10QSB

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

OR

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

For the transition period from       to

Commission file number: 33-20897-D

HELIX BIOMEDIX, INC.

Delaware	91-2099117
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

22122-20^th Avenue SE, Suite 148, Bothell, Washington 98021
(Address of principal executive offices)

(425) 402-8400
(Registrant’s telephone number, including area code)

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 þ       No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o       No þ

State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

	Number of Shares
Class	Outstanding at November 6, 2006
Common Stock, $0.001 par value	22,788,863

Transitional Small Business Disclosure Format (check one): Yes o       No þ

HELIX BIOMEDIX, INC.
FORM 10-QSB
TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (unaudited) as of September 30, 2006 and December 31, 2005		1
Condensed Statements of Operations (unaudited) for the three and nine months ended September 30, 2006 and 2005 and for the period from inception (November 7, 1988) to September 30, 2006		2
Condensed Statements of Cash Flows (unaudited) for the nine months ended September 30, 2006 and 2005 and for the period from inception (November 7, 1988) to September 30, 2006		3
Notes to Condensed Financial Statements (unaudited)		4
Item 2. Management’s Discussion and Analysis or Plan of Operation		9
Item 3. Controls and Procedures		15
PART II — OTHER INFORMATION
Item 6. Exhibits		16
Signatures		17
EXHIBIT 10.8(A)
EXHIBIT 10.9(A)
EXHIBIT 10.17(B)
EXHIBIT 10.22
EXHIBIT 10.23
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements.

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

CONDENSED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	3,130,172		$	2,827,959
Inventory		—			35,316
Prepaid expenses and other current assets		99,737			120,351
Total current assets		3,229,909			2,983,626
Property and equipment, net		125,195			168,063
Patents pending and approved, net		457,777			505,908
Other assets, net		77,516			84,343
Total assets	$	3,890,397		$	3,741,940
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	78,133		$	57,993
Accrued expenses		80,905			166,366
Total current liabilities		159,038			224,359
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 25,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized; 22,788,863 shares outstanding at September 30, 2006, 20,190,514 shares outstanding at December 31, 2005		22,788			20,190
Additional paid-in capital		26,890,449			23,906,974
Deferred stock compensation		—			(105,000	)
Deficit accumulated during the development stage		(23,181,878	)		(20,304,583	)
Total stockholders’ equity		3,731,359			3,517,581
Total liabilities and stockholders’ equity	$	3,890,397		$	3,741,940

The accompanying notes are an integral part of the financial statements.

1

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

For the Period from Inception (November 7, 1988) to September 30, 2006

and for the three and nine months ended September 30, 2006 and 2005

(Unaudited)

	Inception
	(November 7, 1988)
	To			Three months ended						Nine months ended
	September 30, 2006			September 30,						September 30,
				2006			2005			2006			2005
Revenue:
Licensing	$	327,561		$	3,841		$	—		$	38,940		$	15,000
Peptide sales		119,414			15,000			40,000			28,000			80,414
		446,975			18,841			40,000			66,940			95,414
Operating expenses:
Cost of peptide sales		247,329			6,620			40,000			162,991			80,414
Research and development		6,302,586			278,256			216,119			772,341			637,250
Depreciation and amortization		1,037,035			46,141			46,197			136,477			130,966
Accounting, legal and professional		2,384,047			73,602			34,321			210,023			236,488
Consulting fees		2,873,472			4,163			70,209			9,092			119,328
General and administrative		9,599,410			500,620			445,564			1,709,009			1,325,819
Total operating expenses		22,443,879			909,402			852,410			2,999,933			2,530,265
Loss from operations		(21,996,904	)		(890,561	)		(812,410	)		(2,932,993	)		(2,434,851	)
Other (income) expense:
Gain on settlement of lawsuit		(48,574	)		—			—			—			—
Interest expense		1,459,442			—			—			—			—
Interest income		(225,894	)		(20,054	)		(14,459	)		(55,698	)		(32,831	)
		1,184,974			(20,054	)		(14,459	)		(55,698	)		(32,831	)
Net loss	$	(23,181,878	)	$	(870,507	)	$	(797,951	)	$	(2,877,295	)	$	(2,402,020	)
Basic and diluted net loss per share				$	(0.04	)	$	(0.04	)	$	(0.13	)	$	(0.14	)
Weighted average shares outstanding					22,788,514			20,187,724			22,192,979			17,073,030

The accompanying notes are an integral part of the financial statements.

2

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

For the Period from Inception (November 7, 1988) to September 30, 2006

and for the nine months ended September 30, 2006 and 2005

(Unaudited)

	Inception
	(November 7, 1988)
	to			Nine months ended September 30,
	September 30, 2006			2006			2005
Cash Flows from Operating Activities
Net loss	$	(23,181,878	)	$	(2,877,295	)	$	(2,402,020	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,037,215			136,477			130,966
Amortization of debt discount to interest expense		728,552			—			—
Stock-based compensation costs		4,585,557			507,051			185,703
Interest expense converted to common stock		231,180			—			—
Research and development		53,000			—			—
Loss (gain) on disposal of equipment		(2,865	)		3,588			—
Changes in operating assets and liabilities:
Inventory		—			35,316			—
Prepaid expenses and other current assets		(85,027	)		20,614			(31,090	)
Other assets		(71,601	)		(4,202	)		—
Accounts payable – related party		341,602			—			—
Accounts payable and accrued expenses		235,649			(65,321	)		(39,726	)
Net cash used in operating activities		(16,128,616	)		(2,243,772	)		(2,156,167	)
Cash Flows from Investing Activities
Investment in Helix Delaware		(10	)		—			—
Proceeds from sale of assets		8,900			—			1,500
Purchase of property and equipment		(660,980	)		(38,037	)		(50,301	)
Increase in capitalized patents		(654,944	)		—			(22,525	)
Net cash used in investing activities		(1,307,034	)		(38,037	)		(71,326	)
Cash Flows from Financing Activities
Cash received in reverse acquisition		634,497			—			—
Proceeds from notes payable		3,089,894			—			—
Proceeds from notes payable – related party		379,579			—			—
Repayments from notes payable – related party		(163,154	)		—			—
Proceeds from issuance of common stock, net		14,580,770			2,584,022			2,504,989
Proceeds from exercise/exchange of stock options and warrants		2,044,236			—			1,337,085
Net cash provided by financing activities		20,565,822			2,584,022			3,842,074
Net increase in cash and cash equivalents		3,130,172			302,213			1,614,581
Cash and cash equivalents at beginning of period					2,827,959			1,908,028
Cash and cash equivalents at end of period	$	3,130,172		$	3,130,172		$	3,522,609

The accompanying notes are an integral part of the financial statements.

3

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The unaudited condensed financial statements of Helix BioMedix, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying financial statements reflect all adjustments (consisting of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates.

The financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Form 10-KSB for the year ended December 31, 2005 and filed with the Securities and Exchange Commission on March 27, 2006.

The Company had approximately $3.1 million in cash and cash equivalents as of September 30, 2006 and will require additional sources of capital to support its operations. The Company believes that, based upon the current status of the Company’s product development and collaboration plans, its cash and cash equivalents should be adequate to satisfy its capital needs through the next twelve months.

Certain amounts in the prior years’ financial statements have been reclassified to conform to current year presentation.

2. Accounting for Stock Options

On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), Share-Based Payment (“SFAS 123R”). Prior to January 1, 2006, the Company accounted for share-based payments under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). In accordance with APB 25, no compensation cost was required to be recognized for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.

The Company adopted SFAS 123R using the modified-prospective-transition method. Under this method, compensation cost recognized for the three and nine months ended September 30, 2006 includes: a) compensation cost for all share-based payments granted prior to, but not yet vested as of, December 31, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Deferred stock compensation in the amount of $105,000 related to nonvested options was eliminated against additional paid-in capital upon adoption of SFAS 123R. The results for the prior periods have not been restated.

For all unvested options outstanding as of January 1, 2006, the previously measured but unrecognized compensation expense, based on the fair value at the original grant date, will be recognized ratably over the remaining vesting period. For share-based payments granted subsequent to January 1, 2006, compensation expense, based on the fair value on the date of grant, will be recognized on a straight-line basis over the vesting period. As a result of the adoption of SFAS 123R, incremental stock-based compensation of approximately $78,200 and $369,600 was recognized in the statement of operations for the three and nine months ended September 30, 2006, respectively.

4

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

The following table presents the impact of the Company’s adoption of FAS 123R on selected line items from the Company’s condensed financial statements for the three and nine months ended September 30, 2006:

	Three Months Ended						Nine Months Ended
	September 30, 2006						September 30, 2006
	As Reported			If Reported			As Reported			If Reported
	Following			Following			Following			Following
	FAS 123(R)			APB 25			FAS123(R)			APB 25
Loss from operations	$	(890,561	)	$	(812,340	)	$	(2,932,993	)	$	(2,563,427	)
Net loss	$	(870,507	)	$	(792,286	)	$	(2,877,295	)	$	(2,507,729	)
Basic and diluted net loss per share	$	(0.04	)	$	(0.03	)	$	(0.13	)	$	(0.11	)

There were no stock options granted during the three months ended September 30, 2006. The per share weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2006, was $0.78 using the Black-Scholes option pricing model with the following assumptions:

	Three Months					Nine Months
	Ended					Ended
	September 30,		September 30,			September 30,			September 30,
	2006		2005			2006			2005
Risk-free interest rate		—		4.40	%		4.97	%		4.40	%
Expected dividend yield		—		0			0			0
Expected term in years		—		3.0			6.25			3.0
Expected volatility		—		110	%		100	%		110	%

The risk-free rate is based on the implied yield available on U.S. Treasury zero–coupon issues with an equivalent remaining term. The Company does not anticipate declaring dividends in the foreseeable future. For the three and nine months ended September 30, 2006, expected volatility is based on implied volatility of outstanding warrants to purchase the Company’s common stock, annualized daily historical volatility of its stock price commensurate with the expected term of the option, and other factors, including peer company data. For the three and nine months ended September 30, 2006, the expected term of the options represents the estimated period of time from grant until exercise and is based on historical experience of similar awards, contractual terms, vesting schedules and expectations of future employee behavior. The Company’s stock price volatility and option term involves management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. SFAS 123R also requires that the Company recognize compensation expense for only the portion of options or stock units that are expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination behavior.

5

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

The following table shows the pro forma effect on the Company’s net loss and net loss per share for the three and nine months ended September 30, 2005 had compensation expense been determined based upon the fair value at the grant date for awards consistent with the methodology prescribed by SFAS 123. The pro forma effect may not be representative of expense in future periods since the estimated fair value of stock options on the date of grant is amortized over the vesting period, and additional options may be granted or options may be cancelled in future years:

	Three months ended			Nine months ended
	September 30, 2005			September 30, 2005
Net loss
As reported	$	(797,951	)	$	(2,402,020	)
Add: Stock-based employee compensation expense included in reported net loss		52,500			157,500
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards		(239,623	)		(560,114	)
Pro forma net loss	$	(985,074	)	$	(2,804,634	)
Net loss per share-basic and diluted
As reported	$	(0.04	)	$	(0.14	)
Pro forma net loss	$	(0.05	)	$	(0.16	)

3. Loss per Share

Loss per share has been computed using the weighted average number of shares outstanding during the period. Diluted per share amounts reflect potential dilution from the exercise or conversion of securities into common stock. The Company’s capital structure includes common stock options and common stock warrants, all of which have been excluded from net loss per share calculations as they are antidilutive, as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
	2006		2005		2006		2005
Weighted average outstanding options		2,757,000		2,529,799		2,711,084		2,507,340
Weighted average outstanding warrants		2,865,544		2,587,048		2,787,243		5,590,756

4. Stock-Based Compensation

Stock Option Plan

On December 15, 2000, the stockholders of the Company approved the Helix BioMedix 2000 Stock Option Plan (“the 2000 Plan”). The 2000 Plan is to be administered by non-employee directors who shall be authorized to grant stock options to the Company’s employees, consultants and directors. These options may be either Incentive Stock Options as defined and governed by Section 422 of the Internal Revenue Code or Nonqualified Stock Options. The 2000 Plan specifically provides the Company with the ability to repurchase, upon termination of an optionee’s employment, up to 10,000 shares acquired by the optionee through the exercise of options granted thereunder at the then-current fair market value of such shares.

