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 March 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
May 10, 2009, there were 30,978,340 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  March 31,
      2009  and June 30, 2008 (unaudited)
            1Condensed Statements of Operations for thethree and nine
      months ended March 31, 2009  and 2008
      (unaudited)
            2Condensed Statement of Changes in Stockholders’ Deficit for the
      three monthsended March 31,
      2009 (unaudited)
            3Condensed Statements of Cash Flows for the nine months ended
      March 31, 2009 and 2008 (unaudited)
            4Notes to Condensed Financial Statements
      (unaudited)
            5-12Item
      2.             Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            13-19Item
      3.             Quantitative and Qualitative Disclosure About Market
      Risk
            20Item
      4T.           Controls and Procedures
            20PART
      II
            OTHER
      INFORMATIONItem
      1.
            Legal Proceedings
            21Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            21Item
      3.
            Defaults Upon Senior Securities
            21Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            21Item
      5.
            Other Information
            21Item
      6.
            Exhibits
            21SIGNATURES
            22


Index


PART
      I
            FINANCIAL
      INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS





QUICK-MED
TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (UNAUDITED)





ASSETSMarch
      31,
              
              June
      30,2009
              
              2008Current
      assets:Cash
      and cash equivalents
              $
              22,418
              
              $
              72,817Accounts
      receivable
              
              10,494
              
              
              346,709Total
      current assets
              
              32,912
              
              
              419,526Property
      and equipment, net
              
              17,473
              
              
              24,983Other
      assets:Prepaid
      expenses
              
              11,045
              
              
              5,311Intangible
      asset, net
              
              422,656
              
              
              459,445Total
      other assets
              
              433,701
              
              
              464,756Total
      assets
              $
              484,086
              
              $
              909,265LIABILITIES AND STOCKHOLDERS'
      DEFICITCurrent
      liabilities:Accounts
      payable
              $
              451,608
              
              $
              871,074Unearned
      revenue
              
              35,713
              
              
              41,071Accrued
      expenses
              
              110,186
              
              
              46,034Total
      current liabilities
              
              597,507
              
              
              958,179License
      payable
              
              160,000
              
              
              160,000Long-term
      liability - note payable - officer
              
              101,151
              
              
              -Long-term
      liability - convertible note payable - related party
              
              422,836
              
              
              400,315Long-term
      liability - convertible note payable - director
              
              3,610,518
              
              
              2,988,902Total
      liabilities
              
              4,892,012
              
              
              4,507,396Commitments
      and contingenciesStockholders'
      deficit:Common
      stock, $0.0001 par value; 100,000,000authorized shares; 30,978,340 and 30,874,196 shares issued
    andoutstanding
      at March 31, 2009 and June 30, 2008, respectively
              
              3,093
              
              
              3,087Additional
      paid-in capital
              
              11,904,147
              
              
              11,882,403Outstanding
      stock options
              
              3,138,304
              
              
              2,602,344Accumulated
      deficit
              
              (19,453,470
              )
              
              (18,085,965
              )Total
      stockholders' deficit
              
              (4,407,926
              )
              
              (3,598,131
              )Total
      liabilities and stockholders' deficit
              $
              484,086
              
              $
              909,265







See
accompanying notes to unaudited condensed financial statements.
 - 1
-
 Index





QUICK-MED
TECHNOLOGIES, INC.
 CONDENSED
STATEMENTS OF OPERATIONS
 FOR THE THREE AND
NINE MONTHS ENDED MARCH 31, 2009 AND 2008
 (UNAUDITED)


Three
      Months Ended
              
              
              Nine
      Months EndedMarch
      31,
              
              
              March
      31,2009
              
              2008
              
              
              2009
              
              
              2008RevenuesProduct
      sales
              $
              11,646
              
              $
              42,367
              
              
              $
              782,626
              
              
              $
              119,592Research
      and development service
              
              113,750
              
              
              247,560
              
              
              
              180,850
              
              
              
              727,253License
      fees
              
              1,786
              
              
              26,786
              
              
              
              5,357
              
              
              
              99,733127,182
              
              
              316,713
              
              
              
              968,833
              
              
              
              946,578Expenses:Cost
      of sales
              
              1,085
              
              
              9,617
              
              
              
              33,565
              
              
              
              31,381Research
      and development
              
              244,627
              
              
              384,448
              
              
              
              807,317
              
              
              
              1,193,589General
      and administrative expenses
              
              276,221
              
              
              282,235
              
              
              
              1,085,045
              
              
              
              1,127,981Licensing
      and patent expenses
              
              50,938
              
              
              42,395
              
              
              
              168,474
              
              
              
              233,891Depreciation
      and amortization
              
              17,976
              
              
              18,143
              
              
              
              53,928
              
              
              
              54,428Total
      expenses
              
              590,847
              
              
              736,838
              
              
              
              2,148,329
              
              
              
              2,641,270Loss
      from operations
              
              (463,665
              )
              
              (420,125
              )
              
              
              (1,179,496
              )
              
              
              (1,694,692
              )Other
      income (expense):Interest
      income
              
              497
              
              
              573
              
              
              
              2,277
              
              
              
              2,021Interest
      expense
              
              (64,674
              )
              
              (45,078
              )
              
              
              (190,287
              )
              
