UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)





x
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended December 31, 2009.





or





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from to.





Commission File Number: 0-27545





QUICK-MED TECHNOLOGIES, INC.


(Exact Name of Registrant as Specified in its Charter)





Nevada

65-0797243(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer Identification No.)





902 N.W. 4th Street


GAINESVILLE, FLORIDA 32601


(Address of Principal Executive Offices) (Zip Code)





(888) 835-2211


(Registrant’s Telephone Number, Including Area Code)





N/A


(Former Name, Former Address and Former Fiscal Year, If Changes Since Last Report)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   ̈


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes  ̈ No  x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” or “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).





Large accelerated filer   ̈                                                                                                   Accelerated
filer   ̈


Non-accelerated filer   ̈  (Do not check if a smaller reporting company)       Smaller reporting company   x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   ̈    No   ̈





As of February 12, 2010, there were 31,342,298 shares of common stock, par value $0.0001 per share, outstanding.

















QUICK-MED TECHNOLOGIES, INC.

INDEX TO FORM 10-QPART I
FINANCIAL INFORMATIONItem 1.             Financial StatementsCondensed Balance Sheets as of  December 31, 2009 and June 30, 2009 (unaudited)
1Condensed Statements of Operations for thethree and six months ended December 31, 2009  and 2008 (unaudited)
2Condensed Statement of Changes in Stockholders’ Deficit for the three monthsended December 31, 2009 (unaudited)
3Condensed Statements of Cash Flows for the six months ended December 31, 2009 and 2008 (unaudited)
4Notes to Condensed Financial Statements (unaudited)
5-13Item 2.             Management’s Discussion and Analysis of Financial Condition and Results of Operations
14Item 3.             Quantitative and Qualitative Disclosure About Market Risk
21Item 4T.           Controls and Procedures
21PART II
OTHER INFORMATIONItem 1.
Legal Proceedings
22Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22Item 3.
Defaults Upon Senior Securities
24Item 4.
Submission of Matters to a Vote of Security Holders
24Item 5.
Other Information
24Item 6.
Exhibits
24SIGNATURES
25






Index




PART I
FINANCIAL INFORMATION
  ITEM 1.         FINANCIAL STATEMENTS
    QUICK-MED TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (UNAUDITED)
 ASSETSDecember 31,


June 30,2009


2009Current assets:Cash and cash equivalents

$
37,210


$
41,216Accounts receivable


70,213



18,562Total current assets


107,423



59,778Property and equipment, net


10,311



14,969Other assets:Prepaid expenses


12,384



9,706Intangible asset, net


385,697



408,095Total other assets


398,081



417,801Total assets

$
515,815


$
492,548LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable

$
569,274


$
562,611Unearned revenue


30,356



51,428Accrued expenses


326,857



233,631Convertible note payable - officer


105,507



102,482Convertible note payable - related party


445,438



430,315Total current liabilities


1,477,432



1,380,467License payable


160,000



160,000Long-term liability - convertible note payable - director


4,830,394



3,916,290Total liabilities


6,467,826



5,456,757Commitments and contingenciesStockholders' deficit:Common stock, $0.0001 par value; 100,000,000authorized shares; 31,242,298 and 31,039,707 shares issued andoutstanding at September and June 30, 2009, respectively


3,124



3,104Additional paid-in capital


12,201,266



11,927,286Outstanding stock options


3,575,848



3,213,987Accumulated deficit


(21,732,249
)


(20,108,586
)Total stockholders' deficit


(5,952,011
)


(4,964,209
)Total liabilities and stockholders' deficit

$
515,815


$
492,548
 
 
  See accompanying notes to unaudited condensed financial statements.
 -1-
 Index
 
 
 QUICK-MED TECHNOLOGIES, INC.
 CONDENSED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 
 Three Months Ended


Six Months EndedDecember 31,


December 31,2009


2008


2009


2008RevenuesProduct sales

$
116,337


$
59,309


$
124,308


$
770,980Royalty fees


47,392



-



51,967



-Research and development service


32,500



48,000



47,500



67,100License fees


1,786



1,786



3,571



3,571198,015



109,095



227,346



841,651Expenses:Cost of sales


5,185



2,558



6,344



32,480Research and development


397,127



317,761



642,817



562,690General and administrative expenses


392,444



470,575



671,935



808,824Licensing and patent expenses


89,518



69,762



133,332



117,535Depreciation and amortization


17,627



17,976



35,603



35,952Total expenses


901,901



878,632



1,490,031



1,557,481Income (loss) from operations


(703,886
)


(769,537
)


(1,262,685
)


(715,830
)Other income (expense):Interest income


17



1,664



24



1,780Interest expense


(181,370
)


(65,018
)


(361,002
)


(125,614
)Loss before income taxes


(885,239
)


(832,891
)


(1,623,663
)


(839,664
)Provision (benefit) for income taxes


-



-



-



-Net loss

$
(885,239
)

$
(832,891
)

$
(1,623,663
)

$
(839,664
)Net loss per share (basic and diluted)

$
(0.03
)

$
(0.03
)

$
(0.05
)

$
(0.03
)Weighted average commonshares outstanding (basic and diluted)


31,192,068



30,917,239



31,189,561



30,895,718
   See accompanying notes to unaudited condensed financial statements.
  -2-
 Index
   QUICK-MED TECHNOLOGIES, INC.
 CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
 FOR THREE MONTHS ENDED DECEMBER 31, 2009
 (UNAUDITED)
 
  
 AdditionalCommon Stock


Paid-In


Accumulated


OutstandingShares


Amount


Capital


Deficit


Stock Options


TotalBalance, September 30, 2009


31,189,613


$
3,119


$
12,084,354


$
(20,847,010
)

$
3,270,575


$
(5,488,962
)Stock-based compensation


-



-



-



-



314,773



314,773Stock issuance for services


2,685



-



2,000



-



-



2,000Exercise of stock options


50,000



5



19,495



-



(9,500
)


10,000Convertible debt beneficial conversion feature


-



-



95,417



-



-



95,417Net loss, October 1  to December 31, 2009


-



-



-



(885,239
)


-



(885,239
)Balance, December 31, 2009


31,242,298


$
3,124


$
12,201,266


$
(21,732,249
)

$
3,575,848


$
(5,952,011
)
 
 See accompanying notes to unaudited condensed financial statements.
  -3-
 Index
  QUICK-MED TECHNOLOGIES, INC.
 CONDENSED STATEMENTS OF CASH FLOWS
 FOR THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008
 (UNAUDITED)
    2009


2008Cash flows from operating activities:Net loss

$
(1,623,663
)

$
(839,664
)Adjustments to reconcile net loss to netcash used in operating activities:Depreciation and amortization


35,603



35,952Stock granted for services


5,000



12,000Stock-based compensation


397,461



452,127Interest expense on convertible debt beneficial conversion


198,750



-(Increase) decrease in:Accounts receivable


(51,651
)


297,705Prepaid expenses


(2,678
)


(7,074
)Increase (decrease) in:Accounts payable


99,888



(438,796
)Accrued interest


162,252



125,614Other current liabilities


(21,072
)


(5,328
)Net cash used in operating activities


(800,110
)


(367,464
)Cash flows from investing activities:Patents


(8,546
)


(4,774
)Net cash used in investing activities


(8,546
)


(4,774
)Cash flows from financing activities:Proceeds from exercise of stock options


34,650



-Increase in notes payable - officer


-



100,000Increase in notes payable - director


770,000



350,000Net cash provided by financing activities


804,650



450,000Net increase (decrease) in cash and cash equivalents


(4,006
)


77,762Cash and cash equivalents at beginning of period


41,216



72,817Cash and cash equivalents at end of period

$
37,210


$
150,579Supplementary Information:Cash paid for:Interest

$
-


$
-Income taxes

$
-


$
-Non-cash disclosures of investing andfinancing activities:Stock-based compensation

$
402,461


$
464,127Interest expense on beneficial conversion

$
198,750


$
-
  See accompanying notes to unaudited condensed financial statements.
  -4-
 Index
   QUICK-MED TECHNOLOGIES, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (UNAUDITED)
 
  NOTE 1 - DESCRIPTION OF BUSINESS
 
 The accompanying unaudited condensed financial statements of Quick-Med Technologies, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of the management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation.  Operating results for the six months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010. For further information, refer
to the financial statements and the footnotes thereto contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009, as filed with the Securities and Exchange Commission.
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The Company has continuing losses from operations, negative working capital 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.
 
 In May 2009, the Financial Accounting Standards Board (“FASB”) established general accounting standards and disclosure for subsequent events. The Company adopted FASB Accounting Standards Codification (“ASC”) 855, Subsequent Events(formerly referenced as Statement
of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events), on June 30, 2009. The Company has evaluated subsequent events through the date and time the financial statements were issued on February 16, 2010.
 
 NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
 Cash and Cash Equivalents
 
 All highly liquid investments purchased with maturity of three months or less from the time of purchase are considered to be cash equivalents.
 
 Use of Estimates
 
 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and
 liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 Intangible Assets
 
 The costs of obtaining license agreements along with the costs to defend the patents underlying the license agreements are capitalized and amortized using the straight-line method over the estimated useful lives of the underlying license agreements.  The costs of obtaining and maintaining new patents are capitalized and amortized
using the straight-line method over the estimated useful lives of the patents. The cost of patents in process is not amortized until the patent is issued.
   