Stock options to purchase the Company’s common stock are granted at the fair market value on the date of grant. Options generally become exercisable beginning one year from the date of grant and expire 10 years from the date of grant. Options granted to non-employee directors become exercisable ranging from immediately upon grant to quarterly over one year. Stock options granted to employees are typically incentive stock options and options granted to non-employee directors are non-qualified stock options.

The fair value of each stock option granted is estimated on the date of grant using the Black Scholes option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. Options granted are valued using the single option valuation approach, and the resulting expense is recognized using the cliff, straight-line attribution method,

6

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

consistent with the single option valuation approach. Compensation expense is recognized only for those options expected to vest.

There were 50,000 employee stock options granted and 86,500 non-employee director stock options granted during the three and nine months ended September 30, 2005. A summary of the Company’s stock option activity for the nine months ended September 30, 2006 is presented in the following table:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Shares Subject			Exercise Price		Contractual		Intrinsic
	to Options			per Share		Life		Value
Outstanding, December 31, 2005		2,592,000		$	1.38
Granted		165,000		$	0.96
Exercised		—
Forfeited		(8,126	)	$	1.80
Expired		—
Outstanding, September 30, 2006		2,748,874		$	1.35		6.18	$	78,695
Exercisable, September 30, 2006		2,476,442		$	1.32		5.95	$	71,495

The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $1.01 on September 30, 2006, which would have been received by the optionees had all of the options with exercise prices less than $1.01 been exercised on that date. As of September 30, 2006, total unrecognized stock-based compensation related to nonvested stock options was approximately $199,005, which is expected to be recognized over a weighted average period of approximately 6 months.

The Company has a policy of issuing new shares to satisfy share option exercises.

As of September 30, 2006, there were 5,355,000 shares of common stock reserved for issuance pursuant to the 2000 Plan. Additional information regarding options outstanding as of September 30, 2006, is as follows:

				Options Outstanding						Options Exercisable
						Weighted
						Average		Weighted				Weighted
						Remaining		Average				Average
						Contractual Life		Exercise				Exercise
Range of Exercise Prices				Shares		(Years)		Price		Shares		Price
	$0.70	-	$0.85		280,500		6.11	$	0.76		235,500	$	0.74
			$1.00		899,000		5.75	$	1.00		899,000	$	1.00
	$1.20	-	$1.50		718,750		6.05	$	1.48		686,805	$	1.48
	$1.65	-	$2.00		850,624		6.78	$	1.81		655,137	$	1.81
	$0.70	-	$2.00		2,748,874		6.18	$	1.35		2,476,442	$	1.32

5. Stockholders’ Equity

On March 3, 2006, the Company announced the initial closing of a private equity financing, in which it received cash of $2,383,000 in exchange for 2,383,000 shares of $0.001 par value common stock and warrants to purchase up to 238,300 additional shares of $0.001 par value common stock. The warrants have a 5-year term and a per share exercise price of $1.00.

In a second closing held on March 10, 2006, the Company received $215,000 in exchange for 215,000 shares of $0.001 par value common stock and warrants to purchase up to 21,500 additional shares of $0.001 par value common stock. The warrants have a 5-year term and a per share exercise price of $1.00. The Company received a total of $2,598,000 in this private placement financing for 2,598,000 shares of common stock and detachable warrants for the purchase of an additional 259,800 shares of common stock.

7

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

On February 28, 2005, the Company announced the initial closing of a private equity financing, in which it received cash of approximately $2.3 million in exchange for 1,548,501 shares of common stock and warrants to purchase up to 125,000 additional shares of common stock. The warrants have a 5-year term and a per share exercise price of $1.50.

In a second closing held on March 2, 2005, the Company received $175,000 in exchange for 116,666 shares of common stock. The Company received a total of approximately $2.5 million in this private placement financing for 1,665,167 shares of common stock and detachable warrants for the purchase of an additional 125,000 shares of common stock.

On March 1, 2005, the Company commenced a tender offer to holders of certain of its warrants that were purchased in four private placement financings to exchange their warrants as follows:

• 2001/2002 Warrants (warrants to purchase shares of the Company’s common stock issued as part of the units described in the private placement memorandum dated May 2001): The Company offered to issue either (a) 0.82 shares of common stock for each warrant share tendered; or (b) 1.0 share of common stock for each warrant share tendered upon payment of $0.25 for each warrant share tendered.

• 2002/2003 Warrants (warrants to purchase shares of the Company’s common stock issued as part of the units described in the private placement memorandum dated September 2002, and amended December 2002): The Company offered to issue either (a) 0.84 shares of common stock for each warrant share tendered; or (b) 1.0 share of common stock for each warrant share tendered upon payment of $0.25 for each warrant share tendered.

• 2003 Warrants (warrants to purchase shares of the Company’s common stock issued as part of the units described in the private placement memorandum dated November 2003): The Company offered to issue either (a) 0.37 shares of common stock for each warrant share tendered; or (b) 1.0 share of common stock for each warrant share tendered upon payment of $0.56 for each warrant share tendered.

• 2004 Warrants (warrants to purchase shares of the Company’s common stock issued as part of the units described in the private placement memorandum dated March 2004): The Company offered to issue either (a) 0.60 shares of common stock for each warrant share tendered; or (b) 1.0 share of common stock for each warrant share tendered upon payment of $0.50 for each warrant share tendered.

On May 31, 2005, the Company closed the tender offer to exchange certain of its outstanding warrants. In this transaction, the Company received proceeds in the amount of approximately $1.3 million, net of $175,500 in transaction costs, and issued approximately 5.0 million shares of common stock in exchange for the cancellation of warrants that provided for the purchase of approximately 5.5 million shares of its common stock.

The net proceeds of these offerings are being used to continue ongoing research and development efforts, to fund the out-licensing initiatives for the Company’s peptides and for general corporate purposes.

8

ITEM 2. Management’s Discussion and Analysis or Plan of Operation.

Forward-Looking Statements

Our disclosure and analysis in this Quarterly Report and in the documents incorporated by reference contain forward-looking statements, which provide our current expectations or forecasts of future events. Forward-looking statements include, without limitation:

• statements concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings growth and revenue growth;

• statements about our product development schedule;

• statements about our future capital requirements and the sufficiency of our cash, cash equivalents, investments, and any other sources to meet these requirements;

• statements about our plans, objectives, expectations and intentions; and

• other statements that are not historical facts.

Words such as “believes,” “anticipates,” “expects” and “intends” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described in “Certain Factors That May Affect Our Business and Future Results” in our Annual Report for the year ended December 31, 2005. Other factors besides those described in that Annual Report could also affect actual results. You should carefully consider the factors described in “Certain Factors That May Affect Our Business and Future Results” in our Annual Report for the year ended December 31, 2005 in evaluating our forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission, or SEC, after the date of this Quarterly Report.

Business Overview

We were incorporated in Colorado on February 2, 1988, and then on November 1, 2000, we merged into a newly formed Delaware corporation and relocated to Bothell, Washington. Our headquarters and our research and development operations are located in our Bothell, Washington facility, which opened in 2001 and commenced operations in 2002. Our mission is to become an industry leader in developing and commercializing small proteins known as bioactive peptides. We have a proprietary library containing a broad array of these synthetic bioactive peptides. Our expertise and technology allow us to design cost-effective synthetic bioactive peptides to be more powerful than those occurring in nature while having low levels of toxicity. We have created an extensive library of bioactive peptides and have obtained patents covering potentially hundreds of thousands of these molecules.

All of our projects are currently in the preclinical stage of development. We do not separately track costs associated with our preclinical projects due to the cost burden associated with accounting at such levels of detail and our limited resources. However, the majority of our research and development spending is devoted to the two project categories discussed below. Our business strategy is to move our programs through the early stages of development and then out-license the rights to use our proprietary peptides in distinct fields of application. We have developed several peptide sequences in the following two broad areas of application:

• Skin care – we have developed four peptides capable of stimulating aspects of the skin’s innate ability to regenerate.

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• Pharmaceutical – six of our peptides have demonstrated promising results in the areas of topical anti-infectives and wound healing.

Skin Care:

We have developed a portfolio of peptides with an array of properties designed to enhance a wide range of skin care products. Our lead skin care peptide, HB64, is currently incorporated in two anti-acne products and is undergoing formulation for additional anti-acne, oral care and moisturizer product lines. We have also moved into the application/product development stage for peptides targeted at the reduction of skin redness and rejuvenation of skin cells, which have entered formulation development and human panel testing. In the area of anti-aging, our lead peptide, HB168pal, is being assessed by potential licensees in a range of formulations. Results of subsequent human panel tests have demonstrated significant improvements in skin elasticity. Our next generation of skin care actives include Replikines^TM, Combikines^TM and Inhibikines^TM, designed to boost collagen synthesis, and Tyrosikines^TM, which target the reduction of age spots and skin discoloration.

Pharmaceutical:

We are advancing a new generation of lipopeptides targeting dermatological applications. To do this, we have created a new class of cost effective “small molecule peptides” (defined by us as peptides which are six amino acids in length or less) that we believe to have a range of therapeutic application potential for the dermatology market. For example, these peptides are designed to address specific issues related to acne, such as rapid kill. They also appear to exhibit the ability to work in an oil and serum environment, to kill micro-organisms deep in a pore and exhibit a lack of resistance induction. We are also evaluating this class of anti-infectives as possible treatments of fungal and wound infections. To support this initiative, we have demonstrated that our lead molecules are efficacious in both bacterial and fungal infection models. We plan to seek development partners or to license this application in 2006 or 2007 as additional data becomes available.

Due to the early stage of development of each of our peptide sequences in the areas described above, we are unable to estimate the total costs and timing to complete product development. Additionally, we currently anticipate out-licensing our product candidates, and their final development will therefore depend on the efforts of third parties. The timing of entering into ongoing licensing agreements resulting in significant revenue to the company is uncertain. Thus, we presently lack the experience necessary to determine the timing of when, if ever, material net cash inflows from out-licensing projects can be expected.

Results of Operations

As of September 30, 2006, our accumulated deficit was approximately $23.2 million. We may continue to incur substantial operational losses over the next several years. Such losses have been and may continue to be principally the result of various costs associated with our research and development programs. Revenue to date has not been material and has resulted from licensing arrangements and limited sales of peptides at, or near, cost. Our ability to achieve a consistent, profitable level of operations depends in large part on our ability to enter into royalty-bearing licenses. Even if we are successful in the aforementioned activities, our operations may not be profitable. In addition, any payments under licensing arrangements are subject to significant fluctuations in both timing and amount. Therefore, our operating results for any period may fluctuate significantly and may not be comparable to the operating results for any other period.

Our revenue for the three months ended September 30, 2006 consisted primarily of the renewal of a material transfer and research agreement. Revenue for the three months ended September 30, 2006 was approximately $18,800 compared to $40,000 for the same period in 2005. Revenue for the nine months ended September 30, 2006 was approximately $66,900 compared to approximately $95,400 for the same period in 2005. The decrease in revenue was primarily the result of a decline in the sale of peptides.

