under the Securities Act and are subject to restrictions
          on their
          transferability and resale.
 
 On
          November 30, 2004, we issued a warrant to Mr. Kyle B.A. Scott entitling
          him to
          acquire up to 2,500 shares of common stock at an exercise price of $0.20
          per
          share, the then-current market value of our common stock. This warrant
          was
          issued to Mr. Scott as partial payment for services rendered to us by Mr.
          Scott
          from November 15 to November 30, 2004. 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 warrant certificate representing
          the
          warrant issued to Mr. Scott stating that the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale.
 
 On
          December 31, 2004, we issued a warrant to Mr. Kyle B.A. Scott entitling
          him to
          acquire up to 7,500 shares of common stock at an exercise price of $0.75
          per
          share, the then-current market value of our common stock. This warrant
          was
          issued to Mr. Scott as partial payment for services rendered to us by Mr.
          Scott
          from December 1 to December 31, 2004. 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 warrant certificate representing
          the
          warrant issued to Mr. Scott stating that the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale.
 
 On
          January 1, 2005, we granted 200,000 shares of common stock to Mr. Nam H.
          Nguyen
          as part of Mr. Nguyen’s consulting agreement with us. 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 stock certificate representing
          the
          shares issued to Mr. Nguyen stating that the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale.
 
 19
 On
          January 31, 2005, we issued a warrant to Mr. Kyle B.A. Scott entitling
          him to
          acquire up to 7,500 shares of common stock at an exercise price of $0.70
          per
          share, the then-current market value of our common stock. This warrant
          was
          issued to Mr. Scott as partial payment for services rendered to us by Mr.
          Scott
          from January 1 to January 31, 2005. 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 warrant certificate representing
          the
          warrant issued to Mr. Scott stating that the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale.
 
 On
          February 23, 2005, we sold 50,000 shares of common stock to Mr. Richard
          Eiferman
          for a price of $0.58 per share or in aggregate of $29,000 in cash. 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 no general solicitation or general advertising involved
          in the offer or sale. We placed restrictive legends on the certificates
          representing these securities issued to Mr. Richard Eiferman stating that
          the
          securities were not registered under the Securities Act and are subject
          to
          restrictions on their transferability and resale.
 
 On
          February 23, 2005, we sold 100,000 shares of common stock to Richard Eiferman
          Trust for a price of $0.58 per share or in aggregate of $58,000 in cash.
          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 no general solicitation or general
          advertising involved in the offer or sale. We placed restrictive legends
          on the
          certificates representing these securities issued to Richard Eiferman Trust
          stating that the securities were not registered under the Securities Act
          and are
          subject to restrictions on their transferability and resale.
 
 On
          February 28, 2005, we issued 8,594 shares of our common stock to Mr. Kendall
          Clark in exchange for approximately $5,500, which we owed to Mr. Clark
          for
          services rendered to us. The shares granted to Mr. Clark were valued at
          price of
          $0.64 per share, for an aggregate price of approximately $5,500. 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 stock certificate
          representing the shares issued to Mr. Clark stating that the securities
          were not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
 
 On
          February 28, 2005, we issued a warrant to Mr. Kyle B.A. Scott entitling
          him to
          acquire up to 7,500 shares of common stock at an exercise price of $0.64
          per
          share, the then-current market value of our common stock. This warrant
          was
          issued to Mr. Scott as partial payment for services rendered to us by Mr.
          Scott
          from February 1 to February 28, 2005. 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 warrant certificate representing
          the
          warrant issued to Mr. Scott stating that the securities were not registered
          under the Securities Act and are subject to restrictions on their
          transferability and resale.
 
 Effective
          February 28, 2005, we granted to Mr. Richard Eiferman an option to acquire
          up to
          7,500 shares of restricted common stock for his services as our consultant.
          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 no general solicitation or general
          advertising involved in the offer or sale. We placed restrictive legends
          on the
          options certificate representing the stock option issued to Mr. Eiferman
          stating
          that the securities were not registered under the Securities Act and are
          subject
          to restrictions on their transferability and resale.
 
 On
          March
          31, 2005, we issued 4,054 shares of our common stock to Mr. Kendall Clark
          in
          exchange for approximately $3,000, which we owed to Mr. Clark for services
          rendered to us. The shares granted to Mr. Clark were valued at price of
          $0.74
          per share, for an aggregate price of approximately $3,000. 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 stock certificate
          representing the shares issued to Mr. Clark stating that the securities
          were not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
 
 20
  On
          March
          31, 2005, we issued a warrant to Mr. Kyle B.A. Scott entitling him to acquire
          up
          to 7,500 shares of common stock at an exercise price of $0.72 per share,
          the
          then-current market value of our common stock. This warrant was issued
          to Mr.
          Scott as partial payment for services rendered to us by Mr. Scott from
          March 1
          to March 31, 2005. 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 warrant certificate representing the warrant
          issued
          to Mr. Scott stating that the securities were not registered under the
          Securities Act and are subject to restrictions on their transferability
          and
          resale.
 
 On
          April
          30, 2005, we issued 5,380 shares of our common stock to Mr. Kendall Clark
          in
          exchange for approximately $4,250, which we owed to Mr. Clark for services
          rendered to us. The shares granted to Mr. Clark were valued at price of
          $0.79
          per share, for an aggregate price of approximately $4,250. 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 stock certificate
          representing the shares issued to Mr. Clark stating that the securities
          were not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
 
 On
          April
          30, 2005, we issued a warrant to Mr. Kyle B.A. Scott entitling him to acquire
          up
          to 7,500 shares of common stock at an exercise price of $0.79 per share,
          the
          then-current market value of our common stock. This warrant was issued
          to Mr.
          Scott as partial payment for services rendered to us by Mr. Scott from
          April 1
          to April 30, 2005. 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 warrant certificate representing the warrant
          issued
          to Mr. Scott stating that the securities were not registered under the
          Securities Act and are subject to restrictions on their transferability
          and
          resale.
 
 On
          May
          12, 2005, we issued 50,000 shares of common stock to Mr. Richard F. Caffrey
          for
          his business advisory services to us. 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 security certificates representing
          these securities 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
          May
          31, 2005, we issued 10,806 shares of our common stock to Mr. Kendall Clark
          in
          exchange for approximately $8,250, which we owed to Mr. Clark for services
          rendered to us. The shares granted to Mr. Clark were valued at price of
          $0.76
          per share, for an aggregate price of approximately $8,250. 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 stock certificate
          representing the shares issued to Mr. Clark stating that the securities
          were not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
 
 On
          May
          31, 2005, we issued a warrant to Mr. Kyle B.A. Scott entitling him to acquire
          up
          to 7,500 shares of common stock at an exercise price of $0.81 per share,
          the
          then-current market value of our common stock. This warrant was issued
          to Mr.
          Scott as partial payment for services rendered to us by Mr. Scott from
          May 1 to
          May 31, 2005. 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 warrant certificate representing the warrant issued to Mr. Scott
          stating
          that the securities were not registered under the Securities Act and are
          subject
          to restrictions on their transferability and resale.
 
 21
 On
          June
          11, 2005, we issued 20,000 shares of common stock to Mr. Roy Carr as part
          of his
          employment compensation with us. 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 security certificates representing these securities
          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
          June
          29, 2005, we issued 16,666 shares of common stock to Mr. William Toreki,
          III as
          he exercised his stock option at $0.15 per share or an aggregate price
          of
          $2,500. 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
          security certificates representing these securities 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
          June
          30, 2005, we issued 5,000 shares of our common stock to Federick & Company,
          Inc. in exchange for services rendered of approximately $4,000. The shares
          granted to Federick & Company were valued at price of $0.80 per share, for
          an aggregate price of approximately $4,000. 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 stock certificate representing
          the
          shares issued to Federick & Company stating that the securities were not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
 
 On
          June
          30, 2005, we issued a warrant to GSP Consulting, Inc. (“GSP”) entitling GSP to
          acquire up to 8,048 shares of common stock at an exercise price ranging
          from
          $0.64 to $0.81 per share, the then-current market value of our common stock.
          This warrant was issued to GSP as partial payment for services rendered
          to us by
          GSP from January to June 2005. 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 warrant certificate representing the warrant
          issued
          to GSP stating that the securities were not registered under the Securities
          Act
          and are subject to restrictions on their transferability and resale.
 
 On
          July
          19, 2005, we sold 40,322 shares of common stock to Mr. Roy Carr for a price
          of
          $0.62 per share or in aggregate of $25,000 in cash. 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 no general solicitation or general advertising involved in the offer
          or
          sale. We placed restrictive legends on the certificates representing these
          securities issued to Mr. Roy Carr stating that the securities were not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
 
 On
          August
          12, 2005, we sold 13,795 shares of common stock to Phronesis Partners,
          L.P. for
          a price of $0.62 per share or in aggregate of $8,553 in cash. 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 no general solicitation or general advertising involved
          in the offer or sale. We placed restrictive legends on the certificates
          representing these securities issued to Phronesis Partners, L.P. stating
          that
          the securities were not registered under the Securities Act and are subject
          to
          restrictions on their transferability and resale.
 
 On
          August
          24, 2005, we issued 175,000 shares of common stock to Mr. Gerald Olderman
          as he
          exercised his stock option at $0.17 per share or an aggregate price of
          $29,750.
          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
          security certificates representing these securities issued to Mr. Gerald
          Olderman stating the securities were not registered under the Securities
          Act and
          are subject to restrictions on their transferability and resale.
  22
  On
          September 9, 2005, we granted 20,000 shares of common stock to Mr. Michael
          R.
          Granito for his services as a member of the board of directors, audit and
          executive committees. In addition, we granted to Mr. Granito an option
          to
          acquire up to 100,000 shares of restricted common stock at an exercise
          price of
          $0.80 per share, the then current market value of our common stock. These
          stock
          options were issued to Mr. Granito for his services as our Chairman of
          the
          Board. 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 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
          September 9, 2005, we issued 17,500 shares of common stock to Mr. David
          S.
          Lerner for his services as a member of the board of directors and executive
          committee. In addition, we granted to Mr. Lerner an option to acquire up
          to
          150,000 shares of restricted common stock for his services as our President
          at
          an exercise price of $0.80 per share, the then current market value of
          our
          common stock. These stock options were issued to Mr. Lerner 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 shares 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
          September 9, 2005, we granted 20,000 shares of common stock to Mr. Paul
          G.
          Cerjan for his services as a member of the board of directors, executive
          committee, and compensation 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 security certificates representing
          these securities 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
          September 9, 2005, we issued 17,500 shares of 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 up to 150,000 shares of restricted common stock at an exercise
          price of
          $0.80 per share, the then current market value of our common stock. These
          stock
          options were issued to Mr. Olderman as a performance bonus in his capacity
          as
          our Vice President, Research and Development and Commercialization. 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 shares issued to Mr. Olderman stating the securities were
          not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
  On
          September 9, 2005, we granted 22,500 shares of common stock to Mr. George
          E.
          Friel for his services as a member of the board of directors, audit committee,
          executive committee, and compensation committee. 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 security certificates representing
          these securities 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
          September 9, 2005, we issued 15,000 shares of 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 up to 100,000 shares of restricted
          common stock at an exercise price of $0.80 per share, the then current
          market
          value of our common stock. These stock options were issued to Mr. Schultz
          for
          his services as our Vice President, Laboratory and Clinical Research. 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 shares issued to Mr. Schultz stating the securities were
          not
          registered under the Securities Act and are subject to restrictions on
          their
          transferability and resale.
  23
 On
          September 9, 2005, we granted 17,500 shares of common stock to Mr. Richard
          F.
          Caffrey for his services as a member of the board of directors. 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 security certificates
          representing these securities issued to Mr. Caffrey stating the securities
          were
          not registered under the Securities Act and are subject to restrictions
          on their
          transferability and resale. Mr. Caffrey became a board member on March
          15, 2004.
  On
          September 9, 2005, we granted to Mr. William Toreki, III an option to acquire
          up
          to 75,000 shares of restricted common stock at an exercise price of $0.80
          per
          share, the then current market value of our common stock. These stock options
          were issued to Mr. Toreki 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
          shares
          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
          September 9, 2005, we granted to Mr. Bernd Liesenfeld an option to acquire
          up to
          50,000 shares of restricted common stock at an exercise price of $0.80
          per
          share, the then current market value of our common stock. These stock options
          were issued to Mr. Liesenfeld 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
          shares issued to Mr. Liesenfeld stating the securities were not registered
          under
          the Securities Act and are subject to restrictions on their transferability
          and
          resale.
  On
          September 9, 2005, we granted to Ms. Susan Leander an option to acquire
          up to
          25,000 shares of restricted common stock at an exercise price of $0.80
          per
          share, the then current market value of our common stock. These stock options
          were issued to Ms. Leander 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
          shares
          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
            September 9, 2005, we granted to Mr. David Moore an option to acquire
            up to
            20,000 shares of restricted common stock at an exercise price of $0.80
            per
            share, the then current market value of our common stock. These stock
            options
            were issued to Mr. Moore 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 shares
            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
          September 9, 2005, we granted to Mr. Paul Dominguez an option to acquire
          up to
          15,000 shares of restricted common stock at an exercise price of $0.80
          per
          share, the then current market value of our common stock. These stock options
          were issued to Mr. Dominguez 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
          shares
          issued to Mr. Dominguez stating the securities were not registered under
          the
          Securities Act and are subject to restrictions on their transferability
          and
          resale.
  24
 On
          September 9, 2005, we granted to Mr. Roy Carr an option to acquire up to
          25,000
          shares of restricted common stock at an exercise price of $0.80 per share,
          the
          then current market value of our common stock. These stock options were
          issued
          to Mr. Carr 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
          shares
          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
          September 9, 2005, we granted to Ms. Natasha Sorobey a warrant to
          acquire
          up to 25,000 shares of restricted common stock at an exercise price of
          $0.80 per
          share, the then current market value of our common stock. These stock options
          were issued to Ms. Sorobey 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
          shares
          issued to Mr. Sorobey stating the securities were not registered under
          the
          Securities Act and are subject to restrictions on their transferability
          and
          resale.
  On
          September 9, 2005, we granted to Mr. Christopher Batich a warrant to acquire
          up
          to 50,000 shares of restricted common stock at an exercise price of $0.80
          per
          share, the then current market value of our common stock. These stock options
          were issued to Mr. Batich 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
          shares
          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
          September 9, 2005, we granted to Mr. Nam Nguyen an option to acquire up
          to
          150,000 shares of restricted common stock at an exercise price of $0.80
          per
          share, the then current market value of our common stock. These stock options
          were issued to Mr. Nguyen 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
          shares
          issued to Mr. Nguyen stating the securities were not registered under the
          Securities Act and are subject to restrictions on their transferability
          and
          resale.
  25
 
