QUICK-MED TECHNOLOGIES INC (QMDT) - Description of business

Company Description
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. 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. 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.

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. 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.