Quick-Med (QMDT) 10-Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2008.

or

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

For the transition period fromto.

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 February 10, 2009, there were 30,934,196 shares of common stock, par value $0.0001 per share, outstanding.

	QUICK-MED TECHNOLOGIES, INC. INDEX TO FORM 10-Q
PART I	FINANCIAL INFORMATION
Item 1.             Financial Statements
	Condensed Balance Sheets as of  December 31, 2008   and June 30, 2008 (unaudited)	1
	Condensed Statements of Operations for thethree and six months ended December 31, 2008  and 2007 (unaudited)	2
	Condensed Statement of Changes in Stockholders’ Deficit for the three monthsended December 31, 2008 (unaudited)	3
	Condensed Statements of Cash Flows for the six months ended December 31, 2008 and 2007 (unaudited)	4
	Notes to Condensed Financial Statements (unaudited)	5-12
Item 2.             Management’s Discussion and Analysis of Financial Condition and Results of Operations		13-19
Item 3.             Quantitative and Qualitative Disclosure About Market Risk		19
Item 4T.           Controls and Procedures		19
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits	20
SIGNATURES		21

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUICK-MED TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

(UNAUDITED)

ASSETS
	December 31,			June 30,
	2008			2008
Current assets:
Cash and cash equivalents	$	150,579		$	72,817
Accounts receivable		49,004			346,709
Total current assets		199,583			419,526
Property and equipment, net		19,976			24,983
Other assets:
Prepaid expenses		12,385			5,311
Intangible asset, net		433,273			459,445
Total other assets		445,658			464,756
Total assets	$	665,217		$	909,265
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	432,278		$	871,074
Unearned revenue		37,499			41,071
Accrued expenses		44,276			46,034
Total current liabilities		514,053			958,179
License payable		160,000			160,000
Long-term liability - note payable - officer		100,334			-
Long-term liability - convertible note payable - related party		415,438			400,315
Long-term liability - convertible note payable - director		3,449,059			2,988,902
Total liabilities		4,638,884			4,507,396
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.0001 par value; 100,000,000
authorized shares; 30,934,196 and 30,874,196 shares issued and
outstanding at December 31 and June 30, 2008, respectively		3,089			3,087
Additional paid-in capital		11,894,401			11,882,403
Outstanding stock options		3,054,471			2,602,344
Accumulated deficit		(18,925,628	)		(18,085,965	)
Total stockholders' deficit		(3,973,667	)		(3,598,131	)
Total liabilities and stockholders' deficit	$	665,217		$	909,265

See accompanying notes to unaudited condensed financial statements.

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QUICK-MED TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

 (UNAUDITED)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
Revenues
Product sales	$	59,309		$	65,070		$	770,980		$	77,225
Research and development service		48,000			184,145			67,100			479,693
License fees		1,786			31,161			3,571			72,947
		109,095			280,376			841,651			629,865
Expenses:
Cost of sales		2,558			19,324			32,480			21,764
Research and development		317,761			354,178			562,690			809,299
General and administrative expenses		470,575			299,775			808,824			852,570
Licensing and patent expenses		69,762			114,243			117,535			184,515
Depreciation and amortization		17,976			18,143			35,952			36,285
Total expenses		878,632			805,663			1,557,481			1,904,433
Income (loss) from operations		(769,537	)		(525,287	)		(715,830	)		(1,274,568	)
Other income (expense):
Interest income		1,664			1,087			1,780			1,448
Interest expense		(65,018	)		(39,837	)		(125,614	)		(70,170	)
Loss before income taxes		(832,891	)		(564,037	)		(839,664	)		(1,343,290	)
Provision (benefit) for income taxes		-			-			-			-
Net loss	$	(832,891	)	$	(564,037	)	$	(839,664	)	$	(1,343,290	)
Net loss per share (basic and diluted)	$	(0.03	)	$	(0.02	)	$	(0.03	)	$	(0.04	)
Weighted average common
shares outstanding (basic and diluted)		30,917,239			30,686,614			30,895,718			30,647,107

See accompanying notes to unaudited condensed financial statements.