Cost of peptide sales was approximately $6,600 for the three months ended September 30, 2006 and $40,000 for the same period in 2005. Cost of peptide sales was approximately $163,000 for the nine months ended September 30, 2006 and approximately $80,400 for the same period in 2005. The decrease for the three-month period ended September 30, 2006 was due to a decline in the sale of peptides over the comparable period in 2005. The increase for the nine-month period ended September 30, 2006 was attributable to the write-down of peptide inventory to its net realizable value during the second quarter of 2006.

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Our research and development expenses were approximately $278,300 for the three months ended September 30, 2006 compared to approximately $216,100 for the same period in 2005. Research and development expenses were approximately $772,300 for the nine months ended September 30, 2006 compared to approximately $637,300 for the same period in 2005. The increase for the three months ended September 30, 2006 was primarily attributable to costs associated with external studies conducted on our peptides. The increase for the nine months ended September 30, 2006 was attributable to costs associated with external studies conducted on our peptides, compensation expenses in connection with the mid-year executive salary review process and non-cash share-based compensation expense of approximately $85,500.

Our accounting, legal and professional expenses were approximately $73,600 for the three months ended September 30, 2006 and approximately $34,300 for the same period in 2005. Accounting, legal and professional expenses were approximately $210,000 for the nine months ended September 30, 2006 and approximately $236,500 for the same period in 2005. The increase for the three months ended September 30, 2006 was primarily attributable to legal fees associated with license agreement negotiations. The expense for the nine months ended September 30, 2006 was consistent with the prior comparable period.

Our consulting fees were approximately $4,200 for the three months ended September 30, 2006 and approximately $70,200 for the same period in 2005. Consulting fees were approximately $9,100 for the nine months ended September 30, 2006 and approximately $119,300 for the same period in 2005. The decrease for the three and nine months ended September 30, 2006 was primarily attributable to consulting fees incurred in 2005 associated with the implementation of a new accounting system.

Our general and administrative expenses were approximately $500,600 for the three months ended September 30, 2006 and approximately $445,600 for the same period in 2005. General and administrative expenses were approximately $1,709,000 for the nine months ended September 30, 2006 and approximately $1,325,800 for the same period in 2005. The increase for the three and nine months ended September 30, 2006 was primarily attributable to compensation expenses in connection with the mid-year executive salary review process and non-cash share-based compensation expense, partially offset by bonus compensation to certain officers in 2005.

Other income was approximately $20,100 for the three months ended September 30, 2006 compared to approximately $14,500 for the same period in 2005. Other income for the nine months ended September 30, 2006 was approximately $55,700 compared to approximately $32,800 for the same period in 2005. The increase in both periods is primarily attributable to a higher cash balance in 2006 as compared to 2005.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through the private sales of debt and equity securities. On September 30, 2006, we had cash and cash equivalents of approximately $3.1 million, compared to approximately $2.8 million on December 31, 2005 and $3.5 million on September, 30, 2005. The increase from December 30, 2005 is attributable to the proceeds that we received from a private equity financing that closed in the first quarter of 2006.

On March 3, 2006, we announced that we closed a private equity financing, receiving cash of approximately $2.4 million in exchange for 2,383,000 shares of $0.001 par value common stock and warrants to purchase up to 238,300 additional shares of $0.001 par value common stock. The warrants have a 5-year term and a per exercise purchase price of $1.00. In a second closing held on March 10, 2006, we received $215,000 in exchange for 215,000 shares of $0.001 par value common stock and warrants to purchase up to 21,500 shares of $0.001 par value common stock. The warrants have a 5-year term and a per share exercise price of $1.00. We received a total of approximately $2.6 million in this private placement financing for 2,598,000 shares of common stock and detachable warrants for the purchase of an additional 259,800 shares of common stock.

From February 28, 2005 through March 2, 2005, we consummated a private equity financing pursuant to which we received cash proceeds of approximately $2.5 million in exchange for issuing (i) 1,665,168 shares of common stock and (ii) warrants to purchase up to an additional 125,000 shares of common stock. The warrants have a 5-year term and a per share exercise price of $1.50. On May 31, 2005, we closed our warrant tender offer pursuant to which we (i) cancelled warrants that provided for the purchase of approximately 5.5 million shares of our common stock; (ii) received gross proceeds of approximately $1.5 million; and (iii) issued approximately 5.0 million shares of our

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common stock. The net proceeds of these financings are being used to continue ongoing research and development efforts and pursue out-licensing initiatives for our lead peptides and for general corporate purposes.

We will need to raise additional capital in order to grow our business operations. Our net cash used in operations has exceeded our cash generated from operations for every year since our inception. Based on our current operating plan, we estimate that existing cash and cash equivalents will be sufficient to meet our cash requirements through the next twelve months based on current expense levels. We will need substantial additional funding to further develop our existing programs and initiate our pharmaceutical program. Accordingly, we intend to seek additional funding through available means, which may include debt and/or equity financing.

Our future capital requirements depend on many factors including:

• the ability to attract collaborative agreement partners;

• the ability to generate revenue under licensing agreements; and

• the costs of filing, prosecuting, enforcing, and defending patents, patent applications, patent claims, and trademarks.

The availability of additional capital to us is highly uncertain. We are actively pursuing out-licensing opportunities but do not expect those efforts to produce significant capital during the next twelve months. Any equity financing would likely result in dilution to our existing stockholders and debt financing, if available, would likely include restrictive covenants.

Critical Accounting Policies and Estimates

The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, our management evaluates its estimates and judgments including those related to revenue recognition, research and development costs, capitalized patent costs and valuation of stock options and warrants. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

• Revenue Recognition. We have generated limited revenue from licensing fees. We recognize revenue from licensing fees when delivery has occurred and no future obligations exist. Royalties from licensees, if any, are based on third-party sales and recorded as earned in accordance with the contract terms when third-party results are reliably measured and collection is reasonably assured.

• Research and Development Costs. These costs, including personnel costs, supplies and other indirect research and development costs, are expensed as incurred. In instances where we enter into agreements with third parties for research and development activities, which may include personnel costs, supplies and other costs associated with such collaborative agreements, we expense these items as incurred.

• Capitalization of Patent Costs. We capitalize the third-party costs associated with filing patents or entering into licenses associated with our underlying technology. Our policy for the capitalization of patent costs is to begin amortization of these costs at the time they are incurred. We review our patent portfolio to determine whether any such costs have been impaired and are no longer being used in our research and development activities. To the extent we no longer use certain patents, the associated costs will be written-off at that time.

• Valuation of Stock Options and Warrants. On January 1, 2006, we adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), Share-Based Payment (“SFAS 123R”). Prior to January 1, 2006, we accounted for share-based payments under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). In accordance with APB 25, no compensation cost was required to be recognized for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.

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We adopted SFAS 123R using the modified-prospective-transition method. Under this method, compensation cost recognized for the nine months ended September 30, 2006 includes: a) compensation cost for all share-based payments granted prior to, but not yet vested as of, December 31, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The results for the prior periods have not been restated.

Effective January 1, 2006, we adopted the fair value attribution method for recognizing compensation expense. Previously under the disclosure-only provisions of SFAS 123, we accounted for stock compensation using the intrinsic value method prescribed in APB 25. For all unvested options outstanding as of January 1, 2006, the previously measured but unrecognized compensation expense, based on the fair value at the original grant date, will be recognized ratably over the remaining vesting period. For share-based payments granted subsequent to January 1, 2006, compensation expense, based on the fair value on the date of grant, will be recognized on a straight-line basis over the vesting period.

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Certain Factors That May Affect Our Business and Future Results

Please see our Annual Report on Form 10-KSB for the year ended December 31, 2005 for a description of some of the risks and uncertainties that we face. There have been no material changes in our risk factors from those described in that Annual Report. If any of those risks were to occur, our business, operating results and financial condition could be seriously harmed.

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ITEM 3. Controls and Procedures.

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings.

There has been no change during the quarter in 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 6. Exhibits.

Exhibit Number
(Referenced to
Item 601 of
Regulation S-B)	Exhibit Description
3.1	Certificate of Incorporation of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3-a to the Company’s Form 10-KSB for the year ended December 31, 2000)
3.2	Certificate of Amendment to the Certificate of Incorporation of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3.3 to the Company’s Form 10-KSB/A for the year ended December 31, 2002)
3.3	Bylaws of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3-b to the Company’s Form 10-KSB for the year ended December 31, 2000)
10.8(a)	Second Amendment to Employment Agreement dated effective as of June 30, 2006 between the Company and Timothy Falla
10.9(a)	Second Amendment to Employment Agreement dated effective as of June 30, 2006 between the Company and R. Stephen Beatty
10.17(b)	Second Amendment to Lease between the Company and Teachers Insurance and Annuity Association of America, Inc. dated October 4, 2006
10.22	Employment letter agreement dated effective as of October 1, 2006 between the Company and Lori Bush
10.23	Separation Agreement and Release dated October 12, 2006 between the Company and David Drajeske
31.1	Certification of the Company’s Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
31.2	Certification of the Company’s Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
32.1	Certification of the Company’s Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2	Certification of the Company’s Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

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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.

November 9, 2006

HELIX BIOMEDIX, INC.
(Registrant)
By:	/s/ R. STEPHEN BEATTY
R. Stephen Beatty
President and Chief Executive Officer
(Principal Executive Officer)
By:	/s/ David H. Kirske
David H. Kirske
Vice President and Chief Financial Officer
(Principal Financial Officer)

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EX-10.8(A)

                                                                 EXHIBIT 10.8(a)

                    SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

     This SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made
and entered into as of October 16, 2006 by and between HELIX BIOMEDIX, INC., a
Delaware corporation ("Helix"), and TIMOTHY FALLA, PH.D. ("Employee").

                                    RECITALS

     WHEREAS, Helix and Employee entered into an Employment Agreement effective
July 1, 2003, as amended (the "Agreement"); and

     WHEREAS, Helix and Employee wish to further amend the Agreement as provided
herein.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

     1. Section 2 of the Agreement is hereby amended and restated in its
entirety as follows:

     "Subject to the terms and conditions of this Agreement, the term hereof
("Term") shall commence on July 1, 2003 and will continue in effect unless and
until terminated by either the Company or Executive as set forth herein."

     2. The second sentence of Section 3(a) of the Agreement is hereby amended
and restated in its entirety as follows:

     "The Board shall review Executive's compensation and performance annually,
and Executive shall be eligible for an increase in his base salary or other
compensation based on such review."

     3. The effective date of this Amendment shall be June 30, 2006.

     4. The parties hereto hereby acknowledge the continuing effect of the
Agreement except as specifically modified by this Amendment.

     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.

HELIX BIOMEDIX, INC.                   EXECUTIVE:


- ------------------------------------   -----------------------------------------
By: R. Stephen Beatty                  Timothy Falla, Ph.D.
    President and CEO

EX-10.9(A)

                                                                 EXHIBIT 10.9(a)

                    SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

     This SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made
and entered into as of October 16, 2006 by and between HELIX BIOMEDIX, INC., a
Delaware corporation ("Helix"), and R. STEPHEN BEATTY ("Employee").

                                    RECITALS

     WHEREAS, Helix and Employee entered into an Employment Agreement effective
July 1, 2003, as amended (the "Agreement"); and

     WHEREAS, Helix and Employee wish to further amend the Agreement as provided
herein.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

     1. Section 2 of the Agreement is hereby amended and restated in its
entirety as follows:

     "Subject to the terms and conditions of this Agreement, the term hereof
("Term") shall commence on July 1, 2003 and will continue in effect unless and
until terminated by either the Company or Executive as set forth herein."