 -5-
 Index
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 Property and Equipment
 
 Property and equipment are stated at cost.  Depreciation on property and equipment is computed using the straight-line method over the expected useful lives of the assets.
  Accounts Receivable and Allowance for Doubtful Accounts
 
 Accounts receivable as of December 31, 2009 represents amounts due from its customers and is reported on the balance sheet reduced by an allowance for doubtful accounts for estimated losses resulting from receivables not considered to be collectible.
 
 Research and Development Costs
 
 Research and development costs are expensed as incurred.
 
 Earnings Per Share
 
 Basic net loss per common share is computed by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding during the period.  Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive
effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. For the periods ended December 31, 2009 and 2008, 12,487,311 and 8,466,160 diluted common stock equivalents, respectively, have been excluded from the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive.
 
 Fair Value Measurements
 
 During the first quarter of fiscal year 2009, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures(formerly
referenced as SFAS No. 157,Fair Value Measurements),   which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. This new accounting standard does not require any new fair value measurements, but rather eliminates inconsistencies in guidance found in various other accounting pronouncements.
 
 This accounting standard establishes a hierarchy for information and valuations used in measuring fair value, which is broken down into three levels. Level 1 valuations are based on quoted prices in active markets for identical assets or liabilities. Level 2 valuations are based on inputs, other than quoted prices included within Level
1, that are observable, either directly or indirectly. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.
 
 The Company also adoptedFASB ASC 825, Financial Instruments(formerly referenced as SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115),which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
 
 Revenue Recognition
  The Company’s revenues consist of the following sources: product sales, royalty fees, research and development service and license fees.
 
 Under the master agreement for product development, manufacturing and distribution (the “Master Agreement”) and the new agreement (“Agreement”) with BASF, which supersedes the Master Agreement, the Company shares proportionately on the net sales and related expenses in accordance with the terms of the Agreement.  The
Company recognizes revenue of its royalties from the sale of products by BASF when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable.
  The Company recognizes royalty fee income based on the net sales of BioguardTM product by our licensee, Derma Sciences Inc. in accordance with the specified terms of the license agreement.
 
 The Company recognizes revenue of its research and development service including the small business innovation research program and the US Army medical research program based on the research work
 performed in accordance with the program requirements or statements of work for the joint development agreements.
 
 The Company also recognizes revenue from the non-refundable exclusivity license fee derived from Derma Sciences Inc. on a pro rata basis over the term of the related exclusive license agreement.  Further, the Company recognizes the exclusive option fee as revenue on a pro rata basis over the term of the related exclusive option
agreement.
 
 
 -6-
 Index
 
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 Unearned Revenue
 
 The amount of unearned revenue represents the exclusive option fee, the license fee, and advance royalty fee yet to be earned on a pro rata basis over the exclusive option period of the related option and license agreements.
 
 Stock Compensation
 
 The Company adopted FASB  ASC 718, Compensation - Stock Compensation(formerly referenced as SFAS No. 123R, Share-Based Payment,), which requires companies to expense the value of employee stock options and similar awards. Under this standard, share-based payment awards
result in a cost that are measured at fair value on the grant date of the awards, based on the estimated number of awards that are expected to vest. Compensation cost for awards that vest would not be reversed if the  awards expire without being exercised. The Company adopted this standard beginning in the first quarter of the fiscal year 2006 via application of the modified prospective approach to all outstanding and unvested share-based payment awards at the adoption date. The fair value of stock
options was determined using the Black-Scholes option-pricing model. The fair value of the restricted stock awards was based on the closing price of the Company's common stock on the date of grant.
 
 Concentration of credit risk of financial instruments
 
 Financial instruments that potentially subject the Company to credit risk consist of cash equivalents and accounts receivable.  As of December 31, 2009, the Company’s cash levels did not exceed the federally
 insured limit. As of December 31, 2009, most of the Company’s accounts receivable was derived from BASF.
 
 The credit risk of the accounts receivable is considered limited given the customers’ credit rating. There were no write-offs of uncollectible receivables during the year ended June 30, 2009.
 
 Income Taxes
 
 The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.
Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
  The Company accounts for income taxes under the provisions ofFASB Accounting Standards Codification (“ASC”) 740, Income Taxes(formerly referenced as FASB Financial Interpretation
No. 48, Accounting for Uncertainty in Income Taxes – an   interpretation of FASB Statement No. 109),which changed the framework for accounting for uncertainty in income taxes.The adoption of this standard does not have an impact on the Company's results
of operations or financial position.
 
 Recently Issued Accounting Pronouncements
 
 In June 2009, the FASB issued the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission
(“SEC”) under authority of the federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the Codification in the third quarter of 2009, and the adoption did not have any impact on its results of operations or financial position
 
 
 -7-
 Index
 
 NOTE 3 – STOCK OPTIONS AND WARRANTS
 
 The Company adopted a qualified equity incentive plan (the “Plan”) on March 4, 2001. Under the Plan the Company is authorized to grant up to 3,000,000 shares of common stock. On December 13, 2004, the shareholders approved the Plan and ratified the amendment to increase the total number of shares to be granted under the Plan
from 3,000,000 to 4,000,000 effective November 1, 2004.  On November 13, 2007, the shareholders ratified the amendment to increase the total number of shares to be granted under the Plan from 4,000,000 to 6,000,000.
 
 On November 17, 2009, the Board of Directors (the "Board') granted 681,785 stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2009. In addition, the Board granted 248,564 warrants payments to consultants for payments of their
services and incentive performance awards.  Of 681,785 stock options grant, approximately 115,428 were awarded to the board members for their services and were vested on the date of grant. Of 248,564 warrants issued, 99,977 warrants were vested immediately on the grant date. The remainder 566,357 stock options and 148,587 warrants were vested one-third immediately, one-third will be vested on November 17, 2010 and the remaining one-third will be vested on November 17, 2011, assuming the person receiving
the equity awards is employed or being utilized by the Company at the time of vesting.   The exercise price of those stock options and warrants is $0.77 per share.  The weighted average grant date fair value of options and warrants was $0.48 per share based on the Black-Scholes option-pricing model.  The options and warrants expire five years from the date of grant.
 
 On October 27, 2008, the Board of Directors (the “Board”) granted 1,335,102 stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2008. In addition, the Board granted 705,302 warrants payments to consultants for payments
of their services and incentive performance awards.  Further, 60,000 shares of restricted common stock were issued to a consultant as payment for services.  Of 1,335,102 stock options grant, approximately 464,102 were awarded to the board members for their services and were vested on the date of grant. Of 705,302 warrants issued, 240,302 warrants were vested immediately on the grant date. The remainder 871,000 stock options and 465,000 warrants were vested one-third immediately, one-third
were vested on October 27, 2009 and the remaining one-third will be vested on October 27, 2010, assuming the person receiving the equity awards is employed or being utilized by the Company at the time of vesting.  The exercise price of those stock options and warrants is $0.20 per share, which was the closing price of the common stock on the date of grant.  The weighted average grant date fair value of options and warrants was $0.19 per share based on the Black-Scholes option-pricing model.  The
options and warrants expire five years from the date of grant.
 On April 18, 2008, the Board of Directors (the “Board”) granted 148,571 shares of restricted common stock as payment for the services rendered by the board members for the year ended June 30, 2007 for those elected to receive common stocks and all shares were immediately vested.  In addition, the Board granted 1,074,666 stock
options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2007.  The stock options were vested one-third immediately, one-third was vested on April 17, 2009 and the remaining one-third will be vested on April 17, 2010, assuming the person
receiving the equity awards is employed by the Company at the time of vesting.  The exercise price of those stock options is $0.42 per share, which was the closing price of the common stock on the date of grant.  The weighted average grant date fair value of options was $0.32 per share based on the Black-Scholes option-pricing model.  The options and warrants expire five years from the date of grant.
 
 On August 6, 2007, the Board of Directors (the “Board”) granted 484,056 non-qualified stock options to the Chief Executive Officer (“CEO”) at an exercise price of $0.75 per share. These options were fully vested and immediately exercisable at the date of grant.  In addition, the Board granted 1,452,167
non- qualified stock options at an exercise price of $0.74 per share on September 25, 2007, as part of the CEO’s employment agreement. The second stock options are vested and become exercisable 1/16th of the total 1,452,167 options on each three-month anniversary
beginning on June 11, 2007.  The average grant date fair value of the options was $0.46 per share based on the Black-Scholes option-pricing model.  These options expire five years from the date of grant.
 
 On December 20, 2006, the Company issued 790,770 stock options to board members, management, employees, and consultants for their services.  These options have an exercise price of $1.05 per share. The stock options were vested one-third immediately, one-third was vested on December 20, 2007 and the
remaining one-third was vested on December 20, 2008, assuming the person receiving the equity awards is employed by the Company at the time of vesting.  The weighted average grant date fair value of options was $0.69 per share based on the Black-Scholes option-pricing model.  The options expire five years from the date of grant.
 
 On September 9, 2005, the Board granted 130,000 shares of restricted common stock as payment for the services rendered by the board members for the year ended June 30, 2005, and all shares were immediately vested.  In addition, the Board granted 710,000 stock options and 175,000 warrants to the employees and directors and consultants,
respectively, in recognition of individual performance for the year ended June 30, 2005.  The stock options and warrants were vested one-third immediately, one-third was vested on July 1, 2006 and the remaining one-third was vested on July 1, 2007.  The exercise price of those stock options and warrants is $0.80 per share, which was the closing price of the common stock on the date of grant.  The weighted average grant date fair value of options was $0.72 per share based on the Black-Scholes
option-pricing model.  The options and warrants expire five years from the date of grant.
 
