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Form 10-KSB/A

QUICK-MED TECHNOLOGIES, INC.

Amendment No. 1 to Annual Report filed by Small Businesses

**U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549**
                                ----------------

                                  **FORM 10-KSB/A**
              AMENDED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

    For the fiscal year ended June 30, 2004 Commission file number 000-27545

                          **QUICK-MED TECHNOLOGIES, INC.**
                (Name of registrant as specified in its charter)

                 **Nevada                                 98-0204736**
      (State or Other Jurisdiction                    (IRS Employer
    of Incorporation or organization)              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 amendment to this Form 10-KSB. [ ]

The registrant's revenues for its most recent fiscal year were $48,000.

The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant as of October 4, 2004 (based upon the closing price
of $0.15 per share on October 4, 2004) was $641,117.

As at October 4, 2004 there were 18,443,401 shares of the registrant's common
stock issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
**QUICK-MED TECHNOLOGIES, INC.

                             AMENDED ANNUAL REPORT
                                ON FORM 10-KSB/A
                        For the Year Ended June 30, 2004****INDEX**Page**PART I**

Item 1.   Description of Business...........................................  1
Item 2.   Description of Property...........................................  9
Item 3.   Legal Proceedings.................................................  9
Item 4.   Submission of Matters to a Vote of Security Holders...............  9

                                     **PART II**

Item 5.   Market for Common Equity and Related Stockholder Matters.......... 10
Item 6.   Management's Discussion & Analysis of Financial Condition
          and Results of Operations......................................... 18
Item 7.   Financial Statements.............................................. 24
Item 8.   Changes in and Disagreements with Accountants on Accounting &
          Financial Disclosure.............................................. 24

                                    **PART III**

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act................. 25
Item 10.  Executive Compensation............................................ 29
Item 11.  Security Ownership of Certain Beneficial Owners and Management.... 31
Item 12.  Certain Relationships and Related Transactions.................... 33
Item 13.  Exhibits and Reports on Form 8-K.................................. 34
Item 14.  Principal Accountant Fees and Services............................ 35

Signatures     ............................................................. 36

**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 42nd 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:

  o  The MultiStat(TM) family of methods and compounds, shown to be effective in
     key skin care therapy applications for the cosmetic, military, and medical
     markets; and

  o  Novel Intrinsically Microbicidal Utility Substrate, otherwise known as
     "NIMBUS(TM)", 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 execute commercialization strategies for each of our
broad technologies. MultiStat(TM) is being developed in a cosmetic product line,
including a planned initial anti-aging product. MultiStat(TM) is also being
employed 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 NIMBUS(TM) 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 MultiStat(TM) and
NIMBUS(TM) 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.

                                       1

We will continue to develop our core technologies and employ industry partners
to:

     o    further develop our technologies;

     o    integrate our technologies into a product line; and

     o    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: MultiStat(TM)***

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.
MultiStat(TM) represents our family of patented compounds and techniques relating
to MMP inhibition. MultiStat(TM)'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 MultiStat(TM) 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 Corporation, MultiStat(TM)
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, MultiStat(TM) has been shown in the same
clinical studies to have applications for other conditions, such as skin
roughness or redness.

On September 2002, we announced 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 MultiStat(TM) in their product
development, to be followed by marketing and sales of MultiStat(TM)-related skin
care products. In June 2003, the first phase of product development was
completed, and by approximately July 2003, The Collaborative Group, Ltd.
launched its first product employing Multistat(TM), EquiStat(TM), a performance
ingredient for anti-aging skin care products.

*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 MultiStat(TM) 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.

                                       2

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: NIMBUS(TM)***

Novel Intrinsically Microbicidal Utility Substrate, otherwise known as
NIMBUS(TM), 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 NIMBUS(TM) 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 NIMBUS(TM) 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 are attempting to commercialize NIMBUS(TM) 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 NIMBUS(TM) include the following
markets:

                        **POTENTIAL MARKETS FOR NIMBUS(TM)**

-------------------------------- ---------------------- ------------------------
          **Healthcare                    Consumer               Industrial**
-------------------------------- ---------------------- ------------------------

o  Hemostatic bandage - life      o  Cosmetic            o  Building material
   threatening injury             o  Feminine care       o  Wallboard
o  Chronic wound dressing         o  Baby care           o  Cellulose insulation
o  Anti-bacterial wound dressing  o  Wipe                o  Hospitality industry
o  Blood collection container     o  Clothing            o  Fiber glass
o  Urinary drainage system        o  Linen                  insulation
o  Catheter                       o  Food storage        o  Paper - Pulp, Fiber
                                  o  Facemask            o  Wood preservation
                                  o  Container           o  Pesticide
                                  o  Paper Towel         o  Protective clothing
                                  o  Napkins             o  Wipe
                                  o  Bedding             o  Filter
                                  o  Footwear            o  Packing material
                                  o  Adult incontinence  o  Protective clothing
                                  o  Personal care       o  Preservative
                                  o  Oral care           o  Food contact
                                  o  Footwear            o  Food service
                                  o  Contact lens        o  Wine Corking

We are currently focusing our NIMBUS(TM) technology on the following three
industries:.

o    *Bandages, Wound Dressings and Related Products:* Bandage products under
     development that use the NIMBUS(TM) technology have undergone proof of
     concept testing to demonstrate their target characteristics, such as
     bacterial resistance or the ability to slow bleeding.

                                       3

o    *Apparel:* Apparel products being developed that use the NIMBUS(TM)
     technology have undergone proof of concept testing to demonstrate target
     characteristics such as resistance to odor causing bacteria and
     launderability.

o    *Building Materials:* Building materials potential products that use the
     NIMBUS(TM) technology, such as wallboard and insulation, have undergone
     proof of concept testing to demonstrate target characteristics such as the
     ability to inhibit mold.

**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 NIMBUS(TM) 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***

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 DermaCo, Inc., 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 Multistat(TM) family of MMPIs.

***Agreements with Employees and Consultants***

With the exception of Drs. Schultz and Batich discussed below, all of our
employees and 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.

                                       4
***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    Expiration 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   Treatment of tissue ulceration
                           (November 21, 2010)

 5,696,147   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
                                                thereof

 5,892,112      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

The above table includes patents which are jointly owned by us and an arm of The
University of Florida, as well as patents which 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,      November 21, 2011
                        Great Britain, Italy)

 EPO 558648(1)  Europe (Germany, France, Great       November 21, 2011
                        Britain, Italy)

    1971367     Japan                                November 21, 2011

    2736285     Japan                                November 21, 2011

    4501333     Japan                                November 21, 2011

     652016     Australia                            November 21, 2011

     11725      Africa                                December 8, 2019

     004160     Eurasia                               December 8, 2019

    2096223     Canada                               November 21, 2011

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 October 5, 2004.

                                       5
**PENDING PATENT APPLICATIONS - UNITED STATES**

o    Intrinsically bactericidal absorbent dressing and method of fabrication

o    Absorbent materials covalently-bonded, nonleachable polymeric
     antimicrobial surfaces and methods for preparation.

o    Cosmetic Composition and method

o    Composition and method for minimizing or avoiding the adverse effects of
     vesicants

o    Improved antifungal gypsum board*

o    Antimicrobial and antiproteolytic wound dressing and method*

o    Silicates and other oxides with bonded antimicrobials polymers*

o    Controlled release of biologically active substances from select
     substrates

o    Synthetic matrix metalloprotease inhibitors and uses thereof

o    Improved matrix metalloprotease inhibitors

* NOTE: United States filing imputed from designation in International Patent
  Application filed under the Patent Cooperation Treaty.

                      **PENDING PATENT APPLICATIONS - FOREIGN**

o    Intrinsically bactericidal absorbent dressing and method of fabrication

o    Absorbent materials covalently-bonded, nonleachable polymeric
     antimicrobial surfaces and methods for preparation.

o    Cosmetic Composition and method

o    Composition and method for minimizing or avoiding the adverse effects of
     vesicants

o    Materials and Methods for treating lumber and wood

o    Improved antifungal gypsum board

o    Antimicrobial and antiproteolytic wound: dressing and method

o    Silicates and other oxides with bonded antimicrobials polymers

o    Controlled release of biologically active substances from select substrates

o    Synthetic matrix metalloprotease inhibitors and uses thereof

o    Improved matrix metalloprotease inhibitors

                                       6

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 our Company and The University of
Florida are mentioned, it is because both own the invention jointly as
Assignees.

Our business and competitive position are dependent upon our ability to protect
our proprietary technologies. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to obtain and use information that we
regard as proprietary. We will rely on patent, trade secret and copyright law
and nondisclosure and other contractual arrangements to protect such proprietary
information. We will file patent applications for our proprietary methods and
devices which we believe are patentable.