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QUICK-MED TECHNOLOGIES, INC.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THREE MONTHS ENDED DECEMBER 31, 2008

(UNAUDITED)

				Additional
	Common Stock			Paid-In		Accumulated			Outstanding
	Shares	Amount		Capital		Deficit			Stock Options		Total
Balance, September 30, 2008	30,874,196	$	3,087	$	11,882,403	$	(18,092,737	)	$	2,715,734	$	(3,491,513	)
Stock-based compensation	-		-		-		-			338,737		338,737
Stock issuance for services	60,000		2		11,998		-			-		12,000
Net loss, October 1, 2008 to December 31, 2008	-		-		-		(832,891	)		-		(832,891	)
Balance, December 31, 2008	30,934,196	$	3,089	$	11,894,401	$	(18,925,628	)	$	3,054,471	$	(3,973,667	)

See accompanying notes to unaudited condensed financial statements.

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QUICK-MED TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

(UNAUDITED)

				2008	2007
Cash flows from operating activities:
	Net loss			$      (839,664)	$   (1,343,290)
	Adjustments to reconcile net loss to net
	cash used in operating activities:
		Depreciation and amortization		35,952	36,285
		Stock granted for services		12,000	24,182
		Stock-based compensation		452,127	415,448
		(Increase) decrease in:
			Restricted cash	-	(104,684)
			Accounts receivable	297,705	265,181
			Prepaid expenses	(7,074)	(1,592)
		Increase (decrease) in:
			Accounts payable	(438,796)	74,087
			Accrued interest	125,614	70,170
			Other current liabilities	(5,328)	(24,866)
Net cash used in operating activities				(367,464)	(589,079)
Cash flows from investing activities:
	Patents			(4,774)	(8,930)
Net cash used in investing activities				(4,774)	(8,930)
Cash flows from financing activities:
	Proceeds from stock option or warrant exercise			-	12,150
	Increase in notes payable - related party			-	250,000
	Increase in notes payable - officer			100,000	-
	Increase in notes payable - director			350,000	271,840
Net cash provided by financing activities				450,000	533,990
Net increase (decrease) in cash and cash equivalents				77,762	(64,019)
Cash and cash equivalents at beginning of period				72,817	115,719
Cash and cash equivalents at end of period				$       150,579	$         51,700
Supplementary Information:
	Cash paid for:
		Interest		$                  -	$                  -
		Income taxes		$                  -	$                  -
	Non-cash disclosures of investing and
	financing activities:
		Stock-based compensation		$       338,737	$       415,448
		Stock issuance in settlement of a liability		$                  -	$         21,046

See accompanying notes to unaudited condensed financial statements.

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QUICK-MED TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - DESCRIPTION OF BUSINESS

The accompanying unaudited condensed financial statements of Quick-Med Technologies, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of the management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation.  Operating results for the six months ended December 31, 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.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Property and Equipment

Property and equipment are stated at cost.  Depreciation on property and equipment is computed using the straight-line method over the expected useful lives of the assets.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable as of December 31, 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 December 31, 2008 and 2007, 8,466,160 and 5,576,589 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.

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.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 December 31, 2008, the Company’s cash levels did not exceed the federally

insured limit. As of December 31, 2008, most of the Company’s accounts receivable was derived from Molnlycke.

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.

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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 December 31, 2007, 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 December 31, 2007, 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 six months ended December 31, 2008 and 2007 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				Six Months Ended
	December 31, 2008		December 31, 2007		December 31, 2008		December 31, 2007
Expected 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

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NOTE 3 – STOCK OPTIONS AND WARRANTS, continued

A summary of options for the periods ended December 31, 2008 and 2007 is shown below:

	December 31, 2008				December 31, 2007
	Number		Weighted-Average		Number	Weighted-Average
	of Shares		Exercise Price		of Shares	Exercise Price
Outstanding at beginning of period	5,683,544		$	0.61	2,757,270	$	0.61
Granted	1,335,102			0.20	1,936,223		0.74
Exercised	-			-	-		-
Forfeited	(171,647	)		0.57	-		-
Expired	(871,500	)		0.55	-		-
Outstanding at end of period	5,975,499		$	0.53	4,693,493	$	0.66
Exercisable at end of period	4,004,295				3,159,257
Available for issuance at end of period	24,501				1,306,507

