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 September 30, 2008.
 
 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 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
November 7, 2008, there were 30,874,196 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  September 30,
      2008   and June 30, 2008 (unaudited)
              1Condensed Statements of Operations for thethree months ended
      September 30, 2008  and 2007 (unaudited)
              2Condensed Statement of Changes in Stockholders’ Deficit for
      the three monthsended September
      30, 2008 (unaudited)
              3Condensed Statements of Cash Flows for the three months ended
      September 30, 2008 and 2007 (unaudited)
              4Notes to Condensed Financial Statements
      (unaudited)
              5-11Item
      2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              12-18Item
      3.
              Quantitative and Qualitative Disclosure About Market
      Risk
              18Item
      4T.
              Controls and Procedures
              18PART
      II
              OTHER
      INFORMATIONItem
      1.
              Legal Proceedings
              19Item
      2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              19Item
      3.
              Defaults Upon Senior Securities
              19Item
      4.
              Submission of Matters to a Vote of Security
      Holders
              19Item
      5.
              Other Information
              19Item
      6.
              Exhibits
              19SIGNATURES
  Index
  PART
      I
              FINANCIAL INFORMATION
 
 ITEM
      1.
              FINANCIAL
      STATEMENTS
 
 
 
 QUICK-MED
TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (UNAUDITED)
  ASSETSSeptember
      30,
                
                June
      30,2008
                
                2008Current
      assets:Cash
      and cash equivalents
                $
                39,829
                
                $
                72,817Accounts
      receivable
                
                677,698
                
                
                346,709Total
      current assets
                
                717,527
                
                
                419,526Property
      and equipment, net
                
                22,480
                
                
                24,983Other
      assets:Prepaid
      expenses
                
                9,709
                
                
                5,311Intangible
      asset, net
                
                444,647
                
                
                459,445Total
      other assets
                
                454,356
                
                
                464,756Total
      assets
                $
                1,194,363
                
                $
                909,265LIABILITIES AND STOCKHOLDERS'
      DEFICITCurrent
      liabilities:Accounts
      payable
                $
                687,107
                
                $
                871,074Unearned
      revenue
                
                39,285
                
                
                41,071Accrued
      expenses
                
                49,671
                
                
                46,034Total
      current liabilities
                
                776,063
                
                
                958,179License
      payable
                
                160,000
                
                
                160,000Long-term
      liability - convertible note payable - related party
                
                407,877
                
                
                400,315Long-term
      liability - convertible note payable - director
                
                3,341,936
                
                
                2,988,902Total
      liabilities
                
                4,685,876
                
                
                4,507,396Commitments
      and contingenciesStockholders'
      deficit:Common
      stock, $0.0001 par value; 100,000,000authorized
      shares; 30,874,196 shares issued and outstandingat
      September 30 and June 30, 2008
                
                3,087
                
                
                3,087Additional
      paid-in capital
                
                11,882,403
                
                
                11,882,403Outstanding
      stock options
                
                2,715,734
                
                
                2,602,344Accumulated
      deficit
                
                (18,092,737
                )
                
                (18,085,965
                )Total
      stockholders' deficit
                
                (3,491,513
                )
                
                (3,598,131
                )Total
      liabilities and stockholders' deficit
                $
                1,194,363
                
                $
                909,265
  
 See
accompanying notes to unaudited condensed financial statements.
 -1-
 Index
 
 
 QUICK-MED
TECHNOLOGIES, INC.
 CONDENSED
STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three
      Months Ended September 30,2008
                
                2007RevenuesProduct
      sales
                $
                711,671
                
                $
                12,155Research
      and development service
                
                19,100
                
                
                295,547License
      fees
                
                1,786
                
                
                41,786732,557
                
                
                349,488Expenses:Cost
      of sales
                
                29,922
                
                
                2,440Research
      and development
                
                244,929
                
                
                455,121General
      and administrative expenses
                
                338,249
                
                
                552,794Licensing
      and patent expenses
                
                47,773
                
                
                70,272Depreciation
      and amortization
                
                17,976
                
                
                18,143Total
      expenses
                
                678,849
                
                
                1,098,770Income
      (loss) from operations
                
                53,708
                
                
                (749,282
                )Other
      income (expense):Interest
      income
                
                116
                
                
                362Interest
      expense
                
                (60,596
                )
                