  **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, 2005, 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
                2,889,334
                $1.73
                1,094,000Equity
                    compensation plans not approved by security holders
                N/A
                N/A
                N/ATotal
                2,889,334
                $1.73
                1,094,000
  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 grant to 4,000,000 shares. We reserved 4,000,000 shares
          of
          our common stock for awards to be made under the 2001 Plan. The 2001 Plan
          is
          administered by a committee 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, 2005 was 1,094,000.
 
 **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 had been largely
          funded
          by our Chairman of the Board, and are currently funded by our equity financings
          in November 30 and December 31, 2004, however, there are no assurances
          that the
          equity financings will be sufficient to ensure our future financial performance;
          (-i) we have substantial debt obligations due to our Chairman of the Board,
          who
          had funded our operations, debt obligations of which are secured by our
          assets
          and revenues and which are senior obligations due by us; and (j) 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.
 
 26
 **Overview**
  We
          intend
          to further develop our core technologies as well as develop future technologies.
          We will attempt to commercialize those technologies through strategic
          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 related 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 NIMBUSTM and MultiStatTM
          technologies:
  ·
                Healthcare
                    and medical;
 ·
                Apparel;
 ·
                Cosmetic;
 ·
                Personal
                    care companies; and
 ·
                Building
                    materials industry.
 
 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 2005, we have spent approximately $370,000 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
          Grobeiny. 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.
 
 27
 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, fixed asset lives, intangible
          assets, income taxes, 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 the  shares
          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, 2005 and 2004***
 
 Revenues. During
          the year ended June 30, 2005 we had revenues of $181,723 , compared to
          $48,000
          of revenues for the year ended June 30, 2004, representing a 279% increase
          in
          our revenues. Our revenues during the year ended June 30, 2005 consisted
          of: (a)
          $138,723, which represented our proportionate share of the product sales
          by a
          cosmetic and personal care division of Engelhard Corporation (“Engelhard”), in
          connection with a master agreement we have with Engelhard Corporation for
          product development, manufacturing and distribution; (b) $28,000 which
          represented the fees related to our research agreement with Johnson &
          Johnson Wound Management, a division of ETHICON INC., a Johnson & Johnson
          company, which was completed in June 2005; and (c) $15,000 which represented
          a
          pro rata share of the fees related to the research agreement unrelated
          to our
          core technologies, which was completed in July 2005. During our fiscal
          year
          2004, from December 2003 to March 2004, we had revenues of $48,000 from
          a
          specialty chemical manufacturer, Noville, Inc.; however, in April 2004
          Noville,
          Inc. terminated its revenues arrangement with us.
 
 In
          connection with the master agreement with Engelhard Corporation, in August
          2002
          we signed a product development and distribution agreement for Ilomastat
          with
          Engelhard (the “Product Agreement”). The Product Agreement requires Engelhard to
          obtain at least one significant sales contract within one year of the effective
          distribution date, as defined, that we realize the combined annualized
          net
          profit run rate milestone of at least $1 million per annum by May 2005.
          On April
          18, 2005, we sent a notice to cure to Engelhard for the noncompliance on
          the one
          significant sales contract provision and to determine the achievability
          of the
          key profit milestones.
 
 On
          September 19, 2005, we sent a notice of material default and termination
          to
          Engelhard as it is in breach of its contractual obligations under the master
          agreement and the Product Agreement (collectively the “Agreements”). Engelhard
          failed at least two critical milestones (1) to develop at least one significant
          sales contract within one year of the effective distribution date and (2)
          to
          have us realize a combined annualized net profit of $1 million per year
          by May
          2005. In accordance with the termination procedure provided for in the
          Agreements, we will terminate the Agreements in their entirety thirty (30)
          days
          from Engelhard’s receipt of the termination notice provided that Engelhard does
          not cure its material breaches among others within that time
          period.
 
 In
          accordance with the termination provision of the Agreements, within thirty
          (30)
          days Engelhard must deliver to us any and all materials containing our
          trade
          secrets or confidential information, and must cease and desist from using
          our
          trade secrets or confidential information along with any trademark or trade
          names associated with our intellectual property including without limitation
          “EquistatTM.” We are currently assessing our legal remedies and investigating our
          damages.
 
 28
  Operating
          Losses. Operating losses for the year ended June 30, 2005 decreased by 19% or $441,171
          to ($1,927,343) for the year ended June 31, 2005 from ($2,368,514) for
          the year
          ended June 30, 2004. The decrease in operating loss was primarily due to
          a
          reduction of $610,185 or 54% in non-cash stock-based compensation offset
          by a
          $230,585 or 66% increase in research and development expenses, and an increase
          of $62,601 or 8% in general and administrative expenses for those comparable
          prior periods, as described in more detail below.
 
 Non-Cash
          Stock-Based Compensation. Non-Cash
          Stock-Based Compensation decreased $610,185 or 54% to $516,072 for the
          year
          ended June 30, 2005, from $1,126,257 for the year ended June 30, 2004.
          This
          decrease in non-cash stock based compensation was attributed to several
          factors.
          First, we issued a larger number of approximately 1,200,000 stock options
          to our
          directors, employees and consultants in 2004 at an exercise price at market
          value of $0.55 per share as compared to approximately 585,000 stock options
          issued in 2005 at an exercise price of an average closing price of $0.17,
          which
          resulted in the recognition of a large compensation expense in 2004. Second,
          during both 2004 and 2005 we paid our directors for their services with
          our
          restricted common stock- ; however, the $0.55 per share issuance price
          was much
          higher in 2004 as compared to the $0.17 per share issuance price for those
          in
          2005 . Third, we took a charge of approximately $218,000 for stock options
          issued in previous fiscal years but were vested in 2004. We did not have
          a
          similar stock option charge in 2005. Fourth, we also took a charge of $90,000
          in
          stock-based compensation in 2004 as a result our issuing 1,000,000 shares
          of our
          common stock to our Chairman of the Board for $250,000 in cash at a discount
          price of $0.25 per share from the closing trading price of $0.34 per share
          on
          that day. Later, we also issued 1,400,000 shares of stock to our Chairman
          of the
          Board for $350,000 in cash at a premium price of $0.25 per share as compared
          to
          the closing trading price of $0.16 per share on that day. However, no gain
          was
          reported for this transaction. Finally, this decrease was offset by the
          issuance
          of restricted common stock as payment for services rendered during the
          year
          ended June 30, 2005.
  Research
          and Development Expense. Research
          and development expense increased by $230,585 or 66% to $867,013 for the
          year
          ended June 30, 2005, from $348,449 for the year ended June 30, 2004, as
          a result
          of increased research projects, additional hiring of scientists and increased
          usage of scientific consulting services, especially in the period from
          January
          to June 2005.
 
 General
          and Administrative Expense .
          General
          and administrative expense increased by $62,601 or 8% to $867,013 for the
          year
          ended June 30, 2005, from $804,412 for the year ended June 30, 2004. This
          increase in our general and administrative expenses is primarily attributed
          to
          significant corporate legal fees related to our equity financings, our
          corporate
          governance expenses, our patent maintenance fees, additional consulting
          expenses
          incurred in 2005, and promotional and sales expenses related to product
          sales
          under the master agreement for product development, manufacturing and
          distribution as mentioned above.
 
 Other
          Income. During
          the year ended June 30, 2005, we had $17,478 in other income, which represented
          a gain from a debt settlement of the legal fees we owed to a law firm.
          This law
          firm entered into a bankruptcy proceeding. We reached a settlement agreement
          with the trustee for the estate of the law firm at the amount less than
          the
          carrying liability. There was no such gain in 2004.
 
 Interest
          Income.   During
          the year ended June 30, 2005, we had $9,709 in interest income , which
          represented interest earned on our certificate of deposits and money market
          account funded by the equity financings during the period. There was no
          interest
          income in the comparable period in prior year.
 
 Interest
          Expense. Interest
          expense for the year ended June 30, 2005 increased $7,829 or 8% to $100,871,
          compared to $93,042 for the year ended June 30, 2004. This increase was
          due to
          the larger average outstanding loan balance of approximately $1,900,000
          due to
          our Chairman and President during the year ended June 30, 2005, compared
          to an
          approximate $1,500,000 average loan outstanding during the year ended June
          30,
          2004.
 