There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our proprietary information, that such information will not be
disclosed or that we can effectively protect our rights to unpatented trade
secrets or other proprietary information.

There can be no assurance that others will not obtain patents or other legal
rights that would prevent us from commercializing our technologies in the United
States or other jurisdictions.

There can be no assurance that our technologies will not be subject to
environmental or other regulation that would impede their adoption and
commercialization in the United States or other jurisdictions.

**Employees**

We have four (4) full time employees consisting of:

o    Our President, who directs our operations and our business development
     projects and executes our business strategy;

o    A Senior Research Scientist, who is responsible for testing and also
     participates in our product development projects;

o    A Research Scientist, who is responsible in assisting the senior research
     scientist with testing and product development projects; and

o    A Product Development Engineer, who assists the research scientists with
     the product development projects.

We also have one part time employee, a senior research scientist with a Ph.D. in
polymer chemistry, who performs testing and participates 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.

**Competitive Business Conditions**

The research and development pertaining to our technologies, which underlies our
MMP-inhibitor (MultiStat(TM)), microbicidal (NIMBUS(TM)) 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.

                                       7

Our competitors are located in the United States as well as around the world and
include:

o    Personal Care companies;
o    Wound care companies;
o    University or university-sponsored research organizations; and
o    Government-sponsored research organizations.

Specific examples of competition to our NIMBUS(TM) microbicidal technology and
potential future products using that technology, include products utilizing
fibres 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:

o    Agion Technologies, Inc.;
o    E.I. du Pont de Nemours Company (DuPont - NYSE:DD);
o    Noble Fiber Technologies; and
o    Microban International, Ltd.

We will attempt to overcome the above competitive advantages of our competitors
by attempting to enter into co-develop agreements with industry leaders in the
potential markets with exclusivity clauses for future license agreements.

**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 2003 fiscal year, we spent $618,076 on research and development.
During our fiscal year ended June 30, 2004, we spent $348,449 on research and
development. We intend to continue our research and development efforts during
the current 2005 fiscal year.

**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, also known as the FDA, 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 FDA
and other regulatory authorities. If previously unknown problems with the
product or with the manufacturer or facility are discovered, restrictions may be
imposed on the product or manufacturer, including an order to withdraw the
product from the market. If we, and any contract manufacturers we choose to
engage, fail to comply with applicable regulatory requirements, we may be fined,
suspended or subject to withdrawal of regulatory approvals, product recalls,
seizure of products, operating restrictions and criminal prosecution.

                                       8

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:

o    Regulatory Strategy and Liaison with the FDA;
o    Non-clinical and clinical program assessment/development;
o    Non-clinical and clinical protocol review/monitoring of studies;
o    Regulatory affairs management/guidance;
o    Product development and launch strategy;
o    Validation of methods/processes;
o    Product development strategies/assessment;
o    Product compliance; and
o    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 42nd Way, Gainesville,
Florida. This 2,900 square foot premises is composed of two offices and an
equipped laboratory. We pay monthly lease payments of $1,166 and our lease
expires in March 2005.

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 June 2005.

We lease 2,430 square feet of an equipped laboratory space at 3427 SW 42nd Way,
Gainesville, Florida. We pay monthly lease payments of $651. Our lease expires
in March 2005. In April 2003, we obtained additional laboratory space at the
same facility for an additional monthly lease payment of $515.

We have invested 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**

We have not held any Annual or Special Meeting of Stockholders since our last
fiscal year ended June 30, 2003. We intend to hold both our 2003 and 2004 Annual
(and Special) Meetings of Stockholders in early December 2004.

                                       9
**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 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 2004
                                                       ---------------
                                                    High              Low
         Fourth Quarter                             $0.30            $0.11
         Third Quarter                              $0.27            $0.15
         Second Quarter                             $0.33            $0.15
         First Quarter                              $0.55            $0.25

                                                       Year Ended 2003
                                                       ---------------
                                                    High              Low
         Fourth Quarter                             $1.12            $0.50
         Third Quarter                              $1.40            $0.55
         Second Quarter                             $5.00            $0.60
         First Quarter (September 4 to 30, 2002)    $5.00            $4.50

**Holders**

As of June 30, 2004, there were 43 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:

                                       10

o    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;

o    Disclose commissions payable to the broker-dealer and its registered
     representatives and current bid and offer quotations for the securities;

o    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

o    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 and stock options issued to Mr. Friel
stating the securities were not registered under the Securities Act and are
subject to restrictions on their transferability and resale.

On 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 and stock options issued to Mr. Olderman stating the
securities were not registered under the Securities Act and are subject to
restrictions on their transferability and resale.

                                       11

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 and stock option 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 and stock options issued to Mr. Hutt 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 and stock options issued to Mr. Lerner
stating the securities were not registered under the Securities Act and are
subject to restrictions on their transferability and resale.

On 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 to us. 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 which
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.

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.

                                       12

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.

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.

                                       13

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 Mr. 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 Ms. Sorobey 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 and stock options issued to Mr. Lerner stating the securities were not
registered under the Securities Act and are subject to restrictions on their
transferability and resale.

On 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.

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 and stock
options issued to Mr. Olderman stating the securities were not registered under
the Securities Act and are subject to restrictions on their transferability and
resale.

                                       14

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 and stock options issued to Mr. Schultz stating the securities were not
registered under the Securities Act and are subject to restrictions on their
transferability and resale.

On 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 placed  restrictive  legends on
the note stating that the note and the 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.

                                       15

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 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 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.

**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, 2004, our most recently
completed fiscal year.

                                       16

                        ------------------------- ------------------- ---------------------------------
                        Number of securities to   Weighted average    Number of securities remaining
                        be issued upon exercise   exercise price of   available for future issuance
                        of outstanding options,   outstanding         under equity compensation plans
                        warrants and rights       options, warrants   (excluding outstanding securities
                                                  and rights          shown herein)
----------------------- ------------------------- ------------------- ---------------------------------

Equity compensation            2,983,500                 $2.17                      856,500
plans approved by
security holders
----------------------- ------------------------- ------------------- ---------------------------------

Equity compensation               N/A                     N/A                         N/A
plans not approved by
security holders
----------------------- ------------------------- ------------------- ---------------------------------

Total                          2,983,500                 $2.17                      856,500
----------------------- ------------------------- ------------------- ---------------------------------

Our 2001 Stock Option Plan authorizes the issuance of options, right to purchase
Common Stock and stock bonuses to officers, employees, directors and
consultants. We reserved 3,000,000 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. Under the 2001
Plan, the exercise price may not be less than fair market value on the date of
grant for incentive stock options, and not less than 85% of the fair market
value on the date of grant for non-qualified stock options. The number of
options under the 2001 Plan available for grant at June 30, 2004 was 856,500.

**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 regulatory
approvals, are lengthy and expensive and there is no assurance that 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) there is no assurance
that our technologies or products that employ our technologies will be accepted
in the marketplace; (e) we do not currently carry product liability insurance
and should we be subject to a product liability claim, our financial condition
may be adversely affected; (f) if we are unable to debt or equity financing, we
will be unable to proceed with our operating plan and even if we obtain such
financing, the value of our common stock will be diluted; (g) we have negative

                                       17

cash flow from operations and an accumulated deficit that raises substantial
doubt about our ability to continue as a going concern; (h) our future business
is dependent upon third parties to market, manufacture, and distribute our
technologies and/or products or jointly developed products; (i) our operations
have been largely funded by our Chairman of the Board; however, there are no
assurances that he will continue to fund our operations in the future; (j)
whether we comply with regulations pertaining to our business; (k) we have
substantial debt obligations due to our Chairman of the Board, who has funded
our operations, debt obligations of which are secured by our assets and revenues
and which are senior obligations due by us; and (l) other risk factors discussed
in our periodic filings, which may be accessed at http://www.sec.gov. Statements
made herein are as of the date of the filing of this Form 10-KSB/A with the
Securities and Exchange Commission and should not be relied upon as of any
subsequent date. Unless otherwise required by applicable law, we do not
undertake, and we specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.

**Overview**

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 have such third parties perform
the manufacturing, marketing, and distribution functions associated with our
technologies.

We have had limited revenues of only $48,000 since our inception. From December
2003 until March 2004, we had one reportable revenue segment in connection with
a November 18, 2003 agreement with Noville, Inc., a specialty chemical
manufacturer. This agreement provided that if Noville, Inc. does not possess the
laboratory or technology to develop our NIMBUS(TM) technology, then it will pay
us for these services at our cost of $12,000 per month. On May 5, 2004, Noville,
Inc. terminated this revenue arrangement with us; therefore, currently we have
no reportable revenue segments to our business.

Our business model has attempted and will continue to attempt to develop the
following revenue segments:

o    License fee related revenues from license agreements;
o    Profit sharing related revenues from profit sharing related agreements;
o    Joint development agreement related revenues where other companies pay us
     for our research and development; and
o    Revenues obtained from government research and development grants.