 During the period ended December 31, 2009, 145,000 options were exercised at $0.17 per share or an aggregate price of approximately $24,650 under the July 2004 stock options agreement.  In addition, 50,000 options were exercised at $0.20 per share or an aggregate price of approximately $10,000 under the October 27, 2008 stock
options agreement.
   -8-
 Index
 
 NOTE 3 – STOCK OPTIONS AND WARRANTS, continued
 
 The weighted average grant date fair value of options and warrants granted during the three and six months ended December 31, 2009 and 2008 were estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions noted in the following table. Expected volatilities are based on historical volatility of common
stock.  The expected term of the options and warrants represents the period of time that options and warrants granted are expected to be outstanding and is derived from historical terms.
 
 Three Months Ended Dec. 31,


Six Months Ended Dec. 31,2,009



2,008



2,009



2,008Risk free interest rate


3
%


3
%


3
%


3
%Expected life (years)


5



5



5



5Expected volatility


91
%

50% to 161%


91% to 161%


101% to 161%Expected dividends

None


None


None


None
 A summary of options for the periods ended December 31, 2009 and 2008 is shown below:
  December 31, 2009


December 31, 2008Number


Weighted-Average


Number


Weighted-Averageof Shares


Exercise Price


of Shares


Exercise PriceOutstanding at beginning of period


4,966,116


$
0.53



5,683,544


$
0.61Granted


681,785



0.77



1,335,102



0.20Exercised


(195,000
)


0.18



-



-Forfeited


-



-



(171,647
)


0.57Expired


(10,000
)


0.17



(871,500
)


0.55Outstanding at end of period


5,442,901


$
0.55



5,975,499


$
0.61Exercisable at end of period


3,542,452







4,004,295Available for issuance at end of period


82,687







24,501
  The following is a summary of warrants granted, exercised, canceled and outstanding involving the grants in the periods ended December 31, 2009 and 2008:
 
 December 31, 2009


December 31, 2008Number


Weighted-Average


Number


Weighted-Averageof Shares


Exercise Price


of Shares


Exercise PriceOutstanding at beginning of period


980,239


$
0.31



744,937


$
0.48Granted


248,564



0.77



705,302



0.20Exercised


-



-



-



-Expired


-



-



-



-Outstanding at end of period


1,228,803


$
0.40



1,450,239


$
0.48Exercisable at end of period


1,006,769







1,166,072
 
 NOTE 4 – NOTES PAYABLE
   Interest


Conversion


December


JuneRelated Party
Maturity

Rate


Price



31, 2009



30, 20092007 Senior Convertible Note
2010


8
%

$
0.74


$
375,000


$
375,000Accrued interest











70,438



55,315Total










$
445,438


$
430,315
 -9-
 Index
 
 NOTE 4 – NOTES PAYABLE, continued
   Interest


Conversion


December


JuneOfficer
Maturity

Rate


Price



31, 2009



30, 20092008 Convertible Notes
2010


8
%

$
0.20



100,000



100,000Accrued interest











5,507



2,482Total










$
105,507


$
102,482Director2003 Senior Convertible Note
2013


6
%

$
0.38


$
1,268,625


$
1,268,625Senior Convertible Note
2013


8
%

$
0.74



208,955



208,9552007 Senior Convertible Note
2013


8
%

$
0.74



375,000



375,0002007 Senior Convertible Note 2
2013


8
%

$
0.55



50,000



50,0002007 Senior Convertible Note 2
2013


8
%

$
0.51



50,000



50,0002007 Senior Convertible Note 2
2013


8
%

$
0.40



50,000



50,0002007 Senior Convertible Note 2
2013


8
%

$
0.40



50,000



50,0002007 Senior Convertible Note 2
2013


8
%

$
0.34



50,000



50,0002007 Senior Convertible Note 2
2013


8
%

$
0.32



50,000



50,0002008 Senior Convertible Note 1
2013


8
%

$
0.32



50,000



50,0002008 Senior Convertible Note 1
2013


8
%

$
0.45



70,000



70,0002008 Senior Convertible Note 1
2013


8
%

$
0.40



75,000



75,0002008 Senior Convertible Note 1
2013


8
%

$
0.33



50,000



50,0002008 Senior Convertible Note 1
2013


8
%

$
0.42



75,000



75,0002008 Senior Convertible Note 1
2013


8
%

$
0.40



50,000



50,0002008 Senior Convertible Note 2
2013


8
%

$
0.29



50,000



50,0002008 Senior Convertible Note 2
2013


8
%

$
0.20



50,000



50,0002008 Senior Convertible Note 2
2013


8
%

$
0.38



50,000



50,0002008 Senior Convertible Note 2
2013


8
%

$
0.35



135,000



135,0002008 Senior Convertible Note 2
2013


8
%

$
0.25



100,000



100,0002008 Senior Convertible Note 2
2013


8
%

$
0.35



50,000



50,0002008 Senior Convertible Note 2
2013


8
%

$
0.25



50,000



50,0002008 Senior Convertible Note 3
2013


8
%

$
0.36



50,000



50,0002008 Senior Convertible Note 3
2013


8
%

$
0.19



50,000



50,0002008 Senior Convertible Note 3
2013


8
%

$
0.31



50,000



50,0002009 Senior Convertible Note 1
2013


8
%

$
0.18



35,000



35,0002009 Senior Convertible Note 1
2013


8
%

$
0.37



35,000



35,0002009 Senior Convertible Note 1
2013


8
%

$
0.43



35,000



35,0002009 Senior Convertible Note 1
2013


8
%

$
0.43



35,000



35,0002009 Senior Convertible Note 1
2013


8
%

$
0.45



35,000



35,0002009 Senior Convertible Note 2
2013


8
%

$
0.48



35,000



35,0002009 Senior Convertible Note 2
2013


8
%

$
0.47



35,000



35,0002009 Senior Convertible Note 2
2013


8
%

$
0.42



35,000



35,0002009 Senior Convertible Note 2
2013


8
%

$
0.53



35,000



35,0002009 Senior Convertible Note 2
2013


8
%

$
0.58



35,000



35,0002009 Senior Convertible Note 2
2013


8
%

$
0.52



35,000



-2009 Senior Convertible Note 2
2013


8
%

$
0.46



35,000



-2009 Senior Convertible Note 2
2013


8
%

$
0.55



35,000



-2009 Senior Convertible Note 2
2013


8
%

$
0.63



50,000



-2009 Senior Convertible Note 2
2013


8
%

$
0.60



45,000



-2009 Senior Convertible Note 3
2013


8
%

$
0.60



570,000



-Accrued interest











552,814



408,710Total long term note payable










4,830,394



3,916,290Total debt










$
5,381,339


$
4,449,087
  
 -10-
 Index
 NOTE 4 – NOTES PAYABLE, continued
 
 In November 2009, the Company finalized and issued a $600,000 2009 senior convertible note payable (“2009 Note 3”) to its Chairman.  The Company received the borrowings (the "Advances") in a series of $45,000 on September 8, 2009, $25,000 on September 11, 2009, $125,000 on September 23, 2009, $100,000 on October 14,
2009, $50,000 on October 28, 2009, $175,000 on November 12, 2009, and  $50,000 on December 14, 2009 totaling $570,000.  In accordance with the terms of the 2009 Note 3, the Company will receive approximately an additional $30,000 on or about December 31, 2009, which was extended to March 15, 2010.  This senior convertible note is secured by the Company’s revenues and assets with the same priority as the 2009 and 2008 senior convertible notes described below and has a maturity
date of December 31, 2013.  This note has the conversion price of $0.60 per share of common stock.  The Company has recorded approximately $198,000 as an interest expense to date for the Advances received as a result of the beneficial conversion feature.  As part of the terms of this note, the maturity dates of all other outstanding senior convertible notes owed to its Chairman are extended to December 31, 2013.
 
 Effective May 12, 2009, the Company issued a 2009 senior convertible note payable (“2009 Note 2”) to its Chairman to combine the borrowings (the “Advances”) in a series of $35,000 each from May 12, 2009 through August 12, 2009, $50,000 and $45,000 on August 14 and 27, 2009, respectively totaling $375,000.  As
of June 30, 2009, the Company received $175,000.  This senior convertible note is secured by the Company’s revenues and assets with the same priority as the 2009 and 2008 senior convertible notes described below and has a maturity date of December 31, 2013.  This note has the conversion prices determined by the closing trading prices of the Company’s common stock on the dates the Advances were received.
 
 Effective February 26, 2009, the Company issued a 2009 senior convertible note payable (“2009 Note 1”) to its Chairman to combine the borrowings (the “Advances”) in a series of $35,000 each from February 26, 2009 through April 30, 2009 totaling $175,000.  This senior convertible note is secured by the Company’s
revenues and assets with the same priority as the 2008 senior convertible notes described below and has a maturity date of December 31, 2013.  This note has the conversion prices determined by the closing trading prices of the Company’s common stock on the dates the Advances were received.
 
 Effective November 1, 2008, the Company issued four convertible note payables totaling $100,000 to an officer as part of the terms of the employment contract. These notes have the same conversion price of $0.20, which was the closing trading price of the Company’s common stock on the effective date of the notes.  These notes
have the same maturity date of December 31, 2013.
 