                (30,333
                )Loss
      before income taxes
                
                (6,772
                )
                
                (779,253
                )Provision
      (benefit) for income taxes
                
                -
                
                
                -Net
      loss
                $
                (6,772
                )
                $
                (779,253
                )Net
      loss per share (basic and diluted)
                $
                -
                
                $
                (0.03
                )Weighted
      average commonshares
      outstanding (basic and diluted)
                
                30,874,196
                
                
                30,607,600
 
 
 
 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 SEPTEMBER 30, 2008
 (UNAUDITED)
  AdditionalCommon
      Stock
                
                Paid-In
                
                Accumulated
                
                OutstandingShares
                
                Amount
                
                Capital
                
                Deficit
                
                Stock
      Options
                
                
                TotalBalance,
      June 30, 2008
                30,874,196
                
                $
                3,087
                
                $
                11,882,403
                
                $
                (18,085,965
                )
                $
                2,602,344
                
                
                $
                (3,598,131
                )Stock-based
      compensation
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                113,390
                
                
                
                113,390Net
      loss, July 1, 2008 to September 30, 2008
                -
                
                
                -
                
                
                -
                
                
                (6,772
                )
                
                -
                
                
                
                (6,772
                )Balance,
      September 30, 2008
                30,874,196
                
                $
                3,087
                
                $
                11,882,403
                
                $
                (18,092,737
                )
                $
                2,715,734
                
                
                $
                (3,491,513
                )
 
 
 
 
 
 
 See
accompanying notes to unaudited condensed financial statements.
 -3-
 Index
 
 
 QUICK-MED
TECHNOLOGIES, INC.
 CONDENSED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Three
      Months Ended September 30,2008
                
                2007Cash
      flows from operating activities:Net
      loss
                $
                (6,772
                )
                $
                (779,253
                )Adjustments
      to reconcile net loss to netcash
      used in operating activities:Depreciation
      and amortization
                
                17,976
                
                
                18,143Stock
      granted for services
                
                -
                
                
                3,136Stock-based
      compensation
                
                113,390
                
                
                326,065(Increase)
      decrease in:Restricted
      cash
                
                -
                
                
                (162,890
                )Accounts
      receivable
                
                (330,989
                )
                
                72,954Prepaid
      expenses
                
                (4,398
                )
                
                3,104Increase
      (decrease) in:Accounts
      payable
                
                (183,967
                )
                
                151,131Accrued
      interest
                
                60,596
                
                
                30,334Other
      current liabilities
                
                1,851
                
                
                (23,082
                )Net
      cash used in operating activities
                
                (332,313
                )
                
                (360,358
                )Cash
      flows from investing activities:Patents
                
                (675
                )
                
                (7,737
                )Net
      cash used in investing activities
                
                (675
                )
                
                (7,737
                )Cash
      flows from financing activities:Proceeds
      from stock option exercise
                
                -
                
                
                2,250Increase
      in notes payable - related party
                
                -
                
                
                250,000Increase
      in notes payable - director
                
                300,000
                
                
                71,840Net
      cash provided by financing activities
                
                300,000
                
                
                324,090Net
      decrease in cash and cash equivalents
                
                (32,988
                )
                
                (44,005
                )Cash
      and cash equivalents at beginning of period
                
                72,817
                
                
                115,719Cash
      and cash equivalents at end of period
                $
                39,829
                
                $
                71,714Supplementary Information:Cash
      paid for:Interest
                $
                -
                
                $
                -Income
      taxes
                $
                -
                
                $
                -Non-cash
      disclosures of investing andfinancing
      activities:Stock-based
      compensation
                $
                113,390
                
                $
                326,065
 
 
 
  
 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 three months ended
September 30, 2008 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 September 30, 2008 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 September 30, 2008 and 2007, 8,971,453 and 5,237,504 diluted
common stock equivalents, respectively, have been excluded from the calculation
of diluted earnings per share, as their inclusion would have been
anti-dilutive.
 