These revenues would be derived from government agencies and the following types
of companies in connection with our NIMBUS(TM) technology:

o    Healthcare and medical;
o    Apparel;
o    Cosmetic;
o    Personal care companies; and
o    Building materials industry.

Our revenues are dependent now and in the future upon the following factors:

o    Acceptance of our products or future products in the marketplace;
o    Demand for products or future products that utilize our technologies;
o    Our ability to secure license or profit sharing related agreements and
     secure government research and development grants;
o    Individual economic conditions in our markets;
o    Our ability to market our services to health care, apparel, cosmetic, and
     personal care companies;

                                       18

o    Our ability to successfully conduct laboratory and clinical testing of our
     potential products; and
o    Our ability to obtain regulatory approval of our future products.

Uncertainties or trends that may affect our business also include the
possibility of other products with similar applications to our proposed products
could be developed by known or unknown competitors which prove superior to our
products, either in performance or price, or that our proposed products fail to
achieve regulatory approval from the FDA or other government agencies and we are
unable to commercialize one or more of our products.

**Capital Expenditures and Requirements**

From 2000 to 2004, we have spent approximately $345,000 on the acquisition of
patents and exclusive license agreements. We owe an additional $160,000 to Dr.
Richard Galardy which is due when certain milestones are met in connection with
a September 2000 license agreement we have with Dr. Galardy and Dr. Damian
Grobeny. This license agreement provides that we compensate Dr. Galardy and Dr.
Grobeny with our common stock and cash for the exclusive license of the
ilomastat technology invented by them.

We do not expect any significant additions to property, plant and equipment.

**Critical Accounting Policies and Estimates**

The preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amounts. The estimates and assumptions are
evaluated on an on-going basis and are based on historical experience and on
various other factors that are believed to be reasonable. Estimates and
assumptions include, but are not limited to, 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, 2004 and 2003***Revenues. During the year ended June 30, 2004, we received $48,000 of revenue,
compared to $0 revenue for the same period ended June 30, 2003, representing a
100% increase in our revenues. The revenues we received are from Noville, Inc.;
however, as reflected above, Noville, Inc. has terminated its revenues
arrangement with us.

Operating Losses. Operating losses for the year ended June 30, 2004 decreased by
29% or $948,680 to ($2,275,472) for the year ended June 30, 2004 from
($3,224,152) for the year ended June 30, 2003. The decrease in operating loss
was primarily due to a reduction of $632,282 or 36% in non-cash stock-based
compensation and a $269,627 or 44% decrease in research and development expenses
for those comparable 2004 and 2003 year end periods, as described in more detail
below.

Non-Cash Stock-Based Compensation. Non-Cash Stock-Based Compensation decreased
$632,282 or 36% to $1,126,257 for the year ended June 30, 2004, from $1,758,539
for the year ended June 30, 2003. This decrease in non-cash stock based
compensation is attributed to our issuance of stock options to a director at
less than fair value, which resulted in the recognition of a large compensation

                                       19

expense of $553,500 in 2003. Further, because the stock options were fully
vested in January 2004, there was no compensation later recognized. In addition,
we took a $211,371 charge in compensation expense, as a result of a conversion
of the 2002 note payable to our Chairman of the Board during the fiscal year
ended June 30, 2003. This decrease was offset by a charge of $90,000 in
stock-based compensation in 2004 as a result of 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, in November 2003, we sold 1,400,000 shares of our common 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.

Research and Development Expense. Research and development expense decreased by
$269,627 or 44% to $348,449 for the year ended June 30, 2004, from $618,076 for
the comparable period ended June 30, 2003, as a result of joint development
expenses of $250,000 which were spent in conjunction with the Collaborative
agreement and outside research expenditures of approximately $49,630 in 2003, as
compared to a $50,000 license fee payment to a specialty dermatology company
during the year ended June 30, 2004.

General and Administrative Expense. General and administrative expense remained
relatively the same, with a decrease of $3,357 or 0.4% to $804,412 for the
period ended June 30, 2004, from $807,769 for the comparable period ended June
30, 2003. Our general and administrative expenses would have been lowered by
approximately $100,000, had it not been for significant corporate legal expenses
and additional consulting expenses incurred in 2004

Interest Expense. Interest expense for the year ended June 30, 2004 decreased
$942,983 or 91% to $93,042 as compared to $1,036,025 for the year ended June 30,
2004. This decrease was due to the conversion of notes payable to a stockholder,
which had a $650,000 principal balance and $25,000 in related accrued interest,
into common stock during 2003. As a result of this conversion, we took a charge
of $965,250 of non-cash interest expense for the year ended June 30, 2003.

Net Loss. Net loss for the year ended June 30, 2004 was ($2,368,514) or ($0.14)
per share compared to ($4,260,177) or ($0.32) per share for the comparable
period ended June 30, 2003. This decrease is primarily attributable to a
reduction in non-cash stock-based compensation, research and development
expenses, and interest 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, 2004 and 2003 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.

We cannot continue to satisfy our current cash requirements for a period of
twelve (12) months through our existing capital. We anticipate total estimated
operating and research and development expenditures of approximately $133,000
per month or an aggregate of $1,600,000 over the next twelve (12) months, in the
following areas:
o    Research and development expenditures of approximately $69,000 per month or
     an aggregate $828,000 over the next twelve (12) months, which will consist
     of the following estimated monthly expenditures: (a) $33,000 in payroll for
     scientists; (b) $21,000 for outside research and development expenditures;
     and (c) $15,000 for chemical supplies, and laboratory operating expenses,
     including rent expense.
o    Patent related legal fees of approximately $24,000 per month or an
     aggregate $288,000 annually; and

                                       20

o    Operating expenses of approximately $40,000 per month or an aggregate
     $480,000 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 $19,805 as of June 30, 2004 will satisfy our cash
requirements for less than one (1) month.

Accordingly, we will be unable to fund our expenses for our entire one-year plan
of operations through our existing assets or cash. Although our Chairman of the
Board has agreed to loan us funds for our operational needs, which will assist
in meeting our Plan of Operations, there are no assurances that we will receive
sufficient funds from our Chairman of the Board or that they will be adequate to
meet our operating needs. Even if our Chairman of the Board provides funding to
us, we will be required to provide loan with interest and other possible terms
and/or issue shares of our common stock to him, which will dilute your interest
in our shares. Moreover, we may still need additional financing through
traditional bank financing or a debt or equity offering; however, because we are
a development stage company with little operating history, limited revenues, and
a poor financial condition, we may be unsuccessful in obtaining such financing
or the amount of the financing may be minimal and therefore inadequate to
implement our Plan of Operations. In the event that we do not receive financing
or our financing is inadequate, we may have to liquidate our business and
undertake any or all of the following actions:
o    Significantly reduce, eliminate or curtail our business, operating  and
     research and development activities so as to reduce operating costs;
o    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;
o    Pay our liabilities in order of priority, if we have available cash to pay
     such liabilities;
o    If any cash remains after we satisfy amounts due to our creditors,
     distribute any remaining cash to our stockholders in an amount equal to the
     net market value of our net assets;
o    File a Certificate of Dissolution  with the State of Nevada to dissolve our
     corporation and close our business;
o    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
o    Make the appropriate filings with the National Association of Security
     Dealers to affect a delisting of our stock.

Based upon our current assets, however, we will not have the ability to
distribute any cash to our stockholders.

As of June 30, 2004, we have notes outstanding to our Chairman of the Board and
the President totaling $1,905,985 and $73,839, respectively, of which $1,425,200
from the total notes balance to our Chairman of the Board was due on July 1,
2004, but the maturity date was extended to July 31, 2005. The remainder of our
Chairman of the Board's short-term note could become convertible note payable if
he decides to exercise that right. As of June 30, 2004, that right was not
exercised. Our President's note payable is a short-term note with no specific
repayment. If we are unable to successfully repay these loans, we may have to
liquidate our business and undertake any or all the steps outlined above.

If we have any liabilities that we, or our Chairman of the Board on our behalf,
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.

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.

                                       21

At June 30, 2004, we had a working capital deficit of ($1,105,860), primarily
due to: (a) short-term stockholder loans, including, accrued interest totaling
$737,985; (b) a license fee payable of $160,000; and (c) accounts payable of
$222,885. At June 30, 2004, we had a stockholders' deficit of ($2,166,525), a
substantial portion of which is due to non-cash stock compensation expense and
non-cash interest expense from the notes payable conversions described below.

Cash used by operating activities was $1,309,488 for the year ended June 30,
2004. Net cash used by investing activities was $24,790 for the filing and
maintenance of patents for our core technologies. Net cash provided by financing
activities was $1,306,660, of which consisted of $600,000 derived from sales of
our common stock, $679,624 from stockholder loans, and the issuance of common
stock for payment of a liability of $27,036.