 29
  Net
          Loss. Net loss
          for the year ended June 30, 2005 was ($1,927,343) or ($0.08) per share
          compared
          to ($2,368,514) or ($0.14) per share for the year ended June 30, 2004.
          This
          decrease is primarily attributable to a reduction in non-cash stock-based
          compensation, offset by an increase in research and development expenses
          and an
          increase in general and administrative expense.
  **Liquidity
          and Capital Resources**
  Our
          auditors have issued a going concern opinion on our audited financial statements
          for the fiscal years ended June 30, 2005 and 2004 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, 2005 was $844,309, as compared with $1,215,659
          at March
          31, 2005, $1,673,781 December 31, 2004, $20,645 at September 30, 2004 and
          $19,805 at June 30, 2004.
  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, Phronesis and we
          completed a Warrant Agreement, 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 expires on February 5,
          2005 and
          provides 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 to Mr.
          Grantio
          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
          February 2005, we issued 150,000 shares of restricted common stock for
          an
          aggregate purchase price of $87,000 in cash.
  In
          June
          2005, we issued 16,666 shares of restricted common stock for an aggregate
          exercise price of $2,500 in cash from the exercise of an employee stock
          option.
  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.
  Based
          on
          our cash position at June 30, 2005, 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 $149,000 per month
          or an
          aggregate of approximately $1,788,000 over the next twelve (12) months,
          in the
          following areas:
  30
 ·
                Research
                    and development expenditures of approximately $75,000 per month
                    or an
                    aggregate $900,000 over the next twelve (12) months, which will
                    consist of
                    the following estimated monthly expenditures: (a) $45,000 in
                    payroll for
                    scientists; (b) $15,000 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 $54,000 per month or an aggregate $648,000
                    over
                    the next twelve (12) months, including officer and director insurance,
                    general liability insurance, rent, consulting fees, utilities,
                    legal and
                    accounting fees, and payroll.
  Our
          current cash balance of $844,309 as of June 30, 2005 will satisfy our cash
          requirements for about five and a half (5.5) months.
 If
          necessary, we intend to raise additional cash by means of equity and or
          debt
          financing. Additionally, we plan to implement a cash conservation strategy
          by
          paying with our shares and reducing the usage of consulting services. There
          are
          no assurances that equity and/or debt financing or our cash conservation
          strategy will be successful or sufficient to meet our cash requirements.
          l.
  As
          of
          June 30, 2005, we have notes outstanding to our Chairman of the Board totaling
          $1,268,625. During the year ended June 30, 2005, the short-term note with
          our
          Chairman of the Board was consolidated with the long-term convertible note
          under
          the same terms. The maturity date was extended to July 1, 2006 from July
          1,
          2004. On November 30 and December 31, 2004, a total of $1,326,087 of the
          long-term convertible note was converted into 3,489,703 shares of our restricted
          common stock. Our President’s note payable is a short-term note with no specific
          repayment terms. During the year ended June 30, 2005, we repaid in full
          our
          President’s note payable.
  If
          we are
          unable to successfully repay or restructure our loan to our Chairman of
          the
          Board, 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.
  If
          we
          have any liabilities that we are unable to satisfy and we qualify for protection
          under the U.S. Bankruptcy Code, we may voluntarily file for reorganization
          under
          Chapter 11 or liquidation under Chapter 7. Our creditors may also file
          a Chapter
          7 or Chapter 11 bankruptcy action against us. If our creditors or we file
          for
          Chapter 7 or Chapter 11 bankruptcy, our creditors will take priority over
          our
          stockholders. If we fail to file for bankruptcy under Chapter 7 or Chapter
          11
          and we have creditors; such creditors may institute proceedings against
          us
          seeking forfeiture of our assets, if any.
  31
  We
          do not
          know and cannot determine which, if any, of these actions we will be forced
          to
          take. If any of these foregoing events occur, you could lose your entire
          investment in our shares.
  At
          June
          30, 2005, we had a working capital of $742,389, primarily due to: (a) an
          accrued
          interest on the stockholder loan totaling $37,746, and (b) accounts payable
          of
          $113,282. At
          June
          30, 2005, we had a stockholders’ deficit of $352,209 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
          by operating activities was $1,426,485 for the year ended June 30, 2005.
          Net
          cash used by investing activities was $19,302. Net cash provided by financing
          activities was $2,270,291, of which $1,897,000 was from the sale of our
          restricted common stocks; stockholder loans of $460,417 net of repayments
          of
          $84,256.
  To
          date,
          we have funded our activities principally from the issuance of shares of
          restricted common stock to; (a) an institutional investor for net proceeds
          of
          $1,810,000 and accredited investors for net proceeds of $87,000; (b) our
          Chairman of the Board totaling $850,000; (c) from stockholder loans totaling
          $2,673,105, including related accrued interest, and (d) a $650,000 bridge
          loan
          from a merchant banking firm. All of these funds have been loaned with
          6%
          interest per annum. The loan from the investment-banking firm was converted
          in
          November 2002 into restricted common stock at $1.00 per share.
  During
          the year ended June 30, 2005, we borrowed a total of approximately $460,417
          through: (a) $450,000 from our Chairman under the long-term note as described
          above, and (b) $10,417 from our President, which was subsequently paid
          in full
          in 2005.
  In
          September 2003, the stockholder loan payable of $9,300 plus accrued interest
          was
          converted into restricted common stock at the conversion rate of $0.25
          per
          share.
  In
          September 2003, approximately $27,000 of accounts payable was paid through
          the
          issuance of 50,000 shares of restricted common stock.
  In
          December 2004, approximately $13,267 of accounts payable was paid through
          the
          issuance of 66,335 shares of restricted common stock.
 
 **Contractual
          Obligations And Commercial Commitments**
  The
          following table summarizes our contractual obligations and commercial
          commitments as of June 30, 2006:
 
 Significant
                    Obligations
                
                
                Total
                
                
                Within
                    1 Year
                
                
                2-3
                    Years
                
                
                4-5
                    Years
                
                
                After
                    5 YearsCapital
                    Leases
                
                $
                -Operating
                    Leases
                
                $
                13,662
                
                $
                13,662
                
                $
                -
                
                $
                -
                
                $
                -
 
 We
          are
          committed under lease for our Gainesville, Florida office and laboratory
          facilities. This lease expires in March 2006. We do not have any capital
          leases.
 
 **Recent
          Pronouncements**
  In
            December 2004, the Financial Accounting Standards Board (“FASB”) issued
            Statement of Financial Accounting Standard (“SFAS”) No. 123 (Revised 2004),
            entitled “Share-Based Payment.” This statement eliminates the alternative to use
            the intrinsic value method of accounting for stock options issued to
            employees.
            This statement requires entities to recognize the cost of employee services
            received in exchange for awards of equity instruments based on  the
            grant
            date fairvalue of those awards .
            This
            statement applies to all wards granted, modified, repurchased or cancelled
            as of
            the beginning of the interim or annual reporting period that begins after
            June
            15, 2005. The Company will apply the Statement beginning its fiscal year
            on July
            1, 2005. In addition, compensation cost will be recognized on or after
            the
            effective date for the portion of outstanding awards for which the requisite
            service has not been rendered, based on the grant-date fair value of
            those
            awards calculated under SFAS No. 123 for pro forma disclosures. This
            statement
            also requires additional disclosures in the notes to the financial statements.
            We are currently evaluating the impact of adopting this statement. All
            of the
            employee stock options were vested as of June 30, 2005. However, we expect
            that
            this statement will have an impact on our balance sheet and statement
            of
            operations. The impact of this statement on our financial position, results
            of
            operations, or cash flows will be dependent on the size of the awards
            of equity
            instruments to our employees, the option-pricing model used to compute
            fair
            value and the inputs to that model such as volatility and expected
            life.
 32
   **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 for the year ended June 30, 2005 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*
  Based
          on
          our management’s evaluation, with the participation of our principal executive
          officer and Chief Financial Officer, of the our disclosure controls and
          procedures (as defined in Rule 13a-15(e) under the Securities Exchange
          Act of
          1934 (the "Exchange Act")), our principal executive officer and our Chief
          Financial Officer have concluded that as of June 30, 2005, 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, 2005, there was no change in the
          our
          internal controls over financial reporting that has materially affected,
          or is
          reasonably likely to materially affect, our internal control over financial
          reporting.
  **ITEM
                    8B.**
                **Other
                  Information**
 
  None.
  
 33
 **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**
                **Position**Michael
                    R. Granito(1)
                53
                Chairman
                    of the BoardDavid
                    S. Lerner(1)
                52
                Founder,
                    President, and DirectorGeorge
                    E. Friel(1)
                63
                Vice
                    President, Chemical & Biological Affairs, and
                    DirectorPaul
                    G. Cerjan(1)
                67
                Vice
                    President, Worldwide Military Affairs, and DirectorGerald
                    M. Olderman(1)
                72
                Vice
                    President, Research & Development and Commercialization, and
                    DirectorGregory
                    S. Schultz(1)
                55
                Vice
                    President, Laboratory & Clinical Research, and
                    DirectorRichard
                    F. Caffrey(1)
                63
                DirectorNam
                    H. Nguyen
                48
                Chief
                    Financial OfficerNatasha
                    A. Sorobey
                36
                Corporate
                    Secretary, and Corporate & Investor
                    Relations
 
 NOTE:
          (1)
          Directors with term to expire on the next annual meeting or until his successor
          has been duly elected and qualified.
 
 **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.
          Lerner** has
          served as our President and Director since December 1997 and has been engaged
          in
          the formation and development of our Company since 1995. Mr. Lerner has
          20 years
          experience in international and domestic manufacturing, marketing, sales,
          and
          business development in Asia, Europe, South America, and Mexico. He has
          successfully managed export financing activities, including letter of credit
          and
          manufacturing arrangements. Mr. Lerner earned his B.A. in 1976 from Queens
          College of the City University of New York.
  **Major
          General Friel (Ret.)** has
          served as our Vice-President, Chemical and Biological Affairs since July
          2000,
          and has been self-employed as a consultant to various organizations in
          the
          defense industry since September 1998. As our Vice President, Chemical
          and
          Biological Affairs, Mr. Friel is responsible for the development of business
          opportunities pertaining to our core technologies within the chemical and
          bio-chemical sector. Mr. Friel served in the U.S. Army from 1967 to 1998,
          rising
          to the rank of Major General. Mr. Friel was the commanding general of the
          U.S.
          Army Chemical and Biological Defense Command, at the Aberdeen Proving Ground
          in
          Maryland, deputy chief of staff for Chemical and Biological Matters of
          the Army
          Material Command in Virginia, and was responsible for a $1 billion contract
          for
          protective military clothing. Mr. Friel was also responsible for a $600
          million
          budget for the Nuclear, Biological, and Chemical Defense Command for six
          years
          and directed over 1,100 scientists and engineers. Mr. 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. Mr. Friel earned an M.B.A.
          from
          Northwest Missouri State University and a B.S. from the University of
          Nebraska-Lincoln. He is a graduate with basic and advanced courses from
          the U.S.
          Army Chemical School in Alabama, and is also a director of Engineer Support
          Systems, Inc.
  34
 **Lieutenant
          General Cerjan**  **(Ret.)** has
          served as our
          Vice-President, Worldwide Military Affairs and Director since
          July 2000. As our Vice President, Worldwide Military Affairs, Mr. Cerjan
          is
          responsible in the developing of business opportunities of our core technologies
          within the military arena. Mr. Cerjan recently joined KBR, a subsidiary
          of
          Halliburton Company as Vice President, Program Manager. From July 2002
          until
          June 2004, Mr. Cerjan was the President and CEO of the National Defense
          University Foundation. From December 1997 to September 2000, Mr.
          Cerjan was
          President of Regent University in Virginia. Prior to his Presidency at
          Regent
          University, Mr. Cerjan served as Director of Tactical Systems for Lockheed
          Martin Corporation from August 1994 to October 1997. He was in the U.S.
          Army
          from 1960 to 1994,rising to the rank of Lieutenant General. While in the
          U.S.
          Army, Mr. Cerjan served as project manager for the design and construction
          a
          military base at Fort Drum, New York, valued at $1.3 billion.  While
          the
          Deputy Commanding General of the US Army in Europe, he managed 22
          separate
          organizations with 70,000 people, supervised all aspects of community life
          in
          Europe for 300,000 army personnel. Mr. Cerjan has an M.S. degree in Construction
          Management from Oklahoma State University, and a B.S in Engineering from
          the
          United States Military Academy at West Point, New York. He is a registered
          professional engineer in the state of Virginia. Mr. Cerjan is a member
          of the
          board of directors of the Army Engineer Association, the National Defense
          University Foundation, and Chairman of the Board of the National Defense
          University Foundation.
  **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 has been a 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 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 .
  35
 **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 since 1998.
  **Ms.
          Sorobey** joined
          us in September 2003 to assist with Corporate and Investor Relations. In
          August
          2004, Ms. Sorobey was appointed as Corporate Secretary. Ms. Sorobey’s
          responsibilities include corporate governance and investor relations. From
          September 1996 to April 2001, Ms. Sorobey was Corporate Secretary and investor
          relations representative for Centrinity Inc., a leading provider of Unified
          Communications and collaborative software solutions.
  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.
 
 
 **Family
          Relationships**
  None.
 
 **Legal
          Proceedings**
  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.
  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.
 
 36
  **Committees
          of the Board of Directors**
  *Executive
          Committee* .
          Our
          Executive Committee is composed of Michael R. Granito, our Chairman of
          the
          Board, David S. Lerner, our President, and Directors Paul G. Cerjan and
          George
          E. Friel. This committee’s chairman is Paul G. Cerjan. 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, Gerald M. Olderman,
          and
          Paul G. Cerjan and 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 or principal executive officer’s
          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.
 
 **Audit
          Committee Financial Expert**
  Currently,
          we do not have an Audit Committee “financial expert”.
 
 **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
          Unites 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 the Company is 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,
          2005.
 