 Revenue
Recognition
 
 The
Company recognizes the revenue of its royalties from the sale of products by
BASF under the master agreement for product development, manufacturing and
distribution (the “Master Agreement”) and the new agreement with BASF, which
supersedes the Master Agreement.  The Company also recognizes the
revenue from the non-refundable exclusivity license fee derived from BASF under
the Master Agreement and Derma Sciences Inc. on a pro rata basis over the term
of the related exclusive license agreements. Revenue from the research agreement
is recognized on a pro rata basis over the term of the
agreement.  Further, the Company recognizes the exclusive option fee
as revenue on a pro rata basis over the term of the related exclusive option
agreement.  Revenue from the research agreement is recognized on a pro
rata basis over the term of the agreement or is recognized as the work performed
in accordance with the term of the agreement. Revenues from the small business
innovation research program and the US Army medical research program are
recognized based on the research work performed in accordance with the program
requirements.
 
 Unearned
Revenue
 
 The
amount of unearned revenue represents the exclusive option fee, the license fee,
and advance royalty fee yet to be earned on a pro rata basis over the exclusive
option period of the related option and license agreements.
 
 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.
   -6-
 Index
  NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, continued
  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 September 30, 2008, the
Company’s cash levels did not exceed the federally insured
limit. As of September 30, 2008, all 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.”  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.
 
 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 April
18, 2008, the Board of Directors (the “Board”) granted 148,571 shares of
restricted common stock as payment for the services rendered by the board
members for the year ended June 30, 2007 for
those elected to receive common stocks and all shares were immediately
vested.  In addition, the Board granted 1,074,666 stock options to the
board members, employees, consultants as payments for their
services and in recognition of individual performance for the year ended June
30, 2007.  The stock options were vested one-third immediately,
one-third will be vested on April 17, 2009 and the remaining
one-third will be vested on April 17, 2010, assuming the person receiving the
equity awards is employed by the Company at the time of vesting.  The
exercise price of those stock options and warrants is $0.42 per share, which was
the closing price of the common stock on the date of grant.  The
weighted average grant date fair value of options was $0.32 per share based on
the Black-Scholes option-pricing model.  The options and warrants
expire five years from the date of grant.
 
 On August
6, 2007, the Board of Directors (the “Board”) granted 484,056 non-qualified
stock options to the Chief Executive Officer (“CEO”) at an exercise price of
$0.75 per share. These options were fully vested and immediately exercisable at
the date of grant.  In addition, the Board granted 1,452,167
non-qualified stock options at an exercise price of $0.74 per share on September
25, 2007, as part of the CEO’s employment agreement. The second stock options
are vested and become exercisable 1/16th of the total
1,452,167 options on each three-month anniversary beginning on June 11,
2007.  The average grant date fair value of the options was $0.46 per
share based on the Black-Scholes option-pricing model.  These options
expire five years from the date of grant.
 
 On
December 20, 2006, the Company issued 790,770 stock options to the board
members, the management, the employees, and the consultants for their
services.  These options have an exercise price of $1.05 per share.
The stock options were vested one-third immediately, one-third was vested on
December 20, 2007 and the remaining one-third will be vested on December 20,
2008, assuming the person receiving the equity awards is employed by the Company
at the time of vesting.  The weighted average grant date fair value of
options was $0.69 per share based on the Black-Scholes option-pricing
model.  The options expire five years from the date of
grant.  On March 5, 2008, 84,615 stock options were
forfeited.
 
 On
September 9, 2005, the Board 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.
 
 The
weighted average grant date fair value of options granted during the period
ended September 30, 2008 were estimated on the date of grant using the
Black-Scholes option-pricing model with the assumptions noted in the following
table. Expected volatilities are based on historical volatility of common stock,
and other factors.  The expected term of the options represents the
period of time that options granted are expected to be outstanding and is
derived from historical terms and other factors.
 
 Assumptions
utilized to value options are as follows:
 
 Risk-free interest
rate                                                      4.75%
to 6%
 Expected life
(years)                                                        5
 Expected
volatility                                                         
 50% to 138%
 Expected
dividends                                                        
 None
   -7-
 Index
 
 NOTE 3 – STOCK OPTIONS AND
WARRANTS, continued
 
 A summary
of options for the periods ended September 30, 2008 and 2007 is shown
below:
 
 September
      30, 2008
                
                September
      30, 2007Number
                
                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
                -
                
                
                -
                
                1,936,223
                
                
                0.74Exercised
                -
                
                
                -
                
                -
                
                
                -Forfeited
                (171,647
                )
                
                0.57
                
                -
                
                
                -Expired
                (871,500
                )
                
                0.55
                
                -
                
                
                -Outstanding
      at end of period
                4,640,397
                
                $
                0.60
                
                4,693,493
                
                $
                0.66Exercisable
      at end of period
                2,839,914
                
                
                
                
                3,012,599Available
      for issuance at end of period
                1,359,603
                
                
                
                
                -
 During
the three months period ended September 30, 2007, the Company issued 13,411
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 $9,000.
 