To date, we have funded our activities principally from the issuance of shares
of restricted common stock to our Chairman of the Board totaling $850,000 and
from the stockholder loans totaling $2,163,000, including related accrued
interest, and 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 common stock at
$1.00 per share.

At June 30, 2004, we had an outstanding loan balance of $73,985 due to our
President, David Lerner. The loan bears an interest rate of 6% per annum, with
the repayment term to be determined. In August 2004, we made a $2,000 payment to
our President as a partial repayment of our loan to him.

At June 30, 2004, we had an outstanding loan balance of $1,425,200 due to our
Chairman of the Board, Michael Granito, $750,000 of which was from a line of
credit we fully utilized. The line of credit agreement provides that the
outstanding balance due to Mr. Granito is convertible into common stock at $1.00
per share at Mr. Granito's option. At June 30, 2004, no conversion to common
stock had taken place. In October and November 2002, we entered into an
additional short term borrowing arrangement with Mr. Granito for up to $500,000
at 6% interest and due at July 1, 2003; this borrowing was secured by our assets
and revenues, but did not contain a stock conversion term. This additional
short-term borrowing was an extension of the $750,000 line of credit and was
consolidated into a single financial instrument. As of September 30, 2003, the
line of credit had been extended to $550,200, which we fully utilized. Because
we have not repaid any amounts to Mr. Granito, the entire combined borrowing
amount of $1,385,200 (excluding interest) is due to Mr. Granito.

In September 2003, we negotiated a successor line of credit agreement with Mr.
Granito relevant to the earlier line of credit agreement totaling $1,300,200
(excluding interest), which had expired on July 1, 2003. The line of credit of
$750,000 and the short term borrowing of $550,200 have been 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. Mr. Granito agreed to extend the
maturity date of this note to July 31, 2005. The convertible note is secured by
our assets and revenues and will remain as our senior-most debt obligation. The
note plus accrued interest will be convertible into restricted common stock, 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) and 50% over the share price at which we
would normally price our common stock based on a discount to the prior 20 day
average trading price. The note has an anti-dilution provision in the event that
we sell common stock to other investors at less than $0.20 per share. This
convertible note agreement was made contingent upon the agreement of the lender
to provide additional funding to us by purchasing restricted common stock at
prices we agree upon.

At June 30, 2004, we also had an outstanding short-term loan balance of $404,000
due to our Chairman of the Board, Michael Granito. Subsequent to June 30, 2004
to September 30, 2004, Mr. Granito made additional loans to the Company of
approximately $190,000 in cash or in payment of the Company's expenses. The loan
bears an interest rate of 6% per annum, with the repayment term to be
determined. The Board of Directors granted Mr. Granito the right to consolidate
the short-term loan outstanding balance into the long-term convertible note
payable described above under the same conversion terms. At September 30, 2004,
Mr. Granito has not exercised said right.

                                       22

During the year ended June 30, 2004, we raised a total of approximately
$1,306,660 through: (a) the sale of 2,400,000 shares our restricted common stock
to Mr. Granito in return for $600,000 cash consideration from an entity owned by
our Chairman of the Board; (b) $125,000 borrowed from Mr. Granito under the
revolving note agreement; (c) $404,000 borrowed from Mr. Granito under the short
term loan arrangement; and (d) $73,839 borrowed from our President, David
Lerner.

In September 2003, the stockholder loan payable of $9,300 plus accrued interest
has been 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.

To date, we have been unable to meet our obligations on a timely or delayed
basis, as funding has been made available on an as-needed basis. We cannot
assure you that our Chairman of the Board will continue to provide funding
beyond the amount of the revolving note agreement.

We received $650,000 of bridge financing from Euro Atlantic Capital Corporation.
On November 16, 2002, Euro Atlantic Capital Corporation converted the notes in
the principal amount of $650,000 plus $25,000 accrued interest into 675,000
shares of common stock.

**Contractual Obligations And Commercial Commitments**

The following table summarizes our contractual obligations and commercial
commitments as of June 30, 2004:

Significant Obligations  Total    Within 1 Year  2-3 Years  4-5 Years  After 5 Years
-----------------------  -------  -------------  ---------  ---------  -------------
Capital Leases           $-
Operating Leases         $13,992  $13,992        $-         $-         $-

We are committed under lease for our Gainesville, Florida office and laboratory
facilities. This lease expires in March 2005. We do not have any capital leases.

**Recent Pronouncements**

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 148 ("SFAS No. 148"), "Accounting for Stock-Based Compensation,
Transition and Disclosure." SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also requires that
disclosures of the pro forma effect of using the fair value method of accounting
for stock-based employee compensation be displayed more prominently and in a
tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma
effect in interim financial statements. The transition and annual disclosure
requirements of SFAS No. 148 are effective for fiscal years ended after December
15, 2002. The interim disclosure requirements are effective for interim periods
ending after December 15, 2002. The disclosure provision of SFAS No. 148 has
been adopted by the Company with appropriate disclosure included in the
financial statements.

On January 17, 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, An Interpretation of Accounting Research Bulletin No. 51. The primary
objectives of FIN 46 are to provide guidance on how to identify entities for
which control is achieved through means other than through voting rights
(variable interest entities "VIE" and how to determine when and which business
enterprise should consolidate the VIE. This new model for consolidation applies
to an entity in which either (1) the equity investors do not have a controlling
financial interest or (2) the equity investment at risk is insufficient to
finance that entity's activities without receiving additional subordinated
financial support from other parties. FIN 46 will be fully adopted in the third
quarter of 2003. The Company does not believe the adoption of this standard will
have a material impact on its financial reporting.

                                       23

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
except as specified and for hedging relationships designated after June 30,
2003.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. The financial
instruments affected include mandatory redeemable stock, certain financial
instruments that require or may require a registrant to buy back some of its
shares in exchange for cash or other assets and certain obligations that can be
settled with shares of stock. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003. Otherwise it will
become effective at the beginning of the first interim period beginning after
June 15, 2003. The Company does not anticipate that the adoption of this
statement will have any material impact on the balance sheet or statement of
operations.

We believe that the ongoing application of these Statements will not have a
material adverse effect on our financial position, results of operations, or
cash flows.

**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, 2004 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, 2004, the end of the period
covered by this Amended Annual Report on Form 10-KSB/A, 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, 2004, 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.

                                       24
**ITEM 8B. Other Information**

None.

                                    **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 Quick-Med
Technologies' directors, executive officers and significant employees.

Our executive officers, key employees and directors are as follows:

        Name              Age                    Position
----------------------    ---     ----------------------------------------------

Michael R. Granito (1)     52      Founder and Chairman of the Board

David S. Lerner  (1)       51      Founder, President, and Director

George E. Friel (1)        62      Vice President, Chemical & Biological Affairs,
                                   and Director

Paul G. Cerjan (1)         66      Vice President, Worldwide Military Affairs,
                                   and Director

Gerald M. Olderman (1)     71      Vice President, Research & Development and
                                   Commercialization, and Director

Gregory S. Schultz (1)     54      Vice President, Laboratory & Clinical
                                   Research, and Director

Richard F. Caffrey (1)     62      Director

Nam H. Nguyen              47      Chief Financial Officer

Natasha A. Sorobey         35      Corporate Secretary, and Corporate & Investor
                                   Relations

NOTE: (1) Directors with term to expire on the next annual stockholders meeting
in December 2004.

**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
Investment Management located in New York City. From 1984 through 1996 he served

                                       25

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.

**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 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

                                       26

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.

**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 certified 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 that 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 all aspects of 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.

                                       27
**Significant Employees**

We employ a senior research scientist, a scientist, a product development
engineer and a part time senior research scientist, who are an integral part of
our research and development team.

**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.

**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".

                                       28
**Code of Ethics**

We are currently developing our Ethics Code.

**Compliance with Section 16(a) of the Securities Exchange Act of 1934**

Under United States securities laws, our directors, executive officers and any
persons holding more than 10% of our issued and outstanding 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,
2004, with the exception of (i) the reporting of transactions which took place
effective July 24, 2003 where certain of our then directors (which did not then
include Mr. Caffrey) received grants of common stock and/or stock options, but
the actual issuance did not take place until September 24, 2004. All such common
stock/stock option recipients failed to file a Form 4 in a timely fashion or at
all during the fiscal year ended June 30, 2004 (Messrs. Granito, Lerner, Friel,
Cerjan and Karsch have not yet filed); and (ii) Mr. Caffrey, who became one of
our Directors on March 8, 2004, has not filed a Form 3.

