Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/ or any further amendment to this Form 10-KSB. [ ]
 
The registrant’s revenues for its most recent fiscal year were $1,952,758.
 
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant as of September 21, 2007 (based upon the closing price of $0.71 per share on September 21, 2007) was $1,874,722.
 
As at September 21, 2007 there were 30,608,624 shares of the registrant’s common stock issued and outstanding.
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
 
None
 
 
 
 
QUICK-MED TECHNOLOGIES, INC.

ANNUAL REPORT
ON FORM 10-KSB
For the Year Ended June 30, 2007


Page
PART I

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

PART II


PART III

Item 9.
Compliance with Section 16(a) of the Exchange Act ……………………………...……..
 
Item 10.
Executive Compensation …………………………………………………………….……
Item 11.
Item 12.
Certain Relationships and Related Transactions ……………………………………….…
Item 13.
Exhibits and Reports on Form 8-K ……………………………………...………………...
Item 14.
Principal Accountant Fees and Services …………………………………………….…….


Signatures
…………………………............................................................................................……




 
PART I
 
 ITEM 1.  DESCRIPTION OF BUSINESS
 
This Form 10-KSB contains forward-looking statements based on our current expectations, assumptions and estimates and that involve risks and uncertainties. Any statements contained in this Form 10-KSB (including, without limitation, statements to the effect that we “estimate,” “expect,” “anticipate,” “plan,” believe,” “may” or “will” or statements concerning potential or opportunity or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact should be construed as forward-looking statements. Actual results could differ materially and adversely from those projected or anticipated in the forward-looking statements as a result of a number of risks and uncertainties pertaining to our business, including, without limitation, those risks and uncertainties described in the section entitled “Risk Factors” in this Form 10-KSB. We undertake no obligation to revise or update any such forward-looking statements.
 
Unless specified otherwise, as used in this Form 10-KSB, the terms “we,” “us,” “our,” the “Company” or “Quick-Med” refer to Quick-Med Technologies, Inc.
 
Corporate History

We were incorporated in the State of Nevada on April 21, 1997 in the name of Above Average Investments, Ltd. to engage in any lawful corporate purpose. Other than issuing shares to its stockholders, Above Average Investments, Ltd. never commenced operations. In September 2000, Above Average Investments, Ltd. became a public reporting Company 60 days following the voluntary filing of its Form 10-SB Registration Statement with the Securities and Exchange Commission. In March 2001, we acquired all of Quick-Med Technology, Inc.'s issued and outstanding shares of capital stock in exchange for 10,260,000 shares of our common stock. Upon completion of the merger in February 2002, our name was changed to Quick-Med Technologies, Inc.

We have never been the subject of a bankruptcy, receivership or similar proceeding.

Our principal executive offices are located at 3427 SW 42nd Way, Gainesville, Florida 32608. Our telephone number is (888) 835-2211.

Business Development

We are a life sciences company that is developing proprietary technologies for the medical and consumer healthcare markets. Our two core technologies under development are:

NIMBUS® (“NIMBUS”), a family of polymers that are bio-engineered to have antimicrobial, super-absorbent, and other properties that can be used in a wide range of applications, such as wound dressings and apparel. We are seeking to use our NIMBUS technology in: (a) advanced wound care products and other medical devices; and (b) consumer products, including apparel and personal care. We believe that the size and growth characteristics of the antimicrobial market represent an attractive opportunity for the NIMBUS technology. Additionally, we believe there are no competing technologies on the market today that offer the unique combination of safety, efficacy and cost-effectiveness offered by NIMBUS. We have developed “proofs-of-principle” in several applications and are seeking to move these products to the commercialization stage. On September 18, 2006 we received a Phase II SBIR grant for continued work on an advanced wound dressing using the NIMBUS technology. In April, 2007, we entered into a license agreement with Derma Sciences Inc. for NIMBUS treatment of select substrates used in traditional wound care.