 In
September 2007, approximately 15,000 warrants were exercised at $0.15 per share
or an aggregate price of $2,250.
 
 Assumptions
utilized to value warrants are as follows:
 
 Risk-free
interest
rate                                                      6.00%
 Expected life
(years)                                                       
5
 Expected
volatility                                                         
 73% to 138%
 Expected
dividends                                                        
None
 
 The
following is a summary of warrants granted, exercised, canceled and outstanding
involving the grants in the periods ended September 30, 2008 and
2007:





September
      30, 2008
              
              September
      30, 2007Number
              
              Weighted-Average
              
              Number
              
              Weighted-Averageof
      Shares
              
              Exercise
      Price
              
              of
      Shares
              
              Exercise
      PriceOutstanding
      at beginning of period
              744,937
              
              $
              0.48
              
              854,108
              
              $
              0.56Granted
              -
              
              
              -
              
              13,411
              
              
              0.67Exercised
              -
              
              
              -
              
              (15,000
              
              
              0.15Expired
              -
              
              
              -
              
              -
              
              
              -Outstanding
      at end of period
              744,937
              
              $
              0.48
              
              852,519
              
              $
              0.57Exercisable
      at end of period
              744,937
              
              
              
              
              852,519


-8-
 Index


NOTE 4 – NOTES
PAYABLE
 
 
 Interest
              
              
              Conversion
              
              September
              
              JuneDirector
              Maturity
              Rate
              
              
              Price
              
              
              30,
      2008
              
              
              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
              
              
              -Accrued
      interest
              
              
              
              
              
              
              
              
              234,356
              
              
              181,3223,341,936
              
              
              2,988,902Related
      Party2007
      Senior Convertible Note
              2010
              8
              %
              
              $
              0.74
              
              
              375,000
              
              
              375,000Accrued
      interest
              
              
              
              
              
              
              
              
              32,877
              
              
              25,315407,877
              
              
              400,315Total
      long term note payable
              
              
              
              
              
              
              $
              3,749,813
              
              $
              3,389,217




-9-
 Index
   NOTE 4
– NOTES PAYABLE, continued
   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
September 30, 2008, the Company received approximately $100,000.  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
September 30, 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 September 30,
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 September
30, 2008, the Company received $300,000.  This senior convertible note
is secured by the Company’s revenues and assets with the same priority as the
2007 senior convertible notes described below and has a maturity date of
2010.  This note has the conversion prices determined by the closing
trading prices of the Company’s common stock on the dates the Advances were
received.
 
 In June
2007, the Company issued two other 2007 senior convertible note payables to its
Chairman and a major stockholder for $375,000 each. As of September 30, 2007,
the Company received $303,160 from its Chairman and the remaining $71,840 in
July 2007 totaling $375,000.  The Company also received $125,000 from
a major stockholder and the remainder in September 2007.  These two
senior convertible note payables are secured by the Company’s revenues and
assets.  These note payables require the Company to allocate
approximately $162,000 of these funds to be restricted for payment of the chief
executive officer’s salary for the remainder of the twelve months from the date
of hire. The Company may prepay
the principal and interest upon meeting certain cash flow requirements and the
approval of the board.
 
 In
addition, the Company combined its other outstanding note payables to its
Chairman totaling $208,955 into a single note with the same annual interest rate
and extended the maturity date to 2010.  This senior convertible note
is secured by the Company’s revenues and assets with the same priority as the
2007 senior convertible notes.  Further, the 2003 senior convertible
note maturity date was extended until 2010.
 
 In
September 2003, the Company negotiated a successor agreement with its Chairman
regarding the line of credit, which became a single convertible note for up to
$1,500,000 excluding accrued interest, at an interest rate of 6% and due July 1,
2004.  The convertible note is secured by the assets and revenues of
the Company, which has the same priority as other senior convertible note
payables.   The note plus accrued interest will be convertible at
a conversion rate of $0.38 per share.  The conversion rate was
determined as 15% above the average share price over the prior 20 trading days
($0.33 per share). The note has an anti-dilution provision in the event that the
Company sells stock to other investors at less than $0.20 per
share.  During the year ended June 30, 2006, the maturity date of the
note was extended until October
1, 2007. In January 2007, the Chairman agreed to extend the maturity date of the
note until April 1, 2008.  In June 2007, the maturity date of this
note was extended to June 2010.
 