              
              (115,249
              )Loss
      before income taxes
              
              (527,842
              )
              
              (464,630
              )
              
              
              (1,367,506
              )
              
              
              (1,807,920
              )Provision
      (benefit) for income taxes
              
              -
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              $
              (527,842
              )
              $
              (464,630
              )
              
              $
              (1,367,506
              )
              
              $
              (1,807,920
              )Net
      loss per share (basic and diluted)
              $
              (0.02
              )
              $
              (0.02
              )
              
              $
              (0.04
              )
              
              $
              (0.06
              )Weighted
      average commonshares
      outstanding (basic and diluted)
              
              30,941,182
              
              
              30,725,625
              
              
              
              30,879,907
              
              
              
              30,673,089











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 MARCH 31, 2009
 (UNAUDITED)


AdditionalCommon
      Stock
              
              Paid-In
              
              Accumulated
              
              OutstandingShares
              
              Amount
              
              Capital
              
              Deficit
              
              Stock
      Options
              
              
              TotalBalance,
      December 31, 2008
              30,934,196
              
              $
              3,089
              
              $
              11,894,401
              
              $
              (18,925,628
              )
              $
              3,054,471
              
              
              $
              (3,973,667
              )Stock-based
      compensation
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              85,583
              
              
              
              85,583Stock
      issuance for services
              14,732
              
              
              1
              
              
              2,999
              
              
              -
              
              
              -
              
              
              
              3,000Exercise
      of stock options
              29,412
              
              
              3
              
              
              6,747
              
              
              
              
              
              (1,750
              )
              
              
              5,000Net
      loss, January 1, 2009 to March 31, 2009
              -
              
              
              -
              
              
              -
              
              
              (527,842
              )
              
              -
              
              
              
              (527,842
              )Balance,
      March 31, 2009
              30,978,340
              
              $
              3,093
              
              $
              11,904,147
              
              $
              (19,453,470
              )
              $
              3,138,304
              
              
              $
              (4,407,926
              )














See
accompanying notes to unaudited condensed financial statements.
 - 3
-
 Index








QUICK-MED
TECHNOLOGIES, INC.
 CONDENSED
STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED MARCH 31, 2009 AND 2008
 (UNAUDITED)


2009
              
              2008Cash
      flows from operating activities:Net
      loss
              $
              (1,367,506
              )
              $
              (1,807,920
              )Adjustments
      to reconcile net loss to netcash
      used in operating activities:Depreciation
      and amortization
              
              53,928
              
              
              54,428Stock
      granted for services
              
              15,000
              
              
              24,182Stock-based
      compensation
              
              537,710
              
              
              497,802(Increase)
      decrease in:Restricted
      cash
              
              -
              
              
              (45,953
              )Accounts
      receivable
              
              336,215
              
              
              201,650Prepaid
      expenses
              
              (5,733
              )
              
              2,954Increase
      (decrease) in:Accounts
      payable
              
              (419,466
              )
              
              125,830Accrued
      interest
              
              190,287
              
              
              115,249Other
      current liabilities
              
              58,797
              
              
              (47,127
              )Net
      cash used in operating activities
              
              (600,768
              )
              
              (878,905
              )Cash
      flows from investing activities:Patents
              
              (9,631
              )
              
              (32,198
              )Net
      cash used in investing activities
              
              (9,631
              )
              
              (32,198
              )Cash
      flows from financing activities:Proceeds
      from stock option or warrant exercise
              
              5,000
              
              
              12,150Increase
      in notes payable - related party
              
              -
              
              
              250,000Increase
      in notes payable - officer
              
              100,000
              
              
              -Increase
      in notes payable - director
              
              455,000
              
              
              616,840Net
      cash provided by financing activities
              
              560,000
              
              
              878,990Net
      decrease in cash and cash equivalents
              
              (50,399
              )
              
              (32,113
              )Cash
      and cash equivalents at beginning of period
              
              72,817
              
              
              115,719Cash
      and cash equivalents at end of period
              $
              22,418
              
              $
              83,606Supplementary Information:Cash
      paid for:Interest
              $
              -
              
              $
              -Income
      taxes
              $
              -
              
              $
              -Non-cash
      disclosures of investing andfinancing
      activities:Stock-based
      compensation
              $
              552,710
              
              $
              521,984Stock
      issuance in settlement of a liability
              $
              -
              
              $
              21,046








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 nine months ended
March 31, 2009 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2009. For further information, refer to
the financial statements and the footnotes thereto contained in the Company’s
Annual Report on Form 10-KSB for the year ended June 30, 2008, 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.








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 March 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 March 31, 2009 and 2008, 10,840,329 and 3,874,428 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 Financial Accounting
Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”)
No. 157, “Fair Value
Measurements”, which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value measurements.
SFAS No. 157 does not require any new fair value measurements, but rather
eliminates inconsistencies in guidance found in various other accounting
pronouncements. The adoption of SFAS No. 157 did not have a material effect
on the Company’s financial condition or operating results.





SFAS
No. 157 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 adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement
No. 115, during the first quarter of fiscal year 2009. SFAS No. 159 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. SFAS
No. 159 requires that unrealized gains and losses on items for which the
fair value option has been elected be reported in earnings at each reporting
date. The Company adopted SFAS No. 159 but has not elected the fair value
option for any eligible financial instruments as of July 1,
2008.