  37
  **ITEM
                      10.**
                  **EXECUTIVE
                      COMPENSATION**
 
 David
            S.
            Lerner currently receives an annual salary of $125,000 per year. 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**
 
 Annual
                    Compensation
                Long
                    Term Compensation**Name / Title**
                **Year**
                **Salary**
                **Restricted**
                  **Stock**
                  **Awards**
                  ($)
                **Securities**
                  **Underlying**
                  **Options/SARs**
                  (#)David
                    S. Lerner, President
                2005
                $
                    138,064(1)
                $14,000
                175,0002004
                $ 136,197(1)
                $15,950
                113,0002003
                $ 140,314(1)
                --
                -
                    -
 
 NOTES:
          (1) Includes $0, $3,469, and $4,043 for health insurance and $13,064, $7,728,
          and $11,251
 for reimbursements of automobile expenses in 2005, 2004 and 2003,
          respectively.
 
 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. 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.
 
 **Compensation
          of Directors**
  We
          do not
          pay any cash compensation to our directors. As described below we have
          compensated them with restricted common stock and stock options.
 During
          the period ended June 30, 2005, the following restricted common stock and
          stock
          options were granted to directors:
  On
          July
          1, 2004, we granted 75,000 shares of common stock to Michael R. Granito
          for his
          services as a member of the board of directors, and member of various board
          committees. In addition, we granted to Mr. Granito an option to acquire
          up to
          25,000 shares of restricted common stock. These stock options were issued
          to Mr.
          Granito for his services as Chairman of the Board.
  On
          July
          1, 2004, we granted 75,000 shares of common stock to David S. Lerner for
          his
          service as a member of the board of directors, and member of the executive
          committee. In addition, we granted to Mr. Lerner an option entitling him
          to
          acquire up to 175,000 shares of restricted common stock. These stock options
          were issued to Mr. Lerner as a performance bonus in his capacity as our
          President.
  38
 On
          July
          1, 2004, we granted 100,000 shares of common stock to George E. Friel for
          his
          service as a member of the board of directors and member of the executive,
          audit, compensation, and research & development committees. In addition, we
          granted to Mr. Friel an option to acquire up to 5,000 shares of restricted
          common stock. These stock options were issued to Mr. Friel for his services
          as
          our Vice President, Chemical and Biological Affairs.
  On
          July
          1, 2004, we issued 87,500 shares of common stock to Paul G. Cerjan for
          his
          service as a member of the board of directors, and member of the executive,
          compensation committees. In addition, we granted to Mr. Cerjan an option
          to
          acquire up to 25,000 shares of restricted common stock. These stock options
          were
          issued to Mr. Cerjan for his services as our Vice President, Worldwide
          Military
          Affairs.
  On
          July
          1, 2004, we granted 62,500 shares of common stock to Gerald M. Olderman
          for his
          service as a member of the board of directors, and member of the research
&
          development committee. In addition, we granted to Mr. Olderman an option
          to
          acquire up to 175,000 shares of restricted common stock. These stock options
          were issued to Mr. Olderman as a performance bonus in his capacity as our
          Vice
          President, Research and Development and Commercialization.
  On
          July
          1, 2004, we issued 62,500 shares of common stock to Gregory S. Schultz
          for his
          service as a member of the board of directors. In addition, we granted
          to Mr.
          Schultz an option to acquire up to 100,000 shares of restricted common
          stock.
          These stock options were issued to Mr. Schultz for his services as our
          Vice
          President, Laboratory and Clinical Research.
  On
          July
          1, 2004, we granted 18,322 shares of common stock to Richard Caffrey for
          his
          service as a member of the board of directors. In addition, we granted
          to Mr.
          Caffrey an option to acquire up to 10,000 shares of restricted common stock.
          These stock options were issued to Mr. Hutt for his services as our business
          advisor.
  The
          exercise price of all stock options granted to directors as set forth above
          was
          $0.17 per share, which was the closing trading price of our common stock
          at the
          date of grant.
 
 **Option/SAR
          Grants in Last Fiscal Year**
 
 Name
                Number
                    of Securities
                  Underlying
                    Options/SARs
                  Granted
                    (#)
                Percent
                    of
                  Total
                    Options/
                  SARs
                    Granted to
                  Employees
                    in Fiscal Year
                Exercise
                    or Base
                  Price
                    ($/Share)
                Expiration
                    DateDavid
                    Lerner
                175,000
                30.0%
                $0.17
                    per share
                July 1, 2009
 
 **Aggregated
          Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR
          Values**
 
 Name
                Shares
                  Acquired
                    on
                  Exercise
                    (#)
                Value
                  Realized
                  ($)
                Number
                    of Securities Underlying
                  Unexercised
                    Options/SARs at Fiscal Year-End (#)
                  Exercisable
                    / Unexercisable
                Value
                    of Unexercised
                  In-The-Money
                    Options/SARs
                  at
                    Fiscal Year-End ($)
                  Exercisable
                    / UnexercisableDavid
                    Lerner
                0
                0
                663,000
                    /0
                $124,100
                    / $0
 
 
 39
  **Employment
          Contracts and Termination of Employment and Change in Control
          Arrangements**
  We
          continue our current consulting arrangement with Gerald Olderman, PhD.,
          to serve
          as our Vice President of Research and Development and Commercialization.
          Mr.
          Olderman has served this capacity since July 2000. Effective July 1 st ,
          2005,
          his compensation increased to $10,000 a month while we are negotiating
          with Mr.
          Olderman on his compensation agreement.
  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 is 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.
  In
          September 2003, we entered into a consulting agreement with Natasha A.
          Sorobey
          to provide investor relations services, In August 2004, Ms. Sorobey assumed
          the
          position of Corporate Secretary, while continuing her corporate and investor
          relations responsibilities. Her contract provides her with base compensation
          of
          $60,000 per annum. In addition, she has also received 400,000 shares of
          common
          stock plus warrants to acquire 200,000 shares of common stock at $0.18
          per share
          in accordance with a vesting schedule.
 
 
 **ITEM
                    11.**
                **SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
 
 The
          following table sets forth, as of September 26, 2005, 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 30,089,637
          shares issued and outstanding as of September 26, 2005.
 
 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.
 
 
 40
 **Name
                      and Address of Beneficial Owner**(A)
                  **Shares
                      Beneficially Owned****Number**
                  **Percent**
  Michael
                      R. Granito, Chairman and Director
                  10,281,536
                  (1)
                  31.5%Phronesis
                    Partners,
                    L.P.
                  7,187,708
                  (2)
                  22.0%David
                      S. Lerner, President and Director
                  4,538,589
                  (3)
                  13.9%Paul
                      G. Cerjan, Director and Vice President
                  968,500
                  (4)
                  3.0%George
                      E. Friel, Director and Vice President
                  744,000
                  (5)
                  2.3%Gerald
                      M. Olderman, Director and Vice President
                  988,000
                  (6)
                  3.0%Gregory
                      S. Schultz, Director and Vice President
                  1,137,833
                  (7)
                  3.5%Richard
                      F. Caffrey, Director
                  106,322
                  (8)
                  0.3%Natasha
                      A. Sorobey, Corporate Secretary
                  732,833
                  (9)
                  2.2%Nam
                      H. Nguyen, Chief Financial Officer
                  922,418
                  (10)
                  2.8%All
                    Quick-Med Directors and Officers as a Group (9
                    persons)
                  20,408,032
                  
                  62.4%
   NOTES:
                (A)
                The address for each of the above
                  is c/o
                  Quick-Med Technologies, Inc., 3427 SW 42ndWay, Gainesville, Florida 32608.(1)
                Includes
                    492,333 shares issuable upon the exercise of options exercisable
                    within 60
                    days.
                  Does
                    not include convertible debt.(2)
                Phronesis
                    Partners, L. P., Delaware Limited Partnership, is a hedge fund
                    and has
                    sole voting and sole dispositive power over 7,187,708 shares.
                    The address
                    for Phronesis Partners, L.P. is 180 East Broad Street, Suite
                    1704,
                    Columbus, OH 43215.(3)
                Includes
                    463,000 shares issuable upon the exercise of options exercisable
                    within 60
                    days.(4)
                Includes
                    157,000 shares issuable upon the exercise of options exercisable
                    within 60
                    days.(5)
                Includes
                    187,500 shares issuable upon the exercise of options exercisable
                    within 60
                    days.(6)
                Includes
                    399,000 shares issuable upon the exercise of options exercisable
                    within 60
                    days.(7)
                Includes
                    359,333 shares issuable upon the exercise of options exercisable
                    within 60
                    days.(8)
                Includes
                    10,000 shares issuable upon the exercise of options exercisablewithin
                    60 days.(9)
                Includes
                    208,333 shares issuable upon the exercise of warrants exercisable
                    within
                    60 days.(10)
                Includes
                    325,000 shares issuable upon the exercise of warrants exercisable
                    within
                    60 days.
  
 
 **ITEM
                    12.**
                **CERTAIN
                    RELATIONSHIPS AND RELATED
                    TRANSACTIONS**
 
 In
          September 2003, we converted a note payable to a relative of our President
          with
          an outstanding balance of $9,300 plus accrued interest into restricted
          common
          stock at a conversion rate of $0.25 per share.
  In
          September 2003, we sold 1,000,000 shares of restricted common stock to
          our
          Chairman for $250,000 in cash, $0.25 per share.
  In
          November 2003, we sold 1,400,000 shares of restricted common stock to our
          Chairman for $350,000 in cash, $0.25 per share.
  For
          the
          fiscal years ended June 30, 2005 and 2004, the Company received $450,000
          and
          $775,000 respectively, from our Company’s Chairman. The funding received from
          our Chairman in 2004 was part of the convertible note payable as described
          below. In 2003, our Chairman funded the Company by purchasing our restricted
          common stocks for $600,000 and loaning us $175,000 in a short term note,
          of
          which $50,000 was repaid by us to our Chairman. In addition, our Chairman
          paid
          $125,000 in cash for a joint development project on behalf of the Company,
          and
          it was accounted for as a short term note at the interest rate of 6% per
          annum.
          The short term notes were subsequently consolidated into a long term convertible
          note as described below.
  41
  In
          September 2003, we negotiated a successor agreement with our Chairman regarding
          the line of credit, which expired July 1, 2003 totaling $1,300,200, excluding
          interest. The line of credit of $750,000 and the short term borrowing of
          $550,200 are consolidated into 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
          maturity date of the note was extended until July 1, 2006 by our Chairman.
          The
          convertible note is secured by the assets and revenues of the Company and
          is
          senior to all other debt obligations. The note plus accrued interest will
          be
          convertible, in full or in part, at the option of the lender for a term
          of up to
          5 years beginning at September 1, 2003 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. This convertible note agreement is made contingent upon the
          agreement
          of the lender to provide additional funding to the Company by purchasing
          restricted common stock at prices to be agreed to by the Company or other
          means.
          In August 2004, the Board of Directors granted our Chairman the right to
          consolidate the short-term debt and its related accrued interest into the
          convertible note under the same terms. Our Chairman exercised the right
          to
          consolidate all outstanding short term note and accrued interest into the
          long-term convertible note under the same terms.
  As
          part
          of our equity financing on November 30 and December 31, 2004, our Chairman
          converted $500,000 and $826,087 of the convertible note owed by us into
          1,315,790 and 2,173,913 shares of our restricted common stock on November
          30 and
          December 31, 2004, respectively, in accordance with the terms of the Stock
          Purchase Agreement. These amounts were converted at a conversion price
          applicable to the convertible debt of $0.38 per share. At June 30, 2005,
          the
          convertible note outstanding balance to our Chairman was $1,268,625 convertible
          into 3,338,487 shares of restricted common stock. At June 30, 2005, the
          Company
          accrued interest on the convertible note of approximately $37,746 at a
          rate of
          6% per annum.
  For
          the
          fiscal years ended June 30, 2005 and 2004, the Company received $10,417
          and
          $55,525 respectively, from our Company’s President, to fund operations. These
          loan amounts were accounted as short term notes with the interest rate
          of 6% per
          annum. We repaid our President $89,626 and $1,978 of our short term notes
          owed
          to him during the fiscal years ended June 30, 2005 and 2004, respectively.
  At
          June
          30, 2005 and 2004, we paid $6,900 for each year to our President for the
          sub-lease of office space. The sub-lease is for a period of one year and
          expires
          in July 2005.
  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
          our Company. 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.
 