**ITEM 10. EXECUTIVE COMPENSATION**

David S. Lerner currently receives an annual salary of $125,000 per year and
Gerald M. Olderman is paid at an annual rate $72,000 per year. Our other
officers have agreed to act without cash compensation 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     Securities
---------------------------- -------- --------------   Stock        Underlying
                                                       Awards      Options/SARs
                                                        ($)            (#)
---------------------------- -------- -------------- ----------- ---------------
David S. Lerner, President     2004    $ 136,197(1)    $15,950       113,000
---------------------------- -------- -------------- ----------- ---------------
                               2003    $ 140,314(1)      --               --

---------------------------- -------- -------------- ----------- ---------------
                               2002    $  69,767(1)      --          125,000
---------------------------- -------- -------------- ----------- ---------------

NOTES: (1) Includes $3,469, $4,043 and $1,445 for health insurance and $7,728,
       $11,251 and $5,822 for reimbursements of automobile expenses in 2004,
       2003 and 2002, 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, and 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. 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 August 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.

                                       29
**Compensation of Directors**

The Company does not currently pay any cash compensation to its directors other
than restricted common stock and stock options.

During the period ended June 30, 2004, the following restricted common stock and
stock options were granted to directors:

On July 24, 2003, we granted 29,000 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 234,000 shares of restricted common stock. These stock options were issued to
Mr. Granito for his services as Chairman of the Board.

On July 24, 2003, we granted 29,000 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 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.

On July 24, 2003, we granted 29,000 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 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.

On July 24, 2003, we issued 29,000 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 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.

On July 24, 2003, we granted 29,000 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 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.

On July 24, 2003, we issued 26,000 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 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.

On July 24, 2003, we granted 26,000 shares of common stock to 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. On November 5, 2003, Mr. Hutt resigned
from the board.

On July 24, 2003, we granted 26,000 shares of common stock to 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. On September 30, Mr. Karsch
resigned from the board.

The exercise price of all stock options granted to directors as set forth above
was $0.55 per share, which was the closing trading price of our common stock at
the date of grant.

                                       30
**Option/SAR Grants in Last Fiscal Year**

------------ --------------------- --------------- ---------------- ----------------
Name         Number of Securities  Percent of      Exercise or Base  Expiration Date
             Underlying            Total Options/  Price ($/Share)
             Options/SARs          SARs Granted to
             Granted (#)           Employees in
                                   Fiscal Year
------------ --------------------- --------------- ---------------- ----------------
David Lerner     113,000                9.4%       $0.55 per share   July 1, 2009
------------ --------------------- --------------- ---------------- ----------------

**Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values**

------------ ------------ --------- -------------------------------- ---------------------------
Name         Shares       Value     Number of Securities Underlying  Value of Unexercised
             Acquired on  Realized  Unexercised Options/SARs at      In-The-Money Options/SARs
             Exercise (#) ($)       Fiscal Year-End (#)              at Fiscal Year-End ($)
                                    Exercisable / Unexercisable      Exercisable / Unexercisable

------------ ------------ --------- -------------------------------- ---------------------------
David Lerner      0           0            663,000/663,000                    $0/$0
------------ ------------ --------- -------------------------------- ---------------------------

**Employment Contracts and Termination of Employment and Change in Control
Arrangements**

In May 2002, we entered into an employment letter with Gerard Bencen to serve as
Executive Vice President in charge of Intellectual Property and Gainesville
Operations. His annual compensation was $125,000 and 100,000 options with an
exercise price equal to 75% of the average closing bid for the first 30 days of
trading. Mr. Bencen resigned in March 2003 and his employment contract was
terminated.

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 minimum cash payment and the remainder may be paid in shares of
restricted common stock. In addition, he has also received 200,000 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 tables sets forth, as of October 15, 2004, 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

                                       31

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
18,443,401 shares issued and outstanding as of October 15, 2004.

The following table sets forth the ownership of our common stock by:

o    Each stockholder known by us to own beneficially more than 5% of our common
     stock;
o    Each executive officer;
o    Each director or nominee to become a director; and
o    All directors and executive officers as a group.

Name and Address of Beneficial Owner(A)             Shares Beneficially Owned
----------------------------------------------- --------------------------------
                                                       Number          Percent
                                                   -------------       -------

Michael R. Granito, Chairman and Director           6,752,000 (1)       30.3%
David S. Lerner, President and Director             4,956,164 (2)       22.2%
Paul G. Cerjan, Director and Vice President           963,500 (3)        4.3%
George E. Friel, Director and Vice President          736,500 (4)        3.3%
Gerald M. Olderman, Director and Vice President     1,035,500 (5)        4.6%
Gregory S. Schultz, Director and Vice President     1,104,500 (6)        5.0%
Richard F. Caffrey, Director                           38,822 (7)        0.2%
Natasha A. Sorobey, Corporate Secretary               651,546 (8)        2.9%
Nam H. Nguyen, Chief Financial Officer                594,256 (9)        2.7%

All Quick-Med Directors and Officers as a Group    16,820,788           75.5%
(9 persons)

NOTES:
(A)  The address for each of the above is c/o Quick-Med Technologies, Inc., 3427
     SW 42nd Way, Gainesville, Florida 32608.

(1)  Includes 474,000 shares issuable upon the exercise of options exercisable
     within 60 days. Does not include convertible debt.

(2)  Includes 663,000 shares issuable upon the exercise of options exercisable
     within 60 days.

(3)  Includes 172,000 shares issuable upon the exercise of options exercisable
     within 60 days.

(4)  Includes 202,500 shares issuable upon the exercise of options exercisable
     within 60 days.

(5)  Includes 539,000 shares issuable upon the exercise of options exercisable
     within 60 days.

(6)  Includes 341,000 shares issuable upon the exercise of options exercisable
     within 60 days.

(7)  Includes 10,000 shares issuable upon the exercise of options exercisable
     within 60 days.

                                       32

Notes cont'd:
(8)  Includes 99,999 shares issuable upon the exercise of warrants exercisable
     within 60 days.

(9)  Includes 150,000 shares issuable upon the exercise of warrants exercisable
     within 60 days.

**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

In January 2003, we converted the note payable balance of $23,710 plus accrued
interest due to Think Tank Associates, Inc., a company owned by our President,
into 30,855 restricted shares of common stock.

In May 2003, we issued 500,000 shares of restricted common stock to our Chairman
of the Board for $250,000 in cash.

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.

At June 30, 2004 and 2003, 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.

For the fiscal years ended June 30, 2004 and 2003, we received approximately
$529,000 and $635,000, respectively, from our Chairman, of which $50,000 was
repaid, and accrued interest of approximately $90,000 and $57,000, respectively.
At June 30, 2004, the amount of the notes payable to our Chairman and to our
President of $1,829,200 and 73,839, respectively, plus accrued interest, totaled
$2,086,000 and are convertible into approximately 4,145,000 shares of common
stock. During the fiscal year 2004, the president loaned us approximately
$75,500 to fund operations, of which $1,978 was repaid. The interest rate on
this loan is 6% per annum.

In September 2003, we negotiated a successor agreement with our Chairman, Mr.
Michael Granito, 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 to July 31, 2005
with the consent of Mr. Granito. The convertible note is secured by our assets
and revenues and is senior to all other debt obligations. The note plus accrued
interest will be convertible into common stock, 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 we sell common
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 us by purchasing restricted common stock at prices to be
agreed to by us or other means. As of June 30, 2004 and 2003, no conversions
into common stock had taken place. In August 2004, the Board of Directors
granted the Chairman the right to consolidate the short-term debt and its
related accrued interest into the convertible note under the same terms.

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.

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 as
our founders. 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.

                                       33
**ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.**

(a)      Exhibits

Exhibit
Number                              Description
-------                             -----------

2.1      Merger Agreement dated March 19, 2001 between Above Average
         Investments Ltd. and Quick-Med Technologies, Inc. (1)

2.2      Amendment to Merger Agreement (1)

3.1      Articles of Incorporation (1)

3.2      Bylaws (1)

10.1     Quick-Med Technologies MMP License Agreement (1)

10.2     Quick-Med Technologies Stock Option Plan (1)

10.3     Cooperative Research and Development Agreement with the U.S.
         Army Medical Research Institute of Chemical Defense (1)

10.3     Financing Agreement with Euro Atlantic Capital Corporation (1)

10.4     Consulting Agreement - Gregory Schultz (1)

10.5
10.5.1   Consulting Agreement - Christopher Batich (1)
10.5.2   Consulting Agreement - Bruce Mast (1)
10.5.3   Consulting Agreement - William Toreki (1)

10.6     Note issued to Michael Granito by Quick-Med Technologies (1)

10.7     Employment Agreement with Gerard Bencen (1)

10.8     Research and Development Agreement with The Collaborative Group, Ltd.(2)

31.1     Certification of Principal Executive Officer Pursuant to Rule
         13a-14(a) and 15d-14(a), filed herewith.

31.2     Certification of Chief Financial Officer Pursuant to Rule
         13a-14(a) and 15d-14(a), filed herewith.

32.1     Certification of Principal Executive Officer Pursuant to 18 U.S.C.
         Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
         Act of 2002, filed herewith.