Revenue
Recognition





The
Company’s revenues consist of the following sources: product sales, 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 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





In
December 2004, the Financial Accounting Standards Board ("FASB") issued a final
standard, SFAS No. 123R, "Share-Based Payment," ("SFAS 123R"), which requires
companies to expense the value of employee stock options and similar awards.
Under SFAS 123R, share-based payment awards result in a cost that 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 SFAS 123R 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 March 31, 2009, the
Company’s cash levels did not exceed the federally


insured
limit. As of March 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, 2008.





Income
Taxes





The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes” and FASB
Interpretation No. 48, “ Accounting for Uncertainty in Income
Taxes.”  This standard requires, among other things, recognition of
future tax consequences, measured by enacted tax rates attributable to taxable
and deductible temporary differences between financial statement and income tax
bases of assets and liabilities.  Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.  Income tax expense is the tax payable for
the period and the change during the period in the deferred tax asset and
liability.





Recently Issued Accounting
Pronouncements





In June
2007, the FASB Emerging Issues Task Force issued EITF Issue No. 07-3 (“EITF
07-3”), “Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities.”  EITF
07-3 addresses the accounting for nonrefundable advance payments
for goods or services to be used or rendered in future research and development
activities pursuant to an executory contractual arrangement.  EITF
07-3 concludes such amounts should be deferred and capitalized and recognized as
an expense as the related goods are delivered or the related services are
performed.  The Company adopted the provisions of EITF 07-3 on July 1,
2008.






- 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
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 will be 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 will be vested on April 17, 2009 and the remaining
one-third will be vested on April 17, 2010, assuming the person receiving the
equity awards is employed by the Company at the time of vesting.  The
exercise price of those stock options 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 March 5, 2008,
84,615 stock options were forfeited.





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 March 31, 2009, 29,412 options were exercised at $0.17 per
share or an aggregate price of approximately $5,000 under the July 2004 stock
options agreement.





During
the period ended March 31, 2008, the Company issued 18,329 common stock warrants
to consultants as part of the payment for their services.  These
warrants were accounted for in accordance with the fair value provisions of SFAS
123R.  These warrants were vested immediately with fair values ranging
from $0.44 to $0.58 per share and the total cost of approximately
$12,000.





During
the period ended March 31, 2008, approximately 82,500 warrants were exercised at
exercise prices ranging from $0.14 to $0.20 per share or an approximate
aggregate price of $12,000.





The
weighted average grant date fair value of options and warrants granted during
the three and nine months ended March 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
              
              
              Nine
      Months EndedMarch
      31, 2009
              
              
              March
      31, 2008
              
              
              March
      31, 2009
              
              
              March
      31, 2008Expected
      volatility
              161
              %
              
              138
              %
              
              101
              %
              
              73
              %Risk-free
      rate
              3.00
              %
              
              6.00
              %
              
              3.00
              %
              
              6.00
              %Expected
      dividends
              0.00
              %
              
              0.00
              %
              
              0.00
              %
              
              0.00
              %Expected
      term (in years)
              5
      Years
              
              
              5
      Years
              
              
              5
      Years
              
              
              5
      Years







- 8
-
 Index





NOTE 3 – STOCK OPTIONS AND
WARRANTS, continued





A summary
of options for the periods ended March 31, 2009 and 2008 is shown
below:





March
      31, 2009
              
              March
      31, 2008Number
              
              Weighted-Average
              
              Number
              
              Weighted-Averageof
      Shares
              
              Exercise
      Price
              
              of
      Shares
              
              Exercise
      PriceOutstanding
      at beginning of period
              5,683,544
              
              $
              0.61
              
              2,757,270
              
              $
              0.61Granted
              1,335,102
              
              
              0.20
              
              1,936,223
              
              
              0.74Exercised
              29,412
              
              
              0.17
              
              -
              
              
              -Forfeited
              (230,343
              )
              
              0.47
              
              (84,615
              )
              
              1.05Expired
              (871,500
              )
              
              0.55
              
              -
              
              
              -Outstanding
      at end of period
              5,946,215
              
              $
              0.53
              
              4,608,878
              
              $
              0.66Exercisable
      at end of period
              4,148,523
              
              
              
              
              3,167,839Available
      for issuance at end of period
              53,785
              
              
              
              
              1,391,122





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





March
      31, 2009
              
              March
      31, 2008Number
              
              Weighted-Average
              
              Number
              
              Weighted-Averageof
      Shares
              
              Exercise
      Price
              
              of
      Shares
              
              Exercise
      PriceOutstanding
      at beginning of period
              744,937
              
              $
              0.48
              
              854,108
              
              $
              0.56Granted
              705,302
              
              
              0.20
              
              18,329
              
              
              0.65Exercised
              -
              
              
              -
              
              (82,500
              )
              
              0.15Expired
              -
              
              
              -
              
              -
              
              
              -Outstanding
      at end of period
              1,450,239
              
              $
              0.39
              
              789,937
              
              $
              0.57Exercisable
      at end of period
              1,204,822
              
              
              