 
 **ITEM
                    13.**
                **EXHIBITS
                    AND REPORTS ON FORM 8-K.**
 
 **(a)**  **Exhibits**
 
 Exhibit
          Number   Description
  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)
   42
 
  10.5.3
                  Consulting Agreement - William Toreki
                    (1)
 10.6
                Note
                    issued to Michael Granito by Quick-Med Technologies
                    (1)
 
 10.7
                Employment
                    Agreement with Gerard Bencen (1)
 
 10.8
                Research
                    and Development Agreement with The Collaborative Group, Ltd.
                    (2)
 
 10.9
                Agreement
                    Between Noville and Quick-Med Technologies, Inc.
                    (3)
  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 Rule13a-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. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Actof
                    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
 
  43
  **(b)**   **Reports
          on Form 8-K**
 
 On
          December 3, 2004, we filed a Form 8-K which reported that on November 30,
          2004,
          we completed an agreement with Phronesis Partners, L.P., in which we sold
          5,000,000 shares of our common stock to Phronesis for a per share price
          of $0.20
          or an aggregate purchase price of $1,000,000. In connection with this 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.
 
 On
          January 4, 2005, we filed a Form 8-K which reported that on December 31,
          2004,
          Phronesis and we agreed to amend the exercise price for the warrant to
          $0.46 per
          share. On the same date, Phronesis exercised its warrant to purchase 2,173,913
          shares of our common stock at a per share price of $0.46 or an aggregate
          purchase price of $1,000,000. In connection with the exercise of the warrant,
          Mr. Granito, our Chairman of the Board, immediately converted $826,087
          of his
          convertible debt owed by us to Mr. Granito 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.
 
 
 **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, 2005 and June 30, 2004 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. "Audit Related Fees" consisted of consulting regarding accounting
          issues.
 June
                    30, 2005
                
                June
                    30, 2004(I)
                
                
                Audit
                  Fees
                
                $
                31,000
                
                $
                29,000(II)
                
                
                Audit
                  Related Fees
                
                $
                0
                
                $
                0(III)
                
                
                Tax
                  Fees
                
                $
                10,000
                
                $
                10,475(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 2005 were accepted by the audit committee and approved by the full
          Board
          of Directors.
 
  44
  **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
                  28, 2005
                By:
                /s/
                  DAVID S. LERNERDavid
                  S. LernerPresident
                  and principal
                  executive officer
 
 
 In
          accordance with the Securities Exchange Act of 1934, this Amendment No.
          1 to 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/ DAVID S. LERNERDavid S. Lerner
                President
                    and Director
                September
                    28, 2005/s/ MICHAEL R. GRANITOMichael R. Granito
                Chairman
                    of the Board
                September
                    28, 2005/s/ PAUL G. CERJAN
                Vice
                    President, WorldwidePaul G. Cerjan
                Military
                    Affairs, and Director
                September 28,
                  2005/s/ GREGORY S. SCHULTZ
                Vice President, Laboratory
                  &Gregory S. Schultz
                Clinical Research, and Director
                September 28,
                  2005/s/ GEORGE E. FRIEL
                Vice President, Chemical
                  &George E. Friel
                Biological Affairs, and
                  Director
                September 28,
                  2005/s/ GERALD M. OLDERMAN
                Vice President, ResearchGerald M. Olderman
                & Development and Commercialization,
                  and Director
                September 28,
                  2005/s/ RICHARD CAFFREYRichard F. Caffrey
                Director
                September 28,
                  2005/s/ NAM H. NGUYENNam H. Nguyen
                Chief Financial Officer
                September 28,
                  2005/s/ NATASHA A. SOROBEYNatasha A. Sorobey
                Secretary
                September
                  28,2005
  45
  **TABLE
            OF CONTENTS**
 
  Independent
                        Auditor’s
                        Report..........................................................................................................................................................................................
                    1Financial
                        Statements:Balance
                        Sheets as of June 30, 2005 and
                        2004.............................................................................................................................................................
                    2Statements
                        of Operations for the years ended June 30, 2005 and
                        2004..................................................................................................................
                    3Statements
                        of Changes in Stockholders’ Deficit for the years ended June 30, 2005 and
                        2004...........................................................................
                    4Statements
                        of Cash Flows for the years ended June 30, 2005 and
                        2004.................................................................................................................
                    5-6Notes
                        to Financial
                        Statements...........................................................................................................................................................................................
                    7-19
  
 
 
 
 **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, 2005 and 2004, 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, 2005 and June 30, 2004, 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, 2005
              and 2004,
              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, FloridaSeptember
                      27, 2005
 
  **QUICK-MED
            TECHNOLOGIES, INC.**
 **BALANCE
            SHEETS**
 **AS
            OF JUNE 30, 2005 AND 2004**
 
  **2005**
                  
                  **2004**Current
                      assets:Cash
                      and cash equivalents
                  
                  $
                  844,309
                  
                  $
                  19,805Accounts
                      receivable
                  
                  
                  49,108
                  
                  
                  -Total
                      current assets
                  
                  
                  893,417
                  
                  
                  19,805Property
                      and equipment, net
                  
                  
                  10,807
                  
                  
                  2,047Other
                      assets:Prepaid
                      expenses
                  
                  
                  12,436
                  
                  
                  18,777Intangible
                      asset, net
                  
                  
                  310,784
                  
                  
                  345,759Total
                      other assets
                  
                  
                  323,220
                  
                  
                  364,536Total
                      assets
                  
                  $
                  1,227,444
                  
                  $
                  386,388Current
                      liabilities:Accounts
                      payable
                  
                  $
                  106,440
                  
                  $
                  222,886Accrued
                      expenses
                  
                  
                  6,842
                  
                  
                  6,842Accrued
                      interest on note payable - officer/director
                  
                  
                  37,746
                  
                  
                  183,361Short-term
                      note payable - officer/director
                  
                  
                  -
                  
                  
                  554,624Total
                      current liabilities
                  
                  
                  151,028
                  
                  
                  967,713License
                      payable
                  
                  
                  160,000
                  
                  
                  160,000Long-term
                      liability - note payable - officer/director
                  
                  
                  1,268,625
                  
                  
                  1,425,200Total
                      liabilities
                  
                  
                  1,579,653
                  
                  
                  2,552,913Commitments
                    and contigenciesStockholders'
                      deficit:Common
                      stock, $0.0001 par value; 100,000,000authorized
                      shares; 29,730,519 and 17,652,027shares
                      issued and outstanding at June 30, 2005and
                      2004, respectively
                  
                  
                  2,973
                  
                  
                  1,765Additional
                      paid-in capital
                  
                  
                  11,194,222
                  
                  
                  7,611,358Outstanding
                      stock options
                  
                  
                  939,537
                  
                  
                  781,950Accumulated
                      deficit
                  
                  
                  (12,488,941
                  )
                  
                  (10,561,598
                  )Total
                      stockholders' deficit
                  
                  
                  (352,209
                  )
                  
                  (2,166,525
                  )Total
                      liabilities and stockholders' deficit
                  
                  $
                  1,227,444
                  
                  $
                  386,388
 See
              accompanying notes to financial statements.
   2
 QUICK-MED
            TECHNOLOGIES, INC.
 **STATEMENTS
            OF OPERATIONS**
 **FOR
            THE YEARS ENDED JUNE 30, 2005 AND 2004**
 
 
 **2005**
                  
                  **2004**Revenues
                  
                  $
                  181,723
                  
                  $
                  48,000Expenses:Cost
                      of revenues
                  
                  
                  27,746
                  
                  
                  -General
                      and administrative expenses
                  
                  
                  867,013
                  
                  
                  804,412Research
                      and development
                  
                  
                  579,034
                  
                  
                  348,449Depreciation
                      and amortization
                  
                  
                  45,517
                  
                  
                  44,354Stock-based
                      compensation
                  
                  
                  516,072
                  
                  
                  1,126,257Total
                      expenses
                  
                  
                  2,035,382
                  
                  
                  2,323,472Loss
                      from operations
                  
                  
                  (1,853,659
                  )
                  
                  (2,275,472
                  )Other
                      income (expense):Other
                      income
                  
                  
                  17,478
                  
                  
                  -Interest
                      income
                  
                  
                  9,709
                  
                  
                  -Interest
                      expense
                  
                  
                  (100,871
                  )
                  
                  (93,042
                  )Loss
                      before income taxes
                  
                  
                  (1,927,343
                  )
                  
                  (2,368,514
                  )Provision
                      (benefit) for income taxes
                  
                  
                  -
                  
                  
                  -Net
                      loss
                  
                  $
                  (1,927,343
                  )
                  $
                  (2,368,514
                  )Net
                      loss per share (basic and diluted)
                  
                  $
                  (0.08
                  )
                  $
                  (0.14
                  )Weighted
                      average commonshares
                      outstanding
                  
                  
                  23,274,818
                  
                  
                  16,407,808
  See
              accompanying notes to financial statements.
 
 3
 **QUICK-MED
              TECHNOLOGIES, INC.**
 **STATEMENTS
              OF CHANGES IN STOCKHOLDER'S EQUITY**
 **FOR
              THE YEARS ENDED JUNE 30, 2005 AND 2004**
 
 **Additional****Common
                        Stock**
                    
                    **Paid-In**
                    
                    **Accumulated**
                    
                    **Outstanding****Shares**
                    
                    
                    **Amount**
                    
                    
                    **Capital**
                    
                    
                    **Deficit**
                    
                    
                    **Stock
                        Options**
                    
                    
                    **Total**
 Balance,
                        June 30, 2003
                    
                    
                    14,239,604
                    
                    
                    1,424
                    
                    $
                    6,332,744
                    
                    $
                    (8,193,084
                    )
                    $
                    103,968
                    
                    $
                    (1,754,948
                    )Stock
                        issuance for cash
                    
                    
                    2,400,000
                    
                    
                    240
                    
                    
                    599,760
                    
                    
                    -
                    
                    
                    -
                    
                    
                    600,000Stock
                        options granted for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    677,982
                    
                    
                    677,982Stock
                        issued in loan conversion
                    
                    
                    44,422
                    
                    
                    4
                    
                    
                    11,101
                    
                    
                    -
                    
                    
                    -
                    
                    
                    11,105Stock-based
                        compensation
                    
                    
                    -
                    
                    
                    -
                    
                    
                    176,100
                    
                    
                    -
                    
                    
                    -
                    
                    
                    176,100Stock
                        issued for services
                    
                    
                    918,001
                    
                    
                    92
                    
                    
                    272,083
                    
                    
                    -
                    
                    
                    -
                    
                    
                    272,175Stock
                        issued for payment ofliabilities
                    
                    
                    50,000
                    
                    
                    5
                    
                    
                    27,031
                    
                    
                    -
                    
                    
                    -
                    
                    
                    27,036Gain
                        on write-off of liabilities
                    
                    
                    -
                    
                    
                    -
                    
                    
                    192,539
                    
                    
                    -
                    
                    
                    -
                    
                    
                    192,539Net
                        loss, June 30, 2004
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (2,368,514
                    )
                    
                    -
                    
                    
                    (2,368,514
                    )Balance,
                        June 30, 2004
                    
                    
                    17,652,027
                    
                    
                    1,765
                    
                    $
                    7,611,358
                    
                    $
                    (10,561,598
                    )
                    $
                    781,950
                    
                    $
                    (2,166,525
                    )Stock
                        issuance for cash
                    
                    
                    7,323,913
                    
                    
                    732
                    
                    
                    1,896,268
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,897,000Stock
                        issued in loan conversion
                    
                    
                    3,489,703
                    
                    
                    349
                    
                    
                    1,325,738
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,326,087Stock
                        options granted for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    159,754
                    
                    
                    159,754Stock
                        issued for services
                    
                    
                    1,248,210
                    
                    
                    125
                    
                    
                    356,193
                    
                    
                    -
                    
                    
                    -
                    
                    
                    356,318Exercise
                        of stock options
                    
                    
                    16,666
                    
                    
                    2
                    
                    
                    4,665
                    
                    
                    -
                    
                    
                    (2,167
                    )
                    
                    2,500Net
                        loss, June 30, 2005
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (1,927,343
                    )
                    
                    -
                    
                    
                    (1,927,343
                    )Balance,
                        June 30, 2005
                    
                    
                    29,730,519
                    
                    
                    2,973
                    
                    $
                    11,194,222
                    
                    $
                    (12,488,941
                    )
                    $
                    939,537
                    
                    $
                    (352,209
                    )
  See
              accompanying notes to financial statements.
 