 Effective September 15, 2008, the Company issued a 2008 senior convertible note payable (“Note 3”) to its Chairman to combine the borrowings (the “Advances”) in a series of $50,000 each from September 15, 2008 through October 15, 2008 totaling $150,000. This senior convertible note is secured by the Company’s
revenues and assets with the same priority as the 2007 senior convertible notes described below and has a maturity date of December 31, 2013.  This note has the conversion prices determined by the closing trading prices of the Company’s common stock on the dates the Advances were received.
 
 Effective May 17, 2008, the Company issued a 2008 senior convertible note payable (“Note 2”) to its Chairman to combine the borrowings (the “Advances”) ranging from $50,000 to $135,000 each from May 17, 2008 through August 28, 2008 totaling $485,000.  This Note 2 is secured by the Company’s revenues
and assets with the same priority as the 2007 senior convertible notes described below and has a maturity date of December 31, 2013.  This Note 2 has the conversion prices determined by the closing trading prices of the Company’s common stock on the dates the Advances were received.
 
 Effective February 11, 2008, the Company issued a 2008 senior convertible note payable (“Note 1”) to its Chairman to combine the borrowings (the “Advances”) ranging from $50,000 to $75,000 each from February 11, 2008 through April 29, 2008 totaling $370,000.  This Note 1 is secured by the Company’s
revenues and assets with the same priority as the 2007 senior convertible notes described below and has a maturity date of December 31, 2013.  This Note 1 has the conversion prices determined by the closing trading prices of the Company’s common stock on the dates the Advances were received.
 
 Effective October 30, 2007, the Company issued another 2007 senior convertible note payable to its Chairman to combine the borrowings (the “Advances”) in a series of $50,000 each from October 30, 2007 through January 30, 2008 totaling $300,000.  This senior convertible note is secured by the Company’s revenues
and assets with the same priority as the 2007 senior convertible notes described below and has a maturity date of December 31, 2013.  This note has the conversion prices determined by the closing trading prices of the Company’s common stock on the dates the Advances were received.
 
 In June 2007, the Company issued two other 2007 senior convertible note payables to its Chairman and a major stockholder for $375,000 each. As of September 30, 2007, the Company received $303,160 from its Chairman and the remaining $71,840 in July 2007 totaling $375,000.  The Company also received $125,000 from a major stockholder
and the remainder in September 2007.  These two senior convertible note payables are secured by the Company’s revenues and assets.  These notes payable require the Company to allocate approximately $162,000 of these funds to be restricted for payment of the chief executive officer’s salary for the remainder of the twelve months from the date of hire. The Company may prepay
the principal and interest upon meeting certain cash flow requirements and the approval of the board.
 
 In addition, the Company combined its other outstanding note payables to its Chairman totaling $208,955 into a single note with the same annual interest rate and extended the maturity date to 2010.  This senior convertible note is secured by the Company’s revenues and assets with the same priority as the 2007 senior convertible
notes.  Further, the 2003 senior convertible note maturity date was extended until July 13, 2010.  The maturity date is further extended to December 31, 2013.
 
 In September 2003, the Company negotiated a successor agreement with its Chairman regarding the line of credit, which became a single convertible note for up to $1,500,000 excluding accrued interest, at an interest rate of 6% and due July 1, 2004.  The convertible note is secured by the assets and revenues of the Company, which
has the same priority as other senior convertible note payables.   The note plus accrued interest will be convertible at a conversion rate of $0.38 per share.  The conversion rate was determined as 15% above the average share price over the prior 20 trading days ($0.33 per share). The note has an anti-dilution provision in the event that the Company sells stock to other investors at less than $0.20 per share.  During the year ended June 30, 2006, the maturity date of the note
was extended until October 1, 2007. In January 2007, the Chairman agreed to extend the maturity date of the note until April 1, 2008.  In June 2007, the maturity date of this note was extended to July 2010. The maturity date is further extended to December 31, 2013.
 
 At December 31, 2009, the Company accrued interests of $552,814, $70,438 and $5,507 on the convertible notes with the director, the convertible note with a related party, and the convertible note with the officer respectively.
   -11-
 Index
 
 NOTE 5  – FAIR VALUE MEASUREMENTS
 
 As discussed in Note 2, “Summary of Significant Accounting Policies,” the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures(formerly
referenced as SFAS No. 157,Fair Value Measurements), for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. FASB ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date.  FASB ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use
in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
  FASB ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. FASB
ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:
 
 Level 1 - Quoted prices in active markets for identical assets or liabilities.
 
 Level 2- Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
 
 Level 3- Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
 
 The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2009:
  Carrying Value


Level 1


Level 2


Level 3Financial AssetsCash equivalents (1)

$
3,907


$
3,907



-



-Total financial assets

$
3,907


$
3,907



-



-Carrying Value


Level 1


Level 2


Level 3Financial LiabilitiesConvertible notes payable (2)

$
5,464,133



-



-


$
5,464,133Total financial liabilities

$
5,464,133



-



-


$
5,464,133
  (1) Cash Equivalents
  The Company's cash equivalents include short-term investments, which are money market funds. Since these are short-term highly liquid investments with original maturities of three months or less at the date of purchase, they present negligible risk of changes in value due to changes in interest
rates. These short-term investments are recorded at fair value on the Company's balance sheet based on quoted market prices and observable market inputs.
  (2) Convertible Notes Payable
  As fully described in Note 4, the Company’s convertible notes payable are long-term debts with fixed interest rates and the conversion rates at market at the time the funds were received.  In addition, most of these notes are collateralized by the Company’s assets
and revenues.  Further, the debt holders are major shareholders and an officer. The Company is in a start up phase. The Company estimates the fair value of the convertible notes for disclosure purposes by discounting the future cash flows using rates of debts that management believes are similar in terms and maturity.  The Company's short-term convertible note payable is approximate market value.
 
  -12-
 Index
 
 NOTE 6  – RELATED PARTY TRANSACTIONS
 
 As fully described in Note 4, the Company has several senior convertible note payables with its Chairman, a major stockholder, and an officer during the periods ended December 31, 2009 and June 30, 2009.
 
 NOTE 7  – SUBSEQUENT EVENTS
 
 In February 2010, the Company signed a placement agent agreement with an investment banker on a non exclusive basis to raise up to $5,000,000 in order to meet our current operating cash needs and  to execute our business plan.  The Company issued 100,000 restricted shares of common stock as part of the fee arrangement
with the investment banker.
 
 On February 8, 2010, the Company and Derma Sciences, Inc. ("Derma"), our licensee, amended the Patent and Technology License Agreement ("Agreement") dated March 23, 2007, to modify the products mix, to accelerate the commercialization dates of these products, and to extend the term of the Agreement for an  additional
three years subject to meeting certain conditions, among other terms.   These conditions include (1) the execution of a private label agreement with a national manufacturer and distributor of health care supplies and services by March 1, 2010; (2) the commercialization of a product incorporating NIMBUS technology no later than 120 days after the execution of said agreement; and (3) the performance by Derma to meet the cumulative minimum royalties requirement of Contract Years 1 and 2, as defined,
by the end of Contract Year 2.
 
 In February 2010, Derma has executed a private label agreement with a national manufacturer and distributor of health care supplies and services.  Hence, Derma has met one of the three conditions in order to extend the term of the Agreement.
 
 Subsequent to December 31, 2009, the Company received advances totaling approximately $145,000 from the Chairman, of which the terms are yet to be determined.
  -13-
 Index
    ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Form 10-Q and our Annual Report on Form 10-K for our fiscal year ended June 30, 2009.   The terms “Quick-Med”, "the Company," "we," "our" or "us" refer to Quick-Med Technologies, Inc.,
a Nevada corporation.  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 without limitation: (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 we will have sufficient resources to complete development related to these processes; (c) our history of losses makes it difficult for you to evaluate our current and future business and prospects and future financial results;
(d) we have negative cash flow from operations and an accumulated deficit that raises substantial doubt about our ability to continue as a going concern; (e) our future business is dependent upon third parties to market, manufacture, and distribute our technologies and/or products or jointly developed products;  (f) there is no assurance that our technologies or products  will be accepted in the marketplace; (g) we do not currently carry product liability insurance and, therefore,  should
we be subject to a product liability claim, our financial condition may be adversely affected; (h) our operations are currently funded by our revenues and our debt or equity financings, but there are no assurances that these revenues and  financings will be sufficient to ensure our  future financial performance and viability;  (i) we have substantial debt obligations due to our Chairman of the Board and a major shareholder, who have  funded our operations, debt obligations
that  are secured by our assets and revenues and  are senior obligations; and (j) there is no assurance that we will be able to attract and retain highly skilled scientific, technical and management personnel, who are critical to our success; and (k) other risk factors discussed in our annual report  for the fiscal year ended June 30, 2009 and other 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-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
  Overview
 
  Quick-Med is a life sciences company focused on developing proprietary, broad-based technologies in the  medical, consumer, and healthcare markets. Our  four core technologies are: (1) Novel Intrinsically Micro-Bonded Utility Substrate (NIMBUS®),
a family of advanced polymers bio-engineered to have antimicrobial, hemostatic, and other properties that can be used in a wide range of applications; (2)Stay FreshTM, a unique chemical formulation for textiles with a durable antimicrobial agent effective against an array of bacteria even after numerous
laundering cycles; (3) NimbuDermTM, a novel copolymer for application as a persistent hand sanitizer with long lasting protection against germs and for applications involving medical devices such as catheters, tubing, films and coatings; and (4) MultiStat®,
a family of advanced patented methods and compounds shown to be effective in skin therapy applications. Currently, NIMBUS technology has been commercialized in an advanced wound care product by our licensee in the institutional market in late June 2009.  The Company targets NIMBUS technology for additional advanced wound care products, catheters, incontinence products, and other medical devices. MultiStat has been developed in a cosmetic product
line with the anti-aging products.  Stay Fresh is currently under development with a broad range of potential applications including the consumer textile market.  NimbuDerm is also a technology currently being developed.
   Our strategy is to further develop our core technologies as well as develop future technologies. We will attempt to commercialize these technologies through strategic licensing partnership agreements, joint ventures, or co-development agreements. We do not intend to manufacture or distribute final products; instead, we will seek partnership
arrangements and/or license agreements with third parties to develop products that use our technologies and who will perform the manufacturing, marketing, and distribution functions associated with our technologies.
   Our business model has been to attempt to develop the following revenue segments:
  ·
License fees;
 ·
Profit sharing revenues;
 ·
Research and development fees paid to us in connection with joint development agreements; and
 ·
Government research and development grants.
  Our potential revenues will be derived from government agencies and the following types of companies in connection with our NIMBUS, Stay FreshTM,  NimbuDermTM and
MultiStat®technologies:
  ·
Healthcare and medical;
 ·
Apparel and textile; and
 ·
Personal care companies.
  