     2. The second sentence of Section 3(a) of the Agreement is hereby amended
and restated in its entirety as follows:

     "The Board shall review Executive's compensation and performance annually,
and Executive shall be eligible for an increase in his base salary or other
compensation based on such review."

     3. Section 3(e) of the Agreement is hereby amended and restated in its
entirety as follows:

     "Executive shall be entitled to receive four weeks paid vacation and all
benefits (such as medical, dental, sick leave, disability, and retirement
benefits) as are generally available from time to time to employed senior
executives of the Company."

     4. The effective date of this Amendment shall be June 30, 2006.

     5. The parties hereto hereby acknowledge the continuing effect of the
Agreement except as specifically modified by this Amendment.

     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.

HELIX BIOMEDIX, INC.                   EXECUTIVE:


- ------------------------------------   -----------------------------------------
By: Jeffrey A. Miller, Ph.D            R. Stephen Beatty
    Director

EX-10.17(B)

                                                                EXHIBIT 10.17(b)

                            SECOND AMENDMENT TO LEASE

      This SECOND AMENDMENT TO LEASE (this "Second Amendment") is made as of
____________, 2006 by and between Teachers Insurance & Annuity Association of
America, Inc., a New York corporation ("Landlord"), and Helix BioMedix, Inc., a
Delaware corporation ("Tenant").

                                    RECITALS

      Landlord is the landlord and Tenant is the tenant under that certain Lease
dated August 14, 2001 (the "Initial Lease"), as modified by First Amendment to
Lease dated for reference purposes December 6, 2005 (the "First Amendment"), for
premises located at 22122 20th Avenue SE, Bothell, Washington, 98021, Building
H, Unit 148 (the "Initial Premises" or "H/148"). The Initial Premises consists
of 3,038 rentable square feet (being 2,378 rsf office and 660 rsf warehouse). As
used herein the "Amended Lease" shall mean the Initial Lease as amended by First
Amendment, and the "Lease" shall mean the Amended Lease as modified by this
Second Amendment.

      The parties desire to amend the Lease as follows (all on the terms and
conditions set forth in this Second Amendment):

            A. Add to the Initial Premises that certain space consisting of an
      agreed 2,246 rentable square feet (being 2,246 rsf of office) and located
      at 22118 20th Avenue SE, Bothell, Washington, Building G, Unit 204, as
      shown in the attached Exhibit A, which is incorporated herein by reference
      ("Expansion Space" or "G/204")). The Initial Premises and Expansion Space
      are located in the Project that is legally described and depicted on the
      attached Exhibit B;

            B. Extend the Lease Term for approximately an additional thirty-six
      (36) full calendar months;

            C. Make certain other modifications to the Lease, all on the
      following terms and conditions.

      Except as otherwise specifically defined herein all capitalized terms
shall have the meanings assigned in the Initial Lease.

                                    AGREEMENT

      In furtherance of the Recitals set forth above, which are incorporated
herein by reference, and in consideration of the mutual promises and covenants
set forth below, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties acknowledge and agree to the
following:

      1. ADDITION OF EXPANSION SPACE. On December 1, 2006 ("Expansion Space
Addition Date"), the Expansion Space shall be added to the Initial Premises.
Notwithstanding anything to the contrary in the Lease, the Expansion Space shall
be used by Tenant only for general office and administrative use for a company
specializing in the research and development of biopharmaceutical products
involving bioactive peptides. From and after the Expansion Space Addition Date,
(i) the term "Premises" as used in the Lease shall include both the Initial
Premises and the Expansion Space, (ii) Section 1(e) of the Amended Lease shall
be revised such that the total Premises shall consist of an agreed 5,284
rentable square feet, and (iii) Tenant's Share of Expenses shall be recalculated
to reflect the increased rentable square footage of the Premises. If the
Expansion Space is not delivered to Tenant with Landlord's Work in the



Expansion Space (as defined in Section 9 below) substantially complete by
December 1, 2006, this Second Amendment shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom.
However, if the Expansion Space is not delivered by Landlord to Tenant on or
before December 1, 2006 with Landlord's Work in the Expansion Space
substantially completed, then the Expansion Space Addition Date shall be the
first to occur of the following events: (i) the date on which Landlord notifies
Tenant that Landlord's Work in the Expansion Space is substantially complete
(Landlord agrees to use reasonable efforts to provide three (3) business days
prior notice to Tenant of such date), (ii) the date on which Tenant takes
possession or commences beneficial occupancy of the Expansion Space, or (iii) if
substantial completion of Landlord's Work in the Expansion Space is delayed due
to (a) Tenant's failure to perform its obligations under this Second Amendment,
the Work Letter Agreement or the Lease, (b) changes to the Tenant Improvement
Plans required by Tenant or (c) elements of the Tenant Improvements that are
required by Tenant but that cannot reasonably be performed in the timeframes set
forth in Landlord's Work Schedule, then the date determined by Landlord as the
date upon which Landlord's Work would have been substantially completed, but for
the occurrence of the same.

      2. EXTENDED TERM OF THE LEASE. Section 1(g) of the Initial Lease is hereby
amended to extend the Term of the Lease for an additional term ("Second Extended
Term") commencing on December 1, 2006 ("Second Extended Term Commencement Date")
and terminating on the last day of the thirty-sixth (36th) full calendar month
following the Expansion Space Addition Date ("Expiration Date" or "Second
Extended Term Expiration Date").

      3. BASE MONTHLY RENT. From and after the Second Extended Term Commencement
Date, Section 1(h) of the Initial Lease is hereby modified such that the Base
Monthly Rent for the Initial Premises shall be as follows: ("Month" refers to
the period through the full applicable calendar month)



                                      H/148
- ----------------------------------------------------------------------
                   TIME PERIOD                       BASE MONTHLY RENT
- ----------------------------------------------------------------------
                                                  
Second Extended Term Commencement Date - Month 12        $3,369.00
Month 13 - Month 24                                      $3,470.00
Month 25 - Second Extended Term Expiration Date          $3,574.00


            From and after the Expansion Space Addition Date, Section 1(h) of
the Initial Lease is hereby modified such that the Base Monthly Rent for the
Expansion Space shall be as follows: ("Month" refers to the period through the
full applicable calendar month). Base Monthly Rent for the Expansion Space shall
be in addition to Base Monthly Rent for the Initial Premises.



                                      G/204
- ----------------------------------------------------------------------
                   TIME PERIOD                       BASE MONTHLY RENT
- ----------------------------------------------------------------------
                                                  
Expansion Space Addition Date - Month 12                 $2,695.00
Month 13 - Month 24                                      $2,776.00
Month 25 - Second Extended Term Expiration Date          $2,859.00


      4. SECURITY DEPOSIT. At the same time as it signs and delivers this Second
Amendment, Tenant shall deliver an additional $4,201.00 as a Security Deposit
under the Lease (such that the total Security Deposit shall be $8,512) and an
additional nonrefundable cleaning fee of $125.

      5. PARKING. From and after the Expansion Space Addition Date, the first
(1st) sentence of Section 11 of the Initial Lease hereby is deleted and replaced
with the following sentences: "Landlord grants to Tenant and Tenant's customers,
suppliers, employees and invitees, a non-exclusive license to use up to nineteen
(19) surface, unreserved parking stalls in the designated parking areas in the
Project, for the use of motor vehicles during the term of this Lease."

      6. CABLE. Section 26 of the Initial Lease hereby is modified by placing an
"(a)" at the beginning of the first (1st) paragraph and a "(b)" at the beginning
of the second (2nd) paragraph. The following new Section 26(c) hereby is added
to the Initial Lease:

      c. CABLE.

      (1)   Within thirty (30) days after the expiration or sooner termination
            of the Lease or at any time that any of the Wires (as defined below)
            are no longer in active use by Tenant, Landlord may elect by written
            notice to Tenant to:



            (a)   Retain any or all wires, cables, and similar installations
                  appurtenant thereto ("Wires") installed by Tenant within the
                  Premises or anywhere in the Building outside the Premises,
                  including, without limitation, the plenums or risers of the
                  Building;

            (b)   Remove any or all of the Wires and restore the Premises or the
                  Building, as the case maybe, to their condition existing prior
                  to the installation of the Wires ("Wire Restoration Work").
                  Landlord, at its option, may perform such Wire Restoration
                  Work at Tenant's sole (but reasonable) cost and expense; or

            (c)   Require Tenant to perform all or part of the Wire Restoration
                  Work at Tenant's sole cost and expense.

      (2)   In the event that Tenant discontinues the use of all or any part of
            the Wires or is no longer using all or any part of the Wires, Tenant
            shall within thirty (30) days thereafter notify Landlord of same in
            writing, accompanied by a plan or other reasonable description of
            the current type, quantity, points of commencement and termination,
            and routes of the Wires to allow Landlord to determine if Landlord
            desires to retain same.

      (3)   In the event Landlord elects to retain any or all of the Wires,
            Tenant covenants that:

            (a)   Tenant shall be the sole owner of the Wires, Tenant shall have
                  the sole right to surrender the Wires, and the Wires shall be
                  free of all liens and encumbrances; and

            (b)   All Wires shall be left in good condition, working order,
                  properly labeled and capped or sealed at each end and in each
                  telecommunications/electrical closet and junction box, and in
                  safe condition.

      (4)   Notwithstanding anything to the contrary in this Lease, Landlord may
            retain Tenant's Security Deposit after the expiration or sooner
            termination of the Lease until one of the following events has
            occurred with respect to all of the Wires:

            (a)   Landlord elects to retain the Wires pursuant to Paragraph
                  (1)(a) above;

            (b)   Landlord elects to perform the Wire Restoration Work pursuant
                  to Paragraph (1)(b) above and the Wire Restoration Work is
                  complete and Tenant has fully reimbursed Landlord for all
                  reasonable costs related thereto; or

            (c)   Landlord elects to require Tenant to perform the Wire
                  Restoration Work pursuant to Paragraph (1)(c) above and the
                  Wire Restoration Work is complete and Tenant has paid for all
                  reasonable costs related thereto.

      (5)   In the event that Tenant fails or refuses to pay all reasonable
            costs of the Wire Restoration Work within thirty (30) days of
            Tenant's receipt of Landlord's notice requesting Tenant's
            reimbursement for or payment of such costs or otherwise fails to
            comply with the provisions of this Clause, Landlord may apply all or
            any portion of Tenant's Security Deposit toward the payment of any
            reasonable costs or expenses relative to the Wire Restoration Work
            or Tenant's obligations under this Clause. The retention or
            application of such Security Deposit by Landlord pursuant to this
            Clause does not constitute a limitation on or waiver of Landlord's
            right to seek further remedy under law or equity.

      (6)   The provisions of this Section 26(c) shall survive the expiration or
            sooner termination of the Lease.



      7. LIMITATION OF LANDLORD'S LIABILITY. Section 27 of the Initial Lease is
hereby deleted in its entirety and the following language set in its place:

      27. LIMITATION OF LANDLORD'S LIABILITY. Notwithstanding anything to the
      contrary in this Lease, and in consideration of the benefits accruing
      hereunder, Tenant agrees that, in the event of any actual or alleged
      failure, breach or default of this Lease by Landlord, Landlord's liability
      under this Lease shall be limited to, and Tenant shall look only to THE
      INTEREST OF LANDLORD IN THE BUILDING, INCLUDING ALL RENTS, PROCEEDS AND
      PROFITS THEREFROM. TENANT SHALL LOOK SOLELY TO LANDLORD'S INTEREST IN THE
      BUILDING, INCLUDING ALL RENTS, PROCEEDS AND PROFITS THEREFROM, FOR THE
      RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD. LANDLORD SHALL NOT BE
      PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY, AND IN NO EVENT SHALL
      LANDLORD BE LIABLE TO TENANT FOR ANY LOST PROFIT, DAMAGE TO OR LOSS OF
      BUSINESS OR ANY FORM OF SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGE. BEFORE
      FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD
      NOTICE AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT.