MultiStatTM (“MutltiStat”), a family of patented matrix metalloproteinase inhibitors (“MMPIs”) that we believe to have significant benefit in the maintenance, healing and repair of skin and eyes. Independent laboratories as well as our research show that MultiStat is effective in medical (wound care) and consumer (cosmetic) applications. MultiStat is currently being sold as a performance ingredient to several cosmetics companies via an agreement with BASF Corporation, which is currently being renegotiated. MultiStat is also being evaluated as a post-injury treatment for mustard gas exposure, with the initial product currently being developed under a Cooperative Research and Development Agreement (CRADA) with the U.S. Army Medical Research Institute for Chemical Defense.

Business Strategy

Our business strategy is to further develop and execute commercialization strategies for each of our broad technologies. We will seek to generate revenue through four sources:

 
(1)
Licenses of proprietary technology to industry partners;
 
(2)
Contracts with government agencies;
 
(3)
Sales of product (compounds); and,
 
(4)
Research and development support agreements.

We expect that the majority of future revenue from NIMBUS will be generated via licenses, royalties and profit-sharing agreements. We believe that our intellectual property is the value driver and, as such, manufacturing, sales and distribution are and will be conducted either through client partners or outsourced.
 
-1-

 
NIMBUS®

NIMBUS refers to “Novel Intrinsically MicroBonded Utility Substrate” - a family of patents, techniques, and other intellectual property in which polymer chemistry is used to permanently bond biologically active molecules onto substrates. NIMBUS is produced by bonding a selection of polyquaternaries to various materials and can take many forms including: cellulosics, synthetics, microspheres, sprayable suspensions, superabsorbent polymers, powders, derivatized mineral particles, and others. We seek to use low-cost processes by which typically inexpensive chemicals can be permanently bonded to create added value to end products.

 
·
The NIMBUS technology has potential commercial applications spanning medical and consumer healthcare products. Choices of the substrate, the bonded molecules, or the method of bonding generate a range of products that can be modified to produce varying product attributes. By altering aspects of the formulation, the product can be made to be super-absorbent, have haemostatic properties, or serve as a drug delivery system. For example, it is capable of being used to add a second, slowly releasable ingredient to a substrate to permit more than one mode of action or property (e.g., perfume, protease inhibitor, fungicide, or antibiotic).

 
·
The raw materials cost of NIMBUS is more economical than many other active ingredients, such as silver or PHMB (polyhexamethylene biguanide), used in healthcare today. Additionally, in wound care materials and other roll goods-based substrates, NIMBUS requires no more than standard textile or paper finishing equipment. 

 
·
The most deeply studied potential commercial application of NIMBUS is in medical devices where permanent bonding to various substrates can be performed using broadband microbicides that are highly effective, as verified by independent laboratories. In certain proto-type wound dressings, NIMBUS begins to eradicate bacteria immediately and is effective for seven days or more. Tested in a typical potential commercial application, NIMBUS killed 99.9999% of the bacteria or other microbes present in the environment.

 
·
Third party and our research show that NIMBUS-treated articles are effective against MRSA (Methicillin-Resistant Staphylococcus Aureus) and VRE (Vancomycin-Resistant Enterococcus), two antibiotic-resistant organisms responsible for a significant and growing number of hospital and community-related infections. Other high bacterial kill levels have been demonstrated for contact lenses against Pseudomonas; in food preservation against bacteria that cause Listeria monocytogenes and Salmonella typhimurium; and in footwear protection against a wide range of other germs including Trichophyton mentagrophytes, a fungus that causes athlete’s foot.

 
·
While lethal to most bacteria, studies performed by us and third party laboratories show that NIMBUS is not harmful to human cells. Independent laboratory tests have shown that NIMBUS is non-toxic, non-sensitizing and non-irritating to humans, using standard ISO or ASTM test methodologies.

 
·
The NIMBUS technology permanently bonds the active agent to the substrate. This attribute is a source of differentiation from many competing technologies and gives NIMBUS potential advantages, including lower cost and the possible use in devices such as contact lenses, wound dressings, incontinence products, or disposable gloves where leaching chemicals into the body may pose unacceptable medical risk.