              
              789,937






- 9
-
 Index





NOTE 4 – NOTES
PAYABLE


Interest
              
              
              Conversion
              
              March
              
              JuneDirector
              Maturity
              
              Rate
              
              
              Price
              
              
              31,
      2009
              
              
              30,
      20082003
      Senior Convertible Note
              2010
              
              6
              %
              
              $
              0.38
              
              $
              1,268,625
              
              $
              1,268,625Senior
      Convertible Note
              2010
              
              8
              %
              
              $
              0.74
              
              
              208,955
              
              
              208,9552007
      Senior Convertible Note
              2010
              
              8
              %
              
              $
              0.74
              
              
              375,000
              
              
              375,0002007
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.55
              
              
              50,000
              
              
              50,0002007
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.51
              
              
              50,000
              
              
              50,0002007
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.40
              
              
              50,000
              
              
              50,0002007
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.40
              
              
              50,000
              
              
              50,0002007
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.34
              
              
              50,000
              
              
              50,0002007
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.32
              
              
              50,000
              
              
              50,0002008
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.32
              
              
              50,000
              
              
              50,0002008
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.45
              
              
              70,000
              
              
              70,0002008
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.40
              
              
              75,000
              
              
              75,0002008
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.33
              
              
              50,000
              
              
              50,0002008
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.42
              
              
              75,000
              
              
              75,0002008
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.40
              
              
              50,000
              
              
              50,0002008
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.29
              
              
              50,000
              
              
              50,0002008
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.20
              
              
              50,000
              
              
              50,0002008
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.38
              
              
              50,000
              
              
              50,0002008
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.35
              
              
              135,000
              
              
              135,0002008
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.25
              
              
              100,000
              
              
              -2008
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.35
              
              
              50,000
              
              
              -2008
      Senior Convertible Note 2
              2010
              
              8
              %
              
              $
              0.25
              
              
              50,000
              
              
              -2008
      Senior Convertible Note 3
              2010
              
              8
              %
              
              $
              0.36
              
              
              50,000
              
              
              -2008
      Senior Convertible Note 3
              2010
              
              8
              %
              
              $
              0.19
              
              
              50,000
              
              
              -2008
      Senior Convertible Note 3
              2010
              
              8
              %
              
              $
              0.31
              
              
              50,0002009
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.18
              
              
              35,0002009
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.37
              
              
              35,0002009
      Senior Convertible Note 1
              2010
              
              8
              %
              
              $
              0.43
              
              
              35,000Accrued
      interest
              
              
              
              
              
              
              
              
              
              347,938
              
              
              181,3223,610,518
              
              
              2,988,902Related
      Party2007
      Senior Convertible Note
              2010
              
              8
              %
              
              $
              0.74
              
              
              375,000
              
              
              375,000Accrued
      interest
              
              
              
              
              
              
              
              
              
              47,836
              
              
              25,315422,836
              
              
              400,315Officer2008
      Convertible Notes
              2010
              
              8
              %
              
              $
              0.20
              
              
              100,000
              
              
              -Accrued
      interest
              
              
              
              
              
              
              
              
              
              1,151
              
              
              -101,151
              
              
              -Total
      long term note payable
              
              
              
              
              
              
              
              $
              4,134,505
              
              $
              3,389,217






Effective
February 26, 2009, the Company issued a 2009 senior convertible note payable
(“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. As of
March 31, 2009, the Company received approximately $105,000.  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 2010.  This note has the conversion
prices determined by the closing trading prices of the Company’s common stock on
the dates the Advances were received.






- 10
-
 Index




NOTE 4 – NOTES PAYABLE,
continued


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 2010.





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. As of
December 31, 2008, the Company received approximately $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
2010.  This note has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.





Effective
May 17, 2008, the Company issued a 2008 senior convertible note payable (“Note
2”) to its Chairman to combine the borrowings (the “Advances”) ranging from
$50,000 to $135,000 each from May 17, 2008 through August 28, 2008. As of
December 31, 2008, the Company received approximately $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
2010.  This Note 2 has the conversion
prices determined by the closing trading prices of the Company’s common stock on
the dates the Advances were received.





Effective
February 11, 2008, the Company issued a 2008 senior convertible note payable to
its Chairman to combine the borrowings (the “Advances”) ranging from $50,000 to
$75,000 each from February 11, 2008 through April 29, 2008. As of December 31,
2008, the Company received approximately $370,000.  This senior
convertible note is secured by the Company’s revenues and assets with the same
priority as the 2007 senior convertible notes described below and has a maturity
date of 2010.  This note has the conversion prices determined by the
closing trading prices of the Company’s common stock on the dates the Advances
were received.





Effective
October 30, 2007, the Company issued another 2007 senior convertible note
payable to its Chairman to combine the borrowings (the “Advances”) in a series
of $50,000 each from October 30, 2007 through January 30, 2008. As of December
31, 2008, the Company received $300,000.  This senior convertible note
is secured by the Company’s revenues and assets with the same priority as the
2007 senior convertible notes described below and has a maturity date of
2010.  This note has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.