      8. MISCELLANEOUS PROVISIONS. Section 29(h) of the Initial Lease hereby is
deleted in its entirety and the following language set in its place:

            h. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
      Landlord of the Project, the same shall operate to release Landlord from
      any liability under this Lease, and in such event Landlord's successor in
      interest shall be solely responsible for all obligations of Landlord under
      this Lease. If only a portion of the Project is sold, this Lease shall run
      with the portion of the Project on which the Building is located, and
      Tenant's Share shall be equitably adjusted based on the ratio of Tenant's
      square footage to the total square footage of premises in the Project so
      as to reflect the deletion of any other buildings from the Project.

      9. AS IS; LANDLORD'S WORK. Tenant leases the Initial Premises and
Expansion Space in their as-is, where-is condition and acknowledges that
Landlord has not agreed to and shall not be required to make any improvements or
alterations to the same, except for the work set forth in the attached Exhibit C
("Landlord's Work" or "Tenant Improvements"). Tenant agrees to cooperate with
Landlord with respect to Landlord's performance of such Tenant Improvements.

      10. BROKERS. Tenant was represented in this Second Amendment transaction
by Bill Neil of GVA Kidder Mathews, who shall be compensated by Landlord
pursuant to a separate written agreement. Except for the broker set forth in the
preceding sentence, each party shall indemnify, defend and hold the other party
harmless from and against all costs, expenses, attorneys' fees, liens and other
liability for commissions or other compensation claimed by any broker or agent
claiming the same by, through, or under that party.

      11. OPTION TO RENEW. Tenant is hereby granted the right to extend the Term
of this Lease only with respect to H/148 (and not with respect to G/204) beyond
the Expiration Date of the Second Extended Term for one (1) successive period of
thirty-six (36) months (the "Third Extended Term"). This right to extend may be
exercised by Tenant only by giving Landlord written notice ("Notice") no sooner
than twelve (12) months and no later than nine (9) months prior to the
Expiration Date of the Second Extended Term. If at the time of Tenant's notice,
Tenant is in default of its obligations under the Lease beyond any applicable
cure period, then Tenant's Notice to extend the Lease for the Third Extended
Term shall be invalid. Tenant's right to extend the Lease for the Third Extended
Term is personal to Tenant and may not be exercised by any subtenant or assignee
of Tenant. From and after the commencement of the Third Extended Term, all of
the terms, covenants, and conditions of the Lease shall continue in full force
and effect as written, except that Section 11 of this Second Amendment shall be
deleted in its entirety and Base Monthly Rent for the Third Extended Term shall
be at the rate then being paid under new leases for similarly improved and
situated premises in the Canyon



Park Business Center of which this Project is a part, but not less than the Base
Monthly Rent in effect for the last month of the Second Extended Term. Tenant
shall include with its Notice copies of Tenant's then-current financial
statement as well as financial statements from the three (3) years prior to the
current financial statement year, and shall provide Landlord with such other
financial information regarding Tenant as Landlord may require. Tenant's right
to extend the Term of this Lease for the Third Extended Term is contingent upon
Landlord's approval, in its reasonable discretion, of such financial statements
and information. Tenant shall have no options to renew the Lease beyond the
Second Extended Term except as set forth in this paragraph; Section 5 of the
First Amendment hereby is deleted in its entirety and of no further force and
effect.

      12. FULL FORCE AND EFFECT. Except as modified herein, all other terms and
conditions of the Lease shall remain in full force and effect. Tenant confirms
that Landlord is not now and has not in the past been in default under the
Lease, and Tenant has no claim against Landlord for damages or offset of any
type.

      13. ENTIRE AGREEMENT. This Second Amendment and the Amended Lease
constitute the entire agreement between Landlord and Tenant with respect to the
subject matter of this Second Amendment.

LANDLORD: Teachers Insurance & Annuity Association of America, Inc., a New York
corporation

            By:
                    -----------------------------
                    Derek Landry
            Its:    Director
                    -----------------------------

TENANT: Helix BioMedix, Inc., a Delaware corporation

            By:
                    -----------------------------
                    David Kirske
            Its:
                    -----------------------------



                                    Exhibit A

                               The Expansion Space



                                    Exhibit B

                                  (The Project)

LEGAL DESCRIPTION - PHASE II (Buildings G - H)

THAT PORTION OF THE WEST HALF OF SECTION 29 AND OF THE EAST HALF OF SECTION 30,
TOWNSHIP 27 NORTH, RANGE 5 EAST, W.M., SNOHOMISH COUNTY, WASHINGTON. DESCRIBED
AS FOLLOWS:

BEGINNING AT A POINT ON THE NORTH LINE OF THE AMENDED PLAT OF VILLAGE SQUARE,
ACCORDING TO THE PLAT RECORDED IN VOLUME 42 OF PLATS, PAGES 193 THROUGH 198,
INCLUSIVE, RECORDS OF SAID COUNTY, SAID POINT BEING NORTH 88 47' 26" EAST 627.20
FEET FROM THE NORTHWEST CORNER OF SAID PLAT;

THENCE NORTH 88 47' 26" EAST 363.00 FEET ALONG SAID NORTH LINE TO THE NORTHEAST
CORNER OF SAID PLAT;

THENCE NORTH 46 29' 12" EAST 547.38 FEET TO A POINT ON A 325 FOOT RADIUS CURVE
CONCAVE TO THE NORTHEAST, A RADIAL THROUGH SAID POINT BEARING NORTH 46 29' 12"
EAST;

THENCE NORTHWESTERLY ALONG SAID CURVE AN ARC DISTANCE OF 196.99 FEET TO A POINT
OF REVERSE CURVE WITH A 775.00 FOOT RADIUS CURVE TO THE LEFT;

THENCE NORTHERLY ALONG SAID 775.00 FOOT RADIUS CURVE AN ARC DISTANCE OF 112.88
FEET;

THENCE SOUTH 70 40' 00" WEST 272.00 FEET TO THE POINT OF CURVE OF A 450.00 FOOT
RADIUS CURVE TO THE LEFT;

THENCE WESTERLY ALONG SAID CURVE AN ARC DISTANCE OF 160.66 FEET;

THENCE SOUTH 80 52' 00" WEST 170.32 FEET;

THENCE SOUTH 68 59' 47" WEST 110.41 FEET;

THENCE SOUTH 14 04' 41" EAST 278.91 FEET;

THENCE SOUTH 17 06' 43" WEST 170.08 FEET TO THE POINT OF BEGINNING;

TOGETHER WITH AN EASEMENT FOR INGRESS, EGRESS AND UTILITIES 25.00 FEET WIDE,
BEING 12.50 FEET ON EACH SIDE OF THE FOLLOWING DESCRIBED CENTERLINE;

BEGINNING AT THE NORTHEAST CORNER OF THE ABOVE DESCRIBED PARCEL;

THENCE SOUTH 70 40' 00" WEST 272.00 FEET TO THE POINT OF A CURVE OF A 450.00
FOOT RADIUS CURVE TO THE LEFT;

THENCE WESTERLY ALONG SAID CURVE AN ARC DISTANCE OF 160.66 FEET TO THE TERMINUS
OF SAID CENTERLINE AND EASEMENT.

SITUATE IN THE COUNTY OF SNOHOMISH, STATE OF WASHINGTON.

Cross hatched area denotes Project.



                                    EXHIBIT C

                              WORK LETTER AGREEMENT

      This Work Letter Agreement is entered into in conjunction with that
certain Second Amendment to Lease Agreement dated __________ by and between
Teachers Insurance & Annuity Association of America, Inc., a New York
corporation ("Landlord"), and Helix BioMedix, Inc, a Delaware corporation
("Tenant").

                                    RECITALS

      A. Concurrently with the execution of this Work Letter Agreement, Landlord
and Tenant have entered into a Second Amendment to Lease (the "Second
Amendment") under which, among other things, Tenant has leased certain
additional space ("Expansion Space") from Landlord, as more particularly
described in the Second Amendment. Capitalized terms not defined in this Exhibit
C shall have the meaning ascribed to them in the Second Amendment and Amended
Lease.

      B. In order to induce Tenant to enter into the Second Amendment and in
consideration of the mutual covenants hereinafter contained, Landlord and Tenant
hereby agree as follows:

                             1. COMPLETION SCHEDULE.

      Following the execution of the Second Amendment, Landlord shall deliver to
Tenant a schedule (the "Work Schedule") setting forth a timetable for the
planning and completion of the installation of the Tenant Improvements to be
constructed in the Premises. The Work Schedule shall set forth each of the
various items of work to be done by or approval to be given by Landlord and
Tenant in connection with the completion of the Tenant Improvements. Such
Schedule shall be the basis for completing the Tenant Improvement work. Tenant
agrees to act reasonably and promptly in reviewing and responding to all
schedules, drawings, specifications, budgets and other such items related to
Landlord's Work.

                             2. TENANT IMPROVEMENTS.

      The terms "Tenant Improvements" and "Landlord's Work" shall include all
work to be done in the Premises pursuant to the Tenant Improvement Plans
described in Paragraph 3 below, including, but not limited to, partitioning,
doors, ceilings, floor coverings, wall finishes (including paint and
wallcovering), electrical (including lighting, switching, telephones, outlets,
etc.) and plumbing.

                          3. TENANT IMPROVEMENT PLANS.

      Upon Landlord's request, Tenant agrees to meet with Landlord's architect
and/or space planner for the purpose of preparing a space plan for the layout of
the Premises. Based upon such space plan, which must be approved of by both
Landlord and Tenant, Landlord's architect shall prepare final working drawings
and specifications for the Tenant Improvements. Such final working drawings and
specifications may be referred to herein as the "Tenant Improvement Plans." The
Tenant Improvement Plans must be approved of by both Landlord and Tenant, and
must be consistent with Landlord's standard specifications (the "Standards") for
tenant improvements for the Building, as the same may be changed from time to
time by Landlord. Both Landlord and Tenant agree to act reasonably and promptly
in reviewing and responding to requests for approval of the space plan and the
Tenant Improvement Plans.

                      4. NON-STANDARD TENANT IMPROVEMENTS.

      Landlord shall permit Tenant to deviate from the Standards for the Tenant
Improvements; provided that (a) the deviations shall not be of a lesser quality
than the Standards; (b) the total lighting for the Premises shall not exceed
1.65 watts per rentable square foot; (c) the deviations conform to applicable
governmental regulations and necessary governmental permits and approvals have
been secured; (d) the deviations do not require building service beyond the
level normally provided to other tenants in the Building and do not overload the
floors; (e) Landlord has reasonably



determined that the deviations are of a nature and quality that are consistent
with the overall objectives of the Landlord for the Building; and (f) any costs
related to such deviations shall be borne by Tenant.