A characteristic of NIMBUS medical devices relates to the reduced likelihood of bacteria to develop resistance to the microbicide employed - a growing concern in healthcare facilities. This characteristic results from the combined effect of (a) the mechanism by which bacteria are killed - by cell wall disruption and (b) the bonding of the microbicide to the substrate, which prevents concentrations of the active molecule from falling below minimum inhibitory levels.
 
 
-2-

 
Quick-Med is seeking to commercialize NIMBUS in key end-markets where we believe the technology provides either a solution to a defined market need or an opportunity to create attractive new products or product attributes. We have been in communication with potential clients or development partners in the following markets.

Substrate
Medical
Consumer Healthcare
Cotton and cotton blends,
including cotton, cotton-rayon blends, cotton-PET blends, cellulosic materials
Wound dressings *
Hospital gowns *
Hospital bedding *
Antimicrobial wipes
Feminine protection
Adult incontinence
Diapers
Wipes
Underwear
Synthetics
including polyurethane, polypropylene, PE, PET, nylon, polycarbonates, silicones
Wound tapes/films *
Wound dressings *
Sutures *
Catheters *
Contact lenses/cases *
Toothbrushes
Mattresses
Water/Oil-based Formulations
Hand sanitizers
Skin care products
Wound care gels *
Hand sanitizers
Contact lens solution *
Skin care products

* denotes a medical device application that may require regulatory approval

We are initially focusing our NIMBUS technology on the following industries:
 
 
·
Wound Dressings and other Medical Devices: Potential wound care products under development that use the NIMBUS technology have undergone proof-of-concept testing to demonstrate their desired characteristics, such as bacterial resistance or the ability to control bleeding.
 
·
Apparel: Apparel products being developed that use the NIMBUS technology have undergone proof-of-concept testing to demonstrate desired characteristics such as resistance to odor causing bacteria and discoloration.

Effective February 1, 2007, we and HBI entered into a Development and Exclusive Option Agreement (the “Agreement”). Under the Agreement, we granted to HBI an exclusive option (the “Option”) for a period of six months (“Option Period”) to obtain an exclusive license to our technology relating to certain products produced by HBI (the “License Agreement”). In consideration for the Option, HBI is obligated to pay the Company $45,000 every three month period during the Option Period. During the Option Period, HBI will run and complete certain studies, and upon the conclusion of these studies, HBI will provide us with notice of the final decision with respect to entering into the License Agreement. In September 2007, we were informed that HBI decided, for internal reasons unrelated to our technology, not to complete these studies and we and HBI mutually agreed not to extend the Option Period.
 
 
MutiStat™

The MultiStat product line has been our primary source of revenue to date. MultiStat is a family of advanced, patented compounds and methods that have shown benefit in promoting the maintenance, healing and repair of skin and eyes. Both third party and Quick-Med research shows that MultiStat is effective in certain medical (wound care) and consumer (cosmetic) applications.

Matrix Metalloproteinases, or “MMPs”, are naturally occurring compounds in skin tissue. External or internal stimuli can trigger an overproduction of certain MMPs, which can produce chemical reactions within skin cells that induce adverse outcomes such as blistering, inflammation or accelerated collagen degradation. External triggers include prolonged sun exposure, as well as chemical burns from warfare agents such as mustard gas. Internal triggers include natural aging in which declining estrogen levels naturally inhibit MMPs and lead to accelerated skin wrinkling.

There are natural or synthetic compounds that safely inhibit MMP overproduction in the skin (MMP-inhibitors, or “MMPIs”). These MMPIs can be topically applied to mitigate the effects of triggering mechanisms. The bioscience of MMPI research includes the identification of safe compounds that individually or in combination yield a specific beneficial outcome. MultiStat represents our portfolio of patented compounds and techniques relating to MMP inhibition. MultiStat’s array of uses has been documented in a series of clinical findings by our scientists, third-party scientific laboratories, and in works published by other academic researchers.
 