  
 4
  **QUICK-MED
            TECHNOLOGIES, INC.**
 STATEMENTS
            OF CASH FLOWS
 **FOR
            THE YEARS ENDED JUNE 30, 2005 AND 2004**
 
 
 **2005**
                  
                  **2004**Cash
                      flows from operating activities:Net
                      loss
                  
                  $
                  (1,927,343
                  )
                  $
                  (2,368,514
                  )Adjustments
                      to reconcile net loss to netcash
                      used by operating activities:Depreciation
                      and amortization
                  
                  
                  45,517
                  
                  
                  44,355Stock
                      granted for services
                  
                  
                  356,318
                  
                  
                  272,175Stock-based
                      compensation
                  
                  
                  159,754
                  
                  
                  854,082(Increase)
                      decrease in:Accounts
                      receivable
                  
                  
                  (49,108
                  )
                  
                  -Prepaid
                      expenses
                  
                  
                  6,341
                  
                  
                  (12,708
                  )Increase
                      (decrease) in:Accounts
                      payable
                  
                  
                  (116,446
                  )
                  
                  (191,816
                  )Accrued
                      interest
                  
                  
                  98,482
                  
                  
                  92,938Net
                      cash used by operating activities
                  
                  
                  (1,426,485
                  )
                  
                  (1,309,488
                  )Cash
                      flows from investing activities:Purchase
                      of fixed assets
                  
                  
                  (11,755
                  )
                  
                  -Patents
                  
                  
                  (7,547
                  )
                  
                  (24,790
                  )Net
                      cash used by investing activities
                  
                  
                  (19,302
                  )
                  
                  (24,790
                  )Cash
                      flows from financing activities:Issuance
                      of common stock for cash, net
                  
                  
                  1,897,000
                  
                  
                  600,000Issuance
                      of common stock for payment of a liability
                  
                  
                  -
                  
                  
                  27,036Proceeds
                      from stock option exercise
                  
                  
                  2,500
                  
                  
                  -Increase
                      in short-term notes payable - officer/director
                  
                  
                  10,417
                  
                  
                  -Repayments
                      of short-term notes payable - officer/director
                  
                  
                  (89,626
                  )
                  
                  (51,978
                  )Increase
                      in notes payable - officer/director
                  
                  
                  450,000
                  
                  
                  731,602Net
                      cash provided by financing activities
                  
                  
                  2,270,291
                  
                  
                  1,306,660Net
                      increase (decrease) in cash and cash equivalents
                  
                  
                  824,504
                  
                  
                  (27,618
                  )Cash
                      and cash equivalents at beginning of period
                  
                  
                  19,805
                  
                  
                  47,423Cash
                      and cash equivalents at end of period
                  
                  $
                  844,309
                  
                  $
                  19,805
  See
              accompanying notes to financial statements.
 
 5
  **QUICK-MED
            TECHNOLOGIES, INC.**
 STATEMENTS
            OF CASH FLOWS (CONTINUED)
 **FOR
            THE YEARS ENDED JUNE 30, 2005 AND 2004**
 
  **2005**
                  
                  **2004**
 **Supplementary
                    Information**
 Cash
                      paid for:Interest
                  
                  
                  
                  
                  
                  
                  
                  $
                  5,370
                  
                  $
                  -Income
                      taxes
                  
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  $
                  -Non-cash
                      disclosures of investing andfinancing
                      activities:Liabilities
                      estimate correction
                  
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  $
                  192,539Stock
                      options granted to consultant
                  
                  
                  
                  
                  
                  
                  
                  $
                  159,754
                  
                  $
                  85,492Conversion
                      of debt to equity
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,325,738
                  
                  $
                  11,105Issuance
                      of common stock for payment of a liability
                  
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  $
                  27,036
  See
            accompanying notes to financial statements.
 
 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
            consumer,
            healthcare, and industrial 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 Microbicidal Utility Substrate (NIMBUSTM), 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 is being developed in a cosmetic product line with an initial
            anti-aging product under launch. 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 NIMBUSTM technology has
            initially been targeted at (a) an advanced bandage product, (b) several
            enhanced
            consumer products, including antibacterial wipes, and (c) protecting
            building
            materials from rot or mold. In each instance, the Company endeavors 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, it intends to rely on outside organizations for
            those
            activities.
 
 Since
            its
            inception, the Company has been heavily dependent upon the receipt of
            capital
            investment or other financing 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 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES***
 
 *Cash
            Equivalents*
 
 The
            Company considers all highly liquid debt instruments with original maturities
            of
            three months or less to be cash equivalents. The Company had no cash
            equivalents
            at June 30, 2004.
 
 *Use
            of Estimates*
 
 The
            preparation of financial statements and related disclosures in conformity
            with
            accounting principles generally accepted in the United States of America
            requires management to make estimates and assumptions that affect certain
            reported amounts of assets and liabilities, the disclosure of contingent
            assets
            and liabilities at the date of the financial statements and expenses
            during the
            period reported. These estimates include assessing the realization of
            deferred
            tax assets, useful lives and recoverability of tangible and intangible
            assets
            and accruals for commitments and contingencies, among others. Estimates
            and
            assumptions are reviewed periodically and the effects of revisions are
            reflected
            in the financial statements in the period they are determined to be necessary.
            Accordingly, actual results could differ from those estimates.
  7
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              STATEMENTS
  ***NOTE
            2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
            continued***
 
 *Stock
            Compensation*
 
 The
            Company has adopted Statement of Financial Accounting Standards No. 123
            (“SFAS
            123”), “Accounting for Stock-Based Compensation.” SFAS 123 encourages the use of
            a fair-value-based method of accounting for stock-based awards, under
            which the
            fair value of stock options is determined on the date of grant and expensed
            over
            the vesting period. Under SFAS 123, companies may, however, measure compensation
            costs for those plans using the method prescribed by Accounting Principles
            Board
            Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees.”
            Companies that apply APB No. 25 are required to include pro forma disclosures
            of
            net earnings and earnings per share as
 if
            the
            fair-value-based method of accounting had been applied. The Company elected
            to
            account for such plans under the provisions of APB No. 25. The Company
            accounts
            for stock options or warrants granted to consultants under SFAS
            123.
 
 For
            the
            years ended June 30, 2005 and 2004, the Company’s net loss and earnings per
            share would have been reduced to the pro forma amounts indicated
            below:
 
 **2005**
                    
                    **2004**Net
                        lossAs
                        reported
                    
                    $
                    (1,927,343
                    )
                    $
                    (2,368,514
                    )Pro
                        forma
                    
                    $
                    (1,958,793
                    )
                    $
                    (2,504,947
                    )Loss
                        per shareAs
                        reported
                    
                    $
                    (0.08
                    )
                    $
                    (0.14
                    )Pro
                        forma
                    
                    $
                    (0.08
                    )
                    $
                    (0.15
                    )
 
 
 *Intangible
            Assets*
 
 The
            cost
            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.
 
 *Earnings
            Per Share*
 
 Basic
            net
            earnings (loss) per common share is computed by dividing net earnings
            (loss)
            applicable to common shareholders by the weighted-average number of common
            shares outstanding during the period. Diluted net earnings (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. In periods when losses are reported, the weighted-average
            number
            of common shares outstanding excludes common stock equivalents, because
            their
            inclusion would be anti-dilutive.
  8
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 NOTES
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              STATEMENTS
  ***NOTE
            2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES***
 
 *Accounts
            Receivable and Allowance for Doubtful Accounts*
 
 Accounts
            receivable as of June 30, 2005 represents amounts due from Engelhard
            Corporation
            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. As of June 30, 2005, no allowance was considered necessary
            and all
            receivables were collected subsequent to year end.
 
 *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, 2005, the Company’s cash
            levels exceeded the federally insured limit but were maintained with
            a high
            quality institution and management is regularly monitoring its cash position.
            As
            of June 30, 2005, all of the Company’s accounts receivable were derived from
            Engelhard Corporation. The credit risk of the receivable is considered
            limited
            given the customer credit rating. There were no write-offs of uncollectible
            receivable during the year ended June 30, 2005. There was no accounts
            receivable
            balance at June 30, 2004.
 
 *Revenue
            Recognition*
 
 The
            Company recognizes the revenue of its proportionate share of the product
            sales
            sold by a cosmetic and personal care division of Englehard Corporation
            under the
            master agreement for product development, manufacturing and distribution.
            Revenue from research programs is recognized on a pro rata basis over
            the term
            of the agreement.
 
 *Research
            and Development Costs*
 
 Research
            and development costs are expensed as incurred.
 
 Recent
            Accounting Pronouncements
 
 In
            December 2004, the Financial Accounting Standards Board (“FASB”) issued
            Statement of Financial Accounting Standard (“SFAS”) No. 123 (Revised 2004),
            entitled “Share-Based Payment.” This statement eliminates the alternative to use
            the intrinsic value method of accounting for stock options issued to
            employees.
            This statement requires entities to recognize the cost of employee services
            received in exchange for awards of equity instruments based on the grant-date
            fair value of those awards. This statement applies to all wards granted,
            modified, repurchased or cancelled as of the beginning of the interim
            or annual
            reporting period that begins after June 15, 2005. The Company will apply
            the
            Statement beginning its fiscal year on July 1, 2005. In addition, compensation
            cost will be recognized on or after the effective date for the portion
            of
            outstanding awards for which the requisite service has not been rendered,
            based
            on the grant-date fair value of those awards calculated under SFAS No.
            123 for
            pro forma disclosures. This statement also requires additional disclosures
            in
            the notes to the financial statements. We are currently evaluating the
            impact of
            adopting this statement. All of the employee stock options were vested
            as of
            June 30, 2005. However, we expect that this statement will have an impact
            on our
            balance sheet and statement of operations. The impact on our financial
            statements will be dependent on the size of the awards of equity instruments
            to
            our employees, the option-pricing model used to compute fair value and
            the
            inputs to that model such as volatility and expected life.
 
 
 ***NOTE
            3 - FAIR VALUE OF FINANCIAL INSTRUMENTS***
 
 The
            Company’s financial instruments are accounts receivable, accounts payable and
            notes payable. The carrying values of all three approximate fair values
            based on
            their short-term nature. The recorded
  9
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              TO FINANCIAL
              STATEMENTS
  ***NOTE
            3 - FAIR VALUE OF FINANCIAL INSTRUMENTS,
            continued***
 
 value
            of
            the notes payable approximates its fair value based on its short-term
            nature and
            the interest rate approximates the market rate.
 
 
 ***NOTE
            4 - PROPERTY AND EQUIPMENT***
 
 Property
            and equipment consist of the following at June 30, 2005 and 2004:
  **2005**
                    
                    **2004**Computer
                        equipment
                    
                    $
                    15,808
                    
                    $
                    9,164Equipment
                    
                    
                    5,111
                    
                    
                    -Less:
                        accumulated depreciation
                    
                    
                    (10,112
                    )
                    
                    (7,117
                    )Net
                        property and equipment
                    
                    $
                    10,807
                    
                    $
                    2,047
 
 Depreciation
            expense for the years ended June 30, 2005 and 2004 was $2,995 and $1,833,
            respectively.
 
 ***NOTE
            5 - INTANGIBLE ASSETS***
 
 *License
            Agreement*
 
 The
            license agreement with two inventors for the worldwide rights to the
            MMP
            inhibitors and uses thereof commenced on September 13, 2000. 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 November 2016 and the international patents expire
            beginning on November 21, 2011 through December 8, 2019. Accumulated
            amortization for the years ended June 30, 2005 and 2004 was $196,090
            and
            $153,569, 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 live. 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 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
            completed. 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, 2005 and 2004, the balance due under the license agreement
            is
            $160,000.
 
 As
            additional compensation to the licensors, the Company will pay a royalty
            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 the Company grants, the licensors will
            be paid 3%
            of the up-front licensing fee, limited to $100,000.
 
 10
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 NOTES
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                STATEMENTS
  ***NOTE
            5 - INTANGIBLE ASSETS, continued***
 
 In
            November 2002, the Company and the University of Florida Research Foundation
            (“University”) entered into an agreement whereby the University gave the Company
            exclusive rights to the use of its license.
 