                     5. FINAL PRICING AND DRAWING SCHEDULE.

      After the preparation of the space plan and after Tenant's written
approval thereof, in accordance with the Work Schedule, Landlord shall cause its
architect to prepare and submit to Tenant the final working drawings and
specifications referred to in Paragraph 3 hereof. Such working drawings shall be
approved by Landlord and Tenant in accordance with the Work Schedule and shall
thereafter be submitted to the appropriate governmental body by Landlord's
architect for plan checking and the issuance of a building permit. Landlord,
with Tenant's cooperation, shall cause to be made any changes in the plans and
specifications necessary to obtain the building permit. Concurrent with the plan
checking, Landlord shall have prepared a final pricing for Tenant's approval, in
accordance with the Work Schedule, taking into account any modifications which
may be required to reflect changes in the plans and specifications required by
the City or County in which the Premises are located. After final approval of
the working drawings, no further changes to the Tenant Improvement Plans may be
made without the prior written approval from both Landlord and Tenant, and then
only after agreement by Tenant to pay any excess costs resulting from the design
and/or construction of such changes. Tenant hereby acknowledges that any such
changes shall be subject to the terms of Paragraph 7 hereof.

                     6. CONSTRUCTION OF TENANT IMPROVEMENTS.

      After the Tenant Improvement Plans have been prepared and approved, the
final pricing has been approved and a building permit for the Tenant
Improvements has been issued, Landlord shall enter into a construction contract
with its contractor for the installation of the Tenant Improvements in
accordance with the Tenant Improvement Plans. Landlord shall supervise the
completion of such work and shall use commercially reasonable efforts to secure
substantial completion of the work in accordance with the Work Schedule. The
cost of such work shall be paid as provided in Paragraph 7 hereof. Landlord
shall not be liable for any direct or indirect damages as a result of delays in
construction beyond Landlord's reasonable control, including, but not limited
to, acts of God, inability to secure governmental approvals or permits,
governmental restrictions, strikes, availability of materials or labor or delays
by Tenant (or its architect or anyone performing services on behalf of Tenant).

                 7. PAYMENT OF COST OF THE TENANT IMPROVEMENTS.

a. Landlord hereby grants to Tenant (1) a "G/204 Tenant Allowance" up to and not
to exceed Twenty-Four Thousand Seven Hundred Six Dollars ($24,706.00) to be
applied towards Tenant Improvements to G/204; and (2) an "H/148 Tenant
Allowance" up to and not to exceed Nine Thousand One Hundred Fourteen Dollars
($9,114) to be applied towards Tenant Improvements to H/148. The G/204 Tenant
Allowance and H/148 Tenant Allowance may each be referred to herein as a "Tenant
Allowance" and are collectively referred to as the "Tenant Allowances." The
Tenant Allowances shall be used only for:

      (1) Payment of the cost of preparing the space plan and the final working
drawings and specifications, including electrical, plumbing and structural
drawings and of all other aspects of the Tenant Improvement Plans. Without
limitation, the Tenant Allowances will not be used for the payment of (i)
relocation costs; (ii) security access control equipment; (iii) interior signage
or graphics; and/or (iv) extraordinary design work not included within the scope
of Landlord's building standard improvements or for payments to any other
consultants, designers or architects other than Landlord's architect and/or
space planner.

      (2) The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements.

      (3) Construction of the Tenant Improvements, including, without
limitation, the following:



            (a) Installation within the Premises of all partitioning, doors,
floor coverings, ceilings, wall coverings and painting, millwork and similar
items.

            (b) All electrical wiring, lighting fixtures, outlets and switches,
and other electrical work to be installed within the Premises.

            (c) The furnishing and installation of all duct work, terminal
boxes, diffusers and accessories required for the completion of the heating,
ventilation and air conditioning systems within the Premises, including the cost
of meter and key control for after-hour air conditioning.

            (d) Any additional Tenant requirements including, but not limited
to, odor control, special heating, ventilation and air conditioning, noise or
vibration control or other special systems.

            (e) All fire and life safety control systems such as fire walls,
sprinklers, halon, fire alarms, including piping, wiring and accessories
installed within the Premises.

            (f) All plumbing, fixtures, pipes and accessories to be installed
within the Premises.

            (g) Testing and inspection costs.

            (h) Contractor's fees, including but not limited to any fees based
on general conditions.

      (4) All other costs to be expended by Landlord in the construction of the
Tenant Improvements, including those costs incurred by Landlord for construction
of elements of the Tenant Improvements in the Premises.

b. The cost of each item of the Tenant Improvements shall be charged against the
applicable Tenant Allowance. In the event that the cost of designing and
constructing the Tenant Improvements, as established by Landlord's final pricing
schedule, shall exceed the applicable Tenant Allowance, or if any of the Tenant
Improvements are not to be paid out of the Tenant Allowance as provided in
Paragraph 7a above, the excess shall be paid or bonded by Tenant to Landlord
prior to the commencement of construction of the Tenant Improvements.

c. In the event that, after the Tenant Improvement Plans have been prepared and
a price therefore established by Landlord, Tenant shall require any changes or
substitutions to the Tenant Improvement Plans, any additional costs thereof
shall be paid by Tenant to Landlord prior to the commencement of such work.
Landlord shall have the right to decline Tenant's request for a change to the
Tenant Improvement Plans it such changes are inconsistent with Paragraphs 3 and
4 above, or if the change would, in Landlord's opinion, unreasonably delay
construction of the Tenant Improvements.

d. In the event that the cost of the Tenant Improvements increases as set forth
in Landlord's final pricing schedule for any reason whatsoever, including
without limitation the requirements of any governmental agency, Tenant shall pay
Landlord the amount of such increase within ten (10) days of Landlord's written
notice; provided, however, that Landlord shall first apply toward such increase
any remaining balance in the applicable Tenant Allowance; and further provided
that, unless such cost is not covered by the available Tenant Allowance and is
not received within such ten (10) day period, Landlord will not delay its
construction of the Tenant Improvements because of such increase.

e. Any portion(s) of the Tenant Allowances that is not used by the Expansion
Space Addition Date shall be retained by Landlord; provided only that if Tenant
does not use the entire G/204 Tenant Allowance, then Tenant may apply up to
$4,492 of such unused portion towards the costs of telephone and data cabling in
G/204.



                                8. MISCELLANEOUS

            Either party's default or failure to perform under this Work Letter
Agreement shall be a default under the Lease, and without limiting any other
rights, the non-defaulting party shall be entitled to all of its remedies under
the Lease with respect to such default. Any amounts owed by Tenant to Landlord
under this Work Letter Agreement shall be Additional Rent owed under the Lease.



STATE OF California  )
                     )ss.
COUNTY OF Orange     )

            I certify that I know or have satisfactory evidence that Derek
Landry is the person who appeared before me, and said person acknowledged that
he/she signed this instrument, on oath stated that he/she was authorized to
execute the instrument and acknowledged it as the Director of Teachers Insurance
& Annuity Association of America, Inc. to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.

            Dated:_______________________.

                              _______________________________________
                                                (Signature)

                                   _____________________________________________
                                   (Print Name)
                                   Notary Public, in and for the State of ,
                                   residing at__________________________________
                                   My Commission Expires________________________

STATE OF Washington  )
                     )ss.
COUNTY OF            )

            I certify that I know or have satisfactory evidence that David
Kirske is the person who appeared before me, and said person acknowledged that
he/she signed this instrument, on oath stated that he/she was authorized to
execute the instrument and acknowledged it as the _________ of Helix BioMedix,
Inc. to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.

            Dated:_______________________.

                              _______________________________________
                                                (Signature)

                                   _____________________________________________
                                   (Print Name)
                                   Notary Public, in and for the State of WA,
                                   residing at__________________________________
                                   My Commission Expires________________________

EX-10.22

                                                                   EXHIBIT 10.22

                              HELIX BIOMEDIX, INC.
                             22122 - 20TH AVENUE SE
                                BOTHELL, WA 98021

October 1, 2006

Lori Bush
3491 E. Danish Road
Sandy, UT 84093

Dear Lori:

Our Board of Directors, our management team, and I are confident you possess the
experience and qualifications we are seeking to assist us in making the Company
a highly successful business. On behalf of Helix BioMedix, Inc. (the "Company")
we are pleased to offer you the position of Chief Operating Officer on the
following terms and conditions.

Subject to the fulfillment of any conditions imposed by this letter, the terms
of your position with the Company will be as set forth below:

1.   POSITION:

You will be Chief Operating Officer, working out of 3491 E. Danish Road, Sandy,
UT 84093. As such, you will have responsibility for overseeing all of the
Company's operations involving marketing and business development activities,
including product strategy, technology licensing and partnerships, and general
organizational strategy. You will report to R. Stephen Beatty, the Company's
President and Chief Executive Officer.

You agree to the best of your ability and experience that you will at all times
loyally, honestly and conscientiously perform all of the duties and obligations
required of and from you pursuant to the express and implicit terms hereof.
During the term of your employment, you further agree that you will devote all
of your business time and attention to the business of the Company, the Company
will be entitled to all of the benefits and profits arising from or incident to
all such work services and advice, you will not render commercial or
professional services of any nature to any person or organization, whether or
not for compensation, without the prior written consent of the Company, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. The Company
acknowledges your existing relationships with Matrixx Initiatives, Inc., Nu Skin
Enterprises, Inc., Lumiport, LLC, Estee Lauder and Acne 1, LLC (a/k/a Derma
Ventures), provided that you shall nonetheless be available to the Company in a
full-time capacity and shall not violate the Company's standard proprietary
invention assignment agreement.



Lori Bush
Page 2


2.   START DATE:

We would like for you to commence your employment with the Company on October 1,
2006.

3.   PROOF OF RIGHT TO WORK:

For purposes of Federal immigration law, you will be required to provide the
Company with documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.

4.   COMPENSATION:

BASE SALARY:

You will be paid an annual salary of $250,000.00. Your position is classified as
exempt and, as such, you will not be eligible for overtime pay. Your salary will
be payable semi-monthly pursuant to the Company's regular payroll policy
including standard withholding such as Medicare and social security taxes.

HEALTH, MEDICAL, LIFE INSURANCE AND VACATION BENEFITS:

You and your family will be eligible to participate in the Company's health,
medical, and life insurance plans that will be described to you in detail under
separate cover. We provide a competitive health, medical insurance, and life
insurance plan to the Company's employees. You shall be entitled to receive
three (3) weeks paid vacation per year in accordance with the Company's existing
policies.

ANNUAL REVIEW:

Your base salary will be reviewed at the end of each calendar year as part of
the Company's normal salary review process, commencing in 2007.

5.   STOCK OPTION GRANTS:

In connection with the commencement of your employment, the Company will
recommend that the Board of Directors grant you an option to purchase 250,000
shares of the Company's common stock with an exercise price equal to the fair
market value on the date of the grant. These option shares will vest over a
three-year period in six equal installments of 41,667 shares on the last day of
each six-month period commencing on April 1, 2007.

In addition, the Company will recommend that the Board of Directors grant you
options to purchase an aggregate of up to an additional 250,000 shares of the
Company's common stock with exercise prices equal to the fair market value on
the respective dates of grant as follows: (i) upon the receipt by the Company of
net revenue from the sale of peptides and/or peptide



Lori Bush
Page 3


royalties of at least $1.0 million in 2007, you will be entitled to receive an
option to purchase 125,000 shares of the Company's common stock; and (ii) for
each additional $250,000 of net revenue received by the Company from the sale of
peptides and/or peptide royalties in 2007 up to a cumulative aggregate of $3.0
million (including the initial $1.0 million referenced in clause (i) above), you
will be entitled to receive an option to purchase an additional 15,625 shares of
the Company's common stock. These option shares will be fully vested and
exercisable as of the respective date of grant.

The options will be incentive stock options to the maximum extent allowed by the
Federal tax code and will be subject to the terms of the Company's 2000 Stock
Option Plan and the respective Stock Option Agreements between you and the
Company, including with respect to vesting and exercisability upon a "Change of
Control Event" as defined in the 2000 Stock Option Plan.