 
-3-
 

Pharmaceutical Applications

Scientific studies have shown that MMP activity plays a major role in the deterioration of human tissue when exposed to chemical agents such as mustard gas. Ilomastat, a member of the MultiStat family of patented compounds and techniques relating to MMP-inhibition, has been demonstrated to be safe and highly effective in treating mustard gas exposures based on efficacy studies conducted in Israel and the Netherlands by third-party scientific laboratories. We are seeking to develop Ilomastat as a post-injury agent for mustard gas exposure.

In November 2000, we entered into a Cooperative Research and Development Agreement (“CRADA”) with the U.S. Army Medical Research Institute for Chemical Defense at Edgewood, Maryland, to develop a post-injury agent for mustard gas exposures to the eye and skin.

Other potential pharmaceutical applications for Ilomastat include psoriasis, acne and chronic wounds.
 
 
Cosmetics

Based on clinical studies performed by us and by the Engelhard Corporation (now a unit of BASF), MultiStat has shown success in improving the appearance of fine facial lines and wrinkles associated with skin deterioration resulting from natural aging or sun damage. Additionally, MultiStat has been shown in the same clinical studies to have applications for other conditions, such as skin roughness or redness.

In September 2002, we announced an exclusive multi-year distribution agreement with Engelhard Corporation. This agreement provides for Engelhard Corporation to undertake product development and subsequent marketing and sales of MultiStat-related skin care products. Since 2005, through its agreement with Engelhard Corporation, products that have incorporated MultiStat™ technology have been commercialized through various skin care and anti-aging products sold to major cosmetics companies.

On August 2, 2006, we restructured our agreement with Engelhard Long Island, Inc. (“Engelhard”), a wholly-owned subsidiary of BASF Catalysts LLC, with a Fourth Amendment to that certain Letter of Intent (“LOI”) dated February 1, 2006 and effective through April 28, 2006. The Fourth Amendment, effective as of June 30, 2006, extended the effective period of the LOI to August 1, 2007. The LOI amends certain terms included in the distribution agreement, in which we granted to Engelhard an exclusive license to develop and market our Ilomastat product (the “Licensed Product”) for the field of over-the-counter anti-aging cosmetics and a nonexclusive license for the field of over-the-counter acne treatments and skin moisturizers in the cosmetics market. In consideration for this license, as amended by the LOI, we received monthly royalty payments based on a percentage of the net revenue Engelhard receives from sales of the Licensed Product but no less than annual minimum royalty payments equal to $1,140,000 for the first two years, assuming the LOI is not terminated during such period. In addition, we transferred all right, title and interest to the Engelhard intellectual property developed under the agreement held by us back to Engelhard in exchange for one lump payment of $166,500.

We are currently in negotiation with BASF Corporation for a successor licensing agreement, should we be unable to complete a licensing agreement, our results of operations and financial condition would be materially affected.
 
 
-4-
 
Competition

The research and development pertaining to our technologies, which underlie our MMP-inhibitor (MultiStat™), microbicide (NIMBUS) and potential future products, is extremely competitive and is characterized by rapid technological change. Many of our competitors have substantially greater financial, scientific, and human resources, and greater research and product development capabilities. In addition, many of our competitors have greater experience in marketing such technologies and products and greater potential to develop revenue streams. As a result, our competitors may be able to develop and expand their competing product offerings more rapidly, adapt to new or emerging technologies and changes in customer requirements more quickly, devote greater resources to marketing and sales of their products and adopt more aggressive pricing policies than we can.

Our competitors include any company that is involved in the development of active ingredients or catalyst molecules focused on our end markets. These may include for-profit companies as well as university, government or sponsored research organizations.

Specific examples of competition to our NIMBUS microbicidal technology and potential future products using that technology, include products utilizing fibers embedded with silver and/or copper ions to induce anti-bacterial and/or anti-fungal capabilities, or other microbicidal technologies. Competing companies developing or offering such products include:

 
·
Nucryst Pharmaceuticals Inc.;
 
·
Microban International, Ltd.; and
 
·
Aegis Environments

We will attempt to overcome the competitive advantages of our competitors by entering into co-development agreements with industry leaders in the potential markets with exclusivity clauses for future license agreements.
 