32.2     Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
         1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002, filed herewith.

99.3     Assignment of Patent for Wound Care (1)

99.4     Assignment of Patent for Mustard Gas (1)

99.5     Assignment of Patent for Anti-wrinkle cream (1)

                                       34

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

(b)  Reports on Form 8-K

On October 6, 2003, we reported on Form 8-K under Item 5, Other Events, that on
September 30, 2003, the United States Securities and Exchange Commission ("SEC")
filed a civil lawsuit against our then General Counsel/Director/Secretary,
Michael Karsch, MCG Partners, Inc., of which Mr. Karsch was a managing director,
and others (SEC v. 2DoTrade, Inc. et al., Civil Action Number 3:03-CV-2246-N
(Godbey) (N.D. Texas, Dallas Division), alleging that Mr. Karsch and MCG
Partners violated and aided and abetted violations of Section 10(b) of the
Securities and Exchange Act of 1934 and Rule 10b-5 thereunder; violated Section
17(a) of the Securities Act of 1933 ("Securities Act"); and violated Section
5(a) and 5(c) of the Securities Act. We also reported that simultaneous to the
above SEC action, the United States Justice Department obtained federal criminal
indictments against Mr. Karsch and others (UNITED STATES OF AMERICA V. BARRY
WILLIAM GEWIN ET AL, Criminal No. 03-366 (District of Columbia)). We also
reported that On September 30, 2003, the same day the SEC took action against
Mr. Karsch, our Board of Directors held a Special Meeting at which Mr. Karsch's
resignation as director was accepted; Mr. Karsch was also removed as General
Counsel and Corporate Secretary. Mr. Karsch's removal was not due to any
disagreement with or observed conflict with the Company on any matter relating
to the Company's operations, policies, or practices.

On November 3, 2003, we reported on Form 8-K, under Item 5, Other Events, that
we accepted the resignation and removed our then general counsel and director
Michael Karsch from office after learning that he had been indicted that day on
alleged violations unrelated to us. We also reported that we obtained outside
counsel to review legal matters including certain transactions relating to a
dispute we had with Euro Atlantic Capital Corporation ("EAC") in which Mr.
Karsch had been involved.

**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, 2004 and June 30, 2003 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, 2004         June 30, 2003
                                -------------         -------------
(i)       Audit Fees               $ 29,000              $ 37,290
(ii)      Audit Related Fees            $ 0                   $ 0
(iii)     Tax Fees                 $ 10,475               $ 8,985
(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 2004 were accepted by the audit committee and approved by the full Board
of Directors.

                                       35
**SIGNATURES**

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused its Annual Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                               **QUICK MED TECHNOLOGIES, INC.**

Date: October 20, 2004                         By: /s/ DAVID S. LERNER
                                               David S. Lerner, President and
                                               Principal Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:

       Signature                  Title                          Date

/s/ DAVID S. LERNER      President and Director             October 20, 2004
David S. Lerner

/s/ MICHAEL R. GRANITO   Chairman of the Board              October 20, 2004
Michael R. Granito

/s/ PAUL G. CERJAN       Vice President, Worldwide          October 20, 2004
Paul G. Cerjan           Military Affairs, and Director

/s/ GREGORY S. SCHULTZ   Vice President, Laboratory &       October 20, 2004
Gregory S. Schultz       Clinical Research, and Director

/s/ GEORGE E. FRIEL      Vice President, Chemical &         October 20, 2004
George E. Friel          Biological Affairs, and Director

/s/ GERALD M. OLDERMAN   Vice President, Research           October 20, 2004
Gerald M. Olderman       & Development and
                         Commercialization, and Director

/s/ RICHARD CAFFREY      Director                           October 20, 2004
Richard F. Caffrey

/s/ NAM H. NGUYEN        Chief Financial Officer            October 20, 2004
Nam H. Nguyen

/s/ NATASHA A. SOROBEY   Secretary                          October 20, 2004
Natasha A. Sorobey

                                       36
**QUICK-MED TECHNOLOGIES, INC.

                              FINANCIAL STATEMENTS

                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003****TABLE OF CONTENTS**

Independent Auditor's Report.............................................F-2

Financial Statements:

   Balance Sheets as of June 30, 2004 and 2003...........................F-3

   Statements of Operations for the years ended June 30, 2004 and 2003 ..F-4

   Statements of Changes in Stockholders' Deficit for the years ended
      June 30, 2004 and 2003.............................................F-5

   Statements of Cash Flows for the years ended June 30, 2004
      and 2003........................................................F-6 - F-7

Notes to Financial Statements.........................................F-8 - F-18

                                      F-1

                               DaszkalBolton LLP
                          Certified Public Accountants

Michael I. Daszkal, CPA, P.A.                     2401 N.W. Boca Raton Boulevard
Jeffery A. Bolton, CPA, P.A.                                Boca Raton, FL 33431
Timothy R. Devlin, CPA, P.A.                                     t: 561.367.1040
Michael S. Kridel, CPA, P.A.                                     f: 561.750.3236
Marjorie A. Horwin, CPA, P.A.                              www.daszkalbolton.com

                          INDEPENDENT AUDITOR'S REPORT

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, 2004 and 2003, 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 audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide 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, 2004 and June 30, 2003, 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, 2004 and
2003, and has a net capital deficiency. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding those matters are described in the footnotes accompanying the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ DASZKAL BOLTON LLP

Boca Raton, Florida
October 11, 2004

                                      F-2
**QUICK-MED TECHNOLOGIES, INC.
BALANCE SHEETS
AT JUNE 30, 2004 AND 2003****ASSETS**

                                                 2004             2003
                                              ---------         ---------
     Current assets:
        Cash                                  $  19,805         $  47,423
                                              ---------         ---------
     Property and equipment, net                  2,047             3,880
                                              ---------         ---------
     Other assets:
        Prepaid expenses                         18,777             6,069
        Intangible asset, net                   345,759           363,491
                                              ---------         ---------
               Total other assets               364,536           369,560
                                              ---------         ---------

               Total assets                   $ 386,388         $ 420,863
                                              =========         =========

                      **LIABILITIES AND STOCKHOLDERS' DEFICIT**

     Current liabilities:
        Accounts payable                      $ 222,886         $ 607,241
        Accrued expenses                          6,842             8,518
        Accrued interest on note payable
          - officers/directors                  183,361            90,552
        License payable                         160,000           160,000
        Short-term notes payable
          - officers/directors                  554,624                 -
        Shareholder loan  payable                     -             9,300
                                             ----------        ----------
               Total current liabilities      1,127,713           875,611

     Long-term liability - Note payable
          - officers/directors                1,425,200         1,300,200
                                             ----------        ----------

               Total liabilities              2,552,913         2,175,811
                                             ----------        ----------

     Stockholders' deficit:
        Common stock, $0.0001 par value;
          100,000,000 authorized shares;
          17,652,027 and 14,239,604 shares
          issued and outstanding at June 30,
          2004 and 2003, respectively             1,765             1,424
        Additional paid-in capital            7,611,358         6,332,744
        Outstanding stock options               781,950           103,968
        Accumulated deficit                 (10,561,598)       (8,193,084)
                                             ----------        ----------
               Total stockholders' deficit   (2,166,525)       (1,754,948)
                                             ----------        ----------
               Total liabilities and
                  stockholders' deficit       $ 386,388         $ 420,863
                                             ==========        ==========

                See accompanying notes to financial statements.

                                      F-3
**QUICK-MED TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003**

                                               2004                 2003
                                           ------------         ------------

Revenues                                   $     48,000         $          -

Expenses:
     General and administrative expenses        804,412              807,769
     Research and development                   348,449              618,076
     Depreciation and amortization               44,354               39,768
     Stock-based compensation                 1,126,257            1,758,539
                                           ------------         ------------
Total expenses                                2,323,472            3,224,152
                                           ------------         ------------

Loss from operations                         (2,275,472)          (3,224,152)
                                           ------------         ------------

Other income (expense):
     Interest expense                           (93,042)          (1,036,025)
                                           ------------         ------------

Loss before income taxes                     (2,368,514)          (4,260,177)
                                           ------------         ------------

Provision (benefit) for income taxes                  -                    -
                                           ------------         ------------

Net loss                                   $ (2,368,514)        $ (4,260,177)
                                           ============         ============

Net loss per share (basic and diluted)          $ (0.14)             $ (0.32)
                                                =======              =======

Weighted average common
  shares outstanding                         16,407,808           13,289,672
                                           ============         ============

                 See accompanying notes to financial statements.