 -14-
 Index
 Uncertainties and Trends
  Our revenues are dependent now and in the future upon the following factors:
  ·
Acceptance of our products or future products in the marketplace;
 ·
Our partners’ ability to develop, market and distribute our technologies under a strategic   partnership agreement;
 ·
Demand for products or future products that utilize our technologies;
 ·
Our ability to secure license or profit sharing related agreements and secure government research and development grants;
 ·
Our ability to market our services to health care, apparel, cosmetic, and personal care companies;
 ·
Our ability to successfully conduct laboratory and clinical testing of our potential products; and
 ·
Our ability to obtain regulatory approval of our future products.
  Uncertainties or trends that may affect our business also include the possibility (i) that known or unknown competitors may develop products with similar applications to our proposed products, which may prove to be superior in performance and/or price to our products and (ii) that
proposed applications involving our products have collateral effects which render the application undesirable or unmarketable.
   Recent Developments
  On February 8, 2010, we and Derma Sciences, Inc. ("Derma"), our licensee,   amended the Patent and Technology License Agreement ("Agreement") dated March 23, 2007, to modify the products mix, to accelerate the commercialization dates of these products, and to extend the term of the Agreement  additional three years
subject to meeting certain conditions, among other terms.  The amendment requires fulfillment of certain conditions including (1) the execution of a private label agreement with Medline Industries, Inc. ("Medline"), a national manufacturer and distributor of health care supplies and services by March 1, 2010; (2) the commercialization of a product incorporating NIMBUS technology  by Medline no later than 120 days after the execution of said agreement; and (3) the performance by Derma to meet
the cumulative minimum royalties requirement of Contract Years 1 and 2, as defined, by the end of Contract Year 2.

As of February 8, 2010, Derma has executed a private label agreement with Medline and has met one of the three conditions in order to extend the term of the Agreement.
 
 Government  Regulation
  Many of the end-user applications for our technology are regulated in the U.S. as medical devices by the Food and Drug Administration (“FDA”).  The FDA’s regulations govern, among other things: pre-clinical testing; product design and development; pre-market clearance or approval; advertising and promotion; labeling;
manufacturing; product import/export; storage; record keeping; reporting of adverse events; corrective actions and removals; recalls; and distribution.
 
 One of the exemptions to the requirement of pre-market clearance is 510(k) pre-market notification, which is submitted to the FDA to demonstrate that the new device is “substantially equivalent” to a previously cleared 510(k) device or a device that was in commercial distribution before May 29, 1976 (or to a pre-1976 Class II
device for which the FDA has not yet called for the submission of pre-market approval (“PMA”).  Such devices are deemed to be “predicate devices” for future applications.  A PMA must be submitted if the device cannot be cleared through the 510(k) process.   The PMA process is much more demanding than the 510(k) pre-market notification process.
 
 If a medical device is found NSE (not substantially equivalent) by the FDA and therefore a 510(k) pathway is not available, a second alternative pathway to the lengthy and costly PMA is available for low risk devices. This is called the De Novo application. The FDA Modernization Act of 1997 amended Section 513 (f)(2) of the Federal Food,
Drug and Cosmetic Act (the “FFDC Act”) to provide this mechanism to reclassify statutorily classified class III products. This is considered a fairly unique pathway for clearance and typically is only allowed for new technologies of low risk. The FDA allows unlimited responses when on this pathway, different than the three allowed responses under a normal 510(k). A device placed into class I or II in this written order can then be commercially distributed, subject to other applicable provisions of
the FFDC Act. A device classified into class I or II under this new provision becomes a predicate device for future pre-market notification submissions, which means that a manufacturer may show that a new device is substantially equivalent to this predicate. This route to clearance is referred to as De Novo because it establishes a new alternative for a new technology.
 
 On February 26, 2009, we received clearance from the FDA for our De Novo application of our patented NIMBUS barrier gauze wound care dressings.This represents the first FDA clearance for NIMBUS – an innovative technology that was put through
FDA’s De Novo process, a special clearance program for medical devices that are found to be “not substantially equivalent” to any predicate device.
 
 This section should be read in conjunction with  our annual report on Form 10-K for fiscal year ended June 30, 2009 filed with the SEC for further discussions in the sections entitled, “Government Regulation,”  “510(k) Clearance Pathway” and “De Novo: Alternative Pathway to PMA.”
 
 
 Capital Expenditures and Requirements
 
 From 2000 to December 2009, we have spent approximately $836,000 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 Grobelny.
This license agreement provides that we compensate Dr. Galardy and Dr. Grobelny with our common stock and cash for the exclusive license of the Ilomastat technology, which they invented.
 
 We do not expect any significant additions to property, plant and equipment.
 
 
 -15-
 Index
 Critical Accounting Policies and Estimates
 
 The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts. The estimates and assumptions are evaluated on an on-going basis and are based on historical experience and on various other factors that are believed to be reasonable. Estimates and assumptions include, but are not
limited to economic useful lives of fixed and intangible assets, income taxes, valuation of options and warrants granted, and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Our accounting for stock-based compensation requires us to estimate the value of theshares issued, and the value of intangible assets require us to continually assess whether such assets are impaired.
 
 Results of Operations
 
 Comparison of Six Months Ended December 31, 2009 and 2008
 
 Revenues.     During the six months ended December 31, 2009 we had $227,346 of revenues, compared to $841,651 of revenues for the six months ended December 31, 2008, representing a 73% decrease in our revenues.  Our revenues during the six
months ended December 31, 2009 consisted of: (a) $124,308, which represented our royalties in the form of revenue share from the product sales by  BASF Beauty Care Solutions, L.L.C., a cosmetic and personal care division of BASF Catalysts, LLC, a wholly-owned subsidiary of BASF (“BASF”),  in connection with a manufacturing and distribution agreement we have with BASF  for product development, manufacturing and distribution (the “BASF Agreement”); (b) $51,967
royalty fees from the sales of BIOGUARDTM advanced wound care product by Derma Sciences, Inc., our licensee.  This product was launched in late June 2009 and the royalty fees related to the sales of this product were $126,966 from the period from June to December 31, 2009.  However, $75,000 was credited against the advance royalty fees we had previously received in accordance with the terms of the license agreement.  There
are no further credits against future royalty fees; (c) $47,500, which represented the revenueearned from the joint development program with Avery Dennison; and (d) $3,571, which represented the earned portion of the license  fee from Derma Sciences, Inc.  Given the current state of the economy,  in particular in the retail cosmetic industry, we cannot anticipate  our share of the product sales by BASF
for the subsequent quarters given market uncertainties.
 
 Our revenues during the six months ended December 31, 2008 consisted of (a) $770,980, which represented our royalties from the product sales by BASF Beauty Care Solutions, L.L.C.; (b) $67,100, which represented the revenueearned from the joint development program
with Mölnlycke Health Care AB; and (c) $3,571, which represented the earned portion of the license  fee from Derma Sciences, Inc.
 
 Effective August 1, 2007, we entered into the manufacturing and distribution agreement with BASF Beauty Care Solutions, L.L.C., a member of the BASF Group (the “BASF Agreement”).  This agreement grants BASF exclusive and non-exclusive licenses to develop and market our Ilomastat product for the field of over-the-counter
anti-aging (chronological aging or photoaging) cosmetics. Under the terms of this agreement, we and BASF share the net revenues in each contract calendar year beginning January 1, 2008 until December 31, 2010 in accordance with certain sharing percentages as defined in the agreement.  The BASF Agreement has an expiration date of December 31, 2010.  This Agreement supersedes the Master Agreement for Product Development, Manufacturing and Distribution dated August 15, 2002, the Product Development
and Distribution Agreement for Ilomastat dated August 15, 2002, the Tolling Agreement dated October 20, 2005, as amended, and the Letter of Intent with the effective date of February 1, 2006, as amended.
 