In June
2007, the Company issued two other 2007 senior convertible note payables to its
Chairman and a major stockholder for $375,000 each. As of September 30, 2007,
the Company received $375,000 from its Chairman.  The Company also
received $125,000 from a major stockholder and the remainder in September
2007.  These two senior convertible note payables are secured by the
Company’s revenues and assets.  These note payables require the
Company to allocate approximately $162,000 of these funds to be restricted for
payment of the chief executive officer’s salary for the remainder of the twelve
months from the date of hire. The Company may prepay the principal and interest
upon meeting certain cash flow requirements and the approval of the
board.





In
addition, the Company combined its other outstanding note payables to its
Chairman totaling $208,955 into a single note with the same annual interest rate
and extended the maturity date to 2010.  This senior convertible note
is secured by the Company’s revenues and assets with the same priority as the
2007 senior
convertible notes.  Further, the 2003 senior convertible note maturity
date was extended until 2010.





In
September 2003, the Company negotiated a successor agreement with its Chairman
regarding the line of credit, which became a single convertible note for up to
$1,500,000 excluding accrued interest, at an interest rate of 6% and due July 1,
2004.  The convertible note is secured by the assets and revenues of
the Company, which has the same priority as other senior convertible note
payables.   The note plus accrued interest will be convertible at
a conversion rate of $0.38 per share.  The conversion rate was
determined as 15% above the average share price over the prior 20 trading days
($0.33 per share). The note has an anti-dilution provision in the event that the
Company sells stock to other investors at less than $0.20 per
share.  During the year ended June 30, 2006, the maturity date of the
note was extended until October
1, 2007. In January 2007, the Chairman agreed to extend the maturity date of the
note until April 1, 2008.  In June 2007, the maturity date of this
note was extended to June 2010.






- 11
-
 Index




NOTE 5  – FAIR
VALUE MEASUREMENTS





As
discussed in Note 2, “Summary of Significant Accounting Policies,” the Company
adopted SFAS No. 157 for all financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. SFAS No. 157 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.  SFAS No. 157
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.





SFAS
No. 157 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. SFAS No. 157 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 March 31, 2009:





Carrying Value
              
              Level 1
              
              Level 2
              
              Level 3Financial
      AssetsCash
      equivalents (1)
              $
              90,849
              
              $
              90,849
              
              -
              
              
              -Total
      financial assets
              $
              90,849
              
              $
              90,849
              
              -
              
              
              -Financial
      LiabilitiesConvertible
      notes payable (2)
              $
              4,134,505
              
              
              -
              
              -
              
              $
              4,013,684Total
      financial liabilities
              $
              4,134,505
              
              
              -
              
              -
              
              $
              4,013,684







(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.





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, 2008 and June 30, 2008.





NOTE 7  –
SUBSEQUENT EVENTS





On April
17, 2009, the Company and Avery Dennison Corporation (“Avery”) entered into a
Joint Development and Exclusive Option Agreement (the “Agreement”) effective as
of April 17, 2009.  Under the Agreement, the Company is engaged in the
development of our NIMBUS®
antimicrobial   technology and other proprietary antimicrobial
technologies to be incorporated in adhesives for certain medical device and
industrial applications for the period of six months from the effective
date.  In addition, the Company granted to Avery an exclusive option
(the “Option”) to obtain an exclusive agreement to the Company’s NIMBUS and
other proprietary antimicrobial technologies relating to certain medical devices
and industrial applications. In consideration for the development activities,
Avery will pay the Company $100,000 during the term of the Agreement based on
the achievement of certain milestone objectives.




On April
30, 2009, the Company received the remainder of the 2009 Senior Note Convertible
Note 1 of approximately $70,000 from its Chairman.







- 12
-
 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-KSB for our fiscal year ended June 30, 2008.   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 that  are secured by our assets
and revenues and  are senior obligations due to our Chairman of the
Board and a major shareholder, who have  funded our operations; 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, 2008 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 consumer, healthcare, and industrial markets. We call one of
these technologies, “NIMBUS®”, which
stands for “Novel Intrinsically MicroBonded Utility Substrate”. NIMBUS is a
family of advanced polymers that are bio-engineered to have antimicrobial,
super-absorbent, hemostatic or other properties with applications across the
medical device and consumer health care related products markets. Our other
leading technology is called “MultiStat®”, a
family of advanced patent methods and compounds, which have been shown to be
highly effective in skin care therapy applications. Additionally, we are
developing “Stay FreshTM”, a highly durable antimicrobial technology for textiles
and apparel applications, and “NimbuDermTM”, a persistent hand sanitizer
technology that provides both instant and long lasting protection for
skin.




Our
strategy is to further develop our core technologies as well as develop future
technologies. We will attempt to commercialize these technologies through
strategic licensing partnership agreements, joint ventures, or co-development
agreements. We do not intend to manufacture or distribute final products;
instead, we will seek partnership arrangements and/or license agreements with
third parties to develop products that use our technologies and who will perform
the manufacturing, marketing, and distribution functions associated with our
technologies.




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




·
            License
      fees;


·
            Profit
      sharing revenue arrangements with our development
  partners;


·
            Research
      and development fees paid to us in connection with joint development
      agreements; and


·
            Government
      research and development grants.




Our
potential revenues will be derived from government agencies and the following
types of companies in connection with our NIMBUS and MultiStat®
technologies:




·
            Healthcare
      and medical;


·
            Apparel;


·
            Cosmetic;
      and


·
            Personal
      care companies.






- 13
-
 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 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.