                                      F-4
**QUICK-MED TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003**

                                           Common Stock        Additional                Outstanding
                                     -----------------------    Paid-In      Accumulated     Stock
                                        Shares       Amount     Capital        Deficit      Options       Total
                                     ------------  ---------  -----------  -------------  ----------  -----------
Balance, June 30, 2002                 12,767,500      1,277    2,524,781    (3,932,907)      65,800   (1,341,049)
                                     ------------  ---------  -----------  -------------  ----------  -----------

Stock issuance for cash                   667,500         67      397,933             -            -      398,000
Stock issued in debt conversion           705,854         71    1,671,344             -            -    1,671,415
Stock options granted for consulting            -          -            -             -       38,168       38,168
Stock issued for services                  98,750          9       67,440             -            -       67,449
Liabilities paid by a shareholder               -          -       14,625             -            -       14,625
Stock-based compensation                        -          -    1,656,621             -            -    1,656,621
Net loss, June 30, 2003                         -          -            -     (4,260,177)          -   (4,260,177)
                                     ------------  ---------  -----------  -------------  ----------  -----------
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             -            -      600,000
Stock options granted for services              -          -            -             -      677,982      677,982
Stock issued in debt conversion            44,422          4       11,101             -            -       11,105
Stock-based compensation                        -          -      176,100             -            -      176,100
Stock issued for services                 918,001         92      272,083             -            -      272,175
Stock issued for payment of liabilities    50,000          5       27,031                                  27,036
Gain on write-off of liabilities                -          -      192,539             -            -      192,539
Net 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)
                                     ============  =========  ===========  =============  ==========  ===========

                See accompanying notes to financial statements.

                                      F-5
**QUICK-MED TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003**

                                                            2004            2003
                                                           ----------      ----------
Cash flows from operating activities:
    Net loss                                             $ (2,368,514)   $ (4,260,177)
    Adjustments to reconcile net loss to net
      cash used by operating activities:
       Depreciation and amortization                           44,355          39,768
       Common stock issued for services                       272,175          63,750
       Stock options granted for services                     677,982          38,168
       Stock-based compensation                               176,100       1,656,621
       Liabilities paid by a shareholder                            -          14,625
       Interest expense in debt conversion to equity                -         965,559
       (Increase) decrease in prepaid expenses                (12,708)         (4,952)
       Increase (decrease) in:
          Accounts payable                                   (191,816)        219,788
          Accrued interest                                     92,938          70,458
                                                           ----------      ----------
Net cash used by operating activities                      (1,309,488)     (1,196,392)
                                                           ----------      ----------

Cash flows from investing activities:
    Purchase of fixed assets                                        -          (2,747)
    Patents                                                   (24,790)        (51,894)
                                                           ----------      ----------
Net cash used by investing activities                         (24,790)        (54,641)
                                                           ----------      ----------

Cash flows from financing activities:
    Issuance of common stock, net                             600,000         398,000
    Issuance of common stock for payment of a liability        27,036           3,700
    Increase in notes payable                                       -         250,000
    Repayments of notes payable                               (51,978)              -
    Increase in notes payable - officer/director              731,602         635,200
                                                           ----------      ----------
Net cash provided by financing activities                   1,306,660       1,286,900
                                                           ----------      ----------

Net increase (decrease) in cash                               (27,618)         35,867
Cash at beginning of period                                    47,423          11,556
                                                           ----------      ----------
Cash at end of period                                        $ 19,805        $ 47,423
                                                           ==========      ==========

                See accompanying notes to financial statements.

                                      F-6
**QUICK-MED TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003**

                                                              2004           2003
                                                          ------------   ------------
        Supplementary Information:
        -------------------------
           Cash paid for:
             Interest                                       $       -      $       -
                                                          ============   ============
             Income taxes                                   $       -      $       -
                                                          ============   ============

           Non-cash disclosures of investing and
             financing activities:
             Liabilities estimate correction                $ 192,539      $       -
                                                          ============   ============
             Stock options granted to consultant            $  85,492      $  38,168
                                                          ============   ============
             Conversion of debt to equity                   $  11,105      $ 705,856
                                                          ============   ============

                See accompanying notes to financial statements.

                                      F-7
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 1 - DESCRIPTION OF BUSINESS**

Founded in April 1997, Quick-Med Technologies Inc. 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) MultiStat(TM), a family of advanced patented methods and
compounds shown to be effective in skin therapy applications; and (2) Novel
Intrinsically Microbicidal Utility Substrate (NIMBUS(TM)), 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,
MultiStat(TM) is being developed in a cosmetic product line with an initial
anti-aging product under launch. MultiStat(TM) 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 mature state of development in partnership with
the U.S. Army. Quick-Med Technologies Inc.'s NIMBUS(TM) technology has initially
been targeted at (a) protecting building materials from rot or mold, (b) an
advanced bandage product, and (c) several enhanced consumer products, including
antibacterial wipes. In each instance, the Company has employed 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 and 2003.

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.

                                      F-8
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**Stock Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation." SFAS No. 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 No. 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 No. 123.

For the years ended June 30, 2004 and 2003, the Company's net loss and earnings
per share would have been reduced to the pro forma amounts indicated below:

                                                2004               2003
                                           -----------        ------------
Net loss
  As reported                              $(2,368,514)       $(4,260,177)
                                           ============       ============
  Pro forma                                $(2,504,947)       $(4,424,327)
                                           ============       ============
Loss per share
  As reported                                  $ (0.14)           $ (0.32)
                                               ========           ========
  Pro forma                                    $ (0.15)           $ (0.33)
                                               ========           ========

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
patents. 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.

                                      F-9
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**Revenue Recognition
The Company recognizes the revenue as it provides technical and scientific
services to a specialty chemical manufacturer.

Research and Development Costs
Research and development costs are expensed as incurred.

New Accounting Pronouncements
On January 17, 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, An Interpretation of Accounting Research Bulletin No. 51. The primary
objectives of FIN 46 are to provide guidance on how to identify entities for
which control is achieved through means other than through voting rights
(variable interest entities "VIE" and how to determine when and which business
enterprise should consolidate the VIE. This new model for consolidation applies
to an entity in which either (1) the equity investors do not have a controlling
financial interest or (2) the equity investment at risk is insufficient to
finance that entity's activities without receiving additional subordinated
financial support from other parties. FIN 46 will be fully adopted in the third
quarter of 2003. The Company does not believe the adoption of this standard will
have a material impact on its financial reporting.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. The financial
instruments affected include mandatorily redeemable stock, certain financial
instruments that require or may require the issuer to buy back some of its
shares in exchange for cash or other assets and certain obligations that can be
settled with shares of stock. SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003. Otherwise it will
become effective at the beginning of the first interim period beginning after
June 15, 2003. The Company does not anticipate that the adoption of this
statement will have any material impact on the balance sheet or statement of
operations.

**NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS**

The Company's financial instruments are accounts payable and notes payable. The
carrying value of accounts payable and accrual expenses approximates the fair
value based on its short-term nature. The recorded 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, 2004 and 2003:

                                                       2004            2003
                                                   ------------    ------------

Computer equipment                                   $ 9,164         $ 9,164
Less: accumulated depreciation                        (7,117)         (5,284)
                                                     -------         -------
     Net property and equipment                      $ 2,047         $ 3,880
                                                     =======         =======

Depreciation expense for the years ended June 30, 2004 and 2003 were $1,833 and
$1,604 respectively.

                                      F-10
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****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, 2004 and 2003 were
$153,569 and $111,048 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, should the
Company elect not to pay each inventor $25,000 per year until all such
milestones are met. At June 30, 2004 and 2003, 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.

In November 2002, the Company and the University of Florida Research Foundation
("University") has entered into an agreement whereby the University has given
their rights to the Company for its exclusive use of its license.

New Patents
During the fiscal year 2004, the Company filed seven new patent applications
relating to the new projects: combination cosmetic cream, NIMBUS treatment of
lumber, and antimicrobial and antiproteolytic wound dressing and method. The
capitalized costs to date of these five new patent applications are $24,789. The
termination dates for patents resulting from these applications are November 18,
2004, January 31, 2005, August 25, 2005, August 5, 2006.

During the fiscal year 2003, the Company filed five new patent applications
relating to the new projects: treatment of mustard gas, NIMBUS treatment of
lumber, and antimicrobial and antiproteolytic wound dressing and method. The
capitalized costs to date of these five new patent applications are $8,331. The
termination dates for patents resulting from these applications are, December 4,
2003, February 25, 2004, June 20, 2004, June 30, 2004 and July 31, 2023
respectively.