 *New
            Patents*
 
 During
            the fiscal year 2005, the Company received three new international patents
            relating to the antimicrobial and antiproteolytic wound dressing and
            method of
            fabrication, and treatment for tissue ulceration and reinstated two patent
            applications relating to the new projects: combination cosmetic cream
            and NIMBUS
            treatment of lumber. As of June 30, 2005, the total capitalized costs
            of these
            two new patent applications was $7,547. The termination dates for these
            patent
            applications are February 2006 and April 2006, respectively. The expiration
            dates for the three patents are December 8, 2019 and November 21, 2011,
            respectively.
 
 During
            the fiscal year 2004, the Company filed five new patent applications
            relating to
            the new projects: combination cosmetic cream, NIMBUS treatment of lumber,
            and
            antimicrobial and antiproteolytic wound dressing and method. As of Juen
            30,
            2005, the total capitalized costs of these five new patent applications
            was
            $74,112. The termination dates for these patent applications were November
            18,
            2004, January 31, 2005, August 25, 2005, and August 5, 2006,
            respectively.
  **June
                        30, 2005**
                    
                    **June
                        30, 2004****Gross**
                    
                    **Accumulated**
                    
                    **Gross**
                    
                    **Accumulated****Amount**
                    
                    **Amortization**
                    
                    **Amount**
                    
                    **Amortization****Amortized
                        Intangible Assets**License
                        agreement
                    $   425,215
                    
                    $                  
                                    (196,090)
                    
                    $                
                               
                        425,215
                    
                    $                             
                        (153,569)Patents
                        in process
                    81,659
                    
                    -
                    
                    74,112
                    
                    -Total
                    $                       
                         506,874
                    
                    $                              
                        (196,090)
                    
                    $                     
                           499,327
                    
                    $(153,569)
  Patents
              in process will be amortized when the patents are issued. As of June
              30, 2005,
              management cannot estimate when that date will be.
  **June
                        30, 2005**
                    
                    **June
                        30, 2004****Gross**
                    
                    **Accumulated**
                    
                    **Gross**
                    
                    **Accumulated****Amount**
                    
                    **Amortization**
                    
                    **Amount**
                    
                    **Amortization****Aggregate
                        Amortization Expense**For
                        the years ended
                    $                            42,521
                    
                    $                               
                        196,090
                    
                    $                         
                          42,521
                    
                    $                             
                        153,569**Estimated
                        Amortization Expense**
                    **Amount**For
                        the year ended June 30, 2006
                    $                            42,521For
                        the year ended June 30, 2007
                    $                           
                        42,521For
                        the year ended June 30, 2008
                    $      42,521For
                        the year ended June 30, 2009
                    $                            42,521For
                        the year ended June 30, 2010
                    $     
                        42,521
  11
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 NOTES
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              STATEMENTS
  ***NOTE
            6 - RELATED PARTY TRANSACTIONS***
 
 For
            the
            fiscal years ended June 30, 2005 and 2004, the Company received $450,000
            and
            $775,000, respectively, from our Company’s Chairman. The funding received from
            our Chairman in 2004 was part of the convertible note payable as described
            below. In 2003, our Chairman funded the Company by purchasing our restricted
            common stocks for $600,000 and loaning us $175,000 in a short term note,
            of
            which $50,000 was repaid by us to our Chairman. In addition, our Chairman
            paid
            $125,000 in cash for a joint development project on behalf of the Company,
            and
            it was accounted for as a short term note at the interest rate of 6%
            per annum.
            The short term notes were subsequently consolidated into a long term
            convertible
            note as described below.
 
 In
            September 2003, we negotiated a successor agreement with our Chairman
            regarding
            the line of credit, which expired July 1, 2003 totaling $1,300,200, excluding
            interest. The line of credit of $750,000 and the short term borrowing
            of
            $550,200 are consolidated into a single convertible note for up to $1,500,000
            excluding accrued interest, at an interest rate of 6% and originally
            due July 1,
            2004. During the year ended June 30, 2005, the maturity date of the note
            was
            extended until July 1, 2006 by our Chairman. The convertible note is
            secured by
            the assets and revenues of the Company and is senior to all other debt
            obligations. The note plus accrued interest will be convertible, in full
            or in
            part, at the option of the lender for a term of up to 5 years beginning
            at
            September 1, 2003 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.
            This convertible note agreement is made contingent upon the agreement
            of the
            lender to provide additional funding to the Company by purchasing restricted
            common stock at prices to be agreed to by the Company or other means.
            In August
            2004, the Board of Directors granted our Chairman the right to consolidate
            the
            short-term debt and its related accrued interest into the convertible
            note under
            the same terms. Our Chairman exercised the right to consolidate all outstanding
            short term note and accrued interest into the long-term convertible note
            under
            the same terms.
 
 As
            more
            fully described in Note 7, our Chairman converted $500,000 and $826,087
            of the
            convertible note owed by us into 1,315,790 and 2,173,913 shares of our
            restricted common stock on November 30 and December 31, 2004, respectively,
            in
            accordance with the terms of the Stock Purchase Agreement. These amounts
            were
            converted at a conversion price applicable to the convertible debt of
            $0.38 per
            share. At June 30, 2005, the convertible note outstanding balance to
            our
            Chairman was $1,268,625 convertible into 3,338,487 shares of restricted
            common
            stock. At June 30, 2005, the Company accrued interest on the convertible
            note of
            approximately $37,746 at a rate of 6% per annum.
 
 For
            the
            fiscal years ended June 30, 2005 and 2004, the Company received $10,417
            and
            $55,525 respectively, from our Company’s President, to fund operations. These
            loan amounts were accounted as short term notes with the interest rate
            of 6% per
            annum. We repaid our President $89,626 and $1,978 of our short term notes
            owed
            to him during the fiscal years ended June 30, 2005 and 2004, respectively.
 
 In
            September 2003, the shareholder loan payable of $9,300 plus accrued interest
            was
            converted into restricted common stock at a conversion rate of $0.25
            per
            share.
 
 At
            June
            30, 2005 and 2004, the Company paid $6,900 for each year in rent payments
            to the
            President for the sub-lease of office space. The sub-lease is for a period
            of
            one year and expires in July 2006.
 
 ***NOTE
            7 - STOCKHOLDERS’ EQUITY (DEFICIT)***
 
 2005
 
 On
            November 30, 2004, the Company completed an agreement to sell 5,000,000
            shares
            of its restricted common stock to Phronesis Partners, L.P. (“Phronesis”), a
            Delaware limited partnership, for $1,000,000
 
 12
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 NOTES
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              STATEMENTS
  ***NOTE
            7 - STOCKHOLDERS’ EQUITY (DEFICIT), continued***
 
 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 agreement, the Chairman
            of the Company, Mr. Granito, converted $500,000 of the convertible debt
            owed to
            him by the Company into 1,315,790 shares on the Company’s 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 entered into the stockholders
            agreement, the registration rights agreement, the warrant agreement,
            the
            conversion agreement and the confidentiality agreement.
  The
              Company granted Phronesis certain warrants to purchase shares of its
              restricted
              common stock at an exercise price as defined in the warrant agreement.
              The term
              of this agreement provided for a maximum additional investment of $1,000,000
              by
              Phronesis through the exercise of warrants.
 
 Phronesis
            was granted certain rights, including registration rights, right of first
            refusal, tag-along right, drag-along right, preemptive right, and the
            right to
            designate an observer and a director. In addition, one of the ancillary
            agreements provides for certain restrictions on related party transactions
            between and among the Company and the Chairman and the President and
            the sale of
            shares.
 
 On
            December 31, 2004, the Company and Phronesis 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, Mr. Granito, our Chairman
            of the
            Board, in accordance with the terms of the Stock Purchase Agreement,
            immediately
            converted $826,087 of his convertible debt into 2,173,913 shares of our
            restricted common stock (equal to the number of shares acquired by Phronesis)
            at
            the $0.38 conversion price per share.
 
 During
            the fiscal year ended June 30, 2005, the Company issued 1,414,876 shares
            of
            restricted common stock in payment for services rendered by the employees,
            directors and service providers.
 
 In
            February 2005, the Company sold 150,000 shares of its restricted common
            stock
            for $87,000 in cash.
 
 2004
 
 During
            the fiscal year ended June 30, 2004, the Company sold 2,400,000 shares
            of common
            stock for $600,000 in cash to our Chairman.
 
 In
            September 2003, the Company issued 44,422 shares of common stock to satisfy
            an
            outstanding debt plus accrued interest from a shareholder.
 
 During
            the fiscal year ended June 30, 2004, the Company issued 968,001 shares
            of common
            stock for professional services, including board members services. The
            Company
            recorded approximately $299,000 in expense in conjunction with these
            services.
 
 ***NOTE
            8 - COMMITTMENTS***
 
 The
            Company leases an equipped laboratory in Gainesville, Florida. The lease
            expires
            in March 2006. Rent expense for the years ended June 30, 2005 and 2004,
            was
            approximately $15,000 and $13,500, respectively.
  13
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              TECHNOLOGIES, INC.**
 NOTES
              TO FINANCIAL
              STATEMENTS
   ***NOTE
            8 - COMMITMENTS (Continued)***
 
 The
            following is a schedule of minimum future payments on the operating lease
            as of
            June 30, 2005:
  **For
                      The Years Ending June 30,**2006
                  
                  $
                  13,6622007
                  
                  
                  -2008
                  
                  
                  -Thereafter
                  
                  
                  -Total
                  
                  $
                  13,662
 
 **NOTE
            9 - CONTINGENCIES**
 
 In
            connection with the master agreement with Engelhard Corporation, in
            August
            2002 we
            signed
            a product development and distribution agreement for
            Ilomastat with Engelhard in
            August 2002 (the
“Product Agreement”). The Product Agreement requires Engelhard to obtain at
            least one significant sales contract within one year of the effective
            distribution date, as defined, that we realize the combined annualized
            net
            profit run rate milestone of at least $1 million per annum by May 2005.
            On April
            18, 2005, we sent a notice to cure to Engelhard for the noncompliance
            on the one
            significant sales contract provision and to determine the achievability
            of the
            key profit milestones.
 
 On
            September 19, 2005, we sent a notice of material default and termination
            to
            Engelhard as it is in breach of its contractual obligations under the
            master
            agreement and the Product Agreement (collectively the “Agreements”). Engelhard
            failed at least two critical milestones (1) to develop at least one significant
            sales contract within one year of the effective distribution date and
            (2) to
            have us realize a combined annualized net profit of $1 million per year
            by May
            2005. In accordance with the termination procedure provide for in the
            Agreements, we will terminate the Agreements in their entirety thirty
            (30) days
            from Engelhard’s receipt of the termination notice provided that Engelhard does
            not cure its material breaches among others within that time
            period.
 
 In
            accordance with the termination provision of the Agreements, within thirty
            (30)
            days Engelhard must deliver to us any and all materials containing our
            trade
            secrets or confidential information, and must cease and desist from using
            our
            trade secrets or confidential information along with any trademark or
            trade
            names associated with our intellectual property including without limitation
            “EquistatTM.” We are currently assessing our legal remedies and investigating our
            damages.
 
 During
            the year ended June 30, 2005, more than seventy-five (75%) percent of
            the
            revenues are derived under the Agreements. The failure of Engelhard to
            cure its
            material breaches will terminate these Agreements and it may have a material
            adverse impact on the Company’s revenues for the fiscal year ending June 30,
            2006.
 
 ***NOTE
            10 - 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.
 
 During
            2002, 1,140,000 unqualified options were granted under the Plan. The
            exercise
            price for 990,000 and 150,000 of the options are $2.84 and $0.95, respectively,
            of the average trading price of the
  14
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              TECHNOLOGIES, INC.**
 NOTES
              TO FINANCIAL
              STATEMENTS
  ***NOTE
            10 - STOCK OPTIONS AND WARRANTS (Continued)***
 
 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 the options expire five years after the grant date.
 
 In
            July
            2003, 1,231,500 unqualified options were granted under the Plan to employees,
            directors, and service providers. The exercise price of $0.55 for the
            1,231,500
            options was the closing trading price at the grant date and they were
            vested
            immediately. All the options expire five years after the grant date.
 