Recent
Developments




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.  Under the Agreement, we are engaged in the
development of our NIMBUS®
antimicrobial   technology and other proprietary antimicrobial
technologies to be incorporated in adhesives for certain medical device and
industrial applications for the period of six months from the effective
date.  In addition, we granted to Avery an exclusive option (the
“Option”) to obtain an exclusive agreement to our NIMBUS and other proprietary
antimicrobial technologies relating to certain medical devices and industrial
applications. In consideration for the development activities, Avery will pay us
$100,000 during the term of the Agreement based on the achievement of certain
milestone objectives.






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-KSB for fiscal year ended June 30, 2008 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 March 2009, we have spent approximately $825,000 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.








- 14
-
 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 Nine Months Ended March 31, 2009 and 2008





Revenues.     During
the nine months ended March 31, 2009 we had $968,833 of revenues, compared to
$946,578 of revenues for the nine months ended March 31, 2008, representing a 2%
increase in our revenues.  Our revenues during the nine months ended
March 31, 2009 consisted of: (a) $782,626, 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)
$180,850, which represented the revenue earned from the small business
innovation research program and from the joint development program with
Mölnlycke Health Care AB; and (c) $5,357, which represented the earned portion
of the license  fee from Derma Sciences, Inc.  As a result
of our May 2008 manufacturing and distribution agreement with BASF, we have had
a significant increase in product sales in the nine months
period.  However, we cannot anticipate that our share of the product
sales by BASF for the subsequent quarters would continue at this level given
market uncertainties, in particular in the retail cosmetic
industry.





Our
revenues during the nine months ended March 31, 2008 consisted of (a)
$119,592, which represented our royalties from the product sales by BASF Beauty
Care Solutions, L.L.C.; (b) $727,253, which represented the revenue earned from
the small business innovation research program and the US Army research on the
development of Ilomastat for treatment of sulfur mustard injuries on the eye and
skin  program (the “US Army research program”); and (c) $99,733, which
represented the earned portion of the exclusive option fee from Hanesbrands
Inc., and 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 nine months ended March 31, 2009
was $1,179,496 as compared to $1,694,692 in operating loss for the nine months
ended March 31, 2008, representing a decrease of 30% or $515,196 in operating
loss. The reduction in operating loss was primarily attributable to an increase
in revenues of $22,255 coupled with a decrease in expenses of $492,941 for the
nine months ended March  31, 2009.   The decrease in
expenses was primarily due to the following:  (a) a decrease of
$386,272 or 32% in research and development expenses; (b) a decrease of $42,936
or 4% in general and administrative expenses; and (c) a decrease of $65,417 or
28% in licensing and patent expenses; offset by (d) a slight increase of $2,184
or 7% in cost of revenues to the amount in the comparable prior period, as
described in more detail below.





Research and Development
Expense.  Research and development expense decreased by
$386,272 or 32% to $807,317 for the nine months ended March 31, 2009, from
$1,193,589 for the nine months ended March 31, 2008.  The decrease in
research and development expense is primarily attributable the absence of the
expenses related to the U.S. Army Research Program, which was completed in June
2008,  the partial sign-on compensation expense to our head of
research and development department, and more utilization of outside lab
services in prior year comparable period.





General and Administrative
Expense.  General and administrative expense decreased by
$42,936 or 4% to $1,085,045 for the nine months  ended March 31, 2009,
from $1,127,981 for the nine months ended March 31, 2008.  This
decrease in our general and administrative expenses is primarily attributed to
expenses control.





Licensing and Patent
Expense.  Licensing and patent expense decreased by $65,417 or
28% to $168,474 for the nine months ended March 31, 2009 from $233,891 for the
nine months ended March 31, 2008.  This decrease was primarily due to
the reduced level of utilization of consulting legal patent services and legal
licensing services including licensing and joint development agreement
negotiations.




- 15
-
 Index


Interest
Income.  During the nine months ended March 31, 2009, we had
$2,277 in interest income,an increase of
$256 or 13% from $2,021 for the nine months ended March 31, 2008.  The
amounts from both periods represent interest earned on our certificate of
deposits and money market account funded by the revenues and debt financings
during the respective periods.





Interest
Expense.  Interest expense for the nine months ended March 31,
2009 increased $75,038 or 65% to $190,287 compared to $115,249 the nine months
ended March 31, 2008.  This increase was due to an increase of
approximately $1,000,000 or 42% in the average outstanding loan balance due to
our Chairman of the Board and a major shareholder to approximately $3,500,000,
compared to approximately $2,400,000 average outstanding balance for the
comparable 2008 period.





Net
Loss.   Net loss for the nine months ended March 31, 2009
was $1,367,506 or $0.04 per share compared to $1,807,920 or $0.06 per share for
the nine months ended March 31, 2008.   This decrease is
primarily attributable to an increase in revenues, decreases in research and
development, general and administrative expenses, and licensing and patent
expenses, offset by an increase in cost of revenues.





Comparison
of Three Months Ended March 31, 2009 and 2008





Revenues.     During
the three months ended March 31, 2009 we had $127,182 of revenues, compared to
$316,713 of revenues for the three months ended March 31, 2008, representing a
60% decrease in our revenues.  Our revenues during the three months
ended March 31, 2009 consisted of: (a) $11,646, 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; (b) $113,750, which represented the
revenue earned from the small business innovation research program; and (c)
$1,786, which represented the earned portion of the license  fee from
Derma Sciences, Inc.