The following is a summary of warrants granted, exercised, canceled and outstanding involving the grants in the periods ended December 31, 2008 and 2007:

	December 31, 2008			December 31, 2007
	Number	Weighted-Average		Number		Weighted-Average
	of Shares	Exercise Price		of Shares		Exercise Price
Outstanding at beginning of period	744,937	$	0.48	854,108		$	0.56
Granted	705,302		0.20	18,329			0.65
Exercised	-		-	(82,500	)		0.15
Expired	-		-	-			-
Outstanding at end of period	1,450,239	$	0.39	789,937		$	0.57
Exercisable at end of period	1,166,072			789,937

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NOTE 4 – NOTES PAYABLE

		Interest		Conversion		September		June
Director	Maturity	Rate		Price			30, 2008		30, 2008
2003 Senior Convertible Note	2010	6	%	$	0.38	$	1,268,625	$	1,268,625
Senior Convertible Note	2010	8	%	$	0.74		208,955		208,955
2007 Senior Convertible Note	2010	8	%	$	0.74		375,000		375,000
2007 Senior Convertible Note 2	2010	8	%	$	0.55		50,000		50,000
2007 Senior Convertible Note 2	2010	8	%	$	0.51		50,000		50,000
2007 Senior Convertible Note 2	2010	8	%	$	0.40		50,000		50,000
2007 Senior Convertible Note 2	2010	8	%	$	0.40		50,000		50,000
2007 Senior Convertible Note 2	2010	8	%	$	0.34		50,000		50,000
2007 Senior Convertible Note 2	2010	8	%	$	0.32		50,000		50,000
2008 Senior Convertible Note 1	2010	8	%	$	0.32		50,000		50,000
2008 Senior Convertible Note 1	2010	8	%	$	0.45		70,000		70,000
2008 Senior Convertible Note 1	2010	8	%	$	0.40		75,000		75,000
2008 Senior Convertible Note 1	2010	8	%	$	0.33		50,000		50,000
2008 Senior Convertible Note 1	2010	8	%	$	0.42		75,000		75,000
2008 Senior Convertible Note 1	2010	8	%	$	0.40		50,000		50,000
2008 Senior Convertible Note 2	2010	8	%	$	0.29		50,000		50,000
2008 Senior Convertible Note 2	2010	8	%	$	0.20		50,000		50,000
2008 Senior Convertible Note 2	2010	8	%	$	0.38		50,000		50,000
2008 Senior Convertible Note 2	2010	8	%	$	0.35		135,000		135,000
2008 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		50,000
Accrued interest							291,479		181,322
							3,449,059		2,988,902
Related Party
2007 Senior Convertible Note	2010	8	%	$	0.74		375,000		375,000
Accrued interest							40,438		25,315
							415,438		400,315
Officer
2008 Convertible Notes	2010	8	%	$	0.20		100,000		-
Accrued interest							334		-
							100,334		-
Total long term note payable						$	3,964,831	$	3,389,217

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.

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NOTE 4 – NOTES PAYABLE, continued

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.

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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 December 31, 2008:

	Carrying Value		Level 1		Level 2	Level 3
Financial Assets
Cash equivalents (1)	$	193,189	$	193,189	-	-
Total financial assets	$	193,189	$	193,189	-	-
Financial Liabilities
Convertible notes payable (2)	$	3,964,831	$	3,853,820	-	-
Total financial liabilities	$	3,964,831	$	3,853,820	-	-

(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.

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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 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 MultiStat® technologies:

· Healthcare and medical;

· Apparel;

· Cosmetic; and

· Personal care companies.

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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.”

Capital Expenditures and Requirements

From 2000 to December 2008, we have spent approximately $821,000 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.

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Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts. The estimates and assumptions are evaluated on an on-going basis and are based on historical experience and on various other factors that are believed to be reasonable. Estimates and assumptions include, but are not limited to economic useful lives of fixed and intangible assets, income taxes, valuation of options and warrants granted, and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Our accounting for stock based compensation requires us to estimate the value of theshares issued, and the value of intangible assets require us to continually assess whether such assets are impaired.