6.   ARBITRATION AGREEMENT/PIAA/CONFIDENTIALITY OF TERMS:

Upon commencement of your employment with the Company, you agree to execute and
deliver to the Company its standard forms of arbitration agreement and
proprietary invention and assignment agreement. You also agree not to disclose,
either directly or indirectly, any information, including any of the terms of
this agreement, regarding salary, bonuses, or stock purchases or option
allocations to any person, including other employees of the Company; provided,
however, that you may discuss such terms with members of your immediate family
and any legal, tax, or accounting specialists who provide you with individual
legal, tax, or accounting advice.

7.   AT-WILL EMPLOYMENT/PRIOR CONSULTING AGREEMENT:

Your employment with the Company will be on an "at will" basis, meaning that
either you or the Company may terminate your employment at any time for any
reason or no reason, without further obligation or liability. Notwithstanding
the foregoing, in the event that the Company terminates this employment
relationship without "cause" or you terminate this employment relationship for
"good reason" (as such terms are defined below), the Company will pay you a
severance benefit equal to six months of your then current base monthly salary.
This benefit will be paid on a monthly basis in accordance with the Company's
customary payroll schedule, minus deductions required by law, and is conditioned
upon the execution by you of a full release of all claims related to your
employment with the Company and the termination thereof. For purposes of the
immediately preceding sentence, the term "cause" shall means if you: (i) are
convicted of a felony or any crime involving dishonesty, breach of trust, or
physical harm to any person or relating to the business of the Company or any
successor company (or enter a pleas of guilty or nolo contendere with respect
thereto); (ii) repeatedly report to work under the influence of alcohol or
illegal drugs; (iii) substantially and repeatedly fail to perform the duties as
reasonably directed by the President of the Company or any successor company,
(iv) are found by a court of competent jurisdiction to have made unauthorized
use or disclosure of confidential information or trade secrets; or (v) engage in
gross negligence or willful misconduct in carrying out your duties as an
employee of the Company or any successor company; and the term "good reason"



Lori Bush
Page 4


shall mean the occurrence (without your express written consent) of any of the
following: (a) any reduction by the Company in your base salary; (b) the
relocation by the Company of your principal work location to a place more than
50 miles from your current work location; or (c) the assignment by the Company
to you of duties or title of a substantially lesser status or degree of
responsibility than the duties or title currently assigned to you.

You acknowledge and agree that that certain Agreement by and between you and the
Company dated as of May 18, 2006 by which you agreed to provide certain
consulting services to the Company is hereby terminated and shall no longer be
of any force or effect. that 25% of the shares of the Company's Common Stock
issuable upon exercise of the warrant referenced in Exhibit A thereto shall have
vested, and that vesting with respect to the balance of the shares of the
Company's Common Stock issuable upon exercise of such warrant shall hereinafter
cease.

8.   RELOCATION/TRAVEL:

You shall be entitled to use business class for overseas business travel and to
be reimbursed by the Company for such use upon presentation to the Company of
receipts and other documentation in accordance with the Company's expense
reimbursement policies. Neither party has any current expectation regarding your
relocation, which is subject to change only upon mutual consent.

To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me. This letter, together
with the PIIA referenced above, set forth the terms of your employment with the
Company and supercedes any prior representations or agreements, whether written
or oral. This letter may not be modified or amended except by a written
agreement, signed by the Company and by you.

                                        With best regards


                                        ----------------------------------------
                                        David H. Kirske
                                        Vice President and Chief Financial
                                        Officer
                                        Helix BioMedix, Inc.



Lori Bush
Page 5


ACCEPTED AND AGREED:


- ------------------------------------
Signature

- ------------------------------------
Date

EX-10.23

                                                                   EXHIBIT 10.23

                        SEPARATION AGREEMENT AND RELEASE

      This Separation Agreement and Release ("Agreement and Release") is made as
of October 12, 2006 (the "Execution Date"), by and among Helix BioMedix, Inc.
("Helix"), and David Drajeske ("Drajeske"). Helix and Drajeske are sometimes
referred to collectively as the "Parties."

                                    RECITALS

      I. On August 12, 2004, Helix and Drajeske entered into an Employment
Agreement ("Employment Agreement") pursuant to which Helix agreed to employ
Drajeske, and Drajeske accepted employment, as Vice-President - Business
Development of Helix.

      II. Drajeske and Helix have agreed to terminate the Employment Agreement
pursuant to the terms and conditions of this Agreement and Release.

      III. The Parties also desire to settle and resolve any and all possible
disputes growing out of or related to Drajeske's employment relationship with
Helix, including but not limited to any possible claims Drajeske could assert
against Helix and any affiliates, subsidiaries, directors, officers,
shareholders, employees, agents or anyone else against whom Drajeske could
assert a claim due to his employment with Helix or its termination.

                              AGREEMENT AND RELEASE

      Therefore, Helix on the one hand and Drajeske on the other hand, intending
to be legally bound, agree as follows:

      1. NON-ADMISSION; CONFIDENTIALITY OF AGREEMENT AND RELEASE. Drajeske
agrees that this Agreement and Release is not an admission by Helix that it (or
any of its directors, officers, shareholders, employees or agents) has violated
any law or failed to fulfill any duty to Drajeske. Drajeske and Helix both agree
to keep this Agreement and Release confidential, except insofar as disclosure
may be required for legal or business reasons.

      2. TERMINATION OF EMPLOYMENT. Helix and Drajeske agree to discontinue
Drajeske's employment relationship and terminate the Employment Agreement
effective October 15, 2006 ("Resignation Date").

      3. SEPARATION PAYMENT. As consideration for this Agreement and Release,
Helix agrees to pay Drajeske an aggregate amount of $100,000, subject to lawful
deductions, payable in six (6) equal monthly installments. The payment under
this paragraph 3 will be made after the seventh day after this Agreement and
Release is signed by Drajeske and delivered to Helix (the "Effective Date") as
set forth below in paragraph 8.

      4. ACKNOWLEDGEMENT OF PAYMENT. Drajeske specifically acknowledges and
agrees that the consideration identified in paragraph 3 above exceeds the amount
Drajeske would otherwise be entitled to receive upon termination of Drajeske's
employment with Helix, and that the consideration set forth above is in exchange
for entering into this Agreement and Release. Drajeske further agrees that he
will not at any time in the future seek consideration

Helix - Drajeske - Agreement and Release                            ____________
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from Helix other than as set forth in this Agreement and Release. Drajeske
specifically acknowledges and agrees that Helix has not made any representations
to Drajeske regarding the tax or legal consequences of any consideration due to
Drajeske or for his benefit pursuant to this Agreement and Release.

      5. STOCK OPTIONS. Helix and Drajeske acknowledge and agree that as of the
Resignation Date, Drajeske holds vested options to purchase up to 164,444 shares
of Helix's common stock. Such vested options shall terminate on October 15,
2009; any options held by Drajeske that are unvested as of the Resignation Date
shall terminate in their entirety as of the Resignation Date.

      6. NON-DISPARAGEMENT. Helix agrees that neither it, nor anyone acting on
its behalf, will make any negative, derogatory, or disparaging statements,
whether oral or written, regarding Drajeske. Drajeske agrees that neither he,
nor anyone acting on his behalf, will make any negative, derogatory, or
disparaging statements, whether oral or written, regarding Helix, or any of its
directors, officers, or employees.

      7. RELEASE. Drajeske accepts the undertakings of Helix in this Agreement
and Release as full settlement of any and all claims, known or unknown, arising
out of or related to Drajeske's association with Helix, including his employment
or its termination. This release by Drajeske includes, but is not limited to,
any claims for damages or attorney's fees, breach of contract, lost equity-based
compensation or lost salary or other benefits, and specifically includes, but is
not limited to claims under the Age Discrimination in Employment Act ("ADEA"),
Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act,
the Older Workers' Benefit Protection Act, the Fair Labor Standards Act, the
Family and Medical Leave Act, the Employee Retirement Income Security Act of
1974 (other than claims for vested benefits), the Washington Law Against
Discrimination in Employment, RCW Ch. 49.60.010 et. seq., Washington's wage and
hour laws, all as amended, and the civil rights, employment and labor laws of
any city, locality, state and the United States. These claims are examples, not
a complete list, of the released claims, as it is the Parties' intent that
Drajeske release any and all claims, of whatever kind or nature, in exchange for
the undertakings in this Agreement and Release by Helix. Drajeske realizes that
this constitutes a full and final settlement of any and all claims, and except
for obligations arising under this Agreement and Release, this releases Helix
(and its directors, officers, shareholders and employees of Helix, and anyone
else against whom Drajeske could assert any of the released claims) from any
further liability to Drajeske (or to anyone else he has power to bind in this
Agreement and Release) in connection with such claims.

      8. RELEASE OF CLAIMS UNDER THE ADEA. Drajeske acknowledges that he is
waiving and releasing any rights he may have under the ADEA and that this waiver
and release is knowing and voluntary. The Parties agree that this waiver and
release does not apply to any rights or claims that may arise under the ADEA
after the execution of this Agreement and Release. Drajeske acknowledges and
agrees that he has been advised by this writing that (a) this waiver and release
does not apply to any rights or claims that may arise after the Execution Date
of this Agreement and Release; (b) he should consult with an attorney prior to
executing this Agreement and Release; (c) he has twenty-one (21) days within
which to consider this Agreement and Release (although he may choose to
voluntarily execute this Agreement and Release earlier and waive such period of
consideration); (d) he has seven (7) days following the

Helix - Drajeske - Agreement and Release                            ____________
                                                                        Initials

                                       2


execution of this Agreement and Release to revoke this Agreement and Release;
(e) this Agreement and Release shall not be effective until the revocation
period has expired (as set forth above, the Effective Date); and (f) nothing in
this Agreement prevents or precludes Drajeske from challenging or seeking a
determination in good faith of the validity of this waiver and release under the
ADEA, nor does it impose any condition precedent, penalties or costs for doing
so, unless specifically authorized by federal law. To cancel this Agreement and
Release, Drajeske understands that he must give a written revocation which must
be received by Helix by 5:00 p.m. on the seventh day after this Agreement and
Release is signed by Drajeske, addressed to the following individual at the
following location:

              Steve Beatty, President
              Helix BioMedix, Inc.
              22122 20th Avenue SE, Suite 148
              Bothell, WA 98021

      Drajeske understands that if Drajeske revokes this Agreement and Release
pursuant to this paragraph 8, the Agreement and Release will not become
effective or enforceable and Drajeske will not be entitled to any of the
benefits set forth in this Agreement and Release.

      9. RETURN OF HELIX PROPERTY. Drajeske acknowledges and agrees that he has
returned to Helix all personal property and equipment furnished to or prepared
by Drajeske in the course of or incident to his employment by Helix, including,
without limitation, computers, cell phones, keys, all books, manuals, memoranda,
records, reports, notes, contracts, lists, blueprints, and other documents, or
materials, or copies thereof (including computer files), and all other
proprietary information belonging or relating to the business of Helix or any
affiliate. Drajeske also acknowledges and agrees that he has not retained any
written or other tangible materials containing any proprietary information of
Helix or any affiliate.