Our
revenues during the three months ended March 31, 2008 consisted of (a)
$42,367, which represented our royalties from the product sales by BASF Beauty
Care Solutions, L.L.C.; (b) $247,560, which represented the revenue eared from
the small business innovation research program and the US Army research on the
development of Ilomastat for treatment of sulfur mustard injuries on the eye and
skin  program (the “US Army research program”); and (c) $26,786, which
represented the earned portion of the exclusive option fee from Hanesbrands
Inc., and the earned portion of the license  fee from Derma Sciences,
Inc.





Operating
Loss.  Operating loss for the three months ended March 31, 2009
was $463,665 as compared to $420,125 in operating loss for the three months
ended March 31, 2008, representing an increase of 10% or $43,540 in operating
loss. The operating loss was primarily attributable to a decrease in revenues of
$189,531 offset by a decrease in expenses of $145,991 for the three months ended
March 31, 2009.  The decrease in expenses was primarily due to the
following:  (a) a decrease of $139,821 or 36% in research and
development expenses; (b) a decrease of $6,014 or 2% in general and
administrative expenses ; and (c) a decrease of $8,532 or 89% in cost of
revenues ; offset by (d) an increase of $8,543 or 20% in licensing and patent
expenses to the amounts in the comparable prior period, as described in more
detail below.





Research and Development
Expense.  Research and development expense decreased by
$139,821 or 36% to $244,627 for the three months ended March 31, 2009, from
$384,448 for the three months ended March 31, 2008.  The decrease in
research and development expense is primarily attributable the absence of the
expenses related to the U.S. Army Research Program, which was completed in June
2008.





General and Administrative
Expense.  General and administrative expense decreased by
$6,014 or 2% to $276,221 for the three months ended March 31, 2009, from
$282,235 for the three months ended March 31, 2008.  This increase in
our general and administrative expenses is primarily attributed to a slight
increase in printing and other general office expenses.





Licensing and Patent
Expense.  Licensing and patent expense increased by $8,543 or
20% to $50,938 for the three months ended March 31, 2009 from $42,395 for the
three months ended March 31, 2008.  This increase was primarily due to
the patent annuity fees for the recently submitted patent applications in the
foreign jurisdictions.





Interest
Income.  During the three months ended March 31, 2009, we had
$497 in interest income, a decrease of $76
or 13% from $573 for the three months ended March 31, 2008.  The
amounts from both periods represent interest earned on our certificate of
deposits and money market account funded by the revenues and debt financings
during the respective periods.





Interest
Expense.  Interest expense for the three months ended March 31,
2009 increased $19,596 or 43% to $64,674 compared to $45,078 the three months
ended March 31, 2008.  This increase was due to an increase of
approximately $1,000,000 or 42% in the average outstanding loan balance due to
our Chairman of the Board and a major shareholder to approximately $3,500,000,
compared to approximately $2,400,000 average outstanding balance for the
comparable 2008 period.





Net
Loss.   Net loss for the three months ended March 31, 2009
was $527,842 or $0.02 per share compared to $464,630 or $0.02 per share for the
three months ended March 31, 2008.   This increase is primarily
attributable to a decrease in revenues and an increase in licensing and patent
expenses, offset by decreases in general and administrative
expenses,  in research and development expenses, and  in
cost of revenues.




- 16
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 Index


Liquidity
and Capital Resources





Our
auditors have issued a going concern opinion on our audited financial statements
for the fiscal years ended June 30, 2008 and 2007 as we have experienced
recurring losses and negative cash flows from operations in these
periods.  In addition, we have a net capital
deficiency.  These matters raise substantial doubt about our ability
to continue as a going concern.





Total
cash on hand at March 31, 2009 was $22,418 as compared with $72,817 at June 30,
2008.    Subsequent to the quarter ended, we have collected
the entire outstanding receivable balance of approximately $10,500 at March 31,
2009.  In addition, we received approximately $70,000 balance of the
$175,000 senior convertible note with our Chairman during April
2009.  Further, we received $30,000 initial payment from Avery
Dennison Corporation as part of the Agreement as more fully described
below.





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 April 30, 2009 as mentioned
above,  we collected a $30,000 initial payment under the
Agreement.





On April
4, 2008, we and Mölnlycke Health Care AB (“MHC”) entered into a Joint
Development Agreement (the “Agreement”) effective as of March 19, 2008 with
total value of approximately $90,000 over nine months period.  We
anticipate the direct expenses for this project of approximately
$25,000.   As of December 31, 2008, we completed the work under
the Agreement and subsequently collected the final payment of
$48,000.





In
September 2006, we received the SBIR Phase II grant, which included including
the option of SBIR Phase I, totaling approximately $840,000 over the next two
years and we expect the cash outflows related to this grant of approximately
$390,000 to subcontractors and other direct expenses.  To date, we
received approximately $429,000 and incurred approximately $115,000 in expenses
to subcontractors and other direct expenses. Effective April 23, 2007, we were
awarded a twelve month military contract of approximately $880,000, net of
overhead charged by USAMRAA.  The cash outflows during the term of
this military award were approximately $610,000 for scientific experiments and
other direct expenses.   This research was completed in June
2008. 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 $22,000 or 20% of our Director of Business
      Development.