Results of Operations

Comparison of Six Months Ended December 31, 2008 and 2007

Revenues.     During the six months ended December 31, 2008 we had $841,651 of revenues, compared to $629,865 of revenues for the six months ended December 31, 2007, representing a 34% increase in our revenues.  Our revenues during the six months ended December 31, 2008 consisted of: (a) $770,980, 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) $67,100, which represented the revenue earned from the joint development program with Mölnlycke Health Care AB; and (c) $3,571, which represented the earned portion of the license  fee from Derma Sciences, Inc.  As a result of our May 2008 manufacturing and distribution agreement with BASF, we have had a significant increase in product sales in the six 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 six months ended December 31, 2007 consisted of (a) $77,225, which represented our royalties from the product sales by BASF Beauty Care Solutions, L.L.C.; (b) $479,693, 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) $72,947, 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 six months ended December 31, 2008 was $715,830 as compared to $1,274,568 in operating loss for the six months ended December 31, 2007, representing a decrease of 44% or $558,738 in operating loss. The reduction in operating loss was primarily attributable to an increase in revenues of $211,786 couple with a decrease in expenses of $346,952 for the six months ended December 31, 2008.   The decrease in expenses was primarily due to the following:  (a) a decrease of $246,609 or 30% in research and development expenses; (b) a decrease of $43,746 or 5% in general and administrative expenses; and (c) a decrease of $66,980 or 36% in licensing and patent expenses; offset by (d) an increase of $10,716 or 49% 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 $246,609 or 30% to $562,690 for the six months ended December 31, 2008, from $809,299 for the six months ended December 31, 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 period.

General and Administrative Expense.  General and administrative expense decreased by $43,746 or 5% to $808,824 for the six months  ended December 31, 2008, from $852,570 for the six months ended December 31, 2007.  This decrease in our general and administrative expenses is primarily attributed to expenses control.

Licensing and Patent Expense.  Licensing and patent expense decreased by $66,980 or 36% to $117,535 for the six months ended December 31, 2008 from $184,515 for the six months ended December 31, 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.

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Interest Income.  During the six months ended December 31, 2008, we had $1,780 in interest income, an increase of $332 or 23% from $1,448 for the six months ended December 31, 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 six months ended December 31, 2008 increased $55,444 or 79% to $125,614 compared to $70,710 the six months ended December 31, 2007.  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 $3,400,000, compared to approximately $2,400,000 average outstanding balance for the comparable 2007 period.

Net Loss.   Net loss for the six months ended December 31, 2008 was $839,664 or $0.03 per share compared to $1,343,290 or $0.04 per share for the six months ended December 31, 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.

Comparison of Three Months Ended December 31, 2008 and 2007

Revenues.     During the three months ended December 31, 2008 we had $109,095 of revenues, compared to $280,376 of revenues for the three months ended December 31, 2007, representing a 61% decrease in our revenues.  Our revenues during the three months ended December 31, 2008 consisted of: (a) $59,309, which represented our royalties in the form of revenue share from the product sales by  BASF Beauty Care Solutions, L.L.C., a cosmetic and personal care division of BASF Catalysts, LLC, a wholly-owned subsidiary of BASF; (b) $48,000, 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.

Our revenues during the three months ended December 31, 2007 consisted of (a) $65,070, which represented our royalties from the product sales by BASF Beauty Care Solutions, L.L.C.; (b) $184,145, 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) $31,161, 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 December 31, 2008 was $769,537 as compared to $525,287 in operating loss for the three months ended December 31, 2007, representing an increase of 47% or $244,250 in operating loss. The operating loss was primarily attributable to a decrease in revenues of $171,281 couple with an increase in expenses of $72,969 for the three months ended December 31, 2008.  The increase in expenses was primarily due to the following:  (a) an increase of $170,800 or 57% in general and administrative expenses; offset by (b) a decrease of $36,417 or 10% in research and development expenses ; (c) a decrease of $44,481 or 39% in licensing and patent expenses; and (d) a decrease of $16,766 or 87% in cost of revenues to the amounts in the comparable prior period, as described in more detail below.