  -10-
 Index
  NOTE 5  – RELATED
PARTY TRANSACTIONS
 
 As fully
described in Note 4, the Company has several senior convertible note payables
with its Chairman and a major stockholder during the periods ended September 30,
2008 and June 30, 2008.
  The
Company received the additional $50,000 Advance from its Chairman subsequent to
September 30, 2008, which was combined with the $100,000 previous borrowings
into a senior convertible note as more fully described in Note 4
above.
 
 NOTE 6 – SUBSEQUENT
EVENTS
 
 On
October 27, 2008, pursuant to recommendations by the Compensation Committee and
in accordance with the 2001 Equity Incentive Plan, the Board of Directors (the
“Board”) approved and authorized (i) the grant of options to purchase an
aggregate up to 1,335,102 shares of the Company’s common stock, (ii) the grant
of warrants to purchase an aggregate up to 705,302 shares of the Company’s
common stock, and (iii) the issuance of 406,452 shares of the Company’s common
stock to Directors, officers, employees and service providers.
  
 -11-
 Index
 
 ITEM
      2.
              MANAGEMENT'SDISCUSSION 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 “MultiStatTM”, a family of advanced patent methods
and compounds, which we believe may be highly effective in skin care therapy
applications.
  Our
strategy is to further develop our core technologies as well as develop future
technologies. We will attempt to commercialize these technologies through
strategic licensing partnership agreements, joint ventures, or co-development
agreements. We do not intend to manufacture or distribute final products;
instead, we will seek partnership arrangements and/or license agreements with
third parties to develop products that use our technologies and who will perform
the manufacturing, marketing, and distribution functions associated with our
technologies.
   Our
business model has attempted and will continue to attempt to develop the
following revenue segments:
  ·
              License
      fees;
 ·
              Profit
      sharing 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 MultiStatTM
technologies:
  ·
              Healthcare
      and medical;
 ·
              Apparel;
 ·
              Cosmetic;
      and
 ·
              Personal
      care companies.
 
  -12-
 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.
  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.
  We filed
with the FDA for one of the end-user applications using our NIMBUS technology
under the medical device exemptions as an alternative to prior pre-market
approval requirements in March 2006, under a 510(k)
application.  After extensive discussions with the FDA staff,
including the Office of Chief Counsel, in January 2007 we were notified by the
FDA that a De Novo application route would be required for our proposed device.
In November 2007, we submitted our amended De Novo application. We responded to
the FDA staff on their follow up questions.  We expect to receive a
response from the FDA staff regarding the status of our De Novo application
within the next several months.   We also understand that the FDA
is in the process of preparing guidance associated with our
application.  However, there are no assurances when we will receive a
response from the FDA to our application, and if it is received whether our FDA
application will be approved by the FDA or if approved it will be a commercial
success. Further delays in receiving FDA approval may also impair our ability to
generate additional revenue and to raise capital to continue
operations.
  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.”
  
 -13-
 Index
 
 Capital
Expenditures and Requirements
 
 From 2000
to September 2008, we have spent approximately $817,000 on the acquisition of
patents and exclusive license agreements.  We owe an additional
$160,000 to Dr. Richard Galardy which is due when certain milestones are met in
connection with a September 2000 license agreement we have with Dr. Galardy and
Dr. Damian 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.
  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 Three Months Ended September 30, 2008 and 2007
 
 Revenues.     During
the three months ended September 30, 2008 we had $732,557 of revenues, compared
to $349,488 of revenues for the three months ended September 30, 2007,
representing a 110% increase in our revenues.  Our revenues during the
three months ended September 30, 2008 consisted of: (a) $711,671, 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) $19,100, which represented the
revenue earned from the joint development program with Mölnlycke Health Care AB;
and (c) $1,786, which represented the earned portion of the
license  fee from Derma Sciences, Inc.  As a result of
our  May 2008 manufacturing and distribution agreement with BASF , we
have had a significant increase in product sales in the first fiscal
quarter.  However, we do not anticipate that our share of the product
sales by BASF for the fiscal second quarter would continue at this level given
market uncertainties, in particular in the retail cosmetic industry, and our
agreed share of the net revenues with BASF for the remainder of calendar year
2008.
 