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 $371,000 in cash for the calendar year 2009.








Equity Financing and our
Cash Requirements





On
November 30, 2004, we completed an agreement to sell 5,000,000 shares of our
restricted common stock to Phronesis Partners, L.P. (“Phronesis”), a Delaware
limited partnership, for $1,000,000 before commission and expenses (the ”Stock
Purchase Agreement”). On November 30, 2004, we received $880,000 net of
commission and expenses of $120,000. In connection with the Stock Purchase
Agreement, our Chairman of the Board, Mr. Granito, converted $500,000 of the
convertible debt we owed to him into 1,315,790 shares of our restricted common
stock at a conversion price applicable to the convertible debt of $0.38 per
share. In connection with the Stock Purchase Agreement, we 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.






- 17
-
 Index


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.




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.





Based on
our cash position at March 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 $22,418 as of  March 31, 2009, coupled with
accounts receivable of approximately $10,500,  which has been
subsequently collected after March 31, 2009, will satisfy our cash requirements
for approximately less than (1) month 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 less
than (1) month assuming no further receipts of revenues and additional debt or
equity financing.





We intend
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.





- 18
-
 Index




As of
March 31, 2009, we have nine senior convertible notes payable outstanding to our
Chairman totaling $3,610,518 including accrued interest with interest rates
ranging from 6% to 8% per annum and  maturity dates ranging from June
to December 2010.  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
2010, and is secured by our revenues and assets.  In addition, we have
four convertible notes payable totaling $101,151 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 or restructure our loans to our Chairman of the
Board and to the major shareholder or are unable to raise additional cash by
means of equity or debt financing for operations, 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 Financial Industry Regulatory authority
      (FINRA) to affect a delisting of our
stock.





Based
upon our cash requirements for our plan of continued operations and our current
dividend policy of investing any available cash to our operations, we do not
plan to distribute any cash to our stockholders.





At March
31, 2009, we had a negative working capital of $564,595 that primarily consists
of: (a) cash of $22,418; (b) accounts receivable of $10,494; (c) accounts
payable of $451,608; (d) accrued expenses of $110,186; and (e) unearned revenue
of $35,713.  At March 31, 2009, we had a stockholders’ deficit of
$4,407,926, a portion of which is due to non-cash stock compensation expense and
non-cash interest expense from the notes payable conversions.





Cash used
in operating activities was $600,768 for the nine months ended March
31, 2009. Net cash used in investing activities was $9,631.  Net cash
provided by financing activities was $560,000, of
which   $455,000 was from a senior secured 2008 convertible note
3 and a senior secured 2009 convertible note 1 with our Chairman, the $100,000
convertible notes with one of our officers, and the proceeds of $5,000 in cash
from the exercise of 29,412 stock options.





During
the nine months ended March 31, 2008, we received (a) $12,150 from the exercise
of the 82,500 stock warrants; (b) $250,000 from a major shareholder as the final
funding from the $375,000 senior convertible note; and (c) $616,840
from  our Chairman that included the $300,000 senior convertible note,
the $245,000 borrowings as part of another senior convertible note, and $71,480
as part of a $375,000 senior convertible note.




Contractual
Obligations




The
following table summarizes our long-term contractual obligations as of March 31,
2009:




Total
            
            Less
      than 1 Year
            
            1-3 Years
            
            3-5 Years
            
            
            More
      than 5 YearsLong-term
      debt obligations (a)
            $
            4,134,505
            
            $
            
            
            $
            4,134,505
            
            $
            -
            
            
            $
            -Operating
      lease obligations (b)
            $
            44,000
            
            $
            6,000
            
            $
            38,000
            
            $
            -
            
            
            $
            -





(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 footnotes to the condensed interim 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.






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 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  March 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 March 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.




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 Index








PART
II


OTHER
INFORMATION





Item
1.   Legal Proceedings





None.





Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds





On
January 31, 2009, we issued 7,143 shares of our common stock to Mr. Nguyen, our
Chief Financial Officer, in exchange for approximately $1,000, which we
owed to Mr. Nguyen for services rendered to us. The shares granted to Mr. Nguyen
were valued at price of $0.14 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
February 28, 2009, we issued 5,263 shares of our common stock to Mr. Nguyen in
exchange for approximately $1,000, which we owed to Mr. Nguyen for services
rendered to us. The shares granted to Mr. Nguyen were valued at price of $0.19
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 March
31, 2009, we issued 2,326 shares of our common stock to Mr. Nguyen in exchange
for approximately $1,000, which we owed to Mr. Nguyen for services rendered to
us. The shares granted to Mr. Nguyen were valued at price of $0.43 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.










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
              
              2009
      Senior Convertible Note 1 issued to Michael Granito filed
      herewith.10.2
              
              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.





- 21
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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
            May
      15, 2009
            By:
      /s/ J. Ladd GreenoJ.
      Ladd GreenoChief
      Executive Officer (Principal Executive
  Officer)





Date
            May
      15, 2009
            By:
      /s/ Nam H. NguyenNam
      H. NguyenChief
      Financial Officer





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