Research and Development Expense.  Research and development expense decreased by $36,417 or 10% to $317,761 for the three months ended December 31, 2008, from $354,178 for the three months ended December 31, 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.

General and Administrative Expense.  General and administrative expense increased by $170,800 or 57% to $470,575 for the three months ended December 31, 2008, from $299,775 for the three months ended December 31, 2007.  This increase in our general and administrative expenses is primarily attributed to an increase of $203,285 in shared-based compensation for board members, employees and consultants through the stock options and warrants granted in the fiscal current quarter offset by a decrease in other operating expenses.

Licensing and Patent Expense.  Licensing and patent expense decreased by $44,481 or 39% to $69,762 for the three months ended December 31, 2008 from $114,243 for the three months ended December 31, 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 December 31, 2008, we had $1,664 in interest income, an increase of $577 or 53% from $1,087 for the three months ended December 31, 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 December 31, 2008 increased $25,181 or 63% to $65,018 compared to $39,837 the three months ended December 31, 2007.  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 $3,400,000, compared to approximately $2,400,000 average outstanding balance for the comparable 2007 period.

Net Loss.   Net loss for the three months ended December 31, 2008 was $832,891 or $0.03 per share compared to $564,037 or $0.02 per share for the three months ended December 31, 2007.   This increase is primarily attributable to a decrease in revenues, an increase in general and administrative expenses, offset by decreases in research and development, and licensing and patent expenses,  and a decrease in cost of revenues.

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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 December 31, 2008 was $150,579 as compared with $72,817 at June 30, 2008.    Subsequent to the quarter ended, we have collected the entire outstanding receivable balance of approximately $49,000 at December 31, 2008.

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.

This action plan went into effect beginning January 1, 2009 and will conserve approximately $266,000 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.

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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, 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 December 31, 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, operating and research and development expenditures, and patent related legal fees of approximately $153,000 per month or an aggregate of approximately $1,836,000 over the next twelve (12) months, in the following areas:

· Research and development expenditures of approximately $77,000 per month or an aggregate $972,000 over the next twelve (12) months, which will consist of the following estimated monthly expenditures: (a) $53,000 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 $57,667 per month or an aggregate $692,000 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 $150,579 as of  December 31, 2008, coupled with accounts receivable of approximately $49,000,  which has been subsequently collected after December 31, 2008, will satisfy our cash requirements for approximately more than (1) month 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 a little more 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.

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As of December 31, 2008, we have seven senior convertible notes payable outstanding to our Chairman totaling $3,449,059 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.  In addition, we have four convertible notes payable totaling $100,334 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 December 31, 2008, we had a negative working capital of $314,470 that primarily consists of: (a) cash of $150,579; (b) accounts receivable of $49,004; (c) accounts payable of $432,278; (d) accrued expenses of $44,276; and (e) unearned revenue of $37,499.  At December 31, 2008, we had a stockholders’ deficit of $3,973,667, 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 $367,464 for the six months ended December 31, 2008. Net cash used in investing activities was $4,774.  Net cash provided by financing activities was $450,000, of which   $350,000 was from a senior secured 2008 convertible note 3 with our Chairman, and the $100,000 convertible notes with one of our officers. 

During the six months ended December 31, 2007, 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) $271,840 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 December 31, 2008:

	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt obligations (a)	$	3,964,831	$		$	3,964,831	$	-	$	-
Operating lease obligations (b)	$	50,000	$	12,000	$	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.

ITEM 3.       Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

ITEM 4T.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on our management’s evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), our Chief Executive Officer and our Chief Financial Officer have concluded that as of  December 31, 2008, the end of the period covered by this Quarterly Report on Form 10-Q, such disclosure controls and procedures are effective at a reasonable level.

Changes in Internal Controls over Financial Reporting

As of the end of our quarter ended December 31, 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.

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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	Description
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.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Quick-Med Technologies, Inc.

___________________________

(Registrant)

Date	February 17, 2009	By: /s/ J. Ladd Greeno
		J. Ladd Greeno
		Chief Executive Officer and Principal Executive Officer

Date	February 17, 2009	By: /s/ Nam H. Nguyen
		Nam H. Nguyen
		Chief Financial Officer

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