 Operating Loss.  Operating loss for the six months ended December 31, 2009 was $1,262,685 as compared to $715,830 in operating loss for the six months ended December 31, 2008, representing an increase of 76% or $546,855 in operating loss. The increase in operating
loss was primarily attributable to a decrease in revenues of $614,305 partially offset by a decrease in expenses of $67,450 for the six months ended December 31, 2009.   The decrease in expenses was primarily due to the following:  (a) a decrease of $136,889 or 17% in general and administrative expenses; (b) a decrease of $26,136 or 80% in cost of revenues; offset by (c) an increase in research and development expenses of $80,127 or 14%; and (d) an increase of $15,797 or 13% in licensing
and patent expenses to the amount in the comparable prior period, as described in more detail below.
 
 Research and Development Expense.  Research and development expense increased by $80,127 or 14% to $642,817 for the six months ended December 31, 2009, from $562,690 for the six months ended December 31, 2008.  The increase in research and development expense
is primarily attributable the subcontractor expenses related to the SBIR phrase II program, which is scheduled to be completed in March 2010, and more utilization of outside lab services in prior year comparable period.
 
 General and Administrative Expense.  General and administrative expense decreased by $136,889 or 17% to $671,935 for the six months  ended December 31, 2009, from $808,824 for the six months ended December 31, 2008.  This decrease in our general
and administrative expenses is primarily attributed to a reduction of personnel, lower expenses directly related to a decline in product sales and expenses control.
 
 Licensing and Patent Expense.  Licensing and patent expense increased by $15,797 or 14% to $133,332 for the six months ended December 31, 2009 from $117,535 for the six months ended December 31, 2008.  This increase was primarily due to higher annual annuity
fees for our patents and patent applications and more annuity fees for more patent applications than those of prior comparable period.
 
 Interest Expense.  Interest expense for the six months ended December 31, 2009 increased $235,388 or 187% to $361,002 compared to $125,614 the six months ended December 31, 2008.  This increase was mainly due to approximately $199,000 non-cash charge to
interest expense as a result of a beneficial conversion feature of a long-term convertible note payable with a related party, the Chairman of our Board of Directors.  Absent the non-cash charge to interest expense of approximately $199,000, the interest expense for the six months ended December 31, 2009 was approximately $162,000.  The increase was due to  approximately $1,100,000 or 35% in the outstanding loan balance due to our Chairman of the Board and a major shareholder
to approximately $4,300,000, compared to approximately $3,200,000  outstanding balance for the comparable 2008 period.
 
 Net Loss.   Net loss for the six months ended December 31, 2009  was $1,623,663 or $0.05 per share compared to $839,664 or $0.03 per share for the six months ended December 31, 2008.   This increase is primarily attributable to a decrease
in revenues, increases in research and development, licensing and patent expenses and interest expense, offset by decreases in general and administrative expenses and cost of revenues.
  
 -16-
 Index
 Comparison of Three Months Ended December 31, 2009 and 2008
 
 Revenues.     During the three months ended December 31, 2009 we had $198,015 of revenues, compared to $109,095 of revenues for the three months ended December 31, 2008, representing a 82% or $88,920  increase in our revenues.  Our
revenues during the three months ended December 30, 2009 consisted of: (a) $116,337, which represented our royalties in the form of revenue share from the product sales by  BASF Beauty Care Solutions, L.L.C., a cosmetic and personal care division of BASF Catalysts, LLC, a wholly-owned subsidiary of BASF (“BASF”),  in connection with a manufacturing and distribution agreement we have with BASF  for product development, manufacturing and distribution (the “BASF Agreement”);
(b) $47,392 royalty fees from the sales of BIOGUARDTM advanced wound care product by Derma Sciences, Inc., our licensee; (c)$32,500, which represented the revenueearned from the joint development program with Avery Dennison; and (c) $1,786, which represented the earned portion of the license  fee from Derma Sciences, Inc.
 
 Our revenues during the three months ended December 31, 2008 consisted of (a) $59,309, which represented our royalties in the form of revenue share from the product sales by  BASF Beauty Care Solutions, L.L.C.; (b) $48,000, which represented the revenueearned
from the joint development program with Mölnlycke Health Care AB; and (c) $1,786, which represented the earned portion of the license  fee from Derma Sciences, Inc.
 
 Operating Loss.  Operating loss for the three months ended December 31, 2009 was $703,886 as compared to $769,537 in operating loss for the three months ended December 31, 2008, representing a decrease of $65,651 or 9% in operating loss. The decrease in operating
loss was primarily attributable to an increase in revenues of $88,920 offset by with an increase in expenses of $23,269 for the three months ended December 31, 2009.   The increase in expenses was primarily due to the following:  (a) an increase of $79,366 or 25% in research and development expenses; (b) an increase of $19,756 or 28% in licensing and patent expenses; and (c) an increase of $2,627 or 103% in cost of revenues; offset by (d) a decrease of $78,131 or 17% in general and administrative
expenses to the amount in the comparable prior period, as described in more detail below.
 
 Research and Development Expense.  Research and development expense increased by $79,366 or 25% to $397,127 for the three months ended December 31, 2009, from $317,761 for the three months ended December 31, 2008.  The increase in research and development
expense is primarily attributable the subcontractor expenses related to the SBIR phrase II program incurred in this quarter, which is scheduled to be completed in March 2010.
 
 General and Administrative Expense.  General and administrative expense decreased by $78,131 or 17% to $392,444 for the three months  ended December 31, 2009, from $470,575 for the three months ended December 31, 2008.  This decrease in our general
and administrative expenses is primarily attributed to a reduction of personnel, lower expenses directly related to a decline in product sales and expenses control.
 
 Licensing and Patent Expense.  Licensing and patent expense increased by $19,756 or 28% to $89,518 for the three months ended December 31, 2009 from $69,762 for the three months ended December 31, 2008. This
increase was primarily due to higher annual annuity fees for our patents and patent applications and more annuity fees for more patent applications than those of prior comparable period.
 
 Interest Expense.  Interest expense for the three months ended December 31, 2009 increased $116,352 or 179% to $181,370 compared to $65,018 the three months ended December 31, 2008.  This increase was mainly due to approximately $95,000 non-cash charge
to interest expense as a result of a beneficial conversion feature of a long-term convertible note payable with our Chairman.  Absent the non-cash charge to interest expense of approximately $95,000, the interest expense for this quarter was approximately $86,953. The increase was due to  approximately $1,100,000 or 35% in the outstanding loan balance due to our Chairman of the Board and a major shareholder to approximately $4,300,000, compared to approximately $3,200,000  outstanding
balance for the comparable 2008 period.
 
 Net Loss.   Net loss for the three months ended December 31, 2009 was $885,239 or $0.03 per share compared to $832,891 or $0.03 per share for the three months ended December 31, 2008.   This increase is primarily attributable to an increase in
interest expense, increases in research and development expenses, in licensing and patent expenses and cost of revenues, offset by an increase in revenues and a decrease in general and administrative expenses .
  
 -17-
 Index
 
 Liquidity and Capital Resources
 
 Our auditors have issued a going concern opinion on our audited financial statements for the fiscal years ended June 30, 2009 and 2008 as we have experienced recurring losses and negative cash flows from operations in these periods.  In addition, we have a net capital deficiency.  These matters raise substantial doubt
about our ability to continue as a going concern.
 
 Total cash on hand at December 31, 2009 was $37,210 as compared with $41,216 at June 30, 2009.    Subsequent to the quarter ended, we have collected the entire outstanding receivable balance of approximately $70,213 at December 31, 2009.  In
addition, we received the advances of approximately $95,000  from our Chairman and approximately $7,800 of proceeds from the exercises of stock options and warrants.
 
 In June 2009, our licensee, Derma Sciences, Inc. launched the commercial sale of BIOGUARDTM an advance wound care product employing our NIMBUS technology.  From the launch date to December 31, 2009, our royalty fees related to this product were approximately
$126,966.  In accordance with the terms of the license agreement, the first $75,000 royalty fees from Derma Sciences were offset against the advance payments we received in 2007, the subsequent royalty fees will be at 20% of the net sales as defined in the license agreement.  We are unable to determine how much, if any, of the royalty fee we will receive in the future at this time.  We expect minimal direct expenses in relation to this license agreement.
 
 On April 17, 2009, we and Avery Dennison Corporation (“Avery”) entered into a Joint Development and Exclusive Option Agreement (the “Agreement”) effective as of April 17, 2009 with total value of approximately $100,000 between six to twelve months period.  We anticipated the direct expenses related to this
project of approximately $20,000. As of December 31, 2009, we have collected payments of $60,000  under the Agreement.
 
 In September 2006, we received the SBIR Phase II grant, which included including the option of SBIR Phase I, totaling approximately $840,000 over the next two years and we expect the cash outflows related to this grant of approximately $390,000 to subcontractors and other direct expenses.  To date, we received approximately $502,000
and incurred approximately $228,000 in expenses to subcontractors and other direct expenses.
 
 While we expect to receive royalties in the next twelve to twenty four months from the license agreement subject to certain contractual terms, we need cash in order to maintain and grow our businesses.  See the section below for further discussion of our cash requirements and related strategies to meet these needs.
 
 Effective January 1, 2009, our board approved our management team’s action plan to conserve cash and control expenses as follows;
 
 ·
Voluntary deferral of $100,000 or 40% of our Chief Executive Officer’s annual salary;
 ·
Voluntary deferral of totaling $71,250 or 25% of our Vice President of Research and Development and Chief Financial Officer’s annual salary or consulting fee;
 ·
Reduction of a $75,000 salary position; and
 ·
Deferral of $20,000 or 20% in patent consulting fee.
 