 Our
revenues during the three months ended September 30, 2007 consisted of
(a) $12,155, which represented our royalties from the product sales by BASF
Beauty Care Solutions, L.L.C.; (b) $295,547, 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) $41,786,
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.
 
 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 Income
(Loss).  Operating income for the three months ended September
30, 2008 was $53,708 as compared to $749,282 in operating loss for the three
months ended September 30, 2007, representing a decrease of 107% or $802,990 in
operating loss. The operating income was primarily attributable to an increase
in revenues of $383,069 couple with a decrease in expenses of $419,921 for the
three months ended September 30, 2008.  The decrease in expenses was
primarily due to the following:  (a) a decrease of $210,192 or 46% in
research and development expenses; (b) a decrease of $214,545 or 39% in general
and administrative expenses; and (c) a decrease of $22,499 or 32% in licensing
and patent expenses; offset by (d) an increase of $27,482 or 1,126% in cost of
revenues to the amount in the comparable prior period, as described in more
detail below.
   -14-
 Index
  Research and Development
Expense.  Research and development expense decreased by
$210,192 or 46% to $244,929 for the three months ended September 30, 2008, from
$455,121 for the three months ended September 30, 2007.  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 quarter.
 
 General and Administrative
Expense.  General and administrative expense decreased by
$214,545 or 39% to $338,249 for the three months  ended September 30,
2008, from $552,794 for the three months ended September 30,
2007.  This decrease in our general and administrative expenses is
primarily attributed to a decrease of approximately of $233,000 in shared-based
compensation including our Chief Executive Officer shared-based compensation
expense in prior year comparable quarter. This decrease as mentioned above was
partially offset by an increase in other operating expenses.
 
 Licensing and Patent
Expense.  Licensing and patent expense decreased by $22,499 or
32% to $47,773 for the three months ended September 30, 2008 from $70,272 for
the three months ended September 30, 2007.  This decrease was
primarily due to the level of utilization of consulting legal patent services
and legal licensing services including licensing and joint development agreement
negotiations.
 
 Interest
Income.  During the three months ended September 30, 2008, we
had $116 in interest income, a decrease of
$246 or 68% from $362 for the three months ended September 30,
2007.  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 September
30, 2008 increased $30,263 or 100% to $60,596 compared to $30,333 the three
months ended September 30, 2007.  This increase was due to an increase
of approximately $850,000 or 58% in the average outstanding loan balance due to
our Chairman of the Board and a major shareholder to approximately $2,300,000,
compared to approximately $1,460,000 average outstanding balance for the
comparable 2007 period.
 
 Net
Loss.   Net loss for the three months ended September 30,
2008 was $6,772 or $0.00 per share compared to $779,253 or $0.03 per share for
the three months ended September 30, 2007.   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.
 
 
 -15-
 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 September 30, 2008 was $39,829 as compared with $72,817 at June
30, 2008.    Subsequent to the quarter ended, we have
collected the entire outstanding receivable balance of approximately $678,000 at
September 30, 2008. As of October 31, 2008, we received a total of $50,000 to
combine with $100,000 previous borrowings into a 2008 senior secured convertible
note 3 from our Chairman.
 
 On April
4, 2008, we and Mölnlycke Health Care AB (“MHC”) entered into a Joint
Development Agreement (the “Agreement”) effective as of March 19, 2008 with
total value of approximately $90,000 over nine months period.  We
anticipate the direct expenses for this project of approximately
$25,000.
 
 In
September 2006, we received the SBIR Phase II grant, which included including
the option of SBIR Phase I, totaling approximately $840,000 over the next two
years and we expect the cash outflows related to this grant of approximately
$390,000 to subcontractors and other direct expenses.  To date, we
received approximately $429,000 and incurred approximately $115,000 in expenses
to subcontractors and other direct expenses. Effective April 23, 2007, we were
awarded a 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.
 
 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.
 
 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.
   -16-
 Index
   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, the Company issued 62,500 shares of common stock for an aggregate
exercise price of $8,900 or $0.14 per share for 60,000 shares and $0.20 per
share for 2,500 shares resulting from the exercise of warrants.
 