Intellectual Property: Patents, and Exclusive Patent Licenses
 
Our strategy is to research and obtain original patents or, to the extent reasonably available, to license exclusive composition and relevant use patents related to its core technology. We believe that a comparatively strong intellectual property position can be a source of differentiation from competing products.

NIMBUS technology is covered by one issued U.S. patent, six issued foreign patents (Australia, China, Russia, Indonesia, Korea and Mexico), one allowed foreign patent (Canada) and eight pending U.S. patents, as well as a number of international patent applications filed under the Patent Cooperation Treaty (PCT), a treaty that covers 125 countries and a number of foreign patent applications.

MultiStat™ is covered by seven issued U.S. patents, four issued foreign patents, two pending U.S. patents and two pending international patents.

Several of these patent applications are now under examination in the United States Patent and Trademark Office. Several additional patent applications are in the process of being readied for filing in 2006.

Agreements with Employees and Consultants

With the exception of Drs. Schultz and Batich discussed below, all of our employees and scientific consultants have signed agreements that assign to us all intellectual property rights to any inventions or other proprietary information in any area in which that person is working with us. These agreements do not provide for the payment of any royalties. Drs.  Schultz and Batich, who are on the faculty of University of Florida at Gainesville, are the only consultants who currently have any rights in any intellectual property that may be shared with us. Under the University of Florida policy, any rights obtained by Drs. Schultz and Batich are assigned to the University. Drs. Schultz and Batich may be paid a royalty by the University out of royalties that may be paid by us to University of Florida.

Issued and Pending - U.S. & Foreign Patents

We have filed or own joint rights to patent applications for:

U.S. ISSUED PATENTS

Number
Issued Date
Expiry Date
Description
5,183,900
February 1993
November 21, 2010
Matrix Metalloprotease Inhibitors (MMPIs)
5,189,178
February 1993
November 21, 2010
Matrix Metalloprotease Inhibitors (MMPIs)
5,239,078
August 1993
November 21, 2010
Matrix Metalloprotease Inhibitors (MMPIs)
5,270,326
December 1993
November 21, 2007
(November 21, 2010)
Treatment of Tissue Ulceration
5,773,438
June 1998
June 30, 2015
Synthetic Matrix Metalloprotease Inhibitors (MMPIs) and Use Thereof
5,892,112
April 1999
April 6, 2016
Process for Preparing Synthetic Matrix Metalloprotease Inhibitors (MMPIs)
6,713,074
March 2004
June 29, 2021
Cosmetic Composition and Method
7,045,673 B1
May 16, 2006
December 8, 2019
Instrinsically Bactericidal Absorbent Dressing and Method of Fabrication
 
-5-

 
The above table includes patents, which are jointly owned by us and an arm of The University of Florida, as well as patents that are licensed to us by Drs. Galardy and Grobelny. Maintenance of patent protection through the expiration date is contingent upon payment of fees at certain intervals.

INTERNATIONAL ISSUED PATENTS

Number
Country(ies)
Expiry Date(2)
EPO 558681(1)
Europe (Germany, Spain, France, Great Britain, Italy)
November 21, 2011
EPO 558648(1)
Europe (Germany, France, Great Britain, Italy)
November 21, 2011
Japan
November 21, 2011
Australia
Australia
November 21, 2011
December 8, 2019
Russia
December 8, 2019
99814229.8
10-0689020
Canada
China
Korea
Mexico
Canada (allowed, not yet granted)
November 21, 2011
December 8, 2019
December 8, 2019
December 8, 2019
December 8, 2019.
WOO 2001 01469
Indonesia
December 8, 2019

Notes:
 
(1)
Issued by the European Patent Office. Registered in Germany, France, Great Britain, and Italy.
 
(2)
Maintenance of patent protection through the expiration date is contingent upon payment of yearly fees.


PENDING PATENT APPLICATIONS - UNITED STATES
 
 
Absorbent Materials Covalently Bonded, Non-Leachable Polymeric Antimicrobial Surfaces and Methods for Preparation.

ཙ
Cosmetic Composition and Method