 Effective February 16, 2009, our board also approved our management team’s additional steps to further conserve cash as follows;
 
 ·
Additional voluntary deferral of $25,000 or $125,000 in total or 50% of our Chief Executive Officer’s annual salary;
 ·
Additional voluntary deferral of totaling $71,250 or $142,500 in total or 50% of our Vice President of Research and Development and Chief Financial Officer’s annual salary or consulting fee;
 ·
Voluntary deferral of totaling $10,000 or 8% of our Director of Business Development.  Effective October 1, 2009, the salary of our Director of Business Development was fully restored.
 
 This action plan went into effect beginning January 1, 2009 and subsequent furthering of voluntary deferral of salaries and consulting fees and will conserve approximately $359,000 in cash for the calendar year 2009.
 
 Equity Financing and our Cash Requirements
 
 On February 8,  2010, we signed a placement agent agreement with an investment banker on a non exclusive basis to raise up to $5,000,000 in order to meet our current operating cash needs and  to execute our business plan.  We cannot assure
you that we will raise a sufficient amount of capital, if any, through this investment banker.
 
 On November 30, 2004, we completed an agreement to sell 5,000,000 shares of our restricted common stock to Phronesis Partners, L.P. (“Phronesis”), a Delaware limited partnership, for $1,000,000 before commission and expenses (the ”Stock Purchase Agreement”). On November 30, 2004, we received $880,000 net of commission
and expenses of $120,000. In connection with the Stock Purchase Agreement, our Chairman of the Board, Mr. Granito, converted $500,000 of the convertible debt we owed to him into 1,315,790 shares of our restricted common stock at a conversion price applicable to the convertible debt of $0.38 per share. In connection with the Stock Purchase Agreement, we entered into a Warrant Agreement with Phronesis, in which we granted Phronesis certain warrants to purchase shares of our restricted common stock at an exercise
price as defined in the Warrant Agreement. The Warrant Agreement expired on February 5, 2005 and provided for a maximum investment of $1,000,000 by Phronesis through the exercise of warrants. On December 31, 2004, we mutually agreed to amend the exercise price for the warrant price to $0.46 per share. All other terms of the Stock Purchase Agreement and the Warrant Agreement remained the same. On the same date, Phronesis exercised its warrant to purchase 2,173,913 shares of our restricted common stock at a per
share price of $0.46, or an aggregate purchase price of $1,000,000 before commission of $70,000.
 
 In connection with the exercise of the warrant and in accordance with the terms of the Stock Purchase Agreement, Mr. Granito, our Chairman of the Board, immediately converted $826,087 of his convertible debt owed by us into 2,173,913 shares of our restricted common stock (equal to the number of shares acquired by Phronesis) at a conversion
price applicable to the convertible debt of $0.38 per share.
 
 In February 2005, we issued 150,000 shares of restricted common stock for an aggregate purchase price of $87,000 in cash.
 
 In June 2005, we issued 16,666 shares of restricted common stock for aggregate exercise price of $2,500 in cash from an exercise of an employee stock option.
 
  -18-
 Index
  In July 2005, we issued 40,322 shares of restricted common stock for an aggregate purchase price of $25,000 in cash.
 
 In August 2005, we issued 13,795 shares of restricted common stock for an aggregate purchase price of $8,553 in cash.
 
 In August 2005, we issued 175,000 shares of restricted common stock for an aggregate exercise price of $29,750 in cash from an exercise of a stock option.
 
 In February 2006, we issued 100,000 shares of restricted common stock for an aggregate purchase price of $80,000 in cash.
 
 In September 2006, we issued 33,334 shares of common stock for aggregate exercise price of $5,000 in cash from an exercise of an employee stock option.
 
 In February 2007, we issued 30,000 shares of common stock for an aggregate exercise price of $6,000 in cash from an exercise of a warrant by an officer.
 
 In May 2007, we issued 100,000 shares of restricted common stock for an aggregate purchase price of $79,000 in cash.
 
 In June 2007, we issued 67,500 shares of common stock for an aggregate exercise price of $12,150 in cash and in lieu of payment of an outstanding payable from an exercise of a warrant.
 
 In September 2007, we issued 15,000 shares of common stock for an aggregate exercise price of $2,250 in cash from an exercise of a warrant.
 
 In October 2007, we issued 5,000 shares of common stock for an aggregate exercise price of $1,000 in cash from an exercise of warrants.
 
 In November 2007, we issued 62,500 shares of common stock for an aggregate exercise price of $8,900 or $0.14 per share for 60,000 shares and $0.20 per share for 2,500 shares resulting from the exercise of warrants.
 
 In November 2007, approximately $21,046 of accounts payable was settled through the issuance of 34,501 shares of restricted common stock.
 In March 2009, we issued 29,412 shares of common stock for an aggregate exercise price of $5,000  in cash from an exercise of stock options.
 
 In April 2009, we issued 30,000 shares of common stock for an aggregate exercise price of $6,000 in cash from an exercise of warrants.
 
 In June 2009, we issued 25,000 shares of common stock for an aggregate exercise price of $4,250 in cash from an exercise of options.
 
 In July 2009, we issued 145,000 shares of common stock for an aggregate exercise price of $24,650 in cash from the exercises of options.
 
 In December 2009, we issued 50,000 shares of common stock for an aggregate exercise price of $10,000 in cash from the exercise of options.
 
 In January 2010, we issued 5,000 shares of common stock for an aggregate exercise price of $1,000 in cash from the exercises of options.
 
 In February 2010, we issued 10,000 shares of common stock for an aggregate exercise price of $6,800 in cash from the exercises of warrants.
 
 Based on our cash position at December 31, 2009, 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, and patent related legal fees of approximately $143,000 per month or an aggregate
of approximately $1,716,000 over the next twelve (12) months, in the following areas:
 
 ·
Research and development expenditures of approximately $74,000 per month or an aggregate $888,000 over the next twelve (12) months, which will consist of the following estimated monthly expenditures: (a) $50,000 in payroll for scientists; (b) $7,000 for outside research and development expenditures; and (c) $17,000 for chemical supplies and laboratory operating expenses, including rent expense;
  ·
Patent related legal fees of approximately $18,334 per month or an aggregate $220,000 annually; and
 
 ·
Operating expenses of approximately $50,667 per month or an aggregate $608,000 over the next twelve (12) months, including personnel costs, director and officer insurance, general liability insurance, rent, consulting fees, utilities, legal and accounting fees, and payroll.
 
 Our current cash balance of $37,210 as of  December 31, 2009, coupled with accounts receivable of approximately $70,213,  which has been subsequently collected after December 31, 2009, the receipt of $145,000 advances after December 31, 2009, $7,800 from the proceeds of the exercises of stock options and warrants,  and  approximately
$30,000 remaining balance on or before February 28, 2010 from the $600,000 senior convertible note to our Chairman, will satisfy our cash requirements for approximately  two (2) months assuming no further receipt of revenues and additional debt or equity financing.  If we are unable to satisfy the remainder of our obligations by equity and/or debt financings, we will be unable to satisfy our cash requirements beyond approximately  two (2) months assuming no further receipts of revenues
and additional debt or equity financing.
 
 We are attempting to raise additional cash by means of equity and or debt financing. Additionally, we are implementing a cash conservation strategy by extinguishing obligations through share-based payments and reducing our use of consulting services. However, our ability to raise cash through equity or debt financing with third parties
will be very difficult in the current credit environment.  There are no assurances that any planned equity offering and/or debt financing will be successful or sufficient to meet our cash requirements or that our cash conservation strategy will be successful.  Even if we were able to obtain debt or equity financing, the terms of such financing may be very unfavorable to us.
  
 -19-
 Index
 As of December 31, 2009, we have eleven senior convertible notes payable outstanding to our Chairman totaling approximately $4,400,000 including accrued interest with interest rates ranging from 6% to 8% per annum and  maturity dates of December 2013.  These notes are convertible at conversion prices ranging from $0.18
to $0.74 per share and are secured by our revenues and assets.  We also have a $375,000 senior convertible note payable to a major stockholder.  The senior convertible note has an 8% interest rate per annum with a conversion price of $0.74 per share, a maturity date of  June 2010, and is secured by our revenues and assets.  In addition, we have four convertible notes payable totaling $103,994 including accrued interest with an interest rate of 8% per annum and a maturity
date in December 2010.
 
  If we are unable to successfully repay our loans to our Chairman and a major stockholder, we may have to liquidate our business and undertake any or all the steps outlined below.
  ·
Significantly reduce, eliminate or curtail our business, operating and research and development activities so as to reduce operating costs;
 ·
Sell, assign or otherwise dispose of our assets, if any, to raise cash or to settle claims by creditors, including our Chairman of the Board;
 ·
Pay our liabilities in order of priority, if we have available cash to pay such liabilities;
 ·
If any cash remains after we satisfy amounts due to our creditors, distribute any remaining cash to our shareholders in an amount equal to the net market value of our net assets;
 ·
File a Certificate of Dissolution with the State of Nevada to dissolve our corporation and close our business;
 ·
Make the appropriate filings with the Securities and Exchange Commission so that we will no longer be required to file periodic and other required reports with the Securities and Exchange Commission, if, in fact, we are a reporting company at that time; and
 ·
Make the appropriate filings with the National Association of Security Dealers to affect a delisting of our stock.
  Based upon our cash requirements for our Plan of Operations and our current dividend policy of investing any available cash to our operations, however, we do not plan to distribute any cash to our stockholders.
  At December 31, 2009, we had a negative working capital of $1,370,009 that primarily consists of: (a) cash of $37,210; (b) accounts receivable of $70,213; (c) accounts payable of $569,274; (d) accrued expenses of $326,857; (e) unearned revenue of $30,356; and (d) convertible note payables with an officer and a related party of $550,945
including accrued interest.  At December 31, 2009, we had a stockholders’ deficit of $5,952,011, a portion of which is due to non-cash share based compensation expense and non-cash interest expense from the notes payable conversions.
 