      10. RESTRICTIVE COVENANTS.

          (a) Confidentiality of Information.

              i. Definition. Drajeske and Helix agree that "Confidential
Information" shall mean any and all trade secrets, ideas, suggestions,
innovations, conceptions, discoveries, strategies, improvements, technological
developments, methods, processes, specifications, formulae, compositions,
techniques, systems, computer software and programs, notes, memoranda, work
sheets, lists of actual or potential customers and suppliers, pricing
information and policies, works of authorship, products, data, and information
in any form, which concern or relate to any aspect of the actual or contemplated
business of Helix and which may be stamped "confidential" or are otherwise
treated as confidential by Helix, except for such items as Drajeske can prove
through clear and convincing evidence were in the public domain, being publicly
and openly known, prior to the date of commencement of Drajeske's employment by
Helix or, subsequent to such date, became a part of the public domain, being
publicly and openly known, through lawful and proper means.

              ii. Scope. Drajeske agrees that he shall not at any time take or
use, or otherwise disclose to anyone, any Confidential Information, except as
required by any court or

Helix - Drajeske - Agreement and Release                            ____________
                                                                        Initials

                                       3


governmental agency after receipt by Drajeske of a lawful subpoena or court
order. Drajeske further agrees that in the event he is served with a subpoena of
court order, he will immediately notify Helix, in the manner set forth in
paragraph 8 above, of his receipt of the subpoena or court order.

              iii. Restrictions. Drajeske agrees that the restrictions set forth
in this paragraph are reasonable and necessary to protect Helix.

              iv. Common Law Obligations. This paragraph is not intended to, and
does not, limit in any way Drajeske's duties and obligations to Helix under
statutory and common law not to disclose or make personal use of any
Confidential Information of Helix.

          (b) Assignment of Inventions.

              i. Definition of Inventions. "Inventions" means discoveries, works
of authorship, mask works, developments, concepts, ideas and information made or
conceived or reduced to practice, methods, designs, improvements, inventions,
formulas, processes, techniques, programs, know-how and data, whether or
notpatentable or registrable under copyright or similar statutes, except any of
the foregoing that (a) is not related to the business of Helix, or Helix's
actual or demonstrable research or development; (b) did not involve the use of
any equipment, supplies, facility or Confidential Information of Helix; (c) was
developed entirely on Drajeske's own time; and (d) did not result from any work
performed by Drajeske for Helix. To the extent allowed by law, Inventions will
also include all "moral rights" "artist's rights" or the like.

              ii. Assignment. Drajeske agrees to and hereby does assign to
Helix, without further consideration, all of his right, title and interest in
any and all Inventions he may have made during his association with Helix. To
the extent that Drajeske retains any moral or artist's rights, he ratifies and
consents to any action that may be taken with respect to such rights by or
authorized by Helix and agrees not to assert any such rights with respect
thereto.

              iii. Duty to Assist. Drajeske agrees to provide all assistance
reasonably requested by Helix in the preservation of Helix's interests in the
Inventions including obtaining patents in any country throughout the world. Such
services will be for reasonable compensation and subject to Drajeske's
reasonable availability. If Helix cannot, after reasonable effort, secure
Drajeske's signature on any document or documents needed to apply for or
prosecute any patent, copyright, or other right or protection relating to an
Invention, whether because of his physical or mental incapacity or for any other
reason whatsoever, Drajeske hereby irrevocably designates and appoints Helix and
its duly authorized officers and agents as his agent and attorney-in-fact, to
act for and in his behalf and in his name and stead for the purpose of executing
and filing any such application or applications and taking all other lawfully
permitted actions to further the prosecution and issuance of patents,
copyrights, or similar protections thereon, with the same legal force and effect
as if executed by him.

              iv. Ownership of Copyrights. Drajeske agrees that any work
prepared for Helix, which is eligible for copyright protection under the laws of
the United States or any other country, is work made for hire and ownership of
all copyrights (including all renewals and

Helix - Drajeske - Agreement and Release                            ____________
                                                                        Initials

                                       4


extensions) therein vests in Helix. If any such work is deemed not to be a work
made for hire for any reason, Drajeske hereby grants, transfers and assigns all
right, title and interest in such work and all copyrights in such work and all
renewals and extensions thereof to the establishment, preservation and
enforcement of Helix's copyright in such work, such assistance to be provided at
Helix's expense. Drajeske agrees and does hereby waive the enforcement of all
moral rights with respect to the work developed or produced as set forth in this
Agreement and Release, including without limitation any and all rights of
identification of authorship and any and all rights of approval, restriction or
limitation on use or subsequent modifications.

              v. Litigation. Drajeske agrees to render assistance and
cooperation to Helix at its request regarding any matter, dispute or controversy
with which Helix may become involved and of which Drajeske has or may have
reason to have knowledge, information or expertise. Such services will be for
reasonable compensation and subject to his reasonable availability.

          (c) Covenants Not to Compete.

              i. Noncompetition and Nonsolicitation. For a period of one (1)
year following the Resignation Date, Drajeske shall not solicit any licensor to
or customer of Helix or licensee of Helix's products, that are known to
Drajeske, with respect to any business, products or services that are
competitive to the products or services offered by Helix or under development as
of the Resignation Date.

              ii. Nonsolicitation of Employees. Drajeske agrees that Helix has
invested substantial time and effort in assembling its workforce. Accordingly,
Drajeske agrees that for a period of two (2) years after the Resignation Date of
this Agreement and Release, Drajeske will not, directly or indirectly, employ,
solicit or induce or attempt to influence any employee of Helix or any
affiliate, to terminate his or her employment with Helix or any affiliate, or to
work for Drajeske or any other person or entity.

              iii. Severability and Modification of Any Unenforceable Covenant.
It is the Parties' intent that each of the covenants set forth in this Agreement
and Release be read and interpreted with every reasonable inference given to its
enforceability. However, it is also the Parties' intent that if any term,
provision or condition of such covenants is held by an arbitrator or court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the provisions will remain in full force and effect and will in no way be
affected, impaired or invalidated. Finally, it is also the Parties' intent that
if an arbitrator or court should determine any of the covenants set forth herein
are unenforceable because of over breadth, then the arbitrator or court will
modify said covenant so as to make it as broad as is reasonable and enforceable
under the prevailing circumstances.

      11. AUTHORITY TO ENTER AGREEMENT. Drajeske represents and warrants that he
is the true party in interest, that he is fully authorized to execute this
Agreement and Release, and that he has not sold, assigned, transferred,
conveyed, or otherwise disposed of any rights surrendered by virtue of this
Agreement and Release.

Helix - Drajeske - Agreement and Release                            ____________
                                                                        Initials

                                       5


      12. BINDING EFFECT. This Agreement and Release shall be binding upon and
inure to the benefit of any heirs, legal representatives, successors and assigns
of Drajeske and Helix.

      13. DISPUTE RESOLUTION.

          (a) With respect to disputes under this Agreement and Release that are
not resolved by the Parties pursuant upon written request by one party to the
other party, the Parties shall promptly negotiate in good faith to appoint a
mutually acceptable disinterested, conflict-free individual not affiliated with
any party, with relevant contract experience necessary to resolve such dispute
(an "Arbitrator"). If the Parties are not able to agree within three (3) days
after the receipt by a party of the written request in the immediately preceding
sentence, the American Arbitration Association ("AAA") shall be responsible for
selecting an Arbitrator within seven (7) days of being approached by a party.
The fees and costs of the Arbitrator and the AAA shall be shared equally by the
Parties.

          (b) Within fifteen (15) days after the designation of the Arbitrator,
the Parties shall each simultaneously submit to the Arbitrator and one another a
written statement of their respective positions on such disagreement. The
Parties shall have two (2) days from receipt of the filing party's submission to
submit a written response thereto. The Arbitrator shall have the right to meet
with the Parties, either alone or together, as necessary to make a
determination.

          (c) No later than fifteen (15) days after the designation of the
Arbitrator, the Arbitrator shall make a determination by selecting the
resolution proposed by one of the Parties that as a whole is the most fair and
reasonable to the Parties in light of the totality of the circumstances and
shall provide the Parties with a written statement setting forth the basis of
the determination in connection therewith. The decision of the Arbitrator shall
be final and conclusive, absent manifest error.

          (d) Notwithstanding other provisions of this paragraph 13, Drajeske
acknowledges and agrees that any violation, breach, or threatened breach by
Drajeske of paragraph 10 of this Agreement and Release would cause Helix
irreparable harm which would not be adequately compensated by monetary damages
and that a temporary restraining order, permanent restraining order or
injunction may be granted by any court or courts having jurisdiction,
restraining Drajeske from violation, breach or threatened breach of paragraph 10
of this Agreement and Release. This paragraph 13(d) shall not be construed to
limit Helix from any other relief or damages to which it may be entitled as a
result of Drajeske's breach of paragraph 10 of this Agreement and Release.
Drajeske also agrees that a violation of paragraph 10 of this Agreement and
Release would entitle Helix, in addition to all other remedies available at law
or equity, to recover from Drajeske all funds remaining to be paid out under
paragraph 3 of this Agreement and Release, and will be held in trust by Helix.

      14. WASHINGTON LAW TO APPLY. This Agreement and Release shall in all
respects be governed by the laws of the State of Washington. Venue for any
action to enforce any provision of this Agreement shall be exclusively in King
County with an arbitrator from King County, Washington. The Parties, by their
signatures below, agree to submit to said arbitrator's jurisdiction and to waive
all defenses related to jurisdiction and venue. Except as

Helix - Drajeske - Agreement and Release                            ____________
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                                       6


prohibited by law, the prevailing party in any arbitration or litigation brought
to enforce this Agreement and Release shall be entitled to recover its costs
including reasonable attorneys' fees.

      15. GENERAL. This Agreement and Release: (i) represents the entire
understanding of the Parties with respect to the subject matter covered; (ii)
supersedes all prior and contemporaneous oral understandings with respect to
such subject matter; (iii) may only be amended in a writing signed by the
Parties; and (iv) shall be executed in two or more counterparts so that each
party may retain a fully executed original.

      16. KNOWING AND VOLUNTARY WAIVER. Drajeske acknowledges that he has been
advised to consult with an attorney, and has had the opportunity to do so before
signing this Agreement and Release, which Drajeske has been given a reasonable
period of time to consider and which Drajeske may revoke within seven (7) days
after signing.

      Executed as of the Execution Date written above.

____________________________________         Helix BioMedix, Inc.
David Drajeske

                                             By:  ______________________________

                                             Its: ______________________________

Helix - Drajeske - Agreement and Release                            ____________
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                                       7

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

I, R. Stephen Beatty, certify that:

      1.    I have reviewed this Quarterly Report on Form 10-QSB of Helix
            BioMedix, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and we have:

            a.    Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b.    Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            c.    Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            a.    All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b.    Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: November 9, 2006

                                      /s/ R. Stephen Beatty
                                      ------------------------------------------
                                      R. Stephen Beatty
                                      President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

I, David H. Kirske, certify that:

      1.    I have reviewed this Quarterly Report on Form 10-QSB of Helix
            BioMedix, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and we have:

            a.    Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b.    Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            c.    Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            a.    All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b.    Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: November 9, 2006

                                      /s/ David H. Kirske
                                      ------------------------------------------
                                      David H. Kirske
                                      Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

   CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350

I, R. Stephen Beatty, President and Chief Executive Officer of Helix BioMedix,
Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-QSB of the Company for the quarterly period
ended September 30, 2006 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company as of
September 30, 2006.

Date: November 9, 2006

                                      /s/ R. Stephen Beatty
                                      ------------------------------------------
                                      R. Stephen Beatty
                                      President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

   CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350

I, David H. Kirske, Vice President and Chief Financial Officer of Helix
BioMedix, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-QSB of the Company for the quarterly period
ended September 30, 2006 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company as of
September 30, 2006.

Date: November 9, 2006

                                      /s/ David H. Kirske
                                      ------------------------------------------
                                      David H. Kirske
                                      Vice President and Chief Financial Officer