                                      F-11
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 5 - INTANGIBLE ASSETS, continued**

                                      June 30, 2004              June 30, 2003
                                ------------------------    ------------------------
                                  Gross      Accumulated      Gross     Accumulated
                                  Amount    Amortization      Amount    Amortization
                                ---------   ------------    ---------    -----------
Amortized Intangible Assets
---------------------------
License agreement               $ 425,215    $ (153,569)    $ 425,215    $ (111,048)
Patents in process                 74,112             -        49,324             -
                                ---------    -----------    ---------    -----------

Total                           $ 499,327    $ (153,569)    $ 474,539    $ (111,048)
                                =========    ===========    =========    ===========

Patents in process will be amortized when the patents are issued. As of June 30,
2004, management cannot estimate when that date will be.

                                        June 30, 2004                 June 30, 2003
                                  -------------------------     -----------------------
                                    Gross       Accumulated      Gross     Accumulated
                                    Amount     Amortization      Amount    Amortization
                                  ---------   -------------     ---------  ------------
Aggregate Amortization Expense
------------------------------
For the years ended               $ 42,521      $ 153,569       $ 38,165    $ 111,048
                                  =========     ==========      =========   ==========

Estimated Amortization Expense             Amount
------------------------------

For the year ended June 30, 2005         $ 42,521
For the year ended June 30, 2006         $ 42,521
For the year ended June 30, 2007         $ 42,521
For the year ended June 30, 2008          $ 4,356

**NOTE 6 - RELATED PARTY TRANSACTIONS**

For the fiscal years ended June 30, 2004 and 2003, the Company received $731,602
and $635,200, respectively, from the Company's chairman and President. At June
30, 2004 and 2003, the amount of the notes and accrued interest payable was
$2,163,185 and $ 1,390,752, respectively. The notes payable and accrued interest
is convertible into 4,145,000 common shares. During the year ended June 30, 2004
the Company repaid the chairman and President $51,978.

                                      F-12
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 6 - RELATED PARTY TRANSACTIONS (Continued)**

In September 2003 the Company negotiated a successor agreement with the 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 31, 2005 by the 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.
As of June 30, 2004 and 2003 no conversions into common stock had taken place.
In August 2004, the Board of Directors granted the chairman the right to
consolidate the short-term debt and its related accrued interest into the
convertible note under the same terms.

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, 2004 and 2003, 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 2005.

**NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT)**2004
During the fiscal year ended June 30, 2004, the Company sold 2,400,000 shares of
common stock for $600,000 in cash.

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.

2003
During the fiscal year ended June 30, 2003, the Company sold 667,500 shares of
common stock for $398,000 in cash.

In November 2002, the Company converted a $650,000 note payable to a shareholder
plus accrued interest into 675,000 shares of common stock. As a result, the
Company took a charge of $965,559 in interest expense in fiscal year 2003.

In January 2003, the Company converted a $26,191 note payable to an officer and
shareholder plus accrued interest into 30,855 shares of common stock.

In May 2003, the Company issued 98,750 shares of common stock for professional
services. The Company recorded $63,750 in expense.

                                      F-13
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 8 - COMMITTMENTS**

The Company leases an equipped laboratory in Gainesville, Florida. The lease
expires in March 2005. Rent expense for the years ended June 30, 2004 and 2003,
were approximately $13,500 and $15,000, respectively.

The following is a schedule of minimum future payments on the operating leases
as of June 30, 2004:

      For The Years Ending June 30,
-----------------------------------------

        2004                    $13,992
        2005                          -
        2006                          -
     Thereafter                       -
                                -------
       Total                    $13,992
                                =======

**NOTE 9 - STOCK OPTIONS AND WARRANTS**

The Company adopted a qualified equity incentive plan on March 4, 2001. Under
the Plan the Company is authorized to grant up to 3,000,000 shares of common
stock. 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 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 are 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.

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, 2004 and 2003 was $1,126,257 and $1,758,789 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%
           Expected life (years)              5
           Expected volatility                50%
           Expected dividends                 None

                                      F-14
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 9 - STOCK OPTIONS AND WARRANTS (Continued)**

A summary of options for the years ended June 30, 2004 and 2003 is shown below:

                                                 June 30, 2004                   June 30, 2003
                                         -----------------------------  ------------------------------
                                           Number     Weighted-Average     Number     Weighted-Average
                                         of Shares     Exercise Price    of Shares     Exercise Price
                                         ----------   ----------------  ----------    ----------------
Outstanding at beginning of period        1,980,000       $ 2.68         1,980,000         $ 3.23
Granted                                   1,201,500         0.55                 -              -
Exercised                                         -            -                 -              -
Forfeited                                  (198,000)        2.93                 -              -
                                         ----------       ------        ----------         ------
Outstanding at end of period              2,983,500       $ 2.17         1,980,000         $ 3.23
                                         ----------       ======        ----------         ======
Exercisable at end of period              2,983,500                      1,633,333
                                         ----------                     ----------
Available for issuance at end of period     856,500                      1,860,000
                                         ==========                     ==========

In August 2004, the Board of Directors has authorized the issuance up to
1,000,000 options and 500,000 shares of restricted common stock to be granted to
directors, employees and service providers.

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, and one third twenty four months
subsequent to the grant dates. 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)              5
           Expected volatility                138%
           Expected dividends                 None

The following is a summary of warrants granted, exercised, canceled and
outstanding involving the grants in the fiscal year 2004:

                                               June 30, 2004
                                        -----------------------------
                                          Number     Weighted-Average
                                        of Shares     Exercise Price
                                        ---------    ----------------

Outstanding at beginning of period              -            $ -
Granted                                   567,500           0.20
Exercised                                       -              -
Forfeited                                       -              -
                                         --------         -------
Outstanding at end of period              567,500          $ 0.20
                                         ========         =======
Exercisable at end of period              220,832
                                         ========

                                      F-15
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 10 - 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 has 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:

                                 2004            2003
                           ---------------  ---------------
Current                         $ -              $ -
Deferred                          -                -
                                ----             ----
                                $ -              $ -
                                ====             ====

Deferred tax assets for June 30, 2004 and 2003 consist of the following:

                                                         2004                2003
                                                   ----------------    ----------------
Deferred tax assets:
     Depreciation and amortization                     $    1,303          $    1,303
     Tax benefit of capitalized start-up costs             40,413              67,355
     Stock based compensation                           1,680,733           1,480,765
     Net operating loss carry forward                   2,202,298           1,488,744
     Research tax credit                                    7,203               7,203
                                                       -----------         -----------
Total deferred tax assets                              (3,931,950)         (3,045,370)
                                                       -----------         -----------

Valuation allowance:
     Beginning of year                                 (3,045,370)         (1,444,375)
     Decrease (increase) during the year                 (886,580)         (1,600,995)
                                                       -----------         -----------
     Ending balance                                    (3,931,950)         (3,045,370)
                                                       -----------         -----------
Net deferred taxes                                     $        -          $        -
                                                       ===========         ===========

                                      F-16
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 10 - 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, 2004 and 2003, is as follows:

                                                          2004                2003
                                                   -----------------    ----------------

Federal income tax at statutory rate of 34%           $ (801,056)        $(1,447,234)
State tax, net of federal benefit                        (85,524)           (154,514)
Other                                                          -                 753
Valuation allowance                                      886,580           1,600,995
                                                      -----------         ----------
                                                      $        -          $        -
                                                      ===========         ===========

The Company has a net operating loss carry forward of approximately $5,269,000
which will begin to expire in 2018.

**NOTE 11 - NOTE PAYABLE**

In September 2003, the Company negotiated a successor agreement with the
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 till July 31, 2005 by
the 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. As of June 30, 2004 and 2003 no conversions into common
stock had taken place.

**NOTE 12 - GOING CONCERN**

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

For the remainder of the fiscal year 2005, the Company will rely on funds
provided by a line of credit described in Note 11 above. In July 2004, the
Company has engaged the investment banker as an exclusive financial advisor and
assist the Company with financial analysis and financial and strategic
alternatives. In addition, the investment banker will assist the Company on a
best efforts basis with the identification and securing of equity and/or debt
capital and the location and analysis of potential strategic transactions. The
Company's common stock began trading on September 4, 2002 on the OTC Bulletin
Board and the Company intends to raise additional equity. 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.

                                      F-17
**QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS****NOTE 13 - CHANGE IN ESTIMATE**

During the fiscal year ended June 30, 2004, as part of an internal review, the
underlying invoices for legal services of approximately $192,539 were examined
and 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 adjust these estimated liabilities to the amount of $0 and
recorded in accordance with the provisions of APB 20, par. 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 14 - SUBSEQUENT EVENTS**

From July to September 2004, the Chairman has funded approximately $190,000 to
the Company for its operations, including the payment of $10,000 for legal fees
expense. These amounts are included in the short-term note payable.

As of October 11, 2004, approximately 791,000 of restricted common stock were
issued for compensation of services.

                                      F-18
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