 Cash used in operating activities was $800,110 for the six months ended December 31, 2009. Net cash used in investing activities was $8,546.  Net cash provided by financing activities was $804,650, of which   $770,000 was from a senior secured 2009 convertible note 3 and a senior secured 2009 convertible note 2
with our Chairman, and the proceeds of $34,650 in cash from the exercise of stock options.
 
 During the six months ended December 31, 2008, we received $450,000, of which $350,000 was from a  senior secured 2008 convertible note 3 with our Chairman, and the $100,000 convertible notes with one of our officers.
 
 Contractual Obligations
  The following table summarizes our long-term contractual obligations as of December 31, 2009:
  Total


Less than 1 Year


1-3 Years


3-5 Years


More than 5 YearsLong-term debt obligations (a)

$
4,830,394


$
-


$
-


$
4,830,394


$
-Operating lease obligations (b)

$
26,000


$
24,000


$
2,000


$
-


$
-
 
 (a)
The principal and accrued interest on the notes payable owed to the Chairman’s Senior Convertible Notes, to an officer’s convertible note payable, and to a major shareholder’s senior note payable as fully discussed in note 4 of the accompanying condensed footnotes to the   financial statements.
  (b)
We have an operating lease for our laboratory in Gainesville, Florida with an expiration date in 2011.
  
 Off-balance Sheet Arrangements
 
 We do not have any off-balance sheet arrangement that have, or are reasonably likely to have, a current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
  
 -20-
 Index
  
 ITEM 3.       Quantitative
and Qualitative Disclosure About Market Risk
 
 Not applicable.
 
  
 ITEM 4T.   Controls and Procedures
 
 Evaluation of Disclosure Controls and Procedures
  We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures.
 
  Based on our management’s evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), our Chief Executive Officer and our Chief Financial Officer have concluded
that as of  December 31, 2009, the end of the period covered by this Quarterly Report on Form 10-Q, such disclosure controls and procedures are effective at a reasonable level.
  
 Changes in Internal Controls over Financial Reporting
  As of the end of our quarter ended December 31, 2009, there was no change in the our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
  
 -21-
 Index
 
 PART II
 OTHER INFORMATION
 
 Item 1.   Legal Proceedings
 
 None.
 
 Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
 On October 31, 2009, we issued 1,333 shares of our common stock to Mr. Nguyen, our Chief Financial Officer, in exchange for approximately $1,000 of services from Mr. Nguyen. The shares granted to Mr. Nguyen were valued at price of $0.75 per share, for an aggregate price of approximately $1,000. We relied upon Section 4(2) of the Securities
Act of 1933, as amended (the “Securities Act”) for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was no general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the stock certificate representing the shares issued to Mr. Nguyen stating that the securities were not registered under the Securities Act and are subject to restrictions on their transferability and
resale.
  On November 17, 2009, we granted an option to acquire 90,000 shares of restricted common stock at an exercise price of $0.77 per share.  These stock options were issued to Mr. Gerald M. Olderman as a performance bonus in connection with Mr. Olderman position as our Vice President of 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 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.
 
 On November 17, 2009, we granted an option to acquire 52,715 shares of restricted common stock at an exercise price of $0.77 per share to Mr. George E. Friel for his services as a member of the board of directors, audit, compensation and executive committees.  In addition, we granted an option to acquire 10,000 shares of restricted
common stock at an exercise price of $0.77 per share 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 these stock options issued to Mr. Friel stating the securities were not registered under the
Securities Act and are subject to restrictions on their transferability and resale.
  On November 17, 2009, we granted an option to acquire 49,082 shares of restricted common stock at an exercise price of $0.77 per share to Mr. Gregory S. Schultz for his services as a member of the board of directors and licensing committee. Further, we granted to Mr. Schultz an option to acquire 10,000 shares of restricted common stock
at an exercise of $0.77 per share as a performance bonus.  In addition, we granted a stock warrant to acquire 70,444 shares of restricted common stock at an exercise price of $0.77 per share for his scientific and clinical consulting services and related bonus award.  We relied upon section 4(2) of the Securities Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general
advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Mr. Schultz stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted an option to acquire 23,631 shares of restricted common stock at an exercise price of $0.77 per share to Mr. Richard F. Caffrey for his services as a member of the board of directors, audit and licensing committees for the six month period during the fiscal year 2009.  We relied upon section 4(2)
of the Securities Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing these stock options issued to Mr. Caffrey stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
   -22-
 Index
  On November 17, 2009, we granted to Mr. Nam Nguyen an option to acquire 121,765 shares of restricted common stock at an exercise price of $0.77 per share. These stock warrants were issued to Mr. Nguyen as a partial payment for his service and a performance bonus in connection with Mr. Nguyen’s position as our Chief Financial Officer.  We
relied upon Section 4(2) of the Securities Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Mr. Nguyen stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 On November 17, 2009, we granted to Mr. Christopher Batich an option to acquire 56,555 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Mr. Batich in connection with his services and related bonus award as our Consultant for Bioengineering and Material Science.  We relied upon Section 4(2) of the Securities Act for the offer and sale. We believed that Section
4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Mr. Batich stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted to Mr. Roy Carr an option to acquire 62,500 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Mr. Carr as a performance bonus in connection with his position as our Director of Medical Devices.  We relied upon Section 4(2) of the Securities
Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Mr. Carr stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted to Mr. William Toreki, III an option to acquire 70,357 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Mr. Toreki as a performance bonus in connection with his position as our laboratory Director and Senior Polymer Scientist.  We relied
upon Section 4(2) of the Securities Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Mr. Toreki stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted to Mr. Bernd Liesenfeld an option to acquire 30,000 shares of restricted common stock at an exercise price of $0.. These stock options were issued to Mr. Liesenfeld as a performance bonus in connection with his position as our Senior Material Scientist.  We relied upon Section 4(2) of the Securities
Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Mr. Liesenfeld stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted to Ms. Susan Leander an option to acquire 22,500 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Ms. Leander as a performance bonus in connection with her position as our Material Scientist.  We relied upon Section 4(2) of the Securities
Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Ms. Leander stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted to Mr. David Moore an option to acquire 25,500 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Mr. Moore as a performance bonus in connection with his position as our Senior Microbiologist.  We relied upon Section 4(2) of the Securities
Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Mr. Moore stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted to Ms. Albina Mikhaylova an option to acquire 25,500 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Ms. Mikhaylova as a performance bonus in connection with her position as our  Senior Scientist.  We relied upon Section 4(2)
of the Securities Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Ms. Mikhaylova stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
  
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 Index
 On November 17, 2009, we granted to Ms. Jillian Vella an option to acquire 10,000 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Ms. Vella  as a performance bonus in connection with her position as our  Microbiologist.  We relied upon Section 4(2)
of the Securities Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the stock options issued to Ms. Vella stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
 
 On November 17, 2009, we granted to Mr. David A. Lane an option to acquire  10,000 shares of restricted common stock at an exercise price of $0.77 per share. These stock options were issued to Mr. Lane as a performance bonus in connection with his position as our Lab Technician.  We relied upon Section 4(2) of the Securities
Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the  stock options issued to Mr. Lane stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
  On November 30, 2009, we issued 1,351 shares of our common stock to Mr. Nguyen in exchange for approximately $1,000 of services from Mr. Nguyen. The shares granted to Mr. Nguyen were valued at price of $0.74 per share, for an aggregate price of approximately $1,000. 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 certificate representing the shares issued to Mr. Nguyen stating that the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale.
  On February 8, 2010, we  issued 100,000 shares of restricted common stock valued at a price of $0.70 per share, for an aggregate price of $70,000, the then current market value of our common stock to granted to Midtown Partners & Co., LLC,  as part of the fee arrangement for their services.  We relied upon
Section 4(2) of the Securities Act for the offer and sale. We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was not general solicitation or general advertising involved in the offer or sale. We placed restrictive legends on the certificates representing the  stock options issued to Midtown Partners & Co., LLC, stating the securities were not registered under the Securities Act and are subject to restrictions on their transferability
and resale.
 
 
 Item 3.   Defaults Upon Senior Securities
 
 None.
 
 Item 4.   Submission of Matters to a Vote of Security Holders
 
 None.
 
 Item 5.   Other Information.
 
 None
 
 Item 6.  Exhibits
 
 Exhibit Number

Description2.1

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

Joint Development and Exclusive Option Agreement by and between Avery Dennison and the Registrant dated as of April 17, 2009(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.
 (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 Current Report on Form 8-K filed on April 23, 2009.
 
 
 
 
 
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 Index
 
 
 
 
 
 
 SIGNATURES
 
 
 In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 Quick-Med Technologies, Inc.___________________________(Registrant)
 
 Date
February 16, 2010
By: /s/ J. Ladd GreenoJ. Ladd GreenoChief Executive Officer (Principal Executive Officer)
 
 Date
February 16, 2010
By: /s/ Nam H. NguyenNam H. NguyenChief Financial Officer














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