 In
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 September 30, 2008, we cannot continue to satisfy our
current cash requirements for a period of twelve (12) months through our
existing capital. We anticipate total estimated patent related legal fees,
operating and research and development expenditures of approximately $176,000
per month or an aggregate of approximately $2,112,000 over the next twelve (12)
months, in the following areas:
 
 ·
              Research
      and development expenditures of approximately $81,000 per month or an
      aggregate $972,000 over the next twelve (12) months, which will consist of
      the following estimated monthly expenditures: (a) $56,000 in payroll for
      scientists; (b) $10,000 for outside research and development expenditures;
      and (c) $15,000 for chemical supplies and laboratory operating expenses,
      including rent expense;
 
 ·
              Patent
      related legal fees of approximately $20,000 per month or an aggregate
      $240,000 annually; and
 
 ·
              Operating
      expenses of approximately $75,000 per month or an aggregate $900,000 over
      the next twelve (12) months, including personnel costs, director and
      officer insurance, general liability insurance, rent, consulting fees,
      utilities, legal and accounting fees, and
  payroll.
 
 Our
current cash balance of $39,829 as of September 30, 2008, coupled with
accounts receivable of approximately $678,000,  which has been
subsequently collected after September 30, 2008, and the receipt of
approximately $50,000 funding under a convertible senior debt with our Chairman
will satisfy our cash requirements for approximately four (4) months
assuming no further receipt of revenues. 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 four (4)
months 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.
 
 As of
September 30, 2008, we have seven senior convertible notes payable outstanding
to our Chairman totaling $3,341,936 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 $0.19 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.
   -17-
 Index
  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 September
30, 2008, we had a negative working capital of $58,536 that primarily consists
of: (a) cash of $39,829; (b) accounts receivable of $677,698; (c) accounts
payable of $687,107; (d) accrued expenses of $49,671; and (e) unearned revenue
of $39,285.  At September 30, 2008, we had a stockholders’ deficit of
$3,491,513, 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 $332,313 for the three months
ended September 30, 2008. Net cash used in investing activities was
$675.  Net cash provided by financing activities was $300,000, of
which  $200,000 was part of a $485,000 senior 2008 convertible note
2,  and $100,000 was part of a $150,000 senior  2008
convertible note 3 with our Chairman.
 
 During
the three months ended September 30, 2007, we received (a) $2,250 from the
exercise of the 15,000 stock warrants; (b) $250,000 from a major shareholder as
the final funding from the $375,000 senior convertible note; and (c) $71,840
from  our Chairman as part of the $375,000 senior convertible
note.
  Contractual
Obligations
  The
following table summarizes our long-term contractual obligations as of September
30, 2008:
  Total
                
                Less
      than 1 Year
                
                1-3 Years
                
                3-5 Years
                
                
                More
      than 5 YearsLong-term
      debt obligations (a)
                $
                3,749,813
                
                $
                
                
                $
                3,749,813
                
                $
                -
                
                
                $
                -Operating
      lease obligations (b)
                $
                56,000
                
                $
                18,000
                
                $
                38,000
                
                $
                -
                
                
                $
                -
 
 (a)
                The
      principal and accrued interest on the notes payable owed to the Chairman’s
      Senior Convertible Notes 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.
 
 
 ITEM
3.       Quantitative and Qualitative Disclosure About Market
Risk
 
 Not
applicable.
 
 ITEM
4T.   Controlsand Procedures
 
 Evaluation
of Disclosure 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 September 30, 2008, the end of the period covered by
this Quarterly Report on Form 10-Q, such disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
  
 Changes
in Internal Controls over Financial Reporting
  As of the
end of our quarter ended September 30, 2008, 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.
   -18-
 Index
  
 
 PART
II
 OTHER
INFORMATION
 
 Item
1.   Legal Proceedings
 
 None.
 
 Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds
 
 None.
 
 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
              
              Description10.3
              
              2008
      Senior Convertible Note 3 issued to Michael Granito filed
      herewith.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.
 
 
  -19-
 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
              November
      14, 2008
              By:
      /s/ J. Ladd GreenoJ.
      Ladd GreenoChief
      Executive Officer and Principal Executive
  Officer
 
 Date
              November
      14, 2008
              By:
      /s/ Nam H. NguyenNam
      H. NguyenChief
      Financial Officer
  
  -20-