 In
            August
            2004, 585,000 unqualified options under the Plan were granted to directors,
            employees and service providers. The exercise price of $0.17 for the
            585,000
            options was the average of the closing trading prices from July 1 to
            15, 2004,
            and they were vested immediately. All the options expire five years after
            the
            grant date. On August 24, 2005, 175,000 options were exercised at $0.17
            per
            share for an aggregate price of $29,750.
 
 On
            October 1, 2004, the Company granted 50,000 unqualified options to a
            consultant,
            one third of which was vested immediately, one third will be vested on
            July 1,
            2005 and the remaining one third will be vested on July 1, 2006. The
            exercise
            price of these options was 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 at $0.15
            per
            share or an aggregate price of approximately $2,500.
 
 On
            February 21, 2005, the Company granted 10,000 unqualified options to
            a
            consultant, 7,000 options of which were vested immediately, and the remaining
            3,000 will be vested on a pro rata basis over the 12 months period. The
            exercise
            price of these options was the average closing trading price of the previous
            fifteen (15) days of the grant date. Using the Black Scholes option pricing
            model, $4,293 of compensation expense was recorded in this period. All
            the
            options expire five years after the grant date.
 
 The
            Company has elected to account for the stock options granted to employees
            under
            the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
            Employees,” and related interpretations. Under APB No.25, the difference between
            the option price and the fair value of the shares creates an
 additional
            stock option compensation expense, which will be recorded in the income
            statement the next two fiscal years. The Company accounts for stock options
            granted to consultants under Financial
 Accounting
            Standards Board Statement No. 123, “Accounting for Stock-Based Compensation.”
            During 2002, 50,000 options were granted to a consultant vesting over
            a
            three-year period. Using the Black Scholes model $57,250 of compensation
            expense
            was recorded on the financial statements. The total
 stock-based
            compensation expense for the years ended June 30, 2005 and 2004 was $516,072
            and
            $1,126,257 respectively.
 
 The
            fair
            value of each option is estimated present value on the date of grant
            using the
            Black Scholes option-pricing model with the assumption:
 
 Assumptions
            utilized to value options are as follows:
  Risk-free interest rate
                  4.75%
                      to 6%Expected life (years)
                  5Expected volatility
                  50% to 138%Expected dividends
                  None
 
 15
 **QUICK-MED
              TECHNOLOGIES, INC.**
 NOTES
              TO FINANCIAL
              STATEMENTS
 
 ***NOTE10
            - STOCK OPTIONS AND WARRANTS (Continued)***
 
 A
            summary
            of options for the years ended June 30, 2005 and 2004 is shown
            below:
  **June
                        30, 2005**
                    
                    **June
                        30, 2004****Number**
                    
                    **Weighted-Average**
                    
                    **Number**
                    
                    **Weighted-Average****of
                        Shares**
                    
                    **Exercise
                        Price**
                    
                    **of
                        Shares**
                    
                    **Exercise
                        Price**Outstanding
                        at beginning of period
                    
                    
                    2,983,500
                    
                    $
                    2.68
                    
                    
                    1,980,000
                    
                    $
                    2.68Granted
                    
                    
                    642,500
                    
                    
                    0.17
                    
                    
                    1,201,500
                    
                    
                    0.55Exercised
                    
                    
                    (16,666
                    )
                    
                    0.15
                    
                    
                    -
                    
                    
                    -Forfeited
                    
                    
                    (720,000
                    )
                    
                    2.22
                    
                    
                    (198,000
                    )
                    
                    2.93Outstanding
                        at end of period
                    
                    
                    2,889,334
                    
                    $
                    1.73
                    
                    
                    2,983,500
                    
                    $
                    2.17Exercisable
                        at end of period
                    
                    
                    2,872,667
                    
                    
                    
                    
                    
                    2,983,500Available
                        for issuance at end of period
                    
                    
                    1,094,000
                    
                    
                    
                    
                    
                    856,500
  During
            the fiscal year 2004, the Company issued common stock warrants for services
            rendered primarily under consulting agreements. The vesting provisions
            were
            vested one third immediately on April 2, 2004 and May 15, 2004, one third
            twelve
            months subsequent to the grant dates or July 1, 2005, and one third twenty
            four
            months subsequent to the grant dates or January 1, 2006. During the fiscal
            year
            2005, the Company also issued common stock warrants for consulting services
            rendered under agreements. The vesting provisions were immediate when
            services
            rendered or during the term of the agreement. The warrants were valued
            on the
            date of grant using the Black-Scholes option-pricing model.
 
 Assumptions
            utilized to value warrants are as follows:
  Risk-free interest rate
                    6.00%Expected life (years)
                    5Expected volatility
                    138%Expected dividends
                    None
 The
            following is a summary of warrants granted, exercised, canceled and outstanding
            involving the grants in the years ended June 30, 2005 and 2004:
  **June
                      30, 2005**
                  
                  
                  
                  **June
                      30, 2004****Number**
                  
                  **Weighted-Average**
                  
                  **Number**
                  
                  **Weighted-Average****of
                      Shares**
                  
                  **Exercise
                      Price**
                  
                  **of
                      Shares**
                  
                  **Exercise
                      Price**Outstanding
                      at beginning of period
                  
                  
                  567,500
                  
                  $
                  0.20
                  
                  
                  -
                  
                  $
                  -Granted
                  
                  
                  150,548
                  
                  
                  0.38
                  
                  
                  567,500
                  
                  
                  0.20Exercised
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Forfeited
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Outstanding
                      at end of period
                  
                  
                  718,048
                  
                  $
                  0.24
                  
                  
                  567,500
                  
                  $
                  0.20Exercisable
                      at end of period
                  
                  
                  559,715
                  
                  
                  
                  
                  
                  220,832
   16
 **QUICK-MED
              TECHNOLOGIES, INC.**
 NOTES
              TO FINANCIAL
              STATEMENTS
 ***NOTE
            11 - 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.
 
 For
            income tax purposes, the Company elected to capitalize start-up costs
            incurred
            during 1999 and 2000 totaling $357,989. The start-up costs will be 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:
 
 **2005**
                    
                    
                    **2004**Current
                    
                    $
                    -
                    
                    
                    $
                    -Deferred
                    
                    
                    -
                    
                    
                    
                    -$
                    -
                    
                    
                    $
                    -
   Deferred tax assets for June 30, 2005 and 2004
                consist
                of the following:
 **2005**
                        
                        
                        
                        **2004**Deferred
                            tax assets:Depreciation
                            and amortization
                        
                        $
                        1,303
                        
                        
                        $
                        1,303Tax
                            benefit of capitalized start-up costs
                        
                        
                        13,471
                        
                        
                        
                        40,413Stock
                            based compensation
                        
                        
                        1,862,272
                        
                        
                        
                        1,680,733Net
                            operating loss carry forward
                        
                        
                        2,775,512
                        
                        
                        
                        2,202,298Research
                            tax credit
                        
                        
                        7,203
                        
                        
                        
                        7,203Total
                            deferred tax assets
                        
                        
                        4,659,761
                        
                        
                        
                        3,931,950Valuation
                            allowance:Beginning
                            of year
                        
                        
                        (3,931,950
                        )
                        
                        
                        (3,045,370
                        )Decrease
                            (increase) during the year
                        
                        
                        (727,811
                        )
                        
                        
                        (886,580
                        )Ending
                            balance
                        
                        
                        (4,659,761
                        )
                        
                        
                        (3,931,950
                        )Net
                            deferred taxes
                        
                        $
                        -
                        
                        
                        $
                        -
 
 17
 **QUICK-MED
              TECHNOLOGIES, INC.**
 NOTES
              TO FINANCIAL
              STATEMENTS
  ***NOTE
            11 - INCOME TAXES, continued***
 
 A
            reconciliation of income tax at the statutory rate to the Company’s effective
            tax rates for the periods ended June 30, 2005 and 2004, is as
            follows:
 
   2005
                    
                    2004Federal
                        income tax at statutory rate of 34%
                    
                    $
                    (653,628
                    )
                    $
                    (1,447,234
                    )State
                      tax, net of federal benifit
                    
                    
                    (69,783
                    )
                    
                    (154,514
                    )Other
                    
                    
                    (4,400
                    )
                    
                    753Valuation
                      allowance
                    
                    
                    727,811
                    
                    
                    1,600,995$
                    -
                    
                    $
                    -
  As
            of
            June 30, 2005, the Company had a net operating loss carry forward of
            approximately $7,375,799 which will begin to expire in 2018.
 
 ***NOTE
            12 - NOTE PAYABLE***
 
 In
            September 2003, we negotiated a successor agreement with our Chairman
            regarding
            the line of credit, which expired July 1, 2003 totaling $1,300,200, excluding
            interest (see Note 6). The line of credit of $750,000 and the short term
            borrowing of $550,200 were consolidated into a single convertible note
            for up to
            $1,500,000 excluding accrued interest, at an interest rate of 6% and
            due July 1,
            2004. During the year ended June 30, 2005, the maturity date of the note
            was
            extended until July 1, 2006 by our Chairman. The convertible note is
            secured by
            the assets and revenues of the Company and is senior to all other debt
            obligations. The note plus accrued interest will be convertible, in full
            or in
            part, at the option of the lender for a term of up to 5 years beginning
            at
            September 1, 2003 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.
            This convertible note agreement is made contingent upon the agreement
            of the
            lender to provide additional funding to the Company by purchasing restricted
            common stock at prices to be agreed to by the Company or other means.
            In August
            2004, the Board of Directors granted our Chairman the right to consolidate
            the
            short-term debt and its related accrued interest into the convertible
            note under
            the same terms. Our Chairman exercised the right to consolidate all outstanding
            short term note and accrued interest into the long-term convertible note
            under
            the same terms. (See Notes 6 and 7for further details.)
 
 As
            more
            fully described in Notes 6 and 7, our Chairman converted $500,000 and
            $826,087
            of the convertible note owed by us into 1,315,790 and 2,173,913 shares
            of our
            restricted common stock on November 30 and December 31, 2004, respectively,
            in
            accordance with the terms of the Stock Purchase Agreement. These amounts
            were
            converted at a conversion price applicable to the convertible debt of
            $0.38 per
            share. At June 30, 2005, the convertible note outstanding balance to
            our
            Chairman was $1,268,625 convertible into 3,338,487 shares of restricted
            common
            stock. At June 30, 2005, the Company accrued interest on the convertible
            note of
            approximately $37,746 at a rate of 6% per annum.
 
 ***NOTE
            13 - 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.
 
 18
 **QUICK-MED
              TECHNOLOGIES, INC.**
 NOTES
              TO FINANCIAL
              STATEMENTS
  ***NOTE
            13 - GOING CONCERN, continued***
 
 For
            the
            remainder of the year ended June 30, 2006, 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.
 
 ***NOTE
            14 - CHANGE IN ESTIMATE***
 
 During
            the fiscal year ended June 30, 2004, as part of an internal review, the
            underlying invoices for legal services of $192,539 were examined and
            it was
            determined that these estimated liabilities were contracted and directly
            billed
            to the investment banker rather than Above Average Investments, Ltd.
            Our legal
            counsel attempted to contact these law firms in connection with their
            work
            without any success. In addition, the Company has not been contacted
            nor
            received any follow up billings since the date of the merger.
 
 In
            light
            of the new information related to these estimated liabilities, the Company
            decided to eliminate these estimated liabilities accordance with the
            provisions
            of APB 20, paragraph 31. Since the estimated liabilities were recorded
            as a
            credit to accounts payable and a debit in paid-in capital, we reflected
            the
            change in estimate as a debit to accounts payable and a credit to paid-in
            capital at June 30, 2004.
 
 ***NOTE
            15 - SUBSEQUENT EVENTS***
 
 In
            July
            and August 2005, the Company issued a total of 54,117 shares of restricted
            common stock for an aggregate purchase price of $33,553 or $0.62 per
            share for
            cash.
 
 In
            August
            2005, the Company issued 175,000 shares of restricted common stock for
            an
            aggregate exercise price of $29,750 or $0.17 per share resulting from
            the
            exercise of a stock option.
 
 In
            September 2005, the Company issued 130,000 shares of restricted common
            stock for
            the payment of services rendered by the members of the Board of Directors.
            In
            addition, the Company granted stock options and warrants of 710,000 and
            175,000
            respectively to the employees and consultants at the exercise price of
            $0.80 per
            share as performance bonus according to the vesting schedule.
  19